<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
------------------- ----------------
Commission File Number: 0-23397
U.S. VISION, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 22-3032948
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1 HARMON DRIVE, GLEN OAKS INDUSTRIAL PARK, GLENDORA, NEW JERSEY 08012
--------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
</TABLE>
(609) 228-1000
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of September 1, 1998, there were 7,791,579 shares of the registrant's common
stock outstanding.
================================================================================
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U.S. VISION, INC.
TABLE OF CONTENTS
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 31, 1998 (Unaudited) and January 31, 1998 . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended July 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended July 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
U.S. VISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data and per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
ASSETS July 31, January 31,
1998 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash ......................................................... $ 579 $ 365
Accounts receivable .......................................... 11,466 11,730
Inventory .................................................... 19,952 18,155
Prepaid expenses and other ................................... 552 349
--------- ---------
Total current assets .............................................. 32,549 30,599
Property, plant and equipment, net ................................ 27,846 26,003
Goodwill, net of accumulated amortization of $444 and
$402, respectively ............................................ 5,138 2,917
Other ............................................................. 566 610
--------- ---------
$ 66,099 $ 60,129
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade ....................................... $ 8,001 $ 6,000
Accrued expenses ............................................. 4,953 5,581
Current portion of obligation under capital lease ............ 769 809
Current portion of long-term debt ............................ 416 242
--------- ---------
Total current liabilities ......................................... 14,139 12,632
Obligations under capital lease ................................... 1,836 2,199
Long-term debt, less current portion .............................. 5,861 6,097
Other long-term liabilities ....................................... 373 383
Stockholders' equity:
Common stock, $0.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 7,791,579 at
July 31, 1998, and 7,761,544 at January 31, 1998 .......... 78 78
Additional paid-in capital ................................... 115,744 115,583
Accumulated deficit .......................................... (71,932) (76,843)
--------- ---------
Total stockholders' equity ........................................ 43,890 38,818
--------- ---------
$ 66,099 $ 60,129
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
1
<PAGE> 4
U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales .............................................. $31,753 $30,815 $66,419 $62,054
Cost of sales .......................................... 9,647 9,797 20,289 19,439
------- ------- ------- -------
Gross profit ........................................... 22,106 21,018 46,130 42,615
Operating expenses:
Selling, general and administrative expenses ...... 18,912 18,328 38,869 36,612
Depreciation and amortization ..................... 941 912 2,073 1,855
------- ------- ------- -------
19,853 19,240 40,942 38,467
------- ------- ------- -------
Operating income ....................................... 2,253 1,778 5,188 4,148
Interest expense, net .................................. 89 625 207 1,215
------- ------- ------- -------
Income before income tax provision ..................... 2,164 1,153 4,981 2,933
Income tax provision ................................... 70 0 70 0
------- ------- ------- -------
Net income ............................................. $ 2,094 $ 1,153 $ 4,911 $ 2,933
======= ======= ======= =======
Net income per share - basic ........................... $ .27 $. 22 $ .63 $ .56
======= ======= ======= =======
Net income per share - assuming dilution ............... $ .26 $ .21 $ .61 $ .54
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
2
<PAGE> 5
U.S. VISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
Six Months Ended
July 31,
-------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 4,911 $ 2,933
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ....................................... 2,073 1,855
Changes in operating assets and liabilities:
Accounts receivable ............................................ 507 (3,714)
Inventory ...................................................... (1,707) (1,665)
Other .......................................................... (163) (312)
Accounts payable-trade ......................................... 1,825 2,744
Accrued expenses ............................................... (608) (2,120)
------- -------
Net cash provided by (used in) operating activities ...................... 6,838 (279)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net ......................... (3,637) (2,845)
Acquisition of business ................................................. (1,592) --
------- -------
Net cash used in investing activities ................................... (5,229) (2,845)
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial public offering costs ........................................... (174) --
Proceeds from borrowings:
Revolving line of credit ............................................. 7,998 59,361
Other ................................................................ 26 --
Repayments of borrowings:
Revolving line of credit ............................................ (8,505) (55,105)
Term loans .......................................................... (317) (671)
Other ............................................................... (423) (407)
------- -------
Net cash used in financing activities ............................... (1,395) 3,178
------- -------
Net increase in cash ..................................................... 214 54
Cash at beginning of period .............................................. 365 374
------- -------
Cash at end of period .................................................... $ 579 $ 428
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ................................................................. $ 231 $ 2,146
======= =======
Income taxes ............................................................. $ 105 $ --
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations ................................................ $ -- $ 696
======= =======
Note payable incurred in connection with acquisition ..................... $ 500 $ --
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
3
<PAGE> 6
U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial
statements, which include the accounts of U.S. Vision, Inc. and its wholly
owned subsidiaries (the "Company"), have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All significant intercompany transactions and accounts have been eliminated in
consolidation. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim period are not necessarily
indicative of results that may be expected for the fiscal year ending January
31, 1999. These statements should be read in conjunction with the Company's
financial statements and footnotes which are included in the annual report on
Form 10-K for the fiscal year ended January 31, 1998.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACQUISITION
On July 7, 1998, the Company acquired nine licensed optical retail
stores located within Sears full line stores and two medical center locations.
The acquisition was accounted for under the purchase method of accounting. The
operating results of the acquired locations are included in the consolidated
financial statements since the date of acquisition.
4. INVENTORY
Inventory is as follows (In thousands):
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<CAPTION>
July 31, January 31,
1998 1998
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<S> <C> <C>
Finished goods .................... $ 16,480 $ 14,695
Work-in-process ................... 1,135 1,043
Raw materials ..................... 2,337 2,417
-------- ----------
$ 19,952 $ 18,155
======== ==========
</TABLE>
5. INCOME TAXES
As of January 31, 1998, the Company had net operating loss carry
forwards of approximately $23,000,000 which will begin to expire in the year
2006. Approximately $12,500,000 of these carry forwards are available to offset
future taxable income without limitation and approximately $10,500,000 of these
carry forwards (the "Restricted NOLs") are significantly limited due to
ownership changes experienced by the Company. As a result of these
limitations, approximately $780,000 of the Restricted NOLs will become
available for use each year through the year 2008. The remaining Restricted
NOLs are expected to expire unutilized. A valuation allowance has been
established to fully reserve the future benefit of all the net operating loss
carry forwards.
4
<PAGE> 7
U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
Statement 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. The Company has adopted this
method effective January 31, 1998, and has restated, where necessary, all prior
periods presented to conform to the Statement 128 requirements.
<TABLE>
<CAPTION>
For the Quarter Ended July 31, 1998
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 2,094,000 7,773,119 $0.27
=====
Effect of Dilutive Securities:
Options 262,441
---------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 2,094,000 8,035,560 $0.26
========= ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended July 31, 1997
-------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------------------------------------------------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 1,153,000 5,261,544 $0.22
=====
Effect of Dilutive Securities:
Options 107,157
---------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 1,153,000 5,368,701 $0.21
========= ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended July 31, 1998
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 4,911,000 7,767,428 $0.63
=====
Effect of Dilutive Securities:
Options 243,475
---------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 4,911,000 8,010,903 $0.61
========= ========= =====
</TABLE>
5
<PAGE> 8
U.S. VISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended July 31, 1997
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------
<S> <C> <C> <C>
Net income per share-basic:
Income available to common stockholders 2,933,000 5,261,544 $0.56
=====
Effect of Dilutive Securities:
Options 107,157
---------
Net income per share-assuming dilution:
Income available to common stockholders
Plus assumed conversions 2,933,000 5,368,701 $0.54
========= ========= =====
</TABLE>
Pro forma net income per share-basic and pro forma net income per
share-assuming dilution for the quarter and six months ended July 31, 1997 was
$0.22 and $0.52, respectively. Pro forma net income gives effect to the
initial public offering and the related pay down of the debt as of the
beginning of fiscal 1997. Pro forma net income per share-basic is calculated
by dividing net income after adjustment for applicable interest expense, net of
tax ($548,000 and $1,097,000) by the adjusted number of weighted average shares
outstanding (7,761,544) after giving effect to the 2,500,000 shares sold to
repay $20,375,000 of debt. Pro forma net income per share-assuming dilution is
calculated by dividing net income after adjustment for applicable interest
expense, net of tax by the adjusted number of weighted average shares
outstanding during the period plus the dilutive effect of stock options
(107,157). (See Note 7 below).
7. RECAPITALIZATION AND IMPACT OF INITIAL PUBLIC OFFERING
On December 5, 1997, the Company completed an offering of 2,500,000
shares of common stock at an initial public offering price of $9.00 per share.
The net proceeds to the Company were used to: (i) repay the $8,837,000
outstanding balance (including any accrued interest thereon) of its 12%
subordinated debentures; (ii) repay $6,600,000 of the term loan owed to
Commerce Bank, N.A.; and (iii) paydown $4,938,000 of the Company's revolving
line of credit. In conjunction with the sale of common stock in the offering,
the Company recapitalized its common stock by authorizing the declaration and
payment of a 64-for-1 stock dividend. Also in conjunction with the public
offering, the holders of the Series A preferred stock and Series C preferred
stock converted all outstanding shares of the Series A preferred stock and
Series C preferred stock into common stock at the initial public offering
price. The redemption values of the Series A preferred stock and the Series C
preferred stock plus accumulated dividends as of the date of the conversion
(October 31, 1997) were approximately $16,853,000 and $7,969,000, respectively,
resulting in the issuance of 1,872,592 and 885,412 shares of common stock,
respectively. All references to per share data in the financial statements
have been restated to give effect to the stock dividend and conversion of the
preferred stock.
6
<PAGE> 9
U.S. VISION, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------ ----------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales ........................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales .................................... 30.4 31.8 30.6 31.3
----- ----- ----- -----
Gross profit ................................. 69.6 68.2 69.4 68.7
Operating expenses:
Selling, general and administrative ......... 59.5 59.5 58.5 59.0
Depreciation and amortization ............... 3.0 3.0 3.1 3.0
----- ----- ----- -----
Operating income ................................ 7.1 5.7 7.8 6.7
Interest expense, net ........................... .3 2.0 .3 2.0
----- ----- ----- -----
Income before tax provision ..................... 6.8 3.7 7.5 4.7
Income tax provision ............................ .2 .0 .1 .0
----- ----- ----- -----
Net income ...................................... 6.6% 3.7% 7.4% 4.7%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JULY 31, 1998 COMPARED TO THREE MONTHS ENDED JULY 31, 1997
Net sales increased $0.9 million, or 3.0%, from $30.8 million for the
three months ended July 31, 1997 to $31.8 million for the three months ended
July 31, 1998. A 2.7% increase in comparable store sales accounted for $0.8
million of the increase in net sales and new store openings accounted for the
remaining $0.1 million of the increase. The increase in comparable store sales
was the result of an increase in the number of eyeglasses sold, as well as an
increase in sales of value added eyewear features such as anti-reflective
coating and accessory kits.
Cost of sales decreased by $0.2 million, or 1.5%, from $9.8 million for
the three months ended July 31, 1997 to $9.6 million for the three months ended
July 31, 1998. As a percentage of net sales, cost of sales decreased from
31.8% for the three months ended July 31, 1997 to 30.4% for the three months
ended July 31, 1998. The decrease was due principally to sales of higher
margin merchandise.
Selling, general and administrative expenses increased by $0.6 million,
or 3.2%, from $18.3 million for the three months ended July 31, 1997 to $18.9
million for the three months ended July 31, 1998. The dollar increase was
principally due to an increase in compensation and greater department store
rents which are tied directly to sales volume. As a percentage of net sales,
selling, general and administrative expenses remained constant at 59.5% for the
three months ended July 31, 1997 and July 31, 1998.
Interest expense, net decreased by $0.5 million, or 85.8%, from $0.6
million for the three months ended July 31, 1997 to $0.09 million for the
three months ended July 31, 1998. The decrease was due to the repayment of
debt in connection with the completion of the initial public offering in
December 1997. See Note 7 to Notes to Condensed Consolidated Financial
Statements (Unaudited).
7
<PAGE> 10
U.S. VISION, INC.
SIX MONTHS ENDED JULY 31, 1998 COMPARED TO SIX MONTHS ENDED JULY 31, 1997
Net sales increased $4.4 million, or 7.0%, from $62.1 million for the
six months ended July 31, 1997 to $66.4 million for the six months ended July
31, 1998. A 6.8% increase in comparable store sales accounted for $4.0 million
of the increase in net sales and new store openings accounted for the remaining
$0.4 million of the increase. The increase in comparable store sales was the
result of an increase in the number of eyeglasses sold, as well as an increase
in sales of value added eyewear features such as anti-reflective coating and
accessory kits.
Cost of sales increased by $0.9 million, or 4.4%, from $19.4 million
for the six months ended July 31, 1997 to $20.3 million for the six months
ended July 31, 1998. The increase was due principally to the $4.4 million
increase in net sales. As a percentage of net sales, cost of sales decreased
from 31.3% for the six months ended July 31, 1997 to 30.6% for the six months
ended July 31, 1998. The decrease was due principally to sales of higher
margin merchandise.
Selling, general and administrative expenses increased by $2.3
million, or 6.2%, from $36.6 million for the six months ended July 31, 1997 to
$38.9 million for the six months ended July 31, 1998. The dollar increase was
principally due to an increase in compensation and greater department store
rents which are tied directly to sales volume. As a percentage of net sales,
selling, general and administrative expenses decreased from 59.0% for the six
months ended July 31, 1997 to 58.5% for the six months ended July 31, 1998, as
revenue increases enabled the Company to leverage its fixed expenses and take
advantage of operating efficiencies.
Depreciation and amortization increased by $0.2 million, or 11.8%,
from $1.9 million for the six months ended July 31, 1997 to $2.1 million for
the six months ended July 31, 1998 due principally to the increase in capital
expenditures associated with the implementation of new management information
systems.
Interest expense, net decreased by $1.0 million, or 83.0%, from $1.2
million for the six months ended July 31, 1997 to $0.2 million for the six
months ended July 31, 1998. The decrease was due to the repayment of debt in
connection with the completion of the initial public offering in December 1997.
See Note 7 to Notes to Condensed Consolidated Financial Statements (Unaudited).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash source for the first six months of fiscal
1998 was from operations. The Company used excess cash flow to pay the entire
outstanding balance on its line of credit and an outstanding term loan. At
July 31, 1998 the Company had available cash and cash equivalents of $579,000
compared to $365,000 at January 31, 1998.
For the six months ended July 31, 1998, cash provided by operating
activities was $6.8 million compared to cash used in operating activities of
$0.3 million for the six months ended July 31, 1997. The $7.1 million increase
in cash provided by operating activities resulted from an increase in net
income and favorable changes in (i) accounts receivable principally as a result
of payables centralization by one of the Company's host department stores; (ii)
a decrease in accrued interest expense due to the repayment of outstanding debt
from proceeds of the December 1997 initial public offering; (iii) timing of
payments for compensation and benefits; and (iv) the reduction of lease
terminations liabilities as a result of the settlement of leases on
freestanding stores closed in fiscal 1995.
Cash used in investing activities was $5.2 million for the six months
ended July 31, 1998 compared to $2.8 million for the six months ended July 31,
1997. The $2.4 million increase was for capital additions for machinery and
equipment in the manufacturing facility and the acquisition of nine licensed
optical retail stores and two medical center locations. See Note 3 to Notes to
Condensed Consolidated Financial Statements (Unaudited).
8
<PAGE> 11
U.S. VISION, INC.
The Company's principal external source of liquidity is its revolving
line of credit with Commerce Bank, N.A. During the second quarter, the Company
entered into a new $20,000,000 revolving line of credit facility which bears
interest at the lower of the prime rate as published in The Wall Street Journal
or the thirty (30) day rate for United States Treasury Bills plus 250 basis
points and will mature two years after its commencement date. As of July 31,
1998, the Company had no outstanding balance under its revolving line of credit
and $20.0 million of availability. The Company must maintain certain financial
ratios pertaining to its net worth, current ratio, and ratio of cash to fixed
charges. The Company is currently in compliance with all financial covenants
under its revolving line of credit.
Regarding other financing activities engaged in by the Company, in
December 1996, the Company borrowed $8,000,000 through the placement of a term
loan which carried a floating rate of 1.0% above the prime rate and was owed to
Commerce Bank, N.A. On July 31, 1998, the term loan was paid in full.
The Company received a commitment from Commerce BankLease, a unit of
Commerce Bank, N.A., for a $1,000,000 five-year equipment lease financing
facility. The lease financing facility is subject to the completion of all
required documentation.
Based upon its current operating and new store opening plans, the
Company believes that it can fund its working capital and capital expenditure
needs for the foreseeable future through borrowings under the revolving line of
credit and cash generated from operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statements of
Financial Accounting Standards No. 130, "Comprehensive Income: Financial
Statement Presentation" and No. 131, "Segment Disclosures and Related
Information," which are both effective for financial statements issued with
fiscal years beginning after December 15, 1997. The disclosure standards of
FAS 130 and FAS 131 will have no impact on the Company's financial position or
results of operation.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The Company occasionally makes forward-looking statements concerning
its plans, goals, product and service offerings, store openings and closings
and anticipated financial performance. These forward-looking statements may
generally be identified by introductions such as "outlook" for an upcoming
period of time, or words and phrases such as "should", "expect", "hope",
"plans", "projected", "believes", "forward-looking" (or variants of those words
and phrases) or similar language indicating the expression of an opinion or
view concerning the future.
These forward-looking statements are subject to risks and
uncertainties based on a number of factors and actual results or events may
differ materially from those anticipated by such forward-looking statements.
These factors include, but are not limited to: the Company's ability to
maintain its relationship with its host stores such as J.C. Penney and Sears,
as well as with Cole National Corporation, a competitor of the Company and the
owner of the Vision One managed vision care plan in which the Company
participates; the growth rate of the Company's revenue and market share; and
the quality of the Company's plans and strategies, and the ability of the
Company to execute such plans and strategies.
In addition, forward-looking statements concerning the Company's
expected revenue or earnings levels are subject to many additional
uncertainties applicable to competitors generally and to general economic
conditions over which the Company has no control, such as the performance of
its host stores. The Company does not plan to generally publicly update prior
forward-looking statements for unanticipated events or otherwise and,
accordingly, prior forward-looking statements should not be considered to be
"fresh" simply because the Company has not made additional comments on those
forward-looking statements.
9
<PAGE> 12
U.S. VISION, INC.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
As partial consideration for the Company's acquisition of nine licensed
optical retail stores located within Sears full line stores and two medical
center locations during the second quarter of 1998, the Company issued 16,667
of its common stock to Dr. Ben Israel, the sole stockholder of Ben Israel
Optical, Inc., based on the per share average closing price of the Company's
common stock on Nasdaq for the ten trading days prior to the closing date of the
acquisition. This issuance of common stock was exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof as a transaction not involving a public offering and an appropriate
restrictive legend was affixed to the certificate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As contemplated in the Company's Proxy Statement which was mailed to
stockholders beginning on May 15, 1998, the Company's stockholders elected
William A. Schwartz, Jr., Dennis J. Shaughnessy, J. Roger Sullivan, Jr.,
Richard K. McDonald, E. Theodore Stolberg, G. Kenneth Macrae, David M. Tracy
and Peter M. Troup as directors of the Company to serve for a term of one year
each or until their successors are duly elected and qualified. Each nominee
received the number of votes indicated below.
<TABLE>
<CAPTION>
Number of Votes Cast Number of Votes Cast
Nominee For Election Against or Withheld
- ------- -------------------- --------------------
<S> <C> <C>
William A. Schwartz, Jr. 5,676,431 800
Dennis J. Shaughnessy 5,676,431 800
J. Roger Sullivan, Jr. 5,676,431 800
Richard K. McDonald 5,676,431 800
E. Theodore Stolberg 5,164,763 512,468
G. Kenneth Macrae 5,675,931 1,300
David M. Tracy 5,675,931 1,300
Peter M. Troup 5,675,931 1,300
</TABLE>
The Company's stockholders also ratified the selection of Ernst &
Young LLP as the independent auditor of the Company for the fiscal year ending
January 31, 1999. Ernst & Young LLP received the number of votes indicated
below.
<TABLE>
<CAPTION>
Number of Votes Cast Number of Votes Cast
For Election Against or Withheld
-------------------- --------------------
<S> <C>
5,675,231 2,000
</TABLE>
10
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS.
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
3.1* Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
10.1+ Amended and Restated Loan and Security Agreement with Commerce Bank, N.A.
10.2* Stock Option Plan, including form of Stock Option Agreement
10.3** J.C. Penney License Agreement
10.4** Vision Care Agreement
10.5** Employment Agreement for William A. Schwartz, Jr.
10.6** Employment Agreement for George T. Gorman
10.7** Employment Agreement for Gayle E. Schmidt
10.8** Employment Agreement for George E. McHenry, Jr.
10.9** Form of Non-Statutory Option Agreement
10.10** Form of Indemnification Agreement
10.11** Stockholders' Agreement
10.12** Form of Sears Lease
10.13** DRPA Loan Documentation
21*** Subsidiaries of the Company
27+ Financial Data Schedule
</TABLE>
- -------------
* Previously filed as an exhibit to the Form S-1 (Reg. No.
333-35819) filed with the Commission on September 17, 1997.
** Previously filed as an exhibit to Amendment No. 1 to the Form
S-1 (Reg. No. 333-35819) filed with the Commission on October
29, 1997.
*** Previously filed as an exhibit to the Company's 10-K for the
period ended January 31, 1998 filed with the Commission on
April 30, 1998.
+ Filed herewith.
B. REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Registrant during the
three (3) months ended July 31, 1998.
11
<PAGE> 14
U.S. VISION, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. VISION, INC.
----------------------------------------
(Registrant)
September 14, 1998 /s/ Kathy G. Cullen
----------------------------------------
Kathy G. Cullen, Chief Financial Officer
(Principal Financial Officer)
12
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
3.1* Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
10.1+ Amended and Restated Loan and Security Agreement with Commerce Bank, N.A.
10.2* Stock Option Plan, including form of Stock Option Agreement
10.3** J.C. Penney License Agreement
10.4** Vision Care Agreement
10.5** Employment Agreement for William A. Schwartz, Jr.
10.6** Employment Agreement for George T. Gorman
10.7** Employment Agreement for Gayle E. Schmidt
10.8** Employment Agreement for George E. McHenry, Jr.
10.9** Form of Non-Statutory Option Agreement
10.10** Form of Indemnification Agreement
10.11** Stockholders' Agreement
10.12** Form of Sears Lease
10.13** DRPA Loan Documentation
21*** Subsidiaries of the Company
27+ Financial Data Schedule
</TABLE>
- ---------------
* Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed
with the Commission on September 17, 1997.
** Previously filed as an exhibit to Amendment No. 1 to the Form S-1 (Reg. No.
333-35819) filed with the Commission on October 29, 1997.
***Previously filed as an exhibit to the Company's 10-K for the period ended
January 31, 1998, filed with the Commission on April 30, 1998.
+ Filed herewith.
<PAGE> 1
EXHIBIT 10.1
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of July 31, 1998
between
U.S. VISION, INC. (Delaware corporation)
STYL-RITE OPTICAL MFG. CO., INC. (Florida corporation)
USV OPTICAL, INC. (Texas Corporation)
BEN ISRAEL OPTICAL, INC. (Arkansas corporation)
and
COMMERCE BANK, N.A.
- -------------------------------------------------------------------------------
<PAGE> 2
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of July
31, 1998 (herein called the "Agreement"), is entered into among U.S. VISION,
INC., a Delaware corporation ("USVI" or a "Borrower"), STYL-RITE OPTICAL MFG.
CO., INC., a Florida corporation ("SRO" or a "Borrower"), USV OPTICAL, INC., a
Texas corporation ("USVO" or a "Borrower") and BEN ISRAEL OPTICAL, INC., an
Arkansas corporation ("BIO" or a "Borrower") (collectively with each other
Borrower and each subsidiary of USVI that is hereafter created or acquired and
joins this Agreement as provided herein, the "Borrowers"), and COMMERCE BANK,
N.A. ("Bank").
WITNESSETH:
A. All of the Borrowers other than USVI are wholly owned either
directly or indirectly by USVI, and all Borrowers have shared management and
financial support.
B. Borrowers desire to amend and restate certain financing arrangements
with Bank as set forth in that certain Loan and Security Agreement between
Borrowers and Bank dated December 19, 1996 and continue to borrow funds from
Bank and Bank is willing to so amend and restate and continue to make loans and
advances to Borrowers under the terms and provisions hereinafter set forth.
C. The extension of such credit by the Bank to each Borrower will
continue to result in direct and material benefits to each other Borrower by
reducing borrowing costs and facilitating the orderly administration of the
Borrowers' financing needs.
D. The parties desire to amend and restate the terms and conditions of
their relationship and to reduce their agreements to writing.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
covenant and agree as follows:
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION.
SECTION 1.01 Definitions.
"Accounts", "Chattel Paper", "Contracts", "Documents", "Equipment",
"Fixtures", "Goods", "Instruments" and "Inventory" shall have the same
respective meanings as are given to such terms in the Uniform Commercial Code
as enacted in the Commonwealth of Pennsylvania.
<PAGE> 3
"Account Debtor" shall mean any Person who is or may become obligated
under or on account of an Account.
"Affiliate" means any Person controlling, controlled by or under common
control with any other Person; and with respect to an individual, "Affiliate"
shall also mean any individual related to such individual as a sibling, parent,
child, grandchild or other issue or by adoption or marriage. For purposes of
this definition, "control" (including "controlled by" and "under common control
with") means the possession, directly or indirectly, individually or in
conjunction with other Persons, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities or otherwise.
"Aggregate Deductions" shall have the meaning given such term in the
Penney Agreement.
"Annual Financial Statements" shall mean the annual consolidated
financial statements of the Borrowers, including all notes thereto, which
statements shall include a balance sheet as of the end of a Fiscal Year and an
income statement and a statement of cash flows for such year, all setting forth
in comparative form the corresponding figures from the previous year, all
prepared in conformity with Generally Accepted Accounting Principles and, as to
the consolidated statements only, accompanied by (i) a report of independent
certified public accountants reasonably satisfactory to the Bank (it is agreed
that Ernst & Young or any other Big Six accounting firm is satisfactory to
Bank), which report shall not contain any qualifications or explanatory
paragraphs (other than explanatory paragraphs as to changes in accounting
principles where the accountants concur with such changes) and shall state that
such accountants have audited such consolidated financial statements in
accordance with required procedures and standards and that such financial
statements fairly present in all material respects the financial condition and
results of operations of the Borrowers in conformity with Generally Accepted
Accounting Principles and (ii) a letter from such accountants to Bank (in form
and substance satisfactory to Bank) stating that such accountants and Borrowers
know that such financial statements and report are being delivered to Bank who
will rely on such statements and report, and that Bank may rely on such
statements and report.
"Available Revolving Credit" shall mean, at any time, the amount, if
any, by which the Maximum Revolving Loan Amount, exceeds the outstanding Bank
Revolving Debt.
"Bank Debt" shall mean the sum of (i) Bank Revolving Debt; and (ii) all
other obligations of Borrowers to Bank.
"Bank Revolving Debt" shall mean the sum of (i) all outstanding
advances under the Revolving Loan Facility, (ii) all outstanding Reimbursement
Obligations, and (iii) the full face amount of all outstanding Letters of
Credit.
"Bank Indemnitees" shall mean the Bank, any pledgee, assignee or
subsequent holder or owner of any Note or any interest in any Note, any
affiliate, successor, assign or Subsidiary of the
2
<PAGE> 4
Bank, and each of their respective shareholders, members, directors, officers,
employees, counsel, agents and contractors, as well as their respective heirs,
beneficiaries, administrators, executors, personal representatives, trustees,
receivers, successors and assigns.
"Borrowed Debt" means (i) Indebtedness for borrowed money; (ii)
Indebtedness, whether or not in any such case the same was for borrowed money,
(A) which is represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by bonds,
debentures, notes or similar instruments, or (C) upon which interest charges are
customarily paid (other than accounts payable) or that was issued or assumed as
full or partial payment for Property; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; and (iv) Indebtedness under any Guarantee of
obligations that would constitute Indebtedness for Borrowed Debt under clauses
(i) through (iii) hereof.
"Business Day" shall mean a day, other than a Saturday or Sunday, on
which Bank is open for business in Cherry Hill, New Jersey.
"Capital Expenditures" shall mean expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the direct or indirect acquisition of such assets by way of
increased product or service charges, offset items or otherwise, and all
Capitalized Lease Obligations.
"Capitalized Lease Obligation" shall mean Indebtedness represented by
obligations under a lease that is required under GAAP to be capitalized, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Collateral Account" - Section 4.06.
"Collateral" - Section 4.01.
"Collateral Documents" shall mean the Lockbox Agreements, the Trademark
Assignment, the Mortgage Documents, the Financing Statements, and all other
documents, instruments and agreements relating to the Collateral or Bank's Liens
therein.
"Collections" shall mean, with respect to any Account, all cash
collections and other cash proceeds of such Account including, without
limitation, all payments by the Account Debtor in respect of such Account and
all cash proceeds of any related security with respect to such Account.
"Commitment Letter" shall mean the letter agreement dated May 29, 1998
between Borrowers and Bank relating to the Loans and this Agreement.
3
<PAGE> 5
"Contractual Obligation" shall mean, as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
understanding to which such Person is a party or by which it or any of its
property is bound or affected.
"Current Ratio" shall mean the ratio of current assets of the Borrowers
to current liabilities of the Borrowers, all as determined in accordance with
Generally Accepted Accounting Principles.
"Debt Coverage Ratio" shall mean, as of any date, the ratio of (a)
Borrowers' consolidated EBITDA for the Twelve Month Period ending on such date
to (b) the consolidated Debt Service of the Borrowers for such Twelve Month
Period plus Tax Expense (but not below zero) for such Period.
"Debt Service" shall mean for any Twelve Month Period the sum of (a)
principal payments maturing during such Twelve Month Period on Borrowed Debt,
and (b) interest expense on Borrowed Debt (not net of interest income) paid,
payable or otherwise accrued during such Twelve Month Period.
"Default Rate" shall mean the rate of interest which is two percent
(2.0%) per annum in excess of each of the applicable Revolving Loan Rate.
"EBIT" shall mean gross revenues and other proper income credits, less
all proper charges against income other than (i) interest expense on Borrowed
Debt, and (ii) taxes on income, all determined in accordance with Generally
Accepted Accounting Principles; provided that there shall not be included in
such revenues or charges (a) any gains resulting from the write-up of assets;
(b) any proceeds of any life insurance policy, or (c) any gain or loss which is
classified as "extraordinary" in accordance with Generally Accepted Accounting
Principles. EBIT can be less than zero for all purposes of this Agreement.
"EBITDA" shall mean EBIT plus the sum of depreciation and amortization
expense during the period for which EBIT is calculated.
"Effective Net Worth" shall mean Tangible Net Worth.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, including, but not
limited to, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Toxic
Substances Control Act as amended, the Clean Water Act, the River and Harbor
Act, Water Pollution Control Act, the Marine Protection Research and Sanctuaries
Act, the Deep-Water Port Act, the Safe Drinking Water Act, the Super Fund
Amendments and Reauthorization Act of 1986, the Federal Insecticide, Fungicide
and Rodenticide Act, the Mineral Lands and Leasing Act, the Surface Mining
Control and Reclamation Act, state and federal super lien and environmental
clean up programs and laws, and U.S. Department of Transportation regulations.
4
<PAGE> 6
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" shall mean an event specified in Section 7 hereof.
"Existing Letters of Credit" shall mean those certain Letters of Credit
outstanding on the date hereof and listed on Schedule 1.01(A) hereto.
"Existing Lockboxes" means the lockboxes maintained and administered by
Bank.
"Expenses" - Section 8.04.
"Financial Statements" means any Annual Financial Statements, Quarterly
Financial Statements and Monthly Financial Statements.
"Financing Statements" shall mean UCC-1 financing statements relating
to the Collateral.
"Fiscal Quarter" shall mean the fiscal quarter of Borrowers ending on
April 30, July 31, and October 31 of each year and January 31 of the following
year.
"Fiscal Year" shall mean the fiscal year of Borrowers ending on January
31 of each year. For purposes of this Agreement (including, but not limited to,
the financial covenants set forth herein), each Fiscal Year will be identified
by the calendar year in which eleven of the twelve calendar months during such
Fiscal Year fall (e.g. the 1997 Fiscal Year will be the fiscal year ending on
January 31, 1998).
"Fiscal Year-to-Date" shall mean the period beginning on the first day
of the current Fiscal Year and ending on the last day of the Fiscal Quarter most
recently ended.
"Fixed Charges" means the sum of (a) principal payments on Borrowed
Debt maturing during the applicable Twelve Month Period, (b) interest expense
(not net of interest income) during such Period, (c) Tax Expense (but not below
zero) for such Period and (d) Unfunded Capital Expenditures during such Period.
"Fixed Charge Coverage Ratio" shall mean, as of any date, the ratio of
(a) Borrowers' consolidated EBITDA for the Twelve Month Period ending on such
date to (b) the Fixed Charges of the Borrowers for such period.
"Generally Accepted Accounting Principles" or "GAAP" shall mean, with
respect to any Person, such accounting practice as, in the opinion of the
independent accountants retained by such Person and reasonably acceptable to the
Bank, conforms at the time to generally accepted accounting principles,
consistently applied. Generally accepted accounting principles means those
principles and practices which are (a) recognized as such by the Financial
Accounting Standards Board; (b)
5
<PAGE> 7
applied for all periods after the date hereof in a manner consistent with the
manner in which such principles and practices were applied to the most recent
financial statements of the relevant Person furnished to the Bank, and (c)
consistently applied for all periods after the date hereof so as to reflect
properly the financial condition, and results of operations and cash flows, of
such Person. If any change in any accounting principle or practice is required
by the Financial Accounting Standards Board in order for such principle or
practice to continue as a generally accepted accounting principle or practice,
all reports and financial statements required hereunder shall be prepared in
accordance with such change. Solely for purposes of this Agreement, if any such
material change is made, then either (I) Borrowers and Bank shall negotiate in
good faith to agree upon how the financial covenants shall be appropriately
modified to reflect such change or (ii) if they can't so agree, the financial
covenant compliance computations shall be computed without regard to such
change.
"General Intangibles" shall mean all intangible personal property of
each Borrower of every kind and nature, including without limitation, chooses in
action, causes of action, corporate or other business Records, information and
sources of information, inventions, designs, patents, patent applications,
trademarks, trade names, trade secrets, good will, copyrights, registrations,
licenses, leases, franchises, tax refund claims, computer programs, software,
technical data, and any indemnity and guarantee claims and security interests.
"Government Authority" means any nation or government, any state or
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, supervisory or administrative functions of or pertaining
to government.
"Guarantee" - shall mean any guarantee of the payment or performance of
any indebtedness or other obligation and any other arrangement whereby credit is
extended to one obligor on the basis of any promise of another Person, whether
that promise is expressed in terms of an obligation to pay the indebtedness of
such obligor, or the purchase an obligation owed by such obligor, or to purchase
goods and services from such obligor pursuant to a take-or-pay contract, or to
maintain the capital, working capital, solvency or general financial condition
of such obligor, whether or not any such arrangement is listed on the balance
sheet of such other Person, or referred to in a footnote thereto, but shall not
include endorsements of items for collection in the ordinary course of business.
"Inactive Borrower" means a Borrower which as of any date (i) has
conducted no business for at least 90 days and (ii) is not a lessee of any
premises at which any Borrower had conducted business within the immediately
preceding 90 days.
"Included Debts" means all debts and liabilities for which any Borrower
is primarily liable whether or not joint and several and whether or not such
Borrower has any right of contribution, subrogation, reimbursement, exoneration
or indemnity relating thereto, all without duplication.
"Indebtedness" shall mean all debts, obligations and liabilities, due
or to become due, liquidated or unliquidated, direct or contingent, joint or
several, of any nature whatsoever and out
6
<PAGE> 8
of whatever transaction arising, including, without limitation:
(A) All indebtedness Guaranteed, directly or indirectly, in
any manner, or discounted with recourse;
(B) All indebtedness in effect Guaranteed, directly or
indirectly, through agreements, contingent or otherwise to (l) purchase such
indebtedness, (2) purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies, or to purchase or sell services, primarily for
the purpose of enabling any debtor to make payment of such indebtedness or to
assure the owner of the indebtedness against loss, or (3) supply funds to or in
any other manner invest in any debtor;
(C) All indebtedness secured by (or for which the holder of
such indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance upon property owned or acquired subject to such mortgage, deed of
trust, pledge, lien, security interest, charge or encumbrance, whether or not
the liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or
services under leases that, in accordance with GAAP, consistently applied,
should be reflected on the lessee's balance sheet.
"Interest Coverage Ratio" shall mean, as of any date, the ratio of (a)
Borrowers' consolidated EBITDA for the Twelve Month Period ending on such date
to (b) Borrowers' consolidated interest expense on Borrowed Debt (not net of
interest income) paid, payable or otherwise accrued for such Twelve Month
Period.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended.
"IRS" - Section 6.01(K).
"Lab" shall mean Borrowers' laboratory facility located in Glendora,
New Jersey.
"Laws" shall mean all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof or any court or similar entity established by any thereof.
"Leases" shall mean the leases under which Borrowers occupy premises
for the conduct of their Business.
"Letter of Credit" shall have the meaning given thereto in Section 2.10
hereof, and, except as may be expressly set forth herein to the contrary, shall
include Existing Letters of Credit.
7
<PAGE> 9
"Letter of Credit Disbursement" shall mean any payment or disbursement
by Bank under any Letter of Credit.
"Letter of Credit Disbursement Date" shall mean the date on which any
Letter of Credit Disbursement is made.
"Leverage Ratio" means, as of any date, the ratio of (a) all
Liabilities (other than Subordinated Indebtedness) of the Borrowers as of such
date to (b) the Effective Net Worth of the Borrowers on such date.
"Liabilities" shall mean all Indebtedness that, in accordance with
GAAP, consistently applied, should be classified as liabilities on a balance
sheet of the Borrowers.
"Lien" means any security interest, lien, mortgage, encumbrance, claim,
lien, levy, distraint, attachment, pledge, conditional sale, lease, or
assignment of any kind or nature.
"Loan Documents" shall mean this Agreement, the Notes, the Collateral
Documents and all other documents, instruments and agreements executed and/or
delivered in connection with this Agreement and the transactions contemplated
hereby.
"Loans" means all Revolving Credit Loans and any other Obligations of
Borrowers to Bank.
"Lockbox Agreement" means the agreement between Borrowers and Bank in
the form of Exhibit B hereto regarding the creation and maintenance of lockboxes
for the collection of Borrowers' Accounts.
"Lockboxes" - Section 4.06.
"Material Adverse Change" shall mean any material adverse change in the
assets, properties, liabilities, condition (financial or otherwise), business or
prospects of Borrowers taken as a whole.
"Material Adverse Effect" means any specified event, condition or
occurrence as to any one or more of the Borrowers which individually or in the
aggregate with any other such event, condition or occurrence and whether through
the affect on any Borrower's business, property, prospects, profits or condition
(financial or otherwise) or otherwise could reasonably be expected to (a) result
in any liability, loss, forfeiture, penalty, costs, fine, expense, payment or
other monetary obligation or loss of property of any one or more of the
Borrowers in excess of $500,000, and/or (b) in the good faith judgment of the
Bank, materially impair the ability of any of the Borrowers to meet all of their
respective Obligations to the Bank.
"Maximum Revolving Loan Amount" shall mean $20,000,000 as reduced in
accordance with Section 2.07(B) or 2.11 herein.
8
<PAGE> 10
"MEPPAA" shall mean the Multiemployer Pension Plan Amendments Act, as
amended.
"Monthly Financial Statements" shall mean the monthly consolidated
financial statements of the Borrowers, including all notes (if any) thereto,
which statements shall include (i) a balance sheet as of the end of each month
and (ii) an income statement and a statement of cash flows for such month and
for the Fiscal Year to Date, subject to normal year-end adjustments, all setting
forth in comparative form the corresponding figures for the corresponding month
and Fiscal Year to Date of the preceding Fiscal Year, prepared in accordance
with Generally Accepted Accounting Principles consistently applied.
"Mortgage Documents" means the Mortgage and related Assignments of
Rents and Leases, Collateral Assignments of Licenses and Contracts,
Environmental Indemnification Agreements and Mortgagor's Affidavits, all in the
form of Exhibit C hereto.
"Mortgaged Property" shall mean 3907 and 3850 N.W. 35th Avenue, Miami,
Florida, including without limitation, all real estate, buildings, improvements,
rents, profits, insurance and condemnation proceeds, and other property rights
and claims related thereto, all as described on Schedule 1.01(B) hereto.
"Mortgage" - means the Open-End Mortgage filed by Bank against the
Mortgaged Property.
"New Subsidiaries" - Section 6.01.
"Notes" shall mean the Revolving Loan Note and any other note or
instrument evidencing any Obligations of Borrower to Bank whether now existing
or hereafter arising.
"Obligations" shall mean the obligations of Borrowers to pay the
principal of and interest on the Notes and to satisfy and perform all of their
other existing and future obligations, liabilities and indebtedness to Bank
hereunder, under the Notes, any of the Collateral Documents, or under any of the
other Loan Documents whether matured or unmatured, direct or contingent, joint
or several, including, without limitation, any extensions, modifications,
renewals thereof and substitutions therefor.
"Offered Participant" shall mean any present or future participant of
Bank in all or any portion of the Loans which participant was initially
solicited or requested by a Borrower to become a participant of Bank in all or
any portion of the Loans.
"PBGC" - Section 6.01(K).
"Penney" shall mean J.C. Penney & Company, Inc.
9
<PAGE> 11
"Penney Agreement" shall mean the License Agreement dated February 1,
1995, as amended, between Borrowers and Penney.
"Permitted Indebtedness" shall mean (i) the Indebtedness listed on
Schedule 5.01B, and Permitted Purchase Money Indebtedness.
"Permitted Investments" shall mean (a) direct obligations of, or
obligations guaranteed by, the United States of America, (b) deposit accounts
in, or certificates of deposit issued by, any commercial bank in the United
States of America having total capital and surplus in excess of Seventy Five
Million Dollars ($75,000,000) or certificates of deposit which are fully insured
by the Federal Deposit Insurance Corporation, (c) investment grade (rated AA or
better) commercial paper, bankers' acceptances or similar financial instruments,
(d) investment grade bonds (rated AA or better), and/or (e) mutual funds having
at least eighty percent (80%) of their assets in cash and/or investments
included in (a), (b), (c) or (d) above.
"Permitted Liens" shall mean:
(A) Liens for taxes, assessments or similar charges incurred
in the ordinary course of business which are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of
business to secure repayment of workers' compensation, or to participate in any
fund in connection with compensation, insurance, old-age pensions or other
social security programs, as well as any underlying lien, if any, being replaced
by such pledge or deposit;
(C) Liens of mechanics, materialmen, warehousemen, carriers,
or other like lienors, securing obligations incurred in the ordinary course of
business that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course
of business to secure performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, not in excess of ten percent (10%)
of the aggregate amount due thereunder, or to secure statutory obligations, or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business, as well as any underlying lien, if any, being
replaced by such pledge, deposit or bond;
(E) Liens in favor of Bank;
(F) Liens on fixed assets securing Permitted Purchase Money
Indebtedness, provided such Liens do not extend to any other property of the
Borrowers and Bank has a perfected second priority Lien in such fixed assets;
and
10
<PAGE> 12
(G) Existing liens listed on Schedule "1.01(C)" to this
Agreement.
"Permitted Purchase Money Indebtedness" shall mean Purchase Money
Indebtedness which, in the aggregate with respect to all Borrowers, does not
exceed during any Fiscal Year of Borrowers the amounts expressly approved by
Bank in writing through its review and approval of the Projections for such
Fiscal Year.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, Government Authority, government
division or agency thereof.
"Pledge Agreement" shall mean that certain pledge agreement between
Borrowers and Bank of even date herewith pledging the Pledged Stock to Bank.
"Pledged Stock" shall mean all of the issued and outstanding shares of
SRO, USVO and BIO.
"Potential Default" shall mean an event, occurrence or condition which,
with the giving of notice, the lapse of time, or both, could become or otherwise
constitute an Event of Default.
"Prime Rate" shall mean the "Prime Rate" of interest as published in
the "Money Rates" section of The Wall Street Journal on the applicable date (or
the highest "Prime Rate" if more than one is published) as such rate may change
from time to time. If The Wall Street Journal ceases to be published or goes on
strike or is otherwise not published for any period of time or if it ceases to
publish a "Prime Rate", then Bank may use any similar published prime or base
rate. The Prime Rate is not necessarily the lowest or best rate of interest
charged by Bank to any borrower or group or class of borrowers.
"Proceedings" shall have the meaning given it in Section 5.01(E)
herein.
"Projections" shall mean Borrowers' forecasted (a) balance sheets, (b)
profit and loss statements, (c) cash flow statements, (d) Purchase Money
Indebtedness, and (e) Capital Expenditures, all prepared on a consistent basis
with Borrowers' historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Property" shall mean any interest of any Borrower in any kind of
property or asset, whether real, personal or mixed, or tangible or intangible.
"Purchase Money Indebtedness" shall mean purchase money Indebtedness
(including Capitalized Lease Obligations) incurred solely for the purchase of
fixed assets.
"Quarterly Financial Statements" shall mean the quarterly consolidated
financial statements of the Borrowers, including all notes (if any) thereto,
which statements shall include (i) a balance
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sheet as of the end of each Fiscal Quarter and (ii) an income statement and a
statement of cash flows for such Quarter and for the Fiscal Year to Date,
subject to normal year-end adjustments, all setting forth in comparative form
the corresponding figures for the corresponding Fiscal Quarters and Fiscal Year
to Date of the preceding Fiscal Year, prepared in accordance with Generally
Accepted Accounting Principles consistently applied.
"Records" shall mean correspondence, memoranda, tapes, discs, records
and other documents, or transcribed information of any type, whether expressed
in ordinary or machine language, either on or off the premises of any Borrower.
"Reimbursement Obligations" shall have the meaning set forth in Section
2.05(B) hereof.
"Requirement of Law" means, as to any Person, the Articles of
Incorporation of By-Laws and other organizational and governing documents of
such Person, and any Law, treaty, rule or regulation, or order, writ, judgment
or other determination of an arbitrator or a court or other Government
Authority, in each case applicable to or binding upon such Person or any of its
properties or to which such Person or any of its property is subject.
"Revolving Loan Facility" shall mean the Revolving Loan facility
established pursuant to Section 2 of this Agreement.
"Revolving Loan Note" shall mean the Amended and Restated Revolving
Loan Note referred to in Section 2.02 of this Agreement.
"Revolving Loan Rate" at Borrower's option shall mean the Prime Rate or
thirty (30) day United States Treasury Bills plus 250 basis points.
"Revolving Loan Termination Date" shall mean December 31, 2000 or such
other later date to which Bank and Borrowers may (without any obligation to do
so) hereafter agree in writing in connection with any renewal or extension of
the Revolving Loan Facility. Anything in the preceding sentence to the contrary
notwithstanding, if on or before June 30th of any year (commencing June 30,
1999) Borrower gives Bank thirty (30) days prior written notice requesting to
extend the Revolving Loan Termination Date for a two (2) year period, then,
absent an Event of Default hereunder or refusal by Bank, the Revolving Loan
Termination Date shall be extended for two (2) years from said date.
"Same Store Sales" shall mean Borrowers' store sales calculated on a
same store basis in aggregate amount for each individual store and for all
stores.
"SEC" shall mean the Securities and Exchange Commission.
"Significant Stockholder" shall mean any stockholder of USVI who owns,
directly or indirectly, 10% of the issued and outstanding capital stock of USVI.
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"Software"-collectively, all applications, operating and other computer
programs (including, without limitation, all object code and the source code
therefor), all documentation (including, without limitation, all programmers',
users' and technical manuals for all such programs), the visual expressions,
screen formats, report formats and other design features of all such programs,
all ideas, methods, algorithms, formulae and concepts used in developing and/or
incorporated into such programs or documentation, all future modifications,
revisions, updates, releases, refinements, improvements and enhancements of such
programs or documentation, all derivative works based upon any of the foregoing,
and all copies of the foregoing.
"Solvent" shall mean as to any Person, such Person (i) owns Property
whose fair saleable value exceeds the amount required to pay in full all of such
Person's Indebtedness (including contingent debts), (ii) is able to pay all of
its Indebtedness as such Indebtedness matures and (iii) has capital sufficient
to carry on its business and transactions and all business and transactions in
which it is about to engage.
"Specified Officer" shall mean George E. McHenry and Kathy Cullen, who
are presently the Senior Vice President, Finance, Chief Administrative Officer
and Secretary and Senior Vice President and Chief Financial Officer,
respectively, of USVI, or such other officer or officers of USVI as Borrowers
may hereafter specify to Bank in writing. Each Borrower agrees that any request
made or other function specified herein to be made or performed by a Specified
Officer shall be deemed made or performed by and on behalf of all Borrowers.
"Subsidiary" shall mean any corporation more than fifty (50%) percent
of whose voting stock is legally and beneficially owned by any Borrower or owned
by a corporation more than fifty (50%) percent of whose voting stock is legally
and beneficially owned by any Borrower.
"Tangible Net Worth" shall mean the excess of assets over liabilities
as would be shown on a combined balance sheet of Borrowers, prepared in
accordance with GAAP, consistently applied, provided, however, (a) such amounts
are to be net of amounts carried on the books of Borrowers for any of the
following: (i) unamortized debt discount and expense, (ii) patents, patent
applications, copyrights, trademarks, trade names, goodwill (including any
excess of cost over net assets of businesses acquired), experimental or
organization expenses and other like reserves and intangible assets, and (b) the
Included Debts (without duplication) shall be included as liabilities.
"Tax Expense" shall mean Liabilities of the Borrowers for local, state
and federal income taxes.
"Trademark Assignment" means collectively the Trademark Assignment and
the Intellectual Property Security Agreement, all in the form of Exhibit E
hereto, to be executed by the Borrowers owning such Property on or about the
Closing Date in favor of Bank and by which such Borrower(s) shall assign to
Bank, and grant to Bank a security interest in, as security for the Obligations
all of
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such Borrower's right, title and interest in and to all of its trademarks as set
forth on Schedule 5.01(V) hereto.
"Twelve Month Period" shall mean, as of any date, the twelve month
period ending on such date.
"Unfunded Capital Expenditures" shall mean Capital Expenditures which
are not fully funded through Borrowers' incurring additional Borrowed Debt.
"Vision Care Account" shall mean an Account arising out of the joint
venture between Borrowers and Cole Vision Corporation concerning Borrowers'
sales of their products and services under the vision benefit plan sponsored by
Cole Vision Corporation.
"Working Capital" shall mean the excess of current assets over current
liabilities as would be shown on a consolidated balance sheet of Borrowers,
prepared in accordance with GAAP, consistently applied. For purposes of the
computation of Working Capital, all Revolving Loans and Reimbursement
Obligations for Letter of Credit Disbursements outstanding under the Revolving
Loan Facility shall be treated as current liabilities.
SECTION 1.2 Accounting Principles: Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP, to the
extent applicable, except as otherwise expressly provided in this Agreement.
SECTION 1.3 Interpretation of Financial Measurements. Except where
specifically otherwise provided herein and in the Collateral Documents, all
financial measurements shall be computed on a consolidated basis, without
duplication, and all references to financial statements of the Borrowers
contained herein and in the Collateral Documents shall be references to
consolidated and consolidating financial statements.
SECTION 2. THE LOANS.
SECTION 2.01 Revolving Loan. (a) Under and subject to the terms and
conditions of this Agreement and within the then Available Revolving Credit, and
as requested by a Specified Officer from time to time up to but not including
the Revolving Loan Termination Date, Bank hereby reaffirms the Revolving Loan
Facility pursuant to which Bank will make cash advances ("Revolving Loans" or
"Loans"), and issue Letters of Credit from time to time, to or (as to Letters of
Credit) for the account of Borrowers. For purposes of this Agreement, any
determination as to whether there is sufficient Available Revolving Credit shall
be made by Bank and is final and binding upon Borrowers absent manifest error.
Unless sooner terminated pursuant to any other provision of this Agreement, the
Revolving Loan Facility will terminate and the entire principal
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balance of the Revolving Loan, together with all unpaid accrued interest
thereon, shall be repaid on the Revolving Loan Termination Date, without notice
or demand. Each cash advance or Letter of Credit under the Revolving Loan
Facility shall be made or issued following the giving of notice by a Specified
Officer to Bank (which notice shall be given not later than 1:30 p.m.
Philadelphia time on the same Business Day on which such cash advance is
required or on the Business Day which is three (3) Business Days preceding the
Business Day on which such Letter of Credit is required), specifying the date of
borrowing and the amount thereof. Upon fulfillment of all applicable conditions
to such cash advance or Letter of Credit set forth herein, Bank will, as to
Loans which are cash advances, make such funds available to the Borrowers at
Bank's main office by either depositing same in Borrowers' deposit account with
Bank or honoring draws from a Borrower's controlled disbursement account with
Bank. The outstanding principal balance of the Loans under the Revolving Loan
Facility may fluctuate from time to time, to be reduced by repayments made by
Borrowers, to be increased by future loans, advances and extensions of credit
which may be made by Bank, to or for the benefit of Borrowers. If the aggregate
unpaid principal amount of Bank Debt exceeds the Maximum Revolving Loan Amount,
Borrowers shall immediately repay to Bank the amount of such excess within three
(3) Business Days thereafter.
(b) All Revolving Loans to be made available to Borrowers, if
made by Bank, shall set forth the date on which the borrowing is to be made and
shall be made by crediting such proceeds to the operating account of Borrowers
with Bank. Bank may rely upon any telephonic request purported to be made by
Borrowers through any of its Specified Officers, which request shall set forth
the date on which the borrowing is to be made and shall be confirmed in writing
(by telecopy or facsimile transmission) by such Specified Officer.
(c) In the event Bank honors a check of any Borrower resulting
in any Borrower's checking account being overdrawn, then Bank shall be deemed to
have loaned the amount of such overdraft to Borrowers, pursuant to the terms of
this Section 2, on the Bank's Business Day on which such Borrower's check is
tendered to Bank for collection. Bank shall not be obliged to honor any
overdraft of Borrowers, whether or not it has done so in the past.
SECTION 2.02 The Amended and Restated Revolving Loan Note.
Contemporaneously herewith, each Borrower will execute and deliver to Bank the
Amended and Restated Revolving Loan Note ("Revolving Loan Note") in the form of
Exhibit G hereto to evidence each Borrower's joint and several obligation to
repay Bank for all amounts due or which may become due in connection with the
Revolving Loan Facility, with interest, all as more fully described in the
Revolving Loan Note which is incorporated herein by reference and made part
hereof.
SECTION 2.03 Use Of Loan Proceeds. Advances under the Revolving Loan
Facility shall be used by the Borrowers exclusively for the following purposes:
(A) Letters of Credit;
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(B) Capital expenditures;
(C) Working capital and general corporate purposes; and
(D) Equipment lease financing.
SECTION 2.04 Interest Rates and Calculation of Interest.
(A) The outstanding principal balance of all Revolving Credit
Loans shall accrue interest at the Revolving Loan Rate.
(B) All unpaid Reimbursement Obligations for Letter of Credit
Disbursements shall accrue interest at the Default Rate.
(C) After the earlier of (i) Borrowers' knowledge of the
occurrence of an Event of Default and (ii) written notice of such Event of
Default from Bank to Borrowers, during the continuance of the Event of Default,
interest on the Loans shall automatically increase to and shall accrue at the
Default Rate. For purposes of this calculation, waivers of Events of Default
will be dated the actual date of grant rather than any "as of" date. Interest at
the Default Rate shall continue to accrue notwithstanding the entry of any
judgment hereon or on the Note, and all such judgments shall bear interest at
the Default Rate provided for herein.
(D) If, at any time the Revolving Loan Rate shall be finally
determined by any court of competent jurisdiction, governmental agency or
tribunal to exceed the maximum rate of interest permitted by any applicable
Laws, then, for such time as such Rate would be deemed excessive, application
thereof shall be suspended and there shall be charged in lieu thereof the
maximum rate of interest permissible under such Laws.
(E) Interest shall be payable monthly in arrears within one
Business Day after being billed by Bank to Borrowers, to be charged by Bank
against any Borrower's accounts with Bank as provided in Section 2.05(B) below.
(F) Anything in this Agreement to the contrary
notwithstanding, if any current or future United States federal or state law,
rule, regulation, guideline, request, instruction, treaty or official directive
adopted after the date hereof which has general applicability to commercial
banks, or the interpretation or application thereof after the date hereof by any
court or by any Government Authority charged with the administration thereof, or
the compliance with any guideline or request adopted after the date hereof which
has general applicability to commercial banks (whether or not having the force
of law) from any United States central bank or other Government Authority,
including without limitation, Regulation D promulgated by the Board of Governors
of the Federal Reserve System as now or hereafter in effect (all of the above
being collectively referred to as a "Triggering Action") (a) subjects the Bank
to any tax, levy, impost, duty, fee, charge, deduction or
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withholding of any nature or changes the basis of taxation with respect to
payments of principal, interest or other amounts due from the Borrowers in
respect of the Loans (except for taxes, fees or other charges based on, or
measured by, the income or profits of the Bank or any franchise or gross
receipts taxes or similar taxes imposed in lieu thereof); (b) imposes, modifies
or deems applicable in respect of the Loans any reserve, special deposit or
similar requirement against assets held by, or deposits in or for the account
of, or loans by the Bank, or any allocation of capital (whether or not primary
capital) by Bank; or (c) imposes or increases any fees, charges or other
out-of-pocket expenses applicable to the types of Loans made and to be made
hereunder; and the result of any of the foregoing is to increase the cost to the
Bank, reduce the income receivable by the Bank, or the return on its capital, or
require it to maintain additional capital, or impose any other expense upon the
Bank, in respect of the Loans and/or any advances or Letters of Credit made or
issued thereunder, by an amount which the Bank reasonably deems to be material,
the Bank shall from time to time notify the Borrowers thereof promptly after
becoming aware of such law, treaty, directive, interpretation, etc.; and the
Borrowers shall pay to the Bank, within 15 days after receipt of such notice,
that amount which shall fully compensate the Bank (on an after-tax basis) for
such increase in cost, reduction in income or return on capital, maintenance of
additional capital or additional expense; provided that Borrowers shall not be
required to pay any amount relating to any period more than 180 days prior to
the notice of such Triggering Action being given by Bank except to the extent of
any retroactive effect or application of the Triggering Action. The protection
of this Section 2.04(F) shall be available to the Bank regardless of any
possible contention of the invalidity or inapplicability of any law, regulation
or other condition which shall give rise to any demand by the Bank for
compensation hereunder; provided, however, in the event that such compensation
is later found to have been invalid or inapplicable at any time when it was
collected, the Bank shall reimburse the Borrowers therefor to the extent
authorized by applicable Government Authority, and to the extent Bank is in turn
reimbursed by the appropriate Government Authority for amounts collected by Bank
and remitted to such Government Authority. No failure to demand compensation
under this Section on any one occasion shall constitute a waiver of its right to
demand such compensation on any other occasion and no failure on the part of the
Bank to deliver any certificate in a timely manner shall in any way reduce any
obligations of the Borrowers to the Bank under this Section 2.04(F). Bank's
determination of the amount so due shall be prime facie evidence thereof, and
the Borrowers shall have the burden of proving the determination of such amounts
are incorrect. For purposes of the application of this Section, and in
calculating the amount necessary to compensate Bank or its parent company
hereunder, Bank shall determine the applicability of this provision and
calculate the amount payable to it hereunder in a manner consistent with the
manner in which it shall apply and calculate similar compensation payable to it
by other borrowers having provisions in their credit agreements comparable to
this Section.
(G) If, after the date hereof, Bank determines that the
applicability or adoption of any United States federal or state law, rule,
regulation, guideline, directive or request (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies, or any
change in any of the foregoing, or any change in the interpretation or
administration thereof by any Government Authority, central bank or comparable
agency charged with the interpretation
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or administration thereof, or compliance by Bank (or its parent company) with
any of the foregoing imposes, increases deems applicable or results in the
application of a requirement by Bank to allocate, maintain capital resources, or
capital ratio or similar requirement to Bank's commitment to make Loans
hereunder which has or would have the effect of reducing the return on the
Bank's capital (or on the capital of Bank's parent company) as a consequence of
making, having made or being committed to make any Loan pursuant hereto to a
level below that which Bank (or its parent company) could have achieved (taking
into consideration Bank's and such parent company's then existing policies with
respect to capital adequacy and assuming full utilization of Bank's capital) but
for such adoption, change or compliance, then: (i) Bank shall promptly after its
determination of such occurrence give notice thereof to the Borrowers; and (ii)
the Borrowers shall pay to Bank as an additional fee from time to time demand
such amount as Bank certifies to be the amount that will compensate it for such
reduction. A certificate of Bank claiming compensation under this Section shall
be conclusive in the absence of manifest error. Such certificate shall set forth
the nature of the occurrence giving rise to such compensation, the additional
amount or amounts to be paid to is hereunder and the method by which such
amounts were determined. For purposes of the application of this Section, and in
calculating the amount necessary to compensate Bank or its parent company
hereunder, Bank shall determine the applicability of this provision and
calculate the amount payable to it hereunder in a manner consistent with the
manner in which it shall apply and calculate similar compensation payable to it
by other borrowers having provisions in their credit agreements comparable to
this Section.
SECTION 2.05 Collections and Payments to Bank. (A) All payments of
interest on and principal of the Loans, all fees, expenses and all other sums
payable to Bank hereunder shall be paid directly to Bank at its Cherry Hill
banking office, 1701 Route 70 East, in immediately available funds, in such
currency of the United States of America as is, at the time of payment, legal
tender for the payment of public and private debts. To the extent Bank sends any
Borrower statements of any amounts due or outstanding hereunder for interest or
principal, such statements shall be considered correct and conclusively binding
on all Borrowers unless Borrowers notify Bank in writing to the contrary within
thirty (30) days of the date of any statement which they deem to be incorrect
specifying the reason for their position.
(B) Bank may (and is hereby irrevocably authorized to) charge
any of Borrowers' deposit accounts with Bank, and/or charge the Revolving Loan,
for any and all principal, Reimbursement Obligations, interest, fees, expenses
and any other amounts due from any Borrower to Bank hereunder and under any of
the Collateral Documents.
(C) Borrowers shall receive immediate credit for federal
funds, wire transfers or other funds which are immediately available to Bank;
all other funds which are not immediately available shall be subject to Bank's
standard published clearing procedures and clearing periods for uncollected
funds as such procedures and periods may change from time to time. Bank may, in
its sole discretion, charge any account of Borrowers with Bank for all of
Borrowers' Obligations to Bank as they become due from time to time under this
Agreement including without limitation,
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interest, principal, fees and reimbursement of Expenses. Alternatively, Bank
may, and without any obligation on Bank's part to do so, in its discretion (and
Borrowers hereby authorize Bank to) make a Loan under the Revolving Loan
Facility (subject to the terms and provisions of this Agreement) in a sum
sufficient to pay all interest accrued and payable on the Obligations and to pay
all costs, fees and Expenses owing hereunder.
SECTION 2.06 Due Date Extension. If any payment of principal of, or
interest on any of the Loans or any payment of any fee provided for herein or
any other amount due hereunder shall fall due on a day which is not a Business
Day of Bank, then such due date shall be extended to the next succeeding
Business Day of Bank and additional interest and fees shall accrue and be
payable for the period of such extension.
SECTION 2.07 Prepayment. (A) The Loans may be prepaid in whole or in
part and from time to time, provided that (i) all unpaid accrued interest on the
amount(s) prepaid shall be paid concurrently with any such prepayment.
(B) Mandatory Prepayments. If Borrowers, or any of them, sell
any of their Equipment (unless such sale does not require Bank's consent as
provided under Section 6.01(B) below) the Mortgaged Property or if any of such
Property is taken by condemnation or is lost, damaged or destroyed (unless
replaced to the extent permitted hereunder), Borrowers shall pay to Bank, unless
otherwise expressly agreed by Bank or already received by Bank, as and when
received, the proceeds received by Borrowers from such sale, condemnation, loss,
damage or destruction, with all such proceeds received by Borrowers applied
first to unpaid Expenses, then to accrued but unpaid interest on the Revolving
Loan Note and then to the outstanding balance of the Revolving Loan Note. Any
such payment applied to the balance of the Revolving Loan Note shall permanently
reduce the Maximum Revolving Loan Amount.
SECTION 2.08 Letters of Credit.
(A) Agreement to Issue; Existing Letters of Credit;
Termination; Cash Collateral.
(i) Upon the request of Borrowers, Bank shall, under
and subject to the terms and conditions hereof issue documentary and commercial
letters of credit for the account of Borrowers from time to time through but not
including the Revolving Loan Termination Date (a "Letter of Credit" and,
collectively, the "Letters of Credit"). Letters of Credit issued hereunder shall
be under terms customary for Bank, including provisions for draw, and except for
Existing Letters of Credit, having a term exceeding twelve (12) months or as may
otherwise be agreed to by Bank at the time of Borrowers' request for a Letter of
Credit, shall in no event have an expiry date exceeding twelve (12) months from
the date of issue.
(ii) Borrowers agree that all Existing Letters of
Credit shall be deemed to be Letters of Credit issued under this Agreement and,
except as otherwise expressly set forth herein
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to the contrary, shall be subject to all terms and provisions hereof applicable
to Letters of Credit.
(iii) Bank shall have the right, in its absolute
discretion and whether or not an Event of Default has occurred or is continuing
hereunder, to provide the beneficiary of any of the Letters of Credit with
notice of non-renewal in accordance with the provisions of the Letters of Credit
relating thereto.
(iv) In the event that any Letter of Credit remains
outstanding on the Revolving Loan Termination Date, Borrowers shall on said
Revolving Loan Termination Date provide Bank with cash or cash equivalents
acceptable to Bank in an amount equal to the face amount of all Letters of
Credit so outstanding, to be held by Bank as security for the Obligations. This
right to require cash collateral is in addition to the right of Bank to require
cash collateral upon the occurrence of an Event of Default as set forth in
Section 7 hereof.
(B) Letters of Credit Generally.
(i) Reimbursement of Letters of Credit Disbursements.
Each Borrower, jointly and severally, agrees to reimburse Bank for the amount of
each Letter of Credit Disbursement made by Bank on the corresponding Letter of
Credit Disbursement Date. Such obligation of each Borrower to reimburse Bank for
any such Letter of Credit Disbursement is herein referred to as a "Reimbursement
Obligation." Upon the presentation of any draft or demand for payment under any
Letter of Credit by the beneficiary thereof, Borrowers shall reimburse Bank on
the day on which such draft or demand is honored in an amount in same day funds
equal to the amount of such draft or demand. Unless Borrower shall have notified
the Bank prior to 11:00 A.M. on the date such draft or demand is honored that
Borrower intends to reimburse the Bank for the amount of such draft or demand
with funds other than the proceeds of Revolving Loans, Borrower shall be deemed
to have given notice to the Bank requesting the Bank to make Revolving Loans in
accordance with Section 2.01 herein on the day on which such draft or demand is
honored in an aggregate amount equal to the amount of such draft or demand.
Subject to satisfaction or waiver of the conditions specified in Section 3.02
herein, the Bank shall, on such day, make Revolving Loans in an aggregate amount
equal to the amount paid by the Bank under the Letter of Credit. If any such
Reimbursement Obligation is not paid in full by Borrowers to Bank on the
corresponding Letter of Credit Disbursement Date (for this purpose payments
received by Bank after 1:30 p.m., Philadelphia, Pennsylvania time on any
Business Day shall be deemed to have been made on the next succeeding Business
Day), the unpaid amount of such Reimbursement Obligation shall bear interest for
each day from the corresponding Letter of Credit Disbursement Date until payment
in full thereof (after, as well as before, judgment), payable on demand, at the
Default Rate.
(ii) Letter of Credit Charges and Fees. Each
Borrower, jointly and severally, agrees to pay on demand to Bank, as well as to
any confirming bank of any Letter of Credit required by the beneficiary thereof
to be confirmed as a condition to such beneficiary's acceptance thereof, with
respect to the amendment or transfer of any Letter of Credit and each
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drawing made under any Letter of Credit, documentary and processing fees and
charges in accordance with (i) Bank's standard fees and charges and (ii) such
confirming bank's fees and charges, all as in effect at the time of such
amendment, transfer or drawing, as the case may be. These fees and charges shall
be in addition to the Letters of Credit Fees provided in Section 2.07 hereof.
(iii) Obligations Absolute. All Reimbursement
Obligations of Borrowers arising from Letter of Credit Disbursements shall be
unconditional and absolute and joint and several and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances whatsoever
including, without limitation, the following circumstances: (i) any lack of
validity or enforceability of any Letter of Credit; (ii) the existence of any
claim, set-off, defense or other right which any Borrower may have at any time
against any beneficiary or any transferee of any Letter of Credit (or any Person
for whom any such beneficiary or transferee may be acting), or any other Person,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction (including any underlying transaction between any
Borrower or any of its subsidiaries or affiliates and the beneficiary for which
any Letter of Credit was procured); (iii) any draft, demand, certificate or any
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; or (iv) payment by Bank under any
Letter of Credit against presentation of a demand, draft, certificate or other
document which does not comply with the terms of the Letter of Credit, except to
the extent that Borrowers prove that such payment was negligence or willful
misconduct on the part of Bank; (v) the failure or delay on the part of Bank in
giving any notice hereunder; or (vi) any draw thereunder being a consequence of
Bank's non-renewal of any Letter of Credit.
(iv) Indemnification; Nature of Duties.
(a) In addition to amounts payable as
elsewhere provided in this Agreement, each Borrower, jointly and severally,
hereby indemnifies and holds harmless Bank from and against any and all claims,
damages, losses, liabilities, costs or expenses whatsoever which Bank may incur
(or which may be claimed against Bank by any Person) by reason of or in
connection with the issuance or transfer of, or payment or failure to pay under,
any Letter of Credit, or the involvement by Bank in any suit, proceeding or
action as a consequence, direct or indirect, of Bank's issuance of any Letter of
Credit, except for any such claims, damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, which were caused by the gross
negligence or willful misconduct of Bank in determining whether a certificate,
draft, statement or document presented under any Letter of Credit complied with
the terms of the Letter of Credit.
(b) As between Borrowers and Bank, Borrowers
assume all risks of the acts or omissions of the beneficiary or any transferee
of any Letter of Credit with respect to such beneficiary's or transferee's use
of the Letter of Credit. Bank shall not be liable or responsible for: (A) the
use which may be made of any Letter of Credit or the proceeds of any drawing
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thereunder or for any acts or omissions of the beneficiary or any transferee in
connection therewith; (B) the validity, sufficiency or genuineness of
certificates, drafts or documents presented under any Letter of Credit that
appear on their face to be in order, or of any endorsement thereon, even if any
of the same should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (C) payment by Bank under any Letter of
Credit against presentation of drafts, certificates or documents which do not
comply with the terms of the Letter of Credit, including failure of any such
drafts, certificates or documents to bear any reference or adequate reference to
the Letter of Credit, or for any failure of the beneficiary of any Letter of
Credit otherwise to comply fully with the conditions required in order to draw
under the Letter of Credit; (D) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or the proceeds thereof, in whole or
in part, which may prove to be invalid or ineffective for any reason; or (E) any
other circumstances whatsoever in making or failing to make payment under any
Letter of Credit, except only that Bank shall be liable to Borrowers to the
extent, but only to the extent, of any direct, as opposed to consequential,
damages suffered by Borrowers which Borrowers prove were caused by Bank's
negligence or willful misconduct in connection with the matters referred to in
clauses (B) through (E) above. In furtherance and not in limitation of the
foregoing, Bank may accept drafts, certificates or documents presented to it
under any Letter of Credit that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary, and any action taken or omitted by Bank under or in
connection with any Letter of Credit, if taken or omitted in good faith and
without willful misconduct or gross negligence, shall not put Bank to any
resulting liability to any Borrower.
(v) Payments to Bank. All payments to be made by
Borrowers to Bank hereunder in respect of Reimbursement Obligations due from
Borrowers shall be payable on the day when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived, and an
action therefor shall immediately accrue.
(vi) Application. Borrowers shall, as a condition to
the issuance by Bank of any Letter of Credit, execute and deliver to Bank's then
standard Letter of Credit Application and Agreement and such note or notes as
Bank may require to further evidence the Reimbursement Obligations of Borrowers.
SECTION 2.09 Fees.
Borrowers jointly and severally agree to pay Bank the
following fees:
(A) Letter of Credit Fees. One percent (1%) per annum (based
on a 360 day year) of the face amount of each outstanding standby Letter of
Credit, payable on issuance and annually in advance thereafter (if renewed or
extended), one quarter of one percent (1/4%) of the amount of and payable at the
time of each Letter of Credit Disbursement under each commercial Letter of
Credit, and an issuance fee of $35.00 for each Letter of Credit issued by Bank
hereunder. There will be no issuance fees for Existing Letters of Credit.
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(B) Unused Line Fee. A fee equal to one quarter of one percent
(.25%) per annum on the average unused portion of the Maximum Revolving Loan
Amount. The fee will be calculated on the basis of a 360-day year for actual
number of days elapsed, will be payable quarterly in arrears and will be
non-refundable. Any permanent reductions of the Maximum Revolving Loan Amount
will be taken into account in the calculation of this fee.
SECTION 2.10 Participations. (A) Borrowers agree that Bank may sell
assignments and participations in the Obligations to financial institutions and
other Persons who lend money in the ordinary course of their business, and
therefore:
(1) Bank may from time to time provide financial and
other information concerning the Borrowers to any other purchaser, participant
or prospective purchaser or participant, provided that, Bank will first have
such Person execute and deliver to Bank a confidentiality letter; and
(2) Should any purchaser default under its
obligations to fund any portion of its interest in the Loans, Bank will have no
obligation to fund (including by issuance of Letters of Credit) any Loans to the
extent of such purchaser's share thereof;
(B) If Bank desires to sell (other than as part of a bulk
assignment or participation) any interests or participations in the Revolving
Loan Note and Revolving Loan Facility constituting more than fifty percent (50%)
of the Revolving Loan Note and Revolving Loan Facility, Bank must first obtain
Borrowers' consent.
SECTION 2.11 Permanent Reductions of Maximum Revolving Loan Amount.
Borrowers may from time to time, at their option, permanently reduce the Maximum
Revolving Loan Amount on five (5) Business Days' prior written notice to Bank.
All such reductions shall be in minimum amounts of $1,000,000 and integral
multiples thereof and such reductions may not reduce the Maximum Revolving Loan
Amount below the amount of Bank Revolving Debt then outstanding (including
outstanding Letters of Credit and Reimbursement Obligations).
SECTION 3. CONDITIONS.
The making of the Loans hereunder is subject to the following
conditions precedent (all documents to be in form and substance satisfactory to
Bank and its counsel):
SECTION 3.01 Documents Required for the Closing. The Borrowers shall
have duly delivered to the Bank the following on the Closing Date:
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(A) This Agreement, the Note, the Pledge Agreement, stock
powers, stock certificates, the Collateral Documents and the other Loan
Documents duly executed on behalf of each Borrower;
(B) Payment of all Expenses;
(C) A certified (as of the date of the Closing) copy of
resolutions of board of directors of each Borrower authorizing the execution,
delivery and performance of this Agreement, the Notes, the Collateral Documents
and each other document and instrument to be delivered pursuant hereto and any
other instrument, agreement or document referred to herein;
(D) A certified (as of the date of the Closing) copy of each
Borrower's by-laws;
(E) A certificate (dated the date of the Closing) of each
Borrower's corporate secretary or assistant secretary as to the incumbency and
specimen signatures of the officers of each Borrower executing this Agreement,
the Notes, the Collateral Documents and each other document to be delivered
pursuant hereto or thereto;
(F) A copy, certified as of the most recent date practicable
by the appropriate Secretary of State, of each Borrower's articles or
certificate of incorporation, together with a certificate (dated the date of the
Closing) of each Borrower's corporate secretary or assistant secretary to the
effect that such articles or certificate of incorporation have not been amended
since the date of the aforesaid certification;
(G) Certificates, as of the most recent dates practicable, of
the Secretary of State of the states listed on Schedule 3.01(G) hereto with
respect to the Borrowers listed thereon, and the department of revenue or
taxation of each of the foregoing states, as to the qualification as a foreign
corporation, existence and good standing of each Borrower;
(H) Written opinions of counsel to Borrowers, dated the date
of the Closing and addressed to the Bank, in form and substance satisfactory to
Bank and its counsel;
(I) A certificate, dated the date of the Closing, signed on
behalf of each Borrower by the president of each Borrower to the effect that:
(1) The representations and warranties set forth in
Section 5 of this Agreement are true, complete and correct as of the date of the
Closing as though made on and as of the date of Closing;
(2) No Event of Default or Potential Default has
occurred and is continuing as of the date of the Closing;
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(3) There exists no material default in any of
Borrowers' obligations or in their compliance with applicable Law, and no
default or event which with the passage of time or the giving of notice, or
both, would constitute a default under Borrowers' current or prospective
obligations;
(4) All consents and approvals necessary for
Borrowers' execution, delivery and performance of the Loan Documents and the
consummation of the transactions contemplated herein; and
(5) No material adverse change has occurred in the
Borrowers' operations, business, prospects or financial condition since April
30, 1998.
(J) Searches referred to in Section 4.10 hereof.
(K) All documents, agreements and arrangements required by
Bank with respect to the Collateral including, but not limited to, all
Lockboxes, the Lockbox Agreements, and all Financing Statements.
(L) Certificates or Binders of Insurance in form and substance
satisfactory to Bank and evidencing Borrowers' maintenance of insurance policies
as required by this Agreement.
(M) Evidence satisfactory to the Bank that USVI directly or
indirectly through wholly-owned subsidiaries owns all of the issued and
outstanding stock of all other Borrowers and the Borrowers constitute all of the
Affiliates involved in USVI's business; and
(N) Amendment to the Mortgage and the other Mortgage Documents
duly executed by the appropriate Borrowers, together with title insurance, in
form and substance (and in amounts), and issued by an insurer, satisfactory to
Bank.
SECTION 3.02 Certain Events. At the time of the Closing and at the time
of each request for a cash advance or the issuance of a Letter of Credit under
the Revolving Loan Facility, (1) there shall be Available Revolving Credit in an
amount at least equal to the requested advance or Letter of Credit, (2) no Event
of Default or Potential Default shall have occurred and be continuing, (3)
Borrowers shall have performed and complied with all agreements, covenants and
conditions contained herein which are required to be performed or complied with
by Borrowers including, without limitation, the provisions of Section 6 hereof,
(4) no material adverse change in the financial or operating condition of the
Borrowers shall have occurred where in Bank's reasonable opinion there is no
reasonable likelihood that the condition or situation constituting, causing or
giving rise to such change will be reversed prior to the creation, existence or
occurrence of a default hereunder, (5) all representations and warranties of
Borrowers set forth in this Agreement are true and correct as in effect on the
date thereof, except changes not constituting an Event of Default hereunder, and
(6) there shall be no Proceedings pending or threatened relating to the Loans or
which
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could reasonably be expected or projected to have a Material Adverse
Effect upon the Collateral or the creditworthiness, condition, operation or
prospects of Borrowers.
SECTION 3.03 No Waiver of Rights: By completing the Closing hereunder,
or by making advances hereunder, Bank does not thereby waive a breach of any
warranty or representation made by Borrowers hereunder or under any agreement,
document, or instrument delivered to Bank or otherwise referred to herein, and
all of Bank's claims and rights resulting from any breach or misrepresentation
by Borrowers are specifically reserved by Bank.
SECTION 4. COLLATERAL SECURITY.
SECTION 4.01 Composition of the Collateral. The property in which a
security interest or other lien is granted pursuant to any of the provisions of
this Agreement, including this Section 4, and/or the documents executed and
delivered pursuant hereto, including the proceeds (including insurance proceeds)
thereof, is herein collectively called the "Collateral".
SECTION 4.02 Rights in Property Held by Bank. As security for the
prompt and full satisfaction of all of the Obligations, each Borrower hereby
assigns, transfers and sets over to Bank all of its right, title and interest in
and to, and grants Bank a lien on and a security interest in, (i) all amounts
that may be owing from time to time by Bank to such Borrower in any capacity,
including, without limitation, any balance or share belonging to any Borrower of
any deposit or other account with Bank, which lien and security interest shall
be independent of any right of set-off which Bank has or may have, and (ii) any
other property of any Borrower, real or personal, which may come into the
possession of Bank.
SECTION 4.03 Rights in Other Property. As further security for the
prompt and full satisfaction of all of the Obligations, each Borrower hereby
grants to Bank a continuing Lien on and security interest in, all of the
following owned by such Borrower, wherever located, whether now owned or
hereafter created or acquired, together with all replacements, accessions,
additions and substitutions therefor and cash and non-cash proceeds (including,
without limitation, insurance proceeds) thereof:
(A) Accounts, all contents of the Lockboxes and Cash
Collateral Account, and all of Borrowers' deposit
accounts with Bank;
(B) Chattel Paper;
(C) Contracts;
(D) Documents;
(E) Equipment and machinery;
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(F) Fixtures;
(G) General Intangibles (including, but not limited to,
all trademarks, tradenames and copyrights);
(H) Instruments;
(I) Leases;
(J) Inventory (including, but not limited to, all
returned or rejected merchandise);
(K) Investment Property;
(L) All Records pertaining to the Collateral;
(M) The stock of all Subsidiaries; and
(N) Monies and deposit accounts.
SECTION 4.04 Priority of Liens. The foregoing Liens shall be first and
prior Liens except for Permitted Liens designated as prior Liens in Schedule
4.04 hereto. Borrowers shall pay and discharge when due all taxes, levies, and
other charges upon said Collateral and upon the goods evidenced by any documents
constituting Collateral and shall defend Bank against and save it harmless from
all claims of any Person with respect to the Collateral. This indemnity shall
include reasonable attorneys' fees and expenses.
SECTION 4.05 Financing Statements.
(A) At Closing and thereafter as Bank deems necessary,
Borrowers will:
(1) Execute such financing statements and other
assignments and documents (including amendments thereto and continuation
statements thereof) as Bank may specify, which Bank may file in any jurisdiction
or office where any Borrower maintains an office or any of the Collateral and in
any other jurisdiction or office that Bank deems appropriate;
(2) Pay or reimburse Bank for all charges, fees and
taxes of filing or recording the same in such public offices as Bank may
designate; and
(3) Take such other steps as Bank may reasonably
direct, including, without limitation, noting of Bank's lien on the Collateral
and on any certificates of title evidencing any Borrower's ownership of the
Collateral, delivering to Bank all notes, documents of title, bills of lading,
chattel paper, instruments and any other similar Collateral.
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(B) In addition to the foregoing, and not in limitation
thereof:
(1) A carbon, photographic, or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof; and
(2) Upon and at any time during the continuance of an
Event of Default, to the extent lawful, each Borrower hereby appoints Bank as
its attorney-in-fact (without requiring Bank to act as such) to execute any
financing statement or other assignment or document in the name of such
Borrower, and to perform all other acts that Bank deems appropriate to secure,
perfect and continue its security interest in, and to protect and preserve, the
Collateral.
SECTION 4.06 Lockboxes. In addition to the Existing Lockboxes,
Borrowers shall establish and maintain lockboxes for USVI, SRO and BIO
("Lockboxes") and non-interest bearing depository accounts (each a "Cash
Collateral Account") with Bank subject to the provisions of this subparagraph
and the Lockbox Agreement to be executed by Borrowers and delivered to Bank.
Unless otherwise prohibited by applicable law, all collections of Accounts shall
be paid directly by Account Debtors into the Lockboxes and then deposited into
Bank's Cash Collateral Account or shall be wired by Account Debtors directly
into the Cash Collateral Account. Provided no Potential Default or Event of
Default is then outstanding, cleared funds in the Cash Collateral Account shall,
on a daily basis, be transferred to Borrowers' concentration operating account
at Bank and, upon the direction of a Specified Officer, be either (i) applied to
reduce the outstanding Indebtedness under the Revolving Loan Note (other than
the undrawn amount of issued and outstanding Letters of Credit), or (ii)
transferred to other operating accounts of Borrowers, with future advances and
extensions of credit to be made by Bank under the conditions set forth in
Section 2. While a Potential Default is outstanding, Bank may retain all funds
in the Cash Collateral Account. Upon the occurrence of an Event of Default, Bank
shall have all rights and remedies set forth in Section 8 herein. In the event
that collections of Accounts and proceeds of other Collateral are received at
any time by Borrowers, such collections shall be held in trust for the benefit
of Bank and shall be remitted, in the form received, to Bank for deposit in the
Cash Collateral Account immediately upon receipt by Borrowers. All funds
transferred from Borrowers' operating accounts shall, upon application to
Borrowers' Revolving Indebtedness to Bank, reduce the balance of the Revolving
Loans. Borrowers shall have no right of access to or withdrawal from the
Lockboxes or Bank's Cash Collateral Account(s).
SECTION 4.07 Amendment to Mortgage. As further security for the
Obligations, Borrower will execute and deliver to Bank an amendment to the
Mortgage. Said amendment shall be duly recorded where such recording is required
to constitute a valid Lien on the Property covered thereby. Such Borrower shall
deliver to Bank, at Borrower's expense, an amendment and/or endorsement to the
existing mortgagee title insurance policy in form and substance satisfactory to
Bank and shall insure a valid first Lien in favor of Bank on the Property
covered thereby, subject only to those exceptions acceptable to Bank and its
counsel.
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SECTION 4.08 Power of Attorney: Each of the officers of Bank is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
Borrowers (without requiring any of them to act as such) with full power of
substitution to do the following: (1) endorse the name of Borrowers upon any and
all checks, drafts, money orders and other instruments for the payment of monies
that are payable to Borrowers and constitute Proceeds; (2) execute in the name
of Borrowers any Financing Statements, schedules, assignments, instruments,
documents and statements that Borrowers are obligated to give Bank hereunder;
and (3) upon the occurrence of an Event of Default, do such other and further
acts and deeds in the name of Borrowers that Bank may deem necessary or
desirable to enforce and collect the Collateral or perfect Bank's Lien in the
Collateral.
SECTION 4.9 Landlords' Waivers; Other Third Persons. Each Borrower will
use its reasonable best efforts to cause each landlord of any of the premises
(other than retail locations) leased by such Borrower to execute and deliver to
Bank instruments, in form and substance satisfactory to the Bank and its
counsel, by which such landlord waives its rights, if any, to the Collateral and
permits Bank access to such premises at any time upon and during the continuance
of an Event of Default for purposes of repossession and/or otherwise exercising
its rights with respect to the Collateral. Each Borrower will deliver to Bank
all such consents, waivers (including without limitation mortgagee waivers) and
such other documents, in form and substance acceptable to Bank and duly executed
by any Person whose consent, waiver or recognition of Bank's rights in the
Collateral is required by Bank in order to fully perfect, protect, continue and
enforce the liens and security interests granted to Bank pursuant hereto and
pursuant to the Collateral Documents.
SECTION 4.10 Searches. Bank will have received prior to or at Closing,
and thereafter from time to time, at Borrowers' expense, Uniform Commercial
Code, judgment, federal and state tax and real estate lien searches against each
Borrower, showing that Bank's security interests in and Liens on the Collateral,
shall be, upon perfection, security interests in and liens thereon with the
priority rights agreed to in this Agreement, and the Collateral is not subject
to any Liens, claims and encumbrances except for Permitted Liens. Borrowers will
also deliver Good Standing and Corporate Tax Lien Search Certificates showing no
Liens on the Collateral and showing each Borrower to be subsisting and in good
standing in each jurisdiction identified on Schedule 5.01(A) to this Agreement.
SECTION 4.11 Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral, any and all excise, property, sales, and use taxes
imposed by any state, federal, or local authority on any of the Collateral or in
respect of the sale thereof shall be borne and paid by Borrowers. If Borrowers
fail to promptly pay any portion thereof when due, Bank may, at its option, but
shall not be required to, pay the same and charge Borrower therefor. Borrowers
agree to reimburse Bank promptly therefor with interest accruing thereon daily
at the Default Rate provided in this Agreement. All sums so paid or incurred by
Bank for any of the foregoing and all costs and expenses (including attorneys'
fees, expenses, and court costs) which Bank may incur in enforcing or protecting
its Lien on or rights and interest in the Collateral or any of its rights or
remedies under this or any other
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agreement between the parties hereto or in respect of any of the transactions to
be had hereunder, until paid by Borrowers to Bank with interest at the Default
Rate, shall be considered Obligations owing by Borrowers to Bank hereunder. Such
Obligations shall be secured by all Collateral and by any and all other
collateral, security, assets, reserves, or funds of Borrowers in or coming into
the hands or inuring to the benefit of Bank. Bank shall not be liable or
responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto (except for reasonable care in the custody thereof while
any Collateral is in Bank's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other Person whomsoever, but the same shall be at
Borrowers' sole risk.
SECTION 5. REPRESENTATIONS, WARRANTIES AND SURVIVAL.
SECTION 5.01 Representations and Warranties. To induce Bank to enter
into this Agreement, each Borrower jointly and severally represents and warrants
to Bank as to itself and as to each other Borrower that:
(A) Each Borrower is a corporation duly organized, validly
existing and in good standing under the Laws of its state of incorporation as
shown on Schedule 5.01(A) hereto; each Borrower has the lawful power to own its
property and to engage in the business it conducts, and is duly qualified and in
good standing in each of the jurisdictions where the nature of its business
makes such qualification necessary and where the failure to so qualify could
reasonably be expected or projected to have a Material Adverse Effect; the
states in which each Borrower is qualified to do business, and the addresses and
counties of all places of business of each Borrower, including all places where
any Borrower maintains Records and any item of tangible Collateral, are as set
forth in Schedule "5.01(A)" to this Agreement; and no Borrower has changed its
name, been the surviving entity in a merger, acquired any business (other than
another Borrower) or changed its principal executive office within five (5)
years and one (1) month prior to the date hereof, except as set forth in
Schedule "5.01(A)" to this Agreement;
(B) No Borrower has Indebtedness for money borrowed except as
set forth on Schedule 5.01(B) hereto; except as set forth on Schedule 5.01(B),
all such Indebtedness will be repaid in full out of the proceeds of the Loans
made on the date hereof. No Borrower is in material default with respect to any
of its existing Indebtedness, and the execution, delivery and performance of
this Agreement, the Notes and the Collateral Documents by Borrowers will not
(immediately, with the passage of time, or with the giving of notice and the
passage of time):
(1) Violate the charter, minutes or by-law provisions
of any Borrower or violate in any material respect any Laws or result in a
default under any contract, agreement or instrument to which any Borrower is a
party or by which any Borrower or its property is or may be bound, the result of
which default could reasonably be expected or projected to be a Material Adverse
Effect; or
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(2) Result in the creation or imposition of any
security interest in, or Lien or encumbrance upon, any of the assets of any
Borrower, except such as are in favor of Bank;
(C) Each Borrower has the power and authority to enter into
and perform this Agreement, the Notes, the Collateral Documents and the other
Loan Documents and to incur the Obligations herein and therein provided for, and
has taken all proper and necessary action, corporate or otherwise, to authorize
the execution, delivery and performance of this Agreement, the Notes, the
Collateral Documents and the other Loan Documents;
(D) This Agreement, the Notes, the Collateral Documents and
the other Loan Documents are valid, binding and enforceable against each
Borrower in accordance with their respective terms, except to the extent that
the enforceability thereof is limited by bankruptcy and similar laws affecting
the rights of creditors generally and equitable principles;
(E) Except as disclosed in Schedule 5.01(E) to this Agreement,
there are no judgments or judicial or administrative orders or proceedings or
other suits, claims or other litigation (collectively, "Proceedings") pending,
or threatened, against or affecting any Borrower in any court or before any
governmental authority or arbitration board or tribunal, and no Borrower is in
violation of any order of any court, governmental authority, arbitration board
or tribunal or administrative agency, or any applicable statute, regulation or
ordinance of the United States of America, or of any state, city, town,
municipality, county or of any other jurisdiction, or of any agency thereof
(including without limitation, environmental laws and regulations), which could
reasonably be expected or projected to have a Material Adverse Effect. Neither
the nature of Borrowers or of their respective businesses and activities, nor
any relationship between Borrowers and any other Person, nor any circumstance
affecting Borrowers in connection with the issuance or delivery of this Loan
Agreement and the other Loan Documents, is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Government Authority on the part of Borrowers in conjunction with the execution
and delivery of this Agreement or the other Loan Documents.
(F) Borrowers have good and marketable title to all
Collateral, free from Liens (other than Permitted Liens) and free from the
claims of any Person other than Bank. No Borrower has agreed or consented to
cause or permit any of its Property whether now owned or hereafter acquired to
be subject in the future (upon the happening of a contingency or otherwise), to
a Lien not permitted by this Agreement.
(G) Schedule 5.01(G) hereto accurately sets forth all
locations occupied or utilized by each Borrower as lessee, together with the
name and address of the lessor and, if other than the lessor, the record owner
thereof, and the date of the applicable Lease; all such leases are in full force
and effect and each Borrower is in material compliance with the terms of each
lease;
(H) The annual audited consolidated financial statements of
Borrowers for the twelve (12) months ended January 31, 1998, including balance
sheet and the related statements of
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income, cash flows and retained earnings for the year then ended, all
accompanied by reports thereon from Borrowers' independent certified public
accountants, (complete copies of which have been delivered to Bank), have been
prepared in accordance with GAAP and present fairly the financial position of
Borrowers' as of such date and the results of their operations for all periods
covered thereby. The consolidated financial statements of Borrowers at and for
three (3) months ended April 30, 1998, including balance sheet and the related
statements of income, cash flows and retained earnings, have been prepared in
accordance with GAAP and present fairly the financial positions of Borrowers as
of such date and the results of their operations for the period covered
therein). Borrowers have no material debts, liabilities or obligations which are
not fully reflected in such financial statements or in the notes hereto. Since
January 31, 1998, there has been no Material Adverse Change in the business,
operations, assets, liabilities, financial or other condition of Borrowers. All
financial statements to be provided to Bank by or on behalf of Borrowers
(including, but not limited to, the Financial Statements) do and will fairly and
fully present in accordance with GAAP consistently applied the financial
condition of Borrowers as of the date(s) thereof and the results of operations
for the periods covered thereby subject, in the case of interim statements only,
to normal year-end adjustments;
(I) As of the date of the most recent Financial Statements, no
Borrower had any Indebtedness of any nature (including, without limitation,
liabilities for taxes and any interest or penalties relating thereto) required
to be reflected therein, except to the extent reflected (in a footnote or
otherwise) and reserved against in the Financial Statements or as disclosed in
or permitted by this Agreement. No Borrower knows of any basis for the assertion
against it of any material Indebtedness of any nature not fully reflected and
reserved against in the Financial Statements. Since the date of the latest
financial statements delivered to Bank, there has not been a Material Adverse
Change in the operations, business or financial condition of Borrowers. Each
Borrower is solvent, is able to pay its debts as they become due and has capital
sufficient to carry on its business and all businesses in which it is about to
engage, and now owns property having a value both at fair valuation and at
present fair salable value greater than the amount required to pay such
Borrower's debts. No Borrower will be rendered insolvent by the execution and
delivery of this Agreement or any of the other Loan Documents or by the
transactions contemplated hereunder or thereunder;
(J) Each Borrower has filed all federal, state and local tax
returns and other reports as required by Law to be filed by it prior to the date
hereof, has paid or caused to be paid all taxes, assessments and other
governmental charges that are due and payable prior to the date hereof, and has
made adequate provision for the payment of such taxes, assessments or other
charges accruing but not yet payable, where the failure to do any of the
foregoing could reasonably be expected or projected to have a Material Adverse
Effect. No Borrower has knowledge of any deficiency or additional assessment
against it in connection with any taxes, assessments or charges not provided for
on its books the failure to pay any of which could reasonably be expected or
projected to have a Material Adverse Effect;
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(K) Except as otherwise disclosed in Schedule "5.01(K)" to
this Agreement, each Borrower has complied with all applicable Laws the
noncompliance with which could reasonably be expected or projected to have a
Material Adverse Effect with respect to (1) restrictions, specifications or
other requirements pertaining to products that it manufactures and sells or to
the services it performs, or that it intends to manufacture, sell or perform,
(2) the conduct or planned conduct of its business operations, and (3) the use,
maintenance and operation or planned use, maintenance and operation of the real
and personal property owned or leased by it in the operation or planned
operation of its business. Schedule "5.01(K)" to this Agreement discloses any
and all such noncompliance by any Borrower or Affiliate with all such applicable
Laws as of the date hereof;
(L) No Borrower has been or intends to be a party to a merger,
acquisition, consolidation or reorganization, and Borrowers have used no other
name, tradestyle or designation, except as set forth in Schedule 5.01(L).
Borrower has registered all fictitious names listed on Schedule 5.01(L);
(M) All necessary consents, approvals or authorizations of, or
filing, registration or qualification with, any Person required to be obtained
by any Borrower in connection with the execution and delivery of this Agreement,
the Notes, the Collateral Documents and the other Loan Documents or the
undertaking or performance of any Obligation hereunder or thereunder has been
obtained. No further action need be taken to perfect the Liens granted to Bank,
other than the filing of the Trademark Assignment with the Patent and Trademark
Office, the filing of financing and continuation statements under the Code or
other applicable law, continued possession by Bank of that portion of the
Collateral constituting instruments or documents, the processing of Lien
notations on motor vehicle title certificates, and the recording of the Mortgage
and other Mortgage Documents;
(N) No Borrower maintains, contributes to or contributed to
any employee benefit plan other than as set forth in Schedule "5.01(N)" hereto.
Each employee benefit plan (including without limitation those subject to ERISA)
maintained by any Borrower or to which any Borrower contributed or contributes
meets the minimum funding standards established in Section 302 of ERISA and
complies in all material respects with all applicable requirements of ERISA and
of the Internal Revenue Code and with all applicable rulings and regulations
issued under the provisions of ERISA and the Internal Revenue Code, and no
Prohibited Transaction or reportable event (other than an event for which the
requirement to report has been waived), within the meaning of Section 4043 of
ERISA ("Reportable Event"), has occurred and is outstanding with respect to any
employee benefit plan of any Borrower. Furthermore, no employee benefit plan,
including any pension plan, has asserted or threatened to assert, or because of
any action taken or contemplated to be taken by any Borrower would be entitled
to assert, a claim or demand for withdrawal liability under ERISA as a result of
any withdrawal from any said plan by any Borrower or any member of its
Controlled Group which has occurred on or before the date hereof or which could
take place after the date hereof other than the unfunded pension liability, if
any, which may exist in the event SRO withdraws
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from the SRO multiemployer plan disclosed on Schedule 5.01(N) hereto;
(O) No Borrower is engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of the Loans will be used, directly or indirectly, to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock. No Borrower is an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended;
(P) Each Borrower has obtained all licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its property and assets and to the conduct of its business, which violation or
failure to obtain could reasonably be expected or projected to have a Material
Adverse Effect;
(Q) No Borrower is a guarantor or surety of, or otherwise
responsible or liable in any manner with respect to, any debt, liability,
obligation or undertaking of any other Person except as set forth in the
Financial Statements;
(R) No Borrower has knowledge of any violations of any
Environmental Laws relating to the Collateral or to the operations and
properties of any Borrower;
(S) No Borrower has received a summons, citation, notice,
directive, letter or other communication, written or oral, from any state or
federal agency concerning any intentional or unintentional action or omission by
any Borrower resulting in any material releasing, spilling, leaking, pumping,
pouring, emitting, emptying, dumping or otherwise disposing of Hazardous Waste
(as defined in 12 U.S.C. Section 6903(5)) or Hazardous Substance (as defined in
42 U.S.C. Section 9609(14));
(T) All information, reports and other papers and data
furnished and to be furnished to the Bank by Borrowers (including, but not
limited to, all financial information) are and will be, at the time the same are
so furnished, accurate, correct and complete in all material respects;
(U) USVI owns, directly or indirectly through the ownership of
another Borrower, all of the issued and outstanding shares of the capital stock
of all of the other Borrowers. Except as set forth on Schedule 5.01(U) attached
hereto, USVI has no Subsidiaries or Affiliates other than as set forth in
Schedule 5.01(U) hereto;
(V) No Borrower has any rights or licenses with respect to any
registered patents, trade names, trademarks or copyrights, other than as set
forth in Schedule 5.01(V) hereto;
(W) Borrowers maintain insurance coverage as set forth in
Schedule 5.01(W) hereto;
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(X) There is no subordinate debt;
(Y) Each Account arises out of a completed, bona fide sale and
delivery of goods or rendition of services by such Borrower(s) in the ordinary
course of business.
(Z) This Agreement and the other Loan Documents are effective
to create in favor of the Bank legal, valid and enforceable Liens in all right,
title and interest of the Borrowers in the Collateral, and when Financing
Statements have been filed in the offices in the jurisdictions listed in
Schedule 5.01(A) hereto under Borrowers' names, Borrowers will have granted to
Bank, and Bank will have perfected first priority Liens in the Collateral,
superior in right to any and all other Liens, existing or future; and
(AA) No representation or warranty by Borrowers in this
Agreement or any of the other Loan Documents and no information in any
statement, certificate, schedule on other document furnished or to be furnished
to Bank pursuant hereto, or in connection herewith, contains or will contain any
untrue statement of a material fact necessary to make the statements contained
herein or therein not misleading. There is no fact known to any officer of any
Borrower which Borrowers have not disclosed to Bank in writing, which materially
affects adversely or may materially affect adversely any Borrowers' Property,
business, prospects or financial condition or the ability of any Borrower to
perform this Agreement.
(BB) Borrowers have complied with all requirements of the SEC.
(CC) Each Borrower has reviewed its operations with a view to
assessing whether its business or operations will, in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data, be vulnerable to any significant risk that computer
hardware, Software or any equipment containing embedded microchips used in their
business or operations will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000. Each Borrower has
taken all action necessary to assure that there will be no Material Adverse
Change to any Borrower's business by reason of the advent of the year 2000. Each
Borrower represents and warrants that the Software is and shall remain century
compliant. "Century Compliant" means that such Software is capable and will
remain capable of providing accurate results using data having date ranges
spanning the twentieth (20th) and twenty first (21st) centuries (the Y2K
Period). Without limiting the generality of the foregoing, each Borrower
represents and warrants that all such Software can currently and shall, during
the Y2K Period, continue to (a) manage and manipulate data involving all dates
within the Y2K Period (including the fact that the year 2000 is a leap year)
without functional or data abnormality related to such dates; (b) manage and
manipulate data involving all dates within the Y2K Period without inaccurate
results related to such dates; (c) have user interfaces and data fields
formatted to distinguish between dates within the Y2K Period; and (d) store all
core application data in a format that includes indications of the millennium,
century, and decade as well as the actual year.
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SECTION 5.02 Survival. By completing the Closing, Bank does not thereby
waive any breach of warranty or misrepresentation made by any Borrower
hereunder, or under any other document or agreement delivered to Bank at Closing
or otherwise referred to herein, and all of Bank's claims and rights resulting
from any breach or misrepresentation by Borrowers is expressly reserved by Bank.
All of the foregoing representations and warranties set forth in this Section 5
shall survive until all Obligations hereunder are paid and satisfied in full.
SECTION 5.03 Reaffirmation of Representations and Warranties. Each
request by Borrowers that Bank make an advance or issue a Letter of Credit under
the Revolving Loan shall, as of the date of such request, constitute (A) a
representation and warranty by each Borrower to Bank that no Event of Default or
Potential Default exists hereunder, and (B) a reaffirmation of each and every
one of the representations and warranties of Borrowers contained in Section 5.01
as if made as of the date of such request, except to the extent of changes which
do not and could not reasonably be expected or projected to constitute an Event
of Default or a Potential Default under this Agreement.
SECTION 6. COVENANTS.
SECTION 6.01 Affirmative Covenants. Each Borrower covenants and agrees
with Bank that, so long as any of the Obligations hereunder remain unsatisfied
or Bank has any commitment in connection herewith, it will and will cause each
other Borrower to comply with the following covenants:
(A) Borrowers will furnish to Bank:
(1) Within ninety (90) days after the end of each
other Fiscal Year of Borrowers, a copy of Borrowers' Annual Financial
Statements;
(2) Within forty-five (45) days after the end of each
Fiscal Quarter, a copy of Borrowers' Quarterly Financial Statements, prepared
under the supervision of USVI's chief financial officer and certified by such
officer on behalf of Borrowers as fairly presenting, in accordance with GAAP
consistently applied, the financial condition and results of operations of
Borrowers at the dates and for the periods covered thereby subject to normal
year-end adjustments, together with a list of all Subsidiaries formed or
otherwise acquired during such Fiscal Quarter ("New Subsidiaries");
(3) Within thirty (30) days after the end of each
month, a copy of Borrowers' Monthly Financial Statements, prepared under the
supervision of USVI's chief financial officer and certified by such officer on
behalf of the Borrowers as fairly presenting, in accordance with GAAP
consistently applied, the financial condition and results of operations of
Borrowers at the date and for the periods covered thereby subject to normal
year-end adjustments;
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(4) Within thirty (30) days after the end of each
month and forty-five (45) days after the end of each Fiscal Quarter, a
compliance certificate prepared under the supervision of USVI's chief financial
officer setting forth and certifying (i) Borrowers' compliance or non-compliance
with the financial covenants set forth in Section 6.01(M) hereof and (ii)
monthly and Fiscal Year-to-Date Same Store Sales information and comparisons for
the current and prior Fiscal Years (which shall provide separate information for
stores which have been open and operating for less than one full Fiscal Year),
certified as true, correct and complete by USVI's chief financial officer on
behalf of Borrowers;
(5) As soon as available, and in any event no later
than fifteen (15) days prior to the end of each Fiscal Year of Borrowers,
Projections of Borrowers for the forthcoming three (3) Fiscal Years, year by
year, and for the forthcoming Fiscal Year, month by month;
(6) Promptly upon its becoming available, one copy of
each financial statement, report, notice or statement sent by USVI to the SEC or
its stockholders generally; and
(7) Such data, reports, statements and information,
financial or otherwise, as Bank may request, including, without limitation,
monthly consolidated Accounts analysis.
(B) Each Borrower will maintain its material Inventory,
Equipment and other properties in good condition and repair (normal wear and
tear excepted), and will pay and discharge or cause to be paid and discharged
when due, the cost of repairs to or maintenance of the same, and will pay or
cause to be paid all rental payments due. Each Borrower hereby agrees that, in
the event it fails to pay or cause to be paid any such payment, Bank may (but is
under no obligation to) with five (5) days' prior notice to Borrowers do so and
shall be reimbursed therefor by Borrowers on demand, with interest at the
Default Rate until paid. Immediately on request therefor by Bank, Borrowers
shall deliver to Bank any and all evidence of ownership, if any, of any of the
Equipment (including, without limitation, certificates of title and applications
for title). Borrowers shall maintain accurate records itemizing and describing
the kind, type, quality, quantity and value of their Equipment and all
dispositions made in accordance with the terms hereof, and shall furnish Bank
with a current schedule containing the foregoing information on at least an
annual basis and more often if requested by Bank. No Borrower will sell, lease
or otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Bank; provided, however, that the foregoing
restriction shall not apply, for so long as no Potential Default or Event of
Default exists, to dispositions of such Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $150,000 or less.
(C) (1) Borrowers will carry insurance, (without any
co-insurance provision) including all-risk casualty, business interruption and
workmen's compensation insurance, in form and amount with insurers reasonably
satisfactory to Bank, against fire (with extended coverage), liability and such
other hazards as are customary with companies in the same or similar business in
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the same area as Borrowers and cause Bank's Liens to be endorsed on all policies
of insurance as mortgagee and loss payee, so that: (i) all payments for losses
will be paid solely to Bank; (ii) the policy shall cover and insure Bank's
interest in the Collateral notwithstanding any act or neglect of Borrowers, and
(iii) the insurer shall furnish Bank upon request with evidence of such
insurance together with a certificate thereby requiring not less than thirty
(30) days written notice to Bank prior to cancellation or termination. Borrowers
shall also comply with the insurance provisions contained in the Collateral
Documents. Bank agrees that Borrowers' current insurers, insurance coverages and
amounts are satisfactory to it based on the value of the Collateral on the date
hereof.
(2) In the event of loss, Borrowers will give
immediate notice thereof to Bank and Bank may make proof of loss if not made
promptly by Borrowers and may negotiate settlement of any claims on behalf of
Borrowers. Each insurance company concerned is hereby authorized and directed to
make payment under such insurance, including return of unearned premiums,
directly to Bank instead of to Borrowers and Bank jointly, and Borrowers
irrevocably appoint Bank as Borrowers' attorney-in-fact to endorse any draft
therefor and to sign any and all proofs of claim, releases and all other
documents relating thereto. Bank shall have the right to retain and apply the
proceeds of any such insurance to reduction of the Obligations in any order as
Bank may determine (such reduction if applied to the Revolving Loans
constituting a permanent reduction of the Maximum Loan Amount), unless (i) the
loss is less than $250,000, (ii) Borrowers request in writing to Bank within 15
days of the receipt of the insurance proceeds that they request such proceeds be
applied to restoration, repair or replacement of the damaged property, and (iii)
all of the conditions set forth in Section 3.02 shall be satisfied, in which
case Bank shall honor such request, provided that if the cost of restoration,
repair or replacement is more than $250,000, such proceeds shall be deposited
with and held by Bank and advanced to Borrowers only upon written request to
Bank for the payment of such repairing, restoring or replacing of the damaged
property upon fulfillment, to the reasonable satisfaction of Bank, of the
following conditions:
(i) Bank shall have first approved the
property and/or work constituting the repair, restoration or replacement of the
damaged property and that all replacement property shall be Collateral in which
Bank has a perfected first Lien;
(ii) Borrowers shall have executed and
delivered to Bank an assignment of the contract relating to such repair,
restoration or replacement, which assignment shall be in form and substance
acceptable to Bank;
(iii) Bank shall be satisfied, in its
reasonable discretion, that the insurance proceeds and such other funds to be
made available by Borrowers therefor are sufficient to properly and fully
repair, restore or replace the damaged property; and
(iv) Prior to any disbursement, Borrowers
shall have satisfied Bank, in Bank's reasonable discretion, that the proposed
payee is entitled to such disbursement for goods delivered or completed work
properly done (or that Borrowers have paid such payee for such goods
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or work and are entitled to reimbursement therefor).
Notwithstanding anything contained herein to the contrary, Bank may
require Borrowers to enter into a separate written agreement which shall include
the aforementioned requirements and such other provisions as shall be reasonably
required by Bank before Bank disburses any insurance proceeds for repair,
restoration or replacement.
(3) Borrowers will carry liability insurance in such
amounts, against such risks and with such insurance companies as are reasonably
acceptable to Bank, and will cause Bank to be named as an additional insured on
all such policies. Bank agrees that Borrowers' current insurers, insurance
coverages and amounts are satisfactory to it based upon Borrowers' business
operations on the date hereof.
(D) Each Borrower will pay or cause to be paid when due, all
taxes, assessments and charges or levies imposed upon such Borrower or on any of
its property or which it is required to withhold and pay over, except where
contested in good faith by appropriate proceedings with adequate reserves
therefor having been set aside on its books; provided, however, that Borrowers
will pay or cause to be paid all such taxes, assessments, charges or levies
forthwith whenever foreclosure on any Lien that attaches (or security therefor)
appears imminent.
(E) Each Borrower will maintain complete and accurate books
and records and will permit access by Bank during business hours to such books
and records and will permit Bank to inspect its properties and operations. Once
each year and additionally after and during the continuance of any Event of
Default, Bank may at any time and from time to time on reasonable notice to
Borrowers (except that no notice will be required after the occurrence and
during the continuance of an Event of Default) audit and conduct examinations of
any Borrower's books and records and Collateral and make abstracts and copies
thereof. After the occurrence and during the continuance of an Event of Default,
Borrowers shall pay Bank's then standard fees therefor; otherwise Borrowers
shall only be responsible for Bank's reasonable out of pocket expenses therefor.
(F) Each Borrower will take all necessary steps to (1)
preserve and qualify its existence, rights, privileges, licenses and franchises
and (2) comply with all present and future contracts applicable to it in the
operation of its business, where the failure to do so could have a Material
Adverse Effect.
(G) Each Borrower will give immediate notice to the Bank of
(i) any litigation to which it is a party if an adverse decision therein could
have a Material Adverse Effect, and (ii) the institution of any other suit or
any administrative proceeding involving any Borrower that could have a Material
Adverse Effect.
(H) Each Borrower will pay when due (or within applicable
grace periods) all Indebtedness, rental payments and other liabilities and
obligations to third Persons, except when the
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amount thereof is being contested in good faith, by appropriate proceedings and
with adequate reserves therefor being set aside on its books. If any Borrower
defaults in the payment of any principal or rental (or installment thereof) of,
or interest on, any Indebtedness for money borrowed in excess of $25,000 in the
aggregate or rental or other obligations in excess of $25,000 in the aggregate,
Bank shall have the right, in its discretion and without obligation, to pay such
interest, principal, rental or obligation for the account of Borrowers and shall
be reimbursed therefor on demand by Borrowers, with interest at the Default Rate
until paid.
(i) Each Borrower will notify Bank promptly upon becoming
aware of the occurrence of any Event of Default or Potential Default or of any
fact, condition or event that, with the giving of notice or passage of time, or
both, could become an Event of Default or Potential Default, or of the failure
of any Borrower to observe any of its undertakings hereunder. Borrowers agree
that immediately upon becoming aware of any development or other information
outside the ordinary course of business and excluding matters of a general
economic, financial or political nature which may materially and adversely
affect their respective Property, businesses, prospects, or financial condition
or their respective ability to perform under this Agreement, they shall give to
Bank telephonic or telegraphic notice specifying the nature of such development
or information and such anticipated effect. In addition, such verbal
communication shall be confirmed by written notice thereof to Bank on the same
day such verbal communication is made.
(J) All Collateral, other than Inventory in transit and motor
vehicles, will at all times be kept by Borrower at one or more of the business
locations set forth in Schedule 5.01(A) and shall not, without the prior written
approval of Bank, be moved therefrom except, prior to an Event of Default and
Bank's acceleration of the maturity of the Obligations in consequence thereof,
for (A) sales of Inventory in the ordinary course of business; (B) the storage
of Inventory at locations within the continental United States other than those
shown on Schedule 5.01(A) if (I) Borrower gives Bank written notice of the new
storage location at least sixty (60) days prior to storing Inventory at such
location, (ii) Bank's Lien in such Inventory is and continues to be a duly
perfected, first priority Lien thereon, (iii) neither Borrowers' nor Bank's
right of entry upon the premises where such Inventory is stored, or its right to
remove the Inventory therefrom, is in any way restricted, (iv) the owner of such
premises agrees with Bank not to assert any landlord's, warehouseman's, bailee's
or other Lien in respect of the Inventory for unpaid rent or storage charges
(provided that this subparagraph shall not be applicable to Borrowers' retail
store facilities), and (v) all negotiable documents and receipts in respect of
any Collateral maintained at such premises are promptly delivered to Bank; (C)
temporary transfers (for a period not to exceed 3 months in any event) of
Equipment from a location set forth on Schedule 5.01(A) to another location if
done for the limited purpose of repairing, refurbishing or overhauling such
Equipment in the ordinary course of Borrowers' business and (D) removals in
connection with dispositions of Equipment that are expressly authorized herein.
(K) Each Borrower will (1) fund all its employee benefit plans
in accordance with no less than the minimum funding standards of Section 302 of
ERISA, (2) furnish Bank, promptly after the filing of the same, with copies of
all material reports or other material statements filed with the
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United States Department of Labor, the Pension Benefit Guaranty Corporation
("PBGC") or the Internal Revenue Service ("IRS") with respect to all such Plans
which reflect or relate to a material unfunded liability, or which any Borrower,
or any member of a Controlled Group, may receive from the United States
Department of Labor, the IRS or the PBGC, with respect to all such employee
benefit plans which reflect or relate to a material unfunded liability, (3)
promptly advise Bank of the occurrence of any Reportable Event or Prohibited
Transaction with respect to any such employee benefit plan(s) and the action
which Borrowers propose to take with respect thereto; and (4) promptly advise
Bank of any material claim for withdrawal liability made against it or a member
of its Controlled Group.
(L) All Financial Statements to be furnished by Borrowers to
Bank shall fairly present in accordance with Generally Accepted Accounting
Principles the financial condition of Borrowers as of the date(s) thereof and
the results of the operations for the periods covered thereby, subject, as to
interim statements only, normal year-end adjustments.
(M) Borrowers will, as of the end of each applicable month,
Fiscal Quarter and Fiscal Year, be in compliance with the financial covenants
set forth in Exhibit 6.01(M) hereto. Such financial covenants shall be
appropriately adjusted if Borrowers change any accounting principles with the
consent of their independent accountants.
(N) Borrowers will at all times maintain with Bank all of
their bank accounts, except that Borrowers may maintain bank accounts with other
banks for the purposes of (i) maintaining a payroll account for SRO and BIO
employees, (ii) maintaining an SRO disbursement account, the balance of which
shall not at any time exceed $25,000, (iii) petty cash accounts, the balance of
which shall not at any time exceed $2,000 individually or $120,000 in the
aggregate and (iv) receiving cash deposits from their retail locations
(Borrowers will deposit all cash receipts (including checks) into such
accounts), and all such deposits will be automatically wired into the Cash
Collateral Account.
(O) Each Borrower shall at all times be compliance in all
material respects with any and all Laws, and shall obtain and maintain any and
all licenses, permits, franchises or other governmental authorizations necessary
to the ownership of its Property or to the conduct of its businesses, which
violation or failure to obtain may materially adversely affect the business,
prospects, Property or financial condition of each Borrower. Each Borrower shall
timely satisfy all assessments, fines, costs and penalties imposed by any
Government Authority against such Borrower or any of Borrowers' Property.
(P) Each Borrower will notify Bank in writing at least fifteen
(15) Business Days in advance of any change in the location of any Borrower's
chief executive office and/or the location of any of the Collateral.
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(Q) Each New Subsidiary shall execute and deliver to Bank all
such instruments and documents as Lender shall require to make such New
Subsidiary a Borrower hereunder and a maker of the Notes.
(R) After the occurrence of an Event of Default, Borrowers
shall execute and deliver to Bank formal written assignments of all of their
Accounts weekly, which shall include all Accounts that have been created since
the date of the last assignment, together with copies of invoices, invoice
registers or other evidence of the sale related thereto. Borrowers shall keep
accurate and complete records of their Accounts and all payments and collections
thereon and shall submit to Bank on a weekly basis a sales and collections
report from the preceding week, in form satisfactory to Bank. On or before the
twentieth (20th) day of each month from and after the date hereof, Borrowers
shall deliver to Bank, in form acceptable to Bank, a detailed aged trial balance
of all Accounts existing as of the last day of the preceding month, specifying
the names, addresses, face value, dates of invoices and due dates for each
Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and,
upon Bank's request therefor, make available to Bank copies of proof of delivery
and the original copy of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
such other matters and information relating to the status of then existing
Accounts as Bank shall reasonably request.
(S) Upon the granting of any discounts, allowances or credits
by Borrowers, or any of them, that are not shown on the face of the invoice for
the Account involved, Borrowers shall promptly report such discounts, allowances
or credits, as the case may be, to Bank and in no event later than the time of
its submission to Bank of the next Schedule of Accounts as provided in Section
6.01(R). Upon and after the occurrence of an Event of Default, Bank shall have
the right to settle or adjust all disputes and claims directly with the Account
Debtor and to compromise the amount or extend the time for payment of the
Accounts upon such terms and conditions as Bank may deem advisable, and to
charge the deficiencies, costs and expenses thereof, including attorneys' fees,
to Borrowers. If an Account includes a charge for any tax payable to any
Government Authority, Bank is authorized, in its sole discretion, to pay the
amount thereof to the proper Government Authority for the account of Borrowers
and to charge Borrowers hereunder therefor. Borrowers shall notify Lender if any
Account includes any tax due to any Government Authority and, in the absence of
such notice, Lender shall have the right to retain the full proceeds of the
Account and shall not be liable for any taxes to any Government Authority that
may be due by Borrowers, or any of them, by reason of the sale and delivery
creating the Account. Whether or not a Potential Default or an Event of Default
has occurred, any of Bank's officers, employees or agents shall have the right,
at any time or times hereafter, in the name of Bank, any designee of Bank or
Borrowers, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrowers shall cooperate
fully with Bank in an effort to facilitate and promptly conclude any such
verification process.
(T) To expedite collection, Borrowers shall (subject to the
provisions below) endeavor in the first instance to make collection of its
Accounts for Bank. All remittances received
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by any Borrower on account of Accounts (and proceeds of all other Collateral)
shall be held as Bank's property by such Borrower as trustee of an express trust
for Bank's benefit and such Borrower shall immediately deposit same, in kind, in
the Lockbox or the Cash Collateral Account. Lender retains the right following
the occurrence of an Event of Default, to notify Account Debtors that Accounts
have been assigned to Bank and to collect Accounts directly in its own name and
to charge the collection costs and expenses, including attorneys' fees to
Borrowers. Bank has no duty to protect, insure, collect or realize upon the
Accounts or preserve rights in them.
(U) In the event any amounts due and owing in excess of
$50,000.00 are in dispute between a Borrower and any Account Debtor, Borrowers
shall provide Bank with written notice thereof at the time of submission of the
next Schedule of Accounts, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy.
(V) Borrowers will furnish Bank with Inventory reports for all
Inventory at such times as Bank may request, but at least once each Fiscal
Quarter. Such reports shall be in form and detail satisfactory to Bank.
Borrowers shall conduct a physical inventory of the SRO Inventory and Inventory
located at the Lab no less frequently than once each Fiscal Quarter and shall
provide to Bank a report based on each such physical inventory promptly
thereafter, together with such supporting information as Bank shall, in its
discretion, request.
(W) If at any time or times hereafter any Account Debtor
returns an item(s) of Inventory to a Borrower the shipment of which generated an
Account on which such Account Debtor is obligated in excess of $100,000,
Borrowers shall notify Bank of the same immediately, specifying the reason for
such return and the location and condition of the returned Inventory. After the
occurrence of an Event of Default, Borrowers shall hold all returned Inventory
in trust for Bank, shall segregate all returned Inventory from all other
Property owned by Borrowers or in their possession and shall conspicuously label
such Inventory as the Property of Bank.
(X) Borrowers shall comply with all applicable rules,
regulations and orders promulgated by the SEC.
(Y) Each Borrower shall take all action necessary to assure
that there will be no Material Adverse Change to such Borrower's business by
reason of the advent of the Year 2000, including, without limitation, that all
computer based systems, embedded microchips and other processing capabilities
effectively recognize and process dates after December 31, 1999. At Bank's
request, each Borrower shall provide to Bank assurance reasonably acceptable to
Bank that such Borrower's computer based systems, embedded microchips and other
processing capabilities will function after December 31, 1999 as well as they
function prior to January 1, 2000. Each Borrower covenants that it shall cause
all Software included in the general intangibles described in Section 4.03(G) to
remain century compliant. Without limiting the generality of the foregoing, each
Borrower covenants that all such Software can currently and shall, during the
Y2K Period, continue to (a) manage and manipulate data involving all dates
within the Y2K Period (including the fact that
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the year 2000 is a leap year) without functional or data abnormality related to
such dates; (b) manage and manipulate data involving all dates within the Y2K
Period without inaccurate results related to such dates; (c) have user
interfaces and data fields formatted to distinguish between dates within the Y2K
Period; and (d) store all core application data in a format that includes
indications of the millennium, century, and decade as well as the actual year.
SECTION 6.02 Negative Covenants. Each Borrower hereby covenants and
agrees that so long as any of the Obligations remain unsatisfied, without the
prior written consent of Bank:
(A) Except as set forth in subparagraph (N) below, no Borrower
will change its name, enter into any merger, consolidation, reorganization,
reincorporation or recapitalization, create or acquire any Subsidiary (except a
newly formed Subsidiary not for the purpose of acquiring an existing business
and provided that the Subsidiary executes instruments and documents in form and
substance satisfactory to Bank joining in this Agreement, the Notes and all
other Loan Documents designated by Bank, after which such subsidiary will be a
"Borrower" hereunder), acquire any stock in or all or substantially all of the
assets of or any partnership or joint venture interest in, or make any loan or
advance to or investment (other than a Permitted Investment) in, any other
Person (other than another Borrower); provided that USVI may proceed toward
merging BIO with and into USVI, without the prior written consent of Bank,
provided that (a) USVI gives Bank at least ten (10) days' prior written notice
of the consummation of the merger.
(B) Without Bank's express prior written consent (which will
not be unreasonably withheld), no Borrower will sell, transfer, lease or
otherwise dispose of all or, except for the sale of Inventory in the ordinary
course of its business and except for dispositions of Equipment expressly
permitted under Section 6.01(B) above, any substantial part of its assets
outside of the ordinary course of business, except without Bank's consent
Borrowers may in any Fiscal Year sell one or more stores constituting less than
(i) 5% of their aggregate number of stores and (ii) 3% of their aggregate sales
revenues, provided the proceeds of such sales are applied as provided in Section
2.09(B) herein.
(C) No Borrower will mortgage, pledge, grant or permit to
exist a Lien in or on any of its assets of any kind, real or personal, tangible
or intangible, now owned or hereafter acquired, except for Permitted Liens and
Liens in favor of Bank.
(D) No Borrower will incur any additional Indebtedness for
money borrowed, other than Permitted Indebtedness, or become a surety, guarantor
of, or otherwise responsible or liable in any manner with respect to, directly
or indirectly, the Indebtedness of any Person other than another Borrower.
(E) No Borrower will directly or indirectly apply any part of
the proceeds of the Loans to the purchasing or carrying of any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings
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thereunder.
(F) No Borrower will (i) pay any dividends (other than (1)
stock dividends and (2) dividends to another Borrower or other distributions on
or with respect to its stock, or (ii) redeem or otherwise acquire its stock or
any other security issued by any Borrower.
(G) Borrowers will not substantially change the nature or
operations of their business as conducted on the date hereof, or amend the
Penney Agreement.
(H) Borrowers will not pay directly or indirectly, as salary,
bonuses, fringe benefits, expenses, drawing accounts, or otherwise, compensation
for personal services to any director or Significant Stockholder or to any
relative of any director or Significant Stockholder or to any corporation,
enterprise or other Person directly or indirectly affiliated with any director
or Significant Stockholder, except that a Borrower may:
(1) reimburse its directors for their reasonable
expenses incurred in attending directors' meetings; and
(2) provide reasonable compensation for services
actually rendered.
(I) No Borrower shall enter into any transaction, including,
without limitation, the purchase, sale, or exchange of Property, or the loaning
or giving of funds to any Affiliate or any Subsidiary (other than another
Borrower) except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's business and upon terms substantially the same
and no less favorable to such Borrower as it would obtain in a comparable
arm's-length transactions with any Person not an Affiliate or a Subsidiary, and
so long as such transaction is not prohibited hereunder.
(J) Borrowers will not enter into any sale-leaseback or
similar transactions.
(K) Borrowers will own Collateral only as set forth in
Schedule 5.01(F) hereto.
(L) No Borrower will permit any of the Equipment to become
affixed to any real Property leased to such Borrower so that an interest arises
therein under the real estate laws of the applicable jurisdiction unless the
landlord of such real Property (other than with respect to Borrowers' retail
store facilities) unless such Borrower has executed a landlord's waiver or
leasehold mortgage in favor of Bank, and no Borrower will permit any of the
Equipment to become an accession to any personal Property other than Equipment
subject to a first priority Lien in favor of Bank.
(M) No Borrower will hereafter create or acquire any
Subsidiary or divest itself of any material assets by transferring them to any
Subsidiary.
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(N) No Borrower will acquire the stock or assets of any Person
without having first obtained Bank's prior written consent which consent will
not be unreasonably withheld. Notwithstanding the above, a Borrower may acquire
the stock or assets of any Person or Persons without first having obtained the
prior written consent of Bank provided the acquisition price or prices and all
transaction costs attendant thereto do not, in the aggregate, exceed $2,500,000
per annum. Provided however, Borrowers shall immediately advise Bank of any such
acquisition in order to permit Bank to amend the Loan Documents accordingly,
perfect its security interest in the newly acquired entity, and join such entity
(if it survives) as a Borrower hereto.
(O) Borrowers will not transfer any principal place of
business or chief executive office, or open new manufacturing plants, or
transfer existing manufacturing plants, or maintain warehouses or records with
respect to Accounts or Inventory, to or at any locations other than those at
which the same are presently kept or maintained, as set forth on Schedule
5.01(A) hereto, except upon at least sixty (60) days prior written notice to
Bank and after the delivery to Bank of Financing Statements, if required by
Bank, in form satisfactory to Bank to perfect or continue the perfection of
Bank's Lien and security interest hereunder.
(P) Borrowers will not make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, except for sales on approval or on consignment of SRO Inventory in an
aggregate amount outstanding at any time not exceeding $50,000, or any sale on a
repurchase or return basis.
(Q) Borrowers will not change their Fiscal Year, or permit any
Borrower to have a fiscal year different from the other Borrowers.
(R) Borrowers will not sell or otherwise dispose of any shares
of capital stock of any Subsidiary (including without limitation the stock of
another Borrower).
(S) Borrowers will not become a lessee under any operating
lease (other than a lease under which another Borrower is lessor and other than
leases for Borrowers' retail store facilities) of Property if the aggregate
rentals (base and additional) payable during any current or future period of
twelve (12) consecutive months under the lease in question and all other leases
under which Borrowers are then lessees would exceed $250,000, excluding rental
payments for the current New Jersey storage facility.
(T) Borrowers will not file or consent to the filing of any
consolidated income tax return with any Person other than the other Borrowers.
(U) Borrowers will not take any action or fail to take any
action which would result in any of them incurring any withdrawal liability
under ERISA or MEPPAA except that SRO may withdraw from its multiemployer plan
provided (i) Bank shall be satisfied that the aggregate liability to be incurred
by SRO or any other Borrower as a result of such withdrawal shall not exceed
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$350,000 and (ii) no Potential Default or Event of default has occurred and is
continuing as of the date of such withdrawal nor will any Potential Default of
Event of Default occur as a result of such withdrawal.
SECTION 7. DEFAULTS.
SECTION 7.01 Events of Default. Each of the following events shall
constitute an Event of Default and upon the occurrence thereof Bank shall
thereupon have the option (which is not intended to diminish, alter or limit any
other of Bank's rights described in this Agreement, the Notes, the Collateral
Documents or the other Loan Documents) (A) to declare Borrowers in default under
this Agreement, the Collateral Documents, the Notes, and all other agreements
with Bank, (B) to terminate any and all undertakings and obligations of Bank
hereunder or otherwise in connection with the Revolving Loan Facility, (C)
require that Borrowers provide the Bank, and Borrowers agree to provide to the
Bank, cash or cash equivalents acceptable to Bank in an amount equal to the face
amount of all outstanding Letters of Credit, (D) charge interest at the Default
Rate after notice to Borrowers, and/or (E) to declare all Obligations of
Borrowers to Bank immediately due and payable, including, but not limited to,
interest, principal, expenses, advances to protect Bank's position and
reasonable attorneys' fees to enforce this Agreement, the Notes, the Collateral
Documents, and all related agreements and documents, and all of Bank's rights
hereunder and thereunder, all without demand, notice, presentment or protest, or
further action of any kind:
(A) Any Borrower fails to pay to Bank when due any payment of
principal, interest, fee or other charge or amount payable hereunder or under
any other Loan Document and such failure shall have remained unremedied for a
period of three (3) Business Days or more after the date on which any such
payment was due and payable or was declared due and payable; in the event any
such payment is not received by Bank when due and payable or declared due and
payable, Bank shall use reasonable efforts to give Borrowers notice of such
fact; provided, however, that any failure by Bank to give or attempt to give
such notice shall not in any way affect or limit Bank's rights or remedies with
respect to such failure to pay, and such failure to pay shall nonetheless
constitute an immediate Event of Default upon the expiration of the three (3)
Business Day grace period provided for above.
(B) Any Borrower fails to observe or perform any other
Obligation to be observed or performed by it hereunder, under the Notes, or
under any of the Collateral Documents or other Loan Documents, or under any
other existing or future agreement between any Borrower and Bank, which failure,
to the extent reasonably susceptible of cure (Borrower acknowledging that the
covenants set forth in Sections 4.05, 6.01(C), 6.01(E), 6.01(I), 6.01(J),
6.01(M), 6.01(N), and 6.01(P) and Section 6.02 hereof are not susceptible of
cure) is not cured within twenty (20) days of the earlier of (i) the date on
which any Borrower has actual knowledge thereof and (ii) Bank's giving such
Borrower written notice of the occurrence thereof.
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(C) Any Borrower either (1) fails to pay when due or otherwise
defaults with respect to any Borrowed Debt in excess of $100,000 due any Person
other than Bank and such failure or default shall continue beyond any applicable
grace or cure period, or (2) suffers to exist any default under any agreement
relating to any Indebtedness with any Person other than Bank in excess of
$100,000 and such default results in an acceleration of such Indebtedness.
(D) Any financial statement, representation, warranty,
statement or certificate made or furnished by any Borrower to Bank in connection
with this Agreement, or as inducement to Bank to enter into this Agreement, or
in any separate statement or document to be delivered hereunder to Bank, is
materially false, incorrect, or incomplete when made.
(E) Any Borrower (other than an Inactive Borrower) becomes
insolvent or generally fails to pay, or admits its inability to pay, debts as
they become due or makes a general assignment for the benefit of any of its
creditors.
(F) Any Borrower (other than an Inactive Borrower) applies
for, consents to, or acquiesces in the appointment of, a trustee, receiver or
other custodian for such Borrower or any of the property of such Borrower, or,
in the absence of such application, consent or acquiescence, a trustee, receiver
or other custodian is appointed for any Borrower (other than an Inactive
Borrower) or for a substantial part of its property and is not discharged within
thirty (30) days.
(G) Any bankruptcy, reorganization, liquidation, dissolution
or other case and proceeding under any bankruptcy or insolvency law is commenced
in respect of any Borrower (other than an Inactive Borrower) and if such case or
proceeding is not commenced by such Borrower, it is consented to or acquiesced
in by such Borrower or remains for thirty (30) days undismissed.
(H) Any Borrower (other than an Inactive Borrower)
discontinues its business operations or materially changes the nature of its
business.
(I) Any Borrower shall suffer final judgment(s) for the
payment of money aggregating in excess of $100,000.00, and shall not discharge,
satisfy or stay enforcement of the same within a period of twenty (20) days of
such judgment.
(J) A judgment creditor of any Borrower shall obtain actual or
constructive possession of any of the Collateral by any means, including, but
without limitation, levy, distraint, replevin or self-help.
(K) (1) Any Reportable Event which Bank determines to
constitute grounds or the termination of any employee benefit plan by the PBGC
or for the appointment by any United States District Court of a trustee to
administer or liquidate any Employee Benefit Plan; (2) the termination of any
Employee Benefit Plan, or any Defined Benefit Plan described in Section 414(j)
or Section 414(k) of the Internal Revenue Code, the present value of whose
benefits that may be
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guaranteeable under Title IV of ERISA exceeds by more than $100,000 the amount
of plan assets allocable to such benefits; (3) the appointment by any United
States District Court of a trustee to administer any Employee Benefit Plan; (4)
the institution by the PBGC of proceedings to terminate any employee benefit
plan; (5) the failure by any Borrower or any member of any Controlled Group to
meet the minimum funding standards established in Section 302 of ERISA; or (6)
the assertion of any claim of, or demand for, withdrawal liability in excess of
$100,000 under ERISA by any multi-employer pension plan to which any Borrower or
any member of its Controlled Group heretofore contributed or currently
contributes.
(L) William A. Schwartz shall cease to be the Chairman of the
Board and Chief Executive Officer of USVI.
(M) The Penney Agreement shall terminate for any reason or
there shall be any substantial adverse change in the relationship between
Borrowers and Penney.
SECTION 7.02 Remedies.
(A) In addition to all other rights, options and remedies
granted to Bank under this Agreement and any of the other Loan Documents, Bank
may, upon the occurrence and continuance of an Event of Default, terminate the
Revolving Credit Facility, exercise all other rights granted to it hereunder and
all rights under the Uniform Commercial Code and any other applicable law, and
under all related agreements with Borrowers referred to herein or hereafter
executed, permitted to be exercised after the occurrence of an Event of Default,
including the following rights and remedies (which list is given by way of
example and is not intended to be an exhaustive list of all such rights and
remedies):
(i) The right to withhold or cease making Loans or
issue Letters of Credit under the Revolving Credit Facility;
(ii) The right to enter upon any premises of any
Borrower, exclude Borrowers, take immediate possession of, send notices
regarding and collect directly the Collateral, either personally or by means of
a representative, with or without judicial process (including without
limitation, notices to the United States Postmaster to redirect the mail of
Borrowers to Bank);
(iii) At Bank's option and in its sole discretion, to
use, operate, manage, maintain, alter and control the Collateral;
(iv) The right to require Borrowers to furnish
additional Collateral (including cash collateral for outstanding Letters of
Credit) for any Obligations of Borrowers to Bank; and
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(v) The right to relinquish or abandon any Collateral
or any security interest therein.
(B) Without limiting the generality of the foregoing, Bank
may, if permitted by applicable law, after ten (10) days' prior notice to
Borrowers, immediately, without demand of performance and without other notice
or demand whatsoever to Borrowers, all of which are hereby expressly waived, and
without advertisement, sell at public or private sale or otherwise realize upon,
the whole or, from time to time, any part of the Collateral, or any interest
which any Borrower may have therein. After deducting from the proceeds of sale
or other disposition of the Collateral all expenses (including all reasonable
expenses for legal services), Bank shall apply such proceeds toward the
satisfaction of the Obligations in any order as Bank shall in its discretion
determine. Any remainder of the proceeds after satisfaction in full of the
Obligations shall be distributed as required by applicable Laws. Each Borrower
hereby agrees that ten (10) days notice of any sale or other disposition shall
be reasonable notice of any sale or other disposition. Each Borrower agrees to
assemble, or to cause to be assembled at its own expense, the Collateral at such
place or places as Bank shall designate. At any such sale or other disposition,
Bank may, to the extent permissible under applicable Laws, purchase the whole or
any part of the Collateral, free from any right of redemption on the part any
Borrower, which right is hereby waived and released.
(C) Bank shall have the right to proceed against all or any
portion of the Collateral in any order and may apply such Collateral to the
Obligations of Borrowers in any order and may retain proceeds of Collateral for
obligations of Borrowers which are not matured. All rights and remedies granted
Bank hereunder and under any agreement referred to herein, or otherwise
available at law or in equity, shall be deemed concurrent and cumulative, and
not alternative remedies, and Bank may proceed with any number of remedies at
the same time until the Obligations are satisfied in full. The exercise of any
one right or remedy shall not be deemed a waiver or release of any other right
or remedy, and Bank, upon the occurrence of an Event of Default, may proceed
against Borrowers, and/or the Collateral, at any time, under any agreement, with
any available remedy and in any order.
(D) If any bank account of Borrowers with Bank or with any
participant is attached or otherwise liened or levied upon by any third party,
Bank (and any participant) need not await the running of any applicable grace
period hereunder, but Bank (and such participant as agent for Bank) shall have
and be deemed to have exercised the immediate right of set-off and may apply the
funds or amount thus set-off against any Obligations.
SECTION 8. MISCELLANEOUS.
SECTION 8.01 Construction. The provisions of this Agreement shall be in
addition to those of any guaranty, pledge or security agreement, note or other
evidence of liability held by Bank, all of which shall be construed as
integrated and complementary to each other. Nothing herein contained shall
prevent Bank from enforcing any or all other notes, guaranty, pledge or security
agreements in accordance with their respective terms.
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SECTION 8.02 Further Assurance. From time to time, each Borrower will
execute and deliver to Bank such additional documents and will provide such
additional information as Bank may reasonably require to carry out the terms of
this Agreement and be informed of each Borrower's status and affairs.
SECTION 8.03 Enforcement and Waiver by the Bank. Bank shall have the
right at all times to enforce the provisions of this Agreement and the
Collateral Documents in strict accordance with the terms hereof and thereof,
notwithstanding any conduct or custom on the part of Bank in refraining from so
doing at any time or times. The failure of Bank at any time or times to enforce
its rights under such provisions, strictly in accordance with such provisions,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of this Agreement or as having in any way or manner
modified or waived this Agreement. All rights and remedies of Bank are
cumulative and concurrent and the exercise of one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
SECTION 8.04 Expenses of the Bank. Each Borrower, jointly and
severally, agrees to pay all reasonable costs and expenses (including, but not
limited to, reasonable attorneys' fees and expenses), and filing, recording,
search, examination, consultant, appraisal and other out-of-pocket expenditures,
incurred by Bank in connection with the analysis, preparation, negotiation,
interpretation, closing, amendment, administration, extension, replacement,
modification, enforcement or termination of this Agreement, the Notes, the
Collateral Documents and the other Loan Documents, and the collection or
attempted collection of the Notes or any other Obligations, and the protection,
preservation or defense of the Collateral and Bank's rights and interests
(collectively, the "Expenses"). Expenses shall also include but not be limited
to (i) cost of reproducing this Agreement and related agreements and documents;
(ii) filing and recording taxes and fees; (iii) environmental tests and reports;
(iv) all title insurance premiums and costs of title reports; (v) insurance
premiums; (vi) appraisal fees; and (vii) searches and search reports.
SECTION 8.05 Notices. Any notices or consents required or permitted by
this Agreement shall be in writing and shall be deemed delivered if delivered in
person, or by commercial courier against receipt or if sent by Federal Express
or other overnight delivery service or by certified mail, postage prepaid,
return receipt requested, or by telecopy, as follows, unless such address or
telecopy number it changed by written notice hereunder:
(A) If to Borrowers:
U. S. Vision, Inc.
Glen Oaks Industrial Park
P. O. Box 124
Glendora, NJ 08029
Attention: George E. McHenry, Senior Vice
President, Chief Administrative
Officer and Secretary
Telecopy No. (609) 232-1848
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CC: Brian M. Lidji, Esquire
Michael Dorey, Esquire
Sayles & Lidji, a Professional Corporation
4400 Renaissance Tower
1201 Elm Street
Dallas, TX 75270
Telecopy No. (214) 939-8787
(B) If to Bank:
Commerce Bank, N.A. 1701 Route
70 East Cherry Hill, NJ 08034-5400
Attention: Gerard L. Grady,
Vice President
Telecopy No. (609) 751-6884
CC: Lawrence Finkelstein, Esquire
Peter W. Leibundgut, Esquire
Blank, Rome, Comisky & McCauley
1 Logan Square
Philadelphia, PA 19103
Telecopy No. (215) 569-5555
SECTION 8.06 Waiver and Release by Borrowers. To the maximum extent
permitted by applicable Laws, each Borrower:
(A) Waives (1) protest of all commercial paper at any time
held by Bank on which any Borrower is any way liable; and (2) except as
otherwise set forth herein or in the Collateral Documents, notice and
opportunity to be heard, after acceleration in the manner provided in Section
7.01 hereof, before exercise by Bank of the remedies of self-help, set-off, or
of other summary procedures permitted by any applicable Laws or by any agreement
with any Borrower and, except where required by the Loan Documents or by any
applicable Laws, notice of any other action taken by Bank; and
(B) Releases Bank and its officers, attorneys, agents and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them except willful misconduct, gross negligence or acts
taken in bad faith.
SECTION 8.07 Provisions Cumulative. All representations, warranties,
conditions, agreements and covenants of Borrowers contained in this Agreement
and the other Loan Documents are cumulative and must be independently satisfied.
If there is any direct conflict between the
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provisions of this Agreement and any other Loan Document, the provisions of this
Agreement shall control; this Agreement and the other Loan Documents shall be
interpreted and construed in a manner to avoid any such direct conflict.
SECTION 8.08 Applicable Law. The substantive Laws of the Commonwealth
of Pennsylvania shall govern the construction of this Agreement and the rights
and remedies of the parties hereto, provided, however, that if any of the
Collateral shall be located in any jurisdiction other than Pennsylvania, the
laws of such jurisdiction shall govern the method, manner and procedure for
foreclosure of Bank's lien upon such Collateral and the enforcement of Bank's
other remedies in respect of such Collateral to the extent that the laws of such
jurisdiction are different from or inconsistent with the laws of Pennsylvania.
SECTION 8.09 Binding Effect; Assignment and Entire Agreement. This
Agreement shall inure to the benefit of, and shall be binding upon, the
respective successors and permitted assigns of the parties hereto. No Borrower
has any right to assign any of its respective rights or Obligations hereunder
without the prior written consent of Bank. This Agreement, and the documents
executed and delivered pursuant hereto, constitute the entire agreement among
the parties relating to the subject matter thereof, and supersede all agreements
between any Borrower and Bank including, but not limited to, the Commitment
Letter.
SECTION 8.10 Severability. If any provision of this Agreement is held
invalid under any applicable Laws, such invalidity will not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
SECTION 8.11 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
SECTION 8.12 Headings. The headings of any paragraph or section of this
Agreement are for convenience only and shall not be used to interpret any
provision of this Agreement.
SECTION 8.13 Modification. No modification or amendment hereof or of
any agreement referred to herein shall be binding or enforceable unless in
writing and signed on behalf of the party against whom enforcement is sought.
SECTION 8.14 Third Parties. No rights are intended to be created
hereunder, or under the Collateral Documents or related agreements and documents
for the benefit of any third party donee, creditor or incidental beneficiary of
any Borrower. Nothing contained in this Agreement shall be construed as a
delegation to Bank of any Borrower's duty of performance, including, without
limitation, any Borrower's duties under any Account in which Bank has a security
interest.
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SECTION 8.15 Withholding and Other Tax Liabilities. Bank shall have the
right to refuse to make any advances or issue any Letters of Credit hereunder
from time to time in the event that any Borrower has not properly deposited or
paid, as required by law, all withholding taxes and all other federal, state,
city, county or other taxes due up to and including the date of a request for an
advance. Upon expiration or termination of the Loans and full satisfaction of
all Obligations, Bank shall be entitled to continue to hold any and all of the
Collateral until Borrowers have given to Bank evidence, in form and substance,
satisfactory to Bank and its counsel, that each Borrower has properly deposited
or paid, as required by law, all federal withholding taxes due up to and
including the date of such expiration or termination. In the event that any
lien, assessment or tax liability against any Borrower shall arise in favor of
any taxing authority, whether or not notice thereof shall be filed or recorded
as may be required by Laws, Bank shall have the right (but shall not be
obligated nor shall Bank hereby assume the duty) to pay any such lien,
assessment or tax liability by virtue of which such charge shall have arisen. In
order to pay any such lien, assessment or tax liability, Bank shall not be
obligated to wait until said lien, assessment or tax liability is filed before
taking any such action as herein above set forth. The Bank shall not, however,
make such payment if the lien, assessment or tax liability is being contested in
good faith by a Borrower by appropriate proceedings. Any sum or sums which Bank
shall have paid for the discharge of any such lien shall be added to the
Obligations and shall be paid by Borrowers to Bank with interest at the Default
Rate thereon, on demand, and Bank shall be subrogated to all rights of such
taxing authority against Borrowers.
SECTION 8.16 Seal. This Agreement is intended to take effect as an
instrument under seal.
SECTION 8.17 WAIVER OF JURY TRIAL. EACH BORROWER INDEPENDENTLY AND
IRREVOCABLY WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH BANK HEREBY ALSO
WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT
OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL;
(ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST,
DEFAULT, NONPAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR
RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY BANK ON WHICH SUCH
BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER BANK
MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE
COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO
ALLOWING BANK TO EXERCISE ANY OF BANK'S REMEDIES; (iv) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (v) ANY RIGHT SUCH BORROWER MAY HAVE
UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE BANK TO TERMINATE ITS
SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF SUCH BORROWER
UNTIL
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TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE
EXECUTION BY SUCH BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWERS, OR ANY
OF THEM, ARE USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN
AGREEMENT INDEMNIFYING BANK FROM ANY LOSS OR DAMAGE BANK MAY INCUR AS THE RESULT
OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY BANK FROM BORROWERS,
OR ANY OF THEM, OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS; (vi) ANY
AND ALL RIGHTS EACH MAY HAVE AT ANY TIME (WHETHER ARISING DIRECTLY OR
INDIRECTLY, BY OPERATION OF LAW OR CONTRACT) TO ASSERT ANY CLAIM AGAINST EACH
OTHER OR ANY OF THEM, ON ACCOUNT OF PAYMENTS MADE UNDER THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION ANY AND ALL RIGHTS OF SUBROGATION, REIMBURSEMENT
EXONERATION, CONTRIBUTION OR INDEMNITY; (vii) ANY EVENT OR CIRCUMSTANCES WHICH
MIGHT CONSTITUTE A LEGAL OR EQUITABLE DEFENSE OF, OR DISCHARGE OF, SUCH
BORROWER; AND (viii) NOTICE OF ACCEPTANCE HEREOF, AND EACH BORROWER ACKNOWLEDGES
THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO BANK'S ENTERING INTO
THIS AGREEMENT AND THAT BANK IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH BORROWERS. EACH BORROWER WARRANTS AND REPRESENTS THAT IT HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 8.18 Jurisdiction. AS PART OF THE CONSIDERATION FOR NEW VALUE
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF BORROWERS OR BANK, BORROWERS HEREBY CONSENT AND AGREE THAT THE
COMMON PLEAS COURT OF PHILADELPHIA, PENNSYLVANIA, OR AT BANK'S OPTION, THE
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, SHALL
HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS
AND BANK PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT. BORROWERS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWERS
HEREBY WAIVE ANY OBJECTION WHICH BORROWERS MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENT TO THE
GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. BORROWERS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWERS
55
<PAGE> 57
AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF BORROWERS' ACTUAL RECEIPT THEREOF OR THREE
(3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF BANK TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY LENDER OR ANY CLAIM, OR ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM, OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME, IN ANY
OTHER APPROPRIATE FORUM OR JURISDICTION.
SECTION 8.19 Indemnity. Each Borrower agrees to jointly and severally
indemnify, defend and hold the Bank Indemnitees harmless from and against any
and all loss, liability, obligation, damage, penalty, judgment, claim,
deficiency and expense (including interest, penalties, attorneys' fees and costs
and amounts paid in settlement but excluding any consequential damages) incurred
by any Bank Indemnitee or to which any Bank Indemnitee may become subject
arising out of, relating to or based upon the execution, delivery or performance
of this Agreement, the Collateral Documents, the Subordination Agreement, the
Note or the other Loan Documents, the making of any Loans of the issuance, honor
or dishonor of any Letter of Credit, Borrowers' use of proceeds, or any other
transaction or relationship contemplated hereby or thereby including, but not
limited to, the alleged negligence of such Bank Indemnitee, except and to the
extent that such loss, liability, etc. was caused by the gross negligence,
willful misconduct or acts taken in bad faith of the Person otherwise so
indemnified.
SECTION 8.20 Time: Whenever a Borrower shall be required to make any
payment, or perform any act on a Saturday, Sunday or a legal holiday under the
Laws of New Jersey or such other jurisdiction where such Borrower may be
required to make any payment or perform any act, such payment may be made, or
such act may be performed, on the next succeeding Business Day. Time is of the
essence in Borrowers' performance under all provisions of this Agreement and all
related agreements and documents.
SECTION 8.21 Brokerage: This transaction was brought about and entered
into by Bank and Borrowers acting as principals and without any brokers, agents
or finders being the effective procuring cause hereof. Borrowers and Bank
represent that neither has committed to the payment of any brokerage fee,
commission or charge in connection with this transaction. If any such claim is
made on Bank by any broker, finder or agent or other person which was hired or
engaged by Borrowers, Borrowers will indemnify, defend and save Bank harmless
against such claim and further will defend any action or actions to recover on
such claim, at Borrowers' own cost and expense, including Bank's counsel fees
and costs. Borrowers further agree that until any such claim or demand is
adjudicated in Bank's favor, the amount demanded shall be deemed an Obligation
of Borrowers under this Agreement, secured by the Collateral.
56
<PAGE> 58
SECTION 8.22 Survival: All warranties, representations, and covenants
made by Borrowers herein, or in any agreement referred to herein or on any
certificate, document or other instrument delivered by it or on its behalf under
this Agreement, shall be considered to have been relied upon by Bank and shall
survive the delivery to Bank of the Notes, regardless of any investigation made
by Bank or on its behalf. All statements in any such certificate or other
instrument prepared and/or delivered for the benefit of Bank shall constitute
warranties and representations by Borrowers hereunder. Except as otherwise
expressly provided herein, all covenants made by Borrowers hereunder or under
any other agreement or instrument shall be deemed continuing until all
Obligations of Borrowers are indefeasibly satisfied in full and the Revolving
Credit Facility is terminated.
SECTION 8.23 Obligations Joint and Several: All obligations of
Borrowers hereunder and under the other Loan Documents are joint and several.
SECTION 8.24 No Novation: The Amended and Restated Revolving Loan Note
issued by Borrowers on the date hereof replaces and supersedes (but does not
pay, satisfy or extinguish Borrowers' unconditional obligation to repay the
indebtedness evidenced by) that certain Revolving Credit Note from Borrowers to
Lender dated December 19, 1996 in the face amount of $7,000,000.
[INTENTIONALLY LEFT PARTIALLY BLANK]
57
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
U.S. VISION, INC.
(DELAWARE CORPORATION)
Attest: /s/ By: /s/
--------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
STYL-RITE OPTICAL MFG. CO., INC.
(FLORIDA CORPORATION)
Attest: /s/ By: /s/
--------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
USV OPTICAL, INC.
(TEXAS CORPORATION)
Attest: /s/ By: /s/
--------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
58
<PAGE> 60
BEN ISRAEL OPTICAL, INC.
(ARKANSAS CORPORATION)
Attest: /s/ By: /s/
---------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
COMMERCE BANK, N.A.
By: /s/
--------------------------------
Name:
------------------------------
Title:
-----------------------------
59
<PAGE> 61
EXHIBIT 6.01(M)
FINANCIAL COVENANTS
1. Current Ratio: During the Term hereof, Borrowers' Current Ratio shall
be greater than or equal to 1.75x.
2. Effective Tangible Net Worth: During the Term hereof, Borrowers'
Consolidated Effective Net Worth shall be greater than or equal to
$35,000,000.
3. Maximum Leverage Ratio: During the Term hereof, Borrowers' Maximum
Leverage Ratio shall be not greater than 1.50 to 1.0.
4. Fixed Charge Coverage Ratio: During the Term hereof, Borrowers' Fixed
Charge Coverage Ratio shall be at least 1.0 to 1.0.
5. Minimum Debt Coverage: During the Term hereof, Borrowers' Minimum Debt
Service Coverage shall be at least 1.50 to 1.0.
<PAGE> 62
SCHEDULES
1.01(A) - Existing Letters of Credit
1.01(B) - Real Property Descriptions
1.01(C) - Existing Liens
3.01(G) - Good Standing Certificates
4.04 - Prior Liens
5.01(A) - States of Incorporation/Locations
5.01(B) - Indebtedness
5.01(E) - Proceedings
5.01(G) - Leased Locations
5.01(K) - Compliance With Laws
5.01(L) - Mergers; Names
5.01(N) - Employee Benefit Plans
5.01(U) - Subsidiaries & Affiliates
5.01(V) - Intangibles (Patent, Tradenames,
Trademarks, Copyrights)
5.01(W) - Insurance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JULY 31, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JULY
31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JUL-31-1998
<CASH> 579,000
<SECURITIES> 0
<RECEIVABLES> 11,466,000
<ALLOWANCES> 0
<INVENTORY> 19,952,000
<CURRENT-ASSETS> 32,549,000
<PP&E> 59,205,000
<DEPRECIATION> 31,359,000
<TOTAL-ASSETS> 66,099,000
<CURRENT-LIABILITIES> 14,139,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 43,812,000
<TOTAL-LIABILITY-AND-EQUITY> 66,099,000
<SALES> 31,753,000
<TOTAL-REVENUES> 31,753,000
<CGS> 9,647,000
<TOTAL-COSTS> 19,853,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,000
<INCOME-PRETAX> 2,164,000
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 2,094,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,094,000
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
<FN>
<F1>Provision for doubtful accounts and inventory provision included in total
costs.
</FN>
</TABLE>
