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As filed with the Securities and Exchange Commission on August 5, 1997
Registration No. 333 -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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A.C. MOORE ARTS & CRAFTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 5999 22-3527763
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(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
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500 UNIVERSITY COURT
Blackwood, NJ 08012
(609) 228-6700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
John E. Parker, President and Chief Executive Officer
A.C. Moore Arts & Crafts, Inc.
500 University Court
Blackwood, NJ 08012
(609) 228-6700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Fred Blume, Esquire Richard C. Tilghman, Jr., Esquire
Sol Genauer, Esquire Piper & Marbury L.L.P.
Blank Rome Comisky & McCauley Charles Center South
1200 Four Penn Center Plaza 36 South Charles Street
Philadelphia, Pennsylvania 19103 Baltimore, MD 21201
(215) 569-5500 (410) 576-1678
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each
class of Amount Proposed maximum Proposed maximum Amount of
securities to to be offering price aggregate offering registration
be registered registered (1) per share (2) price (2) fee
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Common Stock, no par value 3,105,000 shares $14.00 $43,470,000 $13,173.00
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(1) Includes 405,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion
August 5, 1997
2,700,000 SHARES
A.C. Moore Arts & Crafts, Inc.
COMMON STOCK
All of the 2,700,000 shares of Common Stock offered hereby are being
sold by A.C. Moore Arts & Crafts, Inc. ("A.C. Moore" or the "Company"). Prior to
this offering, there has been no public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price will
be between $12.00 and $14.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "ACMR."
The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors" commencing on page 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price Underwriting Proceeds
to Discounts and to
Public Commissions Company (1)
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Per Share .............................. $ $ $
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Total (2)............................... $ $ $
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(1) Before deducting expenses of this offering payable by the Company,
estimated at $550,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 405,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to the right of the Underwriters to reject any order in whole or in
part. It is expected that delivery of the shares of Common Stock will be made at
the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
ALEX. BROWN & SONS JANNEY MONTGOMERY SCOTT INC.
INCORPORATED
The date of this Prospectus is , 1997.
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[MAP OF MID-ATLANTIC AND NORTHEAST REGIONS OF THE UNITED STATES
HIGHLIGHTING THE LOCATIONS OF THE COMPANY'S 21 EXISTING SUPERSTORES
AND FOUR SUPERSTORES WHICH THE COMPANY PLANS TO OPEN
IN THE FOURTH QUARTER OF 1997.]
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The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and unaudited quarterly reports for the first three quarters of
each fiscal year.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the terms "Company"
and "A.C. Moore" refer collectively to A.C. Moore Arts & Crafts, Inc. and its
subsidiary, and all information in this Prospectus (i) assumes no exercise of
the Underwriters' over-allotment option and (ii) reflects the reorganization of
the Company's corporate structure effected in July 1997.
THE COMPANY
A.C. Moore is a rapidly growing operator of arts and crafts superstores
that offer a vast assortment of traditional and contemporary arts and crafts
merchandise for a wide range of customers. The Company's business strategy is to
provide the broadest and deepest selection of high quality merchandise at the
lowest prices in an inviting, attractive superstore environment with superior
customer service. The Company's objective is to become the leading arts and
crafts retailer in each of its markets. A.C. Moore opened its first store in
1985 and since then has focused on developing and refining its retail concept.
As of June 30, 1997, the Company was operating 21 superstores in the
mid-Atlantic and Northeast regions. A.C. Moore plans to open at least 30
superstores through the end of 1999, including eight in 1997, four of which were
open as of June 30.
A.C. Moore has consistently achieved high levels of net sales per total
square foot and average net sales per store. From 1992 to 1996, the Company
achieved average annual net sales of $315 per square foot and $6.3 million per
store. A.C. Moore's prototype superstore ranges in size from 20,000 to 25,000
square feet, with approximately 80% devoted to selling space. A typical store
offers approximately 65,000 SKUs (stock keeping units) across 26 merchandise
categories during the course of a year, with more than 45,000 SKUs offered at
any one time. Merchandise is presented in a distinctive manner designed to
maximize shopping convenience and to reinforce themes and colors associated with
holidays, seasonal events or specific merchandise categories. Arts and crafts
projects are prominently displayed in each department throughout the store to
stimulate new project ideas for customers and to enhance the shopping
environment.
According to the Hobby Industry Association ("HIA"), the retail market
for arts and crafts increased at a compound annual growth rate of 11% from
approximately $6.6 billion in 1990 to approximately $11.0 billion in 1995. An
HIA survey also determined that eight of every ten households surveyed had at
least one member who had engaged in a craft activity within the last year. The
Company believes demographic changes, particularly an aging baby boom
population, an increasing focus on home-based, family activities and the trend
toward making (rather than buying) gift items are contributing to the industry's
growth. The Company also believes that industry growth is the result of
continuing increases in the range and quality of available arts and crafts
merchandise.
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The key elements of A.C. Moore's business strategy are as follows:
Vast Merchandise Selection The Company's merchandising strategy is to
offer the broadest and deepest selection of arts and crafts merchandise so that
customers can obtain everything necessary to create and finish any arts and
crafts project. The Company's key merchandise categories include silk and dried
flowers, floral arrangements and accessories, ribbon, wedding crafts, potpourri,
stitchery, yarn, jewelry crafts, kids crafts, art supplies, picture frames,
stamps, doll-making, seasonal items and a variety of unfinished wood crafts. The
Company believes its merchandise appeals to a wide range of recreational and
professional crafters of all ages across diverse economic backgrounds. The
Company actively seeks new merchandise by monitoring industry trends, working
with domestic and international vendors, attending trade shows and craft fairs
and regularly interacting with customers. The Company has designed its
merchandise distribution systems to ensure rapid replenishment and the highest
levels of in-stock positions. Each superstore receives merchandise daily from
vendors or the Company's distribution center, which during peak periods will
deliver a minimum of three and up to five times per week to the superstores.
Customer Friendly Superstores. The Company believes that its high level
of customer service and its attractive, easy-to-shop superstores are important
competitive advantages. To ensure prompt and personalized service, the Company
staffs its stores with a high ratio of store personnel to customers, including a
store manager, three associate managers and a staff of up to 60 full-time and
part-time sales associates. Store personnel, many of whom are arts and crafts
enthusiasts, assist customers with merchandise selection and project ideas. All
superstores are furnished with a customer service area, a counter for the free
arrangement of floral merchandise, eight to ten registers to ensure quick
customer checkout and a room in which classes are held up to seven days a week
for adults and children on a variety of craft skills. The Company's superstores
are typically located in power strip centers with convenient parking and are
easily accessible from main arteries.
Price Leadership. The Company seeks to maintain the lowest prices on
all merchandise. The Company's policy to beat any competitor's advertised price
by 10% is clearly displayed in all superstores. Buyers and store managers
actively monitor competitors' prices to ensure that the Company maintains the
lowest prices. In addition, on a weekly basis, the Company advertises select
items at 20% to 40% off their everyday low prices. The Company believes that its
price leadership enhances customer loyalty and provides superior value.
Entrepreneurial Culture. Since inception, the Company has strived to
foster an ownership culture and merchandising creativity at all levels of the
organization. This culture allows A.C. Moore to have numerous merchandising
initiatives, which, if proven successful, can be implemented very quickly
throughout the Company. For example, each store manager is empowered to purchase
merchandise to meet the unique needs of the local customer base. Store managers
and associate managers earn incentive bonuses based upon annual increases in
store profitability, and in 1996, average compensation for store managers
exceeded $100,000. The Company believes its focus on empowering and rewarding
its employees helps in recruiting, hiring and retaining talented personnel.
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Investment in Management and Infrastructure. To prepare for rapid
expansion and to complement the existing management team, over the past 18
months, the Company recruited three senior managers with an average of 30 years
retail experience in the areas of operations, merchandising and finance. The
Company also made key additions in other areas such as buying, information
systems, human resources and real estate. In May 1996, the Company relocated to
a 130,000 square foot distribution center and office complex which can be
expanded to double its current size. The Company also completed installation of
an Electronic Data Interchange ("EDI") system to allow for automated reordering
of merchandise from most domestic vendors.
The Company has developed a rapid expansion plan to become the leading
arts and crafts retailer in each of its markets and plans to open at least 30
superstores through the end of 1999. The Company is targeting its expansion in
both existing and new markets within an approximate 400-mile radius of the
Company's southern New Jersey distribution center. This area contains more than
25% of the United States' population.
The Company became a holding company in July 1997 by incorporating in
Pennsylvania and exchanging 4,300,000 shares of Common Stock for all of the
capital stock of its operating subsidiary which was organized in 1984. The
Company's executive offices are located at 500 University Court, Blackwood, New
Jersey 08012, and its telephone number is (609) 228-6700.
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The Offering
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Common Stock offered by the Company............................ 2,700,000 shares
Common Stock to be outstanding after the offering.............. 7,000,000 shares (1)
Use of proceeds................................................ To repay debt, to finance new store
openings and for working capital.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol......................... "ACMR"
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(1) Excludes (i) 444,500 shares issuable upon exercise of outstanding options
under the Company's 1997 Employee, Director and Consultant Stock Option
Plan (the "1997 Plan"), with an exercise price of $9.00 per share, (ii)
64,500 shares issuable upon exercise of an option granted in 1995 to an
outside director, with an exercise price of $4.66 per share (the
"Director's Option") and (iii) 555,500 shares reserved for future option
grants under the 1997 Plan. The options granted to date under the 1997
Plan vest one-third in 1998, one-third in 1999 and one-third in 2000.
See "Management -- Stock Option Plan" and "-- Director Compensation."
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Summary Financial and Operating Data
(In thousands, except per share and operating data)
Year Ended December 31, Six Months Ended June 30,
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1992 1993 1994 1995 1996 1996 1997
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Statement of Income Data:
Net sales............................. $ 41,887 $ 62,503 $ 86,376 $ 100,106 $ 109,319 $ 44,979 $ 53,657
Gross margin.......................... 15,484 21,929 31,686 36,762 40,124 16,241 19,696
Store contribution (1)................ 6,051 6,659 9,256 11,074 12,648 3,350 4,511
Income (loss) from operations (2)..... (193) 64 5,209 7,248 6,943 468 433
Net income (loss) (2)................. (533) (225) 4,580 6,409 6,306 190 146
Pro Forma and Supplemental
Income Data:
Pro forma net income (3).............. 1,694 2,228 2,695 3,840 3,817 124 92
Pro forma net income per share (3).... $ 0.84 $ 0.02
Pro forma weighted average
shares outstanding (3).............. 4,532 4,532
Supplemental pro forma net income
per share (4)....................... $ 0.69 $ 0.04
Supplemental pro forma weighted
average shares outstanding (4)...... 6,182 6,479
Operating Data:
Net sales per total square foot (5)... $ 316 $ 332 $ 302 $ 303 $ 320 $ 132 $ 139
Average net sales per store
(in thousands) (5) ............ $ 5,831 $ 6,641 $ 6,161 $ 6,245 $ 6,586 $ 2,720 $ 2,860
Number of stores, end of period (6) 8 12 16 16 17 17 21
Comparable store sales increase (7)... 14.3% 13.9% 1.7% 8.1% 5.5% 1.4% 7.5%
June 30, 1997
-----------------------------------------
Pro Pro Forma as
Actual Forma(8) Adjusted(8)
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Balance Sheet Data:
Working capital...................................................................... $ 15,784 $ 15,734 $ 27,302
Total assets......................................................................... 38,971 38,971 43,757
Long-term debt, excluding current portion............................................ 5,725 5,725 --
Shareholder loans - subordinated (9)................................................. 14,800 14,800 --
Shareholders' equity................................................................. 909 200 32,293
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(1) Represents gross margin less store operating expenses, which include labor,
advertising, depreciation and other store expenses, but exclude store
pre-opening and corporate-level general and administrative expenses.
(2) For the years ended December 31, 1992 and December 31, 1993 the Company
distributed earnings to its shareholders as compensation in the amounts of
$3,434,000 and $4,000,000, respectively, which was charged to income. A
portion of these distributions, which amounts were in addition to salaries
paid to shareholders as officers of the Company, were used to pay taxes on
S Corporation earnings and the balance was loaned to the Company for
working capital purposes. In subsequent years shareholder distributions
were charged directly to retained earnings. See Note 9 below.
(3) For each of the periods presented, the Company was an S Corporation and,
accordingly, was not subject to federal and certain state corporate income
taxes. The Company will terminate its status as an S Corporation upon
completion of this offering. The pro forma information has been computed as
if the Company was subject to federal and all applicable state corporate
income taxes for each of the periods presented, assuming the tax rate that
would have applied had the Company been taxed as a C Corporation. Amounts
for 1992 and 1993 were adjusted to treat shareholder distributions
consistent with the 1994 to 1996 periods. See Note 2 above, "Dividend
Policy and Prior S Corporation Status" and Note 3 of Notes to the Financial
Statements.
(4) The supplemental pro forma net income per share is based on pro forma net
income per share, increased to give effect to the reduction in interest
costs of $198,000 for the six months ended June 30, 1997 and $420,000 for
the year ended December 31, 1996 (net of the applicable income taxes),
which would have resulted assuming the application of a portion of the net
proceeds from the offering were used to repay certain indebtedness of the
Company.
(5) Includes only stores open during the entire period, except that the year
ended December 31, 1992 includes a store which closed as a result of a mall
fire on December 22, 1992 and reopened in a new location in June 1993 (the
"Relocated Store").
<PAGE>
(6) The number of stores open at December 31, 1992 includes the Relocated
Store.
(7) Stores are added to the comparable store base at the beginning of their
fourteenth full month of operation.
(8) Pro forma to give effect to an S Corporation distribution to shareholders
of approximately $50,000 from 1997 earnings, recognition of a $659,000
deferred tax liability associated with the Company's conversion from an S
Corporation to a C Corporation; and as adjusted to reflect the sale by the
Company of the shares of Common Stock offered hereby at an assumed initial
offering price of $13.00 per share and application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Dividend Policy and Prior S
Corporation Status."
(9) The shareholder loans are non-interest bearing and subordinated to the
Company's bank debt. The loans were made periodically by the shareholders
contemporaneously with distributions of certain earnings and were used to
provide working capital to the Company. The shareholder loans will be
repaid in full with a portion of the net proceeds of this offering. See
"Use of Proceeds."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
shares of the Common Stock offered by this Prospectus.
Risks Associated With Rapid Expansion. The Company's strategy to
increase its net sales and earnings will depend in large part on its ability to
open new superstores and to operate them on a profitable basis. The Company
opened four superstores in the first six months of 1997 and currently
anticipates opening four additional superstores in 1997, ten superstores in 1998
and 12 superstores in 1999, in both existing and new geographic markets. The
opening of additional superstores in an existing market could result in lower
net sales from the Company's existing superstores in that market. Opening
superstores in new geographic markets may present competitive and merchandising
challenges that are different from those currently faced by the Company in its
existing geographic markets. The Company may incur higher costs related to
advertising and distribution in connection with entering new markets. If the
Company opens superstores that do not perform to the Company's expectations or
if superstore openings are delayed, the Company's results of operations and
financial condition could be materially adversely affected. The success of the
Company's planned expansion will be dependent upon many factors, including the
identification of suitable markets, the availability and leasing of suitable
sites on acceptable terms, the availability of acceptable financing, the ability
to expand the Company's distribution facility in a timely manner, the hiring,
training and retention of qualified management and other store personnel and
general economic conditions. The Company's rapid expansion will place
significant demands on the Company's management, resources, operations and
existing information systems, and the Company must ensure the continuing
adequacy of its financial controls, operating procedures and information
systems. Also, the Company's continued growth will depend on its ability to
increase sales in its existing superstores. There can be no assurance that the
Company will be successful in any of these areas, and, as a result, there can be
no assurance that the Company will achieve its planned expansion or that new
superstores will be effectively integrated into the Company's existing
operations or will be profitable. See "Business -- Growth Strategy."
Dependence on Key Personnel; New Management Team. The success of the
Company and its growth strategy is dependent upon the active involvement of
senior management personnel, particularly John E. ("Jack") Parker, its President
and Chief Executive Officer. The loss of the services of Mr. Parker or other
members of senior management could have a materially adverse effect on the
Company. Three of the members of senior management have joined the Company
during the past 18 months. Accordingly, there can be no assurance that senior
management will function together effectively as a management team. The failure
to function effectively as a team could have a materially adverse effect on the
ability of the Company to implement its growth strategy as well as on its
results of operations and financial condition. The Company's success in the
future will also be dependent upon its ability to attract and retain other
qualified personnel, including store managers. See "Management."
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Small Store Base. The Company currently operates a chain of only 21
superstores, four of which were opened in the first half of 1997. The Company
has historically had strong comparable store sales; however, there can be no
assurance that the level of comparable store sales can be maintained as the
superstores mature and the number of comparable stores increase. The results
achieved to date by the Company's relatively small store base may not be
indicative of the results of the larger number of superstores which the Company
intends to operate in existing or new markets. Because the Company's current and
planned superstores are located in the mid-Atlantic and Northeast regions, the
effect on the Company of adverse events in these regions (such as weather or
unfavorable regional economic conditions) may be greater than if the Company's
superstores were more geographically dispersed. Furthermore, due to the
Company's relatively small store base, one or more unsuccessful new superstores,
or a decline in sales at an existing superstore, will have a more significant
effect on the Company's results of operations than would be the case if the
Company had a larger store base.
Quarterly Fluctuations. The Company's business is affected by the
seasonality pattern common to most retailers. Due to the importance of the fall
selling season, which includes Halloween, Thanksgiving and Christmas, the fourth
calendar quarter has historically contributed, and is expected to continue to
contribute, a substantial majority of the Company's operating income for the
entire year. As a result, any factors negatively affecting the Company during
the fourth quarter of any year, including adverse weather and unfavorable
economic conditions, would have a materially adverse effect on the Company's
results of operations for the entire year. The Company's quarterly results of
operations also may fluctuate based upon such factors as the timing of certain
holiday seasons, the number and timing of new superstore openings, the amount of
superstore pre-opening expenses, the amount of net sales contributed by new and
existing superstores, the mix of products sold, the timing and level of
markdowns, competitive factors, weather and general economic conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results and Seasonality."
Competition. The arts and crafts retailing business is highly
competitive. The Company currently competes against a diverse group of
retailers, including several national and regional chains of arts and crafts
retailers, a substantial number of local merchants that specialize in one or
more aspects of arts and crafts and various mass merchandisers that typically
dedicate a portion of their selling space to a limited selection of arts and
crafts items. These mass merchandisers and some of the national chains have
substantially greater financial resources and operate more stores than the
Company. See "Business -- Competition."
Risks Associated With Merchandising. The Company's success depends, in
large part, on its ability to anticipate and respond, in a timely manner, to
changing merchandise trends and consumer demands. Accordingly, any delay or
failure by the Company in identifying and responding to changing merchandise
trends could adversely affect consumer acceptance of the merchandise in the
Company's superstores. In addition, the Company makes decisions regarding
merchandise well in advance of each of the seasons in which such merchandise
will be sold. Significant deviations from projected demand for products would
have a materially adverse effect on the Company's results of
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operations and financial condition, either from lost sales due to insufficient
inventory or lower margins due to the need to mark down excess inventory. See
"Business -- Merchandising."
Risks Associated with Product Sourcing. Although the Company purchases
its merchandise from more than 500 vendors world-wide, the largest 16 suppliers
accounted for approximately 44% of the dollar volume of the Company's purchases
in 1996 and the largest supplier, SBAR'S Inc. ("SBAR'S"), accounted for
approximately 20% of the dollar volume of the Company's purchases in 1996. The
Company's future success is dependent upon its ability to maintain good
relationships with SBAR'S and its other principal suppliers. The failure to
maintain such relationships could have a materially adverse effect on the
Company's results of operations, financial condition and planned store
expansion. In addition, the Company in recent years has placed increased
emphasis on obtaining floral and seasonal items from overseas vendors, with
approximately 8% of all merchandise being purchased from overseas vendors in
1996. A change in the competitiveness of a particular country's exports, whether
due to a change in trade regulations, currency fluctuations or other reasons is
likely to increase the cost of items purchased by the Company overseas or make
such items unavailable with a possible resulting materially adverse effect on
the Company's results of operations and financial condition. In addition, since
many arts and crafts customers will forgo any purchase unless they can obtain
all the items necessary to complete a project, it is important that the Company
maintain a high in-stock position of merchandise. As a result, any interruption
in the supply of merchandise may preclude the Company from maintaining a
sufficient in-stock position in all superstores, with a resulting decline in
sales. See "Business -- Purchasing."
Inventory Risk. The Company depends upon in-store department managers
to reorder merchandise. The failure of the Company's staff to accurately respond
to inventory requirements could have a materially adverse effect on the
Company's results of operations and financial condition. In addition, as do most
other retailers, the Company conducts a physical inventory once a year, and
quarterly results are based on an estimated gross margin and accrual for
estimated inventory shrinkage. Therefore, fourth quarter and full year results
may be subject to adjustment based on actual gross margin and inventory
quantities.
Future Capital Needs. The Company currently intends to finance the
opening of new superstores with a portion of the proceeds from this offering,
cash flow from operations and borrowings. The Company plans to open eight
superstores in 1997, including the four opened through June 30, ten superstores
in 1998 and 12 superstores in 1999. The Company expects that the average cash
investment, including pre-opening expenses, required to open a superstore will
be approximately $1,275,000. There can be no assurance that the actual cost of
opening a superstore will not be significantly greater than that expected by the
Company. The Company may be required to seek additional debt and/or equity
financing in order to fund its continued expansion. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company, if at all. In addition, the Company's ability to incur additional
indebtedness or issue equity or debt securities could be limited by covenants in
present and future loan agreements and debt instruments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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Control by Existing Shareholders. Upon completion of the offering, the
Company's current shareholders will own 61.4% of the Company's outstanding
Common Stock. As a result, those shareholders, if acting together, will have the
ability to elect all of the Company's directors and determine the outcome of all
corporate actions requiring shareholder approval, irrespective of the vote of
other shareholders of the Company. See "Principal Shareholders."
Dividend Policy; Prior S Corporation Status. Until immediately prior to
the completion of this offering, the Company will be treated as an S Corporation
under the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
the Company has made and, prior to completion of this offering will continue to
make, periodic distributions to its shareholders from the Company's earnings.
Following consummation of this offering, the Company does not anticipate paying
any cash dividends for the foreseeable future. Immediately prior to the
completion of this offering, the Company will convert from S Corporation to C
Corporation status. In connection with this conversion, the Company will effect
a distribution of approximately $50,000 to the Company's shareholders (the "S
Corporation Distribution"). In addition, the Company will record a one-time,
non-cash charge against earnings in the third quarter of 1997, resulting from a
deferred tax liability in connection with the Company's conversion from S
Corporation to C Corporation status, which would have been approximately
$659,000 had the Company recorded this liability on June 30, 1997 (the "Deferred
Tax Liability"). See "Dividend Policy and Prior S Corporation Status."
Effect of Certain Charter And Bylaw Provisions; Anti-takeover Matters.
The Company's Articles of Incorporation (the "Articles") and Bylaws (the
"Bylaws") contain provisions which may be deemed to be "anti-takeover" in nature
in that such provisions may deter, discourage or make more difficult the
assumption of control of the Company by another corporation or person through a
tender offer, merger, proxy contest or similar transaction. The Articles permit
the Board of Directors to establish the rights, preferences, privileges and
restrictions of, and to issue, up to 5,000,000 shares of Preferred Stock without
shareholder approval. The Articles also provide for the staggered election of
directors to serve for one-, two- and three-year terms, and for successive
three-year terms thereafter, subject to removal only for cause upon the vote of
not less than 80% of the shares of Common Stock represented at a shareholders'
meeting. The Bylaws may not be amended by shareholders except by a similar 80%
vote. In addition, the Company is subject to certain anti-takeover provisions of
the Pennsylvania Business Corporation law. See "Description of Capital Stock."
Shares Eligible For Future Sale. The Company and all of its existing
shareholders have agreed with the Underwriters not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus (the "Lock-Up Period"), without the prior
written consent of Alex. Brown & Sons Incorporated. Following this offering, the
Company will have outstanding 7,000,000 shares of Common Stock. Of such shares,
the 2,700,000 shares offered hereby will be freely tradable by persons who are
not affiliates of the Company and all of the remaining shares will be subject to
the 180-day lock-up agreements with the Underwriters. These remaining shares
will have been outstanding for more than one year following the expiration of
the Lock-Up Period and, therefore, will be saleable in the public market
pursuant to the volume and other limitations of Rule 144 under the Securities
Act of 1933, as amended. Sales of substantial
-10-
<PAGE>
amounts of Common Stock in the public market following the offering, or the
perception that such sales could occur, could have a materially adverse effect
on the market price of the Common Stock. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
No Prior Public Trading Market; Volatility. Prior to this offering,
there has been no public market for the Common Stock, and there can be no
assurance that an active public market for the Common Stock will develop or be
sustained after the offering. The initial public offering price of the Common
Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters. See "Underwriting." The initial public
offering price may not necessarily be indicative of the market price of the
Common Stock after the offering, which may be highly volatile. Factors such as
announcements of fluctuations in the Company's or its competitors' operating
results and market conditions for retail industry stocks in general could have a
significantly negative effect on the future market price of the Common Stock.
Dilution. Investors participating in this offering will incur immediate
and substantial dilution in the amount of $8.39 per share. To the extent that
currently outstanding options to purchase Common Stock are exercised, there will
be further dilution. See "Dilution."
-11-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,700,000 shares
of Common Stock offered hereby are estimated to be $32.1 million ($37.0 million
if the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $13.00 per share, after deduction of
underwriting discounts and commissions and estimated expenses payable by the
Company. The Company will use (i) approximately $12.5 million to repay
outstanding indebtedness under the Loan Agreement, dated January 23, 1997,
between the Company and KeyBank National Association (the "Loan Agreement"),
(ii) approximately $14.8 million to repay the outstanding balance of
subordinated shareholder loans and (iii) approximately $50,000 to pay the S
Corporation Distribution. The $4.8 million of remaining net proceeds will be
used to finance new superstore openings and for working capital. Pending such
use by the Company, the net proceeds of this offering will be invested in
short-term investment-grade, interest-bearing instruments.
The funds advanced to the Company under the Loan Agreement were
advanced under two facilities, a term loan facility and a line of credit
facility. At June 30, 1997, the Company's outstanding indebtedness under the
term loan facility, which matures on July 1, 2001, and the line of credit
facility, which matures on December 31, 1998, was $7,582,000 and $4,875,000,
respectively. Each facility permits the Company to select an interest rate based
on either the bank's base or LIBOR rate of interest (as such terms are defined
in the Loan Agreement). The interest rate on the indebtedness outstanding under
the term loan facility and line of credit facility was 7.3% per annum as of June
30, 1997. The Company used the funds advanced to it under the Loan Agreement for
superstore expansion and working capital.
Historically, the Company borrowed funds from its shareholders
periodically for working capital purposes, subject to the terms of a
subordination agreement among the shareholders and KeyBank National Association
("KeyBank"). The loans from the Company's shareholders are payable on demand and
are non-interest bearing. The shareholders have agreed not to demand payment of
the loans on or before June 30, 1998, except upon the date of the Company's
completion of an initial public offering or consummation of a refinancing on a
long-term basis.
DIVIDEND POLICY AND PRIOR S CORPORATION STATUS
From its inception in 1985 until immediately prior to completion of
this offering, the Company was subject to taxation under Subchapter S of the
Code. As a result, the net income of the Company, for federal and certain state
income tax purposes, was taxable directly to the Company's shareholders during
that time rather than to the Company. To provide funds for tax obligations
payable by its shareholders on account of the Company's taxable income in 1995
and 1996 and as distributions of earnings, the Company made aggregate
distributions to its shareholders of $6.6 million and $6.7 million during 1996
and the first half of 1997, respectively. The funds distributed to shareholders,
reduced by the amounts used to pay tax obligations on account of the Company's
taxable income, were loaned to the Company contemporaneously with their
distribution to provide working capital to the Company. In connection with its
conversion from S Corporation to C Corporation status, the Company will effect
the S Corporation Distribution of approximately $50,000 to the Company's
shareholders. The S Corporation Distribution represents the
-12-
<PAGE>
shareholders' proportionate interest in the Company's earnings which have not
been distributed to the shareholders prior to the conversion date.
Following this offering, the Company does not anticipate paying any
cash dividends as it intends to retain its earnings to finance the expansion of
its business. Future dividends, if any, will depend upon the Company's results
of operations, financial condition, cash requirements and other factors deemed
relevant by the Board of Directors. Furthermore, the Loan Agreement prohibits
the payment of cash dividends by the Company without the bank's consent.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization
of the Company at June 30, 1997 (i) on an actual basis, (ii) pro forma to give
effect to the S Corporation Distribution and Deferred Tax Liability and (iii)
pro forma as adjusted to further give effect to the sale of 2,700,000 shares of
Common Stock offered by the Company hereby at an assumed initial offering price
of $13.00 per share, after deduction of underwriting discounts and commissions
and estimated offering expenses, and application of the net proceeds therefrom.
This table should be read in conjunction with the Company's Financial Statements
and Notes thereto included elsewhere in this Prospectus. See "Use of Proceeds,"
"Dividend Policy and Prior S Corporation Status" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------------------------
Pro Pro Forma
Actual Forma as Adjusted
------------ ------------- --------------
(In thousands)
<S> <C> <C> <C>
Borrowings under line of credit..................................... $ 4,875 $ 4,875 $ --
Current portion of long-term debt................................... 1,857 1,857 --
------------ ------------- --------------
Total short-term debt.......................................... $ 6,732 $ 6,732 $ --
============ ============= ==============
Long-term debt, less current portion................................ $ 5,725 $ 5,725 $ --
Loans from shareholders-subordinated................................ 14,800 14,800 --
Other long-term liabilities......................................... 1,064 1,723 1,723
------------ ------------- --------------
Total long-term liabilities.................................... 21,589 22,248 1,723
Shareholders' Equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding actual,
pro forma and pro forma as adjusted........................... -- -- --
Common Stock, no par value, 20,000,000 shares authorized;
4,300,000 shares issued and outstanding, actual and
pro forma; 7,000,000 shares issued and outstanding, pro
forma as adjusted(1).......................................... 200 200 32,293
Retained earnings................................................ 709 -- --
------------ ------------- --------------
Total shareholders' equity.................................... 909 200 32,293
------------ ------------- --------------
Total capitalization.............................. $ 22,498 $ 22,448 $ 34,016
============ ============= ==============
</TABLE>
- ----------
(1) Excludes (i) 444,500 shares issuable upon exercise of outstanding options
under the 1997 Plan, with an exercise price of $9.00 per share, (ii) 64,500
shares issuable upon exercise of the Director's Option, and (iii) 555,550
shares reserved for future option grants under the 1997 Plan. The options
granted to date under the 1997 Plan vest one-third in 1998, one-third in
1999 and one-third in 2000. See "Management - Stock Option Plan" and " --
Director Compensation."
-14-
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock at
June 30, 1997 was $200,000, or approximately $0.05 per share, after giving
effect to the S Corporation Distribution and the Deferred Tax Liability. Pro
forma net tangible book value per share is determined by dividing the pro forma
tangible book value of the Common Stock (total tangible assets less total
liabilities) by the number of outstanding shares of Common Stock immediately
prior to this offering. After giving effect to the sale of the shares of Common
Stock in this offering, at an assumed offering price of $13.00 per share, and
deduction of underwriting discounts and commissions and estimated offering
expenses, the pro forma net tangible book value of the Company as of June 30,
1997 would have been $32,293,000 or $4.61 per share. This represents an
immediate increase in pro forma net tangible book value of $4.56 per share to
existing shareholders and an immediate dilution to new investors of $8.39 per
share. The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price............................................. $ 13.00
Pro forma net tangible book value per share before offering ................. $ 0.05
Increase per share attributable to new investors ............................ 4.56
------------
Pro forma net tangible book value per share after the offering ................... 4.61
------------
Dilution per share to new investors .............................................. $ 8.39
===========
</TABLE>
On a pro forma basis, the following table summarizes as of June 30, 1997,
differences between existing shareholders and new investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share before deducting
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Owned Total Consideration
-------------------------- ------------------------------ Average Price
Number Percent Amount Percent Per Share
------------ ----------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ............. 4,300,000 61.4% $200,000 0.6 % $ 0.05
New investors ..................... 2,700,000 38.6 35,100,000 99.4 $ 13.00
------------ ----------- --------------- ------------
Total ........................ 7,000,000 100.0% $35,300,000 100.0 %
============ =========== =============== ============
</TABLE>
The computations in the tables set forth above exclude shares issuable upon
exercise of options granted pursuant to the 1997 Plan and the Director's Option.
See "Management - Stock Option Plan" and "-- Director Compensation."
-15-
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(In thousands, except per share and operating data)
Set forth below is selected financial and operating data for, and as of the
end of, each of the five years ended December 31, 1996, and for the six month
periods ended June 30, 1996 and 1997. The selected statement of income and
balance sheet data for each of the four years ended December 31, 1996 have been
derived from financial statements of the Company, which have been audited by
Price Waterhouse LLP. The financial statements as of December 31, 1995 and
December 31, 1996, and for each of the years in the three-year period ended
December 31, 1996, and the report thereon, are included elsewhere in this
Prospectus. The financial data for the year ended December 31, 1992, and for the
six months ended June 30, 1996 and June 30, 1997, are derived from unaudited
financial statements of the Company and reflect all adjustments, consisting only
of normal recurring accruals, that the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- -------- -------- --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales..................................... $ 41,887 $ 62,503 $ 86,376 $ 100,106 $ 109,319 $ 44,979 $ 53,657
Cost of sales................................. 26,403 40,574 54,690 63,344 69,195 28,738 33,961
--------- -------- -------- --------- --------- -------- ---------
Gross margin................................ 15,484 21,929 31,686 36,762 40,124 16,241 19,696
Operating expenses:
Store operating............................. 9,433 15,270 22,430 25,688 27,476 12,891 15,185
General and administrative.................. 2,196 2,338 3,472 3,826 5,565 2,742 3,369
Pre-opening expense......................... 525 664 575 -- 140 140 709
Shareholder distribution (1)................ 3,434 4,000 -- -- -- -- --
Casualty (gain) loss........................ 89 (407) -- -- -- -- --
--------- -------- -------- --------- --------- -------- ---------
Income (loss) from operations................. (193) 64 5,209 7,248 6,943 468 433
Interest expense, net....................... 340 289 592 760 557 261 280
--------- -------- -------- --------- --------- -------- ---------
Income (loss) before income taxes............. (533) (225) 4,617 6,488 6,386 207 153
State income tax expense ................... -- -- 37 79 80 17 7
--------- -------- -------- --------- --------- -------- ---------
Net income (loss) ............................ $ (533) $ (225) $ 4,580 $ 6,409 $ 6,306 $ 190 $ 146
========= ======== ======== ========= ========= ======== =========
Pro Forma and Supplemental Income Data:
Income before income taxes (2)................ $ 2,901 $ 3,775 $ 4,617 $ 6,488 $ 6,386 $ 207 $ 153
Pro forma income tax provision (2).......... 1,207 1,547 1,922 2,648 2,569 83 61
--------- -------- -------- --------- --------- -------- ---------
Pro forma net income (2)...................... $ 1,694 $ 2,228 $ 2,695 $ 3,840 $ 3,817 $ 124 $ 92
========= ======== ======== ========= ========= ======== =========
Pro forma net income per share (2)............ $ 0.84 $ 0.02
========= =========
Pro forma weighted average shares outstanding (2) 4,532 4,532
Supplemental pro forma net income per share(3) $ 0.69 $ 0.04
========= =========
Supplemental pro forma weighted average shares
outstanding(3).......................... 6,182 6,479
Operating Data:
Net sales per square foot (4)................. $ 316 $ 332 $ 302 $ 303 $ 320 $ 132 $ 139
Average net sales per store (in thousands) (4) $ 5,831 $ 6,641 $ 6,161 $ 6,245 $ 6,586 $ 2,720 $ 2,860
Number of stores, end of period (5)........... 8 12 16 16 17 17 21
Total square feet, end of period.............. 160,202 244,820 329,740 329,740 350,884 350,884 434,666
Comparable store sales increase(6) ........... 14.3% 13.9% 1.7% 8.1% 5.5% 1.4% 7.5%
Store contribution (in thousands) (7)......... $ 6,051 $ 6,659 $ 9,256 $ 11,074 $ 12,648 $ 3,350 $ 4,511
Balance Sheet Data (at period end):
Working capital............................... $ 6,575 $ 9,521 $ 16,937 $ 20,224 $ 20,597 $ 16,250 $ 15,784
Total assets.................................. 13,295 22,680 30,720 34,571 37,799 29,850 38,971
Long-term debt, excluding current portion..... 3,655 5,663 9,286 8,510 6,653 7,581 5,725
Shareholder loans - subordinated (8).......... 5,132 7,595 7,595 7,595 11,095 11,095 14,800
Shareholders' equity (deficit)................ (415) (641) 3,915 7,756 7,492 1,505 909
</TABLE>
(footnotes on next page)
-16-
<PAGE>
- ----------
(1) For the years ended December 31, 1992 and December 31, 1993 the Company
distributed earnings to its shareholders as compensation in the amounts of
$3,434,000 and $4,000,000, respectively, which was charged to income. A
portion of these distributions, which amounts were in addition to salaries
paid to shareholders as officers of the Company, were used to pay taxes on
S Corporation earnings and the balance was loaned to the Company for
working capital purposes. In subsequent years shareholder distributions
were charged directly to retained earnings.
(2) For each of the periods presented, the Company was an S Corporation and,
accordingly, was not subject to federal and certain state corporate income
taxes. The Company will terminate its status as an S Corporation upon
completion of this offering. The pro forma information has been computed as
if the Company was subject to federal and all applicable state corporate
income taxes for each of the periods presented, assuming the tax rate that
would have applied had the Company been taxed as a C Corporation. Amounts
for 1992 and 1993 were adjusted to treat shareholder distributions
consistent with the 1994 to 1996 periods. See Note 1 above, "Dividend
Policy and Prior S Corporation Status" and Note 3 of Notes to the Financial
Statements.
(3) The supplemental pro forma net income per share is based on pro forma net
income per share, increased to give effect to the reduction in interest
costs of $198,000 for the six months ended June 30, 1997 and $420,000 for
the year ended December 31, 1996 (net of the applicable income taxes),
which would have resulted assuming the application of a portion of the net
proceeds from the offering were used to repay certain indebtedness of the
Company.
(4) Includes only stores open during the entire period, except that the year
ended December 31, 1992 includes the Relocated Store.
(5) The number of stores open at December 31, 1992 includes the Relocated
Store.
(6) Stores are added to the comparable store base at the beginning of their
fourteenth full month of operation.
(7) Represents gross margin less store operating expenses, which include labor,
advertising, depreciation and other store expenses, but exclude store
pre-opening and corporate-level general and administrative expenses.
(8) The shareholder loans are non-interest bearing and subordinated to the
Company's bank debt. The loans were made periodically by the shareholders
contemporaneously with certain distributions of earnings and were used to
provide working capital to the Company. The shareholder loans will be
repaid in full with a portion of the net proceeds of this offering. See
"Use of Proceeds."
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements. Actual results could differ materially from those referred to in the
forward-looking statements due to a number of factors, including those set forth
below and elsewhere in this Prospectus.
Overview
A.C. Moore is a rapidly growing operator of arts and crafts superstores
that offer a vast assortment of traditional and contemporary arts and crafts
merchandise for a wide range of customers. The Company was founded in 1984 by
William Kaplan, its Chairman, and Jack Parker, its President and Chief Executive
Officer. Mr. Parker had been the President and Chief Executive Officer of the
U.S. General Merchandise Group of F.W. Woolworth Company where he was
responsible for more than 1,000 store locations. The Company was founded by
Messrs. Kaplan and Parker primarily because of the broad customer base to which
arts and crafts activities are appealing and the fragmented nature of the
category. By December 31, 1992, the Company had developed and refined its
superstore concept and was operating eight superstores with aggregate 1992 net
sales of $41.9 million.
Beginning in 1993, the Company implemented a two-year plan to rapidly
expand its superstore base. The Company doubled its store base to 16 as of
December 31, 1994, opening eight superstores in the 15-month period ended
October 1994. The Company maintained its high level of sales productivity in
1994, averaging net sales per total square foot and annual net sales per store
in excess of $300 and $6 million, respectively. The eight superstores opened in
1993 and 1994 averaged 21,200 total square feet, with an average initial store
investment of $1,134,000, comprised of pre-opening expenses, leasehold
improvements, fixtures and inventory, net of accounts payable. In their second
full year of operation, these superstores achieved average store-level EBITDA
(store gross margin less store operating expenses, excluding depreciation and
amortization) of $530,000, representing an average return on invested capital of
approximately 47%.
In 1995, the Company implemented a plan to build its infrastructure to
position the Company for rapid future growth. By the end of 1996, the Company
had recruited three experienced senior retail executives in the areas of
operations, merchandising and finance, made key additions in other areas such as
buying, information systems, human resources and real estate, leased a new
130,000 square foot distribution center and office complex, developed its EDI
system to electronically link the Company with most vendors and developed a real
estate program to accommodate the Company's expansion plan. In 1996, the Company
opened one new superstore, achieved a 5.5% increase in comparable store sales
and an increase of $1.6 million in store contribution, but as a result of $1.2
million in expenses incurred to implement its infrastructure plan, experienced a
decrease in income from operations of $305,000.
The Company plans to open at least 30 new superstores by the end of
1999, including eight in 1997, ten in 1998 and 12 in 1999. Through June 30,
1997, the Company had opened four of these
-18-
<PAGE>
superstores and had signed leases for four superstores expected to open in 1997.
The four new superstores opened through June 30, 1997 averaged 20,900 total
square feet, with an average store investment of $1,211,000, comprised of
approximately $177,000 in pre-opening expenses, approximately $303,000 in
leasehold improvements and fixtures and approximately $731,000 in inventory, net
of accounts payable. The Company expects that its existing distribution center
will support its expansion through the end of 1998. The distribution center and
office complex can be expanded by 120,000 square feet for both warehouse and
office needs.
Since its founding, the Company has been financed primarily through
bank financing and the reinvestment, as subordinated loans, of earnings
distributed by the Company to its shareholders. The Company has been subject to
taxation as an S Corporation. As a result, the net income of the Company, for
federal and certain state income tax purposes, was taxed directly to the
Company's shareholders rather than to the Company. Accordingly, the Company has
calculated the pro forma income tax provision, pro forma net income and pro
forma net income per share for each period presented herein as if the Company
were a C Corporation subject to federal and all applicable state income taxes,
assuming the tax rates that would have applied had the Company been taxed as a C
Corporation. The Company will record a one time, non-cash charge against
earnings in the third quarter of 1997, resulting from a deferred tax liability
in connection with the Company's conversion from S Corporation to C Corporation
status, which would have been approximately $659,000 had the Company recorded
this liability on June 30, 1997.
Results of Operations
The following table sets forth, for the periods indicated, selected
statement of operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales .......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ...................................... 63.3 63.3 63.3 63.9 63.3
----- ----- ----- ----- -----
Gross margin .................................... 36.7 36.7 36.7 36.1 36.7
Operating expenses:
Store operating ................................. 26.0 25.7 25.1 28.7 28.3
General and administrative ...................... 4.0 3.8 5.1 6.1 6.3
Pre-opening expense ............................. 0.7 0.0 0.1 0.3 1.3
----- ----- ----- ----- -----
Income from operations ............................. 6.0 7.2 6.4 1.0 0.8
Interest expense, net ........................... 0.7 0.7 0.5 0.6 0.5
----- ----- ----- ----- -----
Income before income taxes ......................... 5.3 6.5 5.9 0.4 0.3
State income tax expense ........................ -- 0.1 0.1 -- --
----- ----- ----- ----- -----
Net income ......................................... 5.3% 6.4% 5.8% 0.4% 0.3%
===== ===== ===== ===== =====
Pro forma income tax provision .................. 2.1 2.6 2.3 0.1 0.1
----- ----- ----- ----- -----
Pro forma net income ............................... 3.2% 3.8% 3.5% 0.3% 0.2%
===== ===== ===== ===== =====
</TABLE>
-19-
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Sales. Net sales increased $8.7 million, or 19.3%, to $53.7 million
in the six months ended June 30, 1997 from $45.0 million in the comparable 1996
period. This increase resulted from (i) net sales of $5.0 million from four new
superstores opened during the period, (ii) $400,000 from the superstore opened
in 1996 not included in the comparable store base, and (iii) a comparable store
sales increase of $3.3 million, or 7.5%. The Company includes a superstore in
the calculation of comparable sales beginning in the fourteenth full month after
its opening date. The comparable store sales increase was favorably affected by
unusually heavy snowfall in the first quarter of 1996 which negatively impacted
net sales.
Gross Margin. Cost of sales includes the cost of merchandise, plus
certain distribution and purchasing costs. The gross margin increased $3.5
million, or 21.3%, to $19.7 million in the six months ended June 30, 1997 from
$16.2 million in the six months ended June 30, 1996. The gross margin increased
slightly to 36.7% of net sales in the first half of 1997 from 36.1% in the first
half of 1996.
Store Operating Expenses. Store operating expenses increased $2.3
million, or 17.8%, to $15.2 million in the six months ended June 30, 1997 from
$12.9 million in the six months ended June 30, 1996. Of the increase, $2.0
million was attributable to the four superstores opened during the first half of
1997 and the one superstore opened in the first half of 1996 not included in the
comparable store base and $300,000 from increases in operating expenses at the
comparable superstores. Store operating expenses as a percent of net sales
decreased to 28.3% in the first half of 1997 from 28.7% in the first half of
1996.
General and Administrative Expenses. General and administrative
expenses increased $627,000, or 22.9%, in the six months ended June 30, 1997 to
$3.4 million from $2.7 million in the prior comparable period and increased to
6.3% of net sales from 6.1% of net sales. The dollar increase resulted from the
addition of corporate staff and infrastructure to support the expected growth of
the Company, including the members of senior management that joined the Company
in 1996.
Pre-Opening Expense. The Company expenses store pre-opening expense in
the quarter that a superstore is opened. Pre-opening expense for the four new
superstores opened in the first half of 1997 amounted to $709,000. In the six
months ended June 30, 1996, the Company opened one superstore which had
pre-opening expense of $140,000.
Interest Expense, Net. Interest expense, net was approximately $280,000
for the six months ended June 30, 1997, an increase of $19,000 from the
comparable period in 1996. This increase was due to greater borrowings in the
first half of 1997 to fund operations and the addition of the four superstores.
-20-
<PAGE>
1996 Compared to 1995
Net Sales. Net sales increased $9.2 million, or 9.2%, to $109.3 million
in 1996 from $100.1 million in 1995. This increase resulted from (i) net sales
of $3.9 million from the one new superstore opened during 1996 and (ii) a
comparable superstore sales increase of $5.3 million, or 5.5%.
Gross Margin. The gross margin increased $3.3 million, or 9.1%, to
$40.1 million in 1996 from $36.8 million in 1995. The gross margin was 36.7% in
both years.
Store Operating Expenses. Store operating expenses increased $1.8
million, or 7.0%, to $27.5 million in 1996 from $25.7 million in 1995. Of the
increase, $1.1 million resulted from the one superstore opened in 1996 and
$700,000 from superstores opened before December 31, 1995. Store operating
expenses declined to 25.1% of net sales in 1996 from 25.7% of net sales in 1995.
General and Administrative Expenses. General and administrative
expenses increased $1.8 million, or 45.5%, to $5.6 million in 1996 from $3.8
million in 1995. This increase resulted from the addition of senior management
and other corporate staff during 1996, the cost of moving the Company's
distribution and office facilities in May 1996 and the increased rent and
maintenance of these new facilities. All of these added expenditures were
designed to support the planned growth of the Company. As a result, general and
administrative expenses increased to 5.1% of net sales in 1996 from 3.8% of net
sales in 1995.
Pre-Opening Expense. Pre-opening expense was $140,000 in 1996 for the
one superstore opened in that year. No stores were opened in 1995.
Interest Expense, Net. Interest expense, net decreased by $203,000 to
$557,000 in 1996 from $760,000 in 1995. This decrease was due to lower bank
borrowings in 1996 as the Company was able to use the proceeds of shareholder
loans and internally generated cash to fund operations and the addition of one
superstore.
1995 Compared to 1994
Net Sales. Net sales increased $13.7 million, or 15.9%, to $100.1
million in 1995 from $86.4 million in 1994. This increase resulted from (i) net
sales of $6.9 million from the four superstores opened prior to 1995 not
included in the comparable superstore base and (ii) a comparable superstore
sales increase of $6.8 million, or 8.1%.
Gross Margin. The gross margin increased by $5.1 million, or 16.0%, to
$36.8 million in 1995 from $31.7 million in 1994. The gross margin was 36.7% in
both years.
Store Operating Expenses. Store operating expenses increased $3.3
million, or 14.5%, to $25.7 million in 1995 from $22.4 million in 1994. Of the
increase, $2.5 million resulted from the four superstores opened in 1994 not
included in the comparable superstore base and $800,000 from
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higher comparable superstore expenses. Store operating expenses as a percent of
net sales decreased to 25.7% in 1995 from 26.0% in 1994.
General and Administrative Expenses. General and administrative
expenses increased $354,000, or 10.2%, to $3.8 million in 1995 from $3.5 million
in 1994. The increase consisted of $500,000 of additional buying and
distribution costs and $200,000 of costs to establish children's promotional
programs, offset by a $400,000 reduction in professional fees as the Company
engaged a consultant for a distribution center feasibility study in 1994. As a
percentage of net sales, general and administration expenses declined to 3.8% in
1995 from 4.0% in 1994.
Pre-Opening Expense. There were no superstores opened in 1995. In 1994,
the Company opened four superstores and incurred pre-opening costs of $575,000.
Interest Expense, Net. Interest expense, net increased $168,000 to
$760,000 in 1995 from $592,000 in 1994. This increase resulted from higher bank
borrowings in 1995 to support the full year effect of the four superstores
opened in 1994.
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Quarterly Results and Seasonality
The following tables set forth the Company's unaudited quarterly
operating results for its ten most recent quarterly periods and the number of
stores open at the end of each period (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, June 30,
1997 1997
------------- -------------
<S> <C> <C>
Net sales....................................... $ 27,252 $ 26,405
Cost of sales................................... 17,408 16,553
---------- ---------
Gross margin.............................. 9,844 9,852
Operating expenses:
Store operating........................... 7,176 8,009
General and administrative................ 1,708 1,661
Pre-opening expense....................... 449 260
---------- ---------
Income (loss) from operations................... 511 (78)
Interest expense, net..................... 111 169
---------- ---------
Income (loss) before income taxes............... 400 (247)
State income tax expense.................. 7 --
---------- ---------
Net income (loss)............................... $ 393 $ (247)
========== =========
Income (loss) before income taxes, as reported.. $ 400 $ (247)
Pro forma income tax provision ........... 160 (99)
---------- ---------
Pro forma net income (loss)..................... $ 240 $ (148)
========== =========
Stores open at end of period.................... 20 21
========== =========
Three Months Ended
------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
------------- ------------- ------------- -------------
Net sales....................................... $ 23,176 $ 21,803 $ 25,687 $ 38,653
Cost of sales................................... 14,808 13,930 16,416 24,041
---------- ---------- ---------- ---------
Gross margin.............................. 8,368 7,873 9,271 14,612
Operating expenses:
Store operating........................... 6,423 6,468 6,818 7,767
General and administrative................ 1,311 1,431 1,358 1,465
Pre-opening expense....................... 140 -- -- --
---------- ---------- ---------- ---------
Income (loss) from operations................... 494 (26) 1,095 5,380
Interest expense, net..................... 118 143 170 126
---------- ---------- ---------- ---------
Income (loss) before income taxes............... 376 (169) 925 5,254
State income tax expense.................. 22 (5) 14 49
---------- ---------- ---------- ---------
Net income (loss)............................... $ 354 $ (164) $ 911 $ 5,205
========== ========== ========== =========
Income (loss) before income taxes, as reported.. $ 376 $ (169) $ 925 $ 5,254
Pro forma income tax provision............ 144 (61) 364 2,122
---------- ---------- ---------- ---------
Pro forma net income (loss)..................... $ 232 $ (108) $ 561 $ 3,132
========== ========== ========== =========
Stores open at end of period.................... 17 17 17 17
========== ========== ========== =========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
-------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 22,407 $ 20,588 $ 22,234 $ 34,877
Cost of sales.............................. 14,173 13,043 14,146 21,982
---------- ---------- ---------- ---------
Gross margin......................... 8,234 7,545 8,088 12,895
Operating expenses:
Store operating...................... 6,158 6,071 6,297 7,162
General and administrative .......... 1,110 1,048 1,085 583
Pre-opening expense.................. -- -- -- --
---------- ---------- ---------- ---------
Income from operations..................... 966 426 706 5,150
Interest expense, net................ 159 208 246 147
----------- ----------- ----------- -----------
Income before income taxes................. 807 218 460 5,003
State income tax expense............. 1 22 16 40
---------- ---------- ---------- ---------
Net income................................. $ 806 $ 196 $ 444 $ 4,963
========== ========== ========== =========
Income before income taxes, as reported.... $ 807 $ 218 $ 460 $ 5,003
Pro forma income tax provision ...... 323 87 184 2,054
---------- ---------- ---------- ---------
Pro forma net income ...................... $ 484 $ 131 $ 276 $ 2,949
========== ========== ========== =========
Stores open at end of period............... 16 16 16 16
========== ========== ========== =========
</TABLE>
Due to the importance of the fall selling season, which includes
Halloween, Thanksgiving and Christmas, the fourth calendar quarter has
historically contributed, and is expected to continue to contribute, a
substantial majority of the Company's profitability for the entire year. As a
result, any factors negatively affecting the Company during the fourth quarter
of any year, including adverse weather and unfavorable economic conditions,
would have a materially adverse effect on the Company's results of operations
for the entire year.
The Company's quarterly results of operations also may fluctuate based
upon such factors as the timing of certain holiday seasons, the number and
timing of new superstore openings, the amount of superstore pre-opening
expenses, the amount of net sales contributed by new and existing superstores,
the mix of products sold, the timing and level of markdowns, competitive
factors, weather and general economic conditions.
Liquidity and Capital Resources
The Company's cash needs are primarily for working capital to support
its inventory requirements and capital expenditures, pre-opening expenses and
beginning inventory for new superstores. In recent years, the Company has
financed its operations and new store openings primarily with cash from
operations, borrowing under bank financing agreements and subordinated loans
from its shareholders.
At June 30, 1996 and June 30, 1997, the Company's working capital was
$16.3 million and $15.8 million, respectively. Cash used in operations was $1.1
million for the six months ended June 30, 1996, primarily as a result of a
reduction of $691,000 in trade accounts payable and a $1.3
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<PAGE>
million reduction in accrued liabilities, principally for the payment of
employee compensation and accrued bonuses. For the six months ended June 30,
1997, approximately $4.6 million of cash was used in operations. This was the
result of a $5.3 million increase in inventory to support the four new
superstores and $1.0 million to reduce accrued liabilities as a result of
payment of employee compensation and accrued bonuses, partially offset by a $1.0
million increase in trade accounts payables.
At December 31, 1995 and 1996, the Company's working capital was $20.2
million and $20.6 million, respectively. During 1994, 1995 and 1996, cash
generated by operations was $0.5 million, $4.2 million and $6.7 million,
respectively. In these three periods, $4.8 million, $3.0 million and $1.6
million of cash, respectively, was used to increase inventory levels to support
both new and existing stores.
Net cash used in investing activities during the first six months of
1996 and 1997 was approximately $900,000 and $1.8 million, respectively. Net
cash used in investing activities during 1994, 1995 and 1996 was $1.7 million,
$900,000 and $2.3 million, respectively. This use of cash was primarily the
result of new store openings and, in 1996, relocating the distribution center to
a new, larger facility. In 1997, the Company expects to spend approximately $3.2
million on capital expenditures, which includes approximately $2.0 million for
new store openings and approximately $700,000 for the new warehouse management
system and management information systems upgrades.
Net cash of $2.9 million was used in financing activities during the
first half of 1996. In the first half of 1997, cash of $900,000 was generated by
financing activities. Net cash was provided by financing activities in 1994 in
the amount of $3.6 million and used in financing activities in 1995 and 1996 in
the amounts of $2.6 million and $3.8 million, respectively. The Company
distributed $6.4 million and $6.7 million to shareholders in the first half of
1996 and 1997, respectively. The shareholders loaned $3.5 million and $3.7
million to the Company for working capital in the first half of 1996 and 1997
respectively. In 1995 and 1996, the Company distributed $2.6 million and $6.6
million, respectively, to shareholders. In 1996, the shareholders loaned $3.5
million to the Company for working capital. The outstanding balances under the
Loan Agreement were $9.3 million, $8.5 million and $12.5 million at December 31,
1995, December 31, 1996 and June 30, 1997, respectively.
On January 23, 1997, the Company entered into the Loan Agreement with
KeyBank to refinance a term loan and to provide two revolving lines of credit
and an operating line of credit. The Loan Agreement is collateralized by all of
the Company's assets and contains various financial covenants, including
limitations on other debt and cash dividends and distributions to shareholders.
The two revolving lines of credit, in the amounts of $3.2 million and $5.0
million, are available solely for costs associated with opening new stores and
related inventory purchases. The $3.2 million revolving line of credit is
available to the Company until December 31, 1998, at which time the Company may
elect to convert the line to a 60-month term loan maturing on December 31, 2003.
The $5.0 million revolving line of credit is available to the Company, provided
the Company meets various performance measurements, including no event of
default and covenant compliance, and will
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<PAGE>
remain available until December 31, 1998, at which time the Company may elect to
convert the line to a 60-month term loan maturing December 31, 2003. The $16.0
million operating line of credit is available to the Company solely for working
capital purposes, $9.0 million of which is currently available and $7.0 million
will be available to the Company on March 31, 1998, subject to achievement of
certain performance measurements. All borrowings under the Loan Agreement bear
interest based upon either the bank's base or LIBOR rate of interest, at the
Company's option. Currently, the Company has elected 1.5% over LIBOR. The
Company is required to pay an annual commitment fee of 0.125% on the unused
portion of the lines of credit.
The Company believes that the net proceeds from this offering, together
with cash generated from operations and available borrowings under the Loan
Agreement will be sufficient to finance its working capital and capital
expenditure requirements for at least the next 12 months.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" which is
effective for financial statements issued after December 15, 1997. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. The adoption of this new standard is
not expected to have a material impact on the disclosure of earnings per share
in the Company's financial statements.
The FASB also issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" which
establishes reporting requirements for operating segments in annual and interim
financial reports. It established standards for related disclosures about
products and services, geographic locations and major customers. The statement
is effective for financial statements for periods beginning after December 15,
1997. The adoption of this standard will not have a significant impact on the
disclosures in the Company's financial statements.
Inflation
Management does not believe that inflation has had a material effect on
its financial condition or results of operations during the past three years.
However, there can be no assurance that inflation will not have a materially
adverse effect on the Company's future financial condition or results of
operations.
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<PAGE>
BUSINESS
Introduction
A.C. Moore is a rapidly growing operator of arts and crafts superstores
that offer a vast assortment of traditional and contemporary arts and crafts
merchandise for a wide range of customers. The Company's business strategy is to
provide the broadest and deepest selection of high quality merchandise at the
lowest prices in an inviting, attractive superstore environment with superior
customer service. The Company's objective is to become the leading arts and
crafts retailer in each of its markets. A.C. Moore opened its first store in
1985 and since then has focused on developing and refining its retail concept.
As of June 30, 1997, the Company was operating 21 superstores in the
mid-Atlantic and Northeast regions. A.C. Moore plans to open at least 30
superstores through the end of 1999, including eight in 1997, four of which were
open as of June 30.
A. C. Moore has consistently achieved high levels of net sales per
total square foot and average net sales per store. From 1992 to 1996, the
Company achieved average annual net sales of $315 per total square foot and $6.3
million per store. A. C. Moore's prototype superstore ranges in size from 20,000
to 25,000 square feet, with approximately 80% devoted to selling space. A
typical store offers approximately 65,000 SKUs across 26 merchandise categories
during the course of a year, with more than 45,000 SKUs offered at any one time.
Merchandise is presented in a distinctive manner designed to maximize shopping
convenience and to reinforce themes and colors often associated with holidays,
seasonal events or specific merchandise categories. Completed arts and crafts
projects are prominently displayed in each department throughout the store to
stimulate new project ideas for customers and to enhance the shopping
environment.
Market Overview
According to the Hobby Industry Association ("HIA"), the retail market
for arts and crafts increased at a compound annual growth rate of 11% from
approximately $6.6 billion in 1990 to approximately $11.0 billion in 1995. An
HIA survey also determined that eight of every ten households surveyed had at
least one member who had engaged in a craft activity within the last year. The
Company believes demographic changes, particularly an aging baby boom
population, an increasing focus on home-based, family activities and the trend
toward making (rather than buying) gift items are contributing to the industry's
growth. The Company also believes that industry growth is the result of
continuing increases in the range and quality of available arts and crafts
merchandise.
Business Strategy
The key elements of the Company's business strategy are as follows:
Vast Merchandise Selection The Company's merchandising strategy is to
offer the broadest and deepest selection of arts and crafts merchandise so that
customers can obtain everything necessary to create and finish any arts and
crafts project. The Company's key merchandise
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<PAGE>
categories include silk and dried flowers, floral arrangements and accessories,
ribbon, wedding crafts, potpourri, stitchery, yarn, jewelry crafts, kids crafts,
art supplies, picture frames, stamps, doll- making, seasonal items and a variety
of unfinished wood crafts. The Company believes its merchandise appeals to a
wide range of recreational and professional crafters of all ages across diverse
economic backgrounds. The Company actively seeks new merchandise by monitoring
industry trends, working with domestic and international vendors, attending
trade shows and craft fairs and regularly interacting with customers. The
Company has designed its merchandise distribution systems to ensure rapid
replenishment and the highest levels of in-stock positions. Each superstore
receives merchandise daily from vendors or the Company's distribution center,
which during peak periods will deliver a minimum of three and up to five times
per week to the superstores.
Customer Friendly Superstores. The Company believes that its high level
of customer service and its attractive, easy-to-shop superstores are important
competitive advantages. To ensure prompt and personalized service, the Company
staffs its stores with a high ratio of store personnel to customers, including a
store manager, three associate managers and a staff of up to 60 full-time and
part-time sales associates. Store personnel, many of whom are arts and crafts
enthusiasts, assist customers with merchandise selection and project ideas. All
superstores are furnished with a customer service area, a counter for the free
arrangement of floral merchandise, eight to ten registers to ensure quick
customer checkout and a room in which classes are held up to seven days a week
for adults and children on a wide variety of craft skills. The Company's
superstores are typically located in power strip centers with convenient parking
and are easily accessible from main arteries.
Price Leadership. The Company seeks to maintain the lowest prices on
all merchandise. The Company's policy to beat any competitor's advertised price
by 10% is clearly displayed in all superstores. Buyers and store managers
actively monitor competitors' prices to ensure that the Company maintains the
lowest prices. In addition, on a weekly basis, the Company advertises select
items at 20% to 40% off their everyday low prices. The Company believes that its
price leadership enhances customer loyalty and provides superior value.
Entrepreneurial Culture. Since inception, the Company has strived to
foster an ownership culture and merchandising creativity at all levels of the
organization. This culture allows A.C. Moore to have numerous merchandising
initiatives, which, if proven successful, can be implemented very quickly
throughout the Company. For example, each store manager is empowered to purchase
merchandise to meet the unique needs of the local customer base. Store managers
and associate managers earn incentive bonuses based upon annual increases in
store profitability, and in 1996, average compensation for store managers
exceeded $100,000. The Company believes its focus on empowering and rewarding
its employees helps in recruiting, hiring and retaining talented personnel.
Investment in Management and Infrastructure. To prepare for rapid
expansion and to complement the existing management team, over the past 18
months, the Company recruited three senior managers with an average of 30 years
retail experience in the areas of operations, merchandising and finance. The
Company also made key additions in other areas such as buying, information
systems, human resources and real estate. In May 1996, the Company relocated to
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<PAGE>
a 130,000 square foot distribution center and office complex which can be
expanded to double its current size. The Company also completed installation of
an Electronic Data Interchange ("EDI") system to allow for the automated
reordering of merchandise from most domestic vendors.
Growth Strategy
The Company has developed a rapid expansion plan to become the leading
arts and crafts retailer in each of its markets and plans to open at least 30
superstores through the end of 1999. The Company is targeting its expansion in
both existing and new markets within an approximate 400-mile radius of the
Company's Southern New Jersey distribution center. This area contains more than
25% of the United States' population.
Merchandising
The Company's typical superstore offers approximately 65,000 SKUs
across 26 merchandise categories during the course of a year, with more than
45,000 SKUs offered at any one time. The merchandise offered by the Company, by
major product category, is as follows:
Floral and Accessories
Silk Flowers - includes a wide, seasonally changing assortment
of high quality silk flowers, hand wrapped flowers, polystems, potted plants and
green and flowering bushes.
Dried Flowers - includes baby's breath, eucalyptus and many
styles and colors of a seasonally changing assortment of bouquets of dried
flowers.
Floral Accessories - includes clay, brass, glass and ceramic
containers, assorted mosses, styrofoam shapes, wreaths and other components to
create floral displays.
Floral Arrangements - the Company's floral designers work with
customers to make any arrangement, free of charge, from silk or dried flowers
purchased from the Company. The superstores also carry a large assortment of
pre-made arrangements.
Ribbon - includes ribbon by the spool, lace, a large selection
of specialty ribbon sold by the yard and pre-made bows.
Wedding - includes wedding supplies, bridal headpieces, bridal
flowers, bouquet holders, ribbon roses and items used for christenings and baby
showers.
Potpourri - includes dried potpourri, potpourri oils, packaged
scents and a wide assortment of candles, ranging from tealights to five pound
three wick candles.
Candle Making - includes blocks of paraffin wax, wicks and
other materials necessary to make candles, as well as candle kits and brass and
glass candle holders.
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<PAGE>
Wicker - includes a wide assortment of wicker baskets in
various shapes and sizes.
In 1996, floral and accessories accounted for approximately 27% of
sales.
Traditional Crafts
Stitchery - includes a broad range of stitchery kits which
appeal to beginner and experienced stitchers, cross stitch supplies, stitchery
accessories, floss and sewing notions.
Yarn - includes acrylic, crochet cotton, cotton blends, rayon
and other blends, as well as a full assortment of hooks, needles and other
accessories.
Wood - includes a variety of unfinished wood products, such as
shelves, bird houses, clocks and other decorative pieces which can be finished
in various ways such as painting, staining or stenciling.
Cake and Candy Making - includes cake boards, bakeware, candy
molds, chocolate melts, cookie cutters, icing coloring and flavors and spices.
Miniatures - includes dollhouses and dollhouse furnishings,
such as room settings, wallpaper, flooring and lighting, as well as miniature
porcelains and ceramics.
Doll Making - includes bodies, heads and hair used to make
dolls and clothing for dolls, as well as teddy bears and other stuffed animals.
Kids Crafts - includes sand art, sidewalk chalk, bead art
supplies, children's stitchery kits, coloring and other books and children's
crafts similar to crafts done by adults.
Felt, Glitter - includes felt, glitter, pom-poms, chenille
stems and loupy, all of which are used in the creation of craft projects.
Books - includes a wide range of books to assist crafters in
all categories, such as how-to books for the beginner and books for the
experienced crafter.
In 1996, traditional crafts accounted for approximately 28% of sales.
Art Supplies and Frames
Art Supplies - includes bottled and tube paints (oil, acrylic
and water based), pastels, brushes, tablets, canvas pieces, drawing pencils,
markers and art palettes.
Stamps and Stationery - includes decorative stamps, stamp
pads, fashion stickers, embossing tools, photo and memory albums, memory album
accessories, scissors, hole punchers and note and fashion papers.
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<PAGE>
Stencils - includes decorative stencils, crayons and paints
for use on walls, wood, metal, clothing and other products.
Frames - includes frames of all types and sizes, including
empty frames and frames with glass, matting, posters and framing hardware.
In 1996, art supplies and frames accounted for approximately 26% of
sales.
Fashion Crafts
Clothing - includes adult's and children's T-shirts and
sweatshirts to be decorated with fabric art, as well as related accessories.
Transfers - includes pictures which are ironed or sewn onto
clothing, most of which can be further embellished with glitter and fabric
paints.
Jewelry Making - includes jewelry making components such as
beads, sequins, rhinestones and findings, as well as the tools required to
complete the project.
In 1996, fashion crafts accounted for approximately 10% of sales.
Seasonal Items
Seasonal items include a wide range of merchandise used as decorations
for all major holidays and seasons, including the two most popular holiday
seasons, Christmas and Easter. Other holidays, such as Valentine's Day, St.
Patrick's Day and Halloween also result in significant sales of seasonal
merchandise.
In 1996, seasonal items accounted for approximately 9% of sales.
Purchasing
The Company's purchasing programs are designed to support its business
strategy of providing customers with the broadest and deepest selection of high
quality arts and crafts merchandise at the lowest prices and maintaining high
in-stock positions. In order to manage its inventory of approximately 65,000
SKUs, the Company has organized its product offerings into 26 merchandise
categories. The Company's 14 person corporate buying staff develops corporate
buying programs to establish the merchandise direction for the Company and
creates "planograms" to provide store managers with detailed descriptions and
illustrations of store layout and merchandise presentation. The Company's
product offering at a superstore is often enhanced by merchandise purchased by
that store's manager to meet the unique needs of the superstore's customer base.
The Company monitors these purchases through vendor master file controls. In-
store department managers are responsible for daily reordering of merchandise
and are monitored by store managers. Ordering occurs frequently, and the Company
seeks vendors who can deliver
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<PAGE>
on a timely basis. More than 94% of merchandise orders are placed through the
Company's EDI system. Approximately one-half of orders are shipped directly from
the vendor to the Company's superstores. The remaining one-half, over 40% of
which are floral and seasonal items, are shipped from the Company's distribution
center. An early morning stocking crew unpacks deliveries and stocks merchandise
before the superstore opens.
The Company purchases its inventory from more than 500 vendors
world-wide. The largest 16 suppliers accounted for approximately 44% of the
dollar volume of the Company's purchases in 1996, and the largest supplier,
SBAR'S, accounted for approximately 20% of the dollar volume of the Company's
purchases in 1996. Approximately 8% of the Company's merchandise, primarily
floral and seasonal items, is imported directly from foreign manufacturers or
their agents, principally in the Far East. All of the Company's overseas
purchases are denominated in dollars.
SBAR'S is a large distributor of arts and crafts merchandise, primarily
to independent arts and crafts retailers. SBAR'S maintains an inventory of many
of the items the Company purchases directly from other vendors, thereby allowing
the Company to obtain merchandise from SBAR'S which cannot be delivered by
vendors on a timely basis. SBAR'S maintains a product development and design
department which assists the Company in identifying craft trends, and the
Company often obtains from SBAR's product samples and displays which are
utilized in the Company's superstores to generate customer interest. The Company
has developed a disciplined purchasing and ordering relationship with SBAR'S,
which includes daily reordering and two to five deliveries by SBAR'S per store
each week, depending on the size of the store and time of the year. SBAR'S has
equipped the Company's superstores with handheld scanners to aid in product
re-ordering. Merchandise purchased from SBAR'S typically has a high SKU count
but small dollar volume, requires greater volume purchases from a manufacturer
to obtain competitive pricing or involves a small number of SKUs from individual
vendors with whom it would be impractical for the Company to establish a direct
buying relationship.
The Company's buying operation, led by an Executive Vice President, is
divided into two divisions. One division, headed by an Executive Vice President
assisted by five buyers, handles merchandising for all floral and seasonal
items. The other division, headed by a Senior Vice President assisted by a Vice
President, Merchandise Planning/Advertising and five buyers, is responsible for
merchandising all other items, which comprised approximately 64% of net sales in
1996. Buyers and store management regularly attend trade shows and craft fairs
to monitor industry trends and to obtain new craft ideas.
Superstore Format and Operations
A.C. Moore's superstores are typically located in power strip centers
with convenient parking and are easily accessible from main traffic arteries.
The Company's prototype superstore ranges in size from 20,000 to 25,000 square
feet, with approximately 80% devoted to selling space and the remainder
consisting of delivery, storage, classroom and office areas. Superstores are
typically open from 9:30 am to 9:00 pm, Monday through Saturday and from 10:00
am to 6:00 pm on Sunday.
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Superstores are designed with a layout intended to lead customers
through the entire store in order to expose them to all 26 merchandise
categories. Merchandise is grouped to aid the customer in finding project
related items. Extensive use is made of the endcaps to present the best selling
items. Generally, the center of the superstore contains the floral area, which
includes a counter for floral arrangement and a ribbon center. Superstores also
contain a customer service area, eight to ten registers for quick customer
checkout and a room for classes.
Classes are regularly held on a wide variety of craft skills. Classes
are taught by sales associates as well as outside professionals. Typical classes
provide instruction on oil painting, cake decorating, advanced stamping, and on
making bows, children's beaded necklaces and memory albums. Classes are free of
charge unless there is an extensive use of materials.
A major component of the Company's promotional strategy is its use of
in-store displays and samples. Because many customers browse for new craft
ideas, eye-catching displays of completed craft projects are effective at
motivating impulse purchases. These displays enhance the image of store
departments. Knowledgeable store personnel are available to describe displays in
detail to customers and to offer assistance on related arts and crafts projects.
The Company has three field design coordinators who are responsible for ensuring
high quality floral displays in all superstores.
The Company's Chief Operating Officer is responsible for store
operations and is assisted by three Vice Presidents, each of whom is responsible
for six to eight superstores. Each superstore employs approximately 60 full and
part-time sales associates and is managed by a store manager, assisted by three
associate store managers, each of whom is responsible for approximately
one-third of a superstore's selling space. New superstores are opened by the
Company's new store development team which consists of the Vice President, New
Store Development, a set-up-crew, and staff from the human resources and
planogram departments. The Company seeks to develop the management capabilities
of its managers through both Company training programs and on-the-job training.
In addition, store managers and associate store managers attend several Company-
sponsored conferences each year to refine and develop their skills in
merchandising, merchandise trends, store operations, finance, interviewing,
performance appraisals and general management. Training sessions are also held
for floral designers and classroom coordinators at various times during the
year.
Superstore Locations
As of June 30, 1997, the Company operated eight superstores in
Pennsylvania, six superstores in New Jersey, five superstores in New York and
two superstores in Delaware, all of which are leased. In addition, the Company
has six superstores (one each in Pennsylvania, Connecticut, Massachusetts and
New York and two in New Jersey) under lease, two of which the Company plans to
open in the third quarter of 1997, two of which the Company plans to open in the
fourth quarter of 1997 and two of which the Company plans to open in 1998. Most
superstore leases have an average initial term of ten years, with three five
year renewal options, and provide for predetermined escalations in future
minimum annual rent or additional rent contingent upon store
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sales levels. The pro rata portion of scheduled rent escalations has been
included in other long-term liabilities in the Company's balance sheet.
The following provides information about each of the Company's
superstores and new locations planned for 1997:
Superstore Location Month/Year Opened
------------------- -----------------
Moorestown, NJ January 1985 (relocated in 1993)
English Creek, NJ September 1988
Reading, PA January 1990
Allentown, PA January 1991
Bensalem, PA July 1991
Wilmington, DE February 1992
Broomall, PA July 1992
Edison, NJ August 1992
Binghampton, NY February 1993
Harrisburg, PA August 1993
Brick Town, NJ September 1993
Hamilton, NJ November 1993
Montgomeryville, PA January 1994
Latham, NY April 1994
Lancaster, PA June 1994
Middletown, NY October 1994
Dover, DE March 1996
Exton, PA January 1997
Poughkeepsie, NY February 1997
Deptford, NJ March 1997
Nanuet, NY April 1997
Orange, CT Scheduled to open in third quarter 1997
Parsipanny, NJ Scheduled to open in third quarter 1997
Framingham, MA Scheduled to open in fourth quarter 1997
Scranton, PA Scheduled to open in fourth quarter 1997
The Company selects superstore sites on the basis of various factors,
including physical location, demographics, anchor and other tenants, location
within the center, parking and available lease terms. The Company looks for
co-tenants that generate a high rate of shopping traffic, such
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<PAGE>
as specialty value-oriented women's retailers, leading chain supermarkets,
discount chains, home improvement centers, book superstores and domestics
superstores. The Company believes its superstores are attractive to developers
because they attract high rates of customer traffic and generate above average
net sales per square foot. The Company's superstore site selection process is
headed by a Senior Vice President.
Distribution
The Company's objective of maintaining high in-stock positions in all
merchandise categories in all superstore locations is supported by its
distribution system. Approximately 50% of the selling value of all merchandise
is delivered to stores from the Company's distribution center, 20% is delivered
by SBAR'S and the balance is drop-shipped by other vendors. Deliveries are made
from the Company's distribution center two or three times per week, depending on
superstore size, during eight months of the year and three to five times during
the peak selling season of September through December. The Company maintains its
own leased fleet of tractors and trailers. The Company has contracted with an
outside carrier to deliver to superstores for which deliveries will require an
overnight stay.
This distribution center's mission is to support the Company's
superstores. The distribution center is used strategically to distribute
merchandise which is imported, cannot be delivered by a vendor on a timely basis
or in the small quantities demanded by the store ordering process or is bulky
and, therefore, difficult to store in the superstores. Also, the Company will
order merchandise in large quantities for delivery to the distribution center
when the vendor offers substantial volume discounts or other economic
incentives.
The Company's 120,000 square foot distribution center and adjoining
10,000 square foot office complex in Blackwood, New Jersey is leased for a term
which expires in May, 2002 with an option to renew for six years. Approximately
one-third of the distribution center is used for order picking, with the balance
used for bulk stock storage. The Company believes that the distribution center
will support the Company's planned superstore expansion through the end of 1998.
The distribution center and office complex can be expanded by 120,000 square
feet for both warehouse and office needs.
Currently, the Company is in the process of implementing a distribution
center management system. The Company anticipates completing the installation of
this system in 1997. The system includes the use of handheld computers to record
all merchandise movement throughout the distribution center and to instantly
update inventory records through the use of radio frequency communication. The
Company believes that this new system, which operates in a paperless
environment, will enable the Company to enhance the tracking of inventory in the
distribution center, increase the efficiency of distribution center personnel
and help ensure the distribution center's ability to maintain high in-stock
positions in each of the Company's superstores as the Company expands its
superstore base.
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<PAGE>
Advertising and Promotion
The Company creates its own advertising using photo art scanned into a
Macintosh system supported by Pagemaker(R) software. The Company advertises 52
weeks per year, typically in midweek editions of local and/or regional
newspapers. Approximately three times per year the Company runs multi-page
newspaper inserts in local and regional newspapers. In addition, prior to store
openings, the Company uses radio advertisements to develop customer awareness
and runs "teaser" ads, normal advertising copy and/or grand opening inserts in
newspapers. In 1996, the Company's advertising expenditures were approximately
3% of net sales.
The Company uses in-store displays and samples of completed arts and
crafts projects as a major component of its promotional strategy. Because many
customers browse for new craft ideas, eye-catching displays of completed craft
projects are effective at motivating impulse purchases. The Company also
promotes customer interest in crafting by offering classes on a wide variety of
craft skills.
The Company believes that teachers, who often purchase arts and crafts
merchandise for in-school projects, are an important customer segment. To
generate goodwill, the Company offers teachers who join its Teachers Program a
10% discount on all regularly and sale priced merchandise. Over 250,000 discount
cards have been issued to teachers.
The Company's "Crafty Kids Birthday Club" and "Teen Club" are intended
to develop future crafters as customers. Members of these clubs receive a
birthday card containing a $5.00 gift certificate each year through their
fifteenth birthday. These clubs have over 165,000 members. The Company also
sponsors a "Kids Week" annually in July, during which each store is transformed
into a mini carnival featuring events such as Make It & Take It Home Projects
and Face Painting. This week-long event is free of charge.
Management Information Systems
A.C. Moore operates its accounting, merchandising and distribution
center systems and all computer support functions on a PC-based local area
network ("LAN"), currently with 84 local workstations and 42 remote
workstations. Each superstore has two personal computers linked to the main
office LAN by modem. Connection is made whenever information is sent from the
superstore, such as an order transmission, or for the download of updated
merchandise information. Various other critical functions, such as the annual
distribution center physical inventory and bar-coded tracking of distribution
center stock locations are supported by the LAN.
The Company's management information and control system has been
designed to support the Company's key business objective of maintaining high
in-stock merchandise positions in all of the Company's superstores. The
internally developed system is based upon EDI with most of the Company's vendors
as well as with the Company's distribution center. Stores electronically
transmit their orders via modem to the corporate office where data is
electronically sorted, processed and transmitted to the appropriate vendor.
Orders are also fed automatically into the accounts payable
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system. This system captures daily purchases by SKU. The information is then
used to develop planograms and is integrated into reports for the buyers and
store managers.
Competition
The arts and crafts retailing business is highly competitive. The
Company currently competes against a diverse group of retailers, including
several national and regional chains of arts and crafts retailers (such as
publicly-held Michaels Stores and Frank's Nursery and Crafts and privately-held
M.J. Designs), local merchants that specialize in one or more aspects of arts
and crafts and various mass merchandisers that typically dedicate a portion of
their selling space to a limited selection of arts and crafts items. These mass
merchandisers and some of the national chains have substantially greater
financial resources and operate more stores than the Company.
The Company believes that the principal competitive factors in its
business are pricing, breadth of merchandise selection, in-stock merchandise
position and customer service. The Company believes that it is well positioned
to compete on each of these factors.
Employees
As of June 30, 1997, the Company had 577 full-time and 873 part-time
employees, 1,335 of whom worked at superstores, 44 at the distribution center
and 71 at the corporate offices. None of the Company's employees is covered by a
collective bargaining agreement, and the Company considers its relationship with
its employees to be good.
Trademarks
The Company uses the "A.C. Moore" name as a tradename and as a service
mark in connection with the sale of its merchandise. The Company has applied to
the United States Patent and Trademark Office to register the "A.C. Moore" logo
as a service mark.
Litigation
From time to time, the Company is involved in litigation arising in the
ordinary course of its business. None of the pending litigation, in the opinion
of management, is likely to have a materially adverse effect on the Company's
results of operations or financial condition. The Company maintains general
liability insurance in amounts deemed adequate by management.
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<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth certain information regarding executive
officers, directors and certain other key employees of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive Officers
William Kaplan.......................... 69 Chairman of the Board
John E. (Jack) Parker................... 56 President, Chief Executive Officer and Director
Robert M. Spencer....................... 57 Executive Vice President and Chief Operating Officer
Rex A. Rambo............................ 55 Executive Vice President, Strategic Development,
Merchandising and Marketing
Patricia A. Parker...................... 55 Executive Vice President, Merchandising and Director
Leslie H. Gordon........................ 53 Senior Vice President, Treasurer and Chief Financial
Officer
Janet Parker-Vandenberg................. 34 Senior Vice President, Merchandising
Richard Lesser (1)(2)................... 62 Director
Richard J. Bauer (1).................... 72 Director
Richard J. Drake (2).................... 63 Director
Key Employees
Ivo M. DiPalma.......................... 42 Senior Vice President, Real Estate
Jack A. Robinson........................ 45 Vice President, Store Operations
Mark V. Verseput........................ 35 Vice President, Store Operations
David A. Bellumori...................... 44 Vice President, Store Operations
Frederick W. Thorpe..................... 47 Vice President, New Store Development
Patricia T. Vandenberg.................. 55 Vice President, Human Resources
Lori A. McKeage......................... 35 Vice President, Finance
Louis Grieco............................ 49 Vice President, Merchandise Planning/Advertising
Joette F. Metzler....................... 31 Vice President, Projects and Planning
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Kaplan is a co-founder of the Company and has been Chairman of the
Board of Directors of the Company since its inception. Mr. Kaplan also serves as
the Chairman of the Board of Directors of Regal Bag Corporation, a manufacturer
of women's handbags which he founded in 1947.
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<PAGE>
Mr. Parker is a co-founder of the Company and has been President, Chief
Executive Officer and a director of the Company since its inception. From 1959
to 1984, Mr. Parker worked for the F.W. Woolworth Company ("Woolworth") in
various management positions, most recently as President and Chief Executive
Officer of the U.S. General Merchandise Group where he had responsibility for
more than 1,000 stores, including the entire domestic chain of Woolworth retail
stores. Mr. Parker is the husband of Patricia A. Parker and the father of Janet
Parker-Vandenberg.
Mr. Spencer has been Executive Vice President and Chief Operating
Officer of the Company since September 1996. In February 1996, Mr. Spencer
joined Ben Franklin Crafts Inc., a distributor and retailer of arts and crafts
and other general merchandise ("Ben Franklin"), as part of its attempt to return
to financial health. In July 1996, Ben Franklin filed a petition in bankruptcy
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). From 1993
to 1995, Mr. Spencer was a private investor while subject to the terms of a
non-competition agreement. From 1984 to 1993, Mr. Spencer worked for McCrory
Stores Corp., a retailer of general merchandise, serving in various management
capacities, including President, Chief Executive Officer and Chief Operating
Officer. In February 1992, McCrory Stores Corp. filed a petition in bankruptcy
under Chapter 11. From 1976 to 1982, Mr. Spencer worked for Target Stores, Inc.
in various management capacities, including Regional Merchandise Manager.
Mr. Rambo has been Executive Vice President, Strategic Development,
Merchandising and Marketing of the Company since December 1996. In 1995 and
1996, Mr. Rambo was Executive Vice President, Merchandising and Marketing of
Michaels Stores, Inc., an arts and crafts retailer. From 1992 to 1995, Mr. Rambo
served in various management capacities with Montgomery Ward & Co. and its
affiliates, first, from 1992 to 1994 as a Vice President of Montgomery Ward and
most recently as President and Chief Operating Officer of Montgomery Ward's
subsidiary Lechmere, Inc., a retailer of electronics and other home products. In
July 1997, Lechmere, Inc. filed a petition in bankruptcy under Chapter 11. From
1963 to 1992, Mr. Rambo worked for Sears, Roebuck and Co. in various management
capacities, including National Marketing Manager.
Ms. Parker has been Executive Vice President, Merchandising of the
Company since September 1990. From 1985 to 1990, she served as a Vice President
of the Company. Ms. Parker is responsible for purchasing all floral and seasonal
merchandise and the Company's import purchasing program. Ms. Parker is the wife
of Jack Parker.
Mr. Gordon has been Senior Vice President, Treasurer and Chief
Financial Officer of the Company since March 1996. From 1992 to 1995, Mr. Gordon
was Senior Vice President, Finance of C & J Clark America, Inc., a shoe
manufacturer, wholesaler and retailer. From 1986 to 1992, Mr. Gordon served as
Senior Vice President, Finance of SILO, Inc., an electronics retailer.
Ms. Parker-Vandenberg has been Senior Vice President, Merchandising of
the Company since 1994. From 1990 to 1994, Ms. Parker-Vandenberg served as Vice
President of Administration of the Company, and from 1985 to 1990, she was the
Company's Accounting Manager. Ms. Parker-Vandenberg is the daughter of Jack and
Patricia A. Parker.
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<PAGE>
Mr. Lesser has been a director of the Company since March 1993. He is
currently Executive Vice President and Chief Operating Officer of The TJX
Companies, Inc., a New York Stock Exchange traded retail company. Mr. Lesser is
a director of Reebok International, a New York Stock Exchange traded shoe and
apparel manufacturer.
Mr. Bauer has been a director of the Company since September 1990. Mr.
Bauer is President and Chief Executive Officer of Eastern Alloys, Inc. an
independent zinc alloyer, which he founded in 1965. Mr. Bauer is the co-founder
and current Chairman of the Board of Service Aluminum Corporation, an aluminum
trading company. Mr. Bauer has been a member of the Regional Board of Directors
of the Bank of New York since 1989.
Mr. Drake has been a director of the Company since its founding. He is
President of Drake, Sommers, Loeb, Tarshis & Catania, P.C., a professional
corporation which renders legal services.
Mr. DiPalma has been Senior Vice President, Real Estate of the Company
since September 1996. From 1992 to 1996, Mr. DiPalma served as Senior Vice
President, Store Operations of the Company and from 1990 to 1992 he was Vice
President, Operations of the Company.
Mr. Robinson has been Vice President, Store Operations of the Company
since January 1993. From October 1990 to December 1992, Mr. Robinson served as a
store manager of one of the Company's superstores.
Mr. Verseput has been Vice President, Store Operations of the Company
since 1995. From 1992 to 1995, Mr. Verseput served as Director of Sales of the
Company and from 1988 to 1992, he was a store manager of one of the Company's
superstores.
Mr. Bellumori has been Vice President, Store Operations of the Company
since January 1997. From 1993 to 1997, Mr. Bellumori was a store manager of one
of the Company's superstores. From 1974 to 1993, Mr. Bellumori worked for
Woolworth where he served in various capacities including district manager.
Mr. Thorpe has been Vice President, New Store Development of the
Company since January 1997. From October 1994 to 1997, Mr. Thorpe served as Vice
President, Store Operations of the Company and from September 1991 to 1994, he
was Director of Development of the Company.
Ms. Vandenberg has been Vice President, Human Resources since March
1996. From September 1991 to 1996, Ms. Vandenberg served as Director of Human
Resources of the Company.
Ms. McKeage has been Vice President, Finance of the Company since May
1992. From September 1990 to 1992, Ms. McKeage served as Treasurer of the
Company and from 1989 to 1990, she served as Controller of the Company.
Mr. Grieco has been Vice President, Merchandise Planning/Advertising of
the Company since January 1994. From 1987 to 1993, Mr. Grieco served as General
Merchandise Manager for
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Carrefour USA, a retail hypermarket, and from 1979 to 1987, he served as
Divisional Merchandise Manager of Pomeroy's Department Store.
Ms. Metzler has been Vice President, Projects and Planning of the
Company since March 1997. From 1993 to 1997, Ms. Metzler was Projects and
Planning Coordinator of the Company.
The Board of Directors and Committees
Board Reorganization. Following completion of this offering, the Board
of Directors will be reorganized by dividing the Board into three classes. Class
A will consist of Richard J. Bauer and Richard J. Drake, whose terms will expire
at the Company's 1998 annual meeting of shareholders. Class B will consist of
Richard Lesser and Patricia A. Parker, whose terms will expire at the 1999
annual meeting of shareholders. Class C will consist of William Kaplan and John
E. Parker, whose terms will expire at the annual meeting of shareholders held in
2000. Beginning with the 1998 annual meeting of shareholders, directors whose
terms are expiring will be elected to serve for three-year terms.
Compensation Committee. The Board of Directors has established a
Compensation Committee, which provides recommendations concerning salaries and
incentive compensation for employees of the Company and administers the 1997
Plan. The current members of the Compensation Committee are Messrs. Bauer and
Lesser.
Audit Committee. The Board of Directors has established an Audit
Committee, which reviews the results and scope of the annual audit of the
Company's financial statements, proposed changes in the Company's financial and
accounting standards and principles and the Company's policies and procedures
with respect to its internal accounting and financial controls. The Audit
Committee also makes recommendations to the Board of Directors on the engagement
of the Company's independent accountants as well as other matters which may come
before the Committee or at the direction of the Board of Directors. The current
members of the Audit Committee are Messrs. Drake and Lesser.
Director Compensation
Except for Mr. Kaplan, the Chairman of the Board, who receives annual
director's compensation of $150,000, directors who are not officers, employees
or consultants of the Company receive $400 cash compensation for each Board of
Directors meeting and $400 for each committee meeting (except for committee
meetings held in conjunction with regular board meetings) at which they are
present, not to exceed $800 per director in any calendar year with respect to
committee meetings. In addition, all directors are reimbursed for their
reasonable expenses in connection with the performance of their duties.
Messrs. Bauer and Drake, directors of the Company, have each been
granted an option to acquire 10,000 shares of Common Stock under the 1997 Plan.
In 1995, Mr. Lesser, a director of the
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Company, was granted the Director's Option which is exercisable for 64,500
shares of Common Stock at an exercise price of $4.66 per share. The Director's
Option expires on February 28, 2005.
Executive Compensation
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the other four most highly compensated
officers of the Company (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Company during 1996:
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------
Name and All Other
Principal Position Salary Bonus Compensation
- ----------------------------------------------------------- ---------------- ---------------- -------------------
<S> <C> <C> <C>
Jack Parker............................................... $200,000 -- $ 19,682 (1)
President, Chief Executive Officer
Robert M. Spencer (2)...................................... 100,000 -- --
Executive Vice President, Chief Operating Officer
Patricia A. Parker......................................... 200,000 -- 19,682 (1)
Executive Vice President, Merchandising
Leslie H. Gordon (3)....................................... 138,542 $13,452 --
Senior Vice President, Treasurer and
Chief Financial Officer
Janet Parker-Vandenberg.................................... 124,600 6,000 --
Senior Vice President, Merchandising
</TABLE>
- ----------
(1) Reflects one-half of the value of the benefit to Jack Parker and Patricia
Parker of the premium paid by the Company for a split- dollar second-to-die
life insurance policy.
(2) Mr. Spencer joined the Company on September 2, 1996, and his base
compensation for 1997 is $300,000.
(3) Mr. Gordon joined the Company on March 18, 1996, and his base compensation
for 1997 is $192,000.
Stock Option Plan
In July 1997, the Company adopted, and the shareholders approved, the
1997 Plan. The purpose of the 1997 Plan is to attract and retain key employees,
directors, and certain consultants and to provide additional incentive to them
by encouraging them to invest in the Common Stock and acquire an increased
personal interest in the Company's business. Options exercisable for an
aggregate of 1,000,000 shares of Common Stock may be granted under the 1997
Plan. Options to purchase an aggregate of 444,500 shares of Common Stock have
been granted under the 1997 Plan at an exercise price of $9.00 per share,
including options to purchase 35,000 shares of Common Stock granted to each of
Messrs. Spencer, Rambo and Gordon and options to purchase 20,000 shares of
Common Stock granted to Ms. Parker-Vandenberg.
The 1997 Plan is administered by the Board of Directors. The Board of
Directors may delegate its authority to administer the 1997 Plan to a committee
of the Board of Directors. The Board of Directors will interpret the provisions
of the 1997 Plan, select the optionees and will
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<PAGE>
determine the nature of the option granted, the number of shares subject to each
option, the option vesting schedule and other terms and conditions of each
option.
The Board of Directors may amend or supplement the 1997 Plan and
outstanding options. Payment of the exercise price for options granted under the
1997 Plan may be made in cash, shares of Common Stock or by delivery of an
interest bearing recourse note or a combination of cash, Common Stock and/or
recourse note. All options granted under the 1997 Plan are exercisable in
accordance with a vesting schedule which is set at the time of the issuance of
the option and, except as indicated below, incentive stock options may not be
exercised more than ten years from the date of grant.
Options granted under the 1997 Plan may be incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or options not intended to qualify. The 1997 Plan requires
the exercise price of incentive stock options to be at least equal to the fair
market value of the Common Stock on the date of the grant. In the case of
incentive stock options granted to a shareholder owning, directly or indirectly,
in excess of 10% of the Common Stock, the incentive stock option exercise price
must be at least equal to 110% of the fair market value of the Common Stock on
the date of grant and such incentive stock option may not be exercised more than
five years from the date of grant.
All unexercised incentive stock options terminate no later than three
months following the date on which an optionee's employment by, or relationship
with, the Company or any parent or subsidiary of the Company, terminates other
than by reason of "for cause" (as defined in the 1997 Plan), disability or death
(but not later than the expiration date) whether or not such termination is
voluntary. Any option held by an employee who dies or who ceases to be employed
because of disability must be exercised by the employee or his representative
with one year after the employee dies or ceases to be an employee (but not later
than the scheduled termination date). Options are not transferable except to the
decedent's estate in the event of death. No additional incentive stock options
may be granted under the Plan after July 2007.
Severance Arrangement
The Company has agreed to pay Leslie H. Gordon a lump sum equal to one
year of his then current salary if Mr. Gordon's employment is terminated without
cause.
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<PAGE>
CERTAIN TRANSACTIONS
Richard J. Drake, a director of the Company, is a member of a law firm
which the Company has retained during 1996 and which the Company intends to
retain during 1997.
In 1996, the Company reimbursed Regal Bag Corporation ("Regal")
$166,495 for Regal's cost and expense in providing clerical and mailing services
to the Company related to the Company's Teacher's Program, "Crafty Kid's Club"
and "Teen Club." William Kaplan, a director of the Company, is an executive
officer and principal shareholder of Regal. The Company intends to continue to
utilize the clerical and mailing services of Regal after completion of this
offering.
As of June 30, 1997, the Company was indebted to each of Messrs. Kaplan
and Parker in the aggregate principal amount of $7,400,000. This indebtedness is
non-interest bearing and will be repaid with a portion of the proceeds from this
Offering. See "Use of Proceeds."
It is the Company's policy that all material transactions between the
Company and its officers, directors and other affiliates must be approved by a
majority of the disinterested members of the Company's Board of Directors and be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of immediately prior to
and immediately after completion of this offering relating to beneficial
ownership of the Company's Common Stock by the current shareholders of the
Company, each of the directors, each of the executive officers and all directors
and executive officers as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1) Shares Beneficially Owned(1)
Prior to Offering After Offering
--------------------------------- --------------------------------
Name and Address Number Percent Number Percent
- -------------------------------------------- ------------------ ------------- ----------------- -------------
<S> <C> <C> <C> <C>
William Kaplan (2) ......................... 2,150,000 50.0% 2,150,000 30.7%
Jack Parker (2)............................. 2,150,000 50.0% 2,150,000 30.7%
Robert M. Spencer........................... -- -- -- --
Rex A. Rambo................................ -- -- -- --
Patricia A. Parker (2)...................... 2,150,000(3) 50.0% 2,150,000(3) 30.7%
Leslie H. Gordon............................ -- -- -- --
Janet Parker-Vandenberg..................... -- -- -- --
Richard Lesser.............................. 64,500(4) 1.5% 64,500(4) *
Richard J. Bauer............................ -- -- -- --
Richard J. Drake............................ -- -- -- --
All executive officers and directors as
a group (10 persons)........................ 4,364,500 100% 4,364,500 61.8%
</TABLE>
- ----------
* Denotes less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and includes voting or investment
power with respect to the Common Stock. Shares of Common Stock issuable upon the
exercise of securities currently exercisable or exercisable within 60 days of
the date hereof are deemed outstanding for computing the share ownership and
percentage ownership of the person holding such securities, but are not deemed
outstanding for computing the percentage of any other person. The persons named
in the table above have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them.
(2) The address of each of Messrs. Kaplan and Parker and Ms. Parker is 500
University Court, Blackwood, New Jersey 08012.
(3) In accordance with the SEC's rules Ms. Parker is deemed to be the beneficial
owner of the shares owned of record by her husband, Jack Parker. Ms. Parker
disclaims beneficial ownership of these shares.
(4) Represents 64,500 shares of Common Stock which may be acquired upon the
exercise of currently exercisable options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock,
no par value, and 5,000,000 shares of Preferred Stock, no par value, issuable in
series, the relative rights, limitations and preferences of which may be
designated by the Board of Directors ("Preferred Stock"). As of the date of this
Prospectus, 4,300,000 shares of Common Stock were issued and outstanding and
held of record by two shareholders and no shares of Preferred Stock were
outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, the holders of Common Stock
are entitled, among other things, (i) to share ratably in dividends if, when and
as declared by the Board of Directors out of funds legally available therefor;
and (ii) in the event of liquidation, dissolution or winding-up of the Company
to share ratably in the distribution of assets legally available therefor, after
payment of debts and expenses. The holders of Common Stock do not have
cumulative voting rights in the election of directors and have no preemptive
rights to subscribe for additional shares of capital stock of the Company. All
currently outstanding shares of the Common Stock are, and the shares offered
hereby, when sold in the manner contemplated by this Prospectus will be, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to the terms of any series of Preferred Stock which the
Company may issue in the future.
Preferred Stock
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Articles and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares, to change the number of shares constituting any
series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the shareholders. The Company has no current plans to issue any shares of
Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may
-46-
<PAGE>
be convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may adversely
affect the market price of the Common Stock.
Anti-Takeover Provisions
The Company's Articles and Bylaws contain several provisions intended
to limit the possibility of, or make more difficult, a takeover of the Company.
In addition to providing for a classified Board of Directors and the issuance of
Preferred Stock having terms established by the Board of Directors without
shareholder approval, the Articles provide that: (i) at least 80% of the votes
entitled to be cast by shareholders is required to approve amendments to the
Bylaws, unless at least a majority of the incumbent directors on the Board of
Directors has voted in favor of the amendment, in which case only a majority of
the votes cast by shareholders is required to approve the amendment, (ii)
directors can be removed only for cause and only by a vote of at least 80% of
the votes entitled to be cast by shareholders, and (iii) the shareholders of the
Company are not entitled to call special meetings of the shareholders. In
addition, the Articles provide that actions by shareholders without a meeting
must receive the unanimous written consent of all shareholders. The Articles
also permit the Board of Directors to oppose, in its sole discretion, a tender
offer or other offer for the Company's securities and to take into consideration
all pertinent issues. Should the Board of Directors determine to reject such an
offer, it may take any lawful action to accomplish its purpose, including, among
other things, advising shareholders not to accept the offer and commencing
litigation against the offeror. The Company's Bylaws establish procedures for
the nomination of directors by shareholders and the proposal by shareholders of
matters to be considered at meetings of the shareholders, including the
submission of certain information within the times prescribed in the Bylaws.
In addition, under the Pennsylvania Business Corporation Law of 1988,
as amended (the "BCL"), subject to certain exceptions, a business combination
between a Pennsylvania corporation and a person owning 20% or more of such
corporation's voting stock (an "interested person") may be accomplished only if:
(i) the business combination is approved by the corporation's directors prior to
the date on which such person acquired 20% or more of such stock, or if the
board approved such person's acquisition of 20% or more of such stock, prior to
such acquisition; (ii) the interested person owns shares entitled to cast at
least 80% of the votes all shareholders would be entitled to cast in the
election of directors, the business combination is approved by the vote of
shareholders entitled to cast a majority of votes that all shareholders would be
entitled to cast in an election of directors (excluding shares held by the
interested person), which vote may occur no earlier than three months after the
interested person acquired its 80% ownership, and the consideration received by
shareholders in the business combination satisfies certain minimum conditions;
(iii) the business combination is approved by the affirmative vote of all
outstanding shares of common stock; or (iv) the business combination is approved
by the vote of shareholders entitled to cast a majority of the votes that all
shareholders would be entitled to cast in the election of directors (excluding
shares held by the interested person), which vote may occur no earlier than five
years after the interested person became an interested person. A corporation may
exempt itself from this provision by an amendment to its articles of
incorporation that requires shareholder approval. The Articles do not
-47-
<PAGE>
provide an exemption from this provision. Pennsylvania has also adopted other
anti-takeover legislation from which the Company has elected to exempt itself in
the Articles.
The BCL also provides that the directors of a corporation, in making
decisions concerning takeovers or any other matters, may consider, to the extent
that they deem appropriate, among other things, (i) the effects of any proposed
transaction upon any or all groups affected by such action, including, among
others, shareholders, employees, suppliers, customers and creditors, (ii) the
short-term and long-term interests of the corporation and (iii) the resources,
intent and conduct of the person seeking control.
The existence of the foregoing provisions of the Articles, Bylaws and
BCL may discourage other persons or companies from making a tender offer for, or
seeking to acquire substantial amounts of the Company's Common Stock.
Limitations on Directors' Liabilities and Indemnification
As permitted by the BCL, the Company's Bylaws provide that a director
shall not be personally liable in such capacity for monetary damages for any
action taken, or any failure to take any action, unless the director breaches or
fails to perform the duties of his or her office under the BCL and the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
These provisions of the Bylaws, however, do not apply to the responsibility or
liability of a director pursuant to any criminal statute, or to the liability of
a director for the payment of taxes pursuant to local, Pennsylvania or federal
law. These provisions offer persons who serve on the Board of Directors of the
Company protection against awards of monetary damages for negligence in the
performance of their duties.
The Bylaws also provide that every person who is or was a director or
executive officer of the Company, or of any corporation which he served as such
at the request of the Company, shall be indemnified by the Company to the
fullest extent permitted by law against all expenses and liabilities reasonably
incurred by or imposed upon him, in connection with any proceeding to which he
may be made, or threatened to be made, a party, or in which he may become
involved by reason of his being or having been a director or executive officer
of the Company, or of such other corporation, whether or not he is a director or
executive officer of the Company or such other corporation at the time the
expenses or liabilities are incurred. No indemnification shall be provided,
however, with respect to: liabilities arising under Section 16(b) of the
Securities Exchange Act of 1934, as amended, if a final unappealable judgment or
award establishes that such officer or director engaged in self-dealing, willful
misconduct or recklessness, for expenses or liabilities which have been paid
directly to, or for the benefit of, such person by an insurance carrier or for
amounts paid in settlement of actions without the written consent of the Board
of Directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is StockTrans,
Inc., Ardmore, Pennsylvania.
-48-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 7,000,000 shares
of Common Stock outstanding. All shares of Common Stock being sold hereby will
be freely tradable without restriction or further registration under the
Securities Act, except for shares purchased by "affiliates" of the Company which
will be subject to the resale and volume limitations of Rule 144 under the
Securities Act ("Rule 144"). All remaining shares were issued and sold by the
Company in private transactions and are "restricted" stock within the meaning of
Rule 144. Consequently, such shares may not be resold unless they are registered
under the Securities Act or are sold pursuant to an applicable exemption from
registration, such as Rule 144 or Rule 144A under the Securities Act ("Rule
144A"). The Company and all its existing shareholders who will beneficially own
4,300,000 shares of Common Stock immediately following this offering have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated.
In general, under Rule 144 as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned
"restricted" shares (as defined under Rule 144) for at least one year, and any
affiliate who owns shares that are not "restricted" shares, is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (i) one percent (70,000) of the then outstanding shares of Common
Stock or (ii) the average weekly trading volume of the Common Stock reported
through the Nasdaq Stock Market during the four calendar weeks preceding the
date on which notice of the sale is filed with the SEC. Sales under Rule 144 are
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. In addition, a
shareholder who is not deemed an affiliate of the Company at any time during the
90 days preceding a sale and who has beneficially owned his shares for at least
two years, is entitled to sell such shares under Rule 144(k) without regard to
volume limitations, manner of sale provisions, notice requirements or the
availability of current public information concerning the Company. Rule 144A
under the Securities Act permits the immediate sale by the current holders of
"restricted " shares of all or a portion of their shares to certain qualified
institutional buyers, as defined in Rule 144A.
The Company has granted options to purchase an aggregate of 509,000
shares of Common Stock to certain directors, officers and key employees pursuant
to the 1997 Plan and the Director's Option. The Company intends to file a
Registration Statement on Form S-8 under the Securities Act to register the
shares of Common Stock reserved for issuance under the 1997 Plan. After the
effective date of such Registration Statement, shares of Common Stock issued
under the 1997 Plan, subject to the terms of the 1997 Plan and any agreements
entered into pursuant to the terms of the 1997 Plan, will be available for sale
in the open market by holders who are not affiliates of the Company.
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurances with respect to the effect, if any, that
public sales of shares or the availability of shares will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market following this offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock.
-49-
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Alex. Brown & Sons Incorporated and Janney Montgomery Scott Inc. (the
"Representatives"), have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
Underwriters Number of Shares
------------ ----------------
Alex. Brown & Sons Incorporated .............
Janney Montgomery Scott Inc. ................
---------
Total .......................................... 2,700,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
commencement of this offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 405,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the
-50-
<PAGE>
cover page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 2,700,000 and the
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered hereby.
If purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 2,700,000 shares are being offered.
To facilitate the offering of the Common Stock, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Stock. Specifically, the Underwriters may over-allot shares of Common
Stock in connection with the offering, thereby creating a short position in the
Underwriters' syndicate account. In addition, to cover such over-allotments or
to stabilize the market price of the Common Stock, the Underwriters may bid for,
and purchase, shares of Common Stock in the open market. Any of these activities
may maintain the market price of the Common Stock at a level above that which
might otherwise prevail in the open market. The Underwriters are not required to
engage in these activities, and, if commenced, any such activities may be
discontinued at any time. The Representatives on behalf of the Underwriters also
may reclaim selling concessions allowed to an underwriter or dealer, if the
syndicate repurchases shares distributed by that Underwriter or dealer.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed that it will not sell or offer any shares of
Common Stock or options, rights or warrants to acquire any Common Stock for a
period of 180 days after the date of this Prospectus, except for shares issued
(i) in connection with acquisitions or (ii) pursuant to the exercise of options
granted under the 1997 Plan, without the prior written consent of Alex. Brown &
Sons Incorporated. Further, the Company and all of its existing shareholders,
who beneficially own 4,300,000 shares of Common Stock in the aggregate have
agreed not to sell, contract to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of Alex. Brown & Sons Incorporated. See "Shares
Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do
not intend to confirm sales to any account over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiation between the Company and the Representatives.
Among the factors considered in such negotiations were prevailing market
conditions, the results of operations of the Company in recent periods, the
market capitalizations and stages of development of other companies that the
Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.
-51-
<PAGE>
LEGAL MATTERS
An opinion will be delivered by Blank Rome Comisky & McCauley,
Philadelphia, Pennsylvania to the effect that the shares of Common Stock being
offered hereby will, when issued as contemplated in this Prospectus, be validly
issued, fully paid and non-assessable. Certain legal matters related to this
offering will be passed upon for the Underwriters by Piper & Marbury L.L.P.,
Baltimore, Maryland.
EXPERTS
The financial statements as of December 31, 1996 and 1995, and for each
of the years in the three-year period ended December 31, 1996, included in this
Prospectus have been so included in reliance upon the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Securities Act relating
to the Common Stock offered hereby has been filed by the Company with the SEC in
Washington, D.C. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain portions having been omitted from this Prospectus in accordance with the
rules and regulations of the Commission. Statements contained in this Prospectus
concerning the contents of any contract or any other document referred to are
not necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement, exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. The
Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located in New York at
Seven World Trade Center, New York, N.Y. 10007 and in Chicago at Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such materials, including the Registration Statement, can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission also maintains a World Wide Web
site that contains reports , proxy and information statements, and other
information regarding registrants that file electronically with the Commission.
The site and this Registration Statement may be accessed at http://www.sec.gov.
Copies of the Registration Statement may also be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
-52-
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.....................................................................F-2
Balance Sheet at December 31, 1995 and 1996, at June 30, 1997 (unaudited)
and Pro Forma at June 30, 1997 (unaudited)..........................................................F-3
Statement of Income for each of the three years in the period ended December
31, 1996 and for the six months ended June 30, 1996 and
1997 (unaudited)....................................................................................F-4
Statement of Changes in Shareholders' Equity for each of the three years in
the period ended December 31, 1996 and the six months ended
June 30, 1997 (unaudited)...........................................................................F-5
Statement of Cash Flows for each of the three years in the period ended
December 31, 1996 and for the six months ended June 30, 1996
and 1997 (unaudited)................................................................................F-6
Notes to Financial Statements.........................................................................F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
A.C. Moore Arts & Crafts, Inc.
In our opinion, the accompanying balance sheet and the related statements
of income, changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of A.C. Moore Arts & Crafts, Inc.
at December 31, 1995 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
February 28, 1997, except for
Note 11 which is as of
July 18, 1997
F-2
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
BALANCE SHEET
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30, 1997
------------------------- -----------------------------
1995 1996 Actual Pro Forma
---- ---- ------ ---------
(Note 3)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................... $ 5,875 $ 6,431 $ 917 $ 917
Accounts receivable ........................... 174 162 221 221
Inventories ................................... 23,659 25,255 30,550 30,550
Prepaid expenses and other
current assets ............................. 392 361 569 569
------- ------- ------- -------
30,100 32,209 32,257 32,257
Property and equipment, net ...................... 4,008 5,114 6,234 6,234
Other assets, net ................................ 463 476 480 480
------- ------- ------- -------
$34,571 $37,799 $38,971 $38,971
======= ======= ======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Borrowings under line of credit ............... $ -- $ -- $ 4,875 $ 4,875
Current portion of long-term debt ............. 776 1,857 1,857 1,857
Trade accounts payable ........................ 5,899 6,226 7,257 7,257
Accrued payroll ............................... 1,632 1,795 1,054 1,054
Accrued income, payroll and
sales taxes ................................ 830 1,022 660 660
Accrued expenses .............................. 739 712 770 820
------- ------- ------- -------
9,876 11,612 16,473 16,523
------- ------- ------- -------
Long-term liabilities:
Long-term debt ................................ 8,510 6,653 5,725 5,725
Loans from shareholders - subordinated ........ 7,595 11,095 14,800 14,800
Deferred tax liability ........................ -- -- -- 659
Other long-term liabilities ................... 834 947 1,064 1,064
------- ------- ------- -------
16,939 18,695 21,589 22,248
------- ------- ------- -------
26,815 30,307 38,062 38,771
------- ------- ------- -------
Commitments and Contingencies (Note 10)
Shareholders' equity:
Preferred stock, no par value, 5,000,000
shares authorized, none issued ............. -- -- -- --
Common stock, no par value, 20,000,000
shares authorized, 4,300,000 shares
outstanding at December 31, 1995
and 1996 and June 30, 1997 ................. 200 200 200 200
Retained earnings ............................. 7,556 7,292 709 --
------- ------- ------- -------
7,756 7,492 909 200
------- ------- ------- -------
$34,571 $37,799 $38,971 $38,971
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
STATEMENT OF INCOME
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------- ------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales ....................... $ 86,376 $ 100,106 $ 109,319 $ 44,979 $ 53,657
Cost of sales (including buying
and distribution costs) .... 54,690 63,344 69,195 28,738 33,961
--------- --------- --------- --------- ---------
Gross margin .................... 31,686 36,762 40,124 16,241 19,696
Operating expenses:
Store operating .............. 22,430 25,688 27,476 12,891 15,185
General and administrative ... 3,472 3,826 5,565 2,742 3,369
Pre-opening expense .......... 575 -- 140 140 709
--------- --------- --------- --------- ---------
Income from operations .......... 5,209 7,248 6,943 468 433
Interest expense ............. 639 841 700 357 330
Interest (income) ............ (47) (81) (143) (96) (50)
--------- --------- --------- --------- ---------
Income before income taxes ...... 4,617 6,488 6,386 207 153
State income tax expense ..... 37 79 80 17 7
--------- --------- --------- --------- ---------
Net income ...................... $ 4,580 $ 6,409 $ 6,306 $ 190 $ 146
========= ========= ========= ========= =========
Pro forma and supplemental income
data (unaudited) (Note 3):
Income before income taxes, as
reported ..................... $ 4,617 $ 6,488 $ 6,386 $ 207 $ 153
Pro forma income tax provision 1,922 2,648 2,569 83 61
--------- --------- --------- --------- ---------
Pro forma net income ............ $ 2,695 $ 3,840 $ 3,817 $ 124 $ 92
========= ========= ========= ========= =========
Pro forma net income per share .. $ 0.84 $ 0.02
========= =========
Pro forma weighted average shares
outstanding....................... 4,532,413 4,532,413
Supplemental pro forma
net income per share............ $ 0.69 $ 0.04
========= =========
Supplemental pro forma
weighted average shares
outstanding..................... 6,181,753 6,479,038
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
Balance, December 31, 1993.................... $ 200 $ (841) $ (641)
Net income.................................... -- 4,580 4,580
Distributions to shareholders................. -- (24) (24)
---------- ---------------- --------------
Balance, December 31, 1994.................... 200 3,715 3,915
Net income.................................... -- 6,409 6,409
Distributions to shareholders................. -- (2,568) (2,568)
---------- ---------------- --------------
Balance, December 31, 1995.................... 200 7,556 7,756
Net income.................................... -- 6,306 6,306
Distributions to shareholders................. -- (6,570) (6,570)
---------- ---------------- --------------
Balance, December 31, 1996.................... 200 7,292 7,492
Unaudited:
Net income.................................... -- 146 146
Distributions to shareholders................. -- (6,729) (6,729)
---------- ---------------- --------------
Balance, June 30, 1997 (unaudited)............ $ 200 $ 709 $ 909
========== =============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................ $4,580 $6,409 $6,306 $190 $146
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization. . 778 975 1,145 545 670
Changes in assets and liabilities:
Accounts receivable. . . . . . (2) (94) 12 65 (59)
Inventories................ (4,759) (3,028) (1,596) (1) (5,295)
Prepaid expenses and other
current assets.......... 165 (41) 31 41 (208)
Accounts payable and
accrued expenses........ (355) (133) 656 (2,018) (14)
Other assets............... (75) (56) (13) 3 (4)
Other long-term liabilities 214 158 112 51 116
-------- -------- -------- --------- --------
Net cash provided by (used in)
operating activities............ 546 4,190 6,653 (1,124) (4,648)
-------- -------- -------- -------- --------
Cash flows (used in) investing activities:
Capital expenditures............... (1,678) (853) (2,251) (894) (1,789)
-------- --------- -------- -------- --------
Cash flows from financing activities:
Proceeds from line of credit....... -- -- -- -- 4,875
Proceeds from shareholders' loans.. -- -- 3,500 3,500 3,705
Proceeds from long-term debt....... 12,922 3,380 -- -- --
Repayment of long-term debt........ (9,306) (3,397) (776) (2) (928)
Distributions to shareholders...... (24) (2,568) (6,570) (6,442) (6,729)
---------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities............... 3,592 (2,585) (3,846) (2,944) 923
-------- ------- ------- ------- --------
Net increase (decrease) in cash....... 2,460 752 556 (4,962) (5,514)
Cash and cash equivalents
at beginning of year............... 2,663 5,123 5,875 5,875 6,431
-------- ------- -------- ------- -------
Cash and cash equivalents
at end of year..................... $ 5,123 $ 5,875 $ 6,431 $ 913 $ 917
======= ======= ======= ======= =======
Cash paid during the year for:
Interest .......................... $ 639 $ 838 $ 709 $ 357 $ 330
======= ======= ======= ======= =======
Income taxes....................... $ 30 $ 41 $ 82 $ 79 $ 30
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Operations
A.C. Moore Arts & Crafts, Inc. became a holding company in July 1997 by
incorporating in Pennsylvania and exchanging 4,300,000 shares of its common
stock pro rata for all of the capital stock of A.C. Moore Incorporated held by
its shareholders (the "Reorganization"). A.C. Moore Arts & Crafts, Inc. and its
operating subsidiary, A.C. Moore Incorporated, are collectively referred to as
the "Company." As of June 30, 1997, A.C. Moore Incorporated, a Delaware
corporation formed in June 1984, operated a 21 store chain of retail arts and
crafts stores in the mid-Atlantic and Northeast regions. Four of these stores
were opened in 1997.
The Company's Board of Directors approved an initial public offering of
the Company's common stock. The Company intends to file a Registration Statement
on Form S-1 with the Securities and Exchange Commission (the "Offering"). The
effects of the S Corporation distribution and a charge to recognize deferred
income taxes are reflected in the unaudited pro forma balance sheet as of June
30, 1997 (see Note 3).
2. Summary of Significant Accounting Policies
Cash and cash equivalents. Cash and cash equivalents are stated at cost
which approximates market value. Cash equivalents include only securities having
a maturity of three months or less at the time of purchase.
Concentration of credit risk. Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and cash
equivalents. The Company limits its credit risk associated with cash and cash
equivalents by placing its investments in highly liquid funds.
Inventories. Inventories, which consist of general consumer merchandise
held for sale, are stated at the lower of cost or market. The cost of store
inventories is determined by the retail inventory method. Warehouse inventories
are determined on a first-in, first-out basis.
The Company includes as inventoriable costs certain indirect costs,
principally purchasing, warehousing and distribution. Inventories at December
31, 1995 and 1996 include $607,000 and $986,000 of such costs, respectively.
Property and equipment. Property and equipment are stated at cost.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets. Furniture, fixtures and equipment are depreciated over
periods of five to seven years and leasehold improvements are depreciated over
the shorter of their estimated useful lives or the term of the related lease.
Maintenance and repairs are charged to operations as incurred and major
improvements are capitalized. When property and equipment are retired or sold,
the cost and related accumulated depreciation are removed from the accounts and
the net amount, less any proceeds from disposal, is reflected in income.
Capitalized software costs. Purchased software and internally developed
software costs are capitalized and amortized over the estimated economic life of
the asset, generally five years.
F-7
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Approximately $91,000, $131,000 and $85,000 of internally developed software
costs were capitalized during 1994, 1995 and 1996, respectively.
Long-lived assets. In March 1995, Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," was issued. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
or disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. During 1996, the Company adopted this statement and determined
that no impairment loss need be recognized for applicable assets of continuing
operations.
Income taxes. The Company utilizes the liability method of accounting
for state income taxes. Under this method, deferred tax liabilities and assets
are recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
The Company elected to be taxed under the S Corporation provisions of
the Internal Revenue Code. Historically, the shareholders of the Company
included their pro rata share of income or loss in their individual returns. A
portion of the distributions to shareholders was related to their individual
income tax liabilities, resulting from S Corporation taxable earnings. Effective
with the completion of the Offering, the Company's S Corporation status will be
converted to C Corporation status and the Company's subsequent earnings will be
subject to corporate taxes (see Note 3).
Lease acquisition fees. Lease acquisition fees are being amortized on a
straight-line basis over the respective lease terms. No new lease acquisition
fees were incurred for lease agreements entered into during the three years
ended 1996.
Store pre-opening expenses. Direct incremental costs incurred to
prepare a store for opening are deferred until the quarter the store opens at
which time such costs are fully charged to expense. Deferred pre-opening
expenses were $45,000 at December 31, 1996. No such expense was deferred at
December 31, 1995 or 1994.
F-8
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Advertising costs. The costs incurred for advertising are expensed the
first time the advertising takes place and are offset by reimbursements received
under cooperative advertising programs with certain vendors. Net advertising
expense during 1994, 1995 and 1996 was $2,402,000, $2,808,000 and $2,985,000,
respectively.
Accounting for stock-based compensation. In October 1995, SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued. This
statement required the fair value of stock options and other stock-based
compensation issued either to be recognized as compensation expense in the
statement of income or to be disclosed as a pro forma effect on net income in
the notes to the Company's financial statements. The Company will adopt SFAS 123
on a disclosure basis only.
Fair value of investments. The following methods and assumptions were
used to estimate the fair value of each class of financial instruments:
The carrying amounts of cash and cash equivalents, accounts receivable,
other current assets, accounts payable, accrued expenses and other liabilities
approximate fair value because of the short maturity of those instruments.
The carrying amount of long-term debt approximates fair value, as the
interest rates on the debt approximate rates currently available to the Company
for debt with similar terms and remaining maturities.
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 at the date of the financial statements, and the amount of revenues
and expenses during the reporting period. Differences from those estimates, if
any, are recorded in the period they become known.
Interim financial information. The interim financial data is unaudited;
however, in the opinion of the Company, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results of the interim period and are prepared on the same
basis as the audited annual financial statements.
3. Pro Forma and Supplemental Information (Unaudited)
Pro forma and supplemental net income per share. The computation of
primary pro forma earnings per share is based on the weighted average number of
outstanding common shares during the period plus common stock equivalents, if
dilutive, consisting of certain shares subject to stock options (see Notes 9 and
12). Pursuant to the requirements of the Securities and Exchange Commission,
common and common equivalents shares issued by the Company during the twelve
month period immediately preceding the filing of the initial public offering
have been included in the calculation of the shares used in computing net income
per share as if they were outstanding for all periods presented, using the
treasury stock method and an assumed initial public offering price of $13.00 per
F-9
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
share. Additionally, the weighted average number of outstanding common shares
includes the effects of the incremental number of shares required to fund
distributions to shareholders in excess of earnings for the preceding 12 months
(including the estimated distribution of $50,000 to be paid from a portion of
the net proceeds of the Offering). Historical net income per share data has not
been presented since such amounts are not deemed to be meaningful due to the
significant change in the Company's capital structure which is to occur in
connection with the Offering.
The supplemental pro forma net income per share is based on pro forma
net income per share, increased to give effect to the reduction in interest
costs of $198,000 for the six months ended June 30, 1997 and $420,000 for the
year ended December 31, 1996 (net of the applicable income taxes), which would
have resulted assuming the application of a portion of the net proceeds from the
Offering were used to repay certain indebtedness of the Company.
Pro forma balance sheet information. The unaudited pro forma balance
sheet reflects the S Corporation distribution of $50,000 and a charge associated
with the provision for deferred income taxes of $659,000 which the Company will
recognize upon its termination of S Corporation status assuming the termination
had occurred at June 30, 1997.
Pro forma taxes. Upon termination of its S Corporation status, the
Company will be required to recognize deferred income taxes for cumulative
temporary differences between income for financial and tax reporting purposes.
Had the termination occurred at June 30, 1997, the cumulative deferred income
tax liability, calculated in accordance with SFAS No. 109, "Accounting for
Income Taxes," would have approximated $659,000.
The reconciliation between the effective pro forma income tax rate and
the U.S. federal statutory rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1995 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
U.S. federal taxes at statutory rate................................... $ 1,570 $ 2,206 $ 2,171
State and local taxes, net............................................. 330 421 393
Other.................................................................. 22 21 5
-------- --------- ----------
Income tax provision................................................... $ 1,922 $ 2,648 $ 2,569
======== ========= ==========
</TABLE>
The pro forma deferred tax liability at June 30, 1997 is comprised as
follows (in thousands):
Depreciation............................................... $ 569
Other...................................................... 90
-------
Total...................................................... $ 659
=======
F-10
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Property and Equipment
Property and equipment consist of the following at:
December 31,
---------------------
1995 1996
---- ----
(in thousands)
Furniture, fixtures and equipment ......... $5,650 $6,865
Leasehold improvements .................... 563 664
Equipment for future stores ............... -- 604
Capitalized software costs ................ 504 692
------ ------
6,717 8,825
Less: Accumulated depreciation and
amortization ......................... 2,709 3,711
------ ------
$4,008 $5,114
====== ======
5. Leases
The Company leases its retail stores, administrative offices and
warehouse facilities under noncancelable operating leases with terms ranging
from one to fifteen years. The leases typically contain renewal options for
terms of five years. Most leases provide for additional charges for real estate
taxes, insurance and other operating expenses applicable to the property; rent
expense under operating leases includes such additional charges. Certain store
leases provide for predetermined escalations in future minimum annual rentals or
additional rentals contingent upon operating results, or both. The pro rata
portion of scheduled rent escalations has been included in other long-term
liabilities in the accompanying balance sheet. For the years 1995 and 1996 the
amount of accrued rent expense recognized over the amount paid was $158,000 and
$140,000, respectively.
F-11
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Rent expense under operating leases consists of:
1994 1995 1996
---- ---- ----
(in thousands)
Minimum rentals ......................... $4,127 $4,739 $4,815
Contingent payments ..................... 157 200 244
------ ------ ------
$4,284 $4,939 $5,059
====== ====== ======
In 1996, the Company entered into four leases for stores to open in
1997. During January and February 1997, the Company entered into four more
leases. These stores will open later in 1997 or in 1998.
Future minimum lease payments (including those for unopened stores) as
of December 31, 1996 for noncancelable operating leases with terms in excess of
one year are as follows (in thousands):
1997 ......................................... $ 5,297
1998 ......................................... 6,285
1999 ......................................... 6,500
2000 ......................................... 6,422
2001 ......................................... 6,413
Thereafter ................................... 26,340
-------
Total minimum future rentals ................. $57,257
=======
6. Long-Term Debt
Long-term debt consists of the following:
December 31,
--------------
1995 1996
---- ----
(in thousands)
Term loan and revolving line of credit (monthly
interest payable at LIBOR plus 2%) ............... $9,284 $8,510
Equipment loans ..................................... 2 --
------ ------
9,286 8,510
Less: Current maturities ............................ 776 1,857
------ ------
Total long-term debt ................................ $8,510 $6,653
====== ======
The Company's revolving line of credit matured on July 1, 1996, at
which time the outstanding balance was converted to a term loan payable in sixty
monthly installments commencing on August 1, 1996. The loan is collateralized by
all of the Company's assets and contains certain financial and restrictive
covenants including limitations on incurring other debt and on dividends and
F-12
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
distributions to the shareholders. The Company also has a $6,000,000 operating
line of credit maturing on April 30, 1997 (see Note 11). There were no amounts
outstanding under the operating line of credit at December 31, 1996 and 1995.
The loans bear elective interest rates which vary based on the bank's base rate
or LIBOR (or a fixed rate based upon five-year Treasury securities for the term
loan). At December 31, 1995 and 1996 the rate of interest on the Company's
outstanding bank debt was 8.5% and 7.8%, respectively.
Aggregate annual principal payments on long-term debt for five years
subsequent to December 31, 1996, are (in thousands):
1997 ................................... $1,857
1998 ................................... 1,857
1999 ................................... 1,857
2000 ................................... 1,856
2001 ................................... 1,083
------
$8,510
======
7. Loans From Shareholders - Subordinated
The loans from shareholders are subordinated to the bank loans and are
classified by the bank as part of the Company's equity in determining the net
worth for financial debt covenant calculations. The loans, which are
non-interest bearing, are payable to the shareholders upon their written request
for payment, subject to the subordination provisions. The shareholders agreed
not to demand payment of the loans on or before June 30, 1998, except upon the
date of the Company's completion of initial public offering or consummation of a
refinancing on a long-term basis.
8. Income Taxes
The Company is an S Corporation for federal and state tax purposes and
accordingly the taxes related thereto are substantially the responsibility of
the shareholders individually. Current and deferred taxes have been provided in
the financial statements for the States of New Jersey and New York
corporate-level tax on S Corporations, which rates are approximately 2%. The
effective tax rates differ from the statutory rates principally because of the
effects of certain permanent differences and apportionment ratios (see Note 3).
9. Stock Option
On February 28, 1995, in recognition of financial consulting services,
the Company granted a Board member an option to purchase 64,500 shares of common
stock, representing a 1.5% ownership interest in the Company. The option, which
expires February 28, 2005, has an exercise price of $4.66. The Company utilized
the Black-Scholes option-pricing model to estimate the fair value of the option.
The fair value of the option did not materially impact the results of operations
over the periods benefitted.
F-13
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Commitments and Contingencies
The Company is not a party to any material legal proceedings other than
routine litigation incidental to its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position, operating results or cash flows of the Company.
11. Subsequent Events
Shareholder Distribution. During 1997, the Company declared
distributions to the shareholders for the payment of taxes of $3,204,000. In
March 1997, the Company distributed $3,705,000 which was contemporaneously
loaned back to the Company.
Loan Agreement. On January 23, 1997, the Company entered into a new
Loan Agreement with KeyBank which refinanced the term loan and provided two
revolving lines of credit along with an operating line of credit. The agreement
is collateralized by all of the Company's assets and contains certain financial
and restrictive covenants including limitations on incurring other debt and on
dividends and distributions to the shareholders. The two revolving lines of
credit in the amounts of $3,200,000 and $5,000,000 are available solely for
costs associated with opening new stores and related inventory purchases. The
$3,200,000 revolving line of credit is presently available to the Company until
December 31, 1998, at which time the Company may elect to convert the line to a
60-month term loan maturing on December 31, 2003. The $5,000,000 revolving line
of credit is available to the Company providing the Company is meeting the
performance measurements, such as no event of default and certain covenant
compliance, and will remain available until December 31, 1998, at which time the
Company may elect to convert the line to a 60-month term loan maturing December
31, 2003. The $16,000,000 operating line of credit is available to the Company
solely for working capital purposes; $9,000,000 is currently available, and
$7,000,000 will be made available to the Company on March 31, 1998 upon
achievement of certain performance measurements. The agreement bears elective
interest rates which vary based upon the bank's base rate or LIBOR. Currently
the Company is paying 1.5% over LIBOR. The Company is required to pay an annual
commitment fee of 0.125% on the unused portion of the lines of credit.
F-14
<PAGE>
A.C. MOORE ARTS & CRAFTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Reorganization. The Company effected a Reorganization of its corporate
structure on July 18, 1997 (see Note 1). The new corporate entity, A.C. Moore
Arts & Crafts, Inc., has authorized capital stock of 20,000,000 common shares
and 5,000,000 shares of undesignated preferred stock. The Company may issue
preferred stock in one or more series by vote of its Board of Directors having
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices and liquidation preferences approved by the Board
of Directors.
All amounts in the financial statements have been restated to reflect
the Reorganization.
12. Subsequent Event (Unaudited)
Stock Incentive Plan. The Company's Employee, Director and Consultant
Stock Option Plan (the "1997 Plan"), pursuant to which 1,000,000 shares of
common stock may be granted, was adopted by the Company's Board of Directors in
July 1997 for the purpose of securing for the Company and its shareholders the
benefits arising from the ownership of Company stock options by key employees
and non-employee directors who are expected to contribute to the Company's
future growth and success. On July 22, 1997, options to purchase 444,500 shares
of common stock were granted under the 1997 Plan at an exercise price per share
of $9.00, the Company's fair value at the grant date. The options granted to
date under the 1997 Plan vest one-third in 1998, one-third in 1999 and one-third
in 2000.
F-15
<PAGE>
<TABLE>
<CAPTION>
================================================================= ===========================================================
<S> <C>
No person has been authorized in connection with the offering
made hereby to give any information or to make any 2,700,000 SHARES
representation not contained in this Prospectus, and if given or
made, such information or representation must not be relied
upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to
sell or a solicitation of any offer to buy any of the securities [LOGO]
offered hereby to any person or by anyone in any jurisdiction in
which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the
information contained herein is correct as of any date A.C. Moore Arts & Crafts, Inc.
subsequent to the date hereof.
___________________ COMMON STOCK
TABLE OF CONTENTS
-------------------
Page
Prospectus Summary...........................................3
Risk Factors.................................................7
Use of Proceeds.............................................12
Dividend Policy and Prior S Corporation Status............. 12
Capitalization..............................................14
Dilution....................................................15
Selected Financial and Operating Data.......................16
Management's Discussion and Analysis of PROSPECTUS
Financial Condition and Results of Operations............18
Business....................................................27
Management..................................................38
Certain Transactions........................................44
Principal Shareholders......................................45
Description of Capital Stock................................46
Shares Eligible for Future Sale.............................49
Underwriting................................................50
Legal Matters...............................................52
Experts.....................................................52
Additional Information......................................52
Index to Financial Statements............................. F-1
Until , 1997, (25 days after the date of this ALEX. BROWN & SONS
Prospectus) all dealers effecting transactions in the Common INCORPORATED
Stock offered hereby, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus JANNEY MONTGOMERY SCOTT INC.
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
, 1997
================================================================= ===========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered,
all of which will be paid solely by the Company.
SEC Registration Fee*.................................... $ 13,173
NASD Filing Fee*......................................... 4,847
NASDAQ Listing Fee*...................................... 35,000
Printing, Engraving and Mailing Expenses ................ 125,000
Legal Fees and Expenses.................................. 150,000
Accounting Fees and Expenses............................. 150,000
Transfer Agent Fees and Expenses......................... 5,000
Blue Sky Fees and Expenses............................... 5,000
Miscellaneous............................................ 61,980
------------
TOTAL......................................... $550,000
============
- ----------
* Exact; all other fees and expenses are estimates
Item 14. Indemnification of Directors and Officers.
Sections 1741 through 1750 of Subchapter D, Chapter 17, of the
Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"), contain
provisions for mandatory and discretionary indemnification of a corporation's
directors, officers and other personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has
the power to indemnify directors and officers under certain prescribed
circumstances against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
an action or proceeding, whether civil, criminal, administrative or
investigative, to which any of them is a party by reason of his being a
representative, director or officer of the corporation or serving at the request
of the corporation as a representative of another corporation, partnership,
joint venture, trust or other enterprise, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. Under Section 1743, indemnification
is mandatory to the extent that the officer or director has been successful on
the merits or otherwise in defense of any action or proceeding if the
appropriate standards of conduct are met.
Section 1742 provides for indemnification in derivative actions except
in respect of any claim, issue or matter as to which the person has been
adjudged to be liable to the corporation unless and only to the extent that the
proper court determines upon application that, despite the adjudication of
liability but in view of all the circumstances of indemnity for the expenses
that the court deems proper.
<PAGE>
Section 1744 provides that, unless ordered by a court, any
indemnification under Section 1741 or 1742 shall be made by the corporation only
as authorized in the specific case upon a determination that the representative
met the applicable standard of conduct, and such determination will be made by
the board of directors (i) by a majority vote of a quorum of directors not
parties to the action or proceeding; (ii) if a quorum is not obtainable, or if
obtainable and a majority of disinterested directors so directs, by independent
legal counsel; or (iii) by the shareholders.
Section 1745 provides that expenses (including attorney's fees)
incurred by an officer, director, employee or agent in defending a civil or
criminal action or proceeding may be paid by the corporation in advance of the
final disposition of such action or proceeding upon receipt of an undertaking by
or on behalf of such person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the corporation.
Section 1746 provides generally that, except in any case where the act
or failure to act giving rise to the claim for indemnification is determined by
a court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter 17D of the
BCL shall not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding that office.
Section 1747 grants to a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred by
him or her in his or her capacity as officer or director, whether or not the
corporation would have the power to Subchapter 17D of the BCL.
Section 1748 and 1749 extend the indemnification and advancement of
expenses provisions contained in Subchapter 17D of the BCL to successor
corporations in fundamental changes and to representatives serving as
fiduciaries of employee benefit plans.
Section 1750 provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, Subchapter 17D of the BCL, shall,
unless otherwise provided when authorized or ratified, continue to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs and personal representative of such person.
For information regarding provisions under which a director or officer
of the Company may be insured or indemnified in any manner against any liability
which he or she may incur in his or her capacity as such, reference is made to
the Company's Articles of Incorporation and Bylaws, copies of which are filed as
Exhibits 3.1 and 3.2, respectively, which provide in general that the Company
shall indemnify its officers and directors to the fullest extent authorized by
law.
Reference is also made to Section 8 of the Underwriting Agreement as
filed as Exhibit 1 to this Registration Statement.
Item 15. Recent Sales of Unregistered Securities.
None.
II-2
<PAGE>
Item 16. Exhibits and Financial Statements
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
1.1 Form of Underwriting Agreement(1)
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen of Common Stock Certificate(1)
5.1 Opinion of Blank Rome Comisky & McCauley(1)
10.1 1997 Employee, Director and Consultant Stock Option Plan
10.2 Form of Stock Option Award Agreement
10.3 Loan Agreement, dated January 23, 1997, between the Company and
KeyBank National Association
10.4 Correspondence reflecting option granted to Richard Lesser
10.5 Tax Indemnification Agreement, dated July 22, 1997, among the
Company, John E. Parker and William Kaplan
11.1 Computation of pro forma net income per share
11.2 Computation of supplemental pro forma net income per share
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Blank Rome Comisky & McCauley (See Exhibit 5.1)
24.1 Power of attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- -------------------
(1) To be filed by amendment.
(b) No financial statement schedules are filed as part of this
Registration Statement.
II-3
<PAGE>
Item 17. Undertakings.
(a) The undersigned hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant pursuant
to under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it
was declared effective; and
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and that offering of such securities
at that time shall be deemed as the initial bona fide offering of those
securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Blackwood,
State of New Jersey on August 5, 1997.
A.C. MOORE ARTS & CRAFTS, INC.
By: /s/ John E. Parker
-------------------------------------
John E. Parker, President,
Chief Executive Officer and Director
(Duly Authorized Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John E. Parker, his true and lawful
attorney-in-fact and agent with full power of substitution or resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and other documentation in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed below by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE Capacity Date
- -------------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
/s/ John E. Parker
- -------------------------------------- President, Chief Executive Officer, and August 5, 1997
John E. Parker Director (Principal Executive Officer) ----------------
/s/ Leslie H. Gordon
- -------------------------------------- Senior Vice President and Chief Financial
Leslie H. Gordon Officer (Principal Financial and Accounting
Officer) August 5, 1997
----------------
/s/ William Kaplan
- -------------------------------------- Chairman of the Board August 5, 1997
William Kaplan ----------------
/s/ Patricia A. Parker
- -------------------------------------- Director August 5, 1997
Patricia A. Parker ----------------
/s/ Richard Lesser
- -------------------------------------- Director August 5, 1997
Richard Lesser ----------------
/s/ Richard J. Bauer
- -------------------------------------- Director August 5, 1997
Richard J. Bauer ----------------
/s/ Richard J. Drake
- -------------------------------------- Director August 5, 1997
Richard J. Drake ----------------
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
Exhibit
Number Description
<S> <C>
1.1 Form of Underwriting Agreement(1)
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen of Common Stock Certificate(1)
5.1 Opinion of Blank Rome Comisky & McCauley(1)
10.1 1997 Employee, Director and Consultant Stock Option Plan
10.2 Form of Stock Option Award Agreement
10.3 Loan Agreement, dated January 23, 1997, between the Company and
KeyBank National Association
10.4 Correspondence reflecting option granted to Richard Lesser
10.5 Tax Indemnification Agreement, dated July 22, 1997, among the Company,
John E. Parker and William Kaplan
11.1 Computation of pro forma net income per share
11.2 Computation of supplemental pro forma net income per share
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Blank Rome Comisky & McCauley (See Exhibit 5.1)
24.1 Power of attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ----------------
(1) To be filed by amendment
<PAGE>
Microfilm Number ____________ Filed with the Department of State on ___________
Entity Number _______________ _________________________________________________
Secretary of the Commonwealth
ARTICLES OF INCORPORATION-FOR PROFIT
OF
A.C. Moore Arts & Crafts, Inc.
A TYPE OF CORPORATION INDICATED BELOW
Indicate type of domestic corporation:
<TABLE>
<S> <C>
X Business-stock (15 Pa.C.S.ss.1306) Management (15 Pa.C.S.ss.2702)
- ------ -------
Business-nonstock (15 Pa.C.S.ss.2102) Professional (15 Pa.C.S.ss.2903)
- ------- -------
Business-statutory close (15 Pa.C.S.ss.2303) Insurance (15 Pa.C.S.ss.3101)
- ------- -------
Cooperative (15 Pa.C.S. ss. 7102)
- -------
</TABLE>
In compliance with the requirements of the applicable provisions of 15
Pa.C.S. (relating to corporations and unincorporated associations) the
undersigned, desiring to incorporate a corporation for profit hereby, state(s)
that:
1. Name
The name of the corporation is: A.C. Moore Arts & Crafts, Inc.
2. Address
The (a) address of this corporation's initial registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is:
(a) 225 South Street Harrisburg PA 17101 -1326 Dauphin
-----------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o: Esquire Assist Dauphin
-------------------------------------------------------------------
Name of Commercial Registered Office Provider County
3. Statute
The corporation is incorporated under the provisions of the Business
Corporation Law of 1988.
4. Incorporator
The name and address, including number and street, if any, of each
incorporator is:
Name Address
---- -------
John E. Parker 500 University Court, Blackwood, N.J. 08012
<PAGE>
5. Capital Stock
The aggregate number of shares which the Corporation shall have
authority to issue is 25,000,000 shares, of which 5,000,000 shares shall be
Preferred Stock, no par value, and 20,000,000 shares shall be Common Stock, no
par value.
The designation, relative rights, preferences and liabilities of each
class of stock, itemized by class, shall be as follows:
(a) Preferred. The Corporation's board of directors (hereafter called
"Board of Directors" or "Board") is authorized to adopt at any time, or from
time to time, amendments to these Articles of Incorporation with respect to any
unissued and/or treasury shares of Preferred Stock, and thereby to fix or change
the division of shares of the Preferred Stock into classes and/or into series
within any class or classes, and to fix or change the determination of the
voting rights, designations, preferences, limitations, special rights and
relative rights of the shares of any class or series. The authority of the Board
with respect to each class or series of Preferred Stock shall include, but not
be limited to, determination of the following:
(i) The number of shares constituting that class or series and
the distinctive designation of that class or series;
(ii) The dividend rate on the shares of that class or series,
whether dividends shall be cumulative, and, if so, from which date or
dates;
(iii) Whether that class or series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms of
such voting rights;
(iv) Whether that class or series shall have conversion
privileges and, if so, the terms and conditions of such conversion,
including provision for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
(v) Whether or not shares of that class or series shall be
redeemable and whether or not the Corporation or the holder (or both) may
exercise the redemption right, including the date or dates upon or after
which they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions;
(vi) The rights of the shares of that class or series in the
event of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation; and
(vii) Any other relative rights, preferences and limitations
of that class or series as may be permitted or required by law.
(b) Common. Each share of Common Stock shall be entitled to one vote on
all matters
<PAGE>
submitted to a vote of shareholders except as the right to exercise such vote
may be limited by the provisions of these Articles of Incorporation or of any
class or series of Preferred Stock established hereunder. The holders of Common
Stock shall be entitled to such dividends as may be declared by the Board of
Directors from time to time, provided that required dividends, if any, on the
Preferred Stock have been paid or provided for. In the event of the liquidation,
dissolution, or winding up, whether voluntary or involuntary of the Corporation,
the assets and funds of the Corporation available for distribution to
shareholders, and remaining after the payment to holders of Preferred Stock of
the amounts (if any) to which they are entitled, shall be divided and paid to
the holders of the Common Stock according to their respective shares.
(c) Authorization of Board to Set Terms in Respect of Corporation's
Securities. To the fullest extent permitted by applicable law, the Board of
Directors may set forth in any security, contract, warrant or other instrument
evidencing any shares, option or warrant rights, or securities having conversion
or option or warrant rights, such terms as it deems appropriate including,
without limiting the generality of such authority, conditions that preclude or
limit any Person (as defined in Article 16) or any transferee(s) (either direct
or remote) of such Person from (i) owning or offering to acquire a specified
number or percentage of the outstanding common shares, other shares, option or
warrant rights, securities having conversion or option or warrant rights, or
obligations of the Corporation or (ii) from exercising, converting, transferring
or receiving the shares, option or warrant rights, securities having conversion
or option or warrant rights, or obligations, and which invalidate any rights or
options or warrants beneficially owned by such Person or any transferee(s)
(either direct or remote) of such Person. This Article 5 is intended to
validate, to the extent permitted by applicable law, the adoption by the Board
of Directors of shareholder rights plans or so-called "poison pills," including
both call and put "poison pills." Nothing contained herein shall be deemed to
limit or restrict the powers of the Board of Directors as provided in the
Pennsylvania Business Corporation Law of 1988, as amended, or otherwise in
Pennsylvania law.
6. No Cumulative Voting
The shareholders of the Corporation shall not have the right to
cumulate their votes for the election of directors.
7. Number of Directors
The Board of Directors shall consist of not less than one (1) nor more
than fifteen (15) directors. The number of directors to be elected, subject to
the foregoing limits, shall be determined from time to time by the Board of
Directors.
8. Personal Liability of Directors
A director of this Corporation shall not be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, unless
(a) the director has breached or failed to perform the duties of his
office under Section 1713 of the Pennsylvania Business Corporation Law of 1988,
as amended; and
<PAGE>
(b) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
This Article 8 shall not apply to a director's liability for monetary
damages to the extent prohibited by Section 1713(b) of the Pennsylvania Business
Corporation Law of 1988, as amended.
9. Power of Board to Oppose Certain Transactions
(a) The Board of Directors may, if it deems it advisable, oppose a
tender, or other offer for the Corporation's securities, whether the offer is in
cash or in the securities of a corporation or otherwise. When considering
whether to oppose an offer, the Board of Directors may, but is not legally
obligated to, consider any pertinent issues; by way of illustration, but not of
limitation, the Board of Directors may, but shall not be legally obligated to,
consider any and all of the following:
(i) Whether the offer price is acceptable based on the
historical and present operating results or financial condition of the
Corporation.
(ii) Whether a more favorable price could be obtained for the
Corporation's securities in the future.
(iii) The impact which an acquisition of the Corporation would
have on the employees and customers of the Corporation and any Subsidiary (as
defined in Article 16) and the community which they serve.
(iv) The reputation and business practices' of the offeror and
its management and affiliates as they would affect the employees and customers
of the Corporation and its Subsidiaries and the future value of the
Corporation's stock.
(v) The value of the securities, if any, which the offeror is
offering in exchange for the Corporation's securities, based on an analysis of
the worth of the Corporation as compared to the Corporation or other entity
whose securities are being offered.
(vi) Any antitrust or other legal and regulatory issues that
are raised by the offer.
If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but not
limited to, any or all of the following: advising shareholders not to accept the
offer; litigation against the offeror; filing complaints with all governmental
and regulatory authorities; acquiring the Corporation's securities; selling or
otherwise issuing authorized but unissued securities or treasury stock or
granting options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and obtaining a more
favorable offer from another individual or entity.
(b) If the Board of Directors determines to sell the Corporation or any
Subsidiary to a third party, or to merge or consolidate the Corporation or any
Subsidiary with a third party, the Board of Directors shall not be legally
obligated to create an auction and may negotiate with only one acquirer.
<PAGE>
10. Classification of the Board of Directors
Effective sixty (60) days after the completion of the initial public
offering of the Common Stock of the Corporation (the "IPO"), the Board of
Directors shall be divided into three (3) classes, as nearly as equal in number
as possible, known as Class A, Class B and Class C. The Class A directors shall
serve until the first annual meeting of shareholders to be held after the IPO.
At the first annual meeting of shareholders to be held after the IPO, the Class
A director shall be elected for a term of three (3) years and, after expiration
of such term, shall thereafter be elected every three (3) years for three (3)
year terms. The Class B directors shall serve until the second annual meeting of
shareholders to be held after the IPO. At the second annual meeting of
shareholders to be held after the IPO, the Class B director shall be elected for
a term of three (3) years and, after the expiration of such term shall
thereafter be elected every three (3) years for three (3) year terms. The Class
C directors shall serve until the third annual meeting of shareholders to be
held after the IPO. At the third annual meeting of shareholders to be held after
the IPO, the Class C directors shall be elected for a term of three (3) years
and, after the expiration of such term, shall thereafter be elected every three
(3) years for three (3) year terms. Each director shall serve until his
successor shall have been elected and shall qualify, even though his term of
office as herein provided has otherwise expired, except in the event of his
earlier death, resignation, removal or disqualification. This Article 10, or any
portion thereof, may be changed by a by-law amendment which is adopted by all of
the then members of the Board of Directors.
11. Removal of Directors
(a) Removal by Shareholders. The entire Board of Directors, or a class
of the Board, if the Board is classified with respect to the power to elect
directors, or any individual director, may be removed from office by the
shareholders only for cause (as defined herein) and only with the vote of
shareholders entitled to cast at least eighty (80%), or such higher percentage
as may be required by law, of the votes which all shareholders would be entitled
to cast at any annual election of directors or of such class of directors. The
term 'cause', as used herein, shall refer only to one of the following events:
(1) conviction of the director of a felony; (2) declaration by order of court
that the director is of unsound mind; or (3) gross abuse of trust committed in
bad faith.
(b) Removal by Board of Directors. The Board of Directors may, without
shareholder approval, declare vacant the office of any director for any proper
cause (whether or not similar to those listed in subparagraph (a) above)
including, but not limited to, conflict of interest or other breach of fiduciary
duty, or unacceptability of the director to federal or state securities
regulators, the regulators of any securities exchange or automated quotation
system on which securities of the Corporation are traded, or to federal, state
or local regulators of the business of the Corporation.
12. Nonapplicability of Certain Provisions of the Pennsylvania Business
Corporation Law of 1988, as Amended
Subchapters E, G, H, I and J of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as amended, shall not be applicable to this
Corporation.
<PAGE>
13. Partial Written Consent of Shareholders
The provisions of Section 1766(b) of the Pennsylvania Business
Corporation Law of 1988, as amended, shall be applicable to any action by the
shareholders which has been previously approved by the Board of Directors, but
shall not otherwise be applicable to the Corporation.
14. Amendment to By-Laws
Any amendment to the Bylaws of the Corporation which is proposed by
shareholders, and which has not previously received the approval of the Board of
Directors, shall require for adoption the affirmative vote of the holders of at
least eighty percent (80%) of the votes which all shareholders are entitled to
cast thereon, in addition to any other approval which is required by law, these
Articles of Incorporation, the Bylaws of the Corporation or otherwise.
15. Severability
In the event that all, some or any part of any provision contained in
these Articles of Incorporation shall be found by any court of competent
jurisdiction to be illegal, invalid or unenforceable (as against public policy
or otherwise), such provision shall be enforced to the fullest extent permitted
by law and shall be construed as if it had been narrowed only to the extent
necessary so as not to be invalid, illegal or unenforceable; the validity,
legality and enforceability of the remaining provisions of these Articles of
Incorporation shall continue in full force and effect and shall not be affected
or impaired by such illegality, invalidity or unenforceability of any other
provision (or any part or parts thereof) of these Articles of Incorporation. If
and to the extent that any provision contained in these Articles of
Incorporation violates any rule of a securities exchange or automated quotation
system on which securities of the Corporation are traded, the Board of Directors
is authorized, in its sole discretion, to suspend or terminate such provision
for such time or periods of time and subject to such conditions as the Board of
Directors shall determine in its sole discretion.
16. Definitions
As used herein, the term "Person" shall mean any individual,
partnership, corporation, group or other entity (other than the Corporation or
any Subsidiary as defined below for itself or as a fiduciary for customers, or a
trustee holding Voting Securities for the benefit of the employees of the
Corporation or its Subsidiaries or any one of them, pursuant to one or more
employee benefit plans or arrangements sponsored by the Corporation or any
Subsidiary).
As used herein, the term "Subsidiary" shall mean any corporation of
which the Corporation owns fifty percent (50%) or more of any class of
securities entitled to vote in the election of directors, either directly or
indirectly, through one or more other corporations.
As used herein, the term "Voting Securities" refers to all outstanding
securities of the
<PAGE>
Corporation entitled to vote (whether in the election of directors or
otherwise).
The use of the masculine gender shall include the feminine and neuter
genders, as the case may be.
17. Headings
Article headings and the ordering of paragraphs are for convenience of
reference only and shall not be construed to alter, amend or otherwise affect
the meaning, intent or effect of the provisions of these Articles of
Incorporation.
IN TESTIMONY WHEREOF, the incorporator has signed these Articles of
Incorporation this 17th day of July, 1997
/s/ John E. Parker
-----------------------------
John E. Parker
<PAGE>
Bylaws
of
A.C. MOORE ARTS & CRAFTS, INC.
These Bylaws are supplemental to the Pennsylvania
Business Corporation Law as the same shall from
time to time be in effect.
ARTICLE I. SHAREHOLDERS.
Section 101. Place of Shareholders' Meetings. All meetings of the
shareholders shall be held at such place or places, inside or outside the
Commonwealth of Pennsylvania, as determined by the Board of Directors from time
to time.
Section 102. Annual Shareholders' Meeting. The annual meeting of the
shareholders for the election of directors and the transaction of such other
business as may properly come before such meeting shall be held at such time and
place as determined by the Board of Directors. Any business which is a proper
subject for shareholder action may be transacted at the annual meeting,
irrespective of whether the notice of said meeting contains any reference
thereto, except as otherwise provided by applicable law.
Section 103. Special Meetings of Shareholders. Special meetings of the
shareholders may be called at any time by the Board of Directors or the Chairman
of the Board or the Chief Executive Officer.
Section 104. Conduct of Shareholders' Meetings. The Chairman of the
Board shall preside at all shareholders' meetings. In the absence of the
Chairman of the Board, the Chief Executive Officer shall preside or, in his or
her absence, any officer designated by the Board of Directors shall preside. The
officer presiding over the shareholders' meeting may establish such rules and
regulations for the conduct of the meeting as he or she may deem to be
reasonably necessary or desirable for the orderly and expeditious conduct of the
meeting. Unless the officer presiding over the shareholders' meeting otherwise
requires, shareholders need not vote by ballot on any questions.
ARTICLE II. DIRECTORS.
Section 201. Management by Board of Directors. The business and affairs
of the Corporation shall be managed by its Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute, regulation, the Articles of Incorporation
or these Bylaws directed or required to be exercised or done by the
shareholders.
<PAGE>
Section 202. Nomination for Directors and Submission of Proposals.
(a) Nominations for directors to be elected may be made at a meeting of
shareholders only by (i) the Board of Directors (or any committee thereof), or
(ii) a shareholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the procedure set forth in Section
202(b) of these Bylaws. Business may be conducted at a meeting of the
shareholders of the Corporation only if such business (i) was specified in the
notice of meeting (or any supplement thereto) given by the Board of Directors,
(ii) is otherwise properly brought before the meeting by the Board of Directors,
or (iii) is otherwise properly brought before the meeting by a shareholder of
the Corporation in accordance with the procedure set forth in Section 202(b) of
these Bylaws. Notwithstanding the foregoing, at any time prior to the election
of directors at a meeting of shareholders, the Board of Directors may designate
a substitute nominee to replace any bona fide nominee who was nominated as set
forth above and who, for any reason, becomes unavailable for election as a
director.
(b) Beginning with the first annual meeting of the shareholders to be
held after the initial public offering of the Corporation, nominations by
shareholders for directors to be elected, or proposals by shareholders to be
considered, at a meeting of shareholders and which have not been previously
approved by the Board of Directors must be submitted to the Secretary of the
Corporation in writing, either by personal delivery, nationally-recognized
express mail or United States mail, postage prepaid, not later than (i) with
respect to an election to be held, or a proposal to be considered, at an annual
meeting of shareholders, the latest date upon which shareholder proposals must
be submitted to the Corporation for inclusion in the Corporation's proxy
statement relating to such meeting pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended, or other applicable rules or regulations under
the federal securities laws or, if no such rules apply, at least ninety (90)
days prior to the date one year from the date of the immediately preceding
annual meeting of shareholders, and (ii) with respect to an election to be held,
or a proposal to be considered, at a special meeting of shareholders, the close
of business on the tenth day following the date on which notice of such meeting
is first given to shareholders. Each such nomination or proposal shall set
forth: (i) the name and address of the shareholder making the nomination or
proposal and the person or persons nominated, or the subject matter of the
proposal submitted; (ii) a representation that the shareholder is a holder of
record of capital stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to vote for the person or
persons nominated, or the proposal submitted; (iii) a description of all
arrangements and understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination was made, or the proposal was submitted, by the shareholder; (iv)
such other information regarding each nominee proposed by such shareholder as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee been
nominated by the Board of Directors; and (v) the consent of each nominee to
serve as a director of the Corporation if so elected. All late nominations and
proposals shall be rejected.
Section 203. Vacancies in the Board of Directors. Vacancies resulting
from an increase in the number of directors, shall be filled by the affirmative
vote of at least a majority of the remaining members of the Board, even though
less than a quorum, and each person so elected shall be a
2
<PAGE>
director until his successor is elected by the shareholders. Any director
elected to fill a vacancy in the Board of Directors shall become a member of the
same class of directors in which the vacancy existed; but if the vacancy is due
to an increase in the number of directors, a majority of the members of the
Board of Directors shall designate such directorship as belonging to Class A,
Class B or Class C so as to maintain the three (3) classes of directors as
nearly equal in number as possible. Each director so elected shall hold office
for the unexpired term of the class to which he has been elected, and thereafter
until his or her successor shall have been duly elected and qualified, except in
the event of his or her earlier resignation, removal or disqualification.
Section 204. Resignations of Directors. Any director may resign at any
time. Such resignation shall be in writing, but the acceptance thereof shall not
be necessary to make it effective.
Section 205. Compensation of Directors. No director shall be entitled
to any salary as such, but the Board of Directors may fix, from time to time, a
reasonable annual fee for acting as a director and a reasonable fee to be paid
each director for his or her services in attending meetings of the Board or
committees thereof.
Section 206. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such day, at such hour, and at such place, consistent
with applicable law, as the Board shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting. The Board of
Directors shall meet for reorganization at the first regular meeting following
the annual meeting of shareholders at which the directors are elected. Notice
need not be given of regular meetings of the Board of Directors which are held
at the time and place designated by the Board of Directors. If a regular meeting
is not to be held at the time and place designated by the Board of Directors,
notice of such meeting, which need not specify the business to be transacted
thereat and which may be either oral or written, shall be given by the Secretary
to each member of the Board at least twenty-four hours before the time of the
meeting.
Section 207. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the Chief Executive
Officer and shall be called whenever a majority of the members of the Board so
request in writing. A special meeting of the Board of Directors shall be deemed
to be any meeting other than the regular meeting of the Board of Directors.
Notice of the time and place of every special meeting, which need not specify
the business to be transacted thereat and which may be either oral or written,
shall be given by the Secretary to each member of the Board at least twenty-four
hours before the time of such meeting.
Section 208. Reports and Records. The reports of officers and
committees and the records of the proceedings of all committees shall be filed
with the Secretary of the Corporation and presented to the Board of Directors,
if practicable, at its next regular meeting. The Board of Directors shall keep
complete records of its proceedings in a minute book kept for that purpose. When
a director shall request it, the vote of each director upon a particular
question shall be recorded in the minutes.
Section 209. Committees. The following committees of the Board of
Directors may be established by the Board of Directors in addition to any other
committee the Board of Directors may
3
<PAGE>
in its discretion establish: (a) Executive Committee; (b) Audit Committee; and
(c) Compensation Committee.
Section 210. Executive Committee. The Executive Committee shall consist
of at least two (2) directors. Meetings of the Committee may be called at any
time by the Chairman of the Executive Committee and shall be called whenever two
or more members of the Committee so request in writing. The Executive Committee
shall have and exercise the authority of the Board of Directors in the
management of the business of the Corporation between the dates of regular
meetings of the Board.
Section 211. Audit Committee. The Audit Committee shall consist of at
least two (2) directors, a majority of which shall be independent. Meetings of
the Audit Committee may be called at any time by the Chairman of the Audit
Committee and shall be called whenever two or more members of the Committee so
request in writing. The Audit Committee shall have the following authority,
powers and responsibilities:
(a) To recommend each year to the Board the independent accountants to
audit the annual financial statements of the Corporation and its consolidated
subsidiaries and to review the fees charged for such audits or for special
engagements given to such accountants;
(b) To meet with the independent accountants, Chief Executive Officer,
Chief Financial Officer and any other Corporation executives as the Audit
Committee deems appropriate at such times as the Audit Committee shall determine
to review: (i) the scope of the audit plan; (ii) the Corporation's financial
statements; (iii) the results of external and internal audits; (iv) the
effectiveness of the Corporation's system of internal controls; (v) any
limitations imposed by Corporation personnel on the independent public
accountants; and (vi) such other matters as the Audit Committee shall deem
appropriate;
(c) To report to the entire Board at such time as the Audit Committee
shall determine; and
(d) To take such other action as the Audit Committee shall deem
necessary or appropriate to assure that the interests of the Company are
adequately protected.
Section 212. Compensation Committee. The Compensation Committee shall
consist of at least two (2) directors. Meetings of the Committee may be called
at any time by the Chairman of the Committee and shall be called whenever two or
more members of the Committee so request in writing. The Committee shall review
compensation of executive officers and make recommendations to the Board of
Directors regarding executive compensation and shall have such other duties as
the Board of Directors prescribes.
Section 213. Appointment of Committee Members. The Board of Directors
shall appoint or shall establish a method of appointing the members of the
Executive, Audit and Compensation Committees and of any other committee
established by the Board of Directors, and the Chairman of each such committee,
to serve until the next annual meeting of shareholders.
4
<PAGE>
Section 214. Organization and Proceedings. Each committee of the Board
of Directors shall effect its own organization by the appointment of a Secretary
and such other officers, except the Chairman, as it may deem necessary. The
Secretary of the Executive Committee shall be the Secretary of the Corporation,
but the Secretary of the Audit and Compensation Committees and of any other
committee need not be the Secretary of the Corporation. A record of the
proceedings of all committees shall be kept by the Secretary of such committee
and filed and presented as provided in Section 208 of these Bylaws.
Section 215. Committees. In the absence or disqualification of any
member of any committee established by the Board of Directors, the members
thereof who are present at any meeting of such committee and are not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another director to act at such meeting in the place of such
absent or disqualified member.
Section 216. Absentee Participation in Meetings. A director may
participate in a meeting of the Board of Directors or a meeting of a committee
established by the Board of Directors by use of a conference telephone or
similar communications equipment, by means of which all persons participating in
the meeting can hear each other.
ARTICLE III. OFFICERS.
Section 301. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more
Executive Vice Presidents, Senior Vice Presidents or Vice Presidents, a
Secretary, a Treasurer, and such other officers and assistant officers as the
Board of Directors may from time to time deem advisable. Except for the Chairman
of the Board, Chief Executive Officer, President, Secretary and Treasurer, the
Board may refrain from filling any of the said offices at any time and from time
to time. The same individual may hold any two or more offices. The following
officers shall be elected by the Board of Directors at the time, in the manner
and for such terms as the Board of Directors from time to time shall determine:
Chairman of the Board, Chief Executive Officer, President, Secretary, and
Treasurer. The Chief Executive Officer may appoint such other officers and
assistant officers as he may deem advisable provided such officers or assistant
officers have a title no higher than Executive Vice President, who shall hold
office for such periods as the Chief Executive Officer shall determine. Any
officer may be removed at any time, with or without cause, and regardless of the
term for which such officer was elected.
Section 302. Chairman of the Board. The Chairman of the Board shall be
a member of the Board of Directors and shall preside at the meetings of the
Board and perform such other duties as may be prescribed by the Board of
Directors.
Section 303. Chief Executive Officer. The Chief Executive Officer shall
have general supervision of all of the departments and business of the
Corporation; he or she shall prescribe the duties of the other officers and
employees and see to the proper performance thereof. The Chief Executive Officer
shall be responsible for having all orders and resolutions of the Board of
Directors carried into effect. The Chief Executive Officer shall execute on
behalf of the Corporation and may affix or cause to be affixed a seal to all
authorized documents and instruments requiring such
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execution, except to the extent that signing and execution thereof shall have
been delegated to some other officer or agent of the Corporation by the Board of
Directors or by the Chief Executive Officer. The Chief Executive Officer shall
be a member of the Board of Directors. In the absence or disability of the
Chairman of the Board or his or her refusal to act, the Chief Executive Officer
shall preside at meetings of the Board. In general, the Chief Executive Officer
shall perform all the duties and exercise all the powers and authorities
incident to his or her office or as prescribed by the Board of Directors.
Section 304. President. The President shall perform such duties as are
incident to his or her office or prescribed by the Board of Directors or the
Chief Executive Officer. In the event of the absence or disability of the Chief
Executive Officer or his or her refusal to act, the President shall perform the
duties and have the powers and authorities of the Chief Executive Officer. The
President shall execute on behalf of the Corporation and may affix or cause to
be affixed a seal to all authorized documents and instruments requiring such
execution, except to the extent that signing and execution thereof shall have
been delegated to some other officer or agent of the Corporation by the Board of
Directors or the President.
Section 305. Vice Presidents. The Vice Presidents, including Executive
or Senior Vice Presidents, shall perform such duties, do such acts and be
subject to such supervision as may be prescribed by the Board of Directors, the
Chief Executive Officer or the President. In the event of the absence or
disability of the Chief Executive Officer and the President or their refusal to
act, the Vice Presidents, in the order of their rank, and within the same rank
in the order of their seniority, shall perform the duties and have the powers
and authorities of the Chief Executive Officer and President, except to the
extent inconsistent with applicable law.
Section 306. Secretary. The Secretary shall act under the supervision
of the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. Unless a designation to the
contrary is made at a meeting, the Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all of the
proceedings of such meetings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required by these Bylaws or
otherwise. The Secretary shall keep a seal of the Corporation, and, when
authorized by the Board of Directors, Chief Executive Officer or the President,
cause the seal to be affixed to any documents and instruments requiring it. The
Secretary shall perform such other duties as may be prescribed by the Board of
Directors, Chief Executive Officer, President or such other supervising officer
as the Chief Executive Officer or President may designate.
Section 307. Treasurer. The Treasurer shall act under the supervision
of the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. The Treasurer shall have custody
of the Corporation's funds and such other duties as may be prescribed by the
Board of Directors, Chief Executive Officer, President or such other supervising
officer as the Chief Executive Officer or President may designate.
Section 308. Assistant Officers. Unless otherwise provided by the Board
of Directors, each assistant officer shall perform such duties as shall be
prescribed by the Board of Directors, Chief
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Executive Officer, President or the officer to whom he or she is an assistant.
In the event of the absence or disability of an officer or his or her refusal to
act, his or her assistant officers shall, in the order of their rank, and within
the same rank in the order of their seniority, have the powers and authorities
of such officer.
Section 309. Compensation. Unless otherwise provided by the Board of
Directors or the Compensation Committee, the salaries and compensation of all
officers and assistant officers, except the Chairman of the Board, Chief
Executive Officer and President, shall be fixed by or in the manner designated
by the Chief Executive Officer.
Section 310. General Powers. The officers are authorized to do and
perform such corporate acts as are necessary in the carrying on of the business
of the Corporation, subject always to the directions of the Board of Directors.
ARTICLE IV. PERSONAL LIABILITY AND INDEMNIFICATION.
Section 401. Mandatory Indemnification. The Corporation shall, to the
fullest extent permitted by applicable law, indemnify its directors and officers
who were or are a party or are threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (whether or not such action, suit or proceeding
arises or arose by or in the right of the Corporation or other entity) by reason
of the fact that such director or officer is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, general partner, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise (including
service with respect to employee benefit plans), against expenses (including,
but not limited to, reasonable attorneys' and investigation fees and costs),
judgments, fines (including excise taxes assessed on a person with respect to
any employee benefit plan) and amounts paid in settlement actually and
reasonably incurred by such director or officer in connection with such action,
suit or proceeding, except as otherwise provided in Section 403 hereof. Persons
who were directors or officers of the Corporation prior to the date this Section
is approved by members of the Corporation, but who do not hold such office on or
after such date, shall not be covered by this Section 401. A director or officer
of the Corporation entitled to indemnification under this Section 401 is
hereafter called a "person covered by Section 401 hereof."
Section 402. Expenses. Expenses incurred by a person covered by Section
402 hereof in defending a threatened, pending or completed civil or criminal
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation, except as otherwise provided in Section 403.
Section 403. Exceptions. No indemnification under Section 401 or
advancement or reimbursement of expenses under Section 403 shall be provided to
a person covered by Section 402 hereof: (a) with respect to expenses or the
payment of profits arising from the purchase or sale of securities of the
Corporation in violation of Section 16(b) of the Securities Exchange Act of
1934,
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as amended; (b) if a final unappealable judgment or award establishes that such
director or officer engaged in intentional misconduct or a transaction from
which the director or officer derived an improper personal benefit; (c) for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, and amounts paid in settlement) which have been paid directly
to, or for the benefit of, such person by an insurance carrier under a policy of
officers' and directors' liability insurance whose premiums are paid for by the
Corporation or by an individual or entity other than such director or officer;
and (d) for amounts paid in settlement of any threatened, pending or completed
action, suit or proceeding without the written consent of the Corporation, which
written consent shall not be unreasonably withheld. The Board of Directors of
the Corporation is hereby authorized, at any time by resolution, to add to the
above list of exceptions from the right of indemnification under Section 401 or
advancement or reimbursement of expenses under Section 402, but any such
additional exception shall not apply with respect to any event, act or omission
which occurred prior to the date that the Board of Directors in fact adopts such
resolution. Any such additional exception may, at any time after its adoption,
be amended, supplemented, waived or terminated by further resolution of the
Board of Directors of the Corporation.
Section 404. Continuation of Rights. The indemnification and
advancement or reimbursement of expenses provided by, or granted pursuant to,
this Article IV shall continue as to a person who has ceased to be a member,
director or officer of the Corporation, and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 405. General Provisions.
(a) The term "to the fullest extent permitted by applicable law", as
used in this Article IV shall mean the maximum extent permitted by public
policy, common law or statute. Any person covered by Section 402 hereof may, to
the fullest extent permitted by applicable law, elect to have the right to
indemnification or to advancement or reimbursement of expenses, interpreted, at
such person's option; (i) on the basis of the applicable law on the date this
Section was approved by the shareholders; or (ii) on the basis of the applicable
law in effect at the time of the occurrence of the event, act or omission giving
rise to the action, suit or proceeding, or (iii) on the basis of the applicable
law in effect at the time indemnification is sought.
(b) The right of a person covered by Section 402 hereof to be
indemnified or to receive an advancement or reimbursement of expenses pursuant
to Section 403 (i) may be enforced as a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Corporation and such person;
(ii) to the fullest extent permitted by applicable law, is intended to be
retroactive and shall be available with respect to events, acts or omissions
occurring prior to the adoption hereof; and (iii) shall continue to exist after
the rescission or restrictive modification (as determined by such person) of any
provision of this Article IV with respect to events, acts and omissions
occurring before such rescission or restrictive modification is adopted.
(c) If a request for indemnification or for the advancement or
reimbursement of expenses pursuant hereto is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation together with all supporting information reasonably requested by
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the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim (plus interest at the
prime rate announced from time to time by the Corporation's primary lending
bank) and, if successful in whole or in part, the claimant shall be entitled
also to be paid the expenses (including, but not limited to, attorneys' and
investigation fees and costs) of prosecuting such claim. Neither the failure of
the Corporation (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action that
indemnification of or the advancement or reimbursement of expenses to the
claimant is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors or independent legal counsel) that
the claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
(d) The indemnification and advancement or reimbursement of expenses
provided by, or granted pursuant to, this Article IV shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement or reimbursement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
(e) Nothing contained in this Article IV shall be construed to limit
the rights and powers the Corporation possesses under Chapter 17, Subchapter D
of the Business Corporation Law, or otherwise, including, but not limited to,
the powers to purchase and maintain insurance, create funds to secure or insure
its indemnification obligations, and any other rights or powers the Corporation
may otherwise have under applicable law.
(f) The provisions of this Article IV may, at any time (and whether
before or after there is any basis for a claim for indemnification or for the
advancement or reimbursement of expenses pursuant hereto), be amended,
supplemented, waived, or terminated, in whole or in part, with respect to any
person covered by Section 402 hereof by a written agreement signed by the
Corporation and such person.
(g) The Corporation shall have the right to appoint the attorney for a
person covered by Section 401 hereof, provided such appointment is not
unreasonable under the circumstances.
Section 406. Optional Indemnification. The Corporation may, to the
fullest extent permitted by applicable law, indemnify, and advance or reimburse
expenses for, persons in all situations other than that covered by Section 402.
ARTICLE V. SHARES OF CAPITAL STOCK.
Section 501. Authority to Sign Share Certificate. Every share
certificate of the Corporation shall be signed by the Chairman, Chief Executive
Officer or the President and by the Secretary or one of the Assistant
Secretaries. If the certificate is signed by a transfer agent or registrar, the
signature of any officer of the Corporation on the certificate may be facsimile,
engraved or printed.
Section 502. Lost or Destroyed Certificates. Any person claiming a
share certificate to be lost, destroyed or wrongfully taken shall receive a
replacement certificate if such shareholder: (a)
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requests such replacement certificate before the Corporation has notice that the
shares have been acquired by a bona fide purchaser; (b) files with the
Corporation an indemnity bond deemed sufficient by the Board of Directors; and
(c) satisfies any other reasonable requirements fixed by the Board of Directors.
ARTICLE VI. GENERAL.
Section 601. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 602. Record Date. The Board of Directors may fix any time prior
to the date of any meeting of shareholders as a record date for the
determination of shareholders entitled to notice of, or to vote at, the meeting,
which time, except in the case of an adjourned meeting, shall be not more than
ninety (90) days prior to the date of the meeting of shareholders. The Board of
Directors may fix any time whatsoever (whether or not the same is more than
ninety (90) days) prior to the date for the payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or will go into effect,
as a record date for the determination of the shareholders entitled to receive
payment of any such dividend or distribution, or to receive any such allotment
of rights, or to exercise the rights in respect to any such change, conversion
or exchange of shares.
Section 603. Emergency Bylaws. In the event of any emergency resulting
from an attack on the United States, a nuclear disaster or another catastrophe
as a result of which a quorum cannot be readily assembled and during the
continuance of such emergency, the following Bylaw provisions shall be in
effect, notwithstanding any other provisions of these Bylaws.
(a) A meeting of the Board of Directors or of any committee thereof may
be called by any officer or director upon one hour's notice to all persons
entitled to notice whom, in the sole judgment of the notifier, it is feasible to
notify;
(b) The director or directors in attendance at the meeting of the Board
of Directors or of any committee thereof shall constitute a quorum; and
(c) These Bylaws may be amended or repealed, in whole or in part, by a
majority vote of the directors attending any meeting of the Board of Directors,
provided such amendment or repeal shall only be effective for the duration of
such emergency.
Section 604. Severability. If any provision of these Bylaws is illegal
or unenforceable as such, such illegality or unenforceability shall not affect
any other provision of these Bylaws and such other provisions shall continue in
full force and effect.
ARTICLE VII. AMENDMENTS.
Section 701. Amendment or Repeal of Bylaws. Except as provided by
applicable law, these Bylaws may be amended or repealed, in whole or in part, by
a majority vote of the members of the
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Board of Directors or by the shareholders as permitted by the Articles of
Incorporation of the Corporation.
Section 702. Recording Amendments. The text of all amendments to these
Bylaws shall be attached hereto, and a notation of the date of its adoption and
a notation of whether it was adopted by the directors or the shareholders shall
be made in Section 802 hereof.
ARTICLE VIII. ADOPTION OF BYLAWS AND RECORD OF AMENDMENTS THERETO.
Section 801. Adoption and Effective Date. These Bylaws have been
adopted and approved by the Board of Directors of the Corporation on July 18,
1997 and by the shareholders of the Corporation on July 18, 1997. These Bylaws
shall be effective as of July 18, 1997.
Section 802. Amendments to Bylaws.
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| Section Amended | | Date Amended | | Adopted by |
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| | | | | |
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A.C. MOORE ARTS & CRAFTS, INC.
1997 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise
requires, the following terms, as used in this A.C. MOORE ARTS &
CRAFTS, INC. 1997 Employee, Director and Consultant Stock Option
Plan, have the following meanings:
Administrator means the Board of Directors, unless it
has delegated power to act on its behalf to a
committee. (See Article 4)
Affiliate means a corporation which, for purposes of Section
424 of the Code, is a parent or subsidiary of the Company,
direct or indirect.
Board of Directors means the Board of Directors of the
Company.
Code means the United States Internal Revenue Code of 1986, as
amended.
Committee means the Committee to which the Board of Directors
has delegated power to act under or pursuant to the provisions
of the Plan.
Common Stock means shares of the Company's common stock, no
par value.
Company means A.C. Moore ARTS & CRAFTS, INC., a Pennsylvania
corporation.
Disability or Disabled means permanent and total disability as
defined in Section 22(e) (3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities
exchange or traded in the over-the-counter market and sales
prices are regularly reported for the Common Stock, the
average of the closing or last sale prices of the Common Stock
on the Composite Tape or other comparable reporting system for
the ten (10) consecutive trading days immediately preceding
such applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if
sales prices are not regularly reported for the Common Stock
for the ten
<PAGE>
(10) days referred to in clause (1), and if bid and asked
prices for the Common Stock are regularly reported, the
average of the mean between the bid and the asked price for
the Common Stock at the close of trading in the
over-the-counter market for the ten (10) days on which Common
Stock was traded immediately preceding such applicable date;
and
(3) If the Common Stock is neither listed on a national
securities exchange nor traded in the over-the-counter market,
such value as the Administrator, in good faith, shall
determine.
ISO means an option meant to qualify as an incentive stock
option under Code Section 422.
Initial Public Offering ("IPO") means an offering by the
Company of Common Stock to the public in a firm commitment
underwriting which results in the Common Stock being a class
of securities registered under the Securities Exchange Act of
1934, as amended.
Key Employee means an employee of the Company or of an
Affiliate (including, without limitation, an employee who is
also serving as an officer or director of the company or of an
Affiliate), designated by the Administrator to be eligible to
be granted one or more Options under the Plan.
Non-Qualified Option means an option which is not intended to
qualify as an ISO.
Option means an ISO or Non-Qualified option granted under the
Plan.
Option Agreement means an agreement between the Company and a
Participant executed and delivered pursuant to the Plan.
Participant means a Key Employee, director or consultant to
whom one or more Options are granted under the Plan. As used
herein, "Participant" shall include "Participant's Survivors"
where the context requires.
Participant's Survivors means a deceased Participant's legal
representatives and/or any person or persons who acquired the
Participant's rights to an Option by will or by the laws of
descent and distribution.
Plan means this A.C. Moore Arts & Crafts, Inc. 1997
Employee, Director and Consultant Stock Option Plan.
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Profit Shares means the Shares purchased by a Participant
pursuant to one or more Options that have the value equal to
the excess of the Fair Market Value of the Shares subject to
such Option or Options over the purchase price of the option
as set forth in the applicable Option Agreement.
Shares means shares of the Common Stock as to which options
have been or may be granted under the Plan or any shares of
capital stock into which the Shares are changed or for which
they are exchanged within the provisions of Paragraph 3 of the
Plan. The Shares issued upon exercise of Options granted under
the Plan may be authorized and unissued shares or shares held
by the Company in its treasury, or both.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Key Employees,
directors and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate.
3. EFFECTIVENESS OF PLAN.
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
before such shareholder approval is obtained.
4. SHARES SUBJECT TO THE PLAN.
The number of Shares subject to this Plan as to which Options may be
granted from time to time shall be 1,000,000, or the equivalent of such number
of Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction effected after such date in accordance with Paragraph 16 of
the Plan. No individual may receive options under the Plan exercisable for more
than 50% of the total number of shares of Common Stock authorized for issuance
under this Plan.
If an Option ceases to be "outstanding", in whole or in part, the
Shares which were subject to such Option shall be
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available for the granl such Option is exercised in full, or terminates or
expires under the provisions of the Plan, or by agreement of the parties to the
pertinent Option Agreement.
5. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to a Committee of the
Board of Directors. Following the date on which the Common Stock is registered
under the Securities and Exchange Act of 1934, as amended (the "1934 Act"), the
Plan is intended to comply in all respects with Rule 16b-3 or its successors,
promulgated pursuant to Section 16 of the 1934 Act with respect to Participants
who are subject to Section 16 of the 1934 Act, and any provision in this Plan
with respect to such persons contrary to Rule 16b-3 shall be deemed null and
void to the extent permissible by law and deemed appropriate by the
Administrator. Subject to the provisions of the Plan, the Administrator is
authorized to:
a. Interpret the provisions of the Plan or of any option
or Option Agreement and to make all rules and
determinations which it deems necessary or advisable
for the administration of the Plan;
b. Determine which employees of the Company or of an
Affiliate shall be designated as Key Employees and
which of the Key Employees, directors and consultants
shall be granted Options;
c. Determine the number of Shares for which an Option or
Options shall be granted; and
d. Specify the terms and conditions upon which an Option
or options may be granted;
provided, however, that all such interpretations, rules,
determinations, terms and conditions shall be made and prescribed in
the context of preserving the tax status under Code Section 422 of
those Options which are designated as ISOs. Subject to the foregoing,
the interpretation and construction by the Administrator of any
provisions of the Plan or of any Option granted under it shall be
final, unless otherwise determined by the Board of Directors, if the
Administrator is other than the Board of Directors. No member of the
Administrator shall be liable for any act or omission (whether or not
negligent) taken or omitted in good faith, or for the exercise of any
authority or discretion granted in connection with the Plan to the
Administrator, or
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for the acts or omissions of any other members of the
Administrator.
6. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants
in the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time an Option
is granted. Notwithstanding any of the foregoing provisions, the Administrator
may authorize the grant of an Option to a person not then an employee, director
or consultant of the Company or of an Affiliate. The actual grant of such
Option, however, shall be conditioned upon such person becoming eligible to
become a Participant at or prior to the time of the execution of the Option
Agreement evidencing such Option. ISOs may be granted only to Key Employees.
Non-Qualified Options may be granted to any Key Employee, director or consultant
of the Company or an Affiliate. The granting of any Option to any individual
shall neither entitle that individual to, nor disqualify him or her from,
participation in any other grant of options.
7. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and by the Particinted subject to such conditions as the
Administrator may deem appropriate including, without limitation, subsequent
approval by the stockholders of the Company of this Plan or any amendments
thereto. The Option Agreements shall be subject to at least the following terms
and conditions:
A. Non-Qualified Options: Each Option intended to be a
Non-Qualified Option shall be subject to the terms and
conditions which the Administrator determines to be
appropriate and in the best interest of the Company,
subject to the following minimum standards for any such
Non-Qualified Option;
a. Option Price: The option price (per share) of the
Shares covered by each Option shall be determined
by the Administrator;
b. Each Option Agreement shall state the number of
Shares to which it pertains;
c. Each Option Agreement shall state the date or
dates on which it first is exercisable and the
date after which it may no longer be exercised,
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<PAGE>
and may provide that the Option rights accrue or
become exercisable in installments over a period of
months or years, or upon the attainment of stated
goals; and
d. Provided that the Common Stock is not a class of
securities registered under the Securities
Exchange Act of 1934, as amended, exercise of any
Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form
satisfactory to the Administrator providing for
certain protections for the Company and its other
shareholders including requirements that:
i. The Participant's or the Participant's
Survivors' right to sell the Shares may be
restricted; and
ii. The Participant or the Participant's
Survivors may be required to execute letters
of investment intent and must also
acknowledge that the Shares will bear
legends noting any applicable restrictions.
e. No Option may be exercised unless the Company has
issued Shares of Common Stock to the public in an
IPO in 1997.
B. ISOs: Each Option intended to be an ISO shall be issued only
to a Key Employee and be subject to at least the following
terms and conditions, with such additional restrictions or
changes as the Administrator determines are appropriate but
not in conflict with Code Section 422 and relevant regulations
and rulings of the Internal Revenue Service:
a. Minimum Standards: The ISO shall meet the minimum
standards required of Participants who are granted
Non-Qualified Options, as described above, except
clause (a) thereunder.
b. Option Price: Immediately before the Option is
granted, if the Participant owns, directly or by
reason of the applicable attribution rules in Code
Section 424(d):
i. Ten percent (10%) or less of the total
combined voting power of all classes of
share capital of the Company or an
Affiliate, the Option price (per share) of
the Shares covered by each Option shall not
be less than one hundred percent (100%) of
the Fair Market
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<PAGE>
Value (per share) of the Shares on the date
of the grant of the Option.
ii. More than ten percent (10%) of the total
combined voting power of all classes of
share capital of the Company or an
Affiliate, the Option price (per share) of
the Shares covered by each Option shall not
be less than one hundred ten percent (110%)
of the said Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total
combined voting power of all classes of
share capital of the Company or an
Affiliate, each Option shall terminate not
more than ten (10) years from the date of
the grant or at such earlier time as the
Option Agreement may provide.
ii. More than 10% of the total combined voting
power of all classes of share capital of the
Company or an Affiliate, each Option shall
terminate not more than five (5) years from
the date of the grant or at such earlier
time as the Option Agreement may provide.
d. Medium of Payment: The Option price shall be
payable upon the exercise of the Option and only
in such form as the Administrator determines and
as is permitted by Section 422 of the Code.
e. Limitation on Yearly Exercise: The Option
Agreements shall restrict the amount of Options
which may be exercisable in any calendar year
(under this or any other ISO plan of the Company
or an Affiliate) so that the aggregate Fair Market
Value (determined at the time each ISO is granted)
of the stock with respect to which ISOs are
exercisable for the first time by the Participant
in any calendar year does not exceed one hundred
thousand dollars ($100,000), provided that this
subparagraph (e) shall have no force or effect if
its inclusion in the Plan is not necessary for
options issued as ISOs to qualify as ISOs pursuant
to Section 422(d) of the Code.
f. Limitation on Grant of ISOS: No ISOs shall be
granted after July 18, 2007, the date which is the
earlier of ten (10) years from the date of the
adoption of the Plan by the Company and the date
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<PAGE>
of the approval of the Plan by the shareholders of
the Company. Neither the Company nor any of its
current or future parent, subsidiaries or affiliates,
nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall
have any liability to any optionee in the event: (i)
an option granted as a ISO hereof does not qualify as
an ISO as set forth in Section 422 of the Code and
regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an ISO; or
(iii) any option granted as a Non-Qualified Option
hereof is an ISO.
g. IPO: No Option may be exercised unless the
Company has issued shares of Common Stock to the
public in an IPO in 1997.
C. Directors' Options: Each initial director who is not
an employee of the Company or an Affiliate and does not
hold an existing option shall be granted an initial
Non-Qualified Option. The Option shall (i) have an
exercise price equal to the Fair Market Value (per
share) of the Shares on the date of grant of the
option, (ii) have a term of ten (10) years, and (iii)
be exercisable upon completion of one full year of
service on the Board of Directors after the date of
grant. Notwithstanding the provisions of Paragraph 23
concerning amendment of the Plan, the provisions of
this Subparagraph C shall not be amended more than once
every six months, other than to comport with changes in
the Code, the Employee Retirement Income Security Act,
or the rules thereunder.
D. Offer of Stock on Grant Date: Corporate action
constituting an offer of stock for sale to any employee
under the terms of the options to be granted hereunder
shall be deemed complete as of the date when the
Administrator authorized the grant of the option to the
employee, regardless of when the option is actually
delivered to the employee or acknowledged or agreed to
by him.
8. EXERCISE OF OPTION AND ISSUANCE OF SHARES.
a. An Option (or any part or installment thereof) shall be
exercised by giving written notice to the Company at its
principal office address, together with the tender of the full
purchase price for the Shares as to which such Option is being
exercised, and upon compliance with any other condition(s) set
forth in the Option
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Agreement. Such written notice shall be signed by the person
exercising the Option, shall state the number of Shares with
respect to which the Option is being exercised and shall
contain any representation required by the Plan or the Option
Agreement. Full payment of the purchase price for the Shares
as to which such Option is being exercised shall be made (a)
in United States dollars in cash or by check, or (b) at the
discretion of the Administrator, through delivery of shares of
Common Stock valued at a fair market value as of the date of
exercise equal to the cash exercise price of the Option,
subject to such limitations on the tender of Common Stock as
the Committee may impose, or by a combination of cash and
shares of Common Stock, or (c) at the discretion of the
Administrator, by delivery of the grantee's personal recourse
note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in
Section 1274(d) of the Code, or (d) at the discretion of the
Administrator, by any combination of (a), (b) and (c) above.
b. The Company shall then reasonably promptly deliver the
Shares as to which such Option was exercised to the
Participant (or to the Participant's Survivors, as the
case may be). In determining what constitutes
"reasonably promptly," it is expressly understood that
the delivery of the Shares may be delayed by the
Company in order to comply with any law or regulation
which requires the Company to take any action with
respect to the Shares prior to their issuance. The
Shares shall, upon delivery, be evidenced by an
appropriate certificate or certificates for fully paid,
non-assessable Shares.
c. The Administrator shall have the right to accelerate
the date of exercise of any installment of any Option;
provided that the Administrator shall not accelerate
the exercise date of any installment of any Option
granted to any Key Employee as an ISO (and not
previously converted into a Non-Qualified Option
pursuant to paragraph 19) if such acceleration would
violate the annual vesting limitation contained in
Section 422(d) of the Code, as described in paragraph
6.B.(e).
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d. To the extent a Participant satisfies the exercise
price under Paragraph 7(a) using Common Stock, such
Participant shall receive a grant of new options
subject to the terms set forth under Paragraph 6,
except the exercise price under the new option grant
("Reload Grant") will be equal to the Fair Market Value
of the Stock on the date of grant (as determined in
good faith by the Administrator.
9. RIGHTS AS A SHAREHOLDER.
No Participant to whom an Option has been granted shall have rights as
a shareholder with respect to any Shares covered by such Option, except after
due exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
10. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
By its terms, an Option granted to a Participant shall not be
transferable by the Participant other than by will or by the laws of descent and
distribution and shall be exercisable, during the Participant's lifetime, only
by such Participant (or by his or her legal representative). Such Option shall
not be assigned, pledged or hypothecated in any way (whether by operation of law
or otherwise) and shall not be subject to execution, attachment or similar
process. Any attempted transfer, assignment, pledge, hypothecation or other
disposition of any Option or of any rights granted thereunder contrary to the
provisions of this Plan, or the levy of any attachment or similar process upon
an Option, shall be null and void.
11. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Options, the following rules apply:
a. A Participant who ceases to be an employee, director or
consultant of the Company or of an Affiliate (for any
reason other than termination "for cause", Disability,
or death for which events there are special rules in
Paragraphs 11, 12, and 13, respectively), may exercise
any Option granted to him or her to the extent that the
right to purchase Shares has accrued on the date of
such termination of service, but only within such term
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as the Administrator has designated in the pertinent
Option Agreement.
b. In no event may an Option Agreement provide, if the option is
intended to be an ISO, that the time for exercise be later
than three (3) months after the Participant's termination of
employment.
c. The provisions of this paragraph, and not the
provisions of Paragraph 12 or 13, shall apply to a
Participant who subsequently becomes disabled or dies
after the termination of employment, director status or
consultancy, provided, however, in the case of a
Participant's death within three (3) months after the
termination of employment, director status or
consultancy, the Participant's Survivors may exercise
the Option within one (1) year after the date of the
Participant's death, but in no event after the date of
expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if
subsequent to a Participant's termination of
employment, termination of director status or
termination of consultancy, but prior to the exercise
of an Option, the Board of Directors determines that,
either prior or subsequent to the Participant's
termination, the Participant engaged in conduct which
would constitute "cause", then such Participant shall
forthwith cease to have any right to exercise any
Option.
e. A Participant to whom an Option has been granted under
the Plan who is absent from work with the Company or
with an Affiliate because of temporary disability (any
disability other than a permanent and total Disability
as defined in Paragraph 1 hereof), or who is on leave
of absence for any purpose, shall not, during the
period of any such absence, be deemed, by virtue of
such absence alone, to have terminated such
Participant's employment, director status or
consultancy with the Company or-with an Affiliate,
except as the Administrator may otherwise expressly
provide.
f. Options granted under the Plan shall not be affected by
any change of employment or other service within or
among the Company and any Affiliates, so long as the
Participant continues to be an employee, director or
consultant of the Company or any Affiliate, provided,
however, if a Participant's employment by either the
Company or an Affiliate should cease (other than to
become an employee of an Affiliate or the Company),
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<PAGE>
such termination shall affect the Participant's rights under
any Option granted to such Participant in accordance with the
terms of the Plan and the pertinent Option Agreement.
12. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have been
exercised:
a. All outstanding and unexercised options as of the date the
Participant is notified his or her service is terminated "for
cause", will immediately be forfeited, unless the Option
Agreement provides otherwise.
b. For purposes of this Article, "cause" shall include
(and is not limited to) dishonesty with respect to the
employer, insubordination, substantial malfeasance or
non-feasance of duty, unauthorized disclosure of
confidential information, and conduct substantially
prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as
to the existence of cause will be conclusive on the
Participant and the Company.
c. "Cause" is not limited to events which have occurred
prior to a Participant's termination of service, nor is
it necessary that the Administrator's finding of
"cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's
termination of service but prior to the exercise of an
Option, that either prior or subsequent to the
Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right
to exercise any Option is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting
definition of "cause" for termination and which is in effect
at the time of such termination, shall supersede the
definition in this Plan with respect to such Participant.
13. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director
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or consultant of the Company or of an Affiliate by reason of Disability may
exercise any Option granted to such Participant:
a. To the extent that the right to purchase Shares has
accrued on the date of his or her Disability; and
b. In the event rights to exercise the Option accrue
periodically, to the extent of a pro rata portion of
any additional rights as would have accrued had the
Participant not become Disabled prior to the end of the
accrual period which next ends following the date of
Disability. The proration shall be based upon the
number of days of such accrual period prior to the date
of Disability.
A Disabled Participant may exercise such rights only within a period of
not more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Option
as to some or all of the Shares on a later date if he or she had not become
disabled and had continued to be an employee, director or consultant or, if
earlier, within the originally prescribed term of the Option.
The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a procedure for
such determination is set forth in another agreement between the Company and
such Participant, in which case such procedure shall be used for such
determination). if requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
14. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant to whom an Option has been granted while the
Participant is an employee, director or consultant of the Company or of an
Affiliate, such option may be exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date
of death; and
b. In the event rights to exercise the Option accrue
periodically, to,the extent of a pro rata portion of any
additional rights which would have accrued had the Participant
not died prior to the end of the accrual period which next
ends following the date of death. The proration shall be based
upon the number of days of such accrual period prior to the
Participant's death.
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<PAGE>
If the Participant's Survivors wish to exercise the Option, they must
take all necessary steps to exercise the Option within one (1) year after the
date of death of such Participant, notwithstanding that the decedent might have
been able to exercise the Option as to some or all of the Shares on a later date
if he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any option to
the extent that the right to purchase Shares has accrued under the Plan as of
the date immediately prior to such dissolution or liquidation.
16. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant's
rights with respect to any Option granted to him or her hereunder which have not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the written agreement between the
Participant and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common stock, the number of shares of Common Stock deliverable upon
the exercise of such Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the Shares then subject to such Options either the
consideration payable with
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<PAGE>
respect to the outstanding shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Options must be exercised,
to the extent then exercisable, within a specified number of days of the date of
such notice, at the end of which period the options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising an option shall be entitled to
receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "mon 424(h) of the Code)
or would cause any adverse tax consequences for the holders of such ISOs. If the
Administrator determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOS, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
17. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
18. FRACTIONAL SHARES.
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<PAGE>
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional share equal to the fair market value thereof determined in good faith
by the Board of Directors of the Company.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS:
TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in
its discretion take such actions as may be necessary to convert such
Participant's ISOs (or any portions thereof) that have not been exercised on the
date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the Participant is an employee of
the Company or an Affiliate at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Administrator (with the consent of the Participant) may
impose such conditions on the exercise of the resulting Non-Qualified Option as
the Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participants ISO's converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such termination.
20. WITHHOLDING.
Upon the exercise of a Non-Qualified Option for less than the then Fair
Market Value or the making of a Disqualifying Disposition (as defined in
paragraph 21), the Company may withhold from the Participant's wages, if any, or
other remuneration, or may require the Participant to pay additional federal,
state, and local income tax withholding and employee contributions to employment
taxes in respect of the amount that is considered compensation includible in
such person's gross income. The Administrator in its discretion may condition
the exercise of an option for less than the then Fair Market Value on the
Participant's payment of such additional income tax withholding and employee
contributions to employment taxes.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
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Each Key Employee who receives an ISO must agree to notify the Company
in writing immediately after the Key Employee makes a Disqualifying Disposition
of any shares acquired pursuant to the exercise of an ISO . A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
22. TERMINATION OF THE PLAN.
The Plan will terminate on July 18, 2007, the date which is ten (10)
years from the earlier of the date of its adoption and the date of its approval
by the stockholders of the Company. The Plan may be terminated at an earlier
date by vote of the stockholders of the Company; provided, however, that any
such earlier termination will not affect any Options granted or Option
Agreements executed prior to the effective date of such termination.
23. AMENDMENT OF THE PLAN.
The Plan may be amended by the stockholders of the Company. The Plan
may also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Options granted under the
Plan or Options to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, to the extent necessary
to ensure the qualification of the Plan under Rule 16b-3, and to the extent
necessary to qualify the Shares issuable upon exercise of any outstanding
Options granted, or Options to be granted, under the Plan for listing on any
national securities exchange or quotation in any national automated quotation
system of securities dealers. Any amendment approved by the Administrator which
is of a scope that requires stockholder approval in order to ensure favorable
federal income tax treatment for any incentive stock options or requires
stockholder approval in order to ensure the compliance of the Plan with Rule
16b-3 shall be subject to obtaining such stockholder approval. Any modification
or amendment of the Plan shall not, without the consent of a Participant, affect
his or her rights under an Option previously granted to him or her. With the
consent of the Participant affected, the Administrator may amend outstanding
Option Agreements in a manner not inconsistent with the Plan.
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<PAGE>
24. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Option Agreement shall be deemed to prevent
the Company or an Affiliate from terminating the employment, consultancy or
director status of a Participant, nor to prevent a Participant from terminating
his or her own employment, consultancy or director status or to give any
Participant a right to be retained in employment or other service by the Company
or any Affiliate for any period of time.
25. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of
the State of Pennsylvania.
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AMENDMENT NUMBER ONE TO
A.C. MOORE, INCORPORATED
1997 EMPLOYEE, DIRECTOR AND
CONSULTANT STOCK OPTION PLAN
This Amendment Number One to the A.C. Moore, Incorporated 1997
Employee, Director and Consultant Stock Option Plan is made as of
_________________________, 1997.
1. The first paragraph of Section 3 of the Plan, "Shares subject to the
Plan," is hereby deleted in its entirety and the following is substituted
therefor:
The number of Shares subject to this Plan as to which
Options may be granted from time to time shall be ____________,
or the equivalent of such number of Shares after the
Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination,
recapitalization or similar transaction effected after such date
in accordance with Paragraph 16 of the Plan.
2. In all other respects the Plan shall remain in full force and
effect.
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A.C. MOORE, INCORPORATED
Following is a summary of the federal income tax consequences resulting
from a sale of stock or an exercise of options. Because the tax consequences
depend in part on each shareholder's individual circumstances, we recommend
shareholders consult with their own tax advisors for more detailed evaluation of
alternatives.
Nonqualified Stock Options
A holder of a nonqualified stock option (NQSO) will recognize taxable
compensation income at the time of exercise of the option in an amount equal to
the difference between the value of the stock acquired and the option price paid
for the stock. The amount of compensation income will be added to the option
price paid in determining the stockholder's basis in the acquired stock. Any
gain or loss on a subsequent disposition will be capital gain, long or short
term depending on the holding period, which begins at the time of exercise of
the NQSO.
Long term capital gain is taxed at a nominal maximum rate of 28
percent, as compared to a nominal maximum rate of 31 percent currently
applicable to other income. The actual marginal rate for long term capital gain
and other income may be higher than the nominal rate as a result of the phaseout
of personal exemptions and the reduction of allowable itemized deductions based
on adjusted gross income. Various tax bills now pending in Congress may lower
the maximum rate for long term capital gain or raise the maximum rate for other
income, or both.
Example 1: The Company granted you a nonqualified stock option two
years ago. You now exercise the option and immediately sell the shares.
The result is that you will recognize compensation income equal to the
difference between the value of the stock on the date of exercise and
the exercise price.
Example 2: Three years ago the Company granted you a nonqualified stock
option to purchase shares at $6 per share. Fourteen months ago you
exercised the option to purchase 100 shares at $6 per share. At the
time of exercise the stock had a value of $9.00 per share. The result
is that you recognize $3 per share of compensation at the time of
exercise of the option and $1 per share of long term capital gain at
the time of sale. There is no tax preference item or alternative
minimum tax effect.
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A.C. MOORE ARTS & CRAFTS, INC.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made _____________, 1997, between A.C. MOORE ARTS & CRAFTS,
INC. (the "Company"), a Pennsylvania corporation having a principal place of
business in Blackwood, New Jersey and ____________________ (the "Participant").
WHEREAS, the Company desires to grant to the Participant an Option to
purchase shares of its common stock, no par value (the "Shares") under and for
the purposes of the 1997 Employee, Director and Consultant Stock Option Plan of
the Company (the "Plan"); provided, however, the Option granted hereby shall not
be exercisable unless the Company has issued shares of its common stock to the
public in an IPO ("as defined in the Plan") in 1997;
WHEREAS, the Company and the Participant understand and agree that any
terms used and not defined herein have the same meanings as in the Plan;
WHEREAS, the Company and the Participant each intend that the Option
granted herein shall be a Incentive Stock Option ("ISO").
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. GRANT OF OPTION.
The Company hereby irrevocably grants to the Participant the right and
option to purchase all or any part of an aggregate of ___________ Shares, on the
terms and conditions and subject to all the limitations set forth herein and in
the Plan, which is incorporated herein by reference. The Participant
acknowledges receipt of a copy of the Plan.
2. PURCHASE PRICE.
The purchase price of the Shares covered by the Option shall be $9.00
per Share, subject to adjustment, as provided in the Plan, in the event of a
stock split, reverse stock split or other events affecting the holders of
Shares. Payment shall be made in accordance with Paragraph 7 of the Plan.
3. EXERCISE OF OPTION.
Subject to the terms and conditions set forth in this Agreement and the
Plan, the Option granted hereby shall be exercisable as follows:
<PAGE>
On the first anniversary of the up to 1/3 of the Shares
date of this Agreement
On the second anniversary of the an additional 1/3 of the
date of this Agreement Shares
On the third anniversary of the an additional 1/3 of the
date of this Agreement Shares
The foregoing rights are cumulative and are subject to the other terms
and conditions of this Agreement and the Plan.
Should the Company (i) merge or consolidate with another corporation
under circumstances where the Company is not the surviving corporation, (ii)
sell all or substantially all of its assets, (iii) liquidate or dissolve, or
(iv) register the transfer of eighty percent (80%) or more of its outstanding
Common Stock to persons who were not owners (or considered to be owners pursuant
to Section 318 of the Code) of Common Stock immediately prior to such transfer,
and the Participant continues his/her employment with the Company, or its
successor, for a period of not less than twelve (12) months from the date of the
merger, sale or transfer then 100% of such Option not yet vested shall vest at
the end of such 12-month term, and the holder of this Option shall have the
right to exercise any and all of the Option shares, unless this Option has
otherwise expired or been terminated pursuant to its terms or the terms hereof.
At any time after the Company is involved in a merger, consolidation,
sale or transfer as described above, and
a) the Participant shall fail to be vested with power and authority
analogous to the Participant's title and/or office prior to the merger,
consolidation, sale or transfer, or
b) the Participant shall lose any significant duties or
responsibilities attending such office, or
c) if there shall occur a reduction in the Participant's base
compensation, or
d) the Participant's employment with the Company, or its successor, is
terminated without cause, then 100% of such option not yet vested shall
immediately vest and the holder of this Option shall have the right, immediately
prior to the effectiveness of consummation of such event, to exercise any and
all of the Option shares, unless this option has otherwise expired or been
terminated pursuant to its terms or the terms hereof.
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<PAGE>
4. TERM OF OPTION.
The Option shall terminate ten (10) years from the date of this
Agreement, but shall be subject to earlier termination as provided herein or in
the Plan.
If the Participant ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than death or Disability or
termination for "cause" as defined in the Plan), the Option may be exercised
within ninety (90) days after the date the Participant ceases to be an employee,
director or consultant of the Company or an Affiliate, or within the originally
prescribed term of the Option, whichever is earlier, but may not be exercised
thereafter. In such event, the Option shall be exercisable only to the extent
that the right to purchase Shares under this Agreement or the Plan has accrued
and is in effect at the date of such cessation of employment, consultancy or
directorship. The provisions of this paragraph shall apply if the Participant
subsequently becomes disabled or dies after ceasing to be an employee,
consultant or director, provided, however, in the case of the Participant's
death within three (3) months after ceasing to be an employee, consultant or
director, the Option may be exercised by the Participant's Survivors within one
(1) year after the date of the Participant's death but in no event after the
date of expiration of the term of the Option.
In the event the Participant's employment, directorship or consultancy
is terminated for "cause" (as defined in the Plan), the Participant's right to
exercise any unexercised portion of this Option shall cease forthwith, and this
Option shall thereupon terminate. Notwithstanding anything herein to the
contrary, if subsequent to the Participant's termination as an employee,
director or consultant but prior to the exercise of the Option, the Board of
Directors of the Company determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which would
constitute "cause", then the Participant shall forthwith cease to have any right
to exercise the Option.
In the event of the Disability of the Participant, as determined in
accordance with the Plan, the Option shall be exercisable within one (1) year
after the date of such Disability or, if earlier, the term originally prescribed
by the Option. In such event, the Option shall be exercisable:
a) to the extent that the right to purchase the Shares hereunder has
accrued on the date the Participant becomes Disabled and is in effect as of the
date of Disability; and
b) in the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any
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<PAGE>
additional rights as would have accrued had the Participant not become Disabled
prior to the end of the particular year. The proration shall be based upon the
number of days of the accrual period during which the Participant was not
Disabled.
In the event of the death of the Participant while an employee,
consultant or director of the Company or of an Affiliate, the Option:
x) to the extent exercisable but not exercised as of the date of death;
and
y) in the event rights to exercise the Option accrue periodically, to
the extent of a pro rata portion of any additional rights to exercise the Option
as would have accrued had the Participant not died during that year may be
exercised by the Participant's Survivors. The proration shall be based upon the
number of days during the accrual period prior to the Participant's death. In
such event, the Option must be exercised, if at all, within one (1) year after
the date of death of the Participant or, if earlier, within the originally
prescribed term of the Option.
5. METHOD OF EXERCISING OPTION.
Subject to the terms and conditions of this Agreement, the Option may
be exercised by written notice to the Company, at the principal executive office
of the Company. Such notice shall state the election to exercise the Option and
the number of Shares in respect of which it is being exercised, shall be signed
by the person or persons so exercising the Option, and shall be in substantially
the form attached hereto as Exhibit A. Payment of the full purchase price for
such Shares shall be made in accordance with Paragraph 7 of the Plan, and the
Company shall deliver a certificate or certificates representing such Shares as
soon as practicable after the notice shall be received, provided, however, that
the Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or "blue sky" laws). The
certificate or certificates for the Shares as to which the Option shall have
been so exercised shall be registered in the name of the person or persons so
exercising the Option (or, if the Option shall be exercised by the Participant
and if the Participant shall so request in the notice exercising the Option,
shall be registered in the name of the Participant and another person jointly,
with right of survivorship) and shall be delivered as provided above to or upon
the written order of the person or persons exercising the Option. In the event
the Option shall be exercised, pursuant to Section 4 hereof, by any person or
persons other than the Participant, such notice shall be accompanied by
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<PAGE>
appropriate proof of the right of such person or persons to exercise the Option.
All Shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and non-assessable.
6. PARTIAL EXERCISE.
Exercise of this Option to the extent above stated may be made in part
at any time and from time-to-time within the above limits, except that no
fractional share shall be issued pursuant to this Option.
7. NON-ASSIGNABILITY.
The Option shall not be transferable by the Participant otherwise than
by will or by the laws of descent and distribution and shall be exercisable,
during the Participant's lifetime, only by the Participant. Except as provided
in the preceding sentence, the Option shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation or other disposition of the Option or of any
rights granted hereunder contrary to the provisions of this Section 7, or the
levy of any attachment or similar process upon the Option or such rights, shall
be null and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.
The Participant shall have no rights as a stockholder with respect to
Shares subject to this Agreement until a stock certificate therefore has been
issued to the Participant and is fully paid for. Except as is expressly provided
in the Plan with respect to certain changes in the capitalization of the
Company, no adjustment shall be made for dividends or similar rights for which
the record date is prior to the date such stock certificate is issued.
9. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.
The Plan contains provisions covering the treatment of Options in a
number of contingencies such as stock splits and mergers. Provisions in the Plan
for adjustment with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.
10. TAXES AND WITHHOLDING.
The Participant acknowledges that upon exercise of the Option the
Participant will be deemed to have taxable income measured by the difference
between the then fair market value of
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<PAGE>
the Shares received upon exercise and the price paid for such Shares pursuant to
this Agreement (the "Taxable Income"). The Participant acknowledges that any
income or other taxes due from him or her with respect to this Option or the
Shares issuable pursuant to this Option shall be the Participant's
responsibility.
If the Company in its discretion determines that it is obligated to
withhold income taxes with respect to the exercise of the Option, the
Participant hereby agrees that the Company may withhold from the Participant
remuneration, if any, the appropriate amount of federal, state and local
withholding attributable to such amount that is considered compensation
includible in such person's gross income.
11. INITIAL PUBLIC OFFERING.
Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the "Act") and
the IPO closed, the Company shall be under no obligation to issue the Shares
covered by this Option. It is expressly understood that this Agreement is
subject to and contingent upon the Company completing an Initial Public Offering
and closing.
12. NO OBLIGATION TO EMPLOY.
The Company is not by the Plan or this Option or any other agreement
obligated to continue the Participant as an employee, consultant or director of
the Company.
13. NOTICES.
Any notices required or permitted by the terms of this
Agreement or the Plan shall be given by recognized courier service, facsimile,
registered or certified mail, return receipt requested, addressed as follows:
To the Company: A.C. MOORE ARTS & CRAFTS, INC.
500 University Court
Blackwood, New Jersey 08012
To the Participant:
(address)
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given when
mailed in accordance with the foregoing provisions.
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<PAGE>
14. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with the
law of the State of Pennsylvania.
15. BENEFIT OF AGREEMENT.
Subject to the provisions of the Plan and the other provisions thereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
16. ENTIRE AGREEMENT.
This Agreement, together with the Plan, embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement not expressly set forth in this Agreement shall affect or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.
17. MODIFICATIONS AND AMENDMENTS.
The terms and provisions of this Agreement may be modified or amended
only by written agreement executed by all parties hereto.
18. WAIVERS AND CONSENTS.
The terms and provisions of this Agreement may be waived, or consent
for the departure therefrom granted, only by written document executed by the
party entitled to the benefits of such terms or provisions. No such waiver or
consent shall be deemed to be or shall constitute a waiver or consent with
respect to any other terms or provisions of this Agreement, whether or not
similar. Each such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not constitute a
continuing waiver or consent.
19. HOLDING PERIOD APPLICABLE TO PERSONS SUBJECT TO SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934.
If the Participant to whom the Option has been granted pursuant to this
Agreement is subject to Section 16 of the Securities Exchange Act of 1934, then
at least six (6) months must elapse from the date of grant of the Option to the
date of disposition of the Shares.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer, and the Participant has hereunto set his
or her hand and seal, all as of the day and year first above written.
A.C. MOORE ARTS & CRAFTS, INC.
By: __________________________
John E. Parker, President
PARTICIPANT
___________________________
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<PAGE>
Exhibit A
---------
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
To: A.C. MOORE ARTS & CRAFTS, INC.
IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made are registered and such Registration Statement remains
effective.
Ladies and Gentlemen:
I hereby exercise my Incentive Stock Option to purchase ______ shares
(the "Shares") of the common stock, no par value, of A.C. MOORE ARTS & CRAFTS,
INC. (the "Company"), at the exercise price of $___________ per share, pursuant
to and subject to the terms of that certain Incentive Stock Option Agreement
between the undersigned and the Company dated _________, 1997.
I understand that the nature of the investment I am making and the
financial risks thereof. I am aware that it is my responsibility to have
consulted with competent tax and legal advisors about the relevant national,
state and local income tax and securities laws affecting the exercise of the
Option and the purchase and subsequent sale of the Shares.
I am paying the option exercise price for the Shares as follows:_______
________________________________________________________________________________
________________________________________________________________________________
If I am subject to Section 16 of the Securities Exchange Act of 1934, I
understand that at least six (6) months must elapse from the date of grant of
the Option to the date of disposition of the Shares.
Please issue the stock certificate for the Shares (check one):
_____ to me
_____ to me and _________________________ as joint
tenants with right of survivorship
and mail the certificate to me at the following address:
______________________________________
______________________________________
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<PAGE>
================================================================================
$32,554,835.08
LOAN AGREEMENT
BETWEEN
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
January 23, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
================================================================================
<TABLE>
<S> <C> <C>
Article 1. Definitions........................................................................................ 1
Article 2. Commitments; Loans; Collateral; Subordinations..................................................... 14
Section 2.1 Loans....................................................................... 14
Section 2.2 Notices Relating to Loans................................................... 14
Section 2.3 Disbursement of Loan Proceeds............................................... 14
Section 2.4 Note........................................................................ 14
Section 2.5 Payments.................................................................... 15
Section 2.6 Fees........................................................................ 15
Section 2.7 Use of Proceeds of Loans.................................................... 15
Section 2.8 Advances.................................................................... 15
Section 2.9 Computations................................................................ 16
Section 2.10 Time and Method of Payments................................................. 16
Section 2.11 [Intentionally Omitted]..................................................... 16
Section 2.12 Several Obligations......................................................... 16
Section 2.13 [Intentionally Omitted]..................................................... 16
Section 2.14 Guaranties.................................................................. 16
Section 2.15 Security.................................................................... 17
Section 2.16 Subordinations.............................................................. 17
Section 2.17 Pro Rata Treatment Among Banks.............................................. 18
Section 2.18 ............................................................................ 18
Section 2.19 Sharing of Payments
and Set-Off Among Banks............................................. 18
Section 2.20 Additional Costs............................................................ 18
Section 2.21 Conversion to Term Loan..................................................... 20
Article 3. Representations and Warranties..................................................................... 21
Section 3.1 Organization................................................................ 21
Section 3.2 Power, Authority, Consents.................................................. 21
Section 3.3 No Violation of Law or Agreements........................................... 22
Section 3.4 Due Execution, Validity, Enforceability..................................... 22
Section 3.5 Properties, Priority of Liens............................................... 22
Section 3.6 Judgments, Actions, Proceedings............................................. 23
Section 3.7 No Defaults, Compliance With Laws........................................... 23
Section 3.8 Burdensome Documents........................................................ 23
Section 3.9 Financial Statements; Pro Forma
Balance Sheet; Projections.......................................... 23
Section 3.10 Tax Returns................................................................. 24
Section 3.11 Intangible Assets........................................................... 24
Section 3.12 Regulation U................................................................ 24
Section 3.13 Name Changes, Mergers,
Acquisitions; Location of Collateral................................ 25
Section 3.14 Full Disclosure............................................................. 25
Section 3.15 Licenses and Approvals...................................................... 25
Section 3.16 Labor Disputes; Collective Bargaining
Agreements; Employee Grievances............................................. 25
Section 3.17 Condition of Assets......................................................... 26
Section 3.18 ERISA....................................................................... 26
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<PAGE>
Article 4. The Closing; Conditions to the Loans............................................................... 28
Section 4.1 The Closing................................................................. 28
Section 4.2 Conditions to Initial Advances.............................................. 28
Section 4.3 Conditions to Subsequent Advances........................................... 30
Article 5. Delivery of Financial Reports,
Documents and Other Information................................................... 31
Section 5.1 Annual Financial Statements................................................. 31
Section 5.2 Quarterly Financial Statements.............................................. 31
Section 5.3 Compliance Information...................................................... 32
Section 5.4 No Default Certificate...................................................... 32
Section 5.5 Report of Accountants....................................................... 32
Section 5.6 Other Accounting Information................................................ 32
Section 5.7 Accountants' Reports........................................................ 33
Section 5.8 Copies of Documents......................................................... 33
Section 5.9 Notices of Defaults......................................................... 33
Section 5.10 ERISA Notices............................................................... 33
Section 5.11 Additional Information...................................................... 34
Article 6. Affirmative Covenants.............................................................................. 35
Section 6.1 Books and Records........................................................... 35
Section 6.2 Inspections and Audits...................................................... 35
Section 6.3 Maintenance and Repairs..................................................... 35
Section 6.4 Continuance of Business..................................................... 35
Section 6.5 Copies of Corporate Documents............................................... 36
Section 6.6 Perform Obligations......................................................... 36
Section 6.7 Notice of Litigation........................................................ 36
Section 6.8 Insurance................................................................... 36
Section 6.9 Financial Covenants......................................................... 37
Section 6.10 Intentionally Omitted....................................................... 38
Section 6.11 Notice of Certain Events.................................................... 38
Section 6.12 Comply with ERISA........................................................... 38
Section 6.13 Environmental Compliance.................................................... 38
Section 6.14 Deposit Accounts............................................................ 39
Section 6.15 Retention of Earnings....................................................... 39
Article 7. Negative Covenants................................................................................. 40
Section 7.1 Indebtedness................................................................ 40
Section 7.2 Liens....................................................................... 40
Section 7.3 Guaranties.................................................................. 41
Section 7.4 Mergers, Acquisitions....................................................... 41
Section 7.5 Redemptions; Distributions.................................................. 42
Section 7.6 Stock Issuance.............................................................. 42
Section 7.7 Changes in Business......................................................... 42
Section 7.8 Prepayments................................................................. 42
Section 7.9 Investments................................................................. 42
Section 7.10 Fiscal Year................................................................. 43
Section 7.11 ERISA Obligations........................................................... 43
Section 7.12 Amendments of Documents..................................................... 43
Section 7.13 Intentionally Omitted....................................................... 43
Section 7.14 Intentionally Omitted....................................................... 43
Section 7.15 Intentionally Omitted....................................................... 43
Section 7.16 Transactions with Affiliates................................................ 43
Section 7.17 Stock Transfer.............................................................. 43
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<PAGE>
Article 8. Inter-Creditor Agreement........................................................................... 44
Article 9. Events of Default.................................................................................. 44
Section 9.1 Payments.................................................................... 44
Section 9.2 Certain Covenants........................................................... 44
Section 9.3 Other Defaults.............................................................. 44
Section 9.4 Representations and Warranties.............................................. 45
Section 9.5 Bankruptcy.................................................................. 45
Section 9.6 Judgments................................................................... 46
Section 9.7 ERISA....................................................................... 46
Section 9.8 Liens....................................................................... 46
Section 9.9 Cross-Defaults.............................................................. 46
Article 10. Miscellaneous Provisions.......................................................................... 48
Section 10.1 Fees and Expenses; Indemnity................................................ 48
Section 10.2 Taxes....................................................................... 49
Section 10.3 Payments.................................................................... 50
Section 10.4 Survival of Agreements and
Representations; Construction....................................... 50
Section 10.5 Lien on and Set-off of Deposits............................................. 50
Section 10.6 Modifications, Consents and
Waivers; Entire Agreement........................................... 51
Section 10.7 Remedies Cumulative......................................................... 51
Section 10.8 Further Assurances.......................................................... 52
Section 10.9 Notices..................................................................... 52
Section 10.10 Counterparts................................................................ 53
Section 10.11 Severability................................................................ 53
Section 10.12 Binding Effect; No Assignment
or Delegation by Borrower........................................... 54
Section 10.13 Assignments and Participations by Banks..................................... 54
Section 10.14 GOVERNING LAW;
CONSENT TO JURISDICTION;
WAIVER OF TRIAL BY JURY............................................. 56
Section 10.15 Rights of Banks............................................................. 57
Section 10.16 Receipt by Banks of Payments................................................ 57
Section 10.17 Non-Reliance on other Banks................................................. 58
</TABLE>
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<PAGE>
LOAN AGREEMENT
AGREEMENT, made this 23rd day of January, 1997, by and among:
A.C. MOORE INCORPORATED, a Delaware corporation (the
"Borrower") ; and
KEYBANK NATIONAL ASSOCIATION a national banking association (the
"Bank").
W I T N E S S E T H:
WHEREAS, the Borrower wishes to obtain loans from the Bank in the
aggregate principal sum of up to Thirty Two Million Five Hundred Fifty Four
Thousand Eight Hundred Thirty Five and 08/100 ($32,554,835.08), and the Bank is
willing to make such loans to the Borrower in an aggregate principal amount of
up to such sum on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
Article 1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Accountant" - Price Waterhouse & Company or any other
independent certified public accountant selected by the Borrower and approved by
the Banks.
"Advance(s)" - the advance of loan proceeds by the Bank
to the Borrower.
"Advance Account" - account number 323330006897 maintained by
the Borrower with the Bank.
"Affiliate" - as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
1
<PAGE>
partnership or other ownership interests, by contract or otherwise), provided
that, in any event: (i) any Person which owns directly or indirectly 20% or more
of the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 20% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person; and
(ii) each shareholder, director and officer of the Borrower shall be deemed to
be an Affiliate of the Borrower.
"Applicable Lending Office" - the Lending Office designated on
the signature pages hereof or such other office as the Bank may from time to
time specify to the Borrower.
"Bankruptcy Code" - the United States Bankruptcy Code as the
same may be amended from time to time.
"Borrower Security Agreement" - as defined in Section
2.12 hereof.
"Borrower Subordination Agreement" - as defined in
Section 2.13 hereof.
"Borrowing Notice" - as defined in Section hereof.
"Business Day" - any day other than Saturday, Sunday or other
day on which commercial banks in Albany, New York, are authorized or required to
close under the laws of the State of New York.
"Capital Expenditures" - for any period, the aggregate amount
of all payments made by any Person directly or indirectly for the purpose of
acquiring, constructing or maintaining fixed assets, real property or equipment
which, in accordance with GAAP, would be added as a debit to the fixed asset
account of such Person, including, without limitation, all amounts paid or
payable with respect to Capitalized Lease Obligations and interest which are
required to be capitalized in accordance with GAAP.
"Capitalized Lease" - any lease the obligations to pay rent or
other amounts under which constitute Capitalized Lease Obligations.
2
<PAGE>
"Capitalized Lease Obligations" - as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Cash" - as to any Person, such Person's cash and cash
equivalents, as defined in accordance with GAAP.
"Closing" - as defined in Section hereof.
"Code" - the Internal Revenue Code of 1986, as it may be
amended from time to time.
"Collateral" - as defined in the respective Security
Documents.
"Commitment" - Thirty Two Million Five Hundred Fifty Four
Thousand Eight Hundred Thirty Five and 08/100 ($32,554,835.08)
Dollars.
"Commitment Termination Date" - That date or those dates after
which Borrower may no longer receive proceeds of a Facility.
"Compliance Certificate" - a certificate executed by the
president or chief financial officer of a Borrower to the effect that: (i) as of
the effective date of the certificate, no Event of Default under this Agreement
exists or would exist after giving effect to the action intended to be taken by
the Borrower as described in such certificate, including, without limitation,
that the covenants set forth in Section hereof would not be breached after
giving effect to such action, together with a calculation in reasonable detail,
and in form and substance satisfactory to each Bank, of such compliance, and
(ii) the representations and warranties contained in Article hereof are true and
with the same effect as though such representations and warranties were made on
the date of such certificate, except for changes in the ordinary course of
business none of which, either singly or in the aggregate, have had a Material
Adverse Effect.
"Controlled Group" - all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrowers, are treated as a single
employer under Section 414(b), 414(c) or 414(m) of the Code and Section
4001(a)(2) of ERISA.
3
<PAGE>
"Creditors" - as defined in Section 2.13 hereof.
"Current Assets" - as determined in accordance with GAAP;
provided, however, that any of such assets which are subject to a pledge, lien
or security interest held by any Person other than the Banks to secure payment
of any Indebtedness which is not included in Current Liabilities shall be
excluded from Current Assets to the extent of such Indebtedness.
"Current Liabilities" - as determined in accordance with GAAP
and shall include, as of the date of determination thereof: (i) all Indebtedness
payable on demand or maturing within one year after such date without any option
on the part of the obligor to extend or renew beyond such year, (ii) final
maturities, installments and prepayments of Indebtedness required to be made
within one year after such date, (iii) the unpaid principal balance of the Note
due within one year after such date, and (iv) all other items (including taxes
accrued as estimated and reserves for deferred income taxes) which, in
accordance with generally accepted principles, would be included on a balance
sheet as current liabilities.
"Debt Instrument" - as defined in subsection 9.3 (a)
hereof.
"Debt Service" - as to any Person as at any date, the sum of
all payments of principal and interest on Indebtedness of such Person for
borrowed money which are due and payable during the 365-day period immediately
succeeding such date; provided, however, that for the purposes of this
definition, with respect to: (i) each item of Indebtedness which bears interest
at a fixed rate throughout such 365-day period, such item shall be deemed to
bear interest at the actual fixed rate applicable thereto throughout such
365-day period; and (ii) each item of Indebtedness which bears interest at other
than a fixed rate, such item shall be deemed to bear interest as though the
interest rate in effect throughout such 365-day period (or such shorter period
if such item of Indebtedness is to be repaid during such 365-day period) were
the same as the interest rate in effect on such item of Indebtedness on the date
of the most recent scheduled interest payment date for such item of
Indebtedness.
"Debt Service Coverage Ratio" - as at any date, the ratio of
net income (loss) before taxes, plus interest expense, plus depreciation plus
amortization to interest expense and the current portion of long term debt. For
this definition, interest expense excludes any interest expense paid on
stockholder loans to the extent that it is immediately loaned back to the
Borrower by the stockholders.
4
<PAGE>
"Default Rate" - those increased rates of interest as set
forth in the definition of Interest Rate which become effective on the
occurrence of certain Events of Default.
"Dollars" and "$" - lawful money of the United States of
America.
"Environmental Laws and Regulations" - all environmental,
health and safety laws, regulations, resolutions, and ordinances applicable to
the Borrower or any other Loan Party, or any of its respective assets or
properties, including, without limitation: (i) all regulations, resolutions,
ordinances, decrees, and other similar documents and instruments of all courts
and governmental authorities, bureaus and agencies, domestic and foreign,
whether issued by environmental regulatory agencies or otherwise, and (ii) all
laws, regulations, resolutions, ordinances and decrees relating to Environmental
Matters.
"Environmental Liability" - any liability under any applicable
law for any Release of a Hazardous Substance caused by the seeping, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of hazardous wastes or other chemical substances,
pollutants or contaminants into the environment, and any liability for the costs
of any clean-up or other remedial action including, without limitation, costs
arising out of security fencing, alternative water supplies, temporary
evacuation and housing and other emergency assistance undertaken by any
environmental regulatory body having jurisdiction over the Borrower or any other
Loan Party to prevent or minimize any actual or threatened Release by the
Borrower or any other Loan Party of any Hazardous Substances or other chemical
substances, pollutants and contaminants into the environment that would endanger
the public health or the environment.
"Environmental Matter(s)" - a release of any toxic or
Hazardous Substance or other chemical substance, pollutant or contaminant into
the environment or the generation, treatment, storage or disposal of any toxic
or Hazardous Substances or other chemical substances.
5
<PAGE>
"Environmental Proceeding" - any judgment, action, proceeding
or investigation pending before any court or governmental authority, bureau or
agency, including, without limitation, any environmental regulatory body, with
respect to or threatened against or affecting the Borrower or any other Loan
Party or relating to the assets or liabilities of any of them, including,
without limitation, in respect of any "facility" owned, leased or operated by
any of them under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or under any state, local or municipal
statute, ordinance or regulation in respect thereof, in connection with any
release of any toxic or Hazardous Substance or other chemical substance,
pollutant or contaminant into the environment, or with the generation, storage
or disposal of any toxic or Hazardous Substances or other chemical substances.
"ERISA" - the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time, and the regulations promulgated
thereunder.
"Event of Default" - as defined in Article hereof.
"Facilities" - Facility A, Facility B, Facility C and Facility
D as each is hereinbelow defined.
"Facility A" - a $8,354,835.08 secured term loan evidenced by
the Facility A Note.
"Facility A Note" - as defined in Section 2.4 hereof.
"Facility B" - a $3,200,000.00 revolver facility evidenced by
the Facility B Note.
"Facility B Commitment Termination Date" - December 31,
1998.
"Facility B Note" - as defined in Section 2.4 hereof.
"Facility C" - a $5,000,000.00 revolver facility evidenced by
the Facility C Note.
"Facility C Note" - as defined in Section 2.4 hereof.
"Facility C Commitment Termination Date" - December 31,
1998.
6
<PAGE>
"Facility D" - a $16,000,000.00 line of credit facility
evidenced by the Facility D Note.
"Facility D Expiration Date" - December 31, 1998.
"Facility D Note" - as defined in Section 2.4 hereof.
"GAAP" - generally accepted accounting principles,
consistently applied.
"Hazardous Substances" - means, without limitation, any
flammables, explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated-biphenyls, petroleum and petroleum
based products or by-products, methane, hazardous materials, medical waste,
hazardous wastes, hazardous or toxic substances or related materials, as defined
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), The Toxic
Substances Control Act, as amended (15 U.S.C. Sections 2601, et seq.), Articles
15 and 27 of the New York State Environmental Conservation Law and in the
regulations promulgated thereunder and as defined in any other statute or
regulation in effect from time to time in any other state in which the Borrower
conducts business. The term "Hazardous Substance" does not include consumer
products which are stored and used by a consumer with reasonable care and for
their intended use.
"Indebtedness" - with respect to any Person, all: (i)
liabilities or obligations, direct and contingent, which in accordance with GAAP
would be included in determining total liabilities as shown on the liability
side of a balance sheet of such Person at the date as of which Indebtedness is
to be determined, including, without limitation, contingent liabilities which,
in accordance with such principles, would be set forth in a specific Dollar
amount on the liability side of such balance sheet, and Capitalized Lease
Obligations of such Person; (ii) liabilities or obligations of others for which
such Person is directly or indirectly liable, by way of guaranty (whether by
direct guaranty, suretyship, discount, endorsement, take-or-pay agreement,
agreement to purchase or advance or keep in funds or other agreement having the
effect of a guaranty) or otherwise; (iii) liabilities or obligations secured by
Liens on any assets of such Person, whether or not such liabilities or
obligations shall have been assumed by it; and (iv) liabilities or obligations
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of such Person, direct or contingent, with respect to letters of credit issued
for the account of such Person (except letters of credit issued by Bank of New
York and still outstanding on the date of this Agreement) and bankers
acceptances created for such Person.
"Interest Rate" - as defined in the Notes.
"Investment" - by any Person:
(a) the amount paid or committed to be paid, or the
value of property or services contributed or committed to be contributed, by
such Person for or in connection with the acquisition by such Person of any
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person; and
(b) the amount of any advance, loan or extension of
credit by such Person, to any other Person, or guaranty or other similar
obligation of such Person of such Person with respect to any Indebtedness of
such other Person, and (without duplication) any amount committed to be
advanced, loaned, or extended by such Person to any other Person, or any amount
the payment of which is committed to be assured by a guaranty or similar
obligation by such Person for the benefit of, such other Person.
"IRS" - Internal Revenue Service.
"Latest Balance Sheet" - as defined in Section
hereof.
"Lien" - any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing), any conditional sale or other title retention
agreement, any lease in the nature of any of the foregoing, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code or
other statute, rule or regulations of any jurisdiction.
"Loan Documents" - this Agreement, the Notes, the Security
Documents, the Borrower Subordination Agreement, and all other documents
executed and delivered in connection herewith or therewith, including all
amendments, modifications and supplements of or to all such documents.
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"Loan Party" - the Borrower, any Subsidiary and any other
Person (other than the Bank) which now or hereafter executes and delivers to the
Bank any Loan Document.
"Material Adverse Effect" - shall mean a material adverse
effect on the business, property, assets, financial condition or results of
operations of the Borrower or any other Loan Party.
"Notes" - as defined in subsection hereof.
"Obligations" - the Indebtedness evidenced by the Notes and
any other liabilities and obligations of Borrower to the Bank.
"Payment Account" - account number 323330006897 maintained by
the Borrower with the Bank.
"Payment Dates" - those dates on which payments are due
under the Notes.
"Payment Office" - the offices of the Bank specified to the
Borrower from time to time.
"PBGC" - Pension Benefit Guaranty Corporation.
"Permitted Liens" - as to any Person shall mean the
following:
(a) Liens for taxes, assessments or other
governmental charges the payment of which is being contested by appropriate
proceedings promptly instituted and diligently conducted.
(b) Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers and materialmen and similar Liens incurred in
the ordinary course of business for sums not yet due or the payment of which is
being contested by appropriate proceedings promptly instituted and diligently
conducted.
(c) Liens incurred or deposits made incidental to the
conduct of such Person's business or the ownership of its property including,
without limitation, (i) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation, (ii)
deposits to secure insurance, the performance of bids, tenders, contracts,
leases, licenses, franchises and statutory obligations, each in the ordinary
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course of business, and (iii) other obligations which were not incurred or made
in connection with the borrowing of money, the obtaining of advances or credit
or the payment of the deferred purchase price of property and which do not in
the aggregate materially detract from the value of the Collateral or materially
impair the use of such Collateral in the operation of such Person's business.
(d) Subsequent to the date of this Agreement, any
attachment or judgment lien under $100,000.00 in the aggregate at any time.
(e) Leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances, which, in
each case, and in the aggregate, do not materially interfere with the ordinary
conduct of the business of such Person.
(f) Liens created in favor of the Bank in connection
with the transactions contemplated by this Agreement.
(g) Any Lien existing prior to the time of
acquisition upon any real or personal property acquired by such Person after the
date hereof through purchase, merger or consolidation or otherwise, whether or
not assumed by the Person or placed upon property at (or within 30 days after)
the later of the time of acquisition or the completion of construction by the
Person to secure all or a portion of (or to secure indebtedness incurred solely
to pay all or a portion of) the purchase price or cost of construction thereof,
provided that (i) subsequent to the date of this Agreement, written consent has
been obtained by the Person from the Bank, (x) to incur additional indebtedness,
and (y) to make additional capital expenditures if capital expenditures are
involved which exceed any limits set forth in Section hereof, (ii) any such Lien
does not encumber any other property of the Person, and (iii) the aggregate
principal amount of the indebtedness secured by any such Lien at no time exceeds
100% of the total cost to the Person of the property subject to such Lien.
(h) Any Lien on any real or personal property
representing the interest of a lessor of such property in connection with any
capital lease entered into by the Person after the date hereof, provided that as
to those leases, upon which costs in connection therewith are required to be
capitalized on the balance sheet of the Person in accordance with GAAP, and
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which the aggregate cost basis during a fiscal year may exceed any aggregate
amount limitation set forth in this Agreement; written consent has been obtained
by the Person from each Bank to incur the additional amount.
(i) The interest of any consignor in any property on
consignment with the Person.
(j) Any renewal, extension, refunding or refinancing
of or in respect of any Lien permitted by clause (g) or (h) of this definition,
provided that, in the case of clause (g), the principal amount of purchase money
indebtedness secured is not increased and, in either case, the Lien is not
extended to other property.
(k) Those Liens previously disclosed to the Bank.
(l) Liens created in favor of the Bank pursuant to
any security documents or instruments relating to the Loan Agreement dated the
date hereof between the Bank and the Borrower.
"Person" - an individual, a corporation, a partnership, a
joint venture, a trust or unincorporated organization, a joint stock company or
other similar organization, a government or any political subdivision thereof, a
court, or any other legal entity, whether acting in an individual, fiduciary or
other capacity.
"Plan" - at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either: (i) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower, or by the Borrower
for any other member of such Controlled Group, or (ii) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Borrower or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
"Regulation D" - Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be amended or supplemented from time to
time.
"Regulatory Change" - as to any Bank, any change after the
date of this Agreement in United States federal, state or foreign laws or
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regulations (including Regulation D and the laws or regulations which designate
any assessment rate relating to certificates of deposit or otherwise (including
the "Assessment Rate" if applicable to any Facility)) or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks, including such Bank, of or under any United States federal,
state or foreign laws or regulations (whether or not having the force of law) by
any court or governmental or monetary authority charged with the interpretation
or administration thereof.
"Release" - means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing into the environment, including the abandonment or discarding of
barrels, containers, and other receptacles containing any Hazardous Substance.
"Rental Expense" - means the annualized base rent for
operating lease commitments.
"Security Documents" - as defined in subsection 2.12 (b)
hereof.
"Store(s)" - retail arts and craft supply stores owned or
leased by the Borrower from time to time.
"Subsidiary" - with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person, or (ii) in the case of a partnership or joint
venture in which such Person is a general partner or joint venturer or of which
a majority of the partnership or other ownership interests are at the time owned
by such Person and/or one or more of its Subsidiaries. Unless the context
otherwise requires, references in this Agreement to "Subsidiary" or
"Subsidiaries" shall be deemed to be references to a Subsidiary or Subsidiaries
of the Borrower.
"Tangible Net Worth" - the sum of paid-in capital, retained
earnings, capital stock and aggregate subordinated indebtedness of the Borrower
to its officers and shareholders, minus intangibles and treasury stock, all as
determined in accordance with GAAP.
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"Term" - the period commencing on the date of this Agreement
and ending on the Commitment Termination Date.
"Total Commitment" - the obligation of the Bank to make
Advances hereunder, subject to the limitations set forth herein or in any other
Loan Document, not exceeding Thirty Two Million Five Hundred Fifty Four Thousand
Eight Hundred Thirty Five and 08/100 Dollars ($32,554,835.08), as the same shall
and/or may be reduced pursuant to the terms of this Agreement or any other Loan
Document.
"Unused Commitment" - as at any date, the difference if any
between (i) the amount of Facilities B, C and D and (ii) the then aggregate
outstanding amount of the Facilities.
"Working Capital" - the amount by which Current Assets exceeds
Current Liabilities.
Any accounting terms used in this Agreement which are not specifically defined
herein shall have the meanings customarily given to them in accordance with GAAP
as in effect on the date of this Agreement, except that references in Article to
such principles shall be deemed to refer to such principles as in effect on the
date of the financial statements delivered pursuant thereto.
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Article 2. Commitments; Facilities; Collateral; Subordinations.
Section 2.1 Facilities.
The Bank and the Borrower agree that the Bank shall
make the following Facilities available to the Borrower:
(a) Facility A: A fully advanced $8,354,835.08
secured term loan which is evidenced by the Facility A Note.
(b) Facility B: A $3,200,000.00 revolving loan which
is presently available to Borrower to fund Store expansion and will remain
available to Borrower until the Facility B Commitment Termination Date.
(c) Facility C: A $5,000,000.00 revolving loan to be
made available to Borrower upon Borrower achieving certain Performance
Measurements more particularly described in Section 2.6 below and to remain
available until the Facility C Commitment Termination Date.
(d) Facility D: A $16,000,000.00 line of credit
facility of which $6,000,000.00 is presently available to Borrower for working
capital purposes and of which an additional $3,000,000.00 will be made available
to Borrower on March 31, 1997 and a final $7,000,000.00 will be made available
on March 31, 1998, in each instance upon Borrower achieving the Performance
Measurements set forth at Section 2.6 below.
Section 2.2 Notices Relating to Advances of Facilities B, C
and D.
The Borrower shall give the Bank telecopied or
written, notice of each request for an Advance of Facility B, C or D proceeds
(in each case, a "Borrowing Notice"). Each Borrowing Notice shall be irrevocable
and shall be in the form of Exhibit A attached to the respective Notes. With
respect to any Borrowing Notice received by the Bank on a Business Day, the Bank
shall, subject to the terms of this Loan Agreement, fund said request within two
Business Days thereafter.
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Each Borrowing Notice shall specify the amount
thereof and the requested date of the Advance (which shall be a
Business Day).
Since Facility A is fully advanced, there will be no
further Advances of Facility A Loan proceeds.
Section 2.3 Disbursement of Facility Proceeds.
Not later than 1:00 P.M. New York City time, on the
date specified for each Advance hereunder, the Bank shall transfer to the
Advance Account, in immediately available funds, the amount of the Advance to be
made on such date.
Section 2.4 Notes.
The Facilities shall be evidenced by the Facility A
Note, the Facility B Note, the Facility C Note and the Facility D Note. The
Notes shall be dated the date of this Agreement and shall be payable to the
order of the Bank.
Section 2.5 Payments.
Borrower shall make payments required by the Notes
or any other Loan Document (including, without limitation, regularly scheduled
payments of principal and interest) directly to the Bank. At any time that it is
determined that the aggregate Advances outstanding hereunder exceed the Total
Commitment, as determined by a Borrowing Notice or otherwise, the Borrower shall
promptly make payment to the Bank of all amounts necessary to reduce the
aggregate Advances outstanding to an amount less than or equal to the Total
Commitment.
Section 2.6. Performance Measurements.
Borrower may utilize Facility C and the increases in
Facility D to $9,000,000.00 on March 31, 1997 and to $16,000,000.00 on March 31,
1998 if:
(a) No Event of Default has occurred; and
(b) No failure to comply with any covenant of any
Loan Document has been waived; and
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(c) Borrower maintains:
(1) A Leverage Ratio [as determined in
accordance with Section 6.9 (a) (1) below] not greater than
1.2 to 1 at fiscal year end 1997 and 1.25 to 1 at fiscal year
end 1998.
(2) A minimum Tangible Net Worth of at least
$17,000,000.00 at fiscal year end 1997 and $19,000,000.00 at
fiscal year end 1998.
(3) A ratio of Current Assets to Current
Liabilities of not less than 2 to 1 at fiscal year end 1997
and fiscal year end 1998.
(4) A Debt Service Coverage Ratio of not
less than 3 to 1 at fiscal year end 1997 and fiscal year end
1998.
(5) A ratio of net income (loss) plus
interest expense plus depreciation plus amortization plus
Rental Expense to interest expense plus the current portion of
long term debt plus Rental Expense of not less than 1.75 to 1
at each fiscal year end.
Section 2.7 Use of Proceeds of Facilities.
The proceeds of Facility A have been fully advanced.
The proceeds of Facility B and Facility C are intended to be used for Store
openings and expansion. The proceeds of Facility D are intended to be used for
working capital purposes.
Section 2.8 Facility B and Facility C.
Except for Advances of Facility B proceeds made
prior to the date hereof for construction of a warehouse and distribution
center, Advances of the proceeds of Facilities B and C shall be made solely to
finance the cost of opening and stocking with inventory by the Borrower of
Stores, subject to the following conditions:
(a) If requested by the Bank, each financing of a
Store shall be made following the receipt of a fully-executed lease with respect
to a Store between the Borrower and the owner of the space which is subject to
said lease.
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(b) The aggregate Advances with respect to Stores in
any year shall not exceed the sum obtained by multiplying the number of stores
opened during said year by $1,200,000.00;
(c) The receipt by the Bank of a Borrowing Notice.
Section 2.9 Computations.
Interest on the Facilities shall be computed in
accordance with the terms of the Notes.
Section 2.10 Time and Method of Payments.
All payments of principal, interest and other amounts
(including indemnities) payable hereunder shall be made in Dollars, in
immediately available funds, to the Bank at its Payment Office not later than
11:00 a.m., Albany, New York, time, on the date on which such payment shall
become due. Alternatively, the Bank will debit the Payment Account to the extent
money for payments is available therein. Additional provisions relating to
payments are set forth in the Notes.
Section 2.11 Fees. Borrower shall pay an unused commitment fee
(the "Unused Commitment Fee") on the daily average amount of the Unused
Commitment for each quarter that Facilities B, C and D are outstanding at the
rate of one-eighth of one (.125%) percent per annum. Accrued Unused Commitment
Fee shall be payable on the fifteenth day of each January, April, July and
October in arrears and shall be computed on the basis of the actual number of
days elapsed divided by 360.
Section 2.12 Security.
(a) In order to secure the due payment and
performance by the Borrower of all of the Obligations, the Borrower has:
(1) Granted to the Bank a Lien on all of the
Borrower's now and hereafter owned and/or hereafter acquired, wherever located,
personal property, including without limitation, all accounts receivable,
inventory, equipment, machinery, furniture, fixtures, contract rights, goods,
instruments, chattel paper, choses in action, general intangibles (including but
not limited to all trademarks) and all products and proceeds thereof by the
execution and delivery to the Bank of a Security Agreement dated September 21,
1994 in form and substance satisfactory to the Bank (the "Borrower Security
Agreement");
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(2) Executed and delivered or shall cause to
be executed and delivered such other agreements, instruments, documents and
UCC-1 Financing Statements and other UCC forms as the Bank may reasonably
require in order to effect the purposes of the Borrower Security Agreement, this
Section and this Agreement;
(b) All of the agreements, instruments and documents
provided for or referred to in this Section are hereinafter sometimes referred
to collectively as the "Security Documents".
Section 2.13 Subordinations.
On September 21, 1994, the Borrower and William
Kaplan and John E. Parker (the "Creditors") executed and delivered to the Bank a
subordination agreement in form and substance satisfactory to the Bank (the
"Borrower Subordination Agreement") pursuant to which the payment by the
Borrower to the Creditors of any amounts due to the Creditors under any notes or
other evidences of indebtedness held by the Creditors under which the Borrower
is obligated to make payments to the Creditors and the collateral security
therefor, shall be made subject and subordinate to the prior payment in full of
the Obligations, and to the Liens securing the Obligations, to the extent and in
the manner set forth in the Borrower Subordination Agreements.
Section 2.14 Conversion to Term Loan.
So long as no Event of Default exists on the
Facility B or the Facility C Commitment Termination Date, the aggregate amount
outstanding under the respective Notes for Facilities B and C shall be converted
to a term loan as more fully set forth in said Notes.
Section 2.15 Facility D Clean-Up. The balance outstanding on
Facility D shall be reduced to $5,000,000.00 or less for a period of thirty (30)
consecutive days during every fiscal year of Borrower.
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Article 3. Representations and Warranties.
The Borrower (and where appropriate, the other Loan Parties)
hereby represents and warrants to the Bank that:
Section 3.1 Organization.
(a) The Borrower is duly organized and validly
existing under the laws of its state, province or country of organization and
has the power to own its assets and to transact the business in which it is
presently engaged and in which it proposes to be engaged.
(b) The Borrower is in good standing in its state,
province or country of organization and in each state in which it is qualified
to do business. There are no jurisdictions other than as set forth on Exhibit A
hereto in which the character of the properties owned or proposed to be owned by
the Borrower or any other Loan Party or in which the transaction of the business
of the Borrower or any other Loan Party as now conducted or as proposed to be
conducted requires or will require the Borrower or any other Loan Party to
qualify to do business and as to which failure so to qualify could have a
Material Adverse Effect.
Section 3.2 Power, Authority, Consents.
The Borrower has the power to execute, deliver and
perform the Loan Documents to be executed by it. The Borrower has the power to
borrow hereunder and each has taken all necessary corporate action to authorize
the borrowing hereunder on the terms and conditions of this Agreement. The
Borrower has taken all necessary action, corporate or otherwise, to authorize
the execution, delivery and performance of the Loan Documents to be executed by
it. No consent or approval of any Person (including, without limitation, any
stockholder or any partner), no consent or approval of any landlord or
mortgagee, no waiver of any Lien or right of distraint or other similar right
and no consent, license, certificate of need, approval, authorization or
declaration of any governmental authority, bureau or agency, is or will be
required in connection with the execution, delivery or performance by the
Borrower, or the validity, enforcement or priority, of the Loan Documents or any
Lien created and granted thereunder, except as set forth on Exhibit B annexed
hereto, each of which either has been duly and validly obtained on or prior to
the date hereof and is now in full force and effect, or is designated on Exhibit
B as waived by the Bank.
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Section 3.3 No Violation of Law or Agreements.
The execution and delivery by the Borrower of each
Loan Document to which it is a party and performance by each hereunder and
thereunder, will not violate any provision of law and will not, except as set
forth on Exhibit B annexed hereto, conflict with or result in a breach of any
order, writ, injunction, ordinance, resolution, decree, or other similar
document or instrument of any court or governmental authority, bureau or agency,
domestic or foreign, or any certificate of incorporation or by-laws of the
Borrower, or create (with or without the giving of notice or lapse of time, or
both) a default under or breach of any agreement, bond, note or indenture to
which the Borrower is a party, or by which it is bound or any of their
respective properties or assets is affected, or result in the imposition of any
Lien of any nature whatsoever upon any of the properties or assets owned by or
used in connection with the business of the Borrower, except for the Liens
created and granted pursuant to the Security Documents.
Section 3.4 Due Execution, Validity, Enforceability.
The Loan Documents have each been duly executed and
delivered by Borrower and each constitutes the valid and legally binding
obligation of Borrower, enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws, now or hereafter in effect, relating to or
affecting the enforcement of creditors' rights generally and except that the
remedy of specific performance and other equitable remedies are subject to
judicial discretion; provided, however, that such laws shall not materially
interfere with the practical realization of the benefits of the Security
Documents or the Liens created thereby, except for: (i) possible delay, (ii)
situations which may arise under Chapter 11 of the Bankruptcy Code, (iii)
equitable orders of the Bankruptcy Court and (iv) general principles of equity
in the enforcement of creditors' rights.
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Section 3.5 Properties, Priority of Liens.
All of the properties and assets owned by the
Borrower are owned free and clear of any Lien of any nature whatsoever other
than Permitted Liens, except as provided for in the Security Documents, and as
permitted by Exhibit C annexed hereto. The Liens which, simultaneously with the
execution and delivery of this Agreement and the consummation of the Facilitys,
have been created and granted by the Security Documents constitute valid
perfected first Liens on the properties and assets covered by the Security
Documents, subject to no prior or equal Lien except those, if any, referred to
on Exhibit C annexed hereto as being prior or equal to such Liens so created and
granted by the Security Documents.
Section 3.6 Judgments, Actions, Proceedings.
Except as set forth on Exhibit D annexed hereto,
there are no outstanding judgments, actions or proceedings, including, without
limitation, any Environmental Proceeding, pending before any court or
governmental authority, bureau or agency, with respect to or, to the best of the
Borrower's knowledge, threatened against or affecting Borrower, involving, in
the case of any court proceeding, a claim or claims in excess of $100,000.00 in
the aggregate, nor, to the best of Borrower's knowledge, is there any reasonable
basis for the institution of any such action or proceeding which is probable of
assertion, nor are there any such actions or proceedings in which Borrower is a
plaintiff or complainant.
Section 3.7 No Defaults, Compliance With Laws.
Except as set forth on Exhibit E annexed hereto, no
Loan Party is in default under any agreement, ordinance, resolution, decree,
bond, note, indenture, order or judgment to which it or he is a party or by
which it or he is bound, or any other agreement or other instrument by which any
of the properties or assets owned by it or him or used in the conduct of its or
his business is affected, which default could have a Material Adverse Effect.
Each Loan Party has complied and is in compliance in all respects with all
applicable laws, ordinances and regulations, resolutions, ordinances, decrees
and other similar documents and instruments of all courts and governmental
authorities, bureaus and agencies, domestic and foreign, including, without
limitation, all applicable Environmental Laws and Regulations, non-compliance
with which could have a Material Adverse Effect.
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Section 3.8 Burdensome Documents.
Except as set forth on Exhibit F annexed hereto,
Borrower is not a party to or bound by, nor are any of the properties or assets
owned by Borrower used in the conduct of its businesses affected by, any
agreement, ordinance, resolution, decree, bond, note, indenture, order or
judgment, including, without limitation, any of the foregoing relating to any
Environmental Matter, which has a Material Adverse Effect.
Section 3.9 Financial Statements; Pro Forma Balance Sheet;
Projections.
Each financial statement prior to the date of this
Agreement (the "Financial Statements") submitted to the Bank is correct and
complete and presents fairly the financial position of the Borrower, as at its
date, and has been prepared, in accordance with GAAP. The Borrower has no
material obligation, liability or commitment, direct or contingent (including,
without limitation, any Environmental Liability), which is not reflected in the
Financial Statements. There has been no material adverse change in the financial
position or operations of the Borrower since the date of the latest balance
sheet included in the Financial Statement (the "Latest Balance Sheet"). The
fiscal year of the Borrower is the twelve-month period ending on December 31 in
each year.
Section 3.10 Tax Returns.
Borrower has filed all federal, state and local tax
returns required to be filed and has not failed to pay any taxes, or interest
and penalties relating thereto, on or before the due dates thereof. Except to
the extent that reserves therefor are reflected in the Financial Statements: (i)
there are no material federal, state or local tax liabilities of Borrower due or
to become due for any tax year relating to such Person, whether incurred in
respect of or measured by the income of such entity, which are not properly
reflected in the Financial Statement relating to such entity or otherwise
disclosed to the Bank, and (ii) there are no material claims pending or, to the
knowledge of Borrower proposed or threatened against Borrower for past federal,
state or local taxes, except those, if any, as otherwise disclosed to the Banks.
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Section 3.11 Intangible Assets.
The Borrower possesses all patents, trademarks,
service marks, trade names, and copyrights, and rights with respect to the
foregoing, necessary to conduct its business as now conducted and as proposed to
be conducted, without any conflict with the patents, trademarks, service marks,
trade names, copyrights and rights with respect to the foregoing, of any other
Person, and each of such patents, trademarks, service marks, trade names,
copyrights and rights with respect thereto, together with any pending
applications therefor, are listed on Exhibit G annexed hereto.
Section 3.12 Regulation U.
No part of the proceeds received by the Borrower
from the Facilitys will be used directly or indirectly for: (a) any purpose
other than as set forth Section hereof, or (b) the purpose of purchasing or
carrying, or for payment in full or in part of Indebtedness which was incurred
for the purposes of purchasing or carrying, any "margin stock", as such term is
defined in ss.221.3 of Regulation U of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II, Part 221.
Section 3.13 Name Changes, Mergers,
Acquisitions; Location of Collateral.
(a) Except as set forth on Exhibit H annexed hereto,
Borrower has not within the six-year period immediately preceding the date of
this Agreement changed its name, been the surviving entity of a merger or
consolidation, or acquired all or substantially all of the assets of any Person.
(b) Except as set forth on Exhibit H annexed hereto
and except for inventory in transit, no Collateral constituting personal
property having an aggregate fair market value in excess of $50,000.00 covered
by the Security Documents has, at any time during the four-month period
immediately preceding the date hereof, been located anywhere other than at its
location on the date hereof.
Section 3.14 Full Disclosure.
None of the Financial Statements nor any certificate,
opinion, or any other statement made or furnished in writing to the Bank by or
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on behalf of Borrower in connection with this Agreement or the transactions
contemplated herein, contains any untrue statement of a material fact, or omits
to state a material fact necessary in order to make the statements contained
therein or herein not misleading, as of the date such statement was made. There
is no fact known to the Borrower which has, or would in the now foreseeable
future have, a material adverse effect on the business, prospects or condition,
financial or otherwise, of Borrower, which fact has not been set forth herein,
in the Financial Statements or any certificate, opinion or other written
statement so made or furnished to the Bank.
Section 3.15 Licenses and Approvals.
The Borrower has all necessary licenses, permits and
governmental authorizations, including, without limitation, licenses, permits
and authorizations relating to Environmental Matters, to own and operate its
properties and to carry on its business as now conducted where failure to have
such would result in a Material Adverse Effect.
Section 3.16 Labor Disputes; Collective Bargaining
Agreements; Employee Grievances.
Except as set forth on Exhibit I annexed hereto: (a)
there are no collective bargaining agreements or other labor contracts covering
Borrower; (b) no such collective bargaining agreement or other labor contract
(if any) will expire during the term of this Agreement; (c) no union or other
labor organization is seeking to organize, or to be recognized as bargaining
representative for, a bargaining unit of employees of Borrower; (d) there is no
pending or threatened strike, work stoppage, material unfair labor practice
claim or charge, arbitration or other material labor dispute against or
affecting Borrower or its representative employees; (e) there has not been,
during the two (2) year period prior to the date hereof, a strike, work
stoppage, material unfair labor practice claim or charge, arbitration or other
material labor dispute against or affecting Borrower or any of its
representative employees, and (f) there are no actions, suits, charges, demands,
claims, counterclaims or proceedings pending or, to the best of the Borrower's
knowledge, threatened against Borrower by or on behalf of, or with, its
employees, other than employee grievances arising in the ordinary course of
business which are not, in the aggregate, material.
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Section 3.17 Condition of Assets.
All of the assets and properties of the Borrower
which are reasonably necessary for the operation of its business are in good
working condition, ordinary wear and tear excepted, and are able to serve the
function for which they are currently being used.
Section 3.18 ERISA.
The Borrower does not have, and has never had, any employee
pension benefit plan ("Plan") which is covered by Title IV of the employee
Retirement Income Security Act of 1984, as it may be amended from time to time,
and the regulations thereunder ("ERISA") in connection with which there could
arise a direct or contingent liability of the Borrower to the Pension Benefit
Guaranty Corporation ("PBGC"), the Department of Labor or the Internal Revenue
Service ("IRS"). The Borrower is not a participating employer in: (i) any Plan
under which more than one employer makes contributions as described in Sections
4063 and 4064 of ERISA, or (ii) a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
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Article 4. The Closing; Conditions to the Facilities.
Section 4.1 The Closing.
The Closing with respect to the Facilities (the
"Closing") shall take place on the date of this Agreement. The obligation of the
Bank to enter into this Agreement shall be subject to the fulfillment (to the
satisfaction of the Bank) on or before the date of the Closing of the conditions
precedent set forth in Section below. Subject to the fulfillment (to the
satisfaction of the Bank) of the conditions precedent set forth in Section , the
Closing shall take place on the date hereof at such place as the parties hereto
shall agree upon.
Section 4.2 Conditions to Closing.
The obligation of the Bank to enter into this
Agreement shall be subject to the fulfillment (to the satisfaction of the Bank)
of the following conditions precedent:
(a) The Borrower shall have executed and delivered
the Notes.
(b) The Borrower shall have:
(1) executed and delivered such amendments
or modifications of the Borrower Security Agreement and every other Loan
Document to which it is a party which the Bank deems necessary;
(2) executed and duly filed appropriate
Uniform Commercial Code financing statements in order to enable the Bank to
perfect and preserve its security interest in the Collateral;
(3) delivered to the Bank: (A) copies of,
or certificates of the issuing companies with respect to, policies of insurance
owned by the Borrower covering or in any manner relating to the Collateral,
including insurance covering Collateral located outside of the United States of
America, if any, together with endorsements thereto which comply with the terms
of the Borrower Security Agreement and are otherwise in form and substance
satisfactory to the Bank, naming the Bank as additional insured as its interests
may appear; and (B) evidence of the Borrower's liability insurance policies; and
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(4) otherwise duly complied with all of the
terms and conditions of the Security Documents to be executed by
it; and
(c) The Borrower and the Creditors shall have
executed and delivered such amendments and modifications to the Borrower
Subordination Agreements as the Bank shall deem necessary and shall otherwise
have duly complied with all of the terms and conditions thereof;
(d) Counsel to the Borrower shall have delivered its
opinion to, and in form and substance satisfactory to, the Bank.
(e) The Bank shall have received true and complete
copies of the following, each certified as such in a certificate executed by the
president or vice president of the Borrower:
(1) Subordinated notes and all other
agreements or evidences of Indebtedness, if any, covered by the Borrower
Subordination Agreements;
(2) All of the consents, approvals and
waivers referred to on Exhibit B annexed hereto, except only those which, as
stated on Exhibit B, shall not be delivered;
(3) The certificate of incorporation of the
Borrower certified by the Secretary of the Borrower;
(4) The by-laws of the Borrower;
(5) All corporate action taken by the
Borrower to authorize the execution, delivery and performance of each of the
Loan Documents to which it is a party pursuant hereto or in connection herewith;
(6) Good standing certificates with respect
to the Borrower from the Secretary of State or other appropriate official of its
state of incorporation and each other state in which it operates Stores; and
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(7) An incumbency certificate (with specimen
signatures) with respect to the Borrower.
(8) General Certificates from the Borrower.
(f) (1) The Borrower shall have complied and
shall then be in compliance with all of the terms, covenants and conditions of
this Agreement;
(2) There shall exist no Event of Default
hereunder;
(3) The representations and warranties
contained in Article hereof shall be true and correct on the date hereof;
(g) the Bank shall have received such other
documents, certificates and opinions as the Bank deems necessary to carry out
the terms of this Agreement; and
(h) All legal matters incident to the Facilities
shall be reasonably satisfactory to counsel to the Bank.
Section 4.3 Conditions to Subsequent Advances.
The obligation of the Bank to make each Advance
subsequent to its initial Advance shall be subject to the
fulfillment of the following conditions precedent:
(a) The Bank shall have received a Borrowing Notice
in accordance with Section hereof.
(b) There shall exist no Event of Default hereunder.
(c) Borrower shall have complied with all the terms,
covenants and conditions of the Loan Documents.
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Article 5. Delivery of Financial Reports,
Documents and Other Information.
While the Commitment is outstanding, and, in the event any
Facility remains outstanding, so long as the Borrower is indebted to the Bank
and until payment in full of the Notes and full and complete performance of all
of its other obligations arising hereunder, the Borrower shall deliver to the
Bank:
Section 5.1 Annual Financial Statements.
Annually, as soon as available, but in any event
within one hundred twenty (120) days after the last day of each of its fiscal
years, a balance sheet of the Borrower as at such last day of the fiscal year,
and statements of income and retained earnings and changes in cash flow, for
such fiscal year, each prepared in accordance with GAAP, in reasonable detail,
and, as to the statements, audited without qualification by the Accountant, as
fairly presenting the financial position and the results of operations of the
Borrower as at and for the year ending on its date and as having been prepared
in accordance with GAAP. The scope of the audit shall include a review of the
Borrower's financial controls and reporting systems. In addition, the Borrower
shall forward to the Bank a copy of the auditor's management letter annually
within 30 days of receipt and a statement of sales and profit for each Store. At
the time of delivery of the annual financial statement contemplated pursuant to
this Section , the Borrower shall forward to the Bank a Compliance Certificate
in the form of Exhibit "J" attached hereto.
Section 5.2 Quarterly Financial Statements.
As soon as available, but in any event within forty-
five (45) days after the end of each of the Borrower's fiscal quarterly periods,
a balance sheet of the Borrower as of the last day of such quarter and
statements of income and retained earnings and changes in cash flow, and monthly
summary of operations report in a form satisfactory to the Bank with respect to
each Store, for such quarter, and, on a comparative basis, figures for the
corresponding period of the immediately preceding fiscal year, all in reasonable
detail, each such statement to be certified in a certificate of the president or
chief financial officer of the Borrower as fairly presenting the financial
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position and the results of operations of the Borrower as at its date and for
such quarter and as having been prepared on an accrual basis (subject to
year-end audit adjustments). At the time of delivery of the quarterly financial
statements contemplated pursuant to this Section , the Borrower shall forward to
the Banks a Compliance Certificate in the form of Exhibit "J" attached hereto.
Section 5.3 Compliance Information.
Promptly after a written request therefor, such
other financial data or information evidencing compliance with the requirements
of this Agreement, the Notes and the other Loan Documents, as the Bank may
reasonably request from time to time.
Section 5.4 [Intentionally Omitted].
Section 5.5 Report of Accountants.
At the same time as it delivers the financial
statements required under the provisions of Section hereof, a report of the
Accountant addressed specifically to both the Borrower and the Banks to the
effect that during the course of their audit of the operations of the Borrower
and its condition as of the end of its fiscal year, nothing has come to their
attention which would indicate that an Event of Default under Section (a) and
hereof has occurred or that there was any violation of the covenants of the
Borrower contained in said Sections, or, if such cannot be so certified,
specifying in reasonable detail the exceptions, if any, to such statement.
Section 5.6 Other Accounting Information.
The Bank shall also receive the following:
(a) Borrower will provide the Bank on or before
December 31 of each year with three (3) years annual projected income
statements, balance sheets and cash flow statements, each set forth on a
quarterly basis for the first year and on an annual basis thereafter
Section 5.7 Accountants' Reports.
Promptly upon receipt thereof, copies of all other
reports submitted to the Borrower by the Accountant in connection with any
annual or interim audit or review of the books of the Borrower made by such
Accountant, including, without limitation, any management letters.
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Section 5.8 Copies of Documents.
Promptly upon their becoming available, copies of
any: (i) financial statements, projections, notices (other than routine
correspondence), requests for waivers and proxy statements, in each case,
delivered by the Borrower to any lending institution other than the Bank; (ii)
correspondence or notices received by the Borrower from any federal, state or
local governmental authority which regulates the operations of the Borrower
relating to an actual or threatened change or development which would be
materially adverse to the Borrower; (iii) registration statements and any
amendments and supplements thereto, and any regular and periodic reports, if
any, filed by the Borrower with any securities exchange or with the Securities
and Exchange Commission or any governmental authority succeeding to any or all
of the functions of the said Commission; (iv) letters of comment or
correspondence sent to the Borrower by any such securities exchange or such
Commission in relation to the Borrower and its affairs; (v) written reports
submitted by the Borrower by its independent accountants in connection with any
annual or interim audit of the books of the Borrower made by such accountants;
and (vi) any appraisals received by the Borrower with respect to the properties
or assets of the Borrower.
Section 5.9 Notices of Defaults.
Promptly, notice of the occurrence of any Event of
Default, or any event which would constitute or cause a material adverse change
in the condition, financial or otherwise, or the operations of the Borrower.
Section 5.10 ERISA Notices.
(a) Concurrently with such filing, a copy of each
Form 5500 which is filed with respect to each Plan with the IRS; and
(b) Promptly, upon their becoming available, copies
of: (i) all correspondence with the PBGC, the Secretary of Labor or any
representative of the IRS with respect to any Plan, relating to an actual or
threatened change or development which would be materially adverse to the
Borrower; (ii) copies of all actuarial valuations received by the Borrower with
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respect to any Plan; and (iii) copies of any notices of Plan termination filed
by any Plan Administrator (as those terms are used in ERISA) with the PBGC and
of any notices from the PBGC to the Borrowers with respect to the intent of the
PBGC to institute involuntary termination proceedings.
Section 5.11 Additional Information.
Permit the Bank to make or cause to be made at the
Bank's expense (subject to the limitation set forth below), inspections and
audits of any books, records and papers of the Borrower and to make extracts
therefrom and copies thereof, or to make inspections and examinations of any
properties and facilities of the Borrower, on reasonable notice, at all such
reasonable times and as often as the Bank may reasonably require, in order to
assure that the Borrower is and will be in compliance with its obligations under
the Loan Documents or to evaluate the Bank's investment in the Note.
The Borrower shall deliver to the Bank such other
information regarding the business, affairs and condition of the Borrowers as
the Bank may from time to time reasonably request.
Section 5.12 Notification of Opening of New Stores, Etc..
The Borrower shall
(a) Promptly notify the Bank of the opening of any
warehouse, office or other facility by the Borrower.
(b) Provide the Bank within thirty (30) days of the
close of each fiscal quarter with a list of all Stores opened during said
quarter indicating the location, annual rent (including all common area
maintenance charges, operating expense charges or other sums payable to a
landlord), term and number of square feet rented together with a projection of
the Stores Borrower anticipates opening during the next succeeding three fiscal
quarters.
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Article 6. Affirmative Covenants.
While the Commitment is outstanding, and, in the event any
Facility remains outstanding, so long as the Borrower is indebted to the Bank,
and until payment in full of the Notes and full and complete performance of all
of its other obligations arising hereunder, the Borrower shall:
Section 6.1 Books and Records.
Keep proper books of record and account in a manner
reasonably satisfactory to the Bank in which full, true and correct entries
shall be made of all dealings or transactions in relation to its businesses and
activities.
Section 6.2 [Intentionally Omitted]
Section 6.3 Maintenance and Repairs.
Maintain in good repair, working order and
condition, subject to normal wear and tear, all material properties and assets
from time to time owned by it and used in or necessary for the operation of its
business, and make all reasonable repairs, replacements, additions and
improvements thereto where the failure to do so would leave a Material Adverse
Effect.
Section 6.4 Continuance of Business.
Do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its corporate existence
and all permits, rights and privileges necessary for the proper conduct of its
business and the ability to continue to engage in the same line of business and
where the failure to do so would have a Material Adverse Effect and comply in
all material respects with all applicable laws, regulations and orders. The
Borrower shall continue to conduct its business solely in the area of opening
and operating Stores for the purpose of selling arts and craft supplies.
Section 6.5 Copies of Corporate Documents.
Subject to the prohibitions set forth in Section
hereof, promptly deliver to the Bank copies of any amendments or modifications
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to its certificate of incorporation and by-laws or other comparable documents,
certified with respect to the certificate of incorporation by the Secretary of
State or other appropriate official of its state, province or country of
incorporation and, with respect to the by-laws, by its secretary or assistant
secretary.
Section 6.6 Perform Obligations.
Pay and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments and
governmental charges upon its income and properties when due, unless and to the
extent only that such obligations, liabilities, taxes, assessments and
governmental charges shall be contested in good faith and by appropriate
proceedings and that, to the extent required by GAAP then in effect, proper and
adequate book reserves relating thereto are established and then only to the
extent that a bond is filed in cases where the filing of a bond is necessary to
avoid the creation of a Lien (other than a Permitted Lien) against any of its
properties.
Section 6.7 Notice of Litigation.
Promptly notify the Bank in writing of any
litigation, legal proceeding or dispute, other than disputes in the ordinary
course of business or, whether or not in the ordinary course of business,
involving amounts in excess of $500,000.00 in the aggregate, affecting Borrower
and regardless of the subject matter thereof (excluding, however, any actions
fully covered by insurance).
Section 6.8 Insurance.
(a) Maintain with responsible insurance companies
such insurance on such of its properties, in such amounts and against such risks
as is customarily maintained by similar businesses; file with the Bank upon
request a detailed list of the insurance then in effect, stating the names of
the insurance companies and the amounts of the insurance, the dates of the
expiration thereof and the properties and risks covered thereby; and, within ten
(10) days after notice in writing from the Bank, obtain such additional
insurance as the Bank may reasonably request;
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(b) Carry all insurance through the PBGC required by
ERISA; and
Section 6.9 Financial Covenants.
The Borrower shall have or maintain:
(a) A ratio of total liabilities to Tangible Net
Worth (the "Leverage Ratio") not greater than 1.5 to 1 for fiscal year end
December 31, 1996 and 1.25 to 1 for fiscal year end December 31, 1997 and
thereafter as reported on the statements required pursuant to Section . For the
purposes of subsection 2.6(c)(1) and this subsection 6.9(a), the term "total
liabilities" shall be exclusive of all indebtedness of the Borrower subordinated
to the Bank pursuant to the terms of the Borrower Subordination Agreement.
(b) A Leverage Ratio at the end of each March, June
and September of not greater than 2.0 to 1.
(c) A minimum Tangible Net Worth as reported on the
statements required pursuant to Section 5.2 of $15,000,000.00 at December 31,
1996 with a $2,000,000.00 increase of said amount at each fiscal year end
thereafter.
(d) A ratio of Current Assets to Current Liabilities
of not less than two to one (2:1), as reported on the statements required
pursuant to Section 5.1.
(e) A Debt Service Coverage Ratio of not less than
three to one (3:1). Such Ratio shall be tested each of the first three fiscal
quarters taking the sums of each account category for the four most recent
fiscal quarters of the Borrower as reported on the statements required pursuant
to Section 5.2 hereof and also tested at each fiscal year end from the
statements required pursuant to Section 5.1 hereof.
(f) A ratio of net income (loss) before taxes plus
interest expense plus depreciation plus amortization plus Rental Expense to
interest expense plus the current portion of long term debt plus Rental Expense
of not less than 1.75 to 1 as reported on the statements required pursuant to
Section 5.1.
Section 6.10 Retained Profits.
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Retain all profits net of distributions made for the
purpose of compensating shareholders for income taxes paid resutling from
Borrower's status as a subchapter S corporation.
Section 6.11 Notice of Certain Events.
(a) Borrower shall promptly notify the Bank in
writing of the occurrence of any Reportable Event, as defined in Section 4043 of
ERISA, if a notice of such Reportable Event is required under ERISA to be
delivered to the PBGC within 30 days after the occurrence thereof, together with
a description of such Reportable Event and a statement of the action they intend
to take with respect thereto, together with a copy of the notice thereof given
to the PBGC.
(b) Borrower shall promptly notify the Bank in
writing if the Borrower receives: (i) any notice of any violation or
administrative or judicial complaint or order having been filed or about to be
filed against the Borrower alleging violations of any Environmental Law and
Regulation, or (ii) any notice from any governmental body or any other Person
alleging that the Borrower is or may be subject to any Environmental Liability;
and promptly upon receipt thereof, provide the Bank with a copy of such notice
together with a statement of the action the Borrower intends to take with
respect thereto.
Section 6.12 Comply with ERISA.
Comply with all applicable provisions of ERISA now
or hereafter in effect where failure to do so would have a Material
Adverse Effect.
Section 6.13 Environmental Compliance.
Operate all property owned or leased by it such that
no obligation, including a clean-up obligation, shall arise under any
Environmental Law and Regulation, which obligation would constitute a Lien on
any property of the Borrower; provided, however, that in the event that any such
claim is made or any such obligation arises, the Borrower shall, at its own cost
and expense, commence to satisfy such claim or obligation.
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Section 6.14 Deposit Accounts.
Where the Bank is offering competitive rates, open
and maintain its principal operating and other cash accounts with
the Bank.
Section 6.15 Retention of Earnings.
Retain all earnings except for the payment of income
taxes and for the distribution of income to individuals for the payment of
taxes. Provided, however, that the Borrower may make distributions of earnings
solely in the event that any such distribution, less all income tax liability
paid on such distribution, is immediately loaned back to the Borrower by the
distributee and the indebtedness of the Borrower with respect to such loan is
simultaneously therewith subordinated to the indebtedness evidenced by the Notes
pursuant to subordination agreements in form and substance satisfactory to the
Bank.
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Article 7. Negative Covenants.
While the Facilities are outstanding, and, in the event any
Facility remains outstanding, so long as the Borrower is indebted to the Banks
and until payment in full of the Notes and full and complete performance of all
of its other obligations arising hereunder, the Borrower, without the prior
written consent of the Banks, shall not do, agree to do, or permit to be done,
any of the following:
Section 7.1 Indebtedness.
Create, incur, permit to exist or have outstanding
any Indebtedness, except:
(a) Indebtedness of the Borrower to the Bank under
this Agreement and the Notes;
(b) Taxes, assessments and governmental charges,
non-interest bearing accounts payable, trade debt and accrued liabilities
incurred in the ordinary course of business, in any case not more than 90 days
past due from the original due date thereof, and non-interest bearing deferred
liabilities other than for borrowed money (e.g., deferred compensation and
deferred taxes), in each case incurred and continuing in the ordinary course of
business;
(c) Indebtedness of not more than $500,000.00 in any
calendar year secured by the security interests referred to in subsection 7.2(c)
hereof and Capitalized Lease Obligations;
(d) Shareholder debt covered by the Borrower
Subordination Agreement.
Section 7.2 Liens.
Create, or assume or permit to exist, any Lien on
any of its properties or assets, whether now owned or hereafter
acquired, except:
(a) Those created and granted by the Security
Documents;
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(b) Permitted Liens;
(c) Purchase money mortgages or security interests,
conditional sale arrangements and other similar security interests, on motor
vehicles and equipment acquired by the Borrower (hereinafter referred to
individually as a "Purchase Money Security Interest") with the proceeds of the
Indebtedness referred to in subsection 7.1(c) hereof; provided, however, that:
(1) The transaction in which any Purchase
Money Security Interest is proposed to be created is not then
prohibited by this Agreement;
(2) Any Purchase Money Security Interest
shall attach only to the property or asset acquired in such transaction and
shall not extend to or cover any other assets or properties of Borrower;
(3) The Indebtedness secured or covered by
any Purchase Money Security Interest shall not exceed the lesser of the cost or
fair market value of the property or asset acquired and shall not be renewed,
extended or prepaid from the proceeds of any borrowing by the Borrower; and
(4) The aggregate amount of all Indebtedness
secured by Purchase Money Security Interests shall not at any time
exceed $200,000.00;
(d) The interests of the lessor under any Capitalized
Lease permitted hereunder.
Section 7.3 Guaranties.
Except as set forth on Exhibit K annexed hereto,
assume, endorse, be or become liable for, or guarantee, the obligations of any
Person, except by the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business. For the purposes hereof, the term
"guarantee" shall include any agreement, whether such agreement is on a
contingency or otherwise, to purchase, repurchase or otherwise acquire
Indebtedness of any other Person, or to purchase, sell or lease, as lessee or
lessor, property or services, in any such case primarily for the purpose of
enabling another person to make payment of Indebtedness, or to make any payment
(whether as an advance, capital contribution, purchase of an equity interest or
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otherwise) to assure a minimum equity, asset base, working capital or other
balance sheet or financial condition, in connection with the Indebtedness of
another Person, or to supply funds to or in any manner invest in another Person
in connection with such Person's Indebtedness.
Section 7.4 Mergers, Acquisitions.
Merge or consolidate with any Person (whether or not
the Borrower is the surviving entity), or acquire all or substantially all of
the assets or any of the capital stock of any Person provided however, Borrower
may merge or consolidate or acquire assets or stock where the aggregate cost of
the merger or consolidation transactions or the acquisitions to do not exceed
$1,000,000.00 over the term of the Facilities.
Section 7.5 Redemptions; Distributions.
(a) Purchase, redeem, retire or otherwise acquire,
directly or indirectly, or make any sinking fund payments with respect to, any
shares of any class of stock of the Borrower now or hereafter outstanding or set
apart any sum for any such purpose; or
(b) Except as permitted by Section 6.15 hereof,
declare or pay any dividends or make any distribution of any kind, including
without limitation on the Borrower's outstanding stock, or set aside any sum for
any such purpose.
Section 7.6 Stock Issuance.
Issue any additional shares or any right or option
to acquire any shares, or any security convertible into any shares, of the
capital stock of the Borrower except employee stock options or other employee
incentive programs or shareholder estate planning distributions approved by the
Bank.
Section 7.7 Changes in Business.
Make any material change in its business, or in the
nature of its operation, or liquidate or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, assets or business except in the
ordinary course of business and for a fair consideration or dispose of any
shares of stock or any Indebtedness, whether now owned or hereafter acquired, or
discount, sell, pledge, hypothecate or otherwise dispose of accounts receivable.
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Section 7.8 Investments.
Make, or suffer to exist, any Investment in any
Person, including, without limitation, any shareholder, director, officer or
employee of the Borrower, except investments in:
(1) obligations issued or guaranteed by the United
States of America;
(2) certificates of deposit, bankers acceptances and
other "money market instruments" issued by the Bank or any other bank or trust
company organized under the laws of the United States of America or any State
thereof and having capital and surplus in an aggregate amount of not less than
$100,000,000.
Section 7.9 Fiscal Year.
Change its fiscal year.
Section 7.10 ERISA Obligations.
(a) Be or become obligated to the PBGC in excess of
$50,000 other than in respect of annual premium payments.
(b) Be or become obligated to the IRS in excess of
$50,000 with respect to excise or other penalty taxes provided for in Section
4975 of the Code.
Section 7.11 Amendments of Documents.
Modify, amend, supplement or terminate, or agree to
modify, amend, supplement or terminate, its certificate of incorporation or
by-laws, or any of the subordinated notes or other agreements or evidences of
indebtedness covered by the Subordination Agreement where result thereof is to
cause a Material Adverse Effect.
Section 7.12 Transactions with Affiliates.
Directly or indirectly: (a) make any Investment in
an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
assets to an Affiliate, including, but not limited to, any inventory; (c) merge
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into or consolidate with or purchase or acquire assets from an Affiliate; or (d)
enter into any other transaction directly or indirectly with or for the benefit
of any Affiliate (including, without limitation, guaranties and assumptions of
obligations of an Affiliate).
Section 7.13 Stock Transfer.
With respect to each stockholder of the Borrower,
sell or otherwise transfer its or their interest in any stock of the Borrower
without the written consent of the Bank; provided, however, that any stockholder
of the Borrower may transfer to any of his immediate family members stock of the
Borrower, provided that all such transfers shall at no time exceed five (5%)
percent in the aggregate of the total stock holdings of such stockholder of the
Borrower.
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Article 8. Events of Default.
If any one or more of the following events ("Events of
Default") shall occur and be continuing, the Commitment shall terminate and the
entire unpaid balance of the principal of and interest on the Notes outstanding
and all other obligations and Indebtedness of the Borrower to the Bank arising
hereunder and under the other Loan Documents shall immediately become due and
payable upon written notice to that effect given to the Borrower by the Bank
(except that in the case of the occurrence of any Event of Default described in
Section no such notice shall be required), without further presentment or demand
for payment, notice of non-payment, protest or further notice or demand of any
kind, all of which are expressly waived by the Borrower:
Section 8.1 Payments.
Failure to make any payment of principal or interest
upon any of the Notes within ten (10) days after notice to the Borrower of the
failure to make such payment pursuant to the terms of any of the Notes; or
Section 8.2 Certain Covenants. Failure of the Borrower to
comply with the provisions of Article 5 or Sections 6.8, 6.9, 6.10, 6.12, 6.13,
7.1, 7.2, 7.3, 7.4, 7.6, 7.7, 7.8, 7.10, 7.11 or 7.14.
Section 8.3 Other Covenants.
Failure by the Borrower to perform or observe any
other agreements contained herein or in any of the other Loan Documents to which
it is a party for thirty (30) days after the Bank has given written notice of
such failure to Borrower; or
Section 8.4 Other Defaults.
(a) Failure by Borrower to perform or observe any
term, condition or covenant of any bond, note, debenture, loan agreement,
indenture, guaranty, trust agreement, mortgage or similar instrument to which
the Borrower is bound, or by which any of its properties or assets may be
affected including, without limitation, any of the subordinated notes or other
agreements or evidences of Indebtedness covered by any Borrower Subordination
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Agreement (a "Debt Instrument"), so that, as a result of any such failure to
perform, the Indebtedness included therein or secured or covered thereby is
declared to be due and payable prior to the date on which such Indebtedness
would otherwise become due and payable; or
(b) Any event or condition referred to in any Debt
Instrument shall occur or fail to occur, so that, as a result thereof, the
Indebtedness included therein or secured or covered thereby is declared to be
due and payable prior to the date on which such Indebtedness would otherwise
become due and payable; or
(c) Failure to pay any Indebtedness for borrowed
money due at final maturity or pursuant to demand under any Debt Instrument.
Section 8.5 Representations and Warranties.
Any material representation or warranty made in
writing to the Bank in any of the Loan Documents or in connection with the
making of the Facilities, or any certificate, statement or report made or
delivered in compliance with this Agreement, shall have been false or misleading
in any material respect when made or delivered; or
Section 8.6 Bankruptcy.
(a) Borrower shall make an assignment for the benefit
of creditors, file a petition in bankruptcy, be adjudicated insolvent, petition
or apply to any tribunal for the appointment of a receiver, custodian, or any
trustee for it or a substantial part of its assets, or shall commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, whether now
or hereafter in effect, or the Borrower shall take any corporate action to
authorize any of the foregoing actions; or there shall have been filed any such
petition or application, or any such proceeding shall have been commenced
against it, which remains undismissed for a period of sixty (60) days or more;
or any order for relief shall be entered in any such proceeding; or Borrower by
any act or omission shall indicate its consent to or, approval of or
acquiescence in any such petition, application or proceeding or the appointment
of a custodian, receiver or any trustee for it or any substantial part of any of
its properties, or shall suffer any custodianship, receivership or trusteeship
to continue undischarged for a period of sixty (60) days or more; or
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(b) Borrower shall generally not pay its debts as
such debts become due; or
(c) Borrower shall have concealed, removed, or
permitted to be concealed or removed, any part of its property, with intent to
hinder, delay or defraud its creditors or any of them or made or suffered a
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or shall have made any transfer of its
property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid; or shall have suffered or permitted,
while insolvent, any creditor to obtain a Lien upon any of its property through
legal proceedings or distraint which is not vacated within thirty (30) days from
the date thereof; or
Section 8.7 Judgments.
Any judgment against the Borrower or any other Loan
Party or any attachment, levy or execution against any of its properties for any
amount in excess of $100,000 in the aggregate (uncovered by insurance) shall
remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a
period of thirty (30) days or more; or
Section 8.8 ERISA.
(a) The termination of any Plan or the institution by
the PBGC of proceedings for the involuntary termination of any Plan, in either
case, by reason of, or which results or could result in, a "material accumulated
funding deficiency" under Section 412 of the Code; or
(b) Failure by Borrower to make required
contributions, in accordance with the applicable provisions of ERISA, to each of
the Plans hereafter established or assumed by it; or
Section 8.9 Liens.
Any of the Liens created and granted to the Bank
under the Security Documents shall fail to be valid, first, perfected Liens,
subject to no prior or equal Lien, except as permitted by Section hereof.
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Section 8.10 Cross-Defaults.
The Borrower fails to comply with the terms of or an
"event of default" occurs under any other loan transaction or credit arrangement
of any kind with the Bank.
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Article 9 Miscellaneous Provisions.
Section 9.1 Fees and Expenses; Indemnity.
Except as otherwise provided herein, the Borrower
will promptly pay all reasonable costs of the Bank in preparing the Loan
Documents and all costs and expenses of the issue of the Notes and of the
Borrower's performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with (including,
without limitation, all costs of filing or recording any assignments, mortgages,
financing statements and other documents), and the reasonable fees and expenses
and disbursements of counsel to the Bank in connection with the preparation,
execution and delivery, administration, interpretation and enforcement of this
Agreement, the other Loan Documents and all other agreements, instruments and
documents relating to this transaction, the consummation of the transactions
contemplated by all such documents, the preservation of all rights of the Bank,
the negotiation, preparation, execution and delivery of any amendment,
modification or supplement of or to, or any consent or waiver under, any such
document other than an assignment or participation pursuant to Section 10.13 (or
any such instrument which is proposed but not executed and delivered) and with
any claim or action threatened, made or brought against the Bank arising out of
or relating to any extent to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. In addition, the Borrower will
promptly pay all reasonable costs and expenses (including, without limitation,
reasonable fees and disbursements of counsel) suffered or incurred by the Bank
in connection with its enforcement of the payment of the Notes or any other sum
due to it under this Agreement or any of the other Loan Documents or any of its
other rights hereunder or thereunder. In addition to the foregoing, the Borrower
shall indemnify the Bank and each of its directors, officers, employees,
attorneys and agents against, and hold each of them harmless from, any loss,
liabilities, damages, claims, costs and expenses (including reasonable
attorneys' fees and disbursements) suffered or incurred by any of them arising
out of, resulting from or in any manner connected with, the execution, delivery
and performance of each of the Loan Documents, the Facilitys and any and all
transactions related to or consummated in connection with the Facilitys,
including, without limitation, losses, liabilities, damages, claims, costs and
expenses suffered or incurred by the Bank or any of their respective directors,
officers, employees, attorneys or agents arising out of or related to any
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Environmental Matter, Environmental Liability or Environmental Proceeding, or in
investigating, preparing for, defending against, or providing evidence,
producing documents or taking any other action in respect of any commenced or
threatened litigation, administrative proceeding or investigation under any
federal securities law or any other statute of any jurisdiction, or any
regulation, or at common law or otherwise, which is alleged to arise out of or
is based upon: (i) any untrue statement or alleged untrue statement of any
material fact of the Borrower, and any Subsidiaries in any document or schedule
filed with the Securities and Exchange Commission or any other governmental
body; (ii) any omission or alleged omission to state any material fact required
to be stated in such document or schedule, or necessary to make the statements
made therein, in light of the circumstances under which made, not misleading;
(iii) any acts, practices or omission or alleged acts, practices or omissions of
the Borrower or its agents related to the making of any acquisition, purchase of
shares or assets pursuant thereto, financing of such purchases or the
consummation of any other transactions contemplated by any such acquisitions
which are alleged to be in violation of any federal securities law or of any
other statute, regulation or other law of any jurisdiction applicable to the
making of any such acquisition, the purchase of shares or assets pursuant
thereto, the financing of such purchases or the consummation of the other
transactions contemplated by any such acquisition; or (iv) any withdrawals,
termination or cancellation of any such proposed acquisition for any reason
whatsoever; provided, however, the Borrower shall not be required to indemnify
the Bank in respect of any loss, liability cost or expense incurred as the
result of the negligence or willful misconduct of the Bank. The indemnity set
forth herein shall be in addition to any other obligations or liabilities of the
Borrower to the Bank hereunder or at common law or otherwise. The provisions of
this Section shall survive the payment of the Notes and the termination of this
Agreement.
Section 9.2 Taxes.
If, under any law in effect on the date of the
closing of the Facilities hereunder, or under any retroactive provision of any
law subsequently enacted, it shall be determined that any Federal, state or
local tax is payable in respect of the issuance of any Note, or in connection
with the filing or recording of any financing statements or other documents
(whether measured by the amount of Indebtedness secured or otherwise) as
contemplated by this Agreement, then the Borrower will pay any such tax and all
interest and penalties, if any, and will indemnify the Bank against and save it
harmless from any loss or damage resulting from or arising out of the nonpayment
or delay in payment of any such tax. If any such tax or taxes shall be assessed
or levied against the Bank or any other holder of the Notes, the Bank, or such
other holder, as the case may be, may notify the Borrower and make immediate
payment thereof, together with interest or penalties in connection therewith,
and shall thereupon be entitled to and shall receive immediate reimbursement
therefor from the Borrower. Notwithstanding any other provision contained in
this Agreement, the covenants and agreements of the Borrower in this Section
shall survive payment of the Notes and the termination of this Agreement.
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Section 9.3 Payments.
As set forth in Article hereof, all payments by
the Borrower on account of principal, interest, fees and other charges
(including any indemnities) shall be made to the Bank at its Payment Office, in
lawful money of the United States of America, not later than 11:00 A.M. New York
City time on the date such payment is due. Any such payment made on such date
but after such time shall, if the amount paid bears interest, be deemed to have
been made on, and interest shall continue to accrue and be payable thereon
until, the next succeeding Business Day. If any payment of principal or interest
becomes due on a day other than a Business Day on which banks in Albany, New
York are required or permitted by law to remain closed, such payment may be made
on the next succeeding Business Day on which such banks are open and such
extension shall be included in computing interest in connection with such
payment. All payments hereunder and under the Notes shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid under this Agreement and the Notes (after withholding for or on account of:
(i) any present or future taxes, levies, imposts, duties or other similar
charges of whatever nature imposed by any government or any political
subdivision or taxing authority thereof, other than any tax (except those
referred to in clause (ii) below) on or measured by the net income of the Bank
to which any such payment is due pursuant to applicable federal, state and local
income tax laws, and (ii) deduction of amounts equal to the taxes on or measured
by the net income of the Bank payable by the Bank with respect to the amount by
which the payments required to be made under this sentence exceed the amounts
otherwise specified to be paid in this Agreement and the Notes). Upon payment in
full of each Note, the holder thereof shall mark said Note "Paid" and return it
to the Borrower.
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Section 9.4 Survival of Agreements and
Representations; Construction.
All agreements, representations and warranties made
herein shall survive the delivery of this Agreement and the Notes. The headings
used in this Agreement and the table of contents are for convenience only and
shall not be deemed to constitute a part hereof. All uses herein of the
masculine gender or of singular or plural terms shall be deemed to include uses
of the feminine or neuter gender, or plural or singular terms, as the context
may require.
Section 9.5 Lien on and Set-off of Deposits.
As security for the due payment and performance of
all the Obligations, the Borrower hereby grants to the Bank a Lien on any and
all deposits or other sums at any time credited by or due from the Bank to the
Borrower, whether in regular or special depository accounts or otherwise, and
any and all monies, securities and other property of the Borrower, and the
proceeds thereof, now or hereafter held or received by or in transit to the Bank
from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums, monies,
securities and other property, may at any time after the occurrence and during
the continuance of any Event of Default be set-off, appropriated and applied by
the Bank against any of the Obligations, whether or not any of such Obligations
are secured by any Collateral, or, if it is so secured, whether or not the
Collateral is considered to be adequate.
Section 9.6 Modifications, Consents and
Waivers; Entire Agreement.
No modification, amendment or waiver of or with
respect to any provision of this Agreement, the Notes, the Security Documents,
or any of the other Loan Documents and all other agreements, instruments and
documents delivered pursuant hereto or thereto, nor consent to any departure by
the Borrower from any of the terms or conditions thereof, shall in any event be
effective unless it shall be in writing and signed by the Bank. Any such waiver
50
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or consent shall be effective only in the specific instance and for the purpose
for which given. No consent to or demand on the Borrower in any case shall, of
itself, entitle it to any other or further notice or demand in similar or other
circumstances. This Agreement and the other Loan Documents embody the entire
agreement and understanding among the Bank and the Borrower and supersede all
prior agreements and understandings relating to the subject matter hereof.
Section 9.7 Remedies Cumulative.
Each and every right granted to the Bank hereunder
or under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of the Bank to exercise, and no delay in
exercising, any right shall operate as a waiver thereof, nor shall any single or
partial exercise of any right preclude any other or future exercise thereof or
the exercise of any other right. The due payment and performance of the
Obligations shall be without regard to any counterclaim, right of offset or any
other claim whatsoever which Borrower may have against the Bank and without
regard to any other obligation of any nature whatsoever which the Bank may have
to Borrower, and no such counterclaim or offset shall be asserted by Borrower in
any action, suit or proceeding instituted by the Bank for payment or performance
of the Obligations.
Section 9.8 Further Assurances.
At any time and from time to time, upon the request
of the Bank, the Borrower shall execute, deliver and acknowledge or cause to be
executed, delivered and acknowledged, such further documents and instruments and
do such other acts and things as the Bank may reasonably request in order to
fully effect the purposes of this Agreement, the other Loan Documents and any
other agreements, instruments and documents delivered pursuant hereto or in
connection with the Facilitys.
Section 9.9 Notices.
All notices, requests, reports and other
communications pursuant to this Agreement shall be in writing, either by letter
(delivered by hand or commercial messenger service or sent by certified mail,
return receipt requested, except for routine reports delivered in compliance
with Article hereof which may be sent by ordinary first-class mail) or telegram
or telecopy, addressed as follows:
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(a) If to the Borrower:
A.C. Moore Incorporated
500 University Court
Blackwood, New Jersey 08012
Attention: John E. Parker, President
Telecopier No. (609) 273-1475
with a courtesy copy to:
Drake, Sommers, Loeb, Tarshis & Catania, P.C.
One Corwin Court
Post Office Box 1479
Newburgh, New York 12550
Attention: Richard J. Drake, Esq.
Telecopier No. (914) 565-1999
(b) If to the Bank:
Key Bank of New York
2 Gannett Drive
White Plains, New York 10604
Attn: Richard M. Kulbieda,
Senior Vice President
Telecopier No. (914) 563-5203
with a courtesy copy (other than in the case
of Borrowing Notices and reports and other
documents delivered in compliance with
Article hereof) to:
Hiscock & Barclay
One KeyCorp Plaza, Suite 1100
30 South Pearl Street
Albany, New York 12207-3411
Attention: Edward J. Trombly, Esq.
Telecopier No.: (518) 434-2621
52
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Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is telecopied to such party at the telecopier
number specified above or delivered by hand or such commercial messenger service
to such party at its address specified above, or, if sent by mail, on the third
Business Day after the day deposited in the mail, postage prepaid, or in the
case of telegraphic notice, when delivered to the telegraph company, addressed
as aforesaid. Any party may change the person, address or telecopier number to
whom or which notices are to be given hereunder, by notice duly given hereunder;
provided, however, that any such notice shall be deemed to have been given
hereunder only when actually received by the party to which it is addressed.
Failure to provide a courtesy copy shall not affect the validity of any Notice.
Section 9.10 Counterparts.
This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
Section 9.11 Severability.
The provisions of this Agreement are severable, and
if any clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision in this Agreement in any
jurisdiction. Each of the covenants, agreements and conditions contained in this
Agreement is independent and compliance by the Borrower with any of them shall
not excuse non-compliance by the Borrower with any other. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of an Event of Default if such action is
taken or condition exists.
Section 9.12 Binding Effect; No Assignment
or Delegation by Borrower.
This Agreement shall be binding upon and inure to
the benefit of the Borrower and its successors and to the benefit of the Bank
and successors and assigns. The rights and obligations of the Borrower under
this Agreement shall not be assigned or delegated without the prior written
consent of the Bank, and any purported assignment or delegation without such
consent shall be void.
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Section 9.13 Assignments and Participations by Bank.
(a) The Bank may assign and/or the Borrower may
request the Bank to assign to one or more banks or other entities all or a
portion of the assigning Bank's rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the
Facilitys owing to it, and the Notes); provided, however, that each such
assignment shall be of a constant, and not a varying, percentage of all of the
Bank's rights and obligations under this Agreement. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each assignment and acceptance, which effective date shall be at least ten
(10) Business Days after the execution thereof: (x) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such assignment and acceptance, have the
rights and obligations of the Bank hereunder, and (y) the Bank shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such assignment and acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an assignment and
acceptance covering all or the remaining portion of the Bank's rights and
obligations under this Agreement, the Bank shall cease to be a party hereto).
(b) By executing and delivering an assignment and
acceptance, the Bank and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such assignment and acceptance, the Bank makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; (ii)
the Bank makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement, together with copies of
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such financial statements and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such assignment and acceptance; (iv) such assignee will, independently and
without reliance upon the Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee shall enter
into with the Banks (and any other party acting in the capacity of a lender
hereunder) an inter-creditor agreement in form and substance satisfactory to the
lending parties; and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Bank.
(c) The Bank may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Facilitys owing to it); provided, however, that: (i) the Bank's
obligations under this Agreement (including, without limitation, its Commitment
to the Borrower hereunder) shall remain unchanged, (ii) the Bank shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the Bank shall remain the holder of the Notes for all
purposes of this Agreement, and the Borrower and the Bank shall continue to deal
solely and directly with such Bank in connection with the Bank's rights and
obligations under this Agreement, (iv) the Bank shall continue to be able to
agree to any action or forbearance to take action under this Agreement or any
other Loan Document, or to the exercise of any of its rights under or in respect
of any of the foregoing documents, or to any modification or amendment of this
Agreement or of any other Loan Document or any waiver hereunder or thereunder,
in each case without the consent, approval or vote of any such participant or
group of participants, other than actions, forbearances, modifications,
amendments and waivers that (1) postpone any date fixed for any payment of, or
reduce any payment of, principal of or interest on any of the Notes, or (2)
increase the amount of the Commitment, or (3) change the interest rate payable
under any of the Notes, (v) the Borrower shall have no obligation to pay the
expenses associated with the participation of any portion of the Facilitys, and
(vi) except as contemplated by the preceding clause (iv), no participant shall
be deemed to be or to have any of the rights or obligations of a Bank hereunder
or under any Loan Document.
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(d) The Bank may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section , disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to the Bank by
or on behalf of the Borrower; provided that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from the Bank.
Section 9.14 GOVERNING LAW;
CONSENT TO JURISDICTION;
WAIVER OF TRIAL BY JURY.
(a) EXCEPT AS OTHERWISE PROVIDED HEREIN OR THEREIN,
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS AND INSTRUMENTS
EXECUTED AND DELIVERED IN CONNECTION HEREWITH AND THEREWITH, SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
(b) EXCEPT AS OTHERWISE PROVIDED HEREIN OR IN THE
APPLICABLE LOAN DOCUMENT, THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL
ACTION OR PROCEEDING BROUGHT BY THE BORROWER AGAINST THE BANK, UNDER, ARISING
OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT, AND EACH OTHER LOAN DOCUMENT
WILL BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR IN THE UNITED STATES
DISTRICT COURT FOR A DISTRICT COURT WITHIN THE STATE OF NEW YORK.
(c) THE BANK AND THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE HAD TO TRIAL BY
JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
ARISING OUT OF (i) THIS AGREEMENT, (ii) ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, (iii) THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, (iv) ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR (v)
ACTIONS OF THE BANKS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT
IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK ENTERING INTO THIS
AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
A.C. MOORE INCORPORATED
By /s/ John E. Parker
------------------------
John E. Parker
President
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KEYBANK NATIONAL ASSOCIATION
By: /s/ Richard M. Kulbieda
----------------------------
Richard M. Kulbieda
Regional President
Address:
KeyBank National Association
66 South Pearl Street
Albany, New York 12207
Attention: Commercial and Industrial
Lending Division
Facsimile: (914) 694-8463
ABA Wire Number: 021300077
58
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STATE OF NEW JERSEY )
) ss.:
COUNTY OF CAMDEN )
On this 23rd day of January, 1997, before me the subscriber personally
appeared John E. Parker, who being by me duly sworn, did depose and say; that he
resides at 5201 Sea Spray Road, Brigantine, New Jersey 08203, that he is
President of A.C. MOORE INCORPORATED, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
/s/ Gordon W. Hall, Jr.
---------------------------
NOTARY PUBLIC
Gordon W. Hall, Jr.
Notary Public of New Jersey
My Commission Expires
March 18, 1997
59
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF ORANGE )
On this 31st day of January, 1997, before me the subscriber personally
appeared Richard M. Kulbieda, who being by me duly sworn, did depose and say;
that he resides at 95 Glen Hill Road, Wilton, Connecticut, that he is a Regional
President of KEYBANK NATIONAL ASSOCIATION, the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
/s/ Leona M. Dzierzek
--------------------------
NOTARY PUBLIC
Leona M. Dzierzek
Notary Public, State of New York
Residing in Orange County
Commission expires 9/30/98
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EXHIBITS
A. States of Incorporation and Qualification
B. Consents, Waivers, Approvals; Violations
C. Permitted Security Interests, Liens and Encumbrances
D. Judgments, Actions, Proceedings
E. Defaults; Compliance with Laws, Regulations, Agreements
F. Burdensome Documents
G. Patents, Trademarks, Trade Names, Service Marks, Copyrights
H. Name Changes, Mergers, Acquisitions; Location of Collateral
I. Labor Disputes, Collective Bargaining Agreements and Employee
Grievances
J. Pension Plans
K. Guaranties
<PAGE>
EXHIBIT A
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
STATES OF INCORPORATION
-----------------------
Delaware
<PAGE>
EXHIBIT B
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
CONSENTS, WAIVERS, APPROVALS;
VIOLATIONS
----------
None
<PAGE>
EXHIBIT C
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
PERMITTED SECURITY INTERESTS,
LIENS AND ENCUMBRANCES
----------------------
Security interest given to Material Supply, Inc., assigned to Citicorp
Dealer Finance and filed with the New Jersey Department of State on May 18,
1993, under File #1510797.
<PAGE>
EXHIBIT D
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
JUDGMENTS, ACTIONS, PROCEEDINGS
-------------------------------
None
<PAGE>
EXHIBIT E
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
DEFAULTS; COMPLIANCE WITH LAWS,
REGULATIONS, AGREEMENTS
-----------------------
None
<PAGE>
EXHIBIT F
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
BURDENSOME DOCUMENTS
--------------------
None
<PAGE>
EXHIBIT G
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
PATENTS, TRADEMARKS, TRADE
NAMES, SERVICE MARKS, COPYRIGHTS
--------------------------------
None
<PAGE>
EXHIBIT H
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
NAME CHANGES, MERGERS, ACQUISITIONS; LOCATION OF COLLATERAL
-----------------------------------------------------------
OTHER NAMES:
A.C. MOORE INC.
A.C. MOORE ARTS AND CRAFTS
<PAGE>
EXHIBIT I
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
LABOR DISPUTES, COLLECTIVE BARGAINING
AGREEMENTS AND EMPLOYEE GRIEVANCES
----------------------------------
None
<PAGE>
EXHIBIT J
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
COMPLIANCE CERTIFICATE
----------------------
Date
Mr. Brendan Sachtjen
Key Bank
2 Gannett Drive
White Plains, New York 10604
Re: Compliance Certificate pursuant to the Credit Agreement dated
as of
Mr. :
I hereby certify that to the best of my knowledge there exists no violation of
any covenant or agreement of the Loan Documents and that no condition or event
has occurred which should constitute a Default or an Event of Default.
Attached is a worksheet containing calculations of the financial covenants as
pursuant to the Loan Agreement dated , 199 .
Capitalized terms used and not defined in the worksheet have respective meanings
assigned to them in the Loan Agreement.
Sincerely,
A.C. Moore, Inc.
President or Chief Financial Officer
<PAGE>
COMPLIANCE CERTIFICATE
Financial Covenants
(Section 6.9)
Requirement
Current Ratio Actual
(Annually) Not less than 2 to 1 at FYE
Maximum Leverage Ratio
(Quarterly) 2.0 to 1 for 1st, 2nd and 3rd Qt.
1.5 to 1 for FYE '96
1.25 to 1 each FYE thereafter
Minimum Tangible Net
Worth $15,000,000 as of 12/31/96
Increasing $2MM annually
thereafter with quarterly testing
EBITDAR/Interest+
CMLTD+Rent Exp. Minimum 1.75 to 1 each FYE
EBITDA/INTEREST+CMLTD Minimum 3.0 to 1
(Quarterly)
A.C. MOORE, INCORPORATED
By:___________________________________
President or Chief Financial Officer
Dated:
<PAGE>
EXHIBIT K
TO LOAN AGREEMENT
BY AND AMONG
A.C. MOORE INCORPORATED
AND
KEYBANK NATIONAL ASSOCIATION
GUARANTIES
----------
NONE
<PAGE>
FACILITY A NOTE
$8,354,835.08 Newburgh, New York
Dated: As of January 23, 1997
FOR VALUE RECEIVED, A.C. MOORE INCORPORATED, a Delaware corporation
with an address at 500 University Court, Blackwood, New Jersey 08012 (the
"Borrower"), promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a
national banking association with an office and place of business at 66 South
Pearl Street, Albany, New York 12207 (the "Bank"), the principal sum of EIGHT
MILLION THREE HUNDRED FIFTY FOUR THOUSAND EIGHT HUNDRED THIRTY FIVE AND 08/100
($8,354,835.08) DOLLARS. This Note replaces the 1996 Replacement Note from
Borrower to the Bank dated as of July 1, 1996 in the amount of $9,283,150.10
(the "Prior Note") and is executed and delivered by Borrower pursuant to a Loan
Agreement dated on even date herewith (the "Loan Agreement") with interest on
the unpaid principal balance at the Interest Rate (as hereinafter defined). This
Note evidences a loan (the "Loan") made available to the Borrower as part of a
credit facility more fully set forth in the Loan Agreement and the other Loan
Documents (as defined in the Loan Agreement).
I
DEFINITIONS
DEFINITIONS. As used herein:
(1) "Applicable Base Margin" shall mean the number of basis
points determined in accordance with II(b) below to be added to or subtracted
from the Base Rate to determine the Variable Rate.
(2) "Applicable LIBOR Margin" shall mean the number of basis
points determined in accordance with II(c) below to be added to LIBOR to
determine the LIBOR Rate.
(3) "Base Rate" shall mean the rate of interest set,
determined or announced on a periodic basis by KeyBank National Association as
its "Base Rate" which rate of interest is not necessarily the lowest rate
charged by KeyBank National Association on loans and other credits which may be
extended by KeyBank National Association at rates both above and below the Base
Rate.
(4) "Default Interest Rate" shall mean the applicable Interest
Rate plus two percent (2%) per annum.
<PAGE>
(5) "Index" shall mean the yield in percent per annum adjusted
to the nearest one-eighth of one percent on five (5) year Treasury securities at
constant maturity as reported by the Federal Reserve each week in the Federal
Reserve Statistical Release, Selected Interest Rates under the column referenced
as "this week". If the Index is no longer available, Key Bank shall substitute
an index based upon comparable information and shall advise Borrower of its
choice of a new Index substituted in Key Bank's sole discretion.
(6) "Interest Rate" shall mean the rate of interest [rounded
up to the nearest one-eighth (1/8%)] percent to be calculated hereunder and paid
by Borrower on any outstanding principal due under this Note and shall be either
the Fixed Rate, the LIBOR Rate or the Variable Rate.
(7) "Interest Rate Election Notice" shall mean the Interest
Rate Election Notice to be delivered by the Borrower to the Bank from time to
time said Interest Rate Election Notice to be in the form of Exhibit "A"
attached hereto and when delivered to have been completed by any of the
Authorized Individuals set forth in Schedule "B" attached hereto to indicate
Borrower's choice as to the Interest Rate to be applicable.
(8) "LIBOR" shall mean the three (3) month rate designated
under the heading "LONDON INTERBANK OFFERED RATES" in the "Money Rates" column
as published in The Wall Street Journal two days prior to the date for which a
LIBOR Rate is being calculated.
(9) "LIBOR Period" shall mean three (3) months but in no event
shall any LIBOR Period extend beyond the Maturity Date of the Loan.
(10) "LIBOR Rate" shall mean a rate fixed for a LIBOR Period
equal to LIBOR plus the Applicable LIBOR Margin.
(11) "Loan Documents" shall have the meaning ascribed thereto
in the Loan Agreement.
(12) "Margin" shall mean the Applicable Base Margin or the
Applicable LIBOR Margin.
(13) "Maturity Date" shall mean July 1, 2001.
(14) "Variable Rate" shall mean a floating rate equal to the
Base Rate in effect from time to time minus the Applicable Base Margin.
2
<PAGE>
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding principal
balance of this Note shall be computed on the basis of "a 360-day year for the
actual number of days elapsed" (such phrase, as used throughout this Note, shall
mean that in computing interest for the subject period, the applicable Interest
Rate shall be multiplied by a fraction, the denominator of which is 360 and the
numerator of which is the actual number of days elapsed from the date of the
first disbursement of the Loan or the date of the preceding interest and/or
principal due date, as the case may be, to the date of the next interest and/or
principal due date). Interest shall accrue until the date of receipt of payment.
(b) DETERMINATION OF APPLICABLE BASE MARGIN. The Applicable Base Margin
in effect on the date of execution of this Note shall be minus twenty five (-25)
basis points. Thereafter, the Applicable Base Margin shall be recalculated at
the end of each of Borrower's fiscal years in accordance with the following
schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
Base Margin shall be 0 basis points.
(2) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is less than 1.25 to 1, the Applicable Base Margin
shall be minus fifty (-50) basis points.
As stated in the definition of Variable Rate, the Applicable Base
Margin determined in accordance with this subparagraph shall be subtracted from
the Base Rate to determine the Variable Rate.
(c) DETERMINATION OF APPLICABLE LIBOR MARGIN. The Applicable LIBOR
Margin in effect on the date of execution of this Note shall be one hundred
fifty (150) basis points. Thereafter, the Applicable LIBOR Margin shall be
recalculated at the end of each of Borrower's fiscal years in accordance with
the following schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
LIBOR Margin shall be 200 basis points.
(2) If Borrower's Leverage Ratio is less than 1.25 to 1, the
Applicable LIBOR Margin shall be 150 basis points.
3
<PAGE>
As stated in the definition of LIBOR Rate, the Applicable LIBOR Margin
determined in accordance with this subparagraph shall be added to the LIBOR Rate
to determine the LIBOR Rate.
(d) PROCEDURE FOR ELECTING INTEREST RATE. On the date of execution of
this Note, Borrower shall provide the Bank with an Interest Rate Election Notice
indicating Borrower's election that sums due hereunder be repaid with interest
at either the LIBOR Rate or the Variable Rate. If Borrower fails to provide an
Interest Rate Election Notice either on the date of execution of this Note or
upon expiration of a LIBOR Period, the Interest Rate shall automatically be set
at the Variable Rate until Borrower has provided the Bank with an appropriate
Interest Rate Election Notice.
(e) VARIABLE RATE CHANGE PROCEDURES. Any change in the Base Rate shall
automatically and simultaneously effect a corresponding change in the Variable
Rate without notice to the Borrower.
(f) LIBOR RATE CHANGE PROCEDURES. At any time Borrower has elected that
the LIBOR Rate apply, the LIBOR Rate calculated hereunder shall remain constant
for the LIBOR Period.
(g) MARGIN ADJUSTMENTS. The Applicable Base Margin and the Applicable
LIBOR Margin shall each be adjusted annually effective on each May 1 based upon
the Bank's determination of Borrower's Leverage Ratio which shall be determined
by the Bank upon receipt of the financial statements required pursuant to
Section 5.1 of the Loan Agreement.
(h) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the occurrence of an
Event of Default (as defined below), the computation of interest under this Note
shall immediately and without further action by the Bank be based upon the
Default Interest Rate.
III
PAYMENT OF PRINCIPAL AND INTEREST
(a) PAYMENT OF PRINCIPAL AND INTEREST ON SUMS ADVANCED UNDER THE PRIOR
NOTE. Commencing on February 1, 1997 and continuing on the first day of each
month thereafter, Borrower shall make a series of consecutive monthly payments
of (i) accrued interest at either the LIBOR Rate or the Variable Rate as elected
by Borrower in the Interest Rate Election Notice and (ii) principal in the
amount of $154,719.16. Said payments shall continue until the Maturity Date (or
such earlier date in the event the Bank accelerates Borrower's obligations
hereunder) when the entire principal balance remaining unpaid and all accrued
and unpaid interest shall become immediately due and payable.
4
<PAGE>
(b) ADVANCES BY THE BANK. The Bank shall have the right to make an
Advance hereunder and shall have the right to debit any account of the Borrower
with the Bank for principal hereon and accrued and unpaid interest which has
become due and payable under the terms hereof in accordance with the terms of
the Loan Agreement.
(c) VOLUNTARY REPAYMENT. The principal balance of the Loan may be
repaid in whole or in part at any time without premium or penalty.
(d) LIBOR RESERVE REQUIREMENT. If because of the introduction of or an
change in or because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any increase in the cost
to Key Bank of making, funding, maintaining or allocating capital to any LIBOR
Advance, the Borrower shall from time to time upon demand by Bank pay the Bank
additional money sufficient to compensate the Bank for such increased costs.
IV
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are payable in
accordance with the terms of the Loan Agreement to KeyBank National Association
at 66 South Pearl Street, Albany, New York 12207, or at such other place as the
Bank shall notify Borrower in writing, in accordance with the terms of the Loan
Agreement. Any payment on this Note, whether such payment is of a regular
installment or represents a prepayment, shall be made with immediately available
funds. The Bank may direct that payments be made at a place other than the above
address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as otherwise provided in
this Note or the Loan Agreement, all payments received by the Bank on this Note
shall be applied by the Bank as follows:
FIRST, to any unpaid Late Payment Charges (hereinbelow
defined); and
SECOND, to accrued and unpaid interest then due and owing; and
THIRD, to the reduction of principal of this Note.
If an Event of Default (as defined below) occurs, the Bank shall apply
any payments received to such sums as are due the Bank under the Loan Documents
(as defined in the Loan Agreement) in such amounts and priority as the Bank may
determine.
5
<PAGE>
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of
principal and/or interest on this Note for ten (10) days after such payment
becomes due, whether by acceleration or otherwise, the Bank shall impose a late
payment charge (the "Late Payment Charge") computed by multiplying the amount of
each past due payment by five (5%) percent. Until any and all Late Payment
Charges are paid in full, the amount thereof shall be added to the indebtedness
secured pursuant to any of the Loan Documents. The Late Payment Charge is not a
penalty and is deemed to be liquidated damages for the purpose of compensating
the Bank for the difficulty in computing the actual amount of damages incurred
by the Bank as a result of the late payment by Borrower.
(d) EVENTS OF DEFAULT. The following shall constitute an "Event of
Default" hereunder:
(i) The failure of the Borrower to pay any sum due on this
Note for ten (10) days after written notice that the same is due; or
(ii) The occurrence of an "Event of Default" as defined in the
Loan Agreement.
Following an Event of Default hereunder, the Bank may declare the
principal amount of and accrued interest on this Note due and payable in the
manner and with the effect provided in the Loan Agreement and the Bank shall
have the right to refuse to make any further Advances and to avail itself of all
other remedies set forth herein, in the Loan Agreement and in the other Loan
Documents.
(e) COSTS AND EXPENSES ON OCCURRENCE OF EVENT OF DEFAULT. After the
occurrence of an Event of Default, in addition to principal and interest, the
Bank shall be entitled to collect all reasonable costs of collection, including,
but not limited to, reasonable attorneys' fees, incurred in connection with the
protection or realization of collateral or in connection with any of the Bank's
collection efforts, whether or not suit on this Note or any other proceeding is
filed, and all such costs and expenses shall be payable on demand and until paid
shall also be secured by the Loan Documents and by all other collateral held by
the Bank as security for Borrower's obligations to the Bank.
(f) NO WAIVER BY THE BANK. No failure on the part of the Bank or other
holder hereof to exercise any right or remedy hereunder, whether before or after
the happening of a default, shall constitute a waiver thereof, and no waiver of
any past default shall constitute waiver of any future default or of any other
default. No failure to accelerate the Loan evidenced hereby by reason of default
hereunder, or acceptance of a past due installment, or indulgence granted from
time to time shall be construed to be a waiver of the right to insist upon
prompt payment thereafter, or shall be deemed to be a novation of this Note or
as a reinstatement of the Loan evidenced hereby or as a waiver of such right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which the Bank may have, whether by the
6
<PAGE>
laws of the state governing this Note, by agreement or otherwise; and Borrower
and each endorser hereby expressly waive the benefit of any statute or rule of
law or equity which would produce a result contrary to or in conflict with the
foregoing. This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom such agreement is sought to be
enforced.
(g) WAIVER BY BORROWER. Borrower and each endorser of this Note hereby
waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment.
(h) COMPLIANCE WITH USURY LAWS. It is the intention of the parties to
conform strictly to the usury laws, whether state or federal, that are
applicable to this Note. All agreements between the Borrower and the Bank,
whether now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event whatsoever, whether
by acceleration of maturity hereof or otherwise, shall the amount paid or agreed
to be paid to the Bank or the holder hereof, or collected by the Bank or such
holder, for the use, forbearance or detention of the money to be loaned
hereunder or otherwise, or for the payment or performance of any covenant or
obligation contained herein, or in any of the Loan Documents, exceed the maximum
amount permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any provision hereof or of the Loan
Documents, at the time performance of such provision shall be due, shall involve
exceeding the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances the Bank or other holder hereof shall ever receive an amount
deemed interest by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable usury laws shall
be applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal and such
other indebtedness, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to Borrower or to any other person making such
payment on Borrower's behalf. All sums paid or agreed to be paid to the holder
hereof for the use, forbearance or detention of the indebtedness of Borrower
evidenced hereby, outstanding from time to time shall, to the extent permitted
by applicable law, and to the extent necessary to preclude exceeding the limit
of validity prescribed by law, be amortized, pro-rated, allocated and spread
from the date of disbursement of the proceeds of this Note until payment in full
of the Loan evidenced hereby and thereby so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof and thereof.
The terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between Borrower, any endorser and the Bank.
(i) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note shall be
governed by and construed under the laws of the State of New York. Borrower and
each endorser hereby submits to personal jurisdiction in said State for the
enforcement of Borrower's obligations hereunder and under the law of any other
state to object to jurisdiction within such State for the purposes of litigation
to enforce such obligations of Borrower.
7
<PAGE>
(j) WAIVER OF JURY TRIAL. The parties hereto waive trial by jury in any
litigation in any court with respect to, in connection with, or arising out of
this Note, any other Loan Document or the Loan, or any instrument or document
delivered in connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and the Bank.
(k) AUTHORITY OF THE BANK. Borrower authorizes the Bank to date this
Note as of the day when the Loan is made.
(l) RIGHT OF SET OFF. Borrower grants to the Bank a continuing lien for
the amount of this Note upon any and all monies, securities and other property
of Borrower and the proceeds thereof, now or hereafter held or received by or in
transit to the Bank from or for Borrower whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower with, and any and all
claims of Borrower against the Bank at any time existing. Upon the occurrence of
an Event of Default, the Bank is authorized at any time and from time to time,
without notice to Borrower, to set off, appropriate and apply any and all items
herein above referred to against this Note in accordance with the terms of the
Loan Agreement.
(m) NOTICES. Any notices required or permitted to be given hereunder
shall be: (i) given by registered or certified mail, postage prepaid, return
receipt requested or (ii) forwarded by overnight courier service, in each
instance addressed to the addresses set forth at the head of this Note, or such
other addresses as the parties may for themselves designate in writing as
provided herein for the purpose of receiving notices hereunder. All notices
shall be in writing and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate mail or courier
service, upon deposit with the U.S.
Postal Service or delivery to the courier service.
(n) ENTIRE AGREEMENT. This Note and the other Loan Documents, and any
exhibits or other documents referred herein or therein, constitute the complete
agreement of the parties with respect to the subject matter referred to herein
and supersede all prior or contemporaneous negotiations, promises, covenants,
agreements or representations of every nature whatsoever with respect thereto,
all of which have become merged and finally integrated into this Note. Each of
the parties understands that in the event of any subsequent litigation,
controversy or dispute concerning any of the terms, conditions or provisions of
this Note, they shall not be permitted to offer or introduce any oral evidence
concerning any oral promises or oral agreements between the parties relating to
the subject matter of this Note not included or referred to herein and not
reflected by a writing signed by the parties.
8
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this instrument the date
first above written.
A.C. MOORE INCORPORATED
By: /s/ John E. Parker
------------------------
John E. Parker
President
STATE OF NEW JERSEY )
) ss.:
COUNTY OF CAMDEN )
On this day of February, 1997, before me the subscriber personally
appeared John E. Parker, who being by me duly sworn, did depose and say; that he
resides at Brigantine, New Jersey; that he is the President of A.C. MOORE
INCORPORATED, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/ Patricia L. Olson
--------------------------
NOTARY PUBLIC
Patricia L. Olson
Notary Public of New Jersey
My Commission Expires
June, 1997
9
<PAGE>
EXHIBIT A
INTEREST RATE ELECTION NOTICE
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE: _____________________________
______ Variable Rate
______ LIBOR Rate
10
<PAGE>
EXHIBIT B
SCHEDULE OF AUTHORIZED INDIVIDUALS
Name
----
William Kaplan
John E. Parker
Patricia A. Parker
Lori Lucente-McKeage
Janet Parker-Vandenberg
Leslie Gordon
11
<PAGE>
FACILITY B NOTE
$3,200,000.00 Newburgh, New York
Dated: As of January 23, 1997
FOR VALUE RECEIVED, A.C. MOORE INCORPORATED, a Delaware corporation
with an address at 500 University Court, Blackwood, New Jersey 08012 (the
"Borrower"), promises to pay to the order of KEYBANK NATIONAL ASSOCIATION , a
national banking association with an office and place of business at 66 South
Pearl Street, Albany, New York 12207 (the "Bank"), the principal sum of THREE
MILLION TWO HUNDRED THOUSAND and no/100 ($3,200,000.00) DOLLARS or so much
thereof as may be advanced from time to time pursuant to the terms of this Note
and a Loan Agreement dated on even date, between the Borrower and the Bank (the
"Loan Agreement") with interest on the unpaid principal balance of such amounts
as are advanced or readvanced, as the case may be, at the Interest Rate (as
hereinafter defined). This Note evidences a loan (the "Loan") made available to
the Borrower as part of a credit facility more fully set forth in the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement).
I
DEFINITIONS
DEFINITIONS. As used herein:
(1) "Advance" shall mean each advance of Loan proceeds by Key
Bank to the Borrower, each of which will be treated separately for purposes of
computing interest and each of which will accrue interest at the Interest Rate
selected by Borrower.
(2) "Applicable Base Margin" shall mean the number of basis
points determined in accordance with II(b) below to be added to or subtracted
from the Base Rate to determine the Variable Rate.
(3) "Applicable LIBOR Margin" shall mean the number of basis
points determined in accordance with II(c) below to be added to LIBOR to
determine the LIBOR Rate.
(4) "Base Rate" shall mean the rate of interest set,
determined or announced on a periodic basis by KeyBank National Association as
its "Base Rate" which rate of interest is not necessarily the lowest rate
charged by KeyBank National Association on loans and other credits which may be
extended by KeyBank National Association at rates both above and below the Base
Rate.
<PAGE>
(5) "Borrowing Notice" shall mean the Borrowing Notice which
may be used by the Borrower when the Borrower is seeking an Advance of Loan
Proceeds and/or is electing or changing an Interest Rate, said Borrowing Notice
to be in the form of Exhibit "A" attached hereto and when delivered, to have
been completed by the Borrower to indicate an Advance amount and an Interest
Rate.
(6) "Default Interest Rate" shall mean the applicable Interest
Rate plus two percent (2%) per annum.
(7) "Interest Rate" shall mean the rate of interest [rounded
up to the nearest one-eighth (1/8%)] percent to be calculated hereunder and paid
by Borrower on any outstanding principal due under this Note and shall be either
the LIBOR Rate or the Variable Rate.
(8) "LIBOR" shall mean the three (3) month rate designated
under the heading "LONDON INTERBANK OFFERED RATES" in the "Money Rates" column
as published in The Wall Street Journal two days prior to the date of the LIBOR
Advance for which a LIBOR Rate is being calculated.
(9) "LIBOR Advance" shall mean any Advance that bears interest
at the LIBOR Rate.
(10) "LIBOR Period" shall mean three (3) months but in no
event shall any LIBOR Period extend beyond the Maturity Date of the Loan.
(11) "LIBOR Rate" shall mean a fixed rate equal to LIBOR plus
the Applicable LIBOR Margin.
(12) "Loan Documents" shall have the meaning ascribed thereto
in the Loan Agreement.
(13) "Margin" shall mean the Applicable Base Margin or the
Applicable LIBOR Margin.
(14) "Maturity Date" shall mean December 31, 2003.
(15) "Revolving Period" shall mean the time period between the
date of this Note through and including December 31, 1998.
(16) "Term Election Notice" shall mean the Term Election
Notice to be delivered by the Borrower to the Bank from time to time said Term
Election Notice to be in the form of Exhibit "B" attached hereto and when
delivered to have been completed by the Borrower to indicate Borrower's election
that the Interest Rate during the Term Period shall be either the LIBOR Rate or
the Variable Rate.
2
<PAGE>
(17) "Term Period" shall mean the time period between January
1, 1999 through and including the Maturity Date.
(18) "Variable Rate" shall mean a floating rate equal to the
Base Rate in effect from time to time minus the Applicable Base Margin.
(19) "Variable Rate Advance" shall mean any Advance that bears
interest at the Variable Rate.
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding principal
balance of this Note shall be computed on the basis of "a 360-day year for the
actual number of days elapsed" (such phrase, as used throughout this Note, shall
mean that in computing interest for the subject period, the applicable Interest
Rate shall be multiplied by a fraction, the denominator of which is 360 and the
numerator of which is the actual number of days elapsed from the date of the
first disbursement of the Loan or the date of the preceding interest and/or
principal due date, as the case may be, to the date of the next interest and/or
principal due date). Interest shall accrue until the date of receipt of payment.
(b) DETERMINATION OF APPLICABLE BASE MARGIN. The Applicable Base Margin
in effect on the date of execution of this Note shall be minus twenty five (-25)
basis points. Thereafter, the Applicable Base Margin shall be recalculated at
the end of each of Borrower's fiscal years in accordance with the following
schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
Base Margin shall be 0 basis points.
(2) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is less than 1.25 to 1, the Applicable Base Margin
shall be minus fifty (-50) basis points.
As stated in the definition of Variable Rate, the Applicable Base
Margin determined in accordance with this subparagraph shall be subtracted from
the Base Rate to determine the Variable Rate.
3
<PAGE>
(c) DETERMINATION OF APPLICABLE LIBOR MARGIN. The Applicable LIBOR
Margin in effect on the date of execution of this Note shall be one hundred
fifty (150) basis points. Thereafter, the Applicable LIBOR Margin shall be
recalculated at the end of each of Borrower's fiscal years in accordance with
the following schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
LIBOR Margin shall be 200 basis points.
(2) If Borrower's Leverage Ratio is less than 1.25 to 1, the
Applicable LIBOR Margin shall be 150 basis points.
As stated in the definition of LIBOR Rate, the Applicable LIBOR Margin
determined in accordance with this subparagraph shall be added to the LIBOR Rate
to determine the LIBOR Rate.
(d) PROCEDURE FOR ELECTING INTEREST RATE. At the time Borrower is
seeking an Advance or, prior to the end of any LIBOR Period or, prior to the
commencement of the Term Period and at such point or points in time that
Borrower elects to change the Interest Rate, Borrower will provide the Bank with
a Borrowing Notice designating whether Borrower has elected the LIBOR Rate or
the Variable Rate. If Borrower fails to provide a Borrowing Notice to the Bank
when required, interest shall accrue at the Variable Rate until the Borrower
delivers a Borrowing Notice.
(e) VARIABLE RATE CHANGE PROCEDURES. Any change in the Base Rate shall
automatically and simultaneously effect a corresponding change in the Variable
Rate without notice to the Borrower.
(f) LIBOR RATE CHANGE PROCEDURES. At any time Borrower has elected that
the LIBOR Rate apply, the LIBOR Rate calculated hereunder shall remain constant
for the LIBOR Period.
(g) MARGIN ADJUSTMENTS. The Applicable Base Margin and the Applicable
LIBOR Margin shall each be adjusted annually effective on each May 1 based upon
the Bank's determination of Borrower's Leverage Ratio which shall be determined
by the Bank upon receipt of the financial statements required pursuant to
Section 5.1 of the Loan Agreement.
4
<PAGE>
(h) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the occurrence of an
Event of Default (as defined below), the computation of interest under this Note
shall immediately and without further action by the Bank be based upon the
Default Interest Rate.
III
ADVANCES DURING REVOLVING PERIOD
(a) ADVANCES DURING REVOLVING PERIOD. Provided no Event of Default has
occurred and is continuing, Borrower may elect to receive Advances of Loan
proceeds during the Revolving Period upon compliance with the provisions of this
Note and the Loan Agreement.
(b) PROCEDURE FOR ADVANCES AND BORROWING NOTICE. The Borrower may
obtain an Advance of Loan Proceeds by delivering a Borrowing Notice signed by
any of the individuals listed on the Schedule of Authorized Officers annexed
hereto as Exhibit "C" setting forth the amount of the Advance requested and
indicating whether the Advance is a LIBOR Advance or a Variable Rate Advance. If
Borrower has elected the LIBOR Rate, said Interest Rate as determined in
accordance with the terms of this Note at the beginning of the LIBOR Period
shall remain in effect until expiration of the LIBOR Period. Any Advance request
shall be supported by such documentation as is required by the Loan Agreement
and such Advance shall be deposited by the Bank in the Advance Account (as
defined in the Loan Agreement), and the deposit of any Advance in the Advance
Account by the Bank shall be conclusive as to the receipt of said Advance by the
Borrower and the Borrower will be responsible for repaying any Advance so made
pursuant to the terms of this Note. Any Advance to the Advance Account by the
Bank in accordance with the terms of the Loan Agreement shall have the same
force and effect as if said Advance was made directly to the Borrower. The
records of the Bank maintained in the ordinary course of business shall be prima
facie evidence of the existence and amounts of the Borrower's obligations
recorded therein.
IV
PAYMENT OF PRINCIPAL AND INTEREST
(a) PERIODIC PAYMENTS OF INTEREST. Borrower shall pay accrued interest
at the applicable Interest Rate on all sums advanced hereunder commencing on the
first day of February, 1997 and on the first day of each month thereafter.
5
<PAGE>
(b) PRINCIPAL PAYMENTS DURING TERM PERIOD. Commencing on February 1,
1999 and continuing on the first day of each month thereafter, Borrower shall
make a series of consecutive monthly payments of principal in an amount equal to
1/60th of the amount of principal owing at commencement of the Term Period.
(c) FINAL PAYMENT. All accrued and unpaid interest and unpaid principal
shall be fully due and payable on the Maturity Date (or such earlier date in the
event the Bank accelerates Borrower's obligations hereunder).
(d) VOLUNTARY REPAYMENT. The principal balance of the Loan may be
repaid in whole or in part at any time without premium or penalty.
(e) LIBOR RESERVE REQUIREMENT. If because of the introduction of or an
change in or because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any increase in the cost
to Key Bank of making, funding, maintaining or allocating capital to any LIBOR
Advance, the Borrower shall from time to time upon demand by Bank pay the Bank
additional money sufficient to compensate the Bank for such increased costs.
(f) ADVANCES BY BANK. The Bank shall have the right to make an Advance
hereunder and to debit any account of the Borrower at the Bank to make payments
of principal or accrued and unpaid interest which have become due and payable or
other sums due and payable under any Loan Document.
V
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are payable in
accordance with the terms of the Loan Agreement to KeyBank National Association
at 66 South Pearl Street, Albany, New York 12207, or at such other place as the
Bank shall notify Borrower in writing, in accordance with the terms of the Loan
Agreement. Any payment on this Note, whether such payment is of a regular
installment or represents a prepayment, shall be made with immediately available
funds. The Bank may direct that payments be made at a place other than the above
address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as otherwise provided in
this Note or the Loan Agreement, all payments received by the Bank on this Note
shall be applied by the Bank as follows:
6
<PAGE>
FIRST, to any unpaid Late Payment Charges (hereinbelow
defined); and
SECOND, to accrued and unpaid interest then due and owing; and
THIRD, to the reduction of principal of this Note.
If an Event of Default (as defined below) occurs, the Bank shall apply
any payments received to such sums as are due the Bank under the Loan Documents
(as defined in the Loan Agreement) in such amounts and priority as the Bank may
determine.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of
principal and/or interest on this Note for ten (10) days after such payment
becomes due, whether by acceleration or otherwise, the Bank shall impose a late
payment charge (the "Late Payment Charge") computed by multiplying the amount of
each past due payment by five (5%) percent. Until any and all Late Payment
Charges are paid in full, the amount thereof shall be added to the indebtedness
secured pursuant to any of the Loan Documents. The Late Payment Charge is not a
penalty and is deemed to be liquidated damages for the purpose of compensating
the Bank for the difficulty in computing the actual amount of damages incurred
by the Bank as a result of the late payment by Borrower.
(d) EVENTS OF DEFAULT. The following shall constitute an "Event of
Default" hereunder:
(i) The failure of the Borrower to pay any sum due on this
Note for ten (10) days after written notice that the same is due; or
(ii) The occurrence of an "Event of Default" as defined in the
Loan Agreement.
Following an Event of Default hereunder, the Bank may declare the
principal amount of and accrued interest on this Note due and payable in the
manner and with the effect provided in the Loan Agreement and the Bank shall
have the right to refuse to make any further Advances and to avail itself of all
other remedies set forth herein, in the Loan Agreement and in the other Loan
Documents.
(e) COSTS AND EXPENSES ON OCCURRENCE OF EVENT OF DEFAULT. After the
occurrence of an Event of Default, in addition to principal and interest, the
Bank shall be entitled to collect all reasonable costs of collection, including,
but not limited to, reasonable attorneys' fees, incurred in connection with the
protection or realization of collateral or in connection with any of the Bank's
collection efforts, whether or not suit on this Note or any other proceeding is
filed, and all such costs and expenses shall be payable on demand and until paid
shall also be secured by the Loan Documents and by all other collateral held by
the Bank as security for Borrower's obligations to the Bank.
7
<PAGE>
(f) NO WAIVER BY THE BANK. No failure on the part of the Bank or other
holder hereof to exercise any right or remedy hereunder, whether before or after
the happening of a default, shall constitute a waiver thereof, and no waiver of
any past default shall constitute waiver of any future default or of any other
default. No failure to accelerate the Loan evidenced hereby by reason of default
hereunder, or acceptance of a past due installment, or indulgence granted from
time to time shall be construed to be a waiver of the right to insist upon
prompt payment thereafter, or shall be deemed to be a novation of this Note or
as a reinstatement of the Loan evidenced hereby or as a waiver of such right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which the Bank may have, whether by the laws of the state governing
this Note, by agreement or otherwise; and Borrower and each endorser hereby
expressly waive the benefit of any statute or rule of law or equity which would
produce a result contrary to or in conflict with the foregoing. This Note may
not be changed orally, but only by an agreement in writing signed by the party
against whom such agreement is sought to be enforced.
(g) WAIVER BY BORROWER. Borrower and each endorser of this Note hereby
waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment.
(h) COMPLIANCE WITH USURY LAWS. It is the intention of the parties to
conform strictly to the usury laws, whether state or federal, that are
applicable to this Note. All agreements between the Borrower and the Bank,
whether now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event whatsoever, whether
by acceleration of maturity hereof or otherwise, shall the amount paid or agreed
to be paid to the Bank or the holder hereof, or collected by the Bank or such
holder, for the use, forbearance or detention of the money to be loaned
hereunder or otherwise, or for the payment or performance of any covenant or
obligation contained herein, or in any of the Loan Documents, exceed the maximum
amount permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any provision hereof or of the Loan
Documents, at the time performance of such provision shall be due, shall involve
exceeding the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances the Bank or other holder hereof shall ever receive an amount
deemed interest by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable usury laws shall
be applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal and such
other indebtedness, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to Borrower or to any other person making such
payment on Borrower's behalf. All sums paid or agreed to be paid to the holder
hereof for the use, forbearance or detention of the indebtedness of Borrower
evidenced hereby, outstanding from time to time shall, to the extent permitted
by applicable law, and to the extent necessary to preclude exceeding the limit
of validity prescribed by law, be amortized, pro-rated, allocated and spread
from the date of disbursement of the proceeds of this Note until payment in full
of the Loan evidenced hereby and thereby so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof and thereof.
The terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between Borrower, any endorser and the Bank.
8
<PAGE>
(i) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note shall be
governed by and construed under the laws of the State of New York. Borrower and
each endorser hereby submits to personal jurisdiction in said State for the
enforcement of Borrower's obligations hereunder and under the law of any other
state to object to jurisdiction within such State for the purposes of litigation
to enforce such obligations of Borrower.
(j) WAIVER OF JURY TRIAL. The parties hereto waive trial by jury in any
litigation in any court with respect to, in connection with, or arising out of
this Note, any other Loan Document or the Loan, or any instrument or document
delivered in connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and the Bank.
(k) AUTHORITY OF THE BANK. Borrower authorizes the Bank to date this
Note as of the day when the Loan is made.
(l) RIGHT OF SET OFF. Borrower grants to the Bank a continuing lien for
the amount of this Note upon any and all monies, securities and other property
of Borrower and the proceeds thereof, now or hereafter held or received by or in
transit to the Bank from or for Borrower whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower with, and any and all
claims of Borrower against the Bank at any time existing. Upon the occurrence of
an Event of Default, the Bank is authorized at any time and from time to time,
without notice to Borrower, to set off, appropriate and apply any and all items
herein above referred to against this Note in accordance with the terms of the
Loan Agreement.
(m) NOTICES. Any notices required or permitted to be given hereunder
shall be: (i) given by registered or certified mail, postage prepaid, return
receipt requested or (ii) forwarded by overnight courier service, in each
instance addressed to the addresses set forth at the head of this Note, or such
other addresses as the parties may for themselves designate in writing as
provided herein for the purpose of receiving notices hereunder. All notices
shall be in writing and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate mail or courier
service, upon deposit with the U.S.
Postal Service or delivery to the courier service.
(n) ENTIRE AGREEMENT. This Note and the other Loan Documents, and any
exhibits or other documents referred herein or therein, constitute the complete
agreement of the parties with respect to the subject matter referred to herein
9
<PAGE>
and supersede all prior or contemporaneous negotiations, promises, covenants,
agreements or representations of every nature whatsoever with respect thereto,
all of which have become merged and finally integrated into this Note. Each of
the parties understands that in the event of any subsequent litigation,
controversy or dispute concerning any of the terms, conditions or provisions of
this Note, they shall not be permitted to offer or introduce any oral evidence
concerning any oral promises or oral agreements between the parties relating to
the subject matter of this Note not included or referred to herein and not
reflected by a writing signed by the parties.
10
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this instrument the date
first above written.
A.C. MOORE INCORPORATED
By: /s/ John E. Parker
----------------------
John E. Parker
President
STATE OF NEW JERSEY )
) ss.:
COUNTY OF CAMDEN )
On this day of February, 1997, before me the subscriber personally
appeared John E. Parker, who being by me duly sworn, did depose and say; that he
resides at Brigantine, New Jersey; that he is the President of A.C. MOORE
INCORPORATED, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/ Patricia L. Olson
------------------------
NOTARY PUBLIC
Patricia L. Olson
Notary Public of New Jersey
My Commission Expires
June, 1997
11
<PAGE>
EXHIBIT A
BORROWING NOTICE
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE: _____________________________
Date Advance To Be Funded: ___________________________________________
Advance Amount Requested: $__________________________________________
Interest Rate Election: ____________ LIBOR Rate
____________ Variable Rate
<PAGE>
EXHIBIT B
TERM ELECTION NOTICE
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE: _____________________________
Interest Rate Election: ______ Variable Rate
______ LIBOR Rate
<PAGE>
EXHIBIT C
SCHEDULE OF AUTHORIZED INDIVIDUALS
Name
William Kaplan
John E. Parker
Patricia A. Parker
Lori Lucente-McKeage
Janet Parker-Vandenberg
Leslie Gordon
<PAGE>
FACILITY C NOTE
$5,000,000.00 Newburgh, New York
Dated: As of January 23, 1997
FOR VALUE RECEIVED, A.C. MOORE INCORPORATED, a Delaware corporation
with an address at 500 University Court, Blackwood, New Jersey 08012 (the
"Borrower"), promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a
national banking association with an office and place of business at 66 South
Pearl Street, Albany, New York 12207 (the "Bank"), the principal sum of FIVE
MILLION and no/100 ($5,000,000.00) DOLLARS or so much thereof as may be advanced
from time to time pursuant to the terms of this Note and a Loan Agreement dated
on even date, between the Borrower and the Bank (the "Loan Agreement") with
interest on the unpaid principal balance of such amounts as are advanced or
readvanced, as the case may be, at the Interest Rate (as hereinafter defined).
This Note evidences a loan (the "Loan") made available to the Borrower as part
of a credit facility more fully set forth in the Loan Agreement and the other
Loan Documents (as defined in the Loan Agreement).
I
DEFINITIONS
DEFINITIONS. As used herein:
(1) "Advance" shall mean each advance of Loan proceeds by Key
Bank to the Borrower, each of which will be treated separately for purposes of
computing interest and each of which will accrue interest at the Interest Rate
selected by Borrower.
(2) "Applicable Base Margin" shall mean the number of basis
points determined in accordance with II(b) below to be added to or subtracted
from the Base Rate to determine the Variable Rate.
(3) "Applicable LIBOR Margin" shall mean the number of basis
points determined in accordance with II(c) below to be added to LIBOR to
determine the LIBOR Rate.
(4) "Base Rate" shall mean the rate of interest set,
determined or announced on a periodic basis by KeyBank National Association as
its "Base Rate" which rate of interest is not necessarily the lowest rate
charged by KeyBank National Association on loans and other credits which may be
extended by KeyBank National Association at rates both above and below the Base
Rate.
<PAGE>
(5) "Borrowing Notice" shall mean the Borrowing Notice which
may be used by the Borrower when the Borrower is seeking an Advance of Loan
Proceeds and/or is electing or changing an Interest Rate, said Borrowing Notice
to be in the form of Exhibit "A" attached hereto and when delivered, to have
been completed by the Borrower to indicate an Advance amount and an Interest
Rate.
(6) "Default Interest Rate" shall mean the applicable Interest
Rate plus two percent (2%) per annum.
(7) "Interest Rate" shall mean the rate of interest [rounded
up to the nearest one-eighth (1/8%)] percent to be calculated hereunder and paid
by Borrower on any outstanding principal due under this Note and shall be either
the LIBOR Rate or the Variable Rate.
(8) "LIBOR" shall mean the three (3) month rate designated
under the heading "LONDON INTERBANK OFFERED RATES" in the "Money Rates" column
as published in The Wall Street Journal two days prior to the date of the LIBOR
Advance for which a LIBOR Rate is being calculated.
(9) "LIBOR Advance" shall mean any Advance that bears interest
at the LIBOR Rate.
(10) "LIBOR Period" shall mean three (3) months but in no
event shall any LIBOR Period extend beyond the Maturity Date of the Loan.
(11) "LIBOR Rate" shall mean a fixed rate equal to LIBOR plus
the Applicable LIBOR Margin.
(12) "Loan Documents" shall have the meaning ascribed thereto
in the Loan Agreement.
(13) "Margin" shall mean the Applicable Base Margin or the
Applicable LIBOR Margin.
(14) "Maturity Date" shall mean December 31, 2003.
(15) "Revolving Period" shall mean the time period between the
date of this Note through and including December 31, 1998.
(16) "Term Election Notice" shall mean the Term Election
Notice to be delivered by the Borrower to the Bank from time to time said Term
Election Notice to be in the form of Exhibit "B" attached hereto and when
delivered to have been completed by the Borrower to indicate Borrower's election
that the Interest Rate during the Term Period shall be either the LIBOR Rate or
the Variable Rate.
2
<PAGE>
(17) "Term Period"" shall mean the time period between January
1, 1999 through and including the Maturity Date.
(18) "Variable Rate" shall mean a floating rate equal to the
Base Rate in effect from time to time minus the Applicable Base Margin.
(19) "Variable Rate Advance" shall mean any Advance that bears
interest at the Variable Rate.
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding principal
balance of this Note shall be computed on the basis of "a 360-day year for the
actual number of days elapsed" (such phrase, as used throughout this Note, shall
mean that in computing interest for the subject period, the applicable Interest
Rate shall be multiplied by a fraction, the denominator of which is 360 and the
numerator of which is the actual number of days elapsed from the date of the
first disbursement of the Loan or the date of the preceding interest and/or
principal due date, as the case may be, to the date of the next interest and/or
principal due date). Interest shall accrue until the date of receipt of payment.
(b) DETERMINATION OF APPLICABLE BASE MARGIN. The Applicable Base Margin
in effect on the date of execution of this Note shall be minus twenty five (-25)
basis points. Thereafter, the Applicable Base Margin shall be recalculated at
the end of each of Borrower's fiscal years in accordance with the following
schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
Base Margin shall be 0 basis points.
(2) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is less than 1.25 to 1, the Applicable Base Margin
shall be minus fifty (-50) basis points.
As stated in the definition of Variable Rate, the Applicable Base
Margin determined in accordance with this subparagraph shall be subtracted from
the Base Rate to determine the Variable Rate.
3
<PAGE>
(c) DETERMINATION OF APPLICABLE LIBOR MARGIN. The Applicable LIBOR
Margin in effect on the date of execution of this Note shall be one hundred
fifty (150) basis points. Thereafter, the Applicable LIBOR Margin shall be
recalculated at the end of each of Borrower's fiscal years in accordance with
the following schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
LIBOR Margin shall be 200 basis points.
(2) If Borrower's Leverage Ratio is less than 1.25 to 1, the
Applicable LIBOR Margin shall be 150 basis points.
As stated in the definition of LIBOR Rate, the Applicable LIBOR Margin
determined in accordance with this subparagraph shall be added to the LIBOR Rate
to determine the LIBOR Rate.
(d) PROCEDURE FOR ELECTING INTEREST RATE. At the time Borrower is
seeking an Advance or, prior to the end of any LIBOR Period or, prior to the
commencement of the Term Period and at such point or points in time that
Borrower elects to change the Interest Rate, Borrower will provide the Bank with
a Borrowing Notice designating whether Borrower has elected the LIBOR Rate or
the Variable Rate. If Borrower fails to provide a Borrowing Notice to the Bank
when required, interest shall accrue at the Variable Rate until the Borrower
delivers a Borrowing Notice.
(e) VARIABLE RATE CHANGE PROCEDURES. Any change in the Base Rate shall
automatically and simultaneously effect a corresponding change in the Variable
Rate without notice to the Borrower.
(f) LIBOR RATE CHANGE PROCEDURES. At any time Borrower has elected that
the LIBOR Rate apply, the LIBOR Rate calculated hereunder shall remain constant
for the LIBOR Period.
(g) MARGIN ADJUSTMENTS. The Applicable Base Margin and the Applicable
LIBOR Margin shall each be adjusted annually effective on each May 1 based upon
the Bank's determination of Borrower's Leverage Ratio which shall be determined
by the Bank upon receipt of the financial statements required pursuant to
Section 5.1 of the Loan Agreement.
4
<PAGE>
(h) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the occurrence of an
Event of Default (as defined below), the computation of interest under this Note
shall immediately and without further action by the Bank be based upon the
Default Interest Rate.
III
ADVANCES DURING REVOLVING PERIOD
(a) ADVANCES DURING REVOLVING PERIOD. Provided no Event of Default has
occurred and is continuing, Borrower may elect to receive Advances of Loan
proceeds during the Revolving Period upon compliance with the provisions of this
Note and the Loan Agreement including, inter alia, achievement of the
Performance Measurements set forth in Section 2.6 of the Loan Agreement.
(b) PROCEDURE FOR ADVANCES AND BORROWING NOTICE. The Borrower may
obtain an Advance of Loan Proceeds by delivering a Borrowing Notice signed by
any of the individuals listed on the Schedule of Authorized Officers annexed
hereto as Exhibit "C" setting forth the amount of the Advance requested and
indicating whether the Advance is a LIBOR Advance or a Variable Rate Advance. If
Borrower has elected the LIBOR Rate, said Interest Rate as determined in
accordance with the terms of this Note at the beginning of the LIBOR Period
shall remain in effect until expiration of the LIBOR Period. Any Advance request
shall be supported by such documentation as is required by the Loan Agreement
and such Advance shall be deposited by the Bank in the Advance Account (as
defined in the Loan Agreement), and the deposit of any Advance in the Advance
Account by the Bank shall be conclusive as to the receipt of said Advance by the
Borrower and the Borrower will be responsible for repaying any Advance so made
pursuant to the terms of this Note. Any Advance to the Advance Account by the
Bank in accordance with the terms of the Loan Agreement shall have the same
force and effect as if said Advance was made directly to the Borrower. The
records of the Bank maintained in the ordinary course of business shall be prima
facie evidence of the existence and amounts of the Borrower's obligations
recorded therein.
IV
PAYMENT OF PRINCIPAL AND INTEREST
(a) PERIODIC PAYMENTS OF INTEREST. Borrower shall pay accrued interest
at the applicable Interest Rate on all sums advanced hereunder commencing on the
first day of February, 1997 and on the first day of each month thereafter.
5
<PAGE>
(b) PRINCIPAL PAYMENTS DURING TERM PERIOD. Commencing on February 1,
1999 and continuing on the first day of each month thereafter, Borrower shall
make a series of consecutive monthly payments of principal in an amount equal to
1/60th of the amount of principal owing at commencement of the Term Period.
(c) FINAL PAYMENT. All accrued and unpaid interest and unpaid principal
shall be fully due and payable on the Maturity Date (or such earlier date in the
event the Bank accelerates Borrower's obligations hereunder).
(d) VOLUNTARY REPAYMENT. The principal balance of the Loan may be
repaid in whole or in part at any time without premium or penalty.
(e) LIBOR RESERVE REQUIREMENT. If because of the introduction of or an
change in or because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any increase in the cost
to Key Bank of making, funding, maintaining or allocating capital to any LIBOR
Advance, the Borrower shall from time to time upon demand by Bank pay the Bank
additional money sufficient to compensate the Bank for such increased costs.
(f) ADVANCES BY BANK. The Bank shall have the right to make an Advance
hereunder and to debit any account of the Borrower at the Bank to make payments
of principal or accrued and unpaid interest which have become due and payable or
other sums due and payable under any Loan Document.
V
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are payable in
accordance with the terms of the Loan Agreement to KeyBank National Association
at 66 South Pearl Street, Albany, New York 12207, or at such other place as the
Bank shall notify Borrower in writing, in accordance with the terms of the Loan
Agreement. Any payment on this Note, whether such payment is of a regular
installment or represents a prepayment, shall be made with immediately available
funds. The Bank may direct that payments be made at a place other than the above
address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as otherwise provided in
this Note or the Loan Agreement, all payments received by the Bank on this Note
shall be applied by the Bank as follows:
6
<PAGE>
FIRST, to any unpaid Late Payment Charges (hereinbelow
defined); and
SECOND, to accrued and unpaid interest then due and owing; and
THIRD, to the reduction of principal of this Note.
If an Event of Default (as defined below) occurs, the Bank shall apply
any payments received to such sums as are due the Bank under the Loan Documents
(as defined in the Loan Agreement) in such amounts and priority as the Bank may
determine.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of
principal and/or interest on this Note for ten (10) days after such payment
becomes due, whether by acceleration or otherwise, the Bank shall impose a late
payment charge (the "Late Payment Charge") computed by multiplying the amount of
each past due payment by five (5%) percent. Until any and all Late Payment
Charges are paid in full, the amount thereof shall be added to the indebtedness
secured pursuant to any of the Loan Documents. The Late Payment Charge is not a
penalty and is deemed to be liquidated damages for the purpose of compensating
the Bank for the difficulty in computing the actual amount of damages incurred
by the Bank as a result of the late payment by Borrower.
(d) EVENTS OF DEFAULT. The following shall constitute an "Event of
Default" hereunder:
(i) The failure of the Borrower to pay any sum due on this
Note for ten (10) days after written notice that the same is due; or
(ii) The occurrence of an "Event of Default" as defined in the
Loan Agreement.
Following an Event of Default hereunder, the Bank may declare the
principal amount of and accrued interest on this Note due and payable in the
manner and with the effect provided in the Loan Agreement and the Bank shall
have the right to refuse to make any further Advances and to avail itself of all
other remedies set forth herein, in the Loan Agreement and in the other Loan
Documents.
(e) COSTS AND EXPENSES ON OCCURRENCE OF EVENT OF DEFAULT. After the
occurrence of an Event of Default, in addition to principal and interest, the
Bank shall be entitled to collect all reasonable costs of collection, including,
but not limited to, reasonable attorneys' fees, incurred in connection with the
protection or realization of collateral or in connection with any of the Bank's
collection efforts, whether or not suit on this Note or any other proceeding is
filed, and all such costs and expenses shall be payable on demand and until paid
shall also be secured by the Loan Documents and by all other collateral held by
the Bank as security for Borrower's obligations to the Bank.
7
<PAGE>
(f) NO WAIVER BY THE BANK. No failure on the part of the Bank or other
holder hereof to exercise any right or remedy hereunder, whether before or after
the happening of a default, shall constitute a waiver thereof, and no waiver of
any past default shall constitute waiver of any future default or of any other
default. No failure to accelerate the Loan evidenced hereby by reason of default
hereunder, or acceptance of a past due installment, or indulgence granted from
time to time shall be construed to be a waiver of the right to insist upon
prompt payment thereafter, or shall be deemed to be a novation of this Note or
as a reinstatement of the Loan evidenced hereby or as a waiver of such right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which the Bank may have, whether by the laws of the state governing
this Note, by agreement or otherwise; and Borrower and each endorser hereby
expressly waive the benefit of any statute or rule of law or equity which would
produce a result contrary to or in conflict with the foregoing. This Note may
not be changed orally, but only by an agreement in writing signed by the party
against whom such agreement is sought to be enforced.
(g) WAIVER BY BORROWER. Borrower and each endorser of this Note hereby
waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment.
(h) COMPLIANCE WITH USURY LAWS. It is the intention of the parties to
conform strictly to the usury laws, whether state or federal, that are
applicable to this Note. All agreements between the Borrower and the Bank,
whether now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event whatsoever, whether
by acceleration of maturity hereof or otherwise, shall the amount paid or agreed
to be paid to the Bank or the holder hereof, or collected by the Bank or such
holder, for the use, forbearance or detention of the money to be loaned
hereunder or otherwise, or for the payment or performance of any covenant or
obligation contained herein, or in any of the Loan Documents, exceed the maximum
amount permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any provision hereof or of the Loan
Documents, at the time performance of such provision shall be due, shall involve
exceeding the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances the Bank or other holder hereof shall ever receive an amount
deemed interest by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable usury laws shall
be applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal and such
other indebtedness, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to Borrower or to any other person making such
payment on Borrower's behalf. All sums paid or agreed to be paid to the holder
hereof for the use, forbearance or detention of the indebtedness of Borrower
evidenced hereby, outstanding from time to time shall, to the extent permitted
by applicable law, and to the extent necessary to preclude exceeding the limit
of validity prescribed by law, be amortized, pro-rated, allocated and spread
from the date of disbursement of the proceeds of this Note until payment in full
of the Loan evidenced hereby and thereby so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof and thereof.
The terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between Borrower, any endorser and the Bank.
8
<PAGE>
(i) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note shall be
governed by and construed under the laws of the State of New York. Borrower and
each endorser hereby submits to personal jurisdiction in said State for the
enforcement of Borrower's obligations hereunder and under the law of any other
state to object to jurisdiction within such State for the purposes of litigation
to enforce such obligations of Borrower.
(j) WAIVER OF JURY TRIAL. The parties hereto waive trial by jury in any
litigation in any court with respect to, in connection with, or arising out of
this Note, any other Loan Document or the Loan, or any instrument or document
delivered in connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and the Bank.
(k) AUTHORITY OF THE BANK. Borrower authorizes the Bank to date this
Note as of the day when the Loan is made.
(l) RIGHT OF SET OFF. Borrower grants to the Bank a continuing lien for
the amount of this Note upon any and all monies, securities and other property
of Borrower and the proceeds thereof, now or hereafter held or received by or in
transit to the Bank from or for Borrower whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower with, and any and all
claims of Borrower against the Bank at any time existing. Upon the occurrence of
an Event of Default, the Bank is authorized at any time and from time to time,
without notice to Borrower, to set off, appropriate and apply any and all items
herein above referred to against this Note in accordance with the terms of the
Loan Agreement.
(m) NOTICES. Any notices required or permitted to be given hereunder
shall be: (i) given by registered or certified mail, postage prepaid, return
receipt requested or (ii) forwarded by overnight courier service, in each
instance addressed to the addresses set forth at the head of this Note, or such
other addresses as the parties may for themselves designate in writing as
provided herein for the purpose of receiving notices hereunder. All notices
shall be in writing and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate mail or courier
service, upon deposit with the U.S.
Postal Service or delivery to the courier service.
(n) ENTIRE AGREEMENT. This Note and the other Loan Documents, and any
exhibits or other documents referred herein or therein, constitute the complete
agreement of the parties with respect to the subject matter referred to herein
and supersede all prior or contemporaneous negotiations, promises, covenants,
9
<PAGE>
agreements or representations of every nature whatsoever with respect thereto,
all of which have become merged and finally integrated into this Note. Each of
the parties understands that in the event of any subsequent litigation,
controversy or dispute concerning any of the terms, conditions or provisions of
this Note, they shall not be permitted to offer or introduce any oral evidence
concerning any oral promises or oral agreements between the parties relating to
the subject matter of this Note not included or referred to herein and not
reflected by a writing signed by the parties.
10
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this instrument the date
first above written.
A.C. MOORE INCORPORATED
By: /s/ John E. Parker
----------------------------------
Name: John E. Parker
Title: President
STATE OF NEW JERSEY )
) ss.:
COUNTY OF CAMDEN )
On this day of February, 1997, before me the subscriber personally
appeared John E. Parker, who being by me duly sworn, did depose and say; that he
resides at Brigantine, New Jersey; that he is President of A.C. MOORE
INCORPORATED, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/ Patricia L. Olson
------------------------------
NOTARY PUBLIC
Patricia L. Olson
Notary Public of New Jersey
My Commission Expires
June, 1997
11
<PAGE>
EXHIBIT A
BORROWING NOTICE
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE: _____________________________
Date Advance To Be Funded: _________________________________________
Advance Amount Requested: $________________________________________
Interest Rate Election: ___________ LIBOR Rate
___________ Variable Rate
<PAGE>
EXHIBIT B
TERM ELECTION NOTICE
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE: _____________________________
Interest Rate Election: ______ Variable Rate
______ LIBOR Rate
<PAGE>
EXHIBIT C
SCHEDULE OF AUTHORIZED INDIVIDUALS
Name
William Kaplan
John E. Parker
Patricia A. Parker
Lori Lucente-McKeage
Janet Parker-Vandenberg
Leslie Gordon
<PAGE>
FACILITY D NOTE
$16,000,000.00 Newburgh, New York
Dated: As of January 23, 1997
FOR VALUE RECEIVED, A.C. MOORE INCORPORATED, a Delaware corporation
with an address at 500 University Court, Blackwood, New Jersey 08012 (the
"Borrower"), promises to pay to the order of KEYBANK NATIONAL ASSOCIATION, a
national banking association with an office and place of business at 66 South
Pearl Street, Albany, New York 12207 (the "Bank"), the principal sum of SIXTEEN
MILLION and no/100 ($16,000,000.00) DOLLARS or so much thereof as may be
advanced from time to time pursuant to the terms of this Note and a Loan
Agreement dated on even date, between the Borrower and the Bank (the "Loan
Agreement") with interest on the unpaid principal balance of such amounts as are
advanced or readvanced, as the case may be, at the Interest Rate (as hereinafter
defined). This Note evidences a loan (the "Loan") made available to the Borrower
as part of a credit facility more fully set forth in the Loan Agreement and the
other Loan Documents (as defined in the Loan Agreement).
I
DEFINITIONS
DEFINITIONS. As used herein:
(1) "Advance" shall mean each advance of Loan proceeds by Key
Bank to the Borrower, each of which will be treated separately for purposes of
computing interest and each of which will accrue interest at the Interest Rate
selected by Borrower.
(2) "Applicable Base Margin" shall mean the number of basis
points determined in accordance with II(b) below to be added to or subtracted
from the Base Rate to determine the Variable Rate.
(3) "Applicable LIBOR Margin" shall mean the number of basis
points determined in accordance with II(c) below to be added to LIBOR to
determine the LIBOR Rate.
(4) "Base Rate" shall mean the rate of interest set,
determined or announced on a periodic basis by KeyBank National Association as
its "Base Rate" which rate of interest is not necessarily the lowest rate
charged by KeyBank National Association on loans and other credits which may be
extended by KeyBank National Association at rates both above and below the Base
Rate.
<PAGE>
(5) "Borrowing Notice" shall mean the Borrowing Notice which
may be used by the Borrower when the Borrower is seeking an Advance of Loan
Proceeds and/or is electing or changing an Interest Rate, said Borrowing Notice
to be in the form of Exhibit "A" attached hereto and when delivered, to have
been completed by the Borrower to indicate an Advance amount and an Interest
Rate.
(6) "Default Interest Rate" shall mean the applicable Interest
Rate plus two percent (2%) per annum.
(7) "Interest Rate" shall mean the rate of interest [rounded
up to the nearest one-eighth (1/8%)] percent to be calculated hereunder and paid
by Borrower on any outstanding principal due under this Note and shall be either
the LIBOR Rate or the Variable Rate.
(8) "LIBOR" shall mean the three (3) month rate designated
under the heading "LONDON INTERBANK OFFERED RATES" in the "Money Rates" column
as published in The Wall Street Journal two days prior to the date of the LIBOR
Advance for which a LIBOR Rate is being calculated.
(9) "LIBOR Advance" shall mean any Advance that bears interest
at the LIBOR Rate.
(10) "LIBOR Period" shall mean three (3) months but in no
event shall any LIBOR Period extend beyond the Maturity Date of the Loan.
(11) "LIBOR Rate" shall mean a fixed rate equal to LIBOR plus
the Applicable LIBOR Margin.
(12) "Loan Documents" shall have the meaning ascribed thereto
in the Loan Agreement.
(13) "Margin" shall mean the Applicable Base Margin or the
Applicable LIBOR Margin.
(14) "Maturity Date" shall mean December 31, 1998.
(15) "Variable Rate" shall mean a floating rate equal to the
Base Rate in effect from time to time minus the Applicable Base Margin.
(16) "Variable Rate Advance" shall mean any Advance that bears
interest at the Variable Rate.
2
<PAGE>
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding principal
balance of this Note shall be computed on the basis of "a 360-day year for the
actual number of days elapsed" (such phrase, as used throughout this Note, shall
mean that in computing interest for the subject period, the applicable Interest
Rate shall be multiplied by a fraction, the denominator of which is 360 and the
numerator of which is the actual number of days elapsed from the date of the
first disbursement of the Loan or the date of the preceding interest and/or
principal due date, as the case may be, to the date of the next interest and/or
principal due date). Interest shall accrue until the date of receipt of payment.
(b) DETERMINATION OF APPLICABLE BASE MARGIN. The Applicable Base Margin
in effect on the date of execution of this Note shall be minus twenty five (-25)
basis points. Thereafter, the Applicable Base Margin shall be recalculated at
the end of each of Borrower's fiscal years in accordance with the following
schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
Base Margin shall be 0 basis points.
(2) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is less than 1.25 to 1, the Applicable Base Margin
shall be minus fifty (-50) basis points.
As stated in the definition of Variable Rate, the Applicable Base
Margin determined in accordance with this subparagraph shall be subtracted from
the Base Rate to determine the Variable Rate.
(c) DETERMINATION OF APPLICABLE LIBOR MARGIN. The Applicable LIBOR
Margin in effect on the date of execution of this Note shall be one hundred
fifty (150) basis points. Thereafter, the Applicable LIBOR Margin shall be
recalculated at the end of each of Borrower's fiscal years in accordance with
the following schedule:
(1) If Borrower's Leverage Ratio [as defined in Section 6.9
(a) of the Loan Agreement] is equal to or greater than 1.25 to 1, the Applicable
LIBOR Margin shall be 200 basis points.
(2) If Borrower's Leverage Ratio is less than 1.25 to 1, the
Applicable LIBOR Margin shall be 150 basis points.
3
<PAGE>
As stated in the definition of LIBOR Rate, the Applicable LIBOR Margin
determined in accordance with this subparagraph shall be added to the LIBOR Rate
to determine the LIBOR Rate.
(d) PROCEDURE FOR ELECTING INTEREST RATE. At the time Borrower is
seeking an Advance or, prior to the end of any LIBOR Period and at such point or
points in time that Borrower elects to change the Interest Rate, Borrower will
provide the Bank with a Borrowing Notice designating whether Borrower has
elected the LIBOR Rate or the Variable Rate. If Borrower fails to provide a
Borrowing Notice to the Bank when required, interest shall accrue at the
Variable Rate until the Borrower delivers a Borrowing Notice.
(e) VARIABLE RATE CHANGE PROCEDURES. Any change in the Base Rate shall
automatically and simultaneously effect a corresponding change in the Variable
Rate without notice to the Borrower.
(f) LIBOR RATE CHANGE PROCEDURES. At any time Borrower has elected that
the LIBOR Rate apply, the LIBOR Rate calculated hereunder shall remain constant
for the LIBOR Period.
(g) MARGIN ADJUSTMENTS. The Applicable Base Margin and the Applicable
LIBOR Margin shall each be adjusted annually effective on each May 1 based upon
the Bank's determination of Borrower's Leverage Ratio which shall be determined
by the Bank upon receipt of the financial statements required pursuant to
Section 5.1 of the Loan Agreement.
(h) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the occurrence of an
Event of Default (as defined below), the computation of interest under this Note
shall immediately and without further action by the Bank be based upon the
Default Interest Rate.
III
ADVANCES
(a) ADVANCES. Provided no Event of Default has occurred and is
continuing, Borrower may elect to receive Advances of Loan upon compliance with
the provisions of this Note and the Loan Agreement including, inter alia,
achievement of the Performance Measurements set forth in Section 2.6 of the Loan
Agreement.
(b) PROCEDURE FOR ADVANCES AND BORROWING NOTICE. The Borrower may
obtain an Advance of Loan Proceeds by delivering a Borrowing Notice signed by
any of the individuals listed on the Schedule of Authorized Officers annexed
hereto as Exhibit "B" setting forth the amount of the Advance requested and
indicating whether the Advance is a LIBOR Advance or a Variable Rate Advance. If
Borrower has elected the LIBOR Rate, said Interest Rate as determined in
accordance with the terms of this Note at the beginning of the
4
<PAGE>
LIBOR Period shall remain in effect until expiration of the LIBOR Period. Any
Advance request shall be supported by such documentation as is required by the
Loan Agreement and such Advance shall be deposited by the Bank in the Advance
Account (as defined in the Loan Agreement), and the deposit of any Advance in
the Advance Account by the Bank shall be conclusive as to the receipt of said
Advance by the Borrower and the Borrower will be responsible for repaying any
Advance so made pursuant to the terms of this Note. Any Advance to the Advance
Account by the Bank in accordance with the terms of the Loan Agreement shall
have the same force and effect as if said Advance was made directly to the
Borrower. The records of the Bank maintained in the ordinary course of business
shall be prima facie evidence of the existence and amounts of the Borrower's
obligations recorded therein.
IV
PAYMENT OF PRINCIPAL AND INTEREST
(a) PERIODIC PAYMENTS OF INTEREST. Borrower shall pay accrued interest
at the applicable Interest Rate on all sums advanced hereunder commencing on the
first day of February, 1997 and on the first day of each month thereafter.
(b) FINAL PAYMENT. All accrued and unpaid interest and unpaid principal
shall be fully due and payable on the Maturity Date (or such earlier date in the
event the Bank accelerates Borrower's obligations hereunder).
(c) VOLUNTARY REPAYMENT. The principal balance of the Loan may be
repaid in whole or in part at any time without premium or penalty.
(d) LIBOR RESERVE REQUIREMENT. If because of the introduction of or an
change in or because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any increase in the cost
to Key Bank of making, funding, maintaining or allocating capital to any LIBOR
Advance, the Borrower shall from time to time upon demand by Bank pay the Bank
additional money sufficient to compensate the Bank for such increased costs.
(e) ADVANCES BY BANK. The Bank shall have the right to make an Advance
hereunder and to debit any account of the Borrower at the Bank to make payments
of principal or accrued and unpaid interest which have become due and payable or
other sums due and payable under any Loan Document.
5
<PAGE>
V
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are payable in
accordance with the terms of the Loan Agreement to KeyBank National Association
at 66 South Pearl Street, Albany, New York 12207, or at such other place as the
Bank shall notify Borrower in writing, in accordance with the terms of the Loan
Agreement. Any payment on this Note, whether such payment is of a regular
installment or represents a prepayment, shall be made with immediately available
funds. The Bank may direct that payments be made at a place other than the above
address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as otherwise provided in
this Note or the Loan Agreement, all payments received by the Bank on this Note
shall be applied by the Bank as follows:
FIRST, to any unpaid Late Payment Charges (hereinbelow
defined); and
SECOND, to accrued and unpaid interest then due and owing; and
THIRD, to the reduction of principal of this Note.
If an Event of Default (as defined below) occurs, the Bank shall apply
any payments received to such sums as are due the Bank under the Loan Documents
(as defined in the Loan Agreement) in such amounts and priority as the Bank may
determine.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any amount of
principal and/or interest on this Note for ten (10) days after such payment
becomes due, whether by acceleration or otherwise, the Bank shall impose a late
payment charge (the "Late Payment Charge") computed by multiplying the amount of
each past due payment by five (5%) percent. Until any and all Late Payment
Charges are paid in full, the amount thereof shall be added to the indebtedness
secured pursuant to any of the Loan Documents. The Late Payment Charge is not a
penalty and is deemed to be liquidated damages for the purpose of compensating
the Bank for the difficulty in computing the actual amount of damages incurred
by the Bank as a result of the late payment by Borrower.
(d) EVENTS OF DEFAULT. The following shall constitute an "Event of
Default" hereunder:
6
<PAGE>
(i) The failure of the Borrower to pay any sum due on this
Note for ten (10) days after written notice that the same is due; or
(ii) The occurrence of an "Event of Default" as defined in the
Loan Agreement.
Following an Event of Default hereunder, the Bank may declare the
principal amount of and accrued interest on this Note due and payable in the
manner and with the effect provided in the Loan Agreement and the Bank shall
have the right to refuse to make any further Advances and to avail itself of all
other remedies set forth herein, in the Loan Agreement and in the other Loan
Documents.
(e) COSTS AND EXPENSES ON OCCURRENCE OF EVENT OF DEFAULT. After the
occurrence of an Event of Default, in addition to principal and interest, the
Bank shall be entitled to collect all reasonable costs of collection, including,
but not limited to, reasonable attorneys' fees, incurred in connection with the
protection or realization of collateral or in connection with any of the Bank's
collection efforts, whether or not suit on this Note or any other proceeding is
filed, and all such costs and expenses shall be payable on demand and until paid
shall also be secured by the Loan Documents and by all other collateral held by
the Bank as security for Borrower's obligations to the Bank.
(f) NO WAIVER BY THE BANK. No failure on the part of the Bank or other
holder hereof to exercise any right or remedy hereunder, whether before or after
the happening of a default, shall constitute a waiver thereof, and no waiver of
any past default shall constitute waiver of any future default or of any other
default. No failure to accelerate the Loan evidenced hereby by reason of default
hereunder, or acceptance of a past due installment, or indulgence granted from
time to time shall be construed to be a waiver of the right to insist upon
prompt payment thereafter, or shall be deemed to be a novation of this Note or
as a reinstatement of the Loan evidenced hereby or as a waiver of such right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which the Bank may have, whether by the laws of the state governing
this Note, by agreement or otherwise; and Borrower and each endorser hereby
expressly waive the benefit of any statute or rule of law or equity which would
produce a result contrary to or in conflict with the foregoing. This Note may
not be changed orally, but only by an agreement in writing signed by the party
against whom such agreement is sought to be enforced.
(g) WAIVER BY BORROWER. Borrower and each endorser of this Note hereby
waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment.
(h) COMPLIANCE WITH USURY LAWS. It is the intention of the parties to
conform strictly to the usury laws, whether state or federal, that are
applicable to this Note. All agreements between the Borrower and the Bank,
whether now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event whatsoever, whether
7
<PAGE>
by acceleration of maturity hereof or otherwise, shall the amount paid or agreed
to be paid to the Bank or the holder hereof, or collected by the Bank or such
holder, for the use, forbearance or detention of the money to be loaned
hereunder or otherwise, or for the payment or performance of any covenant or
obligation contained herein, or in any of the Loan Documents, exceed the maximum
amount permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any provision hereof or of the Loan
Documents, at the time performance of such provision shall be due, shall involve
exceeding the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances the Bank or other holder hereof shall ever receive an amount
deemed interest by applicable law, which would exceed the highest lawful rate,
such amount that would be excessive interest under applicable usury laws shall
be applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal and such
other indebtedness, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to Borrower or to any other person making such
payment on Borrower's behalf. All sums paid or agreed to be paid to the holder
hereof for the use, forbearance or detention of the indebtedness of Borrower
evidenced hereby, outstanding from time to time shall, to the extent permitted
by applicable law, and to the extent necessary to preclude exceeding the limit
of validity prescribed by law, be amortized, pro-rated, allocated and spread
from the date of disbursement of the proceeds of this Note until payment in full
of the Loan evidenced hereby and thereby so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof and thereof.
The terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between Borrower, any endorser and the Bank.
(i) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note shall be
governed by and construed under the laws of the State of New York. Borrower and
each endorser hereby submits to personal jurisdiction in said State for the
enforcement of Borrower's obligations hereunder and under the law of any other
state to object to jurisdiction within such State for the purposes of litigation
to enforce such obligations of Borrower.
(j) WAIVER OF JURY TRIAL. The parties hereto waive trial by jury in any
litigation in any court with respect to, in connection with, or arising out of
this Note, any other Loan Document or the Loan, or any instrument or document
delivered in connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and the Bank.
(k) AUTHORITY OF THE BANK. Borrower authorizes the Bank to date this
Note as of the day when the Loan is made.
(l) RIGHT OF SET OFF. Borrower grants to the Bank a continuing lien for
the amount of this Note upon any and all monies, securities and other property
of Borrower and the proceeds thereof, now or hereafter held or received by or in
8
<PAGE>
transit to the Bank from or for Borrower whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower with, and any and all
claims of Borrower against the Bank at any time existing. Upon the occurrence of
an Event of Default, the Bank is authorized at any time and from time to time,
without notice to Borrower, to set off, appropriate and apply any and all items
herein above referred to against this Note in accordance with the terms of the
Loan Agreement.
(m) NOTICES. Any notices required or permitted to be given hereunder
shall be: (i) given by registered or certified mail, postage prepaid, return
receipt requested or (ii) forwarded by overnight courier service, in each
instance addressed to the addresses set forth at the head of this Note, or such
other addresses as the parties may for themselves designate in writing as
provided herein for the purpose of receiving notices hereunder. All notices
shall be in writing and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate mail or courier
service, upon deposit with the U.S.
Postal Service or delivery to the courier service.
(n) ENTIRE AGREEMENT. This Note and the other Loan Documents, and any
exhibits or other documents referred herein or therein, constitute the complete
agreement of the parties with respect to the subject matter referred to herein
and supersede all prior or contemporaneous negotiations, promises, covenants,
agreements or representations of every nature whatsoever with respect thereto,
all of which have become merged and finally integrated into this Note. Each of
the parties understands that in the event of any subsequent litigation,
controversy or dispute concerning any of the terms, conditions or provisions of
this Note, they shall not be permitted to offer or introduce any oral evidence
concerning any oral promises or oral agreements between the parties relating to
the subject matter of this Note not included or referred to herein and not
reflected by a writing signed by the parties.
9
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this instrument the date
first above written.
A.C. MOORE INCORPORATED
By: /s/ John E. Parker
--------------------------------
Name: John E. Parker
Title: President
STATE OF NEW JERSEY )
) ss.:
COUNTY OF CAMDEN )
On this day of February, 1997, before me the subscriber personally
appeared John E. Parker, who being by me duly sworn, did depose and say; that he
resides at Brigantine, New Jersey; that he is President of A.C. MOORE
INCORPORATED, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/ Patricia L. Olson
----------------------------
NOTARY PUBLIC
Patricia L. Olson
Notary Public of New Jersey
My Commission Expires
June, 1997
10
<PAGE>
EXHIBIT A
BORROWING NOTICE
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE: _____________________________
Date Advance To Be Funded: _______________________________________
Advance Amount Requested: $______________________________________
Interest Rate Election: ___________ LIBOR Rate
___________ Variable Rate
<PAGE>
EXHIBIT B
SCHEDULE OF AUTHORIZED INDIVIDUALS
Name
William Kaplan
John E. Parker
Patricia A. Parker
Lori Lucente-McKeage
Janet Parker-Vandenberg
Leslie Gordon
<PAGE>
A.C. MOORE General Office o Distribution Center
- --------------------------------------------------------------------------------
500 University Court Blackwood, New Jersey 0802
Phone: (609) 228-6700 FAX: (609) 228-9980
July 17, 1997
Mr. Richard Lesser
Marmaxx Group
770 Cochituate Road
Framingham, MA 01701
Dear Dick:
In February 1995 we agreed to provide you with a 1% interest in the
Company in exchange for your assistance in the Company's search for equity
financing. That financing could take the form of venture capital equity, a
buy-out by a financial or strategic buyer, or a public sale of the Company's
stock.
Our research indicates that in order for this agreement to be tax
efficient for you as well as appropriate for the Company and to take into
consideration the payment required, the 1% interest will be in the form of an
option to purchase 3 shares in the Company. To insure beneficial tax treatment
for you, the option price must be 90% of the fair market value of the Company at
February 1995. We have calculated the fair market value of the Company at that
date to be $22,268,000. Thus, fair market value of 1% is $222,680 and the option
price is $100,206 per share.
The option period is 10 years from the date of grant, February 28, 1995.
In July 1997 A.C. Moore will establish a Pennsylvania Holding Company which will
then be the parent company of A.C. Moore. It is anticipated that the present 200
shares outstanding will be exchanged for 4,400,000 shares of the new company,
A.C. Moore Arts & Crafts Inc. The granted option of 3 shares will be similarly
exchanged for options totaling 66,000 shares in the new Company; the option
price will be adjusted to $4.55 per share. These numbers will be adjusted to be
consistent with any final split amounts.
This transaction will not trigger any taxable income to you until you exercise
your option.
Please sign and return a copy of this letter as confirmation.
Very truly yours, Agreed:
/s/ John E. Parker /s/ Richard Lesser
- ------------------------- -------------------------
John E. Parker Richard Lesser
/s/ William Kaplan
- -------------------------
William Kaplan
<PAGE>
A.C. MOORE General Office o Distribution Center
- -------------------------------------------------------------------------------
500 University Court o Blackwood, New Jersey 0802
Phone: (609) 228-6700 FAX: (609) 228-0080
July 28, 1997
Mr. Richard Lesser
Marmaxx Group
770 Cochituate Road
Framingham, MA 01701
Dear Dick:
A.C. Moore Arts & Crafts, Inc., a Pennsylvania corporation, has been formed to
hold all of the outstanding capital stock of A.C. Moore Incorporated which has
been exchanged for 4,300,000 shares of the common stock of A.C. Moore Arts &
Crafts, Inc.
In accordance with our letter to you dated July 17, 1997, the option granted to
you to acquire three shares of A.C. Moore Incorporated has been converted to an
option to acquire 64,500 shares of common stock of A.C. Moore Arts & Crafts,
Inc. at an exercise price of $4.66 per share. All other terms of the option, as
set forth in the July 17, 1997 letter, continue to apply.
Please acknowledge your agreement to the foregoing by signing and returning to
me the enclosed copy of this letter.
Very truly yours, Acknowledged and agreed:
/s/ John E. Parker /s/ Richard Lesser
- ------------------------ -----------------------
John E. Parker Richard Lesser
7/28/97
-----------------------
Date
<PAGE>
TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT ("Agreement") is made and dated as
of July 22, 1997, by and among A. C. MOORE ARTS & CRAFTS, INC., a Pennsylvania
corporation (the "Company") and the persons named as shareholders of A. C. MOORE
INCORPORATED ("Subsidiary") listed in Appendix A hereto (individually the
"Equityholder" and collectively the "Equityholders"), and Subsidiary.
BACKGROUND:
This Agreement is executed in connection with the conversion of Company
and Subsidiary from corporations taxed as "S" corporations under Section 1362 of
the Internal Revenue Code of 1986, as amended (the "Code") and under similar
provisions of various state tax laws to corporations taxed under Subchapter C of
the Code. The date that such conversion becomes effective is hereinafter
referred to as the Conversion Date. For periods prior to the Conversion Date
(the "Flow Through Period"), for Federal and certain state income tax purposes,
each of Subsidiary and Company did not incur any income tax liability during the
Flow Through Period, and the items of income, loss, deductions and credit were
passed through and included in the determination of the taxable income of the
Equityholders.
Prior to the Conversion Date, the Equityholders contributed all of the
capital stock of Subsidiary to Company and Subsidiary became a wholly-owned
Subsidiary of Company. As of the Conversion Date, each of Subsidiary and Company
will no longer be eligible to be taxed as tax flow through entities for Federal
and certain state income tax purposes. The parties to this Agreement desire to
set forth their agreement with respect to certain taxes, interest and penalties
which may be imposed upon the Equityholders as a result of the conduct of the
business of Company and Subsidiary during the Flow Through Period and to
<PAGE>
provide for the distribution of the taxable income of for the period beginning
January 1, 1997 and ending on the last day of the Flow Through Period. NOW,
THEREFORE, in consideration of the foregoing and of the mutual promises,
covenants and conditions hereinafter contained, intending to be legally bound,
the parties hereto agree as follows:
1. Subject to and effective only if the Conversion Date occurs,
Subsidiary and Company will distribute to the Equityholders an amount of cash
equal to the respective Equityholders' pro rata share of the undistributed
taxable income of Subsidiary and Company for the short tax year beginning
January 1, 1997 and ending on the last day of the Flow Through Period (the
"Short Period"), as determined under Section 1366 of the Code. The distributions
for the Short Period shall be made as follows: Subsidiary and Company shall
distribute to the Equityholders an amount, determined using the Effective Tax
Rate (as defined below), on account of estimated taxes due with respect to the
income of Subsidiary and Company during the Short Period, no later than the date
upon which estimated tax payment must be made by the Equityholders of Subsidiary
and Company, and the remainder of the distributions shall be made within three
months after the Conversion Date. The Effective Tax Rate is the highest of the
combined effective Federal and state personal income tax rates applicable to
each Equityholder (respectively), taking into account any deductions or credits
allowed by any Federal or state taxing jurisdictions for income taxes paid to
any other jurisdiction. Notwithstanding the foregoing, no distribution shall be
made to any Equityholder as a result of any gain realized or recognized, if any,
by such Equityholder from the transfer to the Company of such Equityholder's
shareholder interests in Subsidiary.
-2-
<PAGE>
2. Each of Subsidiary and Company, and any affiliate thereof agree to
indemnify, defend and hold harmless the Equityholders from and against one
hundred percent (100%) of any and all losses, liabilities, obligations, damages,
impositions, assessments, fines, deficiencies, costs and expenses (including,
but not limited to, legal and accounting fees and expenses) with respect to all
increases in federal, state and local taxes of any kind whatsoever (including,
without limitation, legal and accounting expenses, interest, penalties, and
additions to taxes) ("Taxes") imposed upon such Equityholders as (a) a result of
the conduct of the business of Subsidiary and Company during the Flow Through
Period or (b) as a result of tax returns, schedules and reports prepared or
filed by Subsidiary and Company and utilized by such Equityholders in their
personal tax returns which cover a tax year which includes any portion of the
Flow Through Period. Subsidiary and Company shall also pay to the respective
Equityholders an additional amount such that the amount received by the
Equityholders pursuant to this section, net of all Federal and state income
taxes imposed upon all payments received by the Equityholders pursuant to this
section, is equal to the Taxes imposed upon the Equityholders. For this purpose,
it shall be assumed that all payments received by each Equityholder pursuant to
this section are subject to Federal and state income tax at the Effective Tax
Rate for such Equityholder at the time such payments are received, except to the
extent that Subsidiary and Company and the Equityholders mutually determine that
such payments are not subject to Federal and state income taxes. Any payment
with respect to such indemnity shall be made upon written notice from each
Equityholder to the Company and shall be made at least five (5) days prior to
the due date specified in such written notice of any payment required to be made
by the Equityholders in connection with such Taxes. Notwithstanding the
foregoing, Subsidiary and
-3-
<PAGE>
Company shall not indemnify the Equityholders from any federal, state or local
taxes, if any, resulting directly or indirectly from their contribution to the
Company of their equity interests in Subsidiary.
3. The Company and Subsidiary may, at their own expense, upon written
notice to the Equityholder, request that such Equityholder contest any
adjustment proposed by a tax authority with respect to Taxes for the Flow
Through Period. If the Company or Subsidiary shall request that any proposed
adjustment be contested, then such Equityholder shall permit the Company, on
behalf of the Equityholder, to contest the proposed adjustment (including
pursuing all remaining administrative and judicial appeals), at the Company's
sole expense and using counsel satisfactory to the Company. The Equityholder
shall not make, accept or enter into a settlement or other compromise with
respect to any Taxes indemnified hereunder, or forego or terminate any
proceeding otherwise required hereunder without the written consent of the
Company, which shall not be unreasonably withheld.
4. The covenants and agreements of the parties set forth in this
Agreement shall survive indefinitely.
5. All notices, requests, demands and other communications which are
required or which may be given under this Agreement shall be in writing.
6. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral and written, between the parties hereto with
respect to the subject matter hereof.
-4-
<PAGE>
7. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective executors, administrators, other personal
representatives, heirs, successors and assigns.
8. No provision of this Agreement may be amended, supplemented or
waived without the prior written consent of each of the parties hereto.
9. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New Jersey, without reference to the principles
of conflicts of law.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
A. C. MOORE ARTS & CRAFTS, INC.
By: /s/ Leslie Gordon
-------------------------------------
Name: Leslie Gordon
Title: Chief Financial Officer
A. C. MOORE INCORPORATED
By: /s/ Leslie Gordon
-------------------------------------
Name: Leslie Gordon
Title: Chief Financial Officer
/s/ John E. Parker
----------------------------------------
John E. Parker
/s/ William Kaplan
----------------------------------------
William Kaplan
-5-
<PAGE>
Exhibit 11.1
A.C. MOORE ARTS & CRAFTS, INC.
Pro Forma Net Income Per Share
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, 1996 Ended June 30, 1997
----------------- -------------------
<S> <C> <C>
Pro forma net income $3,817,000 $ 92,000
========== ============
Weighted average shares
outstanding 4,300,000 4,300,000
Stock options 178,148 178,148
Equivalent shares necessary
to fund distributions to
shareholders in excess of
earnings 54,265 54,265
---------- -------------
4,532,413 4,532,413
========== ===========
Pro forma net income per
share $0.84 $0.02
========= ==============
</TABLE>
<PAGE>
Exhibit 11.2
A.C. MOORE ARTS & CRAFTS, INC.
Supplemental Pro Forma Net Income Per Share
Year Ended Six Months
December 31, 1996 Ended June 30, 1997
----------------- -------------------
Pro forma net income $3,817,000 $ 92,000
Reversal of interest
expense, net of tax, on
assumed payment of debt as
of beginning of period 420,000 198,000
---------- ----------
Supplemental pro forma
net income $4,237,000 $ 290,000
========== ==========
Weighted average share
outstanding 4,300,000 4,300,000
Stock options 178,148 178,148
Equivalent shares necessary
to fund distributions to
shareholders in excess of
earnings 54,265 54,265
Equivalent shares necessary
to fund payment of debt 1,649,340 1,946,625
---------- ----------
6,181,753 6,479,038
========== ==========
Supplemental pro forma
net income per share $0.69 $0.04
========== ==========
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
JURISDICTION
PARENT SUBSIDIARY OF INCORPORATION
- ------------------- ------------------------------- ------------------
A.C. Moore A.C. Moore Incorporated Delaware
Arts & Crafts, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANT
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 28, 1997, except
Note 11 which is as of July 18, 1997, relating to the financial statements of
A.C. Moore Arts & Crafts, Inc., which appears in such Prospectus. We also
consent to the reference to us under the headings "Experts" and "Selected
Financial and Operating Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
and Operating Data."
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
August 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-1-1996 JAN-1-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 6,431 917
<SECURITIES> 0 0
<RECEIVABLES> 162 221
<ALLOWANCES> 0 0
<INVENTORY> 25,255 30,550
<CURRENT-ASSETS> 32,209 32,257
<PP&E> 8,825 10,615
<DEPRECIATION> (3,711) (4,381)
<TOTAL-ASSETS> 37,799 38,971
<CURRENT-LIABILITIES> 11,612 16,473
<BONDS> 0 0
0 0
0 0
<COMMON> 200 200
<OTHER-SE> 7,292 709
<TOTAL-LIABILITY-AND-EQUITY> 37,799 38,971
<SALES> 109,319 53,657
<TOTAL-REVENUES> 109,319 53,657
<CGS> 69,195 33,961
<TOTAL-COSTS> 33,181 19,263
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 557 280
<INCOME-PRETAX> 6,386 153
<INCOME-TAX> 80 7
<INCOME-CONTINUING> 6,306 146
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,306 146
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
