<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FAMILY CHRISTIAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
MICHIGAN 5942 38-3200794
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of
Incorporation or Organization) Classification Code Number) Identification
Number)
</TABLE>
5300 PATTERSON AVE. S.E.
GRAND RAPIDS, MICHIGAN 49530
(616) 554-8700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
MR. LESLIE E. DIETZMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FAMILY CHRISTIAN STORES, INC.
5300 PATTERSON AVE. S. E.
GRAND RAPIDS, MICHIGAN 49530
(616) 554-8700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
COPIES TO:
William R. Kunkel, Esq. Lawrence D. Levin, Esq.
Skadden, Arps, Slate, Meagher & Flom Herbert S. Wander, Esq.
(Illinois)
333 West Wacker Drive Katten Muchin & Zavis
Chicago, Illinois 60606-1285 525 West Monroe Street, Suite 1600
(312) 407-0700 Chicago, Illinois 60661-3693
(312) 902-5200
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / 333-_______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / 333-_______
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / 333-_______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Class A Common Stock, par value $.01 per share........................ $45,000,000 $13,275
</TABLE>
(1) Includes shares of Common Stock being offered by the Selling Shareholders
and shares issuable upon exercise of the Underwriters' over-allotment
option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 6, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SHARES
[LOGO]
CLASS A COMMON STOCK
OF THE SHARES OF CLASS A COMMON STOCK ("CLASS A COMMON STOCK")
OFFERED HEREBY, SHARES ARE BEING SOLD BY THE COMPANY AND SHARES
ARE BEING SOLD BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND SELLING
SHAREHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF
SHARES BY THE SELLING SHAREHOLDERS.
THE COMPANY'S COMMON STOCK ("COMMON STOCK") CONSISTS OF CLASS A COMMON STOCK
AND CLASS B COMMON STOCK ("CLASS B COMMON STOCK"). THE RIGHTS OF EACH SHARE OF
COMMON STOCK ARE SIMILAR OTHER THAN WITH RESPECT TO VOTING RIGHTS. THE CLASS A
COMMON STOCK ENTITLES THE HOLDERS THEREOF TO ONE VOTE PER SHARE, AND THE CLASS B
COMMON STOCK ENTITLES THE HOLDERS THEREOF TO TEN VOTES PER SHARE. UPON THE
CLOSING OF THE OFFERING, THE HOLDERS OF CLASS B COMMON STOCK WILL REPRESENT
APPROXIMATELY % OF THE TOTAL VOTING POWER OF THE OUTSTANDING COMMON STOCK
(APPROXIMATELY % IF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS EXERCISED IN
FULL) AND WILL THEREFORE EXERCISE CONTROL OVER THE BUSINESS AND AFFAIRS OF THE
COMPANY. EACH SHARE OF CLASS B COMMON STOCK CONVERTS AUTOMATICALLY INTO ONE
SHARE OF CLASS A COMMON STOCK UPON SALE OR OTHER TRANSFER TO A PARTY OTHER THAN
PERMITTED TRANSFEREES (AS DEFINED HEREIN). SEE "DESCRIPTION OF CAPITAL STOCK."
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE OF THE CLASS A COMMON STOCK WILL BE BETWEEN $ AND $ PER
SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN MADE FOR
QUOTATION OF THE CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "FMLY."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A
COMMON STOCK OFFERED HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
PER SHARE.................. $ $ $ $
TOTAL(3)................... $ $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
AN ADDITIONAL SHARES OF CLASS A COMMON STOCK AT THE PRICE TO PUBLIC
LESS THE UNDERWRITING DISCOUNT SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF
THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO PUBLIC WILL
TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL $ , PROCEEDS TO
COMPANY WILL TOTAL $ AND PROCEEDS TO SELLING SHAREHOLDERS WILL NOT BE
AFFECTED. SEE "PRINCIPAL AND SELLING SHAREHOLDERS" AND "UNDERWRITING."
THE SHARES OF CLASS A COMMON STOCK ARE OFFERED BY THE UNDERWRITERS NAMED
HEREIN WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT
TO THEIR RIGHT TO REJECT ANY ORDER IN WHOLE
OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE CERTIFICATES REPRESENTING THE
SHARES WILL BE MADE AGAINST
PAYMENT THEREFOR AT THE OFFICE OF NATIONSBANC MONTGOMERY SECURITIES LLC ON OR
ABOUT , 1998.
-------------------
NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
BT Alex. Brown
, 1998
<PAGE>
[MISSION STATEMENT; VISION STATEMENT; STORE SCHEMATIC;
INTERIOR/EXTERIOR PHOTOGRAPHS OF STORE; PHOTOGRAPHS OF
PRODUCTS/CUSTOMERS/EMPLOYEES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING
SYNDICATE COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
-------------------
Family Christian Stores-Registered Trademark-, Family Bookstores-Registered
Trademark- and Joshua's Christian Stores-TM- are trademarks
owned by the Company. All other trademarks and trade names referred to in this
Prospectus
are the property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, REFERENCES HEREIN TO
FISCAL YEARS OF THE COMPANY ARE TO THE COMPANY'S 52- OR 53-WEEK FISCAL YEAR,
WHICH ENDS ON THE LAST SUNDAY IN JANUARY OF EACH YEAR AND IS IDENTIFIED AS THE
FISCAL YEAR FOR THE IMMEDIATELY PRECEDING CALENDAR YEAR. FOR EXAMPLE, THE FISCAL
YEAR ENDED JANUARY 25, 1998, IS REFERRED TO AS "FISCAL 1997." REFERENCES TO
FISCAL YEARS OF JOSHUA'S CHRISTIAN STORES ("JOSHUA'S") ARE TO JOSHUA'S TWELVE
MONTHS ENDED MARCH 31 AND ARE IDENTIFIED AS THE FISCAL YEAR FOR THE IMMEDIATELY
PRECEDING CALENDAR YEAR. FOR EXAMPLE, THE TWELVE MONTHS ENDED MARCH 31, 1998, IS
REFERRED TO AS "FISCAL 1997." EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN
THIS PROSPECTUS: (I) REFLECTS A -FOR-1 STOCK SPLIT OF THE COMMON STOCK TO BE
EFFECTED PRIOR TO THE CLOSING OF THE OFFERING; (II) REFLECTS THE FILING OF THE
RESTATED ARTICLES OF INCORPORATION AND RESTATED BYLAWS OF THE COMPANY
CONCURRENTLY WITH THE CLOSING OF THE OFFERING; (III) REFLECTS THE AUTOMATIC
CONVERSION OF ALL OF THE COMPANY'S CURRENTLY OUTSTANDING COMMON STOCK INTO
SHARES OF NEWLY CREATED CLASS B COMMON STOCK UPON THE FILING OF THE RESTATED
ARTICLES OF INCORPORATION; (IV) ASSUMES THE EXERCISE OF ALL OUTSTANDING WARRANTS
TO PURCHASE COMMON STOCK; AND (V) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. EXCEPT AS OTHERWISE INDICATED IN THIS PROSPECTUS OR THE
FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS, ALL REFERENCES TO
"FAMILY" AND THE "COMPANY" REFER TO FAMILY CHRISTIAN STORES, INC., FORMERLY
FAMILY BOOKSTORES COMPANY, INC.
THE COMPANY
Family Christian Stores, Inc. ("Family" or the "Company") is the largest
retailer in the United States dedicated solely to Christian-related products.
The Company, as the category-dominant retailer of Christian books and Bibles,
gifts and cards, music, children's merchandise and church supplies, seeks to
fulfill the growing demand for products that address Christian and family
values. The Company's net sales increased from $126.1 million in fiscal 1995 to
$168.1 million in fiscal 1997, representing a compound annual growth rate of
15.4%. Operating income increased from a loss of $2.5 million to income of $5.5
million over the same period. The growth has been driven by comparable store
sales, acquisitions and new store openings. As of July 31, 1998, the Company
operated 276 stores in 36 states, having grown from 148 stores in 28 states,
which the Company acquired from the Family Bookstores Division of The Zondervan
Corporation ("Zondervan") on October 31, 1994.
Family is the primary consolidator in the Christian retail industry, which
is highly fragmented and characterized by numerous small independent operators.
On June 1, 1998, the Company completed the acquisition of Joshua's Christian
Stores, a leading retailer of Christian-related products with 56 stores. The
Joshua's acquisition expands Family's presence in both new and existing markets
and provides an opportunity to capture greater operating efficiencies across its
expanded store base. On a pro forma basis, after giving effect to the
acquisition of Joshua's, the Company had net sales of $197.8 million in fiscal
1997. The Company believes that numerous opportunities exist to continue making
acquisitions and opening new stores and plans to continue its strategy of
clustering stores in both new and existing markets.
The Company differentiates itself from other retailers of Christian-related
products by offering products to consumers of all ages and denominations in the
environment of a focused specialty retailer with value pricing. The Company's
mission is to offer an extensive selection of high-quality, Christian-related
products of exceptional value in a warm, family atmosphere. In addition, Family
seeks to reinforce Christian and family values as well as impact the lives of
its customers by offering meaningful and inspirational products. The Company's
core customers are individuals who characterize themselves as active Christians,
as well as others who are searching for meaning in their lives. The Company
believes that its ability to deliver an extensive product assortment to a broad
range of consumers provides it with a competitive advantage in the Christian
retail industry.
The Company's principal objective is to enhance its position as the leading
provider of Christian-related products in the United States. Family's business
strategy includes maintaining category dominance,
3
<PAGE>
serving a diverse Christian customer base, providing the highest value to its
customers, promoting recognition of its brand name and implementing its guiding
principles throughout its business. The Company's growth strategy includes
increasing sales and profitability in its existing stores, expanding its store
base through focused acquisitions and new store openings as well as utilizing
additional distribution channels.
RECENT DEVELOPMENTS
JOSHUA'S ACQUISITION. On June 1, 1998, Family acquired Joshua's, a division
of The Development Association, Inc., a subsidiary of Tandycrafts, Inc. Joshua's
was a leading Christian retail chain headquartered in Fort Worth, Texas that
operated 56 stores in 10 states, including a major presence in Texas, Georgia,
Colorado and Southern California. For its fiscal year ended March 31, 1998,
Joshua's had net sales of $32.0 million. The acquisition expands Family's
presence in new and existing markets and creates a stronger platform for future
growth. Management has completed several important steps to integrate Joshua's
operations, including the introduction of the Company's (i) point-of-sale,
automatic product replenishment and information systems, (ii) enhanced product
assortment and (iii) targeted marketing and preferred customer programs. To
date, 90% of the acquired stores have been renamed Family Christian Stores and
exterior signage has been changed. In addition, all store managers of former
Joshua's stores who are currently employed by Family have completed the
Company's formal management training. The Company believes that the successful
integration of Joshua's will enhance its existing store base and result in
future operating efficiencies and increased brand awareness. See "Pro Forma
Combined Condensed Financial Statements (unaudited)" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OTHER ACQUISITIONS AND OPENINGS. Since January 25, 1998, in addition to the
Joshua's acquisition, the Company has acquired 22 stores and opened two new
stores. The Company is operating these stores under the Family Christian Stores
name, has completed a limited amount of remodeling and has integrated these
stores into its point-of-sale, automatic product replenishment and information
systems.
The Company was incorporated in Michigan in 1994. The Company's executive
office is located at 5300 Patterson Avenue, S.E., Grand Rapids, Michigan 49530,
and its telephone number is (616) 554-8700.
THE OFFERING
<TABLE>
<CAPTION>
Class A Common Stock offered
<S> <C>
by the Company............................. shares
by the Selling Shareholders................ shares
Common Stock to be outstanding after the Offering(1)
Class A Common Stock....................... shares
Class B Common Stock....................... shares
Use of proceeds.............................. To finance store acquisitions and new store
openings and to repay outstanding bank
indebtedness. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... FMLY
</TABLE>
- ------------------------------
(1) Excludes: (i) shares of Common Stock issuable upon exercise of
options outstanding under the Company's stock option plans as of ,
1998, with a weighted average exercise price of $ per share; (ii)
shares of Common Stock issuable upon exercise of options to be
granted under the Company's stock option plans upon the closing of the
Offering, with an exercise price per share equal to the initial public
offering price; and (iii) shares reserved for issuance pursuant to
the Company's stock option plans. See "Capitalization,"
"Management--Employee Benefit Plans" and Note J of the Notes to the
Company's Consolidated Financial Statements.
4
<PAGE>
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements that are based
on the beliefs of, as well as assumptions made by and information currently
available to, the Company's management. The words "believe," "anticipate,"
"intend," "estimate," "expect" and similar expressions are intended to identify
such forward-looking statements, but are not the exclusive means of identifying
such statements. Such statements reflect the current views of the Company or its
management and are subject to certain risks, uncertainties and assumptions,
including, but not limited to, those set forth under the heading "Risk Factors."
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, the Company's actual results,
performance or achievements in 1998 and beyond could differ materially from
those expressed in, or implied by, such forward-looking statements. The Company
undertakes no obligation to release publicly any revisions to any such
forward-looking statements that may reflect events or circumstances after the
date of this Prospectus.
RISK FACTORS
An investment in the Class A Common Stock offered hereby involves a high
degree of risk. For a discussion of certain risks that a potential investor
should evaluate carefully prior to making an investment in the Class A Common
Stock, see "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR -------------------------------------
-------------------------------------------- PRO FORMA
PRO FORMA APRIL 27, APRIL 26, APRIL 26,
1995 1996 1997 1997(1) 1997 1998 1998(1)
--------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 126,125 $ 139,280 $ 168,063 $ 197,786 $ 32,438 $ 38,257 $ 44,623
Gross profit........................... 35,158 39,058 49,590 58,143 8,498 10,741 12,416
Store contribution(2).................. 12,009 15,298 21,571 23,589 2,325 3,300 3,358
Store opening expenses................. 991 414 739 739 152 356 356
Operating income (loss)................ (2,516) 891 5,487 5,945 (1,429) (1,028) (1,439)
Net earnings (loss).................... (5,134) (1,844) 2,693 2,456 (2,154) (1,675) (2,260)
Net earnings (loss) per
share--diluted........................ $ (3.33) $ (1.18) $ 1.22 $ 1.11 $ (1.38) $ (0.96) $ (1.29)
Weighted average common shares
outstanding--diluted(3)............... 1,541 1,559 2,215 2,215 1,566 1,752 1,752
SELECTED OPERATING DATA:
Number of stores open at end of
period................................ 174 184 197 255 187 211 267
Net sales growth....................... 20.1% 10.4% 20.7% 42.0% 18.3% 17.9% 37.6%
Comparable store sales increase(4)..... 1.2% 3.1% 12.8% 11.2% 12.4% 8.2% 6.6%
Average gross square feet per store at
end of period......................... 4,268 4,382 4,593 4,287 4,435 4,587 4,314
Average net sales per square foot(5)... $ 177 $ 178 $ 194 $ 188 $ 205 $ 210 $ 205
</TABLE>
<TABLE>
<CAPTION>
APRIL 26, 1998
-------------------------------------
PRO AS
ACTUAL FORMA(6) ADJUSTED(7)
--------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................
$ 6,169 $ 7,903 $
Total assets.......................................................................
66,551 76,029
Total debt.........................................................................
25,387 34,665
Redeemable common stock warrants(8)................................................
12,878 12,878
Shareholders' equity (deficit).....................................................
(10,441) (10,441)
</TABLE>
- ------------------------------
(1) Pro Forma Combined Condensed Statement of Operations data reflects the
acquisition of Joshua's on June 1, 1998, as if it had occurred at the
beginning of the earliest period presented. See "Pro Forma Combined
Condensed Financial Statements (unaudited)" including the notes thereto.
(2) Store contribution represents gross profit less direct selling expenses
which include store labor, point-of-sale information system rental and
maintenance and other direct store expenses.
(3) Weighted average diluted common shares outstanding excludes the effect of
employee stock options and redeemable common stock warrants for periods with
a net loss since such inclusion would be antidilutive.
(4) Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store is opened or acquired.
(5) Average net sales per square foot is calculated by dividing total net sales
by the weighted average gross square footage of stores open during the
period. Periods less than a full year are annualized based on historical
seasonal trends. See "Business-- Properties."
(6) The pro forma balance sheet data reflects the acquisition of Joshua's on
June 1, 1998.
(7) Adjusted to reflect the sale of shares of Common Stock at an
assumed initial public offering price of $ per share and the estimated
net proceeds therefrom after deducting the estimated underwriting discount
and the estimated expenses of this Offering. See "Use of Proceeds." Also
adjusted to reflect the conversion of redeemable common stock warrants in
connection with the closing of the Offering.
(8) Redeemable common stock warrants were issued in connection with the
Company's senior subordinated notes. Subsequent to December 31, 1999, the
holder may, at its option, require the Company to purchase the warrants at
fair value. As a result, the redeemable common stock warrants are recorded
at estimated fair value at the respective balance sheet dates.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
EVALUATING AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY.
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF ACQUISITIONS; POSSIBLE INABILITY TO
MANAGE GROWTH
The Company's growth has been achieved primarily through acquisitions.
Certain of these acquisitions, including the acquisition of Joshua's, were large
transactions which involve significant risks and uncertainties for the Company.
The success of past and future acquisitions is largely dependent on the ability
of Family to integrate the operations of the acquired companies into Family's
operations in an efficient manner and to manage its larger store base
effectively. Most of the acquisition candidates that may be available to the
Company in the future are small chains or independent stores. The lack of large
acquisition candidates will require the Company to make many small acquisitions
in order to achieve its growth strategy, which may make integration more
difficult. There can be no assurance that the Company's acquisitions will be
successfully integrated on a timely basis or that the anticipated benefits of
these acquisitions will be realized. Failure to effectively accomplish the
integration of acquired companies could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's business has grown considerably in size and geographic scope,
increasing from 148 stores located in 28 states at October 31, 1994, to its
current size of 276 stores in 36 states. The Company's continued growth may
place a significant strain on the Company's management and operating systems.
There can be no assurance that the Company will anticipate all of the changing
demands of its expanding operations and adapt systems and procedures
accordingly. To support its planned store growth, the Company will be required
to hire and train a substantial number of additional store managers and store
employees, and there can be no assurance that the training and supervision of a
larger number of employees will not adversely affect the performance of the
Company's stores or the level of customer service that the Company seeks to
maintain in such stores. The Company's inability to manage growth effectively
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business."
UNCERTAIN ABILITY TO EXECUTE GROWTH STRATEGY
The Company intends to continue to pursue an aggressive growth strategy. The
Company's ability to continue to expand its operations depends upon a number of
factors, including its ability to: (i) locate acquisition targets and negotiate
acceptable acquisition terms; (ii) hire, train and integrate management and
store employees; (iii) access adequate capital resources; (iv) identify markets
that meet its site selection criteria; (v) locate suitable store sites and
negotiate acceptable lease terms; and (vi) expand into new markets. There can be
no assurance that the Company will be able to identify additional acquisition
candidates or locate appropriate sites for new stores or for relocation of
existing stores. The Company believes that, other than Family, the largest
Christian retail chain is comprised of approximately 75 stores. The lack of
large acquisition candidates could have an adverse effect on the ability of the
Company to realize its growth strategy. The Company pursues a strategy of
clustering stores in each of its markets to increase overall sales, achieve
operating efficiencies and further penetrate markets. In the past, the Company
has opened additional stores in markets where it has existing store locations.
The Company plans to continue doing so, which may result in a decline in the net
sales and operating results at its existing stores in these markets.
The Company anticipates opening five new stores and acquiring nine
additional stores during the remainder of fiscal 1998 and opening or acquiring
approximately 40 to 50 stores in fiscal 1999. Certain of these stores may be in
areas where the Company currently has no operations. There can be no assurance
7
<PAGE>
that the Company will achieve its planned expansion in existing markets, enter
new markets or integrate and operate its newly-opened or newly-acquired stores
profitably. Failure to do so could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business-- Growth Strategy."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its net sales and net earnings. Similar to
many retailers, the Company typically realizes a significant portion of its net
sales and all of its net earnings in the fourth quarter of its fiscal year
primarily as a result of the holiday selling season. Any significant adverse
trend in net sales for such period would have a material adverse effect on the
Company's results of operations for the full fiscal year. Historically, the
first and third quarters of the Company's fiscal year have been the weakest
quarters. Due to the fluctuations in net sales and net earnings, the results of
operations of any quarter are not necessarily indicative of the results that may
be achieved for a full fiscal year or any future quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Fluctuations."
FLUCTUATIONS IN COMPARABLE STORE SALES
The Company's results of operations have fluctuated and are expected to
continue to fluctuate significantly from period to period as the result of a
number of factors, including: (i) the number and timing of store openings and
acquisitions and related expenses; (ii) the number of relocated and remodeled
stores; (iii) the integration of new stores into the operations of the Company;
(iv) the relative mix of store types; (v) the opening of stores by the Company
or its competitors in markets where the Company has existing stores; and (vi)
the timing of new releases. In addition, the results of comparable store sales
differ from period to period, due to a variety of factors, including the
relative proportion of new stores to mature stores, the timing of promotional
events, the Company's ability to execute its operating strategy effectively,
changes in consumer preferences for Christian retail products and general
economic conditions. There can be no assurance that comparable store sales for
any particular period will not decrease in the future. As a result, following
the Offering, the Company's comparable store sales could cause the price of the
Class A Common Stock to fluctuate substantially. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
COMPETITION
The Christian retail industry is highly competitive. Historically,
competition has included independent stores and franchises, with an increasing
presence from large retail chains, including those primarily focused on the sale
of secular books and merchandise. Many independent stores and regional chains
across the country have become more aggressive in their approach to retail,
growing the size and improving the look of their stores through expansion and
remodeling. Many independent stores are becoming more aggressive in their
marketing as well, by utilizing extensive mailing lists and by participating in
marketing groups. The largest marketing group, Parable Group, Inc. ("Parable"),
is reported to presently consist of approximately 330 stores.
The growing market for Christian-related products has attracted competition
in the area of books and music from retailers whose primary focus is secular
merchandise. Large retailers such as Barnes & Noble, Inc. ("Barnes & Noble"),
Media Play, Inc. ("Media Play"), Borders Group, Inc. ("Borders") and
Books-A-Million, Inc. ("Books-A-Million") are expanding their selection of
Christian books and music while also increasing the size and number of their
stores. Discount store chains, such as Target Stores, Inc. ("Target"), The
Wal-Mart Stores, Inc. ("Wal-Mart") and Best Buy Co., Inc. ("Best Buy"), as well
as Internet retailers, such as Amazon.com, Inc. ("Amazon.com"), direct marketers
and book clubs present additional competition. In order to remain competitive in
certain markets, the Company may be required to implement price reductions,
which could have an adverse impact on its business, financial condition and
8
<PAGE>
results of operations. As Family enters new geographic markets, its success will
depend in part on its ability to gain market share from established competitors,
some of which are larger and have substantially greater resources than the
Company. The Company expects competition from both new and existing competitors
to increase, and there can be no assurance that the Company will be able to
compete effectively in the future. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the leadership
and performance of the Company's senior management, particularly Mr. Leslie E.
Dietzman, Family's President and Chief Executive Officer. The loss of the
services of Mr. Dietzman or any of the Company's other key personnel could have
a material adverse effect on the Company. In addition, as the Company grows, it
will be required to continue to hire management personnel and other employees.
Given its dedication to Christian and family values, the Company seeks to hire
experienced professionals who also demonstrate a commitment to such principles.
There can be no assurance that the Company will be able to attract and retain
sufficient qualified employees. See "Management."
DEPENDENCE ON VENDORS; POSSIBLE DISRUPTIONS OF PRODUCT SUPPLY
The Company's business is dependent on its ability to purchase Christian
books, music, gifts and other products in sufficient quantities at competitive
prices. The Company relies upon a small number of major publishers and
distributors and a large number of relatively small vendors for its merchandise.
During the Company's 1997 fiscal year, four vendors supplied approximately 34%
of the Company's products. The Company has no material supply contracts, and any
vendor or distributor could discontinue selling to the Company at any time. The
Company is dependent on its major distributors for products which are available
only from a limited number of sources. The failure of one of these major vendors
or distributors to meet the Company's demands could disrupt store-level
merchandise selection. Any such disruption in its product supply could have a
material adverse effect on the Company's business, financial condition and
results of operations. For other products the Company relies upon a larger
number of relatively small vendors. Although the Company believes it has access
to alternative sources of supply among these small vendors, there can be no
assurance that smaller suppliers will be able to meet the Company's needs as the
Company grows. See "Business--Purchasing and Distribution."
CONSUMER TRENDS AND SPENDING PATTERNS
Although interest in Christian and family values in the United States has
been increasing, there can be no assurance that such trend will continue. Sales
of Christian books, music, gifts and other products are dependent upon
discretionary consumer spending, which may be affected by general economic
conditions such as employment levels, business conditions, interest rates,
availability of credit, inflation and taxation, consumer confidence and other
factors beyond the control of the Company. The Company's failure to anticipate,
identify and react appropriately to changing consumer preferences, or a decline
in consumer spending on Christian merchandise generally, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON THIRD PARTY FOR SUPPORT OF MANAGEMENT INFORMATION SYSTEMS
The Company's information systems are currently managed by Andersen
Consulting ("Andersen") pursuant to a consulting agreement that is scheduled to
terminate in 2001. Andersen is responsible for maintaining the Company's current
systems, developing new systems and enhanced programs to support the Company's
growth and working with the Company's management in using the systems for
inventory and price management, sales tracking, merchandise planning and
accounting. The Company is dependent on the satisfactory performance of Andersen
for the continued successful management of its information systems and on its
ability to provide such services at prices acceptable to the Company. Although
the
9
<PAGE>
Company has dedicated systems personnel who assist Andersen and believes that
its relationship with Andersen is good, there can be no assurance that Andersen
will continue to supply information services successfully or will not terminate
its arrangement with Family, either of which could have a material adverse
effect on the Company's operating systems and on the Company's business,
financial condition and results of operations. See "Business--Management
Information Systems."
YEAR 2000 IMPACT
The Company's computer systems, software products and other business
systems, as well as those of its major vendors, may experience problems in
connection with processing dates on or after January 1, 2000. The Company
currently is conducting a review of the impact of such Year 2000 issues on its
information systems to determine whether its systems will retain functionality
subsequent to December 31, 1999. Although the Company believes that its Year
2000 compliance program can be completed by the beginning of fiscal 1999, there
can be no assurance that the process will be completed by that date. In
addition, the Company has communicated with other entities with whom it does
significant business to determine their Year 2000 compliance readiness and the
extent to which the Company is vulnerable to any third-party Year 2000 issues.
There can be no assurance that the systems of such other companies will be
converted in a timely manner. Any failure by the Company or such other companies
to successfully convert could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Effects of Year 2000."
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
Holders of the Company's Class A Common Stock are entitled to one vote per
share, and holders of the Company's Class B Common Stock are entitled to ten
votes per share. Immediately following the Offering, through their ownership of
all of the shares of Class B Common Stock outstanding, the directors,
executive officers and current shareholders of the Company will represent, in
the aggregate % of the outstanding Common Stock. As a result, the holders of
Class B Common Stock will be able to effectively control the Company and direct
its affairs and business, including any determination with respect to
significant corporate transactions and the election of directors. Such
concentration of ownership may also have the effect of delaying, deferring or
preventing a change in control of the Company, including transactions in which
the holders of Class A Common Stock might receive a premium for their shares
over prevailing market prices. Pursuant to an agreement to be entered into by
the Company and certain investors upon the closing of the Offering, the Company
will agree to nominate one director designated by such investors to the Board of
Directors for so long as such investors hold more than 5% of the outstanding
Common Stock. See "Principal and Selling Shareholders" and "Description of
Capital Stock."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws may
have the effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Class A Common Stock at a premium over the
market price of the Class A Common Stock and may adversely affect the market
price of the Class A Common Stock and the voting and other rights of the holders
of the Class A Common Stock. These provisions include, but are not limited to, a
classified Board of Directors and the authority of the Board of Directors to
issue shares of Preferred Stock and to fix the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
further vote or action by the shareholders. The rights of the holders of Class A
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The Company
has no present plans to issue shares of Preferred Stock. Furthermore, the loan
agreement with respect to the Company's existing indebtedness contains certain
covenants restricting the sale of assets. These restrictions may have the effect
of delaying or preventing a sale of the Company. See
10
<PAGE>
"--Covenant Restrictions." In addition, certain provisions of Michigan law
applicable to the Company could have the effect of discouraging certain attempts
to acquire the Company which could deprive the Company's shareholders of the
opportunities to sell their shares of Class A Common Stock at prices higher than
prevailing market prices. See "Description of Capital Stock."
COVENANT RESTRICTIONS
The Company's Amended and Restated Loan Agreement, dated as of October 31,
1994, and amended and restated on July 17, 1998 (the "Amended and Restated Loan
Agreement"), contains certain restrictive financial and operating covenants with
respect to liens, indebtedness, capital expenditures, sales of assets,
investments, prepayments of debt, dividends, requirements to maintain certain
financial ratios and certain other corporate actions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The ability of the Company to
comply with these covenants will depend on its future performance, which will,
in part, be subject to prevailing economic, financial and business factors
beyond the Company's control. These restrictions also could prohibit the Company
from taking actions which would otherwise be in the best interests of the
Company, including limiting the Company's ability to implement its new store
expansion plan to the extent that the provisions that limit capital expenditures
and additional indebtedness, among others, are insufficient to accommodate such
plan. Management believes that the Company will be able to comply with such
provisions while implementing its growth strategy; however, there can be no
assurance that it will be able to do so. Pursuant to the Securities Purchase
Agreement, dated as of November 14, 1994 (the "Securities Agreement"), between
the Company and its existing shareholders, the Company is subject to covenant
restrictions that are substantially similar to those of the Amended and Restated
Loan Agreement. Upon the exercise of the Company's outstanding warrants, such
covenants will no longer apply.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock. Accordingly, there can be no assurance that an active trading
market for the Class A Common Stock will develop or be sustained upon completion
of the Offering. The initial public offering price of the shares of Class A
Common Stock offered hereby will be established by negotiations among the
Company, the Selling Shareholders and the representatives of the Underwriters.
See "Underwriting" for factors to be considered in determining the initial
public offering price. The market price of the shares of Class A Common Stock
could be subject to significant fluctuations in response to the Company's
operating results and other factors, including conditions in the Christian
retail market. In addition, the stock market in recent years has experienced
price and volume fluctuations that often have been unrelated or disproportionate
to the operating performance of companies. These fluctuations, as well as a
shortfall in net sales or net earnings compared to public market analysts'
expectations, fluctuations in the Company's comparable store sales, changes in
analysts' recommendations or projections and general economic and market
conditions, may adversely affect the market price of the Class A Common Stock.
See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock in the public
market following the Offering or the perception that such sales could occur
could adversely affect the market price of the Common Stock. Upon the closing of
the Offering, the Company will have outstanding an aggregate of shares
of Common Stock ( shares if the Underwriters' over-allotment option is
exercised in full). In addition, the Company has reserved for issuance
shares issuable upon exercise of outstanding options. The shares of
Common Stock sold in the Offering will be freely transferable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless such shares are held by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act.
11
<PAGE>
The remaining shares of Common Stock held by existing shareholders
are "restricted securities" as that term is defined in Rule 144 ("Restricted
Shares"), and may be sold in the public market only if they are registered or if
they qualify for exemption from registration under Rules 144 or 701 under the
Securities Act. Restricted Shares are subject to lock-up agreements
pursuant to which the holders have agreed not to sell or otherwise dispose of
any of their shares of Common Stock for a period of 180 days following the date
of this Prospectus without the prior written consent of NationsBanc Montgomery
Securities LLC. Following the 180-day period, Restricted Shares will be
eligible for sale in the public market without restriction under Rule 144(k).
Restricted Shares will be eligible for sale subject to the volume and
other limitations of Rule 144. Of the Restricted Shares held by existing
shareholders not subject to lock-up agreements, shares will be eligible
for immediate sale in the public market without restriction under Rule 144(k).
The remaining Restricted Shares not subject to lock-up agreements will
become eligible for sale, subject to certain volume, manner of sale and other
limitations, under Rule 144 commencing 90 days following the date of this
Prospectus. The Company intends to file one or more registration statements on
Form S-8 to register shares of Common Stock authorized for issuance
under the Company's equity incentive plans. See "Management--Employee Benefit
Plans," "Description of Capital Stock--Registration Rights," and "Shares
Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
The proposed initial public offering price per share of Class A Common Stock
is substantially higher than the net tangible book value per share of the Class
A Common Stock. Purchasers of shares of the Class A Common Stock offered hereby
will incur immediate and substantial dilution of $ per share. See
"Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Class A Common Stock offered by the Company hereby (at an assumed initial public
offering price of $ per share and after deducting estimated underwriting
discount and estimated Offering expenses) are estimated to be $ million
($ million if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any proceeds from the sale of the shares
of Class A Common Stock offered by the Selling Shareholders hereby. See
"Principal and Selling Shareholders."
The Company intends to use approximately $12.0 million of the net proceeds
from the Offering to finance new store openings and store acquisitions over the
next 12 to 18 months. Family plans to open five additional stores and acquire
nine additional stores during the second half of fiscal 1998 and anticipates
opening or acquiring approximately 40 to 50 stores in fiscal 1999. Although the
Company has no present commitments or agreements with respect to any
acquisitions planned for fiscal 1999, funds will be used in connection with
future acquisitions if such opportunities develop. Costs to acquire stores could
vary materially from the cost of opening new stores. There can be no assurance
that the Company will achieve its planned expansion in existing markets or enter
new markets.
Approximately $5.7 million of the net proceeds will be used to fund
obligations under the financing provided in connection with the Joshua's
acquisition. The note evidencing such obligations was entered into by the
Company on June 1, 1998, has an interest rate of 7.25% and requires annual
payments of $2.9 million on December 31, 1998 and 1999 and $2.8 million on
December 31, 2000. The final payment is subject to acceleration upon the closing
of the Offering.
In addition, the Company intends to use approximately $10.0 million of the
net proceeds of the Offering to repay certain bank indebtedness. Such repayment
will first be applied to a $5 million term note bearing interest at the greater
of (i) the lender's prime rate or (ii) the Federal Funds Rate plus .50% (each,
as applicable, the "Base Rate"), plus 2.00%, with interest payable quarterly and
a final maturity of May 31, 2004. The repayment of bank indebtedness will next
be applied to a $9.5 million term note bearing interest at the Base Rate plus
1.00% with interest payable quarterly and quarterly principal payments totaling
$0.5 million in fiscal 1999, $1.0 million in fiscal 2000 and $2.67 million in
each of fiscal 2001, 2002 and 2003 and with a final maturity date of May 31,
2004.
The Company intends to use the remaining proceeds of approximately $
million to repay amounts outstanding under the Company's revolving line of
credit (the "Revolving Line"), which bears interest at LIBOR plus 3.25% or the
Base Rate plus .50% and has a final maturity of May 31, 2004, subject to
one-year extensions as agreed upon by the parties. Upon the consummation of the
Offering and the application of the net proceeds therefrom, the Revolving Line
will bear interest at LIBOR plus 2.75% or the Base Rate. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the future earnings, operations, capital
requirements and financial condition of the Company. In addition, the Company's
current Revolving Line contains various financial covenants which restrict,
among other things, the Company's ability to pay dividends. As of the date of
this Prospectus, the Company may not pay dividends pursuant to the terms of the
Revolving Line. Upon completion of the Offering and the application of the net
proceeds therefrom as described in "Use of Proceeds," the Company may pay
dividends, subject to certain limitations of the Revolving Line. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
26, 1998: (i) on an actual basis and (ii) as adjusted to reflect the sale of the
shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discount and estimated Offering expenses), and the application of
the estimated net proceeds therefrom. This table should be read in conjunction
with the Company's Financial Statements and Notes thereto and the Pro Forma
Combined Condensed Financial Statements (unaudited) included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
APRIL 26, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................................................ $ 2,000 $
Long-term debt........................................................................... 23,387
Redeemable common stock warrants......................................................... 12,878
Shareholders' equity (deficit)(1)(2):
Class A Common stock, $.01 par value; 10,000,000 shares authorized; no shares issued,
pro forma; shares issued, pro forma as adjusted.............................. 1,697
Class B Common stock, $.01 par value; 10,000,000 shares authorized; shares
issued, pro forma; shares issued, pro forma as adjusted...................... 55
Additional paid-in capital............................................................. 7,083
Retained earnings (deficit)............................................................ (18,923)
Notes receivable from shareholders..................................................... (353)
---------- -----------
Total shareholders' equity (deficit)................................................. (10,441)
---------- -----------
Total capitalization............................................................... $ 27,824 $
---------- -----------
---------- -----------
</TABLE>
- ------------------------------
(1) Excludes: (i) shares of Common Stock issuable upon exercise of
options outstanding under the Company's stock option plans as of
, 1998 with a weighted average exercise price of $ per share;
(ii) shares of Common Stock issuable upon exercise of options to be
granted under the Company's stock option plans upon the closing of the
Offering, with an exercise price per share equal to the initial public
offering price; and (iii) shares reserved for issuance pursuant to
the Company's stock option plans. See "Management--Employee Benefit Plans"
and Note J of the Notes to the Company's Consolidated Financial Statements.
(2) Share numbers are presented on a pro forma basis to give effect to the
conversion of the Company's currently outstanding common stock into shares
of newly created Class B Common Stock concurrently with the closing of the
Offering.
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of April 26, 1998
was approximately $ million or $ per share. Pro forma net tangible
book value per share is equal to net tangible assets (tangible assets of the
Company less total liabilities) divided by the number of shares of Common Stock
outstanding. Without taking into account any other changes in net tangible book
value after April 26, 1998, other than to give effect to the sale by the Company
of the shares of Class A Common Stock offered by the Company hereby (at
an assumed initial public offering price of $ per share) and the receipt
of the estimated net proceeds therefrom, the pro forma net tangible book value
of the Company as of April 26, 1998, would be approximately $ million, or
$ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing shareholders and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share...................................... $
Pro forma net tangible book value per share before the Offering.................... $
Increase per share attributable to new investors...................................
---------
Pro forma net tangible book value per share after the Offering.......................
---------
Dilution per share to new investors.................................................. $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of April 26, 1998,
the total number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
shareholders and by the investors purchasing shares of Class A Common Stock in
the Offering (based upon an assumed initial public offering price of $
per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).................................. % $ % $
New investors.............................................
----- ----- ---------- -----
Total................................................... 100.0% $ 100.0%
----- ----- ---------- -----
----- ----- ---------- -----
</TABLE>
- ------------------------------
(1) Sales by the Selling Shareholders in the Offering will reduce the number of
shares held by the existing shareholders to or % ( or %
if the over-allotment option is exercised in full) of the total number of
shares of Common Stock to be outstanding after the Offering and will
increase the number of shares to be purchased by new investors to or
% ( or % if the over-allotment option is exercised in full) of
the total shares of Common Stock to be outstanding. See "Principal and
Selling Shareholders."
The foregoing discussion and table include on a pro forma basis as of April
26, 1998, the acquisition of Joshua's on June 1, 1998, and exclude
shares of Common Stock issuable upon exercise of options outstanding under the
Company's stock option plans as of , 1998, with a weighted average
exercise price of $ per share and shares reserved for issuance
pursuant to the Company's stock option plans. To the extent such options are
exercised in the future, there will be further dilution to new investors. See
"Capitalization," "Management--Employee Benefit Plans" and Note J of the Notes
to the Company's Consolidated Financial Statements.
15
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF FAMILY CHRISTIAN STORES, INC.
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)
The statement of operations and balance sheet data have been derived from
the audited financial statements of the Company. The selected financial data for
the three months ended April 26, 1998, and April 27, 1997, have been derived
from the unaudited financial statements of the Company. The unaudited financial
statements include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation of the
financial position and results of operations for those periods. Operating
results for the three months ended April 26, 1998, are not necessarily
indicative of the results that may be expected for the full year or for any
future period. The selected operating data for all periods presented below have
been derived from internal records of the Company's operations. The data set
forth below should be read in conjunction with the Financial Statements of
Family Christian Stores, Inc., including notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ------------------------
-------------------------------------------- APRIL 27, APRIL 26,
1994(1) 1995 1996 1997 1997 1998
----------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 41,612 $ 126,125 $ 139,280 $ 168,063 $ 32,438 $ 38,257
Cost of products sold, including store occupancy costs.... 30,708 90,967 100,222 118,473 23,940 27,516
----------- --------- --------- --------- ----------- -----------
Gross profit.............................................. 10,904 35,158 39,058 49,590 8,498 10,741
Operating expenses:
Selling, general and administrative expenses............ 10,155 34,283 34,923 40,284 9,050 10,643
Depreciation and amortization........................... 504 2,400 2,830 3,080 725 770
Store opening expenses.................................. 167 991 414 739 152 356
----------- --------- --------- --------- ----------- -----------
10,826 37,674 38,167 44,103 9,927 11,769
----------- --------- --------- --------- ----------- -----------
Operating income (loss)................................... 78 (2,516) 891 5,487 (1,429) (1,028)
Interest expense, net..................................... 329 2,618 2,735 2,794 725 647
----------- --------- --------- --------- ----------- -----------
Earnings (loss) before income taxes....................... (251) (5,134) (1,844) 2,693 (2,154) (1,675)
Income tax provision...................................... -- -- -- -- -- --
----------- --------- --------- --------- ----------- -----------
Net earnings (loss)....................................... $ (251) $ (5,134) $ (1,844) $ 2,693 $ (2,154) $ (1,675)
----------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- ----------- -----------
Net earnings (loss) per share:
Basic................................................... $ (0.17) $ (3.33) $ (1.18) $ 1.63 $ (1.38) $ (0.96)
----------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- ----------- -----------
Diluted................................................. $ (0.17) $ (3.33) $ (1.18) $ 1.22 $ (1.38) $ (0.96)
----------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- ----------- -----------
Weighted average common shares outstanding:
Basic................................................... 1,500 1,541 1,559 1,653 1,566 1,752
Diluted................................................. 1,500 1,541 1,559 2,215 1,566 1,752
SELECTED OPERATING DATA:
Number of stores open at end of period.................... 153 174 184 197 187 211
Net sales growth.......................................... n/a 20.1% 10.4% 20.7% 18.3% 17.9%
Comparable store sales increase(2)........................ 10.0% 1.2% 3.1% 12.8% 12.4% 8.2%
Average gross square feet per store at end of period...... 4,107 4,268 4,382 4,593 4,435 4,587
Average net sales per square foot(3)...................... $ 178 $ 177 $ 178 $ 194 $ 205 $ 210
BALANCE SHEET DATA:
Working capital........................................... $ 7,887 $ 6,529 $ 219 $ 739 $ 1,981 $ 6,169
Total assets.............................................. 47,195 56,587 52,383 61,286 59,161 66,551
Total debt................................................ 16,808 22,163 20,518 16,973 25,032 25,387
Redeemable common stock warrants(4)....................... 1,317 1,499 5,519 9,199 5,519 12,878
Shareholders' equity (deficit)............................ 4,149 (866) (6,657) (5,128) (8,803) (10,441)
</TABLE>
- ------------------------------
(1) Family Christian Stores, Inc., formerly Family Bookstores Company, Inc., was
formed for the purpose of acquiring substantially all of the assets of the
Family Bookstores Division of The Zondervan Corporation on October 31, 1994.
Amounts reported for fiscal 1994 represent results of operations for the
period from October 31, 1994 to January 29, 1995.
(2) Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store is opened or acquired.
(3) Average net sales per square foot is calculated by dividing total sales by
the weighted average gross square footage of stores open during the period.
Periods less than a full year are annualized based on historical seasonal
trends. See "Business--Properties."
(4) Redeemable common stock warrants were issued in connection with the
Company's senior subordinated notes. Subsequent to December 31, 1999, the
holder may, at its option, require the Company to purchase the warrants at
fair value. As a result, the redeemable common stock warrants are recorded
at estimated fair value at the respective balance sheet dates.
16
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF JOSHUA'S CHRISTIAN STORES
(IN THOUSANDS, EXCEPT OPERATING DATA)
The statement of operations and balance sheet data as of and for the twelve
months ended March 31, 1998 (fiscal 1997), have been derived from the audited
financial statements of Joshua's Christian Stores. The selected financial data
for the three months ended April 30, 1998, have been derived from the unaudited
financial statements of Joshua's Christian Stores and include all adjustments,
consisting only of normal recurring adjustments, that the management of Joshua's
considers necessary for a fair presentation of the financial position and
results of operations for the period. The selected operating data presented
below have been derived from internal records of Joshua's. The data set forth
below should be read in conjunction with the Financial Statements Joshua's
Christian Stores, including notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL THREE MONTHS ENDED
1997 APRIL 30, 1998
--------- --------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 32,007 $ 6,578
Cost of products sold, including store occupancy costs (1)....................... 22,934 4,862
--------- -------
Gross profit..................................................................... 9,073 1,716
Operating expenses:
Selling, general and administrative expenses................................... 8,126 2,011
Depreciation and amortization.................................................. 612 130
--------- -------
8,738 2,141
--------- -------
Earnings (loss) before income taxes.............................................. 335 (425)
Income tax provision (benefit)................................................... 11 (145)
--------- -------
Net earnings (loss).............................................................. $ 324 $ (280)
--------- -------
--------- -------
SELECTED OPERATING DATA:
Number of stores open at end of period........................................... 58 56
Net sales growth (decrease)...................................................... 1.3% (9.7)%
Comparable store net sales increase (decrease) (2)............................... 8.6% (1.3)%
Average gross square feet per store at end of period............................. 3,247 3,286
Average net sales per square foot (3)............................................ $ 159 $ 179
BALANCE SHEET DATA:
Working capital.................................................................. $ 4,675 $ 4,615
Total assets..................................................................... 12,110 11,613
</TABLE>
- ------------------------------
(1) The historical financial statements of Joshua's Christian Stores have been
adjusted to reclassify store occupancy costs to cost of products sold in
order to conform to the presentation used by the Company.
(2) Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store is opened or acquired.
(3) Average net sales per square foot is calculated by dividing total net sales
by the weighted average gross square footage of stores open during the
period. See "Business--Properties."
17
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On June 1, 1998, the Company acquired the assets of Joshua's Christian
Stores in a transaction accounted for as a purchase. The pro forma combined
condensed balance sheet as of April 26, 1998, the end of Family's first quarter
of fiscal 1998, gives effect to the acquisition of Joshua's and the related
financing, as if such events had occurred on that date. The pro forma combined
condensed statements of operations for fiscal 1997 and the three months ended
April 26, 1998 give effect to the acquisition of Joshua's as if the transaction
had occurred at the beginning of those periods. The pro forma financial
statements do not give effect to other acquisitions completed by the Company
during this period as they were immaterial both individually and in the
aggregate.
In the opinion of the Company all adjustments necessary to present fairly
such pro forma combined financial statements have been made. These unaudited pro
forma financial statements are not necessarily indicative of what actual results
would have been had the transactions occurred at the beginning of the respective
periods nor do they purport to indicate the results of future operations of the
Company. These unaudited pro forma financial statements should be read in
conjunction with the accompanying notes and the historical financial statements
and notes thereto of Family Christian Stores, Inc. and Joshua's Christian
Stores, respectively, included elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
18
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
FAMILY CHRISTIAN JOSHUA'S CHRISTIAN
STORES STORES
APRIL 26, MARCH 31, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS COMBINED
--------------------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ 2,222 $ 125 $ (125)(a) $ --
(2,222)(c)
Inventories......................... 38,654 7,442 (469)(a) 45,627
Other............................... 3,859 969 (886)(a) 3,942
------- ------- ----------- -----------
Total current assets.............. 44,735 8,536 (3,702) 49,569
Property and equipment, net........... 13,017 2,204 (472)(a) 14,749
Intangible assets, net................ 8,319 1,355 (1,355)(a) 11,231
2,912(b)
Deposits and other assets............. 480 15 (15)(a) 480
------- ------- ----------- -----------
Total assets........................ $ 66,551 $ 12,110 $ (2,632) $ 76,029
------- ------- ----------- -----------
------- ------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................... $ 30,579 $ 2,367 $ (2,367)(a) $ 30,579
Accrued liabilities................. 5,987 1,494 (1,494)(a) 6,187
200(b)
Current portion of long term debt... 2,000 -- 2,900(c) 4,900
------- ------- ----------- -----------
Total current liabilities......... 38,566 3,861 (761) 41,666
Long-term debt, less current
maturities........................... 23,387 -- 6,378(c) 29,765
Other liabilities..................... 2,161 -- -- 2,161
------- ------- ----------- -----------
Total liabilities................... 64,114 3,861 5,617 73,592
Redeemable common stock warrants...... 12,878 -- -- 12,878
Investment by parent.................. -- 8,249 (8,249)(d) --
Shareholders' equity (deficit):
Common stock........................ 1,752 1,752
Additional paid-in capital.......... 7,083 7,083
Retained earnings (deficit)......... (18,923) (18,923)
Notes receivable from shareholders.. (353) (353)
------- ------- ----------- -----------
Shareholders' equity (deficit).... (10,441) (10,441)
------- ------- ----------- -----------
Total liabilities and shareholders'
equity (deficit).................. $ 66,551 $ 12,110 $ (2,632) $ 76,029
------- ------- ----------- -----------
------- ------- ----------- -----------
</TABLE>
- ------------------------------
(a) Represents the elimination of assets or liabilities which were not acquired
or assumed in the acquisition of Joshua's.
(b) To record the excess of cost over fair value of assets acquired resulting
from purchase price allocation:
<TABLE>
<CAPTION>
<S> <C>
Cash purchase price...................................................................... $ 2,900
Note payable to seller................................................................... 8,600
Fees and expenses........................................................................ 200
---------
Total purchase price..................................................................... 11,700
Historical net assets of Joshua's less assets and liabilities not acquired............... 8,788
---------
Excess of cost over fair value of net assets acquired.................................... $ 2,912
---------
---------
</TABLE>
(c) Represents amounts to be recorded in connection with the seller's financing
of the purchase of Joshua's. Payments on note payable to seller of $8,600 is
due in installments of $2,900 on December 31, 1998 and 1999, and $2,800 on
December 31, 2000. The final payment on the seller financing will become due
within 30 days of the successful completion of the Offering. Additional cash
required to finance the acquisition in excess of available cash ($678) is
assumed to be financed using existing revolving credit facilities.
(d) Represents the elimination of investment by parent resulting from
adjustments (a) and (b) above.
19
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR FISCAL YEAR 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
FAMILY JOSHUA'S
CHRISTIAN CHRISTIAN PRO FORMA PRO FORMA
STORES STORES ADJUSTMENTS COMBINED
---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales...................................................... $ 168,063 $ 32,007 $ (2,284)(a) $ 197,786
Cost of products sold, including store occupancy costs......... 118,473 22,934 (1,764)(a) 139,643
---------- ----------- ------------- -----------
Gross profit................................................... 49,590 9,073 (520)(a) 58,143
Operating expenses:
Selling, general and administrative expenses................. 40,284 8,126 (658)(a) 47,752
Depreciation and amortization.................................. 3,080 612 (68)(a) 3,707
83(b)
Store opening expenses......................................... 739 739
---------- ----------- ------------- -----------
44,103 8,738 (643) 52,198
---------- ----------- ------------- -----------
Operating income............................................... 5,487 335 123 5,945
Interest expense, net.......................................... 2,794 -- 695(c) 3,489
---------- ----------- ------------- -----------
Income before income taxes..................................... 2,693 335 (572) 2,456
Income tax expense............................................. -- 11 (11)(d) --
---------- ----------- ------------- -----------
Net earnings................................................... $ 2,693 $ 324 $ (561) $ 2,456
---------- ----------- ------------- -----------
---------- ----------- ------------- -----------
Net earnings per share:
Basic........................................................ $ 1.63 $ 1.49
---------- -----------
---------- -----------
Diluted...................................................... $ 1.22 $ 1.11
---------- -----------
---------- -----------
Weighted average common shares outstanding:
Basic........................................................ 1,653 1,653
---------- -----------
---------- -----------
Diluted...................................................... 2,215 2,215
---------- -----------
---------- -----------
</TABLE>
20
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 26, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
FAMILY JOSHUA'S
CHRISTIAN CHRISTIAN PRO FORMA PRO FORMA
STORES STORES ADJUSTMENTS COMBINED
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales......................................................... $ 38,257 $ 6,578 $ (212)(a) $ 44,623
Cost of products sold, including store occupancy costs............ 27,516 4,862 (171)(a) 32,207
----------- ----------- ------ -----------
Gross profit...................................................... 10,741 1,716 (41)(a) 12,416
Operating expenses:
Selling, general and administrative expenses.................... 10,643 2,011 (70)(a) 12,584
Depreciation and amortization..................................... 770 130 (6)(a) 915
21(b)
Store opening expenses............................................ 356 -- -- 356
----------- ----------- ------ -----------
11,769 2,141 (55) 13,855
----------- ----------- ------ -----------
Operating loss.................................................... (1,028) (425) 14 (1,439)
Interest expense, net............................................. 647 -- 174(c) 821
----------- ----------- ------ -----------
Loss before income taxes.......................................... (1,675) (425) (160) (2,260)
Income tax benefit................................................ -- (145) 145(d) --
----------- ----------- ------ -----------
Net loss.......................................................... $ (1,675) $ (280) $ (305) $ (2,260)
----------- ----------- ------ -----------
----------- ----------- ------ -----------
Net loss per share:
Basic........................................................... $ (0.96) $ (1.29)
----------- -----------
----------- -----------
Diluted......................................................... $ (0.96) $ (1.29)
----------- -----------
----------- -----------
Weighted average common shares outstanding:
Basic........................................................... 1,752 1,752
-----------
-----------
Diluted......................................................... 1,752 1,752
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
(a) Historical financial statements for Joshua's for the year ended March 31,
1998, include the operation of 71 stores and for the three months ended
April 26, 1998, include the operation of 58 stores. Since Family acquired
only the 56 stores open at the acquisition date, June 1, 1998, a pro forma
adjustment was recorded to remove the operating results directly
attributable to stores not acquired in the asset purchase.
(b) Amortization of the incremental excess of the acquisition cost over the
related net book value of assets acquired, totaling $2,912, over 35 years on
a straight-line basis, in connection with the Joshua's acquisition.
(c) Recording of interest on seller financing of $8,600 at the stated interest
rate of 7.25% and pro forma additional borrowings of $678 under the
Company's revolving credit facility at 10.5%.
(d) No income tax expense or benefit is recognized on a combined basis in fiscal
1997 or the first quarter of fiscal 1998 as Family is currently not
permitted to recognize the benefit of net deferred income tax assets which
includes net operating loss and credit carryforwards.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Family is the largest retailer in the United States dedicated solely to
Christian-related products. The Company was formed to acquire the Family
Bookstores Division of The Zondervan Corporation on October 31, 1994. At that
time, Family had 148 stores in 28 states. As of July 31, 1998, the Company had
276 stores in 36 states. Family is the primary consolidator in the Christian
retail industry, which is highly fragmented and characterized by numerous small
independent operators.
The Company's results of operations have been and will continue to be
affected by, among other things, the number, timing and mix of store
acquisitions, openings and closings in a given period. The Company's growth in
sales and earnings has been and is expected to continue to be driven primarily
by increased comparable store sales, increased productivity at existing stores,
acquisitions and new store openings. The Company will also cluster its stores in
certain markets, primarily by opening new stores that will provide greater
coverage in these markets.
To date, all of the Company's acquisitions have been accounted for by the
purchase method, resulting in the recording of goodwill which is amortized on a
straight-line basis over a period of 35 years.
Sales of a store are deemed to be comparable commencing in the thirteenth
full month after the store is opened or acquired. Relocated and remodeled stores
remain in the comparable store base.
Store opening expenses include advertising, labor, supplies and certain
other costs and are expensed as incurred. Such expenses have averaged
approximately $26,000 per store over the past 18 months, although the amount per
store varies depending on the store format and whether the store is the first to
be opened in a market, or is part of a cluster of stores in that market.
ACQUISITION OF JOSHUA'S
On June 1, 1998, Family acquired Joshua's, a division of The Development
Association, Inc., a subsidiary of Tandycrafts, Inc. Joshua's was a leading
Christian retail chain headquartered in Fort Worth, Texas and operated 56 stores
in 10 states, including a major presence in Texas, Georgia, Colorado and
Southern California. For its fiscal year ended March 31, 1998, Joshua's had net
sales of $32.0 million and operating income of $335,000. The acquisition expands
Family's presence in new and existing markets and creates a stronger platform
for future growth.
Management has completed several important steps to integrate Joshua's
operations, including the introduction of the Company's (i) point-of-sale,
automatic product replenishment and information systems, (ii) enhanced product
assortment and (iii) targeted marketing and preferred customer programs. To
date, 90% of the acquired stores have been renamed Family Christian Stores and
exterior signage has been changed. In addition, all store managers of former
Joshua's stores who are currently employed by Family have completed the
Company's formal management training. The Company believes that the successful
integration of Joshua's will enhance its existing store base and result in
future operating efficiencies and increased brand awareness. In connection with
the acquisition, the Company recorded goodwill of approximately $3.3 million
which is being amortized on a straight-line basis over 35 years.
The Company will operate the former Joshua's stores under the name Family
Christian Stores, although the Joshua's Christian Stores name will be used for a
limited number of bargain-format stores in certain markets, near other Family
store locations. There can be no assurance that the Company will not encounter
unanticipated problems or liabilities in connection with the integration of
Joshua's or that the
22
<PAGE>
integration will result in enhanced store operations or improved profitability.
See "Risk Factors--No Assurance of Successful Integration of Acquisitions;
Possible Inability to Manage Growth" and "Pro Forma Combined Condensed Financial
Statements (unaudited)."
RESULTS OF OPERATIONS
The following table presents the Company's statement of operations data as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ------------------------
------------------------------- APRIL 27, APRIL 26,
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold, including store
occupancy costs........................ 72.1 72.0 70.5 73.8 71.9
--------- --------- --------- ----- -----
Gross profit............................. 27.9 28.0 29.5 26.2 28.1
Operating expenses:
Selling, general and administrative
expenses............................. 27.2 25.1 24.0 27.9 27.8
Depreciation and amortization.......... 1.9 2.0 1.8 2.2 2.0
Store opening expenses................. 0.8 0.3 0.4 0.5 1.0
--------- --------- --------- ----- -----
29.9 27.4 26.2 30.6 30.8
--------- --------- --------- ----- -----
Operating income (loss).................. (2.0) 0.6 3.3 (4.4) (2.7)
Interest expense, net.................. 2.1 1.9 1.7 2.2 1.7
--------- --------- --------- ----- -----
Income (loss) before income taxes........ (4.1) (1.3) 1.6 (6.6) (4.4)
Income tax expense (benefit)............. 0.0 0.0 0.0 0.0 0.0
--------- --------- --------- ----- -----
Net earnings (loss)...................... (4.1)% (1.3)% 1.6% (6.6)% (4.4)%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
Number of stores open at end of period... 174 184 197 187 211
</TABLE>
THREE MONTHS ENDED APRIL 26, 1998 COMPARED TO THREE MONTHS ENDED APRIL 27, 1997
Net sales in the three months ended April 26, 1998, were $38.3 million,
representing an increase of $5.9 million, or 17.9%, compared to $32.4 million in
the three months ended April 27, 1997. This increase was due to comparable store
sales increases of 8.2%, the net addition of 14 stores opened during the period
and stores acquired in fiscal 1997 not yet qualifying as comparable stores. The
increase in comparable store sales is the result of (i) improved merchandising,
(ii) relocation of existing stores and (iii) increased sales generated by the
Company's preferred customer buying programs and direct marketing to customers
in these programs.
Gross profit consists of net sales less costs of goods sold and occupancy
costs. Gross profit in the three months ended April 26, 1998 was $10.7 million,
representing an increase of $2.2 million, or 26.4%, compared to $8.5 million for
the three months ended April 27, 1997. As a percent of net sales, gross profit
improved to 28.1% in the current year quarter, from 26.2% in the prior year
quarter. The increase in gross profit percentage is the result of fewer product
returns to vendors, improved control of inventory shrinkage and reduced
occupancy costs as a percent of net sales.
Selling, general and administrative expenses in the three months ended April
26, 1998, were $10.6 million, representing an increase of $1.5 million, or
17.6%, compared to $9.1 million in the three months ended April 27, 1997. The
increase is primarily attributable to increased selling costs, payroll
23
<PAGE>
expenses and advertising costs related to the operation of a greater number of
stores and increased advertising expenses. As a percent of net sales, selling,
general and administrative expenses were 27.8% in the current year quarter,
compared with 27.9% in the prior year quarter.
Operating loss for the three months ended April 26, 1998, was $1.0 million,
representing an improvement of $0.4 million, compared to an operating loss of
$1.4 million in the three months ended April 27, 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales in fiscal 1997 were $168.1 million, representing an increase of
$28.8 million, or 20.7%, compared to $139.3 million in fiscal 1996. This
increase was due to comparable store sales increases of 12.8%, the net addition
of 13 stores opened during the period and stores acquired in fiscal 1996 not yet
qualifying as comparable stores. The increase in comparable store sales is the
result of (i) increased sales generated by the Company's preferred customer
buying programs and direct marketing to customers in these programs, (ii)
relocation of existing stores and (iii) improved in-stock positions resulting
from enhancements to the Company's automatic replenishment system.
Gross profit in fiscal 1997 was $49.6 million, representing an increase of
$10.5 million, or 27.0%, compared to $39.1 million in fiscal 1996. As a percent
of net sales, gross profit improved to 29.5% in fiscal 1997, from 28.0% in
fiscal 1996. The increase in gross profit percentage is the result of reduced
occupancy costs as a percent of net sales, fewer product returns to vendors and
management's focus on tighter control of inventory shrinkage.
Selling, general and administrative expenses in fiscal 1997 were $40.3
million, representing an increase of $5.4 million, or 15.4%, compared to $34.9
million in fiscal 1996. The increase is primarily attributable to increased
selling costs, payroll expenses and advertising costs related to the operation
of a greater number of stores. As a percent of net sales, selling, general and
administrative expenses were 24.0% in fiscal 1997, compared with 25.1% in fiscal
1996. The decrease as a percentage of net sales is attributable to increased net
sales and greater store-level productivity.
Operating income in fiscal 1997 was $5.5 million, representing an increase
of $4.6 million, compared to $0.9 million in fiscal 1996. As a percentage of net
sales, operating income improved to 3.3% in fiscal 1997, compared to 0.6% in
fiscal 1996.
No income tax expense was recorded in fiscal 1997 or 1996 due to a net
operating loss incurred in fiscal 1996 and the Company's non-recognition of
deferred income tax assets for a portion of the net operating loss
carryforwards.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales in fiscal 1996 were $139.3 million, representing an increase of
$13.2 million, or 10.4%, compared to $126.1 million in fiscal 1995. This
increase was due to comparable store sales increases of 3.1%, the net addition
of 10 stores opened during the period and stores acquired in fiscal 1995 not yet
qualifying as comparable stores. The increase in comparable store sales is the
result of the relocation of existing stores and improved merchandising during
the holiday selling season.
Gross profit in fiscal 1996 was $39.1 million, representing an increase of
$3.9 million, or 11.1%, compared to $35.2 million in fiscal 1995. As a percent
of net sales, gross profit improved slightly to 28.0% in 1996, compared to 27.9%
in fiscal 1995.
Selling, general and administrative expenses in fiscal 1996 were $34.9
million, representing an increase of $0.6 million, or 1.9%, compared to $34.3
million in fiscal 1995. The increase is primarily attributable to increased
payroll expenses related to the operation of a greater number of stores,
partially offset by reduced advertising costs due to improved co-op advertising
efforts. As a percent of net sales, selling, general and administrative expenses
were 25.1% in fiscal 1996, compared with 27.2% in fiscal 1995. The decrease as a
percent of net sales is attributable to increased net sales, greater store-level
productivity, reduced advertising costs and reduced corporate overhead as a
percentage of net sales.
24
<PAGE>
Operating income was $0.9 million in fiscal 1996, representing an
improvement of $3.4 million, compared to a loss of $2.5 million in fiscal 1995.
As a percentage of net sales, operating income amounted to 0.6% in fiscal 1996.
No income tax expense was recorded in fiscal 1996 or 1995 due to net
operating losses incurred in both years. The Company had a net loss of $1.8
million in fiscal 1996, compared with a net loss of $5.1 million in fiscal 1995.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's results of operations may fluctuate significantly from
period-to-period as the result of a variety of factors, including: (i) the
number, timing and mix of store openings, acquisitions and closings; (ii) the
ratio of stores opened to stores acquired; (iii) the opening of stores by the
Company or its competitors in markets where the Company has existing stores;
(iv) comparable store sales results; and (v) the ratio of mall stores to strip
shopping center format stores. The Company incurs significant store opening
expenses and new stores sometimes experience an initial period of operating
losses. As a result, the opening of a significant number of stores in a single
period may have an adverse effect on the Company's results of operations. Due to
the foregoing factors, the Company believes that period-to-period comparisons of
its operating results are not necessarily meaningful and that such comparisons
cannot be relied upon as indicators of future financial performance.
The Company's business is highly seasonal, with significantly higher net
sales and all net earnings realized during the fourth quarter of its fiscal
year, primarily as a result of the holiday selling season. Any significant
adverse trend in net sales for such period would have a material adverse effect
on the Company's results of operations for the full fiscal year. Historically,
the first and third quarters of the Company's fiscal year have been the weakest
quarters. The following table includes certain selected unaudited financial
information for the quarters indicated.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
-------------------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT OPERATING AND PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $ 27,430 $ 29,560 $ 29,440 $ 52,850 $ 32,438 $ 35,270 $ 35,413
Cost of products sold, including store
occupancy costs....................... 20,003 21,454 21,604 37,161 23,940 25,598 25,762
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit............................ 7,427 8,106 7,836 15,689 8,498 9,672 9,651
Operating expenses:
Selling, general and administrative
expenses............................ 7,997 8,334 9,056 9,536 9,050 9,311 9,603
Depreciation and amortization......... 671 704 731 724 725 758 798
Store opening expenses................ 124 139 97 54 152 201 216
----------- ----------- ----------- ----------- ----------- ----------- -----------
8,792 9,177 9,884 10,314 9,927 10,270 10,617
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)................. (1,365) (1,071) (2,048) 5,375 (1,429) (598) (966)
Interest expense, net................... 686 701 712 636 725 714 776
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes.............. (2,051) (1,772) (2,760) 4,739 (2,154) (1,312) (1,742)
Income tax expense...................... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss)..................... $ (2,051) $ (1,772) $ (2,760) $ 4,739 $ (2,154) $ (1,312) $ (1,742)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
SELECTED OPERATING DATA:
Number of stores at end of period....... 180 182 183 184 187 192 197
Comparable store net sales increase
(decrease)............................ (0.3)% (0.6)% 6.3% 5.2% 12.4% 12.6% 12.8%
AS A PERCENTAGE OF NET SALES:
Gross profit............................ 27.1% 27.4% 26.6% 29.7% 26.2% 27.4% 27.3%
Selling, general and administrative
expenses.............................. 29.2 28.2 30.8 18.0 27.9 26.4 27.1
Operating income (loss)................. (5.0) (3.6) (7.0) 10.2 (4.4) (1.7) (2.7)
Net earnings (loss)..................... (7.5) (6.0) (9.4) 9.0 (6.6) (3.7) (4.9)
SEASONALITY:
Net sales............................... 19.7% 21.2% 21.1% 38.0% 19.3% 21.0% 21.1%
Gross profit............................ 19.0 20.7 20.1 40.2 17.1 19.5 19.5
<CAPTION>
FISCAL 1998
-----------
FOURTH FIRST
QUARTER QUARTER
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $ 64,942 $ 38,257
Cost of products sold, including store
occupancy costs....................... 43,173 27,516
----------- -----------
Gross profit............................ 21,769 10,741
Operating expenses:
Selling, general and administrative
expenses............................ 12,320 10,643
Depreciation and amortization......... 799 770
Store opening expenses................ 170 356
----------- -----------
13,289 11,769
----------- -----------
Operating income (loss)................. 8,480 (1,028)
Interest expense, net................... 579 647
----------- -----------
Income before income taxes.............. 7,901 (1,675)
Income tax expense...................... -- --
----------- -----------
Net earnings (loss)..................... $ 7,901 $ (1,675)
----------- -----------
----------- -----------
SELECTED OPERATING DATA:
Number of stores at end of period....... 197 211
Comparable store net sales increase
(decrease)............................ 13.2% 8.2%
AS A PERCENTAGE OF NET SALES:
Gross profit............................ 33.5% 28.1%
Selling, general and administrative
expenses.............................. 19.0 27.8
Operating income (loss)................. 13.1 (2.7)
Net earnings (loss)..................... 12.2 (4.4)
SEASONALITY:
Net sales............................... 38.6% n/a
Gross profit............................ 43.9 n/a
</TABLE>
25
<PAGE>
A variety of factors affect the Company's comparable store sales results,
including, among others, the timing and frequency of store relocations, the
relative proportion of new stores to mature stores, the opening of stores in
existing markets by the Company or its competitors and the timing of promotional
events and new product releases, as well as general economic conditions. Past
increases in comparable store sales may not be indicative of future operating
performance. There can be no assurance that comparable store sales for any
particular period will not decrease in the future. See "Risk Factors--
Seasonality and Quarterly Fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
Family has historically funded its growth through a combination of funds
generated from operations and its bank credit facilities. Additionally, the
Company relies on credit arrangements with vendors for purchases of inventory.
These arrangements generally provide for terms requiring payment within 90 days
of receipt of ordered merchandise, with special extended payment terms often
granted for new releases and new store or acquisition store inventory purchases.
Cash has been used primarily for financing store openings and acquisitions.
Net cash provided by operating activities was $3.3 million, $6.4 million and
$11.5 million in fiscal 1995, 1996, and 1997, respectively. For the first
quarter of fiscal 1998, cash used by operating activities was $8.1 million,
compared to $1.7 million in the prior year quarter.
Net earnings improved from a loss of $5.1 million in fiscal 1995, to a loss
of $1.8 million in fiscal 1996 and to income of $2.7 million in fiscal 1997,
contributing to the improvement in cash provided by operating activities.
Another significant influence on cash provided from operating activities was a
$5.4 million increase in accounts payable in fiscal 1997, a $1.0 million
decrease in fiscal 1996 and a $7.8 million increase in fiscal 1995. Other
operating liabilities increased by $1.8 million during fiscal 1997, $0.1 million
in fiscal 1996 and $0.6 million in fiscal 1995. A portion of the increase in
accounts payable and other operating liabilities resulted from the acquisition
of 16 stores, 11 stores, and 19 stores during fiscal 1997, 1996, and 1995,
respectively.
Acquisitions have historically been structured as asset purchases. Such
investments, primarily for inventory, store fixtures and goodwill, totaled $4.3
million in fiscal 1997, $4.5 million in fiscal 1996, and $4.8 million in fiscal
1995. Investments in fixed assets as part of Family's program to remodel or
relocate stores as leases expire, totaled $2.1 million in fiscal 1997, $1.5
million in fiscal 1996, and $2.4 million in fiscal 1995. The Company believes
that its remodel and relocation strategy has contributed to the improvement in
comparable store sales.
Cash used by financing activities totaled $1.1 million in fiscal 1997 and
$1.6 million in fiscal 1996, while financing activities provided cash of $5.4
million in fiscal 1995. Financing activities in fiscal 1997 included the
issuance of 186,381 shares of Common Stock, resulting in net proceeds to the
Company of $2.5 million. During fiscal 1997, the Company made quarterly payments
on its term note payable to a bank totaling $2.0 million, reducing the amount
outstanding on the note to $10.0 million at January 25, 1998. Other financing
activities included increased borrowing on the Company's revolving credit
facility of $5.3 million in fiscal 1995 and net reductions of $1.7 million in
fiscal 1996 and $1.6 million in fiscal 1997. The Company's borrowing needs
fluctuate seasonally, reaching their peak around October. In the Company's two
most recent fiscal years, approximately 38% of its net sales occurred in the
fourth quarter.
On July 17, 1998, the Company entered into the Amended and Restated Loan
Agreement, which includes: (i) a $22.0 million revolving credit facility with
interest payable quarterly at the Base Rate plus 0.50% or LIBOR plus 3.25% and a
final maturity of May 31, 2004, subject to one-year extensions as agreed upon by
the parties; (ii) a $9.5 million term note with interest payable quarterly at
the Base Rate plus 1.00%, and quarterly principal payments totaling $0.5 million
in fiscal 1999, $1.0 million in fiscal 2000 and $2.67 million in each of fiscal
2001, 2002 and 2003; and (iii) a $5.0 million term note with interest payable
quarterly at the Base Rate plus 2.00% and a final maturity of May 31, 2004. Upon
the closing of the
26
<PAGE>
Offering and the Company's pro forma compliance with all loan covenants, the
revolving credit facility will automatically increase to $25.0 million and the
interest rate will be reduced to the Base Rate or LIBOR plus 2.75%.
The Amended and Restated Loan Agreement is collateralized by substantially
all the Company's assets and requires the Company to maintain certain financial
ratios and minimum levels of working capital and tangible net worth to repay the
term notes referred to above and to draw on the Revolving Line. Following the
Offering, the Company will have approximately $ million of available
borrowing capacity, subject to certain covenants and other restrictions
applicable to the Revolving Line.
The Company anticipates that it will spend approximately $3.7 million in the
second half of fiscal 1998 to acquire nine stores and open five new stores.
Since 1995, the Company's cash requirements to acquire a store, including
inventory, leasehold improvements, fixtures and goodwill have averaged
approximately $200,000, excluding store opening expenses. Store opening expenses
are approximately $26,000 per store and are expensed when incurred. The amounts
and timing of such expenditures will depend upon the timing of the consummation
of these acquisitions and other factors, including the location of the store and
whether it is in a new or existing market for the Company. There can be no
assurance that actual capital expenditures will not exceed anticipated levels.
The Company believes that the net proceeds of the Offering, together with
cash generated from operations and funds available under the Amended and
Restated Loan Agreement, will be sufficient to satisfy its cash requirements at
least through fiscal 1999.
EFFECTS OF INFLATION
The Company's management does not believe inflation has had a material
impact on its operating results or financial position for the periods presented.
EFFECTS OF YEAR 2000
The Company's computer systems, software products and other business systems
may experience problems in connection with processing dates on or after January
1, 2000. Family has conducted a review of the impact of such Year 2000 issues on
its information systems to determine whether its systems will retain
functionality subsequent to December 31, 1999. The Company is integrating
vendor-provided Year 2000 compliant programming code into its existing core
transaction processing systems. Although the Company believes that its Year 2000
compliance program can be completed by the beginning of fiscal 1999, there can
be no assurance that the process will be completed by that date. As part of its
evaluation, management is reviewing the incremental cost to the Company over the
next two years. Management does not anticipate that such costs will have a
material adverse effect on the financial position or results of operations of
the Company.
In addition, the Company has communicated with other entities with whom it
does significant business to determine their Year 2000 compliance readiness and
the extent to which the Company is vulnerable to any third-party Year 2000
issues. There can be no assurance that the systems of such other companies will
be converted in a timely manner. Any failure by the Company or such other
companies to successfully convert could have a material adverse effect on the
Company's business, financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
"Comprehensive Income" which is the total of net income and all other non-owner
changes in shareholders' equity and its components. The Company adopted the
standard in the first quarter of fiscal 1998.
27
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131, which supersedes SFAS Nos.
14, 18, 24 and 30, establishes new standards for segment reporting in which
reportable segments are based on the same criteria on which management
disaggregates a business for making operating decisions and assessing
performance. The Company will adopt the standard in fiscal 1998 and does not
expect the new standard to have a significant effect on previously reported
information.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging Activities," which provides a consistent standard
for recognition and measurement of derivatives and hedging activities. The
Company is in the process of evaluating SFAS No. 133 and its impact and plans to
adopt the standard in fiscal 2000.
28
<PAGE>
BUSINESS
INTRODUCTION
Family Christian Stores is the largest retailer in the United States
dedicated solely to Christian-related products. The Company, as the
category-dominant retailer of Christian books and Bibles, gifts and cards,
music, children's merchandise and church supplies, seeks to fulfill the growing
demand for products that address Christian and family values. The Company's net
sales increased from $126.1 million in fiscal 1995 to $168.1 million in fiscal
1997, representing a compound annual growth rate of 15.4%. Operating income
increased from a loss of $2.5 million to income of $5.5 million over the same
period. The growth has been driven by comparable store sales, acquisitions and
new store openings. As of July 31, 1998, the Company operated 276 stores in 36
states, having grown from 148 stores in 28 states which the Company acquired
from The Zondervan Corporation on October 31, 1994.
Family is the primary consolidator in the Christian retail industry, which
is highly fragmented and characterized by numerous small independent operators.
On June 1, 1998, the Company completed the acquisition of Joshua's Christian
Stores, a leading retailer of Christian-related products with 56 stores. The
Joshua's acquisition expands Family's presence in both new and existing markets
and provides the opportunity to capture greater operating efficiencies across
its expanded store base. On a pro forma basis, after giving effect to the
acquisition of Joshua's, the Company had net sales of $197.8 million in fiscal
1997. The Company believes that numerous opportunities exist to continue making
acquisitions and opening new stores and plans to continue its strategy of
clustering stores in both new and existing markets.
The Company differentiates itself from other retailers of Christian-related
products by offering products to consumers of all ages and denominations in the
environment of a focused specialty retailer with value pricing. The Company's
mission is to offer an extensive selection of high-quality, Christian-related
products of exceptional value in a warm, family atmosphere. In addition, Family
seeks to reinforce Christian and family values and impact the lives of its
customers by offering meaningful and inspirational products. The Company's core
customers are individuals who characterize themselves as active Christians, as
well as others who are searching for meaning in their lives. The Company
believes that its ability to deliver an extensive product assortment to a broad
range of consumers provides it with a competitive advantage in the Christian
retail industry.
THE CHRISTIAN RETAIL INDUSTRY
According to a recent news report, the evangelical Christian market is
composed of approximately 88 million individuals. The growing interest in
Christian and family values in the United States is evidenced by the greater
cross-over appeal and mainstream acceptance of media and entertainment that
focus on such ideals and principles. A recent book purchasing study indicates
that the number of religious books purchased by Americans increased
approximately 52% from 1993 to 1997. Christian artists such as Amy Grant, Jars
of Clay and Michael W. Smith have become increasingly popular as their music is
embraced by audiences outside the traditional Christian market. On television, a
larger number of programs, such as "Touched By An Angel," "Promised Land" and
"7th Heaven," are focusing on family values and spiritual themes. According to
Nielsen Media Research, "Touched By An Angel" was ranked in the top ten among
prime-time programs for both the 1996-1997 and 1997-1998 television seasons. In
addition, more channel space is being devoted to programming that emphasizes
Christian and family values. Existing pay television channels, including the
Trinity Broadcasting Network and the Family Channel, will be joined by PAX NET,
the nation's seventh broadcast network, which is scheduled to launch in over 70%
of U.S. television households on August 31, 1998. PAX NET will feature existing
and original programs, as well as feature films, that emphasize family, faith
and spirituality.
Despite the growth in the Christian retail market, the industry remains
highly fragmented. The Christian retail industry today is reminiscent of other
consolidating retail sectors where disciplined national chains developed higher
standards of retailing and then pursued economies of scale through a
29
<PAGE>
nationwide store base. CBA, an international trade association of Christian
product suppliers and retailers, estimates that the industry's annual sales are
approximately $3.0 billion. CBA estimates that the total number of retail stores
dedicated to Christian-related products is between 4,000 and 5,000. The small
independent retailers that represent a large portion of the Christian retail
industry face significant challenges in competing with mass retailers and
national and regional chains. Their smaller size and sales volume limit, among
other things, their depth and breadth of product offerings, purchasing and co-op
advertising economies, marketing and customer retention programs and ability to
invest in sophisticated information systems. Increased demand for family and
Christian-related products and the fragmented state of the industry have also
resulted in participation by mass merchandisers, most of which currently limit
their product offerings to books and music. While these mass merchants present
additional competition, the Company believes they do not generally offer the
breadth or depth of product, maintain the standards for customer service and
product knowledge or offer the inspirational store environment that Family
offers.
BUSINESS STRATEGY
Family's principal objective is to enhance its position as the leading
provider of Christian-related products in the United States. The key elements of
the Company's business strategy are as follows:
- CATEGORY DOMINANCE. The Company has grown from a traditional Christian
bookstore to its current position as the nation's largest retailer
dedicated to Christian-related products. Family seeks to offer both breadth
and depth in each of its focused product assortments, including books and
Bibles, gifts and cards, music, children's merchandise and church supplies.
The Company currently offers approximately 35,000 stock-keeping units
("SKUs") in each of its stores. In order to further enhance its category
dominance, the Company created its own private label publishing imprint,
Family Christian Press, and is continuing to develop other proprietary
products to augment its product assortment.
- DIVERSE CHRISTIAN CUSTOMER BASE. In order to address the broad-based
growth and interest in Christian and family values in the United States,
Family seeks to offer products that serve the needs of all Christian
denominations and attract customers of all age groups. The Company
continually works with its vendors to identify new product offerings and
evaluates its existing products and services in order to meet the varied
needs of its core customers and attract new customers.
- VALUE LEADER. The Company's size and leadership position in Christian
retailing allow it to leverage operating efficiencies, thereby providing
value to its customers through an extensive selection of high-quality
merchandise, low prices and a warm and inspirational environment. Family is
continually seeking opportunities to offer additional value to its
customers through efforts such as: special purchases; the Company's
proprietary publishing imprint, Family Christian Press; and its proprietary
product programs. In addition, the Company's preferred customer buying
programs, Family Perks and Pastors' Perks (collectively, "Perks"),
encourage customer loyalty and provide value for members through additional
price savings.
- BRAND NAME IDENTITY. The Company seeks to develop widespread recognition
of its Family Christian brand name, both within the Christian retail
industry and with mainstream consumers. The Company believes its store
clustering strategy enables it to maximize the impact of its marketing
efforts by supporting a targeted media advertising campaign to build brand
identity. Due to the highly fragmented nature of the Christian retail
industry, the Company believes that many of its competitors lack the
marketing power to differentiate their stores, products and services. In
addition, the Company's convenient locations and visible exterior signage
serve to provide increased name recognition within a community. The
Company's goal is to convert brand identity into brand preference, an
effort which is supported by Family Christian Press and the Company's
proprietary product programs.
30
<PAGE>
- GUIDING PRINCIPLES. Led by an experienced management team with a shared
Christian faith, Family emphasizes Christian and family values in all
aspects of its business, including employee and vendor relations and
customer service, while maintaining its commitment to being the nation's
leading retailer of Christian merchandise. Family seeks to treat its
employees with integrity, care and respect and promotes similar treatment
of customers and business partners. The Company's employees are trained to
provide customer-oriented service and to meet customers' needs. In
addition, the Company has instituted a vendor partnership program to
develop cooperative relationships with its key vendors.
GROWTH STRATEGY
Family's growth strategy includes increasing sales and profitability in its
existing stores, expanding its store base through focused acquisitions and new
store openings as well as utilizing additional distribution channels.
- INCREASE COMPARABLE STORE SALES AND PROFITABILITY. The Company believes
that execution of its retail strategy, as well as increased interest in
Christian and family values in the United States, will generate growth in
existing store sales. Family has implemented several initiatives to
increase comparable store sales, including relocation of certain mall
stores to strip centers or freestanding locations, scheduled store
remodeling, use of preferred customer buying programs, improved
merchandising and expanded advertising efforts, including national
television campaigns. In addition, through the integration of additional
stores, the Company intends to increase profitability by realizing
operating efficiencies. Such efficiencies would include marketing,
centralized management, information systems and volume purchasing.
- EXPAND STORE BASE. Family's strategy for developing additional store
locations has two components: (i) acquiring existing Christian stores and
(ii) opening new stores. The Company expects that over the next five years
it will expand its store base primarily through acquisitions. Given the
fragmented nature of the industry and the growing trend towards
consolidation, the Company believes that many small, independent stores, as
well as certain regional chains, will be available for acquisition. The
Company's position as the primary consolidator in the industry provides
additional acquisition opportunities. In addition to acquired stores,
Family plans to open new stores, primarily in clustered markets. The
Company believes that multiple store markets will be an important component
of its future growth, increasing its ability to leverage operating costs
across its store base.
- UTILIZE ADDITIONAL DISTRIBUTION CHANNELS. The Company intends to further
increase its market share and sales by expanding its use of superstores,
college stores and the Internet. Family currently operates 15 stores which
range in size from 9,000 to 13,000 square feet and four stores which are
larger than 13,000 square feet. This larger format allows the Company to
display a broader assortment of products. As part of its effort to expand
its use of such stores, the Company intends to establish superstores to
serve as the centerpiece of a clustered market. Another growth opportunity
is the operation of college campus stores, which offer traditional college
bookstore products, such as textbooks, supplies and college logo apparel,
with the addition of Family's core product assortment. Family currently
operates one store on the campus of Cornerstone College in Grand Rapids,
Michigan and is evaluating possibilities for additional stores in response
to interest expressed by a number of the nation's Christian colleges.
College campus stores are expected to provide additional sales volume
during non-peak selling periods. The Company has a website
(WWW.FAMILYCHRISTIAN.COM) which offers substantially all of the Company's
advertised products for sale. Family believes its website will increase
brand awareness and generate incremental sales. The Company intends to
continue to evaluate the market potential for Internet selling.
31
<PAGE>
STORE LOCATIONS
The Company currently operates 276 stores in 36 states. The following map
shows the states in which the Company operates and the number of stores located
in such states:
[MAP]
MERCHANDISING
By introducing, expanding and improving key merchandise categories, further
developing proprietary product programs and implementing standardized marketing
programs, Family is seeking to attract new customers, generate repeat business
and increase the size of the average transaction.
PRODUCT ASSORTMENT. The Company offers a broad and deep assortment of
Christian merchandise that appeals to a number of Christian denominations and
various age groups. The Company typically offers
32
<PAGE>
approximately 35,000 SKUs in its stores. The Company's extensive product
assortment includes items in the following product categories:
<TABLE>
<CAPTION>
PERCENT OF NET
SALES IN FISCAL
PRODUCT CATEGORY 1997 DESCRIPTION
- -------------------------- ------------------- ------------------------------------------------------------------
<S> <C> <C>
Books and Bibles 39.3% Written, audio and video books and Bibles
Gifts and Cards 26.8% Decorative home products; t-shirts and hats; jewelry; cards and
stationery
Music 20.5% Recorded Christian music in a variety of styles (e.g., Amy Grant,
Jars of Clay, Michael W. Smith)
Children's Merchandise 9.7% Children's books, videos, music, toys and clothing (e.g., Veggie
Tales-Registered Trademark-)
Church Supplies 3.7% Sunday school curricula and supplies; home schooling materials
</TABLE>
The Company offers a full selection of bestselling merchandise, while
emphasizing in-stock consistency of all titles basic to the assortment. Family's
commitment to its customers includes a goal to be 100% in stock on best sellers
and at least 95% in stock on the balance of basic assortments. The Company uses
an automatic reorder system to maintain in-stock positions on over 30,000 SKUs.
A recent survey of Christian bookstores consumers, which indicated that 61% of
customers choose to shop at a Christian bookstore because they have a specific
product in mind, emphasizes the importance of the Company's in-stock policies.
The Company also offers special orders on products that are not stocked on an
everyday basis.
The Company continually seeks to update its product mix. In January 1998,
the Company established its own publishing imprint, Family Christian Press, in
order to produce titles under its own name. The ability of the Company to
identify and provide national distribution of novel merchandise with broad
consumer appeal is demonstrated by the recent retail success of products such as
WWJD-TM- (What Would Jesus Do?) products and Veggie Tales-Registered Trademark-
licensed children's products. In addition, Family has developed its own novel
products, such as its proprietary Christmas ornament. The Company believes that
items such as these will help differentiate Family from its competitors and
provide it with opportunities for higher gross profits.
VALUE PRICING. The Company believes that consumers are shopping for value
and will favor retailers who can deliver value consistently. Family is committed
to providing this value through a broad assortment of high-quality products at
low prices. In addition to its size and industry leadership position, which
offer numerous operating efficiencies, a number of the Company's strategic
initiatives are designed to increase its ability to deliver value to its
customers. These initiatives include consistent availability of products, strong
customer service and cooperative vendor partnerships.
VENDOR RELATIONSHIPS. In keeping with its guiding principles, the Company
has established a formal partnership program with several of its key vendors.
This program is designed to foster cooperation between Family and its vendors in
order to improve sales, increase operating efficiencies and provide additional
value to customers. The vendor program includes quarterly meetings between
cross-functional teams to discuss areas for improvement and progress in their
implementation.
STORE ENVIRONMENT
Family seeks to provide a unique shopping experience within a comfortable
and friendly environment. The Company's store design creates a warm, family
atmosphere with visual, audio and interactive entertainment to engage the
customer. Family's stores offer a children's area, with books, toys and apparel,
that many stores use for storytelling and other children's activities. Many
stores have listening centers in their music departments which enable customers
to sample music selections of their choice. Gift departments display a variety
of decorative home products, such as framed art and figurines. The Company's
33
<PAGE>
stores are well-lit with wide aisles and provide clearly marked signs to assist
shoppers in locating merchandise, and, when desired, friendly and knowledgeable
sales associates are available to assist customers. Space planning and the use
of point-of-purchase materials are designed to increase the size of the average
transaction by highlighting key selling areas and promoting browsing. The
Company attempts to offer merchandise that meets a variety of its customers'
needs and has designed its stores to attract customers of all denominations and
ages to a number of different product areas.
CULTURE AND STORE OPERATIONS
In keeping with its guiding principles, the Company seeks to emphasize
Christian and family values in all aspects of its business. Family recruits
people who understand the importance of recognizing and addressing customer
needs. The Company trains its store employees and empowers them to meet each
customer's needs with friendly service. Sales associates working more than 20
hours per week participate in an incentive program that rewards them if the
store in which they work achieves its operating profit goals for the year.
Family treats store managers as partners and rewards them with a percentage of
store operating profits when performance targets are achieved. The Company
believes that its unique culture encourages greater employee loyalty, as
evidenced by its historical average annual turnover rate among store managers of
approximately 15%.
Each Family store is managed by a full-time store manager, who works with a
district manager. District managers focus on the training and development of
store managers, as well as on store standards, merchandise presentation,
inventory positioning, human resources and local marketing initiatives.
STORE FORMAT AND SITE SELECTION
Family's stores currently average approximately 4,500 square feet, with
stores ranging in size from 1,200 square feet to as large as 32,000 square feet.
The Company's prototype store is approximately 4,500 square feet, with high
visibility signage, easy access and ample parking. The Company utilizes a
standard store layout which it adapts to individual markets in order to address
local trends and preferences.
The Company's stores are generally located in the commercial district of
densely populated residential areas. Prior to opening or acquiring a store, the
Company analyzes the local market, including: (i) demographic data, such as
education levels, average income, population density and age distribution; (ii)
lifestyle data, such as church attendance; and (iii) existing competition. When
the Company acquires a store, it remodels the store in accordance with the
Company's specifications.
The Company's research indicates that its customers are primarily
destination shoppers. As a result, Family has relocated and will continue to
relocate mall stores to nearby strip shopping centers or freestanding locations,
as leases expire or when otherwise possible. Historically, the Company's
relocated stores have resulted in reduced cost per square foot, lower common
area maintenance expenses and a more enjoyable shopping experience for the
customer.
As of July 31, 1998, the Company operated 276 stores in 180 strip shopping
centers, 67 malls and 29 freestanding locations.
STORE-LEVEL ECONOMICS
The Company's 179 stores that were in operation for all of fiscal 1997
generated average net sales of approximately $880,000 and average net sales per
gross square foot of approximately $199. These stores generated average
store-level operating cash flow (defined as store operating income before
depreciation and home office allocation and excluding changes in working
capital) of approximately $106,000, or 12.0% of average net sales. There can be
no assurance that the Company will maintain such store-level averages in the
future or that such averages will not decrease.
34
<PAGE>
MARKETING AND PROMOTION
Due to its relative size and cluster strategy, the Company believes it has a
competitive advantage within its industry to conduct coordinated and systematic
advertising and marketing campaigns. These marketing campaigns include Perks
programs, catalogs, directed mailings, advertising in Christian media, in-store
promotion and sponsored Christian-oriented community and store events. Such
efforts have permitted Family to attain broad market exposure that would not be
cost-effective for a single store or small store chain. The Company receives
substantial co-op advertising reimbursement for certain forms of general
advertising from its vendors.
FAMILY AND PASTORS' PERKS PROGRAMS. The Company's Perks database allows it
to market its products directly to existing customers. The Family Perks program
rewards frequent customers with certain promotions and discounts and currently
includes over five million members. The average Family Perks customer spends $32
per visit versus the $18 average for the Company's customers as a whole. The
Pastors' Perks program offers full-time pastors an everyday 20% discount, which
allows Family to compete effectively with mail order houses. In addition, the
Company believes that pastors provide valuable word-of-mouth publicity for the
Company to the members of their congregations.
CATALOG. The Company believes that its high-quality catalogs offer an
attractive opportunity for it to market its products. Catalogs allow the Company
to illustrate the breadth and depth of its stores' product offerings and draw
consumers into Family's stores. The Company's suppliers also rely in part on the
Company's catalog to help launch major titles. The catalog is targeted to
customers in the Company's Perks database, which allows the Company to directly
promote its product assortment in an attractive format to current Family
customers.
MAILINGS. Family utilizes direct mailings to target its Perks members. The
Company's database tracks the purchases of approximately 5 million customers by
product category, which allows quick response to specific store promotional
needs and provides additional reporting capabilities. Suppliers have been very
supportive of these targeted mailings, which has resulted in incremental vendor
co-op advertising revenue.
TELEVISION AND RADIO. Christian radio has been a primary focus in the
Company's advertising efforts and the Company plans to increase its use of
television advertising. Christian radio provides the ability to reach
individuals likely to purchase Christian-related merchandise. A research study
indicated that 55% of Family Perks customers listen to Christian radio daily and
another 21% listen weekly. In markets where Christian radio is ineffective or
unavailable, a limited use of appropriate secular radio is used. Selective
television advertising, such as Family commercials during the "Dove" awards, is
used to promote the Company's name and product focus to a targeted group of
consumers.
IN-STORE PROMOTION. Promotion of its products within its stores is an
important part of Family's strategy to increase its average transaction size.
The Company attempts to capture as many impulse sales as possible through an
ongoing, aggressive point-of-purchase campaign in partnership with its key
vendors. The Company's store design encourages customers to browse through
different departments, increasing the opportunity for multiple-item purchases.
COMMUNITY AND STORE EVENTS. Management believes that the degree to which
its stores relate to their local community serves to build customer loyalty and
encourages word-of-mouth publicity and free media coverage. Many stores have
areas dedicated to public and children's events and organize community-based
events, such as author signings, children's storytelling and live music.
PURCHASING AND DISTRIBUTION
The Company's purchasing decisions are centralized and are made by the
Company's merchandising department. The Company's buyers negotiate terms,
discounts and co-op advertising allowances for all Family's stores and decide
which products to purchase, in what quantity and for which stores. The buyers
35
<PAGE>
use current inventory and sales information provided by the Company's in-store
point-of-sale computer system to make reorder decisions. Although the majority
of purchases are made by the five senior buyers in the Company's merchandising
department, individual store managers have the flexibility to influence
purchasing decisions in order to respond to local demand.
Substantially all product is shipped directly to the Company's stores from
vendors. No one vendor accounted for more than 10% of the Company's overall
merchandise purchases in fiscal 1997. In general, approximately 60% of the
Company's inventory, primarily books and recorded music, may be returned by the
Company for full credit, which substantially reduces the Company's risk of
inventory obsolescence.
MANAGEMENT INFORMATION SYSTEMS
Family utilizes integrated information systems centralized at the corporate
level for inventory and price management, sales tracking, merchandise planning
and accounting. The Company's systems have the capacity to manage a store base
in excess of 350 stores and can be easily expanded to manage a store base of
approximately 1,000 stores, using the current AS/400 and software. The Company
uses an automatic reorder system to maintain in-stock positions on all reorder
items. Currently, Family has over 30,000 items on automatic replenishment. The
system provides management with the information needed to determine the proper
timing and quantity of reorders. The Company's information systems are currently
managed by on-site staff members of Andersen, supported by dedicated systems
personnel of Family.
The Company's EDI capabilities include the transmission of purchase orders
directly to the Company's key vendors. Management believes the Company's EDI
efforts with vendors will continue to grow in the future as retailers and
suppliers focus on further increasing operating efficiencies. The Company plans
to require its suppliers to provide electronic invoicing by the first quarter of
fiscal 1999.
COMPETITION
Family's competition consists primarily of other retailers of
Christian-related products, primarily small independents and franchises, as well
as book and music retailers that have expanded their offerings to include
Christian merchandise. Many of the independents belong to a buying/marketing
group. The largest of these, Parable, is believed to presently consist of
approximately 330 stores.
Over the last five years, many independent Christian retailers have
continued to increase the size of their store base and improve store appearance
through expansion and remodeling, offering a more up-to-date appearance and a
better shopping experience. Many of these stores have increased their marketing
efforts by utilizing extensive mailing lists and by participating in marketing
groups and appear to be growing stronger. Consolidation trends in the industry
have put pressure on the ability of independent stores, many of which are
undercapitalized, to compete with larger, better capitalized operators. The
total number of independent outlets remains relatively unchanged. The Company
also faces competition from Christian retail chains such as Lemstone, Inc. (75
stores), The Baptist Bookstores (73 stores), Berean Christian Stores (21 stores)
and Mardel, Inc. (11 stores).
The Company also experiences competition in books and music from general
retailers. Due to the growing interest in Christian-related products, large
retailers such as Barnes & Noble, Media Play, Borders and Books-A-Million are
expanding their selection of Christian books and music while also increasing the
size and number of their stores. In addition, discount store chains such as
Target, Wal-Mart and Best Buy have become more competitive in music and video
selection and pricing. Family is responding to this competition with its
dominant product selection and low prices on new releases. The Company expects
increased competition from Internet retailers, such as Amazon.com, direct
marketers and book and music clubs in the future.
36
<PAGE>
PROPERTIES
The Company operates 276 stores in 36 states. Family operates stores in
strip shopping centers, malls and freestanding locations. All of the Company's
stores are leased, generally with terms ranging from five to ten years. The
leases require the Company to pay a fixed minimum rental fee and/or a rental fee
based on a percentage of net sales together with certain customary costs (such
as property taxes, common area maintenance and insurance).
The Company's corporate offices are located in Grand Rapids, Michigan in a
building shared with Zondervan. The space occupied by Family comprises 51,381
square feet for office space and 9,831 square feet for warehouse space. The
space is subleased from Zondervan for a term expiring on December 31, 2001, the
expiration date of a lease Zondervan has with the property owner. All of the
leases are accounted for as operating leases. See Note E of Notes to Financial
Statements of Family Christian Stores, Inc.
EMPLOYEES
As of July 27, 1998, Family employed 725 full-time individuals and 2,802
part-time individuals. Approximately 3,345 of these employees are engaged at the
store-level and 182 are devoted to administrative and corporate support
activities. The Company believes that it maintains good relations with its
employees.
LEGAL PROCEEDINGS
From time-to-time, the Company is involved in legal proceedings that the
Company considers to be in the normal course of its business, none of which has
resulted in any material losses to date. The Company is not currently involved
in any material legal proceedings.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Leslie E. Dietzman........................ 55 President, Chief Executive Officer and Director
Craig G. Wassenaar........................ 42 Senior Vice President, Chief Financial Officer, Treasurer and
Secretary
J. Hal Bailey............................. 41 Executive Vice President, Operations and Human Resources
William S. Nielsen........................ 40 Vice President, Merchandising and Marketing
Richard M. Butler......................... 54 Vice President, Administration
Craig B. Klamer........................... 42 Vice President, Merchandise Administration
George Craig(1)........................... 58 Chairman of the Board
Peter A. Carnwath(1)...................... 51 Director
Scott D. Steele(2)........................ 34 Director
Neil Topham(2)............................ 49 Director
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
LESLIE E. DIETZMAN has served as the Company's President, Chief Executive
Officer and as a Director since the Company's inception in October 1994. From
September 1992 to October 1994, Mr. Dietzman was the President of Family
Bookstores, at that time a division of Zondervan, and was a Vice President of
Zondervan. Mr. Dietzman has over 30 years of experience in retailing with
various organizations, including The Wal-Mart Stores, Inc., Ames Department
Stores, Mervyns and J.L. Hudson Department Stores in various senior management
positions.
CRAIG G. WASSENAAR has served as the Company's Senior Vice President, Chief
Financial Officer, Treasurer and Secretary since June 1997. From January 1996 to
June 1997, Mr. Wassenaar was Vice President and Chief Financial Officer of
Ameriwood Industries International Corporation, a manufacturer of home and
office furnishing products, responsible for finance, accounting, treasury, risk
management, budgeting and information systems. From October 1994 to October
1995, Mr. Wassenaar was Vice President of Finance--Baby Care Division of Gerber
Products ("Gerber"), a manufacturer of infant care products. From May 1992 to
October 1994, Mr. Wassenaar served as Corporate Comptroller of Gerber.
J. HAL BAILEY has served as Executive Vice President, Operations and Human
Resources since January 1, 1997. Prior to 1997, Mr. Butler served the Family
Bookstores division of Zondervan in various capacities, including as Executive
Vice President, Merchandise and Marketing from July 1995 to January 1997, as
Vice President, Human Resources from December 1994 to July 1995 and as Corporate
Director of Human Resources from February 1992 to December 1994.
WILLIAM S. NIELSEN has served as the Company's Vice President, Merchandise
and Marketing since April 1997. Prior to that time, Mr. Nielsen served the
Company as Director of Marketing from August 1995 to April 1997 and as Senior
Buyer--Books from September 1994 to August 1995. From August 1989 to September
1994, Mr. Nielsen was Merchandise Manager of The Baptist Bookstores, responsible
for merchandise and marketing planning.
RICHARD M. BUTLER has served as the Company's Vice President, Administration
since October 1994. Prior to that time, Mr. Butler served the Family Bookstores
Division of Zondervan in various capacities, including as Business Manager from
May 1989 to October 1994, as Controller from March 1986 to May 1989 and as
Assistant Controller from February 1985 to March 1986.
38
<PAGE>
CRAIG B. KLAMER has served as the Company's Vice President, Merchandise
Administration since April 1997. Prior to that time, Mr. Klamer served the
Company and the Family Bookstores Division of Zondervan in various capacities,
including as Vice President of Human Resources and Strategic Planning from July
1995 to April 1997, as Vice President of Merchandise and Marketing from June
1992 to July 1995 and as Vice President of Purchasing and Merchandising from
February 1988 to June 1992.
GEORGE CRAIG has served as the Chairman of the Board of Directors of the
Company since November 1994. From April 1988 to March 1996, Mr. Craig was
President and Chief Executive Officer of HarperCollins Publishers, Inc., a
subsidiary of News Corporation.
PETER A. CARNWATH has served as a Director of the Company since May 1997.
Since January 1988, Mr. Carnwath has been a Managing Director of Electra Fleming
Inc., an investor in private companies.
SCOTT D. STEELE has served as a Director of the Company since November 1994.
Since May 1993, Mr. Steele has been employed by Electra Fleming, Inc., an
investor in private companies, currently serving as a principal of such entity.
NEIL TOPHAM has served as a Director of the Company since November 1994.
Since April 1997, Mr. Topham has been Chief Financial Officer of Newstar Media
Inc., an independent television producer and leading independent publisher of
audio books. From April 1996 to April 1997, Mr. Topham served as a consultant,
providing business advisory services in the publishing and retail industries.
Mr. Topham was Chief Financial Officer of HarperCollins Publishers, Inc. from
August 1987 to March 1996.
In July 1998, the Company's Board of Directors approved, subject to
shareholder approval, the Company's Restated Articles of Incorporation, which
provide for, among other things, a classified Board of Directors. In accordance
with the terms of the Restated Articles of Incorporation, the terms of office of
the Board of Directors will be divided into three classes, as nearly equal in
number as possible. Class I directors have terms that expire at the annual
meeting of shareholders to be held in 1999 and will initially be . The
Class II directors have terms that expire at the annual meeting of shareholders
to be held in 2000 and will initially be and a director to be designated
by the Electra Entities (as described below). Class III directors have terms
that expire at the annual meeting of shareholders to be held in 2001 and will
initially be . At each annual meeting of shareholders beginning with the
1999 annual meeting, the successors to directors whose terms will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election and until their successors have been
duly elected. Pursuant to an agreement to be entered into in connection with the
Offering (the "Electra Agreement"), among the Company, Electra Investment Trust
P.L.C. and Electra Associates, Inc. (collectively the "Electra Entities"), the
Company will agree to nominate to the Board of Directors one director designated
by the Electra Entities for so long as the Electra Entities collectively
beneficially own greater than 5% of the outstanding Common Stock. See
"Description of Capital Stock--Shareholders' Agreement."
The Restated Articles of Incorporation also provide for a minimum of five
directors and a maximum of nine directors, and such limits may be revised only
with the approval of 80% of the entire Board of Directors. In connection with
the Offering, the Board of Directors intends to elect at least two independent
directors. The identity of the independent directors has not yet been determined
and may not be determined until after completion of the Offering.
There is no family relationship between any of the directors or between any
director and any executive officer of the Company. For information regarding
certain business relationships between the Company and certain of its directors
and executive officers, see "Certain Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has an Audit Committee and a Compensation
Committee, the principal functions of which are described below. Each of these
committees is responsible to the full Board
39
<PAGE>
of Directors, and its activities are subject to the approval of the Board of
Directors. The Audit Committee, among other things, makes recommendations to the
Board regarding the selection of independent auditors, reviews the results and
scope of the audit and other services provided by the Company's independent
certified public accountants and reviews the Company's accounting practices and
controls. The Audit Committee currently consists of Mr. Topham and Mr. Steele.
The Compensation Committee administers the Company's compensation and benefit
programs and makes recommendations to the Board concerning salaries and
incentive compensation for employees and consultants of the Company. The
Compensation Committee also reviews and establishes the compensation structure
for the Company's officers and directors, including salary rates, participation
in incentive compensation and benefit programs, 401(k) plans, stock purchase
plans and other forms of compensation, including stock options. The Compensation
Committee currently consists of Mr. Craig and Mr. Carnwath. In connection with
the Offering and the election of independent directors, the Audit Committee and
the Compensation Committee will be reconstituted to include only the new
independent directors.
DIRECTOR COMPENSATION
Directors who are also employees of the Company are not separately
compensated for serving on the Board of Directors. Non-employee directors
receive an annual retainer of $ per year. Messrs. Craig and Topham also
each receive compensation of $75,000 per year in payment for strategic planning,
financial and investment advisory services rendered to the Company by them in
their capacities as directors. See "Certain Transactions." In addition, each
non-employee director receives $ for attendance at each meeting of the
Board of Directors and $ for attendance at each committee meeting. The
Chairman of each committee receives $ for each committee meeting
attended. The Company reimburses its non-employee directors for the reasonable
out-of-pocket expenses incurred in connection with attending meetings of the
Board of Directors and its committees. Pursuant to the 1998 Stock Plan (as
defined), each non-employee director will be granted an option on the date of
each annual meeting of shareholders to purchase shares of Common Stock.
The per share exercise price of options granted to directors under the 1998
Stock Plan will be 100% of the fair market value of the Common Stock on the date
each option is granted. See "--Stock Option and Restricted Stock Plan of 1998."
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Restated Articles of Incorporation and Bylaws provide that directors and
officers of the Company shall be indemnified against liabilities arising from
their service as directors and officers of the Company to the fullest extent
permitted by the Michigan Business Corporation Act ("MBCA"). Additionally, the
Company will enter into indemnification agreements with each of its executive
officers and directors to reimburse them for certain liabilities incurred in
connection with the performance of their fiduciary duties. The MBCA provides
that a director of a corporation will not be personally liable for monetary
damages to the corporation or its shareholders for breach of fiduciary duty as a
director, except for liability for (i) the amount of a financial benefit
received by a director to which he or she is not entitled; (ii) intentional
infliction of harm to the corporation or its shareholders; (iii) a violation of
Section 551 of the MBCA (relating to unlawful declaration of dividends and
distributions); or (iv) an intentional criminal act. The MBCA further provides
that a corporation may not limit a director's liability for violation of, or
otherwise relieve its directors from the necessity of complying with, federal or
state securities laws, or affect the availability of non-monetary remedies such
as injunctive relief or rescission.
The provisions are intended to afford directors additional protection and
limit their potential liability from suits alleging a breach of the duty of care
by a director. As a result of the inclusion of such a provision, shareholders
may be unable to recover monetary damages against directors for actions taken by
them that constitute negligence or gross negligence or that are otherwise in
violation of their fiduciary duty of care, although it may be possible to obtain
injunctive or other equitable relief with respect to such
40
<PAGE>
actions. If equitable remedies are found not to be available to shareholders in
any particular situation, shareholders may not have an effective remedy against
a director in connection with such conduct.
As permitted by the MBCA, the Company's Bylaws provide that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to (i) any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise and (ii) any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, against expenses (including attorneys' fees), judgments,
fines and amount paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful.
However, no claim for indemnification by any person pursuant to (ii) shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Company. The Company has purchased and
maintains insurance on behalf of its directors and officers against any
liability asserted against them in any such capacity, or arising out of their
status as such, whether or not the Company would have the power to indemnify
such directors and officers against such liabilities under the Bylaws.
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of the
Company which could give rise to an indemnification obligation on the part of
the Company. In addition, except as described herein, the Board of Directors is
not aware of any threatened litigation or proceeding which may result in a claim
for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or person controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee. In the last completed fiscal year, matters with respect to the
compensation of executive officers of the Company were determined by the full
Board of Directors.
41
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal year ended
January 25, 1998 for the Company's Chief Executive Officer and each of its four
most highly compensated executive officers whose annual salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS (#) COMPENSATION($)
- -------------------------------------------------------- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Leslie E. Dietzman,
President and Chief Executive Officer.................. $ 262,053 $ 83,030 $ 23,309(1)
Craig G. Wassenaar
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary (2)............................ 95,497 24,696 (3) 1,834(4)
J. Hal Bailey
Executive Vice President, Operations
and Human Resources.................................... 114,066 30,337 -- 9,004(5)
Richard M. Butler
Vice President, Administration......................... 97,189 25,814 -- 12,608(6)
Craig B. Klamer
Vice President, Merchandise Administration............. 93,028 24,749 -- 7,374(7)
</TABLE>
- ------------------------------
(1) Consists of $14,675 in contributions made by the Company to its 401(k)
Savings Plan on behalf of Mr. Dietzman and $8,634 in premiums paid by the
Company for life insurance, a portion of which was paid with respect to term
life insurance and a portion of which Mr. Dietzman has been allocated an
interest in the cash surrender value under such policy.
(2) Mr. Wassenaar commenced employment with the Company on June 23, 1997. The
amounts reported for Mr. Wassenaar are for services rendered to the Company
from June 23, 1997, until January 25, 1998.
(3) Mr. Wassenaar was granted an option to purchase shares of Common Stock
with an exercise price of $ per share at the commencement of his
employment with the Company. Such option vests at the rate of 20% per year
on each of the first five anniversaries of the date of his employment.
(4) Consists of premiums paid by the Company for life insurance, a portion of
which was paid with respect to term life insurance and a portion of which
Mr. Wassenaar has been allocated an interest in the cash surrender value
under such policy.
(5) Consists of $7,496 in contributions made by the Company to its 401(k)
Savings Plan on behalf of Mr. Bailey and $1,508 in premiums paid by the
Company for life insurance, a portion of which was paid with respect to term
life insurance and a portion of which Mr. Bailey has been allocated an
interest in the cash surrender value under such policy.
(6) Consists of $10,772 in contributions made by the Company to its 401(k)
Savings Plan on behalf of Mr. Butler and $1,836 in premiums paid by the
Company for life insurance, a portion of which was paid with respect to term
life insurance and a portion of which Mr. Butler has been allocated an
interest in the cash surrender value under such policy.
(7) Consists of $5,582 in contributions made by the Company to its 401(k)
Savings Plan on behalf of Mr. Klamer and $1,792 in premiums paid by the
Company for life insurance, a portion of which was paid with respect to term
life insurance and a portion of which Mr. Klamer has been allocated an
interest in the cash surrender value under such policy.
42
<PAGE>
The following tables set forth information with respect to stock options
granted to and exercised by the Named Executive Officers during the fiscal year
ended January 25, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE ($)(1)
- ------------------------------------ ------------------ --------------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Leslie E. Dietzman(2)............... 14.3% $ 1/22/03 $
Craig G. Wassenaar(3)............... 85.7 None
</TABLE>
- ------------------------------
(1) Based on the Black-Scholes option pricing model expressed as a ratio of
times the number of shares. The actual value, if any, an option holder may
realize will depend on the excess of the stock price over the exercise price
on the date the option is exercised, so that there is no assurance the value
realized by an option holder will be at or near the value estimated by the
Black-Scholes model. No adjustments were made for the non-transferability of
the options or to reflect any risk of forfeiture before vesting. The
Company's use of the Black-Scholes model to indicate the present value of
each grant is not an endorsement of this valuation method.
(2) The per share exercise price of the option is equal to the market value of
Common Stock on the date each option was granted. The outstanding option has
a five year term.
(3) The option granted to Mr. Wassenaar vests at the rate of 20% per year on
each of the first five anniversaries of the date of his employment and has
no expiration date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Leslie E. Dietzman........................................ -- $ $
Craig G. Wassenaar........................................ --
</TABLE>
- ------------------------------
(1) Based on the fair market value as of January 25, 1998 ($ per share),
minus the per share exercise price multiplied by the number of shares.
EMPLOYMENT AGREEMENTS
In connection with the closing of the Offering, the Company will enter into
employment agreements with each of Messrs. Dietzman, Wassenaar, Bailey, Butler
and Klamer. Each employment agreement will provide for a term of three years,
with automatic one-year extensions until either the executive or the Company
notifies the other of its desire not to extend the agreement. Pursuant to their
respective employment agreements, Messrs. Dietzman, Wassenaar, Bailey, Butler
and Klamer will be paid base salaries of $ , $ , $ , $ and
$ per year respectively. In addition, such agreements will provide for
discretionary annual bonuses as determined by the Board of Directors and target
bonuses of up to % of the executive's base salary based on the attainment of
certain criteria determined by the Board of Directors. The employment agreements
will also provide for standard employee benefits including, participation in the
Company's welfare and stock incentive plans. In addition, the Company will
maintain, during the executive's term of employment, a term life insurance
policy with a face value of times the executive's base salary, provided such
premiums do not exceed $ .
43
<PAGE>
Each of the employment agreements will provide that if the Company
terminates the executive's employment without "cause" (as defined in the
employment agreements), then such executive shall be entitled to receive his
base salary at the rate then in effect for the remainder of the term (or for a
period of months if greater), a bonus equal to his highest annual
discretionary bonus in the preceding three-year period prior to such termination
for each fiscal year during the Severance Period (as defined in the employment
agreements), continuation of all life insurance premium payments and vesting of
all outstanding equity awards. Pursuant to the terms of the employment
agreements and subject to the approval of the Board of Directors, Messrs.
Dietzman, Wassenaar, Bailey, Butler and Klamer will receive a one-time option
grant to purchase , , , and shares of common
stock, respectively. In addition, on each anniversary date of the employment
agreement, each executive will be eligible to receive a grant of options to
purchase up to shares of common stock. The per share exercise price of
such grants will equal of the fair market value of the options on the date
such options are granted.
The employment agreements will provide that during the term of employment,
each executive will be subject to certain confidentiality and non-solicitation
restrictions.
EMPLOYEE BENEFIT PLANS
STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998. In , the Company's
Board of Directors adopted, and the shareholders approved, the Family Christian
Stores 1998 Stock Option and Restricted Stock Plan (the "1998 Stock Plan"). The
1998 Stock Plan will be administered by the Compensation Committee of the Board
of Directors (the "Committee"). All officers (including officers who are also
directors), employees, consultants and advisors of the Company are eligible for
discretionary awards under the 1998 Stock Plan. The 1998 Stock Plan provides for
stock-based incentive awards, including incentive stock options, non-qualified
stock options, restricted stock, performance shares, stock appreciation rights
and deferred stock. The 1998 Stock Plan permits the Board of Directors, or the
Committee, as the case may be, to select eligible persons to receive awards and
to determine certain terms and conditions of such awards, including the vesting
schedule and exercise price of each award, and whether such award shall
accelerate upon the occurrence of a change in control of the Company. Under the
1998 Stock Plan, options to purchase Class A Common Stock may be granted with an
option exercise price that is less than the then current market value of such
stock.
Under the 1998 Stock Plan, options, restricted stock, performance shares or
stock appreciation rights covering no more than % of the shares reserved
for issuance under the 1998 Stock Plan may be granted to any participant in any
one year. A total of shares have been reserved for issuance under the 1998
Stock Plan. Pursuant to such discretionary awards, the Company has granted to
certain officers, employees, advisors and consultants, options to purchase an
aggregate of approximately shares of Class A Common Stock under the 1998
Stock Plan at the initial public offering price.
The 1998 Stock Plan may be amended, suspended or terminated at any time.
However, the maximum number of shares that may be sold or issued under the 1998
Stock Plan may not be increased, nor may the class of persons eligible to
participate in the 1998 Stock Plan be altered, without the approval of the
Company's shareholders; provided, however, that adjustments to the number of
shares subject to the 1998 Stock Plan and to individual awards thereunder and/or
to the exercise price of awards previously granted are permitted without
shareholder approval upon the occurrence of certain events affecting the capital
structure of the Company. With respect to any other amendments to the 1998 Stock
Plan, the Board of Directors or the Committee may, in its discretion, determine
that such amendment shall become effective only upon approval by the
shareholders of the Company if the Board of Directors or the Committee
determines that such shareholder approval may be advisable, such as for the
purpose of obtaining or retaining any statutory or regulatory benefits under
federal or state securities law, federal or state tax laws or any other laws or
for the purpose of satisfying applicable stock exchange listing requirements.
44
<PAGE>
MANAGEMENT STOCK OPTION PLAN. The Company's Management Stock Option Plan
(the "Management Plan") was adopted by the Board of Directors on November 21,
1997, to be effective as of November 1, 1994. The Management Plan provides for
the issuance of stock options on a fully-diluted basis upon the attainment of
certain performance goals. Options issued under the Management Plan are intended
to provide performance-based compensation under Section 162(m) of the Code. A
maximum of 5% of the Company's outstanding shares of Common Stock as of November
17, 1994 (subject to adjustment) (currently shares of Common Stock), is
available for grant under the Management Plan.
The Management Plan is administered by the Compensation Committee.
Participation in the Management Plan is limited to senior Company officers
authorized by the Compensation Committee as participants and other senior
Company officers named as initial participants in the Management Plan. Options
granted under the Management Plan have a price per share of $ and are
exercisable on the date of the Company's public announcement of an initial
public offering, or earlier upon the occurrence of certain events set forth in
the Management Plan. All exercise rights under the Management Plan terminate
five years after the consummation of an initial public offering, or earlier upon
the occurrence of certain events set forth in the Management Plan.
The Board may amend the Management Plan provided that an amendment may not
increase the benefits to participants, increase the number of shares of stock
available or modify the eligibility requirements unless approved by
shareholders. The Management Plan will terminate when all shares subject to
options that have become exercisable have been purchased or the rights to
purchase such stock have expired or been forfeited. Upon certain changes in
control of the Company, including a reorganization, reclassification, merger or
consolidation, the successor corporation must assume the duty to observe and
perform the terms and conditions of any outstanding options under the Management
Plan and all obligations and liabilities thereof.
INCENTIVE GROUP STOCK OPTION PLAN. The Company's Incentive Group Stock
Option Plan (the "Incentive Plan") was adopted by the Board of Directors on
November 21, 1997, to be effective as of November 1, 1994. The Incentive Plan is
administered by the Compensation Committee. Participation in the Incentive Plan
is limited to members of middle and senior management of the Company. A maximum
of 3% of the Company's outstanding shares of Common Stock as of November 17,
1994 (subject to adjustment) (currently, shares of Common Stock), is
available for stock options under the Incentive Plan. The Incentive Plan will
terminate when all shares subject to options that have become exercisable have
been purchased or the rights to purchase such shares have expired or been
forfeited.
The Incentive Plan has substantially similar terms and conditions to those
described above in "Management Stock Option Plan," including those with respect
to exercise price and powers of the Compensation Committee.
1997 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1997 Employee Stock
Purchase Plan (the "Employee Stock Plan") was adopted by the Board of Directors
on November 21, 1997, to be effective as of November 30, 1997. A maximum of
shares of the Company's Class A Common Stock is available under the
Employee Stock Plan (subject to adjustment). The Employee Stock Plan is
administered by the Compensation Committee. The Employee Stock Plan provides for
the purchase of Class A Common Stock by employees of the Company. Purchases are
made from an individual participant's contribution account funded through
payroll deductions. The Employee Stock Plan is not intended to qualify as an
employee stock purchase plan under Section 423 of the Code. Subject to certain
conditions and limitations, all employees of the Company are eligible to
participate in the Employee Stock Plan. The purchase price per share for the
first $2,000 of Class A Common Stock purchased pursuant to the Employee Stock
Plan by any participant in any calendar year is 85% of the established value on
the commencement date of the plan quarter. The price per share for Class A
Common Stock purchased in excess of $2,000 in a calendar year is 100% of the
established value. Following the consummation of the Offering, the Company
intends to amend the Employee Stock Plan to provide that the purchase price for
45
<PAGE>
the first $2,000 is 85% of the average of the low and high sales price reported
on The Nasdaq Stock Market on the last day of a plan quarter and 100% of such
price for amounts over $2,000. No employee may acquire the right to purchase
Class A Common Stock pursuant to the Employee Stock Plan if (i) immediately
after receiving the right, the employee would own 5% or more of the total
combined voting power or value of all classes of stock of the Company, (ii) the
right would permit the employee to own an aggregate cumulative value of Class A
Common Stock in excess of $50,000 or (iii) the purchase would result in the
purchase of Class A Common Stock with an aggregate purchase price in excess of
$5,000 in any calendar year.
The Board of Directors may amend the Employee Stock Plan at any time;
subject to certain limitations. The Board of Directors can suspend operation of
the Employee Stock Plan for any period. The Employee Stock Plan automatically
terminates upon the earlier of the purchase by participants of all shares of
Class A Common Stock subject to the Employee Stock Plan or November 30, 2007.
46
<PAGE>
CERTAIN TRANSACTIONS
On November 14, 1994, the Company entered into an agreement (the
"Shareholders' Agreement") with certain shareholders of the Company, including
the Electra Entities, which provides for, among other things, a maximum number
of directors, the election of up to two directors at the direction of the
Electra Entities and certain preemptive rights. Upon consummation of the
Offering, the Shareholders' Agreement will be terminated and the Company will
enter into the Electra Agreement which will provide for, among other things, the
nomination by the Company to the Board of Directors of a director designated by
the Electra Entities.
On July 31, 1997, shares of Common Stock were issued to Mr. Topham,
a director of the Company, as payment for consulting and other services provided
to the Company in connection with the private placement of Common Stock on
August 31, 1997.
In connection with the purchase of shares of Common Stock by Mr.
Dietzman, Chief Executive Officer, President and a director of the Company, on
November 14, 1994, the Company entered into a term loan with Mr. Dietzman in the
amount of $225,000, with an annual rate of interest of 8%, which loan matures on
November 14, 2001. The loan is payable in full in annual installments of
$43,216, principal and interest.
In connection with the purchase of shares of Common Stock by Mr.
Dietzman on July 31, 1997, the Company entered into a term loan with Mr.
Dietzman in the amount of $37,500, with an annual rate of interest of 8%, which
loan matures on July 31, 2004. The loan is payable in full in annual
installments of $7,000, principal and interest.
In connection with the purchase of shares of Common Stock by Mr.
Bailey, Executive Vice President, Operations and Human Resources of the Company,
on November 14, 1994, the Company entered into a term loan with Mr. Bailey in
the amount of $60,000, with an annual rate of interest of 8%, which loan matures
on November 14, 2001. The loan is payable in full in equal annual installments
of $11,524, principal and interest.
In connection with the purchase of shares of Common Stock by Mr.
Butler, Vice President, Administration of the Company, on November 14, 1994, the
Company entered into a term loan with Mr. Butler in the amount of $80,000, with
an annual rate of interest of 8%, which loan matures on November 14, 2001. The
loan is payable in full in equal annual installments of $15,366, principal and
interest.
In connection with the purchase of shares of Common Stock by Mr.
Klamer, Vice President, Merchandise Administration of the Company, on November
14, 1994, the Company entered into a term loan with Mr. Klamer in the amount of
$50,000, with an annual rate of interest of 8%, which loan matures on November
14, 2001. The loan is payable in full in equal annual installments of $9,604,
principal and interest.
Messrs. Topham and Craig, directors of the Company, are parties to
consulting agreements, each dated November 2, 1994, which provide that in
exchange for their services as consultants and directors, the Company will pay
them $100,000 and $50,000, respectively. On November 21, 1997, the Company
extended the terms of such agreements to November 30, 2000, and adjusted the
annual payments to $75,000 for each of Messrs. Topham and Craig.
Messrs. Carnwath and Steele, directors of the Company, are Managing Director
and Principal, respectively, of Electra. Pursuant to the Securities Agreement,
on November 15, 1994, the Electra Entities purchased the Company's Senior
Subordinated Notes due 2003, in the aggregate principal amount of $5.0 million
(which notes were repaid in connection with the execution of the Company's
Amended and Restated Loan Agreement) and warrants to purchase Common Stock. The
Electra Entities received certain anti-dilution, registration, and other rights
in connection with their purchase of the notes and
47
<PAGE>
warrants. See "Description of Capital Stock--Warrants", "--Registration Rights"
and "--Shareholders' Agreement."
Pursuant to the terms of an agreement, between the Company and Electra Inc.,
an affiliate of the Electra Entities, dated as of November 14, 1994 (the
"Advisory Agreement"), the Company is required to pay Electra Inc. an annual fee
of $100,000, plus all reasonable expenses related thereto for providing
consulting services to the Company. This obligation will terminate upon
consummation of the Offering.
Pursuant to Buy and Sell Agreements among the Company and its existing
shareholders, including the Electra Entities, dated as of November 14, 1994 and
May 4, 1995 (collectively, the "Buy and Sell Agreements"), existing shareholders
(other than the Electra Entities) are restricted from transferring (other than
to Permitted Transferees, as defined therein) their shares of Common Stock
unless they obtain the consents of (A) (i) 75% of the shares held by non-Electra
entities, (ii) the Electra Entities and (iii) the Company (in the case of
certain transfers) or (B) (i) the Electra Entities and (ii) the Company (in the
case of certain other transfers). Pursuant to the terms of one of such
agreements the Electra Entities have certain "tag-along" rights and may
participate in a proposed sale of shares to a third party on a pro rata basis.
If a shareholder proposed to transfer any of its shares, then in certain
circumstances the Electra Entities also have the option to purchase such shares.
The Buy and Sell Agreements automatically terminate upon the consummation of the
Offering. See "Description of Capital Stock--Buy and Sell Agreement."
48
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock on the date of this Prospectus and as
adjusted to reflect the sale of the Common Stock offered hereby of (i) each
shareholder of the Company selling Common Stock in this Offering (a "Selling
Shareholder"), (ii) each person known to the Company to be the beneficial owner
of 5% or more of the outstanding shares of Common Stock, (iii) each of the Named
Executive Officers, (iv) each director of the Company and (v) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP AFTER OFFERING(2)(3)
BEFORE OFFERING -------------------------------
---------------------- PERCENT PERCENT
PERCENT NUMBER OF SHARES OF OF
OF TO BE SOLD EQUITY VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES CLASS IN THE OFFERING SHARES INTEREST INTEREST
- ----------------------------------------- ----------- --------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cayman National Trust Co. Ltd.(4)........
Fourth Floor, Cayman National Building
Elgin Avenue
Georgetown, Grand Cayman
Electra Investment Trust P.L.C.(5).......
320 Park Avenue - 28th
New York, NY 10022
Electra Associates, Inc.(6)..............
320 Park Avenue - 28th
New York, NY 10022
Greta Pofcher............................
12 Loch Lane
Greenwich, CT 06830
Bruce E. and Jeralyn G. Ryskamp(7).......
5300 Patterson SE
Grand Rapids, MI 49530
Charles E. Cook..........................
James G. and Pamela B. Reimann...........
The Jeffrey R. Smith Trust...............
The Susan K. Smith Trust.................
Leslie E. Dietzman(8)(9).................
Craig G. Wassenaar.......................
J. Hal Bailey(9).........................
William S. Nielsen.......................
Richard M. Butler(9).....................
Craig B. Klamer(9).......................
George Craig(4)..........................
Peter A. Carnwath(10)....................
Scott D. Steele(11)......................
Neil Topham..............................
All executive officers and directors of
the Company as a group
(10 persons)...........................
</TABLE>
- --------------------------
* Less than one percent.
(FOOTNOTES ON FOLLOWING PAGE)
49
<PAGE>
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the Company believes that each
shareholder named in this table has sole investment and voting power with
respect to the shares set forth opposite such shareholder's name. The
percentages included in the table are based on the assumption that the
outstanding warrants have been exercised.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) All existing shares of Common Stock outstanding prior to the Offering will
be converted into the same number of shares of Class B Common Stock upon
the consummation of the Offering.
(4) Consists of shares of Common Stock owned by the Cayman National Trust
Co. Ltd., as trustee for the Jamestown Trust, of which Mr. Craig is a
beneficiary.
(5) Includes shares of Common Stock issuable upon exercise of warrants
owned by Electra Investment Trust P.L.C. which are exercisable within 60
days of , 1998. Also includes shares of Common Stock held by
Electra Associates, Inc., an affiliate of Electra Investment Trust P.L.C.
(6) Consists of shares of Common Stock issuable upon exercise of warrants
owned by Electra Associates, Inc. which are exercisable within 60 days of
, 1998. Also includes shares of Common Stock held by Electra
Investment Trust P.L.C., an affiliate of Electra Associates, Inc.
(7) Includes shares of Common Stock owned by the Bruce E. Ryskamp Living
Trust and shares of Common Stock owned by the Jeralyn G. Ryskamp
Living Trust, for each of which Mr. and Mrs. Ryskamp act as co-trustees.
(8) Includes shares of Common Stock issuable upon exercise of outstanding
stock options which are exercisable within 60 days of , 1998.
(9) Consists of shares of Common Stock issuable upon exercise of
outstanding stock options which are exercisable within 60 days
of , 1998.
(10) Does not include shares of Common Stock owned by Electra Investment
Trust P.L.C. and Electra Associates, Inc. Mr. Carnwath is a Managing
Director of Electra Fleming, Inc. Electra Fleming, Inc. is 50% owned by
Electra Investment Trust P.L.C. and manages all of its assets. However,
Electra Fleming, Inc. does not control the voting power of the shares of
Common Stock owned by Electra Investment Trust P.L.C. Mr. Carnwath
disclaims beneficial ownership of such shares.
(11) Does not include shares of Common Stock owned by Electra Investment
Trust P.L.C. and Electra Associates, Inc. Mr. Steele is a Principal of
Electra Fleming, Inc. Electra Fleming, Inc. is 50% owned by Electra
Investment Trust P.L.C. and manages all of its assets. However, Electra
Fleming, Inc. does not control the voting power of the shares of Common
Stock owned by Electra Investment Trust P.L.C. Mr. Steele disclaims
beneficial ownership of such shares.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Restated Articles of Incorporation and Bylaws is a
summary and is qualified in its entirety by reference to the provisions of the
Restated Articles of Incorporation and Bylaws, which have been filed as exhibits
to the Company's Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Restated Articles of Incorporation authorize the issuance of 10,000,000
shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock.
Upon the consummation of the Offering, each share of the Company's existing
Common Stock will be converted into one share of Class B Common Stock.
VOTING. The holders of Common Stock will generally be entitled to vote as a
single class on all matters upon which shareholders have a right to vote,
subject to the requirements of the applicable laws and the rights of any series
of Preferred Stock to a separate class vote. Each share of Class A Common Stock
entitles its holder to one vote and each share of Class B Common Stock entitles
its holder to 10 votes. Unless otherwise required by law, and so long as their
rights would not be adversely affected, the holders of Common Stock will not be
entitled to vote on any amendment to the Restated Articles of Incorporation that
relates solely to the terms of one or more outstanding series of Preferred
Stock.
DIVIDENDS AND OTHER DISTRIBUTIONS. The holders of Class A Common Stock and
Class B Common Stock will be entitled to equal dividends when declared by the
Board of Directors, except that all dividends payable in Common Stock will be
paid in the form of Class A Common Stock to holders of Class A Common Stock and
in the form of Class B Common Stock to holders of Class B Common Stock. Neither
class of Common Stock may be split, divided or combined unless the other class
isproportionally split, divided or combined.
In the event of a liquidation or winding up of the Company, the holders of
Class A Common Stock and Class B Common Stock will be treated on an equal per
share basis, and will be entitled to receive all of the remaining assets of the
Company following distribution of the preferential and/or other amounts to be
distributed to any holders of preferred stock.
ISSUANCE OF CLASS B COMMON STOCK, OPTIONS, RIGHTS OR WARRANTS. Subject to
certain provisions regarding dividends and other distributions described above,
the Company will not be entitled to issue additional shares of Class B Common
Stock, or issue options, rights or warrants to subscribe for additional shares
of Class B Common Stock, except that the Company may make a pro rata offer to
all holders of Common Stock of rights to purchase additional shares of the class
of Common Stock held by them. The Class A Common stock and the Class B Common
Stock will be treated equally with respect to any offer by the Company to
holders of Common Stock of options, rights or warrants to subscribe for any
other capital stock of the Company.
MERGER. In the event of a merger, the holders of Class A Common Stock and
Class B Common Stock will be entitled to receive the same per share
consideration, if any, except that if such consideration includes voting
securities (or the right to acquire voting securities or securities exchangeable
for or convertible into voting securities), the Company may (but is not required
to) provide for the holders of Class B Common Stock to receive consideration
entitling them to 10 times the number of votes per share as the consideration
being received by holders of the Class A Common Stock.
CONVERSION OF CLASS B COMMON STOCK. The Class B Common Stock will be
convertible into Class A Common Stock on a share-for-share basis (i) at the
option of the holder thereof at any time, (ii) upon transfer of a person or
entity which is not a Permitted Transferee (as defined in the Restated Articles
of Incorporation), (iii) at such time as a corporation, partnership, limited
liability company, trust or charitable organization ceases to be 100% controlled
by Permitted Transferees and (iv) on the date on which the number of shares of
Class B Common Stock outstanding is less than 15% of the then outstanding shares
of
51
<PAGE>
Common Stock (without regard to voting rights). In general, Permitted
Transferees will include natural persons who currently hold shares of Class B
Common Stock, their spouses, ancestors and descendants, their descendant's
spouses and certain charitable organizations and trusts (including charitable
trusts) or other entities controlled by such persons.
PREEMPTIVE RIGHTS. The holders of shares of capital stock of the Company
will not have any preemptive rights with respect to any outstanding or newly
issued capital stock of the Company.
PREFERRED STOCK
Upon the approval of 80% of the entire Board of Directors of the Company,
the Board of Directors is authorized to issue, without further shareholder
approval, up to 5,000,000 shares of Preferred Stock, no par value, from time to
time in one or more series and to fix such designations, powers, preferences and
relative voting, distribution, dividend, liquidation, transfer, redemption,
conversion and other rights, preferences, qualifications, limitations or
restrictions thereon. Any such Preferred Stock could have priority over Common
Stock as to dividends and as to the distribution of the Company's assets upon
any liquidation, dissolution or winding up of the Company. The Company has no
present plan to issue any shares of preferred stock. See "Certain Charter and
Bylaws Provisions--Blank Check Preferred Stock."
WARRANTS
In connection with the Company's formation, the Company entered into the
Securities Agreement with certain shareholders including the Electra Entities.
Under the terms of the Securities Agreement, the Electra Entities received
warrants to purchase up to 28% of the fully diluted Common Stock of the Company
at an exercise price of $.01 per share. The warrants were exercisable as to 18%
of the shares of Common Stock outstanding as of November 14, 1994 ("Series A
Warrants") and as to the following amounts based upon the timing of a
"Triggering Event": (i) an additional 2% of the total shares of Common Stock
outstanding on December 31, 1996 if a Triggering Event did not occur by December
31, 1996 ("Series B Warrants"), which warrants have been issued to the Electra
Entities; (ii) an additional 4% of the total shares of Common Stock outstanding
on December 31, 1998 if a Triggering Event does not occur by December 31, 1998;
and (iii) an additional 4% of the total shares of Common Stock outstanding on
December 31, 1999 if a Triggering Event does not occur by December 31, 1999. The
Securities Agreement defines a "Triggering Event" as the occurrence of (i) the
payment in full of all of the senior subordinated notes which are the subject of
the Securities Agreement and (ii) either (a) an initial public offering or (b) a
sale of all or substantially all of the capital stock or assets of the Company
for certain specified amounts. Upon consummation of the Offering, the Company
will not be required to issue additional warrants under the Securities
Agreement. The expiration date of all of the described warrants is November 14,
2004. The Series A Warrants and the Series B Warrants currently are exercisable.
The Electra Entities have informed the Company that they will exercise the
Series A Warrants and the Series B Warrants upon consummation of the Offering.
SHAREHOLDERS' AGREEMENT
Pursuant to the terms of the Shareholders' Agreement, the maximum number of
directors comprising the Board of Directors of the Company may not exceed five
prior to an initial public offering, and eight after the consummation of an
initial public offering, provided that the Electra Entities and any permitted
transferees (the "Institutional Investors") own at least 10% of the fully
diluted shares of the Company. The Shareholders' Agreement further provides that
the current shareholders will elect two directors (the "Institutional
Directors") designated by the Institutional Investors to the Board. If the
Institutional Investors cease to hold at least (i) 10% of the fully diluted
shares of the Company, then the current shareholders must elect only one
Institutional Director or (ii) 5% of the fully diluted shares, then the current
shareholders have no obligation to elect an Institutional Director. The
Institutional Investors also have certain rights to direct voting as to all
matters submitted to a shareholder vote for shareholder consent. See
"Description of Capital Stock--Registration Rights." Upon the consummation of
the Offering, the Shareholders' Agreement will terminate and the Electra
Entities and the Company will enter
52
<PAGE>
into the Electra Agreement. The Electra Agreement will provide for, among other
things, the Electra Entities to designate one director to be nominated by the
Company, so long as the Electra Entities collectively beneficially own greater
than 5% of the Common Stock.
REGISTRATION RIGHTS
The Company has entered into a registration rights agreement (the
"Registration Rights Agreement") with the Electra Entities covering in the
aggregate shares of Common Stock. The Registration Rights Agreement
provides that upon request from a holder or holders ("Initiating Holders") of
certain amounts of registrable securities, requesting that the Company effect
the registration under the Securities Act of all or any part of the Initiating
Holders' registrable securities, the Company will effect the registration under
the Securities Act of (i) the registrable securities which the Company has been
requested to register by the Initiating Holders, and (ii) all other registrable
securities which the Company has been requested to register by other holders
thereof. The Company has agreed to pay all costs associated with these
registrations.
BUY AND SELL AGREEMENTS
Pursuant to the Buy and Sell Agreements, existing shareholders (other than
the Electra Entities) are restricted from transferring (other than to Permitted
Transferees, as defined therein) their shares of Common Stock unless they obtain
the consents of (A) (i) 75% of the shares held by non-Electra Entities, (ii) the
Electra Entities and (iii) the Company (in the case of certain transfers) or (B)
(i) the Electra Entities and (ii) the Company (in the case of certain other
transfers). The Company has the option to purchase shares proposed to be
transferred by any shareholder and, if the Company does not do so, the remaining
shareholders have a similar option. If neither the Company nor shareholders
exercise their options to purchase shares proposed to be sold by an existing
shareholder to a third party under one of such agreements, then the Electra
Entities have certain "tag-along" rights and may participate in the sale on a
pro rata basis. Certain Shareholders also are subject to certain "drag-along"
provisions, which provide that in the event 50% or more of the Common Stock is
transferred, such shareholders may be required to sell also. The Buy and Sell
Agreements automatically terminate upon the consummation of the Offering. See
"Certain Transactions."
CERTAIN CHARTER AND BYLAW PROVISIONS
In addition to the control of the Company that the holders of Class B Common
Stock will have upon consummation of the Offering, the following provisions of
the Company's Restated Articles of Incorporation and Bylaws could have the
effect of discouraging, delaying or making more difficult certain attempts to
acquire the Company or to remove an incumbent director even if the majority of
shareholders were to deem such an attempt to be in the best interests of the
Company and its shareholders.
PROVISIONS REGARDING THE BOARD OF DIRECTORS. The Company's Restated
Articles of Incorporation will provide that the Company's Board of Directors be
classified into three classes serving staggered, three-year terms. As a result,
only one class of directors will be elected at each annual meeting of
shareholders of the Company, with the other classes continuing for their
respective terms. See "Management."
The Company's Restated Articles of Incorporation and Bylaws will establish
an advance notice procedure for nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors and for
submission of shareholder proposals to be considered at meetings of
shareholders. In general, notice of intent to nominate a director or raise
business at such meeting must be received by the Company not less than 120 days
prior to the date of an annual meeting and must contain certain specified
information concerning the person to be nominated or the matter to be brought
before the meeting.
The Company's Restated Articles of Incorporation will provide, subject to
the rights of any series of Preferred Stock then outstanding, that directors may
be removed from office only for cause and only upon the affirmative vote of at
least a majority of the total number of directors then in office, or by at least
a
53
<PAGE>
majority vote of the shares of the Company then entitled to vote at an election
for directors. Vacancies on the Board of Directors, including those resulting
from an increase in the number of directors, may be filled only by the remaining
directors, not by shareholders.
SUPERMAJORITY VOTE PROVISIONS. The Restated Articles of Incorporation will
provide that, in addition to any vote required by law or other provisions of the
Restated Articles of Incorporation, the affirmative vote of not less than 80% of
the outstanding shares of voting stock is required for the approval of certain
business combinations between the Company or a subsidiary and any interested
shareholder. The provisions would not apply if the proposed transaction is
approved by a majority of continuing directors who are unaffiliated with the
interested shareholder.
AMENDMENTS TO THE RESTATED ARTICLES OF INCORPORATION. Certain provisions of
the Company's Restated Articles of Incorporation, including those relating to
powers of the Board of Directors, indemnification, actions by written consent of
shareholders, classification of the Board of Directors, the removal of directors
and limitations of certain director liability may only be amended by (i) the
affirmative vote of the holders of not less than two-thirds of the outstanding
stock of the Company entitled to vote for the election of directors, or (ii) the
affirmative vote of a majority of the full Board of Directors and of the holders
of a majority of the outstanding stock of the Company entitled to vote for the
election of directors.
ACTION BY SHAREHOLDERS; SPECIAL MEETING OF SHAREHOLDERS. The Restated
Articles of Incorporation will provide that shareholders are permitted to take
action only at a duly called annual or special meeting of shareholders and may
not take action by consent in writing by shareholders except by unanimous
written consent. The Restated Bylaws will not grant the shareholders the right
to call a special meeting of shareholders. Under the Restated Bylaws, special
meetings of shareholders may be called only by the Company's President or the
Board of Directors.
BLANK CHECK PREFERRED STOCK. The Restated Articles of Incorporation will
provide for authorized shares of Preferred Stock, none of which has been
issued. The existence of authorized but unissued Preferred Stock may enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise. For example, if in the due exercise of its fiduciary obligations, the
Board of Directors were to determine that a takeover proposal is not in the
Company's best interests, the Board of Directors could cause shares of Preferred
Stock to be issued without shareholder approval in one or more private offerings
or other transactions that might dilute the voting or other rights of the
proposed acquirer or insurgent shareholder or shareholder group. In this regard,
the Restated Articles of Incorporation will provide the Board of Directors broad
power to establish the rights and preferences of authorized but unissued
Preferred Stock. The issuance of shares of Preferred Stock pursuant to the Board
of Directors' authority described above could decrease the amount of earnings
and assets available for distribution to holders of Common Stock and adversely
affect the rights of, including voting rights in the event a particular series
of Preferred Stock is given a disproportionately large number of votes per
share, of such holders and may have the effect of delaying, deferring or
preventing a change in control of the Company that may be favored by certain
shareholders. The Board of Directors does not currently intend to seek
shareholder approval prior to any issuance of Preferred Stock, unless required
by law.
CERTAIN STATUTORY PROVISIONS
The Company is subject to Chapter 7A of the MBCA, which provides that
business combinations subject to Chapter 7A between a Michigan corporation and a
beneficial owner of shares entitled to 10% or more of the voting power of such
corporation generally require the affirmative vote of 90% of the votes of each
class of stock entitled to vote, and not less than 2/3 of each class of stock
entitled to vote (excluding voting shares owned by such 10% owner), voting as a
separate class. Such requirements do not apply if (i) the corporation's board of
directors approves the transaction prior to the time the 10% owner becomes such
or (ii) the transaction satisfies certain fairness standards, certain other
conditions are met and the 10% owner has been such for at least five years.
54
<PAGE>
Chapter 7B of the MBCA provides that, unless a corporation's articles of
incorporation or bylaws provide that Chapter 7B does not apply, "control shares"
of a corporation acquired in a control share acquisition have no voting rights
except as granted by the shareholders of the corporation. "Control shares" are
shares which, when added to shares previously owned by a shareholder, increase
such shareholder's ownership of voting stock to more than 20% but less than
33 1/3%, more than 33 1/3% but less than a majority, or more than a majority, of
the votes to which all of the capital stock of the corporation is entitled. A
control share acquisition must be approved by the affirmative vote of a majority
of all shares entitled to vote excluding voting shares owned by the acquiror and
certain officers and directors. However, no such approval is required for gifts
or other transactions not involving consideration, for a merger to which the
corporation is a party or certain other transactions described in Chapter 7B.
The bylaws of the Company currently contain a provision pursuant to which the
Company has opted not to be subject to Chapter 7B, but the board of directors
may, in its sole discretion, elect to become subject to Chapter 7B by amending
such bylaws.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York has been appointed as the transfer
agent and registrar for the Company's Common Stock.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Class A Common Stock by the Company's current
shareholders could adversely affect the market price of the Class A Common
Stock. Upon the closing of the Offering, based upon the number of shares
outstanding at , 1998, the Company will have outstanding an aggregate of
shares of Class A Common Stock ( shares if the Underwriters'
over-allotment option is exercised in full). In addition, based upon the number
of shares outstanding at , 1998, the Company has reserved for issuance
shares issuable upon exercise of outstanding options. The shares of
Class A Common Stock offered hereby will be freely transferable without
restriction or further registration under the Securities Act, except for such
shares acquired by affiliates of the Company. Shares purchased by affiliates of
the Company would be subject to certain volume and other restrictions upon
resale as described below. The remaining shares of Class A Common Stock
and shares of Class B Common Stock held by existing shareholders are
"restricted securities" as that term is defined by Rule 144 under the Securities
Act. Pursuant to certain "lock-up" agreements, the Company's directors, officers
and certain of its shareholders who collectively hold an aggregate of
shares of Class A Common Stock and shares of Class B Common Stock,
together with the Company, have agreed that they will not offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Class A Common Stock, other than the
shares of Class A Common Stock offered hereby, without the prior written consent
of NationsBanc Montgomery Securities LLC for a period of 180 days following the
date of this Prospectus. Following the 180-day period, approximately
shares of Class A Common Stock will be eligible for sale in the public market
without restriction pursuant to Rule 144(k), and an additional shares will
be eligible for sale under Rule 144, subject to certain volume, manner of sale
and other restrictions of Rule 144. Of the shares of restricted Class A
Common Stock held by existing shareholders of the Company not subject to lock-up
agreements, shares will be eligible for immediate sale in the public
market without restriction under Rule 144(k). The remaining shares of
Class A Common Stock not subject to lock-up agreements will become eligible for
sale, subject to certain volume, manner of sale and other limitations under Rule
144 commencing 90 days following the date of this Prospectus. In addition,
holders of stock options, exercisable for an aggregate of shares of Class
A Common Stock, have entered into agreements prohibiting the sales of the
underlying Class A Common Stock for 180 days following the date of this
prospectus. See "Principal and Selling Shareholders" and "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, any person who has beneficially owned restricted
securities for at least one year will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of (i) one percent of
the then outstanding shares of the Company's Class A Common Stock (approximately
shares immediately after the Offering); or (ii) the average weekly trading
volume of the Company's Class A Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days immediately preceding the sale and
who has beneficially owned the shares proposed to be sold for at least two years
is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above.
The Company intends to file registration statements under the Securities Act
covering shares of Class A Common Stock reserved for issuance under the
Company's stock plans. Based on the options outstanding and shares reserved for
issuance as of the date of this Prospectus, such registration statements would
cover approximately shares. Such registration statements are expected to
be filed and to become effective as soon as practicable after the date of this
Prospectus. Shares registered in such registration will, subject to Rule 144
volume limitations applicable to affiliates, be available for sale in the open
market upon expiration of the contractual restrictions discussed above.
56
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, BancAmerica Robertson Stephens and BT
Alex. Brown Incorporated (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement (the
"Underwriting Agreement") by and among the Company, the Selling Shareholders and
the Underwriters, to purchase from the Company and the Selling Shareholders the
number of shares of Common Stock indicated below opposite their respective
names, at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of the shares,
if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
NationsBanc Montgomery Securities LLC..............................................
BancAmerica Robertson Stephens.....................................................
BT Alex. Brown Incorporated........................................................
-----------
Total............................................................................
-----------
-----------
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose initially to offer the shares of Class A Common
Stock to the public on the terms set forth on the cover page of this Prospectus.
The Underwriters may allow selected dealers a concession of not more than
$ per share and the Underwriters may allow, and such dealers may reallow,
a concession of not more than $ per share to certain other dealers. After
the public offering, the offering price and other selling terms may be changed
by the Representatives. The Class A Common Stock is offered subject to receipt
and acceptance by the Underwriters, and to certain other conditions, including
the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of additional shares of Class A Common Stock to cover over-allotments,
if any, at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with this offering.
Each director and executive officer and certain other shareholders of the
Company have agreed, subject to certain limited exceptions, that they will not,
without the prior written consent of NationsBanc Montgomery Securities LLC
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of Class A Common Stock, options or warrants to acquire shares of
Class A Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Class A Common Stock, currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under the Exchange
Act) by such party, or publicly announce such party's intention to do any of the
foregoing, for a period of 180 days after the date of this Prospectus. In
addition, the Company has agreed in the Underwriting Agreement that, during the
period of 180 days after the date of this Prospectus, without the prior written
consent of NationsBanc Montgomery Securities LLC (which consent may be withheld
in its sole discretion), it will not, directly or indirectly, sell, offer,
contract or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of
57
<PAGE>
Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any Registration Statement under the
Securities Act in respect of, any shares of the Company's Class A Common Stock,
options or warrants to acquire shares of the Class A Common Stock or securities
exchangeable or exercisable for or convertible into shares of Class A Common
Stock. NationsBanc Montgomery Securities LLC may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
these Lock-up Agreements. See "Shares Eligible for Future Sale."
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain civil liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock,
including over-allotment, stabilizing transactions, syndicate-covering
transactions and penalty bids. In an over-allotment, the Underwriters would
allot more shares of Common stock to their customers in the aggregate than are
available for purchase by the Underwriters under the Underwriting Agreement. A
stabilizing transaction means the placing of any bid, or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of a
security. In a syndicate-covering transaction, the Underwriters would place a
bid or effect a purchase to reduce a short position created in connection with
this offering. Pursuant to a penalty bid, NationsBanc Montgomery Securities LLC,
on behalf of the Underwriters, would be able to reclaim a selling concession
from shares of Common Stock sold by such Underwriter that are purchased in
syndicate-covering transactions. These transactions may result in the price of
the Common Stock originally being higher than the price that might otherwise
prevail in the open market. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise and, if commenced,
may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to confirm sales of Class A Common Stock to accounts over which they
exercise discretionary authority in excess of 5% of the number of shares of
Class A Common Stock offered hereby.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to shares of Class A Common Stock
(5% of the shares offered in the Offering) for employees, directors and certain
other persons associated with the Company who have expressed an interest in
purchasing such shares of Class A Common Stock in the Offering. The number of
shares available for sale to the general public in the Offering will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the Underwriters to the general public on
the same terms as the other shares offered hereby.
Prior to this Offering, there has been no public market for the Class A
Common Stock. Consequently, the initial public offering price will be determined
by negotiations among the Representatives of the Underwriters, the Company and
the Selling Shareholders. Among the factors to be considered in such negotiation
will be the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of securities markets at the time of the Offering and the
market price of publicly traded stock of comparable companies in recent periods.
58
<PAGE>
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Skadden, Arps, Slate, Meagher and Flom (Illinois), Chicago,
Illinois. Certain legal matters relating to the offering will be passed upon for
the Underwriters by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
The financial statements of Family Christian Stores, Inc. at January 25,
1998 and January 26, 1997 and for each of the three fiscal years in the period
ended January 25, 1998 appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The financial statements of Joshua's Christian Stores (a division of The
Development Association, Inc.) as of March 31, 1998 and for the twelve months
then ended included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 (as amended and together with all
exhibits thereto, the "Registration Statement") under the Securities Act, with
respect to the shares of Class A Common Stock offered by this Prospectus. This
Prospectus constitutes a part of the Registration Statement and does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted from this Prospectus as permitted by the rules and regulations
of the SEC. Statements in this Prospectus about the contents of any contract or
other document are not necessarily complete; reference is made in each instance
to the copy of the contract or other document filed as an exhibit to the
Registration Statement. Each such statement is qualified in all respects by such
reference. The Registration Statement and accompanying exhibits and schedules
may by inspected and copies may be obtained (at prescribed rates) at the public
reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. Copies of the Registration Statement also may be
inspected at the SEC's regional offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. In addition, the Common Stock will be listed on
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006-1500,
where such material also may be inspected and copied.
As a result of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will
file periodic reports, proxy statements and other information with the SEC. Such
periodic reports, proxy statements and other information will be available for
inspection and copying at the public reference facilities and regional offices
referred to above. In addition, these reports, proxy statements and other
information also may be obtained from the web site that the SEC maintains at
www.sec.gov.
The Company intends to furnish its shareholders annual reports containing
consolidated financial statements certified by its independent auditors and
quarterly reports for each of the first three quarters of each fiscal year
containing unaudited financial information.
59
<PAGE>
FAMILY CHRISTIAN STORES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FAMILY CHRISTIAN STORES, INC.
Audited Financial Statements:
Report of Independent Auditors........................................................................... F-2
Balance Sheets........................................................................................... F-3
Statements of Operations................................................................................. F-4
Statements of Shareholders' Equity (Deficit)............................................................. F-5
Statements of Cash Flows................................................................................. F-6
Notes to Financial Statements............................................................................ F-7
Unaudited Interim Financial Statements:
Balance Sheets........................................................................................... F-16
Statements of Operations................................................................................. F-17
Statements of Cash Flows................................................................................. F-18
Notes to Financial Statements............................................................................ F-19
JOSHUA'S CHRISTIAN STORES
Audited Financial Statements:
Report of Independent Accountants........................................................................ F-21
Statement of Income...................................................................................... F-22
Balance Sheet............................................................................................ F-23
Statement of Cash Flows.................................................................................. F-24
Statement of Changes in Investment by Parent............................................................. F-25
Notes to Financial Statements............................................................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Family Christian Stores, Inc.
We have audited the accompanying balance sheets of Family Christian Stores,
Inc. as of January 26, 1997 and January 25, 1998, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
fiscal years in the period ended January 25, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Family Christian Stores,
Inc. at January 26, 1997 and January 25, 1998, and the results of its operations
and its cash flows for each of the three fiscal years in the period ended
January 25, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
March 2, 1998
F-2
<PAGE>
FAMILY CHRISTIAN STORES, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 25,
1997 1998
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 1,398 $ 5,370
Accounts receivable, less allowance for doubtful accounts
(1997--$66; 1998--$89)......................................................... 1,276 1,498
Merchandise inventories.......................................................... 28,247 32,109
Prepaid store rent............................................................... 1,187 1,279
Other............................................................................ 952 588
------------- ---------------
Total current assets............................................................. 33,060 40,844
Fixed assets:
Leasehold improvements........................................................... 7,314 8,338
Fixtures and equipment........................................................... 9,723 11,415
------------- ---------------
17,037 19,753
Less accumulated depreciation.................................................... 5,143 7,540
------------- ---------------
11,894 12,213
Other assets:
Intangible assets................................................................ 6,913 7,782
Deposits and miscellaneous....................................................... 516 447
------------- ---------------
7,429 8,229
------------- ---------------
$ 52,383 $ 61,286
------------- ---------------
------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................. $ 25,809 $ 31,238
Compensation and payroll taxes................................................... 1,929 3,137
Other accrued liabilities........................................................ 3,103 3,730
Current maturities of long-term debt............................................. 2,000 2,000
------------- ---------------
Total current liabilities........................................................ 32,841 40,105
Long-term debt, less current maturities.......................................... 18,518 14,973
Deferred rent liability.......................................................... 1,782 1,771
Other liabilities................................................................ 380 366
Redeemable common stock warrants................................................. 5,519 9,199
Shareholders' equity (deficit):
Class A voting common stock, par value $1 per share--authorized 3,000,000 shares;
issued and outstanding: 1997--1,510,750 shares; 1998--1,697,131 shares......... 1,511 1,697
Class B nonvoting common stock, par value $1 per share--authorized 3,000,000
shares; issued and outstanding: 1997 and 1998--55,000 shares................... 55 55
Additional paid-in capital....................................................... 4,727 7,083
Retained earnings (deficit)...................................................... (12,582) (13,569)
Notes receivable from shareholders............................................... (368) (394)
------------- ---------------
(6,657) (5,128)
------------- ---------------
$ 52,383 $ 61,286
------------- ---------------
------------- ---------------
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
FAMILY CHRISTIAN STORES, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
-------------- -------------- --------------
Net sales....................................................... $ 126,125 $ 139,280 $ 168,063
Costs of products sold, including store occupancy costs......... 90,967 100,222 118,473
-------------- -------------- --------------
Gross profit.................................................... 35,158 39,058 49,590
Operating expenses:
Selling, general and administrative expenses.................... 34,283 34,923 40,284
Depreciation and amortization................................... 2,400 2,830 3,080
Store opening expenses.......................................... 991 414 739
-------------- -------------- --------------
37,674 38,167 44,103
-------------- -------------- --------------
Operating income (loss)......................................... (2,516) 891 5,487
Other expense (income):
Interest expense................................................ 2,660 2,771 2,858
Interest income................................................. (42) (36) (64)
-------------- -------------- --------------
2,618 2,735 2,794
-------------- -------------- --------------
Net earnings (loss)............................................. $ (5,134) $ (1,844) $ 2,693
-------------- -------------- --------------
-------------- -------------- --------------
Net earnings (loss) per share--basic............................ $ (3.33) $ (1.18) $ 1.63
-------------- -------------- --------------
-------------- -------------- --------------
Net earnings (loss) per share--diluted.......................... $ (3.33) $ (1.18) $ 1.22
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
FAMILY CHRISTIAN STORES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B NOTES TOTAL
VOTING NONVOTING ADDITIONAL RETAINED RECEIVABLE SHAREHOLDERS'
COMMON COMMON PAID-IN EARNINGS FROM EQUITY
STOCK STOCK CAPITAL (DEFICIT) SHAREHOLDERS (DEFICIT)
----------- ------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 30, 1995................... $ 1,500 $ 4,500 $ (1,402) $ (449) $ 4,149
Net loss....................................... (5,134) (5,134)
Issuance of 55,000 shares related to store
acquisition.................................. $ 55 195 250
Net payments from shareholders................. 51 51
Change in value of redeemable common stock
warrants..................................... (182) (182)
----------- --- ----------- ---------- ----- -------------
Balances at January 28, 1996................... 1,500 55 4,695 (6,718) (398) (866)
Net loss....................................... (1,844) (1,844)
Purchase and retirement of 18,000 shares....... (18) (54) (72)
Issuance of 28,750 shares...................... 29 86 115
Net payments from shareholders................. 30 30
Change in value of redeemable common stock
warrants..................................... (4,020) (4,020)
----------- --- ----------- ---------- ----- -------------
Balances at January 26, 1997................... 1,511 55 4,727 (12,582) (368) (6,657)
Net earnings................................... 2,693 2,693
Issuance of 186,381 shares..................... 186 2,356 (52) 2,490
Net payments from shareholders................. 26 26
Change in value of redeemable common stock
warrants..................................... (3,680) (3,680)
----------- --- ----------- ---------- ----- -------------
Balances at January 25, 1998................... $ 1,697 $ 55 $ 7,083 $ (13,569) $ (394) $ (5,128)
----------- --- ----------- ---------- ----- -------------
----------- --- ----------- ---------- ----- -------------
</TABLE>
- ------------------------
( ) Denotes deduction.
See accompanying notes to financial statements.
F-5
<PAGE>
FAMILY CHRISTIAN STORES, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
OPERATING ACTIVITIES
Net earnings (loss)............................................................... $ (5,134) $ (1,844) $ 2,693
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Depreciation...................................................................... 2,118 2,491 2,667
Amortization of intangible assets................................................. 282 339 413
Amortization of software and other costs.......................................... 124 129 128
Amortization of debt discount..................................................... 55 55 55
Store rent expense in excess of (less than) amounts paid.......................... 153 59 (11)
Changes in operating assets and liabilities:
Accounts receivable............................................................... 519 (206) (161)
Merchandise inventories........................................................... (2,380) 6,155 (1,912)
Other current assets.............................................................. (902) 106 310
Accounts payable.................................................................. 7,834 (1,005) 5,429
Other operating liabilities, excluding debt....................................... 592 77 1,846
--------- --------- ---------
Net cash provided by operating activities......................................... 3,261 6,356 11,457
INVESTING ACTIVITIES
Store acquisitions................................................................ (4,830) (4,501) (4,326)
Additions to fixed assets......................................................... (2,399) (1,497) (2,122)
Other............................................................................. (77) 47
--------- --------- ---------
Net cash used in investing activities............................................. (7,306) (5,998) (6,401)
FINANCING ACTIVITIES
Proceeds from revolving credit facility........................................... 10,000 11,300 10,400
Payments on revolving credit facility............................................. (4,700) (13,000) (12,000)
Payments on term note............................................................. (2,000)
Purchase of shares of common stock................................................ (72)
Issuance of shares of common stock................................................ 115 2,490
Net payments on shareholder notes receivable...................................... 51 30 26
--------- --------- ---------
Net cash provided by (used in) financing activities............................... 5,351 (1,627) (1,084)
--------- --------- ---------
Increase (decrease) in cash....................................................... 1,306 (1,269) 3,972
Cash at beginning of fiscal year.................................................. 1,361 2,667 1,398
--------- --------- ---------
Cash at end of fiscal year........................................................ $ 2,667 $ 1,398 $ 5,370
--------- --------- ---------
--------- --------- ---------
OTHER CASH FLOW INFORMATION
Interest payments................................................................. $ 2,508 $ 2,712 $ 2,794
Income taxes paid (refunds)....................................................... 65 (100) 90
</TABLE>
- ------------------------
( ) Denotes reduction in cash.
See accompanying notes to financial statements.
F-6
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 25, 1998
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Family Christian Stores, Inc. (the Company) is the largest retailer in the
United States dedicated solely to Christian-related products. The Company
operated 197 stores in 33 states at the end of fiscal 1997. Product offerings
include Christian books and Bibles, gifts and cards, music, children's
merchandise and church supplies.
FISCAL YEAR END
The Company's fiscal year is the 52- or 53-week period that ends on the last
Sunday in January and is identified as the fiscal year for the immediately
preceding calendar year. The fiscal years ended January 28, 1996, January 26,
1997 and January 25, 1998 were all 52-week periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of first-in, first-out cost
or market and are composed of product offerings available for retail sale.
FIXED ASSETS
Fixed assets are stated at cost and include costs for major renewals and
betterments. Expenditures for normal repairs and maintenance are charged to
expense as incurred. Depreciation is computed using the straight-line method
over estimated useful lives for fixtures and equipment (3 to 10 years) and over
the lease term for leasehold improvements (3 to 15 years).
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $2,850,000 in
fiscal 1995, $2,138,000 in fiscal 1996 and $2,280,000 in fiscal 1997.
STOCK OPTIONS
The Company follows Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for its employee stock
options. The Company has not adopted the fair value method encouraged, but not
required, by Statement of Financial Accounting Standards (SFAS) No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION.
F-7
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Financing costs incurred in obtaining the Company's credit facilities were
capitalized and are being amortized using the interest method over the term of
the debt agreement. Covenants not to compete related to store acquisitions are
being amortized using the straight-line method over periods ranging from three
to five years.
Goodwill arose from the excess of the cost of acquisitions over the
estimated fair value of the underlying net assets acquired and is being
amortized using the straight-line method over 35 years.
The Company evaluates the recoverability of goodwill not allocable to
acquired business assets and considers whether this goodwill should be
completely or partially written off or the amortization periods accelerated. The
Company assesses the recoverability of this goodwill based upon several factors,
including management's intention with respect to the acquired operations and
those operations' projected undiscounted cash flows.
STORE OPENING EXPENSES
Costs incurred in connection with the start-up and promotion of a new store
are expensed as incurred.
DEFERRED RENT LIABILITY
Store rent expense related to fixed lease obligations is recognized using
the straight-line method over the lease term. Deferred rents payable represent
the cumulative difference between recorded rent expense and the fixed rent
payments, which may vary over the lease term.
INCOME TAXES
A provision for income taxes is provided based on the earnings or loss
reported in the financial statements. A deferred income tax asset or liability
is determined by applying currently enacted tax laws and rates to the cumulative
temporary differences between the carrying value of assets and liabilities for
financial reporting and income tax purposes. Deferred income tax expense or
credit is measured by the change in the deferred income tax asset or liability
during the period.
FINANCIAL INSTRUMENTS
The Company's financial instruments, as defined by SFAS No. 107, DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, consist of cash, accounts receivable,
notes receivable, accounts payable and short-and long-term debt. The Company's
estimate of the fair value of these financial instruments approximates their
carrying amounts at January 26, 1997, and January 25, 1998. The fair value of
long-term debt was determined using discounted cash flow analyses and current
interest rates for similar instruments.
EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, EARNINGS PER SHARE, which simplifies the standards for computing earnings
per share, replacing the presentation of primary earnings per share with a
presentation of basic earnings per share. SFAS No. 128 also requires dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all entities with complex capital structures. Basic
earnings per share are computed by dividing earnings
F-8
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share are computed similar to
fully diluted earnings per share pursuant to APB Opinion No. 15, EARNINGS PER
SHARE, which is superseded by SFAS No. 128. All earnings per share amounts for
all periods have been presented to conform to the SFAS No. 128 requirements.
NOTE B--STORE ACQUISITIONS
During fiscal 1997, in 13 separate transactions, the Company acquired 16
existing retail stores serving the Christian market. Purchases are typically
made for cash ($4,830,000, $4,501,000 and $4,326,000 in the aggregate during
fiscal 1995, 1996 and 1997, respectively) and are accounted for using the
purchase method, whereby the acquisition cost is allocated to the net assets
acquired based on their relative fair values. Goodwill in the amount of
$586,000, $1,208,000 and $1,091,000 was recognized as a result of new store
acquisitions in 1995, 1996 and 1997, respectively.
In one of these transactions during fiscal 1995, the Company acquired the
outstanding common stock of a retailer in exchange for $1,176,000 in cash and
55,000 shares of Class B nonvoting common stock. The acquisition was accounted
for by the purchase method and resulted in recording goodwill of $586,000.
Reported net sales would have approximated $152.7 million in fiscal 1996 and
$171.9 million in fiscal 1997 on a pro forma basis, if the fiscal 1996 and 1997
acquisitions had occurred at the beginning of fiscal 1996. Pro forma net
earnings (loss) would not have been materially different from reported amounts.
NOTE C--INTANGIBLE ASSETS
Intangible assets are composed of the following (in thousands):
<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
--------- ------------- ---------
<S> <C> <C> <C>
JANUARY 26, 1997
Deferred financing costs........................................................ $ 626 $ 176 $ 450
Covenants not to compete........................................................ 374 153 221
Goodwill........................................................................ 6,592 350 6,242
--------- ------ ---------
$ 7,592 $ 679 $ 6,913
--------- ------ ---------
--------- ------ ---------
JANUARY 25, 1998
Deferred financing costs........................................................ $ 626 $ 254 $ 372
Covenants not to compete........................................................ 565 278 287
Goodwill........................................................................ 7,683 560 7,123
--------- ------ ---------
$ 8,874 $ 1,092 $ 7,782
--------- ------ ---------
--------- ------ ---------
</TABLE>
F-9
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D--LONG-TERM DEBT
Long-term debt consists of the following obligations (in thousands):
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 25,
1997 1998
----------- -----------
<S> <C> <C>
Revolving credit facility, maturing in October 2002, with interest payable quarterly at
the prime rate (8.5% at January 25, 1998) plus 2%..................................... $ 3,600 $ 2,000
Term note payable to bank under senior credit facility, with quarterly principal
payments of $500 commencing January 31, 1997 and interest payable quarterly at the
prime rate plus 2%, through October 2002.............................................. 12,000 10,000
$5,000 senior subordinated notes, maturing in May 2003, net of unamortized discount of
$82 in fiscal 1996 and $27 in fiscal 1997............................................. 4,918 4,973
Less current maturities................................................................. (2,000) (2,000)
----------- -----------
$ 18,518 $ 14,973
----------- -----------
----------- -----------
</TABLE>
The Company has a senior credit facility with a bank consisting of a
$12,000,000 revolving credit facility and a term loan that are collateralized by
substantially all the Company's assets. The Company is obligated to pay a
facilities fee equal to 0.5% of the unused revolving credit balance and an
annual agent's fee of $50,000.
The Company issued $5,000,000 in senior subordinated notes to an investor
group in connection with the initial acquisition of its net assets in 1994. The
notes are due in May 2003 with interest payable quarterly at 8% through December
1996, 11% through November 1998 and 14% thereafter. Redeemable common stock
warrants were issued in connection with the notes, with an estimated fair value
of $206,000 at issuance. The resulting debt discount is based on an imputed
interest rate of 12% and is being amortized over the expected life of the notes
through July 1998. The Company is also required to pay an affiliate of the
investor group an annual advisory fee of $100,000. Future maturities of
long-term debt for years subsequent to fiscal 1998 are as follows:
1999--$2,000,000; 2000--$2,000,000; 2001--$2,000,000; 2002-- $4,000,000;
2003--$5,000,000.
The senior credit facility and senior subordinated notes contain restrictive
covenants that, among other things, require the Company to maintain certain
financial ratios and minimum levels of working capital and tangible net worth.
NOTE E--LEASES
The Company has operating lease arrangements for the rental of retail store
space as well as computer and other equipment for periods ranging from three to
ten years. Store lease agreements require the payment of fixed and, in certain
instances, contingent amounts based on individual store sales volumes. Many of
the store leases obligate the Company to pay real estate taxes, insurance and
maintenance costs and also contain renewal options.
F-10
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--LEASES (CONTINUED)
Fixed and contingent rent expense was as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Fixed rent expense.................................................. $ 10,847 $ 12,180 $ 13,251
Contingent rent expense............................................. 137 135 256
------------- ------------- -------------
$ 10,984 $ 12,315 $ 13,507
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Aggregate annual minimum lease obligations for all operating leases
subsequent to January 25, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
STORE EQUIPMENT
FISCAL YEAR LEASES LEASES TOTAL
- --------------------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
1998................................................................. $ 10,416 $ 1,370 $ 11,786
1999................................................................. 9,515 360 9,875
2000................................................................. 8,081 113 8,194
2001................................................................. 6,342 6,342
2002................................................................. 4,954 4,954
Thereafter........................................................... 12,443 12,443
------------- ------------ -------------
$ 51,751 $ 1,843 $ 53,594
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
NOTE F--SERVICE CONTRACT FOR INFORMATION SYSTEMS SUPPORT
The Company entered into an agreement with a national consulting firm to
outsource its information systems development and support functions. The
consulting firm incurred certain up-front system development, software licensing
and implementation costs, which a third party has financed through a licensing
agreement. Payment for these services represents noncancelable obligations of
the Company that are payable in monthly installments of $66,000 through June
1998, increasing to $98,000 through June 2001. Annual noncancelable license fee
payments subsequent to January 25, 1998 are as follows: 1998-- $1,016,000;
1999--$1,180,000; 2000--$1,180,000; 2001--$492,000.
In addition, a service agreement requires the Company to pay monthly fees
ranging from $110,000 to $200,000 through June 2001 for system maintenance and
other support services related to the retail information system. The service
agreement expires in June 2001, with an option to extend the agreement for four
consecutive three-year periods.
NOTE G--SHAREHOLDERS' EQUITY
On July 31, 1997, the Company announced a fifty-for-one stock split on
shares of common stock outstanding on July 31, 1997. All share and per share
data included in the financial statements have been retroactively adjusted for
the increased shares resulting from the stock split.
On August 31, 1997, the Company completed an equity offering of 186,381
shares of common stock that generated net proceeds of $2,490,000 after deducting
expenses. The net proceeds were used for the acquisition of new stores.
F-11
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE G--SHAREHOLDERS' EQUITY (CONTINUED)
Notes receivable from shareholders represent amounts due from employees for
the purchase of common stock and are payable over a seven-year period ending in
August 2004 in equal annual installments of principal and interest at 8%.
The individual shareholders have entered into stock repurchase agreements
with the Company and each other whereby the Company will have a first option and
the shareholders a second option to purchase shares tendered by existing
shareholders. The tendered shares will be purchased at an amount as defined in
the agreements. The agreements terminate upon the occurrence of a Triggering
Event, which is defined as a repayment in full of the senior subordinated notes
and either (1) an Initial Public Offering or (2) a sale of the Company at
certain predetermined valuation levels.
Pursuant to the issuance of senior subordinated notes, the Company entered
into a Securities Purchase Agreement that granted the lender warrants to
purchase common stock with an exercise price of $0.01 per share. At January 25,
1998, warrants to purchase common stock totaling 367,950 shares are outstanding
which, if exercised, would represent 17.4% of the Company's equity.
In the absence of a Triggering Event, additional warrants to purchase common
stock will be granted to the lender equal to 4% of outstanding common stock at
December 31, 1998 and 4% of outstanding common stock at December 31, 1999. The
additional warrants are considered in the computation of diluted net earnings
per share. Also, subsequent to December 31, 1999, in the absence of a Triggering
Event, the lender may at its option require the Company to purchase the warrants
at an amount representing the fair value at the date of exercise. The redeemable
common stock warrants are recorded at estimated fair value in the accompanying
balance sheets.
The payment of dividends is not permitted under the Company's financing
arrangements.
NOTE H--FEDERAL INCOME TAXES
No income tax expense was recorded in fiscal 1995, 1996 or 1997 due to
operating losses incurred and the Company's nonrecognition of deferred income
tax assets for a portion of the net operating loss carryforwards. A
reconciliation of the Company's total federal income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% to earnings
(loss) before income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1995 1996 1997
------------- ----------- ----------
<S> <C> <C> <C>
Income tax expense (credit) at statutory rate............................. $ (1,746) $ (627) $ 916
Reconciling items:
Impact of net operating loss carryforward not recognized (recognized)..... 1,703 597 (945)
Items not deductible for tax purposes..................................... 43 30 29
------------- ----------- ----------
Federal income tax expense................................................ $ -- $ -- $ --
------------- ----------- ----------
------------- ----------- ----------
</TABLE>
F-12
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H--FEDERAL INCOME TAXES (CONTINUED)
Significant components of the Company's deferred income tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 25,
1997 1998
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward....................................................... $ 3,170 $ 1,984
General business credit carryforward.................................................. 230 230
Accrued expenses not deductible until paid............................................ 566 587
Store rent expense not deductible until paid.......................................... 606 602
Accounts receivable and inventory valuation adjustments............................... 201 203
Inventory costs capitalized for tax purposes.......................................... 311 276
Other................................................................................. 22 198
------------ ------------
Total deferred income tax assets...................................................... 5,106 4,080
Deferred income tax liabilities:
Information system costs currently deductible......................................... 1,338 1,207
Other................................................................................. 87 17
------------ ------------
Total deferred income tax liabilities................................................. 1,425 1,224
Valuation allowance................................................................... (3,681) (2,856)
------------ ------------
Net deferred income tax assets........................................................ $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The valuation allowance has been recorded, since recognition of the net
deferred income tax assets is dependent upon the Company's ability to generate
future taxable income. Deferred income tax assets include the income tax benefit
of net operating loss carryforwards that are available to reduce future taxable
income of approximately $5,836,000. These carryforwards will begin expiring in
2011. Also, general business credit carryforwards of approximately $230,000 are
available to reduce future income tax obligations and begin expiring in 2009.
In the event that deferred income tax assets can be recognized in future
years, the reversal of the valuation allowance of $865,000 recorded at the
Company's formation date in 1994 will be recognized as a reduction of goodwill.
NOTE I--EMPLOYEE BENEFITS
The Company has a 401(k) retirement plan covering substantially all
employees who meet certain eligibility requirements. The Company contributes
$0.50 for each $1.00 contributed by employees. Employee contributions eligible
for matching contributions are limited to 6% of annual compensation. In
addition, the Plan provides for defined contributions based on age and service.
Charges of $630,000 $613,000 and $675,000 related to the Plan were recognized
for fiscal 1995, 1996 and 1997, respectively. Employee contributions and Company
matching contributions vest immediately, while any other employer contributions
under the Plan are subject to a five-year vesting period.
On January 31, 1998, the Company's shareholders approved an employee stock
purchase plan under which 60,000 shares of the Company's Class B nonvoting
common stock are reserved for purchase by
F-13
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I--EMPLOYEE BENEFITS (CONTINUED)
employees. The first $2,000 of each eligible employee's purchases is at 85% of
the fair market value of the common stock and the remainder of the allowable
$5,000 in annual purchases is at fair market value.
NOTE J--STOCK OPTION PLANS
The Company currently has two incentive plans approved by shareholders on
January 31, 1998, under which stock options may be granted to officers and key
employees of the Company, the 1997 Management Stock Option Plan and the 1997
Incentive Group Stock Option Plan.
Options to purchase common shares under the plans generally are granted only
if certain performance objectives are achieved. The options are granted at $0.01
per share and vest over the period from the date of grant through December 31,
2001, with accelerated vesting under certain conditions, including an initial
public offering. Options expire on December 31, 2004, also subject to
acceleration under certain conditions.
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations for its stock option grants. Generally,
compensation expense is recognized for stock option grants under the plans over
the vesting period based on the fair market value of the underlying stock on the
date it becomes apparent that the performance objective has been achieved.
Options to purchase 73,171 shares of Class A common stock were granted
subsequent to January 25, 1998, under the two incentive plans. Compensation
expense of approximately $200,000 per year will be recognized ratably over the
vesting period, which is generally fiscal 1998 through fiscal 2001. Under the
two plans, which provide for annual performance periods through fiscal 1998,
options to purchase a total of an additional 32,927 shares may be granted.
In addition to the two incentive plans, the Company has granted stock
options to certain key executives. The vesting terms and contractual lives of
these grants are similar to that of the incentive plans. In June 1997, options
to purchase 30,000 shares of Class A common stock had been granted, vesting
ratably over the period through fiscal 2002, at a price of $0.01 per share. The
value of these options at the date of grant is $15 per share. Compensation
expense is being recognized over the vesting period and was not significant in
fiscal 1997.
In addition, options to purchase 5,000 shares at a price of $25 per share
were granted in fiscal 1997 with an initial term of five years. Since the
options were granted at a fixed price not less than the fair market value of the
Company's common stock on the date of grant, no compensation expense has been
recognized.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires disclosure
of the pro forma impact of recording compensation expense for such options using
an appropriate option valuation model. The fair value of stock options
calculated using the Black Scholes option pricing model would not differ
materially from the amounts recorded as compensation expense in the financial
statements under APB No. 25.
F-14
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE K--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (dollars in thousands, except share and per share data):
<TABLE>
<CAPTION>
FISCAL
------------------------------------------
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
Numerator:
Net earnings (loss)................................................... $ (5,134) $ (1,844) $ 2,693
------------- ------------- ------------
------------- ------------- ------------
Denominator:
Basic--weighted average shares........................................ 1,541,250 1,558,603 1,653,312
Effect of dilutive securities:
Warrants.............................................................. 544,201
Employee stock options................................................ 17,885
------------- ------------- ------------
Diluted............................................................... 1,541,250 1,558,603 2,215,398
------------- ------------- ------------
------------- ------------- ------------
Basic earnings (loss) per share....................................... $ (3.33) $ (1.18) $ 1.63
------------- ------------- ------------
------------- ------------- ------------
Diluted earnings (loss) per share..................................... $ (3.33) $ (1.18) $ 1.22
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
NOTE L--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of quarterly financial information for each of the last two fiscal
years is as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Net sales........................... $ 27,430 $ 29,560 $ 29,440 $ 52,850 $ 139,280
Gross profit........................ 7,427 8,106 7,836 15,689 39,058
Operating income (loss)............. (1,365) (1,071) (2,048) 5,375 891
Net earnings (loss)................. (2,051) (1,772) (2,760) 4,739 (1,844)
Basic net earnings (loss) per
share............................. (1.32) (1.14) (1.77) 3.03 (1.18)
Diluted net earnings (loss) per
share (1.32) (1.14) (1.77) 2.30 (1.18)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Net sales.................... $ 32,438 $ 35,270 $ 35,413 $ 64,942 $ 168,063
Gross profit................. 8,498 9,672 9,651 21,769 49,590
Operating income (loss)...... (1,429) (598) (966) 8,480 5,487
Net earnings (loss).......... (2,154) (1,312) (1,742) 7,901 2,693
Basic net earnings (loss) per
share...................... (1.38) (0.84) (0.99) 4.51 1.63
Diluted net earnings (loss)
per share.................. (1.38) (0.84) (0.99) 3.38 1.22
</TABLE>
Quarterly basic per share amounts do not add up to the full year per share
amount due to the timing of the issuance of new shares. Diluted net earnings
(loss) per share for periods with a net loss do not include the impact of
warrants and employee stock options since such inclusion would be antidilutive.
F-15
<PAGE>
FAMILY CHRISTIAN STORES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 25, APRIL 26,
1998 1998
----------- -----------
(AUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................................................. $ 5,370 $ 2,222
Merchandise Inventories............................................................... 32,109 38,654
Other................................................................................. 3,365 3,859
----------- -----------
Total Current Assets................................................................ 40,844 44,735
----------- -----------
Fixed assets, net....................................................................... 12,213 13,017
Intangible assets, net.................................................................. 7,782 8,319
Deposits and miscellaneous.............................................................. 447 480
----------- -----------
Total Assets............................................................................ $ 61,286 $ 66,551
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable...................................................................... $ 31,238 $ 30,579
Accrued liabilities................................................................... 6,867 5,987
Current portion of long-term debt..................................................... 2,000 2,000
----------- -----------
Total current liabilities........................................................... 40,105 38,566
----------- -----------
Long-term debt, less current maturities................................................. 14,973 23,387
Deferred rent and other liabilities..................................................... 2,137 2,161
Redeemable common stock warrants........................................................ 9,199 12,878
Shareholders' Equity (Deficit):
Common stock.......................................................................... 1,752 1,752
Additional paid-in capital............................................................ 7,083 7,083
Retained earnings (deficit)........................................................... (13,569) (18,923)
Notes receivable from shareholders.................................................... (394) (353)
----------- -----------
Total Shareholders' Equity (Deficit)................................................ (5,128) (10,441)
----------- -----------
Total Liabilities and Shareholders' Equity (Deficit).................................... $ 61,286 $ 66,551
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-16
<PAGE>
FAMILY CHRISTIAN STORES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 27, APRIL 26,
1997 1998
--------- ---------
<S> <C> <C>
Net sales................................................................................... $ 32,438 $ 38,257
Cost of products sold, including store occupancy costs...................................... 23,940 27,516
--------- ---------
Gross profit................................................................................ 8,498 10,741
--------- ---------
Operating Expenses:
Selling, general and administrative expenses.............................................. 9,050 10,643
Depreciation and amortization............................................................. 725 770
Store opening expenses.................................................................... 152 356
--------- ---------
9,927 11,769
--------- ---------
Operating loss.............................................................................. (1,429) (1,028)
Interest expense, net....................................................................... 725 647
--------- ---------
Net loss.................................................................................... $ (2,154) $ (1,675)
--------- ---------
--------- ---------
Net loss per share--basic................................................................... $ (1.38) $ (0.96)
--------- ---------
--------- ---------
Net loss per share--diluted................................................................. (1.38) (0.96)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-17
<PAGE>
FAMILY CHRISTIAN STORES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 27, APRIL 26,
1997 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................................................... $ (2,154) $ (1,675)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation............................................................................. 630 679
Amortization of software and other costs................................................. 18 18
Amortization of intangible assets........................................................ 95 91
Amortization of debt discount............................................................ 14 14
Changes in operating assets and liabilities:
Merchandise inventories.................................................................. (4,562) (5,121)
Other current assets..................................................................... (143) (582)
Accounts payable......................................................................... 3,854 (659)
Other operating liabilities, excluding debt.............................................. 527 (880)
--------- ---------
Net cash used by operating activities.................................................. (1,721) (8,115)
--------- ---------
Cash Flows from Investing Activities:
Store acquisitions......................................................................... (1,848) (2,691)
Additions to fixed assets.................................................................. (410) (783)
--------- ---------
Net cash used by investing activities.................................................. (2,258) (3,474)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from revolving credit facility, net............................................... 5,000 8,900
Payments on term note...................................................................... (500) (500)
Net payments on shareholder notes receivable............................................... 8 41
--------- ---------
Net cash provided by financing activities.............................................. 4,508 8,441
--------- ---------
Net increase (decrease) in cash and equivalents.............................................. 529 (3,148)
Cash and Equivalents at Beginning of Period.................................................. 1,398 5,370
--------- ---------
Cash and Equivalents at End of Period........................................................ $ 1,927 $ 2,222
--------- ---------
--------- ---------
Other cash flow information:
Interest payments........................................................................ $ 600 $ 503
Income taxes refunded.................................................................... (12) --
</TABLE>
See accompanying notes.
F-18
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 26, 1998
NOTE 1--GENERAL
The accompanying financial statements reflect the accounts of Family
Christian Stores, Inc. (the Company). The Company is the largest retailer in the
United States dedicated solely to Christian-related products. Product offerings
include Christian books and Bibles, gifts and cards, music, children's
merchandise and church supplies.
The unaudited statements as of April 26, 1998, and April 27, 1997, include,
in the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position of the Company as of April 26, 1998, and the results of operations and
cash flows for the three months ended April 26, 1998 and April 27, 1997. These
financial statements are condensed and therefore do not include all of the
information and footnotes required by generally accepted accounting principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could differ
from those estimates.
Due to the seasonal nature of the Company's business, the results of
operations for the three months ended April 26, 1998, are not necessarily
indicative of the results of operations to be achieved for the fiscal year
ending January 31, 1999.
NOTE 2--EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average
number of common shares and common share equivalents outstanding during the
periods presented (1,752,000 at April 26, 1998, and 1,566,000 at April 27, 1997,
basic and diluted). The effects of stock options and redeemable common stock
warrants are not included in the computation of diluted earnings per share
because they are anti-dilutive for all periods presented.
NOTE 3--INCOME TAXES
No income tax provision was recorded for the three months ended April 26,
1998, and April 27, 1997 due to operating losses incurred and the Company's
nonrecognition of deferred income tax assets for a portion of net operating loss
carryforwards.
NOTE 4--COMPREHENSIVE INCOME (LOSS)
At the beginning of fiscal 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting and
display of "comprehensive income," which is the total of net income (loss) and
all other non-owner changes in shareholders' equity (deficit) and its
components. The Company has no components of comprehensive income (loss) other
than its net loss, and consequently its comprehensive loss is equal to its net
loss for all periods presented.
NOTE 5--RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131, which supersedes SFAS Nos. 14,
F-19
<PAGE>
FAMILY CHRISTIAN STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 26, 1998
NOTE 5--RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
18, 24 and 30, establishes new standards for segment reporting in which
reportable segments are based on the same criteria on which management
disaggregates a business for making operating decisions and assessing
performance. The Company will adopt the standard by the end of fiscal 1998 and
does not expect the new standard to have a significant effect on previously
reported information.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVES
INSTRUMENTS AND HEDGING ACTIVITIES, which provides a consistent standard for
recognition and measurement of derivatives and hedging activities. The Company
is in the process of evaluating SFAS No. 133 and its impact and plans to adopt
the standard in fiscal 2000.
NOTE 6--ACQUISITION AND REFINANCING
On June 1, 1998, the Company acquired Joshua's Christian Stores (Joshua's)
for $11.5 million. Joshua's is a leading Christian retail chain headquartered in
Fort Worth, Texas, with sales of $32.0 million for its fiscal year ended March
31, 1998. The transaction will be accounted for as a purchase during the second
quarter of the Company's fiscal year.
On July 17, 1998, the Company amended and restated its outstanding long-term
credit facility. The restated loan agreement provides for a revolving credit
facility of $22 million and term notes payable of $9.5 million and $5 million,
and is collateralized by substantially all of the Company's assets.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Tandycrafts, Inc.
In our opinion, the accompanying balance sheet and related statement of
income, changes in investment by parent and cash flows present fairly, in all
material respects, the financial position of Joshua's Christian Stores (a
division of Development Association, Inc.) at March 31, 1998, and the results of
its operations and its cash flows for the year in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Joshua's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Fort Worth, Texas
May 27, 1998
F-21
<PAGE>
JOSHUA'S CHRISTIAN STORES
STATEMENT OF INCOME
TWELVE MONTHS ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Net sales...................................................................... $32,006,948
Cost of goods sold............................................................. 19,184,638
----------
Gross profit................................................................... 12,822,310
Expenses:
Selling, general and administrative.......................................... 11,875,229
Depreciation and amortization................................................ 611,661
----------
Total expenses............................................................. 12,486,890
----------
Income before provision for income taxes....................................... 335,420
Provision for income taxes..................................................... 11,020
----------
Net income............................................................... $ 324,400
----------
----------
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-22
<PAGE>
JOSHUA'S CHRISTIAN STORES
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 125,728
Trade accounts receivable, net............................................... 84,843
Inventories.................................................................. 7,441,783
Other current assets......................................................... 883,837
----------
Total current assets....................................................... 8,536,191
----------
Property and equipment, at cost................................................ 5,330,637
Accumulated depreciation....................................................... (3,127,084)
----------
Property and equipment, net................................................ 2,203,553
----------
Other assets................................................................... 15,285
Goodwill....................................................................... 1,354,774
----------
$12,109,803
----------
----------
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable............................................................. 2,366,817
Payable to affiliates........................................................ 60,962
Accrued payroll and bonuses.................................................. 610,062
Accrued liabilities and other................................................ 823,304
----------
Total current liabilities.................................................. 3,861,145
----------
Investment by Parent........................................................... 8,248,658
----------
$12,109,803
----------
----------
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-23
<PAGE>
JOSHUA'S CHRISTIAN STORES
STATEMENT OF CASH FLOWS
TWELVE MONTHS ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................... $ 324,400
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 611,661
Changes in operating assets and liabilities:
Receivables............................................................... (5,191)
Inventories............................................................... 3,104,340
Other current assets...................................................... 167,569
Accounts payable and accrued expenses..................................... (788,947)
---------
Net cash flows from operating activities........................................ $3,413,832
---------
Cash flows from investing activities:
Additions to property and equipment........................................... (439,595)
---------
Net cash used for investing activities.......................................... (439,595)
---------
Cash flows from financing activities:
Repayments to Parent.......................................................... (3,447,033)
---------
Net cash used by financing activities........................................... (3,447,033)
---------
Decrease in cash................................................................ (472,796)
Balance, beginning of period.................................................... 598,524
---------
Balance, end of period.......................................................... $ 125,728
---------
---------
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-24
<PAGE>
JOSHUA'S CHRISTIAN STORES
STATEMENT OF CHANGES IN INVESTMENT BY PARENT
MARCH 31, 1998
<TABLE>
<S> <C>
Balance at March 31, 1997...................................................... $11,371,291
Repayments to Parent......................................................... (3,447,033)
Net income................................................................... 324,400
----------
Balance at March 31, 1998...................................................... $8,248,658
----------
----------
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-25
<PAGE>
JOSHUA'S CHRISTIAN STORES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Joshua's Christian Stores ("Joshua's" or "Company") is a retail chain of 58
stores specializing in inspirational books, music and gifts. Joshua's is a
division of The Development Association, Inc., which is a wholly-owned
subsidiary of Tandycrafts, Inc. ("Parent"). Under this corporate structure, the
Parent incurs various costs in connection with the operations of Joshua's. The
accompanying financial statements include an allocation of such costs on a
reasonable basis in order to present the stand-alone historical operations of
the Company. See Note 3 for further discussion of these allocated expenses.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
INVENTORIES
Inventories consist entirely of finished goods and are stated at the lower
of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment is depreciated using the straight-line method over
its estimated useful life, ranging from 3 to 10 years. Expenditures for
maintenance, repairs, renewals and betterments which do not materially prolong
the useful lives of the assets are charged to income as incurred.
GOODWILL
The cost of stores and/or businesses acquired in excess of the fair value of
the net identifiable assets acquired has been allocated to goodwill. Goodwill is
amortized using the straight-line basis over the estimated useful life of forty
years. Accumulated goodwill amortization at March 31, 1998 was $211,747.
Goodwill amortization expense for the twelve months ended March 31, 1998
approximated $37,000.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events indicate the
carrying value of an asset or group of assets may not be recoverable. The
impairment review includes a comparison of future cash flows expected to be
generated by the asset or group of assets with their associated net book values.
If the net book value exceeds expected undiscounted cash flows, an impairment
loss is recognized to the extent net book value exceeds fair value.
PRE-OPENING EXPENSES
Expenses associated with the opening of new stores are expensed as incurred.
ADVERTISING EXPENSES
Advertising costs are expensed the first time the advertising takes place.
Advertising expense for the twelve months ended March 31, 1998 was $798,450.
Prepaid advertising costs at March 31, 1998 were approximately $107,000.
F-26
<PAGE>
JOSHUA'S CHRISTIAN STORES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments are recorded at cost, which approximates fair
value due to the short maturities of these instruments. During the twelve months
ended March 31, 1998, no financial instruments were held or issued for trading
purposes.
INCOME TAXES
Income taxes are calculated in accordance with the liability method which
requires that deferred tax assets and liabilities be recognized based on
differences between financial statement and tax bases of assets and liabilities
using presently enacted rates. Joshua's is included in the consolidated federal
tax return filed by the Parent. The income tax provision included in the
accompanying financial statements is based on items attributable to Joshua's
which are anticipated to be utilized in the consolidated tax return. Valuation
allowances are provided when in the opinion of management, it is more likely
than not that deferred tax assets will not be realized at the consolidated
level. The payable or receivable arising from the intercompany income tax
allocation is recorded as an increase or decrease in Investment by Parent.
NOTE 2--SUBSEQUENT EVENT
On April 20, 1998, Tandycrafts announced that it had signed a Definitive
Agreement to sell Joshua's to Family Christian Stores for $11,500,000, subject
to contractual adjustments. The sale is expected to close on or about June 1,
1998.
NOTE 3--RELATED PARTY TRANSACTIONS
The Company has received services provided by the Parent which include
employee benefits administration, treasury, risk management, payroll and human
resource administration, tax compliance, management information services and
other miscellaneous services. The costs associated with these services have been
allocated to the Company based on expenses incurred by the Parent directly
related to the Company or the Company's proportionate share of the Parent's
costs related to these services. The total amount allocated from the Parent for
the twelve months ended March 31, 1998 approximated $1,017,500.
The Company also leases office and distribution space from the Parent at its
headquarters in Fort Worth, Texas. The lease is a month-to-month lease and
during the twelve months ended March 31, 1998, the Company paid rent of $157,000
to the Parent under this lease arrangement.
All cash advances from the Parent to the Company outstanding at March 31,
1998 are considered to be permanent advances and, as such, are classified as
Investment by Parent in the accompanying balance sheet. Interest expense has not
been allocated to the Company.
NOTE 4--REPOSITIONING CHARGE
During the quarter ended March 31, 1997, the Company recorded a
repositioning charge of $5,300,000 in cost of sales and selling, general and
administrative expenses to write-down and liquidate discontinued inventory and
to close certain underperforming stores. During the twelve months ended March
31, 1998, a significant portion of the discontinued inventory was liquidated and
thirteen underperforming stores were closed. Sales and operating losses for the
twelve months ended March 31, 1998 for the thirteen stores closed or targeted
for closure were $1,609,800 and $222,600, respectively. Due
F-27
<PAGE>
JOSHUA'S CHRISTIAN STORES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--REPOSITIONING CHARGE (CONTINUED)
to favorable settlements on leases of closed stores, during the twelve months
ended March 31, 1998, the Company reversed $250,000 of the reserve initially
established for lease terminations and has included such amount as a credit to
selling, general and administrative expenses.
NOTE 5--PROPERTY AND EQUIPMENT
AS OF MARCH 31, 1998:
<TABLE>
<S> <C>
Property and equipment, at cost:
Fixtures and equipment........................................ $4,531,467
Leasehold improvements........................................ 799,170
----------
5,330,637
Less accumulated depreciation................................... (3,127,084)
----------
Property and equipment, net..................................... $2,203,553
----------
----------
</TABLE>
NOTE 6--ACCRUED LIABILITIES
ACCRUED LIABILITIES CONSISTED OF THE FOLLOWING AT MARCH 31, 1998:
<TABLE>
<S> <C>
Store closing accrual............................................. 212,707
Accrued rent...................................................... 211,311
Other............................................................. 399,286
---------
$ 823,304
---------
---------
</TABLE>
NOTE 7--INCOME TAXES
The provision for income taxes for the twelve months ended March 31, 1998 is
as follows:
<TABLE>
<S> <C>
Current tax expense (benefit).................................... $(917,994)
Deferred tax expense............................................. 929,014
---------
Total provision.................................................. $ 11,020
---------
---------
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as a result of the following differences:
<TABLE>
<S> <C>
Statutory U.S. tax provision..................................... $ 114,043
Increase (decrease) in rates resulting from:
Charitable contribution of inventory........................... (116,325)
Other.......................................................... 13,302
---------
Tax provision.................................................... $ 11,020
---------
---------
</TABLE>
Deferred tax assets and liabilities classified as Investment by Parent on
the accompanying balance sheet totaled $889,896 (net of a valuation allowance of
$282,950) and $200,447, respectively, at March 31,
F-28
<PAGE>
JOSHUA'S CHRISTIAN STORES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--INCOME TAXES (CONTINUED)
1998. Deferred tax assets result from differences in the timing of the
recognition of inventory reserves, store closing accruals and goodwill
amortization for financial and tax purposes, as well as charitable contribution
carryforwards. Deferred tax liabilities result from differences in depreciation
of fixed assets for financial and tax purposes.
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company leases certain properties, primarily retail stores, under
operating leases which expire through November 2005. Real estate taxes,
maintenance and certain other costs are generally borne by the Company. The
composition of total rent expense for operating leases for the twelve months
ended March 31, 1998 is as follows:
<TABLE>
<S> <C>
Rentals:
Minimum....................................................... $2,469,135
Contingent (percentage of sales).............................. 37,262
---------
$2,506,397
---------
---------
</TABLE>
Minimum rental commitments for noncancellable operating leases (retail store
leases only) at March 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 1,965,500
2000............................................................................ 1,694,100
2001............................................................................ 1,405,300
2002............................................................................ 1,126,600
2003............................................................................ 811,900
2004 and thereafter............................................................. 1,725,800
------------
$ 8,729,200
------------
------------
</TABLE>
NOTE 9--TANDYCRAFTS RETIREMENT SAVINGS PLAN
All eligible employees of Joshua's may participate in the Tandycrafts
Retirement Savings Plan. Participants may contribute between 3% and 15% of gross
salary and wages into the 401(k) portion of the plan which becomes immediately
vested. Participants also have the ability to direct their contributions into
various investment options. The Company's matching contribution is 100% of the
first 5% of the participant's contribution and is invested in the Parent's
common stock. The Company's contribution becomes vested upon the completion of
five years of credited service. The employee and Company contributions are
maintained by a corporate trustee. Company contributions to the plan for the
twelve months ended March 31, 1998 totaled $108,288.
F-29
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING
SHAREHOLDER OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-------------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 7
USE OF PROCEEDS........................................................... 13
DIVIDEND POLICY........................................................... 13
CAPITALIZATION............................................................ 14
DILUTION.................................................................. 15
SELECTED FINANCIAL AND OPERATING DATA OF FAMILY CHRISTIAN STORES, INC..... 16
SELECTED FINANCIAL AND OPERATING DATA OF JOSHUA'S CHRISTIAN STORES........ 17
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS......................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 22
BUSINESS.................................................................. 29
MANAGEMENT................................................................ 38
CERTAIN TRANSACTIONS...................................................... 47
PRINCIPAL AND SELLING SHAREHOLDERS........................................ 49
DESCRIPTION OF CAPITAL STOCK.............................................. 51
SHARES ELIGIBLE FOR FUTURE SALE........................................... 56
UNDERWRITING.............................................................. 57
LEGAL MATTERS............................................................. 59
EXPERTS................................................................... 59
ADDITIONAL INFORMATION.................................................... 59
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
----------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
CLASS A COMMON STOCK
----------------------
PROSPECTUS
--------------------
NationsBanc Montgomery
Securities LLC
BancAmerica Robertson Stephens
BT Alex. Brown
, 1998
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All amounts are estimates, except the SEC
registration fee, the NASD filing fee and the Nasdaq application fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 13,275
NASD filing fee.................................................... 5,000
Nasdaq application fee............................................. *
Blue sky qualification fee and expenses............................ *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer agent, custodian and registrar fees....................... *
Miscellaneous...................................................... *
---------
Total.............................................................. $ *
---------
---------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 561 of the Michigan Business Corporation Act ("MBCA") empowers a
corporation, subject to certain limitations, to indemnify its directors and
officers against expenses (including attorneys' fees, judgments, fines and
certain settlements) actually and reasonably incurred by them in connection with
any suit or proceeding to which they are a party so long as they acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to a criminal action or
proceeding, so long as they had no reasonable cause to believe their conduct to
have been unlawful. The Registrant's Restated Articles of Incorporation and
Bylaws provide that the Registrant shall indemnify its directors and such
officers, employees and agents as the Board of Directors may determine from time
to time, to the fullest extent permitted by the MBCA. The Registrant will enter
into indemnification agreements with its directors and certain of its officers,
employees and agents, which will provide that the Registrant shall indemnify
such parties pursuant to Section 561 of the MBCA.
The MBCA permits a Michigan corporation to include in its certificate of
incorporation a provision eliminating or limiting a director's liability to a
corporation or its shareholders for monetary damages for breaches of fiduciary
duty. The enabling statute provides, however, that a corporation may indemnify
such persons for liability for the amount of a financial benefit received by a
director to which he or she is not entitled, intentional infliction of harm to
the Company or its shareholders, a violation of Section 551 of the MBCA, or an
intentional criminal act cannot be eliminated or limited in this manner. The
Registrant's Restated Articles of Incorporation and Bylaws include a provision
which eliminates, to the fullest extent permitted, director liability for
monetary damages for breaches of fiduciary duty.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 21, 1998, the Registrant issued shares of Common Stock to its
employees pursuant to the terms of its Employee Stock Purchase Plan. The shares
of Common Stock were issued in reliance upon the exemption from registration
available under Rule 701 of the Securities Act of 1933 and Section 4(2) of the
Securities Act and Regulation D promulgated thereunder.
II-1
<PAGE>
On March 20, 1998, the Registrant granted stock options to purchase an
aggregate of shares of Common Stock to certain employees, at an exercise
price of $ per share, pursuant to its Incentive Stock Option Plan. The
options were not registered under the Securities Act, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On March 20, 1998, the Registrant granted stock options to purchase an
aggregate of shares of Common Stock to certain employees, at an exercise
price of $ per share, pursuant to its Management Stock Option Plan. The
options were not registered under the Securities Act, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On February 2, 1998, the Registrant granted stock options to purchase an
aggregate of shares of Common Stock to certain employees, at an exercise
price of $ per share, pursuant to its Incentive Stock Option Plan. The
options were not registered under the Securities Act, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On February 2, 1998, the Registrant granted stock options to purchase an
aggregate of shares of Common Stock to certain employees, at an exercise
price of $ per share, pursuant to its Management Stock Option Plan. The
options were not registered under the Securities Act, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On August 31, 1997, the Registrant completed a private placement of
shares of Common Stock at a price of $ per share. The shares of Common
Stock issued in connection with the August 31, 1997 offering were offered and
sold by the Registrant without registration, in reliance upon the exemption from
registration available under Section 4(2) of the Securities Act and Rules
501-503 and 506-508 of Regulation D promulgated thereunder.
On August 31, 1997, the Registrant issued shares of Common Stock to Neil
Topham, a director, as payment for consulting services rendered. The shares of
Common Stock were not registered under the Securities Act, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On July 31, 1997, the Registrant sold shares of Common Stock to Leslie
E. Dietzman, an officer, at a purchase price of $ per share. The shares of
Common Stock were not registered under the Securities Act, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On July 31, 1997, the Registrant sold shares of Common Stock to Richard
M. Butler, an officer, at a purchase price of $ per share. The shares of
Common Stock were not registered under the Securities Act, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On June 23, 1997, the Registrant granted an option to purchase
shares of Common Stock, at an exercise price of $ per share, to Craig G.
Wassenaar as consideration for entering into an employment agreement. Such
option becomes exercisable at a rate of 20% per year on the first five
anniversaries of the date of grant. On June 23, 1998, Mr. Wassenaar exercised
such option to purchase shares of Common Stock, at an aggregate
purchase price of $ . Such option and shares of Common Stock were not
registered under the Securities Act, in reliance upon the exemption from
registration available under Section 4(2) of the Securities Act and Regulation D
promulgated thereunder.
On September 27, 1996, the Registrant sold shares of Common Stock at a
purchase price of $ per share to certain employees who were appointed to the
Company's senior management team. The
II-2
<PAGE>
shares of Common Stock issued in connection with the payment for services were
offered and sold by the Registrant without registration, in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement among the Registrant, the Selling Shareholders and the Underwriters*
3.1 Articles of Incorporation
3.2 Bylaws
3.3 Form of Restated Articles of Incorporation
3.4 Form of Bylaws
4.1 Specimen Class A Common Stock Certificate*
5.1 Opinion of Counsel*
10.1 Incentive Group Stock Option Plan*
10.2 Management Stock Option Plan*
10.3 1997 Employee Stock Purchase Plan*
10.4 Stock Option and Restricted Stock Plan of 1998*
10.5 Amended and Restated Loan Agreement among the Registrant, certain financial institutions and Bank of
Scotland, dated as of October 31, 1994 and amended and restated on July 17, 1998
10.6 Amended and Restated Promissory Note (Tranche A Term Note) issued by the Registrant to the Bank of
Scotland, as Agent, dated as of November 17, 1994 and amended and restated on July 17, 1998
10.7 Promissory Note (Tranche B Term Note) issued by the Registrant to the Bank of Scotland, as Agent, dated
July 17, 1998
10.8 Amended and Restated Promissory Note (Revolving Credit Note) issued by the Registrant to the Bank of
Scotland, as Agent, dated as of November 17, 1994 and amended and restated on July 17, 1998
10.9 General Security Agreement between the Registrant and the Bank of Scotland, as Agent, dated as of
October 31, 1994
10.10 Amendment to Security Agreement and Acknowledgment of Security Interests, dated as of July 17, 1998
10.11 Securities Purchase Agreement among the shareholders of the Registrant, including Electra Investment
Trust, P.L.C. and Electra Associates, Inc., and the Registrant, dated November 14, 1994*
10.12 Shareholders' Agreement among the shareholders of the Registrant, including Electra Investment Trust,
P.L.C. and Electra Associates, Inc., and the Registrant, dated November 14, 1994 (the Shareholders'
Agreement)
10.13 Amendment No. 1 to the Shareholders' Agreement, dated May 1, 1995
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.14 Buy and Sell Agreement among the Shareholders of the Registrant, including Electra Investment Trust,
P.L.C. and Electra Associates, Inc., and the Registrant, dated November 14,1994
10.15 Asset Purchase Agreement among the Registrant, Tandycrafts, Inc. and The Development Association, Inc.,
dated April 19, 1998
10.16 Series A Warrant issued by the Registrant to Electra Investment Trust P.L.C., dated as of November 17,
1994
10.17 Series A Warrant issued by the Registrant to Electra Associates, Inc., dated as of November 17, 1994
10.18 Series B Warrant issued by the Registrant to Electra Investment Trust P.L.C., dated as of December 31,
1996
10.19 Series B Warrant issued by the Registrant to Electra Associates, Inc., dated as of December 31, 1996
10.20 Base Software License Agreement between Andersen Consulting and The Zondervan Corporation, dated May 9,
1994
10.21 Strategic Technology License and Services Agreement between Andersen Consulting and The Zondervan
Corporation, dated May 9, 1994
10.22 Modification Agreement between Andersen Consulting, Zondervan Corporation, HarperCollins Publishers
Inc., General Electric Capital Computer Leasing Corporation and the Registrant, dated November 1, 1994
10.23 Advisory Agreement between the Registrant and Electra Inc., dated as of November 14, 1994
10.24 Form of Lease
10.25 Form Director and Officer Indemnity Agreement*
10.26 Promissory Note, dated November 14, 1994, between the Registrant and Leslie E. Dietzman
10.27 Promissory Note, dated November 14, 1994, between the Registrant and Richard M. Butler
10.28 Promissory Note, dated November 14, 1994, between the Registrant and J. Hal Bailey
10.29 Promissory Note, dated November 14, 1994, between the Registrant and Craig B. Klamer
10.30 Form of Employment Agreement for Executive Officers*
10.31 Consulting Agreement, dated November 2, 1994, between the Registrant and George Craig*
10.32 Consulting Agreement, dated November 2, 1994, between the Registrant and Neil Topham*
23.1 Consent of Ernst & Young LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.1)*
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II: Valuation and Qualifying Accounts and Reserves.
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.
II-4
<PAGE>
UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant further undertakes that:
(1) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus as filed as
part of the registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of the registration statement as of the time it was declared
effective;
(2) for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof; and
(3) insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Grand Rapids, County of
Kent, State of Michigan, on the 6th day of August, 1998.
<TABLE>
<S> <C> <C>
FAMILY CHRISTIAN STORES, INC.
By: /s/ LESLIE E. DIETZMAN
-----------------------------------------
Leslie E. Dietzman
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Craig G. Wassenaar with full power to act alone,
his true and lawful attorney-in-fact, with the power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Chief
/s/ LESLIE E. DIETZMAN Executive Officer and
- ------------------------------ Director (Principal August 6, 1998
Leslie E. Dietzman Executive Officer)
Senior Vice President,
/s/ CRAIG G. WASSENAAR Chief Financial Officer,
- ------------------------------ Secretary and Treasurer August 6, 1998
Craig G. Wassenaar (Principal Financial and
Accounting Officer)
/s/ GEORGE CRAIG
- ------------------------------ Chairman of the Board August 6, 1998
George Craig
/s/ PETER A. CARNWATH
- ------------------------------ Director August 6, 1998
Peter A. Carnwath
/s/ SCOTT D. STEELE
- ------------------------------ Director August 6, 1998
Scott D. Steele
/s/ NEIL TOPHAM
- ------------------------------ Director August 6, 1998
Neil Topham
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Family Bookstores Company, Inc.
We have audited the financial statements of Family Christian Stores, Inc. as of
January 25, 1998 and January 26, 1997, and for each of the three fiscal years in
the period ended January 25, 1998 and have issued our report thereon dated
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
March 2, 1998
S-1
<PAGE>
FAMILY CHRISTIAN STORES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS FOR
BEGINNING COSTS AND ACCOUNTS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES WRITTEN OFF END OF PERIOD
- --------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
Fiscal year ended January 25, 1998
Allowance for doubtful accounts........................ $ 66 $ 36 $ 13 $ 89
Allowance for sales returns............................ 30 10 -- 40
Allowance for inventory obsolescence and shrinkage..... 1,294 2,173 1,713 1,754
Fiscal year ended January 26, 1997
Allowance for doubtful accounts........................ 73 10 17 66
Allowance for sales returns............................ 30 -- -- 30
Allowance for inventory obsolescence and shrinkage..... 1,226 2,831 2,763 1,294
Fiscal year ended January 28, 1996
Allowance for doubtful accounts........................ 67 15 9 73
Allowance for sales returns............................ 30 -- -- 30
Allowance for inventory obsolescence and shrinkage..... 902 2,566 2,242 1,226
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement among the Registrant, the Selling Shareholders and the
Underwriters*
3.1 Articles of Incorporation
3.2 Bylaws
3.3 Form of Restated Articles of Incorporation
3.4 Form of Bylaws
4.1 Specimen Class A Common Stock Certificate*
5.1 Opinion of Counsel*
10.1 Incentive Group Stock Option Plan*
10.2 Management Stock Option Plan*
10.3 1997 Employee Stock Purchase Plan*
10.4 Stock Option and Restricted Stock Plan of 1998*
10.5 Amended and Restated Loan Agreement among the Registrant, certain financial institutions and
Bank of Scotland, dated as of October 31, 1994 and amended and restated on July 17, 1998
10.6 Amended and Restated Promissory Note (Tranche A Term Note) issued by the Registrant to the Bank
of Scotland, as Agent, dated as of November 17, 1994 and amended and restated on July 17, 1998
10.7 Promissory Note (Tranche B Term Note) issued by the Registrant to the Bank of Scotland, as
Agent, dated July 17, 1998
10.8 Amended and Restated Promissory Note (Revolving Credit Note) issued by the Registrant to the
Bank of Scotland, as Agent, dated as of November 17, 1994 and amended and restated on July 17,
1998
10.9 General Security Agreement between the Registrant and the Bank of Scotland, as Agent, dated as
of October 31, 1994
10.10 Amendment to Security Agreement and Acknowledgment of Security Interests, dated as of July 17,
1998
10.11 Securities Purchase Agreement among the shareholders of the Registrant, including Electra
Investment Trust, P.L.C. and Electra Associates, Inc., and the Registrant, dated November 14,
1994*
10.12 Shareholders' Agreement among the shareholders of the Registrant, including Electra Investment
Trust, P.L.C. and Electra Associates, Inc., and the Registrant, dated November 14, 1994 (the
Shareholders' Agreement)
10.13 Amendment No. 1 to the Shareholders' Agreement, dated May 1, 1995
10.14 Buy and Sell Agreement among the Shareholders of the Registrant, including Electra Investment
Trust, P.L.C. and Electra Associates, Inc., and the Registrant, dated November 14,1994
10.15 Asset Purchase Agreement among the Registrant, Tandycrafts, Inc. and The Development
Association, Inc., dated April 19, 1998
10.16 Series A Warrant issued by the Registrant to Electra Investment Trust P.L.C., dated as of
November 17, 1994
10.17 Series A Warrant issued by the Registrant to Electra Associates, Inc., dated as of November 17,
1994
10.18 Series B Warrant issued by the Registrant to Electra Investment Trust P.L.C., dated as of
December 31, 1996
10.19 Series B Warrant issued by the Registrant to Electra Associates, Inc., dated as of December 31,
1996
10.20 Base Software License Agreement between Andersen Consulting and The Zondervan Corporation, dated
May 9, 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
10.21 Strategic Technology License and Services Agreement between Andersen Consulting and The
Zondervan Corporation, dated May 9, 1994
10.22 Modification Agreement between Andersen Consulting, Zondervan Corporation, HarperCollins
Publishers Inc., General Electric Capital Computer Leasing Corporation and the Registrant,
dated November 1, 1994
10.23 Advisory Agreement between the Registrant and Electra Inc., dated as of November 14,1994
10.24 Form of Lease*
10.25 Form Director and Officer Indemnity Agreement*
10.26 Promissory Note, dated November 14, 1994, between the Registrant and Leslie E. Dietzman
10.27 Promissory Note, dated November 14, 1994, between the Registrant and Richard M. Butler
10.28 Promissory Note, dated November 14, 1994, between the Registrant and J. Hal Bailey
10.29 Promissory Note, dated November 14, 1994, between the Registrant and Craig B. Klamer
10.30 Form of Employment Agreement for Executive Officers*
10.31 Consulting Agreement, dated November 2, 1994, between the Registrant and George Craig*
10.32 Consulting Agreement, dated November 2, 1994, between the Registrant and Neil Topham*
23.1 Consent of Ernst & Young LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.1)*
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
ARTICLES OF INCORPORATION
OF
FAMILY CHRISTIAN STORES, INC.
The undersigned executes these Articles of Incorporation to form a
Michigan profit corporation pursuant to the provisions of Act 284, Public
Acts of 1972, as amended, and as the same may be further amended and in
effect from time to time ("Michigan Business Corporation Act").
ARTICLE I
The name of the corporation is FAMILY CHRISTIAN STORES, INC.
ARTICLE II
The purpose of the corporation is to engage in any one or more
lawful acts or activities within the purposes for which a corporation may be
formed under the Michigan Business Corporation Act.
ARTICLE III
The total authorized capital stock of the corporation is Six
Million (6,000,000) shares divided into Three Million (3,000,000) shares of
Class A Common Stock, $1.00 par value per share and Three Million (3,000,000)
shares of Class B Common Stock, $1.00 par value per share.
The following is a description of each class of stock of the
corporation with preferences, limitations, and other rights, restrictions,
voting powers, and qualifications of each class:
A. Except as provided in paragraph B of this Article III with
respect to voting powers, the Class A Common Stock and Class B Common
Stock of the corporation shall be identical in all respects.
B. With respect to voting powers, except as otherwise required by the
Michigan Business Corporation Act, the holders of Class A Common Stock
shall possess all voting powers for all purposes, including by way of
illustration and not of limitation the election of directors, and the
holders of Class B Common Stock have no voting power whatsoever.
<PAGE>
ARTICLE IV
The street address (which is the mailing address) of the initial
registered office of the corporation is 900 Old Kent Building, 111 Lyon
Street, N.W., Grand Rapids, Michigan 49503-2489.
The name of the resident agent at the registered office is John G.
Cameron, Jr.
ARTICLE V
Name Address
---- -------
John G. Cameron, Jr. 900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
ARTICLE VI
[Intentionally Deleted]
ARTICLE VII
Any action required or permitted by the Michigan Business
Corporation Act, these Articles, or the bylaws of the corporation to be taken
at an annual or special meeting of shareholders may be taken without a
meeting, without prior notice, and without a vote, if consents in writing,
setting forth the action so taken, are signed by the holders of outstanding
shares having not less than the minimum number of votes that would be
necessary to authorize or take the action at a meeting at which all shares
entitled to vote on the action were present and voted. The written consents
shall bear the date of signature of each shareholder who signs the consent.
No written consents shall be effective to take the corporation action
referred to unless, within 60 days after the record date for determining
shareholders entitled to express consent to or to dissent from a proposal
without a meeting, written consents signed by a sufficient number of
shareholders to take the action are delivered to the corporation. Delivery
shall be to the corporation's registered office, its principal place of
business, or an officer or agent of the corporation having custody of the
minutes of the proceedings of its shareholders. Delivery made to a
corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Prompt notice of the taking of the
corporation action without a meeting by less than unanimous written consent
shall be given to shareholders who have not consented in writing.
<PAGE>
ARTICLE VIII
The corporation shall indemnify any director of the corporation who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding by reason of the fact that
he or she is or was a director, or is or was serving at the request of the
corporation in another capacity, to the fullest extent permitted (in the
absence of rights granted under articles of incorporation, bylaws, or a
contractual agreement) by the Michigan Business Corporation Act. The
corporation may further indemnify directors, and may indemnify persons who
are not directors, to the extent authorized by bylaw, resolution of the board
of directors, or contractual agreement authorized by the board of directors.
A change in the Michigan Business Corporation Act, these Articles, or the
bylaws that reduces the scope of indemnification shall not apply to any
action or omission that occurs before the change.
ARTICLE IX
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for a breach of
fiduciary duty as a director, except that a director's liability is not
limited for:
(1) a breach of the director's duty of loyalty to the corporation
or its shareholders;
(2) an act or omission not in good faith or that involves
intentional misconduct or knowing violation of law;
(3) a violation of Section 551(1) of the Michigan Business
Corporation Act, which section relates to the making of unlawful dividends,
distributions, or loans; or
(4) a transaction from which the director derived an improper
personal benefit.
If the Michigan Business Corporation Act is amended to further
eliminate or limit the liability of a director, then a director of a
corporation (in addition to the circumstances in which a director is not
personally liable as set forth in the preceding paragraph) shall, to the
fullest extent permitted by the Michigan Business Corporation Act, as so
amended, not be liable to the corporation or its shareholders. An amendment
to or modification or repeal of this Article shall not increase the liability
of any director of the corporation for or with respect to any act or omission
that occurred before the amendment, modification or repeal.
This Article applies only to acts or omissions and to breaches of
fiduciary duty occurring after this Article became effective.
<PAGE>
ARTICLE X
The corporation may amend or repeal any provision contained in
these Articles and add Articles in the manner prescribed by statute.
The incorporator has executed these Articles of Incorporation on
August 25, 1994.
-------------------------------------
John G. Cameron, Jr.
<PAGE>
B Y L A W S
OF
FAMILY BOOKSTORES COMPANY, INC.
ARTICLE I
SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All shareholder meetings shall be held at
the time and place determined by the Board of Directors.
SECTION 2. ANNUAL MEETING. An annual shareholder meeting for the
election of directors and for other purposes shall be held on the last Monday
(or the next business day if that Monday is a holiday) of the fourth calendar
month after the end of the corporation's fiscal year, at 2:00 p.m., or at
such other date and time set by the Board of Directors.
SECTION 3. SPECIAL MEETINGS. The Board of Directors, the Chairperson,
or the President may call a special shareholders' meeting by giving notice of
the meeting to each shareholders' meeting by giving notice of the meeting to
each shareholder of record entitled to vote at the meeting.
SECTION 4. NOTICE OF MEETING OF SHAREHOLDERS. Written notice of the
date, time, place, and purposes of a shareholder meeting shall be given not
less than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, to each shareholder of record entitled
to vote at the meeting.
SECTION 5. ADJOURNMENTS. If a meeting is adjourned to another time
or place, it is not necessary to give notice of the adjourned meeting if (i)
the date, time and place to which the adjournment is taken, and (ii) at the
adjourned meeting only such business is transacted as might have been
transacted at the original meeting. If, after the adjournment, the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with Section 4 above.
SECTION 6. WAIVERS OF NOTICE. A shareholder or a shareholder's
attorney-in-fact may waive the shareholder's right to notice before or after
a meeting by a signed waiver of notice. A shareholder's attendance at a
meeting constitutes a waiver of objection to:
(a) lack of notice, or defective notice of the meeting, unless the
shareholder at the beginning of the meeting objects to the holding of the
meeting or transacting business at the meeting; and
<PAGE>
(b) consideration of a particular matter at the meeting that is not
within the purposes described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
SECTION 7. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer or agent
having charge of the stock transfer books for shares of the corporation shall
make and certify a complete list of the shareholders entitled to vote at a
shareholder meeting or any adjournment thereof. The list shall be:
(a) arranged alphabetically within each class and series, with the
address of, and the number of shares held by, each shareholder;
(b) produced at the time and place of the meeting;
(c) subject to inspection by any shareholder at any time during the
meeting; and
(d) prima facie evidence as to who are the shareholders entitled to
examine the list or to vote at the meeting.
Failure to comply with the requirements of this Section shall not affect the
validity of any action taken at a meeting before a shareholder makes a demand to
comply with the requirements.
SECTION 8. QUORUM. Unless a greater quorum is required by the Articles
of Incorporation or statute, the presence in person or by proxy of shareholders
holding shares entitled to cast a majority of votes at a meeting shall
constitute a quorum. Once a quorum is present, the shareholders may continue to
do business until adjournment notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. Whether or not a quorum is present,
the meeting may be adjourned by a vote of the shares present. When the holders
of a class or series of shares are entitled to vote separately on an item of
business, each class or series must have a quorum, as determined by this
Section, for the purposes of transacting the item of business.
SECTION 9. VOTING RIGHTS. Except as otherwise provided by statute or
the Articles of Incorporation, each share is entitled to one vote on each matter
submitted to a vote.
SECTION 10. VOTE REQUIRED. Any action, other than the election of
directors, to be taken by shareholder vote shall be authorized by a majority of
the votes cast by the shareholders entitled to vote on the action, unless a
greater vote is required by statute, the Articles of Incorporation or these
Bylaws. Unless the Articles of Incorporation provide otherwise, directors shall
be elected by a plurality of votes cast. Shareholders may not cumulate their
votes.
SECTION 11. CLASS VOTING. If the Articles of Incorporation provide that
a class of shares, or any series of a class, shall vote as a class or series,
either generally or to authorize one or more specified actions, such voting as a
class or series shall be in addition to any other required vote.
-2-
<PAGE>
Where voting as a class or series is required on a matter other than the
election of directors, the action shall be authorized by a majority of the
votes cast by the holders of the class or series entitled to vote on the
action, unless a greater vote is required by statute or the Articles of
Incorporation.
SECTION 12. ELECTRONIC PARTICIPATION IN MEETING. Unless otherwise
restricted by the Articles of Incorporation, a shareholder may participate in
a shareholder meeting by a conference telephone or other similar
communications equipment through which all persons participating in the
meeting may communicate with the other participants, if the participants are
advised of the communications equipment and the names of the participants in
the conference are divulged to all participants. Participation in a meeting
pursuant to this Section constitutes presence in person at the meeting.
SECTION 13. CONDUCT OF MEETINGS. Shareholder meetings shall be
conducted as follows:
(a) The chairperson of the meeting shall have absolute authority over
matters of procedure.
(b) If disorder arises that prevents the continuation of the business
of the meeting, the chairperson may adjourn the meeting.
(c) The chairperson may require any person who is not a shareholder
of record or holding a proxy to leave the meeting.
SECTION 14. BUSINESS TRANSACTED. The business effectively transacted at
a shareholder meeting shall be confined to the following:
(a) Any matter specified in the notice;
(b) Any matter reasonably related to a matter specified in the
notice; and
(c) Any matter (i) the consideration of which is not objected to be
any shareholder attending the meeting, and (ii) notice of which is waived
by all shareholders not in attendance at the meeting.
SECTION 15. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at a shareholder meeting may be taken without a meeting, without
prior notice and without a vote, if:
(a) Before or after the action, all the shareholders entitled to vote
consent in writing; or
-3-
<PAGE>
(b) The Articles of Incorporation provide for shareholder action
without a meeting, and written consents, setting forth the action taken,
are signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take the
action at a meeting at which all shares entitled to vote on the action were
present and voted. A written consent under this subsection (b) must bear
the date of signature of each shareholder who signs the consent, and is not
effective to take the corporate action referred to unless, within 60 days
after the record date for determining shareholders entitled to express
consent to or dissent from the proposal without a meeting, written consents
signed by a sufficient number of shareholders to take the action are
delivered to the corporation. Delivery shall be to the corporation's
registered office, its principal place of business, or an officer or agent
of the corporation having custody of the minutes of the proceedings of its
shareholders. Delivery made to a corporation's registered office shall be
by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to shareholders who have
not consented in writing.
SECTION 16. RECORD DATE.
(a) SHAREHOLDERS ENTITLED TO NOTICE AND VOTE. For the purpose of
determining shareholders entitled to notice of and to vote at a shareholder
meeting or any adjournment thereof, the Board of Directors may fix a record
date which may not precede the date on which the Board adopts the
resolution fixing the record date. The record date shall not be more than
sixty (60) nor less than ten (10) days before the date of the meeting. If
not fixed by the Board of Directors the record date for determination of
shareholders entitled to notice of and to vote at a shareholder meeting
shall be the close of business on the day next preceding the day on which
notice is given or, if no notice is given, the day next preceding the day
on which the meeting is held. When a determination of shareholders of
record entitled to notice of or to vote at a shareholder meeting is made as
provided in this Section, the determination applies to any adjournment of
the meeting, unless the Board of Directors fixes a new record date under
this Section for the adjourned meeting.
(b) SHAREHOLDERS ENTITLED TO EXPRESS CONSENT OR DISSENT. For the
purpose of determining shareholder entitled to express consent to or
dissent from a proposal without a meeting, the Board of Directors may fix a
record date, which may not precede the date on which the Board adopts the
resolution fixing the record date and may not be more than ten (10) days
after the Board resolution. If a record date is not fixed by the Board of
Directors and prior action by the Board is required with respect to the
corporate action to be taken without a meeting, the record date shall be
the close of business on the day on which the Board resolution is adopted.
If a record date is not fixed by the Board of Directors and prior Board
action is not required, the record date shall be the first date on which a
signed written consent is delivered to the corporation as provided in these
bylaws.
-4-
<PAGE>
(c) OTHER ACTIONS. For the purpose of determining shareholders
entitled to receive payment of a share dividend or distribution, or
allotment of a right, or for the purpose of any other action, the Board of
Directors may fix a record date, which may not precede the date on which
the Board adopts the resolution fixing the record date. The record date
may not be more than sixty (60) days before the payment of the share
dividend or distribution or allotment of a right or other action. If a
record date is not fixed by the Board of Directors, the record date shall
be the close of business on the day on which the Board resolution relating
to the corporate action is adopted.
SECTION 17. PROXIES. A shareholder entitled to vote at a shareholder
meeting or to express consent to or dissent from action without a meeting may
authorize one or more other persons to act shareholder or the shareholder's
authorized agent or representative. The corporation may require a shareholder's
agent or representative. The corporation may require a shareholder's agent or
representative to present written evidence, satisfactory to the corporation, of
authority to sign the shareholder's proxy. A proxy is not valid after the
expiration of three years from its date unless otherwise provided in the proxy.
A proxy must be in writing and must be filed with the corporation at or before
in writing and must be filed with the corporation at or before the meeting. A
proxy need not be sealed, witnessed, or acknowledged.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER AND TERM OF DIRECTORS. The Board of Directors shall
consist of one or more directors, as determined initially by the Incorporator
and thereafter, the Board of Directors shall consist of such number of directors
as may be determined by the Board from time to time. A director need not be a
shareholder. The first Board of Directors shall hold office until the first
annual shareholder meeting. Directors shall be elected at each annual
shareholder meeting, except as provided in Section 2 of this Article, and each
director shall hold office until a successor is elected and qualified or until
the director's resignation or removal. If shareholders of any class or series
of shares have the exclusive right to elect one or more directors, those
directors may be elected only by the vote of those shareholders.
SECTION 2. VACANCIES. Except as otherwise provided in the Articles of
Incorporation, a vacancy on the Board of Directors (including a vacancy
resulting from an increase in the number of directors) may be filled by the
shareholders or the remaining directors. If the directors remaining in office
constitute fewer than a quorum of the Board, they may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office. Except
as otherwise provided in the Articles of Incorporation, if the holders of any
class or series of shares are entitled to elect one or
-5-
<PAGE>
more directors to the exclusion of other shareholders, vacancies of that
class or series may be filled by the holders of shares of that class or
series. A vacancy that will occur at a specific date, by reason of
resignation effective at a later date, may be filled before the vacancy
occurs, but the newly elected or appointed director may not take office until
the vacancy occurs.
SECTION 3. REMOVAL. The holders of a majority of the shares entitled
to vote for the election of directors may remove one or more directors with or
without cause.
SECTION 4. RESIGNATION. A director may resign by written notice to the
corporation. A resignation is effective upon its receipt by the corporation or
at a later date specified in the notice.
SECTION 5. POWERS. The Board of Directors shall manage the business
and affairs of the corporation and may exercise all of the powers of the
corporation except those powers or acts required by statute or the Articles of
Incorporation to be exercised or done by the shareholders.
SECTION 6. DIRECTOR'S COMPENSATION. The Board of Directors, by
affirmative vote of a majority of directors then in office and irrespective of
any personal interest of any of them, may establish reasonable compensation for
a director's services to the corporation as directors or officers. Directors
may also be reimbursed their expenses, if any, of attendance at each meeting of
the Board or a committee.
SECTION 7. ANNUAL MEETING OF BOARD. An annual meeting of the Board of
Directors shall be held immediately following the annual shareholder meeting. A
notice to directors is not required for an annual meeting.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at the date, time and place that the Board determines. A notice
to directors is not required for a regular meeting, except that, when the Board
establishes or changes the schedule of regular meetings, or changes the date,
time or place of a previously scheduled regular meeting, notice of the action
shall be given to each director who was absent from the meeting at which the
action was taken.
SECTION 9. SPECIAL MEETINGS. The Chairperson, the President or
directors constituting at least one-third of the directors then in office may
call a special meeting of the Board of Directors by giving notice to each
director.
SECTION 10. NOTICE OF MEETINGS. Except as otherwise provided by these
bylaws, notice of the date, time and place of each meeting of the Board of
Directors shall be given to each director, by either of the following methods:
-6-
<PAGE>
(a) by mailing written notice of the meeting to the address that the
director designates or, in the absence of designation, to the last known
address of the director, at least five days before the date of the meeting;
or
(b) by delivering a written notice of the meeting to the director at
least one full business day before the meeting, personally or by
telecopier, to the director's last known office or home address.
SECTION 11. WAIVER OF NOTICE. A director's attendance at or
participation in a meeting waives any required notice to the director of the
meeting, unless at the beginning of the meeting, or promptly upon the director's
arrival, the director objects to the meeting or the transacting of business at
the meeting and does not thereafter vote for or assent to any action taken at
the meeting. A director may waive in writing any right to notice before or
after a meeting.
SECTION 12. PURPOSES OF MEETINGS. Neither the business to be transacted
nor the purpose of a meting need be specified in the notice or waiver of notice
of the meeting. If the purpose is stated in the notice, the business transacted
at the meeting is not limited to the purpose stated.
SECTION 13. QUORUM AND REQUIRED VOTE OF BOARD AND COMMITTEES. A
majority of the directors then in office, or of the members of a committee of
the Board, constitutes a quorum for the transaction of business, unless the
Articles of Incorporation or these Bylaws or, in the case of a committee, the
Board resolution establishing the committee, provide for a larger or smaller
number. The vote of the majority of members present at a meeting at which a
quorum is present constitutes the action of the Board or of the committee,
unless the vote of a larger number is required by express provision of statute,
the Articles of Incorporation, or these Bylaws, or in the case of a committee,
the Board resolution establishing the committee.
SECTION 14. ACTION BY WRITTEN CONSENT. Action required or permitted to
be taken under authorization voted at a meeting of the Board of Directors or a
committee of the Board may be taken without a meeting if, before or after the
action, all members of the Board then in office or of the committee consent to
the action in writing. The written consents shall be filed with the minutes of
the Board or committee. The consent has the same effect as a vote of the Board
or committee for all purposes.
SECTION 15. ELECTRONIC PARTICIPATION IN MEETING. Unless otherwise
restricted by the Articles of Incorporation, a director may participate in a
meeting of the Board of Directors or a committee of the Board by means of a
conference telephone or similar communications equipment through which all
persons participating in the meeting may communicate with the other
participants. Participation in a meeting pursuant to this Section constitutes
presence in person at the meeting. A director must be permitted to participate
in a meeting by such means if the director so requests.
-7-
<PAGE>
SECTION 16. COMMITTEES OF DIRECTORS. The Board of Directors may
designate one or more committees consisting of one or more directors. Any
committee, and each member thereof, shall serve at the pleasure of the Board.
The Board may designate one or more directors as alternate members of a
committee, who may replace an absent or disqualified member at a meeting of the
committee. Unless prohibited by the Board resolution creating the committee, in
the absence or disqualification of a member of a committee, the committee
members present at a meeting and not disqualified from voting, whether or not
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of the absent or disqualified member. A
committee may establish a time and place for regular meetings, for which no
notice shall be required; provided, however, that if the committee changes the
date, time, or place of a regular meeting, then notice of such changed meeting
shall be given to each member who was absent at the meeting at which such change
was made. Otherwise, notice of meetings of committees shall be given in the
same manner as notices of meetings of the Board.
SECTION 17. POWERS OF COMMITTEES. A committee, to the extent provided
in the resolution of the Board creating the committee, may exercise the Board's
power and authority in the management of the business and affairs of the
corporation, except that a committee may not:
(a) Amend the Articles of Incorporation;
(b) Adopt an agreement of merger or consolidation;
(c) Recommend to shareholders the sale, lease, or exchange of all or
substantially all of the corporation's property and assets;
(d) Recommend to the shareholders a dissolution of the corporation or
a revocation of a dissolution;
(e) Amend the Bylaws of the corporation;
(f) Fill vacancies in the Board of Directors; or
(g) Declare a distribution or a dividend, or authorize the issuance
of stock, unless the resolution of the Board creating the committee
expressly so provides.
ARTICLE III
OFFICERS
SECTION 1. APPOINTMENT. The Board of Directors, at its first
meeting following appointment by the Incorporator(s) and thereafter at its
first meeting following the annual
-8-
<PAGE>
shareholder meeting, shall appoint a President, Secretary, and Treasurer.
The Board of Directors may elect from their number of Chairperson of the
Board and one or more Vice Chairpersons. The Board may also appoint one or
more Vice Presidents and other officers that it deems necessary. The Board of
Directors need not appoint or elect an officer to an office that is already
filled and whose specified term has not expired. The same person may hold
two or more offices, but an officer may not execute, acknowledge or verify an
instrument in more than one capacity if the instrument is required by law,
the Articles of Incorporation, these Bylaws or resolution of the Board of
Directors to be executed, acknowledged or verified by two or more officers.
SECTION 2. TERM, REMOVAL AND RESIGNATION. An officer shall hold
office for the term the board specifies upon election or appointment and
until a successor is elected or appointed and qualified, or until the
officer's death, resignation or removal. The Board may remove an officer
with or without cause at any time. Any officer may resign by written notice
to the corporation. A resignation is effective upon its receipt by the
corporation or at a later date specified in the notice.
SECTION 3. CHAIRPERSON OF THE BOARD OF DIRECTORS. The Chairperson
of the Board, if there is one, shall preside when present at all meetings of
the shareholders and the Board of Directors. the Chairperson of the Board
shall perform any other duties and exercise any other authority that the
Board prescribes and, unless otherwise provided by Board resolution, shall be
an ex officio member of all committees. Except where by law the signature of
the President is required, the Chairperson of the Board possesses the same
power and authority to make and execute contracts, instruments, papers, and
documents of every kind in the name of and on behalf of the corporation.
SECTION 4. VICE CHAIRPERSON OF THE BOARD OF DIRECTORS. During the
disability or unavailability of the Chairperson of the Board, or while that
office is vacant, the Vice Chairpersons of the Board, in the order the Board
designates, may exercise all of the powers and discharge all of the duties of
the Chairperson. A Vice Chairperson shall perform any other duties that the
Board of Directors prescribes.
SECTION 5. PRESIDENT. The President shall be the corporation's
chief executive officer and have general control and management of its
business, under the direction of the Board. The President shall ensure that
all orders and resolutions of the Board are carried into effect. Unless the
Board specifically provides otherwise, the President shall be an ex officio
member of all committees. The President shall perform all duties incident to
the office of President and other duties as the Board prescribes. The
President may make and execute contracts, instruments, papers, and documents
of every kind in the name and on behalf of the corporation, except when the
Board specifies the same to be done by another officer or agent. During the
disability or unavailability of the Chairperson and the Vice Chairpersons, or
while those offices are vacant, the President shall have all of the power and
authority of the Chairperson and shall preside over all meetings of and the
shareholders and, if he is a director, all meetings of the Board of Directors.
-9-
<PAGE>
SECTION 6. VICE PRESIDENTS. The Board may designate one or more
Vice Presidents to perform the duties and exercise the powers of the
Presidents to perform the duties and exercise the powers of the President
during the President's absence or disability. Each Vice President shall
perform other duties that the President assigns or the Board of Directors
prescribes.
SECTION 7. SECRETARY. The Secretary shall cause to be recorded and
maintained minutes of all meetings of the Board, Board committees, and
shareholders. The Secretary shall cause to be given all notices required by
law, these Bylaws, or resolution of the Board and shall perform other duties
that the President assigns or the Board of Directors prescribes.
SECTION 8. TREASURER. The Treasurer shall cause to be kept in books
belonging to the corporation a full and accurate account of all receipts,
disbursements, and other financial transactions of the corporation. The
Treasurer shall perform other duties that the President assigns or the Board of
Directors prescribes.
SECTION 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Any
Assistant Secretary and any Assistant Treasurer may perform any duty or
exercise any authority of the Secretary or Treasurer, respectively. The
Assistant Secretaries and Assistant Treasurers shall also perform duties that
the Secretary or Treasurer, respectively, or President assigns or that the
Board of Directors prescribes.
SECTION 10. OTHER OFFICERS. The Board of Directors may appoint other
officers to perform duties and exercise authority that the President assigns
or the Board of Directors prescribes.
ARTICLE IV
INDEMNIFICATION
SECTION 1. INDEMNIFICATION IN ACTION BY THIRD PARTY. The
corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal (other than an action by or in the right of the
corporation) by reason of the fact that the person is or was a director or
officer of the corporation, or, is or was serving at the request of the
corporation as a director, officer, employee, agent, or trustee of another
foreign or domestic corporation, partnership, joint venture, trust, or other
enterprise, whether for profit or not for profit, against expenses (including
attorneys' fees), judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by the person in connection with such
action, suit, or proceeding if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests
of the corporation or its shareholders, and with respect to a criminal action
or proceeding, the person had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, does
-10-
<PAGE>
not, of itself, create a presumption that the person did not act in good
faith and in a manner that the person reasonably believed to be in or not
opposed to the best interests of the corporation or its shareholders, and
with respect to a criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
SECTION 2. INDEMNIFICATION IN ACTION BY OR IN RIGHT OF THE
CORPORATION. The corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that the person is or was a director or
officer of the corporation, or, is or was serving at the request of the
corporation as a director, officer, employee, agent, or trustee of another
foreign or domestic corporation, partnership, joint venture, trust, or other
enterprise, whether for profit or not for profit, against expenses including
attorneys' fees and amounts paid in settlement actually and reasonably
incurred by the person in connection with the action or suit, if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation or its shareholders.
Indemnification shall not be made for a claim, issue, or matter in which the
person shall have been found liable to the corporation except to the extent
authorized by statute.
SECTION 3. EXPENSES. To the extent that person has been successful on
the merits or otherwise in defense of an action, suit, or proceeding referred to
in Section 1 or 2 of this Article, or in defense of a claim, issue, or matter in
the action, suit, or proceeding, the corporation shall indemnify that person
against actual and reasonable expenses, including attorneys' fees incurred by
him or her in connection with the action, suit, or proceeding and an action,
suit, or proceeding brought to enforce the mandatory indemnification provided in
this Section.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION.
(a) An indemnification under Sections 1 or 2 of this Article, unless
ordered by a court, shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Sections 1 or 2 of this Article and upon an evaluation of the
reasonableness of expenses and amounts paid in settlement. This
determination and evaluation shall be made in any of the following ways:
(1) By a majority vote of a quorum of the Board of Directors
consisting of directors who are not parties or threatened to be made
parties to the action, suit, or proceeding.
-11-
<PAGE>
(2) If a quorum cannot be obtained under Subsection (1) above, my
majority vote of a committee duly designated by the Board and
consisting solely of two or more directors not at the time parties or
threatened to be made parties to the action, suit, or proceeding.
(3) By independent legal counsel in a written opinion, which counsel
shall be selected in one of the following ways:
(A) By the Board or its committee in the manner prescribed in
Subsections (1) or (2) above.
(B) If a quorum of the Board cannot be obtained under Subsection (1)
above and a committee cannot be designated under Subsection (2)
above, by the Board.
(4) By all independent directors who are not parties or threatened to
be made parties to the action, suit, or proceeding.
(5) By the shareholders, but shares held by directors, officers,
employees, or agents who are parties or threatened to be made parties
to the action, suit, or proceeding may not be voted.
(b) In the designation of a committee under Subsection (a) (2) or in
the selection of independent legal counsel under Subsection (a) (3) (B),
all directors may participate.
(c) If a person is entitled to indemnification under Sections 1 or 2
for a portion of expenses, including reasonable attorneys' fees, judgments,
penalties, fines, and amounts paid in settlement, but not for the total
amount, the corporation may indemnify the person for the portion of the
expenses, judgments, penalties, fines, or amounts paid in settlement for
which the person is entitled to be indemnified.
SECTION 5. ADVANCES. The corporation may pay or reimburse the
reasonable expenses incurred by a director, officer, employee or agent who is a
party or threatened to be made a party to an action, suit, or proceeding before
final disposition of the proceeding if all of the following apply:
(a) The person furnishes the corporation a written affirmation of the
person's good faith belief that he or she has met the applicable standard
of conduct set forth in Sections 1 and 2 of this Article.
(b) The person furnishes the corporation a written undertaking,
executed personally or on the person's behalf, to repay the advance if it
is ultimately determined that the person did not meet the standard of
conduct.
-12-
<PAGE>
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this Article.
The undertaking required by Subsection (b) above must be an unlimited general
obligation of the person but need not be secured. Determinations of payments
under this Section shall be made in the manner specified in Section 4 of this
Article.
SECTION 6. OTHER INDEMNIFICATION AGREEMENTS. The indemnification or
advancement of expenses provided by this Article is not exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under any bylaw, agreement, vote of shareholders or directors, or
otherwise. The indemnification provided in Sections 1 to 6 of this Article
continues as to a person who ceases to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of the person.
SECTION 7. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against the person and incurred by the person in
any such capacity or arising out of the person's status as such whether or not
the corporation would have power to indemnify the person against the liability
under Sections 1 to 6 of this Article.
SECTION 8. CONSTITUENT CORPORATION. For the purposes of this Article,
references to the corporation include all constituent corporations absorbed in a
consolidation or merger and the resulting or surviving corporation, so that a
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director,
officer, partner, trustee, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation in the same capacity.
ARTICLE V
SHARE CERTIFICATES AND TRANSFERS
SECTION 1. SHARE CERTIFICATES. Except as otherwise required by the
Articles of Incorporation or these Bylaws and permitted by statute, shares of
the corporation's stock shall be represented by certificates. Each certificate
shall be signed by one of the following: the Chairperson of the Board, Vice
Chairperson of the Board, President, or a Vice-President. Share certificates
may be sealed with the seal of the corporation or a facsimile of the seal. The
signatures of the officers may be facsimiles if the certificate is countersigned
by a transfer agent or registered by a registrar
-13-
<PAGE>
other than the corporation itself or its employee. The corporation may issue
a certificate even though the officer who has signed or whose facsimile
signature has been placed upon the certificate ceases to be an officer before
the certificate is issued.
SECTION 2. REPLACEMENT OF CERTIFICATES. The corporation shall issue
a new certificate for shares in place of a certificate that has been lost or
destroyed. The Board of Directors may require the owner of the lost or
destroyed certificate, or his legal representative, to give the corporation a
bond or other security sufficient to indemnify the corporation against any
claim that may be made against it on account of the alleged lost or destroyed
certificate or the issuance of a replacement certificate.
SECTION 3. REGISTERED SHAREHOLDERS. The corporation may treat the
registered holder of a share as the absolute owner of the share and shall not be
bound to recognize any equitable or other claim to, or interest in, the share on
the part of any other person, whether or not the corporation has actual notice
of the interest or claim, except as otherwise provided by law.
SECTION 4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint a transfer agent and a registrar for the registration and transfer of
the corporation's securities.
SECTION 5. TRANSFER OF STOCK. A sale, assignment, exchange,
conveyance, gift, pledge, hypothecation, or other transfer of the corporation's
stock, whether by operation of law or otherwise, shall not be effective as to
the corporation until recorded on the corporation's stock transfer books.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS OR OTHER DISTRIBUTIONS. By action of the Board of
Directors, the corporation may declare and pay dividends or make other
distributions as permitted by law.
SECTION 2. VOTING SECURITIES. Unless the Board directs otherwise, the
Chairperson of the Board or the President, or during their absence or
disability, the Vice Presidents, in the order that the Board designates, may on
behalf of the corporation attend and vote (or execute in the name or on behalf
of the corporation a consent in writing in lieu of a meeting of shareholders or
a proxy authorizing an agent or attorney-in-fact for the corporation to attend
and vote) at any meeting of security holders of any corporation in which the
corporation holds securities. At such meetings such person may exercise any and
all rights and powers incident to the ownership of such securities that the
corporation might exercise if present. The Board may confer this voting power
upon any other person.
-14-
<PAGE>
SECTION 3. CHECKS. The corporation's checks, drafts, and orders for
the payment of money shall be signed in the name of the corporation in the
manner and by the persons that the Board of Directors designates.
SECTION 4. SIGNING OF INSTRUMENTS. When the Board or these Bylaws
authorize the execution of any contract, conveyance, or other instrument
without specification of the signing officer, the Chairperson of the Board,
the President, any Vice President, the Secretary or the Treasurer may sign in
the name and on behalf of the corporation and may affix the corporate seal to
the instrument. The Board of Directors may authorize other officers and
agents to sign instruments on behalf of the corporation.
SECTION 5. CORPORATE BOOKS AND RECORDS. The corporation shall keep
books and records of account and minutes of the proceedings of its
shareholders, Board of Directors and committees, if any. The books, records
and minutes may be kept outside the State of Michigan. The corporation shall
keep at its registered office, or at the office of its transfer agent within
or without the State of Michigan, records containing the names and addresses
of all shareholders, the number, class and series of shares held by each, and
the dates when they respectively became holders of record. Any of the books,
records, or minutes may be in written form or in any other form capable of
being converted into written form within a reasonable time. The corporation
shall convert into written form without charge any record not in written
form, unless otherwise requested by a person entitled to inspect the record.
SECTION 6. SEAL. The Corporation may have a seal in the form that
the Board of Directors determines. The seal may be used by causing it or a
facsimile to be affixed, impressed, or reproduced.
ARTICLE VII
AMENDMENTS
The shareholders or the board of directors may amend or repeal these
Bylaws or adopt new bylaws, unless the Articles of Incorporation or these
Bylaws provide that the power to adopt new bylaws is reserved exclusively to
the shareholders or that the Board may not alter or repeal these Bylaws or
any particular Bylaw. Amendment of these Bylaws by the Board requires the
vote of not less than a majority of the directors then in office.
-15-
<PAGE>
EXHIBIT 3.3
RESTATED ARTICLES OF INCORPORATION
OF
FAMILY CHRISTIAN STORES, INC.
1. These Restated Articles of Incorporation are executed pursuant to
the provisions of Sections 641-651, Act 284, Public Acts of 1972, as
amended.
2. The present name of the Corporation is Family Christian Stores,
Inc.
3. The former corporate name is Family Bookstores Company, Inc.
4. The date of filing the original Articles of Incorporation was
August 25, 1994.
5. The following Restated Articles of Incorporation supersede the
original Articles of Incorporation of the Corporation:
ARTICLE I
The name of the corporation is FAMILY CHRISTIAN STORES, INC.
ARTICLE II
The purpose of the Corporation is to engage in any one or more
lawful acts or activities within the purposes for which corporations may be
organized under the Michigan Business Corporation Act.
ARTICLE III
The total number of shares of all classes of capital stock that the
Corporation shall have authority to issue is 25,000,000 shares, consisting of
10,000,000 shares of Class A common stock, $.01 par value per share ("Class A
Common Stock"), 10,000,000 shares of Class B common stock, $.01 par value per
share ("Class B Common Stock") (collectively, Class A Common Stock and Class
B Common Stock shall be referred to as "Common Stock"), and 5,000,000 shares
of preferred stock, no par value per share ("Preferred Stock").
<PAGE>
Upon these Restated Articles of Incorporation becoming effective
pursuant to the Michigan Business Corporation Act (the "Effective Time"), and
without any further action on the part of the Corporation or its
shareholders, each share of the Corporation's Class A common stock, $1.00 par
value, then issued, and each share of the Corporation's Class B common stock,
$1.00 par value, then issued, shall be automatically reclassified, changed
and converted into one fully paid and non-assessable share of Class B Common
Stock, $.01 par value. Any stock certificate that, immediately prior to the
Effective Time, represents shares of Class A common stock, $1.00 par value,
or shares of Class B common stock, $1.00 par value, will, from and after the
Effective Time, automatically and without the necessity of presenting the
same for exchange, represent that number of shares of Class B Common Stock
equal to the number of shares of Class A common stock, $1.00 par value, or
Class B common stock, $1.00 par value, represented by such certificate prior
to the Effective Time. As soon as practicable after the Effective Time, the
Corporation's transfer agent shall mail a transmittal letter to each record
holder who would be entitled to receive a share of Class B Common Stock.
The holders of shares of capital stock now or hereafter
outstanding shall have no preemptive right to purchase or have offered to
them for purchase any shares of Preferred Stock, Common Stock or other
equity securities issued or to be issued by the Corporation. The
preferences, qualifications, limitations, restrictions and the special or
relative rights in respect of the shares of each class are as follows:
A. PROVISIONS APPLICABLE TO COMMON STOCK.
1. VOTING RIGHTS.
Subject to applicable law and the rights of any outstanding
series of Preferred Stock to vote as a separate class or series, the shares
of Class A Common Stock and Class B Common Stock shall vote together as a
class and shall have the following voting rights:
a. Each share of Class A Common Stock shall entitle the
holder thereof to one vote upon all matters upon which
shareholders have the right to vote; and
b. Each share of Class B Common Stock shall entitle the
holder thereof to 10 votes upon all matters upon which
shareholders have the right to vote.
The Class A Common Stock shall be entitled to vote separately as a
class with respect to (a) proposals to change the par value of the Class A
Common Stock, (b) other amendments to these Restated Articles of
Incorporation that alter or change the powers, preferences or special
rights of the Class A Common Stock so as to affect them adversely, and (c)
such other matters as may require class voting under the Michigan Business
Corporation Act.
-2-
<PAGE>
The Class B Common Stock shall be entitled to vote separately as a class
with respect to (a) proposals to change the par value of the Class B Common
Stock, (b) other amendments to these Restated Articles of Incorporation that
alter or change the powers, preferences or special rights of the Class B
Common Stock so as to affect them adversely, and (c) such other matters as
may require class voting under the Michigan Business Corporation Act.
The Corporation may, as a condition to counting the votes cast by
any holder of shares of Class B Common Stock, require proof as set forth in
Section A.5.h below that the shares of Class B Common Stock held by such
holder have not been converted into shares of Class A Common Stock.
2. DIVIDENDS AND DISTRIBUTIONS.
Subject to the preferential and other dividend rights of any
outstanding series of Preferred Stock, holders of Class A Common Stock and
Class B Common Stock shall be entitled to such dividends and other
distributions in cash, stock or property of the Corporation as may be
declared thereon by the Board of Directors from time to time out of assets
or funds of the Corporation legally available therefor. No dividend or
other distribution may be declared or paid on any share of Class A Common
Stock unless a like dividend or other distribution is simultaneously
declared or paid, as the case may be, on each share of Class B Common Stock
unless a like dividend or other distribution is simultaneously declared or
paid, as the case may be, on each share of Class A Common Stock, in each
case without preference or priority of any kind. All dividends and
distributions on the Class A Common Stock and Class B Common Stock payable
in Common Stock of the Corporation shall be made in shares of Class A
Common Stock and Class B Common Stock, respectively. In no event will
shares of either class of Common Stock be split, divided or combined unless
the outstanding shares of the other class of Common Stock shall be
proportionately split, divided or combined.
In the event of a transaction as a result of which the shares of
Class A Common Stock are converted into or exchanged for one or more other
securities, cash or other property (a "Class A Conversion Event"), then
from and after such Class A Conversion Event, a holder of Class B Common
Stock shall be entitled to receive, upon the conversion of such Class B
Common Stock pursuant to Section A.5. of this Article III, the amount of
such securities, cash and other property that such holder would have
received if the conversion of such Class B Common Stock had occurred
immediately prior to the record date (or if there is no record date, the
effective date) of the Class A Conversion Event. This paragraph shall be
applicable in the same manner to all successive conversion or exchanges of
securities issued pursuant to any Class A Conversion Event.
No adjustments in respect of dividends shall be made upon the
conversion of any share of Class B Common Stock; provided, however, that if
a share shall be converted after the
-3-
<PAGE>
record date for the payment of a dividend or other distribution on shares of
Class B Common Stock but before such payment, then the record holder of such
share at the close of business on such record date shall be entitled to
receive the dividend or other distribution payable on such share of Class B
Common Stock on the payment date notwithstanding the conversion thereof.
3. OPTIONS, RIGHTS OR WARRANTS.
Subject to Section A.2., the Corporation will not be entitled to
issue additional shares of Class B Common Stock, or issue options, rights or
warrants to subscribe for additional shares of Class B Common Stock, except
that the Corporation may make a pro rata offer to all holders of Common Stock
of rights to subscribe for additional shares of the class of Common Stock
held by them. The Corporation may make offerings of options, rights or
warrants to subscribe for shares of any class or classes capital stock (other
than Class B Common Stock) to all holders of Class A Common Stock or Class B
Common Stock if an identical offering is made simultaneously to all the
holders of the other class of Common Stock. All offerings of options, rights
or warrants shall offer the respective holders of Class A Common Stock and
Class B Common Stock the right to subscribe at the same rate per share.
4. MERGER.
In the event of a merger of the Corporation with or into another
entity (whether or not the Corporation is the surviving entity), the holders
of each share of Class A Common Stock and Class B Common Stock shall be
entitled to receive the same per share consideration as the per share
consideration, if any, received by the holders of each share of the other
class of Common Stock.
5. CONVERSION OF CLASS B COMMON STOCK.
a. VOLUNTARY CONVERSION. Each share of Class B Common
Stock shall be convertible, at the option of its record holder,
into one validly issued, fully paid and non-assessable share of
Class A Common Stock at any time.
b. VOLUNTARY CONVERSION PROCEDURE. At the time of a
voluntary conversion, the record holder of shares of Class B
Common Stock shall deliver to the principal office of the
Corporation or any transfer agent for shares of the Class A
Common Stock (i) the certificate or certificates representing the
shares of Class B Common Stock to be converted, duly endorsed in
blank or accompanied by proper instruments of transfer and (ii)
written notice to the Corporation stating that the record holder
elects to convert such share or shares and stating the name or
names (with addresses) and denominations in which the certificate
or certificates representing the shares of Class A Common Stock
issuable upon the conversion are
-4-
<PAGE>
to be issued and including instructions for the delivery thereof.
Conversion shall be deemed to have been effected at the time when
delivery is made to the Corporation or its transfer agent of such
written notice and the certificate or certificates representing the
shares of Class B Common Stock to be converted, and as of such time
each Person named in such written notice as the Person to whom a
certificate representing shares of Class A Common Stock is to be
issued, shall be deemed to be the holder of record of the number of
shares of Class A Common Stock to be evidenced by that certificate.
Upon such delivery, the Corporation or its transfer agent promptly
shall issue and deliver at the stated address of such record holder
of shares of Class A Common Stock to which such record holder is
entitled by reason of such conversion, and shall cause such shares
of Class A Common Stock to be registered in the name of the record
holder.
c. AUTOMATIC CONVERSION.
(i) Subject to paragraph (iii) below, in the event of
any Transfer (as defined below) of any share of Class B
Common Stock to any Person other than a Permitted Transferee
(as defined below), such share of Class B Common Stock shall
automatically, without any further action, convert into one
share of Class A Common Stock. In addition, upon any Change
of Control (as defined below) of any corporation,
partnership, limited liability company, trust or charitable
organization which is a record holder of any share of Class
B Common Stock, such share of Class B Common Stock shall
automatically convert into a share of Class A Common Stock.
Notwithstanding the foregoing, an Initial Holder shall not
be subject to automatic conversion pursuant to this
paragraph c(i) with respect to the shares of Class B Common
Stock acquired by such Initial Holder pursuant to the second
paragraph of Article III hereof (and any additional shares
distributed to such Initial Holder with respect to such
shares pursuant to Section A.2. hereof), but only so long as
such Initial Holder remains the sole Beneficial Owner of
such shares.
(ii) Each share of Class B Common Stock automatically
shall convert into one share of Class A Common Stock on the
first date on which the number of shares of Class B Common
Stock then outstanding is less than 15% of all the then
outstanding shares of Common Stock (calculated without
regard to the difference in voting rights between the
classes of Common Stock) without any further action on the
part of the Corporation or any other Person.
-5-
<PAGE>
(iii) Notwithstanding anything to the contrary set
forth in this Section A of this Article III, a holder of
shares of Class B Common Stock may pledge such holder's
shares of Class B Common Stock to a financial institution
pursuant to a bona fide pledge of such shares of Class B
Common Stock as collateral security for any indebtedness or
other obligation of any Person (the "Pledged Stock") due to
the pledgee or its nominee; provided, however, that (a) such
shares shall not be voted by or registered in the name of
the pledgee and shall remain subject to the provisions of
this Section A.5. and (b) upon any foreclosure, realization
or other similar action by the pledgee, such Pledged Stock
automatically shall convert into shares of Class A Common
Stock on a share for share basis unless all right, title and
interest in such Pledged Stock shall be Transferred
concurrently by the pledgee or the purchaser in such
foreclosure to a Permitted Transferee.
(iv) The foregoing automatic conversion events
described in this Section A.5.c shall be referred to
hereinafter as "Events of Automatic Conversion." The
determination of whether an Event of Automatic Conversion
shall have occurred will be made by the Board of Directors
or a committee thereof in accordance with Section A.5.h
below.
d. AUTOMATIC CONVERSION PROCEDURE. Any conversion
pursuant to an Event of Automatic Conversion shall be deemed to
have been effected at the time the Event of Automatic Conversion
occurred (the "Conversion Time"). At the Conversion Time, the
certificate or certificates that represented immediately prior
thereto the shares of Class B Common Stock which were so
converted (the "Converted Class B Common Stock") shall,
automatically and without further action, represent the same
number of shares of Class A Common Stock. Holders of converted
Class B Common Stock shall deliver their certificates, duly
endorsed in blank or accompanied by proper instruments of
transfer, to the principal office of the Corporation or the
office of any transfer agent for shares of the Class A Common
Stock, together with a notice setting out the name or names (with
addresses) and denominations in which the certificate or
certificates representing such shares of Class A Common Stock are
to be issued and including instructions for delivery thereof.
Upon such delivery, the Corporation or its transfer agent
promptly shall issue and deliver at such stated address to such
holder of shares of Class A Common Stock a certificate or
certificates representing the number of shares of Class A Common
Stock to which such holder is entitled by reason of such
conversion, and shall cause such shares of Class A Common Stock
to be registered in the name of such holder. The Person entitled
to receive the shares of Class A Common Stock issuable upon such
conversion shall be treated for all
-6-
<PAGE>
purposes as the record holder of such shares of Class A Common Stock
at and as of the Conversion Time, and the rights of such Person as a
holder of shares of Class B Common Stock that have been converted
shall cease and terminate at and as of the Conversion Time, in each
case without regard to any failure by such holder to deliver the
certificates or the notice required by this Section.
e. UNCONVERTED SHARES; NOTICE REQUIRED. In the event of
the conversion of less than all the shares of Class B Common
Stock evidenced by a certificate surrendered to the Corporation
in accordance with the procedures of this Section A.5, the
Corporation shall execute and deliver to or upon the written
order of the holder of such unconverted shares, without charge to
such holder, a new certificate evidencing the number of shares of
Class B Common Stock not converted.
f. RETIRED SHARES. Shares of Class B Common Stock that
are converted into shares of Class A Common Stock as provided
herein shall be retired and canceled and shall have the status of
authorized but unissued shares of Class B Common Stock.
g. RESERVATION. The Corporation shall at all times
reserve and keep available, out of its authorized and unissued
shares of Class A Common Stock, for the purposes of effecting
conversions, such number of duly authorized shares of Class A
Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Class B Common Stock.
All the shares of Class A Common Stock so issuable shall, when so
issued, be duly and validly issued, fully paid and non-assessable,
and free from liens and charges with respect to such
issuance.
h. DETERMINATION OF VOTING RIGHTS AND EVENTS OF AUTOMATIC
CONVERSION. The Board of Directors of the Corporation or a duly
authorized committee thereof shall have the power to determine,
in good faith after reasonable inquiry, whether an Event of
Automatic Conversion has occurred with respect to any share of
Class B Common Stock. A determination by the Board of Directors
of the Corporation or such committee that an Event of Automatic
Conversion has occurred shall be conclusive. As a condition to
counting the votes cast by any holder of shares of Class B Common
Stock at any annual or special meeting of shareholders, or in
connection with any written consent of shareholders, or as a
condition to registration of transfer of shares of Class B Common
Stock, or for any other purpose, the Board of Directors or a duly
authorized committee thereof, in its discretion, may require the
holder of such shares to furnish such affidavits or other proof
as the Board of Directors or such committee deems necessary or
-7-
<PAGE>
advisable to determine whether an Event of Automatic Conversion
shall have occurred. If the Board of Directors or such committee
shall determine that a holder has substantially failed to comply
promptly with any request by the Board of Directors or such
committee for such proof, such shares shall be entitled to one
vote per share until such time as the Board of Directors or such
committee shall determine that such holder has complied with such
request. The Board of Directors or a committee thereof may
exercise the authority granted by this Section A.5.h through duly
authorized officers or agents.
i. DEFINITIONS. For purposes of this Section A:
(i) ANCESTOR. The term "Ancestor" with respect to any
natural person shall mean and include the blood ancestors of
such person. A natural person adopted pursuant to a
Permitted Adoption shall have the same status and benefits,
and all relationships to or through such person shall be
determined in the same manner, as if such person were a
child of the blood of such person's adoptive parent or
parents rather than of such person's natural parents.
(ii) BENEFICIAL OWNER. A Person shall be deemed the
"Beneficial Owner" of, and to "Beneficially Own" and to have
"Beneficial Ownership" of, any share (a) which such Person
has the power to vote or dispose, or to direct the voting or
disposition of, directly or indirectly, through any
agreement, arrangement or understanding (written or oral),
or (b) which such Person has the right to acquire (whether
such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (written or oral), or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise.
(iii) BENEFICIARY. The term "Beneficiary" with respect
to any trust means any Person to whom a current distribution
(whether mandatory or discretionary) of income or principal
could be made.
(iv) CHANGE OF CONTROL. The term "Change of Control"
shall mean (a) in the case of a corporation, partnership or
limited liability company, such time as any such
corporation, partnership or limited liability company shall
cease to be a Controlled Entity; (b) in the case of a trust,
such time as such trust shall cease to be a Permitted Trust;
or (c) in the case of a charitable organization, such time
as such charitable organization shall cease to be a
Permitted Charitable Foundation.
-8-
<PAGE>
(v) CONTROLLED ENTITY. A corporation, partnership or
limited liability company shall be deemed to be a
"Controlled Entity" if (but only if) one or more Permitted
Transferees (a) constitute a majority of the members of the
board of directors (or a committee performing similar
functions), if any, and (b) own, directly or indirectly,
100% of the outstanding capital stock of such corporation or
the general and limited partnership or limited liability
company interests of such partnership or limited liability
company, as the case may be.
(vi) DESCENDANT. The term "Descendant" with respect to
any natural person shall mean and include the blood
descendants of such person. A natural person adopted
pursuant to a Permitted Adoption shall have the same status
and benefits, and all relationships to or through such
person shall be determined in the same manner, as if such
person were a child of the blood of such person's adoptive
parent or parents rather than of such person's natural
parents.
(vii) DETERMINATION TIME. The term "Determination
Time" means, with respect to any share of capital stock of
the Corporation, the time at which such share of capital
stock is converted into Class B Common Stock pursuant to the
second paragraph of Article III of these Restated Articles
of Incorporation.
(viii) INITIAL HOLDER. The term "Initial Holder" shall
mean (a) each Person in whose name one or more shares of
Class B Common Stock are registered at the Determination
Time, (b) each joint owner of a share of Class B Common
Stock at the Determination Time, (c) each minor who is the
beneficiary at the Determination Time of a Uniform Gifts to
Minors Act account under which the custodian, in such
capacity, is an Initial Holder and (d) the settlor of any
trust which is an Initial Holder or any Beneficiary at the
Determination Time of any Irrevocable Trust which is an
Initial Holder. A Person will cease to be an Initial Holder
once that Person no longer holds of record or beneficially
any Class B Common Stock. For purposes of the definition of
"Initial Holder," if any shares of Class B Common Stock are
registered in the name of a Nominee at the Determination
Time, such shares shall be deemed to be registered in the
name of the Person for whom such Nominee is acting.
(ix) IRREVOCABLE TRUST. A trust shall be an
"Irrevocable Trust" if such trust is not, and cannot be
amended or revised to become, revocable
-9-
<PAGE>
at any time after the Initial Date by the Person or Persons
who established such trust.
(x) NOMINEE. The term "Nominee" shall mean a
partnership or other entity that is acting as a bona fide
nominee for the registration of record ownership of
securities Beneficially Owned by another Person.
(xi) PERMITTED ADOPTION. A "Permitted Adoption" of a
natural person shall have occurred solely if a decree or
order of adoption shall have been made by a duly constituted
court or other authority authorized by law to effect
adoptions before such person attaining the age of 21 years.
(xii) PERMITTED CHARITABLE FOUNDATION. A charitable
foundation shall be deemed to be a "Permitted Charitable
Foundation" if (but only if) such charitable foundation (a)
is a charitable organization qualifying for tax-exempt
status for Federal income tax purposes under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), (b) is classified as a "private foundation"
under Section 509 of the Code and (c) has as a majority of
(x) its members (if any) and board of directors or board of
trustees or (y) its trustees, one or more of the Persons
described in clause (a), (b), or (c) of the definition of
"Permitted Transferee" if the charitable organization is a
not-for-profit organization or charitable trust, as the case
may be.
(xiii) PERMITTED ESTATE. The term "Permitted Estate"
shall mean the estate of any Initial Holder of any Person
described in clause (b) of the definition of "Permitted
Transferee," provided that a majority of the executors,
administrators or personal representatives of such estate
are (a) one or more of the Persons described in clause (a),
(b) or (c) of the definition of "Permitted Transferee", (b)
one or more licensed attorneys who acted as the personal
attorney or attorneys of such Initial Holder or other Person
or (c) a commercial bank or trust company regularly engaged
in the business of acting as an executor or administrator
and having net capital in excess of U.S. $10 million.
(xiv) PERMITTED TRANSFEREE. The term "Permitted
Transferee" shall mean:
(a) any natural person who is an Initial Holder;
-10-
<PAGE>
(b) the spouse of an Initial Holder referred to
in the foregoing clause (a), any Descendant or Ancestor
of such an Initial Holder and the spouse of any
Descendant of such an Initial Holder.
(c) a corporation, partnership or limited
liability company which is a Controlled Entity;
(d) a Permitted Trust;
(e) a Permitted Charitable Foundation;
(f) a Permitted Estate; or
(g) the Corporation and each of its direct or
indirect majority-owned subsidiaries.
(xv) PERMITTED TRUST. A trust (including a voting
trust) shall be deemed to be a "Permitted Trust" if (but
only if) such trust (a) has as a majority of its trustees
Permitted Trustees (PROVIDED that such condition shall
continue to be satisfied for 30 days following the death,
resignation, removal or incapacity of a Permitted Trustee
that would otherwise result in the failure to satisfy this
condition) and (b) either (x) has no Beneficiary other than
a Permitted Transferee, (y) is a charitable remainder
annuity or unitrust meeting the requirements of Section 664
of the Code and under which no annuity or unitrust payment
will be payable to a person other than a Permitted
Transferee or (z) is a charitable lead annuity or unitrust
under which the annuity or unitrust payments qualify for a
charitable deduction under Section 2522(c) of the Code and
under which no portion of the remainder interest after the
charitable lead term will be payable to (or held for the
benefit of) any Person other than a Permitted Transferee.
(xvi) PERMITTED TRUSTEE. The term "Permitted Trustee"
with respect to any trust shall mean (a) a Permitted
Transferee, (b) a licensed attorney acting as the personal
attorney for a natural person who is a Permitted Transferee
and is also the settlor of such trust (or in the case of the
death of the settlor, was acting as the personal attorney
for such settlor at the time of his death) and (c) a
commercial bank or trust company regularly engaged in the
business of acting as a trustee and having net capital in
excess of U.S. $10 million.
-11-
<PAGE>
(xvii) PERSON. The term "Person" means any natural
person, corporation, association, partnership, limited
liability company, organization, business, government or
political subdivision thereof or governmental agency.
(xviii) TRANSFER. The term "Transfer' shall mean any
sale, transfer (including a transfer made in whole or in
part without consideration as a gift), exchange, assignment,
pledge, encumbrance, alienation or any other disposition or
hypothecation of record ownership or of Beneficial Ownership
of any share, whether by operation of law or otherwise;
provided, however, that (a) a pledge of any share made in
accordance with the provisions of Section A.5.c.(iii) and
(b) a grant of a proxy with respect to any share to a Person
designated by the Board of Directors of the Corporation who
is soliciting proxies on behalf of the Corporation shall not
be considered a "Transfer;" and PROVIDED FURTHER that in the
case of any transferee of record ownership that is a
Nominee, such Transfer of record ownership shall be deemed
to be made to the Person or Persons for whom such Nominee is
acting.
j. STOCK LEGEND. The Corporation shall include on the
Certificates representing the shares of Class B Common Stock
subject thereto a legend referring to the restrictions on
transfer and registration of transfer imposed by this Section
A.5.
k. TAXES. The issuance of a certificate for shares of
Class A Common Stock upon conversion of shares of Class B Common
Stock shall be made without charge for any stamp or other similar
tax in respect of such issuance. However, if any such
certificate is to be issued in a name other than that of the
holder of the shares of Class B Common Stock converted, the
Person or Persons requesting the issuance thereof shall pay to
the Corporation the amount of any tax which may be payable in
respect of any Transfer involved in such issuance or shall
establish to the satisfaction of the Corporation that such tax
has been paid or is not required to be paid.
6. LIQUIDATION.
In the event of any voluntary or involuntary liquidation,
distribution or winding up of the Corporation, after distribution in full
of the preferential and/or other amounts to be distributed to the holders
of shares of any outstanding series of Preferred Stock, the holders of
shares of Class A Stock and Class B Common Stock shall be entitled to
receive all of the remaining assets of the Corporation available for
distribution to its shareholders ratably in
-12-
<PAGE>
proportion to the number of shares of Common Stock held by them. In any such
distribution shares of Class A Common Stock and Class B Common Stock shall be
treated equally on a per share basis.
B. PROVISIONS APPLICABLE TO PREFERRED STOCK:
1. PROVISIONS TO BE FIXED BY THE BOARD OF DIRECTORS. The Board
of Directors expressly is authorized at any time, and from time to
time, to provide for the issuance of shares of Preferred Stock in one
or more series, each with such voting powers, full or limited, or
without voting powers, and with such designations, preferences,
participating, conversion, optional, or other rights, and such
qualifications, limitations, or restrictions thereof, as shall be
stated in the resolution or resolutions providing for the issue
thereof adopted by the Board of Directors, and as are not stated in
these Restated Articles of Incorporation, or any amendments thereto,
including (but without limiting the generality of the foregoing) the
following:
a. The distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the Board of Directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by action of the Board of
Directors.
b. The stated value of the shares of such series.
c. The dividend rate or rates on the shares of such series
and the relation that such dividends shall bear to the dividends
payable on any other class of capital stock or on any other
series of Preferred Stock, the terms and conditions upon which,
and the period in respect of which, dividends shall be payable,
whether and upon what conditions such dividends shall be
cumulative and, if cumulative, the date or dates from which
dividends shall accumulate.
d. Whether the shares of such series shall be redeemable,
and, if redeemable, whether redeemable for cash, property, or
rights, including securities of the Corporation or of any other
corporation, and whether redeemable at the option of the holder
or the Corporation or upon the happening of a specified event,
the limitations and restrictions with respect to such redemption,
the time or times when, the price or prices or rate or rates at
which, the adjustments with which, and the manner in which such
shares shall be redeemable, including the manner of
-13-
<PAGE>
selecting shares of such series for redemption if less than all
shares are to be redeemed.
e. The rights to which the holders of shares of such
series shall be entitled, and the preferences, if any, over any
other series (or of any other series over such series), upon the
voluntary or involuntary liquidation, dissolution, distribution,
or winding up of the Corporation, which rights may vary depending
on whether such liquidation, dissolution, distribution, or
winding up is voluntary or involuntary, and, if voluntary, may
vary at different dates.
f. Whether the shares of such series shall be subject to
the operation of a purchase, retirement, or sinking fund and, if
so, whether and upon what conditions such fund shall be
cumulative or noncumulative, the extent to which and the manner
in which such fund shall be applied to the purchase or redemption
of the shares of such series for retirement or to other purposes
and the terms and provisions relative to the operation thereof.
g. Whether the shares of such series shall be convertible
into or exchangeable for shares of any other class or of any
other series of any class of capital stock of the Corporation or
any other corporation, and, if so convertible or exchangeable,
the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same, and any
other terms and conditions of such conversion or exchange.
h. The voting powers, if any, of the shares of such
series, and whether and under what conditions the shares of such
series (alone or together with the shares of one or more other
series having similar provisions) shall be entitled to vote
separately as a single class, for the election of one or more
additional directors of the Corporation in case of dividend
arrearages or other specified events, or upon other matters.
i. Whether the issuance of any additional shares of such
series, or of any shares of any other series, shall be subject to
restrictions as to issuance, or as to the powers, preferences, or
rights of any such other series.
j. Any other preferences, privileges, and powers and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as
the Board of Directors may deem advisable and as shall not be
inconsistent with the provisions of these Restated Articles of
Incorporation.
-14-
<PAGE>
2. PROVISIONS APPLICABLE TO ALL PREFERRED STOCK.
a. All Preferred Stock shall rank equally and be identical
in all respects except as to the matters permitted to be fixed by
the Board of Directors, and all shares of any one series thereof
shall be identical in every particular except as to the date, if
any, from which dividends on such shares shall accumulate.
b. Shares of Preferred Stock redeemed, converted,
exchanged, purchased, retired, or surrendered to the Corporation,
or that have been issued and reacquired in any manner, may, upon
compliance with any applicable provisions of the Michigan
Business Corporation Act be given the status of authorized and
unissued shares of Preferred Stock and may be reissued by the
Board of Directors as part of the series of which they were
originally a part or may be reclassified into and reissued as
part of a new series or as a part of any other series, all
subject to the protective conditions or restrictions of any
outstanding series of Preferred Stock.
c. The Board of Directors shall have the power to issue
shares of Preferred Stock pursuant to this Article III only upon
the affirmative vote of 80% of the entire Board of Directors.
ARTICLE IV
The address (which address is the mailing address) of the
registered office of the Corporation is 5300 Patterson Avenue, S.E., Grand
Rapids, Michigan 49530. The name of the resident agent at the registered
office is Craig G. Wassenaar.
ARTICLE V
When a compromise or arrangement or a plan of reorganization of
the Corporation is proposed between the Corporation and its creditors or
any class of them or between the Corporation and its shareholders or any
class of them, a court of equity jurisdiction within the state, on
application of the Corporation or of a creditor or shareholder thereof, or
on application of a receiver appointed for the Corporation, may order a
meeting of the creditors or class of creditors or of the shareholders or
class of shareholders to be affected by the proposed compromise or
arrangement or reorganization, to be summoned in such manner as the court
directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, or of the shareholders or class of
shareholders to be affected by the proposed compromise or arrangement or a
reorganization, agree to a compromise or arrangement or a
-15-
<PAGE>
reorganization of the Corporation as a consequence of the compromise or
arrangement, the compromise or arrangement and the reorganization, if
sanctioned by the court to which the application has been made, shall be
binding on all the creditors or class of creditors, or on all the
shareholders or class of shareholders and also on the Corporation.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
A. AMENDED BYLAWS. Except as otherwise provided in these Restated
Articles of Incorporation, to make, alter or repeal the bylaws of the
Corporation.
B. EXECUTE MORTGAGES. To authorize and cause to be executed
mortgages and liens upon the real and personal property of the Corporation.
C. CREATE RESERVES. To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it was
created.
D. DESIGNATE COMMITTEES. To designate one or more committees, each
committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. Unless prohibited by the Board resolution
creating the committee, in the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting
and not disqualified from voting, whether or not he, she, or they
constitute a quorum, unanimously may appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. A committee, to the extent provided in the Board resolution
creating the committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, but a committee may not: (i) amend the
Restated Articles of Incorporation, except that a committee may prescribe
the relative rights and preferences of a series of a class of shares for
which the Board of Directors has such authority under the Restated Articles
of Incorporation; (ii) adopt an agreement of merger or consolidation;
(iii) recommend to shareholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets; (iv) recommend
to the shareholders a dissolution of the Corporation or a revocation
of a dissolution; (v) amend the bylaws of the Corporation; or (vi) fill
vacancies in the Board of Directors. Unless a resolution of the Board of
Directors expressly so provides, a committee may
-16-
<PAGE>
not declare a distribution or dividend or authorize the issuance of stock. A
committee exists, and each member serves, at the pleasure of the Board of
Directors.
E. SELL PROPERTY. When and as authorized by the shareholders in
accordance with statute, to sell, lease, or exchange all or substantially
all of the property and assets of the Corporation, including its goodwill
and its corporate franchises, upon such terms and conditions and for such
consideration, that may consist in whole or in part of money or property
including shares of stock in, and/or other securities of, any other
corporation or corporations, as its Board of Directors shall deem expedient
and for the best interest of the Corporation.
F. APPOINT OFFICERS. To elect and determine the duties of the
officers of the Corporation, and to establish the rights, powers, duties,
rules, and procedures that (1) govern the Board of Directors, including
without limitation, the vote required for any action by the Board of
Directors; and (2) affect the directors' power to manage the affairs of the
Corporation.
G. CREATE RIGHTS. To create and issue, by way of distributions to
shareholders, as dividends or otherwise, rights or options entitling the
holders thereof to purchase from the Corporation shares of any class or
series of the Corporation's capital stock. Such rights or options shall be
evidenced in such manner as the Board of Directors shall approve and shall
set forth the terms upon which, the time within which and the price at
which such shares may be purchased from the Corporation upon the exercise
of any such right or option. The terms and conditions of such rights or
options may include, without limitation, provisions that adjust the option
price or number of shares issuable under such rights or options in the
event of an acquisition of shares or a reorganization, merger,
consolidation, sale of assets, or other occurrence involving the
Corporation, and restrictions or conditions that preclude or limit the
entitlement, exercise, or transfer of such rights or options by any person
or persons who, after the date of creation or issuance of such rights or
options, acquires, obtains the right to acquire, or offers to acquire,
directly or indirectly, beneficial ownership of a specified number or
percentage of the Corporation's outstanding voting shares or other shares
of the Corporation, or that invalidate or void such rights or options held
by any such person or persons.
No bylaw shall be adopted by shareholders that shall impair or impede the
implementation of any of the foregoing.
ARTICLE VII
Directors and executive officers of the Corporation shall be
indemnified as of right, and shall be entitled to the advancement of
expenses, to the fullest extent now or hereafter permitted by law in
connection with any threatened, pending, or completed civil, criminal,
administrative, or investigative action, suit, or proceeding (whether
brought by or in the name of the Corporation, one of its subsidiaries, or
otherwise and whether formal or informal) arising out
-17-
<PAGE>
of their service to the Corporation or one of its subsidiaries, or to another
organization at the request of the Corporation or one of its subsidiaries.
Persons who are not directors or executive officers of the Corporation may be
similarly indemnified in respect of such service to the extent authorized at
any time by the Board of Directors of the Corporation. The Corporation may
purchase and maintain insurance to protect itself and any such director,
officer, or other person against any liability asserted against him or her
and incurred by him or her in respect of such service whether or not the
Corporation would have the power to indemnify him or her against such
liability by law or under the provisions of this Article. The provisions of
this Article shall be deemed contractual and shall be applicable to actions,
suits, or proceedings, whether arising from acts or omissions occurring
before or after the adoption hereof, and to directors, officers, and other
persons who have ceased to render such service, and shall inure to the
benefit of the heirs, executors, and administrators of the directors,
officers, and other persons referred to in this Article. Changes in these
Restated Articles of Incorporation or in the bylaws reducing the scope of
indemnification shall not apply to actions or omissions occurring before such
change.
ARTICLE VIII
Any action required or permitted to be taken by the shareholders
of the Corporation must be effected at a duly called annual or special
meeting of shareholders of the Corporation and may not be effected by any
consent in writing by such shareholders, except that any such action may be
taken upon the signing of a consent in writing by all the shareholders of
the Corporation entitled to vote thereon. Except as otherwise required by
law and subject to the rights of the holders of Preferred Stock, special
meetings of shareholders of the Corporation may be called only by the Board
of Directors pursuant to a resolution approved by a majority of the entire
Board of Directors.
ARTICLE IX
Members of the Board of Directors of the Corporation shall be
selected, replaced, and removed as follows:
A. NUMBER OF DIRECTORS. The number of directors shall be determined
from time to time by resolution of the Board of Directors, provided that a
vacancy in the Board of Directors need not be filled immediately, and until
filled, such lesser number shall constitute the entire Board of Directors.
Except as otherwise provided in this Article, directors shall be elected at
the annual meeting of shareholders, and each such director elected shall
hold office until the annual meeting for the year in which the director's
term expires and until the director's successor is elected.
-18-
<PAGE>
B. CLASSIFICATION. The Board of Directors shall be divided into
three classes as nearly equal in number as possible, with the term of
office of one class expiring each year. At each annual meeting of the
shareholders, the successors of the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election.
C. NOMINATIONS OF DIRECTOR CANDIDATES. Subject to the rights of
holders of any classes or series of Preferred Stock then outstanding and as
otherwise provided in these Restated Articles of Incorporation, only
persons who are nominated in accordance with the following procedures shall
be eligible for election as directors:
1. Nominations of candidates for election as directors of the
Corporation may be made at the annual meeting of shareholders by or at
the direction of the Board of Directors or by any nominating committee
of the Board or person appointed by the Board or by any shareholder of
the Corporation entitled to vote for the election of Directors at the
annual meeting, provided that such nomination complies with all
applicable notice procedures contained in these Restated Articles of
Incorporation and the Corporation's bylaws.
2. Nominations, other than those made by or at the direction of
the Board of Directors or by any Nominating Committee of the Board,
shall be made pursuant to timely notice in writing to the Secretary of
the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices
of the Corporation not less than 120 days prior to the date of the
annual meeting. Such shareholder's notice to the Secretary shall set
forth: (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a director, (i) the name,
age, business address, and residence address of the person; (ii) the
principal occupation or employment of the person; (iii) the class and
number of shares of capital stock of the Corporation that are
beneficially owned by the person, (iv) a description of all
arrangements or understandings between the shareholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be
made by the shareholder; and (v) such other information relating to
the person that is required to be disclosed in solicitations for
proxies for election of directors pursuant to Rule 14a under the
Securities Exchange Act of 1934, as amended; and (b) as to the
shareholder giving the notice (i) the name and record address of the
shareholder and (ii) the class and number of shares of capital stock
of the Corporation that are beneficially owned by the shareholder.
The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as
director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with
the procedures set forth herein.
-19-
<PAGE>
3. The chairperson of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure and any procedure provided by
law or the bylaws, and if the chairperson so determines, the
chairperson shall so declare to the meeting and the defective
nomination shall be disregarded.
D. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, any
vacancy occurring in the Board of Directors caused by resignation, removal,
death, disqualification, or other incapacity, and any newly created
directorships resulting from an increase in the number of directors, shall
be filled by a majority vote of directors then in office whether or not a
quorum and shall not be filled by the shareholders. When the number of
directors is changed, any newly created or eliminated directorship shall be
so apportioned among the classes of directors as to make all classes as
nearly equal in number as possible. Each director chosen to fill a vacancy
or newly created directorship shall hold office for the term coinciding
with the class of his or her directorship and until his or her successor
shall be elected and qualify. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
E. REMOVAL FOR CAUSE. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, any director may be removed
from office at any time, only for cause, and only if removal is approved as
set forth below.
1. Except as may be provided otherwise by law, cause for
removal shall be construed to exist only if: (a) the director whose
removal is proposed has been convicted of a felony by a court of
competent jurisdiction and such conviction is no longer subject to
direct appeal; (b) such director has been adjudicated by a court of
competent jurisdiction to be liable for negligence or misconduct in
the performance of his or her duty to the Corporation in a matter of
substantial importance to the Corporation and such adjudication is no
longer subject to a direct appeal; (c) such director has become
mentally incompetent, whether or not so adjudicated, which mental
incompetency directly affects his or her ability as a director of the
Corporation; or (d) the director's actions or failure to act are
deemed by the Board of Directors to be in derogation of the director's
duties.
2. Removal for cause, as cause is defined in clauses (a) and
(b) immediately above, must be approved by at least a majority of the
total number of directors or by at least a majority vote of the shares
of the Corporation then entitled to be voted at an election for that
director, and the action for removal must be brought within one year
of such conviction or adjudication. Removal for cause, as cause is
defined in (c) and (d) immediately above, must be approved by at least
two-thirds of the total number of directors. For purposes of this
Section, the total number of directors will not include the director
who is the subject of the removal determination, nor will such
director be entitled to vote thereon.
-20-
<PAGE>
F. AMENDMENT. Notwithstanding any provision to the contrary, the
provisions contained in this Article shall not be amended, altered,
modified, or repealed, and no provision inconsistent with this Article may
be adopted, except upon either (1) the affirmative vote of the holders of
not less than two-thirds of the outstanding stock of the Corporation
entitled to vote in elections of directors, or (2) the affirmative vote of
a majority of the whole Board of Directors and the affirmative vote of the
holders of a majority of such outstanding stock present in person or
represented by proxy at any meeting of shareholders.
ARTICLE X
A director of the Corporation shall not be liable to the
Corporation or its shareholders for money damages for any action taken or
any failure to take any action as a director, except that a director's
liability is not limited for: (1) the amount of a financial benefit
received by a director to which he or she is not entitled; (2) intentional
infliction of harm on the Corporation or the shareholders; (3) a violation
of section 551 of the Michigan Business Corporation Act; or (4) an
intentional criminal act. If the Michigan Business Corporation Act is
amended to further eliminate or limit the liability of a director, then a
director of the Corporation (in addition to the circumstances in which a
director is not liable as set forth in these Restated Articles of
Incorporation or bylaws) shall, to the fullest extent permitted by the
Michigan Business Corporation Act, as so amended, not be liable to the
Corporation or its shareholders. No amendment to or modification or repeal
of this Article shall increase the liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring before such amendment, modification, or repeal.
ARTICLE XI
A. HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. In
addition to any affirmative vote required by (1) law, and (2) these
Restated Articles of Incorporation, and except as otherwise expressly
provided in Section B of this Article, the affirmative vote of the holders
of not less than 80% of the outstanding shares of Voting Stock shall be
required for the approval or authorization of any Business Combination of
the Corporation or any Subsidiary of the Corporation with any Interested
Shareholder (as these terms are defined below).
B. WHEN HIGHER VOTE NOT REQUIRED. The provisions of Section A of
this Article shall not apply to any transaction that shall have been
approved by a majority of the Continuing Directors (as defined below).
C. DEFINITIONS. For the purposes of this Article and Articles IX
and XIII, the following definitions shall apply:
-21-
<PAGE>
1. An "Affiliate" of a specified person is any person that
directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, the specified
person;
2. An "Associate" of a specified person is:
a. Any corporation, partnership, limited liability
company, unincorporated association, or other entity of which
such person is a director, officer, or partner or is, directly or
indirectly, the owner of 20% or more of any class of Voting
Stock;
b. Any trust or other estate in which the person has a
beneficial interest of 20% or more or as to which such specified
person serves as trustee or in a similar fiduciary capacity in
connection with the trust or estate; or
c. Any relative or spouse of the person, or any relative
of the spouse, who has the same residence as such person.
3. The term "Business Combination" shall mean:
a. Any merger, consolidation, or share exchange of the
Corporation or any Subsidiary with an Interested Shareholder or
into or with another person that, after such merger,
consolidation, or share exchange would be an Interested
Shareholder, in each case irrespective of which person is the
surviving entity in such merger, consolidation, or share
exchange;
b. The sale, lease, exchange, mortgage, pledge, transfer,
or other disposition (in one transaction or a series of
transactions), except proportionately as a shareholder of such
corporation, to or with an Interested Shareholder, whether as
part of a dissolution or otherwise, of assets of the Corporation
or of any Subsidiary that assets have an aggregate market value
equal to 10% or more of either the aggregate market value of all
the assets of the Corporation determined on a consolidated basis
or the aggregate market value of all the outstanding stock of the
Corporation;
c. Any purchase, exchange, lease, or other acquisition by
the Corporation or a Subsidiary (in one transaction or a series
of related transactions) of all or substantially all, or any
Substantial Part, of the assets or business of an Interested
Shareholder;
-22-
<PAGE>
d. The adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on
behalf of an Interested Shareholder;
e. The acquisition of beneficial ownership by an
Interested Shareholder upon issuance or transfer by the
Corporation or any Subsidiary (in one transaction or a series of
transactions) of any securities of the Corporation or any
Subsidiary, or any rights, warrants, or options to acquire any
such securities, excluding a distribution of such securities on a
pro rata basis to all shareholders;
f. The acquisition by the Corporation or any Subsidiary of
any securities of an Interested Shareholder;
g. Any reclassification of securities (including any
reverse stock split) recapitalization, or reorganization of the
Corporation, any merger or consolidation with any Subsidiary, any
partial liquidation, spin-off, split-off, or split-up of the
Corporation or any Subsidiary, or any other transaction (whether
or not with or into or otherwise involving an Interested
Shareholder) that has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of
any class of equity or convertible securities of the Corporation
or any Subsidiary that is directly or indirectly owned by an
Interested Shareholder;
h. Any loan or other extension of credit by the
Corporation or any Subsidiary to an Interested Shareholder or any
guarantees by the Corporation or any Subsidiary of any loan or
other extension of credit by any person to an Interested
Shareholder;
i. Any transaction or series of related transactions
having, directly or indirectly, the same effect as any of the
foregoing;
j. Any agreement, contract, or other arrangement providing
for any of the transactions described in this definition of
Business Combination.
k. A "series of related transactions" shall be deemed to
include not only a series of transactions with the same
Interested Shareholder, but also a series of separate
transactions with an Interested Shareholder or any Affiliate or
Associate of such Interested Shareholder.
4. A "Continuing Director" is a member of the Board of
Directors who is not an Affiliate, Associate, or a representative of
the Interested Shareholder and was either (a) first elected as a
director before the time that the Interested Shareholder became an
Interested Shareholder, or (b) was designated, before the person's
initial election as a di-
-23-
<PAGE>
rector, as a Continuing Director by a majority of the then Continuing
Directors; provided, however, that the term "Continuing Director"
specifically excludes any individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as that term is used in Rule 14a-11 of Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended) or other actual or
threatened solicitation of proxies or consents by or on behalf of any
person other than the Corporation's Board of Directors.
5. "Control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
securities, by contract, or otherwise. A person who is the owner of
10% or more of the outstanding Voting Stock of any person shall be
presumed to have control of such person.
6. "Equity security" means any one of the following:
a. Any stock or similar security, certificate of interest
or participation in any profit-sharing agreement, voting trust
certificate, or voting share;
b. Any security convertible, with or without
consideration, into an equity security, or any warrant or other
security carrying any right to subscribe to or purchase an equity
security;
c. Any put, call, straddle, or other option or privilege
of buying an equity security from or selling an equity security
to another without being bound to do so.
7. The term "Interested Shareholder" shall mean:
a. Any person (other than the Corporation, any Subsidiary,
or any employee benefit plan of the Corporation or any Subsidiary
or any trustee of or fiduciary with respect to any such plan when
acting in such capacity) who or which, together with any
Affiliates and Associates, is the owner of 10% or more of the
Corporation's outstanding Voting Stock; or
b. Any person that is an Affiliate or Associate of the
Corporation and was the owner of 10% or more of the Corporation's
outstanding Voting Stock at any time within the three-year period
immediately prior to the date on which it is sought to be
determined whether such person is an Interested Shareholder, and
the Affiliates and Associates of such person.
-24-
<PAGE>
8. A person shall be an "owner" of any Voting Stock if the
person individually or with or through any of its Affiliates or
Associates:
a. Beneficially owns such stock, directly or
indirectly;
b. Has (i) the right to acquire such stock (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement, or understanding, or upon the
exercise of conversion rights, exchange rights, warrants, or options,
or otherwise; provided, however, that a person shall not be deemed the
owner of stock tendered pursuant to a tender or exchange offer made by
such person or any of such person's Affiliates or Associates until
such tendered stock is accepted for purchase or exchange or (ii) the
right to vote such stock pursuant to any agreement, arrangement, or
understanding, provided, however, that a person shall not be deemed
the owner of any stock because of such person's right to vote such
stock if the agreement, arrangement, or understanding to vote such
stock arises solely from a revocable proxy or consent given in
response to a proxy or consent solicitation made to 10 or more
persons; or
c. Has any agreement, arrangement, or understanding for
the purpose of acquiring, holding, voting (except voting pursuant to a
revocable proxy or consent as described in item (ii) of clause (b)
immediately above), or disposing of such stock with any other person
that beneficially owns, or whose affiliates or associates beneficially
own, directly or indirectly, such stock.
9. The term "person" shall mean any individual, corporation,
partnership, limited liability company, unincorporated association or
group, or other entity.
10. The term "Subsidiary" shall mean any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Interested Shareholder set forth in
Section C(7) of this Article, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
11. The term "Substantial Part" shall mean more than 10% of the
total consolidated assets of the corporation in question as of the end
of the most recent fiscal year ending prior to the time the
determination is being made.
12. The term "Voting Stock" shall mean stock of any class or
series entitled to vote generally in the election of directors and,
with respect to any entity that is not a corporation, any equity
interest entitled to vote generally in the election of the governing
-25-
<PAGE>
body of such entity. Each reference in this Article to a percentage
of shares of Voting Stock shall refer to the percentage of the votes
entitled to be cast by such shares.
D. INTERESTED SHAREHOLDER. For purposes of determining whether a
person is an Interested Shareholder, the number of shares of Voting Stock
deemed to be outstanding shall include shares deemed owned by that person
through application of Section C (8) of this Article, defining "owner," but
shall not include any other shares of Voting Stock that may be issuable
pursuant to any agreement, arrangement, or understanding, or upon exercise
of conversion rights, warrants or options, or otherwise.
E. DETERMINATIONS BY CONTINUING DIRECTORS. A majority of the
Continuing Directors shall have the power and duty to determine, for
purposes of this Article and Article XIII on the basis of information known
to them:
1. The number of Voting Shares of which any person is the
owner;
2. Whether a person is an Affiliate or Associate of
another;
3. Whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the
definition of "owner" set forth above;
4. Whether the assets subject to any Business Combination
constitute a "Substantial Part" as defined above;
5. Whether two or more transactions constitute a "series of
related transactions" as defined above;
6. Such other matters with respect to which a determination is
required under this Article and Article XIII.
Any such determination shall be conclusive and binding for all purposes of
this Article and Article XIII.
ARTICLE XII
The Board of Directors shall not initiate, approve, authorize,
adopt, or recommend any offer of any party other than the Corporation to
make a tender or exchange offer for any equity security of the Corporation,
or to engage in any Business Combination, unless and until it shall have
first evaluated the proposed offer and determined in its judgment that the
proposed offer would be in compliance with all applicable laws. In
evaluating a proposed offer to determine whether it would be in compliance
with law, the Board of Directors shall consider all aspects of
-26-
<PAGE>
the proposed offer, including the manner in which the offer is proposed to be
made, the documents proposed for the communication of the offer, and the
effects and consequences of the offer if consummated, in light of the laws of
the United States of America and affected states and foreign countries. In
connection with this evaluation, the Board may seek and rely upon the opinion
of independent legal counsel; and it may test the legality of the proposed
offer in any state, federal, or foreign court or before any state, federal,
or foreign administrative agency that may have jurisdiction. If the Board of
Directors determines in its judgment that a proposed offer would be in
compliance with all applicable laws, the Board of Directors shall then
evaluate the proposed offer and determine whether the proposed offer is in
the best interest of the Corporation and its shareholders, and the Board of
Directors shall not initiate, approve, adopt, or recommend any such offer
that, in its judgment, would not be in the best interest of the Corporation
and its shareholders. In evaluating a proposed offer to determine whether
it would be in the best interest of the Corporation and its shareholders, the
Board of Directors shall consider all factors that it deems relevant
including:
A. FAIRNESS TO SHAREHOLDERS. The fairness of the consideration to
be received by the Corporation and its shareholders under the proposed
offer;
B. IMPACT ON STAKEHOLDERS. The possible social and economic impact
of the proposed offer and its consummation on the Corporation and its
employees, customers, and suppliers; and
C. IMPACT ON COMMUNITY. The possible social and economic impact of
the proposed offer and its consummation on the communities in which the
Corporation and its Subsidiaries operate or are located.
ARTICLE XIII
A. FAIR PRICE. In addition to any affirmative vote required by
(1) law and (2) the other provisions of these Restated Articles of
Incorporation, and except as otherwise expressly provided in Section B of
this Article, the affirmative vote of not less than 80% of the outstanding
shares of Voting Stock held by shareholders who are not Interested
Shareholders shall be required for the approval or authorization of any
Business Combination of the Corporation or any Subsidiary with any
Interested Shareholder (as these terms are defined in Article XI above).
B. EXCEPTIONS. The provisions of Section A of this Article shall
not apply to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law
and any other provision of the Restated Articles of Incorporation, if
either of the following Paragraphs 1 or 2 apply:
1. The Business Combination shall have been approved by a
majority of the Continuing Directors; or
-27-
<PAGE>
2. All of the following conditions shall have been met:
a. The Business Combination will result in an involuntary
sale, redemption, cancellation, or other termination of ownership
of shares of any class of Voting Stock of the Corporation owned
by shareholders who do not vote in favor of the Business
Combination and the aggregate amount of the cash and the market
value as of the valuation date of other readily marketable
consideration to be received by such shareholders for such shares
shall be at least equal to the Minimum Price Per Share;
b. The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or
in the same form as the Interested Shareholder has previously
paid for shares of such class of Voting Stock. If the Interested
Shareholder has paid for shares of any class of Voting Stock in
varying forms of consideration, the form of consideration of such
class of Voting Stock shall be either cash or the form used to
acquire the largest number of shares of such class of Voting
Stock previously acquired by it;
c. From the time the Interested Shareholder became an
Interested Shareholder:
(i) Such Interested Shareholder shall have taken steps
to insure that the Corporation's Board of Directors included
at all times representation by Continuing Directors
proportionate to the stock holdings of the Corporation's
holders of Voting Stock not affiliated with such Interested
Shareholder (with a Continuing Director to occupy any
resulting fractional board position);
(ii) There shall have been no reduction in the rate of
dividends payable on the Corporation's stock except as may
have been approved by unanimous vote of the directors;
(iii) The Interested Shareholder shall not have
acquired any newly issued shares of stock, directly or
indirectly, from the Corporation (except upon conversion of
convertible securities acquired by it prior to becoming an
Interested Shareholder or as a result of a prorated stock
dividend or stock split);
(iv) The Interested Shareholder shall not have acquired
any additional shares of the Corporation's outstanding stock
or securities convertible into stock except as a part of the
transaction that resulted in such person becoming an
Interested Shareholder; and
-28-
<PAGE>
(v) The Interested Shareholder shall not have received
the benefit, directly or indirectly (except proportionately
as a shareholder), of any loans, advances, guarantees,
pledges or other financial assistance or tax credits
provided by the Corporation, nor made any major change in
the Corporation's business or equity capital structure
without the unanimous approval of the directors, in either
case prior to the consummation of the Business Combination.
d. A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, as amended, shall have been
mailed to all shareholders of the Corporation for the purpose of
soliciting shareholder approval of the Business Combination
containing at the front thereof in a prominent place any
recommendations as to the advisability (or inadvisability) of the
Business Combination that the Continuing Directors, or any of
them, may choose to state and, if deemed advisable by a majority
of the Continuing Directors, an opinion of a reputable investment
banking firm as to the fairness (or not) of the terms of the
Business Combination, from the point of view of the remaining
public shareholders of the Corporation (such investment banking
firm to be selected by a majority of the Continuing Directors and
to be paid a reasonable fee for its services by the Corporation
upon receipt of such opinion); and
e. There has been five years between the date that the
Interested Shareholder became an Interested Shareholder and the
date that the Business Combination is consummated.
C. DEFINITIONS. For the purposes of this Article, the following
definitions shall apply:
1. All the definitions set forth in Article XI, Section C shall
apply as if fully restated here;
2. "Minimum Price Per Share" means the sum of (a) the highest
per share price as determined below, and (b) the aggregate amount, if
any, by which 6% per year of such highest per share price exceeds the
aggregate amount of all stock dividends per share paid in cash since
the Determination Date. For Common Stock, the highest per share price
is the highest of the following:
a. The highest per share price, including any brokerage
commissions, transfer taxes and soliciting dealers' fees, paid by
the Interested Shareholder within the five-year period
immediately prior to the Announcement Date, or in the transaction
in which the shareholder became an Interested Shareholder,
whichever is higher.
-29-
<PAGE>
b. The highest per share price bid in the public market
for such Common Stock during the five years immediately preceding
the Announcement Date.
For any class or series of outstanding stock other than
Common Stock, whether or not the Interested Shareholder has
previously acquired any shares of a particular class or series of
stock, the highest per share price is the highest of the
following:
x. The highest per share price, including any brokerage,
commissions, transfer taxes and soliciting dealers' fees, paid by
the Interested Shareholder for any shares of the class or series
of stock acquired by it within the five-year period immediately
prior to the Announcement Date, or in the transaction in which
the shareholder became an Interested Shareholder, whichever is
higher;
y. The highest preferential amount per share to which the
holders of shares of the class or series of stock are entitled in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
z. The highest per share price bid in the public market
for such class or series of stock during the five years
immediately preceding the Announcement Date.
The calculation of the Minimum Price Per Share shall require
appropriate adjustments for capital changes, including without
limitation stock splits, stock dividends, and reverse stock
splits.
3. "Announcement Date" means the first general public
announcement or the first communication generally to shareholders of
the Corporation, whichever is earlier, of the proposal or intention to
make a proposal concerning a Business Combination.
4. "Determination Date" means the date on which an Interested
Shareholder first became an Interested Shareholder.
5. "Market Value" means either of the following:
a. With respect to shares, the highest closing sale price
during the 30-day period immediately preceding the date in
question of a share:
(i) As listed on the composite tape for New York Stock
Exchange, American Stock Exchange, or the principal United
States
-30-
<PAGE>
security exchange registered under the Securities Exchange
Act of 1934, as amended;
(ii) If not listed pursuant to subparagraph (i), the
highest closing bid during the 30-day period preceding the
date in question as listed on The Nasdaq Stock Market or any
other system then in use;
(iii) If a listing is not available pursuant to
subparagraphs (i) or (ii), then the fair market value of the
shares on the date in question, as determined by the
Continuing Directors; or
b. With respect to property other than cash or shares, the
fair market value of the property on the day in question, as
determined by the Continuing Directors.
6. "Valuation Date" means:
a. In a Business Combination voted upon by shareholders,
the day prior to the date of the shareholder vote or the day that
is 20 calendar days prior to the consummation of the Business
Combination, whichever is later.
b. In a Business Combination not voted upon by
shareholders, the date of the consummation of the Business
Combination.
D. CONTINUING DIRECTORS. A majority of the Continuing Directors
shall have the power and duty to determine, for purposes of this Article,
on the basis of information known to them:
1. All the matters set forth in Article XI, Section E;
2. The market value of any consideration other than cash to be
received by shareholders;
3. Whether or not any consideration other than cash to be
received by shareholders is readily marketable;
4. The amount of the Minimum Price Per Share;
5. Whether or not the consideration to be received by
shareholders is equal to the Minimum Price Per Share; and
6. Such other matters with respect to which a determination is
required under this Article.
-31-
<PAGE>
Any such determination shall be conclusive and binding for all
purposes of this Article.
E. OTHER OBLIGATIONS. Nothing contained in this Article shall be
construed to relieve any Interested Shareholder from any fiduciary and
other standards of conduct and obligations imposed by law. The fact that
any Business Combination complies with the provisions of Section B(2) of
this Article shall not be construed to impose any fiduciary duty,
obligation, or responsibility on the Board of Directors, or any member
thereof, to approve such Business Combination or recommend its adoption or
approval to the shareholders of the Corporation, nor shall such compliance
limit, prohibit, or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of, or
actions and responses taken with respect to, such Business Combination.
ARTICLE XIV
The Corporation reserves the right to amend, alter, change, or
repeal any provision contained in these Restated Articles of Incorporation,
in the manner now or hereafter prescribed by statute and these Restated
Articles of Incorporation, and all rights conferred upon shareholders
herein are granted subject to this reservation; provided, however:
A. SUPERMAJORITY-IN GENERAL. No amendment to these Restated
Articles of Incorporation shall alter, modify, or repeal any or all of the
provisions of Articles VI, VII, VIII, IX, X, XI, XII or XIII, of these
Restated Articles of Incorporation, or this Section A of Article XIV, and
the shareholders of the Corporation shall not have the right to alter,
modify, or repeal any or all provisions of the bylaws of the Corporation,
unless such amendment, alteration, modification, or repeal is adopted by
the affirmative vote of the holders of not less than 80% of the outstanding
shares of Voting Stock; PROVIDED, that this Section A shall not apply to,
and such 80% vote shall not be required for, any amendment, alteration,
modification, or repeal that has first been approved by (1) the affirmative
vote of 80% of the entire Board of Directors, and (2) the affirmative vote
of two-thirds of the Continuing Directors.
B. SUPERMAJORITY-CERTAIN PROVISIONS. No amendment to these Restated
Articles of Incorporation shall alter, modify, or repeal any or all of the
provisions of Article XI of these Restated Articles of Incorporation, or
this Section B of this Article, unless approved by the affirmative vote of
not less than 80% of the outstanding shares of Voting Stock held by
shareholders who are not Interested Shareholders.
-32-
<PAGE>
These Restated Articles of Incorporation were duly adopted by the
shareholders of the Corporation in accordance with Section 642 of Act 284,
Public Acts of 1972, as amended. The necessary number of votes as required
by statute were voted in favor of these Restated Articles of Incorporation.
Signed this __th day of __________, 1998.
Family Christian Stores, Inc.
By _____________________________________
Leslie E. Dietzman
Its President
-33-
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
FAMILY CHRISTIAN STORES, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE; RESIDENT AGENT. The registered
office of the corporation shall be 5300 Patterson Avenue, S.E., Grand
Rapids, Michigan 49530. The registered office and registered agent shall
be established from time to time by the board of directors.
SECTION 2. OTHER OFFICES. The corporation may have offices at
such places both within and without the state of Michigan as the board of
directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 1. TIME AND PLACE OF MEETINGS. Shareholder meetings shall be
held at the corporation's principal executive office during regular
business hours or at such other time and place as the board of directors
determines.
SECTION 2. ANNUAL MEETINGS OF SHAREHOLDERS. An annual meeting of
shareholders shall be held each year at such time and on such day as may be
designated by the board of directors. Annual meetings shall be held to
elect, by a plurality vote, successors to those members of the board of
directors whose terms expire at the meeting and to transact only such other
business as may be properly brought before the meeting in accordance with
these bylaws.
SECTION 3. SPECIAL MEETINGS. The board of directors of the corporation
may call a special meeting of shareholders by giving notice of the meeting to
each shareholder entitled to vote at the meeting.
SECTION 4. NOTICE OF MEETINGS. Written notice of the date, time,
place, and purposes of a shareholder meeting shall be given not less than
10 nor more than 60 days before the date of the meeting, either personally
or by mail, to each shareholder of record entitled to vote at the
<PAGE>
meeting. Except as provided by law or to the extent that a shareholder
proposal submitted pursuant to Article II, Section 6(b) is not made available
for inclusion at the time of mailing, notice of the purposes of the meeting
shall include notice of any shareholder proposals that are proper subjects
for shareholder action and are intended to be presented by shareholders who
have notified the corporation in writing of their intention to present the
proposals at the meeting in accordance with these bylaws.
SECTION 5. WAIVER OF NOTICE. A shareholder or a shareholder's
attorney-in-fact may waive the shareholder's right to notice before or
after a meeting by a signed waiver of notice. A shareholder's attendance
at a meeting will result in a waiver of objection to:
(a) lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; and
(b) consideration of a particular matter at the meeting
that is not within the purposes described in the meeting notice,
unless the shareholder objects to considering the matter when it
is presented.
SECTION 6. SHAREHOLDER PROPOSALS. Except as otherwise provided by
statute, the Corporation's Restated Articles of Incorporation (the
"Restated Articles of Incorporation"), or these bylaws:
(a) No matter may be presented for shareholder action at an
annual or special meeting of shareholders unless such matter is: (i)
specified in the notice of the meeting (or any supplement to the
notice) given by or at the direction of the Board of Directors; (ii)
otherwise presented at the meeting by or at the direction of the Board
of Directors; (iii) properly presented for action at the meeting by a
shareholder in accordance with the notice provisions set forth in this
Section and any other applicable requirements; or (iv) a procedural
matter presented, or accepted for presentation, by the Chairperson of
the meeting in his or her sole discretion.
(b) For a matter to be properly presented by a shareholder, the
shareholder must have given timely notice of the matter in writing to
the Secretary of the Corporation. To be timely, the notice must be
delivered to or mailed to and received at the principal executive
offices of the Corporation not less than 120 calendar days prior to
the date corresponding to the date of the Corporation's proxy
statement or notice of meeting released to shareholders in connection
with the last preceding annual meeting of shareholders in the case of
an annual meeting (unless the Corporation did not hold an annual
meeting within the last year, or if the date of the upcoming annual
meeting changed by more than 30 days from the date of the last
preceding meeting, then the notice must be
-2-
<PAGE>
delivered or mailed and received not more than seven days after the
earlier of the date of the notice of the meeting or public disclosure of
the date of the meeting), and not more than seven days after the earlier
of the date of the notice of the meeting or public disclosure of the
date of the meeting in the case of a special meeting. The notice by the
shareholder must set forth: (i) a brief description of the matter the
shareholder desires to present for shareholder action; (ii) the name and
record address of the shareholder proposing the matter for shareholder
action; (iii) the class and number of shares of capital stock of the
Corporation that are beneficially owned by the shareholder; and (iv) any
material interest of the shareholder in the matter proposed for
shareholder action.
(c) The shareholder proposal, together with any accompanying
supporting statement, shall not in the aggregate exceed 500 words.
Except to the extent that a shareholder proposal submitted pursuant to
this Section is not made available at the time of mailing, the notice
of the purposes of the meeting shall include the name and address of
and the number of shares of the voting security held by the proponent
of each shareholder proposal.
(d) A shareholder may submit matters and proposals for
shareholder action at any annual or special shareholder meeting if the
matters and proposals are of general concern to, and are proper
subjects for action by, the shareholders. A submitted proposal or
matter may not be presented for shareholder action if it: (i) relates
to the enforcement of a personal claim or the redress of a personal
grievance against the Corporation, its management, or any other
person; (ii) consists of a recommendation, request, or mandate that
action be taken with respect to a matter, including a general
economic, political, racial, religious, social, or similar cause, that
is not significantly related to the Corporation's business or is not
within the Corporation's power to effectuate; (iii) has, at the
shareholder's request, previously been submitted in either of the last
two annual shareholder meetings and the shareholder has failed to
present the proposal, in person or by proxy, for action at the
meeting; (iv) is substantially similar to a matter or proposal
presented within the preceding five calendar years: (x) if it was
submitted once during the past five annual meetings and it received
less than 3% of the total votes cast, or (y) if it was submitted twice
during the past five annual meetings and it received less than 6% of
the total votes cast at the time of its second submission, or (z) if
it was submitted three times during such period and it received less
than 10% of the votes cast at the time of its third submission (if any
of (x), (y) or (z) apply, the proposal may not be presented for three years
after the latest previous submission); or (v) consists of a
recommendation or request that the management take action with respect
to a matter relating to the conduct of the Corporation's ordinary
business operations.
(e) Notwithstanding the above, if the corporation is subject to
the solicitation rules and regulations of the Securities Exchange Act
of 1934, as amended, and the
-3-
<PAGE>
shareholder desires to require the Corporation to include the
shareholder's proposal in the Corporation's proxy materials, matters and
proposals submitted for inclusion in the Corporation's proxy materials
shall be governed by those rules and regulations.
SECTION 7. ADJOURNMENTS. If a meeting is adjourned, it is not
necessary to give notice of the adjourned meeting if (i) the date, time,
and place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken, and (ii) at the adjourned meeting only such
business is transacted as might have been transacted at the original
meeting. If after the adjournment the board of directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting
shall be given in accordance with Section 4 above.
SECTION 8. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer or
agent having charge of the stock transfer books for shares of the
corporation shall make and certify a complete list of the shareholders
entitled to vote at a shareholder meeting or any adjournment thereof. The
list shall be:
(a) arranged alphabetically within each class and series, with
the address of, and the number of shares held by, each shareholder;
(b) produced at the time and place of the meeting;
(c) subject to inspection by any shareholder at any time during
the meeting; and
(d) prima facie evidence as to who are the shareholders entitled
to examine the list or to vote at the meeting.
Failure to comply with the requirements of this Section shall not affect
the validity of an action taken at the meeting before a shareholder makes a
demand to comply with the requirements.
SECTION 9. QUORUM. Unless a greater quorum is required by the
Restated Articles of Incorporation or statute, shares entitled to cast a
majority of the votes at a shareholder meeting constitute a quorum at the
meeting. The shareholders present in person or by proxy at the meeting are
counted for the purpose of determining a quorum. Once a quorum is present,
business may be conducted until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum. Whether or not a
quorum is present, the meeting may be adjourned by a vote of the shares
present. When the holders of a class or series of shares are entitled to
vote separately on an item of business, each class or series must have a
quorum, as determined by this Section, for the purpose of transacting the
item of business.
SECTION 10. VOTING RIGHTS. Except as otherwise provided by statute
or the Restated Articles of Incorporation, each share is entitled to one
vote on each matter submitted to a vote.
-4-
<PAGE>
SECTION 11. VOTE REQUIRED. An action, other than the election of
directors, to be taken by shareholder vote shall be authorized by a
majority of the votes cast by shareholders entitled to vote on the action,
unless a greater vote is required by statute, the Restated Articles of
Incorporation, or these bylaws. Unless the Restated Articles of
Incorporation provide otherwise, directors shall be elected by a plurality
of votes cast. Shareholders may not cumulate their votes.
SECTION 12. CLASS VOTING. If the Restated Articles of Incorporation
provide that a class of shares or a series of a class shall vote as a
class, either generally or to authorize one or more specified actions, such
voting as a class or series shall be in addition to any other required
vote. Where voting as a class or series is required on an action other
than the election of directors, the action shall be authorized by a
majority of the votes cast by the holders of the class or series entitled
to vote on the action, unless a greater vote is required by statute or the
Restated Articles of Incorporation.
SECTION 13. ELECTRONIC PARTICIPATION IN MEETING. A shareholder may
participate in a shareholder meeting by a conference telephone or by other
similar communications equipment through which all persons participating in
the meeting may communicate with the other participants, if all
participants are advised of the communications equipment and the names of
the participants in the meeting are disclosed to all participants. Such
participation in a meeting constitutes presence in person at the meeting.
SECTION 14. CONDUCT OF MEETINGS. Shareholder meetings shall be
conducted as follows:
(a) The Chairperson of the meeting shall determine the order of
business and shall have the authority to establish rules for the
conduct of the meeting. Any rules adopted for, and the conduct of,
the meeting shall be fair to shareholders.
(b) The Chairperson of the meeting shall announce at the meeting
when the polls close for each matter voted upon. If no announcement
is made, the polls shall close upon the final adjournment of the
meeting. After the polls close, no ballots, proxies, or votes nor any
revocations or changes to ballots, proxies, or votes may be accepted.
(c) The Chairperson of the meeting shall have absolute authority
over matters of procedure and there shall be no appeal from the ruling
of the Chairperson. If, in his or her absolute discretion, the
Chairperson deems it advisable to dispense with the rules of
parliamentary procedure as to any one meeting of shareholders or part
thereof, the Chairperson shall so state and shall clearly state the
rules under which the meeting or appropriate part thereof shall be
conducted.
(d) If disorder should arise that, in the absolute discretion of
the Chairperson, prevents the continuation of the legitimate business
of the meeting, the Chairperson may
-5-
<PAGE>
quit the chair and announce the adjournment of the meeting; and upon his
or her so doing, the meeting immediately is adjourned without the
necessity of any vote or further action of the shareholders.
(e) The Chairperson may require any person who is not a bona
fide shareholder of record on the record date, or a validly appointed
proxy of such a shareholder, to leave the meeting.
SECTION 15. BUSINESS TRANSACTED. The business effectively transacted
at a shareholder meeting shall be confined to the following:
(a) any matter specified in the notice or reasonably related to
a matter specified in the notice; and
(b) any matter (i) the consideration of which is not objected to
by any shareholder attending the meeting, and (ii) notice of which is
waived by all shareholders not attending the meeting.
SECTION 16. RECORD DATE.
(a) For the purpose of determining shareholders entitled to
notice of and to vote at a shareholder meeting or an adjournment of a
meeting, the board of directors may fix a record date, which may not
precede the date on which the board adopts the resolution fixing the
record date. The date may not be more than 60 nor less than 10 days
before the date of the meeting. If a record date is not fixed, the
record date for determination of shareholders entitled to notice of or
to vote at a shareholder meeting shall be the close of business on the
day next preceding the day on which notice is given or, if no notice
is given, the day next preceding the day on which the meeting is held.
When a determination of shareholders of record entitled to notice of
or to vote at a shareholder meeting is made as provided in this
Section, the determination applies to any adjournment of the meeting,
unless the board of directors fixes a new record date under this
Section for the adjourned meeting.
(b) For the purpose of determining shareholders entitled to
express consent to or to dissent from a proposal without a meeting,
the board of directors may fix a record date, which may not precede
the date on which the board adopts the resolution fixing the record
date and may not be more than 10 days after the board resolution. If
a record date is not fixed and prior action by the board of directors
is required with respect to the corporate action to be taken without a
meeting, the record date is the close of business on the day on which
the board resolution is adopted. If a record date is not fixed and
prior
-6-
<PAGE>
board action is not required, the record date is the first date
on which a signed written consent is delivered to the corporation as
provided in these bylaws.
(c) For the purpose of determining shareholders entitled to
receive payment of a share dividend or distribution, or allotment of a
right, or for the purpose of any other action, the board of directors
may fix a record date, which may not precede the date on which the
board adopts the resolution fixing the record date. The date may not
be more than 60 days before the payment of the share dividend or
distribution, allotment of a right, or other action. If a record date
is not fixed, the record date is the close of business on the day on
which the board resolution relating to the corporate action is
adopted.
SECTION 17. PROXIES. A shareholder entitled to vote at a shareholder
meeting or to express consent or dissent without a meeting may authorize
one or more other persons to act for the shareholder by proxy only by the
following methods:
(a) The execution of a writing authorizing another person or
persons to act for the shareholder as proxy. Execution may be
accomplished by the shareholder or by an authorized officer, director,
employee, or agent of the shareholder by either signing the writing or
causing his or her signature to be affixed to the writing by any
reasonable means including, but not limited to, facsimile signature;
(b) Transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who
will hold the proxy or to a proxy solicitation firm, proxy support
service organization, or similar agent fully authorized by the person
who will hold the proxy to receive that transmission. Any telegram,
cablegram, or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined
that the telegram, cablegram, or other electronic transmission was
authorized by the shareholder. If a telegram, cablegram, or other
electronic transmission is determined to be valid, the inspectors, or,
if there are no inspectors, the persons making the determination shall
specify the information upon which they relied.
A copy, facsimile telecommunication, or other reliable reproduction of
the writing or transmission created pursuant to subsections (a) or (b) may
be substituted or used in lieu of the original writing or transmission for
any purpose for which the original writing or transmission could be used,
if the copy, facsimile telecommunication, or other reproduction is a
complete reproduction of the entire original writing or transmission.
A proxy is not valid after the expiration of three years from its date
unless otherwise provided in the proxy. A proxy must be filed with the
corporation at or before the meeting.
-7-
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The corporation's business and affairs shall be
managed by or under the direction of the board of directors, except as
otherwise provided by statute or the Restated Articles of Incorporation.
SECTION 2. NUMBER AND TERM OF DIRECTORS. The board of directors
shall be not less than three and shall be determined from time to time by
resolution of the board of directors. A director need not be a
shareholder. The directors, other than those who may be elected by the
holders of any class or series of stock having a preference over common
stock as to dividends or upon liquidation, shall be divided into three
classes, as nearly equal in number as possible, with the term of office of
one class expiring each year. At each annual meeting of the shareholders,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting
of shareholders held in the third year following the year of their
election. If shareholders of any class or series of shares have the
exclusive right to elect one or more directors, those directors may be
elected only by the vote of those shareholders.
SECTION 3. VACANCIES. Except as otherwise provided by statute or in
the Restated Articles of Incorporation, a vacancy occurring in the board
(including a vacancy resulting from an increase in the number of directors)
may be filled by the shareholders, by the board or, if the directors
remaining in office constitute fewer than a quorum, by the affirmative vote
of a majority of the remaining directors. Except as otherwise provided in
the Restated Articles of Incorporation, if the holders of any class of
shares or series are entitled to elect one or more directors to the
exclusion of other shareholders, vacancies of that class or series may be
filled by the holders of shares of that class or series. A vacancy that
will occur at a specific date, by reason of resignation effective at a
later date, may be filled before the vacancy occurs, but the newly elected
or appointed director may not take office until the vacancy occurs.
SECTION 4. REMOVAL. Except as otherwise provided by statute or in
the Restated Articles of Incorporation, the holders of a majority of the
shares entitled to vote for the election of directors may remove one or
more directors with or without cause.
SECTION 5. RESIGNATION. A director may resign by written notice to
the corporation. A resignation is effective upon its receipt by the
corporation or at a later time specified in the notice.
-8-
<PAGE>
SECTION 6. DIRECTORS' COMPENSATION. The board of directors, by
affirmative vote of a majority of directors in office and irrespective of
any personal interest of any of them, may establish reasonable compensation
for a director's services to the corporation as a director or officer.
Directors also may be reimbursed for their expenses, if any, of attendance
at each meeting of the board or a committee.
SECTION 7. MISCELLANEOUS POWERS OF THE DIRECTORS. Unless the Restated
Articles of Incorporation provide otherwise, the board of directors may
adopt one or more of the following amendments to the corporation's Restated
Articles of Incorporation without shareholder action:
(a) change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the
corporation has only shares of that class outstanding;
(b) adopt and file to amendment of the Restated Articles of
Incorporation eliminating a series of shares if there are no
outstanding shares of the series, no outstanding shares or bonds
convertible into shares of the series, or other rights, options, or
warrants issued by the corporation that could require issuing shares
of the series;
(c) change the corporation's name by substituting the word
"corporation," "incorporation," "company," "limited," or the
abbreviation "corp.," "inc.," "co.," or "ltd.," for a similar word or
abbreviation in the corporate name, or by adding, deleting, or
changing a geographical attribution for the corporation name; and
(d) any other change that the Michigan Business Corporation Act
expressly permits the Board of Directors to make without shareholder
action.
ARTICLE IV
MEETINGS OF DIRECTORS
SECTION 1. REGULAR MEETINGS. Regular meetings of the board of
directors shall be held at the date, time, and place that the board
determines. A notice to directors is not required for a regular meeting,
except that, when the board establishes or thereafter changes the schedule
of regular meetings, or changes the date, time, or place of a previously
scheduled regular meeting, notice of the action shall be given to each
director who was absent from the meeting at which the action was taken.
-9-
<PAGE>
SECTION 2. SPECIAL MEETINGS. The Chairperson, the President, or
directors constituting at least one-third of the directors then in office
may call a special meeting of the board of directors by giving notice to
each director.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided by these
bylaws, notice of the date, time, and place of each meeting of the board of
directors shall be given to each director by either of the following
methods:
(a) by mailing a written notice of the meeting to the address
that the director designates or, in the absence of designation, to the
last known address of the director, at least five days before the date
of the meeting; or
(b) by delivering a written notice of the meeting to the
director at least one full business day before the meeting, personally
or by telecopier or telex, to the director's last known office or
home.
SECTION 4. WAIVER OF NOTICE. A director's attendance at or
participation in a meeting waives any required notice to the director of
the meeting, unless, at the beginning of the meeting or promptly upon the
director's arrival, the director objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or
assent to any action taken at the meeting. A director may waive notice in
writing before or after a meeting.
SECTION 5. PURPOSE OF MEETINGS. Neither the business to be
transacted nor the purpose of a regular or special meeting need be
specified in the notice or waiver of notice of the meeting. If the purpose
is stated in the notice, the business transacted at the meeting is not
limited to the purpose stated.
SECTION 6. QUORUM AND REQUIRED VOTE. A majority of the directors
then in office, or of the members of a committee of the board of directors,
constitutes a quorum for the transaction of business, unless the Restated
Articles of Incorporation, these bylaws or, in the case of a committee, the
board resolution establishing the committee, provide for a larger or
smaller number. The vote of the majority of members present at a meeting
at which a quorum is present constitutes the action of the board or of the
committee, unless the vote of a larger number is required by statute, the
Restated Articles of Incorporation, these bylaws, or, in the case of a
committee, the board resolution establishing the committee.
SECTION 7. ACTION BY WRITTEN CONSENT. Action required or permitted
to be taken under authorization voted at a meeting of the board of
directors or a committee of the board may be taken without a meeting if,
before or after the action, all members of the board then in office or of
the committee consent to the action in writing. The written consents shall
be filed with the
-10-
<PAGE>
minutes of the board or committee. The consent has the same effect as a
vote of the board or committee for all purposes.
SECTION 8. ELECTRONIC PARTICIPATION IN MEETING. A member of the
board of directors or of a committee of the board may participate in a
meeting by means of conference telephone or similar communications
equipment through which all persons participating in the meeting can
communicate with each other. Such participation in a meeting constitutes
presence in person at the meeting. A director must be permitted to
participate in a meeting by such means if the director so requests.
ARTICLE V
COMMITTEES OF DIRECTORS
The board of directors may designate one or more committees consisting
of one or more directors. The board may designate one or more directors as
alternate members of a committee, who may replace an absent or disqualified
member at a meeting of the committee. Unless prohibited by the board
resolution creating the committee, in the absence or disqualification of a
committee member, the committee members present at a meeting and not
disqualified from voting, whether or not they constitute a quorum,
unanimously may appoint another director to act at the meeting in the place
of the absent or disqualified member. A committee, to the extent provided
in the board resolution creating the committee, may exercise all of the
board's power and authority in the management of the business and affairs
of the corporation, except that a committee may not: (i) amend the Restated
Articles of Incorporation, except that a committee may prescribe the
relative rights and preferences of a series of a class of shares for which
the board of directors has such authority under the Restated Articles of
Incorporation; (ii) adopt an agreement of merger or consolidation;
(iii) recommend to shareholders the sale, lease, or exchange of all or
substantially all of the corporation's property and assets; (iv) recommend
to the shareholders a dissolution of the corporation or a revocation
of a dissolution; (v) amend the bylaws of the corporation; or (vi) fill
vacancies in the board of directors. Unless a resolution of the board of
directors expressly so provides, a committee may not declare a distribution
or dividend or authorize the issuance of stock. A committee exists, and
each member serves, at the pleasure of the board. A committee may
establish a time and place for regular meetings, for which no notice is
required, except that, if the committee changes the date, time, or place of
a regular meeting, notice of the change shall be given to each member who
was absent from the meeting at which the change was made. Otherwise, a
notice of a committee meeting shall be given in the same manner as a notice
of a board meeting.
ARTICLE VI
-11-
<PAGE>
OFFICERS
SECTION 1. APPOINTMENT. The board of directors, at its first meeting
following the annual shareholder meeting, shall appoint a President and
Secretary, and may elect from their number a Chairperson and
one or more Vice Chairpersons. The board also may appoint one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers, and other officers
and agents that it deems necessary. The board of directors need not
appoint or elect an officer to an office that is already filled and whose
specified term has not expired. The same person may hold two or more
offices, but an officer may not execute, acknowledge, or verify an
instrument in more than one capacity if the instrument is required by law,
the Restated Articles of Incorporation, or these bylaws to be executed,
acknowledged, or verified by two or more officers.
SECTION 2. TERM, REMOVAL, AND VACANCIES. An officer shall hold
office for the term the board specifies upon election or appointment and
until a successor is elected or appointed and qualified, or until the
officer's death, resignation, or removal. The board of directors may
remove an officer with or without cause. An officer may resign by written
notice to the corporation. The resignation is effective upon its receipt
by the corporation or at a later date specified in the notice.
SECTION 3. CHAIRPERSON OF THE BOARD. The Chairperson of the board,
if one is elected, shall preside when present at all meetings of the
shareholders and the board of directors. The Chairperson shall perform any
other duties and exercise any other authority that the board prescribes
and, unless otherwise provided by board resolution, is an EX OFFICIO member
of all committees. Except where by law the signature of the President is
required, the Chairperson possesses the same power and authority as the
President to make and execute contracts, instruments, papers, and documents
of every kind in the name of and on behalf of the corporation.
SECTION 4. VICE CHAIRPERSON OF THE BOARD. During the unavailability
or disability of the Chairperson, or while that office is vacant, the Vice
Chairpersons, in the order the board designates, may exercise all of the
powers and discharge all of the duties of the Chairperson. A Vice
Chairperson shall perform any other duties that the board prescribes.
SECTION 5. PRESIDENT. The President shall be the corporation's chief
executive officer and have the general control and management of its
business, under the direction of the board. The President shall ensure that
all orders and resolutions of the board are carried into effect. The
President shall perform all duties incident to the office of President and
other duties that the board prescribes. The President may make and execute
contracts, instruments, papers, and documents of every kind in the name and
on behalf of the corporation, except when the board specifies the same to be
done by another officer or agent. During the absence or disability of the
Chairperson and the Vice Chairpersons, or while those offices are vacant, the
-12-
<PAGE>
President shall preside over all meetings of the board of directors and
the shareholders and perform all of the duties and have all of the power
and authority of the Chairperson.
SECTION 6. VICE PRESIDENTS. The board may designate one or more Vice
Presidents to perform the duties and exercise the authority of the
President during the President's absence or disability. Each Vice
President shall perform other duties that the President assigns or the
board prescribes.
SECTION 7. SECRETARY. The Secretary shall cause to be recorded and
maintained minutes of all meetings of the board, board committees, and
shareholders. The Secretary shall cause to be given all notices required
by law, these bylaws, or resolution of the board and shall perform other
duties that the President assigns or the board prescribes.
SECTION 8. TREASURER. The Treasurer shall be the corporation's chief
financial officer and shall cause to be kept in books belonging to the
corporation a full and accurate account of all receipts, disbursements, and
other financial transactions of the corporation. The Treasurer shall
perform other duties that the President assigns or the board prescribes.
SECTION 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. An
Assistant Secretary or an Assistant Treasurer may perform any duty or
exercise any authority of the Secretary or Treasurer, respectively. An
Assistant Secretary or Assistant Treasurer also shall perform duties that
the Secretary or the Treasurer, respectively, or the President assigns or
that the board prescribes.
SECTION 10. OTHER OFFICERS. The board of directors may appoint other
officers to perform duties and exercise authority that the President
assigns or the board prescribes.
ARTICLE VII
SHARE CERTIFICATES AND TRANSFERS
SECTION 1. SHARE CERTIFICATES: REQUIRED SIGNATURES. Except as
otherwise required by the Restated Articles of Incorporation or these
bylaws and permitted by statute, shares of the corporation's stock shall be
represented by certificates. Each certificate must be signed by one of the
following: the Chairperson, a Vice Chairperson, the President, or a Vice
President. Share certificates may be sealed with the seal of the
corporation or a facsimile of the seal. The signatures of the officers may
be facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar other than the corporation itself or its
employee. The corporation may issue a certificate even though the officer
who has signed or whose facsimile signature has been placed upon the
certificate ceases to be an officer before the certificate is issued.
-13-
<PAGE>
SECTION 2. REPLACEMENT OF CERTIFICATES. The corporation shall issue
a new certificate for shares in place of a certificate alleged to have been
lost or destroyed. The board of directors may require the owner of the
lost or destroyed certificate, or his legal representative, to give the
corporation a bond or other security sufficient to indemnify the
corporation against any claim that may be made against it on account of the
lost or destroyed certificate or the issuance of a replacement certificate.
SECTION 3. REGISTERED SHAREHOLDERS. The corporation may treat the
registered holder of a share as the absolute owner of the share and shall
not be bound to recognize any equitable interest in or other claim to the
share by any other person, whether or not the corporation has actual notice
of the interest or claim, except as otherwise provided by law.
SECTION 4. TRANSFER AGENT AND REGISTRAR. The board of directors may
appoint a transfer agent and a registrar for the transfer and registration
of its securities.
SECTION 5. TRANSFER OF SHARES. A sale, assignment, exchange,
conveyance, gift, pledge, hypothecation, or other transfer of shares of the
corporation's stock, whether by operation of law or otherwise, shall not be
effective as to the corporation until recorded on the corporation's stock
transfer books.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION IN ACTION BY THIRD PARTY. The corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding
(other than an action by or in the right of the corporation), whether civil,
criminal, administrative, or investigative and whether formal or informal, by
reason of the fact that the person is or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
or other enterprise, whether for profit or not for profit, against expenses
(including attorneys' fees), judgments, penalties, fines, and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit, or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders and, with respect to a
criminal action or proceeding, the person had no reasonable cause to believe
his or her conduct was unlawful. The termination of an action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that
the person did not act in good faith and in a manner that the person
reasonably believed to be in or not
-14-
<PAGE>
opposed to the best interests of the corporation or its shareholders and,
with respect to a criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
SECTION 2. INDEMNIFICATION IN ACTION BY OR IN RIGHT OF THE
CORPORATION. The corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise, whether for profit
or not for profit, against expenses, including attorney fees and amounts
paid in settlement actually and reasonably incurred by the person in
connection with the action or suit, if the person acted in good faith and
in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation or its shareholders. Indemnification
shall not be made for a claim, issue, or matter in which the person shall
have been found liable to the corporation except to the extent authorized
by statute.
SECTION 3. EXPENSES. To the extent that a director, officer,
employee, or agent of the corporation has been successful on the merits or
otherwise in defense of an action, suit, or proceeding referred to in
Section 1 or 2 of this Article, or in defense of a claim, issue, or matter
in the action, suit, or proceeding, the corporation shall indemnify that
person against actual and reasonable expenses, including attorneys' fees that
person incurred in connection with the action, suit, or proceeding and an
action, suit, or proceeding brought to enforce the mandatory
indemnification provided in this Section.
SECTION 4. DETERMINATION, EVALUATION, AND AUTHORIZATION OF
INDEMNIFICATION.
(a) Except as otherwise provided in Subsection (e) of this
Section or unless ordered by a court, the corporation shall make an
indemnification under Section 1 or 2 of this Article only upon a
determination that indemnification of the director, officer, employee,
or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1 or 2 of this
Article and upon an evaluation of the reasonableness of expenses and
amounts paid in settlement. This determination and evaluation may be
made in any of the following ways:
(1) By a majority vote of a quorum of the board of
directors consisting of directors who are not parties or
threatened to be made parties to the action, suit, or proceeding.
(2) If a quorum cannot be obtained under Subsection (1)
above, by majority vote of a committee duly designated by the
board and consisting solely of
-15-
<PAGE>
two or more directors not at the time parties or threatened to be
made parties to the action, suit, or proceeding.
(3) By independent legal counsel in a written opinion,
which counsel shall be selected in one of the following ways:
(A) By the board or its committee in the manner
prescribed in Subsections (1) or (2) above.
(B) If a quorum of the board cannot be obtained under
Subsection (1) above and a committee cannot be designated
under Subsection (2) above, by the board.
(4) By all independent directors (as that term is defined
in the Michigan Business Corporation Act) who are not parties or
threatened to be made parties to the action, suit, or proceeding.
(5) By the shareholders, but shares held by directors,
officers, employees, or agents who are parties or threatened to
be made parties to the action, suit, or proceeding may not be
voted.
(b) In the designation of a committee under Subsection (a)(2) or
in the selection of independent legal counsel under
Subsection (a)(3)(B), all directors may participate.
(c) If a person is entitled to indemnification under Section 1
or 2 for a portion of expenses, including reasonable attorneys' fees,
judgments, penalties, fines, and amounts paid in settlement, but not
for the total amount, the corporation may indemnify the person for the
portion of the expenses, judgments, penalties, fines, or amounts
paid in settlement for which the person is entitled to be indemnified.
(d) The corporation shall authorize payment of indemnification
under this section in one of the following ways:
(1) By the board in one of the following ways:
(A) If there are two or more directors who are not
parties or threatened to be made parties to the action,
suit, or proceeding, by a majority vote of all directors who
are not parties or threatened to be made parties, a majority
of whom shall constitute a quorum for this purpose.
-16-
<PAGE>
(B) By a majority of the members of a committee of two
or more directors who are not parties or threatened to be
made parties to the action, suit, or proceeding.
(C) If the corporation has one or more independent
directors who are not parties or threatened to be made
parties to the action, suit, or proceeding, by a majority
vote of all independent directors who are not parties or are
threatened to be made parties, a majority of whom shall
constitute a quorum for this purpose.
(D) If there are no independent directors and less
than two directors who are not parties or threatened to be
made parties to the action, suit, or proceedings, by the
vote necessary for action by the board in accordance with
Section 523 of the Michigan Business Corporation Act, in
which authorization all directors may participate.
(2) By the shareholders, but shares held by directors,
officers, employees, or agents who are parties or threatened to
be made parties to the action, suit, or proceeding may not be
voted on the authorization.
(e) To the extent that the Restated Articles of Incorporation
include a provision eliminating or limiting the liability of a
director pursuant to Section 209(1)(c) of the Michigan Business
Corporation Act, the corporation may indemnify a director for the
expenses and liabilities described in this Subsection without a
determination that the director has met the standard of conduct set
forth in Sections 1 or 2 of this Article, but no indemnification shall
be made except to the extent authorized in Section 564(c) of the
Michigan Business Corporation Act if the director received a financial
benefit to which he or she was not entitled, intentionally inflicted
harm on the corporation or its shareholders, violated Section 551 of
the Michigan Business Corporation Act, or intentionally committed a
criminal act. In connection with an action or suit by or in the right
of the corporation as described in Section 2 of this Article,
indemnification under this Subsection shall be for expenses, including
attorneys' fees, actually and reasonably incurred. In connection with
an action, suit, or proceeding other than an action, suit, or
proceeding by or in the right of the corporation, as described in
Section 1 of this Article, indemnification under this Subsection shall
be for expenses, including attorneys' fees, actually and reasonably
incurred, and for judgments, penalties, fines, and amounts paid in
settlement actually and reasonably incurred.
SECTION 5. ADVANCES.
-17-
<PAGE>
(a) The corporation shall pay or reimburse the reasonable
expenses incurred by a director, officer, employee, or agent who is a
party or threatened to be made a party to an action, suit, or
proceeding before final disposition of the proceeding if both of the
following apply:
(1) The person furnishes the corporation a written
affirmation of the person's good faith belief that he or she has
met the applicable standard of conduct set forth in Section 1 or
2 of this Article.
(2) The person furnishes the corporation a written
undertaking, executed personally or on the person's behalf, to
repay the advance if it is ultimately determined that the person
did not meet the standard of conduct set forth in Section 1 or 2
of this Article.
(b) The undertaking required by Subsection (a)(2) above must be
an unlimited general obligation of the person, but need not be secured
and may be accepted without reference to the financial ability of the
person to make repayment.
(c) Determinations and evaluations under this Section shall be
made in the manner specified in Section 4(a) above, and authorizations
shall be made in the manner specified in Section 4(d) above.
(d) A provision in the Restated Articles of Incorporation or
bylaws, a resolution of the board or shareholders, or an agreement
making indemnification mandatory also shall make the advancement of
expenses mandatory unless the provision, resolution, or agreement
specifically provides otherwise.
SECTION 6. OTHER INDEMNIFICATION AGREEMENTS. The indemnification or
advancement of expenses provided by this Article is not exclusive of any
other rights to which a person seeking indemnification or advancement of
expenses may be entitled under the Restated Articles of Incorporation,
these bylaws, or a contractual agreement. The total amount of expenses
advanced or indemnified from all sources combined may not exceed the amount
of actual expenses incurred by the person seeking indemnification or
advancement of expenses. The indemnification provided in Sections 1 to 6
of this Article continues as to a person who ceases to be a director,
officer, employee, or agent and shall inure to the benefit of the person's
heirs, executors, and administrators.
SECTION 7. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, partner, trustee, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against any lia-
-18-
<PAGE>
bility asserted against the person and incurred by the person in any such
capacity or arising out of the person's status as such, whether or not the
corporation would have power to indemnify the person against the liability
under Sections 1 to 6 of this Article. To the extent that the Restated
Articles of Incorporation include a provision eliminating or limiting the
liability of a director pursuant to Section 209(1)(c) of the Michigan
Business Corporation Act, the corporation may purchase insurance on behalf of
a director from an insurer owned by the corporation, but insurance purchased
from that insurer may insure a director against monetary liability to the
corporation or its shareholders only to the extent that the corporation could
indemnify the director under Section 4(e).
SECTION 8. CONSTITUENT CORPORATION. For the purposes of this
Article, "corporation" includes all constituent corporations absorbed in a
consolidation or merger and the resulting or surviving corporation, so that
a person who is or was a director, officer, employee, or agent of the
constituent corporation or is or was serving at the request of the
constituent corporation as a director, officer, partner, trustee, employee,
or agent of another foreign or domestic corporation, partnership, joint
venture, trust, or other enterprise whether for profit or not shall stand
in the same position under the provisions of this Article with respect to
the resulting or surviving corporation as the person would if the person
had served the resulting or surviving corporation in the same capacity.
SECTION 9. SAVINGS CLAUSE. If this Article or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the corporation nevertheless shall indemnify each director and
officer, or other person whose indemnification is authorized by the board
of directors as to expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement with respect to any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative,
including a grand jury proceeding and an action by the corporation, to the
full extent permitted by any applicable portion of this Article that shall
not have been invalidated or by any other applicable law.
SECTION 10. CONSTRUCTION. It is the intent of this Article to grant
to the directors and officers of the corporation, and to directors and
officers serving at the request of the corporation as directors, officers,
employees, or agents of another corporation, partnership, joint venture,
trust, or other enterprise, the broadest indemnification permitted under
the laws of the state of Michigan, as the same may be amended from time to
time, and this Article shall be construed liberally to give effect to such
intent. The corporation further intends, acknowledges, and agrees that all
directors and officers have undertaken and will undertake the performance
of their duties and obligations in reliance upon the indemnification
provided for in this Article, and accordingly, such rights of
indemnification may not be retroactively reduced or abolished as to any
director and officer, without his or her consent.
-19-
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 1. DIVIDENDS OR OTHER DISTRIBUTIONS. By action of the board
of directors, the corporation may declare and pay dividends or make other
distributions as permitted by law.
SECTION 2. VOTING OF SECURITIES. Unless the board directs otherwise,
the Chairperson or the President, or, during their absence or disability,
the Vice Presidents in the order that the board designates, may on behalf
of the corporation attend and vote (or execute in the name or on behalf of
the corporation a consent in writing in lieu of a meeting of shareholders
or a proxy authorizing an agent or attorney-in-fact for the corporation to
attend and vote) at any meeting of security holders of any corporation
in which the corporation holds securities. At such meetings such person
may exercise all rights incident to the ownership of such securities which
the corporation might exercise if present. The board may confer this
voting power upon any other person.
SECTION 3. CHECKS. The corporation's checks, drafts, and orders for
the payment of money shall be signed in the name of the corporation in the
manner and by the persons that the board of directors designates.
SECTION 4. SIGNING OF INSTRUMENTS. When the board or these bylaws
authorize the signing of a contract, conveyance, or other instrument
without specification of the signing officer, the Chairperson, the
President, any Vice President, the Secretary, or the Treasurer may sign in
the name and on behalf of the corporation and may affix the corporate seal
to the instrument. The board may authorize other officers and agents to
sign instruments in the name and on behalf of the corporation.
SECTION 5. CORPORATE BOOKS AND RECORDS. The corporation shall keep
books and records of account and minutes of the proceedings of its
shareholders, board of directors, and executive committee, if any. The
books, records, and minutes may be kept outside the state of Michigan. The
corporation shall keep at its registered office, or at the office of its
transfer agent within or without the state of Michigan, records containing
the names and addresses of all shareholders, the number, class and series
of shares held by each, and the dates when they respectively became holders
of record. Any of the books, records, or minutes may be in written form or
in any other form capable of being converted into written form within a
reasonable time. The corporation shall convert into written form without
charge any record not in written form, unless otherwise requested by a
person entitled to inspect the record.
SECTION 6. SEAL. The corporation may have a seal in the form that
the board of directors determines. The seal may be used by causing it or a
facsimile to be affixed, impressed, or reproduced.
-20-
<PAGE>
-21-
<PAGE>
ARTICLE X
SUBSIDIARIES AND DIVISIONS
SECTION 1. DIVISIONAL OFFICERS. The board of directors or the
President may appoint divisional officers. The board of directors or the
President may withdraw a divisional officer's title at any time and without
cause. A divisional officer may, but need not, be a director or an
executive officer of the corporation. A divisional officer shall perform
duties and exercise authority that the President assigns or the board
prescribes.
SECTION 2. SUBSIDIARY DIRECTORS. The corporation may cause to be
elected to the board of directors of a subsidiary corporation such persons
as it determines, any of whom may, but need not, be directors, executive
officers, or other employees or agents of the corporation. The board of
directors or the President may instruct the directors of a subsidiary
corporation as to the manner in which they are to vote upon any issue
properly coming before them as the directors of the subsidiary corporation,
and such directors shall have no liability to the corporation as the result
of any action taken in accordance with those instructions.
SECTION 3. DIVISIONAL AND SUBSIDIARY OFFICERS NOT EXECUTIVE
OFFICERS. A divisional officer or officer of a subsidiary corporation
shall not, by virtue of holding office, be deemed to be an executive
officer of the corporation, nor shall a divisional officer or officer of a
subsidiary corporation (unless also a director or executive officer of the
corporation) be entitled to have access to any files, records, or other
information relating to the corporation or its business and finances or to
attend or receive the minutes of meetings of the board of directors or a
committee of the corporation, except as and to the extent that the board of
directors or the President expressly authorize.
ARTICLE XI
CONTROL SHARE ACT
The corporation hereby elects not to be subject to the provisions of
the Stacy, Bennet, and Randall Shareholder Equity Act under the Michigan
Business Corporation Act.
ARTICLE XII
AMENDMENTS
-22-
<PAGE>
Subject to any provisions of the Restated Articles of Incorporation, these
bylaws may be amended, altered, changed, or repealed at any regular or special
meeting of the board of directors. Subject to any provisions of the Restated
Articles of Incorporation, these bylaws also may be amended, altered, changed,
or repealed at any regular or special meeting of shareholders provided that
notice that amendment of the bylaws is a purpose of the meeting and the proposed
amendment has been provided to the shareholders as required under these bylaws
and applicable law. No amendment to these bylaws shall alter, change, or repeal
any or all of the provisions of Section 2 of Article III of these bylaws unless
approved by the affirmative vote of not less than 80% of the entire Board of
Directors.
-23-
<PAGE>
EXHIBIT 10.5
_________________________________________________________________
_______________________________
AMENDED AND RESTATED
LOAN AGREEMENT
among
FAMILY BOOKSTORES COMPANY, INC.
as the Borrower,
and
THE FINANCIAL INSTITUTIONS LISTED
ON THE SIGNATURE PAGES HEREOF
as Banks,
with
BANK OF SCOTLAND
as Agent
_______________________________
Dated as of October 31, 1994
_______________________________
_________________________________________________________________
<PAGE>
I N D E X*
Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. THE LOAN FACILITIES. . . . . . . . . . . . . . . . . . . . . .2
2.1 The Loans. . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Notice of Borrowing. . . . . . . . . . . . . . . . . . . .3
2.3 The Notes. . . . . . . . . . . . . . . . . . . . . . . . .4
2.4 Mandatory Prepayments of Term Loans. . . . . . . . . . . .5
2.5 Mandatory Prepayments of Revolving Credit Loans. . . . . .8
2.6 Voluntary Prepayments of Term Loan . . . . . . . . . . . .8
2.7 Voluntary Repayment of Revolving Credit Loans. . . . . . .9
2.8 Reduction of Commitments . . . . . . . . . . . . . . . . .9
2.9 Compensation in Connection with Prepayments. . . . . . . 10
2.10 Extension of Revolving Credit Maturity Date. . . . . . . 10
2.11 Increase in Total Revolving Credit Loan Commitment . . . 10
Section 3. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Rate of Interest . . . . . . . . . . . . . . . . . . . . 11
3.2 Interest Payment Dates . . . . . . . . . . . . . . . . . 11
3.3 Post-Default Interest. . . . . . . . . . . . . . . . . . 11
3.4 Increased Costs; Capital Adequacy. . . . . . . . . . . . 11
3.5 Eurodollar Interest Payment Dates. . . . . . . . . . . . 14
3.6 Determination of Rate of Borrowing . . . . . . . . . . . 14
3.7 Inability to Determine Applicable Interest Rate. . . . . 14
3.8 Illegality or Impracticability of Eurodollar Loans . . . 14
3.9 Compensation . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Continuations; Determinations of Eurodollar Interest
Periods. . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Eurodollar Loans After Default . . . . . . . . . . . . . 17
3.12 Limitation on Number of Eurodollar Interest Periods. . . 17
Section 4. COMMITMENT COMMISSION, ETC.. . . . . . . . . . . . . . . . . 17
4.1 Commitment Commission. . . . . . . . . . . . . . . . . . 17
4.2 Facility Fee . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Agent's Fees . . . . . . . . . . . . . . . . . . . . . . 18
Section 5. PAYMENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Payments on Non-Business Days; Calculations. . . . . . . 18
5.2 Net Payments; Application. . . . . . . . . . . . . . . . 18
5.3 Distribution by Agent. . . . . . . . . . . . . . . . . . 20
- --------------------------------
*The headings contained in this Agreement are for purposes of
reference and convenience only and shall not limit or otherwise affect
the meaning of this Agreement.
-i-
<PAGE>
Section 6. CONDITIONS PRECEDENT TO EFFECTIVENESS. . . . . . . . . . . . 21
6.1 Default, etc.. . . . . . . . . . . . . . . . . . . . . . 21
6.2 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Form U-1 . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Supporting Documents of the Borrower . . . . . . . . . . 21
6.5 Security Documents . . . . . . . . . . . . . . . . . . . 22
6.6 [Intentionally Deleted . . . . . . . . . . . . . . . . . 23
6.7 Subordinated Debt. . . . . . . . . . . . . . . . . . . . 23
6.8 Certifications; Financial Statements . . . . . . . . . . 23
6.9 Reports. . . . . . . . . . . . . . . . . . . . . . . . . 24
6.10 Insurance. . . . . . . . . . . . . . . . . . . . . . . . 24
6.11 Approvals and Consents . . . . . . . . . . . . . . . . . 25
6.12 Retainer Agreement . . . . . . . . . . . . . . . . . . . 25
6.13 Other Supporting Documents . . . . . . . . . . . . . . . 25
6.14 Legal Opinions . . . . . . . . . . . . . . . . . . . . . 25
6.15 [Intentionally deleted]. . . . . . . . . . . . . . . . . 26
6.16 IFA Lease. . . . . . . . . . . . . . . . . . . . . . . . 26
6.17 [Intentionally Deleted . . . . . . . . . . . . . . . . . 26
6.18 Adverse Change . . . . . . . . . . . . . . . . . . . . . 26
6.19 [intentionally deleted]. . . . . . . . . . . . . . . . . 26
6.20 Change in Law; No Opposition . . . . . . . . . . . . . . 26
6.21 All Proceedings to be Satisfactory . . . . . . . . . . . 26
6.22 Fees and Expenses. . . . . . . . . . . . . . . . . . . . 26
6.23 Warrants . . . . . . . . . . . . . . . . . . . . . . . . 27
6.24 Certificate of Incorporation . . . . . . . . . . . . . . 27
6.25 Borrowing Base Certificate . . . . . . . . . . . . . . . 27
Section 6A. CONDITIONS PRECEDENT TO ALL LOANS. . . . . . . . . . . . . . 27
6A.1 Certain Conditions . . . . . . . . . . . . . . . . . . . 27
6A.2 Subsequent Opinions of Counsel . . . . . . . . . . . . . 28
6A.3 Officer's Certificate. . . . . . . . . . . . . . . . . . 28
6A.4 Borrowing Base . . . . . . . . . . . . . . . . . . . . . 28
Section 7. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 29
7.1 Financial Statements . . . . . . . . . . . . . . . . . . 29
7.2 Notice of Litigation; Unionization . . . . . . . . . . . 32
7.3 Payment of Charges . . . . . . . . . . . . . . . . . . . 33
7.4 Insurance. . . . . . . . . . . . . . . . . . . . . . . . 33
7.5 Maintenance of Records . . . . . . . . . . . . . . . . . 34
7.6 Preservation of Corporate Existence. . . . . . . . . . . 34
7.7 Preservation of Assets . . . . . . . . . . . . . . . . . 34
7.8 Inspection of Books and Assets . . . . . . . . . . . . . 34
7.9 Payment of Indebtedness. . . . . . . . . . . . . . . . . 35
7.10 Further Assurances . . . . . . . . . . . . . . . . . . . 35
7.11 Notice of Default. . . . . . . . . . . . . . . . . . . . 35
7.12 Reserves . . . . . . . . . . . . . . . . . . . . . . . . 35
7.13 Arms-length Transactions . . . . . . . . . . . . . . . . 36
7.14 Solvency . . . . . . . . . . . . . . . . . . . . . . . . 36
7.15 Obligations of Sellers . . . . . . . . . . . . . . . . . 36
7.16 Cooperation. . . . . . . . . . . . . . . . . . . . . . . 36
7.17 Hazardous Waste. . . . . . . . . . . . . . . . . . . . . 36
-ii-
<PAGE>
7.18 Notification of Account Debtors. . . . . . . . . . . . . 36
7.19 Post-Effective Store Leases. . . . . . . . . . . . . . . 36
7.20 Borrowing Base Certificate . . . . . . . . . . . . . . . 36
7.21 Certain Other Financing Statements . . . . . . . . . . . 37
Section 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 37
8.1 Engage in Same Type of Business. . . . . . . . . . . . . 37
8.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Other Indebtedness; Material Agreement Obligations . . . 39
8.4 Advances from Customers. . . . . . . . . . . . . . . . . 41
8.5 Advances and Loans . . . . . . . . . . . . . . . . . . . 42
8.6 Payments On Certain Indebtedness . . . . . . . . . . . . 42
8.7 Purchase or Sale Agreements. . . . . . . . . . . . . . . 42
8.8 Consolidation and Merger . . . . . . . . . . . . . . . . 42
8.9 Sale of Assets . . . . . . . . . . . . . . . . . . . . . 43
8.10 Purchase of Assets . . . . . . . . . . . . . . . . . . . 44
8.11 Accounting Changes . . . . . . . . . . . . . . . . . . . 44
8.12 Salaries . . . . . . . . . . . . . . . . . . . . . . . . 44
8.13 Related Transactions . . . . . . . . . . . . . . . . . . 45
8.14 Subsidiaries; Other Securities; Agreements Relating to
Securities . . . . . . . . . . . . . . . . . . . . . . . 45
8.15 Adjusted Capital Expenditures. . . . . . . . . . . . . . 46
8.16 Investments. . . . . . . . . . . . . . . . . . . . . . . 48
8.17 Dividends, Distributions and Purchases of Capital
Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.18 Leasebacks . . . . . . . . . . . . . . . . . . . . . . . 49
8.19 Deposit Bank . . . . . . . . . . . . . . . . . . . . . . 49
8.20 Sale of Accounts Receivable. . . . . . . . . . . . . . . 49
8.21 Current Ratio. . . . . . . . . . . . . . . . . . . . . . 49
8.22 Tangible Net Worth . . . . . . . . . . . . . . . . . . . 50
8.23 [Intentionally deleted]. . . . . . . . . . . . . . . . . 50
8.24 Interest Coverage Ratio. . . . . . . . . . . . . . . . . 50
8.25 Funded Debt: Cash Flow . . . . . . . . . . . . . . . . . 50
8.26 Fixed Charge Coverage Ratio. . . . . . . . . . . . . . . 50
8.27 Assets: Funded Debt . . . . . . . . . . . . . . . . . . 51
8.28 Compliance with ERISA. . . . . . . . . . . . . . . . . . 51
8.29 Other Agreements . . . . . . . . . . . . . . . . . . . . 52
8.30 EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 54
9.1 Principal and Interest . . . . . . . . . . . . . . . . . 54
9.2 Representations and Warranties . . . . . . . . . . . . . 54
9.3 Negative Covenants . . . . . . . . . . . . . . . . . . . 54
9.4 Other Covenants. . . . . . . . . . . . . . . . . . . . . 55
9.5 Other Obligations. . . . . . . . . . . . . . . . . . . . 55
9.6 Ownership. . . . . . . . . . . . . . . . . . . . . . . . 55
9.7 Insolvency . . . . . . . . . . . . . . . . . . . . . . . 55
9.8 Security Documents . . . . . . . . . . . . . . . . . . . 56
9.10 Subordinated Debt. . . . . . . . . . . . . . . . . . . . 56
9.11 IFA Lease. . . . . . . . . . . . . . . . . . . . . . . . 56
9.12 Environmental Problems . . . . . . . . . . . . . . . . . 57
-iii-
<PAGE>
9.13 Store Leases . . . . . . . . . . . . . . . . . . . . . . 57
Section 10. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 57
10.1 Status; Validity . . . . . . . . . . . . . . . . . . . . 57
10.2 Compliance with Other Instruments. . . . . . . . . . . . 58
10.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . 58
10.4 Compliance with Law. . . . . . . . . . . . . . . . . . . 59
10.5 Capitalization of Borrower and Its Subsidiaries. . . . . 59
10.6 Government Approvals . . . . . . . . . . . . . . . . . . 59
10.7 Federal Reserve Margin Regulations; Use of Proceeds. . . 60
10.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.9 Investment Company Act, etc. . . . . . . . . . . . . . . 60
10.10 Properties of the Borrower . . . . . . . . . . . . . . . 61
10.11 Financial Condition. . . . . . . . . . . . . . . . . . . 61
10.12 Environmental Matters. . . . . . . . . . . . . . . . . . 62
10.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . 62
10.14 Compliance with ERISA. . . . . . . . . . . . . . . . . . 62
10.15 The Security Documents . . . . . . . . . . . . . . . . . 63
10.16 [Intentionally deleted] . . . . . . . . . . . . . . . . 63
10.17 [Intentionally deleted] . . . . . . . . . . . . . . . . 63
10.18 Qualification. . . . . . . . . . . . . . . . . . . . . . 63
10.19 Year 2000. . . . . . . . . . . . . . . . . . . . . . . . 64
10.20 Buy-Sell Agreement.. . . . . . . . . . . . . . . . . . . 64
10.21 Names under which Business is Conducted. . . . . . . . . 64
10.22 Financing Statements . . . . . . . . . . . . . . . . . . 64
Section 11. AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
11.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . 65
11.2 Nature of Duties . . . . . . . . . . . . . . . . . . . . 65
11.3 Lack of Reliance . . . . . . . . . . . . . . . . . . . . 65
11.4 Certain Rights . . . . . . . . . . . . . . . . . . . . . 66
11.5 Reliance . . . . . . . . . . . . . . . . . . . . . . . . 66
11.6 Indemnification. . . . . . . . . . . . . . . . . . . . . 66
11.7 Agent, Individually. . . . . . . . . . . . . . . . . . . 67
11.8 Holders of Notes . . . . . . . . . . . . . . . . . . . . 67
11.9 Resignation. . . . . . . . . . . . . . . . . . . . . . . 67
11.10 Reimbursement. . . . . . . . . . . . . . . . . . . . . . 68
Section 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 69
12.1 Calculations and Financial Data. . . . . . . . . . . . . 69
12.2 Amendment and Waiver . . . . . . . . . . . . . . . . . . 69
12.3 Expenses; Indemnification. . . . . . . . . . . . . . . . 70
12.4 Benefits of Agreement; Descriptive Headings. . . . . . . 71
12.5 Notices, Requests, Demands, etc. . . . . . . . . . . . . 74
12.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . 74
12.7 Counterparts; Telecopies . . . . . . . . . . . . . . . . 74
12.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 75
12.9 Recoveries; Pro Rata Sharing . . . . . . . . . . . . . . 75
12.10 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 76
12.11 Severability . . . . . . . . . . . . . . . . . . . . . . 76
-iv-
<PAGE>
12.12 Right of Set-off . . . . . . . . . . . . . . . . . . . . 76
12.13 No Third Party Beneficiaries . . . . . . . . . . . . . . 77
12.14 Effectiveness. . . . . . . . . . . . . . . . . . . . . . 77
12.15 Survival; Integration. . . . . . . . . . . . . . . . . . 77
12.16 Domicile of Loans. . . . . . . . . . . . . . . . . . . . 78
12.17 No Usury . . . . . . . . . . . . . . . . . . . . . . . . 78
12.18 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 78
12.19 Consents . . . . . . . . . . . . . . . . . . . . . . . . 79
-v-
<PAGE>
EXHIBITS*
Annex I. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Definitions
Exhibit A-1. . . . . . . . . . . . . . . . . . . . . .Revolving Credit Note
Exhibit A-2. . . . . . . . . . . . . . . . . . . . . . .Tranche A Term Note
Exhibit A-3. . . . . . . . . . . . . . . . . . . . . . .Tranche B Term Note
Exhibit B. . . . . . . . . . . . . . . . . .Amendment to Security Agreement
. . . . . . . . . . . . . . . . . and Acknowledgment of Security Interests
Exhibit C. . . . . . . . . . . Amended and Restated Subordination Agreement
Exhibit D. . . . . . . . . . . . . . . . . . . . . . . Solvency Certificate
Exhibit E-1. . . . . . . . . . . . . . . . . .Opinion of Borrower's Counsel
Exhibit E-2. . . . . . . . . . . . . . . . . .Opinion of Counsel to Electra
Exhibit F. . . . . . . . . . . . . . . . . . . Form of Transfer Certificate
Exhibit G. . . . . . . . . . . . . . . . Form of Borrowing Base Certificate
Exhibit H-1. . . . . . . . . . . . . . . . . . .Form of Notice of Borrowing
Exhibit H-2. . . . . . . . . . . . . . . . . Form of Notice of Continuation
- ----------------------
*Certain exhibits may not be attached to this Agreement. See
Section 12.4(f).
-vi-
<PAGE>
LIST OF SCHEDULES
Schedule 2.1 . . . . . . . . . . . . . . . . . . . . . . . . . .Commitments
Schedule 8.2(f). . . . . . . . . . . . . . . . . . . . . . . Existing Liens
Schedule 8.3 . . . . . . . . . . . . . . . . . . . . .Existing Indebtedness
Schedule 10.5. . . . . . . . . . . . . . . . . . . .Options, Warrants, etc.
Schedule 10.6. . . . . . . . . . . . . . . . . . . . . Government Approvals
Schedule 10.10 A . . . . . . . . . . . . . . . . . . . Real Property Leased
Schedule 10.10 B . . . . . . . . . . . . . . . . .Patents, Trademarks, etc.
Schedule 10.10 C . . . . . . . . . . . . . . . . . . . .Material Agreements
Schedule 10.21 . . . . . . . . . . . . . . . . . . . . . . .Tradename Usage
-vii-
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
AMENDED AND RESTATED LOAN AGREEMENT, dated as of October 31, 1994,
among FAMILY BOOKSTORES COMPANY, INC., a Michigan corporation (the
"BORROWER"), the financial institutions from time to time party hereto
(each a "BANK" and collectively, the "BANKS") and BANK OF SCOTLAND, as
agent for the Banks (in such capacity, the "AGENT").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Agent are party to a Loan
Agreement dated as of October 31, 1994 (as amended, modified, supplemented
and in effect on the Effective Date(as hereinafter defined), the "Existing
Loan Agreement").
WHEREAS, the parties hereto now wish to amend and restate the Existing
Loan Agreement by, among other things, subject to the terms and conditions
hereof, increasing the aggregate amount of the revolving credit facility
available to the Borrower from $15,000,000 to $22,000,000 (as the same may
be increased to $25,000,000 pursuant to Section 2.11 hereof), by continuing
the term loans extended to the Borrower under the Existing Loan Agreement
as Term Loans hereunder, by making new term loans in an aggregate principal
amount not in excess of $5,500,000 and by amending certain of the other
provisions of the Existing Loan Agreement, and in that connection, wish to
amend and restate the Existing Loan Agreement in its entirety, it being the
intention of the parties hereto that the revolving credit loans and the
term loans outstanding under the Existing Loan Agreement on the Effective
Date shall continue and remain outstanding and not be repaid on the
Effective Date and the Loans and Commitments (as hereinafter defined) are
not in novation or discharge thereof.
Accordingly, the parties hereto hereby agree that the Existing Loan
Agreement shall, as of the Effective Date, be amended and restated in its
entirety as follows:
1. DEFINITIONS.
(a) Terms used in this Agreement which are defined in Annex I
hereto shall have the meanings specified in such Annex I hereto (unless
otherwise defined herein) and shall include in the singular number the
plural and in the plural number the singular.
(b) Unless otherwise specified, each reference in this Agreement
or in any other Loan Document to a Loan Document shall
<PAGE>
mean such Loan Document as the same may from time to time be amended,
restated, supplemented or otherwise modified.
(c) To the extent any reference is made in this Agreement or any
other Loan Document to Subsidiaries of the Borrower at any time when
Borrower has no Subsidiaries, such references shall be deemed without force
or effect.
2. THE LOAN FACILITIES.
2.1 THE LOANS.
(a) (i) Each Bank has (prior to the Effective Date) made term
loans to the Borrower under the Existing Loan Agreement which are
outstanding in the amount set forth opposite its name on Schedule 2.1
hereto under the heading "Tranche A Term Loans Outstanding on the Effective
Date". Subject to the terms and conditions set forth herein, each Bank
severally agrees to make a new Term Loan on the Effective Date under its
Tranche A Term Loan Commitment in an aggregate principal amount for all
Banks not to exceed $500,000 (each such Loan and each outstanding term loan
referred to in the preceding sentence, a "TRANCHE A TERM LOAN", and,
collectively, the "TRANCHE A TERM LOANS"). The borrowing from the Banks of
new Term Loans pursuant to this Section 2.1(a)(i) shall be (1) in a single
advance and (2) made from each Bank PRO RATA on the basis of the Tranche A
Term Loan Commitment of such Bank.
(ii) Subject to the terms and conditions set forth herein,
each Bank severally agrees to make a new Term Loan under its Tranche B Term
Loan Commitment(each a "TRANCHE B TERM LOAN" and, collectively, the
"TRANCHE B TERM LOANS") on the Effective Date. The borrowing from the
Banks pursuant to this Section 2.1(a)(ii) shall be (1) in a single advance,
(2) in an aggregate principal amount not to exceed $5,000,000 and (3) made
from each Bank PRO RATA on the basis of the Tranche B Term Loan Commitment
of such Bank.
(b) Subject to the terms and conditions set forth herein, each
Bank severally agrees at any time and from time to time during the
Commitment Period to make loans to the Borrower (each a "REVOLVING CREDIT
LOAN" and collectively, the "REVOLVING CREDIT LOANS") up to its Revolving
Credit Loan Commitment; PROVIDED THAT in no event shall the aggregate
principal amount of Revolving Credit Loans (including the Revolving Credit
Loans outstanding on the Effective Date) outstanding at any time exceed the
lesser of (x) the Total Revolving Credit Loan Commitment then in effect or
(y) the then current Borrowing Base. During the Commitment Period, the
Borrower may utilize the Revolving Credit Loan Commitments by borrowing,
prepaying the Revolving Credit Loans in whole or in part without premium or
penalty, and reborrowing, all in accordance with the terms and conditions
hereof. Revolving Credit Loans shall be made from each Bank PRO RATA
-2-
<PAGE>
on the basis of the Revolving Credit Loan Commitment of such Bank. For
avoidance of doubt, Revolving Credit Loans outstanding under the Existing
Loan Agreement on the Effective Date shall constitute Revolving Credit
Loans hereunder.
2.2 NOTICE OF BORROWING.
(a) In order to borrow the Tranche A Term Loans and the Tranche
B Term Loans on the Effective Date, the Borrower shall deliver a Notice of
Borrowing at least one Business Day prior to the Effective Date which
notice shall specify, among other things, (i)the date (which shall be a
Business Day) of the proposed borrowing (the "BORROWING DATE") of the
Tranche B Term Loans hereunder, and (ii) the total amount of the proposed
borrowing.
(b) Whenever the Borrower desires to utilize the Revolving
Credit Loan Commitments hereunder, it shall notify the Agent by telephone
(confirmed as soon as possible thereafter by delivery of a Notice of
Borrowing) or by delivery of a Notice of Borrowing not later than (x) 1:00
p.m., Closing Office Time, on the date of the proposed borrowing of
Revolving Credit Loans, in the case of a borrowing of Base Rate Loans; and
(y) 11:00 a.m. Closing Office Time, on the third Business Day prior to the
date of the proposed borrowing of Revolving Credit Loans, in the case of a
borrowing of Eurodollar Loans, which notice shall specify (i) the date of
the proposed borrowing (which shall be a Business Day during the Commitment
Period) (each, also a "BORROWING DATE"), (ii) whether such borrowing shall
consist of Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans,
the Eurodollar Interest Period applicable thereto (which shall be an
Available Eurodollar Interest Period) and (iii) the total amount of such
borrowing (which shall be in a minimum amount of $500,000 plus, if greater,
in integral multiples of $100,000). Without the consent of the Agent,
Borrower shall not be entitled to make borrowings under the Revolving
Credit Loan Commitments more than twice in any calendar week.
(c) The Agent shall promptly notify (in writing or by telephone,
confirmed as soon as possible thereafter in writing) each of the Banks of
the date and type (I.E., Term Loan or Revolving Credit Loan) of the
proposed Loans, and the amount of the Loan or Loans such Bank is being
requested to make, whether (in the case of a Revolving Credit Loan) such
Loan will be a Base Rate Loan or Eurodollar Loan and, if a Eurodollar Loan,
the applicable Eurodollar Interest Period. Each Bank shall make the amount
of its Loan or Loans available to the Agent, at the Closing Office, before
3:00 p.m. Closing Office Time on the date specified in the notice for the
proposed borrowing in same day funds. Such proceeds shall be made
available to the Borrower (subject to Section 2.2(d)) by the Agent, in the
same type of funds received by the Agent, at the Closing Office against
delivery to the Agent for the account of each Bank of such instruments,
documents and papers
-3-
<PAGE>
as are provided for herein. The Agent shall deliver the instruments,
documents and papers received by it for the account of each Bank to such Bank
or upon its order.
(d) Unless the Agent shall have received notice from a Bank prior
to 2:00 p.m., Closing Office Time, on the date of any borrowing that such
Bank will not make available to the Agent such Bank's ratable portion of such
borrowing, the Agent may assume that such Bank has made such portion
available to the Agent on the date of such borrowing in accordance with
subsection (c) of this Section 2.2 and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding
amount. If and to the extent such Bank shall not have so made such ratable
portion available to the Agent, such Bank and the Borrower severally agree to
repay to the Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the Agent,
at the rate from time to time prevailing on the applicable Note; PROVIDED
that to the extent such interest is paid by a Bank, interest shall be at the
rate specified in Section 11.10 hereof. If such Bank shall pay to the Agent
such corresponding amount, such amount so paid (exclusive of any interest so
paid by that Bank) shall constitute such Bank's Loan as part of such
borrowing for purposes of this Agreement.
(e) The failure of any Bank to make the Loan to be made by it as
part of any borrowing shall not relieve any other Bank of its obligation,
if any, hereunder to make its Loan on the date of such borrowing. No Bank
shall be responsible for the failure of any other Bank to make the Loan to
be made by such other Bank on the date of any borrowing.
2.3 THE NOTES.
(a) The Borrower's obligation to pay the principal of, and
interest on, (x) the Tranche A Term Loan of each Bank shall be evidenced by
a Tranche A Term Note payable to the order of such Bank, (y) the Tranche B
Term Loan of each Bank shall be evidenced by a Tranche B Term Note payable
to the order of such Bank and (z) the Revolving Credit Loans of each Bank
shall be evidenced by a Revolving Credit Note payable to the order of such
Bank.
(b) The Term Notes and Revolving Credit Note of each Bank shall:
(i) be in an original principal amount equal to (x) in the case of the
Tranche A Term Note, such Bank's outstanding Tranche A Term Loan
Commitment; (y) in the case of the Tranche B Term Note, such Bank's Tranche
B Term Loan Commitment and (z) in the case of the Revolving Credit Note,
such Bank's Revolving Credit Loan Commitment; (ii) be payable in full (x)
in the case of the Term Notes, on the Term Loan Maturity Date (subject to
mandatory prepayment as herein provided) and (y) in the case of the
Revolving Credit Notes, on the Revolving Credit Maturity Date; (iii) bear
interest as provided in Section 3; and
-4-
<PAGE>
(iv) be entitled to the benefits of this Agreement. The Term Notes and the
Revolving Credit Notes shall be secured by the Security Documents.
(c) The principal amount of all Revolving Credit Loans of each
Bank outstanding from time to time, and interest accrued thereon, shall be
recorded on the records of such Bank and, prior to any transfer of, or any
action to collect, its Revolving Credit Note, the unpaid principal amount of
the Revolving Credit Loans evidenced thereby shall be endorsed on the reverse
side of such Revolving Credit Note, together with the date of such
endorsement and the date to which interest has been paid; any failure to make
such endorsement and provide such other information, however, shall not
affect Borrower's obligations under its Notes. The Borrower's obligation to
pay principal and interest in respect of each Revolving Credit Note shall be
limited to the unpaid principal amount of the Revolving Credit Loans
evidenced thereby and unpaid interest accrued for the periods during which
such Loans are outstanding.
2.4 MANDATORY PREPAYMENTS OF TERM LOANS.
(a) The Borrower shall prepay the Tranche A Term Loans on each
date set forth below (each, a "REPAYMENT DATE") or, if such date is not a
Business Day, on the immediately preceding Business Day, by the amount set
forth below opposite such date.
<TABLE>
<CAPTION>
DATE
<S> <C>
April 30, 1999 $125,000
July 31, 1999 125,000
October 31, 1999 125,000
January 31, 2000 125,000
April 30, 2000 250,000
July 31, 2000 250,000
October 31, 2000 250,000
January 31, 2001 250,000
April 30, 2001 667,500
July 31, 2001 667,500
October 31, 2001 667,500
January 31, 2002 667,500
April 30, 2002 667,500
July 31, 2002 667,500
October 31, 2002 667,500
January 31, 2003 667,500
April 30, 2003 667,500
July 31, 2003 667,500
October 31, 2003 667,500
January 31, 2004 657,500
</TABLE>
-5-
<PAGE>
On each Repayment Date, an aggregate principal amount of the Tranche A Term
Loans equal to the amount required to be paid on such date shall mature and
become due and payable.
(b) (i) Subject to the provisions of Section 2.4(b)(ii) below,
promptly (and in any event within five days) after each Transfer of any asset
permitted to be Transferred by virtue of the provisos to Section 8.9 or
otherwise Transferred by the Borrower or a Subsidiary in contravention of
this Agreement, the Borrower shall apply an amount equal to the Net Proceeds
from such Transfer (less an amount expected to be used by the seller thereof
for the payment of taxes, if any, reasonably attributable to any such
Transfer) toward the payment of the principal on the Term Loans by paying an
amount equal to said Net Proceeds (less the amount, if any, indicated in the
immediately preceding parenthetical) to the Agent to be applied to repayment
of the unpaid principal amount of the Term Loans until such Loans have been
paid in full.
(ii) The provisions of Section 2.4(b)(i) shall not apply (x)
if the number of Stores being Transferred is not more than five in the
relevant transaction or any series of related transactions, to the extent
that the Net Proceeds thereof are intended to be used (to the extent
permitted by this Agreement) to open new Stores or purchase additional
Stores within six months of the date of such Transfer and such Net Proceeds
are so used within said six-month period, or (y) to the Net Proceeds from
any Transfers to the extent that the aggregate amount of all Net Proceeds
from such Transfers, computed on an aggregate basis from the Effective Date
to the date of any such computation but excluding from such computation the
amount of any Net Proceeds not required to be applied to repayment of the
Term Loans pursuant to clause (x) immediately preceding, is less than
$1,000,000. The references to "six months" and "six-month period" in
clause (x) of this Section 2.4(b)(ii) shall be deemed to be "nine months"
and "nine-month period", respectively, with respect to the relevant Store
only, if (A) the relevant Store is a Store to be purchased, and (B) by the
end of such six-month period, (1) a definitive agreement (containing the
purchase price and all other relevant terms) for the purchase of such Store
has been executed and delivered by both the Borrower and the seller
thereof, (2) said agreement provides for the closing date of such purchase
to occur within three months after the end of such six-month period, (3) no
material default exists under such agreement, and (4) an executive officer
of the Borrower delivers to the Bank (prior to the end of such six-month
period) a certificate stating that to the best of his or her knowledge,
said officer has no reason to believe that said closing date will not take
place within such three-month period.
(c) (i) All amounts applied to the Term Loans under this Section
2.4 (other than under Section 2.4(a)) and Section 2.6 shall be applied
first to the Tranche B Term Loans and, after the Tranche B Term Loans
-6-
<PAGE>
have been paid in full, to the Tranche A Term Loans, ratably to the Term
Loans then outstanding of the Tranche being prepaid and, in the case of the
Tranche A Term Loans, shall be applied first to the portion of principal
thereof payable at final maturity and thereafter to the installments due on
the Term Loans pursuant to Section 2.4(a) in inverse order of maturity.
(ii) Amounts prepaid pursuant to this Section 2.4 may not be
reborrowed. All prepayments received by the Agent pursuant to this Section
2.4 or pursuant to Sections 2.5, 2.6 and 2.7 shall be distributed by the
Agent in accordance with the provisions of Section 5.3.
(d) (i) In addition, no later than seven days after the
Financial Statements required to be delivered pursuant to Section 7.1(b)
hereof have been delivered to the Agent (and, in any event, not later than
the 97th day after each Fiscal Year-End), commencing on the first such date
to occur after the Effective Date, the Borrower shall prepay the Term Loans
by an aggregate amount equal to 50% of the Excess Cash Flow of the
Consolidated Group for the immediately preceding Fiscal Year until the Term
Loans have been paid in full.
(ii) Computations in respect of payments required to be made
pursuant to Section 2.4(d)(i) shall be based on the audited Financial
Statements of the Consolidated Group delivered pursuant to Section 7.1(b)
hereof. However, if such Financial Statements have not been delivered to
the Agent by the date any such payment is due, the computations in respect
of the payment then required to be made shall be initially based on the
Financial Statements of the Consolidated Group delivered pursuant to
Section 7.1(a) hereof (the "INITIAL FINANCIALS") and then recalculated when
the audited Financial Statements of the Consolidated Group for such Fiscal
Year (the "AUDITED FINANCIALS") are delivered pursuant to Section 7.1(b)
hereof; any difference between the amount paid based on the Initial
Financials (the "ORIGINAL AMOUNT") and the amount that would have been
required to be paid based on the Audited Financials (the "RECALCULATED
AMOUNT") shall be adjusted as follows: if the Recalculated Amount exceeds
the Original Amount, the Borrower shall pay the difference to the Agent on
behalf of the Banks within five (5) Business Days after such Audited
Financials are delivered to the Agent, to be applied as set forth in
Section 2.4(d)(i); and if the Original Amount exceeds the Recalculated
Amount, such excess payment shall be credited against the next mandatory
prepayment(s) required to be made by the Borrower pursuant to Section
2.4(a) hereof or the next interest payment(s) due on the Notes, whichever
is earlier.
(e) (i) Subject to the provisions of Section 2.4(e)(ii) below,
promptly (and in any event within five days) after each issuance by the
Borrower or any Subsidiary of equity or subordinated debt after the
Effective Date (to the extent same
-7-
<PAGE>
is permitted by this Agreement), the Borrower shall apply an amount equal to
50% of the net proceeds therefrom toward the payment of the principal on the
Term Loans by paying an amount equal to said 50% of such net proceeds to the
Agent to be applied to repayment of the unpaid principal amount of the Term
Loans until such Loans have been paid in full.
(ii) The provisions of Section 2.4(e)(i) shall not apply (A)
to the extent that the aggregate amount of proceeds from issuances of
capital stock or warrants after the Effective Date, computed on an
aggregate basis from the Effective Date to the date of any such
computation, is less than $5,000,000; or (B) to net proceeds in excess of
$20,000,000 received from the issuance by the Borrower of stock of the
Borrower pursuant to an IPO.
2.5 MANDATORY PREPAYMENTS OF REVOLVING CREDIT LOANS.
(a) (i) The Borrower shall immediately prepay the Revolving
Credit Notes held by the Banks to the extent that the aggregate outstanding
principal amount thereof on any day shall exceed the amount of the Total
Revolving Credit Loan Commitment in effect on such day; PROVIDED THAT if
the Total Revolving Credit Loan Commitment is terminated in full, then the
Borrower shall immediately prepay in full the aggregate outstanding
principal amount of all Revolving Credit Notes. Amounts so repaid may not
be reborrowed.
(ii) The Borrower shall immediately prepay the Revolving
Credit Loans to the extent that the aggregate principal amount thereof on
any day shall exceed the Borrowing Base on such day.
(b) The aggregate outstanding principal amount of the Revolving
Credit Notes for 30 consecutive days during each Clean-up Period (as
hereinafter defined) shall not exceed $11,000,000, and the Borrower shall
prepay the Revolving Credit Notes to the extent required to comply with the
foregoing limitation. For the purposes of this Section 2.5(b), "CLEAN-UP
PERIOD" shall mean each period commencing on December 1 and ending on the
immediately following January 31. The initial Clean-up Period shall
commence on December 1, 1998 and end on January 31, 1999.
2.6 VOLUNTARY PREPAYMENTS OF TERM LOAN.
(a) The Borrower may, upon not less than 30 days' prior written
notice to the Agent (which notice the Agent shall promptly transmit to the
Banks in writing or by telephone, confirmed as soon as possible thereafter
in writing) prepay the Term Loans in whole at any time, or from time to
time in part in amounts equal to $1,000,000 (and, if greater, in integral
multiples of $500,000), and without premium (except as provided in clause
(b) below) or penalty; PROVIDED THAT at the time of any
-8-
<PAGE>
such prepayment in full, the Borrower shall pay all interest accrued on the
principal amount of such prepayment. Amounts prepaid pursuant to this
Section 2.6 may not be reborrowed. Prepayments pursuant to this Section 2.6
shall be applied first to the portion of principal payable at final maturity
and thereafter to the installments due thereon pursuant to Section 2.4(a) in
inverse order of maturity.
(b) Notwithstanding the foregoing or anything to the contrary
contained in Section 2.4 or 5.3 hereof, the Borrower agrees that it shall
pay a prepayment premium to the Banks party to this Agreement on the
Effective Date equal to 1% of the principal amount of the Tranche B Term
Loans repaid on or prior to the day which is 36 months after the Effective
Date. Such prepayment premium shall be payable with respect to each
prepayment of principal of the Tranche B Term Loans on the date of each
such prepayment, whether such payment is made as a result of any voluntary
prepayment, any acceleration of the maturity date following an Event of
Default (which shall be considered for the purposes hereof as an avoidance
of its obligations hereunder to pay a prepayment premium), pursuant to the
provisions of Section 2.4 hereof, or otherwise.
2.7 VOLUNTARY REPAYMENT OF REVOLVING CREDIT LOANS. The Borrower
shall have the right, at any time and from time to time, upon prior written
notice to the Agent (which notice the Agent shall promptly transmit to the
Banks in writing or by telephone, confirmed as soon as possible thereafter
in writing) to prepay the Revolving Credit Loans in whole, or in part in
amounts equal to $500,000 (and, if greater, in integral multiples of
$100,000), and without premium or penalty (but subject to Section 3.9
hereof), PROVIDED THAT at the time of any such prepayment of the Revolving
Credit Loans in full and if the Total Revolving Credit Loan Commitment is
no longer in effect, the Borrower shall pay all interest accrued on the
amount of such prepayment; and PROVIDED, FURTHER, that if such notice is
given on the same day that such prepayment is to be made (it being
understood that voluntary prepayments under this Agreement may only be made
on Business Days), the Borrower shall have notified the Agent of such
prepayment by telephone (confirmed as soon as possible thereafter in
writing)or in writing no later than 1:00 p.m. on such day. Subject to the
terms and conditions of this Agreement, amounts prepaid under this Section
2.7 may be reborrowed.
2.8 REDUCTION OF COMMITMENTS. The Borrower shall have the right at
any time and from time to time upon at least 3 Business Days' prior written
notice to the Agent (which notice the Agent shall promptly transmit to the
Banks in writing or by telephone, confirmed as soon as possible thereafter
in writing) to reduce permanently in amounts equal to $1,000,000 (and if
greater, in integral multiples of $500,000) or terminate the unutilized
(after giving effect to all pending requests for Loans) Total Revolving
Credit Loan Commitment. Any reduction
-9-
<PAGE>
pursuant to this Section 2.8 shall apply proportionately to the Revolving
Credit Loan Commitment of each Bank. Any reduction or termination of a
Commitment pursuant to this Section 2.8 shall be accompanied by the payment
in full of any Revolving Credit Loan Commitment commission then accrued
hereunder. Notwithstanding anything to the contrary contained in this
Agreement or any other Loan Document, the Total Revolving Credit Loan
Commitment shall be automatically reduced to $10,000,000 (if at the time
greater than $10,000,000) at any time when (x) the aggregate outstanding
principal amount of the Revolving Credit Loans is $10,000,000 or less, and
(y) a Put Notice (as defined in the Securities Purchase Agreement) or similar
notice has been delivered to the Borrower or the holder of any Warrant has
exercised its put.
2.9 COMPENSATION IN CONNECTION WITH PREPAYMENTS.
The Borrower shall compensate each Bank as required by Section 3.9 in
connection with any prepayments made pursuant to Section 2.5, 2.7 or 2.8.
2.10 EXTENSION OF REVOLVING CREDIT MATURITY DATE. The Borrower, by an
executive thereof, shall be permitted to submit to the Agent on or after
May 1, 1999 but prior to June 1, 1999, a written request (an "EXTENSION
REQUEST") that the Revolving Credit Maturity Date be extended for one year,
effective as of the first anniversary of the Effective Date. The Agent
shall forward such extension request to each Bank. Unless each Bank in its
sole discretion agrees to grant such Extension Request and notifies the
Borrower and the Agent thereof in writing on or before June 15, 1999, such
Extension Request shall be denied and the Revolving Credit Maturity Date
shall not be extended. The granting of such Extension Request will extend
the Revolving Credit Maturity Date to May 31, 2005.
2.11 INCREASE IN TOTAL REVOLVING CREDIT LOAN COMMITMENT. On or before
December 31, 1999, the Borrower shall be permitted to give the Agent
written notice that it desires to increase the Total Revolving Loan
Commitment to $25,000,000 if (i) on or prior to the date of such notice,
(A) an IPO has been completed and (B) all Tranche A Term Loans and Tranche
B Term Loans have been repaid in full, (ii) the Total Revolving Credit Loan
Commitment has not been reduced prior to the date of such notice and
(iii) on the date of the giving of such notice, both before and after
giving effect to the increase requested, (A) no Default or Event of Default
shall have occurred and be continuing and (B) Borrower is in Pro Forma
Compliance with the Financial Covenants. Five (5) Business Days after
receipt of such notice, and provided that the conditions to the Borrower
giving such notice are satisfied, the Total Revolving Credit Loan
Commitment shall increase by $3,000,000 to $25,000,000, and each Bank's
Revolving Credit Loan Commitment shall be increased by its ratable share
(based on the existing Revolving Credit Loan Commitments of each Banks) of
such $3,000,000 increase. The Agent is hereby authorized to amend
Schedule 2.1 to give effect to such increase.
-10-
<PAGE>
3. INTEREST.
3.1 RATE OF INTEREST. The Borrower agrees to pay interest in respect
of the unpaid principal amount of each Loan from time to time outstanding
from the date the proceeds thereof are made available to the Borrower until
maturity (whether by acceleration or otherwise) at (subject to Section 3.3)
the following interest rates: (i) on Revolving Credit Loans which are
Eurodollar Loans, at a rate per annum equal to 3.25% in excess of LIBOR for
the Eurodollar Interest Period applicable to such Loan or, in the event
that on any day (any such day, a "REDUCTION DATE") the sum of (A) the
outstanding Term Loans plus (B) the Total Revolving Credit Loan Commitment
or, if the Total Revolving Credit Commitment has been terminated, the
outstanding Revolving Credit Loans, is equal to or less than $25,000,000,
then, for each day after such Reduction Date (if any) at a rate per annum
equal to 2.75% in excess of LIBOR for the Eurodollar Interest Period
applicable to such Loan (ii) on Revolving Credit Loans which are Base Rate
Loans, at a rate per annum equal to 0.50% in excess of the Base Rate or,
for each day following the Reduction Date (if any), at a per annum rate
equal to the Base Rate; (iii) on Tranche A Term Loans, at a rate per annum
equal to 1.0% in excess of the Base Rate and (iv) on Tranche B Term Loans,
at a rate per annum equal to 2.0% in excess of the Base Rate.
Notwithstanding the foregoing, the outstanding loans under the Existing
Loan Agreement shall accrue interest at the rate set forth therein through
the Effective Date. The interest rate for Base Rate Loans shall change as
and when the Base Rate shall change.
3.2 INTEREST PAYMENT DATES. Interest in respect of each Loan (as
well as interest accrued through the Effective Date on loans outstanding
under the Existing Loan Agreement)shall be payable in arrears (i) with
respect to (x) Eurodollar Loans, as provided in Section 3.5; and (y) Base
Rate Loans, on each Quarterly Payment Date, commencing with the first such
date to occur after the Effective Date; (ii) upon any repayment or
prepayment of such Loan or any conversion of such Loan to a Eurodollar Loan
pursuant to Section 3.10(b) hereof (to the extent accrued on the amount
repaid, prepaid or converted) (iii) at maturity (whether by acceleration or
otherwise) and, after maturity, upon demand.
3.3 POST-DEFAULT INTEREST. Each Loan (and any overdue interest in
respect of the Loans) shall bear interest for each day on which an Event of
Default exists (after as well as before judgment) at a rate per annum (the
"POST-DEFAULT RATE") equal to 2% in excess of the interest rate otherwise
applicable to such Loan on such day.
3.4 INCREASED COSTS; CAPITAL ADEQUACY. (a) INCREASED COSTS. In the
event that any Bank shall determine that the introduction or adoption
(after the date hereof) of any law, treaty or governmental rule, regulation
or order, or that any change (after the date hereof) therein or in the
interpretation, administration or application thereof, or that any
-11-
<PAGE>
determination (after the date hereof) by a court of governmental authority,
or that compliance by such Bank with any guideline, request or directive
issued or made (after the date hereof) by any central bank or other
governmental or quasi-governmental authority (whether or not having the force
of law), in any such case:
(i) subjects such Bank (or its applicable lending office)
to any Tax (excluding any Tax on the overall net income of such Bank) with
respect to this Agreement or any of its obligations hereunder or any
payments to such Bank of principal, interest, fees or any other amount
payable hereunder;
(ii) imposes, modifies or holds applicable any reserve
(including any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or
the account of, or advances or loans by, or other credit extended by, or
any other acquisition of funds by, any office of such Bank (other than any
such requirement included within the definition of LIBOR);or
(iii) imposes any other condition (other than with respect
to a Tax matter) on or affecting such Bank (or its applicable lending
office) or its obligations hereunder or the interbank Eurodollar market;
and the result of any of the foregoing is to increase the cost to such Bank
of agreeing to make, making or maintaining Loans hereunder or to reduce any
amount received or receivable by such Bank (or its applicable lending
office) with respect thereto; then, in any such case, the Borrower shall
pay to such Bank, promptly after receipt of the statement referred to in
the next sentence, such additional amount or amounts (in the form of an
increased rate of, or a different method of calculating, interest or
otherwise as such Bank in its reasonable discretion shall determine) as may
be necessary to compensate such Bank for any such increased cost or
reduction in amounts received or receivable hereunder. Such Bank shall
deliver to the Borrower (with a copy to Agent) a written statement, setting
forth in reasonable detail the basis for calculating the additional amounts
owed to such Bank under this subsection 3.4(a), which statement shall be
conclusive and binding upon the Borrower absent manifest error.
(b) CAPITAL ADEQUACY. If any Bank shall have determined that the
applicability of any law, rule, regulation or guideline adopted after the
date hereof (it being agreed that "adopted after the date hereof" shall
include compliance by a Bank or any lending office or holding company of a
Bank with any Basle Law whether or not such Basle Law was in effect,
applicable or phased in on or prior to or after the date hereof) pursuant
to or arising out of the July 1988 report of the Basle Committee on
-12-
<PAGE>
Banking Regulations and Supervisory Practices entitled "International
Convergence of Capital Measurement and Capital Standards" (said laws, rules,
regulations and guidelines being sometimes herein referred to as "BASLE
LAWS"), or the adoption after the date hereof of any other law, rule,
regulation or guideline regarding capital adequacy (any such other law, rule,
regulation or guideline being sometimes herein referred to as "OTHER LAWS"),
or any change in any of the foregoing (after the date hereof in respect of
Other Laws; before or after the date hereof in respect of Basle Laws) or in
the enforcement or interpretation or administration of any of the foregoing
(after the date hereof in respect of Other Laws; before or after the date
hereof in respect of Basle Laws) by any Government Authority, central bank or
comparable agency charged with the enforcement or interpretation or
administration thereof, or compliance by any Bank (or any lending office of
any Bank) or any holding company of any Bank with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital or on the
capital of such Bank's holding company, if any, as a consequence of its
Commitments, Loans or any of its other obligations hereunder to a level below
that which such Bank or such Bank's holding company could have achieved but
for such applicability, adoption, change or compliance (taking into
consideration such Bank's policies and the policies of such Bank's holding
company with respect to capital adequacy) by an amount deemed by such Bank to
be material, THEN, upon demand by such Bank (or by the Agent on such Bank's
behalf), the Borrower shall pay to such Bank from time to time such
additional amount or amounts as will compensate such Bank or such Bank's
holding company for any such reduction suffered, together with interest on
each such amount from the date demanded until payment in full (after as well
as before judgment) thereof at the Base Rate; PROVIDED, HOWEVER, that the
Borrower shall not be required to pay such compensation to a Bank or
corporation controlling such Bank, as the case may be, to the extent the
reduction is attributable to any such law, rule, regulation or guideline, or
interpretation or administration thereof, or request or directive, as the
case may be, that is not generally applicable to (a) in the case of each Bank
that is a national bank, all national banks, or (b) in the case of any other
Bank, all banks of the same type organized under the same authority as such
Bank (i.e., if such Bank is a State of New York charter bank, all State of
New York chartered banks and if such bank is a federal savings bank, all
federal savings banks, etc.) in the state in which such Bank has its
principal office. Any Bank seeking reimbursement shall give the Borrower
written notice of the law, treaty, rule or regulation, or any interpretation
or administration thereof, which may give rise to the increased cost. The
Borrower shall make payment to such Bank of the amount due within sixty (60)
days after receipt by the Borrower of such notice and the certificate
referred to in the next sentence. A certificate of such Bank submitted to
the Borrower as to any such
-13-
<PAGE>
additional amount or amounts (including calculations thereof in reasonable
detail) shall be prima facie evidence of the amount thereof. In determining
such amount or amounts, such Bank may use any method of averaging and
attribution as it (in its sole and absolute discretion) shall deem applicable.
3.5 EURODOLLAR INTEREST PAYMENT DATES. Interest in respect of each
Eurodollar Loan shall be payable on the expiration date of each Eurodollar
Interest Period applicable to such Eurodollar Loan and, if the Eurodollar
Interest Period is longer than three months, at the end of each three-month
interval within such Eurodollar Interest Period. Interest shall also be
payable at the times set forth in Sections 3.2(ii) and (iii).
3.6 DETERMINATION OF RATE OF BORROWING. On each Eurodollar Interest
Determination Date for any Eurodollar Loans, the Agent shall determine
(which determination shall, absent manifest error, be final, conclusive and
binding upon all parties) the rate of interest set forth in Section 3.1(i)
(the "RATE OF BORROWING") which shall be applicable for purposes of said
Section 3.1(i) to the Eurodollar Loans for the next succeeding Eurodollar
Interest Period for such Eurodollar Loans and shall promptly give notice
thereof in writing or by telephone (confirmed in writing) to the Borrower
and the Banks.
3.7 INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event
that the Agent shall have determined (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties
hereto), on any Eurodollar Interest Determination Date with respect to any
Eurodollar Loans, that by reason of circumstances affecting the London
interbank Eurodollar market adequate and fair means do not exist for
ascertaining the interest rate applicable to such Loans on the basis
provided for in the definition of LIBOR, Agent shall on such date give
notice (by telefacsimile or by telephone confirmed in writing) to the
Borrower and each Bank of such determination, whereupon (i) no Loans may be
made or continued as Eurodollar Loans until such time as Agent notifies the
Borrower and Banks that the circumstances giving rise to such notice no
longer exist and (ii) the Notice of Borrowing or Notice of Continuation
given by Borrower with respect to the Loans in respect of which such
determination was made shall be deemed to be rescinded by the Borrower.
3.8 ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR LOANS. In the event
that on any date any Bank shall have determined (which determination shall
be made only after consultation with Borrower and Agent, it being
understood that any such determination so made shall, absent clearly
demonstrable error, be final and conclusive and binding upon all parties
hereto) that the making, maintaining or continuation of its Eurodollar
Loans (i) has become unlawful as a result of compliance by such Bank in
good faith with any law, treaty, governmental rule, regulation, guideline
or order (or would
-14-
<PAGE>
conflict with any such treaty, governmental rule, regulation, guideline or
order not having the force of law even though the failure to comply therewith
would not be unlawful) or (ii) has become impracticable as a result of
contingencies occurring after the date of this Agreement which affect such
Bank or the interbank Eurodollar market, then, and in any such event, such
Bank shall be an "AFFECTED BANK" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to the Borrower and Agent
of such determination (which notice Agent shall promptly transmit to each
other Bank). Thereafter (a) the obligation of the Affected Bank to make or
continue Loans as Eurodollar Loans shall be suspended until such notice shall
be withdrawn by the Affected Bank, (b) the Affected Bank shall make such Loan
as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the
Affected Bank's obligation to maintain its outstanding Eurodollar Loans (the
"AFFECTED LOANS") shall be terminated at the earlier to occur of the
expiration of the Eurodollar Interest Period then in effect with respect to
the Affected Loans or when required by law, and (d) any Affected Loans shall
automatically convert into Base Rate Loans on the date of such termination.
Notwithstanding the foregoing, to the extent a determination by an Affected
Bank as described above relates to a Eurodollar Loan then being requested by
Borrower pursuant to a Notice of Borrowing or a Notice of Continuation, the
Borrower shall have the option, subject to the provisions of Section 3.9, to
rescind such Notice of Borrowing or Notice of Continuation as to all Banks by
giving notice (by telefacsimile or by telephone confirmed in writing) to
Agent of such rescission on the date on which the Affected Bank gives notice
of its determination as described above (which notice of rescission Agent
shall promptly transmit to each other Bank). Except as provided in the
immediately preceding sentence, nothing in this Section 3.8 shall affect the
obligation of any Bank other than an Affected Bank to make or maintain Loans
as Eurodollar Loans in accordance with the terms of this Agreement.
3.9 COMPENSATION. The Borrower shall compensate each Bank, upon
written request by such Bank (which request shall be made through the Agent
and shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including, without limitation,
any interest paid by such Bank to lenders of funds borrowed by it to make
or carry its Eurodollar Loans and any reasonable loss (including any loss
of margin) sustained by such Bank in connection with the re-employment of
such funds), which such Bank may sustain: (i) if for any reason (other than
a default by such Bank) a borrowing or continuation of, or conversion of or
into, any Eurodollar Loan does not occur on a date specified therefor in a
Notice of Borrowing or a Notice of Continuation (whether or not withdrawn),
(ii) if any prepayment, repayment, continuation or conversion of any of its
Eurodollar Loans occurs on a date which is not the last day of a Eurodollar
Interest Period applicable thereto, (iii) if any prepayment or repayment of
any of its Eurodollar Loans is not made on any date specified in a notice
thereof given
-15-
<PAGE>
by the Borrower, or (iv) as a consequence of any default by the Borrower
under this Agreement.
3.10 CONTINUATIONS; DETERMINATIONS OF EURODOLLAR INTEREST PERIODS.
(a) Subject to Sections 3.7, 3.8, 3.10(c) and 3.11 hereof, by
delivering written notice to the Agent in the form of a fully completed
Notice of Continuation no later than 11:00 a.m. (Closing Office Time) three
(3) Business Days prior to the expiration date of the then current
Eurodollar Interest Period, the Borrower shall have the option to specify
as to Revolving Credit Loans which are then outstanding as Eurodollar Loans
(i) whether the Loans will be continued as Eurodollar Loans and if so, the
Eurodollar Interest Period commencing on such expiration date (which shall
be any one of the Available Eurodollar Interest Periods), or (ii) whether
such Loans shall be converted on such expiration date to Base Rate Loans.
Subject to subsection 3.10(c) below, if the Agent shall not have received a
fully completed and executed Notice of Continuation as set forth above with
respect to outstanding Eurodollar Loans on or prior to the deadline
therefor, the Borrower shall be deemed to have elected to convert such
Eurodollar Loans to Base Rate Loans as of the expiration date of the then
current Eurodollar Interest Period.
(b) Subject to Sections 3.7, 3.8, 3.10(c) and 3.11 hereof, with
respect to Revolving Credit Loans which are then outstanding as Base Rate
Loans, by delivering written notice to the Agent in the form of a fully
completed Notice of Continuation no later than 11:00 a.m. (Closing Office
Time) no less than three (3) Business Days prior to the requested
conversion date, the Borrower shall have the option to convert all or a
portion of such Loans to Eurodollar Loans with the Eurodollar Interest
Period specified in such Notice of Continuation (which shall be an
Available Eurodollar Interest Period), unless the Agent shall have given a
notice pursuant to Section 3.7 or Section 3.11.
(c) The determination of Eurodollar Interest Periods and
conversion of a Loan into or continuation of a Loan as a Eurodollar Loan
shall be subject to the following provisions:
(i) The initial Eurodollar Interest Period for any
Eurodollar Loan shall commence on the date of the making of such Eurodollar
Loan or the date of conversion into a Eurodollar Loan and each Eurodollar
Period thereafter in respect of such Eurodollar Loan shall commence on the
day on which the preceding Eurodollar Interest Period expired.
(ii) If any Eurodollar Interest Period would otherwise
expire on a day which is not a Business Day, such Eurodollar Interest
Period shall expire on the next succeeding
-16-
<PAGE>
Business Day; PROVIDED, HOWEVER, that if any such Eurodollar Interest Period
would otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Eurodollar Interest Period shall expire on the next preceding Business Day.
(iii) If any Eurodollar Interest Period commences on a day
for which there is no numerically corresponding day in the calendar month
at the end of such Eurodollar Interest Period, such Eurodollar Interest
Period shall expire on the last Business Day of such calendar month.
(iv) No Eurodollar Interest Period in respect of any Loan
shall extend beyond the Revolving Credit Maturity Date.
3.11 EURODOLLAR LOANS AFTER DEFAULT. If, after the occurrence of and
during the continuation of a Default or an Event of Default, the Agent or
Required Banks have determined in its or their sole discretion not to
permit the making or continuation of any Loans as Eurodollar Loans and the
Agent has so notified Borrower in writing (i) the Borrower may not elect to
have any Loans be made as or converted into Eurodollar Loans or elect to
have any outstanding Eurodollar Loans continued as such after the
expiration of the Eurodollar Interest Periods in effect for such Eurodollar
Loans, and (ii) subject to the provisions of subsection 3.9, any Notice of
Borrowing or Notice of Continuation given by the Borrower with respect to a
requested borrowing, continuation of, or conversion to, Eurodollar Loans
that has not yet occurred shall be deemed to be rescinded by the Borrower.
3.12 LIMITATION ON NUMBER OF EURODOLLAR INTEREST PERIODS. At no time
shall Borrower be permitted to have more than ten different Eurodollar
Interest Periods outstanding.
4. COMMITMENT COMMISSION, ETC.
4.1 COMMITMENT COMMISSION. The Borrower agrees to pay to the Agent
for the account of each Bank a Commitment commission with respect to its
Revolving Credit Loan Commitment for the period commencing on the Effective
Date, to and including the Revolving Credit Maturity Date, on the average
daily Unutilized Revolving Credit Loan Commitment of such Bank during the
period for which payment is made at a rate per annum equal to the
Commitment Commission Rate. As used herein, Commission Commitment Rate
means 0.50%; PROVIDED, that such rate shall decrease to 0.4375% for each
day following the Reduction Date (if such date occurs). Such Commitment
commission shall be payable quarterly in arrears on each Quarterly Payment
Date, commencing with the first such date to occur in calendar year 1998,
and on the Revolving Credit Maturity Date.
-17-
<PAGE>
4.2 FACILITY FEE. The Borrower agrees to pay to the Agent, for the
Agent's own account, the facility fee that is described in the Fee Letter,
as and when set forth in the Fee Letter.
4.3 AGENT'S FEES. The Borrower agrees to pay to the Agent for its
own account a non-refundable $50,000 per annum fee, such fee to be paid
annually in advance on October 31 of each year until the Loans are paid in
full.
5. PAYMENTS, ETC.
5.1 PAYMENTS ON NON-BUSINESS DAYS; CALCULATIONS. Except as otherwise
set forth in Section 3.10(c) hereof, whenever any payment to be made
hereunder or under any Note shall be stated to be due on a day which is not
a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest shall be payable at the applicable
rate during such extension. Interest and Commitment and other commissions
hereunder and under the Notes shall be calculated on the basis of a 360-day
year and the actual number of days elapsed; if for any reason a Loan is
repaid on the same day on which it is made, one day's interest (subject to
the other provisions of this Agreement) shall be paid on that Loan. The
Borrower hereby authorizes and directs the Agent and each Bank to charge
any account of the Borrower maintained at any office of the Agent or such
Bank with the amount of any principal, interest or fee when the same
becomes due and payable under the terms hereof or of the Notes; PROVIDED,
HOWEVER, that neither the Agent nor any Bank shall be under any obligation
to charge any such account.
5.2 NET PAYMENTS; APPLICATION.
(a) All payments hereunder and under the Notes (including,
without limitation, repayments and prepayments pursuant to Section 2) shall
be made by the Borrower to the Agent in freely transferable U.S. dollars
and in same day funds at the Closing Office without setoff or counterclaim
and in such amounts as may be necessary in order that all such payments
(after (i) withholding for or on account of any present or future Taxes of
whatsoever nature imposed on the amounts described above by any government
or any political subdivision or taxing authority thereof, other than any
taxes (other than such taxes referred to in clause (ii) below) to the
extent that they are imposed on the net income of a Bank pursuant to the
tax laws of the taxing jurisdiction where such Bank's principal or lending
office or offices are located and (ii) deduction of an amount equal to
Taxes on or measured by the net income payable to such Bank with respect to
the amount by which the payments required to be made by this Section 5.2
exceed the amount otherwise specified to be paid under this Agreement and
the Notes) shall not be less than the amounts otherwise specified to be
paid under this Agreement and the Notes. With respect to each such
deduction or withholding, the Borrower shall promptly (and in no event
later
-18-
<PAGE>
than 30 days thereafter) furnish to the Agent such certificates, receipts and
other documents as may be required to establish any tax credit, exemption or
reduction in rate to which any Bank or holder of a Note may be entitled.
Each Bank, other than a Bank organized and existing under the laws of the
United States of America or any political subdivision thereof, agrees to
furnish the Borrower, as soon as practicable after any written request of the
Borrower to such effect, any executed form reasonably requested by the
Borrower such as IRS Form 4224 or 1001, and any other applicable form as to
such Bank's entitlement, if any, to exemption from, or a reduced rate of, or
its subjection to, United States withholding tax on amounts payable to it
hereunder or under the Notes and each such Bank undertakes to use its best
efforts promptly to notify the Borrower of any material change in any
information, statement or form so furnished to the Borrower; PROVIDED,
HOWEVER, that any failure on the part of any Bank to furnish any such
information, statements or forms shall in no way affect the obligations of
the Borrower or the rights of any Bank under the terms of this Agreement or
of the Notes. Notwithstanding the foregoing, in the event any Bank fails to
furnish any such information, statements or forms, the Borrower shall only
pay to such Bank such amounts under this Agreement and the Notes as are due
without those additions described in clauses (i) and (ii) above that would
not have been required had such information, statements or forms been
provided in a timely fashion. As promptly as practicable after any Bank
becomes aware of the existence or occurrence of an event giving rise to the
imposition of United States withholding tax upon amounts payable to it
hereunder or under the Notes, such Bank shall use its best efforts to
transfer its Revolving Credit Loan Commitment or Loans to another office of
such Bank with a view to avoiding or mitigating the consequences of such tax.
If any Bank determines that it is unable to effect such transfer on or
before the thirtieth day after the date such Bank becomes aware of the
existence or occurrence of an event giving rise to the imposition of United
States withholding tax, such Bank shall promptly give notice of such
determination to the Borrower. If the Borrower receives notice of such
determination from such Bank, the Borrower may, by notice to such Bank,
indicate its intention to prepay the Loan in full (but with all interest
accrued to the date of prepayment on the Loans and all other amounts then
payable to such Bank hereunder) on the 45th day after the date of such notice
of intention. On or before the tenth day after receipt of any such notice of
intention, such Bank may, by notice to the Borrower, irrevocably elect to
receive payments hereunder reduced by the amount of such withholding. If
such an election is so made, the Borrower (i) shall cease to be under any
further obligation to pay any such additional amount in respect of such
withholding and (ii) shall cease to be entitled so to prepay the Loan by
virtue of being required to make such withholding. Any Bank which is or
becomes subject to such withholding tax agrees to use its best efforts to
provide the Borrower with an affidavit, within 30 days after such Bank files
its tax return,
-19-
<PAGE>
setting forth the amount of any tax credit it received with respect thereto.
(b) Unless otherwise specifically provided herein, all payments
under or pursuant to, or in satisfaction of any of the Borrower's
obligations under this Agreement or under the Notes (including any received
in connection with the foreclosure upon or other realization on any
Collateral) will be applied in the following order of priority: (i) to any
amounts not otherwise listed in this Section 5.2(b) then due and payable
under this Agreement, the Notes or the Security Documents, (ii) to any
Commitment commission or fees then due and payable pursuant to Section 4.1
of this Agreement, (iii) to any interest on the Loans (unless otherwise
specified by Borrower, PRO RATA according to the aggregate amount of
interest then due and payable on the Loans) then due and payable, (iv) to
any principal amount then due under the Loans, first to the Tranche B Term
Notes, then to the Tranche A Term Notes and then to the Revolving Credit
Notes (unless the Borrower specifies that such payments are to be applied
to the Revolving Credit Notes, in which case such amounts will be applied
first to the principal due under the Revolving Credit Notes), (v) to any
amounts not then due on the Term Notes, first to the Tranche B Term Notes,
then to the Tranche A Term Notes (to be applied (in the case of the Tranche
A Term Notes) first to amounts due at final maturity and thereafter to the
installments due thereon pursuant to Section 2.4(a) in inverse order of
maturity), and (vi) to reduce the unpaid principal amount of the Revolving
Credit Loans.
5.3 DISTRIBUTION BY AGENT. All payments received by the Agent on
behalf of the Banks on account of principal and interest under this Agreement
or the Notes or with respect to Commitment commission shall be promptly
distributed by the Agent to the Banks (in the type of funds received by the
Agent) as follows: (a) if in respect of principal and if Borrower has
designated that the payments are being made in respect of Term Loans or in
respect of the Revolving Credit Loans, then (in the case of a designation of
Term Loans) on a PRO RATA basis to each of the Banks having Tranche B Term
Loans outstanding and then on a PRO RATA basis to each of the Banks having
Tranche A Term Loans outstanding, or in the case of a designation of
Revolving Credit Loans, on a PRO RATA basis to each of the Banks having
Revolving Credit Loans outstanding, as the case may be; (b) if in respect of
principal and Borrower has not designated whether the payments are being made
in respect of the Term Loans or the Revolving Credit Loans, then, first on a
PRO RATA basis to each of the Banks having Tranche B Term Loans
-20-
<PAGE>
outstanding, then on a PRO RATA basis to Banks having Tranche A Term Loans
outstanding and then on a PRO RATA basis to each of the Banks having
Revolving Credit Loans outstanding; (c) if in respect of interest paid on the
Loans pursuant to Section 3 and the Borrower has designated that the payments
are being made in respect of a Term Loans, or in respect of the Revolving
Credit Loans, then on a PRO RATA basis first to each of the Banks having
Tranche B Term Loans outstanding, and then on a PRO RATA basis to each of the
Banks having Tranche A Term Loans outstanding, or on a PRO RATA basis to each
of the Banks having Revolving Credit Loans outstanding, as the case may be;
(d) if in respect of interest due on the Loans and the Borrower has not
designated whether such payments are being made in respect of Term Loans or
the Revolving Credit Loans, then to each Bank in the proportion that the
aggregate amount of such unpaid interest due on the Loans of each such Bank
bears to the aggregate amount of such unpaid interest due on all such Loans;
(e) if in respect of Commitment commission pursuant to Section 4.1, to each
Bank in the proportion that the Revolving Credit Loan Commitment of such Bank
bears to the Total Revolving Credit Loan Commitment; and (f) if in respect of
a payment under Section 5.2(a) hereof, to each Bank in accordance with its
entitlement thereto.
6. CONDITIONS PRECEDENT TO EFFECTIVENESS.
The effectiveness of this Agreement, and the obligation of any Bank to
extend credit hereunder on the Effective Date are subject to (i) the
condition precedent that the Effective Date shall occur on or before July
31, 1998 and (ii) the satisfaction of the other conditions set forth below
to the satisfaction of the Agent:
6.1 DEFAULT, ETC. There shall exist no Default or Event of Default
hereunder or under the Existing Loan Agreement and all representations and
warranties made by the Credit Parties herein or in the other Loan Documents
or otherwise by the Credit Parties in writing in connection herewith or
therewith shall be true and correct in all material respects with the same
effect as though such representations and warranties have been made at and
as of such time (unless any such representation or warranty is, by its
terms, made only as of a specified earlier date, in which case such
representation and warranty shall remain true and correct in all respects
as of such earlier date).
6.2 NOTES. The Agent shall have received for each of the Banks the
Term Notes and Revolving Credit Notes, each duly executed and completed by
the Borrower.
6.3 FORM U-1. If requested by any Bank prior to the time of the
making of such Loans, the Borrower shall have delivered to such Bank a duly
completed Form U-1 of the Board of Governors of the Federal Reserve System.
6.4 SUPPORTING DOCUMENTS OF THE BORROWER. There shall have been
delivered to the Agent (with sufficient copies for each of the Banks) such
information and copies of documents, approvals (if any) and records
(certified where appropriate) of corporate and legal proceedings as the
Agent or any Bank may have reasonably requested relating to the Borrower's
entering into and performance of the Loan Documents. Such documents shall,
in any event, include:
-21-
<PAGE>
(a) certified copies of the Charter Documents of the
Borrower;
(b) certificates of authorized officers of the Borrower,
certifying the corporate resolutions of such entity relating to
the entering into and performance of the Loan Documents to which
it is a party, and the transactions contemplated thereby;
(c) certificates of authorized officers of the Borrower
with respect to the incumbency and specimen signatures of the
Borrower's officers or representatives authorized to execute such
documents and any other documents and papers, and to take any
other action, in connection therewith; and
(d) a certificate of an authorized officer of the Borrower
certifying, as of the date of the Loan, compliance with the
conditions of Sections 6.1, 6.5(d), 6.7, 6.11, 6.15 and 6.20(b)
and also the absence of any Material Adverse Changes of the type
referred to in Section 6.18.
6.5 SECURITY DOCUMENTS. There shall have been delivered to the
Agent:
(a) Amendment to Security Agreement and Acknowledgment of
Security Interests (which, without limitation, includes a release
of certain shares of stock issued by the Borrower which were
pledged in favor of the Agent and a release of certain
obligations of certain shareholders of the Borrower with respect
to certain shares held in IRA accounts), executed by the
Borrower, substantially in the form of Exhibit B hereto;
(b) [Intentionally deleted]
(c) [Intentionally Deleted]
(d) Such consents of third parties (including lessors of
any warehouse or headquarters space where any inventory of the
Borrower is kept) as are required or as the Agent may reasonably
request, any such consents of lessors to include the right for
the Agent to enter the relevant premises and remove Collateral;
(e) Evidence satisfactory to the Agent of all filings of
financing statements (and assignments thereof) under the
applicable Uniform Commercial Code (under the Borrower's name as
well as under trade names under which Borrower conducts
business), satisfactory Lien search requests on Form UCC-11 and
analogous forms confirming the absence of any perfected Liens
prior to the Banks' Liens (except those consented to by the
Agent) and all other actions with respect to the Liens created by
the Security
-22-
<PAGE>
Documents as are necessary or appropriate to perfect such Liens.
(f) [Intentionally Deleted]
(g) (i) An Amended and Restated Subordination Agreement
(Electra) in the form of EXHIBIT C hereto.
(ii) A Subordination Agreement executed by the
Principal Stockholders, substantially in the form of Exhibit E-2
to the Existing Loan Agreement.
(h) A written acknowledgment from the Deposit Bank that it
has transferred to the Agent ownership of all accounts maintained
for the Borrower and that the Deposit Bank has been irrevocably
directed by the Borrower to, and will, henceforth deposit all
monies received by the Deposit Bank for Borrower's account into
an operating account of the Borrower in which the Agent has a
first priority security interest (the Deposit Bank acknowledging
it has notice of said security interest).
(i) A cash collateral agreement (as the same may from time
to time be amended, restated, supplemented or otherwise modified,
the "CASH COLLATERAL AGREEMENT") executed by the Borrower with
respect to its accounts at the Deposit Bank, and a letter
executed by the Borrower with respect to (among other things)
Borrower keeping its primary accounts at the Deposit Bank (as the
same may from time to time be amended, restated, supplemented or
otherwise modified, the "DEPOSIT LETTER").
6.6 [Intentionally Deleted]
6.7 SUBORDINATED DEBT. The Subordinated Debt shall have been, or
simultaneously with the occurrence of the Effective Date shall be, repaid
and discharged in full.
6.8 CERTIFICATIONS; FINANCIAL STATEMENTS.
(a) The Borrower shall have delivered the following (in each
case certified by its CFO) to the Agent with respect to the Borrower
(i) for each of the five full Fiscal Years following the
Effective Date:
(x) projected statements of earnings; and
(y) projected cash flow statements;
(ii) pro forma balance sheets as at the end of each of said
five Fiscal Years; and
-23-
<PAGE>
(iii) a letter (substantially in the form of Exhibit D
hereto) to the effect that, after giving effect to the transactions
contemplated by this Agreement, the Borrower (x) is Solvent, (y) does not
have unreasonably small capital to conduct its business, and (z) has not
incurred debts beyond its ability to pay such debts as they become due.
(b) The CFO shall have delivered a letter to the Agent (x)
stating that said projections have been properly compiled and that he has
no reason to believe that any of the assumptions used as a basis therefor
were made without a reasonable basis or otherwise than in good faith; and
(y) confirming, in the CFO's opinion, the reasonable basis of the
underlying tax and accounting assumptions used by the Borrower in the
balance sheets and projections referred to in clauses (i) and (iii) of
Section 6.8(a) above.
6.9 REPORTS.
(a) The Agent shall have received from Persons satisfactory to
it:
(i) [intentionally deleted];
(ii) an analysis of all litigation (if any) to which the
Borrower or any of its properties is a party or subject, or by which
Borrower is otherwise affected; and
(iii) a report prepared by the Borrower of the pension
obligations of the Borrower.
In addition, the Agent shall have received from the Borrower a report
listing the amounts and type of insurance maintained by the Borrower as of
the Effective Date together with the names of the relevant insurers.
(b) The Agent shall have been provided the right and opportunity
to meet from time to time with the Auditors, and with executive and other
personnel of the Borrower concerning the Borrower's internal accounting and
inventory systems and controls, and related matters, and shall have been
satisfied with the results of such meeting.
6.10 INSURANCE. There shall have been delivered to the Agent:
(a) a certificate from the Borrower's CFO or CEO stating
that the insurance maintained by the Borrower as of the Effective
Date meets the requirements of Section 7.4 as of the Effective
Date and that no premiums therefor are past due;
(b) (i) copies of the policies (or binders) for the
insurance referred to in Section 7.4 and Section 9.6 to
-24-
<PAGE>
the extent not previously delivered to the Agent, such policies to be in
form and substance, and issued by companies, satisfactory to the Agent
and (ii) certificates of insurance from the various insurers naming the
Agent as additional insured or loss payee, as its interests may appear,
and stating that said policies will not be canceled without at least 30
days prior written notice to the Agent; and
(c) a certificate of an authorized officer of the Borrower
that all such insurance policies are in full force and effect.
6.11 APPROVALS AND CONSENTS. All orders, permissions, consents,
approvals, licenses, authorizations and validations of, and filings,
recordings and registrations with, and exemptions by (all of the foregoing,
"REQUISITE CONSENTS"), any Government Authority, or any other Person,
required to authorize or required in connection with the execution,
delivery and performance of this Agreement, the other Loan Documents, the
Other Agreements and the transactions contemplated hereby and thereby by
any Credit Party shall have been obtained (and, if so requested, furnished
to the Agent, with sufficient copies for the Banks).
6.12 RETAINER AGREEMENT. An employment agreement (as amended,
restated, supplemented or otherwise modified from time to time with the
consent of the Agent, the "DIETZMAN EMPLOYMENT AGREEMENT") shall have been
executed and delivered by the Borrower and Dietzman.
6.13 OTHER SUPPORTING DOCUMENTS. There shall have been delivered to
the Agent such information and copies of documents, approvals (if any) and
records (certified, where appropriate) of corporate and legal proceedings
as the Agent or any Bank may have reasonably requested relating to the
entering into and performance by each of the parties thereto (other than
the Borrower), of the Subordinated Debt Agreements, the Warrant Agreements
and the transactions contemplated thereby.
6.14 LEGAL OPINIONS. The Agent shall have received legal opinions,
addressed to the Banks and dated the Effective Date, of
(a) counsel to the Borrower, Warner Norcross & Judd, LLP,
covering the matters set forth in Exhibit E-1 hereto and such
other matters as the Agent or any Bank may reasonably request;
(b) counsel to E-Associates and E-PLC, Willkie Farr &
Gallagher (or, as to matters of English law, Linklater Paines)
covering the matters set forth in Exhibit E-2 hereto and such
other matters as the Agent or any Bank may reasonably request;
and
-25-
<PAGE>
(c) special local counsel for the Agent (who shall be
satisfactory to the Banks), but solely if requested by the Agent
or any Bank, covering such matters incident to the transactions
contemplated hereby as the Agent or any Bank may request.
6.15 [Intentionally deleted].
6.16 IFA LEASE. The IFA Lease and IFA Lease Assignment shall be in
full force and effect in accordance with the terms thereof.
6.17 [Intentionally Deleted]
6.18 ADVERSE CHANGE.
(a) There shall have been, in the Agent's opinion, no Material
Adverse Change with respect to the Borrower, since January 25, 1998.
(b) Neither the Agent nor the Borrower shall have become aware
of any previously undisclosed information with respect to the Borrower, or
otherwise which, in the Agent's opinion, would have a Material Adverse
Effect.
6.19 [intentionally deleted]
6.20 CHANGE IN LAW; NO OPPOSITION.
(a) No change shall have occurred in applicable law, or in
applicable regulations thereunder or in interpretations thereof by any
Government Authority which, in the opinion of any Bank, would make it
illegal for such Bank to make the Loans required to be made by it
hereunder.
(b) No suit, action or proceeding shall be pending or threatened
before or by any Government Authority seeking to restrain or prohibit the
consummation of the transactions contemplated by this Agreement.
6.21 ALL PROCEEDINGS TO BE SATISFACTORY. All corporate, partnership
(if any) and legal proceedings and all instruments in connection with the
transactions contemplated by this Agreement and the other documents
referred to herein shall be satisfactory in form and substance to the
Agent, and the Agent and any Bank shall have received all information and
copies of all documents which the Agent or such Bank may reasonably have
requested in connection herewith, such documents where appropriate to be
certified by proper corporate officials or governmental authorities.
6.22 FEES AND EXPENSES. The fees referred to in Sections 4.2 and 4.3,
all accrued Commitment commissions and other amounts accrued (other than
interest) or due under the
-26-
<PAGE>
Existing Loan Agreement and the legal fees and expenses of the Agent's New
York counsel and (if any) local or special counsel in connection with
the transactions contemplated by this Agreement shall (to the extent
demand for payment thereof shall have been made) have been paid in full.
6.23 WARRANTS. The Borrower shall have delivered to the Agent (x) a
certificate stating that the Warrant Agreements other than the Securities
Purchase Agreement have not been amended, supplemented or otherwise modified
since October 31, 1994 (nor any waiver granted by Borrower in respect
thereof), except for specified amendments made with the prior written consent
of the Agent; and (y) a certified copy of the Securities Purchase Agreement,
as amended, supplemented and otherwise modified through the Effective Date.
6.24 CERTIFICATE OF INCORPORATION. Borrower's certificate of
incorporation shall be satisfactory in form and substance to the Agent.
6.25 BORROWING BASE CERTIFICATE. The Agent shall have received a
Borrowing Base Certificate dated the Effective Date, together with such
supplemental and supporting documentation as the Agent may reasonably
request, which Borrowing Base Certificate shall show that the aggregate
amount of Revolving Credit Loans outstanding on the Effective Date does not
exceed the Borrowing Base on the Effective Date.
All documents, agreements, certificates, financial statements, legal
opinions, analyses, reports and other papers required to be delivered by
this Section 6 shall be in form and substance satisfactory to the Agent and
shall be delivered (with sufficient copies for each of the Banks) to the
Agent at its Closing Office or as the Agent may otherwise direct.
Section 6A. CONDITIONS PRECEDENT TO ALL LOANS
The Banks shall not be obligated to make any Loans unless, at the time
of the making of such Loan (except as hereinafter indicated) the following
conditions (unless waived in writing by the Required Banks) have been
satisfied:
6A.1 CERTAIN CONDITIONS. At the time of the making of such
Loan, and immediately after giving effect thereto, (a) all deficiencies, if
any, with respect to conditions precedent to any prior Loan shall have been
corrected, (b) all of the conditions specified in Sections 6.1, 6.5(d),
6.5(e), 6.11, 6.18, 6.20, 6.21 and 6.22 shall be satisfied in full, each of
the documents specified in Sections 6.2, 6.5, 6.12 (during the scheduled
term of such Retainer Agreement), and each other Loan Document shall be in
full force and effect and no party thereto shall have failed to perform in
any material respect any of its obligations thereunder, (d) no issuer of
any legal opinion issued in connection with any Loan Document or the making
of any Loan shall
-27-
<PAGE>
have rescinded or qualified any such legal opinion, (e) no issuer thereof
shall have rescinded or qualified any of the financial statements,
certificates, letters, reports, analyses, Requisite Consents or other
opinions referred to in Section 6, and (f) there shall have been, in the
Agent's opinion, no Material Adverse Change since the Effective Date with
respect to any member of the Consolidated Group.
6A.2 SUBSEQUENT OPINIONS OF COUNSEL. If reasonably requested by
the Agent or any Bank, the Agent shall have received from any of the
counsel referred to in Section 6.14 (or other counsel satisfactory to the
Agent) such favorable supplemental legal opinions addressed to the Agent
and the Banks and dated the date of such Loan and covering such matters
incidental to the transactions contemplated by this Agreement as the Agent
or any Bank shall reasonably request, each of which opinions shall be in
form and substance satisfactory to the Agent and the Bank requesting same.
6A.3 OFFICER'S CERTIFICATE.
(a) If requested by the Agent, the Agent shall have
received a certificate of an authorized officer of the Borrower certifying,
as of the date of the Loan then being made, compliance with the provisions
of Section 6.1 (with the reference therein to Loans being deemed a
reference to the Loans being made on the date of said certificate) and
further to the effect that the conditions specified in Section 6A.1 are
satisfied at such time.
(b) The making of each Loan on and subsequent to the
Effective Date shall constitute a representation and warranty by the Borrower
to the Agent that, at the time of said Loan (and after giving effect
thereto), (i) all representations and warranties contained herein or in the
other Loan Documents or otherwise made by the Borrower in connection herewith
or therewith are true and correct in all material respects with the same
effect as though such representations and warranties were being made at and
as of such time, (ii) no Default or Event of Default exists and (iii) the
conditions specified in Section 6A.1 are satisfied at such time.
6A.4 BORROWING BASE. On the date of such Loan (and after giving
effect thereto), the Agent shall have received the Borrowing Base Certificate
dated the date of such Loan, together with such supplemental and supporting
documentation as the Agent may reasonably request, which Borrowing Base
Certificate shall show that the aggregate amount of the Revolving Credit
Loans does not exceed the Borrowing Base as of such date.
All documents, agreements, certificates, financial statements, legal
opinions, analyses, reports and other papers required to be delivered by
this Section 6A shall be in form and substance satisfactory to the Agent
and shall be delivered (with sufficient
-28-
<PAGE>
copies for each of the Banks) to the Agent at its Closing Office or as the
Agent may otherwise direct.
7. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees hereby that, so long as this
Agreement is in effect and until the Commitments are terminated and all of
the Loans, together with interest, Commitment commission and all other
obligations incurred hereunder are paid in full, the Borrower will perform,
and will cause each of its Subsidiaries to perform, the obligations set
forth in this Section 7.
7.1 FINANCIAL STATEMENTS. Borrower will furnish to the Agent and
each Bank:
(a) As soon as practicable and in any event within 30 days after
the close of each month of each Fiscal Year, as at the end of and for the
period commencing at the end of the previous Fiscal Year and ending with
the end of such month, as the case may be, an unaudited condensed
consolidated balance sheet of the Consolidated Group and a condensed
consolidated statement of income and change in retained earnings of the
Consolidated Group, together with a monthly cash flow statement (each
without footnotes), such statements (if, as and when Borrower has any
Subsidiaries) to be accompanied by condensed consolidating balance sheets,
income statements and other relevant consolidating information for the
various members of the Consolidated Group, all in reasonable detail and
setting forth in comparative form (to the extent available) the
corresponding figures as of one year prior thereto or for the appropriate
periods of the preceding Fiscal Year, as the case may be (references in
this Section 7.1 to consolidating information shall not be applicable while
Borrower has no Subsidiaries);
(b) As soon as practicable and in any event within the earlier
of (x) five days after the Borrower receives same or (y) ninety (90) days
after the close of each Fiscal Year of the Consolidated Group, as at the
end of and for the Fiscal Year just closed, as the case may be, a
consolidating and consolidated balance sheet(s) of the Consolidated Group,
and a consolidating and consolidated statement(s) of income and retained
earnings of the Consolidated Group for such Fiscal Year setting forth, in
the case of consolidating and consolidated balance sheets and statements,
the corresponding figures of the previous annual audit (to the extent
available) in comparative form, all in reasonable detail and accompanied by
the Auditors' opinion (without any qualification unacceptable to the Agent)
that such Financial Statements have been prepared in accordance with GAAP
consistently applied and fairly present the financial condition and results
of operations of the Consolidated Group as at the Fiscal Year-End and for
the Fiscal Year indicated, such Financial Statements to be accompanied by
(x) consolidating balance sheets, and income statements and other relevant
-29-
<PAGE>
consolidating information for the various members of the Consolidated
Group, (y) a signed report or letter from said Auditors stating that, in
conducting their audit in connection with such Financial Statements, they
obtained no knowledge of the existence of any Event of Default or Default
or, if in the opinion of such Auditors, any Event of Default or Default
exists, specifying the nature thereof and the period of existence thereof,
and (z) a signed report or letter from said Auditors, in form and substance
satisfactory to the Agent, setting forth (1) the amounts and ratios (and
the components of each) called for by each of Sections 8.21 - 8.27 and
Sections 8.30 and 8.31 as delivered to them by the CFO, (2) the Excess Cash
Flow (and the components thereof) of the Consolidated Group for the
immediately preceding Fiscal Year as delivered to them by the CFO, and (3)
the Auditors' signed report or letter stating that they have reviewed the
Borrower's computations relating to the amounts, ratios and Excess Cash
Flow described in clauses (z)(1) and (z)(2) above and, based on the
activities performed by them in connection with the issuance of their
opinion referred to in the first clause (y) of this Section 7.1(b) and such
other investigations that said Auditors consider appropriate, they know of
no matters which would cause them to believe, or question whether, these
amounts, ratios and Excess Cash Flow are not correct and in conformity with
the terms contained in this Agreement;
(c) As soon as practicable and in any event within 45 days after
the close of each quarter of each Fiscal Year, a certificate in form and
substance satisfactory to the Agent and signed by the CFO and the CEO of the
Borrower (each such certificate, a "QUARTERLY CERTIFICATE") stating (i) that
a review of the activities of the Consolidated Group during such quarter has
been made under their supervision with a view to determining whether the
Borrower and its Subsidiaries have observed, performed and fulfilled all of
its obligations under this Agreement and the other Loan Documents, (ii) that
there exists no Event of Default or Default or, if any Event of Default or
Default exists, specifying the nature thereof, the period of existence
thereof and what action the Borrower proposes to take with respect thereto;
together with a certificate of said CFO, in form and substance satisfactory
to the Agent, setting forth the Borrower's calculations with respect to its
compliance with each of Sections 8.21-8.27 and Sections 8.30 and 8.31, (iii)
that the Year 2000 remediation efforts of the Borrower and its Subsidiaries
referred to in Section 10.19 hereof are proceeding as scheduled, (iv) that no
auditor, regulator, or third party consultant has issued a management letter
or other written communication regarding the Year 2000 exposure, program or
progress of the Borrower and/or its Subsidiaries or, if any such letter or
other communication has been received and such letter or communication
describes or relates to any condition which constitutes or could be expected
to constitute a Default or Event of Default or describes an adverse condition
having or capable of
-30-
<PAGE>
having other than an immaterial effect on the Borrower, describing the
contents thereof and enclosing a copy thereof;
(d) Promptly upon receipt thereof, copies of all detailed
financial reports and Management Letters, if any, submitted by the Auditors
to a Loan Party's chief executive officer, its board of directors or any
committee thereof in connection with each annual or interim audit of their
respective books by such Auditors;
(e) Together with the Quarterly Certificate delivered with
respect to each fiscal quarter, a report in form and substance satisfactory
to the Agent as to the trade payables of the Borrower on the last day of
such quarter, with such other information with respect thereto as the Agent
shall request;
(f) As soon as possible and in any event (A) within 30 days
after the Borrower or any of its ERISA Affiliates knows that any
Termination Event described in clause (i) of the definition of Termination
Event with respect to any Pension Plan has occurred or is expected to occur
and (B) within 10 days after a Loan Party or any of its ERISA Affiliates
knows that any other Termination Event with respect to any Pension Plan has
occurred or is expected to occur, a statement of the CFO of the Borrower
describing such Termination Event and the action, if any, which the
affected Loan Party or ERISA Affiliate proposes to take with respect
thereto;
(g) Promptly and in any event within five Business Days after
receipt thereof by a Loan Party or any of its ERISA Affiliates from the
PBGC, copies of each notice received by such Person of the PBGC's intention
to terminate any Pension Plan or to have a trustee appointed to administer
any Pension Plan, any notice of noncompliance issued by the PBGC with
respect to a proposed standard termination of a Pension Plan, and any
notice issued by the PBGC with respect to a proposed distress termination
of a Pension Plan;
(h) Promptly and in any event within 30 days after the filing
thereof with the IRS, copies of each Schedule B (Actuarial Information) to
the annual report (Form 5500 Series) with respect to each Pension Plan;
(i) Promptly and in any event within five Business Days after
receipt thereof by a Loan Party or any of its ERISA Affiliates from a
Multiemployer Plan sponsor, a copy of each notice received by such Person
concerning (x) the imposition or amount of withdrawal liability under
Subtitle E of Title IV of ERISA or (y) any determination by a Multiemployer
Plan sponsor that such Multiemployer Plan is, or is expected to be, in
"reorganization" (within the meaning of Section 4241 of ERISA) or
"insolvent" (within the meaning of Section 4245 of ERISA), or has incurred
or is expected to incur an "accumulated funding
-31-
<PAGE>
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code);
(j) [Intentionally deleted].
(k) No later than the fifteenth day after the end of each Fiscal
Year, the operating and capital budgets of each member of the Consolidated
Group for the Fiscal Year then beginning, in form satisfactory to the Agent
and accompanied by such information related thereto as the Agent may
request;
(l) Within thirty (30) days after the close of each month, a
"store movement schedule" listing (i) each Store opened, purchased or
otherwise established or acquired, or Transferred, offered for Transfer or
in respect of which a contract for sale was entered into or was otherwise
pending during such month, (ii) the old and new locations of each Store
changing location during the preceding month or expected to change location
during the current or following month, and (iii) stores in the process of
being opened, purchased or otherwise established or acquired during such
month (including without limitation all stores for which a contract for
purchase was entered into or was otherwise in existence during such month),
in each case together with (x) information concerning the basic terms of
the foregoing transactions, (y) such other information with respect thereto
as the Agent shall reasonably request, and (z) to the extent required by
the terms of any Security Document and not previously delivered, duly
executed financing statements on Form UCC-1 satisfactory to the Agent in
form and substance;
(m) Not less than ten Business Days prior to the Borrower or any
Subsidiary of the Borrower operating any store or conducting any business
activity under any name other than its corporate name, notice of the
Borrower or such Subsidiary's intention so to do together with duly
executed financing statements on Form UCC-1 listing such trade name
satisfactory to the Agent in form and substance;
(n) Not later than August 31, 1998, certificates of
qualification to do business and good standing of the Borrower in each
jurisdiction listed on Schedule 5 to the Security Agreement; and
(o) With reasonable promptness, such other information
respecting the business, properties, operations, prospects or condition
(financial or otherwise) of any member of the Consolidated Group as the
Agent or any Bank may from time to time reasonably request.
7.2 NOTICE OF LITIGATION; UNIONIZATION. Borrower will promptly give
written notice to the Agent (who shall promptly forward same to the Banks)
of (i) any action or proceeding, or to the extent any Key Person or any
executive officer of any Loan Party may have knowledge thereof, any claim
threatened to be
-32-
<PAGE>
commenced or asserted, against any member of the Consolidated Group in which
the amount involved is $500,000 or more, (ii) any claim by or against the
Borrower under the Acquisition Agreement or the Joshua's Acquisition
Agreement, (iii) any non-perfunctory dispute which may exist between any
member of the Consolidated Group and any Government Authority (including any
audit by the IRS), and (iv) any dispute which may exist between any member of
the Consolidated Group and any employees of such Person or any union
representing, claiming to represent or seeking to represent any such
employees, which dispute may substantially affect the normal business
operations of any member of the Consolidated Group or any of their respective
properties and assets, and (v) to the extent any Key Person or any executive
officer of any Loan Party may have knowledge thereof, any unionization of, or
attempt to unionize (which could reasonably be expected to succeed), the
employees of any member of the Consolidated Group or at any group of Stores.
7.3 PAYMENT OF CHARGES. Borrower will duly pay and discharge, and
will cause each of its Subsidiaries to duly pay and discharge (i) all
taxes, assessments and governmental charges or levies imposed upon or
against it or its property or assets, or upon any property leased by it,
prior to the date on which penalties attach thereto, unless and to the
extent only that such taxes, assessments and governmental charges or levies
are being contested in good faith and by appropriate proceedings diligently
conducted and Borrower or Subsidiary has set aside on its books adequate
reserves therefor in accordance with GAAP, (ii) all lawful claims, whether
for labor, materials, supplies, services or anything else, which might or
could, if unpaid, become a lien or charge upon such property or assets,
unless and to the extent only that the validity thereof is being contested
in good faith and by appropriate proceedings diligently conducted, and
(iii) all its trade bills when due in accordance with their original terms,
including any applicable grace periods, unless and to the extent only that
such trade bills are being contested in good faith and by appropriate
proceedings diligently conducted.
7.4 INSURANCE.
(a) Borrower will keep, and will cause each of its Subsidiaries
to keep, (i) all of its insurable property insured at all times with
financially sound and responsible insurance carriers against loss or damage
by fire and other risks, casualties and contingencies as required by the
Security Documents and in such manner and to the extent that like
properties are customarily so insured by other corporations engaged in the
same or similar business similarly situated, and (ii) adequate insurance at
all times with financially sound and responsible insurance carriers against
liability on account of damage to persons and properties and under all
applicable workmen's compensation laws;
-33-
<PAGE>
(b) Borrower will obtain, and will cause each of its
Subsidiaries to obtain, adequate insurance covering such other risks as the
Agent may reasonably request; and keep, and cause each of its Subsidiaries
to keep, such insurance in effect to the extent so requested; and
(c) Borrower will cause to be delivered to the Agent, within 20
days after each annual anniversary of the issuance of each life insurance
policy referred to in Section 9.6, evidence satisfactory to the Agent of
the payment in full of premiums for such policy for the following year.
7.5 MAINTENANCE OF RECORDS. Borrower will keep, and will cause each
of its Subsidiaries to keep, at all times books of record and account in
which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs, and Borrower will
provide, and will cause each of its Subsidiaries to provide, adequate
protection against loss or damage to such books of record and account.
7.6 PRESERVATION OF CORPORATE EXISTENCE. Borrower will maintain and
preserve its corporate existence and right to carry on its business and
duly procure all necessary renewals and extensions thereof, and maintain,
preserve and renew all rights, powers, privileges and franchises which in
the opinion of the Board of Directors of the Borrower continue to be
advantageous to it and comply in all material respects with all applicable
Legal Requirements and, in each such case, cause each of its Subsidiaries
so to do. Without limiting the generality of the foregoing, Borrower
agrees to (and to cause each Subsidiary to) qualify to do business as a
foreign corporation in each jurisdiction where the nature of its business
and the operations conducted by it therein require it to be so qualified.
7.7 PRESERVATION OF ASSETS. Borrower will keep and will cause each
of its Subsidiaries so to keep, its property in good repair, working order
and condition and from time to time make all needful and proper repairs,
renewals, replacements, extensions, additions, betterments and improvements
thereto, so that the business carried on by it may be properly and
advantageously conducted at all times in accordance with prudent business
management.
7.8 INSPECTION OF BOOKS AND ASSETS.
(a) Borrower will allow any representative, officer or accountant
of any Bank or the Agent to visit and inspect any of its property, to examine
its books of record and account and to discuss its affairs, finances and
accounts with its officers, and at such reasonable time and as often as any
Bank or the Agent may request and, in each such case, cause each of its
Subsidiaries so to do.
-34-
<PAGE>
(b) Subject to the condition that the Borrower may elect to have
an officer or other designated individual participate in the discussion,
Borrower will allow any representative, officer or accountant of any Bank
or the Agent to discuss the Financial Statements, the other financial
information from time to time delivered hereunder and the financial
condition of members of the Consolidated Group with the Auditors. Provided
that the Borrower has been notified of the time and place of any such
discussion and been given the option of participating in such discussion,
the Borrower hereby irrevocably authorizes the Auditors to discuss the
foregoing with all such Persons.
7.9 PAYMENT OF INDEBTEDNESS. Borrower will duly and punctually pay,
or cause to be paid, the principal of and the interest on all Indebtedness
for Borrowed Money heretofore or hereafter incurred or assumed by such
Person, or in respect of which such Person shall otherwise be liable, when
and as the same shall become due and payable (including any applicable
grace period), unless such Indebtedness for Borrowed Money be renewed or
extended, and will (and will cause each Subsidiary to) faithfully observe,
perform and discharge all the covenants, conditions and obligations which
are imposed on such Person by any and all indentures and other agreements
securing, relating to, or evidencing such Indebtedness for Borrowed Money
or pursuant to which such Indebtedness for Borrowed Money is incurred, and
such Person will not permit any act or omission to occur or exist which is
or may be declared to be a default thereunder, PROVIDED that the failure of
any Loan Party so to do shall not create an Event of Default under Section
9.4 hereof to the extent such failure does not give rise to an Event of
Default under Section 9.5 hereof.
7.10 FURTHER ASSURANCES. Borrower will, and will cause each of its
Subsidiaries to, make, execute or endorse, and acknowledge and deliver or
file, all such vouchers, invoices, notices, and certifications and
additional agreements, undertakings, conveyances, transfers, assignments,
or further assurances, and take any and all such other action, as the Agent
or any Bank may, from time to time, deem necessary or proper in connection
with this Agreement, the obligations of such Loan Party hereunder or under
the Notes or any of the other Loan Documents to which such Loan Party is a
party, or for the better assuring and confirming unto the Agent on behalf
of the Banks all or any part of the security for the Obligations.
7.11 NOTICE OF DEFAULT. Forthwith upon any Key Person or any
executive officer of any Loan Party obtaining knowledge of the existence of
an Event of Default, Borrower will deliver to the Agent a certificate
signed by an officer of the Borrower specifying the nature thereof, the
period of existence thereof, and what action the affected Person proposes
to take with respect thereto.
-35-
<PAGE>
7.12 RESERVES. Borrower will set up, and will cause each of its
Subsidiaries to set up, on its books from its earnings, reserves for bad
debt in accordance with GAAP and in an aggregate amount deemed adequate in
the judgment of the Borrower and accepted by the Auditors in their annual
audits.
7.13 ARMS-LENGTH TRANSACTIONS. Borrower will conduct and cause each
of its Subsidiaries to conduct all transactions with any of their
respective Affiliates on an arms-length basis.
7.14 SOLVENCY. Borrower will continue to be Solvent and ensure each
Subsidiary will continue to be Solvent.
7.15 OBLIGATIONS OF SELLERS. Borrower will use all its legal rights
and remedies under the Acquisition Agreement and the Joshua's Acquisition
Agreement to cause the sellers under such agreements and any guarantor of
such respective sellers' obligations thereunder to do all acts and to
fulfill all conditions and obligations required of them thereunder.
7.16 COOPERATION. At Agent's request, Borrower will meet from time to
time with (and provide financial information to) other financial
institutions to which any Bank may wish to grant participations in the
Loans, including potential Bank Assignees and potential Purchasing Banks.
7.17 HAZARDOUS WASTE. Borrower will promptly notify the Agent of any
evidence of hazardous waste or toxic or similar contamination at any
property owned or leased by a member of the Consolidated Group and, upon
the Agent's or Required Banks' request and within 90 days thereafter,
commence the removal of, and diligently prosecute to completion the removal
of, any such contamination which (in the Agent's or Required Banks'
opinion) materially and adversely affects the value or future use of such
property.
7.18 NOTIFICATION OF ACCOUNT DEBTORS. Upon request of the Agent after
the occurrence and during the continuance of an Event of Default, Borrower
will promptly notify (in manner, form and substance satisfactory to the
Agent) all Persons who are at any time obligated under Accounts (as defined
in the Security Agreement) payable to Borrower or any of its Subsidiaries
that the Agent on behalf of the Banks possesses a security interest in such
Accounts and that all payments in respect thereof are to be made to such
account as the Agent directs.
7.19 POST-EFFECTIVE STORE LEASES. The Borrower shall use its best
efforts to include in each Store Lease entered into after the Effective
Date or replaced, renewed or extended after the Effective Date, the right
of the Agent to enter the relevant Store and remove Collateral to the
extent permitted to do so by a Security Document or the relevant UCC.
-36-
<PAGE>
7.20 BORROWING BASE CERTIFICATE. The Borrower will furnish to the
Agent (a) within thirty (30) days of the end of each month and, if a
Default or Event of Default then exists, from time to time upon the Agent's
request, a Borrowing Base Certificate as of the close of business on the
last Business Day of such month (or, if a Default or Event of Default
exists, as of such date specified by the Agent) and (b) on or prior to the
twenty-fifth (25th) day of each month (and, if a Default or Event of
Default then exists, from time to time upon the Agent's request), computer
print-outs as of the end of the immediately preceding month (or, if a
Default or Event of Default exists, as of such date specified by the Agent)
of all Eligible Inventory.
7.21 CERTAIN OTHER FINANCING STATEMENTS. On or before August 31, 1998
(or such later date (if any) as Secured Party, in its sole discretion, may
specify in writing), Borrower shall deliver to the Agent (A) evidence
satisfactory to the Agent that (i) each financing statement listing
Borrower as Debtor or Lessee and Lease Finance Group Limited Partnership
(or its assignee) as Secured Party or Lessor has been terminated or amended
to delete references to personal property, other than equipment, as
property covered by such financing statement; and (ii) each financing
statement listing Borrower as Debtor or Lessee and Computer Equity
Corporation (or its assignee) as Secured Party or Lessor has been
terminated or amended to delete references to (x) rentals, accounts,
contract rights, general intangibles and other monies due or to become due,
and (y) equipment sold on conditional sale, in each case set forth in
clause (i) and (ii) above, in form and substance satisfactory to the Agent;
(B) such UCC search requests and results as the Agent shall require; (C) an
IPM with respect to the Canadian trademark listed on Schedule 10.10 (B)
hereto, in form and substance satisfactory to the Agent; and (D) such
financing statements (listing the Agent as Secured Party and in form
appropriate for filing) referred to in Section 6.5 not delivered to the
Agent on or prior to the Effective Date.
8. NEGATIVE COVENANTS.
The Borrower covenants and agrees that, so long as this Agreement is
in effect and until the Commitments are terminated and all of the Loans,
together with interest, Commitment commission and all other obligations
incurred hereunder, are paid in full, the Borrower will perform, and will
cause each of its Subsidiaries to perform, the obligations set forth in
this Section 8 (unless it shall first have procured the written consent of
the Agent to do otherwise).
8.1 ENGAGE IN SAME TYPE OF BUSINESS. Borrower will not enter into,
or permit any of its Subsidiaries to enter into, any business other than
the operation of retail stores in the United States and Canada that
primarily sell Christian Bibles, Christian books (including Christian
family and inspirational books), and related gifts, music and novelty items
in the
-37-
<PAGE>
Christian bookselling marketplace and, as an adjunct to such bookstore
operations, the sale of such items through (x) direct mail activities of the
type done by the Borrower on the Effective Date, and (y) mail order catalogs
substantially supported by advertisements and other payments by publishers of
books sold by Borrower.
8.2 LIENS. Borrower will not contract, create, incur, assume or
suffer to exist any Lien upon or with respect to, or by transfer or
otherwise subject to the prior payment of any indebtedness (other than the
Loans), any of its property or assets, whether now owned or hereafter
acquired, or permit any of its Subsidiaries so to do; except (i) liens for
tax assessments, levies or governmental charges not yet due or which are
being contested in good faith by appropriate proceedings diligently
conducted and for which appropriate reserves have been established in
accordance with GAAP, and (ii) other liens, charges, and encumbrances
incidental to the conduct of its business or the ownership of its property
and assets which were not incurred in connection with the borrowing of
money or the obtaining of advances or credit and which do not materially
detract from the value of its property or assets or materially impair the
use thereof in the operation of its business; and (iii) the following:
(a) Liens in connection with workmen's compensation,
unemployment insurance or other social security obligations;
(b) Deposits or pledges securing the performance of bids,
tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature made in the ordinary course
of business;
(c) Mechanics', carriers', warehousemen's, workmen's,
materialmen's, landlord's liens imposed by statute, or other like
liens arising in the ordinary course of business with respect to
obligations which are not due or which are being contested in
good faith by appropriate proceedings diligently conducted;
(d) Encumbrances consisting of zoning regulations,
easements, rights of way, survey exceptions and other similar
restrictions on the use of real property or minor irregularities
in titles thereto which do not materially impair use of such
property by the Borrower or its Subsidiaries in the operation of
the business of the Borrower or the Subsidiary owning the same;
(e) Liens to the Agent and the Banks securing Borrower's
Obligations;
-38-
<PAGE>
(f) Liens existing on the Effective Date and indicated on
Schedule 8.2(f) to this Agreement (other than those (if any)
indicated on such Schedule with an asterisk, which shall be
released or otherwise terminated on or prior to the Effective
Date);
(g) Liens on the equipment furnished pursuant to the IFA
Lease, as security for the obligations of Borrower under such
lease; PROVIDED THAT (i) such Liens constitute first priority
perfected security interest in such equipment (or, if not first
priority, then senior to all Liens other than Liens of the Agent
and the Banks pursuant to the Security Documents), and (ii) such
security interest has been assigned by IFA to the Agent on behalf
of the Banks in consideration for loans by BOS to IFA;
(h) Liens (i) on any equipment that is the subject of an
Operating Lease and (ii) on miscellaneous office furniture and
equipment incurred in connection with the lease thereof; PROVIDED
THAT the aggregate amount of obligations secured by all of such
Liens does not exceed $6,000,000 at any one time;
(i) Liens, pursuant to a Store Lease in effect on the
Closing Date, entitling the landlord to a claim or other interest
in any fixture in (or leasehold improvement on) the Store that is
the subject of such Store Lease; and
(j) Liens, pursuant to a Store Lease entered into after the
Closing Date, entitling the landlord to a claim or other interest
in any Non-Trade Fixture in (or leasehold improvement on) the
Store that is the subject of such Store Lease;
(k) [Intentionally deleted];
(l) [Intentionally deleted];
(m) Liens in effect on the Effective Date constituting
Joshua's Store Security Interests, PROVIDED that each such Lien
is released (pursuant to documentation satisfactory to the Agent,
including, without limitation, a UCC termination statement) on or
before the date that the lease which is secured by such Lien is
renewed, extended or terminated; and
(n) Liens permitted by the parenthetical clause in the
proviso to clause(ix) of Section 8.3.
8.3 OTHER INDEBTEDNESS; MATERIAL AGREEMENT OBLIGATIONS. Borrower
will not contract, create, incur, assume or suffer to exist any
Indebtedness for Borrowed Money or Material Agreement Obligation, or permit
any of its Subsidiaries so to do; except
-39-
<PAGE>
(i) the Loans;
(ii) indebtedness existing on the Effective Date, as listed
on Schedule 8.3 to this Agreement under the heading "Indebtedness", and
Material Agreement Obligations (other than in respect of Operating Leases)
existing on the Effective Date, as listed on Schedule 8.3 to this Agreement
under the heading "Material Agreement Obligations" (it being understood,
however, that notwithstanding the listing of any Material Agreement or
Material Agreement Obligation on Schedule 8.3, if the incurrence or amount
of any obligation under such Material Agreement or any such Material
Agreement Obligation is restricted or limited by any other clause of this
Section 8.3 or any other provision of this Agreement, (A) the incurrence of
such obligation or Material Agreement Obligation and the amount thereof
shall remain restricted by such other clause of this Section 8.3 or other
provision of this Agreement, and (B) Borrower will not contract, create,
incur, assume or suffer to exist any such obligation or Material Agreement
Obligation, or permit any of its Subsidiaries so to do, unless the same is
permitted by such other clause of this Section 8.3 or other provision of
this Agreement).
(iii) until the Effective Date, the Subordinated Debt
existing on the date hereof in an amount not in excess of $5,000,000
aggregate principal amount;
(iv) Borrower's obligations under the IFA Lease; PROVIDED
THAT such obligations do not exceed $600,000 on a capitalized basis (net of
interest expenses) over the term of the IFA Lease;
(v) Borrower's obligations under the Andersen Agreement;
PROVIDED THAT there shall be no increase in the periodic charges stated
therein from those provided for in such agreement as in effect on the
Closing Date, other than increases consented to in writing by the Agent;
(vi) trade payables incurred in the ordinary course of
business, PROVIDED THAT such trade payables (except to the extent being
contested in good faith by appropriate proceedings diligently conducted and
for which appropriate reserves have been established in accordance with
GAAP) are not considered more than 60 days past due under customary trade
practices (the Banks hereby acknowledging that Borrower frequently
considers customary trade practices to be "net 90" even if an invoice might
state "net 30" or "net 60");
(vii) the unpaid purchase price for any Similar Stores;
PROVIDED THAT (w) the Borrower's purchase of such stores was permitted by
the terms of this Agreement, (x) the aggregate amount of such purchase
prices at any time remaining unpaid does not exceed $2,000,000 (not
including the indebtedness represented by the Joshua's Note), (y) the
Borrower's obligations
-40-
<PAGE>
to make all such payments are unsecured, and (z) the per annum interest rate
payable by the Borrower with respect to any such payment does not exceed the
interest rate at the time payable on the Loans;
(viii) obligations not in excess of $6,000,000 incurred in
connection with the lease of miscellaneous office furniture and equipment
and secured by the Liens specified in Section 8.2(iii)(h) hereof;
(ix) Indebtedness for Borrowed Money at any one time
outstanding not in excess of (a) $2,000,000 (not including the indebtedness
represented by the Joshua's Note), less (b) the aggregate amount of
indebtedness permitted by clause (vii) of this Section 8.3; PROVIDED THAT
no portion thereof is secured (except that obligations of Borrower to NBD
Bank in respect of letters of credit issued for the account of Borrower
pursuant to the June 29, 1998 letter (such letter, in the form delivered to
the Agent and without giving effect to any amendment, supplement or other
modification thereto, the "NBD LC LETTER") from NBD Bank to Borrower may be
backed by cash as and to the extent required by the NBD LC Letter, but only
if (x) the account to which the cash referred to in the NBD LC Letter is
deposited is subject to the Agent's rights under the Deposit Agreement; and
(y) the amount of such obligations does not exceed $1,200,000 until
December 31, 1998 and $175,000 thereafter and such obligations are not so
supported or secured after December 31, 1998);
(x) obligations under Operating Lease Obligations permitted
by Section 8.15;
(xi) the Warrant Notes;
(xii) the Joshua's Note;
(xiii) obligations under (v) the Registration Rights
Agreement (as in effect on the Closing Date and as amended with the written
consent of the Agent), (w) any Shareholders Agreement, so long as any such
Shareholders Agreement does not impose any purchase or other financial
obligation on the Borrower other than pursuant to Section 2.4 or 5.15 of
the Electra Shareholders' Agreement, (x) the Securities Purchase Agreement,
(y) the Advisory Agreement and (z) any Warrant referred to in Section 8.14;
and
(xiv) Borrower's obligations under the Bob Streight Group
Agreement, PROVIDED THAT there shall be no increase in the consideration
payable from that set forth in the draft July 10, 1998 minutes of the
Borrower's Board of Directors authorizing the Borrower to enter into said
agreement other than increases consented to in writing by the Agent.
-41-
<PAGE>
8.4 ADVANCES FROM CUSTOMERS. Borrower will not contract for, create,
incur, assume or suffer to exist, or permit any Subsidiary so to do,
advances or deposits from customers other than in the ordinary course of
business; PROVIDED THAT the aggregate amount of advances or deposits held
by members of the Consolidated Group from any one customer (including
Persons directly or indirectly controlling, controlled by, or under common
control with such customer) shall not exceed $25,000 at any one time.
8.5 ADVANCES AND LOANS. Borrower will not lend money or credit, or
make advances to any Person or permit any Subsidiary so to do, in each case
other than the sale of products of the Borrower on credit in the ordinary
course of business on terms not more favorable than those used by other
Persons similarly situated and engaged in the same or similar business;
PROVIDED, HOWEVER, the foregoing provisions of this Section shall not
prohibit the Shareholder Loans existing on the Effective Date if the
aggregate principal amount of such Shareholder Loans outstanding does not
exceed $600,000.
8.6 PAYMENTS ON CERTAIN INDEBTEDNESS.
(a) The Borrower will not (i) amend the terms of any note,
instrument or document relating to any obligation constituting Subordinated
Indebtedness under the Subordination Agreement (Electra) or (ii) except as
permitted by the terms of the Subordination Agreement (Electra), make any
payments in respect of any such Subordinated Indebtedness.
(b) The aggregate amount of fees (however characterized) paid to
or on behalf of the Subordinated Debt Providers (such term, for purposes of
this Section 8.6 only, to include E-Inc) subsequent to the Effective Date
shall not exceed with respect to any calendar quarter, $25,000 (which may
be payable on the first day of such quarter).
8.7 PURCHASE OR SALE AGREEMENTS. Borrower will not enter into or be
a party to, or permit any Subsidiary to enter into or be a party to (i) any
contract for the purchase or use of materials, supplies or other property
or for the performance of services if such contract requires that payment
for such materials, supplies or other property, or the use thereof, or for
such services, shall be made by Borrower or a Subsidiary, as the case may
be, regardless of whether or not delivery is capable of being made of such
material, supplies or other property, or such services are performed, or
(ii) any contract for the sale or use of materials, supplies or other
property if such contract provides that payment to Borrower or to any such
Subsidiary for such materials, supplies or other property or the use
thereof, shall be subordinated to or otherwise subjected to the prior
payment of any indebtedness (or any instrument evidencing such
indebtedness) owed or to be owed to any Person.
-42-
<PAGE>
8.8 CONSOLIDATION AND MERGER. Borrower will not wind up, liquidate
or dissolve its affairs or enter into any transaction of merger or
consolidation or permit any Subsidiary so to do (or agree to do any of the
foregoing at any future time) except that any wholly-owned Subsidiary of
the Borrower may merge into the Borrower PROVIDED that the Borrower shall
at all times be the continuing corporation.
8.9 SALE OF ASSETS. Borrower will not Transfer (or agree to Transfer
at any future time) or permit any Subsidiary so to do, (i) all or a
substantial part of its property or assets or any part of such property or
assets essential to the conduct of its business substantially as now
conducted or as conducted by the Borrower after the date hereof, or
(ii) any of its assets (other than equipment which is obsolete or no longer
used or useful in the conduct of its business), except in the ordinary
course of business (it being acknowledged by Borrower that the Transfer of
a Store or of substantially all the inventory of a Store is not in the
ordinary course of business); PROVIDED, HOWEVER, that Borrower may Transfer
any of its Stores if
(a) the Agent shall have consented thereto in writing, such
consent not to be unreasonably withheld,
(b) such assets are Transferred for a price, in cash, at least
equal to their fair market value (as determined in good faith by the
board of directors of the Borrower), and
(c) an amount equal to the Net Proceeds from such transaction is
promptly paid to the Banks by the Borrower as a prepayment of the
Loans pursuant to Section 2.4(b)(i) hereof; and
PROVIDED FURTHER that no prepayment of the Loans shall be required pursuant
to the immediately preceding proviso and such assets may nonetheless be
Transferred if:
(A) the conditions in clauses (a) and (b) of the
immediately preceding proviso have been satisfied; and
(B) such prepayment is not required by virtue of the
provisions of Section 2.4(b)(ii) hereof; and
PROVIDED FURTHER if:
(C) the condition in clause (b) of the first proviso of
this Section 8.9 is satisfied; and
(D) the number of Stores being Transferred is not more than
five in the relevant
-43-
<PAGE>
transaction or any series of related transactions,
then no consent of the Agent shall be required for such Transfer if either
(1) no prepayment of the Loans is required pursuant to clause (x) of
Section 2.4(b)(ii) hereof, or (2) an amount equal to the Net Proceeds from
such transaction is promptly paid to the Banks by the Borrower as a
prepayment of the Loans pursuant to Section 2.4(b)(i) hereof.
Notwithstanding the foregoing, the consent of the Agent shall nonetheless
be required if the aggregate number of Stores Transferred within the
preceding 12-month period (after giving effect to the proposed Transfer)
exceeds or would exceed 20.
8.10 PURCHASE OF ASSETS. Borrower will not purchase, lease or
otherwise acquire all or any substantial part of the property or assets of
any Person, or permit any Subsidiary so to do, or purchase, lease or
otherwise acquire property or net assets in excess of an aggregate of
$500,000 computed from the Effective Date (other than in the ordinary
course of business), or permit any Subsidiary so to do; PROVIDED, HOWEVER,
that it shall not be a violation of this Section 8.10 if and to the extent
that such purchase, lease or other acquisition is permitted by Section 8.15
hereof. The parties hereto hereby acknowledge that acquisitions of Similar
Stores is not considered to be an activity "in the ordinary course of
business" as such phrase is used herein and elsewhere in the Loan
Documents.
8.11 ACCOUNTING CHANGES.
(a) Borrower will not make or permit any Subsidiary to make any
significant change in accounting treatment and reporting practices except
as permitted or required by GAAP.
(b) Unless the Agent consents in writing thereto (which consent
shall not be unreasonably withheld, it being agreed that it shall not be
unreasonable to withhold such consent if such proposed change would affect
any computation required by Section 8.15 hereof or any of Sections 8.21-8.27
or Section 8.30 or 8.31 hereof or the computation of Excess Cash Flow
or affect any amount required to be paid by Section 2.4(d) hereof, until
appropriate amendments are made to this Agreement with respect thereto),
Borrower will not change its Fiscal Year or permit any Subsidiary to change
its Fiscal Year.
8.12 SALARIES.
(a) Borrower will not increase, or permit any of its
Subsidiaries to increase, the salaries, bonuses or other form of
remuneration paid to any Key Person (or any relative of any) beyond that
payable to such Person on the Effective Date, except pursuant to and as
provided in a Retainer Agreement with such Person. Borrower will not make
any payment to a Principal
-44-
<PAGE>
Stockholder to the extent such payment is prohibited by the Subordination
Agreement (Management).
(b) Borrower will not make any payments, directly or indirectly,
to any Key Person except as permitted by Sections 8.12(a), 8.13 and 8.17,
or permit any Subsidiary to do so. In no event, however, shall the sum of
the salaries, bonuses and other forms of remuneration paid to any Key
Person exceed (x) the amounts provided for in such individual's Retainer
Agreement (if such individual is party to one), or (y) if such individual
is not party to a Retainer Agreement, the per meeting (multiplied by the
number of such meetings) or other amount payable to such individual as at
the Effective Date for attending meetings of the board of directors of the
Borrower and committees thereof.
8.13 RELATED TRANSACTIONS. Borrower will not enter into any
transaction with any Person which is an Affiliate of the Borrower or any
Subsidiary or with which any officer or director of the Borrower or a
Subsidiary has a financial interest, or with any Associate of any such
Person, on more favorable terms than if such Person was totally unrelated,
or permit any Subsidiary to so do.
8.14 SUBSIDIARIES; OTHER SECURITIES; AGREEMENTS RELATING TO
SECURITIES.
(a) Borrower will not (x) sell, assign, transfer or otherwise
dispose of, or in any way part with control of, any shares of capital stock
of a Subsidiary or any indebtedness or obligations of any character of any
of its Subsidiaries, or permit any of its Subsidiaries so to do with
respect to any shares of capital stock of any other Subsidiary or any
indebtedness or obligations of any character of the Borrower or any of its
other Subsidiaries, (y) except for Warrants required to be issued pursuant
to the Securities Purchase Agreement which are (or will upon issuance be)
subordinated to the Obligations pursuant to the Subordination Agreement
(Electra) and except for shares issued pursuant to the 1997 Employee Stock
Purchase Plan, issue any capital stock or any options or warrants or
securities convertible into capital stock if any such capital stock,
option, warrant or convertible security is subject to mandatory redemption,
purchase or other acquisition by the Borrower at the option of the holder
thereof or contains any put or similar right (or in the case of any
convertible security, issue the same if any capital stock, option or
warrant into which such security is convertible contains any such
redemption, purchase, acquisition, put, option or similar right); or (z)
permit any of its Subsidiaries to issue any additional shares of capital
stock or any options or warrants or securities convertible into, or
exercisable for, other securities of the Borrower or a Subsidiary.
(b) [Intentionally deleted]
-45-
<PAGE>
(c) [Intentionally deleted]
(d) [Intentionally deleted]
(e) Except for the Securities Purchase Agreement and the
Warrants issued or required to be issued thereunder and the 1997 Employee
Stock Purchase Plan, Borrower shall not enter into or suffer to exist, and
shall not permit any of its Subsidiaries to enter into or suffer to exist,
any shareholder agreement, buy-sell agreement or other agreement pursuant
to which Borrower or any Subsidiary of Borrower is or may be required to
purchase, redeem or otherwise acquire any capital stock, options or
warrants of Borrower or any Subsidiary
8.15 ADJUSTED CAPITAL EXPENDITURES. Borrower will not, and will not
permit any Subsidiary to, in any Fiscal Year
(i) (A) make any expenditures to acquire inventory or
receivables if such expenditures constitute Capital Expenditures or (B)
purchase inventory or receivables in connection with the acquisition of
Stores or Similar Stores (whether or not any such purchase constitutes a
Capital Expenditure) if, after giving effect to such expenditure or
purchase under clause (A) or (B) above the amount thereof (when combined
with other such expenditures and purchases by the Borrower and/or its
Subsidiaries during such Fiscal Year) would exceed the amount set forth for
such Fiscal Year in column (a)below;
(ii) (A) make other expenditures for assets in connection
with the acquisition of Stores or Similar Stores (other than for inventory
or receivables) or (B) make expenditures constituting Capital Expenditures
of any sort whatsoever (including Capitalized Lease Obligations and other
Capital Expenditures but excluding expenditures for inventory or
receivables), if after giving effect to such expenditures under clause (A)
or (B), the amount thereof (when combined with other such expenditures by
the Borrower and/or its Subsidiaries during such Fiscal Year) would exceed
the amount set forth for such Fiscal Year in column (b) below; or
(iii) enter into any Operating Lease or Store Lease, if
after giving effect to the present value of the Operating Lease Obligations
(other than obligations under a Store Lease) thereunder or twelve times the
monthly rent of such Store Lease (as the case may be), the amount thereof
(when combined with the present value of other Operating Leases Obligations
for Operating Leases (other than Store Leases) and twelve times the monthly
rent of each other Store Lease entered into by the Borrower and/or its
Subsidiaries during such Fiscal Year) would exceed the amount set forth for
such Fiscal Year in column (c) below:
-46-
<PAGE>
FISCAL YEAR
(a) Maximum aggregate expenditures for inventory and receivables
purchased by the Borrower and/or a Subsidiary in connection with
acquisitions of Stores or Similar Stores or otherwise constituting Capital
Expenditures
(b) Maximum aggregate amount of other expenditures by the
Borrower and/or a Subsidiary (i)for assets acquired in connection with
acquisitions of Stores or Similar Stores or (ii) otherwise constituting
Capital Expenditures (in each case, by Capitalized Lease Obligations or
otherwise and whether or not in connection with an acquisition) and not
included in column (a)
(c) Maximum amount of sum of (A) present value of Operating Lease
Obligations under Operating Leases (other than Store Leases) entered into
by Borrower and/or a Subsidiary during such fiscal year PLUS (B) 12 times
monthly rent of each Store Lease entered into by Borrower and/or a
Subsidiary during such Fiscal Year
<TABLE>
<S> <C> <C> <C>
1999 $6,000,000 $9,300,000 $5,000,000
2000 $7,400,000 $10,700,000 $5,300,000
2001 $9,500,000 $15,000,000 $6,000,000
2002 $9,800,000 $15,000,000 $6,100,000
2003 $10,000,000 $15,000,000 $6,200,000
and
there-
after
</TABLE>
PROVIDED THAT for purposes of this Section 8.15 expenditures of the Net
Proceeds from any Transfer of Stores permitted by Section 8.9 hereof which
are used within the period of time referenced in said Section 8.9 (six or
nine months, as the case may be) following such Transfer to purchase
Similar Stores shall not, to the extent of any such proceeds so used, be
considered an Adjusted Capital Expenditure except as provided in SECTION
12.1(C)(II) hereof. In addition to the foregoing permitted expenditures,
Borrower shall be permitted to make the Joshua's Expenditures during Fiscal
Year 1999.
Reference is hereby made in SECTION 12.1(C) for certain information
relating to computations under this SECTION 8.15 that may involve valuation
of the Borrower's capital stock.
-47-
<PAGE>
8.16 INVESTMENTS. Borrower will not invest in (by capital
contribution or otherwise), or acquire for investment or purchase or make
any commitment to purchase the obligations or stock of, any Person or
permit any of its Subsidiaries so to do, except (i) the purchase of
marketable direct or guaranteed obligations of the United States of
America, (ii) stock or obligations issued to the Borrower or a Subsidiary
in settlement of claims against others by reason of an event of bankruptcy
or a composition or readjustment of debt or a reorganization of any debtor
of the Borrower or Subsidiary; (iii) certificates of deposit and banker's
acceptances of any of the Banks or their branches; and (iv) to the extent
permitted by the provisos to Section 8.17 hereof. Without limiting the
generality of the foregoing, the Borrower will not cause the formation of
any Subsidiary without the Agent's prior written consent.
8.17 DIVIDENDS, DISTRIBUTIONS AND PURCHASES OF CAPITAL STOCK.
Borrower will not declare or pay any dividends (other than dividends
payable in shares of its capital stock), or return any capital to its
stockholders as such or authorize or make any other distribution, payment
or delivery of property or cash to its stockholders as such, or redeem,
retire, purchase or otherwise acquire, directly or indirectly, for a
consideration (otherwise than in exchange for, or from the proceeds of the
substantially concurrent sale of, other shares of capital stock of the
Borrower), any shares of any class of its capital stock now or hereafter
outstanding, or any Warrants or other securities (now or hereafter
outstanding) convertible into or exercisable for any equity or other
securities of the Borrower or a Subsidiary, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration, any
subordinated debt or make any payments on account of the principal or
interest thereof (other than as permitted by the Subordination Agreement
(Electra)), or set aside any funds for any of the foregoing purposes;
PROVIDED, that Borrower may (A) on and after November 1, 1999, redeem or
repurchase the Warrants (in each case, in accordance with, and to the
extent required by, the terms of the Warrants and the other Warrant
Agreements) held by the Subordinated Debt Provider that were issued
pursuant to the Securities Purchase Agreement and (B) on or after the date
an IPO is completed, repurchase shares of its common stock and/or pay
dividends on its capital stock, if (in the case of both clause (A) and
clause (B) above) at the time of such redemption, repurchase or dividend(in
each case, both before and after giving effect thereto),(i) the Term Loans
have been repaid in full, (ii) (x) in the case of the redemption or
repurchase of any Warrant, the aggregate outstanding principal amount of
the Revolving Credit Loans does not exceed $10,000,000 (it being understood
that, as required by Section 2.8 hereof, the Total Revolving Credit Loan
Commitment shall have been reduced to $10,000,000), or (y) in the case of a
repurchase by the Borrower of shares of its common stock or the payment of
dividends on its capital stock, the Total Revolving Credit Loan Commitment
does not exceed $22,000,000 or, if the Total Revolving Credit Loan
Commitment has
-48-
<PAGE>
been increased pursuant to Section 2.11, $25,000,000 (iii) no Type B Default
exists (in the case of a repurchase or redemption of Warrants) or (in the
case of any repurchase of shares or dividends) no Default or Event of Default
exists and (in each such case) Borrower is in Pro Forma Compliance with the
Financial Covenants , (iv) the audited financial statements for the
immediately preceding Fiscal Year have been delivered pursuant to Section
7.1(b) hereto and (v) in the case of a redemption or repurchase of Warrants
or repurchase of shares, such redemption or repurchase occurs only once
during any Fiscal Year, no later than five months after the end of the
immediately preceding Fiscal Year; and PROVIDED FURTHER, the aggregate amount
of all such repurchases of common stock of the Borrower and dividends made or
declared in any Fiscal Year does not exceed 20% of Cumulative Net Income
through the Fiscal Year-End immediately preceding the date such repurchase or
dividend is made or declared.
8.18 LEASEBACKS. Borrower will not enter into, or permit any of its
Subsidiaries to enter into, any arrangement with any bank, insurance
company or other lender or investor providing for the leasing to the
Borrower or any of its Subsidiaries of real property (i) which at the time
has been or is to be sold or transferred by the Borrower or any of its
Subsidiaries to such lender or investor, or (ii) which has been or is being
acquired from another person by such lender or investor or on which one or
more buildings or facilities have been or are to be constructed by such
lender or investor for the purpose of leasing such property to the Borrower
or a Subsidiary. The foregoing provisions of Section 8.18(i), however,
shall not prohibit an arrangement otherwise prohibited thereby if (x) such
arrangement is permitted by Section 8.15 hereof, (y) the aggregate
outstanding unpaid amounts with respect to all such arrangements does not
exceed $500,000 at any time, and (z) inclusion of such amount within the
calculations required by said Section 8.15 does not cause a breach thereof.
8.19 DEPOSIT BANK. Borrower will not maintain any significant deposit
or operating account with any financial institution other than a Bank, the
Deposit Bank or another financial institution satisfactory to the Agent
which has executed with the Agent an agreement substantially similar to the
Deposit Agreement.
8.20 SALE OF ACCOUNTS RECEIVABLE. Borrower will not sell, discount,
transfer, assign or otherwise dispose of any of its accounts receivable,
notes receivable, installment or conditional sales agreements or any other
of its rights to receive income or monies howsoever evidenced or permit any
Subsidiary so to do except pursuant to the Security Documents.
8.21 CURRENT RATIO.
-49-
<PAGE>
(a) Borrower will not permit the Current Ratio of the
Consolidated Group to be less than 0.9:1.0 on the last day of any fiscal
quarter.
(b) In the event that Borrower does not deliver any Financial
Statement or certificate required to be delivered after the end of any
fiscal quarter pursuant to Section 7.1(c) within 10 days after the date
required therefor pursuant to said clause, the Borrower shall be deemed to
be in default of Sections 8.21-8.27 (inclusive) for purposes of Section 9.3
hereof and SECTIONS 8.30 and 8.31.
8.22 TANGIBLE NET WORTH. The Borrower will not permit the consolidated
Tangible Net Worth of the Consolidated Group to be less than $100 on the
last day of the fourth fiscal quarter of Fiscal Year 2000 or on the last
day of any fiscal quarter thereafter.
8.23 [INTENTIONALLY DELETED]
8.24 INTEREST COVERAGE RATIO. Borrower will not permit the Interest
Coverage Ratio of the Consolidated Group (x) for any Four-Quarter Period
ending on or after the date hereof and prior to any increase in the Total
Revolving Credit Loan Commitment pursuant to Section 2.11 hereof to be less
than 2.50:1.00 and (y) for any Four Quarter Period ending on or after any
increase in the Total Revolving Credit Loan Commitment pursuant to Section
2.11 hereof to be less than 3.0:1.0
8.25 FUNDED DEBT: CASH FLOW. The Borrower will not permit the ratio
of (x) Long-Term Debt of the Consolidated Group to (y) EBITDA of the
Consolidated Group for the Four-Quarter Period specified in the first
column below to exceed the ratio set forth alongside such Period in the
second column below:
<TABLE>
<CAPTION>
FOUR- QUARTER PERIOD RATIO
<S> <C>
ending on the last day of the 2.50:1.00
fiscal quarter ending in April 1998
ending on the last day of the 5.0:1.00
fiscal quarter ending in July 1998
or in October 1998
ending on the last day of any 4.0:1:00
fiscal quarter thereafter
</TABLE>
8.26 FIXED CHARGE COVERAGE RATIO.
(a) The Borrower will not permit the Fixed Charge Coverage Ratio
of the Consolidated Group for any Four-Quarter Period specified in the
first column below to be less than the ratio set forth alongside such
Period in the second column below:
-50-
<PAGE>
<TABLE>
<CAPTION>
FOUR-QUARTER PERIOD RATIO
<S> <C>
ending on the last day of the first 2.0:1.0
fiscal quarter in Fiscal Year 1999
ending on the last day of the 1.25:1.00
second, third and fourth fiscal
quarter ending in Fiscal Year 1999
ending on the last day of any 1.50:1.00
fiscal quarter ending in Fiscal
Year 2000 or 2001
ending on the last day of any 1.75:1.00
fiscal quarter in any Fiscal
Year thereafter
</TABLE>
8.27 ASSETS: FUNDED DEBT. Borrower will not permit the ratio of (x)
the Tangible Assets of the Consolidated Group to (y) the Long-Term Secured
Debt of the Consolidated Group to be less than (1) 1.75:1.00 on the last
day of any fiscal quarter ending in Fiscal Year 1999 or (2) 2.00:1.0 on the
last day of any fiscal quarter ending in Fiscal Year 2000 or thereafter.
8.28 COMPLIANCE WITH ERISA. Borrower will not terminate, or permit
any Subsidiary to terminate, any Pension Plan so as to result in any
material (in the opinion of the Agent or the Required Banks) liability of
the Borrower or any Subsidiary to the PBGC, (ii) permit to exist the
occurrence of any Reportable Event (as defined in Section 4043 of ERISA),
or any other event or condition, which presents a material (in the opinion
of the Agent or the Required Banks) risk of such a termination by the PBGC
of any Pension Plan, (iii) allow, or permit any Subsidiary to allow, the
aggregate amount of "benefit liabilities" (within the meaning of Section
4001(a)(16) of ERISA) under all Pension Plans of which the Borrower or any
ERISA Affiliate is a "contributing sponsor" (within the meaning of Section
4001(a)(13) of ERISA) to exceed $100,000, (iv) allow, or permit any
Subsidiary to allow, any Plan to incur an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the Code),
whether or not waived, (v) engage, or permit any Subsidiary or any Plan to
engage, in any "prohibited transaction" (within the meaning of Section 406
of ERISA or Section 4975 of the Code) resulting in any material (in the
opinion of the Agent or the Required Banks and considered by itself or
together with all other such liabilities of the Borrower and all ERISA
Affiliates) liability to the Borrower or any ERISA Affiliate, (vi) allow,
or permit any Subsidiary to allow, any Plan to fail to comply with the
applicable provisions of ERISA and the Code in any material respect, (vii)
fail, or permit any Subsidiary to fail, to make any required contribution
to any Multiemployer Plan, or (viii) completely or partially withdraw, or
permit a Subsidiary to completely or partially withdraw, from a
Multiemployer Plan, if such complete or partial
-51-
<PAGE>
withdrawal will result in any material (in the opinion of the Agent or the
Required Banks) withdrawal liability under Title IV of ERISA.
8.29 OTHER AGREEMENTS.
(a) Borrower will not (i) amend or otherwise modify in any
material manner, directly or indirectly, or terminate any Retainer
Agreement, or (ii) waive any right under any Retainer Agreement or default
in its obligations under any Retainer Agreement in such manner as to cause
or give rise to circumstances which would cause the individual party
thereto to terminate such agreement unilaterally pursuant to such contract,
or (iii) fail to duly enforce any of the foregoing.
(b) Borrower will not amend or otherwise modify, directly or
indirectly, its articles of incorporation to establish any class of stock
other than the Class A Stock and the Class B Stock or to establish more
than one series of common stock, or to grant any share of Class A Stock or
other capital stock (other than Class B Stock) other than one vote per
share, or to grant more than one vote per share to Class B Stock, or to
grant voting rights to holders of any other security issued by Borrower, or
to alter the percentage required for any action to be taken by the Borrower
(it being understood that it shall not be a breach of this SECTION 8.29(B)
for the Class B Stock to have no voting rights or for the Class B Stock to
be eliminated or for the articles of incorporation to be amended to
increase the Borrower's authorized common stock to 20,000,000 shares.)
(c) Borrower will not amend or otherwise modify in any material
manner, directly or indirectly, or terminate the IFA Lease, or waive any
right thereunder.
(d) Borrower will not amend or otherwise modify in any material
manner, directly or indirectly, any Warrant or any Warrant Agreement, or
waive any right under any of the foregoing, unless such amendment,
modification or waiver is consented to in writing by the Agent.
(e) [Intentionally deleted]
(f) Borrower will not amend or otherwise modify in any material
manner, directly or indirectly, the Acquisition Agreement or the Joshua's
Acquisition Agreement or waive any right thereunder.
(g) Borrower will not amend or otherwise modify in any material
manner, directly or indirectly, the Advisory Agreement. Without limiting
the generality of the foregoing, in no event shall Borrower agree to any
amendment or modification that would in any way increase the amount payable
by Borrower thereunder (or change the payment schedule of any amount
payable by it thereunder if the effect of such change is to enable the
-52-
<PAGE>
recipient thereof to receive such amount earlier than then provided for in
such agreement).
(h) Borrower will not amend or otherwise modify, directly or
indirectly, or waive any right under, or (if the Agent shall have objected
thereto within seven days after receiving prior written notice of any such
proposed consent) grant any consent under, the Buy-Sell Letter.
8.30 EBITDA.
(a) The Borrower will not permit the EBITDA of the Consolidated
Group for any Four-Quarter Period ending on the last day of any fiscal
quarter specified in the first column below to be less than the amount set
forth alongside such fiscal quarter in the second column below:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
<S> <C>
second and third $8,500,000
fiscal quarters of
Fiscal Year 1999
fourth fiscal $10,000,000
quarter of Fiscal
Year 1999 and first
second and third
fiscal quarters of
Fiscal Year 2000
fourth fiscal $13,200,000
quarter of Fiscal
Year 2000 and first,
second and third
fiscal quarters of
Fiscal Year 2001
fourth fiscal quarter $15,000,000
of Fiscal Year 2001
and thereafter
</TABLE>
8.31 REVENUES. Borrower will not permit the Net Revenues of the
Consolidated Group for any Four-Quarter Period ending on any date during
any Fiscal Year specified in the first column below to be less than the
amount set forth alongside such Fiscal Year in the second column below:
<TABLE>
<CAPTION>
FOUR-QUARTER PERIOD AMOUNT
<S> <C>
ending in Fiscal
Year 1999 $166,000,000
-53-
<PAGE>
ending in Fiscal
Year 2000 $207,000,000
ending in Fiscal
Year 2001 and
thereafter $249,000,000
</TABLE>
9. EVENTS OF DEFAULT.
Upon the occurrence of any of the following specified events (each an
"EVENT OF DEFAULT"):
9.1 PRINCIPAL AND INTEREST. The Borrower shall default in the due
and punctual payment of (i) any principal due on any Loan or any Note; or
(ii) any interest on any Loan or Note or in the due and punctual payment of
Commitment commission or other amounts due hereunder; PROVIDED THAT failure
to duly and punctually make an interest payment shall not be an Event of
Default under this Section 9.1 if such interest payment is paid within five
days after the date it is due and Borrower has not been late in making an
interest payment on any of the Notes more than once in the preceding 12
months; or
9.2 REPRESENTATIONS AND WARRANTIES. Any representation, warranty or
statement made by any Credit Party or officer thereof in any Loan Document
to which such Person is a party or in the Acquisition Agreement or
otherwise in writing by such Person in connection with any of the
foregoing, or in any certificate or other statement furnished pursuant to
or in connection with any of the foregoing, shall be breached or shall
prove to be untrue in any material respect on the date as of which made,
PROVIDED THAT if a Seller shall be the breaching Person or the Person whose
representation, warranty or statement shall prove to be untrue, such breach
or untruth shall not be an Event of Default if the amount of the loss as
estimated by the Agent (when added to the amount of collateral, if any,
then securing any Liens referred to in the next proviso) is less than
$500,000 (or any lesser amount that the Agent considers materially adverse
to Borrower) or, if estimated by the Agent to be (when added to the amount
of collateral, if any, then securing any Liens referred to in the next
proviso) more than $500,000 (or any lesser amount that the Agent considers
materially adverse to Borrower), Sellers indemnify Borrower for same by
paying the amount in question within 120 days after Borrower learns of such
breach or untruth; or
9.3 NEGATIVE COVENANTS. The Borrower or a Subsidiary shall default
in the due performance or observance of any term, covenant or agreement on
its part to be performed or observed pursuant to Section 7.11, Section 7.20
or Section 8; or
-54-
<PAGE>
9.4 OTHER COVENANTS. The Borrower or a Subsidiary shall default in
the due performance or observance of any term, covenant or agreement on its
part to be performed or observed pursuant to any of the provisions of this
Agreement (other than those referred to in Sections 9.1, 9.2 or 9.3) and
such default (which shall be capable of cure) shall continue unremedied for
a period of 30 days after the earlier of the date on which (x) the Agent
gives the Borrower notice thereof, or (y) a Key Person or an executive
officer of the Borrower acquires knowledge thereof; or
9.5 OTHER OBLIGATIONS. Any indebtedness of the Borrower or a
Subsidiary (i) in respect of indebtedness in excess of $100,000 in
aggregate principal amount, shall be duly declared to be or shall become
due and payable prior to the stated maturity thereof, or (ii) in respect of
indebtedness in excess of $500,000 in aggregate principal amount, shall not
be paid as and when the same becomes due and payable including any
applicable grace period, or there shall occur and be continuing any event
which constitutes an event of default under any instrument, agreement or
evidence of indebtedness relating to any indebtedness of the Borrower or a
Subsidiary in excess of $500,000 in aggregate principal amount, the effect
of which is to permit the holder or holders of such instrument, agreement
or evidence of indebtedness, or a trustee, agent or other representative on
behalf of such holder or holders, to cause the indebtedness evidenced
thereby to become due prior to its stated maturity; or
9.6 OWNERSHIP. The number of shares owned (in the aggregate) by
Messrs. Craig and Topham (alone or together), together with the number of
shares owned by the Jamestown Trust pursuant to the Jamestown Trust
Instrument, shall at any time be less than 12% of the outstanding capital
stock of the Borrower (on a fully-diluted basis) or shall be entitled to
less than 12% of the voting rights held by all shareholders and holders of
warrants; or there shall not be in full force and effect, with an insurance
company satisfactory to the Agent, a life insurance policy in the amount of
$2,000,000 on Dietzman, naming the Agent (on behalf of the Banks) as loss
payee; or
9.7 INSOLVENCY. The Borrower or any Subsidiary shall dissolve or
suspend or discontinue its business, or shall make an assignment for the
benefit of creditors or a composition with creditors, shall be unable or
admit in writing its inability to pay its debts as they mature, shall file
a petition in bankruptcy, shall become insolvent (howsoever such insolvency
may be evidenced), shall be adjudicated insolvent or bankrupt, shall
petition or apply to any tribunal for the appointment of any receiver,
liquidator or trustee of or for it or any substantial part of its property
or assets, shall commence any proceedings relating to it under any
bankruptcy, reorganization, arrangement, readjustment of debt,
receivership, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in
-55-
<PAGE>
effect; or there shall be commenced against the Borrower or any Subsidiary
any such proceeding which shall remain undismissed for a period of 60 days or
more, or any order, judgment or decree approving the petition in any such
proceeding shall be entered; or the Borrower or any Subsidiary shall by any
act or failure to act indicate its consent to, approval of or acquiescence
in, any such proceeding or in the appointment of any receiver, liquidator or
trustee of or for it or any substantial part of its property or assets, or
shall suffer any such appointment to continue undischarged or unstayed for a
period of 60 days or more; or the Borrower or any Subsidiary shall take any
action for the purpose of effecting any of the foregoing; or any court of
competent jurisdiction shall assume jurisdiction with respect to any such
proceeding or a receiver or trustee or other officer or representative of a
court or of creditors, or any court, governmental officer or agency, shall
under color of legal authority, take and hold possession of any substantial
part of the property or assets of the Borrower or any Subsidiary; or
9.8 SECURITY DOCUMENTS. The breach by any Credit Party of any term
or provision of any Security Document to which such Person is a party,
which default in the judgment of the Agent is material, or if any Security
Document is at any time not in full force and effect; or any of the
Security Documents shall fail to grant to the Agent on behalf of the Banks
the Liens (if any) intended to be created thereby; or
9.9 JUDGMENTS.
(a) Any final non-appealable judgment for the payment of money
in excess of $500,000 (after giving effect to any amount covered by
insurance as to which the insurer shall not have denied or questioned its
obligation to pay) shall be rendered against the Borrower or any
Subsidiary; or
(b) Final judgment for the payment of money in excess of
$250,000 shall be rendered against the Borrower or any Subsidiary, and the
same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed or contested in good faith; or
9.10 SUBORDINATED DEBT. The breach by a Subordinated Debt Provider of
any term or provision of the Subordination Agreement (Electra), which
breach in the judgment of the Agent is material; or the breach by any party
thereto of any term or provision of the Subordination Agreement
(Management), which breach in the judgment of the Agent is material; or
either such Subordination Agreement is at any time not in full force and
effect; or
9.11 IFA LEASE. An "Event of Default" (as defined in the IFA Lease),
or any event which with notice or lapse of time or both would become such
an "Event of Default," shall exist under the IFA Lease; or
-56-
<PAGE>
9.12 ENVIRONMENTAL PROBLEMS. The Borrower or any Subsidiary incurs,
or (in the opinion of the Agent) is reasonably expected to incur, in
connection with environmental problems (relating to cleanup costs, as
judgments, penalties for cleanup, or otherwise) in excess of $500,000 in
the aggregate (for all members of the Consolidated Group) during any three-year
period; or
9.13 STORE LEASES. The Borrower shall be more than three months past
due with any payment required to be paid under any Store Lease except to
the extent such payment is being contested in good faith by appropriate
proceedings diligently conducted and for which appropriate reserves have
been established in accordance with GAAP; or
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Agent may (and shall, if instructed
in writing by the Required Banks) by written notice to the Borrower: (i)
declare the principal of and accrued interest on the Loans to be, whereupon
the same shall forthwith become, due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived
by the Borrower; and/or (ii) declare the Commitments of the Banks to make
the Loans terminated, whereupon such Commitments shall forthwith terminate
immediately; PROVIDED THAT if any Event of Default described in Section 9.7
shall occur with respect to the Borrower, the result which would otherwise
occur only upon the giving of written notice by the Agent to the Borrower
as herein described shall occur automatically, without the giving of any
such notice.
10. REPRESENTATIONS AND WARRANTIES.
In order to induce the Banks to enter into this Agreement and to make
the Loans provided for herein, the Borrower makes the following
representations, covenants and warranties, both as of the Closing Date and
as of the Effective Date (unless otherwise specified), which representations,
covenants and warranties shall survive the execution and delivery of this
Agreement and the other documents and instruments referred to herein:
10.1 STATUS; VALIDITY.
(a) Each of Borrower and its Subsidiaries is a duly organized
and validly existing corporation in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority
to own or hold under lease its property and assets, to transact the
business in which it is engaged, to enter into and perform this Agreement
and the other Loan Documents to which it is party, and, as to the Borrower,
to borrow hereunder. The Borrower is duly qualified or licensed as a
foreign corporation in good standing in (x) each jurisdiction where failure
to so qualify would have a Material Adverse Effect on the Consolidated
Group and (y) each state where it has any
-57-
<PAGE>
Store. Each Subsidiary is duly qualified or licensed as a foreign
corporation in good standing in (x) each jurisdiction where failure to so
qualify would have a Material Adverse Effect on it and (y) each state where
it has any Store. Borrower has no Subsidiaries.
(b) The execution, delivery and performance by the Borrower and
(to the extent any is not an individual) the Principal Stockholders of this
Agreement and the other Loan Documents to which each is party and the other
documents, agreements or instruments provided for herein and therein to
which each is party, the consummation of the transactions contemplated
thereunder and the use of the proceeds of the Loans have been duly
authorized by all necessary corporate and stockholder action on behalf of
the Borrower and the Principal Stockholders. This Agreement and the other
Loan Documents and the other documents, agreements or instruments provided
for herein and therein to which the Borrower or any Principal Stockholder
is party are the legal, valid and binding obligations of such Persons,
enforceable in accordance with their respective terms subject, as to
enforceability, to applicable bankruptcy, insolvency, reorganization and
similar laws affecting the enforcement of creditors' rights generally and
to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law) or by an implied covenant
of good faith and fair dealing.
10.2 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Borrower nor any
Subsidiary is in material default under any Material Agreement to which it
is a party, and neither the execution, delivery or performance of this
Agreement and the other Loan Documents nor the consummation of the
transactions herein or therein contemplated, nor compliance with the terms
and provisions hereof or thereof, will contravene any provision of any
Legal Requirement or will conflict or will be inconsistent with or will
result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or, except as provided by the
Security Documents, result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets
of such Person pursuant to the terms of any indenture, mortgage, deed of
trust or Material Agreement to which such Person is a signatory or by which
such Person is bound or to which such Person may be subject or violate any
provision of the Charter Documents of such Person.
10.3 LITIGATION. There are no actions, suits or proceedings pending
or, to the knowledge of the Borrower or any Key Person, threatened, against
or affecting Borrower or any Subsidiary before any Government Authority
which, if adversely determined, would have a Material Adverse Effect on any
member of the Consolidated Group.
-58-
<PAGE>
10.4 COMPLIANCE WITH LAW. Except for matters which could not result
in a Material Adverse Change in respect of any member of the Consolidated
Group: (a) all business and operations of Borrower and the Subsidiaries
have been and are being conducted in accordance with all applicable Legal
Requirements; (b) Borrower and each Subsidiary have obtained all permits,
licenses and authorizations, or consents which are otherwise necessary, for
such Person to conduct its business as it is or is proposed to be
conducted; and (c) neither Borrower nor any Subsidiary is a party to, has
been threatened with, and there are no facts existing as a basis for, any
governmental or other proceeding which might result in a suspension,
limitation or revocation of any such permit, license or authorization.
10.5 CAPITALIZATION OF BORROWER AND ITS SUBSIDIARIES.
(a) As of the Effective Date the Borrower's entire authorized
capital stock consists solely of 6,000,000 shares of common stock, par
value $1.00 per share, divided into 3,000,000 shares of Class A Stock and
3,000,000 shares of Class B Stock. All outstanding shares of the
Borrower's stock are duly and validly issued, fully paid and non-
assessable. Messrs. Craig and Topham own in the aggregate not less than
12% of the outstanding capital stock of Borrower (on a fully diluted basis)
and are entitled to not less than 12% of the voting rights held by all
shareholders and holders of warrants.
(b) Except as noted on Schedule 10.5 and except for (x) the
Warrants outstanding on the date hereof as specified on Schedule 10.5, (y)
the Warrants required to be issued after the Effective Date pursuant to the
Securities Purchase Agreement; and (z) shares of the Borrower's common
stock to be issued pursuant to the Incentive Plans or the 1997 Employee
Stock Purchase Plan, Borrower and its Subsidiaries have outstanding no
option, warrant, bonds, debentures or other right, put, call or commitment
to issue, or any obligation or commitment to purchase, any of its capital
stock or any securities convertible into or exchangeable for any of its
capital stock.
(c) There are no agreements containing terms or conditions
relating to, or otherwise governing, the Subordinated Debt or the Warrants
other than the Subordinated Note, the Electra Shareholders Agreement, the
Buy-Sell Agreement, the Buy-Sell Letter, the Warrants, the Advisory
Agreement, the Registration Rights Agreement and the Securities Purchase
Agreement. Since the Closing Date, none of the foregoing have been
amended, supplemented or otherwise modified (nor have any waivers with
respect thereto been granted by the Borrower) except for amendments,
supplements, modifications or waivers made with the written consent of the
Agent.
10.6 GOVERNMENT APPROVALS. Except for those listed in Schedule 10.6,
each of which has been duly obtained and is in full force and effect, no
order, permission, consent, approval,
-59-
<PAGE>
license, authorization, registration or validation of, or filing with, or
exemption by, any Government Authority is required to authorize, or is
required in connection with the execution, delivery and performance of this
Agreement or the other Loan Documents by Borrower or any Subsidiary or
Principal Stockholder, or the taking of any action hereby contemplated.
10.7 FEDERAL RESERVE MARGIN REGULATIONS; USE OF PROCEEDS.
(a) No member of the Consolidated Group is engaged principally,
or as one of its important activities, in the business of extending credit
for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System). No part of the proceeds of any Loan will be used to purchase or
carry any such margin stock or to extend credit to others for the purpose
of purchasing or carrying any such margin stock.
(b) The proceeds of the Tranche B Term Loans shall be used
solely to repay the Subordinated Debt. The proceeds of the Revolving
Credit Loans shall be used solely for working capital purposes. The
proceeds of the Tranche A Term Loans disbursed on the Closing Date were
used solely to pay a portion of the acquisition price under the Acquisition
Agreement, and the remainder of the proceeds of the Tranche A Term Loan
will be used to pay interest on the Subordinated Debt and costs, fees and
expenses related to this Agreement. The proceeds of Revolving Credit Loans
outstanding on the Effective Date were used solely for working capital
purposes and to pay a portion of the consideration for the Joshua's
Acquisition.
10.8 TAXES.
(a) All tax returns of any nature whatsoever, including but not
limited to, all U.S. income, payroll, stock transfer, and excise tax
returns and all appropriate state and local income, sales, excise, payroll,
franchise and real and personal property tax returns, and corresponding
returns under the laws of any jurisdiction, which are required to be filed
by the Borrower or any Subsidiary have been or will be filed by the due
date or extended due date of such returns.
(b) Except for amounts which in the aggregate do not exceed
$100,000, all taxes due and payable with respect to each member of the
Consolidated Group has been paid, and there are no liabilities, interest or
penalties payable with respect to any taxes which remain unpaid.
10.9 INVESTMENT COMPANY ACT, ETC. Neither the Borrower or any
Subsidiary nor the entering into of the Loan Documents or the Acquisition
Agreement nor the issuance of the Notes is subject to any of the provisions
of the Investment Company Act of 1940, as amended. Neither the Borrower
nor any
-60-
<PAGE>
Subsidiary is a "holding company" as defined in the Public Utility Holding
Company Act of 1935, as amended, or subject to any other federal or state
statute or regulation limiting its ability to incur Indebtedness for Money
Borrowed.
10.10 PROPERTIES OF THE BORROWER.
(a) Neither the Borrower nor any Subsidiary owns any real
property. All real property leased by the Borrower or any Subsidiary is
listed in Schedule 10.10A hereto. All patents, trademarks, copyrights and
trade names of the Borrower or any Subsidiary are listed in Schedule 10.10B
to this Agreement; all of those so listed are in full force and effect. If
any member of the Consolidated Group at any time acquires, establishes,
invents or develops any patent, trademark, copyright or trade name that is
or becomes material to such Person's business or operations, it will
promptly notify the Agent of same and take such action as the Agent shall
request to grant to the Agent on behalf of the Banks a perfected, first
priority security interest in same.
(b) All Material Agreements of the Borrower or any Subsidiary
are listed in Schedule 10.10C hereto and are in full force and effect, none
of the parties thereunder are in material default thereunder and no written
notice of default has been given or received. The Borrower or its
Subsidiaries, as the case may be, have full, valid and existing right,
title and interest (in fee simple where applicable) to all of its or their
material real and personal property and all tangible and intangible rights,
and the ownership rights of such Person in and to all of such tangible and
intangible rights are subject to no material Liens, burdens or defects
other than those permitted under Section 8.2 hereof.
10.11 FINANCIAL CONDITION.
(a) The audited Financial Statement of the Borrower and its
Subsidiaries as of January 25, 1998 and unaudited Financial Statements of
the Borrower and its Subsidiaries for the three months ended April 27, 1998
in each case, delivered to the Agent, have been prepared in accordance with
GAAP (Adjusted) consistently applied and fairly present, in all material
respects (except that the quarterly Financial Statements do not include all
the footnote disclosures required by GAAP), the financial condition and the
results of operations of the Borrower and its Subsidiaries as at the dates
and for the periods indicated. There are no material liabilities or any
material unrealized or anticipated losses from unfavorable commitments
which are not disclosed in the Financial Statements referred to above.
(b) There has been no Material Adverse Change with respect to
the Borrower and its Subsidiaries from that set
-61-
<PAGE>
forth in the audited January 25, 1998 Financial Statements of the Borrower
and its Subsidiaries.
(c) At the time of, and after giving effect to, each Loan, the
Borrower and each Subsidiary (i) is Solvent, and (ii) possesses, in the
opinion of the Borrower, sufficient capital to conduct the business in
which it is engaged or presently proposes to engage.
10.12 ENVIRONMENTAL MATTERS. There are no pending or, to the
knowledge of Borrower or any Key Person, threatened proceedings against any
member of the Consolidated Group in respect of air, water, surface or
subsurface environmental conditions relating to the Borrower's, or any
Subsidiary's assets or business, other than those first pending or
threatened after the Effective Date of which the Banks have been notified
pursuant to Section 7.2 or 7.17.
10.13 DISCLOSURE. Neither this Agreement or any Loan Document nor any
statement, list, certificate or other document or information, or any
schedules to this Agreement or any other Loan Document, delivered or to be
delivered to the Agent or any Bank, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
10.14 COMPLIANCE WITH ERISA. Borrower and each ERISA Affiliate and
each Plan and the trusts maintained pursuant to such plans are in
compliance in all material respects with the presently applicable
provisions of Sections 401 through and including 417 of the Code, and of
ERISA and (i) no event which constitutes a Reportable Event as defined in
Section 4043 of ERISA has occurred and is continuing with respect to any
Plan which is or was covered by Title IV of ERISA, (ii) no Plan which is
subject to Part 3 of Subtitle B of Title 1 of ERISA has incurred any
"accumulated funding deficiency" (within the meaning of Section 302 of
ERISA or Section 412 of the Code) whether or not waived, and (iii) no
written notice of liability has been received with respect to Borrower or
any Subsidiary for any "prohibited transaction" (within the meaning of
Section 4975 of the Code or Section 406 of ERISA), nor has any such
prohibited transaction resulting in liability to Borrower or ERISA
Affiliate occurred.
Neither Borrower nor any ERISA Affiliate (i) has incurred any
liability to the PBGC (or any successor thereto under ERISA), or to any
trustee of a trust established under Section 4049 of ERISA, in connection
with any Plan (other than liability for premiums under Section 4007 or
ERISA), (ii) has incurred any withdrawal liability under Subtitle E of
Title IV of ERISA in connection with any Plan which is a Multiemployer
Plan, nor (iii) has contributed or has been obligated to contribute on or
after September 26, 1980, to any "multiemployer plan"
-62-
<PAGE>
(within the meaning of Section 3(37) of ERISA) which is subject to Title IV
of ERISA.
The consummation of the transactions contemplated by this
Agreement (i) will not give rise to any liability on behalf of the Borrower
or its ERISA Affiliates under Title IV of ERISA to the PBGC (other than
ordinary and usual PBGC premium liability), to the trustee of a trust
established pursuant to Section 4049 of ERISA, or to any Multiemployer
Plan, and (ii) will not constitute a "prohibited transaction" under Section
406 of ERISA or Section 4975 of the Code.
10.15 THE SECURITY DOCUMENTS. Each Security Document grants a Lien as
set forth therein in the properties or rights intended to be covered
thereby (the "COLLATERAL") which (i) constitutes a valid and enforceable
security interest under the Uniform Commercial Code of the State (x) in
which the Collateral is located and (y) by which any Security Document is
governed (as applicable, the "UCC"), (ii) is entitled to all of the rights,
benefits and priorities provided by the UCC, and (iii) is superior and
prior to the rights of all third Persons now existing or hereafter arising
whether by way of mortgage, pledge, lien, security interest, encumbrance or
otherwise, except for (A) Permitted Liens, (B) Liens for tax assessments,
levies or governmental charges not yet due, (C) Liens permitted by any of
the following clauses of Section 8.2(iii): (d), (g), (i) and (m), and (D)
Liens permitted by clauses (a) and (c) of Section 8.2(iii) but only if and
to the extent that the relevant statute granting such liens provides that
such Liens would "prime" the Liens of the Banks and the Agent under the
Security Documents. All such action as is necessary in law has been taken
to establish and perfect the security interest of the Agent and the Banks
in the Collateral and to entitle the Banks or the Agent on behalf of the
Banks to exercise the rights and remedies provided in each of the Security
Documents and the UCC, as applicable, and no filing, recording,
registration or giving of notice or other action is required in connection
therewith except such as has been made or given. All filing and other fees
and all recording or other tax payable with respect to the recording of any
of the Security Documents and UCC financing statements have been paid or
provided for.
10.16 [Intentionally deleted]
10.17 [Intentionally deleted]
10.18 QUALIFICATION.
(a) Solely by reason of (and without regard to any other
activities of the Agent or any Bank in Michigan), the entering into,
performance and enforcement of this Agreement, the Notes, the Security
Agreements and the other Loan Documents by the Agent or any Bank will not
constitute doing business by the Agent or any Bank in Michigan or result in
any liability of the
-63-
<PAGE>
Agent or such Bank for taxes or other governmental charges in Michigan; and
qualification by the Agent or any Bank to do business in such jurisdiction is
not necessary in connection with, and the failure to so qualify will not
affect, the enforcement of, or exercise of any rights or remedies under, any
of such documents.
(b) No "business activity," "doing business" or similar report
or notice is required to be filed by the Agent or any Bank in Michigan in
connection with the Loans or the transactions contemplated by this Loan
Agreement, and the failure to file any such report or notice will not
affect the enforcement of, or the exercise of any rights or remedies under,
this Agreement, the Security Documents or any of the other Loan Documents.
10.19 YEAR 2000. The Borrower and its Subsidiaries have (x) developed
plans necessary to ensure that computer applications used by the Borrower
and its Subsidiaries will recognize and perform properly date-sensitive and
other functions involving certain dates prior to and any date on or after
December 31, 1999, and (y) made related appropriate inquiry of material
suppliers and vendors. Based on such plans and the programs and
reprogrammings required by such plans and inquiries, the Borrower believes
that the consequences of the year 2000 to the Borrower and its Subsidiaries
will not result in a Default or Event of Default or have a Material Adverse
Effect. The cost to the Borrower and to its Subsidiaries of the
implementation of such plans and reprogrammings and of the reasonably
foreseeable consequences of year 2000 to the Borrower and its Subsidiaries
(including the cost of reprogramming errors and (a) the failure of others'
systems or equipment) will not result in a Default or Material Adverse
Effect. Each program and each reprogramming included in such plans have
been accomplished in all material respects in accordance with the
timetables set forth in such plans.
10.20 BUY-SELL AGREEMENT. As of the Effective Date, the Buy-Sell
Agreement has not been amended or otherwise modified since the Closing
Date, except by Amendment to the Buy Sell Agreement dated as of September
16, 1996. From and after the Effective Date, the Buy-Sell Agreement has
not been amended or otherwise modified without the prior written consent of
the Agent.
10.21 NAMES UNDER WHICH BUSINESS IS CONDUCTED. Schedule 10.21 sets
forth each trade name under which Borrower or any Subsidiary conducts
business as of the Effective Date, and each jurisdiction where such trade
name is used.
10.22 FINANCING STATEMENTS. All property listed or described as
collateral or property covered thereby or the like in any financing
statement naming Borrower as Debtor or Lessee and any Person other than
Agent or Bank of Scotland as Secured
-64-
<PAGE>
Party or Lessor constitutes equipment which is leased by Borrower under an
Operating Lease.
11. AGENT.
11.1 APPOINTMENT. The Banks hereby irrevocably appoint Bank of
Scotland to act as Agent hereunder and as Agent or "Assignee" or "Secured
Party" (or in any other similar representative capacity designated in any
Security Document) under the Security Documents (in such capacity, the
"AGENT"). Each Bank hereby irrevocably authorizes, and each holder of any
Note by the acceptance of such Note shall be deemed irrevocably to
authorize, the Agent to take such action on its behalf under the provisions
of this Agreement, the Notes, the Security Documents, the other Loan
Documents and any other instruments and agreements referred to therein and
to exercise such powers thereunder as are specifically delegated to or
required of it by the terms thereof and such other powers as are reasonably
incidental thereto; PROVIDED THAT the Agent shall not take any action to
realize upon any security interest in any of the Collateral, or release any
substantial portion of the Collateral, without the consent of the Required
Banks. The Agent may perform any of its duties under any of the Loan
Documents by or through its agents or employees.
11.2 NATURE OF DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth in the Loan Documents.
Neither the Agent nor any of its officers, directors, employees or agents
shall be liable to any Bank for any action taken or omitted by it under any
of the Loan Documents, or in connection therewith unless caused by its or
their gross negligence or willful misconduct. Nothing in the Loan
Documents, expressed or implied, is intended to or shall be so construed as
to impose upon the Agent any obligations in respect of the Loan Documents
except as expressly set forth therein. The duties of the Agent under the
Loan Documents shall be mechanical and administrative in nature and the
Agent shall not have by reason of its duties under the Loan Documents a
fiduciary relationship in respect of any Bank. The Agent agrees to deliver
promptly to each Bank (i) copies of notices received by it pursuant to
Sections 7.1, 7.2, 7.11 and 7.18 of this Agreement, and (ii) copies of all
documents required to be delivered hereunder by the Borrower to the Banks
directly but that are not so delivered to any Bank (but were delivered to
the Agent) if such Bank notifies the Agent that it has not received such
document or documents, specifying same.
11.3 LACK OF RELIANCE. Independently and without reliance on the
Agent, each Bank to the extent it deems appropriate has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of the Credit Parties in connection with the making
and the continuance of the Loans and its Commitments hereunder and the
taking or not taking of any action in connection herewith, (ii)
-65-
<PAGE>
its own appraisal of the creditworthiness of the Credit Parties and (iii) its
own independent investigation and appraisal of the Collateral; and, except as
expressly provided in the Loan Documents, the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Bank with any credit or other information with respect thereto, whether
coming into its possession before the date hereof or at any time or times
thereafter. The Agent shall not be responsible to any Bank for any recitals,
statements, representations or warranties herein or in any certificate or
other document delivered in connection herewith or for the authorization,
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, or sufficiency of any of the Loan Documents or the
Acquisition Agreement, the financial condition of the Credit Parties or the
condition of any of the Collateral, or be required to make any inquiry
concerning either the performance or observance of any of the terms,
provisions or conditions of any of the Loan Documents or the Acquisition
Agreement, the financial condition of the Credit Parties or the existence or
possible existence of any Event of Default or Default.
11.4 CERTAIN RIGHTS. If the Agent requests instructions from the
Banks or Required Banks with respect to any interpretation, act or action
(including failure to act in connection with this Agreement or any of the
other Loan Documents) the Agent shall be entitled to refrain from such act
or taking such actions unless and until it shall have received instructions
from the Banks or the Required Banks, as the case may be; and the Agent
shall not incur liability to any Person by so refraining. Without limiting
the foregoing, no Bank shall have any right of action whatsoever against
the Agent as a result of the Agent acting or refraining from acting
hereunder or under any of the other Loan Documents in accordance with the
instructions of the Required Banks (as to matters requiring the consent of
the Required Banks) or all the Banks (as to matters requiring the consent
of all the Banks). The Agent shall be fully justified in failing or
refusing to take any action under any Loan Document unless, if it requests,
it shall first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason of
taking, continuing to take or not taking any such action.
11.5 RELIANCE. The Agent shall be entitled to rely upon any written
notice or any telephone message believed by it to be genuine or correct and
to have been signed, sent or made by the proper Person, and, with respect
to all legal matters pertaining to the Loan Documents and its duties
thereunder, upon advice of counsel selected by it.
11.6 INDEMNIFICATION. To the extent the Agent is not reimbursed or
indemnified by the Borrower, the Banks will reimburse and/or indemnify the
Agent, in proportion to their respective Commitments (or if the Revolving
Credit Loan Commitments are terminated, Loans outstanding) under this
-66-
<PAGE>
Agreement, for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred or sustained by or asserted against the Agent, acting pursuant
hereto or any of the other Loan Documents in its capacity provided for in
this Section 11, in any way relating to or arising out of this Agreement,
or any of the other Loan Documents, PROVIDED, HOWEVER, that no Bank shall
be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or wilful
misconduct. For purposes of the first sentence of this Section 11.6 only,
while Revolving Credit Loan Commitments exist, the Term Loan Commitments of
each Bank shall be deemed equal to the then-outstanding principal amount of
its Term Loans. The obligations of the Banks under this Section 11.6 shall
survive the repayment of the Notes and the Loans and the termination of
this Agreement and the other Loan Documents.
11.7 AGENT, INDIVIDUALLY. With respect to its Commitments under this
Agreement, the Loans made by it and any Note issued to or held by it, the
Agent shall have and may exercise the same rights and powers hereunder and
is subject to the same obligations and liabilities as and to the extent set
forth herein for any other Bank or holder of a Note. The terms "Bank",
"holders of Notes" or any similar terms shall, unless the context clearly
otherwise indicates, not exclude the Agent in its individual capacity as a
Bank or holder of a Note. The Agent may accept deposits from, lend money
to, and generally engage in any kind of banking, trust or other business
with the Credit Parties and their Subsidiaries as if it were not acting
pursuant hereto, and may accept fees and other consideration from the
Credit Parties and their Subsidiaries for services as the Agent in
connection with this Agreement and the other Loan Documents and for
services otherwise than as the Agent without having to account for the same
to the Banks.
11.8 HOLDERS OF NOTES. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment or transfer thereof shall have been
received by the Agent. Any request, authority or consent of any Person,
who at the time of making such request or of giving such authority or
consent is the payee of any Note, shall be conclusive and binding on any
subsequent holder, transferee, assignee or payee of such Note or of any
Note or Notes issued in exchange therefor.
11.9 RESIGNATION. The Agent may resign at any time from the
performance of all its functions and duties hereunder and under the other
Loan Documents by giving 30 days prior written notice to the Borrower and
each Bank. Such resignation shall take effect upon the expiration of such
30-day period or upon the earlier appointment of a successor.
Notwithstanding any such resignation, the provisions of Sections 11.6 and
12.3 shall
-67-
<PAGE>
inure also to the benefit of each Agent who has so resigned with respect to
the period it served as Agent. In case of the resignation of the Agent, the
Required Banks may appoint a successor by a written instrument signed by the
Required Banks. Any successor shall execute and deliver to the Agent an
instrument accepting such appointment, and thereupon such successor, without
further act, shall become vested with all the estates, properties, rights,
powers, duties and trusts of the Agent hereunder and with like effect as if
originally named as "Agent" herein and therein, and upon request, the
predecessor Agent shall take all actions and execute all documents necessary
to give effect to the foregoing. In the event the Agent's resignation
becomes effective at a time when no successor has been named, all notices,
other communications and payments hereunder required to be given by or to the
Agent shall be sufficiently given if given by the Required Banks (or all
Banks, if the consent of all Banks is required therefor hereunder) or to each
Bank, as the case may be. In such event, all powers specifically delegated
to the Agent may be exercised by the Required Banks and the Required Banks
shall be entitled to all rights of the Agent hereunder. Notwithstanding the
foregoing, Bank of Scotland shall not resign as Agent (without Borrower's
prior written consent) for so long as it shall be a Bank hereunder, unless by
applicable Legal Requirement it (x) is required to so resign or (y) would
incur significant cost, fines or penalty if it does not.
11.10 REIMBURSEMENT. Without limiting the provisions of Section 11.6,
the Banks and the Agent hereby agree that the Agent shall not be obligated
to make available to any Person any sum which the Agent is expecting to
receive for the account of that Person until the Agent has determined that
it has received that sum. The Agent may, however, disburse funds prior to
determining that the sums which the Agent expects to receive have been
finally and unconditionally paid to the Agent, if the Agent wishes to do
so. If and to the extent that the Agent does disburse funds and it later
becomes apparent that the Agent did not then receive a payment in an amount
equal to the sum paid out, then any Person to whom the Agent made the funds
available shall, on demand from the Agent:
(a) refund the Agent the sum paid to that Person; and
(b) reimburse the Agent for the additional amount certified by
the Agent as being necessary to indemnify the Agent against any
funding or other cost, loss, expense or liability sustained or
incurred by the Agent as a result of paying out the sums before
receiving it; PROVIDED, HOWEVER, that if such funds were made
available to any Bank, such additional amount shall be limited to
interest on the sum to be repaid, for each day from the date such
amount was disbursed until the date repaid to the Agent, at (for the
first three days) the customary rate set by the Agent for
-68-
<PAGE>
correction of errors among banks, and thereafter at the Base Rate
(or, if greater and in respect of a Loan made to the Borrower, the
rate from time to time prevailing on such Loan).
12. MISCELLANEOUS.
12.1 CALCULATIONS AND FINANCIAL DATA.
(a) Calculations hereunder (including, without limitation,
calculations used in determining, or in any certificate delivered
reflecting, compliance by the Borrower or any Subsidiary with the
provisions of this Agreement) shall be made and financial data required
hereby shall be prepared both as to classification of items and as to
amount in accordance with GAAP; PROVIDED THAT for purposes of Sections 8.21
through 8.27 (inclusive) and Sections 8.30 and 8.31 no effect shall be
given to any change in GAAP from those in effect on June 30, 1994.
(b) [Intentionally deleted]
(c) (i) In computing the acquisition price for Stores, Similar
Stores and other assets purchased or otherwise acquired in whole or in part
with shares of the Borrower's capital stock and in computing any other
Adjusted Capital Expenditure or other expenditures relating to a
transaction where shares of the Borrower's capital stock are being or have
been issued (in each case, to the extent same is otherwise permitted by the
terms of this Agreement), for purposes of Sections 8.3, 8.10, 8.15, and the
last sentence of Section 8.18 of this Agreement (but not for purposes of
any computation of Excess Cash Flow made under or in connection with this
Agreement), any such shares of the Borrower's capital stock shall be valued
at the greater of (x) the Fair Market Value of such shares on the date such
shares are transferred to the recipient thereof, or (y) the value assigned
to such shares in any contract governing such purchase, acquisition or
other relevant transaction.
(ii) Notwithstanding the provisions of clause (i) above,
and for purposes of Section 2.4(b) and the proviso to said Section 8.15, no
amounts attributed to the value of Borrower's capital stock used in
connection with the purchase or other acquisition of a Store or Similar
Store shall be offset against Net Proceeds from any Transfer of Stores.
(iii) To the extent that the provisions of this Section
12.1(c) and those of Section 12.1(a) hereof may conflict, those of this
Section 12.1(c) shall control.
12.2 AMENDMENT AND WAIVER. Except as otherwise provided, no provision
of any of the Loan Documents may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
Required Banks (or the Agent on their behalf) and (if Borrower is a party
thereto) the
-69-
<PAGE>
Borrower, except that waivers of provisions relating to a Credit Party's
performance or non-performance of its obligations hereunder or thereunder
need not be signed by such Credit Party or any other Credit Party; PROVIDED
HOWEVER that the written consent of the Agent shall also be required to
change, waive, discharge or terminate provisions of Section 4.3 or 11; and
PROVIDED FURTHER that without the consent of all of the Banks (or the Agent
on their behalf) no change, waiver, discharge or termination may be made that
would increase the amount of any Bank's Commitment; decrease the principal of
any Loan; decrease the interest rate payable on any Loan; decrease the rate
of Commitment commission payable pursuant to Section 4.1; extend the final
maturity date of any Loan; extend the Revolving Credit Maturity Date; change
the definition of "Required Banks" or modify this Section 12.2. Any such
change, waiver, discharge or termination shall be effective only in the
specific instance and for the specific purposes for which made or given.
12.3 EXPENSES; INDEMNIFICATION.
(a) Whether or not the transactions hereby contemplated shall be
consummated, the Borrower shall pay all reasonable out-of-pocket costs and
expenses of (x) the Agent incurred in connection with the preparation,
execution, delivery, administration, filing and recording of, and (y) the
Agent and the Banks incurred in connection with the amendment (including
any waiver or consent), modification, and enforcement of or preservation of
any rights under, this Agreement, the other Loan Documents, the making and
repayment of the Loans, and the payment of all interest and fees,
including, without limitation, (A) the reasonable fees and expenses of
Sullivan & Worcester LLP, counsel for the Agent, and any special or local
counsel retained by the Agent or the Banks, and with respect to
enforcement, the reasonable fees and expenses of counsel for the Agent or
any Bank, (B) the reasonable fees and expenses of consultants and
appraisers retained by the Agent in connection with the transactions
contemplated hereunder, and (C) printing, travel, title insurance, mortgage
recording, filing, communication and signing taxes and costs and legal fees
and expenses incurred in connection with the preparation (on or prior to
the Effective Date) of any documents related to the BOS Lien.
(b) The Borrower agrees to pay, and to save the Agent and the
Banks harmless from (x) all present and future stamp, filing and other
similar taxes, fees or charges (including interest and penalties, if any),
which may be payable in connection with the Loan Documents or the issuance
of the Notes or any modification of any of the foregoing, and (y) any
finder's and broker's fees (other than any contracted for by the Agent) in
connection with the transactions contemplated by this Agreement and the
other Loan Documents.
(c) The Borrower agrees to indemnify, pay and hold harmless the
Agent, each Bank, any Bank Assignee and each
-70-
<PAGE>
holder of a Note and their respective present and future officers, directors,
employees and agents (collectively, the "INDEMNIFIED PARTIES") from and
against all liability, losses, damages and expenses (including, without
limitation, legal fees and expenses) arising out of, or in any way connected
with, or as a result of (i) the execution and delivery of this Agreement, the
other Loan Documents, the Acquisition Agreement, the Other Agreements or the
documents or transactions contemplated hereby and thereby or the performance
by the parties hereto or thereto of their respective obligations hereunder
and thereunder or relating thereto; or (ii) any claim, action, suit,
investigation or proceeding (in each case, regardless of whether or not the
Indemnified Party is a party thereto or target thereof) in any way relating
to the Borrower, any Subsidiary, a Key Person or any Collateral or in any way
relating to this Agreement, the Acquisition Agreement, the Joshua's
Acquisition Agreement or any other Loan Document; or (iii) any actual or
alleged violation by any Credit Party (or any predecessor in interest of any
of them) of any Environmental Law; PROVIDED THAT the Borrower shall not be
liable to an Indemnified Party for any portion of such liabilities, losses,
damages and expenses sustained or incurred as a direct result of the gross
negligence or willful misconduct of the Agent, any Bank or such Indemnified
Party if such gross negligence or willful misconduct is determined to have
occurred by a final and non-appealable decision of a court of competent
jurisdiction.
(d) All obligations provided for in this Section 12.3 and
Sections 3.4, 3.9, 4.1, 4.2, 4.3, 5.2 and 11.6 shall survive any
termination of this Agreement and the Commitments and the payment in full
of the Obligations.
12.4 BENEFITS OF AGREEMENT; DESCRIPTIVE HEADINGS.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns, and, in particular, shall inure to the benefit of
the holders from time to time of the Notes; PROVIDED, HOWEVER, that the
Borrower may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of the Agent and the Banks and
any such purported assignment or transfer shall be void. In furtherance of
the foregoing, each Bank shall be entitled at any time to grant
participations in the whole or any part of its rights and/or obligations
under this Agreement, the Loan Documents or any Loan or Note to any Person;
PROVIDED, HOWEVER, that no Bank Assignee shall be permitted by the terms of
its participation agreement with the relevant Bank to require such Bank to
take or omit to take any action hereunder except to the extent that if the
Bank Assignee were a Bank hereunder, its consent to taking or omitting to
take such action would be required by the terms of the second proviso of
Section 12.2 hereto. No such participation pursuant to this Section
12.4(a) shall relieve any Bank from its obligations hereunder and the
Borrower need deal solely with the
-71-
<PAGE>
Agent and the Banks with respect to waivers, modifications and consents to
this Agreement, the Loan Documents or the Notes. Any such participant is
referred to in this Agreement as a "BANK ASSIGNEE". The Borrower agrees that
the provisions of Sections 3.4, 3.9, 5.2 and 12.3 shall run to the benefit of
each Bank Assignee and its participations or interests herein, and any Bank
may enforce such provisions on behalf of any such Bank Assignee; PROVIDED,
HOWEVER, that if any Bank grants a participation in the whole or any part of
its rights and/or obligations pursuant to this Section 12.4(a), then the
amounts that the Borrower is required to pay pursuant to this Agreement
(including, without limitation, additional amounts made pursuant to Section
5.2) shall not exceed the amounts that the Borrower would have been required
to pay to such Bank pursuant to this Agreement had such Bank not granted such
participation. The Borrower hereby further agrees that any such Bank
Assignee may, to the fullest extent permitted by applicable law, exercise the
right of setoff with respect to such participation (and in an amount up to
the amount of such participation) as fully as if such Bank Assignee were the
direct creditor of the Borrower. Upon a participation in accordance with the
foregoing, the Borrower shall execute such documents and do such acts as any
Bank may reasonably request to effect such assignment. Any Bank may furnish
any information concerning the Credit Parties in its possession from time to
time to Bank Assignees (including prospective Bank Assignees) and prospective
Purchasing Banks. Each Bank shall notify Borrower of any participation
granted by it pursuant to this Section 12.4(a) but neither the Borrower's
approval nor that of any other Credit Party shall be required for any such
participation. Borrower shall not be responsible for any due diligence costs
or legal expenses of such Bank Assignees in connection with their entering
into such participation.
(b) The descriptive headings of the various provisions of this
Agreement and the other Loan Documents are inserted for convenience of
reference only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
(c) Any Bank may at any time assign to any other Bank or any
affiliate of any Bank, or (subject to obtaining the prior written consent
of the Borrower (but no other Credit Party), such consent not to be
unreasonably withheld) to one or more additional banks or financial
institutions ("PURCHASING BANKS"), all or any part of its Commitments (and
corresponding Loan and Note) pursuant to a Transfer Supplement ("TRANSFER
SUPPLEMENT"), substantially in the form of Exhibit F to this Agreement;
PROVIDED, HOWEVEr, that each such assignment shall be in an amount equal to
$1,000,000 or an integral multiple of $500,000 above such amount or, if
less, the amount of such Bank's Commitments (in respect of Revolving Credit
Loans or Revolving Credit Loan Commitments) then in effect or (as to Term
Loans) the then-outstanding principal amount of such Term Loans, as the
case may be. Upon (i) such execution of such Transfer Supplement, (ii)
-72-
<PAGE>
delivery of an executed copy thereof to the Borrower and the Agent, (iii)
payment by such Purchasing Bank to such transferor Bank of an amount equal
to the purchase price agreed between such transferor Bank and such
Purchasing Bank, (iv) payment by the Purchasing Bank to the Agent of a
$3,000 processing fee, and (v) any consent of the Borrower required by the
first sentence of this Section 12.4(c), such Purchasing Bank shall for all
purposes be a Bank party to this Agreement and shall have all the rights
and obligations of a Bank under this Agreement to the same extent as if it
were an original party hereto and thereto with the percentage share of the
applicable Commitment(s) set forth in Schedule I to such Transfer
Supplement, and no further consent or action by the Borrower, any other
Credit Party, the Banks or the Agent shall be required. Such Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only
to the extent, necessary to reflect the addition of such Purchasing Bank
and the resulting adjustment of the percentage of the Commitments, Notes
and Loans (and related rights and obligations) held by the transferor Bank
and the Purchasing Bank arising from the purchase by such Purchasing Bank
of all or a portion of the rights and obligations of such transferor Bank
pursuant to the Transfer Supplement. Upon the consummation of any transfer
to a Purchasing Bank pursuant to this Section 12.4(c), the transferor Bank,
the Agent and the Borrower shall make appropriate arrangements so that (x)
a replacement Note is issued to such transferor Bank (if after giving
effect to such Transfer Supplement, the transferor Bank retains any Loans
or has a Revolving Credit Loan Commitment), and (y) a new Note (or, as
appropriate, a replacement Note) is issued to such Purchasing Bank, in each
case in principal amounts reflecting their Commitments or, as appropriate,
their outstanding Loans, as adjusted pursuant to such Transfer Supplement.
(d) Notwithstanding the foregoing provisions of Section 12.4(c),
the Bank of Scotland (without the prior written approval of the Borrower)
may not enter into a Transfer Supplement as a transferor Bank if, after
giving effect thereto, the percentage of Loans (or if no Loans are then
outstanding the percentage of Commitments) then held by the Bank of
Scotland and its Affiliates is less than 51%.
(e) Any consent required by the provisions of Section 12.4(c)
shall not be considered unreasonably withheld by the Borrower if such
consent is withheld because (i) the proposed Purchasing Bank is not a US
bank or a foreign bank with an office located in New York or in another
major financial center in the US or because it being a Bank would require
the Borrower to make payments pursuant to Section 5.2(a) hereof greater
than those payable by existing Banks, or (ii) if any Commercial Paper
issued by such Purchasing Bank is not rated A or A2 by Standard & Poors
("S&P") or Moody's Investors Service ("MOODYS"), or (iii) after giving
effect to such Transfer Supplement, the number of Banks would be more than
five. As used in this clause (e), "COMMERCIAL
-73-
<PAGE>
PAPER" shall mean short-term promissory notes due no later than 270 days from
the date of issuance of each such note.
(f) Notwithstanding anything to the contrary contained herein or
in any of the Loan Documents, unless the Agent, the Borrower or a Bank
otherwise request with respect to any specific exhibit, exhibits to this
Agreement shall not be required to be attached to the execution or any
other copy of this Agreement, and any references in this Agreement or the
other Loan Documents to such exhibits as "Exhibits hereto," "Exhibits to
this Agreement" or words of similar effect shall be deemed to refer to such
document as executed by the parties thereto and delivered on the Effective
Date.
12.5 NOTICES, REQUESTS, DEMANDS, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands or other communications to
or upon the respective parties hereto shall be deemed to have been duly
given or made when delivered if sent by Federal Express or other similar
overnight delivery service, or three Business Days after mailing (when
mailed, postage prepaid, by registered or certified mail, return receipt
requested) or (in the case of telex, telegraphic, telecopier or cable
notice) when delivered to the telex, telegraph, telecopier or cable
company, or (in the case of telex or telecopier notice sent over a telex or
telecopier owned or operated by a party hereto) when sent; in each case
addressed as follows, except that notices and communications to the Agent
pursuant to Sections 2 and 9 shall not be effective until received by the
Agent: (i) if to the Agent, at the Closing Office, (ii) if to a Bank, at
the address specified with its signature below or (if a Purchasing Bank) on
the applicable Transfer Supplement, and (iii) if to the Borrower, at its
address specified with its signature below (Attention: President), or to
such other addresses as any of the parties hereto may hereafter specify to
the others in writing, provided that communications with respect to a
change of address shall be deemed to be effective when actually received.
12.6 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY WITHIN THE STATE OF NEW
YORK (REGARDLESS OF THE PLACE WHERE THIS AGREEMENT IS EXECUTED), except (as
to any other Loan Document) to the extent specifically set forth otherwise
in that Loan Document.
12.7 COUNTERPARTS; TELECOPIES. This Agreement and the other Loan
Documents may be executed in any number of counterparts, and by the
different parties hereto and thereto on the same or separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original; all the counterparts for each such Loan Document shall together
constitute one and the same agreement. Telecopied signatures
-74-
<PAGE>
hereto and to the other Loan Documents shall be of the same force and effect
as an original of a manually signed copy.
12.8 WAIVER. No failure or delay on the part of the Agent, any Bank
or the Borrower in exercising any right, power or privilege under this
Agreement or any other Loan Document, and no course of dealing between the
Borrower or a Subsidiary and the Agent or any Bank shall operate as a
waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Agent or any Bank would otherwise have
pursuant to such documents or at law or equity. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver
of the right of the Agent or any Bank to any other or further action in any
circumstances without notice or demand.
12.9 RECOVERIES; PRO RATA SHARING.
(a) Any Recoveries (after deduction and payment of all expenses
and costs permitted by this Agreement, the Security Documents or applicable
law) shall be applied against the Loans held by the Banks until
satisfaction in full of all amounts due thereunder.
(b) The Banks agree among themselves that, with respect to all
sums received by the Banks applicable to the payment of the principal of or
interest on the Notes (except as otherwise provided in Section 3.4, 5.2 or
5.3), equitable adjustment will be made between the Banks so that, in
effect, all such sums shall be shared ratably by each of the Banks (in
accordance with the outstanding principal amount of their respective Loans)
whether received by voluntary payment, by realization upon security, by the
exercise of the right of set-off or banker's lien, by counterclaim or
cross-action or by the enforcement of any or all of the Notes or otherwise.
If any Bank receives any payment on its Notes of a sum or sums in excess of
its pro rata portion (except as otherwise provided in Section 3.4, 5.2 or
5.3), then such Bank receiving such excess payment shall purchase for cash
from the other Banks an interest in their Note or Notes in such amount as
shall result in a ratable participation by all of the Banks in the
aggregate unpaid amount of Notes then outstanding; PROVIDED, HOWEVER, that
if all or any portion of such excess payment is thereafter recovered by
such Bank, the purchase shall be rescinded and the purchase price restored
to the extent of such recovery, but without interest. The Borrower hereby
agrees that any Bank so purchasing a participation from another Bank
pursuant to this Section 12.9(b) may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of setoff)
with respect to
-75-
<PAGE>
such participation as fully as if such Bank were the direct creditor of the
Borrower in the amount of such participation.
12.10 JURISDICTION. THE BORROWER HEREBY AGREES THAT ANY LEGAL ACTION
OR PROCEEDING AGAINST IT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY
OF THE OTHER LOAN DOCUMENTS OR THE DOCUMENTS DELIVERED IN CONNECTION
HEREWITH OR THEREWITH MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS
THE AGENT OR ANY BANK MAY ELECT, and, by execution and delivery hereof, the
Borrower accepts and consents for itself and in respect to its property,
generally and unconditionally, the jurisdiction of the aforesaid courts and
agrees that such jurisdiction shall be exclusive, unless waived by the
Agent and the Required Banks in writing, with respect to any action or
proceeding brought by it against the Agent or any Bank and any questions
relating to usury. The Borrower agrees that Sections 5-1401 and 5-1402 of
the General Obligations Law of the State of New York shall apply to the
Loan Documents and waives any right to stay or to dismiss any action or
proceeding brought before said courts on the basis of FORUM NON
CONVENIENS. Borrower hereby irrevocably consents that all process served
or brought against it with respect to any such proceeding in any such court
in New York shall be effective and binding service in every respect if sent
by registered mail, or (if permitted by law) by Federal Express or other
similar overnight courier service, to the Borrower at its address set forth
alongside its signature below (or such other address as the Agent is
notified of in accordance with the provisions of Section 12.5). Nothing
herein shall affect the right of the Agent or the Banks to serve process in
any other manner permitted by law or shall limit the right of Agent or any
Bank to bring proceedings against the Borrower in the courts of any other
jurisdiction.
12.11 SEVERABILITY. If any provision of this Agreement shall be held
or deemed to be or shall, in fact, be illegal, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative or unenforceable
to any extent whatever.
12.12 RIGHT OF SET-OFF. In addition to any rights now or hereafter
granted under applicable law or otherwise and not by way of limitation of
any such rights, upon the occurrence of an Event of Default each of the
Banks is hereby authorized at any time or from time to time, without notice
to the Borrower or to any other Person, any such notice being hereby
expressly waived, to set-off and to appropriate and apply any and all
deposits (general or special, time or demand, provisional or final) and any
other indebtedness at any time held or owing by such Bank to or for the
credit or the account of the Borrower against and on account of the
obligations and liabilities of the Borrower now or hereafter existing under
any of the Loan Documents irrespective of whether or not any demand shall
have been made thereunder and
-76-
<PAGE>
although said obligations, liabilities or claims, or any of them, shall be
contingent or unmatured. The Bank or Banks exercising any rights granted
under this Section 12.12 shall thereafter notify the Borrower and the Agent
of such action; PROVIDED THAT the failure to give such notice shall not
affect the validity of such set-off and application.
12.13 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the Agent, the Banks, the Borrower and their respective
successors and assigns (except as otherwise expressly provided herein) and
nothing contained herein shall be deemed to confer upon anyone other than
the Borrower and its successors and assigns any right to insist on or to
enforce the performance or observance of any of the obligations contained
herein. All conditions to the obligations of the Banks to make Loans
hereunder are imposed solely and exclusively for the benefit of the Banks
and their respective successors and assigns and no other Person shall have
standing to require satisfaction of such conditions in accordance with
their terms and no other Person shall under any circumstances be deemed to
be beneficiary of such conditions.
12.14 EFFECTIVENESS. This Agreement shall become effective when and
as of the date (the "EFFECTIVE DATE") that all of the parties hereto shall
have signed a copy hereof (whether the same or different counterparts) and
shall have delivered the same to the Agent or, in the case of the Banks,
shall have given to the Agent written notice (actually received) that the
same has been signed and mailed to it, and all conditions set forth in
Section 6 shall have been fulfilled to the satisfaction of the Agent or
waived by the Agent.
12.15 SURVIVAL; INTEGRATION.
(a) Each of the representations, warranties, terms, covenants,
agreements and conditions contained in this Agreement shall specifically
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans and shall, unless otherwise expressly
provided, continue in full force and effect until the Commitments have been
terminated and the Loans together with interest thereon, the Commitment
commissions, the fees and compensation of the Agent, and all other sums
payable hereunder or thereunder have been indefeasibly paid in full.
(b) This Agreement, together with the other Loan Documents, the
Other Agreements and the Fee Letter, comprises the complete and integrated
agreement of the parties on the subject matter hereof and thereof and
supersedes the Letter Agreement and all other prior agreements, written or
oral, on the subject matter hereof and thereof. In the event of any direct
conflict between the provisions of this Agreement and those of any other
Loan Document, the provisions of this Agreement shall control and govern;
PROVIDED that the inclusion of supplemental rights or
-77-
<PAGE>
remedies in favor of the Agent or the Banks in any other Loan Document shall
not be deemed a conflict with this Agreement. Each Loan Document was drafted
with the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof. The reference to "Loan Documents" in the
first sentence of this clause (b) shall not include the Letter Agreement.
12.16 DOMICILE OF LOANS. Any Bank may make, maintain or transfer any
of its Loans hereunder to, or for the account of, any branch office,
subsidiary or affiliate of such Bank.
12.17 NO USURY. It is expressly stipulated and agreed to be the
intent of the Agent, the Banks and the Borrower to comply at all times with
applicable usury laws. If at any time such laws would ever render usurious
any amount called for under any of the Loan Documents, then it is the
express intention of the parties hereto that such excess amount be
immediately credited on the Notes, or if the Notes have been fully paid,
refunded by the Banks (pro rata in accordance with their respective
principal amount of the affected Loans), to the Borrower (and the Borrower
shall accept such refund) and the provisions hereof and thereof be
immediately deemed to be reformed to comply with the then applicable laws,
without the necessity of the execution of any further documents, but so as
to permit the recovery to the fullest amount otherwise called for hereunder
and thereunder. Any such crediting or refunding shall not cure or waive
any default by the Borrower under the Loan Documents. If at any time
following any such reduction to the interest rate payable by the Borrower
there remains unpaid any principal amounts under the Notes and the maximum
interest rate permitted by applicable law is increased or eliminated, then
the interest rate payable to the Banks shall be readjusted, to the full
extent permitted by applicable law, so that the total amount of interest
thereunder payable by the Borrower to the Banks shall be equal to the
amount of interest which would have been paid by the Borrower without
giving effect to applicable usury laws. The Borrower agrees, however, that
in determining whether or not any interest payable under the Notes or any
of the other Loan Documents exceeds the highest rate permitted by law, any
non-principal payment (except payments specifically stated in the Notes or
such other Loan Documents to be "interest"), including Commitment
commissions and other fees and commissions and all other sums payable
hereunder or thereunder or in connection herewith or therewith, shall be
deemed, to the full extent permitted by law, to be an expense, fee, premium
or penalty rather than interest.
12.18 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND EACH
BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN
-78-
<PAGE>
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF THE BORROWER, ANY SHAREHOLDER, ANY FORMER
SHAREHOLDER, ANY OTHER CREDIT PARTY, ANY SELLER, THE AGENT OR THE BANKS.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE BANKS ENTERING
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
12.19 CONSENTS.
(a) Bank of Scotland, individually and as Agent, hereby consents
to Borrower changing its name to Family Christian Stores, Inc. (the "NEW
NAME") PROVIDED THAT (i) Borrower delivers to the Agent within five
Business Days of such name change, a copy, certified by the Secretary of
State of Michigan, of the amendment to its Certificate of Incorporation
effecting such name change; (ii) such name change does not occur prior to
the day which is five Business Days after the Effective Date or after
September 15, 1998; (iii) on or prior to the day which is 30 days after
such name change, Borrower delivers to the Agent (A) acknowledgment copies
of (1) UCC-1 Financing Statements filed in each jurisdiction where any UCC-1
naming Borrower as Debtor or Lessee and the Agent or Bank of Scotland as
Secured Party or Lessor has been filed, which financing statements show,
for each such jurisdiction, the Borrower under its current name as Debtor
as well as (under additional financing statements) the Borrower under the
New Name as Debtor and (2) amendments on Form UCC-3, as filed, of each
existing UCC-1 Financing Statement showing the Borrower as Debtor or Lessee
and the Agent or Bank of Scotland as Secured Party or Lessor, which
amendments change the name of Borrower to the New Name; and each new
financing statement and amendment shall be satisfactory in form and
substance to the Agent; and (B) a certificate from a senior officer of
Borrower listing each jurisdiction in which the Borrower does business and
stating that the Borrower, under the New Name, has filed all required
documents in order for the Borrower to be qualified to do business under
the New Name in each such jurisdiction (it being agreed that the Agent may,
in its sole discretion, in writing extend any deadline set forth above).
[rest of page intentionally left blank]
-79-
<PAGE>
(b) The Agent hereby consents to the Borrower's execution of the
Amendment and Waiver to the Securities Purchase Agreement dated as of
July 16, 1998 in the form previously delivered to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written by their
respective duly authorized officers.
FAMILY BOOKSTORES COMPANY, INC.
5300 Patterson, S.E.
Grand Rapids, Mich. 49530
fax: 616/554-8608 By
---------------------------------
NAME:
TITLE:
BANK OF SCOTLAND,
individually and as Agent
565 Fifth Avenue
New York, New York 10017
fax: 212/557-9460 By
--------------------------------
NAME:
TITLE:
-80-
<PAGE>
ANNEX I
DEFINITIONS
As used in the Loan Agreement to which this Annex I is annexed, the
following terms shall have the meanings herein specified or as specified in
the Section of such Loan Agreement or in such other document herein
referenced:
"ACQUISITION" shall mean the acquisition by Borrower of certain assets
from Seller pursuant to the Acquisition Agreement.
"ACQUISITION AGREEMENT" shall mean the Asset Purchase Agreement dated
as of October 28, 1994 by and among Seller, Borrower and Harper relating to
the Acquisition, in the form delivered to the Agent pursuant to the
Existing Loan Agreement, as amended by (x) a one-page letter agreement
dated November 17, 1994 (solely dealing with Item 1 on Exhibit E to said
asset purchase agreement) and (y) a two-page letter agreement dated
November 4, 1994 as such agreement may from time to time be further
amended, restated, supplemented or otherwise modified with the written
consent of the Agent.
"ADJUSTED CAPITAL EXPENDITURES" shall mean the sum of (x) capital
expenditures (by Capitalized Lease Obligations or otherwise) for
acquisitions, construction or improvement of fixed assets, and (y) the
aggregate acquisition price for Stores and Similar Stores purchased,
leased, opened or otherwise acquired; PROVIDED THAT any amount not
considered an Adjusted Capital Expenditure pursuant to the proviso to
Section 8.15 shall not be considered an Adjusted Capital Expenditure and
amounts described in the table of expenditures in Section 8.15 shall be
considered Adjusted Capital Expenditures made in the applicable Fiscal
Year.
"ADVISORY AGREEMENT" shall mean the Advisory Agreement between the
Borrower and E-Inc dated as of November 14, 1994, as such agreement may
from time to time be amended, restated, supplemented or otherwise modified
with the written consent of the Agent.
"AFFECTED BANK" - Section 3.8
"AFFECTED LOANS" - Section 3.8
"AFFILIATE", as to any Person, shall mean any other Person directly or
indirectly controlling, controlled by or under common control with, such
Person.
"AGENT" - introductory paragraph.
<PAGE>
"AGREEMENT" or "LOAN AGREEMENT" shall mean this Amended and Restated
Loan Agreement as it may from time to time be amended, extended, restated,
supplemented or otherwise modified.
"ANDERSEN AGREEMENT" shall mean, individually and collectively,
(i) the Base Software License agreement dated May 9, 1994 between the
Seller and Andersen Consulting, and (ii) the Strategic Technology License
and Services Agreement dated May 9, 1994 between the Seller and Andersen
Consulting, in each case (w) as amended by a Modification Agreement dated
November 1, 1994, (x) as assumed by the Borrower pursuant to the
Acquisition, (y) as such agreement may from time to time be amended,
restated, supplemented or otherwise modified, and (z) any successor
agreement thereto submitted to the Agent for its review and not objected to
by the Agent within 30 days of its receipt thereof.
"ASSOCIATE", when used to indicate a relationship with a Person, shall
mean (i) another Person (other than the Borrower or a Subsidiary) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities,
(ii) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person or an immediate member of
his family serves as trustee or in a similar capacity, and (iii) any
relative or spouse of such Person or any relative of such spouse.
"AUDITED FINANCIALS" - Section 2.4(d)
"AUDITORS" shall mean Ernst & Young or other independent certified
public accountants of recognized standing selected by the Borrower and
satisfactory to the Agent.
"AVAILABLE EURODOLLAR INTEREST PERIOD" shall mean, subject to
availability, a period of 1, 3 or 6 months.
"BANK ASSIGNEE" - Section 12.4(a).
"BANKS" - introductory paragraph.
"BASE RATE" shall mean, for any day, the higher of (x) the fluctuating
interest rate per annum, in effect from time to time, established by the
Agent in New York as its base, prime or reference rate for U.S. domestic
commercial loans in Dollars, or (y) the Federal Funds Rate in effect on
such day plus 1/2%. Any change in the interest rate resulting from a
change in the Base Rate shall be effective as of the opening of business on
the day on which such change becomes effective; it is understood and agreed
that the aforesaid rates and the Base Rate are reference rates only and do
not necessarily represent the lowest or best rate actually charged to any
customer.
-2-
<PAGE>
"BASE RATE LOAN" shall mean a Loan during any period that it bears
interest by reference to the Base Rate.
"BASLE LAWS" - Section 3.4.
"BORROWER" - introductory paragraph.
"BORROWER'S LIEN" shall mean the security interest, junior to that of
the Banks, held by the Borrower in shares issued by the Borrower to Messrs.
J.H. Bailey, Butler, Dietzman, Klamer, Nielsen, Polzin and Cook as
collateral for the Shareholder Notes issued by each such individual.
"BORROWING BASE" shall mean, at any time, the product of (x) the
Factor and (y)an amount equal to the value of Eligible Inventory as
reflected on the books of the Borrower at such time, valued in accordance
with GAAP at the lower of cost or prevailing market price. As used herein,
the Factor means 0.75 or, from and after the date (if any) that the Total
Revolving Credit Loan Commitment is increased pursuant to Section 2.11,
0.60.
"BORROWING BASE CERTIFICATE" shall mean a certificate in the form of
Exhibit G to this Agreement, executed by a duly authorized officer of the
Borrower.
"BORROWING DATE" - Section 2.2.
"BOB STREIGHT GROUP AGREEMENT" shall mean the five year consulting
agreement with The Bob Streight Group on the terms approved by the Board of
Directors of the Borrower on July 10, 1998.
"BOS" shall mean Bank of Scotland, individually and not as a Bank or
as Agent.
"BOS LIEN" shall mean (if at the time existing) any Lien by BOS in
shares of the Borrower owned by a Principal Stockholder, which Lien may be
superior to that of the Agent and the Banks in such shares.
"BUSINESS DAY" shall mean any day excluding Saturday, Sunday and any
day on which banks in New York City are authorized by law or other
governmental action to close, and, when used in connection with LIBOR, a
Eurodollar Loan or Eurodollar Interest Period, means any such day on which
deposits in Dollars may be dealt on the London interbank market.
"BUY-BACK DEFAULT" shall mean a Default or Event of Default under any
of the following sections of the Agreement: 9.1, 9.3 (but only if in
respect of any of Sections 7.20, 8.21-8.27 or 8.30 or 8.31), 9.6, 9.7, 9.8,
9.10 and 9.13.
-3-
<PAGE>
"BUY-SELL AGREEMENT" shall mean that certain Buy and Sell Agreement
dated as of November 14, 1994 among the Borrower, the Subordinated Debt
Providers and shareholders of the Borrower as at said date, as in effect on
the Closing Date and thereafter from time to time amended, restated,
supplemented or otherwise modified with the written consent of the Agent.
"BUY-SELL AGREEMENT (OTHER") shall mean any "buy-sell" agreement
(other than the Buy-Sell Agreement) entered into by the Company and any of
its shareholders, as in effect on the Closing Date and thereafter from time
to time be amended, restated, supplemented or otherwise modified with the
written consent of the Agent.
"BUY-SELL LETTER" shall mean that letter agreement dated November 14,
1994 among the Borrower and the Subordinated Debt Providers with respect to
future transfers by the Subordinated Debt Providers of Equity Securities,
as such letter agreement may from time to time be amended, restated,
supplemented or otherwise modified with the written consent of the Agent.
"CAPITAL EXPENDITURE" shall mean any expenditure that in accordance
with GAAP is or should be accounted for as a capital expenditure on
Borrower's consolidated balance sheet or statement of cash flows
(including, without limitation each expenditure for the acquisition or
leasing (as a Capitalized Lease Obligation) of fixed or capital assets or
equipment or additions to equipment (including repacements, capitalized
repairs and improvements)or otherwise capitalized in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all rental obligations
which, under GAAP, are or would be required to be capitalized on the books
of a Person, in each case taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with such principles.
"CASH COLLATERAL AGREEMENT" - Section 6.5(i).
"CASH INTEREST EXPENSE" shall mean, in respect of any Person for any
period, as of any date of calculation, the total interest expense of such
Person and its Subsidiaries for such period determined in accordance with
GAAP, LESS the amount of such interest expense paid or payable other than
in cash.
"CEO", as to the Borrower, shall mean the Borrower's chief executive
officer.
"CFO", as to the Borrower, shall mean the Borrower's chief financial
officer or such other person designated by the Borrower's board of
directors to certify financial reports and statements on behalf of the
Borrower.
-4-
<PAGE>
"CHARTER DOCUMENT" shall mean, with respect to a corporation, its
certificate or articles of incorporation or association and its by-laws or
memoranda and articles of association.
"CLASS A STOCK" shall mean the class of Borrower's capital stock
designated as "Class A Common Stock" pursuant to Borrower's Certificate of
Incorporation as in effect on the Effective Date.
"CLASS B STOCK" shall mean the non-voting (except to the extent
otherwise required by the Michigan Business Corporation Act) class of
Borrower's capital stock designated as "Class B Common Stock" pursuant to
Borrower's Certificate of Incorporation as in effect on the Effective Date.
"CLOSING DATE" shall mean November 17, 1994.
"CLOSING OFFICE" shall mean the office of the Agent at 565 Fifth
Avenue, New York, New York or such other office as may be designated in
writing to the Borrower by the Agent.
"CLOSING OFFICE TIME" shall mean the local time in effect at the
Closing Office.
"CODE" shall mean the Internal Revenue Code of 1986, as the same may
be amended from time to time.
"COLLATERAL" - Section 10.15. Without limiting the generality of the
foregoing, the term "COLLATERAL" also includes all other real and personal
property and interests therein granted or purported to be granted as
security to the Agent on behalf of the Banks pursuant to any Security
Document, whether before, on or after the Closing Date or before, on or
after the Effective Date.
"COLLATERAL ASSIGNMENT OF ACCOUNT" shall mean the Cash Collateral
Agreement.
"COMMERCIAL PAPER" - Section 12.4(e).
"COMMITMENT" shall mean the Term Loan Commitment and the Revolving
Credit Loan Commitment.
"COMMITMENT PERIOD" shall mean the period from the Effective Date to
and including the Revolving Credit Maturity Date.
"CONSENT TO ASSIGNMENT" - as defined in Section 6.5(f) of the Existing
Loan Agreement.
"CONSOLIDATED GROUP" shall mean the Borrower and its consolidated
Subsidiaries (if any). If at the relevant date or for the relevant period
of computation the Borrower has no such
-5-
<PAGE>
Subsidiaries, the term "Consolidated Group" shall refer solely to the
Borrower.
"CONTROL" (including the terms "controlling," "controlled by" and
"under common control with") shall mean the possession, direct or indirect,
or the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities,
by contract, or otherwise.
"CRAIG" shall mean George Craig.
"CREDIT PARTIES" shall mean, individually and collectively, the
Borrower and each Subsidiary.
"CUMULATIVE NET INCOME" at any date shall mean the Net Income of the
Borrower for the Relevant Fiscal Period as determined by (A) adding
together the Borrower's Net Income (whether positive or negative) for each
Fiscal Year within the Relevant Fiscal Period and (B) subtracting from
such sum the following:
(x) the aggregate amount paid or payable by Borrower in respect
of all redemptions and repurchases of Warrants, repurchases of common
stock and dividends during the period commencing January 25, 1998 and
ending on the date that Cumulative Net Income is being calculated;
and (without duplication)
(y) the aggregate of any such redemptions, repurchases and
dividends declared or otherwise required to be paid during the then-
current Fiscal Year and the aggregate of any redemptions and
repurchases of Warrants which is or should be reasonably expected to
be made in such Fiscal Year.
"CURRENT ASSETS", as to any Person, shall mean the current assets of
such Person determined in accordance with GAAP.
"CURRENT LIABILITIES", as to any Person, shall mean the current
liabilities of such Person determined in accordance with GAAP.
"CURRENT RATIO" shall mean the ratio of (x) the consolidated Current
Assets of the Consolidated Group to (y) the consolidated Current
Liabilities of the Consolidated Group.
"DEFAULT" shall mean any event which with notice or lapse of time, or
both, would become an Event of Default.
"DEPOSIT AGREEMENT" shall mean the agreement between the Agent and the
Deposit Bank referred to in Section 6.5(h) of the Agreement, as such
agreement may from time to time be amended, restated, supplemented or
otherwise modified.
-6-
<PAGE>
"DEPOSIT LETTER" - Section 6.5(i).
"DEPOSIT BANK" shall mean National Bank of Detroit or such other bank
designated by Borrower and satisfactory to the Agent.
"DIETZMAN" shall mean Leslie E. Dietzman.
"DIETZMAN EMPLOYMENT AGREEMENT" - Section 6.12.
"DOLLARS", "U.S. $", "$" and "U.S. DOLLARS" shall mean the lawful
currency of the United States of America.
"EBIT" for any Person for any period shall mean the consolidated Net
Income of such Person for such period, before interest expense and
provision for taxes and without giving effect to any extraordinary gains or
losses (or gains or losses from sales of assets, other than sales of
inventory in the ordinary course of business), for such period (taken as
one accounting period).
"EBITDA" for any Person for any period shall mean the EBIT of such
Person for such period PLUS (to the extent deducted in computing EBIT for
such Person for such period) depreciation, amortization and other non-cash
items.
"EFFECTIVE DATE" - Section 12.14.
"E-ASSOCIATES" shall mean Electra Associates, Inc., a Delaware
corporation, its successors, nominees and permitted assigns and their
respective transferees permitted under the terms of the relevant agreement
to which such reference relates.
"E-INC" shall mean Electra, Inc., a Delaware corporation, its
successors, nominees and permitted assigns and their respective transferees
permitted under the terms of the relevant agreement to which such reference
relates.
"E-PLC" shall mean Electra Investment Trust P.L.C, an English
registered company, its successors, nominees and permitted assigns and
their respective transferees permitted under the terms of the relevant
agreement to which such reference relates.
"ELECTRA SHAREHOLDERS AGREEMENT" shall mean that certain stockholders
agreement dated as of November 14, 1994 among the Borrower, the Original
Shareholders, E-Associates and E-PLC, as such agreement may from time to
time be amended, restated, supplemented or otherwise modified with the
written consent of the Agent.
"ELIGIBLE INVENTORY" shall mean all inventory of the Borrower
comprised of finished goods offered for sale as to which
-7-
<PAGE>
the following requirements have been fulfilled to the satisfaction of the
Agent; (a) the Borrower has lawful and absolute title to such inventory; (b)
the Borrower has the full and unqualified right to assign and grant a
security interest in such inventory to the Banks a security for the Secured
Obligations (as defined in the Security Agreement); (c) all of such inventory
is subject to a fully perfected first security interest in favor of the Banks
pursuant to the Security Documents, prior to the rights of, and enforceable
as such against, any other Person; (d) none of such inventory is subject to
any security interest or other Lien in favor of any Person except for
Permitted Liens which are junior to the Liens of the Banks; (e) none of such
inventory is reflected in the Borrower's Reserve for Obsolescence (as defined
below), is damaged or is otherwise unfit for sale and all of such inventory
is in good resalable condition; (f) none of such inventory is located outside
the United States or in a jurisdiction (other than in respect of inventory in
transit) in which the Borrower is neither incorporated nor qualified to do
business as a foreign corporation; (g) none of the inventory has been shipped
to a customer(whether on a "sale or return" basis or otherwise) or is held at
the premises of a third party; (h) such inventory is covered by adequate
insurance, if any, in accordance with Section 7.4(a) of the Loan Agreement;
and (i) such inventory is not, or has not been determined by the Agent to be,
unmarketable or unacceptable for inclusion as Eligible Inventory. As used in
this definition, "Reserve for Obsolescence" means the reserve for
obsolescence as maintained by Borrower in accordance with GAAP, consistently
applied (and Borrower represents, warrants and covenants to the Agent and the
Banks that such reserve for obsolescence is and will be maintained on the
books of Borrower and reflected in the financial statements of Borrower in
accordance with GAAP, consistently applied).
"ENVIRONMENTAL LAWS" means all laws, common law, statutes, rules and
regulations, and all judgments, decrees, franchises, orders or permits,
issued, promulgated, approved or entered thereunder by any Government
Authority relating to pollution or protection of the environment or
occupational health and safety, including, without limitation, those
relating to emissions, discharges, releases or threatened releases of any
waste, pollutant, chemical, hazardous material, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such pollutant material,
substance or waste, into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any waste,
pollutant, chemical, hazardous material, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste.
-8-
<PAGE>
"EQUITY SECURITIES" shall mean shares, warrants or other equity
securities issued by Borrower. In any computation under any Loan Document
of the amount of Equity Securities outstanding, warrants and other equity
securities (other than shares) shall be counted as equal to the maximum
number of shares into which such securities may be converted or for which
they may be exercised (regardless of whether or not any conditions
precedent to such conversion or exercise have been met at the time);
PROVIDED, HOWEVER, that for purposes of any such computation, shares to be
issued pursuant to an Incentive Plan shall not be considered as issued (in
either the numerator or denominator of any such calculation) until actually
issued.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any Person which is from time to time a
member of a controlled group or a group under common control with the
Borrower within the meaning of Sections 414(b), 414(c), 414(m) or 414(o) of
the Code or Section 4001(a)(14) of ERISA.
"EURODOLLAR INTEREST DETERMINATION DATE" shall mean, with respect to
any Eurodollar Loans to be outstanding for any Eurodollar Interest Period,
the date as of which LIBOR is determined for such Eurodollar Loans, which
shall be two Business Days prior to the commencement of such Eurodollar
Interest Period.
"EURODOLLAR INTEREST PERIOD" shall mean, with respect to each
Eurodollar Loan, the interest period selected pursuant to Section 2.2 or
3.10 hereof.
"EURODOLLAR LOAN" shall mean a Loan during any period that it bears
interest determined by reference to LIBOR.
"EVENT OF DEFAULT" shall mean each of the Events of Default defined in
Section 9.
"EXCESS CASH FLOW" for any period shall mean the Net Income of the
Consolidated Group during such period PLUS (to the extent deducted in
computing Net Income for such period) depreciation, amortization and other
non-cash items, LESS (to the extent not deducted in computing Net Income
for such period) Adjusted Capital Expenditures permitted by section 8.15 of
the Agreement, to the extent such Adjusted Capital Expenditures were made
in cash during such period, LESS (to the extent not deducted in computing
Net Income for such period) the aggregate principal amount of Term Loans
repaid to the Banks during such period pursuant to Section 2.4(a) of the
Agreement.
-9-
<PAGE>
"EXISTING LOAN AGREEMENT" - First "WHEREAS clause" of the Agreement.
"EXTENSION REQUEST" - Section 2.10.
"FAIR MARKET VALUE", when used in connection with any valuation of the
Borrower's capital stock, shall mean (i) the closing price of a share (of
the same class) of such stock on the principal securities exchange on which
such shares are traded on the day immediately preceding the date as of
which Fair Market Value is being determined, or on the next preceding date
on which such shares were so traded if not traded on the immediately
preceding day; or (ii) if such shares are not traded on a securities
exchange but are traded on the NASDAQ National Market System ("NASDAQ-
NMS"), the last reported sale price per share (of the same class) on the
NASDAQ-NMS prior to that date; or (iii) if such shares shall not at the
time be listed on the NASDAQ-NMS, the average of the high bid and low asked
prices of such shares (of the same class) in the "over-the-counter" market
on the day immediately preceding the date as of which Fair Market Value is
being determined. If such shares are not publicly traded, Fair Market
Value shall mean the fair market value of such shares as determined by the
Board of Directors of the Borrower (or, with respect to shares issued
pursuant to an Incentive Plan, upon the repurchase or redemption thereof
or otherwise, the committee appointed by such Board to administer such
Incentive Plan). If the relevant Incentive Plan shall so provide,
computations of Fair Market Value with respect thereto may be made as of
the last day of the calendar quarter immediately preceding the relevant
issuance, repurchase, redemption or the like.
"FEDERAL FUNDS RATE" shall mean the rate of interest charged by banks
with excess reserves at a Federal Reserve district bank to banks needing
overnight loans to meet reserve requirements.
"FEE LETTER" shall mean the letter dated July 10, 1998 from the Agent
to the Borrower concerning fees payable relating to the Agreement.
"FINANCIAL COVENANTS" - shall mean, collectively, Sections 8.21, 8.22,
8.24, 8.25, 8.26, 8.27, 8.30 and 8.31.
"FINANCIAL STATEMENTS" shall mean, with respect to any Person, the
statement of financial position (balance sheet) and the statement of
earnings, cash flow, and stockholders' (or partners') equity of such
Person.
"FISCAL YEAR" shall mean the 52/53 week period of the borrower ending
on the last Sunday in January of each calendar year. "Fiscal Year"
followed by a year means the Fiscal Year with its Fiscal Year-End in such
calendar year.
-10-
<PAGE>
"FISCAL YEAR-END" shall mean, with respect to any Person, the last day
of such Person's Fiscal Year.
"FIXED CHARGE COVERAGE RATIO" shall mean, for the period in question,
in respect of any Person, the ratio for such Person and its Subsidiaries,
of (A) an amount equal to the sum (without duplication) of
(i) the consolidated Net Income of such Person and its
Subsidiaries for such period, exclusive of extraordinary gains and
losses for such period, PLUS
(ii) consolidated interest expense for such Person and its
Subsidiaries for such period, including the portion of any Capitalized
Lease Obligations allocable to such interest expense, PLUS
(iii) all taxes imposed by any Government Authority on the
income of such Person and its Subsidiaries that have accrued or are
otherwise due or payable in respect of such period, PLUS
(iv) all depreciation and amortization of such Person and
its Subsidiaries with respect to such period,
to (B) their Fixed Charges for such period.
"FIXED CHARGES" shall mean, in respect of any Person for any period,
as of any date of calculation, an amount equal to the sum (without
duplication) of
(i) all Cash Interest Expenses for such Person and its
Subsidiaries during such period (less amounts received by such Person
and its Subsidiaries as interest during such period), PLUS
(ii) the principal due on the Term Loans pursuant to
Section 2.4(a), PLUS
(iii) the principal due on all other Indebtedness for
Borrowed Money of such Person and its Subsidiaries during such period,
PLUS
(iv) all rents and other amounts allocable to principal that
accrue or have accrued during such period with respect to Capitalized
Lease Obligations of such Person and its Subsidiaries.
"FOUR-QUARTER PERIOD" shall mean a period of four consecutive fiscal
quarters, commencing with the four consecutive fiscal quarters ending on
April 30, 1998.
-11-
<PAGE>
"GAAP" shall mean generally accepted accounting principles (as
promulgated by the Financial Accounting Standards Board or any successor
entity).
"GAAP (ADJUSTED)" shall mean generally accepted accounting principles
as defined in Exhibit F to the Acquisition Agreement.
"GOODWILL" shall mean, with respect to the balance sheet of a Person
as at the date at which the amount thereof shall be determined, the
aggregate of all amounts appearing on the asset side of such balance sheet
for goodwill, patents, patent rights, trademarks, trade names, copyrights,
franchises, treasury stock, organizational expenses, and other similar
items, if any, all determined in accordance with GAAP.
"GOVERNMENT AUTHORITY" shall mean any nation or government, any state
or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTEE" shall mean by any Person, any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any
Indebtedness for Borrowed Money or other obligation of any other Person
and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness for Borrowed Money or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness
for Borrowed Money or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part),
provided that the term "Guarantee" shall not include endorsements for
collection or deposits in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"IFA" shall mean IFA Incorporated, an Illinois corporation.
"IFA ASSIGNMENT" shall mean the collateral assignment by IFA to BOS of
IFA's security interest in the equipment that is the subject of the IFA
Lease and any other security interests granted by Borrower to IFA as
security for the IFA Lease Obligations.
"IFA LEASE" shall mean the lease agreement between Seller and IFA
dated June 20, 1994 (as supplemented by supplements 1, 2 and 3 dated
September 9, 1994, September 30, 1994 and September 30, 1994,
respectively), as assumed by the Borrower on the Closing Date pursuant to
the Acquisition Agreement, as such lease
-12-
<PAGE>
agreement may from time to time be amended, restated, supplemented or
otherwise modified with the written consent of the Agent.
"IFA LEASE OBLIGATIONS" shall mean the obligations of the Borrower
under the IFA Lease.
"INCENTIVE PLAN" shall mean any management incentive, bonus or similar
plan or plans adopted by Borrower pursuant to which employees of the
Borrower or a Subsidiary may receive shares or other equity securities
issued by the Borrower; PROVIDED THAT (x) the aggregate number of shares
issued pursuant to all such plans never exceeds 8% of the outstanding
common stock of the Borrower (on a fully-diluted basis), and (y) no such
plan requires the Borrower or any Subsidiary of the Borrower to repurchase
or redeem any such shares (or any option or other right to acquire such
shares) (1) at a fixed price (if such price could ever be in excess of Fair
Market Value on the relevant computation date) or at a price greater than
the Fair Market Value of such shares as of the last calendar quarter
immediately preceding (A) an employee's termination of employment (if such
shares are being repurchased or redeemed because of the termination of said
employee's employment) or (B) the date that the Borrower receives written
notice from the holder of such shares (or from such person's estate, heirs
or personal representatives) of such person's desire to dispose of such
shares (if such shares are being repurchased or redeemed as a result of
such notice) or (2) if such purchase or redemption is prohibited by this
Agreement or would result in the occurrence of a Default or Event of
Default.
"INDEBTEDNESS FOR BORROWED MONEY" shall mean (without duplication) (i)
all indebtedness of (including, without limitation, all indebtedness
assumed by) a Person in respect of money borrowed (including, without
limitation, the unpaid amount of the purchase price of any property,
incurred for such purpose in lieu of borrowing money or using available
funds to pay said amount, and not constituting an account payable or
expense accrual incurred or assumed in the ordinary course of business), or
evidenced by a promissory note, bond, debenture or other like obligation to
pay money, and including indebtedness under banker's acceptances and with
respect to letters of credit, and (ii) all obligations of (including,
without limitation, all obligations assumed by) a Person (x) constituting a
Capitalized Lease Obligation of such Person, or (y) constituting a
Guarantee by such Person.
"INDEMNIFIED PARTY" - Section 12.3.
"INITIAL FINANCIALS" - Section 2.4(d)
-13-
<PAGE>
"INTEREST COVERAGE RATIO" as to any Person for any period, shall mean
(A) the EBITDA of such Person for such period, divided by (B) the amount by
which (i) interest on Indebtedness for Money Borrowed payable during such
period, exceeds (ii) amounts received by such Person as interest during
such period.
"IPM" - the Intellectual Property Mortgage made by Borrower to the
Agent dated as of October 31, 1994 and any agreement similar thereto.
"IPO" - an initial registered public offering by the Borrower of its
common stock.
"IRA ACCOUNTS" - as defined in the Existing Loan Agreement
"IRS" shall mean the Internal Revenue Service of the United States.
"JAMESTOWN TRUST" shall mean the trust created by the Jamestown Trust
Instrument, PROVIDED that such trust shall not be considered the "Jamestown
Trust" for purposes of Section 9.6 of the Agreement or for any other
purpose if George Craig and his two sons cease to be sole beneficiaries of
the trust.
"JAMESTOWN TRUST INSTRUMENT" shall mean the Declaration of Trust
dated December 24, 1996 made by Caledonian Bank & Trust Company Limited
("Caledonian"), as supplemented by Deeds of Appointment dated May 21, 1997
and June 5, 1997 made by Craig and Caledonian, in each case, as in effect
on the Effective Date (in the form previously delivered to the Agent), as
further amended, supplemented or otherwise modified with the written
consent of the Agent.
"JOSHUA'S ACQUISITION" shall mean the acquisition of certain assets by
the Borrower pursuant to the Joshua's Acquisition Agreement.
"JOSHUA'S ACQUISITION AGREEMENT" shall mean the Asset Purchase
Agreement dated as of April 19, 1998 between Borrower, The Development
Association, Inc. and Tandycrafts, Inc. in the form previously delivered to
the Agent.
"JOSHUA'S EXPENDITURES" shall mean the Adjusted Capital Expenditures
the Borrower incurred upon closing under the Joshua's Acquisition Agreement
in the amount of $16,300,000, comprised of $11,500,000 paid at such
closing, plus the present value of the Operating Lease Obligations (other
than Store Leases) assumed by the Borrower in connection with the Joshua's
Acquisition in the amount of $1,500,000, plus the monthly rent payable
under each Store Lease assumed in connection with the Joshua's Acquisition
(multiplied by twelve) in an amount equal to
-14-
<PAGE>
$2,300,000, plus $1,000,000 for costs of remodeling the Stores acquired
pursuant to the Joshua's Acquisition.
"JOSHUA'S NOTE" shall mean the unsecured Promissory Note in the
principal amount of $8,600,000 made by the Borrower to The Development
Association, Inc. as part of the purchase price paid by the Borrower in
June 1998 for the Joshua's Acquisition, payable in three installments of
$2,900,000 principal plus interest on December 31, 1998, $2,900,00
principal plus interest on December 31, 1999, and $2,800,000 principal plus
interest on December 31, 2000 (subject to early payment if the Company
completes an initial public offering).
"JOSHUA'S STORE SECURITY INTERESTS" shall mean collectively, each Lien
in favor of a landlord listed on Schedule B to Amendment No. 8 to the
Existing Loan Agreement granted to secure the Store Leases listed on
Appendix B to Amendment No. 8 to the Existing Loan Agreement, which Liens
attach only to certain equipment, fixtures and inventory located at the
respective location of such Store Lease.
"KEY PERSONS" shall mean Craig, Dietzman and Topham.
"LEGAL REQUIREMENTS" shall mean, with respect to any Person, all
laws, common law, statutes, rules and regulations of any Government
Authority to which such Person or any of its assets is subject or any
judgment, decree, franchise, order or permit of any Government Authority
applicable to such Person or any of its assets.
"LETTER AGREEMENT" shall mean the letter agreement dated May 13, 1998
between the Agent and the Borrower with respect to the matters contemplated
by this Agreement.
"LIBOR" shall mean, with respect to Eurodollar Loans for any
Eurodollar Interest Period therefor, (x) the per annum rate of interest at
which U.S. Dollar deposits are or would be offered to the Agent in the
London interbank market for such Eurodollar Interest Period at
approximately 11:00 A.M., London time two Business Days prior to the first
day of such Interest Period for delivery on the first day of such Interest
Period in an amount comparable to the Eurodollar Loan of the Agent (in its
capacity as a Bank) to be outstanding for such Eurodollar Interest Period
and, in the case of variation in rates, the arithmetic average thereof
rounded upwards if necessary to the nearest 1/16 of 1% calculated by the
Agent (and rounded upward to the nearest 1/100 of 1%)divided by (y) a
percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including without limitation any marginal, emergency,
supplemental, special or other reserves required by applicable law)
applicable to any member bank of the Federal Reserve System in the United
States in respect of Eurocurrency funding or liabilities.
-15-
<PAGE>
"LIEN" shall mean any assignment, mortgage, deed of trust, security
deed, pledge, security interest, encumbrance, lien or other charge of any
kind or any other agreement or arrangement having the effect of conferring
security (including any agreement to give any of the foregoing, any lease
in the nature thereof, and any conditional sale or other title retention
agreement), any lien arising by operation of law, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code
of any jurisdiction.
"LOAN(S)" shall mean, individually and collectively, each or all, as
the context may indicate, of the Term Loans and the Revolving Credit Loans.
"LOAN AGREEMENT" shall mean this Agreement as it may from time to time
be amended, extended, restated, supplemented or otherwise modified.
"LOAN DOCUMENTS" shall mean, individually and collectively, this
Agreement, the Existing Loan Agreement, the Notes, the Security Documents,
the Shareholder Notes, the Subordinated Note, the IFA Assignment, the
Letter Agreement, the Fee Letter and all other instruments and agreements
executed in connection herewith and therewith, in each case as amended,
restated, supplemented or otherwise modified from time to time. Without
limiting the generality of the foregoing, each amendment to (or
constituting part of) the Agreement or any other Loan Document and each
instrument and agreement (including, without limitation, waivers) executed
in connection with any Loan Document shall be deemed to be a Loan Document
for all purposes of the Agreement and the other Loan Documents.
"LOAN PARTY" means any member of the Consolidated Group.
"LONG-TERM DEBT" shall mean all Indebtedness for Borrowed Money,
regardless of stated maturity.
"LONG-TERM SECURED DEBT" shall mean Long-Term Debt the obligations
with respect to which are (x) secured by a Lien or Liens on any asset of
the Borrower, any Subsidiary of the Borrower or any third party or (y)
Guaranteed.
"MANAGEMENT LETTER" shall mean any correspondence or report submitted
by the Auditors to a Loan Party's chief executive officer, its Board of
Directors or any committee thereof containing comments and suggestions
concerning a Loan Party's accounting procedures and systems based upon the
work done by the Auditors during their annual or other audit.
"MATERIAL ADVERSE CHANGE" in respect of a Person shall mean a material
adverse change in (i) the business, properties, operations, prospects or
condition (financial or otherwise) of such
-16-
<PAGE>
Person or (ii) if such Person is the Borrower, the ability of the Borrower to
perform, or of the Agent to enforce, the Obligations.
"MATERIAL ADVERSE EFFECT" in respect of a Person shall mean an effect
that would result in a Material Adverse Change.
"MATERIAL AGREEMENT" shall mean all outstanding contracts, agreements,
leases and other understandings (other than (x) Store Leases and (y)
agreements for the purchase in the ordinary course of business of inventory
similar to that sold by the Stores on the Effective Date) to which Borrower
or a Subsidiary is a party, or by or under which either has any rights or
obligations, which (i) involve the payment to or by the Borrower or any
Subsidiary of an aggregate of $500,000 or more or (ii) is otherwise
material to the Borrower. Without limiting the foregoing, the Andersen
Agreement shall be considered a Material Agreement.
"MATERIAL AGREEMENT OBLIGATIONS" shall mean all obligations of a
Person, direct or indirect, contingent or otherwise, under any Material
Agreement involving the payment by the Borrower or any Subsidiary of an
aggregate of $500,000 or more (other than under the Retainer Agreement).
"MOODYS" - Section 12.4(e).
"MULTIEMPLOYER PLAN" shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA and to
which the Borrower or any ERISA Affiliate of the Borrower contributes or
has been obligated to contribute.
"NET INCOME" as to any Person for any period shall mean the
consolidated net income of such Person and its Subsidiaries for such period
determined in accordance with GAAP.
"NET PROCEEDS", as applied to the Transfer of assets referred to in
Sections 2.4(b) and 8.9 of the Agreement, shall mean all proceeds received
by the Borrower or any Subsidiary in connection with such Transfer after
deduction of all fees and expenses paid, or to be paid within the three
months following such Transfer, in connection with the transaction (other
than to Affiliates).
"NET REVENUES" shall mean, for the fiscal period in question and on a
consolidated basis, the aggregate revenues (net of returns and reserves for
losses) of the Consolidated Group (on an accrual basis) from the sale of
inventory in the ordinary course of business (it being understood that
amounts received for the sale of inventory in connection with the Transfer
of any store shall not be considered in the ordinary course of business).
"1997 EMPLOYEE STOCK PURCHASE PLAN" shall mean the Family Bookstores
Company, Inc., 1997 Employee Stock Purchase Plan in the
-17-
<PAGE>
form annexed as Appendix A to Amendment No. 7 to the Existing Loan Agreement.
"NON-TRADE FIXTURES" shall mean fixtures that are not Trade Fixtures.
"NOTE" shall mean either a Term Note or a Revolving Credit Note and
the term "NOTES" shall mean Term Notes and Revolving Credit Notes (or such
of the foregoing as are then outstanding).
"NOTICE OF BORROWING" shall mean a notice of borrowing substantially
in the form of Exhibit H-1 to the Agreement.
"NOTICE OF CONTINUATION" shall mean a notice of continuation
substantially in the form of Exhibit H-2 to the Agreement.
"OBLIGATIONS" shall mean (x) with respect to each Credit Party other
than the Borrower, all obligations of such Loan Party with respect to the
repayment or performance of any obligations (monetary or otherwise) of the
Borrower arising under or in connection with this Agreement, the Notes, the
IFA Lease and each other Loan Document, and (y) with respect to the
Borrower, all obligations of the Borrower with respect to the repayment or
performance of its obligations (monetary or otherwise) arising under or in
connection with this Agreement, the Notes, the IFA Lease and each other
Loan Document.
"OPERATING LEASE" shall mean the financing agreement(s) pursuant to
which Operating Lease Obligations are incurred.
"OPERATING LEASE OBLIGATIONS" shall mean and include all rental
obligations other than Capitalized Lease Obligations.
"ORIGINAL AMOUNT" - Section 2.4(d).
"OTHER AGREEMENTS" shall mean, individually and collectively, the
Subordinated Debt Agreements and the Warrant Agreements.
"OTHER LAWS" - Section 3.4.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA.
"PENSION PLAN" shall mean any employee pension benefit plan subject to
Title IV of ERISA and maintained by the Borrower or any ERISA Affiliate of
the Borrower or any such plan to which the Borrower or any ERISA Affiliate
is or has been required to contribute on behalf of any of its employees,
other than a Multiemployer Plan.
-18-
<PAGE>
"PERMITTED LIENS" shall mean the specific Liens listed on Schedule
8.2(f) to this Agreement (but not any that the Agent requires to be
terminated on or prior to the Effective Date).
"PERMITTED PERSONS" - as defined in the Existing Loan Agreement.
"PERSON" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, the
Consolidated Group, a trust, an unincorporated association, a joint venture
or other entity or a government or an agency or political subdivision
thereof.
"PLAN" shall mean any "employee benefit plan" (within the meaning of
Section 3(3) of ERISA) maintained by the Borrower or any ERISA Affiliate or
any such plan to which the Borrower or any ERISA Affiliate is or has been
required to contribute on behalf of any of its employees, other than a
Multiemployer Plan.
"POST-DEFAULT RATE" - Section 3.3.
"PRINCIPAL STOCKHOLDERS" shall mean, individually and collectively,
Messrs. George Craig, Leslie E. Dietzman and Neil Topham.
"PRO FORMA COMPLIANCE" at any date, with respect to any covenant or
financial ratio contained or referred to in the Agreement, shall mean that
the Borrower would have been in compliance with such covenant or ratio if
such compliance were determined as of the last day of the fiscal quarter
ended immediately preceding such date had the condition, event or payment
with respect to which such compliance is being ascertained occurred on the
last day of such most recently ended fiscal quarter.
"PURCHASING BANKS" - Section 12.4(c).
"PUT PRICE" shall mean the price payable by the Borrower to redeem or
repurchase Warrants (to the extent required by Section 13B of the
Securities Purchase Agreement and permitted by Section 8.17 of the Loan
Agreement).
"QUARTERLY CERTIFICATE" - Section 7.1(c).
"QUARTERLY PAYMENT DATE" shall mean the last Business Day of each
January, April, July and October.
"RECALCULATED AMOUNT" - Section 2.4(d)
"RECOVERIES" shall mean any funds, or substitution of receipts or
collateral, received by the Banks or the Agent (a) from the sale,
collection or other disposition of Collateral pursuant to the Security
Documents, or (b) from any distribution to any of the
-19-
<PAGE>
Banks or the Agent, or abandonment to any of them, or substitute Liens or
payment given to any of them pursuant to events or proceedings of the nature
referred to in Section 9.7 of the Agreement, or otherwise, which distribution
or abandonment pertains to the Collateral. "RECOVERIES" shall also mean the
proceeds of any life insurance policy referred to in Section 9.6.
"REDUCTION DATE" - Section 3.1.
"REFERENCED SECTIONS" means the sections of the Agreement referred to
in clauses (ii) and (iii) of the definition of "Type B Default" contained
in the Subordination Agreement (Electra).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement among the Borrower, E-PLC and E-Associates dated as of
November 14, 1994, in the form delivered to the Agent pursuant to the
Existing Loan Agreement, as such agreement may from time to time be
amended, restated, supplemented or otherwise modified.
"REGULATORY CHANGE" means, relative to any Bank or the Agent, any
change after July 1, 1994 in any (or the adoption after July 1, 1994 of any
new):
(a) United States Federal, state or local law or foreign law
applicable to the Agent or such Bank; or
(b) regulation, interpretation, directive, or request (whether
or not having the force of law) applying to the Agent or any Bank of
any Government Authority charged with the interpretation or
administration of any law referred to in clause (a) or of any fiscal,
monetary, central bank or other authority having jurisdiction over the
Agent or such Bank.
"RELEVANT FISCAL PERIOD" shall mean each Fiscal Year of the Borrower
commencing with the first Fiscal Year of the Borrower during which the Term
Loans are repaid in full and ending with the last full Fiscal Year ended
prior to the date that the calculations are being made.
"REPAYMENT DATE" - Section 2.4.
"REPORTABLE EVENT" shall mean a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder.
"REQUIRED BANKS" as of a particular date shall mean (a) if none of the
Loans shall be outstanding, Banks whose Commitments aggregate at least 51%
of the Total Revolving Credit Loan Commitment or (b) if any of the Loans
shall be outstanding, the holders of at least 51% of the sum of the
aggregate unpaid principal amount of all Loans at the particular time
outstanding, plus the Unutilized Revolving Credit Loan Commitment at such
time.
-20-
<PAGE>
"REQUISITE CONSENTS" - Section 6.11.
"RETAINER AGREEMENT" shall mean the Dietzman Employment Agreement.
"REVOLVING CREDIT LOAN" - Section 2.1(b).
"REVOLVING CREDIT LOAN COMMITMENT" shall mean, as to each Bank and for
the relevant period, the amount set forth (for the relevant period)
opposite its name on Schedule 2.1 hereto under the heading "Revolving
Credit Loan Commitment," as such amount may be modified by the provisions
of any Transfer Supplement from time to time entered into and as the same
may from time to time be reduced or terminated pursuant to Section 2.8,
Section 9 or any other section of the Agreement, or increased pursuant to
Section 2.11.
"REVOLVING CREDIT MATURITY DATE" shall mean May 31, 2004, as such date
may be extended pursuant to Section 2.10, or such earlier date as the
Revolving Credit Loan Commitments shall terminate in full as provided in
the Agreement.
"REVOLVING CREDIT NOTE" shall mean a promissory note of the Borrower
substantially in the form of Exhibit A-1 to this Agreement or otherwise
identified on the Effective Date as the Revolving Credit Note, as such note
may from time to time be amended, restated, replaced, supplemented or
otherwise modified.
"SALARY STATEMENT" - as defined in the Existing Loan Agreement.
"S&P" - Section 12.4(e).
"SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase
Agreement among the Borrower, E-PLC and E-Associates dated as of
November 14, 1994 in the form delivered to the Agent pursuant to the
Existing Loan Agreement, as such agreement has been amended by Amendment
Numbers 1-8 thereto (in the form of such amendments delivered to the Agent)
and as such agreement may from time to time be further amended, restated,
supplemented or otherwise modified with the written consent of the Agent.
"SECURITY AGREEMENT" - the Security Agreement dated October 31, 1994
between the Borrower and the Agent as from time to time amended, restated,
supplemented or otherwise modified.
"SECURITY DOCUMENTS" shall be the collective reference to (x) each of
the agreements referred to in Section 6 (including, without limitation,
Section 6.5) of the Agreement and/or in Section 6 (including, without
limitation, Section 6.5) of the Existing Loan Agreement pursuant to which
Collateral is or was intended to be granted, directly or indirectly, to the
Agent on behalf of the Banks, (y) each agreement entered into on or after
the Closing Date
-21-
<PAGE>
or on or after the Effective Date pursuant to which Collateral is intended to
be granted, directly or indirectly, to the Agent on behalf of the Banks, and
(z) all amendments, supplements or other modifications to such agreements or
replacements thereof. Notwithstanding the foregoing and without limiting the
generality thereof, the Security Agreement, each IPM, the Deposit Agreement,
the Consent to Assignment, the Deposit Letter, the Cash Collateral Agreement,
the Buy-Sell Letter and the Subordination Agreements shall be considered
Security Documents. However, as to a Credit Party or Shareholder, the term
"Security Document" shall not include any such document as to which such
Credit Party or Shareholder party thereto (or Electra, with respect to a
Substitute Pledge Agreement (as defined in the Existing Loan Agreement) to
the extent that it is a party thereto) is released from all its obligations
thereunder by the Agent or the Banks in accordance with the terms hereof or
thereof.
"SELLER" shall mean the Zondervan Corporation, a Michigan corporation.
"SELLERS" shall mean the Seller and HarperCollins Publishers, Inc., a
Delaware corporation.
"SHAREHOLDERS" as defined in the Existing Loan Agreement.
"SHAREHOLDER LOANS" shall mean certain loans by the Borrower to
certain of its shareholders.
"SHAREHOLDER NOTES" - as defined in the Existing Loan Agreement.
"SHAREHOLDERS AGREEMENT" or "SHAREHOLDER AGREEMENT" shall mean any
stockholders or similar agreement to which one or more shareholders of the
Borrower is party or among one or more such shareholders (any such
agreement, as amended, restated, supplemented or otherwise modified from
time to time, the "SHAREHOLDERS AGREEMENT"). Without limiting the
generality of the foregoing, the Buy-Sell Agreement, the Buy-Sell Agreement
(Other) and the Electra Shareholders Agreement are Shareholders Agreements.
"SIMILAR STORES" shall mean stores substantially similar to the Stores
(together with the inventory of such stores and any receivables that are
purchased).
"SOLVENT" shall mean, with respect to any Person, that the fair
saleable value of the property of such Person is, on the date of
determination, greater than the total amount of liabilities (including
contingent liabilities) of such Person as of such date and that, as of such
date, such Person is able to pay all Indebtedness for Borrowed Money of
such Person as such Indebtedness for Borrowed Money matures.
-22-
<PAGE>
"STORE LEASE" shall mean a lease by the Borrower or a Subsidiary for
occupancy of a Store.
"STORES" shall mean the approximately 276 retail stores owned by the
Borrower on the Effective Date plus any additional stores opened, purchased
or otherwise established from time to time by the Borrower or any of its
Subsidiaries.
"SUBORDINATED DEBT" shall mean the subordinated unsecured loans in the
aggregate principal amount of $5,000,000 which is outstanding to the
Subordinated Debt Provider immediately prior to the Effective Date.
"SUBORDINATED DEBT PROVIDER" shall mean, individually and
collectively, E-PLC and E-Associates and, in each case, any successor to
either or to any other Subordinated Debt Provider or any assignee of either
E-PLC or E-Associates or any other Subordinated Debt Provider.
"SUBORDINATION AGREEMENT (ELECTRA) - The Amended and Restated
Subordination Agreement referred to in Section 6.5(g).
"SUBORDINATION AGREEMENT (MANAGEMENT)" - Section 6.5(g).
"SUBORDINATION AGREEMENTS" shall mean, the Subordination Agreement
(Electra) and the Subordination Agreement(Management).
"SUBSIDIARY" of any Person shall mean any other firm, corporation,
partnership, trust or other unincorporated organization or association or
other enterprise, 50% or more of the indicia of equity rights (whether
capital stock or otherwise) of which is at the time owned, directly or
indirectly, by such Person and/or by one or more of such Person's
Subsidiaries. Unless otherwise indicated, references to Subsidiaries shall
refer to Subsidiaries (if any) of the Borrower.
"SUBSTITUTE LEASE" shall mean any Store Lease with respect to a Store
which is a new location for a Store which has closed if (x) such new
location is in the same or an adjacent neighborhood as the closed Store,
(y) such new location caters to essentially the same people who patronized
the closed Store, and (z) the Store opened at such new location no later
than 30 days after the closed Store closed.
"TANGIBLE ASSETS" of a Person shall mean, as at any date at which the
amount thereof shall be determined, all the assets of such Person LESS the
amount of any write-up in the book value of any assets resulting from the
revaluation thereof after November 1, 1994 or any write-up in excess of the
cost of assets acquired (other than a write-up made on the date of such
acquisition), LESS Goodwill.
-23-
<PAGE>
"TANGIBLE NET WORTH" of a Person shall mean, as at any date at which
the amount thereof shall be determined, the amount by which the total
shareholders' or partners' equity of such Person exceeds the sum of (x) the
amount of any write-up in the book value of any assets resulting from the
revaluation thereof after November 1, 1994, or any write-up in excess of
the cost of assets acquired (other than a write-up made on the date of such
acquisition), and (y) Goodwill.
"TAX" shall mean any present or future tax, levy, impost, duty or
other similar charge of whatever nature and whatever called by whomsoever
and wherever imposed, levied, collected, withheld or assessed.
"TERM LOAN" shall mean a Tranche A Term Loan or Tranche B Term Loan
(or both, as the context shall indicate), and "Term Loans" shall mean,
collectively, the Tranche A Term Loans and the Tranche B Term Loans.
"TERM LOAN COMMITMENT" shall mean the Tranche A Term Loan Commitment
and the Tranche B Term Loan Commitment.
"TERM LOAN MATURITY DATE" - May 31, 2004
"TERM NOTE" shall mean a Tranche A Term Note or a Tranche B Term Note
(or both, as the context shall indicate), and Term Notes means,
collectively, all Tranche A Term Notes and Tranche B Term Notes.
"TERMINATION EVENT" shall mean (i) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations), or (ii) the withdrawal of the Borrower or any of
its ERISA Affiliates from a Pension Plan during a plan year in which it was
a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or
(iii) the issuance of a notice of intent to terminate a Pension Plan or the
treatment of a Pension Plan amendment as a termination under Section 4041
of ERISA, or (iv) receipt by the Borrower or any ERISA Affiliate of notice
of the PBGC's intention to terminate any Pension Plan or to have a trustee
or the PBGC appointed to administer any Pension Plan or (v) any other event
or condition which might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any
Pension Plan.
"TOPHAM" shall mean Neil Topham.
"TOTAL REVOLVING CREDIT LOAN COMMITMENT" shall mean the sum of the
Revolving Credit Loan Commitments of all Banks.
-24-
<PAGE>
"TOTAL TRANCHE A TERM LOAN COMMITMENT" shall mean the sum of the
Tranche A Term Loan Commitment of all the Banks.
"TOTAL TRANCHE B TERM LOAN COMMITMENT" shall mean the sum of the
Tranche B Term Loan Commitments of all the Banks.
"TRADE FIXTURES" shall mean removable fixtures that are unique to the
operation of a Person's business.
"TRANCHE A TERM LOAN" - Section 2.1.
"TRANCHE A TERM LOAN COMMITMENT" shall mean, as to each Bank, the
principal amount of the Tranche A Term Note held by such Bank as may be
outstanding from time to time on or after the Effective Date.
"TRANCHE A TERM NOTE" shall mean a promissory note of the Borrower
substantially in the form of Exhibit A-2 to this Agreement or otherwise
identified on the Effective Date as the Tranche A Term Note, as such note
may from time to time be amended, restated, replaced, supplemented or
otherwise modified.
"TRANCHE B TERM LOAN" - Section 2.1
"TRANCHE B TERM LOAN COMMITMENT" shall mean, as to each Bank, the
amount set forth opposite its name on Schedule 2.1 hereto under the heading
"Tranche B Term Loan Commitment" or such lesser principal amount of the
Tranche B Term Note held by such Bank as may be outstanding from time to
time after the Effective Date.
"TRANCHE B TERM NOTE" shall mean a promissory note of the Borrower
substantially in the form of Exhibit A-3 to this Agreement or otherwise
identified on the Effective Date as the Tranche B Term Note, as such note
may from time to time be amended, restated, replaced, supplemented or
otherwise modified.
"TRANSFER" shall mean any sale, conveyance, lease or other disposition
(and "Transferred", "Transferring" and other variations thereof shall have
correlative meanings).
"TRANSFER SUPPLEMENT" - Section 12.4(c).
"TYPE B DEFAULT" shall have the meaning provided for such term in
the Subordination Agreement (Electra).
"UCC" - Section 10.15.
"UNITED STATES," "US" or "U.S." shall mean the United States of
America.
"UNUTILIZED REVOLVING CREDIT LOAN COMMITMENT" shall mean, as to
each Bank, the amount by which the Revolving Credit Loan Commitment
-25-
<PAGE>
of such Bank on any day exceeds the aggregate principal amount of Revolving
Credit Loans of such Bank then outstanding.
"WARRANT AGREEMENTS" shall mean the Securities Purchase Agreement,
the Warrants, the Warrant Notes and all documents, agreements and
instruments containing the terms and conditions applicable to, or
applicable to the issuance of, Warrants, as each such agreement may from
time to time be amended, restated, supplemented or otherwise modified
with the written consent of the Agent.
"WARRANT NOTE" shall mean any note issued by Borrower in lieu of
cash payment of any portion of the Put Price and any replacement or
substitute (in whole or in part) notes therefor, in each case as the
same may from time to time be amended, restated, supplemented or
otherwise modified with the written consent of the Agent.
"WARRANT PURCHASE AGREEMENT" shall mean the Securities Purchase
Agreement.
"WARRANTS" shall mean the share purchase warrants issued and to be
issued by the Borrower pursuant to the Securities Purchase Agreement and
any replacement or substitute (in whole or in part) warrants therefor.
"WRITTEN," "IN WRITING" and other variations thereof shall mean any
form of written communication or a communication by means of telex,
telecopier, telegraph or cable.
To the extent that any term defined in Annex I to the Existing Loan
Agreement has been deleted from this Annex I but is used (and is
otherwise undefined) in a Loan Document, said term will continue to have
the meaning provided for in said Annex I prior to its amendment on the
Effective Date (except that any defined terms within said definition
that remain defined in this Annex I shall have the meanings provided
therefor in this Annex I).
-26-
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED PROMISSORY NOTE
(Tranche A Term Note)
$9,500,000 New York, New York
November 17, 1994
FAMILY BOOKSTORES COMPANY, INC., a Michigan corporation (the
"BORROWER"), FOR VALUE RECEIVED, hereby promises to pay to the order of
BANK OF SCOTLAND (the "BANK"), at the office of BANK OF SCOTLAND (in such
capacity, the "AGENT") located at 565 Fifth Avenue, New York, New York
10017 (or at such other location as the Agent notifies the Borrower of in
writing), on May 31, 2004, the principal sum of $9,500,000, or, if less,
the unpaid principal amount of Tranche A Term Loans made to the Borrower by
the Bank under the Agreement, in lawful money of the United States of
America and in same day funds.
The Borrower promises also to pay interest on the unpaid principal
amount hereof outstanding from time to time in like money and like funds at
said office at a rate per annum equal to (subject to the provisions of the
next paragraph) 1% per annum in excess of the Base Rate, such rate per
annum to change on the effective date of each change in the Base Rate.
Such interest shall be payable on each Quarterly Payment Date, commencing
with the first such date to occur in calendar year 1995, upon any
prepayment in full hereof, upon maturity (by acceleration or otherwise)
and, after maturity, on demand. Interest shall be computed for the actual
number of days elapsed on the basis of a 360-day year.
The unpaid principal amount hereof outstanding from time to time (and
any overdue interest in respect thereof) shall bear interest for each day
on which an Event of Default exists at a rate per annum (after as well as
before judgment) equal to 2% in excess of the interest rate otherwise
applicable to such amount on such day.
This Note is one of the Tranche A Term Notes described in, and has
been issued pursuant to, an Amended and Restated Loan Agreement dated as of
October 31, 1994 among the Borrower, the Bank and the other financial
institutions from time to time party thereto, and the Agent (said
agreement, as amended, extended, supplemented, renewed, restated or
otherwise modified from time to time, the "AGREEMENT") and is entitled to
the benefits thereof and of the Security Documents. Upon the occurrence of
an Event of Default, the principal of, and accrued interest on, this Note
may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
This Note is subject to mandatory repayment and prepayment on the
dates and in the amounts provided for in Section 2.4 of the Agreement and
is subject to voluntary prepayment only in accordance with the terms set
forth in Sections 2.6 and 5.2(a) of the Agreement.
<PAGE>
The outstanding principal balance and accrued interest under this Note
at any time shall be determined as shown in records made in accordance with
manual, computerized, electronic or other record-keeping systems used from
time to time by the Bank or other holder of this Note (provided that such
systems accurately reflect the principal and interest of this Note and the
payments made hereunder).
Except to the extent required by law which cannot be waived, the
Borrower waives presentment, demand, protest or notice of any kind in
connection with this Note.
The Borrower agrees to pay to the holder hereof, on demand, all costs
and expenses (including legal fees) incurred in connection with the
enforcement and collection of this Note, including legal fees in bankruptcy
and judicial and non-judicial foreclosure proceedings.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY
WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THIS NOTE IS
EXECUTED).
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF THE BORROWER, ANY OTHER CREDIT PARTY, THE
AGENT, THE BANK, ANY OTHER BANK OR ANY OTHER HOLDER OF THIS NOTE. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK MAKING THE LOANS TO THE
BORROWER EVIDENCED BY THIS NOTE.
Terms used herein and not otherwise defined herein shall have the
meanings provided for such terms in the Agreement.
This Note amends and, as so amended, restates in its entirety the
Amended and Restated Promissory Note (Term Note) of even date herewith, in
the original principal amount of $12,000,000, executed by the Borrower in
favor of the Bank.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed and delivered as of the date first above written.
FAMILY BOOKSTORES COMPANY, INC.
5300 Patterson, S.E.
Grand Rapids, Mich. 49530 By /S/ CRAIG G. WASSENAAR
Title: Senior Vice President and Chief
Financial Officer
-2-
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
(Tranche B Term Note)
$5,000,000 New York, New York
July 17, 1998
FAMILY BOOKSTORES COMPANY, INC., a Michigan corporation (the
"BORROWER"), FOR VALUE RECEIVED, hereby promises to pay to the order of
BANK OF SCOTLAND (the "BANK"), at the office of BANK OF SCOTLAND (in such
capacity, the "AGENT") located at 565 Fifth Avenue, New York, New York
10017 (or at such other location as the Agent notifies the Borrower of in
writing), on May 31, 2004, the principal sum of $5,000,000, or, if less,
the unpaid principal amount of Tranche B Term Loans made to the Borrower by
the Bank under the Agreement, in lawful money of the United States of
America and in same day funds.
The Borrower promises also to pay interest on the unpaid principal
amount hereof outstanding from time to time in like money and like funds at
said office at a rate per annum equal to (subject to the provisions of the
next paragraph) 2% per annum in excess of the Base Rate, such rate per
annum to change on the effective date of each change in the Base Rate.
Such interest shall be payable on each Quarterly Payment Date, commencing
with July 31, 1998, upon any prepayment in full hereof, upon maturity (by
acceleration or otherwise) and, after maturity, on demand. Interest shall
be computed for the actual number of days elapsed on the basis of a 360-day
year.
The unpaid principal amount hereof outstanding from time to time (and
any overdue interest in respect thereof) shall bear interest for each day
on which an Event of Default exists at a rate per annum (after as well as
before judgment) equal to 2% in excess of the interest rate otherwise
applicable to such amount on such day.
This Note is one of the Tranche B Term Notes described in, and has
been issued pursuant to, an Amended and Restated Loan Agreement dated as of
October 31, 1994 among the Borrower, the Bank and the other financial
institutions from time to time party thereto, and the Agent (said
agreement, as amended, extended, supplemented, renewed, restated or
otherwise modified from time to time, the "AGREEMENT") and is entitled to
the benefits thereof and of the Security Documents. Upon the occurrence of
an Event of Default, the principal of, and accrued interest on, this Note
may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
This Note is subject to mandatory repayment and prepayment on the
dates and in the amounts provided for in Section 2.4 of the Agreement and
is subject to voluntary prepayment only in accordance with the terms set
forth in Sections 2.6 and 5.2(a) of the Agreement.
<PAGE>
The outstanding principal balance and accrued interest under this Note
at any time shall be determined as shown in records made in accordance with
manual, computerized, electronic or other record-keeping systems used from
time to time by the Bank or other holder of this Note (provided that such
systems accurately reflect the principal and interest of this Note and the
payments made hereunder).
Except to the extent required by law which cannot be waived, the
Borrower waives presentment, demand, protest or notice of any kind in
connection with this Note.
The Borrower agrees to pay to the holder hereof, on demand, all costs
and expenses (including legal fees) incurred in connection with the
enforcement and collection of this Note, including legal fees in bankruptcy
and judicial and non-judicial foreclosure proceedings.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY
WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THIS NOTE IS
EXECUTED).
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF THE BORROWER, ANY OTHER CREDIT PARTY, THE
AGENT, THE BANK, ANY OTHER BANK OR ANY OTHER HOLDER OF THIS NOTE. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK MAKING THE LOANS TO THE
BORROWER EVIDENCED BY THIS NOTE.
Terms used herein and not otherwise defined herein shall have the
meanings provided for such terms in the Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed and delivered as of the date first above written.
FAMILY BOOKSTORES COMPANY, INC.
5300 Patterson, S.E.
Grand Rapids, Mich. 49530 By /S/ CRAIG G. WASSENAAR
Title: Senior Vice President and Chief
Financial Officer
-2-
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED PROMISSORY NOTE
(Revolving Credit Note)
$25,000,000 New York, New York
November 17, 1994
FAMILY BOOKSTORES COMPANY, INC., a Michigan corporation (the
"BORROWER"), FOR VALUE RECEIVED, hereby promises to pay to the order of
BANK OF SCOTLAND (the "BANK"), at the office of BANK OF SCOTLAND (in such
capacity, the "AGENT") located at 565 Fifth Avenue, New York, New York
10017 (or at such other location as the Agent notifies the Borrower of in
writing), on May 31, 2004, or such later date, if any, to which the
Revolving Credit Maturity Date (as defined in the Agreement) is extended
pursuant to Section 2.10 of the Agreement, the principal sum of
$25,000,000, or, if less, the aggregate unpaid principal amount of all
Revolving Credit Loans made to the Borrower by the Bank under the
Agreement, in lawful money of the United States of America and in same day
funds.
The Borrower promises also to pay interest on the unpaid principal
amount hereof outstanding from time to time in like money and like funds at
said office at the rates and at the times determined in accordance with the
Agreement. Interest shall be computed for the actual number of days
elapsed on the basis of a 360-day year.
The unpaid principal amount hereof outstanding from time to time (and
any overdue interest in respect thereof) shall bear interest for each day
on which an Event of Default exists at a rate per annum (after as well as
before judgment) equal to 2% in excess of the interest rate otherwise
applicable to such amount on such day.
This Note is one of the Revolving Credit Notes described in, and has
been issued pursuant to, an Amended and Restated Loan Agreement dated as of
October 31, 1994 among the Borrower, the Bank and the other financial
institutions from time to time party thereto, and the Agent (said
agreement, as amended, extended, supplemented, renewed, restated or
otherwise modified from time to time, the "AGREEMENT") and is entitled to
the benefits thereof and of the Security Documents. Upon the occurrence of
an Event of Default, the principal of, and accrued interest on, this Note
may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
This Note is subject to mandatory prepayment upon the terms set forth
in Section 2.5 of the Agreement and is subject to voluntary prepayment only
in accordance with the terms set forth in Sections 2.7 and 5.2(a) of the
Agreement.
The outstanding principal balance and accrued interest under this Note
at any time shall be determined as shown in records made in accordance with
<PAGE>
manual, computerized, electronic or other record-keeping systems used from
time to time by the Bank or other holder of this Note (provided that such
systems accurately reflect the principal and interest of this Note and the
payments made hereunder).
This is a revolving note. Principal may be advanced, repaid and
readvanced, and this Note shall continue in force notwithstanding that the
principal balance may be reduced to zero from time to time.
Except to the extent required by law which cannot be waived, the
Borrower waives presentment, demand, protest or notice of any kind in
connection with this Note.
The Borrower agrees to pay to the holder hereof, on demand, all costs
and expenses (including legal fees) incurred in connection with the
enforcement and collection of this Note, including legal fees in bankruptcy
and judicial and non-judicial foreclosure proceedings.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY
WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THIS NOTE IS
EXECUTED).
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN), OR ACTIONS OF THE BORROWER, ANY OTHER CREDIT PARTY, THE
AGENT, THE BANK, ANY OTHER BANK OR ANY OTHER HOLDER OF THIS NOTE. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK MAKING THE LOANS TO THE
BORROWER EVIDENCED BY THIS NOTE.
Terms used herein which are not otherwise defined herein shall have
the meanings provided for such terms in the Agreement.
This Note amends and, as so amended, restates in its entirety the
Amended and Restated Promissory Note (Revolving Credit Note) of even date
herewith, in the original principal amount of $15,000,000, executed by the
Borrower in favor of the Bank.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed and delivered as of the date first above written.
FAMILY BOOKSTORES COMPANY, INC.
5300 Patterson, S.E.
Grand Rapids, Mich. 49530 By /S/ CRAIG G. WASSENAAR
Title: Senior Vice President and Chief
Financial Officer
-2-
<PAGE>
EXHIBIT 10.9
GENERAL SECURITY AGREEMENT
(Floating Lien)
SECURITY AGREEMENT, dated as of October 31, 1994, between FAMILY
BOOKSTORES COMPANY, INC., a corporation incorporated under the laws of
Michigan (the "DEBTOR"), and BANK OF SCOTLAND, as agent for the financial
institutions (the "BANKS") from time to time party to the Loan Agreement
referred to below (said agent, in such capacity, the "SECURED PARTY");
W I T N E S S E T H :
WHEREAS, the Debtor and the Secured Party are parties to a Loan
Agreement (herein, as at any time amended, extended, restated, renewed or
modified, the "LOAN AGREEMENT") dated as of the date hereof, pursuant to
which the Banks have agreed, subject to the terms and conditions set forth
therein, to extend loans to the Debtor in accordance with the terms
thereof; and
WHEREAS, it is a condition to the extension of credit by the
Banks pursuant to the Loan Agreement that the Debtor enter into this
Agreement and grant to the Secured Party the security interest provided for
herein;
NOW, THEREFORE, FOR VALUE RECEIVED, IT IS AGREED:
Section 1. TERMS. Unless otherwise defined herein, terms used
in this Agreement (including the schedules hereto) and defined in the Loan
Agreement shall have the meaning specified therefor in the Loan Agreement.
As used herein the following terms shall have the meanings specified and
shall include in the singular number the plural and in the plural number
the singular:
"ACCOUNTS" has the meaning specified therefor in clause (ii) of
the definition of Collateral.
"ASSIGNED AGREEMENTS" shall mean all contracts and agreements of
the Debtor, including, without limitation, the agreements described in
Schedule 3 annexed hereto.
"COLLATERAL" means all of the Debtor's right, title and interest
in and under or arising out of each and all of the following:
All personal property and fixtures of the Debtor of any type
or description, wherever located and now existing or hereafter
arising or acquired, including but not limited to the following:
<PAGE>
(i) all of the Debtor's goods including, without
limitation:
(a) all inventory, whether raw materials, in
process or finished, all material or
equipment usable in processing the same and
all documents of title covering any inventory
(all of the foregoing, "INVENTORY"),
including without limitation that located at
the locations listed on Schedule 1 annexed
hereto;
(b) all equipment (the "EQUIPMENT") employed in
connection with the Debtor's business,
together with all present and future
additions, attachments and accessions thereto
and all substitutions therefor and
replacements thereof, including without
limitation that located at the locations
listed on Schedule 1 annexed hereto;
(ii) all of the Debtor's present and future accounts,
accounts receivable, general intangibles,
contracts and contract rights (herein sometimes
referred to as "ACCOUNTS"), including but not
limited to the Debtor's rights (including rights
to payment) under all Assigned Agreements and all
other Accounts listed in Schedule 3 annexed hereto
(and any supplement thereto) and under all Patents
and Trademarks listed in Schedule 4 annexed hereto
(and any supplements thereto), together with
(a) all claims, rights, powers or privileges and
remedies of the Debtor relating thereto or
arising in connection therewith including,
without limitation, all rights of the Debtor
to make determinations, to exercise any
election (including, but not limited to,
election of remedies) or option or to give or
receive any notice, consent, waiver or
approval, together with full power and
authority to demand, receive, enforce,
collect or receipt for any of the foregoing
or any property which is the subject of the
Assigned Agreements, to enforce or execute
any checks, or other instruments or orders,
to file any claims and to take any action
which (in the opinion of the Secured Party)
-2-
<PAGE>
may be necessary or advisable in connection
with any of the foregoing,
(b) all liens, security, guaranties,
endorsements, warranties and indemnities and
all insurance and claims for insurance
relating thereto or arising in connection
therewith,
(c) all rights to property forming the subject
matter of the Accounts including, without
limitation, rights to stoppage in transit and
rights to returned or repossessed property,
(d) all writings relating thereto or arising in
connection therewith including without
limitation, all notes, contracts, security
agreements, guaranties, chattel paper and
other evidence of indebtedness or security,
all powers-of-attorney, all books, records,
ledger cards and invoices, all credit
information, reports or memorandums and all
evidence of filings or registrations relating
thereto,
(e) all inventions, processes, recipes,
production methods, proprietary information,
know-how and trade secrets used or useful in
the business of the Debtor, all copyrights,
all trade names, service marks, logos, and
the like owned or used by the Debtor and used
or useful in the business of the Debtor and
goodwill relating to the same; and all
licenses or other agreements granted to the
Debtor with respect to any of the foregoing,
in each case whether now or hereafter owned
or used, all information, customer lists,
identification of suppliers, data, plans,
blueprints, specifications, designs,
drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals,
materials standards, processing standards,
performance standards, catalogs, computer and
automatic machinery software and programs,
and the like pertaining to operations by the
Debtor in, on or about any of its plants or
warehouses, all field repair data, sales data
and other information relating to sales or
-3-
<PAGE>
service of products now or hereafter
manufactured on or about any of its plants,
and all accounting information pertaining to
operations in, on or about any of its plants,
and all media in which or on which any of the
information or knowledge or data is stored or
contained, and all computer programs used for
the compilation or printout of such
information, knowledge, records or data, and
(f) all accounts, contract rights, general
intangibles and other property rights of any
nature whatsoever arising out of or in
connection with the foregoing, including
without limitation, payments due and to
become due, whether as repayments,
reimbursements, contractual obligations,
indemnities, damages or otherwise;
(iii) all other personal property of the Debtor of any
nature whatsoever, including, without limitation,
all accounts, bank accounts, deposits, credit
balances, contract rights, inventory, general
intangibles, goods, equipment, instruments,
chattel paper, machinery, furniture, furnishings,
fixtures, tools, supplies, appliances, plans and
drawings, together with all customer and supplier
lists and records of the business, and all
property from time to time described in any
financing statement (UCC-1) signed by the Debtor
naming the Secured Party as secured party; and
(iv) all additions, accessions, replacements,
substitutions or improvements and all products and
proceeds including, without limitation, proceeds
of insurance, of any and all of the Collateral
described in clauses (i) through (iii) above.
"INSTRUMENT" shall have the meaning specified in Article 9 of the
Uniform Commercial Code, as in effect from time to time in the State of New
York.
"MATERIAL ASSIGNED AGREEMENTS" shall mean all Assigned Agreements
which are (x) material to the business, properties, operations, prospects
or condition (financial or otherwise) of the Debtor, or (y) Material
Agreements.
-4-
<PAGE>
"PATENTS" shall mean (i) all United States or other patents which
Debtor may from time to time possess or be otherwise entitled to use,
including without limitation those (if any) listed on Schedule 4 to this
Agreement and all licenses of United States or other patents which Debtor
may from time to time possess or be otherwise entitled to use, including
without limitation those (if any) listed on said Schedule 4 (together with
the patents described in Section 7(g) hereof), (ii) all re-issues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof, (iii) the right to sue for past, present and future infringements
of the foregoing, and (iv) all rights corresponding to all of the foregoing
throughout the world.
"PERMITTED LIENS" shall mean Liens permitted by Section 8.2 of
the Loan Agreement.
"SECURED OBLIGATIONS" means the principal of, and interest on,
the Loans and the Notes and all other obligations of the Debtor, now
existing or hereafter arising (including future advances) under this
Agreement, the Loan Agreement, the other Loan Documents and any other
agreement or instrument executed by Debtor in connection with any of the
foregoing.
"TRADEMARKS" shall mean (i) all United States or other trademarks
which Debtor may from time to time possess or be otherwise entitled to use,
including without limitation those (if any) listed on Schedule 4 to this
Agreement, together with the goodwill of the business connected with the
use of, and symbolized by, such trademarks (together with the trademarks
described in Section 7(g) hereof), (ii) all re-issues, divisions,
continuations, renewals, extensions and continuations-in-part thereof,
(iii) the right to sue for past, present and future infringements of the
foregoing, and (iv) all rights corresponding to all of the foregoing
throughout the world.
Section 2. SECURITY INTERESTS. As security for the payment and
performance of all Secured Obligations the Debtor does hereby grant and
assign to the Secured Party a continuing security interest in all of the
Collateral, whether now existing or hereafter arising or acquired and
wherever located.
Section 3. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Debtor represents, warrants and covenants, which representations,
warranties and covenants shall survive execution and delivery of this
Agreement (and shall survive until indefeasible payment in full of all of
Debtor's obligations under the Loan Agreement), as follows:
(a) This Agreement is made with full recourse to the Debtor and
pursuant to and upon all the warranties, representations, covenants, and
agreements on the part of the Debtor contained herein, in the Loan
-5-
<PAGE>
Agreement and otherwise made in writing in connection herewith or
therewith.
(b) Except for the security interest of the Secured Party
therein, the Debtor is, and as to Collateral acquired from time to time
after the date hereof the Debtor will be, the sole legal and beneficial
owner of all the Collateral free from any lien, security interest,
encumbrance or other right, title or interest of any Person (other than
Permitted Liens) and the Debtor shall defend the Collateral against all
claims and demands of all Persons at any time claiming the same or any
interest therein adverse to the Secured Party.
(c) There is no financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) now on file
or registered in any public office covering any interest of any kind in the
Collateral, or intended so to be, which has not been terminated or released
by the secured party named therein except for those listed on Schedule 2
hereto without an asterisk to indicate that such financing statement is to
be terminated or released on the Closing Date. So long as the Loan
Agreement remains in effect or any of the Secured Obligations of the Debtor
remain unpaid, the Debtor will not execute and there will not be on file in
any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or statements
relating to the Collateral, except financing statements filed or to be
filed in respect of and covering the security interest of the Secured Party
hereby granted and provided for and except with respect to Permitted Liens.
(d) The chief executive office and chief place of business of
the Debtor is located at the address of the Debtor listed on the signature
page hereof, and the Debtor will not move its chief executive office or
chief place of business except to such new location as the Debtor may
establish in accordance with the last sentence of this Section 3(d). The
originals of all Assigned Agreements and all documents (as well as all
duplicates thereof) evidencing all Accounts and all other contract rights
or accounts and other property of the Debtor and the only original books of
account and records of the Debtor relating thereto are, and will continue
to be, kept at such chief executive office or at such new location as the
Debtor may establish in accordance with the last sentence of this Section
3(d). The Debtor shall not establish any such new location for its chief
executive office or chief place of business until (i) it shall have given
to the Secured Party not less than 45 days' prior written notice of its
intention so to do, clearly describing such new location and providing such
other information in connection therewith as the Secured Party may
reasonably request, and (ii) with respect to such new location, it shall
have taken such action, satisfactory to the Secured Party (including,
without limitation, all action required by Section 8 hereof), to maintain
the security interest of the Secured Party in the Accounts intended to be
granted at all times fully perfected and in full force and effect.
-6-
<PAGE>
(e) Debtor has no Collateral located outside of the States
listed on Schedule 5 hereto. Debtor has no Inventory, Equipment or other
Collateral at any location except the location(s) listed on Schedule 1
hereto. For so long as Debtor owns its Inventory, Equipment and other
Collateral, Debtor will not move any such Collateral to, or place any such
Collateral at any other location except such new location(s) as the Debtor
may establish in accordance with the next sentence of this Section 3(e).
The Debtor shall establish no such new location until (i) it shall have
given to the Secured Party not less than 45 days' prior written notice of
its intention so to do, clearly describing such new location and providing
such other information in connection therewith as the Secured Party may
reasonably request, and (ii) with respect to such new location, it shall
have taken such action, satisfactory to the Secured Party (including,
without limitation, all action required by Section 8 hereof), to maintain
the security interest of the Secured Party in such Collateral at all times
fully perfected and in full force and effect. The notification required by
clause (i) of the preceding sentence may be contained in a periodic monthly
or quarterly report delivered to the Secured Party pursuant to Section 7.1
of the Loan Agreement if said report is delivered prior to the 45-day
period referred to in said clause (i).
(f) The name of the Debtor is as set forth on the signature page
hereto and the Debtor shall not change such name, conduct its business in
any other name or take title to the Collateral in any other name while this
Agreement remains in effect. The Debtor has never had any name, or
conducted business under any name in any jurisdiction, other than its name
set forth on the signature page hereto, during the past six years other
than as set forth in Schedule 2 annexed hereto and the assets of the Debtor
acquired in the Acquisition were not held (prior to their sale to Debtor)
by the Seller under any name other than as set forth on Schedule 2 hereto.
(g) At the Debtor's own expense, the Debtor will: (i) without
limiting the provisions of the Loan Agreement, keep the Collateral fully
insured at all times with financially sound and responsible insurance
carriers against loss or damage by fire and other risks, casualties and
contingencies and in such manner and to the same extent that like
properties are customarily so insured by other entities engaged in the same
or similar businesses similarly situated and keep adequate insurance at all
times against liability on account of damage to persons and properties and
under all applicable workmen's compensation laws, by insurers and in
amounts satisfactory to the Secured Party, for the benefit of the Debtor
and the Secured Party, (ii) upon request by the Secured Party, promptly
deliver the insurance policies or certificates thereof to the Secured
Party, and (iii) keep the Collateral in good condition at all times (normal
wear and tear excepted) and maintain same in accordance with all
manufacturer's specifications and requirements. Upon any failure of the
Debtor to comply with its obligations pursuant to this Section 3(g), the
Secured Party may at its option, and without affecting any of its other
-7-
<PAGE>
rights or remedies provided herein or as a secured party under the Uniform
Commercial Code, procure the insurance protection it deems necessary and/or
cause repairs or modifications to be made to the Collateral and the cost of
either or both of which shall be a lien against the Collateral added to the
amount of the indebtedness secured hereby and payable on demand with
interest at a rate per annum equal to the Post-Default Rate in effect from
time to time.
(h) The Debtor hereby assigns to the Secured Party all of
Debtor's right, title and interest in and to any and all moneys which may
become due and payable with respect to the Collateral under any policy
insuring the Collateral, including return of unearned premium. Debtor
hereby (unless the Secured Party otherwise consents in writing or as
otherwise provided in the Loan Agreement), to the extent that (x) the
proceeds of such insurance are in excess of $100,000 or (y) if less than
$100,000, Debtor does not use any such money to replace, repair or restore
the Collateral, or (z) a Default or Event of Default exists, directs any
such insurance company to make payment directly to the Secured Party; and
authorizes the Secured Party to apply such moneys in payment on account of
the indebtedness secured hereby, whether or not due, or toward replacement
of the Collateral and to remit any surplus to the Debtor subject however to
the terms of the Loan Agreement.
(i) The Debtor will not use the Collateral in violation of any
statute or ordinance or applicable insurance policy and will promptly pay
all taxes and assessments levied against the Collateral.
(j) Except as may otherwise be permitted by Sections 8.9 and
8.15 of the Loan Agreement, the Debtor will not sell, transfer, change the
registration, if any, dispose of, attempt to dispose of, substantially
modify or abandon the Collateral or any material part thereof (except for
sales of inventory in the ordinary course of business and except as
otherwise permitted pursuant to Section 5(c) of this Agreement), without
the prior written consent of the Secured Party, provided that the Debtor
may sell or otherwise dispose of obsolete or worn out Collateral no longer
used or useful in its business if the Debtor shall, in the case of
Collateral necessary for the conduct of the business of the Debtor, first
or substantially simultaneously replace the same with new property of
substantially equal value which shall forthwith become subject to the
security interest provided for herein.
(k) The Debtor will not assert against the Secured Party any
claim or defense which the Debtor may have against any seller of the
Collateral or any part thereof or against any other Person with respect to
the Collateral or any part thereof.
(l) The Debtor will indemnify and hold the Secured Party
harmless from and against any loss, liability, damage, costs and expenses
-8-
<PAGE>
whatsoever arising from the Debtor's use, operation, ownership or
possession of the Collateral or any part thereof.
(m) The Debtor will maintain the confidentiality of all customer
lists and not sell or otherwise dispose of such lists except that the
Debtor shall deliver copies thereof to the Secured Party upon its request,
which may be made at any time and from time to time after an Event of
Default.
(n) The Debtor will not enter into any agreement that is
inconsistent with the Debtor's obligations under this Agreement, without
the prior written consent of the Secured Party.
(o) Upon the occurrence of an Event of Default and at any time
thereafter, (x) the Secured Party may (insofar as the Debtor can give
authority therefor) enter upon any premises on which the Collateral or any
part thereof is located and remove such Collateral from such premises, and
(y) at its own expense, Debtor shall (upon request of the Secured Party)
assemble the Collateral (or such portion thereof as is covered by such
request) and make it available to the Secured Party at a place designated
by the Secured Party.
Section 4. SPECIAL PROVISIONS CONCERNING ASSIGNED AGREEMENTS.
The Debtor represents, warrants and agrees as follows:
(a) The Assigned Agreements constitute the legal, valid and
binding obligations of the Debtor and, to the best of its knowledge, the
other parties thereto, enforceable in accordance with their respective
terms subject, as to enforceability, to applicable bankruptcy, insolvency,
reorganization and similar laws affecting the enforcement of creditors'
rights generally and to general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law) or by
an implied covenant of good faith and fair dealing.
(b) The Debtor will faithfully abide by, perform and discharge
each and every obligation, covenant and agreement to be performed by the
Debtor under the Assigned Agreements.
(c) At the request of the Secured Party, and at the sole cost
and expense of the Debtor, the Debtor will enforce or secure the
performance of each and every obligation, covenant, condition and agreement
contained in the Material Assigned Agreements to be performed by the other
parties thereto.
(d) The Debtor will not modify, amend or agree to vary any of
the Material Assigned Agreements in any material respect or otherwise act
or fail to act in a manner likely (directly or indirectly) to entitle any
party thereto to claim that the Debtor is in default under the terms
thereof.
-9-
<PAGE>
(e) The Debtor will not terminate or permit the termination of
any Material Assigned Agreement, except in accordance with its terms.
(f) Without the prior written consent of the Secured Party, the
Debtor will not waive or in any manner release or discharge any party to
any Material Assigned Agreement from any of the material obligations,
covenants, conditions and agreements to be performed by it under such
Assigned Agreement including, without limitation, the obligation to make
all payments in the manner and at the time and places specified.
(g) If a Default or Event of Default exists and the Secured
Party so requests, the Debtor will hold any payments received by it which
are assigned and set over to the Secured Party by this Agreement for and on
behalf of the Secured Party and, in accordance with the Loan Agreement,
turn them promptly over to the Secured Party forthwith in the same form in
which they are received for application in accordance with the terms and
conditions of this Agreement and the Loan Agreement.
(h) The Debtor will appear in and defend every action or
proceeding arising under, growing out of or in any manner connected with
the Assigned Agreements or the obligations, duties or liabilities of the
Debtor and any assignee thereunder.
(i) Should the Debtor fail to make any payment or to do any act
as herein provided, the Secured Party may (but without obligation on the
Secured Party's part to do so and without notice to or demand on the Debtor
and without releasing the Debtor from any obligation hereunder) make or do
the same in such manner and to such extent as the Secured Party may deem
necessary to protect the security interests provided hereby, including
specifically, without limiting the general powers, the right to appear in
and defend any action or proceeding purporting to affect the security
interests provided hereby and the Debtor, and the Secured Party may also
perform and discharge each and every obligation, covenant and agreement of
the Debtor contained in any Assigned Agreement and, in exercising any such
powers, pay necessary costs and expenses, employ counsel and incur and pay
reasonable attorneys' fees.
(j) Upon the request of the Secured Party, the Debtor will send
to the Secured Party copies of all notices, documents and other papers
furnished or received by it with respect to any of the Assigned Agreements.
Section 5. SPECIAL PROVISIONS CONCERNING ACCOUNTS. (a) As of
the time when each Account arises, the Debtor shall be deemed to have
warranted as to each such Account that such Account and all papers and
documents relating thereto are genuine and in all respects what they
purport to be, and that all papers and documents relating thereto:
-10-
<PAGE>
(i) will be signed by the account debtor named therein (or
such account debtor's duly authorized agent) or is otherwise
binding on the account debtor;
(ii) will represent the genuine, legal, valid and binding
obligation of the account debtor evidencing indebtedness unpaid
and owed by such account debtor arising out of the performance of
labor or services or the sale and delivery of merchandise or
both;
(iii) to the extent evidenced by writings, will be the only
original writings evidencing and embodying such obligation of the
account debtor named therein;
(iv) will evidence true and undisputed obligations
enforceable in accordance with their respective terms and not
subject to the fulfillment of any contract or condition
whatsoever or to any defenses, set-offs or counterclaims, or
stamp or other taxes; and
(v) will be in compliance and will conform with all
applicable federal, state and local laws (including applicable
usury laws) and applicable laws of any relevant foreign
jurisdiction.
The provisions of this Section 5(a) shall only apply to Accounts where the
aggregate amount of such Accounts, payable to any Person or group of
related Persons, exceeds $100,000 in the aggregate.
(b) The Debtor will keep and maintain at the Debtor's own cost
and expense satisfactory and complete records of the Accounts, including,
but not limited to, records of all payments received, all credits granted
thereon, all merchandise returned and all other dealings therewith, and the
Debtor will make the same available to the Secured Party, at the Debtor's
own cost and expense, at any and all reasonable times upon demand of the
Secured Party. The Debtor shall, at the Debtor's own cost and expense,
deliver the Accounts (including, without limitation, all documents
evidencing the Accounts) and such books and records to the Secured Party or
to its representatives upon its demand at any time after the occurrence of
an Event of Default which is continuing. If the Secured Party shall so
request, the Debtor shall legend, in form and manner satisfactory to the
Secured Party, the Accounts and other books, records and documents of the
Debtor evidencing or pertaining to the Accounts with an appropriate
reference to the fact that the Accounts have been assigned to the Secured
Party and that the Secured Party has a security interest therein.
(c) Except in the ordinary course of business prior to an Event
of Default which is continuing, the Debtor will not rescind or cancel any
-11-
<PAGE>
indebtedness evidenced by any Account or modify any term thereof or make
any adjustment with respect thereto, or extend or renew the same, or
compromise or settle any dispute, claim, suit or legal proceeding relating
thereto, or sell any Account or interest therein, without the prior written
consent of the Secured Party, except that the Debtor may grant discounts of
up to 5% in connection with the prepayment of any Account.
(d) The Debtor will duly fulfill in all material respects all
obligations on its part to be fulfilled under or in connection with the
Accounts and will do nothing to impair the rights of the Secured Party in
the Accounts.
(e) The Debtor shall endeavor to collect or cause to be
collected from the account debtor named in each Account, as and when due
(including, without limitation, Accounts which are delinquent, such
Accounts to be collected in accordance with generally accepted lawful
collection procedures) any and all amounts owing under or on account of
such Account, and apply forthwith (on a daily basis) upon receipt thereof
all such amounts as are so collected to the outstanding balance of such
Account. The costs and expenses (including attorney's fees) of collection,
whether incurred by the Debtor or the Secured Party, shall be borne by the
Debtor.
(f) If any of the Accounts becomes evidenced by an Instrument
(as herein defined), the Debtor will notify the Secured Party thereof, and
upon request by the Secured Party promptly deliver such Instrument to the
Secured Party appropriately endorsed to the order of the Secured Party as
further security for the satisfaction in full of the Secured Obligations.
(g) If an Event of Default shall have occurred and be
continuing, upon request of the Secured Party the Debtor shall promptly
notify (in manner, form and substance satisfactory to the Secured Party)
all Persons who are at any time obligated under any Account that the
Secured Party possesses a security interest in such Account and that all
payments in respect thereof are to be made to such account as the Secured
Party directs.
Section 6. SPECIAL PROVISIONS CONCERNING EQUIPMENT. The Debtor
will do nothing to impair the rights of the Secured Party in the Equipment.
The Debtor shall cause the Equipment (to the extent same is a Trade
Fixture) to at all times constitute and remain personal property. The
Debtor will at all times keep all Equipment insured in favor of the Secured
Party, at the expense of the Debtor, in accordance with the Loan Agreement.
If the Debtor shall fail to insure the Equipment to the Secured Party's
satisfaction, or if the Debtor shall fail to so endorse and deposit all
policies or certificates with respect thereto, the Secured Party shall have
the right (but shall be under no obligation) to procure such insurance and
the Debtor agrees to reimburse the Secured Party for all costs and expenses
-12-
<PAGE>
of procuring such insurance, together with interest at a rate per annum
equal to the Post-Default Rate from time to time in effect. Subject to the
terms of the Loan Agreement, the Secured Party may apply any proceeds of
such insurance when received by it toward the payment of any of the Secured
Obligations, whether or not the same shall then be due; PROVIDED THAT such
proceeds shall not be applied to the Secured Obligations, and shall instead
be remitted by the Secured Party to the Debtor, if (x) at the time such
proceeds are received by the Secured Party, no Default or Event of Default
exists and (y) the amount of such insurance proceeds is less than $100,000.
The Debtor retains all liability and responsibility in connection with the
Equipment and the liability of the Debtor to pay the Secured Obligations
shall in no way be affected or diminished by reason of the fact that such
Equipment may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to the Debtor.
Section 7. SPECIAL PROVISIONS CONCERNING TRADEMARKS AND PATENTS.
(a) The Debtor (either itself or through licensees) will, for each
Trademark, (i) to the extent consistent with past practice, continue to use
such Trademark on each and every trademark class of goods applicable to its
current line as reflected in its current catalogs, brochures and price
lists in order to maintain such Trademark in full force free from any claim
of abandonment for non-use, (ii) maintain as in the past the quality of
products and services offered under such Trademark, (iii) employ such
Trademark with the appropriate notice of application or registration, (iv)
not use such Trademark except for the uses for which registration or
application for registration of such Trademark has been made, and (v) not
(and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby any Trademark material to the conduct
of Debtor's business may become invalidated.
(b) The Debtor (either itself or through licensees) will, for
each Patent, not do any act, or omit to do any act, whereby any Patent
which is material to the conduct of the Debtor's business may become
abandoned or dedicated.
(c) The Debtor shall notify the Secured Party promptly (and in
any event within 30 days) if it knows or has reason to know that any
application or registration relating to any Patent or Trademark which is
material to the conduct of the Debtor's business may become abandoned or
dedicated, or of any adverse determination or development (including,
without limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark
Office or any court) regarding the Debtor's ownership of any Patent or
Trademark which is material to the Debtor's business, its right to register
the same, or to keep and maintain the same. Notifications required by this
Section 7(c), or by Section 7(d) or 7(g), may be contained in a periodic
monthly or quarterly report delivered to the Secured Party pursuant to
-13-
<PAGE>
Section 7.1 of the Loan Agreement if said report is delivered within the
30-day period mentioned in said Section 7(c), 7(d) or 7(g), as the case may
be.
(d) In no event shall the Debtor, either itself or through any
agent, employee, licensee or designee, file an application for the
registration of any Patent or Trademark with the United States Patent and
Trademark Office or any similar office or agency in any other country or
any political subdivision thereof, unless it promptly (and in any event
within 30 days) informs the Secured Party, and, upon request of the Secured
Party, executes and delivers any and all agreements, instruments,
documents, and papers as the Secured Party may request to evidence the
Secured Party's security interest in such Patent or Trademark and the
goodwill and general intangibles of the Debtor relating thereto or
represented thereby, and the Debtor hereby constitutes the Secured Party
its attorney-in-fact upon the occurrence and during the continuance of an
Event of Default to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed;
such power, being coupled with an interest, is irrevocable until the
Secured Obligations are paid in full.
(e) The Debtor will take all necessary steps that are consistent
with good business practices in any proceeding before the United States
Patent and Trademark Office or any similar office or agency in any other
country or any political subdivision thereof, to maintain and pursue each
application relating to the Patents and Trademarks (and to obtain the
relevant registration) and to maintain each registration of each of the
Patents and Trademarks which is material to the conduct of the Debtor's
business, including, without limitation, filing of applications for
renewal, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings.
(f) In the event that any Collateral consisting of a Patent or
Trademark is infringed, misappropriated or diluted by a third party, the
Debtor shall notify the Secured Party within (30) days after it learns
thereof and shall, if consistent with good business practice, promptly sue
for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and take such
other actions as are appropriate under the circumstances to protect such
Collateral consisting of a Patent or Trademark.
(g) If, before the Secured Obligations have been satisfied in
full, the Debtor obtains rights to any new trademark or patentable
invention, or becomes entitled to the benefit of any trademark or patent
application or patent for any reissue, division, continuation, renewal,
extension, or continuation-in-part of any Patent, or any improvement on any
Patent, or any trade name, service mark, copyright, permit or license, the
provisions of Section 2 shall automatically apply thereto and the Debtor
-14-
<PAGE>
shall promptly (and in any event within 30 days) give the Secured Party
notice thereof in writing. The Debtor authorizes the Secured Party to
modify this Agreement by amending Schedule 4 to include any future patents
and trademarks and patent and trademark applications that are included in
Collateral.
(h) The Debtor shall have the duty, through counsel acceptable
to the Secured Party, to prosecute diligently any patent or trademark
application pending as of the date of this Agreement or thereafter until
the Secured Obligations have been paid in full, to make application on
unpatented but patentable inventions and to preserve and maintain all
rights in patent and trademark applications; PROVIDED, HOWEVER, that the
Debtor shall have no obligation to make application on any unpatented but
patentable inventions if making such application would be unnecessary or
imprudent in the good faith business judgment of the Debtor. Any expenses
incurred in connection with such an application shall be borne by the
Debtor. The Debtor shall not abandon any right to file a patent or
trademark application or any pending application or patent or trademark in
the United States without the consent of the Secured Party, which consent
shall not be unreasonably withheld.
(i) The Secured Party shall have the right but shall in no way
be obligated to bring suit in its own name to enforce the Patents and
Trademarks and any license thereunder, in which event the Debtor shall, at
the request of the Secured Party, do any and all lawful acts and execute
any and all proper documents required by the Secured Party in aid of such
enforcement action and indemnify the Secured Party for all costs and
expenses incurred by the Secured Party in the exercise of its rights under
this clause (i).
(j) The Debtor represents and warrants that (x) it has no
Patents or Trademarks except such as are listed on Schedule 4 hereto, and
(y) it is not the holder, owner or licensee of any copyrights except for
unregistered copyrights in various catalogs and advertising materials used
in Stores.
Section 8. FINANCING STATEMENTS; DOCUMENTARY STAMP TAXES. (a)
The Debtor will, at its own expense, make, execute, endorse, acknowledge,
file and/or deliver to the Secured Party from time to time such lists,
descriptions and designations of Inventory, warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements,
powers of attorney, certificates, reports and other assurances or
instruments and take such further steps relating to the Collateral and
other property or rights covered by the security interest hereby granted,
which the Secured Party deems appropriate or advisable to perfect, preserve
or protect its security interest in the Collateral. The Debtor hereby
constitutes the Secured Party its attorney-in-fact to execute and file in
-15-
<PAGE>
the name and on behalf of the Debtor such additional financing statements
as the Secured Party may request, such acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable until the Secured Obligations are paid in full. Further, to
the extent permitted by applicable law, the Debtor authorizes the Secured
Party to file any such financing statements without the signature of the
Debtor. The Debtor will pay all applicable filing fees and related
expenses in connection with any such financing statements.
(b) The Debtor agrees to procure, pay for, affix to any and all
documents and cancel any documentary tax stamps required by and in
accordance with, applicable law and the Debtor will indemnify and hold the
Secured Party harmless against any liability (including interest and
penalties) in respect of such documentary stamp taxes.
Section 9. SPECIAL PROVISIONS CONCERNING REMEDIES AND SALE. In
addition to any rights and remedies now or hereafter granted under
applicable law and not by way of limitation of any such rights and
remedies, the Secured Party shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as enacted in any
applicable jurisdiction in addition to the rights and remedies provided
herein, in the Loan Agreement and in any other agreement executed in
connection with the Loan Agreement whereby the Debtor has granted any lien
to the Secured Party. Without in any way limiting the foregoing, upon and
after the occurrence of an Event of Default and for so long as such Event
of Default exists, upon the giving of notice to the Debtor of Secured
Party's intent to pursue any one or all of the following remedies:
(a) The Secured Party shall have the right, without notice to,
or assent by, the Debtor, in the name of the Debtor or in the name of the
Secured Party or otherwise:
(i) to ask for, demand, collect, receive, compound and give
acquittance for the Accounts or any part thereof;
(ii) to extend the time of payment of, compromise or settle
for cash, credit or otherwise, and upon any terms and conditions,
any of the Accounts;
(iii) to endorse the name of the Debtor on any checks,
drafts or other orders or instruments for the payment of moneys
payable to the Debtor which shall be issued in respect of any
Account;
(iv) to file any claims, commence, maintain or discontinue
any actions, suits or other proceedings deemed by the Secured
Party necessary or advisable for the purpose of collecting or
enforcing payment of any Account;
-16-
<PAGE>
(v) to make test verifications of the Accounts or any
portion thereof;
(vi) to notify any or all account debtors under any or all
of the Accounts to make payment thereof directly to the Secured
Party for the account of the Secured Party and to require the
Debtor to forthwith give similar notice to the account debtors;
(vii) to require the Debtor forthwith to account for and
transmit to the Secured Party in the same form as received all
proceeds (other than physical property) of collection of Accounts
received by the Debtor and, until so transmitted, to hold the
same in trust for the Secured Party and not commingle such
proceeds with any other funds of the Debtor;
(viii) to take possession of any or all of the Collateral
and, for that purpose, to enter, with the aid and assistance of
any Person or Persons and with or without legal process, any
premises where the Collateral, or any part thereof, are, or may
be, placed or assembled, and to remove any of such Collateral;
(ix) to execute any instrument and do all other things
necessary and proper to protect and preserve and realize upon the
Collateral and the other rights contemplated hereby;
(x) upon notice to such effect, to require the Debtor to
deliver, at the Debtor's expense, any or all Collateral to the
Secured Party at a place designated by the Secured Party and
after delivery thereof the Debtor shall have no further claim to
or interest in the Collateral; and
(xi) without obligation to resort to other security, at any
time and from time to time, to sell, re-sell, assign and deliver
all or any of the Collateral, in one or more parcels at the same
or different times, and all right, title and interest, claim and
demand therein and right of redemption thereof, at public or
private sale, for cash, upon credit or for future delivery, and
at such price, or prices and on such terms as the Secured Party
may determine, with the amounts realized from any such sale to be
applied to the Secured Obligations in the manner determined by
the Secured Party.
The Debtor hereby agrees that all of the foregoing may be effected without
demand, advertisement or notice (except as otherwise provided herein or as
may be required by law), all of which (except as otherwise provided) are
hereby expressly waived, to the extent permitted by law. The Secured Party
shall not be obligated to do any of the acts hereinabove authorized, but in
the event that the Secured Party elects to do any such act, the Secured
-17-
<PAGE>
Party shall not be responsible to the Debtor except for its gross
negligence or willful misconduct.
(b) The Secured Party may take legal proceedings for the
appointment of a receiver or receivers (to which the Secured Party shall be
entitled as a matter of right) to take possession of the Collateral pending
the sale thereof pursuant either to the powers of sale granted by this
Agreement or to a judgment, order or decree made in any judicial proceeding
for the foreclosure or involving the enforcement of this Agreement. If,
after the exercise of any or all of such rights and remedies, any of the
Secured Obligations shall remain unpaid, the Debtor shall remain liable for
any deficiency. After termination of this Agreement and the Loan Agreement
and the indefeasible payment in full of the Secured Obligations, any
proceeds of the Collateral received or held by the Secured Party shall be
turned over to the Debtor and the Collateral shall be reassigned to the
Debtor by the Secured Party without recourse to the Secured Party and
without any representations, warranties or agreements of any kind.
(c) Upon any sale of any of the Collateral, whether made under
the power of sale hereby given or under judgment, order or decree in any
judicial proceeding for the foreclosure or involving the enforcement of
this Agreement, and subject to any legal requirement that the Secured Party
act in a commercially reasonable manner:
(i) the Secured Party may bid for and purchase the property
being sold, and upon compliance with the terms of sale may hold,
retain and possess and dispose of such property in its own
absolute right without further accountability, and may, in paying
the purchase money therefor, deliver any Note or claims for
interest thereon and any other instruments evidencing the Secured
Obligations or agree to the satisfaction of all or a portion of
the Secured Obligations in lieu of cash in payment of the amount
which shall be payable thereon, and the Notes and such
instruments, in case the amounts so payable thereon shall be less
than the amount due thereon, shall be returned to the Secured
Party after being appropriately stamped to show partial payment;
(ii) the Secured Party may make and deliver to the purchaser
or purchasers a good and sufficient deed, bill of sale and
instrument of assignment and transfer of the property sold;
(iii) the Secured Party is hereby irrevocably appointed the
true and lawful attorney-in-fact of the Debtor in its name and
stead, to make all necessary deeds, bills of sale and instruments
of assignment and transfer of the property thus sold and for such
other purposes as are necessary or desirable to effectuate the
provisions (including, without limitation, this Section 9) of
this Agreement, and for that purpose it may execute and deliver
-18-
<PAGE>
all necessary deeds, bills of sale and instruments of assignment
and transfer, and may substitute one or more Persons with like
power, the Debtor hereby ratifying and confirming all that its
said attorney, or such substitute or substitutes, shall lawfully
do by virtue hereof; but if so requested by the Secured Party or
by any purchaser, the Debtor shall ratify and confirm any such
sale or transfer by executing and delivering to the Secured Party
or to such purchaser all property, deeds, bills of sale,
instruments or assignment and transfer and releases as may be
designated in any such request;
(iv) all right, title, interest, claim and demand
whatsoever, either at law or in equity or otherwise, of the
Debtor of, in and to the property so sold shall be divested; such
sale shall be a perpetual bar both at law and in equity against
the Debtor, its successors and assigns, and against any and all
Persons claiming or who may claim the property sold or any part
thereof from, through or under the Debtor, its successors or
assigns;
(v) the receipt of the Secured Party or of the officer
thereof making such sale shall be a sufficient discharge to the
purchaser or purchasers at such sale for his or their purchase
money, and such purchaser or purchasers, and his or their assigns
or personal representatives, shall not, after paying such
purchase money and receiving such receipt of the Secured Party or
of such officer therefor, be obliged to see to the application of
such purchase money or be in any way answerable for any loss,
misapplication or nonapplication thereof; and.
(vi) to the extent that it may lawfully do so, and subject
to any legal requirement that the Secured Party act in a
commercially reasonable manner, the Debtor agrees that it will
not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any
appraisement, valuation, stay, extension or redemption laws, or
any law permitting it to direct the order in which the Collateral
or any part thereof shall be sold, now or at any time hereafter
in force, which may delay, prevent or otherwise affect the
performance or enforcement of this Agreement, the Loan Agreement,
the Notes, the Loan Documents, or any other agreement or
instrument executed in connection with the Loan Agreement whereby
the Debtor has granted any Lien to the Secured Party, and the
Debtor hereby expressly waives all benefit or advantage of any
such laws and covenants that it will not hinder, delay or impede
the execution of any power granted or delegated to the Secured
Party in this Agreement, but will suffer and permit the execution
of every such power as though no such laws were in force. In the
-19-
<PAGE>
event of any sale of Collateral pursuant to this Section, the
Secured Party shall, at least 10 days before such sale, give the
Debtor written, telegraphic or telex notice of its intention to
sell, except that, if the Secured Party shall determine in its
sole discretion that any of the Collateral threatens to decline
speedily in value, any such sale may be made upon 3 days'
written, telegraphic or telex notice to the Debtor.
Section 10. APPLICATION OF MONEYS. (a) Except as otherwise
provided herein or in the Loan Agreement, all moneys which the Secured
Party shall receive, in accordance with the provisions hereof, shall be
applied (to the extent thereof) in the following manner: FIRST, to the
payment of all costs and expenses incurred in connection with the
administration and enforcement of, or the preservation of any rights under,
this Agreement or any of the reasonable expenses and disbursements of the
Secured Party (including, without limitation, the fees and disbursements of
its counsel and agents); SECOND, to the payment of all Secured Obligations
arising out of the Loan Agreement and the Notes and, if not therein
provided, in such order as the Secured Party may determine; and THIRD, to
the payment of all other Secured Obligations in such order as the Secured
Party may determine.
(b) If after applying any amounts which the Secured Party has
received in respect of the Collateral any of the Secured Obligations remain
unpaid, the Debtor shall continue to be liable for any deficiency, together
with interest.
Section 11. GRANT OF LICENSE TO USE PATENT AND TRADEMARK
COLLATERAL. For the purpose of enabling the Secured Party to exercise
rights and remedies hereunder at such time as the Secured Party, without
regard to this Section 11, shall be lawfully entitled to exercise such
rights and remedies, the Debtor hereby grants to the Secured Party an
irrevocable, non-exclusive license (exercisable without payment of royalty
or other compensation to the Debtor) to use, license or sublicense any
Patent or Trademark, now owned or hereafter acquired by the Debtor, and
wherever the same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be recorded or
stored and to all computer and automatic machinery software and programs
used for the compilation or printout thereof.
Section 12. LICENSE TO THE DEBTOR. Unless and until there has
occurred and is continuing an Event of Default, the Secured Party hereby
grants to the Debtor the exclusive, nontransferable right and license to
use the Trademarks and to make, have made, use and sell the inventions
disclosed and claimed in the Patents for the Debtor's benefit and account
and for none other. The Debtor agrees not to sell or assign its interest
in, or grant any sublicense under, the license granted to the Debtor in
this Section 12 without the prior written consent of the Secured Party.
-20-
<PAGE>
Section 13. FEES AND EXPENSES, ETC. Any and all fees, costs and
expenses of whatever kind or nature, including but not limited to the
reasonable attorneys' fees and legal expenses incurred by the Secured Party
in connection with this Agreement, the filing or recording of any documents
(including all taxes in connection therewith) in public offices, the
payment or discharge of any taxes, counsel fees, maintenance fees, fees and
other costs relating to the encumbrances or otherwise protecting,
maintaining, preserving the Collateral, or in defending or prosecuting any
actions or proceedings arising out of or related to the Collateral, shall
be borne and paid by the Debtor on demand by the Secured Party and until so
paid shall be added to the principal amount of the Secured Obligations and
shall bear interest (x) prior to the maturity of the Loans, by acceleration
or otherwise, at the highest pre-maturity fluctuating rate provided for in
the Loan Agreement for the Loans and (y) after the maturity of the Loans,
by acceleration or otherwise, at a rate per annum equal to the Post-Default
Rate in effect from time to time. In addition, the Debtor will pay, and
indemnify and hold the Secured Party harmless from and against, any and all
liabilities, obligations, losses, damages penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
with respect to the Collateral, including (without limitation) claims of
patent or trademark infringement and any claim of unfair competition or
anti-trust violation, PROVIDED that the Debtor shall have no obligation
hereunder with respect to such indemnification arising from the Secured
Party's gross negligence or willful misconduct.
Section 14. MISCELLANEOUS. (a) Any notice or demand upon the
Debtor shall be deemed to have been sufficiently given or served for all
purposes thereof when mailed, postage prepaid, by registered or certified
mail, return receipt requested, or when telegraphed, telecopied, telexed or
sent by messenger or by Federal Express (or similar express or courier
service), to the Debtor at its address set forth below or at such other
address as the Debtor may designate in a writing delivered to the Secured
Party, provided that in the case where the Secured Party is required to
give only three days' notice of a proposed sale of the Collateral such
notice shall not be deemed given until delivered to the chief executive
office of the Debtor provided for herein. All notices to the Secured Party
shall be deemed to have been given when delivered by mail, telegraph,
telecopy, telex, messenger or Federal Express (or similar express or
courier service) to the Secured Party at its address set forth below or at
such other address as the Secured Party may designate in a writing
delivered to the Debtor.
(b) No delay on the part of the Secured Party in exercising any
of its rights, remedies, powers and privileges hereunder or partial or
single exercise thereof, shall constitute a waiver thereof. None of the
terms and conditions of this Agreement may be changed, waived, modified or
varied in any manner whatsoever unless in writing duly signed by the Debtor
and the Secured Party. No notice to or demand on the Debtor in any case
-21-
<PAGE>
shall entitle the Debtor to any other or further notice or demand in
similar or other circumstances or constitute a waiver of any of the rights
of the Secured Party to any other or further action in any circumstances
without notice or demand.
(c) The obligations of the Debtor hereunder shall remain in full
force and effect without regard to, and shall not be impaired by, (i) any
bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of the Debtor; (ii) any exercise or
non-exercise, or any waiver of, any right, remedy, power or privilege under
or in respect of the Loan Agreement, the Notes, this Agreement, the other
Loan Documents, any other agreement or instrument executed in connection
with the Loan Agreement whereby the Debtor has granted any Lien to the
Secured Party or any other agreement or instrument executed in connection
with any of the foregoing, the Secured Obligations or any security for any
of the Secured Obligations; or (iii) any amendment to or modification of
any of the foregoing; whether or not the Debtor shall have notice or
knowledge of any of the foregoing. The rights and remedies of the Secured
Party herein provided are cumulative and not exclusive of any rights or
remedies which the Secured Party would otherwise have.
(d) This Agreement shall be binding upon the Debtor and its
successors and assigns and shall inure to the benefit of the Secured Party
and its successors and assigns, except that the Debtor may not transfer or
assign any of its obligations, rights or interest hereunder without the
prior written consent of the Secured Party and any such purported
assignment by the Debtor shall be void. All agreements, representations
and warranties made herein shall survive the execution and delivery of this
Agreement.
(e) The descriptive headings of the several sections of this
Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Agreement.
(f) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(g) All rights, remedies and powers provided by this Agreement
may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and the provisions hereof are
intended to be subject to all applicable mandatory provisions of law that
may be controlling and to be limited to the extent necessary so that they
will not render this Agreement invalid, unenforceable in whole or in part
or not entitled to be recorded, registered or filed under the provisions of
any applicable law.
-22-
<PAGE>
(h) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY WITHIN THE
STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THIS AGREEMENT IS
EXECUTED) except to the extent that matters of title, or creation,
perfection and priority of the security interests created hereby, or
procedural issues of foreclosure are required to be governed by the laws of
the state in which the Collateral, or part thereof, is located.
(i) It is expressly agreed, anything herein, in the Loan
Documents or in any other agreement or instrument executed in connection
with the Loans to the contrary notwithstanding, that the Debtor shall
remain liable to perform all of the obligations, if any, assumed by it with
respect to the Collateral and the Secured Party shall not have any
obligations or liabilities with respect to any Collateral by reason of or
arising out of this Agreement, nor shall the Secured Party be required or
obligated in any manner to perform or fulfill any of the obligations of the
Debtor under or pursuant to any or in respect of any Collateral.
(j) This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument.
(k) EACH OF THE SECURED PARTY AND THE DEBTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS EITHER MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN), OR ACTIONS OF THE BANKS, THE SECURED PARTY, THE DEBTOR OR ANY
OTHER CREDIT PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
SECURED PARTY ENTERING INTO THIS AGREEMENT AND FOR THE BANKS AND THE
SECURED PARTY ENTERING INTO THE LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
Section 15. ASSIGNABILITY OF STORE LEASES. This Agreement shall
not be deemed to grant a security interest in:
(x) any Store Lease, or any Non-Trade Fixture or leasehold
improvement as to which the relevant landlord has any right or interest
under a Store Lease, which by the terms of such Store Lease are prohibited
from being assigned or encumbered without the consent of the non-Debtor
party or parties thereto, until such Person so consents; PROVIDED, HOWEVER,
that nothing in this clause (x) shall require the Debtor to obtain any such
consent (although Debtor will use its best efforts to make sure that any
Store Lease entered into after the Closing Date does not contain any such
prohibition); or
-23-
<PAGE>
(y) any Operating Lease (other than any which is listed on Annex
D to the legal opinion of Warner, Norcross & Judd dated the Closing Date
and delivered pursuant to Section 6 of the Loan Agreement) which by its
terms may not be assigned or encumbered without the consent of the non-Debtor
party or parties thereto, until such Person so consents.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their duly authorized officers as of the
date first above written.
ADDRESSES FAMILY BOOKSTORES
5300 Patterson, S.E. COMPANY, INC., as Debtor
Grand Rapids, Mich. 49530
fax: 616/554-8607 By /S/______________________________
Name: Leslie E. Dietzman
Title: President
BANK OF SCOTLAND, as Agent,
565 Fifth Avenue Secured Party
New York, New York 10017
fax: 212/557-9460 By /S/______________________________
Jack S. Dykes
Vice President
-24-
<PAGE>
EXHIBIT 10.10
Amendment to Security Agreement
and Acknowledgment of Security Interests
Amendment to Security Agreement and Acknowledgment of Security
Interests (herein, this "AGREEMENT") dated as of July 17, 1998 between
FAMILY BOOKSTORES COMPANY, INC., a corporation incorporated under the laws
of Michigan (the "DEBTOR") and BANK OF SCOTLAND, as agent for the financial
institutions (the "BANKs") from time to time party to the Loan Agreement
referred to below (said agent, in such capacity, the "SECURED PARTY").
WHEREAS the Debtor and the Secured Party are parties to a General
Security Agreement (Floating Lien) dated as of October 31, 1994, as
amended, supplemented and otherwise modified prior to the date hereof (said
agreement, as so amended supplemented and otherwise modified, as amended by
this Agreement and as from time to time hereafter amended, extended,
restated, supplemented, renewed or otherwise modified, the "SECURITY
AGREEMENT");
WHEREAS the Debtor and the Secured Party are parties to a Loan
Agreement, as heretofore amended, extended, restated, renewed and modified
(herein, as so amended, extended, restated, renewed and modified and as
from time to time hereafter amended, extended, restated, renewed or
modified, the "LOAN AGREEMENT") dated as of October 31, 1994, pursuant to
which the Banks have made certain loans to the Debtor and, pursuant to an
Amended and Restated Loan Agreement (which, when it becomes effective, will
amend and restate the Loan Agreement) dated as of October 31, 1994 (the
"RESTATED LOAN AGREEMENT"), have agreed, subject to the terms and
conditions set forth therein, to extend further loans to the Debtor in
accordance with the terms thereof;
WHEREAS the Debtor and Secured Party are parties to an Intellectual
Property Mortgage Agreement dated as of October 31, 1994 and to an
Intellectual Property Mortgage Agreement dated as of June 1, 1998 (said two
agreements, as from time to time amended, restated, renewed or modified,
the "IPMS"), and to certain other Security Documents (including, without
limitation, a Cash Collateral Agreement and a Deposit Letter, each as
defined in the Loan Agreement) as defined in the Loan Agreement (the
"SECURITY DOCUMENTS");
WHEREAS, it is a condition to the effectiveness of the Restated Loan
Agreement and to the financial accommodations by the Banks to the Debtor
contemplated therein that the Debtor enter into this Agreement;
<PAGE>
NOW THEREFORE, FOR VALUE RECEIVED, IT IS AGREED:
1. AMENDMENTS. The Security Agreement is hereby amended as follows:
A. DEFINITIONS. All the terms used herein which are defined in
the Security Agreement (including, to the extent any such terms are to be
amended by this Agreement, as if such terms were already amended by this
Agreement, unless the context shall indicate otherwise) shall have the same
meaning when used herein unless otherwise defined herein. All references
to Sections in this Agreement shall be deemed references to Sections in the
Security Agreement unless otherwise specified.
B. EFFECT OF AMENDMENT. As used in the Security Agreement and
all other instruments and documents executed in connection with any of the
foregoing, on and subsequent to the Amendment Effective Date (as
hereinafter defined), any reference to the Security Agreement shall mean
the Security Agreement as amended hereby.
C. DEFINED TERMS. (a) The definition of "Collateral" in
Section 1 of the Security Agreement is hereby amended by adding the
following subparagraph as subparagraph (iv) to such definition and by
renumbering the existing subparagraph (iv) to such definition as
subparagraph (v) thereto:
"(iv) (A) each promissory note indicated on Annex I hereto
(all such promissory notes, the "PLEDGED DEBT");
(B) all interest on the Pledged Debt;
(C) all collateral, liens and security interests
securing the obligations of any issuer of any of
Pledged Debt in connection with such Pledged Debt; and
(D) all rights of the Debtor with respect to the
Pledged Debt; and"
(b) The definition of "Collateral" in Section 1 of the Security
Agreement is hereby further amended by deleting the numeral "(iii)" in
subparagraph (v) (formerly subparagraph (iv)) thereto and replacing said
numeral with the numeral "(iv)".
2. SECTION 3. Section 3 of the Security Agreement is hereby amended
by adding the following at the end thereof as subsections (p) and (q)
thereof:
"(p) The Debtor will not subordinate its right to receive any
payment in respect of, or any of its other rights in connection with, any
Pledged Debt to that of any other Person or obligation, or directly or
-2-
<PAGE>
indirectly amend, modify, surrender, compromise, accept prepayment or waive
any of its rights under any of the Pledged Debt (or agree to any of the
foregoing) or take any action to enforce same without the prior written
consent of Secured Party.
(q) If any Event of Default should have occurred and be
continuing, any principal, interest or other sums paid to Debtor upon or
with respect to the Pledged Debt shall be received by the Debtor on behalf
of and in trust for the Secured Party and shall be paid over promptly to
the Secured Party, to be held as collateral security for the Secured
Obligations."
3. ACKNOWLEDGMENTS.
(a) Debtor acknowledges and agrees that (i) the instruments
evidencing the Pledged Debt were and have been delivered to Secured Party
as security for the Secured Obligations pursuant to the Pledge Agreement
(the "PLEDGE AGREEMENT") dated as of November 14, 1994, as modified and
amended through the date hereof between the Pledgors party thereto
(including, without limitation, Debtor) and Bank of Scotland, as agent for
certain Banks referred to therein, and that from and after the Amendment
Effective Date, the Pledged Debt will continue to be held by the Secured
Party as security for the Secured Obligations pursuant to the Security
Agreement; and (ii)notwithstanding any termination (if any) of the Pledge
Agreement on or after the date hereof, or that the Pledged Debt is now held
as security under the Security Agreement, the Pledged Debt has been and
will remain continuously pledged to the Secured Party as security for the
Secured Obligations.
(b) Debtor acknowledges and agrees that (x) references in the
definition of "Secured Obligations" in the Security Agreement to the
"Loans" and the "Notes" include, without limitation, reference to Loans and
Notes, in each case, as defined in the Loan Agreement immediately prior to
the Effective Date under the Restated Loan Agreement as well as to Loans
and Notes as defined in the Restated Loan Agreement and (y) references in
the definition of "Secured Obligations" in the Security Agreement to all
other obligations of Debtor under the Loan Agreement, the other Loan
Documents and any other agreement or instrument executed by Debtor in
connection therewith include, without limitation, reference to all other
obligations of Debtor under (A) the Loan Agreement and the other Loan
Documents and other agreements and instruments executed by Debtor in
connection therewith, in each case, at any time prior to the Effective Date
under the Restated Agreement as well as to the obligations of Debtor under
the Restated Agreement, and obligations of Debtor under Loan Documents as
defined in the Restated Loan Agreement and to the other agreements and
instruments executed by the Debtor in connection with the Restated Loan
Agreement and/or any Loan Documents delivered in connection therewith.
-3-
<PAGE>
(c) In furtherance and not in limitation of the foregoing,
Debtor acknowledges and agrees that (i) all Collateral (including, without
limitation, the Pledged Debt (as defined in the Pledge Agreement and,
pursuant to this Agreement, as defined in the Security Agreement) secures
and continues to secure the Secured Obligations, (ii) the Security
Agreement, each IPM, the Cash Collateral Agreement, each subordination
agreement, and each other Security Document remain in full force and effect
with respect to the Restated Loan Agreement and the obligations of the
Debtor thereunder and under the other Loan Documents as fully as each
applied to the Loan Agreement and the obligations of the Borrower
thereunder and under the other Loan Documents immediately prior to the
execution, delivery and effectiveness of the Restated Loan Agreement, (iii)
neither this Agreement nor the execution, delivery or effectiveness of the
Restated Loan Agreement shall extinguish the obligations for the payment of
money outstanding under the Loan Agreement (whether before or after the
Effective Date under Restated Loan Agreement) or discharge or release the
lien or priority of any security therefore, (iv)nothing herein contained
shall be construed as a substitution or novation of the obligations
outstanding under the Loan Agreement (whether before or after the Effective
Date under Restated Loan Agreement) or instruments securing the same;(v)
nothing in this Agreement, the Loan Agreement, the Restated Loan Agreement
or any other document contemplated hereby or thereby shall be construed as
a release or other discharge of the Debtor under any Loan Documents from
any of its obligations and liabilities as a "Borrower", or "Debtor" or
"Pledgor" under the Loan Agreement or any other Loan Document.
4. AMENDMENT. Exhibit I hereto ("Pledged Debt") is hereby added as
Annex I to the Security Agreement.
5. RELEASE OF PLEDGED SHARES. Effective on the Amendment Effective
Date, (i) subject to the proviso at the end of this sentence, the Secured
Party hereby releases (without representation or warranty of any kind
except that Secured Party has not encumbered said shares) (A) its lien on
and security interest in (x) the shares of stock of Debtor constituting
Pledged Shares under the Pledge Agreement dated as of November 14, 1994
between Pledgors party thereto and the Secured Party in its capacity as
Pledgee thereunder (the "1994 PLEDGE AGREEMENT") and (y) the shares of
stock of Debtor pledged to the Secured Party under any other pledge
agreement as security for the obligations of Debtor under the Loan
Agreement (the "OTHER PLEDGE AGREEMENTS"); and (B) any other right, title
or interest of the Secured Party to the shares of stock of Debtor described
in clause (x) and (y) above, including, without limitation, any dividend on
or proceeds of such shares, and (ii) subject to the proviso at the end of
this sentence, Secured Party hereby (x) releases each Holder under any Non-
Pledged Shares Agreement (as defined in the Existing Loan Agreement) from
the restrictions imposed by such agreement on the IRA Shares referred to
therein; (y) releases each such Holder from its obligation to deliver to
the Secured Party any such IRA Shares; and (z) agrees within 30 days after
-4-
<PAGE>
the Amendment Effective Date to deliver to Warner, Norcross & Judd, LLP any
Transmittal Letter referred to in any such Non-Pledged Shares Agreement
delivered to the Secured Party by any Holder or cancel said Transmittal
Letter; PROVIDED, that the foregoing releases and agreements do not extend
to any shares of stock or IRA Shares issued by the Debtor which secure any
Shareholder Notes or other obligations to Debtor, or to any Transmittal
Letter delivered in connection therewith. In furtherance of the foregoing,
Secured Party agrees that effective on the Amendment Effective Date, the
shares of stock referred to in clause (i) above which are not excluded from
the scope of such clause (i) by the proviso to the preceding sentence shall
no longer constitute "Pledged Securities" as such term is used in the 1994
Pledge Agreement or any Other Pledge Agreement.
6. EFFECTIVENESS. This Agreement shall become effective as of the
Effective Date under the Restated Loan Agreement (such date, the AMENDMENT
EFFECTIVE DATE")
7. LIMITED NATURE OF AMENDMENTS. The amendments set forth herein
are limited precisely as written and shall not be deemed to (a) be a
consent to any waiver of, or modification of, any other term or condition
of the Security Agreement or any of the documents referred to therein or
(b) prejudice any right or rights which the Banks or the Agent may now have
or may have in the future under or in connection with the Security
Agreement or any of the documents referred to therein. Except as expressly
amended hereby, the terms and provisions of the Security Agreement shall
remain in full force and effect.
8. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE VALIDITY THEREOF
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED
BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY WITHIN THE STATE OF NEW
YORK (REGARDLESS OF THE PLACE WHERE THIS AGREEMENT IS EXECUTED).
9. COUNTERPARTS. The Agreement may be executed in any number of
counterparts by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.
Telecopied signatures hereto shall be of the same force and effect as an
original of a manually signed copy.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective duly authorized officers
as of the date first above written.
FAMILY BOOKSTORES COMPANY, INC., BANK OF SCOTLAND, as Secured
as Borrower, and as Pledgor, Party, individually and as
Debtor and in all of its other Agent
capacities under the Security
Documents
By____________________________ By___________________________
Name: Name:
Title: Title:
-6-
<PAGE>
EXHIBIT I to Amendment
to Security
Agreement and Acknowledgment
of Security Interests
<TABLE>
ANNEX I
Pledged Debt
<CAPTION>
ISSUER NAME OF SECURITY PRINCIPAL AMOUNT
- ------ ---------------- ----------------
<S> <C> <C>
Jerry Hal Bailey Promissory Note $60,000
Richard M. Butler Promissory Note $80,000
Leslie E. Dietzman Promissory Note $225,000
Craig B. Klamer Promissory Note $50,000
Charles E. Cook Promissory Note $50,000
Leslie E. Dietzman Promissory Note $37,500
Richard M. Butler Promissory Note $7,500
William Nielsen Promissory Note $11,000
William Polzin Promissory Note $7,000
</TABLE>
-7-
<PAGE>
EXHIBIT 10.12
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT ("AGREEMENT") made as of November 14, 1994 by
and among ELECTRA INVESTMENT TRUST P.L.C., a corporation organized under
the laws of England ("EIT"), ELECTRA ASSOCIATES, INC., a Delaware
corporation ("ASSOCIATES" and, together with EIT and any permitted
transferee, the "INSTITUTIONAL SHAREHOLDERS"), the individuals listed on
the signature pages hereto (the "INVESTORS", and each, an "INVESTOR", and,
together with the Institutional Shareholders, the "SHAREHOLDERS", and each,
a "SHAREHOLDER") and FAMILY BOOKSTORES COMPANY, INC., a Michigan
corporation (the "COMPANY"). Capitalized terms used and not defined herein
shall have the respective meanings given such terms in the Securities
Purchase Agreement described below.
WHEREAS, the Institutional Shareholders have been granted the right to
purchase certain shares of Common Stock, par value $1.00 per share (the
"COMMON STOCK"), of the Company pursuant to that certain Securities
Purchase Agreement of even date herewith, among the Institutional
Shareholders and the Company (the "SECURITIES PURCHASE AGREEMENT") and the
Warrants, designated as Series A, B, C and D, issued thereunder
(collectively, together with all warrants issued upon transfer, division or
combination, or in exchange or substitution therefor, as provided in the
respective Warrant, the "WARRANTS"). Except as expressly provided to the
contrary herein, for purposes of this Shareholders' Agreement, each holder
of a Warrant, as permitted under the Warrant, shall be treated as if such
holder held that number of shares of the Company's Common Stock or other
securities for which such Warrant may at the time be exercised as if, at
such time, all such Warrants had been exercised in full. Each
Institutional Shareholder shall be deemed to be a Shareholder hereunder and
each share of Warrant Stock (as defined in the Warrants and as provided in
the immediately preceding sentence) shall be deemed to be a Share (as
defined below);
WHEREAS, the Shareholders are the holders of all of the shares of
Common Stock currently outstanding and are the holders of all outstanding
Warrants (such outstanding Common Stock, all shares of Common Stock issued
or issuable from time to time upon exercise of the Warrants, all Common
Stock which is now or may hereafter be held by the Shareholders and all
Common Stock which may be issued to the Shareholders in a dividend,
distribution, reclassification of the Common Stock, spin-off, split-up,
recapitalization, merger, consolidation or any similar corporate event or
arrangement of securities of the Company shall be collectively referred to
herein as the "SHARES");
WHEREAS, the Shareholders desire to promote their mutual interests and
the interests of the Company by providing in this Agreement for the terms
and conditions governing the transfer of shares of Common Stock, the
management and operation of the Company, the relations among the
Shareholders and certain other matters; and
<PAGE>
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company that the Company enter into this
Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledge, the parties hereby
covenant and agree as follows.
1. GENERAL PROVISIONS
1.1 SHARES SUBJECT TO THIS AGREEMENT. The Shareholders expressly
agree that the terms and restrictions of this Agreement shall apply to all
Shares which any of them now owns or hereafter acquires by any means,
including without limitation by purchase, assignment or operation of law,
or as a result of any stock dividend, stock split, reorganization,
reclassification, whether voluntary or involuntary, or other similar
transaction.
1.2 NO PARTNERSHIP RELATIONSHIP. Notwithstanding, but not in
limitation of, any other provision of this Agreement, the parties
understand and agree that the creation, management and operation of the
Company shall not create or imply a general partnership between or among
the Shareholders and shall not make any Shareholder the agent or partner of
any other Shareholder for any purpose.
2. BOARD OF DIRECTORS
2.1 ELECTION OF DIRECTORS. Each Shareholder agrees that, for so long
as such Shareholder holds any Shares, such Shareholder shall take or cause
to be taken such actions as may be required from time to time to establish
and maintain the number of persons comprising the Board of Directors of the
Company up to a maximum of five (5), prior to the consummation of an
Initial Public Offering and, from and after the consummation of an Initial
Public Offering, for so long as the Institutional Shareholders own at least
10% of the Shares on a Fully Diluted Basis, up to a maximum of eight (8),
as the Shareholders, in their discretion, may determine from time to time,
and to elect two persons (the "INSTITUTIONAL DIRECTORS") designated by the
holders of a majority of the Shares held by the Institutional Shareholders
(the "MAJORITY INSTITUTIONAL SHAREHOLDERS"); PROVIDED, HOWEVER, (i) if the
Institutional Shareholders cease to own at least 10% of the Shares on a
Fully Diluted basis, the Shareholders shall elect one Institutional
Director designated by the Majority Institutional Shareholders, and (ii) if
the Institutional Shareholders cease to own at least 5% of the Shares on a
Fully Diluted basis, the Shareholders shall have no further obligation to
elect Institutional Directors under this Section 2.1. The Company shall
cause such Institutional Directors to be included in the list of persons
nominated by the Company for election as directors of the Company at any
meeting of Shareholders called for such purpose. Without limiting the
-2-
<PAGE>
generality of the foregoing, at each annual meeting of the Shareholders,
and at each special meeting of the Shareholders called for the purpose of
electing directors of the Company, and at any time at which the
Shareholders have the right to, or shall, elect directors of the Company,
then, and in each event, the Shareholders shall vote all Shares owned by
them (or shall consent in writing in lieu of a meeting of Shareholders, as
the case may be) to set the number of, and to elect persons as, directors
of the Company in accordance with the preceding provisions of this Section
2.1. It is hereby acknowledged and agreed that nothing herein contained
shall limit or in any way affect any voting rights which Institutional
Shareholders may have.
2.2 REMOVAL OF DIRECTORS; FILLING OF VACANCIES. The Shareholders and
the Company (i) shall each take all actions necessary to remove forthwith
the Institutional Directors when such removal is requested for any reason,
with or without cause, by the Majority Institutional Shareholders, and (ii)
may take action to remove, by the vote of a majority of the outstanding
Shares on a Fully Diluted Basis, any director of the Company for cause. In
the case of the death, resignation or removal as herein provided of the
Institutional Directors, each Shareholder shall vote all Shares directly or
indirectly owned by him to elect another person designated by the Majority
Institutional Shareholders. Unless time is of the essence to take any
action, the Shareholders and the Company each agree to use his or its best
efforts to prevent any action from being taken by the Board of Directors
during the pendency of any vacancy due to the death, resignation or removal
of the Institutional Directors unless the Majority Institutional
Shareholders shall have failed for a period of thirty (30) days after
written notice of such vacancy to designate a replacement.
2.3 AUDIT AND COMPENSATION COMMITTEES. The Shareholders and the
Company shall each take or cause to be taken such actions as may be
required from time to time to establish and maintain audit and compensation
committees of the Board of Directors of the Company, each comprised of no
more than three members, having such duties and responsibilities customary
for such committees, and to elect no more than one of the Institutional
Directors to each of such committees.
2.4 DIRECTOR EXPENSES. The Company shall reimburse the Institutional
Directors for all reasonable out-of-pocket costs and expenses (including
travel expense) incurred in connection with their attendance at meetings of
the Board of Directors or committees thereof consistent with the Company's
general reimbursement policies.
2.5 TRANSFER. The right under this Section 2 to designate any
Institutional Director, and the other rights related thereto set forth in
this Section 2, shall inure to the benefit of, and be enforceable by: (i)
the initial transferee of 50% or more of the Warrants or the shares of
Common Stock issued upon exercise of the Warrants, as permitted thereunder
(the "INITIAL TRANSFEREE"), and (ii) the subsequent transferees of the
-3-
<PAGE>
entire interest of such Initial Transferee; PROVIDED, HOWEVER, that (a) so
long as the Institutional Shareholders shall have the right to designate
two Institutional Directors as provided in Section 2.1, then the Initial
Transferee, and the subsequent transferees of such Initial Transferee,
shall have the right to designate one of such two Institutional Directors,
and (b) in the event that the Institutional Shareholders shall have the
right to designate only one Institutional Director as provided in Section
2.1, then EIT and Associates shall have the right to designate such
Institutional Director, PROVIDED, FURTHER, that such right to designate
such Institutional Director shall inure to the benefit of, and be
enforceable by, the transferee of the entire remaining interest of EIT and
Associates in the Warrants.
3. CERTAIN SHAREHOLDER MATTERS
3.1 PERCENTAGE MAINTENANCE.
3.1.1 NOTICE OF NEW ISSUANCE. Subject to Sections 7E and 7Q of
the Securities Purchase Agreement, from and after the date hereof
until the consummation of an Initial Public Offering, except with
respect to "Exempt Issuances" as defined in Section 3.1.3, in the
event that the Company proposes to issue any (i) shares of Common
Stock, (ii) warrants, options or other rights to purchase Common Stock
(collectively, "RIGHTS"), or (iii) any debentures or other securities
convertible into or exchangeable for shares of Common Stock
(collectively, "CONVERTIBLE SECURITIES"), the Company will deliver to
the Institutional Shareholders a notice (the OFFER NOTICE") not more
than 30 nor less than 10 days prior to the completion of such issuance
(the "NEW ISSUANCE"), stating the price and other terms and conditions
thereof. In addition, the Company shall promptly notify each
Institutional Shareholder of any proposed New Issuance upon the
retention of any investment banking or financial advisory firm in
connection with such issuance or upon the execution of any letter of
intent or agreement relating to any such issuance or if any action is
taken by the Board of Directors of the Company concerning any proposal
to make any New Issuance.
3.1.2 RIGHT TO PURCHASE SHARES, RIGHTS OR CONVERTIBLE
SECURITIES. In the event of any proposed New Issuance (other than an
Exempt Issuance), each Institutional Shareholder shall have the right
to purchase with the Investors a pro rata portion of the shares of
Common Stock, Rights or Convertible Securities proposed to be issued
by the Company in such New Issuance at the price and on the terms upon
which the Company proposes to make the New Issuance, such price to be
paid in full, at the time of issuance of such securities to the
Institutional Shareholders, in cash or, if the consideration for such
New Issuance is other than cash, the fair market value of the non-cash
consideration offered, such fair market value to be determined by an
investment banking firm acceptable to the Institutional Shareholders.
-4-
<PAGE>
The PRO RATA portion of the shares of Common Stock, Rights or
Convertible Securities proposed to be issued in such New Issuance that
each Institutional Shareholder shall be entitled to purchase hereunder
shall be determined as of the date immediately preceding the proposed
New Issuance, by treating each Institutional Shareholder, for the
purpose of such computation, as the holder of the number of shares of
Common Stock then held by it and the number of shares of Common Stock
which would be issuable to it upon conversion, exercise and exchange
of all Rights and Convertible Securities then held by it and assuming
the like conversion, exercise and exchange of all such securities held
by other persons. The rights set forth in this Section 3.1.2 shall be
exercised by the Institutional Shareholders, if at all, by written
notice to the Company delivered not later than thirty (30) days after
the receipt by the Institutional Shareholders of the Offer Notice in
accordance with the terms and conditions stated therein, and such
right shall expire with respect to each Institutional Shareholder at
the end of the thirtieth day after the day of the receipt by such
Institutional Shareholders of the Offer Notice; PROVIDED, HOWEVER,
that if, subsequent to the Offer Notice, a price change of more than
five percent occurs, or if any change occurs in the type of
consideration to be received by the Company in such New Issuance, the
Company shall provide the Institutional Shareholder with notice of the
change in price or consideration, and the Institutional Shareholder's
rights shall expire at the later of the end of the thirtieth day after
the day of receipt of the original Offer Notice or the fifth day after
receipt of the notice of such change in price or consideration, as the
case may be. The rights of the Institutional Shareholders under this
Section 3.1 shall inure to the benefit of and be enforceable by any
transferee of the Institutional Shareholders which is an Initial
Transferee of the Institutional Shareholders.
3.1.3 EXEMPT ISSUANCES. For purposes of this Agreement,
"Exempt Issuances" are issuances that are otherwise not prohibited by
the Securities Purchase Agreement and the Warrants and in which shares
of Common Stock or Rights or Convertible Securities of the Company are
issued (i) as a dividend or distribution payable pro rata to all
holders of Common Stock or Convertible Securities (in which case the
Institutional Shareholders shall receive additional Shares or Warrants
pursuant to the terms of Section 4 of the Warrants); (ii) to
employees, officers, directors, consultants, advisors and other
persons performing services for the Company pursuant to the
Performance Plan (a "STOCK PLAN ISSUANCE"); (iii) in connection with
the conversion or exercise of any Rights or Convertible Securities
existing on the date hereof or hereinafter issued in compliance
herewith; (iv) pursuant to an Initial Public Offering, the closing of
which is on or after the date hereof; (v) pursuant to Warrants or
Warrant Stock as defined in and pursuant to the Warrants; (vi) with
respect to an issuance of Shares as to which an Institutional
Shareholder has had the opportunity to participate pursuant to this
-5-
<PAGE>
Section 3.1 and has elected not to; or (vii) requiring an adjustment
pursuant to Section 4 of the Warrants as a result thereof.
3.2 LEGEND ON STOCK CERTIFICATES. The Company will cause all
certificates or other instruments representing shares of the Company's
Capital Stock, now issued and outstanding or hereafter issued and to which
the provisions of this Agreement apply, to be endorsed conspicuously on the
face thereof with the following legend:
"The shares represented by this certificate are subject to a certain
Shareholders' Agreement, dated as of November 14, 1994, and a Buy and
Sell Agreement, dated as of November 14, 1994, by and among the
Company and the stockholders of the Company, as amended from time to
time, copies of which agreements are available for inspection at the
offices of the Company or may be available upon request."
3.3 VOTING RIGHTS. The Investors agree that for any resolution
submitted to the Investors for a vote or written consent of shareholders of
the Company, (i) the Institutional Shareholders shall receive prompt
written notice of the proposed resolution, and (ii) before the Investors
take any action on such resolution (the "FINAL VOTE"), on a preliminary
basis, the Investors and the Institutional Shareholders will be entitled to
indicate their desired result on such resolution as if the Institutional
Shareholders were shareholders of the Company (the "PRELIMINARY VOTE") by
submitting preliminary votes, by ballot or otherwise. The result of the
Preliminary Vote shall be determined by the persons holding a majority of
the shares that are voted in the Preliminary Vote, unless a higher
percentage would be required by applicable law. For purposes of the
Preliminary Vote, the Institutional Shareholders shall be deemed to hold as
of the record date the number of shares of Common Stock for which any
Warrants that are held by the Institutional Shareholders as of the record
date may at the time be exercised as if, at such time, all such Warrants
have been exercised in full. Each Investor agrees that for so long as such
Investor is a shareholder of the Company, such Investor shall take or cause
to be taken such actions as may be required to cause the vote or written
consent in the Final Vote to be for or against such resolution as
determined by the result of the Preliminary Vote on the resolution. It is
hereby acknowledged and agreed that nothing herein contained shall limit or
in any way affect the right of any Investor to dissent from any vote of the
shareholders of the Company. Notwithstanding the foregoing, for so long as
the Institutional Shareholders own at least 10% but no more than 28% of the
Shares on a Fully Diluted Basis, the Institutional Shareholders shall have
no rights under this Section 3.3 with respect to the election of directors
of the Company other than the election or removal of Institutional
Directors or the filling of vacancies in respect thereof. The rights under
this Section 3.3 are intended to be for the benefit of all holders from
time to time of the Warrants, in accordance with the provisions thereof,
and shall be enforceable by any such holder.
-6-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF INSTITUTIONAL SHAREHOLDERS.
Each Institutional Shareholder hereby represents and warrants to the
Company and to each other Shareholder as follows:
(a) ORGANIZATION AND AUTHORITY. Such Shareholder is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated. Such
Shareholder has the corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
(b) CORPORATE ACTION. Such Shareholder has taken all corporate
action necessary for it to enter into this Agreement and to consummate
the transactions contemplated hereby.
(c) BINDING OBLIGATION. This Agreement constitutes a valid and
binding obligation of such Shareholder, enforceable in accordance with
its terms, except to the extent that such enforceability may be
limited by bankruptcy, insolvency and other similar laws affecting the
rights and remedies of creditors generally, and by general principles
of equity.
4.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Shareholder who is an individual hereby represents and warrants to the
Company and to each other Shareholder as follows:
(a) NO VIOLATION. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will constitute a violation of, or default under, or conflict with, or
require any consent under any term or provision of, any contract,
commitment, indenture, lease or other agreement to which such
Shareholder is a party or by which such Shareholder or any of his
assets is bound.
(b) BINDING OBLIGATION. This Agreement constitutes a valid and
binding obligation of such Shareholder, enforceable in accordance with
its terms, except to the extent that such enforceability may be
limited by bankruptcy, insolvency and other similar laws affecting the
rights and remedies of creditors generally, and by general principals
of equity.
4.3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Shareholders as follows:
(a) ORGANIZATION AND AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated. The Company has the
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby.
-7-
<PAGE>
(b) CORPORATE ACTION. The Company has taken all corporate
action necessary for it to enter into this Agreement and to consummate
the transactions contemplated hereby.
(c) BINDING OBLIGATION. This Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with its
terms, except to the extent that such enforceability may be limited by
bankruptcy, insolvency and other similar laws affecting the rights and
remedies of creditors generally, and by general principles of equity.
(d) CAPITALIZATION. The Company's representation contained in
Section 9C of the Securities Purchase Agreement is true and complete
as of the date hereof.
5. MISCELLANEOUS
5.1 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a
party may designate by notice hereunder, and shall be either (i) delivered
by hand, (ii) made by telex or facsimile transmission, (iii) sent by
overnight courier, or (iv) sent by registered mail, return receipt
requested, postage prepaid:
If to the Company to:
Family Bookstores Company, Inc.
5300 Patterson, S.E.
Grand Rapids, Michigan 49530
Telephone: (616) 554-8600
Telecopier: (616) 554-8608
Attention: President
With a copy to:
Warner Norcross & Judd
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49530-2489
Telephone: (616) 752-2000
Telecopier: (616) 752-2500
Attention: John G. Cameron, Jr., Esq.
If to EIT or Associates:
65 Kingsway
London, England WC2B 6QT
Telecopier: 011-44-71-404-5388
Attention: Philip J. Dyke
-8-
<PAGE>
With copies to:
Electra, Inc.
70 East 55th Street
New York, New York 10022
Telephone: (212) 319-0081
Telecopier: (212) 319-3069
Attn: John L. Pouschine, Senior Vice President
With copies to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Telephone: (212) 821-8000
Telecopier: (212) 821-8111
Attention: Peter J. Hanlon, Esq.
If to the Investors:
To the respective addresses set forth under such Investors' names
on the signature pages hereto.
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the
delivery thereof to the receiving party at the address of such party set
forth above, (ii) if made by telex or facsimile transmission, at the time
that receipt thereof has been acknowledged by electronic confirmation or
otherwise, (iii) if sent by overnight courier, on the next business day
following the day such notice is delivered to the courier service, or (iv)
if sent by registered mail, on the fifth business day following the day
such mailing is made. Any party, by notice to the other parties hereto,
may designate additional or different addresses for subsequent notices or
communications.
5.2 ENTIRE AGREEMENT. This Agreement and the other documents
referenced herein embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersede all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall
affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement. The Company and the Shareholders acknowledge
and agree that nothing contained herein shall limit the effect of the
provisions of, or constitute a waiver or consent under, the Securities
Purchase Agreement or the Warrants.
-9-
<PAGE>
5.3 AMENDMENTS. The terms and provisions of this Agreement may be
modified or amended only by written agreement executed by the Company, the
Majority Institutional Shareholders and the holders of a majority of the
Shares held by the Investors; PROVIDED, that no amendment or modification
which would materially adversely affect an Investor can be made without the
Investor's written consent.
5.4 WAIVERS AND CONSENTS. The terms and provisions of this Agreement
may be waived, or consent for the departure therefrom may be granted, only
by written document executed by the Company and the Institutional
Shareholders. No such waiver or consent shall be deemed to be or shall
constitute a waiver or consent with respect to any other terms or
provisions of this Agreement, whether or not similar. Each such waiver or
consent shall be effective only in the specific instance and for the
purpose for which it was given, and shall not constitute a continuing
waiver or consent.
5.5 SUCCESSOR AND ASSIGNS. The rights and obligations under this
Agreement may not be assigned by any party hereto unless expressly
permitted by the provisions hereof.
5.6 BENEFIT. All statements, representations, warranties, covenants
and agreements in this Agreement shall be binding on the parties hereto and
shall inure to the benefit of the respective successors and permitted
assigns of each party hereto. Nothing in this Agreement shall be construed
to create any rights or obligations except among the parties hereto, and no
person or entity shall be regarded as a third-party beneficiary of this
Agreement.
5.7 GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed by
the law of the State of New York, without giving effect to the conflict of
law principles thereof.
5.8 JURISDICTION AND SERVICE OF PROCESS. Any legal action or
proceeding with respect to this Agreement shall be brought in the courts of
the State of New York or of the United States of America for the Southern
District of New York. By execution and delivery of this Agreement, each of
the parties hereto accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts but
such acceptance shall be only for any claims or proceedings relating to
this Agreement. Each of the parties hereto irrevocably consents to the
service of process of any of the aforementioned courts in any such action
or proceeding by the mailing of copies thereof by certified mail, postage
prepaid, to the party at its address set forth in Section 5.1 hereof.
5.9 SEVERABILITY. In the event that any court of competent
jurisdiction shall determine that any provision, or any portion thereof,
contained in this Agreement shall be unenforceable in any respect, then
-10-
<PAGE>
such provision shall be deemed limited to the extent that such court deems
it enforceable, and as so limited shall remain in full force and effect.
In the event that such court shall deem any such provision, or portion
thereof, wholly unenforceable, the remaining provisions of this Agreement
shall nevertheless remain in full force and effect.
5.10 INTERPRETATION. The parties hereto acknowledge and agree that:
(i) each party and its or their counsel has reviewed and negotiated, or has
had the opportunity to review and negotiate, the terms and provisions of
this Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this agreement shall be
construed fairly as to all parties hereto and not in favor of or against
any party, regardless of which party was generally responsible for the
preparation of this Agreement.
5.11 HEADINGS AND CAPTIONS. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and
shall in no way modify or affect the meaning or construction of any of the
terms or provisions hereof.
5.12 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
and agrees that the rights acquired by each party hereunder are unique and
that irreparable damage would occur in the event that any of the provisions
of this Agreement to be performed by the other parties were not performed
in accordance with their specific terms or were otherwise beached.
Accordingly, in addition to any other remedy to which the parties hereto
are entitled at law or in equity, each party hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement by any
other party and to enforce specifically the terms and provisions hereof in
any federal or state court to which the parties have agreed hereunder to
submit to jurisdiction.
5.13 NO WAIVER OF RIGHTS, POWERS AND REMEDIES. No failure or delay by
a party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing among the parties hereto, shall operate
as a waiver of any such right, power or remedy of the party. No single or
partial exercise of any right, power or remedy under this Agreement by a
party hereto, nor any abandonment or discontinuance of steps to enforce any
such right, power or remedy, shall preclude such party from any other or
further exercise thereof or the exercise of any other right, power or
remedy hereunder. The election of any remedy by a party hereto shall not
constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under
this Agreement shall entitle the party receiving such notice or demand to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the party giving such notice or demand
to any other or further action in any circumstances without such notice or
demand.
-11-
<PAGE>
5.14 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by the parties hereto in
this Agreement or in any other agreement, certificate or instrument
provided for or contemplated hereby, shall survive (i) the execution and
delivery hereof, and (ii) any investigations made by or on behalf of the
parties, and shall remain in full force and effect for a period of ten (10)
years following the date hereof. No claim shall be made by a party for any
alleged misrepresentation or breach of warranty by the other party unless
notice for such claim shall have been given to the other party in
accordance with the notice provisions hereof prior to the expiration of the
survival period specified above with respect to such representation or
warranty.
5.15 EXPENSES. It is hereby agreed that the Company shall pay the
reasonable fees and expenses (including the reasonable fees of any
attorneys, accountants, appraisers or others engaged by such party) of the
Institutional Shareholders in connection with the preparation or
enforcement of, or of any requests for consents or waivers under, this
Agreement, including any subsequent amendments or waivers; PROVIDED,
HOWEVER, that the Company shall be obligated to reimburse the Institutional
Shareholders for such fees of only a single attorney, accountant, appraiser
or other person, as applicable, engaged on behalf of the Institutional
Shareholders, and such fees shall exclude any fees for services and costs
related to any disputes among the Institutional Shareholders with respect
to any consent or waiver under or enforcement of this Agreement.
5.16 NO BROKER OR FINDER. Each of the parties hereto represents and
warrants to the others that no broker, finder or other financial
consultant, has acted on its behalf in connection with this Agreement or
the transactions contemplated hereby in such a way as to create any
liability on the other. Each of the parties hereto agrees to indemnify and
save the others harmless from any claim or demand for commission or other
compensation by any broker, finder, financial consultant or similar agent
claiming to have been employed by or on behalf of such party and to bear
the cost of legal expenses incurred in defending against any such claim.
5.17 PUBLICITY. No party shall issue any press releases or otherwise
make any public statement with respect to the transactions contemplated by
this Agreement without the prior written consent of the other parties,
except as may be required by law.
5.18 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.19 CERTAIN TRANSFERS. Notwithstanding the foregoing, no Shares held
by the Investors may be sold, transferred or otherwise disposed of unless
the transferee of such Shares agrees in writing to be bound by all terms of
this Agreement.
-12-
<PAGE>
5.20 INAPPLICABILITY TO CERTAIN LENDERS. Except (a) with respect to
the election of directors of the Company to the extent and as provided in
Sections 2.1, 2.2 and 2.3 hereof (whether before or after any acceleration
of the maturity of the Loans or the Agent's foreclosure on any pledged
shares), (b) with respect to the provisions of Section 3.3 hereof (but not
after any acceleration of the maturity of the Loans or any foreclosure by
the Agent on any pledged shares), and (c) with respect to preemptive rights
as provided in Section 3.1 of this Agreement, nothing contained in this
Agreement shall be applicable to (w) the Bank of Scotland, either
individually or as a Bank party to the Loan Agreement, (x) any other
financial institution from time to time party to the Loan Agreement (but
only in its capacity as a "Bank" under the Loan Agreement), (y) the Bank of
Scotland (or any successor agent) in its capacity as agent for the Banks
(the "AGENT"), or (z) any Bank Transferee.
As used in this Section 5.20, the following terms have the following
meanings:
"LOANS" shall have the meaning provided for such term in the Loan
Agreement.
"BANK TRANSFEREE" shall mean and include (a) each Person (an "INITIAL
BANK TRANSFEREE") who acquired any equity security issued by the Company
from any person or entity referenced in any of clauses (w), (x) or (y)
above and (b) each Person who acquires the relevant (or any successor)
shares, directly or indirectly, from any Initial Bank Transferee or any
subsequent transferee.
The provisions of this Section 5.20 may not be amended, supplemented
or otherwise modified without the consent of the Bank of Scotland and (if
different) the Agent.
IN WITNESS WHEREOF, the parties hereto have executed this
Shareholders' Agreement or caused this Shareholders' Agreement to be
executed by their duly authorized representatives, as of the date first
written above.
FAMILY BOOKSTORES COMPANY, INC.
By: /S/ LESLIE E. DIETZMAN
----------------------------
Name: Leslie E. Dietzman
Title: President
-13-
<PAGE>
ELECTRA INVESTMENT TRUST P.L.C.
By:_____________________________
Name:
Title:
ELECTRA ASSOCIATES, INC.
By:_________________________________
Name:
Title:
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Shareholders' Agreement or caused this Shareholders' Agreement to be
executed by their duly authorized representatives, as of the date first
written above.
FAMILY BOOKSTORES COMPANY, INC.
By:_____________________________
Name:
Title:
ELECTRA INVESTMENT TRUST P.L.C.
By: /S/ H.A.L.H. MUMFORD
----------------------------
Name: H.A.L.H. Mumford
Title: Director
ELECTRA ASSOCIATES, INC.
By: /S/ R.J. LEWIS
----------------------------
Name: R.J. Lewis
Title: Director
INVESTORS:
/S/ GEORGE CRAIG
----------------------------
Name: George Craig
/S/ LESLIE E. DIETZMAN
----------------------------
Name: Leslie E. Dietzman
NBD Bank, N.A., Trustee for the
Leslie E. Dietzman Individual
Retirement Account
By:_____________________________
Name:
Title:
/S/ NEIL TOPHAM
----------------------------
Name: Neil Topham
-15-
<PAGE>
Bruce E. Ryskamp and Jeralyn G. Ryskamp,
Co-Trustees of the Bruce E. Ryskamp Living
Trust
By:_________________________________
Name: Bruce E. Ryskamp
Title: Co-Trustee
By:_________________________________
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
Jeralyn G. Ryskamp and Bruce E. Ryskamp,
Co-Trustees of the Jeralyn G. Ryskamp Living
Trust
By:_________________________________
Name: Bruce E. Ryskamp
Title: Co-Trustee
By:_________________________________
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
INVESTORS:
____________________________________
Name: George Craig
____________________________________
Name: Leslie E. Dietzman
NBD Bank, N.A., Trustee for the
Leslie E. Dietzman Individual
Retirement Account
By: /S/ KENNETH W. ZANK
----------------------------
Name: Kenneth W. Zank
Title: Assistant Vice President & Trust
Officer
________________________________
Name: Neil Topham
-16-
<PAGE>
Bruce E .Ryskamp and Jeralyn G. Ryskamp,
Co-Trustees of the Bruce E. Ryskamp
Living Trust
By: /S/ BRUCE E. RYSKAMP
----------------------------
Name: Bruce E. Ryskamp
Title: Co-Trustee
By: /S/ JERALYN G. RYSKAMP
----------------------------
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
Jeralyn G. Ryskamp and Bruce E. Ryskamp,
Co-Trustees of the Jeralyn G. Ryskamp
Living Trust
By: /S/ BRUCE E. RYSKAMP
---------------------------
Name: Bruce E. Ryskamp
Title: Co-Trustee
By: /S/ JERALYN G. RYSKAMP
---------------------------
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
INVESTORS:
____________________________________
Name: George Craig
____________________________________
Name: Leslie E. Dietzman
NBD Bank, N.A., Trustee for the
Leslie E. Dietzman Individual
Retirement Account
By:_________________________________
Name:
Title:
____________________________________
Name: Neil Topham
-17-
<PAGE>
Bruce E. Ryskamp and Jeralyn G. Ryskamp,
Co-Trustees of the Bruce E. Ryskamp Living
Trust
By: /S/ BRUCE E. RYSKAMP
----------------------------
Name: Bruce E. Ryskamp
Title: Co-Trustee
By: /S/ JERALYN G. RYSKAMP
----------------------------
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
Jeralyn G. Ryskamp and Bruce E. Ryskamp,
Co-Trustees of the Jeralyn G. Ryskamp
Living Trust
By: /S/ BRUCE E. RYSKAMP
----------------------------
Name: Bruce E. Ryskamp
Title: Co-Trustee
By: /S/ JERALYN G. RYSKAMP
----------------------------
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
/S/ RICHARD M. BUTLER
----------------------------
Name: Richard M. Butler
Old Kent Bank and Trust Company,
Custodian for the Richard M. Butler
Individual Retirement Account
By:_________________________________
Name:
Title:
/S/ DENNIS K. WADE
----------------------------
Name: Dennis K. Wade
-18-
<PAGE>
Old Kent Bank and Trust Company,
Custodian for the Dennis K. Wade
Individual Retirement Account
By:_________________________________
Name:
Title:
/S/ CRAIG B. KLAMER
----------------------------
Name: Craig B. Klamer
Old Kent Bank and Trust Company,
Custodian for the Craig B. Klamer
Individual Retirement Account
By:_________________________________
Name:
Title:
/S/ J. HAL BAILEY
----------------------------
Name: J. Hal Bailey
/S/ RICHARD M. BUTLER
----------------------------
Name: Richard M. Butler
Old Kent Bank and Trust Company,
Custodian for the Richard M. Butler
Individual Retirement Account
By:/S/______________________________
Name:
Title:
/S/ DENNIS K. WADE
----------------------------
Name: Dennis K. Wade
-19-
<PAGE>
Old Kent Bank and Trust Company,
Custodian for the Dennis K. Wade
Individual Retirement Account
By:/S/______________________________
Name:
Title:
/S/ CRAIG B. KLAMER
----------------------------
Name: Craig B. Klamer
Old Kent Bank and Trust Company,
Custodian for the Craig B. Klamer
Individual Retirement Account
By:/S/______________________________
Name:
Title:
/S/ J. HAL BAILEY
----------------------------
Name: J. Hal Bailey
Old Kent Bank and Trust Company,
Custodian for the J. Hal Bailey
Individual Retirement Account
By:/S/______________________________
Name:
Title:
____________________________________
Name: Monroe Pofcher
____________________________________
Name: William G. Baker
____________________________________
Name: Edward Bell
-20-
<PAGE>
Old Kent Bank and Trust Company,
Custodian for the J. Hal Bailey
Individual Retirement Account
By:_________________________________
Name:
Title:
____________________________________
Name: Monroe Pofcher
/S/ WILLIAM G. BAKER
Name: William G. Baker
/S/ EDWARD BELL
Name: Edward Bell
-21-
<PAGE>
EXHIBIT 10.13
AMENDMENT NO. 1
TO
SHAREHOLDERS' AGREEMENT
AMENDMENT NO. 1 ("AMENDMENT"), dated as of May 1, 1995, to the
SHAREHOLDERS' AGREEMENT, dated as of November 14, 1994 (the "SHAREHOLDERS'
AGREEMENT"), by and among FAMILY BOOKSTORES COMPANY, INC., a Michigan
corporation (the "COMPANY"), ELECTRA INVESTMENT TRUST P.L.C., a corporation
organized under the laws of England ("EIT"), ELECTRA ASSOCIATES, INC., a
Delaware corporation ("ASSOCIATES" and, together with EIT and any permitted
transferees, the "INSTITUTIONAL SHAREHOLDERS") and the Investors parties
thereto.
WHEREAS, the Company and the Institutional Shareholders have
heretofore entered into a Securities Purchase Agreement, dated as of
November 14, 1994, as amended by that certain Amendment No. 1 to Securities
Purchase Agreement, dated as of January 20, 1995, and as amended by that
certain Amendment No. 2 (the "SECOND AMENDMENT") to Securities Purchase
Agreement, of even date herewith (as amended, the "SECURITIES PURCHASE
AGREEMENT"); and
WHEREAS, in connection with the Securities Purchase Agreement, the
Company, the Institutional Shareholders and the Investors have heretofore
entered into the Shareholders Agreement; and
WHEREAS, the Company, the Institutional Shareholders and the Investors
wish to amend the Shareholders' Agreement as hereinafter provided.
NOW, THEREFORE, the Company, the Institutional Shareholders and the
Investors hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not defined
herein shall have the respective meanings given to such terms in the
Securities Purchase Agreement.
2. AMENDMENTS TO SHAREHOLDERS' AGREEMENT.
(a) The first sentence of the first "WHEREAS" clause of the
Shareholders' Agreement is hereby amended to read in its entirety as
follows:
"WHEREAS, the Institutional Shareholders have been granted the
right to purchase certain shares of Common Stock of the Company
pursuant to that certain Securities Purchase Agreement, dated as
of November 14, 1994, among the Institutional Shareholders and
the Company (as amended, restated, supplemented or modified from
time to time, the "SECURITIES PURCHASE AGREEMENT") and the
Warrants, designated as Series A, B, C and D, issued thereunder
(collectively, together with all warrants issued upon transfer,
<PAGE>
division or combination, or in exchange or substitution therefor,
as provided in the respective Warrant, and as such Warrants may
have been or may hereafter be amended, restated, exchanged,
supplemented or modified from time to time, the "WARRANTS")."
(b) The second "WHEREAS" clause of the Shareholders' Agreement is
hereby amended to read in its entirety as follows:
"WHEREAS, the Shareholders are the holders of all of the shares
of Class A Stock currently outstanding and are the holders of all
outstanding Warrants (such outstanding Class A Stock, all shares
of Class A Stock issued or issuable from time to time upon
exercise of the Warrants, all Class A Stock which is now or may
hereafter be held by the Shareholders and all Class A Stock which
may be issued to the Shareholders in a dividend, distribution,
reclassification of the Class A Stock, spin-off, split-up,
recapitalization, merger, consolidation or any similar corporate
event or arrangement of securities of the Company shall be
collectively referred to herein as the "SHARES");"
2. EFFECT OF AMENDMENT. As used in the Shareholders' Agreement, on
and subsequent to the date hereof, any reference to the Shareholders'
Agreement shall mean the Shareholders' Agreement as amended hereby. Except
as expressly provided herein, all provisions, terms and conditions of the
Shareholders' Agreement shall remain in full force and effect. As amended
hereby, the Shareholders' Agreement is ratified and confirmed in all
respects.
3. GOVERNING LAW. This Amendment shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
laws of the State of New York without reference to such State's conflicts
of laws principles.
4. HEADINGS. The descriptive headings of the various provisions of
this Amendment are inserted for convenience of reference only and shall not
be deemed to affect the meaning or construction of any of the provisions
hereof.
5. COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which when executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute
but one and the same instrument. Telecopied signatures hereto shall be of
the same force and effect as an original of a manually signed copy.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment,
or caused this Amendment to be duly executed and delivered by their
respective duly authorized representatives, as of the date first above
written.
FAMILY BOOKSTORES COMPANY, INC.
By:/S/ LESLIE E. DIETZMAN
--------------------------------
Name: Leslie E. Dietzman
Title: President
ELECTRA INVESTMENT TRUST
P.L.C.
By:/S/_________________________________
Name:
Title:
ELECTRA ASSOCIATES, INC.
By:/S/_________________________________
Name:
Title:
INVESTORS:
/S/____________________________________
Name: George Craig
/S/____________________________________
Name: Leslie S. Dietzman
NBD Bank, N.A., Trustee for the
Leslie E. Dietzman Individual
Retirement Account
By: /S/________________________________
Name:
Title:
-3-
<PAGE>
/S/____________________________________
Name: Neil Topham
Bruce E. Ryskamp and Jeralyn G. Ryskamp
Co-Trustees of the Bruce E. Ryskamp
Living Trust
By: /S/________________________________
Name: Bruce E. Ryskamp
Title: Co-Trustee
By: /S/________________________________
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
Jeralyn G. Ryskamp and Bruce E. Ryskamp,
Co-Trustees of the Jeralyn G. Ryskamp
Living Trust
By: /S/________________________________
Name: Bruce E. Ryskamp
Title: Co-Trustee
By: /S/________________________________
Name: Jeralyn G. Ryskamp
Title: Co-Trustee
-4-
<PAGE>
EXHIBIT 10.14
BUY AND SELL AGREEMENT
CONCERNING STOCK OF
FAMILY BOOKSTORES COMPANY, INC.
THIS BUY AND SELL AGREEMENT ("Agreement") is made as of November
___, 1994, between FAMILY BOOKSTORES COMPANY, INC., a Michigan corporation
(the "Company"), the undersigned shareholders of the common stock of the
Company (referred to individually as a "Shareholder" and collectively as
the "Shareholders"), Electra Investment Trust PLC, a corporation organized
under the laws of England ("EIT"), and Electra Associates, Inc., a Delaware
corporation ("Associates," and in connection with EIT, "Electra").
1. PURPOSE. The Shareholders own the number of shares of
outstanding common stock of the Company as set forth in Exhibit A to this
Agreement (the shares and any other shares of common stock of the Company
acquired after the date of this Agreement by any Shareholder and any such
shares acquired by Electra pursuant to this Agreement are referenced herein
as the "Purchased Shares"). Electra owns certain warrants, and rights to
acquire additional warrants (collectively, the "Warrants"), to acquire
shares of common stock of the Company (the "Warrant Shares") as set forth
in Exhibit A (the Purchased Shares and Warrant Shares are referenced herein
as the "Shares"). The Shareholders, Electra and the Company believe that
it is in their best interests for the Company to remain closely held under
certain circumstances. Accordingly, they wish to make a provision for the
orderly transfer of ownership of the Shares upon the occurrence of certain
events, and to establish a fair and equitable value for the Shares.
2. RESTRICTIONS ON TRANSFER.
(a) GENERAL SHAREHOLDER RESTRICTIONS. No Shareholder shall
sell, transfer or grant any security interest in any Shares
except in accordance with this Agreement. Any transfer in
violation of this Agreement shall be void.
(b) SHAREHOLDER PERMISSIBLE TRANSFERS.
A Shareholder may transfer all or any of his or her
Purchased Shares:
(i) As permitted by this Agreement; PROVIDED,
HOWEVER, that no Voluntary Transfer (as defined in
SECTION 3(e) of this Agreement) may occur prior to the
completion of the Company's initial public offering of
<PAGE>
common stock (an "IPO") which is registered with the U.
S. Securities and Exchange Commission (the period up to
the date of the completion of the IPO referenced herein
as the "Restricted Period"), unless the transferring
Shareholder receives the prior written consent of
persons who own at least 75% of the Purchased Shares
that are subject to this Agreement and the written
consent of EIT (the "Required Consent").
(ii) Upon the written consent of the Company;
PROVIDED, HOWEVER, that no Voluntary Transfer may occur
during the Restricted Period unless the transferring
Shareholder receives the Required Consent.
(iii) To his or her spouse, children, or other
descendants, or to a trust for his, her or their
benefit (an "Estate Transfer"); PROVIDED, HOWEVER, that
no Shareholder may make an Estate Transfer during the
Restricted Period unless: (A) the transferring
Shareholder receives the Required Consent or (B) the
transferee is a trust that is revocable by the
Shareholder and the Shareholder retains sole voting
authority over the trust. In addition, as a condition
to such transfer, the transferee must agree in writing
to be bound by all terms of this Agreement. The
transferee's Purchased Shares shall be deemed to be
owned by the donor Shareholder for all purposes of this
Agreement, except that the purchase price payable upon
the exercise of any option under this Agreement shall
be paid to the transferee and not the donor
Shareholder. The Shareholders and Electra hereby agree
that Mr. Monroe Pofcher may transfer within 30 days of
the date of this Agreement the Purchased Shares
indicated in Exhibit A as held by him to Mr. Pofcher
and Greta Pofcher, his wife, as joint tenants with
rights of survivorship.
(iv) Notwithstanding the foregoing, Purchased
Shares may not be transferred: (A) unless the Purchased
Shares are registered under federal and applicable
state securities laws or exemptions from the
registration requirements are available; (B) unless the
transferee agrees in writing to be bound by all terms
of this Agreement; and (C) if the transfer would cause
an event of default under the terms of (x) the
Company's agreements with any senior or subordinated
lender (a "Lender Agreement") or (y) any pledge
agreement (a "Pledge Agreement") between the
Shareholder and the Bank of Scotland, so long as such
agreements are not terminated.
-2-
<PAGE>
(c) ENDORSEMENT ON SHAREHOLDER CERTIFICATES. Each
certificate for Purchased Shares or Warrant Shares shall bear a
legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED
PURSUANT TO EXEMPTIONS FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS. THE SHARES MAY NOT BE TRANSFERRED WITHOUT
REGISTRATION OR AN EXEMPTION THEREFROM UNDER FEDERAL AND
APPLICABLE STATE SECURITIES LAWS.
IN ADDITION TO THE FOREGOING RESTRICTIONS ON TRANSFER, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH THE TERMS OF A CERTAIN BUY AND
SELL AGREEMENT DATED AS OF _____________________, 1994, A
COPY OF WHICH IS ON FILE WITH THE COMPANY. ANY ATTEMPTED
SALE, TRANSFER, ASSIGNMENT, PLEDGE OR OTHER DISPOSITION IN
VIOLATION OF THE TERMS OF THE BUY AND SELL AGREEMENT IS
VOID.
(d) ELECTRA RESTRICTIONS ON TRANSFER.
(i) Prior to any event described in Section 25(b)
of this Agreement, EIT, Associates or any other Electra
Transferor (described below) may at any time or from
time to time sell, dispose of or otherwise transfer to
any person all or a portion of the Warrant Shares or
any Purchased Shares acquired by an Electra Transferor
under this Agreement (for so long as the Shares are
held by such person, the Warrant Shares and such
Purchased Shares are referenced herein as the "Electra
Shares"), PROVIDED HOWEVER, that (x) the transferee is
a corporation, partnership, trust or other entity which
is at least majority-owned, directly or indirectly, by
either EIT or Associates, or both, and the total number
of the transfers does not exceed five (5) (each such
transferee, an "Electra Transferee" and each such
transfer an "Electra Transfer") or (y) the transferee
is a transferee listed in Section III of Exhibit A
(each such transferee a "Permitted Transferee," and
each such transfer a "Permitted Transfer") or (z) if
the transfer is an Electra Voluntary Transfer (defined
below), the Company and the Shareholders shall have
failed to exercise their respective options set forth
in Section 2(d)(iii), below. An Electra Voluntary
Transfer shall mean any attempt by EIT, Associates, or
any Electra Transferee or Permitted Transferee (an
"Electra Transferor") to sell, dispose of or otherwise
-3-
<PAGE>
transfer (other than in an Electra Transfer or a
Permitted Transfer) all or any portion of the Electra
Shares held by such persons. From and after any event
described in Section 25(b) of this Agreement, any
Electra Transferor may at any time or from time to time
sell, dispose of or otherwise transfer all or a portion
of the Electra Shares held by each to any person, and
such transfers will not be subject to this Agreement.
(ii) No Electra Shares may be transferred unless
(A) the Electra Shares are registered under federal and
applicable state securities laws or exemptions from the
registration requirements are available and (B) the
transfer would not cause an event of default under the
terms of any pledge agreement between the Electra
Transferor and BOS, individually or as Agent for the
Banks (BOS, in such capacity, the "Agent"). Electra
shall not transfer any Shares in any transfer other
than an Electra Transfer without the prior written
consent of the Company, which consent may be withheld
only if in the Company's reasonable opinion the
transferee (x) competes directly or indirectly with the
Company or (y) may be expected to have a significant
adverse effect on the Company's Christian-based mission
or image. Any transfer by Electra in violation of this
Agreement shall be void.
(iii) The Company shall have an option as set
forth in Section 2(d)(iii)(A) (the "Electra Shares
Option") to purchase, and upon exercise of that option,
the Electra Transferor shall have an obligation to sell
to the Company, the Electra Shares upon the occurrence
of any Electra Voluntary Transfer relating to the
Electra Shares, provided that the transfer occurs prior
to the completion of an IPO. If the Company fails to
exercise its Electra Shares Option to purchase any or
all of the Electra Shares or is prohibited by law from
consummating the purchase, or if the exercise of the
Electra Shares Option would cause an event of default
to occur under any Lender Agreement, the remaining
Shareholders shall then have the option set forth in
SECTION 2 (d)(iii)(B) of this Agreement to purchase,
and upon exercise of that option, the Electra
Transferor shall have an obligation to sell, the
Electra Shares not purchased by the Company at the
price and in accordance with the terms of this SECTION
2(d).
(A) COMPANY'S ELECTRA SHARES OPTION. The
-4-
<PAGE>
Company's Electra Shares Option under this SECTION 2(d)
shall be as follows:
(1) OPTION PERIOD. The Electra Shares
Option shall be exercisable for thirty (30) days
following the date the Electra Shares Option
arises. The Electra Shares Option shall arise
upon receipt by the Company of the notice of the
proposed Electra Voluntary Transfer.
(2) The Company shall exercise its Electra
Shares Option by written notice to the Electra
Transferor within the Electra Shares Option
period.
(3) The Electra Shares Option shall be for
all or a portion of the Electra Shares of the
Electra Transferor, PROVIDED HOWEVER, the Company
shall only have the Electra Shares Option to
purchase the number of Electra Shares that are
subject to the proposed Electra Voluntary
Transfer.
(4) If the Electra Shares Option is
exercised by the Company, the purchase price and
terms shall be the price and terms set forth in
the Electra Offer (defined below).
(B) SHAREHOLDERS OPTION.
(1) At the expiration of the Company's
Electra Shares Option or when the Company notifies
the Electra Transferor that it shall not exercise
its Electra Shares Option to purchase any or all
of the Electra Shares, each of the remaining
Shareholders (subject to the condition that the
remaining Shareholder continues as a shareholder
of the Company as of the date of the event
triggering the Company's Electra Shares Option and
is allowed to purchase Shares under SECTION 11
below) (the "Electra Purchasing Shareholders")
shall have an option (a "Shareholder Electra
Shares Option") to purchase the Electra Shares
that were the subject of the Company's Electra
Shares Option which the Company will not purchase,
and the Electra Transferor shall have the
obligation to sell to the exercising remaining
Shareholders the remaining Electra Shares. The
Company shall give each Shareholder prompt written
-5-
<PAGE>
notice of the expiration of the Company's Electra
Shares Option or its decision not to exercise the
option to purchase all or any Electra Shares. The
Shareholders' Electra Shares Option shall arise as
of the date of the receipt of written notice that
the Company's Electra Shares Option has expired or
will not be exercised.
(2) Unless otherwise agreed among the
Electra Purchasing Shareholders, the respective
Shareholder Electra Shares Option shall be on a
pro rata basis in accordance with their relative
ownership of the Shares on the date of the
triggering event of the Company's Electra Shares
Option. If any Electra Purchasing Shareholder
does not exercise the Shareholder Electra Shares
Option, the other Electra Purchasing Shareholders
(i.e., other than those who did not exercise their
Shareholder Electra Shares Option) shall have a
second option to purchase the remaining Electra
Shares on a pro rata basis in accordance with
their relative ownership of the Shares.
(3) A Shareholder Electra Shares Option
shall be exercisable for 10 days following the
date it arises. A second Shareholder Electra
Shares Option that arises because another
Shareholder did not exercise his or her
Shareholder Electra Shares Option shall arise upon
the expiration of the first Shareholder Electra
Shares Option period, and a new 5-day exercise
period shall again be applicable with respect to
such second Option. To exercise this second
Shareholder Electra Shares Option, an Electra
Purchasing Shareholder must commit to purchase all
Electra Shares subject to the second Shareholder
Electra Shares Option on a pro rata basis with all
other Electra Purchasing Shareholders who also
exercise this second Shareholder Electra Shares
Option.
(4) An Electra Purchasing Shareholder shall
exercise a Shareholder Option by a written notice
to the Electra Transferor within the applicable
option period. A copy of the notice shall also be
sent to the Company and all other Shareholders.
Notwithstanding anything else in this Agreement to
the contrary, neither the Company nor any Electra
Purchasing Shareholder may purchase Electra Shares
-6-
<PAGE>
under this SECTION 2(d)(iii) unless the Company
and other Electra Purchasing Shareholders
collectively are purchasing all of the Electra
Shares that are the subject of the Shareholder
Electra Shares Option.
(5) If a Shareholder's Electra Shares Option
is exercised under this SECTION 2(d)(iii), the
purchase price and terms shall be the price and
terms set forth in the Electra Offer (defined
below).
(iv) If an Electra Transferor proposes to make an
Electra Voluntary Transfer, the Electra Transferor
shall notify in writing the Company and the
Shareholders of its desire to effect the transfer. The
written notice shall be irrevocable and shall specify
(i) the number of Electra Shares to be transferred;
(ii) if known, the name, address and telephone number
of any transferee; (iii) the proposed price to be paid
for the Shares; and, (iv) all other terms of any
proposed transfer (the "Electra Offer"). The Electra
Transferor shall give the Company and the Shareholders
a copy of any agreement, offer or other document
relating to any Electra Offer. The Company's Electra
Shares Option relating to a voluntary transfer shall
arise upon receipt by the Company of written notice of
the proposed Electra Voluntary Transfer.
(v) If neither the Company nor the remaining
Shareholders exercise their respective Electra Shares
Options to purchase all of the Electra Shares which are
the subject of the Company or Shareholders' Electra
Shares Option, the Electra Transferor shall have a
period of 120 days after the expiration of the last
Electra Shares Option to transfer the Electra Shares at
a price equal to or greater than the price set forth in
the Electra Offer and on such terms as are not
inconsistent with the terms set forth in the Electra
Offer. If the transfer does not take place within the
120-day period, the Electra Shares shall remain subject
to all of the terms of this Agreement.
3. OPTIONAL REDEMPTION BY COMPANY. The Company shall have an option
("Company Option") to purchase a Shareholder's Shares (the "Option Shares")
upon the occurrence of the events listed in this SECTION 3. If the Company
fails to exercise the Company Option to purchase the Option Shares or is
prohibited by law from consummating the purchase, or if the exercise of the
-7-
<PAGE>
Company Option would cause an event of default to occur under any Lender
Agreement, the remaining Shareholders and Electra shall then have the
Option set forth in SECTION 5(b) of this Agreement to purchase the Option
Shares at the price and in accordance with the terms of this Agreement.
(a) DEATH OF SHAREHOLDER. The Company shall have a Company
Option to purchase, and upon exercise of the Company Option, the
Shareholder's successor in interest shall have an option, but not
an obligation, to sell, the Option Shares upon his or her death.
This Company Option shall arise upon receipt by the Company of
notice of death.
(b) TERMINATION OF EMPLOYMENT. If the Shareholder is an
Employee/Shareholder, the Company shall have the Company Option
to purchase, and the Employee/Shareholder shall sell upon
exercise of the Company Option, his or her Shares when either the
Company or the Employee/Shareholder terminates the employment
with the Company; PROVIDED, HOWEVER, that if the employment
terminates because of the retirement of the Employee/Shareholder
(a "Retirement Termination"), the Employee/Shareholder shall have
an option, but not an obligation, to sell the Option Shares upon
his or her termination of employment. For purposes of this
Agreement, an "Employee/Shareholder" is a Shareholder who is
employed full-time by the Company and "retirement" is the
voluntary termination of employment by an Employee/Shareholder
after age 62. This Company Option shall arise upon notice to or
by the Company of termination. Nothing in this Agreement shall
constitute an employment agreement or be construed to alter any
employment agreement or any employment relationship between any
Shareholder and the Company from at-will employment, except as
may be otherwise set forth in a written agreement with a
Shareholder signed by an officer of the Company other than the
Shareholder.
(c) DISABILITY OF SHAREHOLDER. The Company shall have a
Company Option to purchase, and upon exercise of that Company
Option, the Shareholder shall have an option, but not an
obligation, to sell, his or her Shares if he or she becomes
disabled. For purposes of this Agreement, an Employee/Share-
holder shall be deemed to be "disabled" if, by reason of
accident, physical illness or mental illness, the Shareholder
has been unable to fulfill normal and customary business
responsibilities as an employee of the Company for a continuous
period of 6 months during any 12-month period. A non-Employee/
Shareholder shall be deemed to be disabled if by reason of
accident, physical illness or mental illness, the Shareholder
is unable to fulfill normal and customary responsibilities in the
Shareholder's then current employment for a continuous period of
6 months during any 12 month period. Disputes regarding the
-8-
<PAGE>
existence or date of disability shall be determined by a licensed
physician selected by agreement of the Company and the applicable
Shareholder. Such physician's fees shall be paid by the Company.
If the Company and the applicable Shareholder cannot agree upon a
physician, the dispute shall be determined by a majority of a
panel of three licensed physicians, one selected by the Company,
one selected by the applicable Shareholder and the third selected
by the first two. The Company and the applicable Shareholder
shall each pay the fees of the physician they select, and the
fees of the third physician shall be shared equally. This
Company Option shall arise upon the later of the end of the
6-month period of disability or the determination of disability
for such 6-month period.
(d) INVOLUNTARY TRANSFER. The Company shall have a Company
Option to purchase, and the Shareholder or his or her successor
in interest shall sell upon exercise of the Company Option, a
Shareholder's Shares upon the involuntary transfer of the Shares.
An involuntary transfer occurs when any of the Shares or any
interest in the Shares is transferred by operation of law. An
involuntary transfer includes (i) a sale or other disposition by
a trustee or debtor in possession appointed or retained in a
bankruptcy case, (ii) a sale at any creditors' or judicial sale,
or (iii) a transfer arising out of a divorce or separation
proceeding. This Company Option shall arise upon receipt by the
Company of notice of the transfer.
(e) PROPOSED VOLUNTARY TRANSFER. The Company shall have a
Company Option to purchase, and the Shareholder shall sell upon
exercise of the Company Option, a Shareholder's Shares upon a
proposed voluntary transfer of the Shares. A proposed voluntary
transfer occurs when a Shareholder attempts to sell, dispose of
or otherwise transfer (other than any Estate Transfer) all or any
portion of his or her Shares (a "Voluntary Transfer"). A
Shareholder shall notify in writing the Company and the other
Shareholders of the Shareholder's desire to effect a Voluntary
Transfer. The written notice shall be irrevocable and shall
specify (i) the number of Shares to be transferred, (ii) if
known, the name, address and telephone number of any proposed
transferee; (iii) the proposed price to be paid for the Shares;
and, (iv) all other terms of any proposed transfer (the "Offer").
The Shareholder proposing the transfer shall give the Company and
all of the other Shareholders a copy of any agreement, offer or
other document relating to any Offer. This Company Option shall
arise upon receipt by the Company of written notice of the
proposed Voluntary Transfer. Notwithstanding anything in this
Agreement to the contrary, no Shareholder may make more than one
Voluntary Transfer of Shares (not including Estate Transfers)
within any 12 consecutive month period, or more than five
-9-
<PAGE>
Voluntary Transfers of Shares (not including Estate Transfers)
during the term of this Agreement.
(f) IRA SHAREHOLDER. The parties acknowledge that certain
individual retirement accounts (each an "IRA Shareholder")
established for the benefit of certain individual Shareholders
(each a "Beneficiary Shareholder") hold Purchased Shares. For
purposes of this Agreement only: (i) any option arising under
Section 3 or Section 5 of this Agreement, or any obligation
arising under Section 6 of this Agreement, relating to any
Purchased Shares held by any Beneficiary Shareholder shall also
apply to any Purchased Shares held by the IRA Shareholder as to
which the Beneficiary Shareholder is a beneficiary, PROVIDED,
HOWEVER, that any purchase price paid for any Purchased Shares
held by the IRA Shareholder shall be paid to the IRA Shareholder
and (ii) the Purchased Shares held by an IRA Shareholder shall be
considered owned by the respective Beneficiary Shareholder to
determine the Beneficiary Shareholder's pro rata participation in
any rights under, or any obligations under Section 6 of, this
Agreement to purchase any Shares. An IRA Shareholder shall not
have any rights or obligation to purchase any Shares under this
Agreement.
(g) JOINT TENANCY. For purposes of this Agreement only,
any Purchased Shares held by any individual in joint tenancy
shall be deemed to be held by the joint tenant designated as the
"Principal Shareholder" in Exhibit A to this Agreement to
determine the occurrence of any of the events which give rise to
any option under Section 3 or Section 5 of this Agreement. Any
option so triggered with respect to an event relating to the
Principal Shareholder shall apply to all of the Shares held by
the joint tenants.
4. COMPANY'S OPTION. The Company Option to purchase Shares under
SECTION 3 shall be as follows:
(a) COMPANY OPTION PERIOD. The Company Option shall be
exercisable for 30 days following the date the Company Option
arises.
(b) EXERCISE OF COMPANY OPTION. The Company shall exercise
its Company Option by written notice to the transferring
Shareholder or the transferring Shareholder's successor in
interest within the Company Option period.
(c) NUMBER OF SHARES. The Company's Option shall be for
all or a portion of the transferring Shareholder's Shares;
PROVIDED, HOWEVER, that if the Company Option arises because of
an involuntary transfer or proposed Voluntary Transfer, the
-10-
<PAGE>
Company shall only have the Company Option to purchase the number
of Shares that are subject to involuntary transfer or proposed
Voluntary Transfer.
(d) PURCHASE PRICE AND TERMS. If the Company Option is
exercised under this SECTION 4, the purchase price shall be the
price determined in accordance with SECTION 8 below. The other
terms of the purchase shall be as provided in this Agreement.
5. PURCHASING SHAREHOLDERS' OPTION. At the expiration of the
Company Option or when the Company notifies the transferring Shareholder
that it shall not exercise its Company Option to purchase any or all of the
transferring Shareholder Shares, each of the remaining Shareholders,
subject to the condition that the remaining Shareholder continues as a
shareholder of the Company as of the date of the event triggering the
Company's Option and is allowed to purchase Shares under SECTION 11 below
and Electra (the remaining Shareholders and Electra collectively referenced
in this SECTION 5 as the "Purchasing Shareholders"), shall have an option
(a "Shareholder Option") to purchase the Shares that were the subject of
the Company's Option and not purchased by the Company, and (x) the
transferring Shareholder, or his or her successor in interest, shall have
an option to sell the Shares, but not an obligation to sell, in the event
of a Shareholder's Option arising under SECTION 3(a), SECTION 3(b) for a
Retirement Termination or SECTION 3(c), and (y) the transferring
Shareholder, or his or her successor in interest, shall sell the Shares
upon exercise of the Shareholder Option in the event of a Shareholder's
Option arising under SECTION 3(b) for any employment termination other than
a Retirement Termination, SECTION 3(d) or SECTION 3(e). The remaining
Shareholders' and Electra's Option shall arise as of the date of the
receipt of written notice that the Company's Option has expired or will not
be exercised.
(a) SHARES AVAILABLE TO EACH PURCHASING SHAREHOLDER.
Unless otherwise agreed among the Purchasing Shareholders, the
respective Shareholder Options shall be on a pro rata basis in
accordance with their relative ownership of the Shares on the
date of the triggering event of the Company's Option. If any
Purchasing Shareholder does not exercise a Shareholder Option,
the other Purchasing Shareholders (i.e., other than those who did
not exercise their Shareholder Option) shall have a second
Shareholder Option to purchase the remaining Shares on a pro rata
basis in accordance with their relative ownership of the Shares.
For purposes of SECTION 5(a), to determine the relative ownership
of the Purchasing Shareholders, EIT, Associates and any Electra
Transferee will be deemed each to have acquired the Warrant
Shares evidenced by the Warrants then exercisable by EIT,
Associates or the Electra Transferee (the "Electra Group").
-11-
<PAGE>
(b) SHAREHOLDER OPTION PERIOD. A Shareholder Option shall
be exercisable for 20 days following the date it arises. A second
Shareholder Option that arises because another Purchasing
Shareholder did not exercise his or her Shareholder Option shall
arise upon the expiration of the first Shareholder Option period,
and a new 20-day exercise period shall again be applicable with
respect to such second Shareholder Option. To exercise this
second Shareholder Option, a Purchasing Shareholder must commit
to purchase all Shares subject to the second Shareholder Option
on a pro rata basis with all other Purchasing Shareholders who
also exercise this second Shareholder Option.
(c) EXERCISE OF SHAREHOLDER OPTION. A Purchasing
Shareholder shall exercise a Shareholder Option by written notice
to the transferring Shareholder or the transferring Shareholder's
successor in interest within the Shareholder Option period. A
copy of the notice shall also be sent to the Company and all
other Shareholders. No Purchasing Shareholder may purchase
Shares under this SECTION 5 unless the Company (if purchasing any
Shares) and the other Purchasing Shareholders collectively are
purchasing all of the Shares that are the subject of the
Shareholder Option.
(d) PURCHASE PRICE AND TERMS. If a Shareholder Option is
exercised under this SECTION 5, the purchase price shall be the
price determined in accordance with SECTION 8 below. The other
terms of the purchase shall be as provided in this Agreement.
(e) NOTICE BY COMPANY. The Company shall give each
Shareholder, EIT and Associates prompt written notice of the
occurrence of any event giving rise to a Shareholder Option under
this SECTION 5.
(f) STOCK PLEDGE. If at the time of any purchase of the
Purchased Shares held by any Shareholder the Shares are the
subject of any Pledge Agreement between the Shareholder and the
BOS or any Bank (as defined in Section 25(b) below), then a
Purchasing Shareholder will not be entitled to purchase any
Shares pursuant to a Purchasing Shareholder's Option unless the
Purchasing Shareholder agrees with respect to the transferred
Shares to be bound by the terms of the Pledge Agreement (or in
the case of Electra, a similar pledge Electra and BOS may
reasonably agree), but only to the extent required by Section
2(b) of the Pledge Agreement, as may be required under the Pledge
Agreement. Each Purchasing Shareholder agrees to comply with the
terms of the Pledge Agreement (or in the case of Electra, such
similar pledge agreement) to enable the transferring Shareholder
to receive the proceeds for the Shareholder's Shares as permitted
by this Agreement.
-12-
<PAGE>
6. CERTAIN SPECIAL MANDATORY SHAREHOLDER PURCHASES AND SALES.
Notwithstanding anything in this Agreement to the contrary:
(a) Upon the death or disability (as defined in SECTION 3
above) of any Employee/Shareholder other than Mr. Leslie E.
Dietzman during the first two years of this Agreement, if the
Employee/Shareholder or his successor in interest desires to sell
the Employee/Shareholder's Shares and the Company does not
purchase pursuant to its Company Option the
Employee/Shareholder's Shares, the other Shareholders (other than
an IRA Shareholder) shall purchase from the transferring
Shareholder or his or her successor in interest the number of
Shares originally purchased ("Original Purchase Shares") by the
deceased or disabled Shareholder and the IRA Shareholder as to
which the Employee/Shareholder is the beneficiary, as listed on
Exhibit A to this Agreement (the "Mandatory Purchase"), to the
extent that the Shareholder and the related IRA Shareholder have
not transferred and will not transfer pursuant to a pending
transfer an aggregate number of Shares equal to the Shareholder's
Original Purchase Shares to the Company or to Purchasing
Shareholders pursuant to any Company or Shareholder Option or to
any other person pursuant to any involuntary transfer or
Voluntary Transfer. The other Shareholders (other than an IRA
Shareholder) shall purchase all of the Original Purchase Shares
on a pro rata basis in relation to their ownership of the Shares
that are the subject of this Agreement (except as may be limited
by SECTION 11 below). The price and other terms of a Mandatory
Purchase shall be as set forth in SECTIONS 8, 9, and 10 below.
Any Shares held by the transferring Shareholder, his or her
successor in interest and the related IRA Shareholder in excess
of the number of Shares designated as owned by the Shareholder on
EXHIBIT A to this Agreement shall be subject to the Company
Options and other Shareholder Options as provided in this
Agreement.
(b) If the triggering event for a Company Option or
Shareholder Option is the Employee/Shareholder's voluntary
termination of employment or the Company's termination of
employment for cause, then upon the exercise of the Company
Option or a Shareholder Option, the terminated Employee/Share-
holder shall sell Unpaid Shares (defined in SECTION 8(c)(ii)) at
the price and on the terms set forth in SECTION 8(c)(ii). For
purposes of this SECTION 6(b), an employee shall be deemed to
have been terminated for "cause" if based upon: a conviction of
a crime involving moral turpitude; embezzlement; wilful
disobedience of a reasonable directive of the Board of Directors;
activities in competition with the Company or in aid of its
competitors; material breach of this Buy and Sell Agreement or
any other agreement with the Company; or any violation of law
which reflects badly upon the image of the Company.
-13-
<PAGE>
7. FAILURE TO EXERCISE COMPANY OR SHAREHOLDER OPTIONS. If neither
the Company nor the Purchasing Shareholders exercise their respective
Company or Shareholder Options to purchase, the following provisions shall
apply:
(a) PROPOSED VOLUNTARY TRANSFER. If the Company or
Shareholder Option was triggered by a notice of a proposed
Voluntary Transfer, the transferring Shareholder shall have a
period of 90 days after the expiration of the last Company Option
to transfer the Shares at a price equal to or greater than the
price set forth in the Offer and on such terms as are not
inconsistent with the Offer as the transferring Shareholder and
the transferee shall determine. As a condition to such transfer,
the transferee shall execute a copy of this Agreement agreeing to
be bound by its terms. If the transfer does not take place
within the 90-day period, the Shares shall remain subject to all
of the terms of this Agreement.
(b) INVOLUNTARY TRANSFER. If the Company Option was
triggered by an involuntary transfer, then the transferee or
transferees shall own the Shares subject to all of the terms of
this Agreement as if each transferee were the transferring
Shareholder under this Agreement.
(c) OTHER. If the Company or Shareholder Option was
triggered other than by an involuntary transfer or proposed
Voluntary Transfer, then such Shares shall remain subject to all
of the terms of this Agreement. This means, for example, that
upon a Shareholder's transferor's death or, if applicable,
termination of employment with the Company, the Shares held by
any such transferee would become subject to the Company Options
(or Mandatory Purchase obligations) set forth in this Agreement.
8. PURCHASE PRICE.
(a) The purchase price per share for Purchased Shares to be
purchased upon the exercise of a Company or Shareholders Option
shall be the value determined in accordance with Exhibit B to
this Agreement ("Agreed Formula"). The Shareholders may change
the Agreed Formula by the written agreement of (i) persons
holding at least 90% of the Purchased Shares that are subject to
this Agreement and (ii) EIT.
(b) The Shareholders, upon the written agreement of the
Shareholders holding at least 75% of the Purchased Shares that
are subject to this Agreement and EIT, may authorize and direct
the Board of Directors of the Company to obtain an independent
appraisal of the Company and determine a new multiple based on
-14-
<PAGE>
dividing the value of the Company in that appraisal by the
preceding two years average earnings before interest and taxes
("EBIT"). That multiple will become the new multiple to be used
in the Agreed Formula.
(c) Notwithstanding any provision to the contrary in
SECTIONS 8(a) AND (b), if:
(i) the triggering event for a Company or
Shareholders Option (or obligation) to purchase is the
death or disability of a Shareholder and the triggering
event occurs within two years from the date of this
Agreement, the per Share purchase price for the Shares
shall be not less than $200 per Share.
(ii) the triggering event for a Company or
Shareholder Option is the Employee/Shareholder's
voluntary termination of employment or termination of
employment for cause, then the purchase price for any
Unpaid Shares (defined below) shall be the lesser of
the price for any Shares determined under Section 8(a)
or Two Hundred Dollars ($200) per Share. For purposes
of this subparagraph (ii), Unpaid Shares shall mean the
number of Shares equal to (i) the unpaid balance of any
amount (exclusive of the amount of any voluntary
prepayment on the balance due which is made within 120
days of termination, (an "Excluded Amount")) owing by
the Employee/Shareholder to the Company pursuant to any
promissory note (the "Shareholder Note") issued for the
purchase of the Shares divided by (ii) Two Hundred
Dollars ($200). The purchase price for any Shares
other than Unpaid Shares that are held by the
Employee/Shareholder shall be determined in accordance
with SECTION 8(a) of this Agreement and shall be paid
in accordance with SECTIONS 9 AND 10 of this Agreement.
If the Company is a purchaser of any Unpaid Shares,
then the Employee/Shareholder agrees that the Company
may set off against any unpaid balance (after giving
effect to any Excluded Amount) under the
Employee/Shareholder's Note the amount due to the
Employee/Shareholder for any Unpaid Shares. If a
Shareholder or a member of the Electra Group is a
purchaser of any Unpaid Shares, the Employee/
Shareholder agrees and authorizes that such
purchaser may pay any amounts due and payable for the
Unpaid Shares to the Company in an amount equal to the
unpaid balance (after giving effect to any Excluded
Amount) under the Employee/Shareholder's Note. Any
amount due to the Employee/Shareholder after any such
-15-
<PAGE>
set off or credit shall be paid to the Employee/
Shareholder pursuant to SECTIONS 9 and 10.
9. CLOSING. The closing of a sale pursuant to the exercise of any
Company or Shareholder Option, as the case may be, under this SECTION 9
shall take place within 30 days after the exercise of the Company or
Shareholder Option. The date of closing may be changed by agreement of the
transferring and acquiring parties to the sale. Upon the exercise of a
Company or Shareholder Option, the transferring Shareholder or his or her
successor in interest, or Electra or its successor in interest, as the case
may be, shall deliver at the closing the certificate or certificates
representing the Shares to be purchased, duly endorsed for transfer free
and clear of all encumbrances.
10. PAYMENT.
(a) Except as set forth in SECTION 6(b) with respect to
Unpaid Shares, the purchase price for Purchased Shares that are
held by any Shareholder purchased pursuant to the exercise of any
Company or Shareholder Option under this Agreement shall be paid,
subject to SECTION 10(b) below or any limitations imposed by any
Lender Agreement, in cash or in accordance with the following
terms, at the election of the Company or the Purchasing
Shareholders (as applicable):
(i) DOWN PAYMENT. At closing, the transferring
Shareholder or his or her successor in interest shall be
paid an amount equal to at least 25% of the purchase price
in cash. The purchaser(s) of the Purchased Shares may, in
their sole discretion, elect to make a down payment in cash
of more than 25% of the purchase price.
(ii) PROMISSORY NOTE. Any amount of the purchase price
for any Purchased Shares not paid in cash at the closing
shall be paid by delivery of a promissory note (or if there
is more than one Purchasing Shareholder, promissory notes)
payable in 12 equal quarterly installments of principal and
accrued interest, commencing on the first day of the first
month after the date of closing. Each note shall bear
interest at the prime rate of interest established by Bank
of Scotland (or other successor senior lender of the
Company) on the date of the note; PROVIDED, HOWEVER, that if
such rate exceeds the highest contractual rate of interest
allowed by law, the note shall bear interest at the highest
permissible contractual rate of interest. Interest shall
accrue and shall be payable annually in arrears on each
anniversary date of the note until paid in full. Each note
-16-
<PAGE>
may be prepaid in whole or in part at any time, without
penalty. In the event of default in payment of any
installment when due or the death or bankruptcy of the maker
of a note, the entire principal and interest on the note
shall become immediately due and payable at the Option of
the holder. Each note shall provide for the payment of
attorneys' fees and costs of suit by the maker should any
legal action for collection be commenced. The maker of a
note shall expressly waive demand and notice of default. A
promissory note delivered by the Company under this SECTION
10 shall be unsecured. A promissory note delivered by a
Purchasing Shareholder under this SECTION 10 shall be
secured by a pledge of the Shares (subject to any pledge
required under any Lender Agreement) to be paid for, in
part, by the promissory note. The transferee shall cease to
have rights as a shareholder of the Company with respect to
the Shares transferred as of the date of closing.
(b) Each Employee/Shareholder who has an outstanding
balance due to the Company under any Shareholder Note agrees
that: (i) if the Company is purchasing any Shares held by the
Employee/Shareholder, the Company shall set off against the
unpaid amount due under the Shareholder Note the amounts payable
under SECTION 10(a) when such amounts are payable by the Company,
and (ii) if a Purchasing Shareholder is purchasing the
Employee/Shareholder's Shares, the Purchasing Shareholder shall
pay to the Company (to be applied to the unpaid amount due on the
Shareholder Note) the amounts payable under SECTION 10(a), when
such amounts are payable by the Purchasing Shareholder. Any
amount payable by the Company or Purchasing Shareholder in excess
of the unpaid amount of any Shareholder Note shall be paid to the
transferring Shareholder under the terms of SECTION 10(a).
(c) Notwithstanding any other provision to the contrary,
the purchase price for any Electra Shares purchased pursuant to
the exercise of any Company Electra Shares Option or Shareholder
Electra Shares Option under this Agreement shall be paid in cash
at closing, subject to any change by agreement between the
Electra Transferor and the purchasing parties.
11. CERTAIN ADDITIONAL LIMITATIONS. Notwithstanding anything in this
Agreement to the contrary, no Shareholder shall be permitted to acquire,
directly or indirectly, 50% or more of the outstanding common stock of the
Company without the prior written consent of the Shareholders owning at
least 80% of the Purchased Shares that are subject to this Agreement
excluding the Shares held by the proposed 50% or greater Shareholder.
-17-
<PAGE>
12. LIFE INSURANCE. The Company may maintain insurance policies on
the life of any Shareholder that is an individual. The Company shall pay
out of its own funds the life insurance premiums. The Company may either
increase or decrease the amount of, or discontinue, any life insurance
policy at any time. The right to change the beneficiary, to assign,
surrender or borrow upon, to collect the proceeds of and to exercise all
incidents of ownership in any policies of insurance shall be vested in the
Company. The beneficiary of each policy of insurance shall be the Company
and not any insured Shareholder. If requested, each Shareholder that is an
individual shall take all actions required for issuance of a life insurance
policy, submitting to physical examinations and furnishing the insurance
company with all of the Shareholder's medical records.
13. ADDITIONAL SHARES COVERED BY AGREEMENT. This Agreement shall
apply to all shares of common stock of the Company now owned or hereafter
acquired by any Shareholder.
14. PARTICIPATION IN SALES.
(a) TAG-ALONG SHAREHOLDER RIGHT. If any Shareholder or
group of Shareholders (the "Offeree") receives a bona fide offer
from a third party or parties other than the Company or any other
Shareholder (the "Purchaser") to purchase all or any part of the
Shares owned by the Offeree and such Shares are equal to at least
20% of the Shares, (the "Tag-Along Shares"), for a specified
price payable in cash or otherwise and on specified terms and
conditions (the "Tag-Along Offer"), and (i) the Offeree proposes
to sell or otherwise transfer the Tag-Along Shares to the
Purchaser pursuant to the Tag-Along Offer, and (ii) neither the
Company, the Shareholders nor Electra shall have exercised their
respective Company Options or Shareholder Options to acquire the
Tag-Along Shares under SECTIONS 3 and 5 hereunder, then each
member of the Electra Group shall have the right to sell to the
Purchaser, at the same price per Share and on the same terms and
conditions as stated in the Offer, all Shares owned by the member
of the Electra Group prior to any sale by any Offeree. If the
number of Tag-Along Shares to be purchased by the Purchaser is
less than the sum of the Offeree's Shares and number of all
Shares all such members of the Electra Group shall have elected
to sell to the Purchaser pursuant to the Tag-Along Offer, then
the number of Shares to be sold by the Offeree and each member of
the Electra Group shall be reduced proportionately based on the
number of Shares that the Offeree and each member of the Electra
Group has elected to sell. If the price proposed in the Tag-
Along Offer shall consist of consideration other than cash, any
such member of the Electra Group may elect to sell such Shares to
the Offeree in lieu of the Purchaser, and the Offeree shall
-18-
<PAGE>
purchase such Shares, for cash in an amount per Share equal to
the mutually agreed value of such non-cash consideration on a per
Share basis (plus the amount of cash per Share offered, if any,
in the Tag-Along Offer). If no such agreement as to value is
reached before the fifth business day prior to the proposed sale
to the Purchaser, such value shall be determined by an
independent appraiser who shall promptly make such determination
in accordance with the guidelines established for determining the
Appraised Value (as defined in the Warrants) of shares under the
Warrants. The independent appraiser shall be selected on such
fifth preceding business day by such member of the Electra Group
and reasonably acceptable to the Offeree, and shall be an
investment banking firm selected by the Company and reasonably
acceptable to the Electra Group
(b) In addition to any notice required under SECTION 3(e),
the Offeree shall notify in writing the members of the Electra
Group of the Offeree's desire to sell, transfer or otherwise
dispose of the Shares held by the Offeree pursuant to the Tag-
Along Offer. The written notice shall specify (i) the number of
Shares to be transferred, (ii) the name, address and telephone
number of the Purchaser, (iii) the proposed price or other
consideration to be paid for the Shares, and (iv) all other terms
of any proposed transfer. The Offeree proposing the transfer
shall give the members of the Electra Group a copy of any
agreement, offer or other document relating to the purchase of
the Tag Along Shares. A member of the Electra Group wishing to
participate in any sale pursuant to SECTION 14(a) shall notify
the Offeree in writing of such intention as soon as practicable
after the member receives the notice from the Offeree, but no
later than thirty (30) days after the receipt of the notice. If
the Offeree does not receive the notice from any member of the
Electra Group within the notice period described above, the
Offeree may consummate the proposed transaction (without any
obligation to include the Shares of the applicable member of the
Electra Group in such transaction) and the Offeree shall have a
period of 90 days after the expiration of the notice to transfer
the Tag-Along Shares at a price equal to or higher than the price
in the Tag-Along Offer and on terms as are not inconsistent with
the terms set forth in the Tag-Along Offer.
(c) If any Electra Group member elects to participate in any
Tag-Along Offer, the Offeree and each participating member of the
Electra Group shall sell to the Purchaser the Shares proposed to be
sold by them at the price and otherwise upon the terms and conditions,
if any, stated in the Tag-Along Offer.
(d) The parties hereto acknowledge that a Tag-Along Offer shall
be considered a proposed Voluntary Transfer. The Offeree must
-19-
<PAGE>
otherwise comply with the terms of this Agreement applicable to any
proposed Voluntary Transfer to consummate any transaction pursuant to
any Tag-Along Offer. The right of any member of the Electra Group to
participate in any Tag-Along Offer shall be in addition to and not in
place of any right to purchase the Tag-Along Shares pursuant to
SECTION 5 of this Agreement.
15. TAKE ALL PROPER ACTIONS. The parties to this Agreement shall
take all proper actions necessary to permit them to fulfill their duties
under this Agreement, including signing all necessary documents and taking
all other action necessary to carry out or cause the Company to carry out
the provisions of this Agreement.
16. TERMINATION PROVISIONS. This Agreement shall terminate upon the
earliest to occur of any of the following events: (i) cessation of
business of the Company, (ii) bankruptcy, receivership or dissolution of
the Company, (iii) the death of all Shareholders within 90 days of each
other, (iv) the written agreement of all of the parties to this Agreement,
or (v) the Company's completion of an IPO.
17. NOTICE. Notice will be effective at the earlier of actual
receipt or five days following deposit of notice in the U.S. mail, first-
class postage attached, addressed to a party at the address on file with
the Company.
18. LEGAL REMEDY INADEQUATE. The Shares are a unique asset and,
accordingly, in any action for the actual or anticipated breach of this
Agreement, the legal remedy for damages shall be deemed inadequate, and
injunctive relief is appropriate to prevent or remedy any breach.
19. BINDING EFFECT; BENEFITS; ASSIGNMENT. All of the terms of this
Agreement will be binding upon, inure to the benefit of and be enforceable
by and against the heirs and legal representatives of the Shareholders and
the successors and assigns of the Company or of Electra. Nothing in this
Agreement, express or implied, is intended to confer upon any other person
any rights or remedies under or by reason of this Agreement, this Agreement
being for the exclusive benefit of the parties and their respective heirs,
legal representatives, successors and assigns. No party will assign any of
its respective rights or obligations under this Agreement to any other
person without the prior written consent of all of the other parties.
Notwithstanding the foregoing or anything else contained herein, the
provisions of this Agreement (other than Section 25 hereof) shall not be
binding upon any Transferee (as such term is defined in said Section 25)
-20-
<PAGE>
nor any transferee who has acquired Shares from an Electra Transferor
pursuant to Section 2(d)(v) of this Agreement.
20. SEVERABILITY. Any provision, or clause of any provision, of this
Agreement that is found to be contrary to Michigan law or otherwise
unenforceable will not affect the remaining terms of this Agreement, which
will be construed as if the unenforceable provision or clause were absent
from this Agreement.
21. VENUE; JURISDICTION. The Company and Shareholders agree that a
proper forum in which to litigate any dispute that arises under this
Agreement among the Company and Shareholders shall be the courts in Kent
County, Michigan. Each such party also agrees that those courts shall have
personal jurisdiction over the party with respect to any action under this
Agreement.
22. GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Michigan as applicable to
contracts made and to be performed in the State of Michigan without regard
to conflicts of laws principals.
23. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof. No
representation, promise, inducement or statement of intention has been made
by any party that is not embodied in this Agreement, and no party will be
bound by or liable for any alleged representation, promise, inducement or
statement of intention not set forth in this Agreement.
24. AMENDMENT. This Agreement may be amended only by an agreement in
writing signed by persons holding at least 75% of the Purchased Shares that
are subject to this Agreement and if the amendment would materially
adversely affect Electra, the written consent of Electra; PROVIDED,
HOWEVER, that SECTION 8 of this Agreement may be amended only by an
agreement in writing signed by persons holding at least 90% of the
Purchased Shares that are subject to this Agreement and the written consent
of Electra; PROVIDED FURTHER, that except for the foregoing permitted
amendment to SECTION 8, no provision regarding any right, duty or
obligation of any Shareholder may be modified or amended to adversely
affect the Shareholder without his or her written consent and, PROVIDED
FURTHER, that no sale, disposition or other transfer may be permitted
pursuant to any amendment which would cause an event of default under the
terms of any Lender Agreement or any Pledge Agreement. All amendments
adopted in accordance with this SECTION 24 shall be binding on all of the
-21-
<PAGE>
parties to this Agreement and their respective heirs, successors and
assigns.
25. INAPPLICABILITY TO LENDERS. The restrictions contained in this
Agreement shall not apply to (a) the grant of a security interest, directly
or indirectly, by any Shareholder to the BOS or any Bank, (b) any
foreclosure or other realization by any of the foregoing on any such
security interest (including without limitation any sale by BOS or a Bank
of any Purchased Shares in connection therewith), or (c) any sale, transfer
or grant of security interest by any of the foregoing or by any Transferee.
As used herein:
"BANKS" shall mean any or all of the financial
institutions from time to time party to a Lender Agreement
and any entity acting on behalf of any of the foregoing (in
each case, together with their respective successors and
assigns), and "BANK" shall mean any of the foregoing.
"BOS" shall mean Bank of Scotland, its successors and
assigns.
"TRANSFEREE" shall mean and include the Banks, BOS and
each Person who acquires the relevant (or any successor)
shares, directly or indirectly, from BOS or any Bank or from
any other direct or indirect transferee of any of the
foregoing.
The provisions of this SECTION 25 may not be amended, supplemented or
otherwise modified without the consent of BOS or any entity acting on
behalf of any of the other Banks.
26. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which when so executed will be deemed to be an original, and such
counterparts will together constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first written above.
COMPANY:
FAMILY BOOKSTORES COMPANY, INC.
By /S/ LESLIE E. DIEZMAN
---------------------------
Leslie E. Dietzman
Its President
-22-
<PAGE>
/S/ ELECTRA INVESTMENT TRUST, PLC
ELECTRA INVESTMENT TRUST, PLC
/S/ ELECTRA ASSOCIATES, INC.
ELECTRA ASSOCIATES, INC.
SHAREHOLDERS:
/S/ GEORGE CRAIG
--------------------------------
George Craig
/S/ LESLIE E. DIETZMAN
--------------------------------
Leslie E. Dietzman
NBD Bank, N.A., Trustee for the Leslie
E. Dietzman Individual Retirement
Account
By:/S/
--------------------------------
Assistant Vice President and Trust
Officer
/S/ NEIL TOPHAM
--------------------------------
Neil Topham
Bruce E. Ryskamp and Jeralyn G. Ryskamp,
Co-Trustees of the Bruce E. Ryskamp
Living Trust
By: /S/ BRUCE E. RYSKAMP
--------------------------------
Bruce E. Ryskamp, Co-Trustee
By: /S/ JERALYN G. RYSKAMP
--------------------------------
Jeralyn G. Ryskamp, Co-Trustee
-23-
<PAGE>
Jeralyn G. Ryskamp and Bruce E. Ryskamp,
Co-Trustees of the Jeralyn G. Ryskamp
Living Trust
By: /S/ BRUCE E. RYSKAMP
--------------------------------
Bruce E. Ryskamp, Co-Trustee
By: /S/ JERALYN G. RYSKAMP
--------------------------------
Jeralyn G. Ryskamp, Co-Trustee
/S/ RICHARD M. BUTLER
--------------------------------
Richard M. Butler
Old Kent Bank and Trust Company,
Custodian for the Richard M. Butler
Individual Retirement Account
By: /S/
--------------------------------
/S/ DENNIS K. WADE
--------------------------------
Dennis K. Wade
Old Kent Bank and Trust Company,
Custodian for the Dennis K. Wade
Individual Retirement Account
By: /S/
--------------------------------
/S/ CRAIG B. KLAMER
--------------------------------
Craig B. Klamer
Old Kent Bank and Trust Company,
Custodian for the Craig B. Klamer
Individual Retirement Account
By:/S/
--------------------------------
/S/ J. HAL BAILEY
--------------------------------
J. Hal Bailey
Old Kent Bank and Trust Company,
Custodian for the J. Hal Bailey
Individual Retirement Account
By/S/
--------------------------------
-24-
<PAGE>
/S/ MONROE POFCHER
--------------------------------
Monroe Pofcher
/S/ WILLIAM G. BAKER
--------------------------------
William G. Baker
/S/ EDWARD BELL
--------------------------------
Edward Bell
-25-
<PAGE>
EXHIBIT 10.15
ASSET PURCHASE AGREEMENT
dated as of April __, 1998
among
Family Bookstores Company, Inc.
Tandycrafts, Inc.
and
The Development Association, Inc.
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it
is attached, but is inserted for convenience only.
PAGE
ARTICLE I - SALE OF ASSETS AND CLOSING . . . . . . . . . . . . . . . . . 1
1.01 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.03 Purchase Price; Allocation; Adjustment. . . . . . . . . . . . 7
1.04 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.05 Prorations. . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.06 Further Assurances; Post-Closing Cooperation. . . . . . . . . 11
1.07 Third-Party Consents. . . . . . . . . . . . . . . . . . . . . 12
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLER AND
PARENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.01 Organization of Seller and Parent . . . . . . . . . . . . . . 13
2.02 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.03 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . 14
2.04 Governmental Approvals and Filings. . . . . . . . . . . . . . 15
2.05 Books and Records . . . . . . . . . . . . . . . . . . . . . . 15
2.06 Financial Statements. . . . . . . . . . . . . . . . . . . . . 15
2.07 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . 15
2.08 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . 15
2.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.10 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Compliance With Laws and Orders . . . . . . . . . . . . . . . 17
2.12 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . 17
2.13 Real Property Leases. . . . . . . . . . . . . . . . . . . . . 18
2.14 Tangible Personal Property. . . . . . . . . . . . . . . . . . 19
2.15 Intellectual Property Rights. . . . . . . . . . . . . . . . . 19
2.16 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.17 Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.19 Affiliate Transactions. . . . . . . . . . . . . . . . . . . . 22
2.20 Employees; Labor Relations. . . . . . . . . . . . . . . . . . 23
2.21 Environmental Matters.. . . . . . . . . . . . . . . . . . . . 23
2.22 Substantial Suppliers.. . . . . . . . . . . . . . . . . . . . 25
2.23 Accounts Receivable.. . . . . . . . . . . . . . . . . . . . . 25
2.24 Inventory.. . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.25 Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.26 No Guarantees . . . . . . . . . . . . . . . . . . . . . . . . 26
2.27 Entire Business . . . . . . . . . . . . . . . . . . . . . . . 26
2.28 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 26
<PAGE>
PAGE
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER. . . . . . . . 27
3.01 Organization. . . . . . . . . . . . . . . . . . . . . . . . . 27
3.02 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.03 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . 27
3.04 Governmental Approvals and Filings. . . . . . . . . . . . . . 28
3.05 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 28
3.06 Financial Statements. . . . . . . . . . . . . . . . . . . . . 28
3.07 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . 28
3.08 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . 29
3.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.10 Compliance With Laws and Orders . . . . . . . . . . . . . . . 29
3.11 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV - COVENANTS OF SELLER AND PARENT. . . . . . . . . . . . . . . 29
4.01 Regulatory and Other Approvals. . . . . . . . . . . . . . . . 30
4.02 Investigation by Purchaser. . . . . . . . . . . . . . . . . . 30
4.03 No Solicitations. . . . . . . . . . . . . . . . . . . . . . . 31
4.04 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 31
4.05 Financial Statements and Reports. . . . . . . . . . . . . . . 32
4.06 Certain Restrictions. . . . . . . . . . . . . . . . . . . . . 33
4.07 Security Deposits . . . . . . . . . . . . . . . . . . . . . . 34
4.08 Delivery of Books and Records, etc.; Removal of Property. . . 34
4.09 Noncompetition. . . . . . . . . . . . . . . . . . . . . . . . 35
4.10 Notice and Cure . . . . . . . . . . . . . . . . . . . . . . . 36
4.11 Fulfillment of Conditions . . . . . . . . . . . . . . . . . . 37
4.12 Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . 37
4.13 Store Leases. . . . . . . . . . . . . . . . . . . . . . . . . 37
4.14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.15 Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE V - COVENANTS OF PURCHASER . . . . . . . . . . . . . . . . . . . 38
5.01 Regulatory and Other Approvals. . . . . . . . . . . . . . . . 38
5.02 Notice and Cure . . . . . . . . . . . . . . . . . . . . . . . 39
5.03 Fulfillment of Conditions . . . . . . . . . . . . . . . . . . 39
5.04 Store Opening Funds . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VI - CONDITIONS TO OBLIGATIONS OF PURCHASER. . . . . . . . . . . 40
6.01 Representations and Warranties. . . . . . . . . . . . . . . . 40
6.02 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.03 Officers' Certificates. . . . . . . . . . . . . . . . . . . . 40
6.04 Orders and Laws . . . . . . . . . . . . . . . . . . . . . . . 40
6.05 Regulatory Consents and Approvals.. . . . . . . . . . . . . . 41
<PAGE>
PAGE
6.06 Third Party Consents. . . . . . . . . . . . . . . . . . . . . 41
6.07 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . 41
6.08 Real Property Leases. . . . . . . . . . . . . . . . . . . . . 41
6.09 Financing.. . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.10 Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.11 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.12 Computer Services Agreement . . . . . . . . . . . . . . . . . 42
6.13 No Material Adverse Change. . . . . . . . . . . . . . . . . . 42
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF SELLER AND PARENT . . . . . . 43
7.01 Representations and Warranties. . . . . . . . . . . . . . . . 43
7.02 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.03 Officers' Certificates. . . . . . . . . . . . . . . . . . . . 43
7.04 Orders and Laws . . . . . . . . . . . . . . . . . . . . . . . 43
7.05 Regulatory Consents and Approvals.. . . . . . . . . . . . . . 43
7.06 Third Party Consents. . . . . . . . . . . . . . . . . . . . . 44
7.07 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . 44
7.08 Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.09 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.10 Computer Services Agreement . . . . . . . . . . . . . . . . . 44
7.11 No Material Adverse Change. . . . . . . . . . . . . . . . . . 44
7.12 Additional Indebtedness . . . . . . . . . . . . . . . . . . . 45
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . . . 45
8.01 Survival of Representations, Warranties, Covenants and
Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IX - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 46
9.01 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 46
9.02 Method of Asserting Claims. . . . . . . . . . . . . . . . . . 48
ARTICLE X - TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 52
10.01 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.02 Liabilities in Event of Termination . . . . . . . . . . . . . 53
10.03 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . 53
<PAGE>
PAGE
ARTICLE XI - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 54
11.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE XII - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 64
12.01 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.02 Bulk Sales Act.. . . . . . . . . . . . . . . . . . . . . . . 65
12.03 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 66
12.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.05 Public Announcements.. . . . . . . . . . . . . . . . . . . . 66
12.06 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 66
12.07 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
12.08 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 67
12.09 No Third Party Beneficiary . . . . . . . . . . . . . . . . . 67
12.10 No Assignment; Binding Effect. . . . . . . . . . . . . . . . 67
12.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 68
12.12 Consent to Jurisdiction and Service of Process.. . . . . . . 68
12.13 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . 68
12.14 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 69
12.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 69
<PAGE>
EXHIBITS
Exhibit A Assignment and Assumption Agreement
Exhibit B Nonnegotiable Promissory Note
Exhibit C Officer's Certificate of Seller
Exhibit D Secretary's Certificate of Seller
Exhibit E Opinion of Counsel to Seller
Exhibit F Estoppel Certificate and Consent to Assignment
Exhibit G Officer's Certificate of Purchaser
Exhibit H Secretary's Certificate of Purchaser
Exhibit I Opinion of Counsel to Purchaser
<PAGE>
This Agreement is an ASSET PURCHASE AGREEMENT dated as of
April __, 1998, among FAMILY BOOKSTORES COMPANY, INC., a Michigan
corporation ("Purchaser"), TANDYCRAFTS, INC., a Delaware corporation
("Parent"), and THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation and
wholly owned subsidiary of Parent ("Seller"). Capitalized terms not
otherwise defined herein have the meanings set forth in Section 11.01(a).
WHEREAS, Seller is engaged in the retail distribution and sale of
Christian Bibles, Christian books (including Christian family and
inspirational books), and related gifts, music and novelty items (the
"Business"); and
WHEREAS, Seller desires to sell, transfer and assign to
Purchaser, and Purchaser desires to purchase and acquire from Seller,
certain of the assets of Seller used in the Business and, in connection
therewith, Purchaser has agreed to assume certain of the obligations of
Seller relating to the Business, all on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Purchaser, Parent and Seller agree as follows:
ARTICLE I
SALE OF ASSETS AND CLOSING
1.01 ASSETS.
(a) ASSETS TRANSFERRED. On the terms and subject to the
conditions set forth in this Agreement, Seller will sell,
transfer, convey, assign and deliver to Purchaser, and Purchaser
will purchase and pay for, at the Closing, free and clear of all
Liens other than Permitted Liens, all of Seller's right, title
and interest in, to and under the Seller Assets. For purposes of
this Agreement, "Seller Assets" means all the Assets and
Properties of Seller operated, owned or leased by Seller used in
the Business at any of Seller's retail store locations (a
"Store") or otherwise on the Closing Date wherever located,
including, without limitation, the following:
(i) REAL PROPERTY LEASES. (A) The leases and
subleases of real property for any Store or other location
described in SECTION 1.01(a)(i) OF THE DISCLOSURE SCHEDULE
as to which Seller is the lessee or sublessee, together with
any options to purchase the underlying property and
leasehold improvements thereon, and in each case all other
rights, subleases, licenses, permits, deposits, credits,
<PAGE>
prepayments and profits appurtenant to or related to such
leases and subleases (the leases and subleases described in
this subclause, collectively, the "Real Property Leases");
(ii) INVENTORY. All goods which are included for sale
to customers, copies of all video cassettes and feature
films held for rental to such customers, copies of all
demonstration audio cassettes or other miscellaneous
recordings intended for use at the Stores, which are held
at, or are in transit from or to, the locations at which the
Business is conducted, or located at customers' premises on
consignment, in each case, which are used or held for use by
Seller in the conduct of the Business, including any of the
foregoing purchased subject to any conditional sales or
title retention agreement in favor of any other Person,
together with all rights of Seller against suppliers of such
inventories, but subject to the limitations on inventory to
be acquired by Purchaser pursuant to Section 1.03(c)(i) of
this Agreement and PROVIDED, HOWEVER, that Purchaser shall
acquire goods in transit to Seller together with the rights
of Seller against the suppliers of the goods in transit only
to the extent that Purchaser has assumed the liability with
respect to the related trade payable pursuant to Section
1.02(a)(v) of this Agreement (the "Inventory");
(iii) ACCOUNTS RECEIVABLE. All trade accounts
receivable and all notes, bonds and other evidences of
rights to receive payments arising out of sales occurring in
the conduct of the Business and the Security Agreements
related thereto, including any rights of Seller with respect
to any third party collection procedures or any other
Actions or Proceedings which have been commenced in
connection therewith (the "Accounts Receivable");
(iv) TANGIBLE PERSONAL PROPERTY. All furniture,
fixtures, equipment, machinery, demonstration equipment,
office and other supplies, parts, packaging materials and
other accessories related thereto and other tangible
personal property (other than the Inventory and the
Vehicles) used or held for use by Seller in the conduct of
the Business at the locations at which the Business is
conducted or at customers' premises on consignment, or
otherwise used or held for use by Seller in the conduct of
the Business (including but not limited to the items listed
in SECTION 1.01(a)(iv) OF THE DISCLOSURE SCHEDULE),
including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of
any other Person, but excluding Seller's Computer Equipment
(the "Tangible Personal Property");
-2-
<PAGE>
(v) PERSONAL PROPERTY LEASES. (A) The leases or
subleases of tangible personal property described in SECTION
1.01(a)(v)(A) OF THE DISCLOSURE SCHEDULE as to which Seller
is the lessor or sublessor and (B) the leases of tangible
personal property described in SECTION 1.01(a)(v)(B) OF
THE DISCLOSURE SCHEDULE as to which Seller is the lessee or
sublessee, together with any options to purchase the
underlying property, and in each case all other rights,
subleases, credits, prepayments and profits related to such
leases and subleases (the leases and subleases described in
subclauses (A) and (B), collectively, the "Personal Property
Leases");
(vi) BUSINESS CONTRACTS. All Contracts (other than the
Real Property Leases, the Personal Property Leases and the
Accounts Receivable) to which Seller is a party, which are
utilized in the conduct of the Business, including Contracts
relating to suppliers, sales representatives, distributors,
purchase orders, marketing arrangements and manufacturing
arrangements and which are listed in SECTION 1.01(a)(vi) OF
THE DISCLOSURE SCHEDULE (the "Business Contracts");
(vii) PREPAID EXPENSES AND GOODWILL. Except as set
forth in Section 1.05, all prepaid expenses relating to the
Business, including the items listed SECTION 1.01(a)(vii)
OF THE DISCLOSURE SCHEDULE (the "Prepaid Expenses"), and all
goodwill relating to the Business;
(viii) INTANGIBLE PERSONAL PROPERTY. All Intellectual
Property used or held for use by Seller in the conduct of
the Business and all rights, manufacturer's warranties of
any tangible personal properties, privileges, claims, causes
of action and options relating or pertaining to the Business
or the Seller Assets, including the right to redeem and
receive the benefit of any unredeemed coupons issued by
vendors to the Stores (except for credits relating to such
coupons for inventory of the Business retained by Seller
after the Closing) and the items listed in
SECTION 1.01(a)(viii) OF THE DISCLOSURE SCHEDULE (the
"Intangible Personal Property");
(ix) LICENSES. To the extent their transfer is
permitted under the terms thereof or under applicable Laws,
all Licenses (including Environmental Permits) utilized in
the conduct of the Business, including the Licenses listed
in SECTION 1.01(a)(ix) OF THE DISCLOSURE SCHEDULE (the
"Business Licenses");
-3-
<PAGE>
(x) VEHICLES. All motor vehicles owned or leased by
Seller and used or held for use in the conduct of the
Business, including the vehicles listed in Section
1.01(a)(x) OF THE DISCLOSURE SCHEDULE (the "Vehicles");
(xi) SECURITY DEPOSITS. All security deposits
deposited by or on behalf of Seller as lessee or sublessee,
or the benefit of any unapplied advance rents, under the
Real Property Leases (the "Tenant Security Deposits");
(xii) BOOKS AND RECORDS. All Books and Records used or
held for use in the conduct of the Business or otherwise
relating to the Seller Assets that are located at any Store,
and copies of any such Books and Records located at Seller's
headquarters office that Purchaser may request reasonably,
other than the minute books, stock certificates and books,
stock transfer ledgers, communications to Seller's directors
or shareholders, and corporate seal of Seller (the "Business
Books and Records"); and
(xiii) STORE OPENING FUNDS. Cash register funds in the
amount of $150 for each cash register at each Store (the
"Store Opening Funds").
(xiv) OTHER ASSETS AND PROPERTIES. All other Assets
and Properties of Seller used or held for use in connection
with the Business, except as otherwise provided in
Section 1.01(b) (the "Other Assets").
Seller agrees to confirm the sale of the Seller Assets on the
Closing Date by the execution and delivery to Purchaser, on the Closing
Date, of the Assignment and Assumption Agreement.
(b) EXCLUDED ASSETS. Notwithstanding anything in this
Agreement to the contrary, the following Assets and Properties of
Seller (the "Excluded Assets") shall be excluded from and shall
not constitute Seller Assets:
(i) CASH AND INVESTMENT ASSETS. Cash, certificates of
deposit and other bank deposits, treasury bills and other
cash equivalents and Investment Assets;
(ii) CORPORATE RECORDS. The minute books, stock
transfer books, communications to Seller's directors and
shareholders and corporate seal of Seller and all other
Books and Records of Seller other than the Business Books
and Records;
-4-
<PAGE>
(iii) COMPUTER EQUIPMENT. The data processing
equipment, including point of sale equipment, and related
software of Seller and all computers, phone systems, voice
mail, e-mail and similar and related equipment located at
the home office of Seller or Parent ("Seller's Computer
Equipment");
(iv) EXCLUDED OBLIGATIONS. The rights of Seller in, to
and under all Contracts and Licenses of any nature, the
obligations of Seller under which expressly are not assumed
by Purchaser pursuant to Section 1.02(a);
(v) J MAR DIVISION. The assets and properties of
Seller used solely to conduct business in the J Mar division
of the Seller;
(vi) RESOURCES; REFUNDS; AND CREDITS. The rights of
Seller in any recoveries under insurance or litigation
arising out of or relating to events that occurred prior to
the Closing Date; Seller's credits for any inventory of the
Business that Purchaser shall not acquire pursuant to this
Agreement; Seller's rights to any refunds or adjustments
relating to Taxes; any intercompany receivables and prepaid
expenses between Parent and Seller; and credits against
trade accounts payable retained by Seller; and
(vii) THIS AGREEMENT. The Seller's rights under this
Agreement and any Operative Agreement.
1.02 LIABILITIES.
(a) ASSUMED LIABILITIES. In connection with the sale,
transfer, conveyance, assignment and delivery of the Seller
Assets pursuant to this Agreement, on the terms and subject to
the conditions set forth in this Agreement, at the Closing,
Purchaser will assume and agree to pay, perform and discharge
when due the following obligations of Seller arising in
connection with the operation of the Business, as the same shall
exist on the Closing Date (the "Assumed Liabilities"), and no
others:
(i) REAL PROPERTY LEASE OBLIGATIONS. For all Real
Property Leases transferred to Purchaser at the Closing or
as to which the Purchaser is a subleasee, all obligations of
Seller under the Real Property Leases listed in
Schedule 1.01(a)(i) of the Disclosure Schedule arising and
to be performed on or after the Closing Date, and excluding
all such obligations arising or to be performed prior to the
Closing Date;
-5-
<PAGE>
(ii) PERSONAL PROPERTY LEASE OBLIGATIONS. For all
Personal Property Leases transferred to the Purchaser at the
Closing, all obligations of Seller under the Personal
Property Leases listed in Schedule 1.01(a)(v) of the
Disclosure Schedule arising and to be performed on or after
the Closing Date, and excluding all such obligations arising
or to be performed prior to the Closing Date;
(iii) OBLIGATIONS UNDER CONTRACTS AND LICENSES. For
all Business Contracts and Business Licenses assigned to
Purchaser at the Closing, all obligations of Seller under
the Business Contracts and Business Licenses listed in
Schedule 1.01(a)(vi) or (ix) arising and to be performed on
or after the Closing Date, and excluding all such
obligations arising or to be performed prior to the Closing
Date; and
(iv) GIFT CERTIFICATES OUTSTANDING. All obligations of
Seller for any gift certificate issued and outstanding as
set forth in SECTION 1.02(a)(iv) OF THE DISCLOSURE SCHEDULE
(the "Gift Certificates Outstanding").
(v) TRADE PAYABLES. All trade payables for inventory
acquired by Purchaser pursuant to Section 1.03(c)(i)(A), but
only to the extent provided in Section 1.03(c)(i)(B).
Purchaser agrees to confirm such assumption by the execution and
delivery to Seller, on the Closing Date, of the Assignment and Assumption
Agreement. Notwithstanding anything in this Agreement to the contrary,
Purchaser shall not assume any of the obligations for which Seller shall be
liable as provided in Section 1.05, and the same shall be excluded from the
definition of "Assumed Liabilities" for all purposes of this Agreement.
(b) RETAINED LIABILITIES. Except for the Assumed
Liabilities, Purchaser shall not assume by virtue of this
Agreement or the transactions contemplated hereby, and shall have
no liability for, any Liabilities of Seller or Parent (including,
without limitation, those related to the Business) of any kind,
character or description whatsoever (the "Retained Liabilities").
Parent shall cause Seller to discharge when due or to make
adequate provision for all of the Retained Liabilities, PROVIDED
that each of Seller and Parent shall have the ability to contest,
in good faith, any claim of liability asserted in respect thereof
by any Person. Notwithstanding anything in Section 1.02(a) or in
any other provision of this Agreement to the contrary, the
following shall be Retained Liabilities:
(i) any liability or obligation relating to Excluded
Assets;
-6-
<PAGE>
(ii) any liability or obligation to relating to
Indebtedness of Seller or Parent; and
(iii) any claim, liability or obligation relating to
Taxes with respect to Seller or the Business for any period
or portion thereof ending on or before the Closing Date, or
arising out of any tax sharing agreement or the transactions
contemplated by this Agreement.
1.03 PURCHASE PRICE; ALLOCATION; ADJUSTMENT.
(A) PURCHASE PRICE. In addition to the Assumed
Liabilities, the aggregate purchase price for the Seller Assets
and for the covenant of Seller and Parent contained in
Section 4.09 is U.S. $11,500,000, subject to adjustment as
provided in paragraph (c) below (the "Purchase Price"), payable
in the manner provided in paragraph (d) below.
(b) ALLOCATION OF PURCHASE PRICE. Purchaser and Seller
shall negotiate in good faith prior to the Closing Date and
determine the allocation of the consideration paid by Purchaser
for the Seller Assets and the covenant of Seller and Parent
contained in Section 4.09, and each agree that $25,000 will be
allocated to the covenants of Seller and Parent contained in
Section 4.09. Each party hereto agrees (i) that any such
allocation shall be consistent with paragraph (a) above and the
requirements of Section 1060 of the Code and the regulations
thereunder, (ii) to complete jointly and to file separately Form
8594 with its Federal income Tax Return consistent with such
allocation for the tax year in which the Closing Date occurs and
(iii) that no party will take a position on any income, transfer
or gains Tax Return, before any Governmental or Regulatory
Authority charged with the collection of any such Tax or in any
judicial proceeding, that is in any manner inconsistent with the
terms of any such allocation without the consent of the other
parties hereto.
(c) ADJUSTMENT OF PURCHASE PRICE. The Purchase Price shall
be determined by making the following adjustments. The
adjustments shall be made to the principal payment or payments
that first become due under the Promissory Note, except for any
increase in the Purchase Price pursuant to Section 1.03(c)(v),
which shall be added to the cash payment to be made at the
Closing.
(i) RGIS, a national inventory service company, shall
conduct a physical inventory on or near the Closing Date and
the physical inventory shall be valued at Seller's average
-7-
<PAGE>
vendor cost determined on a basis consistent with the
Seller's current accounting practices (the "Inventory
Valuation"). The Inventory Valuation shall not be adjusted
for any leftover "seasonal" product, "dated" items (such as
old calendars), or obsolete, defective or unsalable items.
Seller and Purchaser shall share equally the amounts payable
to RGIS to conduct the physical inventory. The Purchase
Price shall be based on the assumption that the Inventory
Valuation shall be equal to at least $7,100,000. The
Purchase Price shall be reduced on a dollar-for-dollar basis
by the amount by which the Inventory Valuation is less than
$7,100,000, but only to the extent that the difference is
greater than $150,000. The Purchase Price shall be
increased on a dollar-for-dollar basis by the amount by
which the Inventory Valuation is greater than $7,100,000,
but only to the extent that the difference is greater than
$150,000, and provided further that any such increase to the
Purchase Price shall not exceed $100,000 and Seller would
have the right to return to vendors any inventory in excess
of $7,350,000. Seller shall use its commercially reasonable
efforts to manage inventory to maintain operations of the
Stores while seeking to avoid any adjustment to the Purchase
Price. Seller shall consult with Purchaser with respect to
inventory purchases between the date of this Agreement and
the Closing. Immediately prior to Closing, Seller shall
cancel all inventory purchase orders that are cancelable.
Purchaser shall (A) acquire the inventory received by
Purchaser after the Closing pursuant to any purchase order
that is not cancelable and (B) assume the trade payable
related to such inventory, but only to the extent that the
aggregate amount of such inventory and related trade
payables shall not exceed $100,000 (the "Inventory Cap").
For any inventory attributable to a purchase order that is
not cancelable and that exceeds the Inventory Cap, Seller
shall have the right to return the excess inventory to the
vendor. Inventory selected for return to vendors under this
paragraph (c)(i), if any, shall be as determined by
Purchaser; provided, however, that any such inventory so
determined by Purchaser shall be returnable without penalty
to Seller. If after the Closing it is determined that the
count and description of the Inventory was incomplete or
inaccurate as of the Closing Date, then the Purchase Price
shall be adjusted by making an adjustment to the principal
payment or payments that first become due under the
Promissory Note.
(ii) The Purchase Price shall be reduced on a dollar-
for-dollar basis by (A) the amount by which the balance of
-8-
<PAGE>
the Accounts Receivable as of the Closing Date shall be less
than $80,000 and (B) any amount of an Account Receivable
that the Purchaser shall not collect within 120 days after
the Closing (the Account Receivable to the extent it has not
been so collected shall be referenced as an "Uncollected
Account"); provided, however, that Purchaser shall use its
commercially reasonable efforts consistent with its past
practices to collect Accounts Receivable. Purchaser shall
transfer to Seller the rights to any Uncollected Account.
(iii) The Purchase Price shall be reduced by (A) an
amount equal to 80% of the Gift Certificates Outstanding as
of the Closing Date; (B) the aggregate amount of any Store
Relocation Expenses; and (C) amounts representing any
prepayments by customers of the Business for orders to be
delivered after the Closing.
(iv) The Purchase Price shall be adjusted for the pro
rations set forth in this Agreement.
(v) The Purchase Price shall be increased by an amount
equal to the Store Opening Funds.
(d) The Purchase Price will be paid by Purchaser to Seller
on the Closing Date by wire transfer of immediately available
funds in the amount of $2,900,000, to an account maintained at a
commercial bank located in the United States, which account shall
be designated by Seller by written notice delivered to Purchaser
at least two (2) Business Days before the Closing Date and the
delivery to the Seller of Purchaser's unsecured promissory note,
substantially in the form of Exhibit B (the "Promissory Note"),
in the principal amount equal to $8,600,000 and interest on the
unpaid principal balance at an annual rate equal to 7.25%, due
and payable in three installments of $2,900,000 principal plus
interest on December 31, 1998, $2,900,000 principal plus interest
on December 31, 1999, and $2,800,000 principal plus interest on
December 31, 2000, and with the final installment subject to
prepayment within 30 days after the completion of the closing of
an underwritten public offering of Purchaser's common stock
pursuant to a registration statement effective under the Federal
Securities Act of 1933, as amended, resulting in proceeds to the
Purchaser in excess of $25,000,000.
1.04 CLOSING. The closing of the sale and transfer of the Seller
Assets to Purchaser and the assumption of the Assumed Liabilities by
Purchaser (the "Closing") will take place at the offices of Warner Norcross
& Judd LLP, 900 Old Kent Bank Building, 111 Lyon, N.W., Grand Rapids,
Michigan 49503, or at such other place as Purchaser and Seller mutually
-9-
<PAGE>
agree, at 10:00 A.M., local time, on the Closing Date. Simultaneously with
the payment of the Purchase Price, (a) Seller will assign and transfer to
Purchaser good and valid title in and to the Seller Assets (free and clear
of all Liens, other than Permitted Liens) by delivery of (i) the Assignment
and Assumption Agreement, duly executed by Seller, and (ii) such other
instruments of conveyance, assignment and transfer, in form and substance
reasonably acceptable to Purchaser's counsel and duly executed by Seller,
as Purchaser shall request to vest in Purchaser good title to the Seller
Assets (the Assignment and Assumption Agreement and the other instruments
referred to in clause (ii) above being collectively referred to herein as
the "Assignment Instruments"), and (b) Purchaser will assume from Seller
the payment and performance when due of the Assumed Liabilities by delivery
of (i) the Assignment and Assumption Agreement duly executed by Purchaser,
and (ii) such other instruments of assumption, in form and substance
acceptable to Seller's counsel and duly executed by Purchaser, as shall be
necessary to cause Purchaser to assume the Assumed Liabilities as and to
the extent provided in Section 1.02(a) (the Assignment and Assumption
Agreement and such other instruments referred to in clause (ii) above being
collectively referred to herein as the "Assumption Instruments"). At the
Closing, there shall also be delivered, to the applicable parties hereto,
the opinions, certificates and other contracts, documents, and instruments
required to be delivered under Articles VI and VII.
1.05 PRORATIONS. Prorations of recurring expenses relating to the
Seller Assets and the ownership and operation of the Business will be made
as of the Closing Date to the extent practicable, with Seller liable to the
extent that such items relate to any time period prior to the Closing Date
and Purchaser liable to the extent such items relate to periods beginning
with and subsequent to the Closing Date, including but not limited to:
accrued or pre-paid amount of rents, real estate taxes and other charges
(except charges for sewer, water, electricity and other utilities) payable
by Seller in respect of the real property subject to the Real Property
Leases and any personal property taxes.
Except as otherwise agreed by the parties hereto, the net amount
of all such prorations will be settled and paid on the Closing Date.
Property taxes shall be treated as if levied in advance for the 12 months
following their due date and prorated accordingly. The name of the Person
responsible for any sewer, water, electricity and other utility charges for
all Real Property Leases transferred to Purchaser or as to which Purchaser
is a subleasee as of the Closing shall be changed from Seller to Purchaser
as of the Closing Date or as soon thereafter as practicable. If not
changed as of the Closing Date, parties will pro rate on a daily, per diem
basis until so changed.
1.06 FURTHER ASSURANCES; POST-CLOSING COOPERATION.
(a) At any time or from time to time after the Closing, at
Purchaser's request and without further consideration, Seller
-10-
<PAGE>
shall execute and deliver to Purchaser such other instruments of
sale, transfer, conveyance, assignment, and confirmation, provide
such materials and information and take such other actions as
Purchaser may deem reasonably necessary or desirable in order
more effectively to transfer, convey and assign to Purchaser, and
to confirm Purchaser's title to, all of the Seller Assets, and,
to the full extent permitted by Law, to put Purchaser in actual
possession and operating control of the Business and the Seller
Assets and to assist Purchaser in exercising all rights with
respect thereto, and otherwise to cause Seller and Parent to
fulfill their obligations under this Agreement and the Operative
Agreements. Each party shall pay its own expenses incurred in
connection with the execution and delivery of the instruments
executed and delivered pursuant to this Section 1.06(a).
(b) Effective on the Closing Date, Seller hereby
constitutes and appoints Purchaser the true and lawful attorney
of Seller, with full power of substitution, in the name of
Seller, but on behalf of and for the benefit of Purchaser, to
demand, sue for, recover and receive any and all rights, demands,
claims and causes of action of every kind and description
whatsoever incident or relating to Seller Assets, for the purpose
of fully vesting in Purchaser, its successors and assigns, all
and singular, all the right, title and interest in and to Seller
Assets. Seller hereby acknowledges that the appointment hereby
made and the powers hereby granted are coupled with an interest
and are not and shall not be revocable by it in any manner or for
any reason. Seller shall deliver to Purchaser at Closing an
acknowledged power of attorney to the foregoing effect executed
by Seller or Parent (as the case may be).
(c) Following the Closing, each party hereto will afford to
the other parties hereto, and their counsel and accountants,
during normal business hours, reasonable access to the Books and
Records and other data relating to the Business in its possession
with respect to periods prior to the Closing and the right to
make copies and extracts therefrom and reasonable access to the
party's employees, to the extent that such access may be
reasonably required by the requesting party in connection with
(i) the preparation of Tax Returns, (ii) compliance with the
requirements of any Governmental or Regulatory Authority, (iii)
any actual or threatened Action or Proceeding in which the
adversarial party is a Person other than the requesting party
under this Agreement. Each party hereto further agrees that, for
a period extending six years after the Closing Date, it shall not
destroy or otherwise dispose of any such Books and Records and
other data unless (x) it shall first offer in writing to
surrender such Books and Records and other data to the other
-11-
<PAGE>
parties (other than the party that is its Affiliate), and (y)
such other parties shall not agree in writing to take possession
thereof during the 10-day period after such offer is made.
(d) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with Governmental or
Regulatory Authorities or its financial statements or to fulfill
its obligations hereunder, it is necessary that a party hereto be
furnished with additional information, documents or records
relating to the Business not referred to in paragraph (c) above,
and such information, documents or records are in the possession
or control of another party or its Representatives, such other
party shall use its commercially reasonable efforts to furnish or
make available such information, documents or records (or copies
thereof) at the recipient's request, cost and expense. Any
information obtained by Purchaser, Seller or Parent in accordance
with this paragraph shall be held confidential by Purchaser,
Seller or Parent, as applicable, in accordance with Section
12.06.
(e) Notwithstanding anything to the contrary contained in
this Section 1.06, if Purchaser, on the one hand, and Parent or
Seller, on the other hand, are in an adversarial relationship in
connection with any Action or Proceeding, the furnishing of
books, records and other documents and information in accordance
with paragraphs (c) and (d) of this Section 1.06 regarding the
subject Action or Proceeding of such matter shall be subject to
applicable rules relating to discovery, PROVIDED that the
foregoing limitations shall not apply to the furnishing of books,
records and other documents and information of the parties hereto
relating to (i) the adjustment to the Purchase Price pursuant to
Section 1.03(c) and (ii) the prorations to be made pursuant to
Section 1.05.
1.07 THIRD-PARTY CONSENTS. To the extent that any Real Property
Lease, Business Contract or Business License is not assignable without the
consent of another party, this Agreement shall not constitute an assignment
or an attempted assignment thereof if such assignment or attempted
assignment would constitute a breach thereof. Seller, Parent and Purchaser
shall use their commercially reasonable efforts as required by Sections
4.01 and 5.01 of the Agreement to obtain the consent of such other party to
the assignment of any such Real Property Lease, Business Contract or
Business License to Purchaser in all cases in which such consent is or may
be required for such assignment. If any such consent shall not be
obtained, Seller and Parent shall cooperate with Purchaser in any
reasonable arrangement designed to provide Purchaser with the benefits
intended to be assigned to Purchaser under the relevant Real Property
Lease, Business Contract or Business License, including, but not limited to
-12-
<PAGE>
a Management Agreement for a Store as to which an Estoppel Certificate and
Consent to Assignment Purchaser or sublease (acceptable to Purchaser) has
not been executed and delivered by all parties to the Purchaser. If and to
the extent that such arrangement cannot be made, Purchaser shall have no
obligation pursuant to Section 1.02 or otherwise with respect to any such
Real Property Lease, Business Contract or Business License. The provisions
of this Section 1.07 shall not affect the right of Purchaser to receive any
Store Relocation Expenses or not to consummate the transactions
contemplated by this Agreement if the condition contained in Section 6.08
has not been satisfied.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT
Purchaser, Parent and Seller acknowledge that each party's
Disclosure Schedules referenced in this Agreement were not delivered on the
date of this Agreement. Each party shall have ten business days after the
date of this Agreement to deliver to the other party the party's Disclosure
Schedule in final form. The receiving party shall have the right to
terminate in its sole discretion this Agreement by written notice to the
other party within seven business days after the receipt of the other
party's Disclosure Schedule or if (i) the other party fails timely to
deliver the Disclosure Schedule or (ii) if (A) the other party's Disclosure
Schedule is timely delivered, but discloses information, contracts or other
documents not disclosed in writing to the receiving party prior to the
signing of this Agreement ("Undisclosed Information") and (B) the
Undisclosed Information results in a reduction in the value of the Business
or Seller Assets, in the case of Parent and Seller as the disclosing party,
or the business and financial condition of Purchaser, in the case of the
Purchaser as the disclosing party, in an amount in excess of
$_____________. If a receiving party terminates this Agreement pursuant to
the foregoing provision, this Agreement shall be null and void, and have no
effect without any liability on the part of any party hereto or any
Affiliate or Representative of the party. If the party does not terminate
this Agreement pursuant to the foregoing provision, the other party's
Disclosure Schedule shall be deemed to be delivered as of the date of this
Agreement.
Each of Parent and Seller hereby represents and warrants to
Purchaser, on a joint and several basis on the date hereof and on and as of
the Closing Date, as follows:
2.01 ORGANIZATION OF SELLER AND Parent. Each of Seller and Parent is
a corporation duly organized, validly existing and in good standing under
the Laws of the States of Texas and Delaware, respectively, and has full
corporate power and authority to conduct the Business as and to the extent
-13-
<PAGE>
now conducted and to own, use and lease the Seller Assets. Each of Seller
and Parent is duly qualified, licensed or admitted to do business and is in
good standing in all jurisdictions in which the ownership, use or leasing
of its Assets and Properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary and in which the
failure to be so qualified, licensed or admitted and in good standing could
reasonably be expected to have an adverse effect on the validity or
enforceability of this Agreement or any of the Operative Agreements to
which it is a party or on the ability of Seller or Parent to perform its
obligations hereunder or thereunder.
2.02 AUTHORITY. Each of Seller and Parent has full corporate power
and authority to execute and deliver this Agreement and the Operative
Agreements to which it is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby, including without limitation to sell and transfer (pursuant to
this Agreement) the Seller Assets. The execution and delivery by each of
Seller and Parent of this Agreement and the Operative Agreements to which
it is a party, and the performance by each of Seller and Parent of its
obligations hereunder and thereunder, have been duly and validly authorized
by the Board of Directors of Seller and Parent, as the case may be, and no
other corporate action on the part of Seller or Parent shall be necessary
in connection with such execution, delivery and performance. This
Agreement has been duly and validly executed and delivered by each of
Seller and Parent and constitutes, and upon the execution and delivery by
each of Seller and Parent of the Operative Agreements to which it is a
party, such Operative Agreements will constitute, legal, valid and binding
obligations of Seller and Parent enforceable against each of Seller and
Parent in accordance with their terms, except as limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
or other similar laws generally affecting enforcement of creditors' rights
and subject to general principles of equity (regardless of whether
enforceability is considered in a proceeding in law or equity).
2.03 NO CONFLICTS. The execution and delivery by each of Seller and
Parent of this Agreement do not, and the execution and delivery by each of
Seller and Parent of the Operative Agreements to which it is a party, the
performance by each of Seller and Parent of its obligations under this
Agreement and such Operative Agreements and the consummation of the
transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any
of the terms, conditions or provisions of the articles of
incorporation or by-laws of Seller or Parent;
(b) subject to obtaining the consents, approvals and
actions, making the filings and giving the notices disclosed in
SECTION 2.04 OF THE DISCLOSURE SCHEDULE, conflict with or result
-14-
<PAGE>
in a violation or breach of any term or provision of any Law or
Order applicable to Seller, Parent or any of their respective
Assets and Properties; or
(c) except as disclosed in SECTION 2.03 OF THE DISCLOSURE
SCHEDULE, (i) conflict with or result in a violation or breach
of, (ii) constitute (with or without notice or lapse of time or
both) a default under or (iii) require Seller or Parent to obtain
any consent, approval or action of, make any filing with or give
any notice to any Person as a result or under the terms of any
Contract or License to which Seller or Parent is a party or by
which any of its Assets and Properties is bound.
2.04 GOVERNMENTAL APPROVALS AND FILINGS. Except as disclosed in
SECTION 2.04 OF THE DISCLOSURE SCHEDULE, no consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the
part of Seller or Parent is required in connection with the execution,
delivery and performance of this Agreement or any of the Operative
Agreements to which it is a party or the consummation of the transactions
contemplated hereby or thereby.
2.05 BOOKS AND RECORDS. EXCEPT AS SET FORTH IN SECTION 2.05 OF THE
DISCLOSURE SCHEDULE, none of the Business Books and Records is recorded,
stored, maintained, operated or otherwise wholly or partly dependent upon
or held by any means (including any electronic, mechanical or photographic
process, whether computerized or not) which (including all means of access
thereto and therefrom) are not under the exclusive ownership of Seller and
the direct control of one or more Employees.
2.06 FINANCIAL STATEMENTS. Prior to the execution of this Agreement,
Seller has delivered to Purchaser true and complete copies of the following
financial statements:
(a) Seller's balance sheet dated June 30, 1997, and income
statement for the twelve months then ended.
(b) Seller's balance sheet dated December 31, 1997, and
income statement for the six months then ended.
All such financial statements have been prepared from the Books and Records
of Seller on a basis for inclusion in the consolidated financial statements
of Parent, and fairly present, in all material respects, the financial
condition of the Seller as of the dates indicated and the results of
operations of the Seller for the periods then ended, subject to normal
year-end adjustments and the absence of footnotes to such statements.
2.07 ABSENCE OF CHANGES. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on the
-15-
<PAGE>
Closing Date, since December 31, 1997, there has not been any material
adverse change, or any event or development which, individually or together
with other such events, could reasonably be expected to result in a
material adverse change, in the Condition of the Business excluding the
effects of (1) any Employees quitting employment with Seller after the
announcement of the transactions contemplated by this Agreement, (2)
changes in the operations of the Business required by this Agreement or
requested in writing by Purchaser, and (3) changes in the terms or
relationship between Seller and vendors after the announcement of the
transactions contemplated by this Agreement, which changes are attributable
to the announced transaction.
2.08 NO UNDISCLOSED LIABILITIES. Except as reflected or reserved
against in the balance sheet included in the Annual Financial Statements or
in the notes thereto or as disclosed in SECTION 2.08 OF THE DISCLOSURE
SCHEDULE or any other Section of the Disclosure Schedule, neither Parent
nor Seller has any knowledge of any Liabilities against, relating to or
affecting the Business or any of the Seller Assets, other than Liabilities
incurred in the ordinary course of business consistent with past practice
which in the aggregate are not material to the Condition of the Business.
2.09 TAXES. Except as set forth on SCHEDULE 2.09 OF THE DISCLOSURE
SCHEDULE:
(a) All Tax Returns required to have been filed by or with
respect to Seller have been duly filed, and each such Tax Return
correctly and completely reflects Tax liabilities and all other
information required to be reported thereon. All Taxes due and
payable by Seller, whether or not shown on any Tax Return, have
been paid.
(b) There are no Liens for Taxes on the Seller Assets,
other than Liens for Taxes not yet due and payable. There are no
Taxes of Seller, or deficiencies in Taxes or claims for Taxes
against Seller, for any taxable period that could become a
Liability of, or which could be assessed or collected against,
Purchaser or could become a Lien on any of the Seller Assets, as
a result of the transfer of the Seller Assets contemplated by
this Agreement.
(c) Seller has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing
to any Employee, creditor, independent contractor or other third
party.
(d) None of the Seller Assets is property that is required
to be treated as owned by any other person pursuant to the safe
harbor lease provisions of former Section 168(f)(8) of the
-16-
<PAGE>
Internal Revenue Code of 1954, as amended, and in effect
immediately prior to the enactment of the Tax Reform Act of 1986
and none of the Seller Assets is tax exempt use property within
the meaning of Section 168(h) of the Code.
(e) None of the Seller Assets secures any debt the interest
on which is tax exempt under Section 103 of the Code.
2.10 LEGAL PROCEEDINGS. Except as disclosed in SECTION 2.10 OF THE
DISCLOSURE SCHEDULE (with paragraph references corresponding to those set
forth below):
(a) there are no Actions or Proceedings pending or, to the
knowledge of Seller or Parent, threatened against, relating to or
affecting Seller with respect to the Business or any of its
Assets and Properties which (i) could reasonably be expected to
result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any
of the transactions contemplated by this Agreement or any of the
Operative Agreements or otherwise result in a material diminution
of the benefits contemplated by this Agreement or any of the
Operative Agreements to Purchaser or (ii) if determined adversely
to Seller, could reasonably be expected to result in (x) any
injunction or other equitable relief that would interfere in any
material respect with the Business or (y) Losses by Seller,
individually or in the aggregate with Losses in respect of other
such Actions or Proceedings, exceeding $25,000;
(b) there are no facts or circumstances known to Seller or
Parent that could reasonably be expected to give rise to any
Action or Proceeding that would be required to be disclosed
pursuant to clause (a) above; and
(c) there are no Orders outstanding against Seller or
Parent with respect to the Business.
Prior to the execution of this Agreement, Seller has delivered to Purchaser
all responses of counsel to auditors' requests for information delivered in
connection with the Annual Financial Statements (together with any updates
provided by such counsel) regarding Actions or Proceedings pending or, to
the knowledge of Seller or Parent, threatened against, relating to or
affecting the Business.
2.11 COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in
SECTION 2.11 OF THE DISCLOSURE SCHEDULE, and except with respect to
Environmental Laws, which are covered by Section 2.21, Tax Laws which are
covered by 2.09, and Employment Laws, which are covered by Section 2.20,
neither Seller or Parent is, nor has either of Seller or Parent at any time
-17-
<PAGE>
within the last five years been, nor has either of Seller or Parent
received any notice that it is or has at any time within the last five
years been, in violation of or in default under, in any material respect,
any Law or Order applicable to the Business or the Seller Assets.
2.12 EMPLOYEE BENEFIT PLANS. Except as set forth in SECTION 2.12 OF
THE DISCLOSURE SCHEDULE, Seller does not have, and has never had, any
Qualified Plan or other Benefit Plan maintained by Seller, or to which
Seller has made payments or contributions on behalf of Seller's Employees,
whether formal or informal, whether qualified or non-qualified, whether
issued, whether funded or unfunded, and whether legally binding or not.
All of Seller's Plans are, and during all applicable limitation periods
have been, in compliance in all material respects with all applicable laws,
orders or governmental rules or regulations. There has been no transaction
concerning a Plan in connection with either Parent, Seller or Purchaser
could be subject to a civil penalty assessed pursuant to any applicable
law. Any termination, partial termination, curtailment, discontinuance, or
merger involving any of the Plans of Seller has been effected in compliance
in all material respects with all applicable laws, orders or governmental
rules or regulations. Parent or Seller has made full and timely payment of
all required contributions to such Plans and no unfunded liability exists
with respect to any Plan of Seller. No trust created under any such Plan
has incurred an accumulated funding deficiency. Neither Parent, Seller nor
any predecessor or affiliate of Parent or Seller participates in,
contributes to, or is otherwise involved with, or has participated in,
contributed to, or been otherwise involved with at any time in the past,
any "multi-employer plan" as defined in ERISA. Neither Parent nor Seller
is a party to or otherwise subject to any express or implied agreement or
plan to provide health insurance or other benefits to retired employees.
2.13 REAL PROPERTY LEASES.
(a) SECTION 1.01(a)(i) OF THE DISCLOSURE SCHEDULE contains
a true and correct list of each parcel of real property leased by
Seller or Parent (as lessor or lessee) and used or held for use
in connection with the Business.
(b) Seller has a valid and subsisting leasehold estate in
and the right to quiet enjoyment of the real properties subject
to the Real Property Leases described in SECTION 1.01(a)(i) OF
THE DISCLOSURE SCHEDULE for the full term thereof. Each Real
Property Lease is a legal, valid and binding agreement,
enforceable in accordance with its terms, of Seller and, to the
knowledge of Parent and Seller, of each other Person that is a
party thereto, and except as set forth in SECTION 2.13(c) OF THE
DISCLOSURE SCHEDULE, there is no, nor has Seller or Parent
received any notice of any, default (or any condition or event
which, after notice or lapse of time or both, would constitute a
-18-
<PAGE>
default) thereunder. Neither Seller nor Parent owes any
brokerage commissions with respect to any such leased space.
None of the real properties, or the use thereof, contravenes or
violates any applicable building or zoning law in any material
respect (whether or not permitted on the basis of prior
nonconforming use, waiver, or variance).
(c) Seller has delivered to Purchaser prior to the
execution of this Agreement true and complete copies of all Real
Property Leases (including any amendments and renewal letters)
and, to the extent reasonably available to Seller, all leases,
mortgages, certificates of occupancy, title insurance policies,
title reports, surveys, and similar documents with respect to the
real property subject to the Real Property Leases described in
SECTION 1.01(a)(i) OF THE DISCLOSURE SCHEDULE.
(d) Except as disclosed in SECTION 2.13(f) OF THE
DISCLOSURE SCHEDULE, the Stores that are the subject of the Real
Property Leases, and the heating, ventilation and air
conditioning equipment and systems located therein and which the
Seller maintains, are in good operating condition and in a state
of good maintenance and repair, ordinary wear and tear excepted,
are adequate and suitable for the purposes for which they are
presently being used and, to the knowledge of Seller, there are
no condemnation or appropriation proceedings pending or
threatened against any of the real property that are the subject
of the Real Property Leases.
2.14 TANGIBLE PERSONAL PROPERTY. Seller is in possession of and has
good title to, or has valid leasehold interests in or valid rights under
Contract to use, all the Tangible Personal Property, which includes all
tangible personal property reflected on the balance sheet included in the
Annual Financial Statements and tangible personal property acquired since
the Annual Financial Statement Date other than tangible personal property
disposed of since such date in the ordinary course of business consistent
with past practice. All the Tangible Personal Property is in good working
order and condition, ordinary wear and tear excepted, and will be conveyed
free and clear of all Liens other than Permitted Liens and Liens disclosed
in SECTION 2.14 OF THE DISCLOSURE SCHEDULE.
2.15 INTELLECTUAL PROPERTY RIGHTS. Seller has interests in or uses
only the items of Intellectual Property disclosed in SECTION 1.01(a)(viii)
OF THE DISCLOSURE Schedule in connection with the conduct of the Business,
each of which items Seller either has all right, title and interest in or a
valid and binding license to use. No other Intellectual Property is used
in the conduct of the Business. Except as disclosed in SECTION 2.15 OF THE
DISCLOSURE SCHEDULE, (i) Seller has the exclusive right to use the
Intellectual Property disclosed in SECTION 1.01(a)(viii) OF THE DISCLOSURE
-19-
<PAGE>
SCHEDULE, (ii) all registrations with and applications to Governmental or
Regulatory Authorities in respect of such Intellectual Property are valid
and in full force and effect and are not subject to the payment of any
Taxes or maintenance fees or the taking of any other actions by Seller or
Parent to maintain their validity or effectiveness, (iii) there are no
restrictions on the direct or indirect transfer of any license, or any
interest therein, held by Seller in respect of such Intellectual Property,
(iv) Seller has delivered to Purchaser prior to the execution of this
Agreement documentation with respect to any invention, process, design,
computer program or other know-how or trade secret included in such
Intellectual Property, which documentation is accurate in all material
respects and reasonably sufficient in detail and content to identify and
explain such invention, process, design, computer program, or other know-
how or trade secret and to facilitate its full and proper use without
reliance on the special knowledge or memory of any Person, (v) Seller has
taken security measures to protect the secrecy, confidentiality, and value
of its trade secrets in respect of the Business in accordance with
customary industry practice, (vi) Seller is not, nor has it received any
notice that it is, in default (or with the giving of notice or lapse of
time or both, would be in default) under any license to use such
Intellectual Property and (vii) neither Seller nor Parent has any knowledge
that such Intellectual Property is being infringed by any other Person.
Neither Seller nor Parent has received notice that Seller is infringing any
Intellectual Property of any other Person in connection with the conduct of
the Business, no claim is pending or, to the knowledge of Seller or Parent,
has been made to such effect that has not been resolved and, to the
knowledge of Seller or Parent, neither Seller nor Parent is infringing any
Intellectual Property Rights of any other Person in connection with the
conduct of the Business.
2.16 CONTRACTS.
(a) SECTION 2.16(a) OF THE DISCLOSURE SCHEDULE (with
paragraph references corresponding to those set forth below)
contains a true and complete list of each of the following
Contracts or other arrangements (true and complete copies or, if
none, reasonably complete and accurate written descriptions of
which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to
Purchaser prior to the execution of this Agreement) to which
Seller is a party or by which any of the Seller Assets is bound:
(i)(A) all Contracts (excluding Benefit Plans)
providing for a commitment of employment or consultation
services for a specified or unspecified term to any
Employee, the name, position, and rate of compensation of
each Employee party to such a Contract, and the expiration
date of each such Contract; and (B) any written or unwritten
-20-
<PAGE>
representations, commitments, promises, communications or
courses of conduct (excluding Benefit Plans and not embodied
in a Contract) involving an obligation of Seller to make
payments in any year, other than with respect to salary or
incentive compensation payments in the ordinary course of
business, to any Employee exceeding $25,000 or any group of
Employees exceeding $50,000 in the aggregate;
(ii) all Contracts with any Person containing any
provision or covenant prohibiting or limiting the ability of
Seller to engage in any business activity or compete with
any Person in connection with the Business or, except as
provided in Section 4.10, prohibiting or limiting the
ability of any Person to compete with Seller in connection
with the Business;
(iii) all partnership, joint venture, shareholders' or
other similar Contracts with any Person in connection with
the Business;
(iv) all Contracts with distributors, dealers,
manufacturer's representatives, sales agencies or franchises
with whom Seller deals in connection with the Business and
which involve payments or potential payments, pursuant to
the terms of any such Contract, by or to Seller of more than
$20,000;
(v) all Contracts relating to the future disposition
or acquisition of any Seller Assets, other than dispositions
or acquisitions of Inventory in the ordinary course of
business consistent with past practice;
(vi) all Contracts between or among Seller, on the one
hand, and Parent, any officer, director, Affiliate or
Associate of Parent or of Seller or any Associate of any
such officer, director or Affiliate, on the other hand; and
(vii) all other Contracts with respect to the Business
that (A) involve the payment or potential payment, pursuant
to the terms of any such Contract, by or to Seller of more
than $50,000 and (B) cannot be terminated within 30 calendar
days after giving notice of termination without resulting in
any material cost or penalty to Seller.
(b) Each Contract required to be disclosed in
SECTION 2.16(a) OF THE DISCLOSURE SCHEDULE is in full force and
effect and constitutes a legal, valid and binding agreement,
enforceable in accordance with its terms, of each Seller, and to
-21-
<PAGE>
the knowledge of Parent and Seller, of each other party thereto;
and except as disclosed in SECTION 2.16(b) OF THE DISCLOSURE
SCHEDULE neither Seller or Parent nor, to the knowledge of Seller
or Parent, any other party to such Contract is, or has received
notice that it is, in violation or breach of or default under any
such Contract (or with notice or lapse of time or both, would be
in violation or breach of or default under any such Contract).
(c) Except as disclosed in SECTION 2.16(c) OF THE
DISCLOSURE SCHEDULE, (i) the execution, delivery and performance
by Seller and Parent of this Agreement and the Operative
Agreements to which each is a party, and the consummation of the
transactions contemplated hereby and thereby, will not (A) result
in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (B) result in
or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under
or (C) result in the creation or imposition of any Lien upon
Seller or any of its Assets and Properties under, any Business
Contract, and (ii) neither Seller nor Parent is a party to or
bound by any Business Contract, that, in the case of each of the
foregoing, has been or could reasonably be expected to be,
individually or in the aggregate with any other Business
Contracts, materially adverse to the Condition of the Business.
2.17 LICENSES. Section 1.01(a)(ix) of the Disclosure Schedule
contains a true and complete list of all material Licenses used or held for
use in the Business. Prior to the execution of this Agreement, Seller has
delivered to Purchaser true and complete copies of all such Licenses.
Except as disclosed in SECTION 2.17 OF THE DISCLOSURE SCHEDULE:
(i) Seller owns or validly holds all Licenses that are
material to the Business;
(ii) each Business License is valid, binding and in
full force and effect;
(iii) neither Seller nor Parent is, nor has either
received any notice that it is, in default (or with the
giving of notice or lapse of time or both, would be in
default) under any Business License; and
(iv) the execution, delivery and performance by Seller
of this Agreement and the Operative Agreements to which it
is a party, and the consummation of the transactions
contemplated hereby and thereby, will not (A) result in or
give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to,
-22-
<PAGE>
(B) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or
guaranteed payments under or (C) result in the creation or
imposition of any Lien upon Seller or any of its Assets and
Properties under, any Business License.
2.18 INSURANCE. Each liability, property, workers' compensation and
other insurance policies currently in effect that insure the Business, the
Employees or the Seller Assets ("Insurance Policies") is, to the knowledge
of Parent and Seller, a valid and binding obligation of the insurer and is
and will continue to be through at least the Closing Date in full force and
effect, no premiums due thereunder have not been paid and neither Seller
nor Parent has received any notice of cancellation or termination in
respect of any such policy or is in default thereunder. Such Insurance
Policies, in light of the nature of the Business and the Seller Assets, are
in amounts and have coverages that are reasonable and customary for Persons
engaged in such business and having such Assets and Properties. Neither
Seller nor Parent has received notice that any insurer under any policy
referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
2.19 AFFILIATE TRANSACTIONS. Except as disclosed in SECTION 2.19(a)
OF THE DISCLOSURE SCHEDULE, as of the date of this Agreement, (i) no
officer, director, Affiliate or Associate of Seller or any Associate of any
such officer, director or Affiliate provides or causes to be provided any
assets, services or facilities used or held for use in connection with the
Business, and (ii) the Business does not provide or cause to be provided
any assets, services or facilities to any such officer, director, Affiliate
or Associate. Except as disclosed in SECTION 2.19(b) OF THE DISCLOSURE
SCHEDULE, each of the transactions listed in SECTION 2.19(a) OF THE
DISCLOSURE SCHEDULE is engaged on terms equivalent to those generally
available on an arm's-length basis.
2.20 EMPLOYEES; LABOR RELATIONS.
(a) SECTION 2.20 OF THE DISCLOSURE SCHEDULE contains a list
of the name of each Employee at the date hereof, together with
such Employee's position or function, annual base salary or wages
and any incentive or bonus arrangement with respect to such
Employee in effect on such date. Seller has no knowledge that a
material number of Employees intend to resign, or will refuse
offers of employment from Purchaser, because of the consummation
of the transactions contemplated by this Agreement.
(b) Except as disclosed in SECTION 2.20 OF THE DISCLOSURE
SCHEDULE, (i) no Employee is presently a member of a collective
bargaining unit and, to the knowledge of each of Seller and
Parent, there are no threatened or contemplated attempts to
-23-
<PAGE>
organize for collective bargaining purposes any of the Employees,
and (ii) no unfair labor practice complaint or sex or age
discrimination claim has been brought during the last five years
against Seller with respect to the conduct of the Business before
the National Labor Relations Board or any other Governmental or
Regulatory Authority. Since January 1, 1993 there has been no
work stoppage, strike or other similar concerted action by
employees of Seller engaged in the Business. During that period,
Seller has complied in all material respects with all applicable
Laws relating to the employment of labor, including without
limitation those relating to wages, hours and collective
bargaining.
(c) Parent and Seller represents to Purchaser that the
Worker Adjustment and Retraining Notification Act, 29 U.S.C.
< SECTION >2101 ET SEQ. ("WARN"), or any other similar state, local
or foreign statute or government regulation or ordinance, is
either inapplicable to the transactions contemplated in this
Agreement or Seller has fully complied with all those statutes.
2.21 ENVIRONMENTAL MATTERS. Except as set forth in SECTION 2.21 OF
THE DISCLOSURE SCHEDULE:
(a) There have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted by,
on behalf of, or which are in the possession of Seller or Parent
with respect to any Site which have not been delivered to
Purchaser prior to execution of this Agreement.
(b) With respect to the ownership or operation of any
Store:
(i) Seller has obtained and holds all Environmental
Permits that are required to be held by Seller.
(ii) During Seller's tenancy at each Store, Seller has
not caused a violation of any applicable Environmental Laws.
(iii) There are no pending or, to the knowledge of
Seller, threatened Environmental Claims against Seller in
connection with the Stores, and Seller is not aware of any
facts or circumstances which could reasonably be expected to
form the basis for any Environmental Claim against Seller
with respect to the Stores.
(iv) No Releases of Hazardous Materials in violation of
any applicable Environmental Law have occurred at, from, in,
to, on or under any Site and no Hazardous Materials are
-24-
<PAGE>
present in, on, about or migrating to or from any Store that
is to remain operating after Closing that could give rise to
an Environmental Claim against Seller.
(v) Neither Seller, any predecessor of Seller, nor any
entity previously owned by Seller and that operated any
Store, has transported or arranged for the treatment,
storage, handling, disposal or transportation of any
Hazardous Material to any off-Site location which could
result in an Environmental Liability Claim against Seller.
(vi) No Store is a current or, to the knowledge of
Seller, proposed Environmental Clean-up Site.
(vii) To Seller's knowledge, there are no Liens (other
than Permitted Liens) arising under or pursuant to any
Environmental Law with respect to any Store and there are no
facts, circumstances or conditions that could reasonably be
expected to restrict, encumber or result in the imposition
of special conditions under any Environmental Law with
respect to the ownership, occupancy, development, use or
transferability of any Store.
(viii) To Seller's knowledge, there are no:
(i) underground storage tanks, active or abandoned;
(ii) polychlorinated biphenyl containing equipment; or
(iii) asbestos-containing material at any Site.
(c) Neither the Parent nor Seller has any knowledge of any
pending or threatened Environmental Liability relating to or in
connection with any Store or any other Seller Assets.
2.22 SUBSTANTIAL SUPPLIERS. SECTION 2.22(a) OF THE DISCLOSURE
SCHEDULE lists the 10 largest suppliers of the Business, on the basis of
cost of goods or services purchased for the year ending on the Annual
Financial Statement Date. Except as disclosed in SECTION 2.22(b) OF THE
DISCLOSURE SCHEDULE as of the date of this Agreement, no supplier has
ceased or materially reduced its sales or provision of services to the
Business since the Annual Financial Statement Date, or to the knowledge of
Seller, has threatened to cease or materially reduce sales or provision of
services after the date hereof, nor has there been a material change in the
terms or pricing with any supplier. Except as disclosed in SECTION 2.22(c)
OF THE DISCLOSURE SCHEDULE, to the knowledge of Seller and Parent, no
supplier is the subject of any bankruptcy, insolvency or other proceeding
seeking protection from creditors.
2.23 ACCOUNTS RECEIVABLE. Except as set forth in SECTION 2.23 OF THE
DISCLOSURE SCHEDULE, the Accounts Receivable (i) arose from BONA FIDE sales
-25-
<PAGE>
transactions in the ordinary course of business and are payable on trade
terms consistent with Seller's past practice, (ii) to the knowledge of
Seller, are legal, valid and binding obligations of the respective debtors
enforceable in accordance with their terms, (iii) are not, to the knowledge
of Seller, subject to any valid set-off or counterclaim, (iv) do not
represent obligations for goods sold on consignment. SECTION 2.23 OF THE
DISCLOSURE SCHEDULE sets forth a description of any security arrangements
and collateral securing the repayment or other satisfaction of the Accounts
Receivable (the "Security Agreements").
2.24 INVENTORY. Except as set forth in SECTION 2.24 OF THE DISCLOSURE
SCHEDULE, all items included in the Inventory are the property of Seller
and are not held by Seller on consignment from others
2.25 VEHICLES. SECTION 1.01(a)(x) OF THE DISCLOSURE SCHEDULE contains
a true and complete list of all motor vehicles owned or leased by Seller
and used or held for use in the conduct of the Business. Except as set
forth in SECTION 2.25 OF THE DISCLOSURE SCHEDULE, Seller has good and valid
title to, or has valid leasehold interests in, or valid rights under
Contract to use, each Vehicle.
2.26 NO GUARANTEES. Except for Parent's guaranty of any Real Property
Lease, none of the Liabilities of the Business or of Seller incurred in
connection with the conduct of the Business is guaranteed by or subject to
a similar contingent obligation of any other Person, nor has Seller
guaranteed or become subject to a similar contingent obligation in respect
of the Liabilities of any customer, supplier or other Person to whom Seller
sells goods or provides services in the conduct of the Business or with
whom Seller otherwise has significant business relationships in the conduct
of the Business.
2.27 ENTIRE BUSINESS. The sale of the Seller Assets by Seller to
Purchaser pursuant to this Agreement will effectively convey to Purchaser
the entire Business and all of the tangible and intangible property used by
Seller (whether owned, leased or held under license by Seller or Parent, by
any of Seller's Affiliates or Associates, or by others) in connection with
the conduct of the Business as heretofore conducted by Seller (except for
the Excluded Assets) including, without limitation, all tangible Assets and
Properties of Seller reflected in the balance sheet included in the Annual
Financial Statements and Assets and Properties acquired since the Annual
Financial Statement Date in the conduct of the Business, other than the
Excluded Assets and Assets and Properties disposed of since such date,
consistent with Section 2.07. Except as disclosed in SECTION 2.27 OF THE
DISCLOSURE SCHEDULE, there are no shared facilities or services which are
used in connection with any business or other operations of Seller or
Parent or any of Seller's Affiliates or Associates other than the Business.
2.28 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Parent and Seller
-26-
<PAGE>
directly with Purchaser without the intervention of any Person on behalf of
Parent and Seller in such manner as to give rise to any valid claim by any
Person against Purchaser for a finder's fee, brokerage commission or
similar payment.
2.29 DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in the Disclosure Schedule or in any
certificate, list or other writing furnished to Purchaser pursuant to any
provision of this Agreement (including without limitation the Financial
Statements), contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements herein or
therein, in the light of the circumstances under which they were made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller on the date
hereof and on and as of the Closing Date as follows:
3.01 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Michigan.
Purchaser has full corporate power and authority to enter into this
Agreement and the Operative Agreements to which it is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Purchaser is duly qualified, licensed or
admitted to do business and is in good standing in all jurisdictions in
which the ownership, use or leasing of its Assets and Properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary and in which the failure to be so qualified, licensed
or admitted and in good standing could reasonably be expected to have an
adverse effect on the validity or enforceability of this Agreement or any
of the Operative Agreements to which it is a party or on the ability of
Purchaser to perform its obligations hereunder or thereunder.
3.02 AUTHORITY. The execution and delivery by Purchaser of this
Agreement and the Operative Agreements to which it is a party, and the
performance by Purchaser of its obligations hereunder and thereunder, have
been duly and validly authorized by the Board of Directors of Purchaser, no
other corporate action on the part of Purchaser or its shareholders being
necessary. This Agreement has been duly and validly executed and delivered
by Purchaser and constitutes, and upon the execution and delivery by
Purchaser of the Operative Agreements to which it is a party, such
Operative Agreements will constitute, legal, valid and binding obligations
of Purchaser enforceable against Purchaser in accordance with their terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws generally affecting
-27-
<PAGE>
enforcement of creditors' rights and subject to general principles of
equity (regardless of whether enforceability is considered in a proceeding
in law or equity).
3.03 NO CONFLICTS. The execution and delivery by Purchaser of this
Agreement does not, and the execution and delivery by Purchaser of the
Operative Agreements to which it is a party, the performance by Purchaser
of its obligations under this Agreement and such Operative Agreements and
the consummation of the transactions contemplated hereby and thereby will
not:
(a) conflict with or result in a violation or breach of any
of the terms, conditions or provisions of the articles of
incorporation or by-laws of Purchaser;
(b) subject to obtaining the consents, approvals and
actions, making the filings and giving the notices disclosed in
SECTION 3.04 OF THE DISCLOSURE SCHEDULE hereto, conflict with or
result in a violation or breach of any term or provision of any
Law or Order applicable to Purchaser or any of its Assets and
Properties; or
(c) except as disclosed in SECTION 3.03 OF THE DISCLOSURE
SCHEDULE hereto, (i) conflict with or result in a violation or
breach of, (ii) constitute (with or without notice or lapse of
time or both) a default under, (iii) require Purchaser to obtain
any consent, approval or action of, make any filing with or give
any notice to any Person as a result or under the terms of or
(iv) result in the creation or imposition of any Lien upon
Purchaser or any of its Assets or Properties under any Contract
or License to which Purchaser is a party or by which any of its
Assets and Properties is bound.
3.04 GOVERNMENTAL APPROVALS AND FILINGS. Except as disclosed in
SECTION 3.04 OF THE DISCLOSURE SCHEDULE hereto, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory
Authority on the part of Purchaser is required in connection with the
execution, delivery and performance of this Agreement or the Operative
Agreements to which it is a party or the consummation of the transactions
contemplated hereby or thereby.
3.05 LEGAL PROCEEDINGS. There are no Actions or Proceedings pending
or, to the knowledge of Purchaser, threatened against, relating to or
affecting Purchaser or any of its Assets and Properties which could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of
any of the transactions contemplated by this Agreement or any of the
Operative Agreements.
-28-
<PAGE>
3.06 FINANCIAL STATEMENTS. Prior the execution of this Agreement,
Purchaser has delivered to Parent true and complete copies of Purchaser's
balance sheet as of January 25, 1998 and related statements of income,
shareholders' equity and cash flows of Purchaser for the fiscal year then
ended, including the notes thereto ("Purchaser's Financial Statements").
The Purchaser's Financial Statements present fairly, in all material
respects, the financial position of Purchaser and its results of operations
and cash flow at and for the fiscal period indicated, in conformity with
GAAP.
3.07 ABSENCE OF CHANGES. Since January 25, 1998, there has not been
any material adverse change, or any event or development which,
individually or together with other such events, could reasonably be
expected to result in a material adverse change, in the business,
conditions (financial or otherwise), results of operations, or Assets and
Properties of Purchaser.
3.08 NO UNDISCLOSED LIABILITIES. Except as reflected or reserved
against in the balance sheet included in the Purchaser's Financial
Statements or in the notes thereto or as disclosed in SECTION 3.08 OF THE
DISCLOSURE SCHEDULE or any other Section of the Disclosure Schedule, there
are no Liabilities against, relating to or affecting the business of
Purchaser or its assets and Properties, other than Liabilities incurred in
the ordinary course of business consistent with practice which in the
aggregate are not material to the business, condition (financial or
otherwise), results of operations, assets and Properties and prospects of
the business of Purchaser.
3.09 TAXES. Except as set forth on SCHEDULE 3.09 OF THE DISCLOSURE
SCHEDULE:
(a) All Tax Returns required to have been filed by or with
respect to Purchaser have been duly filed, and each such Tax
Return correctly and completely reflects Tax liabilities and all
other information required to be reported thereon. All Taxes due
and payable by Purchaser, whether or not shown on any Tax Return,
have been paid.
(b) There are no Liens for Taxes on the Assets and
Properties of Purchaser, other than Liens for Taxes not yet due
and payable.
(c) Purchaser has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other
third party.
3.10 COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in SECTION
3.10 OF THE DISCLOSURE SCHEDULE, and except with respect to Tax Laws which
-29-
<PAGE>
are covered by 3.09, Purchaser is not and has not at any time within the
last five years been, nor has Purchaser received any notice that it is or
has at any time within the last five years been, in violation of or in
default under, in any material respect, any Law or Order applicable to the
business of Purchaser or its Assets and Properties.
3.11 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser
directly with Parent and Seller without the intervention of any Person on
behalf of Purchaser in such manner as to give rise to any valid claim by
any Person against Parent or Seller for a finder's fee brokerage commission
or similar payment.
ARTICLE IV
COVENANTS OF SELLER AND PARENT
Each of Seller and Parent covenants and agrees with Purchaser
that, at all times from and after the date hereof until the Closing and,
with respect to any covenant or agreement by its terms to be performed in
whole or in part after the Closing, for the period specified herein or, if
no period is specified herein, indefinitely, each of Seller and Parent will
comply with all covenants and provisions of this Article IV, except to the
extent Purchaser may otherwise consent in writing.
4.01 REGULATORY AND OTHER APPROVALS. Each of Seller and Parent will
(a) take all commercially reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all commercially reasonable
efforts, as promptly as practicable to obtain all consents, approvals or
actions of, to make all filings with and to give all notices to
Governmental or Regulatory Authorities or any other Person required of
Seller to consummate the transactions contemplated hereby and by the
Operative Agreements, including without limitation those described in
SECTIONS 2.03 AND 2.04 OF THE DISCLOSURE SCHEDULE, (b) provide such other
information and communications to such Governmental or Regulatory
Authorities or other Persons as Purchaser or such Governmental or
Regulatory Authorities or other Persons may reasonably request and
(c) cooperate with Purchaser as promptly as practicable in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to Governmental or Regulatory Authorities or other Persons required
of Purchaser to consummate the transactions contemplated hereby and by the
Operative Agreements. Seller will provide prompt notification to Purchaser
when any such consent, approval, action, filing or notice referred to in
clause (a) above is obtained, taken, made or given, as applicable, and will
advise Purchaser of any communications (and, unless precluded by Law,
provide copies of any such communications that are in writing) with any
Governmental or Regulatory Authority or other Person regarding any of the
-30-
<PAGE>
transactions contemplated by this Agreement or any of the Operative
Agreements.
4.02 INVESTIGATION BY PURCHASER. Seller and Parent will (a) provide
Purchaser, any Person who is considering providing financing to Purchaser
to finance all or any portion of the Purchase Price and their respective
officers, directors, employees, agents, counsel, accountants, financial
advisors, consultants and other representatives (collectively,
"Representatives") with full access, upon reasonable prior notice and
during normal business hours, to the Employees and such other officers,
employees and agents of Seller or Parent who have any responsibility for
the conduct of the Business, to Seller's and Parent's accountants and to
the Seller Assets; (b) furnish Purchaser and such other Persons with all
such information and data (including without limitation copies of Business
Contracts, Business Licenses, Benefit Plans and other Business Books and
Records) concerning the Business, the Seller Assets and the Assumed
Liabilities as Purchaser or any of such other Persons reasonably may
request in connection with such investigation; and (c) provide access to
any real property that is the subject of any Real Property Lease or the
Business to Purchaser and its Representatives to conduct any environmental
assessment. Purchaser agrees not to contact the Seller's employees,
customers, vendors or other representatives of the other party without the
prior approval of James D. Allen, Executive Vice President of Tandycrafts.
4.03 NO SOLICITATIONS. Neither Seller nor Parent will take, nor will
either permit any Affiliate of Seller or Parent, respectively, (or
authorize or permit any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf of Seller
or any such Affiliate) to take, directly or indirectly, any action to
initiate, assist, solicit, receive, negotiate, encourage or accept any
offer or inquiry from any Person (a) to explore or reach any agreement or
understanding (whether or not such agreement or understanding is absolute,
revocable, contingent or conditional) for, or otherwise attempt to
consummate, the sale of the Business, or the Assets or Properties of Seller
relating to the Business, in whole or in part, whether directly or
indirectly, through purchase, merger, consolidation or otherwise (other
than the sale of inventory in the ordinary course of business) to any
Person other than Purchaser or its Affiliates or (b) to furnish or cause to
be furnished any information with respect to the Business to any Person
(other than as contemplated by Section 4.02) who Seller, Parent or such
Affiliate (or any such Person acting for or on their behalf) knows or has
reason to believe is in the process of considering any acquisition of the
Business. If Seller, Parent or any such Affiliate (or any such Person
acting for or on their behalf) receives from any Person (other than
Purchaser or any other Person referred to in Section 4.02) any offer,
inquiry or informational request referred to above, Parent and Seller shall
promptly advise such Person, by written notice, of the terms of this
-31-
<PAGE>
Section 4.03 and will promptly, orally and in writing, advise Purchaser of
such offer, inquiry or request and deliver a copy of such notice to
Purchaser.
4.04 CONDUCT OF BUSINESS. Seller will operate the Business only in
the ordinary course consistent with past practice, except as is otherwise
contemplated by this Agreement. Without limiting the generality of the
foregoing, Seller will:
(a) use commercially reasonable efforts to (i) preserve
intact the present business organization and reputation of the
Business, (ii) keep available (subject to dismissals and
retirements in the ordinary course of business consistent with
past practice) the services of the Employees, (iii) maintain the
Seller Assets in good working order and condition, ordinary wear
and tear excepted, (iv) maintain the good will of customers,
suppliers, and other Persons to whom Seller sells goods or
provides services or with whom Seller otherwise has significant
business relationships in connection with the Business,
(v) continue in the ordinary course of business and consistent
with Seller's business plan all current sales, marketing,
advertising and promotional activities relating to the Business
and shall refrain from materially deviating from the plans
without Purchaser's prior written consent, which shall not be
unreasonably withheld, and (vi) cause the Seller to refrain from
entering into a new lease for any Store site or extending any
Real Property Lease without Purchaser's prior written consent,
which shall not be unreasonably withheld;
(b) except to the extent otherwise required by applicable
Law, (i) cause the Business Books and Records to be maintained in
the usual, regular and ordinary manner and (ii) not permit any
material change in any pricing, investment, accounting, financial
reporting, inventory, credit, allowance or Tax practice or policy
of Seller that would materially and adversely affect the
Business, the Seller Assets or the Assumed Liabilities;
(c) use commercially reasonable efforts to maintain in full
force and effect until the Closing substantially the same levels
of coverage as the insurance afforded under the Insurance
Policies; and
(d) comply, in all material respects, with all Laws and
Orders applicable to the Business and promptly following receipt
thereof to give Purchaser copies of any notice received from any
Governmental or Regulatory Authority or other Person alleging any
violation of any such Law or Order.
-32-
<PAGE>
4.05 FINANCIAL STATEMENTS AND REPORTS.
(a) Seller shall deliver to Purchaser as soon as is
practicable, but in any event in draft form on or before May 25,
1998 and in final form on or before May 29, 1998 the Annual
Financial Statements. The Annual Financial Statements shall be
prepared in accordance with GAAP. The Annual Financial
Statements shall be accompanied by the unqualified opinion of
Price Waterhouse LLP to the effect that they present fairly, in
all material respects, the financial position of Seller and its
results of operations and cash flow at and for the fiscal period
indicated, in conformity with GAAP. The Purchaser and Seller
shall share equally all costs incurred by Seller payable to its
accountants to prepare the Annual Financial Statements, including
any fees associated with the auditor granting its consent for
inclusion of the Annual Financial Statements in any securities
filing by the Purchaser with the Securities and Exchange
Commission, except that Purchaser's cost shall not exceed $75,000
and Purchaser shall not pay any of the auditor's costs in
connection with responses to Purchaser's or its Representative's
due diligence investigations, including the review of the work
papers of the Seller's accountants. Purchaser and its
Representatives shall have access to any of the auditor's
workpapers in preparing the Annual Financial Statements.
(b) As promptly as practicable and in any event no later
than 20 days after the end of each month ending after March 31,
1998 and before the Closing Date, Seller will deliver to
Purchaser true and complete copies of the unaudited balance
sheet, and the related unaudited statement of operations, of the
Business, as of and for the month then ended or as of and for the
portion of the fiscal year then ended, as the case may be,
together with the notes, if any, relating thereto, which
financial statements shall be prepared on a basis consistent with
the Annual Financial Statements. All such financial statements
have been prepared from the Books and Records of Seller on a
basis for inclusion in the consolidated financial statements of
Parent, and fairly present, in all material respects, the
financial condition of the Seller as of the date indicated and
the results of operations of the Seller for the period then
ended, subject to normal year-end adjustments and the absence of
footnotes to such statements.
4.06 CERTAIN RESTRICTIONS. Each of Seller and Parent will refrain
from:
(a) acquiring or disposing of any Assets and Properties
used or held for use in the conduct of the Business, other than
-33-
<PAGE>
Inventory in the ordinary course of business consistent with past
practice and other acquisitions or dispositions not exceeding in
either case $50,000 in the aggregate, or creating or incurring
any Lien, other than a Permitted Lien, on any Assets and
Properties used or held for use in the conduct of the Business
and Seller's mix of inventory prior to Closing shall remain
consistent with Seller's historical pattern and practice;
PROVIDED, HOWEVER, that Seller may close the Stores located in
Arlington, Texas (Seller's Store Number 4), Augusta, Georgia
(Seller's Store Number 44), and Riverside, California (Seller's
Store Number 53) (the "Three Closing Stores"), liquidate the
inventory and equipment at the Three Closing Stores, and,
transfer prior to Closing any inventory or equipment of the Three
Closing Stores to Seller's distribution center.
(b) entering into, amending, modifying, terminating
(partially or completely), granting any waiver under or giving
any consent with respect to any material Business Contract or any
material Business License;
(c) violating, breaching or defaulting under in any
material respect, or taking or failing to take any action that
(with or without notice or lapse of time or both) would
constitute a material violation or breach of, or default under,
any term or provision of any Business Contract or any Business
License;
(d) canceling or otherwise providing for a complete or
partial discharge in advance of a scheduled payment date with
respect to, or waiving any right of Seller under, any material
Liability of or owing to Seller in connection with the Business,
other than in the ordinary course of business consistent with
past practice;
(e) engaging with any Person in any Business Combination,
unless such Person agrees, to the extent applicable, in a written
instrument in form and substance reasonably satisfactory to
Purchaser to adopt and comply with the terms and conditions of
this Agreement as though such Person was an original signatory
hereto;
(f) engaging in any transaction with respect to the
Business with any officer, director, Affiliate or Associate of
Seller or any Associate of any such officer, director or
Affiliate, either outside the ordinary course of business
consistent with past practice or other than on an arm's-length
basis;
-34-
<PAGE>
(g) making capital expenditures or commitments for
additions to property, plant or equipment constituting capital
assets on behalf of the Business in an aggregate amount exceeding
$25,000; or
(h) entering into any agreement to do or engage in any of
the foregoing.
4.07 SECURITY DEPOSITS. Each of Parent and Seller shall take all
actions necessary to transfer to Purchaser on the Closing Date all of
Seller's and Parent's right, title and interest in and to the Tenant
Security Deposits.
4.08 DELIVERY OF BOOKS AND RECORDS, ETC.; REMOVAL OF PROPERTY.
(a) On the Closing Date, each of Seller and Parent will
deliver or make available to Purchaser at the Stores at which the
Business is conducted (other than the headquarters' office) all
of the Business Books and Records and such other Seller Assets as
are in Seller's or Parent's possession at other locations, and if
at any time after the Closing Seller or Parent discovers in its
possession or under its control any other Business Books and
Records or other Seller Assets, it will forthwith deliver such
Business Books and Records or other Seller Assets to Purchaser.
Parent and Seller shall provide access to Purchaser to review and
copy any Business Books and Records located at Seller's
headquarters' office.
(b) Within thirty (30) days after the Closing Date, Seller
and Parent shall remove all Assets and Properties that are not
being sold to Purchaser hereunder (but are not the subject of the
Computer Services Agreement) from the real property that is the
subject of any Real Property Lease. Such removal shall be at the
sole cost and risk of Seller and Parent, including risk of loss
and damage to such Assets and Properties. Purchaser shall have
no liability to Seller or Parent with respect to such removal and
transportation. Seller and Parent shall be responsible for all
repairs to the Real Property and Improvements due to damage
caused by Seller or Parent and their respective employees and
agents in connection with the removal of Seller's or Parent's
Assets and Properties.
4.09 NONCOMPETITION.
(a) Each of Seller and Parent shall, for a period of five
(5) years from the Closing Date, refrain from, either alone or in
conjunction with any other Person, or directly or indirectly
through its present or future Affiliates:
-35-
<PAGE>
(i) employing, engaging or seeking to employ or engage
any Person who had been an employee of Purchaser or any of
its Affiliates engaged in the Business at the time of
Closing, unless such employee (A) resigns voluntarily
(without any solicitation from Seller or any of its
Affiliates) (B) is terminated by Purchaser or any of its
Affiliates after the Closing Date or (C) is not offered
employment by Purchaser at Closing Date;
(ii) causing or attempting to cause (A) any client,
customer or supplier of the Business to terminate or
materially reduce its business with Purchaser or any of its
Affiliates or (B) any officer, employee or consultant of
Purchaser or any of its Affiliates engaged in the Business
to resign or sever a relationship with Purchaser or any of
its Affiliates;
(iii) disclosing (unless compelled by judicial or
administrative process) or using any confidential or secret
information relating to the Business or, to the extent known
by Parent or Seller to be confidential and not generally
available from other sources, relating to any client,
customer or supplier of the Business; or
(iv) except for the sales of goods by Seller's J Mar
division that constitute sales of religious products on a
wholesale basis, participating or engaging in (other than
through the ownership of 5% or less of any class of
securities registered under the Securities Exchange Act of
1934, as amended), or otherwise lending assistance
(financial or otherwise) to any Person participating or
engaged in, any business in the United States to sell
Christian Bibles, Christian books (including Christian
family and inspirational books) and related gifts, music and
novelty items in any retail store or chain whose sales are
primarily religious products.
(b) The parties hereto recognize that the Laws and public
policies of the various states of the United States may differ as
to the validity and enforceability of covenants similar to those
set forth in this Section. It is the intention of the parties
that the provisions of this Section be enforced to the fullest
extent permissible under the Laws and policies of each
jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such Laws or
policies) of any provisions of this Section shall not render
unenforceable, or impair, the remainder of the provisions of this
Section. Accordingly, if any provision of this Section shall be
-36-
<PAGE>
determined to be invalid or unenforceable, such invalidity or
unenforceability shall be deemed to apply only with respect to
the operation of such provision in the particular jurisdiction in
which such determination is made and not with respect to any
other provision or jurisdiction.
(c) The parties hereto acknowledge and agree that any
remedy at Law for any breach of the provisions of this Section
would be inadequate, and that Purchaser will be entitled to
injunctive or other equitable relief, without the necessity of
actual monetary loss being proved, in order that the breach of
such provisions may be effectively restrained.
4.10 NOTICE AND CURE. Seller and Parent will notify Purchaser
promptly in writing of, and contemporaneously will provide Purchaser with
access to reasonably detailed information or documents relating to, and
will use all commercially reasonable efforts to cure before the Closing,
any event, transaction or circumstance occurring after the date of this
Agreement that, prior to the termination of any survival period applicable
to the covenant, agreement, representation, or warranty set forth in this
Agreement, causes or will cause any covenant or agreement of Seller or
Parent under this Agreement to be breached or that renders or will render
untrue any representation or warranty of Seller or Parent contained in this
Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. Seller and Parent also will notify Purchaser
promptly in writing of, and will use all commercially reasonable efforts to
cure, before the Closing, any violation or breach of any representation,
warranty, covenant or agreement made by Seller or Parent in this Agreement,
whether occurring or arising before, on or after the date of this
Agreement. No notice given pursuant to this Section shall have any effect
on the representations, warranties, covenants or agreements contained in
this Agreement for purposes of determining satisfaction of any condition
contained herein or shall in any way limit Purchaser's right to seek
indemnity under Article IX.
4.11 FULFILLMENT OF CONDITIONS. Each of Seller and Parent will
execute and deliver at the Closing each Operative Agreement that Seller or
Parent is required hereby to execute and deliver as a condition to the
Closing, and will otherwise use its commercially reasonable efforts to
achieve satisfaction of the conditions to Closing set forth in this
Agreement and to consummate the Closing on the terms set forth in this
Agreement.
4.12 TRANSFER TAXES. Each of Seller and Parent shall pay, and shall
jointly indemnify Purchaser, the officers, directors, employees and agents
of Purchaser, the direct and indirect Affiliates of Purchaser and the
direct and indirect stockholders, officers, directors, partners, employees
and agents of such Affiliates with respect to any Transfer Taxes which
-37-
<PAGE>
become payable in connection with the transactions contemplated by this
Agreement and the Operative Agreements.
4.13 STORE LEASES. For those Real Property Leases for Stores for
which Parent has provided a guaranty to the landlord, Parent agrees to
continue such guaranty in full force and effect if necessary to secure the
assignment of or sublease under the lease to Purchaser; PROVIDED, HOWEVER,
that to the extent permitted under the guaranty, Parent may revoke any
guaranty prior to Purchaser's notification of any renewal of any lease that
the Purchaser has elected to renew as assignee or sublessee. Parent,
Seller and Purchaser each agree to use commercially reasonable efforts
prior to the Closing to remove Parent and Seller from the leases to be
assigned or sublet to Purchaser at the Closing on terms to Purchaser no
less favorable than the terms to Seller, but if Parent and Seller are not
removed at or prior to Closing, Purchaser, Parent and Seller shall each use
best efforts to so remove Parent and Seller on such terms after the Closing
but no later than applicable Real Property Lease expiration date.
Purchaser shall notify Seller if Purchaser intends to renew any applicable
Real Property Lease assigned or sublet to Purchaser and as to which Parent
has guaranteed payment at least 30 days prior to the renewal. Parent and
Seller agree to pay all costs or fees (other than any advance rental
payments) requested by any landlord for Seller to assign or sublease any
Real Property Lease to Purchaser. As of the Closing, Seller assigns to
Purchaser all of Seller's rights and related benefits relating to any
representation or warranty in connection with any Environmental Liability
or Environmental Claim extended to the Seller by the landlord of each Store
that is the subject of a Real Property Lease which is assigned to the
Purchaser or as to which the Purchaser is a subleasee or the Store is
operated for the benefit of the Purchaser under a Management Agreement.
Parent and Seller agree to notify promptly the Purchaser if after the
signing of this Agreement the Seller terminates a manager of a Store or
inventory control manager at a Store or the Store or inventory control
manager shall terminate his or her employment. Upon receipt of the notice,
Purchaser shall have the right to elect in its sole discretion to furnish
for any period of time at its own costs an employee of Purchaser to perform
the duties of the terminated Store or inventory control manager. If
Purchaser so elects to furnish an employee, Seller shall use the services
of Purchaser's employee to operate the Store in the function of a Store or
inventory control manager as the case may be.
4.14 EMPLOYEES. Seller shall pay in full all compensation, benefits
and severance obligations arising from the employment and any termination
of employment of any Employee. Subject to its due diligence investigation
and the Purchaser's sole and absolute discretion not to offer employment to
any of Seller's Employees employed in the Business, Purchaser acknowledges
only as of the execution date of this Agreement that it intends to offer
employment to at least a majority of Seller's Employees employed as of the
Closing at Stores transferred or sublet to or managed by the Purchaser
-38-
<PAGE>
("Purchaser's Acknowledgment of Employment Intention"). Purchaser's
Acknowledgment of Employment Intention neither creates nor implies any
commitment or obligation to any Person to interview, offer employment to or
hire any employee of Seller, or to hire such employees on any terms.
Purchaser shall notify Seller at least ten days prior to the Closing of the
names of Seller's employees to whom it plans to offer employment.
Purchaser shall be free to interview and hire any or all of the Seller's
former employees, upon such terms and conditions as Purchaser in its sole
discretion may determine. If Purchaser hires any such employees ("Hired
Employees"), seniority with the Seller shall be used as the basis for
seniority with Purchaser, including, without limitation, service credit
with Seller shall be credited for purposes of eligibility and vesting in
any Plans of Purchaser and, in a manner consistent with Purchaser's
vacation entitlements policy as disclosed to Seller, for purposes of
vacation entitlements of the Hired Employees. Purchaser shall offer all
Hired Employees and their dependents group health coverage to be effective
upon the first date of the month following the date that completes thirty
days of service with either Seller or Purchaser, or both, with no
preexisting condition exclusion or waiting period.
4.15 USE OF NAME. After the Closing Date, neither Parent nor Seller
nor any Affiliate of Parent or Seller, shall use the name "Joshua" or
"Joshua's Christian Stores" or any variation thereof (the "Names"), or any
other trade name, trademark, logo, or service mark included in the Seller
Assets. After the Closing Date, neither Parent nor Seller shall, through
any actions or conduct, represent or imply to any person that Parent or
Seller is affiliated with Purchaser. On the Closing Date, or as soon as
practicable after the Closing Date, Parent and Seller shall terminate any
assumed name registration to the use of the Names (or any variation of the
Names) and shall deliver evidence of the termination to Purchaser. In
addition, Parent and Seller shall cooperate with Purchaser to effect a
timely transfer of the Names to Purchaser so that there will be no
recording gap between Purchaser and Parent and Seller with respect to the
Names.
ARTICLE V
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Seller that, at all times
from and after the date hereof until the Closing, and, with respect to any
covenant or agreement by its terms to be performed in whole or in part
after the Closing, for the period specified herein, or if no period is
specified, indefinitely. Purchaser will comply with all covenants and
provisions of this Article V, except to the extent Seller may otherwise
consent in writing.
-39-
<PAGE>
5.01 REGULATORY AND OTHER APPROVALS. Purchaser will (a) take all
commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts,
as promptly as practicable to obtain all consents, approvals or actions of,
to make all filings with and to give all notices to Governmental or
Regulatory Authorities or any other Person required of Purchaser to
consummate the transactions contemplated hereby and by the Operative
Agreements, including without limitation those described in Schedules 3.03
and 3.04 hereto, (b) provide such other information and communications to
such Governmental or Regulatory Authorities or other Persons as Seller or
such Governmental or Regulatory Authorities or other Persons may reasonably
request and (c) cooperate with Seller as promptly as practicable in
obtaining all consents, approvals or actions of, making all filings with
and giving all notices to Governmental or Regulatory Authorities or other
Persons required of Seller to consummate the transactions contemplated
hereby and by the Operative Agreements. Purchaser will provide prompt
notification to Seller when any such consent, approval, action, filing or
notice referred to in clause (a) above is obtained, taken, made or given,
as applicable, and will advise Seller of any communications (and, unless
precluded by Law, provide copies of any such communications that are in
writing) with any Governmental or Regulatory Authority or other Person
regarding any of the transactions contemplated by this Agreement or any of
the Operative Agreements.
5.02 NOTICE AND CURE. Purchaser will notify Seller promptly in
writing of, and contemporaneously will provide Seller with true and
complete copies of any and all information or documents relating to, and
will use all commercially reasonable efforts to cure before the Closing,
any event, transaction or circumstance occurring after the date of this
Agreement that causes or will cause any covenant or agreement of Purchaser
under this Agreement to be breached or that renders or will render untrue
any representation or warranty of Purchaser contained in this Agreement as
if the same were made on or as of the date of such event, transaction or
circumstance. Purchaser also will notify Seller promptly in writing of,
and will use all commercially reasonable efforts to cure, before the
Closing, any violation or breach of any representation, warranty, covenant
or agreement made by Purchaser in this Agreement, whether occurring or
arising before, on or after the date of this Agreement. No notice given
pursuant to this Section shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for
purposes of determining satisfaction of any condition contained herein or
shall in any way limit Seller's right to seek indemnity under Article IX.
5.03 FULFILLMENT OF CONDITIONS. Purchaser will execute and deliver at
the Closing each Operative Agreement that Purchaser is hereby required to
execute and deliver as a condition to the Closing, and will otherwise use
its commercially reasonable efforts to achieve satisfaction of the
conditions to Closing set forth in this Agreement and to consummate the
Closing on the terms set forth in this Agreement.
-40-
<PAGE>
5.04 STORE OPENING FUNDS. Purchaser shall pay to Seller at the
Closing an amount equal to the Store Opening Funds.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder are subject to the
satisfaction, at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part by Purchaser in its
sole discretion):
6.01 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by Seller or Parent in this Agreement (other than those
made as of a specified date earlier than the Closing Date) shall be true
and correct in all material respects (if not qualified by materiality) or
in all respects (if qualified by materiality) on and as of the Closing Date
as though such representation or warranty were made on and as of the
Closing Date, and any representation or warranty made as of a specified
date earlier than the Closing Date shall also have been true and correct in
all material respects (if not qualified by materiality) or in all respects
(if qualified by materiality) on and as of such earlier date.
6.02 PERFORMANCE. Each of Seller and Parent shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with
by Seller or Parent at or before the Closing.
6.03 OFFICERS' CERTIFICATES. Each of Seller and Parent shall have
delivered to Purchaser a certificate, dated the Closing Date and executed
by the Chairman of the Board, the President or any Vice President of Seller
or Parent (as the case may be), substantially in the form and to the effect
of EXHIBIT C hereto, and a certificate, dated the Closing Date and executed
by the Secretary or any Assistant Secretary of Seller or Parent (as the
case may be), substantially in the form and to the effect of EXHIBIT D
hereto.
6.04 ORDERS AND LAWS. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by
this Agreement or any of the Operative Agreements or which could reasonably
be expected to otherwise result in a material diminution of the benefits of
the transactions contemplated by this Agreement or any of the Operative
Agreements to Purchaser, and there shall not be pending or threatened on
the Closing Date any Action or Proceeding or any other action in, before or
by any Governmental or Regulatory Authority which could reasonably be
expected to result in the issuance of any such Order or the enactment,
-41-
<PAGE>
promulgation or deemed applicability to Purchaser or the transactions
contemplated by this Agreement or any of the Operative Agreements of any
such Law.
6.05 REGULATORY CONSENTS AND APPROVALS. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory
Authority necessary to permit Purchaser, Seller and Parent to perform their
obligations under this Agreement and the Operative Agreements and to
consummate the transactions contemplated hereby and thereby (a) shall have
been duly obtained, made or given, (b) shall be in form and substance
reasonably satisfactory to Purchaser, (c) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and
(d) shall be in full force and effect, and all terminations or expirations
of waiting periods imposed by any Governmental or Regulatory Authority
necessary for the consummation of the transactions contemplated by this
Agreement and the Operative Agreements shall have occurred.
6.06 THIRD PARTY CONSENTS. The consents (or in lieu thereof waivers)
listed in SECTION 6.06 OF THE DISCLOSURE SCHEDULE, and all other consents
(or in lieu thereof waivers) to the performance by Purchaser, Seller,
Parent of their obligations under this Agreement and the Operative
Agreements or to the consummation of the transactions contemplated hereby
and thereby as are required under any Contract to which Purchaser, Seller,
or Parent is a party or by which any of their respective Assets and
Properties are bound and where the failure to obtain any such consent (or
in lieu thereof waiver) could reasonably be expected, individually or in
the aggregate with other such failures, to materially adversely affect
Purchaser, the Seller Assets, the Assumed Liabilities or the Business or
otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement and the Operative Agreements to
Purchaser, (a) shall have been obtained, (b) shall be in form and substance
reasonably satisfactory to Purchaser, (c) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (d)
shall be in full force and effect.
6.07 OPINION OF COUNSEL. Purchaser shall have received the opinion of
Hughes & Luce, L.L.P., counsel to Parent and Seller, dated the Closing
Date, substantially in the form and to the effect of EXHIBIT E hereto.
6.08 REAL PROPERTY LEASES. For at least 48 of the Real Property
Leases described in SECTION 1.01(a)(i) OF THE DISCLOSURE SCHEDULE, Seller
shall have delivered to Purchaser an Estoppel Certificate and Consent to
Assignment from the lessor thereunder or a sublease for the Store site
thereunder in form and substance reasonably satisfactory to Purchaser, each
in full force and effect, that allows Purchaser to operate at least 48 of
the Stores after Closing in compliance with the terms of the Real Property
Leases relating to the Stores. Parent and Seller shall have executed and
delivered to Purchaser a Management Agreement in form and substance
-42-
<PAGE>
reasonably satisfactory to Purchaser for Purchaser or Seller to operate for
Purchaser's benefit any Store under the name "Family Christian Stores" for
which such Estoppel Certificate and Consent to Assignment or such sublease
has not been received, which will continue in effect until such Estoppel
Certificate and Consent to Assignment or such sublease shall be given or
until the expiration of the existing term of the Store's Real Property
Lease. For any Store required by a landlord to be open on Sunday,
Purchaser shall have received the landlord's consent in form satisfactory
to Purchaser that the Store may be closed on Sunday. No Site, or portion
of a Site, relating to a Store shall be listed or included within a listing
as an Environmental Clean-Up Site.
6.09 FINANCING. Purchaser shall have obtained financing having terms
satisfactory to Purchaser and (a) the net proceeds of which are in an
amount at least equal to the sum of (i) the Purchase Price plus (ii)
anticipated working capital requirements of Purchaser after the
consummation of the transactions contemplated by this Agreement, plus
(iii) the aggregate amount of expenses of Purchaser incurred in connection
with the negotiation, preparation, execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and (b)
pursuant to which Purchaser shall have obtained the consent by its existing
senior and subordinated lenders that the discharge of any Lien granted by
agreement to a landlord pursuant to no more than thirteen Real Property
Leases on any fixture in or leasehold improvement on the Stores that are
the subject of such Real Property Leases or any other Lien on any other
assets in the Business shall not be required for Purchaser to comply with
any provisions of Purchaser's existing lending agreements with the
respective lenders or the financing related to the transactions
contemplated by this Agreement. Purchaser shall have obtained the consents
of any lender permitting Purchaser to issue the Promissory Note in
compliance with any lending agreement.
6.10 DELIVERIES. Seller and Parent shall have delivered to Purchaser
the Assignment and Assumption Agreement and the other Assignment
Instruments.
6.11 PROCEEDINGS. All proceedings to be taken on the part of Seller
or Parent in connection with the transactions contemplated by this
Agreement shall have been consummated. Purchaser shall have received the
consent of all of Purchaser's senior and subordinated lenders that shall be
required to waive any provision in their respective lending agreements that
Purchaser may violate to consummate the transactions contemplated by this
Agreement, or obtain any consent required hereunder.
6.12 COMPUTER SERVICES AGREEMENT. If Purchaser elects to use any of
Seller's Computer Equipment, Purchaser shall have entered into the Computer
Services Agreement with Seller in form reasonably acceptable to Purchaser.
-43-
<PAGE>
6.13 NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the Condition of the Business since December 31,
1997, excluding the effects of (1) any Employees quitting employment with
Seller after the announcement of the transactions contemplated by this
Agreement, (2) changes in the operations of the Business required by this
Agreement or requested in writing by Purchaser, and (3) changes in the
terms or relationship between Seller and vendors after the announcement of
the transactions contemplated by this Agreement attributable to the
announced transaction.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER AND PARENT
The obligations of Seller and Parent hereunder are subject to the
satisfaction, at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part by Seller):
7.01 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by Purchaser in this Agreement (other than those made as of
a specified date earlier than the Closing Date) shall be true and correct
in all material respects (if not qualified by materiality) or in all
respects (if qualified by materiality) on and as of the Closing Date as
though such representation or warranty were made on and as of the Closing
Date, and any representation or warranty made as of a specified date
earlier than the Closing Date shall also have been true and correct in all
material respects (if not qualified by materiality) or in all respects (if
qualified by materiality) on and as of such earlier date.
7.02 PERFORMANCE. Purchaser shall have performed and complied with,
in all material respects, each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by Purchaser at or
before the Closing.
7.03 OFFICERS' CERTIFICATES. Purchaser shall have delivered to Seller
a certificate, dated the Closing Date and executed by the Chairman of the
Board, the President or any Vice President of Purchaser (as the case may
be), substantially in the form and to the effect of EXHIBIT G hereto, and
a certificate, dated the Closing Date and executed by the Secretary or
Assistant Secretary of Purchaser (as the case may be), substantially in the
form and to the effect of EXHIBIT H hereto.
7.04 ORDERS AND LAWS. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by
this Agreement or any of the Operative Agreements or which could reasonably
be expected to otherwise result in a material distribution of the benefits
-44-
<PAGE>
of the transactions contemplated by this Agreement or any of the Operative
Agreements to Seller, and there shall not be pending or threatened on the
Closing Date any Action or Proceeding or any other action in, before or by
any Governmental or Regulatory Authority which could reasonably be expected
to result in the issuance of any such Order or the enactment, promulgation
or deemed applicability to Seller or the transactions contemplated by this
Agreement or any of the Operative Agreements of any such Law.
7.05 REGULATORY CONSENTS AND APPROVALS. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory
Authority necessary to permit Seller, Parent, Purchaser to perform their
obligations under this Agreement and the Operative Agreements and to
consummate the transactions contemplated hereby and thereby (a) shall have
been duly obtained, made or given, (b) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (c)
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any Governmental or Regulatory Authority
necessary for the consummation of the transactions contemplated by this
Agreement and the Operative Agreements shall have occurred.
7.06 THIRD PARTY CONSENTS. All consents (or in lieu thereof waivers)
listed in SECTION 7.06 OF THE DISCLOSURE SCHEDULE, and all other consents
(or in lieu thereof waivers) to the performance by Purchaser, Seller,
Parent of their obligations under this Agreement and the Operative
Agreements or to the consummation of the transactions contemplated hereby
and thereby as are required under any Contract to which Purchaser, Seller,
or Parent is a party or by which any of their respective Assets and
Properties are bound and where the failure to obtain any such consent (or
in lieu thereof waiver) could reasonably be expected, individually or in
the aggregate with other such failures, to materially adversely affect
Parent or Seller, or otherwise result in a material diminution of the
benefits of the transactions contemplated by this Agreement and the
Operative Agreements to Parent or Seller, (a) shall have been obtained, (b)
shall be in form and substance reasonably satisfactory to Seller, (c) shall
not be subject to the satisfaction of any condition that has not been
satisfied or waived and (d) shall be in full force and effect.
7.07 OPINION OF COUNSEL. Each of Parent and Seller shall have
received the opinion of Warner Norcross & Judd LLP, counsel to Purchaser,
dated the Closing Date, substantially in the form and to the effect of
EXHIBIT I hereto.
7.08 DELIVERIES. Purchaser shall have delivered to Seller the
Assignment and Assumption Agreement and the other Assumption Instruments.
7.09 PROCEEDINGS. All proceedings to be taken on the part of
Purchaser in connection with the transactions contemplated by this
Agreement shall have been consummated. Parent shall have received the
-45-
<PAGE>
consent of Parent's senior lenders that shall be required to waive any
provision under any lending agreement that Parent or Seller may violate to
consummate the transactions contemplated by this Agreement, or obtain any
consent required thereunder.
7.10 COMPUTER SERVICES AGREEMENT. If Purchaser elects to use any of
Seller's Computer Equipment, Seller shall have entered into the Computer
Service Agreement with Purchaser in form reasonably acceptable to Seller.
7.11 NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, condition, (financial or
otherwise), results of operations, Assets and Properties and prospects of
the business of Purchaser since December 31, 1997.
7.12 ADDITIONAL INDEBTEDNESS. Purchaser shall not have incurred any
additional material Indebtedness other than (a) in the ordinary course of
business or (b) pursuant to any credit facility arrangement with
Purchaser's lenders in effect as of the date of this Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
8.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Notwithstanding any right of Purchaser (whether or not
exercised) to investigate the Business, the right of Parent and Seller
(whether or not exercised) to investigate Purchaser, or any right of any
party (whether or not exercised) to investigate the accuracy of the
representations and warranties of any other party contained in this
Agreement, a party shall have the right to rely fully upon the
representations, warranties, covenants and agreements of the other party
contained in this Agreement. The representations, warranties, covenants
and agreements of Seller, Parent, and Purchaser contained in this Agreement
will survive the Closing (a) indefinitely with respect to the
representations and warranties contained in Sections 2.01, 2.02, 2.28,
3.01, 3.02 and 3.06 and any representation and warranty relating to the
delivery of the Seller Assets free and clear of any Lien other than a
Permitted Lien, (b) until the expiration of all applicable statutes of
limitation (including all periods of extension, whether automatic or
permissive) with respect to the representations contained in Section 2.09,
Section 2.12 (insofar as they relate to ERISA or the Code), Section 2.21(c)
and under Section 9.01(a)(iii) and Section 9.01(b)(iv), until the end of
the existing term of the applicable Real Property Lease (excluding any
extensions or renewals), with respect to the representations and warranties
relating to any Store set forth in Section 2.21(a) and (b); (d) until the
second anniversary of the Closing Date, with respect to all representations
-46-
<PAGE>
and warranties other than those specifically identified in clauses (a),
(b), or (c) above, and (e) for a period of two years after any breach with
respect to each covenant or agreement contained in this Agreement or in any
Operative Agreement, except that any representation or warranty that would
otherwise terminate in accordance with clause (a), (b), (c), (d) or (e)
above, and the right of a party to deliver a Claim Notice or Indemnity
Notice with respect thereto, will continue to survive if a Claim Notice or
Indemnity Notice (as applicable) shall have been timely given under
Article IX on or prior to such termination date, until the related claim
for indemnification has been satisfied or otherwise resolved as provided in
Article IX.
ARTICLE IX
INDEMNIFICATION
9.01 INDEMNIFICATION.
(a) Seller and Parent each shall, jointly and severally,
indemnify Purchaser, and their officers, directors, employees,
agents and Affiliates in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred
or sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to (i) any
breach of any representation, warranty, covenant or agreement on
the part of Seller or Parent contained in this Agreement, (ii) a
Retained Liability, (iii) Seller's failure to comply with the
terms of any applicable bulk sales act of comparable statutory
provisions of each applicable jurisdiction, (iv) the operation of
the Business prior to Closing, including without limitation any
obligation or liability to any employee of Seller in connection
with the employment or any termination of employment of any
employee; any and all claims arising from any failure or alleged
failure to provide notice to Seller's Employees under WARN or any
similar state or local statute or governmental regulations or
ordinance, whether any of the claims are asserted against Parent,
Seller or Purchaser, and all claims asserted by current or former
employees of Seller who are not actually employed by Purchaser
after the Closing Date for benefits pursuant to COBRA, whether
any of those claims are asserted against Purchaser or Seller; or
(v) the enforcement by Purchaser of its indemnification rights
under Article IX.
(b) Purchaser shall indemnify Seller, Parent and their
officers, directors, employees, agents, and Affiliates in respect
of, and hold each of them harmless from and against, any and all
Losses suffered, incurred or sustained by any of them or to which
-47-
<PAGE>
any of them becomes subject, resulting from, arising out of or
relating to (i) any breach of any representation, warranty,
covenant or agreement on the part of Purchaser contained in this
Agreement; (ii) an Assumed Liability; (iii) Purchaser's failure
to comply with any federal, state or local laws, including but
not limited to discrimination laws, in connection with
Purchaser's interviewing or hiring of any of Seller's employees;
(iv) any payment made by Parent pursuant to any guaranty of any
Real Property Lease for any obligation that Purchaser assumed
with respect to the Real Property Lease pursuant to
Section 1.02(a)(i) of this Agreement; (v) the operation of the
Business after the Closing; and (vi) the enforcement by Parent or
Seller of their indemnification rights under Article IX.
(c) No amounts of indemnity shall be payable as a result of
claims arising under Section 9.01(a)(i) or Section 9.01(b)(i),
unless and until the Indemnified Parties thereunder have
suffered, incurred, sustained or become subject to Losses
referred to in such Section in excess of $100,000 in the
aggregate under such Section, in which event such Indemnified
Parties shall be entitled to seek indemnity from the applicable
Indemnifying Parties for the amount of such Losses in excess of
$100,000 (the "Basket"): provided, however, that the Basket shall
not apply to breaches of any representation or warranty contained
in Sections 2.01, 2.02, 2.09, 2.12, 2.28, 3.01, 3.02 3.09 and
3.11. The maximum amount of Losses for which indemnification is
payable under Section 9.01(a)(i) (exclusive of any representation
or warranty under Sections 2.01, 2.02, 2.09, and 2.21 and any
representation and warranty relating to the delivery of the
Seller Assets free and clear of any Lien other than a Permitted
Lien) or 9.01(b)(i) (exclusive of Section 3.01, 3.02 and 3.09
shall be $2,000,000. The maximum amount of Losses for which
indemnification is payable under Section 9.01(a)(i) for any
breach of a representation or warranty under Section 2.21(a) or
(b) or any indemnification under Section 9.01(a)(v) shall be
$5,000,000. The maximum amount of Losses for which
indemnification is payable under Section 9.01(a)(i) for any
breach of a representation and warranty under Section 2.21(c)
shall be $11,500,000.
(d) So long as any claims for Losses shall be for an amount
in aggregate less than the unpaid principal balance of the
Promissory Note, Purchaser may, as Purchaser's sole and exclusive
remedy (other than as set forth in Section 9.02(d) of this
Agreement) in the event of any breach of this Agreement by Parent
or Seller or to effect indemnification against Parent or Seller
under this Article, withhold sums payable to Seller or Parent
pursuant to the Promissory Note to the extent of any claim
-48-
<PAGE>
asserted by Purchaser, and offset against the amounts due under
the Promissory Note any amounts or reasonably estimated amounts
that Purchaser is entitled pursuant to indemnification or
reimbursement under this Agreement or otherwise. Any sums so
withheld shall operate as a discharge, to the extent of the
amount withheld and offset, of Purchaser's payment obligations to
Seller under the Promissory Note as well as a discharge, to the
extent of the amount withheld and offset, of Parent's and
Seller's indemnification obligations. Notwithstanding the
foregoing, prior to Purchaser withholding sums pursuant to this
Section for indemnification against Parent or Seller, Purchaser
will provide Parent or Seller with 30 days' written notice
describing the indemnification claim, including the amount of
such claim. Parent or Seller shall have 30 days after delivery
of the written notice to notify Purchaser in writing of any
objections to the indemnification claim. If Parent or Seller
objects to the indemnification claim, Purchaser, Parent and
Seller agree to use their reasonable efforts to resolve such
claim. The parties agree and acknowledge that if any claim for
indemnification and offset pursuant to this Section remains
unresolved, including any continuing third party claim pending
against Purchaser, upon maturity of any payment of principal of
and interest on the Promissory Note, the term of the Promissory
Note will be extended for such principal amount equal to the
reasonably estimated total of the unresolved claim (at the same
interest rate and other terms) until such claim is resolved.
Further, the parties agree and acknowledge that the Purchaser
shall pay when due in accordance with the terms of the Promissory
Note all principal amounts of the Promissory Note and interest
thereon that are in excess of an unresolved claim for
indemnification and offset pursuant to this Section. For the
period the Promissory Note is extended for an unresolved claim
(if any) interest will accrue on that portion of principal of the
Promissory Note that becomes payable (if not subject to offset)
upon resolution of any disputed claim. For the period the
Promissory Note is extended (if any) interest will not accrue on
that portion of the principal of the Promissory Note that is
finally determined to be subject to offset under this Section.
9.02 METHOD OF ASSERTING CLAIMS. All claims for indemnification by
any Indemnified Party under Section 9.01 will be asserted and resolved as
follows:
(a) In the event any claim or demand in respect of which an
Indemnifying Party might seek indemnity under Section 9.01 is
asserted against or sought to be collected from such Indemnified
Party by a Person other than Seller, Parent, Purchaser, or any
Affiliate of Seller, Parent, or Purchaser (a "Third Party
-49-
<PAGE>
Claim"), the Indemnified Party shall deliver a Claim Notice with
reasonable promptness to the Indemnifying Party; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in
notifying the Indemnifying Party shall limit the Indemnified
Party's rights hereunder unless (and then solely to the extent)
that such delay materially impairs the Indemnifying Party's
ability to respond to the Third Party Claim. The Indemnifying
Party will notify the Indemnified Party as soon as practicable
whether the Indemnifying Party disputes its liability to the
Indemnified Party under Section 9.01 and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified
Party that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim
pursuant to this Section 9.02(a), then the Indemnifying
Party will have the right to defend, with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and
expense of the Indemnifying Party, such Third Party Claim by
all appropriate proceedings, which proceedings will be
prosecuted by the Indemnifying Party in a reasonable manner
and in good faith to a final conclusion. The Indemnifying
Party shall have full authority to settle such Third Party
Claim (but only with the consent of the Indemnified Party,
which consent shall not be unreasonably withheld, in the
case of any settlement that provides for any relief other
than the payment of monetary damages or that provides for
the payment of monetary damages as to which the Indemnified
Party will not be indemnified in full pursuant to
Section 9.01). The Indemnifying Party will have full
control of such defense and proceedings, including any
compromise or settlement thereof; PROVIDED, HOWEVER, that
the Indemnified Party may, at the sole cost and expense of
the Indemnified Party, at any time prior to the Indemnifying
Party's delivery of the notice referred to in the first
sentence of this Section 9.02(a)(i), file any motion, answer
or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests if the Indemnified
Party shall have first notified the Indemnifying party of
the Indemnified Party's intentions to file such pleadings or
take such action and the Indemnifying party fails timely to
file the pleading or take the action timely to protect the
Indemnified party's interest; and PROVIDED FURTHER, that if
requested by the Indemnifying Party, the Indemnified Party
will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying
-50-
<PAGE>
Party in contesting any Third Party Claim that the
Indemnifying Party elects to contest. The Indemnified Party
may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this Section 9.02(a)(i), and
except as provided in the preceding sentence, the
Indemnified Party will bear its own costs and expenses with
respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control
of the defense or settlement of a Third Party Claim at any
time if it irrevocably waives its right to indemnity under
Section 9.01 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the
Indemnified Party within fifteen (15) days after the
Indemnified Party has given notice of the Third Party Claims
that the Indemnifying Party desires to defend the Third
Party Claim pursuant to Section 9.02(a), or if the
Indemnifying Party gives such notice but fails to prosecute
in a reasonable manner and in good faith or settle the Third
Party Claim, or if the Indemnifying Party fails to give any
notice whatsoever within the fifteen-day period, then the
Indemnified Party will have the right to defend, at the sole
cost and expense of the Indemnifying Party (which costs and
expenses shall be reasonable), the Third Party Claim by all
appropriate proceedings, which proceedings will be
prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of
the Indemnified Party (with the consent of the Indemnifying
Party, which consent will not be unreasonably withheld).
The Indemnified Party will have full control of such defense
and proceedings, including any compromise or settlement
thereof; PROVIDED, HOWEVER, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its
counsel in contesting any Third Party Claim which the
Indemnified Party is contesting and PROVIDED, FURTHER that
the Indemnifying Party may later upon request assume the
full control of the defense and proceedings upon the written
consent of Indemnified Party in Indemnified Party's sole
discretion. Notwithstanding the foregoing provisions of
this Section 9.02(a)(ii), if the Indemnifying Party has
notified the Indemnified Party that the Indemnifying Party
disputes its liability under this Article IX to the
Indemnified Party with respect to such Third Party Claim and
if such dispute is resolved in favor of the Indemnifying
Party in the manner provided in clause (iii) below, the
-51-
<PAGE>
Indemnifying Party will not be required to bear the costs
and expenses of the Indemnified Party's defense pursuant to
this Section 9.02(a)(ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request,
and the Indemnified Party will reimburse the Indemnifying
Party in full for all reasonable costs and expenses incurred
by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 9.02(a)(ii), and
the Indemnifying Party will bear its own costs and expenses
with respect to such participation.
(b) In the event any Indemnified Party should have a claim
under Section 9.01 against any Indemnifying Party that does not
involve a Third Party Claim, the Indemnified Party shall deliver
an Indemnity Notice with reasonable promptness to the
Indemnifying Party; PROVIDED, HOWEVER, that no delay on the part
of the Indemnified Party in notifying the Indemnifying Party
shall limit the Indemnified Party's rights hereunder unless (and
then solely to the extent) that such delay materially impairs the
Indemnifying Party's ability to respond to the claim. If the
Indemnifying Party notifies the Indemnified Party that it does
not dispute the claim described in such Indemnity Notice or fails
to notify the Indemnified Party within sixty (60) days after the
Indemnified Party's request whether the Indemnifying Party
disputes the claim described in such Indemnity Notice, the Loss
in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under
Section 9.01 and the Indemnifying Party shall pay the amount of
such Loss to the Indemnified Party. If the Indemnifying Party
has timely disputed its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will proceed in good
faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the Resolution Period, such
dispute shall be resolved by litigation in a court of competent
jurisdiction.
(c) In the event of any Loss resulting from a
misrepresentation or breach of warranty or nonfulfillment as to
which an Indemnified Party would be entitled to claim indemnity
under Section 9.01 but for the provisions of Section 9.01(c),
such Indemnified Party may nevertheless deliver a written notice
to the Indemnifying Party containing the information that would
be required in a Claim Notice or an Indemnity Notice, as
applicable, with respect to such Loss. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim
described therein or fails to notify the Indemnified Party within
-52-
<PAGE>
sixty (60) days after the Indemnified Party's request whether the
Indemnifying Party disputes the claim described in such Claim
Notice or Indemnity Notice, as the case may be, the Loss
specified in the notice will be conclusively deemed to have been
incurred by the Indemnified Party for purposes of making the
determination set forth in Section 9.01(c). If the Indemnifying
Party has timely disputed the claim described in such Claim
Notice or Indemnity Notice, as the case may be, the Indemnifying
Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved
through negotiations within the Resolution Period, such dispute
shall be resolved by litigation in a court of competent
jurisdiction.
(d) Except as set forth in Section 4.09(c) and Article X of
this Agreement, the rights accorded to Indemnified Parties under
this Article IX shall be the sole and exclusive remedy and relief
with respect to the representations, warranties, covenants and
agreements set forth in this Agreement, other than any remedy or
relief from liability for any willful and knowing breach of this
Agreement, knowingly false representations or warranty or fraud.
ARTICLE X
TERMINATION
10.01 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written
agreement of Seller and Purchaser;
(b) at any time before the Closing, by Parent or Seller, on
the one hand, or Purchaser, on the other hand, in the event (i)
of a material breach hereof by the non-terminating parties if
such non-terminating parties fail to cure such breach within five
(5) Business Days following notification thereof by the
terminating parties or (ii) upon notification of the non-
terminating parties by the terminating party that the
satisfaction of any condition to the terminating parties'
obligations under this Agreement becomes impossible or
impracticable with the use of commercially reasonable efforts if
the failure of such condition to be satisfied is not caused by a
breach hereof by the terminating parties;
(c) at any time after May 15, 1998, upon notice of at least
two Business days by Parent and Seller if Purchaser shall not
-53-
<PAGE>
have notified Parent or Seller that the conditions to Purchaser's
obligation under this Agreement that are set forth in Section
6.09 of this Agreement shall have been satisfied or waived and if
Purchaser fails to then furnish notice within the two business
day period that the conditions shall have been satisfied or
waived; or
(d) at any time after June 15, 1998 (or June 30, 1998 if
extended to such date by written notice of Purchaser) by Parent
or Seller, on the one hand, or at any time after June 15, 1998 by
Purchaser, on the other hand, upon notification of the non-
terminating parties by the terminating parties if the Closing
shall not have occurred on or before such date and such failure
to consummate is not caused by a breach of this Agreement by the
terminating party.
10.02 LIABILITIES IN EVENT OF TERMINATION. In the event of the
termination of this Agreement, this Agreement shall be void and have no
effect, and Parent, Seller and Purchaser and their respective directors,
officers and shareholders or other Representatives shall have no obligation
or liability to each other, except that the provisions in Sections 10.03,
12.04 (to the extent applicable) and 12.06 will continue to apply following
any termination of this Agreement.
10.03 TERMINATION FEE. If (a) this Agreement is terminated due to
a material breach of any representation, warranty, covenant or agreement by
Parent or Seller or the failure of Parent or Seller to satisfy any
condition required to be satisfied by it under this Agreement, and (b)
within 365 days after the date on which this Agreement is terminated,
either an Alternate Transaction occurs, or Parent or Seller enters into a
letter of intent or definitive agreement providing for an Alternate
Transaction, then Parent and Seller promptly (and in any event within 10
days after receipt of Purchaser's written demand) shall pay to Purchaser
liquidated damages ("Liquidated Damages") equal to the lesser of (i) the
sum of (w) $500,000 and (x) all of Purchaser's out-of-pocket expenses
incurred in connection with this Agreement, the negotiation of letter of
intent among Parent, Seller and Purchaser dated April 7, 1998, and this
Agreement and the transactions contemplated hereby, including without
limitation, its due diligence expenses and the fees and expenses of its
professional advisors, or (ii) an amount (the "Alternate Transaction
Amount") equal to the difference between the Alternate Transaction Price
(as defined below) and the portion of the Purchase Price that would have
been allocable to the Assets that shall be the subject of the Alternate
Transaction had Parent, Seller and Purchaser consummated the transactions
contemplated by this Agreement. If more than one Alternate Transaction
shall occur, the Alternate Transaction Amount shall be recomputed as a
result of each such Alternate Transaction. The Liquidated Damages shall be
payable immediately upon the occurrence of each Alternate Transaction. The
-54-
<PAGE>
"Alternate Transaction Price" means the value attributed to the Seller
based on the maximum price paid for the Seller's assets, equity securities
or business in the Alternate Transaction, which shall include, if
applicable, the value assigned in the Alternate Transaction to securities
or other property exchanged for the Seller's equity securities or received
for the Seller's assets or business or the right to vote the shares. For
purposes of this Agreement, an "Alternate Transaction" means any
transaction, other than sales of inventory in the ordinary course, relating
to the acquisition of a material portion of the Seller, its assets, equity
securities or Business, in whole or in part, whether directly or indirectly
through purchase, merger, consolidation or other business combination.
Notwithstanding this Section 10.03, Liquidated Damages shall not be payable
by Parent or Seller if (y) the Parent or Seller shall have terminated this
Agreement pursuant to Section 10.01(c) and (z) the conditions to
Purchaser's obligations as set forth in Sections 6.01, 6.02, 6.04, 6.05,
6.06, 6.08, and 6.13 shall have been fulfilled or satisfied as of the date
of the termination.
ARTICLE XI
DEFINITIONS
11.01 DEFINITIONS.
(a) As used in this Agreement, the following defined terms
shall have the meanings indicated below:
"ACCOUNTS RECEIVABLE" has the meaning ascribed to it in Section
1.01(a)(iii).
"ACTIONS OR PROCEEDINGS" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"AFFILIATE" means any Person that directly, or indirectly through
one of more intermediaries, controls or is controlled by or is under common
control with the Person specified. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause
the direction of the management and policies of such Person whether by
Contract or otherwise and, in any event and without limitation of the
previous sentence, any Person owning ten percent (10%) or more of the
voting securities of a second Person shall be deemed to control that second
Person.
"AGREEMENT" means this Asset Purchase Agreement and the Exhibits,
the Disclosure Schedule and the Schedules hereto and the certificates
delivered in accordance with Sections 6.03 and 7.03, as the same shall be
amended from time to time in accordance with the terms hereof.
-55-
<PAGE>
"ANNUAL FINANCIAL STATEMENT DATE" means March 31, 1998.
"ANNUAL FINANCIAL STATEMENTS" means the audited consolidated
balance sheet of Seller as of March 31, 1998, and the related audited
statements of income, shareholders' equity and cash flows of Seller for the
fiscal year then ended, in each case including the notes thereto.
"ASSETS AND PROPERTIES" of any Person at any time of
determination means, collectively, all assets, properties and rights of
every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the
goodwill related thereto, operated, owned or leased by such Person, at such
time, including without limitation cash, cash equivalents, Investment
Assets, accounts and notes receivable, chattel paper, documents,
instruments, general intangibles, real estate, equipment, inventory, goods
and Intellectual Property.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means the Bill of Sale,
Assignment and Assumption Agreement to be entered into on the Closing Date
by Purchaser and Seller, substantially in the form of Exhibit A, as the
same may be amended, supplemented or otherwise modified from time to time
in accordance with the terms hereof and thereof.
"ASSOCIATE" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner
or is the beneficial owner, directly or indirectly, of ten percent (10%) or
more of any class of equity securities, any trust or estate in which such
Person has a substantial beneficial interest or as to which such Person
serves as a trustee or in a similar capacity and any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person.
"ASSUMED LIABILITIES" has the meaning ascribed to it in
Section 1.02(a).
"ASSUMPTION INSTRUMENTS" has the meaning ascribed to it in
Section 1.04.
"BENEFIT PLAN" means any Plan established by Seller, or any
predecessor or Affiliate of Seller, existing at the Closing Date or prior
thereto, to which Seller contributes or has contributed on behalf of any
Employee, former Employee or director, or under which any Employee, former
Employee or director of Seller or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.
"BOOKS AND RECORDS" of any Person means all files, documents,
instruments, papers, books and records relating to the business,
-56-
<PAGE>
operations, condition of (financial or other), results of operations and
Assets and Properties of such Person, including financial statements; Tax
Returns and related work papers and letters from accountants; budgets;
pricing guidelines; labels, catalogues, brochures, artwork photographs,
advertising material, marketing and productive literature, files and other
records and documents; ledgers; journals; deeds; title policies; minute
books; stock certificates and books; stock transfer ledgers; Contracts;
Licenses; customer lists, church lists and mailing lists; payroll and
personnel records; computer files and programs; retrieval programs;
operating data and plans; environmental studies and plans; and maintenance
records, brochures, catalogues and other documents relating to any Tangible
Personal Property.
"BUSINESS" has the meaning ascribed to it in the recitals hereto.
"BUSINESS BOOKS AND RECORDS" has the meaning ascribed to it in
Section 1.01(a)(xiii).
"BUSINESS COMBINATION" means with respect to any Person, any
merger, consolidation or combination to which such Person is a party, any
sale, dividend, split or other disposition of capital stock or other equity
interests of such Person or any sale, dividend or other disposition of all
or substantially all of the Assets and Properties of such Person.
"BUSINESS CONTRACTS" has the meaning ascribed to it in
Section 1.01(a)(vi).
"BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of Michigan or Texas are authorized or
obligated to close.
"BUSINESS LICENSES" has the meaning ascribed to it in
Section 1.01(a)(x).
"CLAIM NOTICE" means written notification pursuant to
Section 9.23(a) of a Third Party Claim as to which indemnity under
Section 9.01 is sought by an Indemnified Party, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such
Third Party Claim and for the Indemnified Party's claim against the
Indemnifying Party under Section 9.01, together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined in good
faith, of such Third Party Claim.
"CLOSING" has the meaning ascribed to it in Section 1.04.
"CLOSING DATE" means the date on which the Closing actually
occurs, which shall be either (a) the fifth Business Day after the day on
which the last of the consents, approvals, actions, filings, notices or
-57-
<PAGE>
waiting periods described in or related to the filings described in
Sections 6.05, 6.06, 7.05 and 7.06 has been obtained, made or given or has
expired, as applicable, but in any event no later than June 15, 1998 (or
June 30, 1998 if extended by Purchaser pursuant to Section 10.01(d)), or
(b) such other date as Purchaser, Parent and Seller may mutually agree in
writing.
"CODE" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"COMPUTER SERVICES AGREEMENT" means the Computer Services
Agreement between Seller and Purchaser for Purchaser to use Seller's
Computer Equipment in form and substance reasonably satisfactory to
Purchaser and Seller.
"CONDITION OF THE BUSINESS" means the business, condition
(financial or otherwise), results of operations, Assets and Properties and
prospects of the Business.
"CONTRACT" means any agreement, lease, debenture, note, other
evidence of Indebtedness, mortgage, deed of trust, indenture, security
agreement or other contract (whether written or oral).
"DISCLOSURE SCHEDULE" means the schedules delivered to Purchaser
by Parent and Seller herewith and dated as of the date hereof, containing
all lists, descriptions, exceptions and other information and materials as
are required to be included therein pursuant to this Agreement.
"EMPLOYEE" means each employee or officer of Seller engaged in
the conduct of the Business.
"ENVIRONMENT" means all air, surface water, groundwater, or land,
including land surface or subsurface, including all fish, wildlife, biota
and all other natural resources.
"ENVIRONMENTAL CLAIM" means any and all administrative or
judicial actions, suits, orders, claims, liens, notices, notices of
violations, investigations, complaints, requests for information,
proceedings, or other communication (written or oral), whether criminal or
civil, (collectively, "Claims") pursuant to or relating to any applicable
Environmental Law by any person (including but not limited to any
Governmental or Regulatory Authority, private person and citizens' group)
based upon, alleging, asserting, or claiming any actual or potential (i)
violation of or liability under any Environmental Law, (ii) violation of
any Environmental Permit, or (iii) liability for investigatory costs,
cleanup costs, removal costs, remedial costs, response costs, natural
resource damages, property damage, personal injury, fines, or penalties
arising out of, based on, resulting from, or related to the presence,
-58-
<PAGE>
Release, or threatened Release into the Environment, of any Hazardous
Materials at any Store, including but not limited to any off-Site location
to which Hazardous Materials or materials containing Hazardous Materials
were sent for handling, storage, treatment, or disposal.
"ENVIRONMENTAL CLEAN-UP SITE" means any location which is listed
or proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System,
Resource Conservation and Recovery Information System or on any similar
state or local list of sites requiring investigation or cleanup, or which
is the subject of any pending or threatened action, suit, proceeding, or
investigation related to or arising from any alleged violation of any
Environmental Law, or at which there has been a Release, threatened or
suspected Release of a Hazardous Material otherwise than in compliance with
Environmental Laws.
"ENVIRONMENTAL LAW" means any and all federal, state, local,
provincial and foreign, civil and criminal laws, statutes, ordinances,
orders, codes, rules, regulations, Environmental Permits, policies,
guidance documents, judgments, decrees, injunctions, or agreements with any
Governmental or Regulatory Authority, relating to the protection of health
and the Environment, worker health and safety, and/or governing the
handling, use, generation, treatment, storage, transportation, disposal,
manufacture, distribution, formulation, packaging, labeling, or Release of
Hazardous Materials, including but not limited to: the Clean Air Act, 42
U.S.C. < SECTION > 7401 ET SEQ.; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. < SECTION > 9601 ET SEQ.;
the Federal Water Pollution Control Act, 33 U.S.C. < SECTION > 1251 ET SEQ.;
the Hazardous Material Transportation Act 49 U.S.C. < SECTION > 1801 ET SEQ.;
the Federal Insecticide, Fungicide and Rodenticide Act 7 U.S.C. < SECTION >
136 ET SEQ.; the Resource Conservation and Recovery Act of 1976 ("RCRA"),
42 U.S.C. < SECTION > 6901 ET SEQ.; the Toxic Substances Control Act, 15
U.S.C. < SECTION > 2601 ET SEQ.; the Occupational Safety & Health Act of
1970, 29 U.S.C. < SECTION > 651 ET SEQ.; the Oil Pollution Act of 1990, 33
U.S.C. < SECTION > 2701 ET SEQ.; and the state analogies thereto; and any
common law doctrine, including but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of
the presence, Release, or exposure to a Hazardous Material.
"ENVIRONMENTAL LIABILITY" means (i) the presence, Release or
threatened Release, of any Hazardous Materials existing as of or prior to
the Closing Date at, from, in, to, on or under any Store operated by
Seller, Parent, any predecessor of Seller or Parent or any entity owned by
Seller or Parent other than in compliance with Environmental Laws, (ii) the
transportation, treatment, storage, handling or disposal or arrangement for
transportation, treatment, storage, handling or disposal of any Hazardous
Materials generated by Seller or Parent, any predecessor of Seller or
Parent or any entity owned by Seller or Parent at or to any off-Site
-59-
<PAGE>
location prior to the Closing Date in connection with any Store, and
otherwise than in compliance with Environmental Laws or (iii) any violation
of Environmental Law relating to any Store by Seller or Parent prior to the
Closing Date.
"ENVIRONMENTAL PERMIT" means any federal, state, local,
provincial, or foreign permits, licenses, approvals, consents or
authorizations required by any Governmental or Regulatory Authority under
or in connection with any Environmental Law and includes any and all
orders, consent orders or binding agreements issued or entered into by a
Governmental or Regulatory Authority under any applicable Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"ESTOPPEL CERTIFICATE AND CONSENT TO ASSIGNMENT" means the
Estoppel Certificate and Consent to Assignment to be entered into at or
prior to the Closing among Seller, Parent, Purchaser and any applicable
landlord or sublandlord substantially in the form of Exhibit F.
"EXCLUDED ASSETS" has the meaning ascribed to it in
Section 1.01(b).
"FINANCIAL STATEMENTS" means the financial statements delivered
to Purchaser pursuant to Section 2.06 or 4.05.
"GAAP" means generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period.
"GENERAL ASSIGNMENT" has the meaning ascribed to it in
Section 1.04.
"GIFT CERTIFICATES OUTSTANDING" has the meaning ascribed to it in
Section 1.02(a)(v).
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court, tribunal,
arbitrator, authority, agency, commission, official or other
instrumentality of the United States, any foreign country or any domestic
or foreign state, county, city or other political subdivision, and shall
include, without limitation, any stock exchange, quotation service and the
National Association of Securities Dealers.
"HAZARDOUS MATERIAL" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation and transformers or other
equipment that contain dielectric fluid containing levels of
-60-
<PAGE>
polychlorinated biphenyls (PCBs); (B) any chemicals, materials, substances
or wastes which are now defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants" or words of similar import, under any
Environmental Law; and (C) any other chemical, material, substance or
waste, exposure to which is now prohibited, limited or regulated by any
Governmental or Regulatory Authority.
"INDEBTEDNESS" of any Person means all obligations of such Person
(i) for borrowed money, (ii) evidenced by notes, bonds, debentures or
similar instruments, (iii) for the deferred purchase price of goods or
services (other than trade payables or accruals incurred in the ordinary
course of business), (iv) under capital leases, (v) as an account party
under letters of credit and (vi) in the nature of guarantees of the
obligations described in clauses (i) through (v) above of any other Person.
"INDEMNIFIED PARTY" means any Person claiming indemnification
under any provision of Article IX, including without limitation a Person
asserting a claim pursuant to Section 9.02(c).
"INDEMNIFYING PARTY" means any Person against whom a claim for
indemnification are being asserted under any provision of Article IX,
including without limitation a Person against whom a claim is asserted
pursuant to Section 9.02(c).
"INDEMNITY NOTICE" means written notification pursuant to
Section 9.02(b) of a claim for indemnity under ARTICLE IX by an Indemnified
Party, specifying the nature of and basis for such claim, together with the
amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim.
"INTANGIBLE PERSONAL PROPERTY" has the meaning ascribed to it in
Section 1.01(a)(viii).
"INTELLECTUAL PROPERTY" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights
(including, but not limited to "Joshua's" and "Joshua's Christian Store"),
brand names, inventions, processes, formulae, copyrights and copyright
rights, trade dress, business and product names, logos, slogans, trade
secrets, industrial models, designs, methodologies, and related
documentation, technical information, manufacturing, engineering and
technical drawings, know-how and all pending applications for and
registrations of patents, trademarks, service marks and copyrights.
"INVENTORY" has the meaning ascribed to it in
Section 1.01(a)(ii).
-61-
<PAGE>
"INVENTORY CAP" has the meaning ascribed to it under Section
1.03(c)(i).
"INVENTORY VALUATIONS" has the meaning ascribed to it in Section
1.03(c)(i).
"INVESTMENT ASSETS" means all debentures, notes and other
evidences of Indebtedness, stocks, securities (including rights to purchase
and securities convertible into or exercisable or exchangeable for other
securities), interests in joint ventures and general and limited
partnerships, mortgage loans and other investment or portfolio assets owned
of record or beneficially by Seller.
"KNOWLEDGE," "to the knowledge of" and like terms means the
actual knowledge of any officer of the Person after reasonable inquiry of
subordinate employees.
"LAWS" means all laws, statutes, rules, regulations, ordinances
and other pronouncements having the effect of law of the United States, any
foreign country or any domestic or foreign state, county, city or other
political subdivision or of any Governmental or Regulatory Authority.
"LIABILITIES" means all Indebtedness, obligations and other
liabilities of a Person (whether absolute, accrued, contingent, known or
unknown fixed or otherwise, or whether due or to become due).
"LICENSES" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory Authority.
"LIENS" means any mortgage, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge or other encumbrance of
any kind, or any conditional sale Contract, title retention Contract or
other Contract to give any of the foregoing.
"LOSSES" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including without limitation interest,
court costs, fees of attorneys, accountants and other experts or other
expenses of litigation or other proceedings or of any claim, default or
assessment).
"MANAGEMENT AGREEMENT" means the Management Agreement to be
entered into at or prior to the Closing among Seller, Parent, Purchaser and
any applicable landlord or sublandlord in form and substance reasonably
satisfactory to Seller, Parent and Purchaser.
"OPERATIVE AGREEMENTS" means, collectively, the Promissory Note,
General Assignment and Assumption Agreement, the other Assignment
-62-
<PAGE>
Instruments and Assumption Instruments, Computer Services Agreement and
Management Agreement.
"ORDER" means any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case
whether preliminary or final).
"OTHER ASSETS" has the meaning ascribed to it in
Section 1.01(a)(xiv).
"PARENT" has the meaning ascribed to it in the introductory
paragraph of this Agreement.
"PERMITTED LIEN" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation
of Law with respect to a Liability that is not yet due or delinquent, (iii)
any minor imperfection of title or similar Lien which, individually or in
the aggregate with other such Liens, does not materially impair the value
of the property subject to such Lien or interfere with the use of such
property in the conduct of the Business or the business of Purchaser, as
the case may be, and (iv) the landlord's liens set forth in the number of
Real Property Leases described in Section 6.09 of the Agreement.
"PERSON" means any natural person, corporation, general
partnership, limited partnership, limited liability company,
proprietorship, other business organization, trust, union, association or
Governmental or Regulatory Authority.
"PERSONAL PROPERTY LEASES" has the meaning ascribed to it in
Section 1.01(a)(v).
"PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services,
cafeteria, life, health, accident, disability, workmen's compensation or
other insurance, severance, separation or other employee benefit plan,
practice, policy or arrangement of any kind, whether written or oral,
including, but not limited to, any "employee benefit plan" within the
meaning of Section 3(3) of ERISA.
"PREPAID EXPENSES" has the meaning ascribed to it in
Section 1.01(a)(vii).
"PROMISSORY NOTE" has the meaning ascribed to it in Section
1.03(d).
-63-
<PAGE>
"PURCHASE PRICE" has the meaning ascribed to it in Section
1.03(a).
"PURCHASER" has the meaning ascribed to it in the introductory
paragraph of this Agreement.
"PURCHASER'S FINANCIAL STATEMENTS" has the meaning ascribed to it
in Section 3.06.
"QUALIFIED PLAN" means each benefit plan which is intended to
qualify under Section 401 of the Code.
"REAL PROPERTY LEASES" has the meaning ascribed to it in
Section 1.01(a)(i).
"RELEASE" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing of a Hazardous Material into the Environment.
"REPRESENTATIVES" has the meaning ascribed to it in Section 4.02.
"RESOLUTION PERIOD" means the period ending thirty (30) calendar
days following receipt by an Indemnified Party of a Dispute Notice.
"RETAINED LIABILITIES" has the meaning ascribed to it in
Section 1.02(b).
"SECURITY AGREEMENTS" has the meaning ascribed to it in Section
2.23.
"SELLER" has the meaning ascribed to it in the introductory
paragraph of this Agreement.
"SELLER ASSETS" has the meaning ascribed to it in Section
1.01(a).
"SELLER'S COMPUTER EQUIPMENT" has the meaning ascribed to it in
Section 1.01(b)(iii).
"SITE" means any of the real properties currently or previously
owned, leased or operated by the Parent or the Seller, any predecessors of
the Parent or the Seller or any entities previously owned by the Parent or
the Seller, in each case in connection with the Assets or the Business,
including all soil, subsoil, surface waters and groundwater thereat.
"STORE" has the meaning ascribed to it in Section 1.01(a).
"STORE OPENING FUNDS" has the meaning ascribed to it in
Sections 1.01(a)(xiii).
-64-
<PAGE>
"STORE RELOCATION EXPENSE" means the amount of direct, reasonable
out-of-pocket costs (as described in Schedule 11 to this Agreement) that
Purchaser may incur to relocate a Store (a "Nontransferred Store") as to
which Purchaser is required to relocate because (1) Seller shall not have
delivered to Purchaser an Estoppel Certificate and Consent to Assignment in
form and substance reasonably acceptable to Purchaser to operate the Store
after the Closing for a period until at least the expiration of the
existing term of the Real Property Lease relating to the Store and (2)
prior to the end of the term of any such Real Property Lease, the lessor
for such lease has issued a notice of default with respect to the continued
operation of the Store (which notice has not been withdrawn) by or for the
benefit of Purchaser; provided, however, that the maximum reimbursement for
any Store shall be $100,000.
"TANGIBLE PERSONAL PROPERTY" has the meaning ascribed to it in
Section 1.01(a)(iv).
"TAX" or "TAXES" means all federal, state, local or foreign net
or gross income, gross receipts, net proceeds, sales, use, AD VALOREM,
value added, franchise, bank shares, withholding, payroll, employment,
excise, sales, use, property, alternative or add-on minimum, environmental
or other taxes, assessments, duties, fees, levies or other governmental
charges of any nature whatever, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"TAX RETURNS" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular
Tax.
"TENANT SECURITY DEPOSITS" has the meaning ascribed to it in
Section 1.01(a)(xii).
"THIRD PARTY CLAIM" has the meaning ascribed to it in Section
9.02(a).
"TRANSFER TAXES" means sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar Taxes and
fees.
"UNCOLLECTED ACCOUNT" has the meaning ascribed to it in
Section 1.03(c)(ii).
"VEHICLES" has the meaning ascribed to it in Section 1.01(a)(x).
(b) Unless the context of this Agreement otherwise
requires: (i) words of any gender include each other gender; (ii)
words using the singular or plural number also include the plural
-65-
<PAGE>
or singular number, respectively; (iii) the terms "hereof,"
"herein," "hereby" and derivative or similar words refer to this
entire Agreement; (iv) the terms "Article" or "Section" refer to
the specified Article or Section of this Agreement; (v) the words
"include," "includes" and "including" are deemed to be followed
by the phrase "without limitation"; and (vi) the phrases
"ordinary course of business" and "ordinary course of business
consistent with past practice" refer to the business and practice
of Seller in connection with the Business. All accounting terms
used herein and not expressly defined herein shall have the
meanings given to them under GAAP.
ARTICLE XII
MISCELLANEOUS
12.01 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given
only if delivered personally or by facsimile transmission or mailed (first
class postage prepaid) to the parties at the following addresses or
facsimile numbers:
If to Purchaser:
Family Bookstores Company, Inc.
5300 Patterson, S.E.
Grand Rapids, Michigan 49530
Attention: Leslie E. Dietzman, President and CEO
with a copy to:
Warner Norcross & Judd LLP
900 Old Kent Building
111 Lyon, N.W.
Grand Rapids, Michigan 49503
Attention: Alex J. DeYonker
If to Seller or Parent, to:
Tandycrafts, Inc.
The Development Association, Inc.
1400 Everman Parkway
Forth Worth, Texas 76140
Attention: Michael J. Walsh, President and CEO
-66-
<PAGE>
with a copy to:
Tandycrafts, Inc.
Legal Department
1400 Everman Parkway
Fort Worth, Texas 76140
Attention: Russell L. Price
and a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Michael W. Tankersley
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile
number as provided in this Section and electronically confirmed as received
and a hard copy promptly sent by First Class Mail, be deemed given upon
receipt and (iii) if delivered by mail in the manner described above to the
address as provided in this Section, be deemed given upon receipt (in each
case regardless of whether such notice, request or other communication is
received by any other Person to whom a copy of such notice is to be
delivered pursuant to this Section). Any party from time to time may
change its address, facsimile number or other information for the purpose
of notices to that party by giving notice specifying such change to the
other party hereto.
12.02 BULK SALES ACT. The parties hereby waive compliance with
the bulk sales act or comparable statutory provisions of each applicable
jurisdiction.
12.03 ENTIRE AGREEMENT. This Agreement and the Operative
Agreements supersede all prior discussions and agreements between the
parties with respect to the subject matter hereof and thereof, including
without limitation that certain letter of intent between Purchaser, Parent
and Seller dated April 7, 1998, and the certain Confidentiality Agreements
between Purchaser and Parent dated May 13 and July 10, 1997, and contains
the sole and entire agreement between the parties hereto with respect to
the subject matter hereof and thereof.
12.04 EXPENSES. Except as otherwise expressly provided in this
Agreement (including as provided in Sections 1.03(c)(i), 4.05(a), 10.02 and
10.03), whether or not the transactions contemplated hereby are
consummated, each party will pay its own costs and expenses incurred in
connection with the negotiation, execution and closing of this Agreement
-67-
<PAGE>
and the Operative Agreements and the transactions contemplated hereby and
thereby.
12.05 PUBLIC ANNOUNCEMENTS. At all times at or before the
Closing, Seller, Parent, and Purchaser shall not issue or make any reports,
statements, covenants or releases to the public or generally to the
employees, customers, suppliers or other Persons to whom Seller or Parent
sells goods or provides services in connection with the Business or with
whom Seller otherwise has significant business relationships in connection
with the Business with respect to this Agreement or the transactions
contemplated hereby without the consent of the other parties, which consent
shall not be unreasonably withheld. If any party is unable to obtain the
approval of its public report, statement document, or release from any
other party and such report, statement or release is, in the written
opinion of legal counsel to such party, required by Law to discharge such
party's disclosure obligations, then such party may make or issue the
legally required report, statement or release and promptly furnish the
other party with a copy thereof. Seller, Parent, and Purchaser will also
obtain each other party's prior approval of any press release to be issued
immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
12.06 CONFIDENTIALITY. For a period of two years from the date of
this Agreement, each party hereto will hold, and will use its commercially
reasonable efforts to cause its Affiliates and their respective
Representatives to hold, in strict confidence from any Person (other than
any such Affiliate or Representative), unless (a) compelled to disclose by
judicial or administrative process (including without limitation in
connection with obtaining the necessary approvals of this Agreement and the
transactions contemplated hereby of Governmental Authorities) or by other
requirements of Law or Governmental Authorities or (b) disclosed in an
Action or Proceeding brought by a party hereto in pursuit of its rights or
in the exercise of its remedies hereunder, all documents and information
concerning any other party or any of its Affiliates furnished to it by such
other party or such other party's Representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent
that such documents or information can be shown to have been (i) previously
known by the party receiving such documents or information, (ii) in the
public domain (either prior to or after the furnishing of such documents or
information hereunder) through no fault of such receiving party or (iii)
later acquired by the receiving party from another source if the receiving
party is not aware that such source is under an obligation to another party
hereto to keep such documents and information confidential (the
"Confidential Information"); PROVIDED that following the Closing the
foregoing restrictions will not apply to Purchaser's use of documents and
information concerning Seller, the Business, the Assets or the Assumed
Liabilities furnished by any party hereto. In the event the transactions
contemplated hereby are not consummated, upon the request of any other
-68-
<PAGE>
party, each party hereto will, and will cause its Affiliates and their
respective Representatives to, promptly (and in no event later than five
days after such request) redeliver or cause to be redelivered all copies of
documents and information furnished by such other party in connection with
this Agreement or the transactions contemplated hereby and destroy or cause
to be destroyed all notes, memoranda, summaries, analyses, compilations and
other writings related thereto or based thereon prepared by the party
furnished such documents and information or its Representatives and will
not use such information in a manner that would be likely to have a
materially adverse effect upon such other party. Each party shall inform
their respective Affiliates and Representatives of the confidential nature
of the other party's Confidential Information and not to disclose any of
the other party's Confidential Information to any other Person. Each party
shall be responsible for any breach of Section 12.06 by any of its
Representatives.
12.07 WAIVER. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof,
but no such waiver shall be effective unless set forth in a written
instrument duly executed by or on behalf of the party waiving such term or
condition. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed
as a waiver of the same or any other term or condition of this Agreement on
any future occasion. All remedies, either under this Agreement or by Law
or otherwise afforded, will be cumulative and not alternative.
12.08 AMENDMENT. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
12.09 NO THIRD PARTY BENEFICIARY. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the
intention of the parties to confer third-party beneficiary rights upon any
other Person other than any Person entitled to indemnification under
Article IX.
12.10 NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any party
hereto without the prior written consent of the other parties hereto and
any attempt to do so will be void, except (a) for assignments and transfers
by operation of Law and (b) that Purchaser may assign any or all of its
rights, interests and obligations hereunder (including without limitation
its rights under Article IX) to (i) a wholly owned subsidiary, provided
that any such subsidiary agrees in writing to be bound by all of the terms,
conditions and provisions contained herein, (ii) any post-Closing purchaser
of the Business or a substantial part of the Assets or (iii) any financial
institution providing purchase money or other financing to Purchaser from
-69-
<PAGE>
time to time as collateral security for such financing, but no such
assignment referred to in clause (i) or (ii) shall relieve Purchaser of its
obligations hereunder. Subject to the preceding sentence, this Agreement
is binding upon, inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns.
12.11 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
12.12 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH PARTY
HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN OR ANY COURT OF
THE STATE OF MICHIGAN LOCATED IN THE CITY OF GRAND RAPIDS IN ANY SUCH
ACTION, SUIT OR PROCEEDING, AND AGREES THAT ANY SUCH ACTION, SUIT OR
PROCEEDING MAY BE BROUGHT IN SUCH COURT (AND WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS OR ANY OTHER OBJECTION TO VENUE THEREIN), PROVIDED,
HOWEVER, THAT SUCH CONSENT TO JURISDICTION IS SOLELY FOR THE PURPOSE
REFERRED TO IN THIS SECTION AND SHALL NOT BE DEEMED TO BE A GENERAL
SUBMISSION TO THE JURISDICTION OF SAID COURTS OR IN THE STATE OF MICHIGAN
OTHER THAN FOR SUCH PURPOSE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE OTHER IN ANY OTHER
JURISDICTION.
12.13 INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future
Law, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement
will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom
and (d) in lieu of such illegal, invalid or unenforceable provision, there
will be added automatically as a part of this Agreement a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
12.14 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Michigan,
without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of Michigan or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
State of Michigan.
12.15 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
-70-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party as of the date first
above written.
FAMILY BOOKSTORES COMPANY, INC.
By: ______________________________________
Name:
Title:
TANDYCRAFTS, INC.
By: ______________________________________
Name:
Title:
THE DEVELOPMENT ASSOCIATION, INC.
By: ______________________________________
Name:
Title:
-71-
<PAGE>
EXHIBIT 10.16
SERIES A WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
Warrant No. A-1
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Manner of Exercise. . . . . . . . . . . . . . . . . . . . . . 4
2.2. Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 6
3. TRANSFER, DIVISION AND COMBINATION. . . . . . . . . . . . . . . . . . 6
3.1. Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2. Division and Combination. . . . . . . . . . . . . . . . . . . 6
3.3. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4. Maintenance of Books. . . . . . . . . . . . . . . . . . . . . 7
4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1. Stock Dividends, Subdivisions and Combinations. . . . . . . . 7
4.2. Certain Other Distributions . . . . . . . . . . . . . . . . . 7
4.3. Issuance of Additional Shares of Common Stock . . . . . . . . 8
4.4. Issuance of Warrants, Options or Other Rights . . . . . . . . 10
4.5. Issuance of Convertible Securities. . . . . . . . . . . . . . 10
4.6. Superseding Adjustment. . . . . . . . . . . . . . . . . . . . 11
4.7. Other Provisions Applicable to Adjustments under this
Section . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets . . . . . . . . . . . . . . . . . . . . 15
4.9. Other Action Affecting Common Stock . . . . . . . . . . . . . 16
4.10. Taking of Record; Stock and Warrant Transfer
Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. NOTICES TO WARRANT HOLDERS. . . . . . . . . . . . . . . . . . . . . . 16
5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . 16
5.2. Notice of Certain Corporate Action. . . . . . . . . . . . . . 16
6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . 17
8. PUT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(i)
<PAGE>
Page
----
9. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . 18
9.1. Restrictive Legend. . . . . . . . . . . . . . . . . . . . . . 18
9.2. Buy and Sell Agreement. . . . . . . . . . . . . . . . . . . . 19
9.3. Consent to Transfer . . . . . . . . . . . . . . . . . . . . . 19
9.4. Notice of Proposed Transfers; Requests for Registration . . . 19
10. LOSS OR MUTILATION. . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. FINANCIAL AND BUSINESS INFORMATION. . . . . . . . . . . . . . . . . . 19
12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . 20
14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.1. Nonwaiver and Expenses. . . . . . . . . . . . . . . . . . . . 20
14.2. Notice Generally. . . . . . . . . . . . . . . . . . . . . . . 20
14.3. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.4. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.5. Successors and Assigns. . . . . . . . . . . . . . . . . . . . 22
14.6. Office of the Company . . . . . . . . . . . . . . . . . . . . 22
14.7. Information . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.8. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.9. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 22
14.10. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBITS:
Exhibit A - Subscription Form
Exhibit B - Assignment Form
(ii)
<PAGE>
NEITHER THE WARRANTS REPRESENTED HEREBY NOR THE UNDERLYING SHARES OF
COMMON STOCK HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND NEITHER MAY BE OFFERED FOR SALE OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM
UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED. THIS WARRANT AND THE WARRANT STOCK ISSUED HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS PROVIDED IN SECTION 9 HEREOF
SERIES A WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
THIS IS TO CERTIFY THAT ELECTRA INVESTMENT TRUST P.L.C., a corporation
organized under the laws of the United Kingdom ("ELECTRA"), or permitted and
registered assigns (collectively referred to herein as the "HOLDER"), is
entitled, beginning on the Effective Date and at any time prior to the
Expiration Date, to purchase from FAMILY BOOKSTORES COMPANY, INC., a Michigan
corporation (the "COMPANY"), that number of shares of Common Stock (as
defined herein and subject to adjustment as provided herein) equal to 15.31%
of the number of shares of Common Stock outstanding on a Fully Diluted basis,
excluding shares issued pursuant to the Performance Plan, on the date of
issuance of this Warrant, at a purchase price equal to the Current Warrant
Price, which shall be initially equal to $.01 per share and which is subject
to adjustment as provided herein. This Warrant is issued in connection with,
and as consideration, in part, for, the Holder's purchase on the date hereof
of certain of the Company's Senior Subordinated Notes due May 17, 2003,
together with this Series A Warrant and the other warrants referred to in the
Securities Purchase Agreement. Capitalized terms used but not otherwise
defined in this Warrant shall have the meanings ascribed to such terms in the
Securities Purchase Agreement.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than (i) Warrant
Stock, (ii) the shares of Common Stock issued by
<PAGE>
the Company pursuant to the Performance Plan, (iii) shares of Common Stock
issuable to the holders of the Series B, Series C and Series D warrants
issued in connection with the transactions contemplated by the Securities
Purchase Agreement and (iv) shares of Common Stock issuable to the holders of
any Penalty Warrants issued in connection with the transactions contemplated
by the Securities Purchase Agreement.
"Appraised Value" shall mean, in respect of any share of Common Stock as
of any date herein specified, the fair saleable value of such share of
Common Stock (determined without giving effect to a discount for (i) a
minority interest, (ii) any lack of liquidity of the Common Stock or to the
fact that the Company may have no class of equity registered under the
Exchange Act or (iii) any restrictions on transfer) as of the last day of the
most recent fiscal month and prior to such date specified, based upon the
value of the Company as determined by the Company and the Holder in
reasonable good faith, and, if the Company and the Holder fail to so agree
within 20 Business Days, as determined by an investment banking firm selected
in accordance with the terms of Section 12.
"Business Day" shall mean any day that is not a Saturday or a Sunday or
a day on which commercial banks are required or authorized to be closed in
the City of New York.
"Closing Date" shall have the meaning ascribed to such term in the
Securities Purchase Agreement.
"Common Stock" shall mean (except where the context otherwise indicates)
the common stock, $1.00 par value, of the Company as constituted on the
Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated
by Section 4.8.
"Company" shall have the meaning set forth in the first paragraph hereof.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for
Additional Shares
2
<PAGE>
of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the greater of (i) book value per share
of Common Stock as determined by the Company's financial statements for the
most recently ended fiscal quarter, and (ii) the Appraised Value per share of
Common Stock.
"Current Warrant Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Effective Date" shall mean November 17, 1994.
"Electra" shall have the meaning set forth in the first paragraph hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Expiration Date" shall mean November 17, 2004.
"Fully-Diluted" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
shares of Common Stock outstanding at such date and all shares of Common
Stock issuable in respect of this Warrant increased by all common equivalent
shares issuable at any time pursuant to any stock options, warrants,
convertible securities, and any other security or instrument having the right
to require additional common shares to be issued at any time in the future,
outstanding on such date.
"GAAP" shall mean generally accepted accounting principles as set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or statements by
such other entity as have been approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Holder" shall have the meaning set forth in the first paragraph hereof.
3
<PAGE>
"Other Property" shall have the meaning set forth in Section 4.8.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, corporation, limited liability organization,
association, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of November 14, 1994, by and among the Company,
Electra and Electra Investment Trust P.L.C.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or
of any interest in either thereof.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Triggering Event" shall have the meaning ascribed to such term in the
Securities Purchase Agreement.
"Warrant" or "Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination, or in exchange or substitution
therefor.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock received by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. From and after the Effective Date, and until
5:00 P.M. New York City time on the Expiration Date, the Holder may exercise
this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder; PROVIDED, HOWEVER, that if a
Triggering Event shall have occurred prior to the Expiration Date this
Warrant shall terminate as of the date of occurrence of such Triggering
Event, unless exercised as provided herein.
4
<PAGE>
In order to exercise this Warrant, in whole or in part, the Holder shall
deliver to the Company at its principal office at 5300 Patterson, S.E., Grand
Rapids, Michigan 49530, or at the office or agency designated by the Company
pursuant to Section 14.7, (i) a written notice of the Holder's election to
exercise this Warrant, which notice shall specify the number of shares of
Common Stock to be purchased, (ii) the Holder's check in payment of the
Warrant Price and (iii) this Warrant. Such notice shall be substantially in
the form of the subscription form appearing at the end of this Warrant as
EXHIBIT A, duly executed by the Holder or its agent or attorney. Upon
receipt thereof, subject to Section 9, the Company shall, as promptly as
practicable, and in any event within five (5) Business Days thereafter,
execute or cause to be executed and delivered or cause to be delivered to the
Holder a certificate or certificates representing the aggregate number of
shares of Common Stock issuable upon such exercise, or, at the Company's
option, the number of shares of Common Stock issuable on such exercise,
together with cash in lieu of any fraction of a share, as hereinafter
provided. The stock certificate or certificates so delivered shall be, to
the extent possible, in such denomination or denominations as the Holder
shall request and shall be registered in the name of the Holder or, subject
to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate
or certificates shall be deemed to have been issued, and the Holder or any
other Person so designated to be named therein shall be deemed to have become
a holder of record of such shares for all purposes, as of the date the
notice, together with the cash or check and this Warrant, is received by the
Company as described above and all taxes, if any, required to be paid prior
to the issuance of such shares have been paid pursuant to Section 2.2. If
this Warrant shall have been exercised in part, the Company shall, at the
time of delivery of the certificate or certificates, deliver to the Holder a
new Warrant evidencing the rights of the Holder to purchase the unpurchased
shares of Common Stock called for by this Warrant, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant and the same
returned to the Holder.
2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and the Company shall pay all expenses
in connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issuance or delivery thereof, unless such taxes
or charges are income taxes or otherwise imposed upon income or revenues of
the Holder.
5
<PAGE>
2.3. FRACTIONAL SHARES. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be
entitled to purchase upon such exercise, the Company may, as provided in
Section 2.1, pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of
the Company to be maintained for such purpose, upon surrender of this Warrant
at the principal office of the Company referred to in Section 2.1 or the
office or agency designated by the Company pursuant to Section 14.7, together
with a written assignment of this Warrant substantially in the form of
EXHIBIT B hereto duly executed by the Holder or its agent or attorney. Upon
such surrender, the Company shall, subject to Section 9, execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned in compliance with Section 9, may be exercised by a new
Holder for the purchase of shares of Common Stock without having a new
Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may
be divided or combined with other Warrants upon presentation thereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued
and signed by the Holder or its agent or attorney. Subject to Section 3.1
and Section 9, as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. EXPENSES. The Company shall prepare, issue and deliver the new
Warrant or Warrants and pay all expenses, taxes and other charges payable in
connection with the preparation, issuance and delivery of such Warrants,
unless such taxes or charges are income taxes or otherwise imposed upon
income or revenues of the Holder, or arise because of the domicile of the
Holder.
6
<PAGE>
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, and the price at which such shares may be purchased upon
exercise of this Warrant, shall be subject to adjustment from time to time as
set forth in this Section 4. The Company shall give each Holder notice of any
event which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in or to receive
any other distribution of Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder
of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the occurrence of such event, and (ii) the Current
Warrant Price shall be adjusted to equal the product of (A) the Current
Warrant Price prior to the occurrence of such event multiplied by (B) a
fraction, the numerator of which is the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such adjustment and
the denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash (other than a regular cash dividend payable out of
surplus or net profits legally available for the payment of
7
<PAGE>
dividends under the laws of the jurisdiction of incorporation of the
Company),
(b) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(c) any warrants, options or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock),
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of (A) the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such adjustment multiplied by (B) a fraction, the numerator of which
shall be the Current Market Price per share of Common Stock at the date of
taking such record and the denominator of which shall be such Current Market
Price per share of Common Stock minus the amount allocable to one share of
Common Stock of any such cash so distributable and of the fair value (as
determined pursuant to Section 4.7(a), including as to an opinion from an
investment banking firm) of any and all such evidences of indebtedness,
shares of stock, other than securities or property or warrants or other
subscription or purchase rights so distributable; and (ii) the Current
Warrant Price shall be adjusted to equal (A) the Current Warrant Price
multiplied by (B) a fraction, the numerator of which shall be the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to the adjustment and the denominator of which shall be the number of
shares for which this Warrant is exercisable immediately after such
adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par
value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed
into a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Common Stock within the
meaning of Section 4.1.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) If at any time
the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, in exchange for consideration in an amount
per Additional Share of Common Stock
8
<PAGE>
which is less than the Current Warrant Price at the time the Additional
Shares of Common Stock are issued, then (i) the Current Warrant Price as to
the number of shares for which this Warrant is exercisable prior to such
adjustment shall be reduced to a price determined by dividing (A) an amount
equal to the sum of (x) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing
Current Warrant Price plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (B) the total number of shares of Common
Stock outstanding immediately after such issue or sale; and (ii) the number
of shares of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product of (A) the Current Warrant Price in effect
immediately prior to such issue or sale multiplied by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such issue or sale, and dividing the product thereof by the Current
Warrant Price resulting from the adjustment made pursuant to clause (i) above.
(b) If at any time the Company shall (except as hereinafter provided)
issue or sell any Additional Shares of Common Stock, in exchange for
consideration in an amount per Additional Share of Common Stock which is less
than the Current Market Price at the time the Additional Shares of Common
Stock are issued, then (i) the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted to equal the product of (A) the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such issue or sale multiplied by (B) a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately after such issue or sale and the denominator of which shall be
the sum of (x) number of shares of Common Stock outstanding immediately prior
to such issue or sale plus (y) the number of shares which the aggregate
offering price of the total number of such Additional Shares of Common Stock
would purchase at the then Current Market Price; and (ii) the Current Warrant
Price as to the number of shares for which this Warrant is exercisable prior
to such adjustment shall be adjusted by multiplying (A) such Current Warrant
Price by (B) a fraction, the numerator of which shall be the number of shares
for which this Warrant is exercisable immediately prior to such issue or sale
and the denominator of which shall be the number of shares of Common Stock
for which this Warrant is exercisable immediately after such issue or sale.
(c) If at any time the Company (except as hereinafter provided) shall
issue or sell any Additional Shares of Common Stock, in exchange for
consideration in an amount per Additional Share of Common Stock which is less
than the Current Warrant Price and the Current Market Price at the time the
Additional Shares of
9
<PAGE>
Common Stock are issued, the adjustment required under this Section 4.3 shall
be made in accordance with the formula in paragraph (a) or (b) above which
results in the lower Current Warrant Price following such adjustment. The
provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any
issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4.1 or Section 4.2. No adjustment of the number of
shares of Common Stock for which this Warrant shall be exercisable shall be
made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise
of any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Convertible Securities,
if any such adjustment shall previously have been made upon the issuance of
such warrants or other rights or upon the issuance of such Convertible
Securities (or upon the issuance of any warrant or other rights therefor)
pursuant to Section 4.4 or Section 4.5.
4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time the
Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a distribution of, or shall in any
manner (whether directly or by assumption in a merger in which the Company is
the surviving corporation) issue or sell, any warrants, options or other
rights to subscribe for or purchase any Additional Shares of Common Stock or
any Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such warrants, options or other
rights or upon conversion or exchange of such Convertible Securities shall be
less than the Current Warrant Price or the Current Market Price in effect
immediately prior to such issue or sale, then the number of shares for which
this Warrant is exercisable and the Current Warrant Price shall be adjusted
as provided in Section 4.3 on the basis that the maximum number of Additional
Shares of Common Stock issuable pursuant to all such warrants, options or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding
and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such warrants,
options or other rights. No further adjustment of the Current Warrant Price
shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such warrants, options or other
rights or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company
shall take a record of the holders of its Common Stock
10
<PAGE>
for the purpose of entitling them to receive a distribution of, or shall in
any manner (whether directly or by assumption in a merger in which the
Company is the surviving corporation) issue or sell, any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange shall be less than the Current
Warrant Price or Current Market Price in effect immediately prior to the time
of such issue or sale, then the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 4.3 on the basis that the maximum number of Additional Shares of
Common Stock necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding
and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made under this Section
4.5 upon the issuance of any Convertible Securities which are issued pursuant
to the exercise of any warrants, options or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made upon
the issuance of such warrants, options or other rights pursuant to Section
4.4. No further adjustments of the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible
Securities and, if any issue or sale of such Convertible Securities is made
upon exercise of any warrant, option or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the number
of Shares for which this Warrant is exercisable and the Current Warrant Price
have been or are to be made pursuant to other provisions of Section 4, no
further adjustments of the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be made by reason of such
issue or sale.
4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of
the number of shares of Common Stock for which this Warrant is exercisable
and of the Current Warrant Price shall have been made pursuant to Section 4.4
or Section 4.5 as the result of any issuance of warrants, options, rights or
Convertible Securities, such warrants, options or rights, or the right of
conversion or exchange of such Convertible Securities, shall expire, and all
or a portion of such warrants, options or rights, or the right of conversion
or exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, then such
previous adjustment shall be rescinded and annulled and the Additional Shares
of Common Stock which were deemed to have been issued by virtue of the
computation
11
<PAGE>
made in connection with the adjustment so rescinded and annulled shall no
longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants,
options or rights or Convertible Securities on the basis of (a) treating the
number of Additional Shares of Common Stock or other property, if any,
theretofore actually issued or issuable pursuant to the previous exercise of
any such warrants, options or rights or any such right of conversion or
exchange, as having been issued on the date or dates of any such exercise and
for the consideration actually received and receivable therefor, and (b)
treating any such warrants, options or rights or any such Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share
for which shares of Common Stock or other property are issuable under such
warrants, options or rights or other Convertible Securities, whereupon a new
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall be made, which new adjustment
shall supersede the previous adjustment so rescinded and annulled.
4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION.
The following provisions shall be applicable to the making of adjustments of
the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price provided for in this Section 4:
(a) COMPUTATION OF CONSIDERATION. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants, options
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration,
the consideration received by the Company therefor shall be the amount of the
cash received by the Company, or, if such Additional Shares of Common Stock
or Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in any
such case subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation, discounts
or expenses paid or incurred by the Company for and in the underwriting of,
or otherwise in connection with, the issuance thereof). To the extent that
such issuance shall be for a consideration other than cash, then, except as
herein otherwise expressly provided, the amount of such consideration shall
be deemed to be fair value of such consideration at the time of such issuance
as determined in good faith by the Board of Directors of the Company. In
case any Additional Shares of Common Stock or
12
<PAGE>
any Convertible Securities or any warrants, options or other rights to
subscribe for or purchase such Additional Shares of Common Stock or
Convertible Securities shall be issued in connection with any merger in which
the Company issues any securities, the amount of consideration therefor
shall be deemed to be the fair value, as determined in good faith by the
Board of Directors of the Company, of such portion of the assets and business
of the nonsurviving corporation as such Board in good faith shall determine
to be attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants, options or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable pursuant to
any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants,
options or other rights plus the additional consideration payable to the
Company upon exercise of such warrants, options or other rights. The
consideration for any Additional Shares of Common Stock issuable pursuant to
the terms of any Convertible Securities shall be the consideration received
by the Company for issuing warrants, options or other rights to subscribe for
or purchase such Convertible Securities, plus the consideration paid or
payable to the Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any, payable to
the Company upon the exercise of the right of conversion or exchange of such
Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal to the
amount of such dividend so paid or satisfied.
(b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number
of shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision
or combination of shares of the Common Stock, as provided for in Section 4.1)
up to, but not beyond the date of exercise if such adjustment either by
itself or with other adjustments not previously made, will, based on a good
faith determination of the Board of Directors of the Company, add or subtract
less than an amount equal to 1% of the Common Stock outstanding immediately
prior to the making of such adjustment. Any adjustment representing a change
of less than such minimum amount (except as aforesaid) which is postponed
shall be carried forward and made as soon as such adjustment, together with
other adjustments required by this Section 4 and not previously made, would
result in a
13
<PAGE>
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
(c) FRACTIONAL INTERESTS. In computing adjustments under this Section
4, fractional interests in Common Stock shall be taken into account to the
nearest 1/10th of a share.
(d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(e) ESCROW OF WARRANT STOCK. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of the
event for which such record is taken, and the Holder exercises this Warrant,
any Additional Shares of Common Stock issuable upon exercise by reason of
such adjustment shall be deemed the last shares of Common Stock for which
this Warrant is exercised (notwithstanding any other provision to the
contrary herein) and such shares or other property shall be held in escrow
for the Holder by the Company to be issued to the Holder upon and to the
extent that the event actually takes place, upon payment of the then Current
Warrant Price. Notwithstanding any other provision to the contrary herein, if
the event for which such record was taken fails to occur or is rescinded,
then such escrowed shares shall be cancelled by the Company and escrowed
property returned.
(f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such determination
may be challenged in good faith by the Holder, and if, upon the expiration of
20 Business Days, the Holder and the Company fail to agree as to such fair
value, after reasonable, good faith negotiation, any dispute shall be
resolved by an investment banking firm selected by the Company and reasonably
acceptable to such Holder (or, if more than one Warrant is outstanding, to
holders of a majority of Warrant Stock issuable upon exercise of the
Warrants). The Company shall bear 80%, and the Holder shall bear 20%, of the
cost of such firm.
14
<PAGE>
4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where there is a change in or distribution with respect to the
Common Stock of the Company other than a subdivision, combination or exchange
otherwise provided for herein), or sell, transfer or otherwise dispose of all
or substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation (herein referred to as "OTHER
PROPERTY"), are to be received by or distributed to the holders of Common
Stock of the Company, then each Holder shall have the right thereafter to
receive, upon exercise of such Warrant, the number of shares of common stock
of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of
such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of
each and every term and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereof,
subject to such modifications as may be deemed appropriate (as determined in
good faith by resolution of the Board of Directors of the Company) in order
to provide for adjustments of shares of the Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 4. For purposes of this
Section 4.8 "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and
which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into
or exchangeable for any such stock, either immediately or upon the arrival of
a specified date or the happening of a specified event, and any warrants,
options or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
15
<PAGE>
4.9 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from
time to time the Company shall take any action in respect of its Common
Stock, other than action described in this Section 4, then, unless such
action will not have a material adverse effect upon the rights of the Holder,
the number of shares of Common Stock or other stock for which this warrant is
exercisable and/or the purchase price thereof shall be adjusted in such
manner as may be equitable in the circumstances.
4.10 TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case
of all dividends or other distributions by the Company to the holders of its
Common Stock with respect to which any provision of Section 4 refers to the
taking of a record of such holders, the Company will in each such case take
such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time close its stock transfer books
or warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
5. NOTICES TO WARRANT HOLDERS
5.1 NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of this Warrant,
shall be adjusted pursuant to Section 4, the Company shall forthwith prepare
a certificate to be executed by the chief financial officer of the Company
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
and specifying the Current Warrant Price and the number of shares of Common
Stock for which this Warrant is exercisable after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of such
certificate to be delivered to the Holder in accordance with Section 14.2. The
Company shall keep at its office or agency designated pursuant to Section
14.7 copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by the Holder thereof.
5.2 NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled
to the same rights to receive notice of corporate action as any holder of
Common Stock.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its articles of incorporation or through any reorganization,
transfer of assets, consolidation, merger,
16
<PAGE>
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder against impairment. Without
limiting the generality of the foregoing, the Company will take all such
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
Upon the request of the Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY
The Company shall at all times reserve and keep available for issuance
upon the exercise of this Warrant such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in full
of all outstanding warrants. The Company covenants that all shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant
and payment therefor in accordance with the terms of such Warrant, shall be
duly and validly issued and fully paid and nonassessable.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any and all corporate action which may be necessary in order that the Company
may validly and legally issue fully paid and nonassessable shares of such
Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in
the Current Warrant Price, the Company shall obtain all authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such
17
<PAGE>
shares may be so issued, the Company will in good faith, as expeditiously as
possible and at its own expense, endeavor to cause such shares to be duly
registered or qualified, as the case may be.
8. PUT RIGHTS
The Holder shall have the right to require the Company to repurchase all
or any portion of the Warrants held by the Holder upon the terms and as
provided in paragraph 13B of the Securities Purchase Agreement.
9. RESTRICTIONS ON TRANSFER
The Warrants and the Warrant Stock may not be transferred or assigned
before satisfaction of the conditions specified in this Section 9, which are
intended, among other purposes, to ensure compliance with the provisions of
the Securities Act with respect to the Transfer of any Warrant or any Warrant
Stock. The Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 9.
9.1 RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant Stock
issued upon exercise hereof, shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT AND
THE WARRANT STOCK ISSUED HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS PROVIDED IN SECTION 9 HEREOF."
In addition, all shares of Warrant Stock issued upon the initial exercise of
this Warrant shall bear a legend in substantially the following form:
IN ADDITION TO THE FOREGOING RESTRICTIONS ON TRANSFER, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF
A CERTAIN BUY AND SELL AGREEMENT DATED AS OF NOVEMBER 14, 1994, A COPY
OF WHICH IS ON FILE WITH THE COMPANY. ANY ATTEMPTED SALE, TRANSFER,
ASSIGNMENT, PLEDGE OR OTHER DISPOSITION IN VIOLATION OF THE TERMS OF
THE BUY AND SELL AGREEMENT IS VOID.
18
<PAGE>
9.2 BUY AND SELL AGREEMENT. The Warrant Stock is subject to the terms
of a Buy and Sell Agreement dated as of November 14, 1994, a copy of which is
on file with the Company. No shares of Warrant Stock may be sold,
transferred, assigned, pledged or otherwise disposed of except in accordance
therewith.
9.3 CONSENT TO TRANSFER. The Holder of this Warrant shall not
transfer, assign, or otherwise dispose, or permit the transfer, assignment or
other disposition by it, of this Warrant or any Warrant Stock, or any
interest therein, to any person (including any Electra Transferee, Permitted
Person, or any other transferee), other than the Company or any Shareholder,
unless the transferee agrees in a writing satisfactory to the Company:
(i) that it will not transfer or permit the transfer of this Warrant or any
shares of Common Stock so acquired or any interest therein to any Person
(other than the Company or any Shareholder) without the prior written consent
of the Company and (ii) that it will be bound by the transfer restrictions
set forth in this Section 9.3. The consent required in clause (i) of the
immediately preceding sentence may be withheld by the Company only if, in the
Company's reasonable opinion, the transferee (x) competes directly or
indirectly with the Company or (y) may be expected to have a significant
adverse effect on the Company's Christian-based mission or image. Any
transfer in violation of this Section 9.3 shall be void. Any stock
certificate for shares subject to the transfer restrictions set forth in this
Section 9.3 shall include a legend reflecting the restrictions on transfer
set forth in this Section 9.3. For purposes of this Section 9.3, the terms
"Electra Transferee", "Permitted Person" and "Shareholder" shall have the
respective meanings assigned to such terms in the Buy and Sell Agreement. The
Company may deny consent to a transfer of this warrant if the proposed
transfer would cause the total number of Holders of this and all other
Warrants, including the Series B, Series C, Series D, and the Penalty
Warrants, to exceed 10, except for any proposed intra-company transfers by
and among Electra or any of its Affiliates.
9.4. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to
any Transfer of any Warrant, the holder of such Warrant shall give five days'
prior written notice (a "TRANSFER NOTICE") to the Company of such holder's
intention to effect such Transfer, including a description of the manner and
circumstances of the proposed Transfer and, if requested by the Company, an
opinion from counsel to such holder that the proposed Transfer of such
Warrant may be effected without registration under the Securities Act. After
delivery of the Transfer Notice, the holder shall be entitled to Transfer
such Warrant in accordance with the terms of the Transfer Notice. Each
Warrant issued upon such Transfer shall bear the restrictive legend set forth
in
19
<PAGE>
Section 9.1, unless such legend is not required in order to ensure compliance
with the Securities Act.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and, in case of loss, theft or destruction, of
indemnity reasonably satisfactory to it (it being understood and agreed that
the written agreement of Electra and subsequent institutional transferees, if
any, shall be sufficient indemnity) and, in case of mutilation, upon
surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant of like tenor in replacement.
11. FINANCIAL AND BUSINESS INFORMATION
The Company will deliver or cause to be delivered to each Holder, as
provided in paragraph 6A of the Securities Purchase Agreement, certain
financial information, financial analyses, notices, reports, statements and
certificates, all to the extent and in the manner provided therein.
12. APPRAISAL
If the Company and the Holder fail to agree as to the Appraised Value
per share of Common Stock, after reasonable, good faith negotiation, upon the
expiration of 20 Business Days, the determination of the Appraised Value per
share of Common Stock shall be made by an investment banking firm
satisfactory to both the Company and the Holder (or, if there is more than
one Warrant outstanding, to holders of a majority of the Warrant Stock
issuable upon exercise of the Warrants). The Company shall retain such
investment banking firm as may be necessary for the determination of
Appraised Value required by the terms of this Warrant, and the Company shall
bear 80%, and the Holder shall bear 20%, of the cost of such firm.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the Holder
to purchase shares of Common Stock, and no enumeration herein of the rights
or privileges of the Holder, shall give rise to any liability of such Holder
for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
20
<PAGE>
14. MISCELLANEOUS
14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right or otherwise prejudice the Holder's rights,
powers or remedies. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any provision of this
Warrant, the Company shall pay to the Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, incurred by the Holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers and
remedies hereunder.
14.2. NOTICE GENERALLY. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the books of the Company maintained for such purpose;
(b) If to the Company at:
Family Bookstores Company, Inc.
5300 Patterson, S.E.
Grand Rapids, Michigan 49530
Attention: Leslie E. Dietzman
with a copy to:
Warner Norcross & Judd
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
Attention: John G. Cameron, Jr., Esq.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt acknowledged, or three (3) Business
Days
21
<PAGE>
after the same shall have been postmarked in the United States mail.
14.3. VOTING. If requested by the Holder hereof, and to the extent
permitted by law, the Company shall take all action to entitle the Holder to
vote with the Common Stock of the Company that number of votes equal to the
number of shares of Common Stock issuable from time to time upon exercise of
this Warrant on any matters upon which the holders of Common Stock are
entitled to vote; PROVIDED, that the rights of the Holder hereunder shall not
duplicate any rights of the Holder to vote with the Common Stock as may be
provided under the Shareholders' Agreement.
14.4. REMEDIES. Each holder of this Warrant and any Warrant Stock
issuable upon exercise of this Warrant, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of Section 9
of this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
14.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections
3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and assigns of Electra or any other holder hereof. The provisions
of this Warrant are intended to be for the benefit of all holders from time
to time of this Warrant, and shall be enforceable by any such holder.
14.6. OFFICE OF THE COMPANY. As long as any of the Warrants remain
outstanding, the Company shall maintain an office or agency (which may be
the principal executive offices of the Company) where the Warrants may be
presented for exercise, registration of transfer, division or combination as
provided in this Warrant.
14.7 INFORMATION. The Company shall cooperate with each Holder of a
Warrant and each holder of Warrant Stock in supplying such information as may
be reasonably requested by such holder to comply with any filings or
information reporting forms presently or hereafter required as a condition to
the availability of an exemption from the Securities Act for the sale of any
Warrant or Warrant Stock.
14.8. AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder (or, if there is more than one Warrant
22
<PAGE>
outstanding, to holders of a majority of the Warrant Stock issuable upon
exercise of the Warrants).
14.9. SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Warrant.
14.10. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
14.11. GOVERNING LAW. This Warrant shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating to
conflict of laws, except to the extent matters herein are governed by the
Michigan Business Corporation Act, under which the Company is incorporated.
23
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by an officer thereunto duly authorized, as of the
17th day of November, 1994.
FAMILY BOOKSTORES COMPANY, INC.
By: /s/ Leslie E. Dietzman
---------------------------
Name: Leslie E. Dietzman
Title: President
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of __________ shares of Common Stock of FAMILY
BOOKSTORES COMPANY, INC., and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the
name of and delivered to ____________________________________ whose address
is _________________________________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
Dated: ___________________
__________________________________
(Name of Registered Owner)
__________________________________
(Signature of Registered Owner)
__________________________________
(Street Address)
__________________________________
(City) (State) (Zip Code)
NOTE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every particular, without
alteration or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Number of Shares
Name and Address of Assignee of Common Stock
- ---------------------------- ----------------
and does hereby irrevocably constitute and appoint ___________________________
attorney-in-fact to register such transfer on the books of FAMILY BOOKSTORES
COMPANY, INC. maintained for the purpose, with full power of substitution in
the premises.
Dated: ______________________
__________________________________
(Registered Owner)
NOTE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or any change whatsoever. Transfer is subject to restrictions as
provided in the Warrant.
<PAGE>
EXHIBIT 10.17
SERIES A WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
Warrant No. A-2
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. TRANSFER, DIVISION AND COMBINATION. . . . . . . . . . . . . . . . . . . . 6
3.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2. Division and Combination . . . . . . . . . . . . . . . . . . . . . . 6
3.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4. Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . 7
4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1. Stock Dividends, Subdivisions and Combinations . . . . . . . . . . . 7
4.2. Certain Other Distributions. . . . . . . . . . . . . . . . . . . . . 7
4.3. Issuance of Additional Shares of Common Stock. . . . . . . . . . . . 8
4.4. Issuance of Warrants, Options or Other Rights. . . . . . . . . . . .10
4.5. Issuance of Convertible Securities . . . . . . . . . . . . . . . . .10
4.6. Superseding Adjustment . . . . . . . . . . . . . . . . . . . . . . .11
4.7. Other Provisions Applicable to Adjustments under this Section. . . .12
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . .15
4.9. Other Action Affecting Common Stock. . . . . . . . . . . . . . . . .16
4.10.Taking of Record; Stock and Warrant Transfer Books . . . . . . . . .16
5. NOTICES TO WARRANT HOLDERS. . . . . . . . . . . . . . . . . . . . . . . .16
5.1. Notice of Adjustments. . . . . . . . . . . . . . . . . . . . . . . .16
5.2. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . .16
6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
8. PUT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
(i)
<PAGE>
Page
9. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . .18
9.1. Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . .18
9.2. Buy and Sell Agreement . . . . . . . . . . . . . . . . . . . . . . .19
9.3. Consent to Transfer. . . . . . . . . . . . . . . . . . . . . . . . .19
9.4. Notice of Proposed Transfers; Requests for Registration. . . . . . .19
10. LOSS OR MUTILATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
11. FINANCIAL AND BUSINESS INFORMATION. . . . . . . . . . . . . . . . . . . .19
12. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
13. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . .20
14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
14.1. Nonwaiver and Expenses. . . . . . . . . . . . . . . . . . . . .20
14.2. Notice Generally. . . . . . . . . . . . . . . . . . . . . . . .20
14.3. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
14.4. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
14.5. Successors and Assigns. . . . . . . . . . . . . . . . . . . . .22
14.6. Office of the Company . . . . . . . . . . . . . . . . . . . . .22
14.7. Information . . . . . . . . . . . . . . . . . . . . . . . . . .22
14.8. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . .22
14.9. Severability. . . . . . . . . . . . . . . . . . . . . . . . . .22
14.10. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
14.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . .22
EXHIBITS:
Exhibit A - Subscription Form
Exhibit B - Assignment Form
(ii)
<PAGE>
NEITHER THE WARRANTS REPRESENTED HEREBY NOR THE UNDERLYING SHARES
OF COMMON STOCK HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND NEITHER MAY BE OFFERED FOR SALE OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM
UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED. THIS WARRANT AND THE WARRANT STOCK ISSUED HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS PROVIDED IN SECTION 9 HEREOF
SERIES A WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
THIS IS TO CERTIFY THAT ELECTRA ASSOCIATES, INC., a Delaware
corporation ("ELECTRA"), or permitted and registered assigns (collectively
referred to herein as the "HOLDER"), is entitled, beginning on the Effective
Date and at any time prior to the Expiration Date, to purchase from FAMILY
BOOKSTORES COMPANY, INC., a Michigan corporation (the "COMPANY"), that number of
shares of Common Stock (as defined herein and subject to adjustment as provided
herein) equal to 2.69% of the number of shares of Common Stock outstanding on a
Fully Diluted basis, excluding shares issued pursuant to the Performance Plan,
on the date of issuance of this Warrant, at a purchase price equal to the
Current Warrant Price, which shall be initially equal to $.0l per share and
which is subject to adjustment as provided herein. This Warrant is issued in
connection with, and as consideration, in part, for, the Holder's purchase on
the date hereof of certain of the Company's Senior Subordinated Notes due May
17, 2003, together with this Series A Warrant and the other warrants referred to
in the Securities Purchase Agreement. Capitalized terms used but not otherwise
defined in this Warrant shall have the meanings ascribed to such terms in the
Securities Purchase Agreement.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than (i) Warrant
Stock, (ii) the shares of Common Stock issued by the Company pursuant to the
Performance Plan, (iii) shares of
<PAGE>
Common Stock issuable to the holders of the Series B, Series C and Series D
warrants issued in connection with the transactions contemplated by the
Securities Purchase Agreement and (iv) shares of Common Stock issuable to the
holders of any Penalty Warrants issued in connection with the transactions
contemplated by the Securities Purchase Agreement.
"Appraised Value" shall mean, in respect of any share of Common
Stock as of any date herein specified, the fair saleable value of such share
of Common Stock (determined without giving effect to a discount for (i) a
minority interest, (ii) any lack of liquidity of the Common Stock or to the
fact that the Company may have no class of equity registered under the
Exchange Act or (iii) any restrictions on transfer) as of the last day of the
most recent fiscal month end prior to such date specified, based upon the
value of the Company as determined by the Company and the Holder in
reasonable good faith, and, if the Company and the Holder fail to so agree
within 20 Business Days, as determined by an investment banking firm selected
in accordance with the terms of Section 12.
"Business Day" shall mean any day that is not a Saturday or a Sunday
or a day on which commercial banks are required or authorized to be closed in
the City of New York.
"Closing Date" shall have the meaning ascribed to such term in the
Securities Purchase Agreement.
"Common Stock" shall mean (except where the context otherwise
indicates) the common stock, $1.00 par value, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.8.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares
-2-
<PAGE>
of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the greater of (i) book value per share of
Common Stock as determined by the Company's financial statements for the most
recently ended fiscal quarter, and (ii) the Appraised Value per share of Common
Stock.
"Current Warrant Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date.
"Effective Date" shall mean November 17, 1994.
"Electra" shall have the meaning set forth in the first paragraph
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Expiration Date" shall mean November 17, 2004.
"Fully-Diluted" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
shares of Common Stock outstanding at such date and all shares of Common Stock
issuable in respect of this Warrant increased by all common equivalent shares
issuable at any time pursuant to any stock options, warrants, convertible
securities, and any other security or instrument having the right to require
additional common shares to be issued at any time in the future, outstanding on
such date.
"GAAP" shall mean generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or statements by
such other entity as have been approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Holder" shall have the meaning set forth in the first paragraph
hereof.
-3-
<PAGE>
"Other Property" shall have the meaning set forth in Section 4.8.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, corporation, limited liability organization, association,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of November 14, 1994, by and among the Company,
Electra and Electra Investment Trust P.L.C.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Triggering Event" shall have the meaning ascribed to such term in the
Securities Purchase Agreement.
"Warrant" or "Warrants" shall mean this Warrant and all warrants
issued upon transfer, division or combination, or in exchange or substitution
therefor.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock received by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. From and after the Effective Date, and until
5:00 P.M. New York City time on the Expiration Date, the Holder may exercise
this Warrant, on any Business Day, for all or any part of the number of shares
of Common Stock purchasable hereunder; PROVIDED, HOWEVER, that if a Triggering
Event shall have occurred prior to the Expiration Date this Warrant shall
terminate as of the date of occurrence of such Triggering Event, unless
exercised as provided herein.
-4-
<PAGE>
In order to exercise this Warrant, in whole or in part, the Holder
shall deliver to the Company at its principal office at 5300 Patterson, S.E.,
Grand Rapids, Michigan 49530, or at the office or agency designated by the
Company pursuant to Section 14.7, (i) a written notice of the Holder's
election to exercise this Warrant, which notice shall specify the number of
shares of Common Stock to be purchased, (ii) the Holder's check in payment of
the Warrant Price and (iii) this Warrant. Such notice shall be substantially
in the form of the subscription form appearing at the end of this Warrant as
EXHIBIT A, duly executed by the Holder or its agent or attorney. Upon
receipt thereof, subject to Section 9, the Company shall, as promptly as
practicable, and in any event within five (5) Business Days thereafter,
execute or cause to be executed and delivered or cause to be delivered to
the Holder a certificate or certificates representing the aggregate number of
shares of Common Stock issuable upon such exercise, or, at the Company's
option, the number of shares of Common Stock issuable on such exercise,
together with cash in lieu of any fraction of a share, as hereinafter
provided. The stock certificate or certificates so delivered shall be, to
the extent possible, in such denomination or denominations as the Holder
shall request and shall be registered in the name of the Holder or, subject
to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the
Holder or any other Person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the notice, together with the cash or check and this Warrant, is
received by the Company as described above and all taxes, if any, required to
be paid prior to the issuance of such shares have been paid pursuant to
Section 2.2. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
the Holder a new Warrant evidencing the rights of the Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant, or, at
the request of the Holder, appropriate notation may be made on this Warrant
and the same returned to the Holder.
2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and the Company shall pay all expenses
in connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issuance or delivery thereof, unless such taxes
or charges are income taxes or otherwise imposed upon income or revenues of
the Holder.
-5-
<PAGE>
2.3. FRACTIONAL SHARES. The Company shall not be required to issue
a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be
entitled to purchase upon such exercise, the Company may, as provided in
Section 2.1, pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and
all rights hereunder, in whole or in part, shall be registered on the books
of the Company to be maintained for such purpose, upon surrender of this
Warrant at the principal office of the Company referred to in Section 2.1 or
the office or agency designated by the Company pursuant to Section 14.7,
together with a written assignment of this Warrant substantially in the form
of EXHIBIT B hereto duly executed by the Holder or its agent or attorney.
Upon such surrender, the Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be canceled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised
by a new Holder for the purchase of shares of Common Stock without having a
new Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant
may be divided or combined with other Warrants upon presentation thereof at
the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued
and signed by the Holder or its agent or attorney. Subject to Section 3.1
and Section 9, as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants
in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. EXPENSES. The Company shall prepare, issue and deliver the
new Warrant or Warrants and pay all expenses, taxes and other charges payable
in connection with the preparation, issuance and delivery of such Warrants,
unless such taxes or charges are income taxes or otherwise imposed upon
income or revenues of the Holder, or arise because of the domicile of the
Holder.
-6-
<PAGE>
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, and the price at which such shares may be purchased upon
exercise of this Warrant, shall be subject to adjustment from time to time as
set forth in this Section 4. The Company shall give each Holder notice of
any event which requires an adjustment pursuant to this Section 4 at the time
of such event.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in or to
receive any other distribution of Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder
of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the occurrence of such event, and (ii) the Current
Warrant Price shall be adjusted to equal the product of (A) the Current
Warrant Price prior to the occurrence of such event multiplied by (B) a
fraction, the numerator of which is the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such adjustment and
the denominator of which is the number of shares for which this Warrant is
exercisable immediately after such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash (other than a regular cash dividend payable out of
surplus or net profits legally available for the payment of
-7-
<PAGE>
dividends under the laws of the jurisdiction of incorporation of the
Company),
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants, options or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock),
then (i) the number of shares of Common Stock for which this warrant is
exercisable shall be adjusted to equal the product of (A) the number of shares
of Common Stock for which this Warrant is exercisable immediately prior to such
adjustment multiplied by (B) a fraction, the numerator of which shall be the
Current Market Price per share of Common Stock at the date of taking such record
and the denominator of which shall be such Current Market Price per share of
Common Stock minus the amount allocable to one share of Common Stock of any such
cash so distributable and of the fair value (as determined pursuant to Section
4.7(a), including as to an opinion from an investment banking firm) of any and
all such evidences of indebtedness, shares of stock, other than securities or
property or warrants or other subscription or purchase rights so distributable;
and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current
Warrant Price multiplied by (B) a fraction, the numerator of which shall be the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment and the denominator of which shall be the
number of shares for which this Warrant is exercisable immediately after such
adjustment. A reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to par value) into
shares of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares of
such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. (a) if at any
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, in exchange for consideration in an amount
per Additional Share of Common Stock
-8-
<PAGE>
which is less than the Current Warrant Price at the time the Additional
Shares of Common Stock are issued, then (i) the Current Warrant Price as to
the number of shares for which this Warrant is exercisable prior to such
adjustment shall be reduced to a price determined by dividing (A) an amount
equal to the sum of (x) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing
Current Warrant Price plus (y) the consideration, if any, received by the
Company upon such issue or sale, by (B) the total number of shares of Common
Stock outstanding immediately after such issue or sale; and (ii) the number
of shares of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product of (A) the Current Warrant Price in effect
immediately prior to such issue or sale multiplied by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such issue or sale, and dividing the product thereof by the Current
Warrant Price resulting from the adjustment made pursuant to clause (i) above.
(b) If at any time the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, in exchange
for consideration in an amount per Additional Share of Common Stock which is
less than the Current Market Price at the time the Additional Shares of
Common Stock are issued, then (i) the number of shares of Common Stock for
which this Warrant is exercisable shall be adjusted to equal the product of
(A) the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issue or sale multiplied by (B) a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale and the denominator of
which shall be the sum of (x) number of shares of Common Stock outstanding
immediately prior to such issue or sale plus (y) the number of shares which
the aggregate offering price of the total number of such Additional Shares of
Common Stock would purchase at the then Current Market Price; and (ii) the
Current Warrant Price as to the number of shares for which this Warrant is
exercisable prior to such adjustment shall be adjusted by multiplying (A)
such Current Warrant Price by (B) a fraction, the numerator of which shall be
the number of shares for which this Warrant is exercisable immediately prior
to such issue or sale and the denominator of which shall be the number of
shares of Common Stock for which this Warrant is exercisable immediately
after such issue or sale.
(c) If at any time the Company (except as hereinafter provided)
shall issue or sell any Additional Shares of Common Stock, in exchange for
consideration in an amount per Additional Share of Common Stock which is less
than the Current Warrant Price and the Current Market Price at the time the
Additional Shares of
-9-
<PAGE>
Common Stock are issued, the adjustment required under this Section 4.3 shall
be made in accordance with the formula in paragraph (a) or (b) above which
results in the lower Current Warrant Price following such adjustment. The
provisions of paragraphs (a) and (b) of Section 4.3 shall not apply to any
issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4.1 or Section 4.2. No adjustment of the number of
shares of Common Stock for which this Warrant shall be exercisable shall be
made under paragraph (a) or (b) of this Section 4.3 upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise
of any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Convertible Securities,
if any such adjustment shall previously have been made upon the issuance of
such warrants or other rights or upon the issuance of such Convertible
Securities (or upon the issuance of any warrant or other rights therefor)
pursuant to Section 4.4 or Section 4.5.
4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time
the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a distribution of, or shall in any
manner (whether directly or by assumption in a merger in which the Company is
the surviving corporation) issue or sell, any warrants, options or other
rights to subscribe for or purchase any Additional Shares of Common Stock or
any Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such warrants, options or other
rights or upon conversion or exchange of such Convertible Securities shall be
less than the Current Warrant Price or the Current Market Price in effect
immediately prior to such issue or sale, then the number of shares for which
this Warrant is exercisable and the Current Warrant Price shall be adjusted
as provided in Section 4.3 on the basis that the maximum number of Additional
Shares of Common Stock issuable pursuant to all such warrants, options or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding
and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such warrants, options
or other rights. No further adjustment of the Current Warrant Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such warrants, options or other rights or upon
the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the
Company shall take a record of the holders of its Common Stock
-10-
<PAGE>
for the purpose of entitling them to receive a distribution of, or shall in
any manner (whether directly or by assumption in a merger in which the
Company is the surviving corporation) issue or sell, any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange shall be less than the Current
Warrant Price or Current Market Price in effect immediately prior to the time
of such issue or sale, then the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 4.3 on the basis that the maximum number of Additional Shares of
Common Stock necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding
and the Company shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Convertible
Securities. No adjustment of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made under this Section
4.5 upon the issuance of any Convertible Securities which are issued pursuant
to the exercise of any warrants,
options or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such
warrants, options or other rights pursuant to Section 4.4. No further
adjustments of the number of Shares for which this Warrant is exercisable and
the Current Warrant Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities and, if any
issue or sale of such Convertible Securities is made upon exercise of any
warrant, option or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the number of Shares for
which this warrant is exercisable and the Current Warrant Price have been or
are to be made pursuant to other provisions of Section 4, no further
adjustments of the number of Shares for which this warrant is exercisable and
the Current Warrant Price shall be made by reason of such issue or sale.
4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and of the Current Warrant Price shall have been made pursuant to Section 4.4
or Section 4.5 as the result of any issuance of warrants, options, rights or
Convertible Securities, such warrants, options or rights, or the right of
conversion or exchange of such Convertible Securities, shall expire, and all
or a portion of such warrants, options or rights or the right of conversion
or exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, then such
previous adjustment shall be rescinded and annulled and the Additional Shares
of Common Stock which were deemed to have been issued by virtue of the
computation
-11-
<PAGE>
made in connection with the adjustment so rescinded and annulled shall no
longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants,
options or rights or Convertible Securities on the basis of (a) treating the
number of Additional Shares of Common Stock or other property, if any,
theretofore actually issued or issuable pursuant to the previous exercise of
any such warrants, options or rights or any such right of conversion or
exchange, as having been issued on the date or dates of any such exercise and
for the consideration actually received and receivable therefor, and (b)
treating any such warrants, options or rights or any such Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share
for which shares of Common Stock or other property are issuable under such
warrants, options or rights or other Convertible Securities, whereupon a new
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall be made, which new adjustment
shall supersede the previous adjustment so rescinded and annulled.
4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) COMPUTATION OF CONSIDERATION. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Company therefor shall be
the amount of the cash received by the Company, or, if such Additional Shares
of Common Stock or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares of Common
Stock or Convertible Securities are sold to underwriters or dealers for
public offering without a subscription offering, the public offering price
(in any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends and without taking into account any
compensation, discounts or expenses paid or incurred by the Company for and
in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by the
Board of Directors of the Company. In case any Additional Shares of Common
Stock or
-12-
<PAGE>
any Convertible Securities or any warrants, options or other rights
to subscribe for or purchase such Additional Shares of Common Stock or
Convertible Securities shall be issued in connection with any merger in which
the Company issues any securities, the amount of consideration therefor shall
be deemed to be the fair value, as determined in good faith by the Board of
Directors of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants, options or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable pursuant to
any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants,
options or other rights plus the additional consideration payable to the
Company upon exercise of such warrants, options or other rights. The
consideration for any Additional Shares of Common Stock issuable pursuant to
the terms of any Convertible Securities shall be the consideration received
by the Company for issuing warrants, options or other rights to subscribe for
or purchase such Convertible Securities, plus the consideration paid or
payable to the Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any, payable to
the Company upon the exercise of the right of conversion or exchange of such
Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal to
the amount of such dividend so paid or satisfied.
(b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number
of shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision
or combination of shares of the Common Stock, as provided for in Section
4.1) up to, but not beyond the date of exercise if such adjustment either by
itself or with other adjustments not previously made, will, based on a good
faith determination of the Board of Directors of the Company, add or subtract
less than an amount equal to 1% of the Common Stock outstanding immediately
prior to the making of such adjustment. Any adjustment representing a change
of less than such minimum amount (except as aforesaid) which is postponed
shall be carried forward and made as soon as such adjustment, together with
other adjustments required by this Section 4 and not previously made, would
result in a
-13-
<PAGE>
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
(c) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account
to the nearest 1/10th of a share.
(d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(e) ESCROW OF WARRANT STOCK. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of the
event for which such record is taken, and the Holder exercises this Warrant,
any Additional Shares of Common Stock issuable upon exercise by reason of
such adjustment shall be deemed the last shares of Common Stock for which
this Warrant is exercised (notwithstanding any other provision to the
contrary herein) and such shares or other property shall be held in escrow
for the Holder by the Company to be issued to the Holder upon and to the
extent that the event actually takes place, upon payment of the then Current
Warrant Price. Notwithstanding any other provision to the contrary herein, if
the event for which such record was taken fails to occur or is rescinded,
then such escrowed shares shall be cancelled by the Company and escrowed
property returned.
(f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board of
Directors of the Company shall be required to make determination in good
faith of the fair value of any item under this Section 4, such determination
may be challenged in good faith by the Holder, and if, upon the expiration of
20 Business Days, the Holder and the Company fail to agree as to such fair
value, after reasonable, good faith negotiation, any dispute shall be
resolved by an investment banking firm selected by the Company and reasonably
acceptable to such Holder (or, if more than one Warrant is outstanding, to
holders of a majority of Warrant Stock issuable upon exercise of the
Warrants). The Company shall bear 80%, and the Holder shall bear 20%, of
the cost of such firm.
-14-
<PAGE>
4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where there is a change in or distribution with respect to the
Common Stock of the Company other than a subdivision, combination or exchange
otherwise provided for herein), or sell, transfer or otherwise dispose of all
or substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification, merger,
consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation (herein referred to as "OTHER
PROPERTY"), are to be received by or distributed to the holders of Common
Stock of the Company, then each Holder shall have the right thereafter to
receive, upon exercise of such Warrant, the number of shares of common stock
of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of
such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume the due and punctual observance and performance of
each and every term and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereof,
subject to such modifications as may be deemed appropriate (as determined in
good faith by resolution of the Board of Directors of the Company) in order
to provide for adjustments of shares of the Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 4. For purposes of this Section
4.8 "common stock of the successor or acquiring corporation" shall include
stock of such corporation of any class which is not preferred as to dividends
or assets over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event, and any warrants,
options or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
-15-
<PAGE>
4.9. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than action described in this Section 4, then, unless such
action will not have a material adverse effect upon the rights of the Holder,
the number of shares of Common Stock or other stock for which this warrant is
exercisable and/or the purchase price thereof shall be adjusted in such
manner as may be equitable in the circumstances.
4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In
the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time close its stock
transfer books or warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
5. NOTICES TO WARRANT HOLDERS
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of this
Warrant, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and specifying the Current Warrant Price and the number of
shares of Common Stock for which this Warrant is exercisable after giving
effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to the Holder in accordance
with Section 14.2. The Company shall keep at its office or agency designated
pursuant to Section 14.7 copies of all such certificates and cause the same
to be available for inspection at said office during normal business hours by
the Holder or any prospective purchaser of a Warrant designated by the Holder
thereof.
5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be
entitled to the same rights to receive notice of corporate action as any
holder of Common Stock.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its articles of incorporation or through any reorganization,
transfer of assets, consolidation, merger,
-16-
<PAGE>
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be necessary
or appropriate to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
Upon the request of the Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
The Company shall at all times reserve and keep available for
issuance upon the exercise of this Warrant such number of its authorized but
unissued shares of Common Stock as will be sufficient to permit the exercise
in full of all outstanding warrants. The Company covenants that all shares
of Common Stock which shall be so issuable, when issued upon exercise of any
Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any and all corporate action which may be necessary in order that the Company
may validly and legally issue fully paid and nonassessable shares of such
Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in
the Current Warrant Price, the Company shall obtain all authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such
-17-
<PAGE>
shares may be so issued, the Company will in good faith, as expeditiously as
possible and at its own expense, endeavor to cause such shares to be duly
registered or qualified, as the case may be.
8. PUT RIGHTS
The Holder shall have the right to require the Company to repurchase
all or any portion of the Warrants held by the Holder upon the terms and as
provided in paragraph 13B of the Securities Purchase Agreement.
9. RESTRICTIONS ON TRANSFER
The Warrants and the Warrant Stock may not be transferred or
assigned before satisfaction of the conditions specified in this Section 9,
which are intended, among other purposes, to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant
or any Warrant Stock. The Holder, by acceptance of this Warrant, agrees to be
bound by the provisions of this Section 9.
9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant
Stock issued upon exercise hereof, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT
AND THE WARRANT STOCK ISSUED
HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS PROVIDED IN
SECTION 9 HEREOF."
In addition, all shares of Warrant Stock issued upon the initial exercise of
this Warrant shall bear a legend in substantially the following form:
IN ADDITION TO THE FOREGOING RESTRICTIONS ON TRANSFER, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
THE TERMS OF A CERTAIN BUY AND SELL AGREEMENT DATED AS OF NOVEMBER 14,
1994, A COPY OF WHICH IS ON FILE WITH THE COMPANY. ANY ATTEMPTED
SALE, TRANSFER, ASSIGNMENT, PLEDGE OR OTHER DISPOSITION IN VIOLATION
OF THE TERMS OF THE BUY AND SELL AGREEMENT IS VOID.
-18-
<PAGE>
9.2. BUY AND SELL AGREEMENT. The Warrant Stock is subject to the
terms of a Buy and Sell Agreement dated as of November 14, 1994, a copy of which
is on file with the Company. No shares of Warrant Stock may be sold,
transferred, assigned, pledged or otherwise disposed of except in accordance
therewith.
9.3. CONSENT TO TRANSFER. The Holder of this Warrant shall not
transfer, assign, or otherwise dispose, or permit the transfer, assignment or
other disposition by it, of this Warrant or any Warrant Stock, or any
interest therein, to any person (including any Electra Transferee, Permitted
Person, or any other transferee), other than the Company or any Shareholder,
unless the transferee agrees in a writing satisfactory to the Company: (i)
that it will not transfer or permit the transfer of this Warrant or any
shares of Common Stock so acquired or any interest therein to any Person
(other than the Company or any Shareholder) without the prior written consent
of the Company and (ii) that it will be bound by the transfer restrictions
set forth in this Section 9.3. The consent required in clause (i) of the
immediately preceding sentence may be withheld by the Company only if, in the
Company's reasonable opinion, the transferee (x) competes directly or
indirectly with the Company or (y) may be expected to have a significant
adverse effect on the Company's Christian-based mission or image. Any
transfer in violation of this Section 9.3 shall be void. Any stock
certificate for shares subject to the transfer restrictions set forth in this
Section 9.3 shall include a legend reflecting the restrictions on transfer
set forth in this Section 9.3. For purposes of this Section 9.3, the terms
"Electra Transferee", "Permitted Person" and "Shareholder" shall have the
respective meanings assigned to such terms in the Buy and Sell Agreement.
The Company may deny consent to a transfer of this Warrant if the proposed
transfer would cause the total number of Holders of this and all other
Warrants, including the Series B, Series C, Series D, and the Penalty
Warrants, to exceed 10, except for any proposed intra-company transfers by
and among Electra or any of its Affiliates.
9.4. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION.
Prior to any Transfer of any Warrant, the holder of such Warrant shall give
five days' prior written notice ("a TRANSFER NOTICE") to the Company of such
holder's intention to effect such Transfer, including a description of the
manner and circumstances of the proposed Transfer and, if requested by the
Company, an opinion from counsel to such holder that the proposed Transfer of
such Warrant may be effected without registration under the Securities Act.
After delivery of the Transfer Notice, the holder shall be entitled to
Transfer such Warrant in accordance with the terms of the Transfer Notice.
Each Warrant issued upon
-19-
<PAGE>
such Transfer shall bear the restrictive legend set forth in Section 9.1,
unless such legend is not required in order to ensure compliance with the
Securities Act.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and, in case of loss, theft or destruction, of
indemnity reasonably satisfactory to it (it being understood and agreed that the
written agreement of Electra and subsequent institutional transferees, if any,
shall be sufficient indemnity) and, in case of mutilation, upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant of like tenor in replacement.
11. FINANCIAL AND BUSINESS INFORMATION
The Company will deliver or cause to be delivered to each Holder, as
provided in paragraph 6A of the Securities Purchase Agreement, certain financial
information, financial analyses, notices, reports, statements and certificates,
all to the extent and in the manner provided therein.
12. APPRAISAL
If the Company and the Holder fail to agree as to the Appraised
Value per share of Common Stock, after reasonable, good faith negotiation,
upon the expiration of 20 Business Days, the determination of the Appraised
Value per share of Common Stock shall be made by an investment banking firm
satisfactory to both the Company and the Holder (or, if there is more than
one Warrant outstanding, to holders of a majority of the Warrant Stock
issuable upon exercise of the Warrants). The Company shall retain such
investment banking firm as may be necessary for the determination of
Appraised Value required by the terms of this Warrant, and the Company shall
bear 80%, and the Holder shall bear 20%, of the cost of such firm.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
-20-
<PAGE>
14. MISCELLANEOUS
14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay
or failure to exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right or otherwise prejudice the Holder's rights,
powers or remedies. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any provision of this Warrant,
the Company shall pay to the Holder such amounts as shall be sufficient to cover
any costs and expenses including, but not limited to, reasonable attorneys'
fees, incurred by the Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
14.2. NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the books of the Company maintained for such purpose;
(b) If to the Company at:
Family Bookstores Company, Inc.
5300 Patterson, S.E.
Grand Rapids, Michigan 49530
Attention: Leslie E. Dietzman
with a copy to:
Warner Norcross & Judd
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
Attention: John G. Cameron, Jr., Esq.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent approval, declaration delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt acknowledged, or three (3) Business
Days
-21-
<PAGE>
after the same shall have been postmarked in the United States mail.
14.3. VOTING. If requested by the Holder hereof, and to the
extent permitted by law, the Company shall take all action to entitle the
Holder to vote with the Common Stock of the Company that number of votes
equal to the number of shares of Common Stock issuable from time to time upon
exercise of this Warrant on any matters upon which the holders of Common
Stock are entitled to vote; PROVIDED, that the rights of the Holder hereunder
shall not duplicate any rights of the Holder to vote with the Common Stock as
may be provided under the Shareholders' Agreement.
14.4. REMEDIES. Each holder of this Warrant and any Warrant Stock
issuable upon exercise of this Warrant, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of Section 9
of this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
14.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and assigns of Electra or any other holder hereof. The provisions
of this Warrant are intended to be for the benefit of all holders from time
to time of this Warrant, and shall be enforceable by any such holder.
14.6. OFFICE OF THE COMPANY. As long as any of the Warrants
remain outstanding, the Company shall maintain an office or agency (which may
be the principal executive offices of the Company) where the Warrants may be
presented for exercise, registration of transfer, division or combination as
provided in this warrant.
14.7. INFORMATION. The Company shall cooperate with each Holder
of a Warrant and each holder of Warrant Stock in supplying such information
as may be reasonably requested by such holder to comply with any filings or
information reporting forms presently or hereafter required as a condition to
the availability of an exemption from the Securities Act for the sale of any
Warrant or Warrant Stock.
14.8. AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder (or, if there is more than one Warrant
-22-
<PAGE>
outstanding, to holders of a majority of the Warrant Stock issuable upon
exercise of the Warrants).
14.9. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Warrant.
14.10. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
14.11. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of New York, without regard to the provisions thereof relating
to conflict of laws, except to the extent matters herein are governed by the
Michigan Business Corporation Act, under which the Company is incorporated.
-23-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by an officer thereunto duly authorized, as of the ___
day of November, 1994.
FAMILY BOOKSTORES COMPANY, INC.
By:
----------------------------------------
Name:
Title:
-24-
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ________ shares of Common Stock of
FAMILY BOOKSTORES COMPANY, INC., and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased
(and any securities or other property issuable upon such exercise) be issued
in the name of and delivered to
_______________________________________________ whose address is
_____________________________________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
Dated: ______________________
_______________________________________
(Name of Registered Owner)
_______________________________________
(Signature of Registered Owner)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
NOTE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Number of Shares
Name and Address of Assignee of Common Stock
- ---------------------------- ----------------
and does hereby irrevocably constitute and appoint _________________________
attorney-in-fact to register such transfer on the books of FAMILY BOOKSTORES
COMPANY, INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: __________________
_________________________________________
(Registered Owner)
NOTE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or any change whatsoever. Transfer is subject to restrictions as
provided in the Warrant.
<PAGE>
EXHIBIT 10.18
SERIES B WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
Warrant No. B-1
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT. . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Manner of Exercise. . . . . . . . . . . . . . . . . . . . . . . 4
2.2. Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Fractional Shares.. . . . . . . . . . . . . . . . . . . . . . . 5
3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . 6
3.1. Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2. Division and Combination. . . . . . . . . . . . . . . . . . . . 6
3.3. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4. Maintenance of Books. . . . . . . . . . . . . . . . . . . . . . 6
4. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1. Stock Dividends, Subdivisions and Combinations. . . . . . . . . 7
4.2. Certain Other Distributions . . . . . . . . . . . . . . . . . . 7
4.3. Issuance of Additional Shares of Common Stock . . . . . . . . . 8
4.4. Issuance of Warrants, Options or Other Rights . . . . . . . . .10
4.5. Issuance of Convertible Securities. . . . . . . . . . . . . . .10
4.6. Superseding Adjustment. . . . . . . . . . . . . . . . . . . . .11
4.7. Other Provisions Applicable to Adjustments Under This
Section. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets . . . . . . . . . . . . . . . . . . . . .14
4.9 Other Action Affecting Common Stock . . . . . . . . . . . . . .15
4.10. Taking of Record; Stock and Warrant Transfer Books.. . . .16
5. NOTICES TO WARRANT HOLDERS . . . . . . . . . . . . . . . . . . . . .16
5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . .16
5.2. Notice of Certain Corporate Action. . . . . . . . . . . . . . .16
6. NO IMPAIRMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY. . . . . . . . . . . . . .17
-i-
<PAGE>
8. PUT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
9. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . .17
9.1. Restrictive Legend. . . . . . . . . . . . . . . . . . . . . . .18
9.2. Buy and Sell Agreement. . . . . . . . . . . . . . . . . . . . .18
9.3. Consent to Transfer . . . . . . . . . . . . . . . . . . . . . .18
9.4. Notice of Proposed Transfers; Requests for Registration . . . .19
10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . .19
11. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . .19
12. APPRAISAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
13. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . . .20
14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
14.1. Nonwaiver and Expenses . . . . . . . . . . . . . . . . . .20
14.2. Notice Generally . . . . . . . . . . . . . . . . . . . . .20
14.3. Voting . . . . . . . . . . . . . . . . . . . . . . . . . .21
14.4. Remedies . . . . . . . . . . . . . . . . . . . . . . . . .21
14.5. Successors and Assigns . . . . . . . . . . . . . . . . . .21
14.6. Office of the Company. . . . . . . . . . . . . . . . . . .22
14.7. Information. . . . . . . . . . . . . . . . . . . . . . . .22
14.8. Amendment. . . . . . . . . . . . . . . . . . . . . . . . .22
14.9. Severability . . . . . . . . . . . . . . . . . . . . . . .22
14.10. Headings . . . . . . . . . . . . . . . . . . . . . . . . .22
14.11. Governing Law. . . . . . . . . . . . . . . . . . . . . . .22
EXHIBITS:
Exhibit A - Subscription Form
Exhibit B - Assignment Form
-ii-
<PAGE>
NEITHER THE WARRANTS REPRESENTED HEREBY NOR THE UNDERLYING SHARES
OF COMMON STOCK HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND NEITHER MAY BE OFFERED FOR SALE OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM
UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED. THIS WARRANT AND THE WARRANT STOCK ISSUED HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS PROVIDED IN SECTION 9 HEREOF.
SERIES B WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
THIS IS TO CERTIFY THAT ELECTRA INVESTMENT TRUST P.L.C., a
corporation organized under the laws of the United Kingdom ("ELECTRA") , or
permitted and registered assigns (collectively referred to herein as the
"HOLDER") , is entitled, beginning on the Effective Date and at any time
prior to the Expiration Date, to purchase from FAMILY BOOKSTORES COMPANY,
INC., a Michigan corporation (the "COMPANY") , that number of shares of Class
A Stock (as defined herein and subject to adjustment as provided herein)
equal to 1.7% of the number of shares of Common Stock, par value $1.00 per
share, of the Company, outstanding on a Fully Diluted basis, excluding shares
issued pursuant to the Performance Plan, on the date of issuance of this
Warrant, at a purchase price equal to the Current Warrant Price, which shall
be initially equal to $.01 per share and which is subject to adjustment as
provided herein. This Warrant is issued in connection with, and as
consideration, in part, for the Holder's purchase on November 17, 1994 of
certain of the Company's Senior Subordinated Notes due May 17, 2003, together
with the Series A Warrants, this Series B Warrant and the other warrants
referred to in the Securities Purchase Agreement. Capitalized terms used but
not otherwise defined in this Warrant shall have the meanings ascribed to
such terms in the Securities Purchase Agreement.
1. DEFINITIONS. As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Series B Warrant Closing Date, other
than (i) Warrant Stock, (ii) the shares of Common Stock issued by the Company
pursuant to the Performance Plan, (iii)
<PAGE>
shares of Common Stock issuable to the holders of the Series C and Series D
warrants issued in connection with the transactions contemplated by the
Securities Purchase Agreement and (iv) shares of Common Stock issuable to the
holders of any Penalty Warrants issued in connection with the transactions
contemplated by the Securities Purchase Agreement.
"Appraised Value" shall mean, in respect of any share of Common
Stock as of any date herein specified, the fair saleable value of such share
of Common Stock (determined without giving effect to a discount for (i) a
minority interest, (ii) any lack of liquidity of the Common Stock or to the
fact that the Company may have no class of equity registered under the
Exchange Act or (iii) any restrictions on transfer) as of the last day of the
most recent fiscal month end prior to such date specified, based upon the
value of the Company as determined by the Company and the Holder in
reasonable good faith, and, if the Company and the Holder fail to so agree
within 20 Business Days, as determined by an investment banking firm selected
in accordance with the terms of Section 12.
"Business Day" shall mean any day that is not a Saturday or a
Sunday or a day on which commercial banks are required or authorized to be
closed in the City of New York.
"Class A Stock" shall mean the shares of common stock of the
Company, par value $1.00 per share, designated as "Class A Common Stock" in
the Charter Amendment.
"Class B Stock" shall mean the non-voting (except as to the extent
otherwise required by the Michigan Business Corporation Act) shares of common
stock of the Company, par value $1.00 per share, designated as "Class B
Common Stock" in the Charter Amendment.
"Common Stock" shall mean (except where the context otherwise
indicates) collectively, the Class A Stock and the Class B Stock, and any
capital stock into which Class A Stock or Class B Stock may thereafter be
changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of
Common Stock upon any reclassification thereof which is also not preferred as
to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor
or acquiring corporation received by or distributed to the holders of Common
Stock of the Company in the circumstances contemplated by Section 4.8.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon
the occurrence of a specified date or a specified event.
-2-
<PAGE>
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the greater of (i) book value per
share of Class A Stock or Class B Stock as determined by the Company's
financial statements for the most recently ended fiscal quarter, and (ii) the
Appraised Value per share of Class A Stock or Class B Stock, as appropriate.
"Current Warrant Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the price at which a share of
Common Stock may be purchased pursuant to this Warrant on such date.
"Effective Date" shall mean December 31, 1996.
"Electra" shall have the meaning set forth in the first paragraph
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Expiration Date'' shall mean November 17, 2004.
"Fully-Diluted" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant increased by all
common equivalent shares issuable at any time pursuant to any stock options,
warrants, convertible securities, and any other security or instrument having
the right to require additional common shares to be issued at any time in the
future, outstanding on such date.
"GAAP" shall mean generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or statements by
such other entity as have been approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Holder" shall have the meaning set forth in the first paragraph
hereof.
"Other Property" shall have the meaning set forth in Section 4.8.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, corporation, limited liability
organization, association, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
-3-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of November 14, 1994, by and among the Company,
Electra and Electra Investment Trust P.L.C., as amended.
"Series B Warrant Closing Date" shall mean December 31, 1996.
"Transfer" shall mean any disposition of any warrant or Warrant
Stock or of any interest in either thereof.
"Transfer Notice" shall have the meaning set forth in Section 9.4.
"Triggering Event" shall have the meaning ascribed to such term in
the Securities Purchase Agreement.
"Warrant" or "Warrants" shall mean this Warrant and all warrants
issued upon transfer, division or combination, or in exchange or substitution
therefor.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date
of such exercise.
"Warrant Stock" shall mean the shares of Common Stock received by
the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT.
2.1. MANNER OF EXERCISE. From and after the Effective Date, and until
5:00 P.M. New York City time on the Expiration Date, the Holder may
exercise this Warrant, on any Business Day, for all or any part of the
number of shares of Common Stock purchasable hereunder; PROVIDED, HOWEVER,
that if a Triggering Event shall have occurred prior to the Expiration Date
this Warrant shall terminate as of the date of occurrence of such
Triggering Event, unless exercised as provided herein.
In order to exercise this Warrant, in whole or in part, the
Holder shall deliver to the Company at its principal office at 5300
Patterson, S.E., Grand Rapids, Michigan 49530, or at the office or agency
designated by the Company pursuant to Section 14.6, (i) a written notice of
the Holder's election to exercise this Warrant, which notice shall specify
the number of shares of Common Stock to be purchased, (ii) the Holder's
check in payment of the Warrant Price and (iii) this Warrant. Such notice
shall
-4-
<PAGE>
be substantially in the form of the subscription form appearing at
the end of this Warrant as EXHIBIT A, duly executed by the Holder or its
agent or attorney. Upon receipt thereof, subject to Section 9, the Company
shall, as promptly as practicable, and in any event within five (5)
Business Days thereafter, execute or cause to be executed and delivered or
cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of shares of Common Stock issuable upon
such exercise, or, at the Company's option, the number of shares of Common
Stock issuable on such exercise, together with cash in lieu of any fraction
of a share, as hereinafter provided. The stock certificate or certificates
so delivered shall be, to the extent possible, in such denomination or
denominations as the Holder shall request and shall be registered in the
name of the Holder or, subject to Section 9, such other name as shall be
designated in the notice.
This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the
Holder or any other Person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all purposes,
as of the date the notice, together with the cash or check and this
Warrant, is received by the Company as described above and all taxes, if
any, required to be paid prior to the issuance of such shares have been
paid pursuant to Section 2.2. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates, deliver to the Holder a new Warrant evidencing the rights of
the Holder to purchase the unpurchased shares of Common Stock called for by
this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the request of the Holder, appropriate notation
may be made on this Warrant and the same returned to the Holder.
2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and the Company shall pay all
expenses in connection with, and all taxes and other governmental charges
that may be imposed with respect to, the issuance or delivery thereof,
unless such taxes or charges are income taxes or otherwise imposed upon
income or revenues of the Holder.
2.3. FRACTIONAL SHARES. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be
entitled to purchase upon such exercise, the Company may, as provided in
Section 2.1, pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
-5-
<PAGE>
3. TRANSFER, DIVISION AND COMBINATION.
3.1. TRANSFER. Subject to Section 9, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of
the Company to be maintained for such purpose, upon surrender of this
Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 14.6,
together with a written assignment of this Warrant substantially in the
form of EXHIBIT B hereto duly executed by the Holder or its agent or
attorney. Upon such surrender, the Company shall, subject to Section 9,
execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
canceled. A Warrant, if properly assigned in compliance with Section 9,
may be exercised by a new Holder for the purchase of shares of Common Stock
without having a new Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this Warrant may
be divided or combined with other Warrants upon presentation thereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be
issued and signed by the Holder or its agent or attorney. Subject to
Section 3.1 and Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
3.3. EXPENSES. The Company shall prepare, issue and deliver the new
Warrant or Warrants and pay all expenses, taxes and other charges payable
in connection with the preparation, issuance and delivery of such Warrants,
unless such taxes or charges are income taxes or otherwise imposed upon
income or revenues of the Holder, or arise because of the domicile of the
Holder.
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
4. ADJUSTMENTS. The number of shares of Common Stock for which this
Warrant is exercisable, and the price at which such shares may be purchased upon
exercise of this Warrant, shall be subject to adjustment from time to time as
set forth in this Section 4. The Company shall give each Holder notice of any
event which requires an adjustment pursuant to this Section 4 at the time of
such event.
-6-
<PAGE>
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in or to
receive any other distribution of Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record
holder of the same number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the occurrence of such event would own
or be entitled to receive after the occurrence of such event, and (ii) the
Current Warrant Price shall be adjusted to equal the product of (A) the
Current Warrant Price prior to the occurrence of such event multiplied by
(B) a fraction, the numerator of which is the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
adjustment and the denominator of which is the number of shares for which
this Warrant is exercisable immediately after such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash (other than a regular cash dividend payable out of
surplus or net profits legally available for the payment of dividends
under the laws of the jurisdiction of incorporation of the Company),
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock), or
(c) any warrants, options or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock),
-7-
<PAGE>
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of (A) the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such adjustment multiplied by (B) a fraction, the numerator of
which shall be the Current Market Price per share of Common Stock at the
date of taking such record and the denominator of which shall be such
Current Market Price per share of Common Stock minus the amount allocable
to one share of Common Stock of any such cash so distributable and of the
fair value (as determined pursuant to Section 4.7 (a), including as to an
opinion from an investment banking firm) of any and all such evidences of
indebtedness, shares of stock, other than securities or property or
warrants or other subscription or purchase rights so distributable; and
(ii) the Current Warrant Price shall be adjusted to equal (A) the Current
Warrant Price multiplied by (B) a fraction, the numerator of which shall be
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment and the denominator of which shall be
the number of shares for which this Warrant is exercisable immediately
after such adjustment. A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no par value
to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its
Common Stock of such shares of such other class of stock within the meaning
of this Section 4.2 and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part
of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If at any time the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, in
exchange for consideration in an amount per Additional Share of Common
Stock which is less than the Current Warrant Price at the time the
Additional Shares of Common Stock are issued, then (i) the Current
Warrant Price as to the number of shares for which this Warrant is
exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the
number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Current Warrant Price
plus (y) the consideration, if any, received by the Company upon such
issue or sale, by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale; and (ii) the number
of shares of Common Stock for which this Warrant is exercisable shall
be adjusted to equal the product of (A) the Current Warrant Price in
effect immediately prior to such issue or sale multiplied by (B) the
number of
-8-
<PAGE>
shares of Common Stock for which this Warrant is exercisable
immediately prior to such issue or sale, and dividing the product
thereof by the Current Warrant Price resulting from the adjustment
made pursuant to clause (i) above.
(b) If at any time the Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, in
exchange for consideration in an amount per Additional Share of Common
Stock which is less than the Current Market Price at the time the
Additional Shares of Common Stock are issued, then (i) the number of
shares of Common Stock for which this Warrant is exercisable shall be
adjusted to equal the product of (A) the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
issue or sale multiplied by (B) a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately
after such issue or sale and the denominator of which shall be the sum
of (x) number of shares of Common Stock outstanding immediately prior
to such issue or sale plus (y) the number of shares which the
aggregate offering price of the total number of such Additional Shares
of Common Stock would purchase at the then Current Market Price; and
(ii) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be adjusted
by multiplying (A) such Current Warrant Price by (B) a fraction, the
numerator of which shall be the number of shares for which this
Warrant is exercisable immediately prior to such issue or sale and the
denominator of which shall be the number of shares of Common Stock for
which this Warrant is exercisable immediately after such issue or
sale.
(c) If at any time the Company (except as hereinafter provided)
shall issue or sell any Additional Shares of Common Stock, in exchange
for consideration in an amount per Additional Share of Common Stock
which is less than the Current Warrant Price and the Current Market
Price at the time the Additional Shares of Common Stock are issued,
the adjustment required under this Section 4.3 shall be made in
accordance with the formula in paragraph (a) or (b) above which
results in the lower Current Warrant Price following such adjustment.
The provisions of paragraphs (a) and (b) of Section 4.3 shall not
apply to any issuance of Additional Shares of Common Stock for which
an adjustment is provided under Section 4.1 or Section 4.2. No
adjustment of the number of shares of Common Stock for which this
Warrant shall be exercisable shall be made under paragraph (a) or
(b) of this Section 4.3 upon the
-9-
<PAGE>
issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of
such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or
other rights therefor) pursuant to Section 4.4 or Section 4.5.
4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any time
the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a distribution of, or shall in any
manner (whether directly or by assumption in a merger in which the Company
is the surviving corporation) issue or sell, any warrants, options or other
rights to subscribe for or purchase any Additional Shares of Common Stock
or any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such warrants, options
or other rights or upon conversion or exchange of such Convertible
Securities shall be less than the Current Warrant Price or the Current
Market Price in effect immediately prior to such issue or sale, then the
number of shares for which this Warrant is exercisable and the Current
Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants, options or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall
be deemed to have been issued and outstanding and the Company shall have
received all of the consideration payable therefor, if any, as of the date
of actual issuance of such warrants, options or other rights. No further
adjustment of the Current Warrant Price shall be made upon the actual issue
of such Common Stock or of such Convertible Securities upon exercise of
such warrants, options or other rights or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner
(whether directly or by assumption in a merger in which the Company is the
surviving corporation) issue or sell, any Convertible Securities, whether
or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable
upon such conversion or exchange shall be less than the Current Warrant
Price or Current Market Price in effect immediately prior to the time of
such issue or sale, then the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 4.3 on the basis that the maximum number of Additional Shares of
Common Stock necessary to effect the conversion or exchange of all such
-10-
<PAGE>
Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration
payable therefor, if any, as of the date of actual issuance of such
Convertible Securities. No adjustment of the number of shares for which
this Warrant is exercisable and the Current Warrant Price shall be made
under this Section 4.5 upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants, options or
other subscription or purchase rights therefor, if any such adjustment
shall previously have been made upon the issuance of such warrants,
options or other rights pursuant to Section 4.4. No further adjustments
of the number of Shares for which this Warrant is exercisable and the
Current Warrant Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities
and, if any issue or sale of such Convertible Securities is made upon
exercise of any warrant, option or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the
number of Shares for which this Warrant is exercisable and the Current
Warrant Price have been or are to be made pursuant to other provisions
of Section 4, no further adjustments of the number of Shares for which
this Warrant is exercisable and the Current Warrant Price shall be made
by reason of such issue or sale.
4.6. SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of
the number of shares of Common Stock for which this Warrant is exercisable
and of the Current Warrant Price shall have been made pursuant to Section
4.4 or Section 4.5 as the result of any issuance of warrants, options,
rights or Convertible Securities, such warrants, options or rights, or the
right of conversion or exchange of such Convertible Securities, shall
expire, and all or a portion of such warrants, options or rights, or the
right of conversion or exchange with respect to all or a portion of such
other Convertible Securities, as the case may be, shall not have been
exercised, then such previous adjustment shall be rescinded and annulled
and the Additional Shares of Common Stock which were deemed to have been
issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of
the effect of such warrants, options or rights or Convertible Securities on
the basis of (a) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable pursuant
to the previous exercise of any such warrants, options or rights or any
such right of conversion or exchange, as having been issued on the date or
dates of any such exercise and for the consideration actually received and
receivable therefor, and (b) treating any such warrants, options or rights
or any such Convertible Securities which then remain outstanding as having
been granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other property
are issuable under such warrants, options or rights or other Convertible
Securities, whereupon a new adjustment of the number of shares of Common
Stock for which this Warrant is exercisable and the Current Warrant Price
shall be made, which new adjustment shall supersede the previous
-11-
<PAGE>
adjustment so rescinded and annulled.
4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION.
The following provisions shall be applicable to the making of adjustments
of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) COMPUTATION OF CONSIDERATION. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants, options or other rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities shall
be issued for cash consideration, the consideration received by the
Company therefor shall be the amount of the cash received by the
Company, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price
(in any such case subtracting any amounts paid or receivable for
accrued interest or accrued dividends and without taking into account
any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting of, or, otherwise in connection
with, the issuance thereof). To the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall
be deemed to be the fair value of such consideration at the time of
such issuance as determined in good faith by the Board of Directors of
the Company. In case any Additional Shares of Common Stock or any
Convertible Securities or any warrants, options or other rights to
subscribe for or purchase such Additional Shares of Common Stock or
Convertible Securities shall be issued in connection with any merger
in which the Company issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Company, of
such portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants, options or other rights, as the case may be.
The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants, options or other rights to subscribe for or
purchase the same shall be the consideration received by the Company
for issuing such warrants, options or other rights plus the
additional consideration payable to the Company upon exercise of such
warrants, options or
-12-
<PAGE>
other rights. The consideration for any Additional Shares of Common
Stock issuable pursuant to the terms of any Convertible Securities
shall be the consideration received by the Company for issuing
warrants, options or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange of such Convertible Securities. In case of the issuance
at any time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon any
class of stock other than Common Stock, the Company shall be deemed
to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(b) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made, will, based on a good faith
determination of the Board of Directors of the Company, add or
subtract less than an amount equal to 1% of the Common Stock
outstanding immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
(c) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(d) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take
a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before
the distribution to stockholders
-13-
<PAGE>
thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record
and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
(e) ESCROW OF WARRANT STOCK. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of
any record of the holders of Common Stock, but prior to the
occurrence of the event for which such record is taken, and the
Holder exercises this Warrant, any Additional Shares of Common
Stock issuable upon exercise by reason of such adjustment shall be
deemed the last shares of Common Stock for which this Warrant is
exercised (notwithstanding any other provision to the contrary
herein) and such shares or other property shall be held in escrow
for the Holder by the Company to be issued to the Holder upon and
to the extent that the event actually takes place, upon payment of
the then Current Warrant Price. Notwithstanding any other
provision to the contrary herein, if the event for which such
record was taken fails to occur or is rescinded, then such escrowed
shares shall be canceled by the Company and escrowed property
returned.
(f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and if,
upon the expiration of 20 Business Days, the Holder and the Company
fail to agree as to such fair value, after reasonable, good faith
negotiation, any dispute shall be resolved by an investment banking
firm selected by the Company and reasonably acceptable to such Holder
(or, if more than one Warrant is outstanding, to holders of a majority
of Warrant Stock issuable upon exercise of the Warrants). The Company
shall bear 80%, and the Holder shall bear 20%, of the cost of such
firm.
4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where there is a change in or distribution with respect to the
Common Stock of the Company other than a subdivision, combination or
exchange otherwise provided for herein), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring
-14-
<PAGE>
corporation, or any cash, shares of stock or other securities or property
of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor
or acquiring corporation (herein referred to as "OTHER PROPERTY"), are to
be received by or distributed to the holders of Common Stock of the
Company, then each Holder shall have the right thereafter to receive, upon
exercise of such Warrant, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to such event.
In case of any such reorganization, reclassification, merger, consolidation
or disposition of assets, the successor or acquiring corporation (if other
than the Company) shall expressly assume the due and punctual observance
and performance of each and every term and condition of this Warrant to be
performed and observed by the Company and all the obligations and
liabilities hereof, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjusustments of shares
of the Common Stock for which this Warrant is exercisable which shall be as
nearly equivalent as practicable to the adjustments provided for in this
Section 4. For purposes of this Section 4.8 "common stock of the successor
or acquiring corporation" shall include stock of such corporation of any
class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening
of a specified event, and any warrants, options or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 4.8 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.9 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from
time to time the Company shall take any action in respect of its Common
Stock, other than action described in this Section 4, then, unless such
action will not have a material adverse effect upon the rights of the
Holder, the number of shares of Common Stock or other stock for which this
Warrant is exercisable and/or the purchase price thereof shall be adjusted
in such manner as may be equitable in the circumstances.
-15-
<PAGE>
4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the
case of all dividends or other distributions by the Company to the holders
of its Common Stock with respect to which any provision of Section 4 refers
to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time close its
stock transfer books or warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
5. NOTICES TO WARRANT HOLDERS.
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which
a share of such Common Stock may be purchased upon exercise of this
Warrant, shall be adjusted pursuant to Section 4, the Company shall
forthwith prepare a certificate to be executed by the chief financial
officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated and specifying the Current Warrant Price and
the number of shares of Common Stock for which this Warrant is exercisable
after giving effect to such adjustment or change. The Company shall
promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 14.2. The Company shall keep at its
office or agency designated pursuant to Section 14.6 copies of all such
certificates and cause the same to be available for inspection at said
office during normal business hours by the Holder or any prospective
purchaser of a Warrant designated by the Holder thereof.
5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be entitled
to the same rights to receive notice of corporate action as any holder of
Common Stock.
6. NO IMPAIRMENT.
The Company shall not by any action, including, without limitation,
amending its articles of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such actions as
may be necessary or appropriate to protect the rights of the Holder against
impairment. Without limiting the generality of the foregoing, the Company will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
-16-
<PAGE>
Upon the request of the Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY.The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant
such number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding warrants. The
Company covenants that all shares of Common Stock which shall be so issuable,
when issued upon exercise of any Warrant and payment therefor in accordance
with the terms of such Warrant, shall be duly and validly issued and fully
paid and nonassessable.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any and all corporate action which may be necessary in order that the Company
may validly and legally issue fully paid and nonassessable shares of such
Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in
the Current Warrant Price, the Company shall obtain all authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such shares may be so issued, the Company will
in good faith, as expeditiously as possible and at its own expense, endeavor
to cause such shares to be duly registered or qualified, as the case may be.
8. PUT RIGHTS. The Holder shall have the right to require the Company
to repurchase all or any portion of the Warrants held by the Holder upon the
terms and as provided in paragraph 13B of the Securities Purchase Agreement.
9. RESTRICTIONS ON TRANSFER. The Warrants and the Warrant Stock may
not be transferred or assigned before satisfaction of the conditions
specified in this Section 9, which are intended, among other purposes, to
ensure compliance with the provisions of the Securities Act with respect to
the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance
of this Warrant, agrees to be bound by the provisions of this Section 9.
-17-
<PAGE>
9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant
Stock issued upon exercise hereof, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT
AND THE WARRANT STOCK ISSUED HEREUNDER ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AS PROVIDED IN SECTION 9 HEREOF."
In addition, all shares of Warrant Stock issued upon the initial exercise
of this Warrant shall bear a legend in substantially the following form:
IN ADDITION TO THE FOREGOING RESTRICTIONS ON TRANSFER, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
THE TERMS OF A CERTAIN BUY AND SELL AGREEMENT DATED AS OF NOVEMBER 14,
1994, AS AMENDED, A COPY OF WHICH IS ON FILE WITH THE COMPANY. ANY
ATTEMPTED SALE, TRANSFER, ASSIGNMENT, PLEDGE OR OTHER DISPOSITION IN
VIOLATION OF THE TERMS OF THE BUY AND SELL AGREEMENT IS VOID.
9.2. BUY AND SELL AGREEMENT. The Warrant Stock is subject to the
terms of a Buy and Sell Agreement dated as of November 14, 1994, as
amended, a copy of which is on file with the Company. No shares of Warrant
Stock may be sold, transferred, assigned, pledged or otherwise disposed of
except in accordance therewith.
9.3. CONSENT TO TRANSFER. The Holder of this Warrant shall not
transfer, assign, or otherwise dispose, or permit the transfer, assignment
or other disposition by it, of this Warrant or any Warrant Stock, or any
interest therein, to any person (including any Electra Transferee,
Permitted Person, or any other transferee), other than the Company or any
Shareholder, unless the transferee agrees in a writing satisfactory to the
-18-
<PAGE>
Company: (i) that it will not transfer or permit the transfer of this
Warrant or any shares of Common Stock so acquired or any interest therein
to any Person (other than the Company or any Shareholder) without the prior
written consent of the Company and (ii) that it will be bound by the
transfer restrictions set forth in this Section 9.3. The consent
required in clause (i) of the immediately preceding sentence may be
withheld by the Company only if, in the Company's reasonable opinion,
the transferee (x) competes directly or indirectly with the Company or
(y) may be expected to have a significant adverse effect on the
Company's Christian-based mission or image. Any transfer in violation
of this Section 9.3 shall be void. Any stock certificate for shares
subject to the transfer restrictions set forth in this Section 9.3 shall
include a legend reflecting the restrictions on transfer set forth in
this Section 9.3. For purposes of this Section 9.3, the terms "Electra
Transferee", "Permitted Person" and "Shareholder" shall have the
respective meanings assigned to such terms in the Buy and Sell
Agreement. The Company may deny consent to a transfer of this Warrant
if the proposed transfer would cause the total number of Holders of this
and all other Warrants, including the Series A, Series C, Series D, and
the Penalty Warrants, to exceed 10, except for any proposed
intra-company transfers by and among Electra or any of its Affiliates.
9.4. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior
to any Transfer of any Warrant, the holder of such Warrant shall give five
days' prior written notice (a "TRANSFER NOTICE") to the Company of such
holder's intention to effect such Transfer, including a description of the
manner and circumstances of the proposed Transfer and, if requested by the
Company, an opinion from counsel to such holder that the proposed Transfer
of such Warrant may be effected without registration under the Securities
Act. After delivery of the Transfer Notice, the holder shall be entitled
to Transfer such Warrant in accordance with the terms of the Transfer
Notice. Each Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1, unless such legend is not required in
order to ensure compliance with the Securities Act.
10. LOSS OR MUTILATION. Upon receipt by the Company from any Holder of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of this Warrant and, in case of loss, theft
or destruction, of indemnity reasonably satisfactory to it (it being
understood and agreed that the written agreement of Electra and subsequent
institutional transferees, if any, shall be sufficient indemnity) and, in
case of mutilation, upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor in replacement.
11. FINANCIAL AND BUSINESS INFORMATION. The Company will deliver or
cause to be delivered to each Holder, as provided in paragraph 6A of the
Securities Purchase Agreement, certain financial information, financial
analyses, notices, reports, statements and certificates, all to the extent
and in the manner provided therein.
-19-
<PAGE>
12. APPRAISAL. If the Company and the Holder fail to agree as to the
Appraised Value per share of Common Stock, after reasonable, good faith
negotiation, upon the expiration of 20 Business Days, the determination of
the Appraised Value per share of Common Stock shall be made by an investment
banking firm satisfactory to both the Company and the Holder (or, if there is
more than one Warrant outstanding, to holders of a majority of the Warrant
Stock issuable upon exercise of the Warrants). The Company shall retain such
investment banking firm as may be necessary for the determination of
Appraised Value required by the terms of this Warrant, and the Company shall
bear 80% and the Holder shall bear 20%, of the cost of such firm.
13. LIMITATION OF LIABILITY. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of such Holder for the purchase price of any Common Stock or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
14. MISCELLANEOUS.
14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay
or failure to exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right or otherwise prejudice the Holder's
rights, powers or remedies. If the Company fails to make, when due, any
payments provided for hereunder, or fails to comply with any provision of
this Warrant, the Company shall pay to the Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to
reasonable attorneys' fees, incurred by the Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
14.2. NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged
or sent by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of the Company maintained for
such purpose;
-20-
<PAGE>
(b) If to the Company at:
Family Bookstores Company, Inc.
5300 Patterson, S.E.
Grand Rapids, Michigan 49530
Attention: Leslie E. Dietzman
with a copy to:
Warner Norcross & Judd LLP
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
Attention: Alex J. DeYonker, Esq.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration, delivery or other
communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged, or
three (3) Business Days after the same shall have been postmarked in the
United States mail.
14.3. VOTING. If requested by the Holder hereof, and to the
extent permitted by law, the Company shall take all action to entitle the
Holder to vote with the Common Stock of the Company that number of votes
equal to the number of shares of Common Stock issuable from time to time
upon exercise of this Warrant on any matters upon which the holders of
Common Stock are entitled to vote; PROVIDED, that the rights of the Holder
hereunder shall not duplicate any rights of the Holder to vote with the
Common Stock as may be provided under the Shareholders' Agreement.
14.4. REMEDIES. Each holder of this Warrant and any Warrant Stock
issuable upon exercise of this Warrant, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of Section
9 of this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
14.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company
and the successors and assigns of Electra or any other holder hereof. The
provisions of this Warrant are intended to be for the
-21-
<PAGE>
benefit of all holders from time to time of this Warrant, and
shall be enforceable by any such holder.
14.6. OFFICE OF THE COMPANY. As long as any of the Warrants
remain outstanding, the Company shall maintain an office or agency (which
may be the principal executive offices of the Company) where the Warrants
may be presented for exercise, registration of transfer, division or
combination as provided in this warrant.
14.7. INFORMATION. The Company shall cooperate with each Holder
of a Warrant and each holder of Warrant Stock in supplying such information
as may be reasonably requested by such holder to comply with any filings or
information reporting forms presently or hereafter required as a condition
to the availability of an exemption from the Securities Act for the sale of
any Warrant or Warrant Stock.
14.8. AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder (or, if there is more than one warrant outstanding, to holders of a
majority of the Warrant Stock issuable upon exercise of the Warrants).
14.9. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Warrant.
14.10. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
14.11. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of New York, without regard to the provisions thereof relating
to conflict of laws, except to the extent matters herein are governed by
the Michigan Business Corporation Act, under which the Company is
incorporated.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by an officer thereunto duly authorized, as of the 31st
day of December, 1996.
FAMILY BOOKSTORES COMPANY, INC.
By: ________________________________
Name: Leslie E. Dietzman
Title: President
-22-
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ________________________ shares of
Common Stock of FAMILY BOOKSTORES COMPANY, INC., and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant and requests that certificates for the shares of Common Stock hereby
purchased (and any securities or other property issuable upon such exercise)
be issued in the name of and delivered to ________________________________
whose address is ________________________________ and, if such shares of
Common Stock shall not include all of the shares of Common Stock issuable as
provided in this Warrant, that a new Warrant of like tenor and date for the
balance of the shares of Common Stock issuable hereunder be delivered to the
undersigned.
Dated: ____________________________________________
_______________________________________
(Name of Registered Owner)
_______________________________________
(Signature of Registered Owner)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
NOTE: The signature on this subscription must correspond with the
name as written upon the face of the within warrant in every particular,
without alteration or any change whatsoever.
-23-
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under this Warrant, with respect to the
number of shares of Common Stock set forth below:
Number of Shares
Name And Address of Assignee Of Common Stock
- ---------------------------- -----------------
and does hereby irrevocably constitute and appoint__________________________
attorney-in-fact to register such transfer on the books of FAMILY BOOKSTORES
COMPANY, INC. maintained for the purpose, with full power of substitution in
the premises.
Dated: ________________________
______________________________________
(Registered Owner)
NOTE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in every particular,
without alteration or any change whatsoever. Transfer is subject to
restrictions as provided in the Warrant.
-24-
<PAGE>
EXHIBIT 10.19
SERIES B WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
Warrant No. B-2
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT. . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Manner of Exercise. . . . . . . . . . . . . . . . . . . . . 4
2.2. Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . 5
2.3. Fractional Shares.. . . . . . . . . . . . . . . . . . . . . 5
3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . 6
3.1. Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2. Division and Combination. . . . . . . . . . . . . . . . . . 6
3.3. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4. Maintenance of Books. . . . . . . . . . . . . . . . . . . . 6
4. ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1. Stock Dividends, Subdivisions and Combinations. . . . . . . 7
4.2. Certain Other Distributions . . . . . . . . . . . . . . . . 7
4.3. Issuance of Additional Shares of Common Stock . . . . . . . 8
4.4. Issuance of Warrants, Options or Other Rights . . . . . . .10
4.5. Issuance of Convertible Securities. . . . . . . . . . . . .10
4.6. Superseding Adjustment. . . . . . . . . . . . . . . . . . .11
4.7. Other Provisions Applicable to Adjustments Under This
Section . . . . . . . . . . . . . . . . . . . . . . . . . .12
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets . . . . . . . . . . . . . . . . . . .14
4.9 Other Action Affecting Common Stock . . . . . . . . . . . .15
4.10. Taking of Record; Stock and Warrant Transfer Books . .16
5. NOTICES TO WARRANT HOLDERS . . . . . . . . . . . . . . . . . . .16
5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . .16
5.2. Notice of Certain Corporate Action. . . . . . . . . . . . .16
6. NO IMPAIRMENT. . . . . . . . . . . . . . . . . . . . . . . . . .16
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . .17
-i-
<PAGE>
8. PUT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . .17
9. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . .17
9.1. Restrictive Legend. . . . . . . . . . . . . . . . . . . . .18
9.2. Buy and Sell Agreement. . . . . . . . . . . . . . . . . . .18
9.3. Consent to Transfer . . . . . . . . . . . . . . . . . . . .18
9.4. Notice of Proposed Transfers; Requests for Registration . .19
10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . .19
11. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . .19
12. APPRAISAL. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
13. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . .20
14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .20
14.1. Nonwaiver and Expenses . . . . . . . . . . . . . . . .20
14.2. Notice Generally . . . . . . . . . . . . . . . . . . .20
14.3. Voting . . . . . . . . . . . . . . . . . . . . . . . .21
14.4. Remedies . . . . . . . . . . . . . . . . . . . . . . .21
14.5. Successors and Assigns . . . . . . . . . . . . . . . .21
14.6. Office of the Company. . . . . . . . . . . . . . . . .22
14.7. Information. . . . . . . . . . . . . . . . . . . . . .22
14.8. Amendment. . . . . . . . . . . . . . . . . . . . . . .22
14.9. Severability . . . . . . . . . . . . . . . . . . . . .22
14.10. Headings . . . . . . . . . . . . . . . . . . . . . . .22
14.11. Governing Law. . . . . . . . . . . . . . . . . . . . .22
EXHIBITS:
Exhibit A - Subscription Form
Exhibit B - Assignment Form
-ii-
<PAGE>
NEITHER THE WARRANTS REPRESENTED HEREBY NOR THE UNDERLYING SHARES
OF COMMON STOCK HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND NEITHER MAY BE OFFERED FOR SALE OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM
UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED. THIS WARRANT AND THE WARRANT STOCK ISSUED HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS PROVIDED IN SECTION 9 HEREOF.
SERIES B WARRANT
To Purchase Common Stock
of
FAMILY BOOKSTORES COMPANY, INC.
THIS IS TO CERTIFY THAT ELECTRA ASSOCIATES, INC., a corporation
organized under the laws of the United Kingdom ("ELECTRA") , or permitted and
registered assigns (collectively referred to herein as the "HOLDER"), is
entitled, beginning on the Effective Date and at any time prior to the
Expiration Date, to purchase from FAMILY BOOKSTORES COMPANY, INC., a Michigan
corporation (the "COMPANY") , that number of shares of Class A Stock (as
defined herein and subject to adjustment as provided herein) equal to 0.3% of
the number of shares of Common Stock, par value $1.00 per share, of the
Company, outstanding on a Fully Diluted basis, excluding shares issued
pursuant to the Performance Plan, on the date of issuance of this Warrant, at
a purchase price equal to the Current Warrant Price, which shall be initially
equal to $.01 per share and which is subject to adjustment as provided
herein. This Warrant is issued in connection with, and as consideration, in
part, for the Holder's purchase on November 17, 1994 of certain of the
Company's Senior Subordinated Notes due May 17, 2003, together with the
Series A Warrants, this Series B Warrant and the other warrants referred to
in the Securities Purchase Agreement. Capitalized terms used but not
otherwise defined in this Warrant shall have the meanings ascribed to such
terms in the Securities Purchase Agreement.
1. DEFINITIONS. As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Series B Warrant Closing Date, other
than (i) Warrant Stock, (ii) the shares of Common Stock issued by the Company
pursuant to the Performance Plan, (iii)
<PAGE>
shares of Common Stock issuable to the holders of the Series C and Series D
warrants issued in connection with the transactions contemplated by the
Securities Purchase Agreement and (iv) shares of Common Stock issuable to the
holders of any Penalty Warrants issued in connection with the transactions
contemplated by the Securities Purchase Agreement.
"Appraised Value" shall mean, in respect of any share of Common
Stock as of any date herein specified, the fair saleable value of such share
of Common Stock (determined without giving effect to a discount for (i) a
minority interest, (ii) any lack of liquidity of the Common Stock or to the
fact that the Company may have no class of equity registered under the
Exchange Act or (iii) any restrictions on transfer) as of the last day of the
most recent fiscal month end prior to such date specified, based upon the
value of the Company as determined by the Company and the Holder in
reasonable good faith, and, if the Company and the Holder fail to so agree
within 20 Business Days, as determined by an investment banking firm selected
in accordance with the terms of Section 12.
"Business Day" shall mean any day that is not a Saturday or a
Sunday or a day on which commercial banks are required or authorized to be
closed in the City of New York.
"Class A Stock" shall mean the shares of common stock of the
Company, par value $1.00 per share, designated as "Class A Common Stock" in
the Charter Amendment.
"Class B Stock" shall mean the non-voting (except as to the extent
otherwise required by the Michigan Business Corporation Act) shares of common
stock of the Company, par value $1.00 per share, designated as "Class B
Common Stock" in the Charter Amendment.
"Common Stock" shall mean (except where the context otherwise
indicates) collectively, the Class A Stock and the Class B Stock, and any
capital stock into which Class A Stock or Class B Stock may thereafter be
changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of
Common Stock upon any reclassification thereof which is also not preferred as
to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor
or acquiring corporation received by or distributed to the holders of Common
Stock of the Company in the circumstances contemplated by Section 4.8.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon
the occurrence of a specified date or a specified event.
-2-
<PAGE>
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the greater of (i) book value per
share of Class A Stock or Class B Stock as determined by the Company's
financial statements for the most recently ended fiscal quarter, and (ii) the
Appraised Value per share of Class A Stock or Class B Stock, as appropriate.
"Current Warrant Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the price at which a share of
Common Stock may be purchased pursuant to this Warrant on such date.
"Effective Date" shall mean December 31, 1996.
"Electra" shall have the meaning set forth in the first paragraph
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Expiration Date'' shall mean November 17, 2004.
"Fully-Diluted" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant increased by all
common equivalent shares issuable at any time pursuant to any stock options,
warrants, convertible securities, and any other security or instrument having
the right to require additional common shares to be issued at any time in the
future, outstanding on such date.
"GAAP" shall mean generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or statements by
such other entity as have been approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Holder" shall have the meaning set forth in the first paragraph
hereof.
"Other Property" shall have the meaning set forth in Section 4.8.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, corporation, limited liability
organization, association, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
-3-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of November 14, 1994, by and among the Company,
Electra and Electra Investment Trust P.L.C., as amended.
"Series B Warrant Closing Date" shall mean December 31, 1996.
"Transfer" shall mean any disposition of any warrant or Warrant
Stock or of any interest in either thereof.
"Transfer Notice" shall have the meaning set forth in Section 9.4.
"Triggering Event" shall have the meaning ascribed to such term in
the Securities Purchase Agreement.
"Warrant" or "Warrants" shall mean this Warrant and all warrants
issued upon transfer, division or combination, or in exchange or substitution
therefor.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date
of such exercise.
"Warrant Stock" shall mean the shares of Common Stock received by
the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT.
2.1. MANNER OF EXERCISE. From and after the Effective Date, and
until 5:00 P.M. New York City time on the Expiration Date, the Holder may
exercise this Warrant, on any Business Day, for all or any part of the
number of shares of Common Stock purchasable hereunder; PROVIDED, HOWEVER,
that if a Triggering Event shall have occurred prior to the Expiration Date
this Warrant shall terminate as of the date of occurrence of such
Triggering Event, unless exercised as provided herein.
In order to exercise this Warrant, in whole or in part, the
Holder shall deliver to the Company at its principal office at 5300
Patterson, S.E., Grand Rapids, Michigan 49530, or at the office or agency
designated by the Company pursuant to Section 14.6, (i) a written notice of
the Holder's election to exercise this Warrant, which notice shall specify
the number of shares of Common Stock to be purchased, (ii) the Holder's
check in payment of the Warrant Price and (iii) this Warrant. Such notice
shall
-4-
<PAGE>
be substantially in the form of the subscription form appearing at
the end of this Warrant as EXHIBIT A, duly executed by the Holder or its
agent or attorney. Upon receipt thereof, subject to Section 9, the Company
shall, as promptly as practicable, and in any event within five (5)
Business Days thereafter, execute or cause to be executed and delivered or
cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of shares of Common Stock issuable upon
such exercise, or, at the Company's option, the number of shares of Common
Stock issuable on such exercise, together with cash in lieu of any fraction
of a share, as hereinafter provided. The stock certificate or certificates
so delivered shall be, to the extent possible, in such denomination or
denominations as the Holder shall request and shall be registered in the
name of the Holder or, subject to Section 9, such other name as shall be
designated in the notice.
This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the
Holder or any other Person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all purposes,
as of the date the notice, together with the cash or check and this
Warrant, is received by the Company as described above and all taxes, if
any, required to be paid prior to the issuance of such shares have been
paid pursuant to Section 2.2. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates, deliver to the Holder a new Warrant evidencing the rights of
the Holder to purchase the unpurchased shares of Common Stock called for by
this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the request of the Holder, appropriate notation
may be made on this Warrant and the same returned to the Holder.
2.2. PAYMENT OF TAXES. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and the Company shall pay all
expenses in connection with, and all taxes and other governmental charges
that may be imposed with respect to, the issuance or delivery thereof,
unless such taxes or charges are income taxes or otherwise imposed upon
income or revenues of the Holder.
2.3. FRACTIONAL SHARES. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of any Warrant.
As to any fraction of a share which the Holder of one or more Warrants,
the rights under which are exercised in the same transaction, would
otherwise be entitled to purchase upon such exercise, the Company may,
as provided in Section 2.1, pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the Current
Market Price per share of Common Stock on the date of exercise.
-5-
<PAGE>
3. TRANSFER, DIVISION AND COMBINATION.
3.1. TRANSFER. Subject to Section 9, transfer of this Warrant
and all rights hereunder, in whole or in part, shall be registered on the
books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section
2.1 or the office or agency designated by the Company pursuant to Section
14.6, together with a written assignment of this Warrant substantially in
the form of EXHIBIT B hereto duly executed by the Holder or its agent or
attorney. Upon such surrender, the Company shall, subject to Section 9,
execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
canceled. A Warrant, if properly assigned in compliance with Section 9,
may be exercised by a new Holder for the purchase of shares of Common Stock
without having a new Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this
Warrant may be divided or combined with other Warrants upon presentation
thereof at the aforesaid office or agency of the Company, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Holder or its agent or attorney.
Subject to Section 3.1 and Section 9, as to any transfer which may be
involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice.
3.3. EXPENSES. The Company shall prepare, issue and deliver the
new Warrant or Warrants and pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of such
Warrants, unless such taxes or charges are income taxes or otherwise
imposed upon income or revenues of the Holder, or arise because of the
domicile of the Holder.
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at
its aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.
4. ADJUSTMENTS. The number of shares of Common Stock for which this
Warrant is exercisable, and the price at which such shares may be purchased upon
exercise of this Warrant, shall be subject to adjustment from time to time as
set forth in this Section 4. The Company shall give each Holder notice of any
event which requires an adjustment pursuant to this Section 4 at the time of
such event.
-6-
<PAGE>
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any
time the Company shall:
(a) take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend payable
in or to receive any other distribution of Additional Shares of
Common Stock,
(b) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record
holder of the same number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the occurrence of such event would own
or be entitled to receive after the occurrence of such event, and (ii) the
Current Warrant Price shall be adjusted to equal the product of (A) the
Current Warrant Price prior to the occurrence of such event multiplied by
(B) a fraction, the numerator of which is the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
adjustment and the denominator of which is the number of shares for which
this Warrant is exercisable immediately after such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash (other than a regular cash dividend payable
out of surplus or net profits legally available for the payment
of dividends under the laws of the jurisdiction of incorporation
of the Company),
(b) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever
(other than cash, Convertible Securities or Additional Shares of
Common Stock), or
(c) any warrants, options or other rights to subscribe
for or purchase any evidences of its indebtedness, any shares of
its stock or any other securities or property of any nature
whatsoever (other than cash, Convertible Securities or Additional
Shares of Common Stock),
-7-
<PAGE>
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of (A) the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such adjustment multiplied by (B) a fraction, the numerator of
which shall be the Current Market Price per share of Common Stock at the
date of taking such record and the denominator of which shall be such
Current Market Price per share of Common Stock minus the amount allocable
to one share of Common Stock of any such cash so distributable and of the
fair value (as determined pursuant to Section 4.7 (a), including as to an
opinion from an investment banking firm) of any and all such evidences of
indebtedness, shares of stock, other than securities or property or
warrants or other subscription or purchase rights so distributable; and
(ii) the Current Warrant Price shall be adjusted to equal (A) the Current
Warrant Price multiplied by (B) a fraction, the numerator of which shall be
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment and the denominator of which shall be
the number of shares for which this Warrant is exercisable immediately
after such adjustment. A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no par value
to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its
Common Stock of such shares of such other class of stock within the meaning
of this Section 4.2 and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part
of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If at any time the Company shall (except as
hereinafter provided) issue or sell any Additional Shares of Common
Stock, in exchange for consideration in an amount per Additional
Share of Common Stock which is less than the Current Warrant Price
at the time the Additional Shares of Common Stock are issued, then
(i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be
reduced to a price determined by dividing (A) an amount equal to
the sum of (x) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then
existing Current Warrant Price plus (y) the consideration, if any,
received by the Company upon such issue or sale, by (B) the total
number of shares of Common Stock outstanding immediately after such
issue or sale; and (ii) the number of shares of Common Stock for
which this Warrant is exercisable shall be adjusted to equal the
product of (A) the Current Warrant Price in effect immediately
prior to such issue or sale multiplied by (B) the number of
-8-
<PAGE>
shares of Common Stock for which this Warrant is exercisable
immediately prior to such issue or sale, and dividing the product
thereof by the Current Warrant Price resulting from the adjustment
made pursuant to clause (i) above.
(b) If at any time the Company shall (except as
hereinafter provided) issue or sell any Additional Shares of
Common Stock, in exchange for consideration in an amount per
Additional Share of Common Stock which is less than the Current
Market Price at the time the Additional Shares of Common Stock
are issued, then (i) the number of shares of Common Stock for
which this Warrant is exercisable shall be adjusted to equal the
product of (A) the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such issue or
sale multiplied by (B) a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately
after such issue or sale and the denominator of which shall be
the sum of (x) number of shares of Common Stock outstanding
immediately prior to such issue or sale plus (y) the number of
shares which the aggregate offering price of the total number of
such Additional Shares of Common Stock would purchase at the then
Current Market Price; and (ii) the Current Warrant Price as to
the number of shares for which this Warrant is exercisable prior
to such adjustment shall be adjusted by multiplying (A) such
Current Warrant Price by (B) a fraction, the numerator of which
shall be the number of shares for which this Warrant is
exercisable immediately prior to such issue or sale and the
denominator of which shall be the number of shares of Common
Stock for which this Warrant is exercisable immediately after
such issue or sale.
(c) If at any time the Company (except as hereinafter
provided) shall issue or sell any Additional Shares of Common
Stock, in exchange for consideration in an amount per Additional
Share of Common Stock which is less than the Current Warrant Price
and the Current Market Price at the time the Additional Shares of
Common Stock are issued, the adjustment required under this Section
4.3 shall be made in accordance with the formula in paragraph (a)
or (b) above which results in the lower Current Warrant Price
following such adjustment. The provisions of paragraphs (a) and
(b) of Section 4.3 shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under
Section 4.1 or Section 4.2. No adjustment of the number of shares
of Common Stock for which this Warrant shall be exercisable shall
be made under paragraph (a) or (b) of this Section 4.3 upon the
-9-
<PAGE>
issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of
such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or
other rights therefor) pursuant to Section 4.4 or Section 4.5.
4.4. ISSUANCE OF WARRANTS, OPTIONS OR OTHER RIGHTS. If at any
time the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a distribution of, or shall in any
manner (whether directly or by assumption in a merger in which the Company
is the surviving corporation) issue or sell, any warrants, options or other
rights to subscribe for or purchase any Additional Shares of Common Stock
or any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such warrants, options
or other rights or upon conversion or exchange of such Convertible
Securities shall be less than the Current Warrant Price or the Current
Market Price in effect immediately prior to such issue or sale, then the
number of shares for which this Warrant is exercisable and the Current
Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants, options or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall
be deemed to have been issued and outstanding and the Company shall have
received all of the consideration payable therefor, if any, as of the date
of actual issuance of such warrants, options or other rights. No further
adjustment of the Current Warrant Price shall be made upon the actual issue
of such Common Stock or of such Convertible Securities upon exercise of
such warrants, options or other rights or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the
Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a distribution of, or
shall in any manner (whether directly or by assumption in a merger
in which the Company is the surviving corporation) issue or sell,
any Convertible Securities, whether or not the rights to exchange
or convert thereunder are immediately exercisable, and the price
per share for which Common Stock is issuable upon such conversion
or exchange shall be less than the Current Warrant Price or Current
Market Price in effect immediately prior to the time of such issue
or sale, then the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as
provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the
conversion or exchange of all such
-10-
<PAGE>
Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the
consideration payable therefor, if any, as of the date of actual
issuance of such Convertible Securities. No adjustment of the
number of shares for which this Warrant is exercisable and the
Current Warrant Price shall be made under this Section 4.5 upon the
issuance of any Convertible Securities which are issued pursuant to
the exercise of any warrants, options or other subscription or
purchase rights therefor, if any such adjustment shall previously
have been made upon the issuance of such warrants, options or other
rights pursuant to Section 4.4. No further adjustments of the
number of Shares for which this Warrant is exercisable and the
Current Warrant Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities and, if any issue or sale of such Convertible Securities
is made upon exercise of any warrant, option or other right to
subscribe for or to purchase any such Convertible Securities for
which adjustments of the number of Shares for which this Warrant is
exercisable and the Current Warrant Price have been or are to be
made pursuant to other provisions of Section 4, no further
adjustments of the number of Shares for which this Warrant is
exercisable and the Current Warrant Price shall be made by reason
of such issue or sale.
4.6. SUPERSEDING ADJUSTMENT. If, at any time after any
adjustment of the number of shares of Common Stock for which this
Warrant is exercisable and of the Current Warrant Price shall have
been made pursuant to Section 4.4 or Section 4.5 as the result of
any issuance of warrants, options, rights or Convertible
Securities, such warrants, options or rights, or the right of
conversion or exchange of such Convertible Securities, shall
expire, and all or a portion of such warrants, options or rights,
or the right of conversion or exchange with respect to all or a
portion of such other Convertible Securities, as the case may be,
shall not have been exercised, then such previous adjustment shall
be rescinded and annulled and the Additional Shares of Common Stock
which were deemed to have been issued by virtue of the computation
made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the
effect of such warrants, options or rights or Convertible
Securities on the basis of (a) treating the number of Additional
Shares of Common Stock or other property, if any, theretofore
actually issued or issuable pursuant to the previous exercise of
any such warrants, options or rights or any such right of
conversion or exchange, as having been issued on the date or dates
of any such exercise and for the consideration actually received
and receivable therefor, and (b) treating any such warrants,
options or rights or any such Convertible Securities which then
remain outstanding as having been granted or issued immediately
after the time of such increase of the consideration per share for
which shares of Common Stock or other property are issuable under
such warrants, options or rights or other Convertible Securities,
whereupon a new adjustment of the number of shares of Common Stock
for which this Warrant is exercisable and the Current Warrant Price
shall be made, which new adjustment shall supersede the previous
-11-
<PAGE>
adjustment so rescinded and annulled.
4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant
is exercisable and the Current Warrant Price provided for in this Section
4:
(a) COMPUTATION OF CONSIDERATION. To the extent that
any Additional Shares of Common Stock or any Convertible Securities
or any warrants, options or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible
Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount
of the cash received by the Company, or, if such Additional Shares
of Common Stock or Convertible Securities are offered by the
Company for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a
subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation,
discounts or expenses paid or incurred by the Company for and in
the underwriting of, or, otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time of
such issuance as determined in good faith by the Board of Directors
of the Company. In case any Additional Shares of Common Stock or
any Convertible Securities or any warrants, options or other rights
to subscribe for or purchase such Additional Shares of Common Stock
or Convertible Securities shall be issued in connection with any
merger in which the Company issues any securities, the amount of
consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Company,
of such portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants, options or other rights, as the case may be.
The consideration for any Additional Shares of Common Stock
issuable pursuant to any warrants, options or other rights to
subscribe for or purchase the same shall be the consideration
received by the Company for issuing such warrants, options or other
rights plus the additional consideration payable to the Company
upon exercise of such warrants, options or
-12-
<PAGE>
other rights. The consideration for any Additional Shares of
Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Company for
issuing warrants, options or other rights to subscribe for or
purchase such Convertible Securities, plus the consideration paid
or payable to the Company in respect of the subscription for or
purchase of such Convertible Securities, plus the additional
consideration, if any, payable to the Company upon the exercise of
the right of conversion or exchange of such Convertible Securities.
In case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or satisfaction
of any dividends upon any class of stock other than Common Stock,
the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(b) WHEN ADJUSTMENTS TO BE MADE. The adjustments
required by this Section 4 shall be made whenever and as often as
any specified event requiring an adjustment shall occur, except
that any adjustment of the number of shares of Common Stock for
which this Warrant is exercisable that would otherwise be
required may be postponed (except in the case of a subdivision or
combination of shares of the Common Stock, as provided for in
Section 4.1) up to, but not beyond the date of exercise if such
adjustment either by itself or with other adjustments not
previously made, will, based on a good faith determination of the
Board of Directors of the Company, add or subtract less than an
amount equal to 1% of the Common Stock outstanding immediately
prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made
as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result
in a minimum adjustment or on the date of exercise. For the
purpose of any adjustment, any specified event shall be deemed to
have occurred at the close of business on the date of its
occurrence.
(c) FRACTIONAL INTERESTS. In computing adjustments
under this Section 4, fractional interests in Common Stock shall
be taken into account to the nearest 1/10th of a share.
(d) WHEN ADJUSTMENT NOT REQUIRED. If the Company
shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or distribution
or subscription or purchase rights and shall, thereafter and
before the distribution to stockholders
-13-
<PAGE>
thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record
and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
(e) ESCROW OF WARRANT STOCK. If after any property
becomes distributable pursuant to this Section 4 by reason of the
taking of any record of the holders of Common Stock, but prior to
the occurrence of the event for which such record is taken, and the
Holder exercises this Warrant, any Additional Shares of Common
Stock issuable upon exercise by reason of such adjustment shall be
deemed the last shares of Common Stock for which this Warrant is
exercised (notwithstanding any other provision to the contrary
herein) and such shares or other property shall be held in escrow
for the Holder by the Company to be issued to the Holder upon and
to the extent that the event actually takes place, upon payment of
the then Current Warrant Price. Notwithstanding any other
provision to the contrary herein, if the event for which such
record was taken fails to occur or is rescinded, then such escrowed
shares shall be canceled by the Company and escrowed property
returned.
(f) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever
the Board of Directors of the Company shall be required to make a
determination in good faith of the fair value of any item under
this Section 4, such determination may be challenged in good
faith by the Holder, and if, upon the expiration of 20 Business
Days, the Holder and the Company fail to agree as to such fair
value, after reasonable, good faith negotiation, any dispute
shall be resolved by an investment banking firm selected by the
Company and reasonably acceptable to such Holder (or, if more
than one Warrant is outstanding, to holders of a majority of
Warrant Stock issuable upon exercise of the Warrants). The
Company shall bear 80%, and the Holder shall bear 20%, of the
cost of such firm.
4.8. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION
OR DISPOSITION OF ASSETS. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into
another corporation (where there is a change in or distribution with
respect to the Common Stock of the Company other than a subdivision,
combination or exchange otherwise provided for herein), or sell,
transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of
such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or
acquiring
-14-
<PAGE>
corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common
stock of the successor or acquiring corporation (herein referred to as
"OTHER PROPERTY"), are to be received by or distributed to the holders
of Common Stock of the Company, then each Holder shall have the right
thereafter to receive, upon exercise of such Warrant, the number of
shares of common stock of the successor or acquiring corporation or of
the Company, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets by a holder of the number
of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the
successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each
and every term and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereof,
subject to such modifications as may be deemed appropriate (as
determined in good faith by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of the Common
Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this
Section 4. For purposes of this Section 4.8 "common stock of the
successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is
not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event, and
any warrants, options or other rights to subscribe for or purchase any
such stock. The foregoing provisions of this Section 4.8 shall
similarly apply to successive reorganizations, reclassifications,
mergers, consolidations or disposition of assets.
4.9 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or
from time to time the Company shall take any action in respect of its
Common Stock, other than action described in this Section 4, then, unless
such action will not have a material adverse effect upon the rights of the
Holder, the number of shares of Common Stock or other stock for which this
Warrant is exercisable and/or the purchase price thereof shall be adjusted
in such manner as may be equitable in the circumstances.
-15-
<PAGE>
4.10. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In
the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the Company
will in each such case take such a record and will take such record as
of the close of business on a Business Day. The Company will not at any
time close its stock transfer books or warrant transfer books so as to
result in preventing or delaying the exercise or transfer of any Warrant.
5. NOTICES TO WARRANT HOLDERS.
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price
at which a share of such Common Stock may be purchased upon exercise of
this Warrant, shall be adjusted pursuant to Section 4, the Company shall
forthwith prepare a certificate to be executed by the chief financial
officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated and specifying the Current Warrant Price and
the number of shares of Common Stock for which this Warrant is exercisable
after giving effect to such adjustment or change. The Company shall
promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 14.2. The Company shall keep at its
office or agency designated pursuant to Section 14.6 copies of all such
certificates and cause the same to be available for inspection at said
office during normal business hours by the Holder or any prospective
purchaser of a Warrant designated by the Holder thereof.
5.2. NOTICE OF CERTAIN CORPORATE ACTION. The Holder shall be
entitled to the same rights to receive notice of corporate action as any
holder of Common Stock.
6. NO IMPAIRMENT.
The Company shall not by any action, including, without limitation,
amending its articles of incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such actions as
may be necessary or appropriate to protect the rights of the Holder against
impairment. Without limiting the generality of the foregoing, the Company will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
-16-
<PAGE>
Upon the request of the Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH
OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY.The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant
such number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding warrants. The
Company covenants that all shares of Common Stock which shall be so issuable,
when issued upon exercise of any Warrant and payment therefor in accordance
with the terms of such Warrant, shall be duly and validly issued and fully
paid and nonassessable.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take
any and all corporate action which may be necessary in order that the Company
may validly and legally issue fully paid and nonassessable shares of such
Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in
the Current Warrant Price, the Company shall obtain all authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance
upon exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such shares may be so issued, the Company will
in good faith, as expeditiously as possible and at its own expense, endeavor
to cause such shares to be duly registered or qualified, as the case may be.
8. PUT RIGHTS. The Holder shall have the right to require the Company
to repurchase all or any portion of the Warrants held by the Holder upon the
terms and as provided in paragraph 13B of the Securities Purchase Agreement.
9. RESTRICTIONS ON TRANSFER. The Warrants and the Warrant Stock may
not be transferred or assigned before satisfaction of the conditions
specified in this Section 9, which are intended, among other purposes, to
ensure compliance with the provisions of the Securities Act with respect to
the Transfer of any Warrant or any Warrant Stock. The Holder, by acceptance
of this Warrant, agrees to be bound by the provisions of this Section 9.
-17-
<PAGE>
9.1. RESTRICTIVE LEGEND. This Warrant, and all shares of Warrant
Stock issued upon exercise hereof, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM UNDER SUCH ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED. THIS WARRANT AND THE WARRANT STOCK ISSUED
HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS PROVIDED IN
SECTION 9 HEREOF."
In addition, all shares of Warrant Stock issued upon the initial exercise
of this Warrant shall bear a legend in substantially the following form:
IN ADDITION TO THE FOREGOING RESTRICTIONS ON TRANSFER, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE TERMS OF A CERTAIN BUY AND SELL AGREEMENT
DATED AS OF NOVEMBER 14, 1994, AS AMENDED, A COPY OF WHICH IS ON
FILE WITH THE COMPANY. ANY ATTEMPTED SALE, TRANSFER, ASSIGNMENT,
PLEDGE OR OTHER DISPOSITION IN VIOLATION OF THE TERMS OF THE BUY
AND SELL AGREEMENT IS VOID.
9.2. BUY AND SELL AGREEMENT. The Warrant Stock is subject to the
terms of a Buy and Sell Agreement dated as of November 14, 1994, as
amended, a copy of which is on file with the Company. No shares of Warrant
Stock may be sold, transferred, assigned, pledged or otherwise disposed of
except in accordance therewith.
9.3. CONSENT TO TRANSFER. The Holder of this Warrant shall not
transfer, assign, or otherwise dispose, or permit the transfer, assignment
or other disposition by it, of this Warrant or any Warrant Stock, or any
interest therein, to any person (including any Electra Transferee,
Permitted Person, or any other transferee), other than the Company or any
Shareholder, unless the transferee agrees in a writing satisfactory to the
-18-
<PAGE>
Company: (i) that it will not transfer or permit the transfer of this
Warrant or any shares of Common Stock so acquired or any interest
therein to any Person (other than the Company or any Shareholder)
without the prior written consent of the Company and (ii) that it will
be bound by the transfer restrictions set forth in this Section 9.3.
The consent required in clause (i) of the immediately preceding sentence
may be withheld by the Company only if, in the Company's reasonable
opinion, the transferee (x) competes directly or indirectly with the
Company or (y) may be expected to have a significant adverse effect on
the Company's Christian-based mission or image. Any transfer in
violation of this Section 9.3 shall be void. Any stock certificate for
shares subject to the transfer restrictions set forth in this Section
9.3 shall include a legend reflecting the restrictions on transfer set
forth in this Section 9.3. For purposes of this Section 9.3, the terms
"Electra Transferee", "Permitted Person" and "Shareholder" shall have
the respective meanings assigned to such terms in the Buy and Sell
Agreement. The Company may deny consent to a transfer of this Warrant
if the proposed transfer would cause the total number of Holders of this
and all other Warrants, including the Series A, Series C, Series D, and
the Penalty Warrants, to exceed 10, except for any proposed
intra-company transfers by and among Electra or any of its Affiliates.
9.4. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION.
Prior to any Transfer of any Warrant, the holder of such Warrant shall give
five days' prior written notice (a "TRANSFER NOTICE") to the Company of
such holder's intention to effect such Transfer, including a description of
the manner and circumstances of the proposed Transfer and, if requested by
the Company, an opinion from counsel to such holder that the proposed
Transfer of such Warrant may be effected without registration under the
Securities Act. After delivery of the Transfer Notice, the holder shall be
entitled to Transfer such Warrant in accordance with the terms of the
Transfer Notice. Each Warrant issued upon such Transfer shall bear the
restrictive legend set forth in Section 9.1, unless such legend is not
required in order to ensure compliance with the Securities Act.
10. LOSS OR MUTILATION. Upon receipt by the Company from any Holder of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of this Warrant and, in case of loss, theft
or destruction, of indemnity reasonably satisfactory to it (it being
understood and agreed that the written agreement of Electra and subsequent
institutional transferees, if any, shall be sufficient indemnity) and, in
case of mutilation, upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor in replacement.
11. FINANCIAL AND BUSINESS INFORMATION. The Company will deliver or
cause to be delivered to each Holder, as provided in paragraph 6A of the
Securities Purchase Agreement, certain financial information, financial
analyses, notices, reports, statements and certificates, all to the extent
and in the manner provided therein.
-19-
<PAGE>
12. APPRAISAL. If the Company and the Holder fail to agree as to the
Appraised Value per share of Common Stock, after reasonable, good faith
negotiation, upon the expiration of 20 Business Days, the determination of
the Appraised Value per share of Common Stock shall be made by an investment
banking firm satisfactory to both the Company and the Holder (or, if there is
more than one Warrant outstanding, to holders of a majority of the Warrant
Stock issuable upon exercise of the Warrants). The Company shall retain such
investment banking firm as may be necessary for the determination of
Appraised Value required by the terms of this Warrant, and the Company shall
bear 80% and the Holder shall bear 20%, of the cost of such firm.
13. LIMITATION OF LIABILITY. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of such Holder for the purchase price of any Common Stock or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
14. MISCELLANEOUS.
14.1. NONWAIVER AND EXPENSES. No course of dealing or any delay
or failure to exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right or otherwise prejudice the Holder's
rights, powers or remedies. If the Company fails to make, when due, any
payments provided for hereunder, or fails to comply with any provision of
this Warrant, the Company shall pay to the Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to
reasonable attorneys' fees, incurred by the Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
14.2. NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged
or sent by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at
its last known address appearing on the books of the Company
maintained for such purpose;
-20-
<PAGE>
(b) If to the Company at:
Family Bookstores Company, Inc.
5300 Patterson, S.E.
Grand Rapids, Michigan 49530
Attention: Leslie E. Dietzman
with a copy to:
Warner Norcross & Judd LLP
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
Attention: Alex J. DeYonker, Esq.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration, delivery or other
communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged, or
three (3) Business Days after the same shall have been postmarked in the
United States mail.
14.3. VOTING. If requested by the Holder hereof, and to the
extent permitted by law, the Company shall take all action to entitle the
Holder to vote with the Common Stock of the Company that number of votes
equal to the number of shares of Common Stock issuable from time to time
upon exercise of this Warrant on any matters upon which the holders of
Common Stock are entitled to vote; PROVIDED, that the rights of the Holder
hereunder shall not duplicate any rights of the Holder to vote with the
Common Stock as may be provided under the Shareholders' Agreement.
14.4. REMEDIES. Each holder of this Warrant and any Warrant Stock
issuable upon exercise of this Warrant, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of Section
9 of this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
14.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company
and the successors and assigns of Electra or any other holder hereof. The
provisions of this Warrant are intended to be for the
-21-
<PAGE>
benefit of all holders from time to time of this Warrant, and shall be
enforceable by any such holder.
14.6. OFFICE OF THE COMPANY. As long as any of the Warrants
remain outstanding, the Company shall maintain an office or agency
(which may be the principal executive offices of the Company) where
the Warrants may be presented for exercise, registration of transfer,
division or combination as provided in this warrant.
14.7. INFORMATION. The Company shall cooperate with each Holder
of a Warrant and each holder of Warrant Stock in supplying such information
as may be reasonably requested by such holder to comply with any filings or
information reporting forms presently or hereafter required as a condition
to the availability of an exemption from the Securities Act for the sale of
any Warrant or Warrant Stock.
14.8. AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder (or, if there is more than one warrant outstanding, to holders of a
majority of the Warrant Stock issuable upon exercise of the Warrants).
14.9. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Warrant.
14.10. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
14.11. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of New York, without regard to the provisions thereof relating
to conflict of laws, except to the extent matters herein are governed by
the Michigan Business Corporation Act, under which the Company is
incorporated.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by an officer thereunto duly authorized, as of the 31st
day of December, 1996.
FAMILY BOOKSTORES COMPANY, INC.
By:
Name: Leslie E. Dietzman
Title: President
-22-
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ___________________________ shares
of Common Stock of FAMILY BOOKSTORES COMPANY, INC., and herewith makes
payment therefor, all at the price and on the terms and conditions specified
in this Warrant and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to ______________________
whose address is ________________________________________ and, if such shares
of Common Stock shall not include all of the shares of Common Stock issuable
as provided in this Warrant, that a new Warrant of like tenor and date for
the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
Dated: ________________________________________________
______________________________
(Name of Registered Owner)
______________________________
(Signature of Registered Owner)
______________________________
(Street Address)
______________________________
(City) (State) (Zip Code)
NOTE: The signature on this subscription must correspond with the
name as written upon the face of the within warrant in every particular, without
alteration or any change whatsoever.
-23-
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
NUMBER OF SHARES
NAME AND ADDRESS OF ASSIGNEE OF COMMON STOCK
- ---------------------------- ----------------
and does hereby irrevocably constitute and appoint ________________________
attorney-in-fact to register such transfer on the books of FAMILY BOOKSTORES
COMPANY, INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: _______________________________
________________________________
(Registered Owner)
NOTE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in every particular,
without alteration or any change whatsoever. Transfer is subject to
restrictions as provided in the Warrant.
-24-
<PAGE>
EXHIBIT 10.20
BASE SOFTWARE LICENSE
This Base Software License agreement (this "License Agreement") is
made this 9th day of May, 1994, by and between Andersen Consulting ("AC"),
an Illinois partnership with its principal place of business at 69 W.
Washington Street, Chicago, Illinois 60602, and The Zondervan Corporation
("Client"), a Michigan corporation with its principal place of business at
5300 Patterson S.E., Grand Rapids, Michigan 49530; and is made with respect
to Client's operating division known as Family Bookstores ("Family"), which
has its central office in Grand Rapids, Michigan.
BACKGROUND
Pursuant to a certain Strategic Technology License and Services
Agreement ("Principal Agreement") of even date herewith between AC and
Client, AC has promised to design, develop, create and/or obtain, and
install for Client a new management information system. As provided in the
Principal Agreement: (i) the "Base Software" consists of all of the
software components (as the same may exist from time to time) of the "New
System" (as defined in the Principal Agreement), other than the "Client
Components" (as defined in the Principal Agreement); and (ii) the Base
Software is being licensed to Client under this License Agreement. The
Base Software consists of a portion thereof that is being or will be
licensed by third parties to AC ("Third Party Software"), and the balance,
which is proprietary to AC and is also being licensed by AC to Client
hereunder.
All words and phrases used as defined terms in the Principal Agreement
shall have the same meanings herein.
AGREEMENT
Now, therefore, in consideration of the foregoing and of the mutual
promises set forth below, the parties agree as follows:
1. SOFTWARE LICENSE
A. AC grants to Client, and Client accepts, the non-exclusive
right and license to use the Base Software at the Data Center and the
Retail Stores during the term of this License Agreement for the sole
purpose of using the New System, including any and all output thereof
pertaining to the business of Family.
B. Client acknowledges that the Third Party Software consists
of the JDA System and other software that has been or may be licensed to AC
under various non-exclusive license agreements. Client promises and agrees
not to copy, distribute, transfer (by any means), display, sublicense,
<PAGE>
rent, reverse-engineer, decompile, or disassemble the Base Software nor
commit any other act or omission that would constitute a breach or default
under the Principal Agreement or a breach or default or basis for
termination of any license agreement pertaining to the JDA System or of any
license agreement whose provisions are known to Client and that pertain to
any other Third Party Software. Client agrees to defend, indemnify and
hold harmless AC from and against any claims by third parties that Client
has committed or caused a breach or default under any such license
agreement pertaining to Third Party Software.
C. Client acknowledges that all right, title and interest in
the Base Software shall remain with AC or, in the case of Third Party
Software, with the third party licensor and with AC as licensee, and that
Client has not through this license acquired any right, title, interest,
copyright, trade secret, patent, or other proprietary rights in the Base
Software or in any changes, updates, corrections, modifications,
enhancements, or derivative works thereof (other than the rights of usage
granted in paragraph 1.A hereof).
D. Client shall only use the Base Software on the Hardware at
the Data Center and the Retail Stores and such use shall be limited to use
by Client's authorized employees and other persons as are providing
services to Client for purposes specifically related to a use of the Base
Software permitted by this License Agreement, and to such third parties as
Client shall engage in accordance with the provisions of Sections 3.4 or
3.5 of the Principal Agreement. Client shall not copy the Base Software,
or any part thereof, except for the purpose of making one back-up copy;
however, Client may utilize, upon prior notice to and written approval of
AC, the Base Software temporarily or permanently on different equipment
should the Hardware become inoperable, or temporarily at a different
location.
E. Client shall keep confidential and protect the Base Software
from disclosure to any person except those persons permitted to have access
to it under this paragraph 1.E. Client shall advise all persons with access
to the Base Software of the confidential and proprietary nature of the Base
Software and of the restrictions imposed by this License Agreement. Client
shall limit access to the Base Software to such limited number of employees
and other persons as are providing services to Client for purposes
specifically related to a use of the Base Software permitted by this
License Agreement, and to such third parties as Client shall engage in
accordance with the provisions of Sections 3.4 or 3.5 of the Principal
Agreement. Client shall cause such employees and other persons to protect
the confidentiality of the Base Software, consistently with Client's
obligations hereunder and Client's usual procedures for protecting
confidential information. Nothing in this License Agreement shall prohibit
or limit either party's use of information (including, but not limited to,
ideas, concepts, know-how, techniques, and methodologies) (i) previously
-2-
<PAGE>
known to it without obligation of confidence, (ii) independently developed
by it, (iii) acquired by it from a third party which is not, to its
knowledge, under an obligation of confidence with respect to such
information, or (iv) that is or becomes publicly available through no
breach of this License Agreement. In the event either party receives a
subpoena or other validly issued administrative or judicial process
requesting confidential information of the other party, it shall provide
prompt notice to the other of such receipt. The party receiving the
subpoena shall thereafter be entitled to comply with such subpoena or other
process to the extent permitted by law. Client will not be required to
implement or assure physical security of the premises where the Base
Software is used by Client so as to prohibit third party access to such
premises.
2. PAYMENT
Client shall pay AC the charges set forth in the Schedule of Charges
attached hereto as Schedule I. The monthly charge for each month shall be
payable on or before the first (1st) day of such month. All payments shall
be made in United States dollars to AC at the address set forth on the
first page of this License Agreement, and if not paid when due, will be
subject to interest on the unpaid balance at the rate of one percent (1%)
per month.
3. TERM
A. The term of the license granted under this License Agreement
shall commence on the date hereof and end on June 30, 2024, unless earlier
terminated as provided in paragraph 3.B., below.
B. The term of the licenses granted under this License
Agreement shall end:
i) simultaneously with the end of the Term of the
Principal Agreement ("Term") if said Term shall end
before July 1, 1995; or
ii) as of July 1, 1995, unless Client, on or before July 1,
1995 (or on or before the end of the applicable cure
period, as provided in the Principal Agreement, for any
Problem as to which notice of the existence of the
Problem was delivered to the defaulting party to said
agreement on or before July 1, 1995), shall have
executed and delivered to AC (and to any assignee
pursuant to Section 6 hereof) the "System Acceptance"
contemplated by Section 13.6 of the Principal
Agreement; or
-3-
<PAGE>
iii) by action of AC, if AC shall elect to end the term
pursuant to clause 8(i) of this License Agreement.
4. PAYMENTS TO BE UNCONDITIONAL
The obligations of Client to make payment of the amounts required
under paragraph 2 hereof or under any other paragraphs hereof and to
perform and observe the other covenants and agreements contained herein
shall be absolute and unconditional in all events, except that Client shall
have no obligation to make any payment for which the date for payment, as
specified in Schedule I hereto, shall occur after the term of the license
granted hereunder shall have terminated if such termination shall occur
pursuant to the terms of paragraph 3.B. hereof. Notwithstanding any
dispute between Client and AC under this License Agreement or the Principal
Agreement, or between Client and any other person, partnership or entity,
Client shall make all payments when due and Client shall not assert any
right of setoff or counterclaim against its obligation to make payments
hereunder, nor shall any payments otherwise required hereunder be abated
through accident or unforeseen circumstances. Notwithstanding the
foregoing or the following provisions of this Section 4, AC and any
assignee of AC may enter into a written agreement authorizing AC to direct
the Client to make payments hereunder to AC in the event such assignee
defaults in its obligation to advance funds to AC and Client is hereby
authorized and directed to comply with any such instructions given by AC
and such assignee pursuant to such an agreement.
Furthermore, Client's obligations under this Agreement are separate
from, and shall not impair or be impaired by, any other agreements between
the parties, including (but not limited to) the Principal Agreement.
5. DISCLAIMER OF WARRANTIES
AC MAKES NO WARRANTEES OR GUARANTEES, EITHER EXPRESS OR IMPLIED, FROM
A COURSE OF PERFORMANCE OR DEALING OR TRADE USAGE, OR OF UNINTERRUPTED
OPERATION WITHOUT ERROR, OR OTHERWISE. THERE ARE NO IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In no event shall AC
be liable for any actions, direct, incidental, indirect, special,
consequential or other damages of any kind in connection with or arising
out of this License Agreement or the existence, furnishing, functioning or
Client's use of any item provided for in this License Agreement; Client's
sole remedy and recourse for any claim regarding the Base Software or
otherwise as to AC's performance hereunder shall be to terminate this
Agreement in accordance with the provisions of Section 3 hereof (if
applicable) and/or to pursue any applicable remedies under the Principal
Agreement. In no event will AC or its assigns or transferees be liable to
Client under this Agreement, directly or indirectly, for AC's performance
or nonperformance under the Principal Agreement.
-4-
<PAGE>
6. ASSIGNMENT BY AC
AC's rights to receive payment of Client's monetary obligations
hereunder, AC's rights to be indemnified by Client as set forth herein, and
AC's other rights and remedies with respect to any of the foregoing,
including those set forth in Section 8 hereof (collectively, the
"Assignable Interest"), may be assigned and reassigned in whole or in part
to one or more assignees or subassignees by AC, at any time subsequent to
its execution without the necessity of obtaining the consent of Client.
Upon Client's receipt of written notice of AC's assignment or transfer of
all or any part of AC's Assignable Interest hereunder, Client agrees to
attorn to and recognize any such purchaser(s), assignee(s) or transferee(s)
(jointly, if more than one) as the licensor under this License Agreement,
and Client shall make payments under this License Agreement to AC or, If
directed by AC, to the most recent assignee(s) or transferee(s) of AC's
interest of which Client has received written notice. Upon written
request, Client agrees to execute and deliver such certificates or other
instruments as may reasonably be requested, including but not limited to a
separate acknowledgment of assignment and attornment certificate in the
customary form as to any purchaser's, assignee's or transferee's right,
title and interest in, to and under the Assignable Interest. Without
limiting the generality of the foregoing, Client agrees that
notwithstanding any assignment by AC hereunder, Client shall defend and
indemnify AC against any and all liability incurred by AC as a result of
Client breaching any of its obligations under this License Agreement,
including but not limited to its obligation to make payments required by
this License Agreement.
7. EVENTS OF DEFAULT DEFINED
The following shall be "events of default" under this License
Agreement and the terms "event of default" and "default" shall mean,
whenever they are used in this License Agreement, any one or more of the
following events:
i) Failure by Client to pay to AC and/or its assigns any
payment when due hereunder, and Client further fails to
pay such amount within fourteen (14) days after the
delivery to it of written notice of non-payment;
ii) Client fails to perform any of its duties or
obligations hereunder and fails to cure such failure
within thirty (30) days after delivery to it of written
notice of such failure to perform; or
iii) Client becomes insolvent, or is unable to pay its debts
as they become due, or makes an assignment for the
benefit of creditors, applies or consents to the
-5-
<PAGE>
appointment of a receiver, trustee, conservator or
liquidator of Client or of any of its assets, or a
petition for relief is filed by Client under any
bankruptcy, insolvency, reorganization or similar laws,
or a petition in, or a proceeding under, any
bankruptcy, insolvency, reorganization or similar laws
filed or instituted against Client and is not dismissed
or fully stayed within sixty (60) days after the filing
or institution thereof.
8. REMEDIES ON DEFAULT
Whenever any event of default referred to in Section 7 hereof shall
have happened and be continuing, AC shall have the right, at its sole
option without further demand or notice, to take one or any combination of
the following remedial steps:
i) End the term of the licenses granted under this License
Agreement, by so notifying Client, and (with or without
having thus ended the term of such licenses) retake
possession of the Base Software or request Client to
redeliver the Base Software to AC. Client agrees that
since the Base Software has been procured or developed
specifically for it and contains licensed materials
that are proprietary to third parties, AC shall not be
obligated to sell or relicense the Base Software for
the account of Client for the purpose of applying the
proceeds to pay the costs and expenses of such
repossession and disposition and/or the applicable
purchase price and accrued interest thereon;
ii) Instruct Client to cease use of the Base Software.
Client agrees that AC is entitled to injunctive relief
if necessary to enforce this remedy;
iii) Recover payment from, and/or damages against Client in
an amount equal to the present value (based upon an
assumed internal interest rate per annum equal to the
then-current yield on U.S. Treasury bills of a term
equal to the period between the date of such recovery
and June 30, 2001) of the sum of all remaining payments
to be made under this License Agreement, plus all other
damages to which AC is legally or equitably entitled
and all of its expenses (including reasonable
attorneys' fees) of collection; and
iv) Take whatever action at law or in equity may appear
necessary or desirable to compensate AC for the
-6-
<PAGE>
consideration given by it under this License Agreement
and to enforce its rights to the Base Software.
9. NO REMEDY EXCLUSIVE
No remedy herein conferred upon or reserved to AC is intended to be
exclusive, and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this License Agreement or now or
hereafter existing at law or in equity. No delay or omission to exercise
any right or power accruing upon any default shall impair any such right or
power, nor shall it be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient.
10. NO IMPAIRMENT OF AC OBLIGATIONS UNDER PRINCIPAL AGREEMENT
Nothing contained in this License Agreement shall negate, modify or
supersede any of the representations, warranties, duties and obligations of
AC to Client under the Principal Agreement.
11. NOTICES
All notices, certificates or other communications hereunder shall be
sufficiently given and shall be deemed given when delivered or mailed by
registered mail, postage prepaid, to the parties at the following
addresses:
To AC:
Andersen Consulting
69 W. Washington Street
Chicago, IL 60602
Attn: Treasurer
To Client:
The Zondervan Corporation
5300 Patterson S.E.
Grand Rapids, MI 49530
All such notices shall be deemed given when received (if delivered
personally) or on the third (3rd) business day after the mailing thereof
(if mailed).
12. ASSIGNMENT BY CLIENT
Client may not assign its rights or delegate its obligations under
this License Agreement, in part or whole, without the prior written consent
-7-
<PAGE>
of AC, and any such attempted assignment or delegations shall be void;
provided, however, that Client shall have the right to assign this License
Agreement to any Affiliate of Client or to any person or entity that
acquires substantially all of the assets of Client's Family division,
without the consent of AC (and of any assignee of AC pursuant to Section 6
hereof) ("Assignee") upon giving AC (and any Assignee of whom AC shall have
notified Client in accordance with Section 6 of this License Agreement)
written notice of such assignment. Notwithstanding the foregoing, no such
assignment shall relieve Client of its liability for the performance of its
obligations under this License Agreement.
13. SEVERABILITY
In the event any provision of this License Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
hereof.
14. AMENDMENTS, CHANGES AND MODIFICATIONS
This License Agreement may be amended in writing by AC and Client.
15. EXECUTION IN COUNTERPARTS
This License Agreement may be simultaneously executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
16. APPLICABLE LAW
This License Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
17. CAPTIONS
The captions or headings in this License Agreement are for convenience
only and in no way define, limit or describe the scope of intent of any
provisions or sections of this License Agreement.
18. PLACE OF SUIT
Any action or proceeding arising out of or related to this License
Agreement may be brought only in an appropriate court in Illinois.
19. PARTNER NON-RECOURSE
Notwithstanding anything contained in this License Agreement to the
contrary, recourse for the payment or performance of any obligation of AC
-8-
<PAGE>
on account of any provisions of this License Agreement shall be had only
against the assets, property and rights of AC. No partner of AC shall have
any personal liability for or on account of any provision of this License
Agreement, nor shall any assets or property (including the partners'
interest in any voluntary investment partnership organized or sponsored by
AC or any affiliate thereof) of any individual partner of AC be taken for
or be subject to execution on account of any provision of this License
Agreement. Nothing herein contained shall prevent the collection of any
indebtedness owed to AC by a partner thereof.
IN WITNESS WHEREOF, the parties have executed this License Agreement
by their respective duly authorized representatives specified below. All of
the above occurred as of the date first above written.
Andersen Consulting The Zondervan Corporation
By: /S/ By: /S/ LESLIE E. DIETZMAN
--------------------- -------------------------
Title: PARTNER Title: PRESIDENT
Date: MAY 10, 1994 Date: MAY 9, 1994
-9-
<PAGE>
EXHIBIT 10.21
STRATEGIC TECHNOLOGY LICENSE AND SERVICES AGREEMENT
This Strategic Technology License and Services Agreement (this
"Agreement") is made this 9th day of May, 1994, by and between Andersen
Consulting ("AC"), an Illinois partnership with its principal place of
business at 69 W. Washington Street, Chicago, Illinois; and The Zondervan
Corporation, a Michigan corporation with its principal place of business at
5300 Patterson S.E., Grand Rapids, Michigan ("Client"); and is made by
Client with respect to Client's operating division known as Family
Bookstores ("Family"), which has its central office in Grand Rapids,
Michigan.
For and in consideration of the mutual promises and covenants
contained herein, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties agree as follows:
1.0 BACKGROUND; PURPOSE
1.1 BUSINESS OF AC
AC is engaged in the business of providing business consulting
services, including strategic services, systems development, systems
integration, change management, business process management, LAN and WAN
network management, technical support, and related services.
1.2 EXISTING SERVICES, CUTOVER, NEW SYSTEM
Client wishes to obtain from AC, for the benefit of Family, and AC is
willing to provide to Client, certain of the kinds of management
information services that Client currently provides to Family. Initially,
AC will provide these services through the use of a system currently in
place. While managing that system, AC will also be developing a new system
to replace the current system; after the cutover to the newly configured
system, AC will provide certain other services and products as described
herein.
1.3 AVAILABILITY OF RESOURCES FOR EXISTING SYSTEM
In order to enable AC to provide the agreed services, Client will
allow AC, on the terms and conditions set forth in this Agreement, the use
of certain properties and rights being used by Client on the "Effective
Date" (as defined below) in providing management information services to
Family.
1.4 EXCLUSIVE PROVIDER
During the term of this Agreement, AC shall provide to Client and
Client shall obtain from AC all of the requirements of Family for the types
<PAGE>
of management information services and products that are to be provided by
AC under this Agreement. Client agrees to inform AC of all proposals that
it may receive from others for the providing of any "Special Services" or
"Changes" (as those terms are defined below), and Client shall not acquire
or obtain any such Special Service or Change from any other person or
entity unless: (i) AC shall have been given, by means of a written offer
delivered to AC, the right of first refusal to provide such Special Service
or Change on the same terms and conditions as offered by such other person
or entity, and (ii) AC shall have failed to accept such offer by written
acceptance delivered to Client within thirty (30) days after receipt of the
offer. The parties understand and agree that regarding any services or
products to be provided by AC hereunder, AC can, at its discretion, choose
either to perform or develop them itself or to subcontract for their
performance or development; provided, however, that AC shall remain
responsible for any such subcontracted performance or development.
2.0 DEFINITIONS
As used in this Agreement, each capitalized term shall have the
meaning specified in this Section 2.0, or if not specified in this Section
2.0, the meaning specified elsewhere in this Agreement.
2.1 "AFFILIATE" means as to each party any entity directly or
indirectly controlled by, controlling, or under common control with, such
party.
2.2 "APPLICABLE SPECIFICATIONS" means the functional, performance and
operational characteristics of a developed management information system
(or of any component thereof), jointly approved by Client and AC, and
described in a document such as a functional specifications document or a
detailed design document.
2.3 "APPLICATION SYSTEM" means "Software" (as defined below) used for
business process management, such as purchase order management.
2.4 "APPLICATION SYSTEMS DEVELOPMENT" means any work performed or
furnished by AC with regard to an Application System that exceeds
"Maintenance" (as defined below) in terms of scope or level of effort.
2.5 "CLIENT," for all purposes except (i) in the context of the legal
liability and responsibility of Client for the performance of its duties
and obligations hereunder (including obligations of payment, indemnity, and
damages), or (ii) as otherwise expressly specified, shall mean Family, as
though the business operated as the Family Bookstore division of Client
were itself a legal entity. However, The Zondervan Corporation shall in
all events be liable and responsible for all of the duties and obligations
of "Client" hereunder.
-2-
<PAGE>
2.6 "CURRENT SYSTEM" means the "Software" (as defined below) and
"Hardware" (as defined below) that are utilized by Client on the Effective
Date to provide Family with the "Existing Services" (as defined below).
2.7 "DATA CENTER" means the portion of the facilities occupied by
Family at 5300 Patterson S.E., Grand Rapids, Michigan, in which Client's
management-information services department is located, and all leasehold
improvements thereto and all furniture, fixtures and equipment (other than
Hardware) located therein and used in such department.
2.8 "DATA CENTER LEASE" means that certain Master Lease Agreement by
and between Client and Meadowbrooke Business Park Associates, Limited
Partnership, dated October 3, 1990, as amended by The First Amendment To
The Lease, dated September 20, 1991, and again amended by The Addendum To
Office/Warehouse Lease, dated August 19, 1992; a correct and complete copy
of said documents has been furnished by Client to AC.
2.9 "EFFECTIVE DATE" means May 2, 1994.
2.10 "EMPLOYEE PLANS" means all "employee benefit plans" and "employee
welfare plans" as defined in the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), all "multi-employer plans" as defined in
Section 3(37) of ERISA, all specified fringe benefit plans as defined in
Section 6039D of the Internal Revenue Code of 1986, as amended, and all
other compensation plans, agreements or policies and any trust, escrow or
other funding agreement related to such plans, that are maintained by
Client or contributed to by Client or with respect to which Client has any
liability for the benefit of employees of Family, regardless of whether
funded or not.
2.11 "EXISTING SERVICES" shall mean all of the kinds of electronic
management information services that are currently being provided by
HarperCollins Publishers Inc. to Family, other than applications on the LAN
system including Word Processing, Spreadsheets and Interface to the HC
General Ledger and Payroll systems, and LAN management services.
2.12 "HARDWARE" means computers, CPUs, auxiliary storage devices,
monitors, keyboards, terminals, computerized registers, printers, modems,
peripherals, cables, bridges, routers, multiplexers, and other items of
computer or data-communications equipment.
2.13 "LEASED HARDWARE" means the items of Hardware that are used for
the Existing Services and are located at the Data Center or at Retail
Stores that are held by Client under equipment leases ("Hardware Leases"),
correct and complete copies of which have been furnished by Client to AC.
2.14 "LICENSED SOFTWARE" means the Software that is used for the
Existing Services and is licensed to Client by third parties under software
-3-
<PAGE>
licenses ("Software Licenses"), correct and complete copies of which have
been furnished by Client to AC.
2.15 "LOSSES" means all losses, liabilities, damages and claims
(including taxes), and all related costs and expenses (including any and
all reasonable attorneys fees and costs of investigation, litigation,
settlement, judgment, interest and penalties).
2.16 "MAINTENANCE" means any correction or modification of a system to
correct bugs or errors, that does not otherwise materially improve or add
functionality or a feature to the system; to "Maintain" is to perform
Maintenance.
2.17 "MANAGEMENT CUTOVER" means the assumption by AC of management
responsibility for the operation and Maintenance of the Current System.
2.18 "MANAGEMENT CUTOVER DATE" means July 1, 1994, or such other date
as may be mutually agreed upon in writing by the parties.
2.19 "MONTHLY BASE CHARGE" means the monthly charge to be paid to AC
by Client pursuant to Section 8.1 of this Agreement.
2.20 "NEW SYSTEM" shall have the meaning set forth in Section 3.1.1
hereof (referring to Hardware and Software to be developed or obtained for
Client hereunder).
2.21 "REQUIRED CONSENTS" means all consents that must be obtained by
Client in order for Client: (i) to grant to AC the right to use Client's
premises as contemplated by Section 4.3 hereof; (ii) to grant to AC the
right to use the Current System's Hardware and Software as provided in
Section 3.2 hereof; and (iii) to grant to AC the right to use the "Client
Components" (as defined in Section 3.1.3) as provided in Section 3.1.3
hereof.
2.22 "RETAIL STORE" means a retail store whose business is owned
directly or indirectly by the Client and that is engaged in the retail sale
of books and other products.
2.23 "SOFTWARE" means computer programs, the tangible media on which
they are recorded, and their supporting documentation, including input and
output formats, program listings, narrative descriptions and operating
instructions.
2.24 "SPECIAL SERVICE" means any management information service
requested by Client that is outside the scope of the "System Services" (as
defined below).
2.25 "SYSTEM CUTOVER" means the complete cutover of Client's
management information systems from the Current System to the New System.
-4-
<PAGE>
2.26 "SYSTEM CUTOVER DATE" means the date on which System Cutover
occurs.
2.27 "SYSTEM INTEGRATION SERVICES" shall have the meaning set forth in
Section 3.1.1 (referring to the creation and implementation of the New
System) of this Agreement.
2.28 "SYSTEM MANAGEMENT SERVICES" shall have the meaning set forth in
Section 3.2.1 (referring to the management of the Current System) of this
Agreement.
2.29 "SYSTEM OPERATION SERVICES" shall have the meaning set forth in
Section 3.3.2 (referring to the management and operation of the New System)
of this Agreement.
2.30 "SYSTEM SERVICES" means System Integration Services, System
Management Services and System Operation Services.
2.31 "THIRD PARTY SERVICES CONTRACTS" means the key contracts under
which Client is receiving services as of the Effective Date for use in
providing the Existing Services, all of which have been identified by the
Client and set forth by it in Schedule 2.31 hereto.
2.32 "THIRD PARTY SOFTWARE" means any Software that: (a) is not owned
by Client or AC, and (b) is acquired or licensed from a third party for
operation by AC in performing System Services under this Agreement.
3.0 LICENSES TO BE GRANTED, AND SERVICES TO BE PROVIDED, BY AC
3.1 CREATION AND IMPLEMENTATION OF NEW SYSTEM
3.1.1 EFFORTS LEADING TO CUTOVER
From and after the Effective Date, AC shall apply its diligent efforts
("System Integration Services") to design, develop, create, and/or obtain
(except for items to be obtained by Client as set forth below) the
ownership or right of usage of the Hardware and Software components of; to
install; and to prepare for a cut-over from the Current System to, a new
management information system for Client (the "New System"). The New
System is expected to be based upon the Hardware and Software components
and general specifications set forth in Schedule 3.1.1 hereto, but such
elements, as well as a more detailed statement of components and
specifications, shall be subject to negotiations, which shall be conducted
promptly and in good faith by the parties; the parties shall use
commercially reasonable efforts to reach a written agreement on such
matters by not later than July 31, 1994, but should they fail to agree then
Schedule 3.1.1 shall stand as their agreement with respect to such
components and specifications.
-5-
<PAGE>
3.1.2 JDA SOFTWARE
It is mutually understood and agreed that the basic Application System
for the New System shall be the Merchandise Management System and the
Distributed Store System (collectively, the "JDA System") of JDA Software,
Inc. ("JDA"), to which AC has acquired a non-exclusive license ("JDA
License") of which a copy is attached as Schedule 3.1.2 hereto.
3.1.3 CLIENT COMPONENTS
It is mutually understood and agreed that all Hardware components of
the New System shall be procured by, and owned by or leased to, Client (or
an Affiliate of Client); that all operating Software for such Hardware
components shall be procured by and licensed to Client (or an affiliate of
Client); and that all of such Hardware and operating Software components
(collectively, "Client's Components") shall be selected by Client (and may
be replaced at any time by Client) in its sole discretion, although AC
shall make recommendations for such selections and shall assist Client in
attempting to negotiate favorable terms for such purchases, leases and
licenses. With respect to all of Client's Components: (i) Client shall
make the Client Components available to AC throughout the "Term" (as
defined below) to the extent necessary to enable AC to perform the System
Services; (ii) Client shall assign to AC, for the duration of the Term, all
warranties and other benefits available to Client as purchaser or licensee
of the Client Components, to the extent necessary in order for AC to
perform the System Services; (iii) AC shall be responsible for coordination
of maintenance activities of Client Components; and (iv) Client shall
grant, and does hereby grant to AC the right and license to use the Client
Components, to the extent necessary in order for AC to perform the System
Services, throughout the Term, which right and license shall be exclusive,
subject to Client's or its Affiliates' right to utilize the Client
Components and the output and benefits of the Client Components in the
course of its business and subject to any rights of Client to engage third
parties pursuant to Sections 3.4 or 3.5 of this Agreement.
3.1.4 BASE SOFTWARE
It is mutually understood and agreed that all Software components of
the New System other than the Client Components (collectively, the "Base
Software"), including the JDA System and all other Third Party Software,
shall be procured by, and owned by or licensed to, AC (or an Affiliate of
AC).
3.1.5 SYSTEM CUTOVER
AC shall accomplish the System Cutover on or before July 1, 1995
(subject to delays caused or necessitated by Client or by Special Services
or "Changes" (as defined below)), with as little interruption of Client's
business operations as is reasonably practicable under the circumstances.
-6-
<PAGE>
3.2 MANAGEMENT OF CURRENT SYSTEM
3.2.1 AC RESPONSIBLE AFTER MANAGEMENT CUTOVER
The parties shall accomplish the Management Cutover on the Management
Cutover Date. From and after the Management Cutover, AC shall manage the
operations and Maintenance of the Current System ("System Management
Services"), pending its replacement by the New System.
3.2.2 RIGHT TO USE CLIENT RESOURCES
In performing the System Management Services, AC shall be entitled: to
utilize all of the Hardware and Software of the Current System; to utilize
the services of all personnel engaged (at any level of responsibility) in
the operation or Maintenance of the Current System; and to have full and
unlimited access to, and presence in, the Data Center; in all cases, free
of charge to AC and at the sole cost and expense of Client. In particular,
Client shall provide a sufficient number of trained and qualified personnel
(whether employed by Client or by others) to operate and Maintain the
Current System, until the System Cutover Date. Notwithstanding the
foregoing, it is understood and agreed that AC's services under this
Section 3.2 (the System Management Services) shall be performed solely in a
managerial role; that AC shall not interfere with Client's personnel in
their conduct of actual operations and Maintenance of the Current System
and of normal activities other than the Existing Services; and that AC's
personnel, while within Client's premises, shall comply with the rules and
regulations of Client applicable to Client's employees (copies of which
rules and regulations have been delivered by Client to AC).
3.2.3 SERVICE LEVELS FOR EXISTING SYSTEM
Subject to the limitations set forth in Section 3.2.2 hereof, AC shall
use commercially reasonable efforts to cause the Current System to be
operated substantially in compliance with presently existing service levels
and procedures (to the extent such levels and procedures can be readily
ascertained), but AC cannot be held responsible for errors or omissions of
Client's personnel not occurring at AC's direction.
3.3 LICENSING AND MANAGEMENT OF NEW SYSTEM
3.3.1 BASE SOFTWARE LICENSE
AC hereby grants to Client the non-exclusive right and license to use
the Base Software, for the consideration, for the term, and on the other
terms and conditions set forth in a certain Base Software License, of which
a copy is attached hereto as Exhibit 3.3.1, which has been executed and
delivered by the parties hereto concurrently with the execution and
delivery of this Agreement. The preceding sentence is an independent
-7-
<PAGE>
covenant of AC pursuant to this Agreement, which shall be subject to all of
the rights and remedies of the parties under this Agreement and shall be
irrespective of any limitations on remedies set forth in the Base Software
License. AC represents, warrants and agrees with Client that it owns (or
has the rights to use and license) the Base Software and possesses all
necessary rights in the Base Software to grant the Base Software License to
Client, and that it will, at all times during the term of the Base Software
License, own (or have the rights to use and license) the Base Software and
possess all necessary rights in the Base Software to grant the Base
Software License to Client. AC represents, warrants and agrees that the
use of the Base Software under the Base Software License does not and will
not infringe upon any patent, copyright, license, trade secret or other
proprietary right or interest of any third party.
3.3.2 SYSTEM OPERATION SERVICES
From and after the System Cutover, and for the remainder of the Term,
AC shall have full and exclusive responsibility for the management,
operation and Maintenance of the New System; provided, however, that AC
shall not be responsible for errors, defects, delays, or other problems
with the New System to the extent caused by errors or omissions of Client's
personnel in the usage of the New System or its interfaces by Client,
otherwise than under AC's direction, or by the failure of Client to provide
the necessary Client Components. Although it is expected that the specific
services that are to constitute the System Operation Services after the
System Cutover Date shall be based upon the services set forth in Schedule
3.3.2 hereto, said Schedule contains certain unresolved issues, and the
entire subject matter of said Schedule shall be subject to negotiations,
which shall be conducted promptly and in good faith by the parties; the
parties shall use commercially reasonable efforts to reach a written
agreement on such matters but should they fail to so agree then Schedule
3.3.2 shall stand as their agreement with respect to the System Operation
Services after the System Cutover Date.
3.3.3 SERVICE LEVELS FOR NEW SYSTEM
The service levels at which the System Operation Services are to be
operated after the System Cutover Date ("Service Levels") shall be based
upon the service levels set forth in Schedule 3.3.3 hereto, but the final
version of the Services Levels shall also be subject to negotiations, which
shall be conducted promptly and in good faith by the parties; the parties
shall use commercially reasonable efforts to reach a written agreement on
the Service Levels, but should they fail to so agree then Schedule 3.3.3
shall stand as their agreement with respect to Service Levels.
3.4 SPECIAL SERVICES
At Client's request, AC may perform Special Services. AC will advise
Client in writing that a requested service is a Special Service and whether
-8-
<PAGE>
AC desires to perform the Special Service. If AC elects to perform the
Special Service, it shall provide Client with a description of the work to
be performed by each party, the parties' responsibilities with respect to
that work, a schedule and AC's charges for that work. Upon AC's receiving:
(a) Client's written approval of the authorization to proceed and agreement
to pay AC's charges, and (where appropriate) (b) Applicable Specifications,
the parties shall execute a written amendment to this Agreement setting
forth any special terms and conditions applicable to such Special Services,
and AC shall begin performing the Special Services. Except as may be
specifically otherwise agreed pursuant to clause (b) of the preceding
sentence, all Special Services shall be subject in all respects to the
duties, obligations and standards applicable to System Services under this
Agreement. Should AC elect not to perform any Special Service requested by
Client, Client may engage a third party to perform the service at Client's
sole expense, and AC shall provide such third party with cooperation and
access to the Current System and/or the New System (as the case may be),
provided that Client shall assure that such third party shall be
appropriately qualified to do the work, shall cooperate with AC in its
performance of the work, and shall perform the work in a manner that does
not, in AC's reasonable judgment, interfere with AC's performance of the
System Services nor affect the Current System or the New System so as to
delay or make more difficult or costly AC's future performance of the
System Services.
3.5 CHANGES
All additions, modifications or changes to the Current System or the
service levels for Existing Services that are proposed before the System
Cutover Date; all additions, modifications or changes that are proposed at
any time to the New System, the System Services, or the Service Levels; and
all other systems-development or systems-operations services not included
in this Agreement; (collectively, "Changes") to the extent not resolved
pursuant to the change-management provisions of the Schedules hereto
relating to the scope of work and the Service Levels, shall be controlled
using a formal process (the "Change Control Process"), as follows: (i) The
party proposing a Change will propose it in writing and provide cost and
business justification (in general terms, without need to provide detailed
studies or specifications) for the Change and specify a desired
implementation date; (ii) AC will assess the impact of the proposed Change,
considering resources required, interfaces to other systems, and other
planned and in-process changes, and will make a proposal to Client
specifying the amount of any charges to Client for the implementation of
the Change and the amount of any increase or decrease in the "Monthly Base
Charge" (as defined below) that would result from the Change; and (iii) the
completed proposal of AC will be presented for approval to the Management
Steering Committee referred to in Section 10.3 hereof. No Change will be
implemented without: (i) approval of the Management Steering Committee, and
(ii) written approval by AC and Client. Upon completion of such approvals,
-9-
<PAGE>
the parties shall execute a written amendment to this Agreement setting
forth the terms and conditions reflecting or applicable to such Change and
reflecting the extent of any modification of the Current System, the New
System, the Service Levels, or any other provision of this Agreement or any
schedule hereto, that results from the Change. If the Management Steering
Committee, or AC, fails to approve a Change requested by Client, Client may
engage a third party to perform the Change, at Client's sole expense,
provided that Client shall assure that such third party shall be
appropriately qualified to do the work, shall cooperate with AC in its
performance of the work, and shall perform the work in a manner that does
not interfere with AC's performance of the System Services nor affect the
Hardware or Software so as to make more difficult or costly AC's future
performance of the System Services.
3.6 COST CONTROL
To the extent reasonably practicable (and no more costly to AC) under
the circumstances, and consistent with its other obligations hereunder, AC
will arrange for its programmers who are dedicated to performing services
for Client hereunder to work on Changes and Special Services without any
additional charge to Client.
4.0 RESPONSIBILITIES OF CLIENT
4.1 GENERAL RESPONSIBILITIES
Client shall perform (or cause to be performed) all of the obligations
to be performed by it (or by HarperCollins Publishers Inc.) under any of
the Schedules hereto and all of the following tasks, and assume the
following responsibilities:
4.1.1 OBLIGATIONS PRIOR TO MANAGEMENT CUTOVER DATE
During the period prior to the Management Cutover Date, Client shall:
a) provide, operate, and Maintain the Current System for Client;
b) provide and assign to the Current System, sufficient qualified
personnel to operate and Maintain it for Client;
c) make available to AC all available operations-related
documentation on the Current System and the Existing Services;
d) make available to AC all available cost-data and performance-data
relating to the Current System and the Existing Services, for use
by the parties in developing the revised versions of Schedules
3.1.1, 3.3.2 and 3.3.3, as contemplated by Sections 3.1.1, 3.3.2,
and 3.3.3 hereof;
-10-
<PAGE>
e) give AC reasonable notice of all material business developments
regarding Client and its Affiliates that are relevant to AC's
performance of the System Services;
f) cooperate with AC in coordinating arrangements for the
procurement by Client of the Client Components and the
procurement by AC of the Base Software;
g) cooperate with AC to allow and facilitate the providing by AC of
the System Integration Services;
h) cooperate with AC to facilitate the Management Cutover on the
Management Cutover Date; and
i) use commercially reasonable efforts to obtain the Required
Consents, and make alternative arrangements in any cases where
not available;
provided, however, that nothing in this Section 4.1.1 shall require Client
to act in a commercially unreasonable manner.
4.1.2 OBLIGATIONS BETWEEN MANAGEMENT CUTOVER DATE AND SYSTEM
CUTOVER DATE
During the period between the Management Cutover Date and the System
Cutover Date, Client shall:
a) continue to provide, operate and Maintain the Current System for
Client, subject to management by AC as provided in Section 3.2;
b) continue to provide, and assign to the Current System, sufficient
qualified personnel to operate and Maintain it for Client;
c) continue to provide to AC all available cost-data and
performance-data relating to the Current System and the Existing
Services;
d) continue to give AC reasonable notice of all material business
developments regarding Client and its Affiliates that are
relevant to AC's performance of the System Services;
e) cooperate with AC to allow and facilitate the providing by AC of
the System Management Services;
f) continue to cooperate with AC in coordinating arrangements for
the procurement by Client of the Client Components and the
procurement by AC of the Base Software;
-11-
<PAGE>
g) obtain, set up, install and wire all Client Components within any
reasonable time frames specified by AC;
h) cooperate with AC to allow AC to install the Base Software; and
i) cooperate with AC to facilitate the System Cutover;
provided, however, that nothing in this Section 4.1.2 shall require Client
to act in a commercially unreasonable manner.
4.1.3 OBLIGATIONS AFTER SYSTEM CUTOVER DATE
After the System Cutover Date, Client shall cooperate with AC to allow
and facilitate the providing by AC of the System Operation Services and
shall be responsible for the Client Components (and for any dealings with
the vendors and licensors regarding any problems, defects or claims
regarding the Client Components), but Client shall have no responsibility
for the management, operation or Maintenance of the New System, except as
the user of the New System.
4.2 HUMAN RESOURCE MATTERS
4.2.1 CURRENT EMPLOYEES
From and after the Effective Date, Client will allow AC to interview
all current employees whose current duties are solely or primarily in the
management or operation of the Current System ("Current Employees"). With
regard to any Current Employees whom AC shall designate to Client as
employees that AC prefers to have retained by Client at least until the
System Cutover Date, Client will encourage such individuals to continue as
employees of Client until the System Cutover Date, and will replace with
qualified personnel any of them who do not so continue (or will use
alternative means to provide the same resources as such employees were
providing). With regard to Current Employees whom AC wishes to hire on or
before the System Cutover Date, Client will allow such employees to accept
employment with AC and will release them from their respective employment
obligations to permit them to do so.
4.2.2 RESPONSIBILITY FOR RETAINED EMPLOYEES
With the exception of employees who die, resign, become disabled or
are terminated by Client, Client shall remain the employer of the Current
Employees until the System Cutover Date and shall make such employees
available for AC's use in performing its Services hereunder. For each such
employee, Client's obligation to pay wages, continue to provide benefits
and make employer's contributions, benefits and contributions, shall
terminate upon: (a) the System Cutover Date, or (b) the termination of such
employee's employment with Client, or (c) such date, if any, as Client
-12-
<PAGE>
terminates such obligations with respect to all its employees generally,
whichever occurs first. AC shall have no liability whatsoever as the
employer or successor-employer of any of the Current Employees for any
period prior to its hiring of them, or in consequence of their ceasing to
be employed by Client, including, but not limited to, liability for accrued
vacation or sick leave, bonuses or other forms of compensation, or any
other employee benefit. Client shall retain, and AC shall not have any
liability whatsoever for, any COBRA coverage or severance payments arising
in connection with the events described in this Section 4.2 to any of the
Current Employees who do not become employees of AC. In no event shall AC
and Client be or be deemed to be the joint employer of any Current
Employee.
4.2.3 NO HIRING OF AC EMPLOYEES
Except as provided above in this Section 4.2, Client agrees that
during the term of this Agreement and (in the event of termination by AC
for cause) for twelve (12) months thereafter, neither The Zondervan
Corporation nor any division or subsidiary of The Zondervan Corporation
shall, except with the prior written consent of AC (which consent may be
withheld in AC's sole discretion), offer employment to or employ any person
employed by AC who has been assigned work under this Agreement within one
(1) year preceding Client's hire date of the Employee.
4.3 USE OF PREMISES
In order for AC to perform its services hereunder, Client hereby
grants to AC the unlimited right of usage and access, twenty-four (24)
hours per day, 365 (or 366) days per year, throughout the Term, of and to
the portion of the Data Center indicated on Schedule 4.3 hereto consisting
of approximately 5,175 square feet (the "Space"), and all related utilities
and services; such rights shall be primary to AC as to the "AC" space and
joint with Client as to the "Joint" space indicated on said Schedule.
Nothing herein shall be deemed to construe the relationship of Client and
AC as that of landlord and tenant, or sublandlord and subtenant, nor shall
AC's right to use the Space for the purposes specified herein be deemed a
lease or sublease or confer upon AC any rights, statutory or otherwise, of
a tenant or subtenant. AC has reviewed and is familiar with the terms of
the Data Center Lease. AC's use of the Space shall be subject and
subordinate to the Data Center Lease in all respects. AC shall not cause,
permit or suffer to exist any act or omission that would constitute a
default under the Data Center Lease. AC shall have no right to perform any
alterations to the Space or to assign its right to use the Space or sublet
or permit the use or occupancy of the Space by anyone other than AC and its
employees and employees of Client during the term of this Agreement.
Client shall also provide AC, at no additional charge, with appropriate
equipment, facilities and other resources such as furniture, office
supplies, facsimile service, duplication service, telecommunication
-13-
<PAGE>
services (including voice mail), clerical support, postage facilities,
overnight delivery services, computer resources, workstation equipment, and
access to software tools. The parties acknowledge and agree that the
details of these other resources to be made available, shall be subject to
negotiations, which shall be conducted promptly and in good faith by the
parties, and to the consent of Client's landlord; the parties shall use
commercially reasonable efforts to reach agreement on these matters, and to
obtain the consent of Client's landlord to the rights of access and usage
described in this Section 4.3, by not later than May 31, 1994. AC
acknowledges that Client's lease for its present facility may expire before
the end of the Term, and in such event AC shall relocate to Client's new
facility provided that (a) AC has been given at least six (6) months' prior
notice of the required move, (b) AC is given the same rights as given above
in this Section 4.3 regarding space in the new facility that is of
substantially the same area, and suitability for AC's purposes hereunder,
as that covered by the area described in this Section 4.3, and (c) Client
pays or reimburses all of AC's costs of removing the New System, moving it,
and re-installing it in the new facility.
5.0 TERM
5.1 INITIAL TERM
This Agreement shall become effective on the Effective Date and shall
expire on June 30, 2001 (the "Initial Term"), subject to early termination
pursuant to Article 13.0 hereof or renewal pursuant to Section 5.2 hereof.
5.2 ADDITIONAL TERM
The term of this Agreement shall be deemed extended: (i) for an
additional term of three (3) years ("Additional Term"), after expiration of
the Initial Term, unless either party, before December 31, 2000, shall have
delivered notice to the other party of its election to terminate this
Agreement, and if so extended, (ii) thereafter for a maximum of three (3)
additional one-year terms ("Additional Terms"), unless either party, before
December 31 of the particular Additional Term, shall have delivered notice
to the other party of its intention to terminate this Agreement.
5.3 TERM
For purposes of this Agreement, the word "Term" shall mean the
combination of the Initial Term and the Additional Term or Terms, if any.
6.0 PROPRIETARY RIGHTS
6.1 CURRENT SYSTEMS
Client grants to AC, at no charge to AC, the unrestricted, exclusive
(effective as of the Management Cutover Date) right to use the Current
-14-
<PAGE>
System for the purpose of providing the System Management Services to
Client as contemplated by this Agreement, subject to its continuing usage
by Client's employees under AC's management, subject to Client's right to
utilize the output and benefits of the Current System in the course of its
business, and subject further to any rights of Client to engage third
parties pursuant to Sections 3.4 or 3.5 of this Agreement. Client shall
use commercially reasonable efforts to obtain any Required Consents from
third parties necessary for AC to provide such services. If the Required
Consents cannot be obtained for AC to provide such System Management
Services, or if such a Consent is given but any issue with regard thereto
shall subsequently arise, then AC and Client shall work together to achieve
an alternate solution pursuant to Article 12.0 hereof. In the event that
either party believes that it is necessary to acquire and implement any
substitute system(s), the decision to do so and the costs of such system(s)
will be handled in accordance with the Change Control Process established
in Section 3.5 of this Agreement.
6.2 NEW SYSTEM
The components of the New System shall be and remain the property of
the respective parties that obtained such components. However, AC shall
have the unrestricted, exclusive right to use the New System to provide the
System Operation Services for Client as contemplated by this Agreement, all
subject to Client's right to utilize the output and benefits of the New
System in the course of its business, and subject to any rights of Client
to engage third parties pursuant to Sections 3.4 or 3.5 of this Agreement.
7.0 SAFEGUARDING THE CLIENT DATA, CONFIDENTIALITY, SECURITY, DISCOVERY
7.1 CLIENT DATA
The data of Client provided to AC for processing under this Agreement
shall be and remain the property of Client. Upon the termination of this
Agreement for any reason or, with respect to any particular data, on such
date as the same shall no longer be required by AC in order to provide the
System Operation Services, such Client data shall be returned to Client by
AC at AC's expense, if Client delivers to AC a written request for such
return within thirty (30) days after termination; if not, such data shall
be erased. The data of Client shall not be used by AC for any purpose
other than that of providing System Operation Services, nor shall such data
or any part of such data be disclosed, sold, assigned, leased or otherwise
disposed of to third parties by AC or commercially exploited by or on
behalf of AC, its employees or agents.
7.2 SAFEGUARDING CLIENT DATA
AC will establish and maintain safeguards against the destruction,
loss or alteration of the data of Client in the possession of AC that are
consistent with commercially reasonable standards as customarily used by AC
-15-
<PAGE>
and at least comparable to Client's current standards. In the event that
additional safeguards for such data are reasonably requested by Client, AC
shall provide such additional safeguards, and Client shall reimburse AC for
AC's costs in providing such additional safeguards.
7.3 CONFIDENTIALITY
AC and Client each acknowledge and agree that, in the course of this
Agreement, they will have access to and/or be in possession of confidential
information of the other. "Confidential Information" means information
regarded and maintained by that party as confidential, including
information relating to its past, present or future research, development
or business affairs and other proprietary products, materials or
methodologies. Each party shall hold in confidence, in the same manner as
it holds its own Confidential Information of like kind, all Confidential
Information of the other to which it may have access herein. Access to
Confidential Information shall be restricted to those of the party's
personnel and agents with a need to know and a legal duty to protect the
Confidential Information (including the retention, subject to the terms of
this Section 7.3, of copies of the Confidential Information required for
compliance with its quality management requirements). The foregoing shall
not prohibit or limit either party's use of Confidential Information
(including, but not limited to, ideas, concepts, know-how, techniques and
methodologies): (a) previously known to it, (b) independently developed by
it, (c) acquired by it from a third party not known by the acquiring party
to be under a legally enforceable obligation of confidentiality to the
other party hereto, or (d) which is, or becomes, publicly available through
no breach of this Agreement, nor shall it prohibit disclosure as may be
required by law or disclosure to a party's attorneys, accountants and other
professional advisors.
7.4 SECURITY AT DATA CENTERS
AC will perform security procedures that are consistent with
commercially reasonable standards as customarily used by AC, at any place
where System Operation Services are performed by AC for Client. Such
procedures at the Data Center shall be consistent with those currently in
place. In the event that additional security procedures are reasonably
requested by Client for any location where AC is providing services to
Client, AC shall perform such additional security procedures, and Client
shall reimburse AC for AC's costs in providing such additional safeguards.
AC personnel shall comply with the reasonable rules of Client (which shall
not unreasonably impede AC in the performance of its obligations under this
Agreement) with respect to access to Client offices, the Client's data and
data files.
-16-
<PAGE>
7.5 THIRD PARTY DISCOVERY
If any governmental agency or any third party shall in any way seek
discovery of, access to, or production of ("Discovery"), any Software, any
Confidential Information or any other data or records of one party that may
be in the possession of the other party, the other party shall immediately
notify the first party and shall, at the first party's written request and
at the first party's expense, oppose such Discovery (unless in the opinion
of counsel for the other party there is no reasonable basis for opposing
discovery), and cooperate with the first party in the first party's efforts
to preclude, quash, limit or impose protective orders or similar
restrictions on such Discovery.
8.0 PAYMENTS
8.1 MONTHLY BASE CHARGE
For all of the System Services to be provided by AC to Client during
the term of this Agreement, and separate from and in addition to the
amounts payable to AC pursuant to the Base Software License referred to in
Section 3.3.1 hereof, Client shall pay to AC a monthly base charge in
accordance with Schedule 8.1 hereto (the "Monthly Base Charge").
8.2 CHARGES FOR SPECIAL SERVICES AND CHANGES
Client shall also pay AC for all Special Services and Changes
provided or implemented by AC, in accordance with the amounts agreed upon
in writing by the parties; provided, however, that any Special Services,
Changes or Maintenance necessitated by any incorrect or incomplete
Applicable Specification generated by Client or based upon incorrect or
incomplete information furnished by Client or resulting from an omission by
Client, shall be paid for by Client at AC's then current rates.
8.3 OUT-OF-POCKET EXPENSES
Client shall also pay, or reimburse AC for, all reasonable,
documented, out-of-pocket expenses, including, but not limited to, coach-
class airfare, lodging, ground transportation and per diem expenses
incurred by AC in connection with AC's performance of this Agreement;
provided, however, that it is understood that AC's services hereunder will
be performed primarily from the Data Center or by Grand Rapids-based
personnel. All travel will be performed according to AC's travel
guidelines. As part of the annual budgeting process, AC will estimate for
Client the anticipated out-of-pocket expenses for each of Client's fiscal
quarters; estimated expenses for the four quarters starting on July 1,
1994, have been included in Schedule 8.1 hereto.
-17-
<PAGE>
8.4 RERUNS
To the extent AC cannot, without incurring additional costs, provide
reruns by using employees dedicated to performing services to Client during
the normal working day, Client shall also pay the reasonable charges of AC:
(i) for reruns necessitated by incorrect or incomplete data or erroneous
instructions supplied to AC by Client; (ii) to reject incorrect reports
within the time frames specified in the Service Levels; and, to the extent
they interfere with AC's performance hereunder, (iii) for the correction of
programming, operator and other processing errors caused by Client, its
employees or agents.
8.5 TIME AND MANNER OF PAYMENT
Client will pay AC, by check: (i) the Monthly Base Charge for each
month, on or before the tenth day of such month; and (ii) any charges for
Special Services, and other amounts charged to Client pursuant to any other
provision of this Agreement, on or before the tenth day after delivery to
Client of any invoice from AC for such charges. Any sum due by either
party to the other party, for which a time for payment is not otherwise
specified, shall be due and payable within ten (10) days after delivery of
an invoice therefor. Any sum due by either party to the other party, that
is not paid within ten (10) days of delivery of the invoice shall accrue
interest until paid at a rate of interest equal to one percent (1.0%) per
month, or the maximum rate of interest allowed by applicable law, if less.
8.6 DISPUTED AMOUNTS
In the event of any dispute with respect to the amount of an invoice,
the parties shall cooperate in good faith to resolve such disputed amount
pursuant to the provisions of Article 12.0 hereof. In the event the
parties determine an overpayment was made by Client, AC shall credit to the
next invoice the amount of such overpayment, plus interest at one percent
(1.0%) per month. In the event the parties determine an underpayment was
made by Client, Client shall pay AC the amount of such underpayment, plus
interest from the date of the invoice at one percent (1.0%) per month. No
party shall be deemed in default hereunder for failure to pay an invoice
that it has reasonably disputed in good faith, provided that: (i) it has
delivered to the other party, within ten (10) days after delivery to the
disputing party of the invoice, a written notice specifying the amounts
disputed and the reasons for the dispute, (ii) it has paid, when due in
accordance with Section 8.5 hereof, the undisputed portion (if any) of the
invoice, and (iii) the disputed amount (plus applicable interest, but net
of any adjustments to which the parties may by then have agreed) has been
paid in full within sixty (60) days after the delivery of the invoice to
the disputing party. A party shall be deemed in default if, and as soon
as, it has failed to fulfill any one or more of the conditions set forth in
the preceding sentence as to any one or more invoices, and shall remain in
-18-
<PAGE>
default until it has paid in full such invoice or invoices (including
applicable interest, but net of any adjustments to which the parties shall
have agreed).
8.7 TAXES
Client shall pay or reimburse AC for any amount equal to any and
all applicable taxes, however designated, incurred as a result of or
otherwise in connection with this Agreement or any of the services
described herein including, without limitation, state and local privilege,
excise, sales and use taxes, and any taxes or amounts in lieu thereof, paid
or payable by AC, but excluding payroll taxes and the Michigan "single-
business tax" and taxes based solely upon the net income of AC.
8.8 VERIFICATION OF INFORMATION
The charges set forth in this Agreement are based upon information
furnished by Client to AC but not independently verified by AC. Client
represents to AC that such information, particularly as it relates to
costs, is accurate and contains no material errors or omissions.
Accordingly, if any such information should prove to contain any material
error or omission that has the effect of leading AC to underestimate or
overestimate its costs of providing the System Services, the amounts to be
charged hereunder to Client shall be adjusted appropriately so as to
compensate for such error or omission.
8.9 PRORATION
All periodic charges under this Agreement are to be computed on a
calendar month basis, and will be prorated for any partial month.
8.10 RIGHTS OF SET-OFF
With respect to any amount to be paid or reimbursed to a party ("first
party") or otherwise payable to first party by the other party ("second
party") pursuant to this Agreement, including any damages to which the
first party may be entitled due to the second party's breach hereof, second
party may, at its option, pay that amount by giving first party a credit
against the charges otherwise payable, in the order in which such charges
come due, to second party under this Agreement, and in the case of such
damages, the first party may offset the amount of such damages against any
payment that would otherwise be due to the second party hereunder.
9.0 REPRESENTATIONS AND WARRANTIES
9.1 BY CLIENT
The Zondervan Corporation represents, warrants and promises to AC as
follows:
-19-
<PAGE>
9.1.1 INCORPORATION, POWERS
The Zondervan Corporation: (a) is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Michigan and (b) has full corporate power to own, lease, and operate its
properties and assets, to conduct its business as that business is
currently being conducted, and to consummate the transactions contemplated
by this Agreement to be consummated by Client.
9.1.2 AUTHORITY, ENFORCEABILITY
This Agreement has been duly authorized, executed and delivered by The
Zondervan Corporation and constitutes a valid and binding agreement of The
Zondervan Corporation, enforceable against it in accordance with this
Agreement's terms, subject to the effect of bankruptcy, insolvency,
moratorium and other laws now or hereafter in effect relating to and
affecting the rights of creditors generally and to equitable principles of
general application.
9.1.3 NO CONFLICTS
Neither the execution nor delivery by The Zondervan Corporation of
this Agreement, nor the consummation by it of any of the transactions
contemplated by this Agreement, will result in the breach of any term or
provisions of, or constitute a default under, any charter provision or
bylaw, or material agreement (subject to any applicable Required Consent),
order law, rule or regulation to which it is a party or that is otherwise
applicable to it.
9.1.4 LABOR MATTERS
The Zondervan Corporation is not a party to or subject to any
collective bargaining agreement, its employees are not represented by or
claimed to be represented by any labor union or labor organization, and
there is no unfair labor practice complaint pending or, to the knowledge of
Client, threatened against it before any federal or state agency or board
or tribunal or governmental entity.
9.1.5 EMPLOYEE PLANS
True and complete copies of summary plan descriptions of all written
Employee Plans maintained or contributed to by The Zondervan Corporation
for the benefit of any of the Current Employees have been delivered by
Client to AC. There have been no prohibited transactions or other breaches
or violations of any law applicable to the Employee Plans that would
subject AC to any liability. No condition exists that will subject AC or
any of its employees to any material excise tax, penalty tax, fine, or any
other liability related to any Employee Plan. There are no agreements that
-20-
<PAGE>
will provide payments to any officer, employee, shareholder or highly
compensated individual which will be "parachute payments" under Section
280G of the Internal Revenue Code that are nondeductible to Client or
subject to tax under Section 4999 of the Internal Revenue Code for which AC
would have any withholding liability.
9.1.6 RIGHT TO USE SYSTEMS
To Client's knowledge after reasonable investigation, and subject to
receipt of any applicable Required Consents and government filings, AC will
obtain on the Effective Date the right to manage the operation and
maintenance of the Current System to perform the System Services, as
contemplated by this Agreement.
9.2 BY AC
AC represents, warrants and promises to Client as follows:
9.2.1 ORGANIZATION, POWERS
AC is an Illinois general partnership, validly existing and in good
standing under the laws of the State of Illinois, and has full power to
own, lease, and operate its properties and assets, to conduct its business
as that business is currently being conducted, and to consummate the
transactions contemplated by this Agreement to be consummated by AC.
9.2.2 AUTHORITY, ENFORCEABILITY
This Agreement has been duly authorized, executed and delivered by it
and constitutes a valid and binding agreement of it, enforceable against it
in accordance with this Agreement's terms, subject to the effect of
bankruptcy, insolvency, moratorium and other laws now or hereafter in
effect relating to and affecting the rights of creditors generally and to
equitable principles of general application.
9.2.3 NO CONFLICTS
Neither the execution nor delivery by it of this Agreement, nor the
consummation by it of any of the transactions contemplated by this
Agreement, will result in the breach of any term or provision of, or
constitute a default under, any charter provision or bylaw, or material
agreement (subject to any applicable Required Consent), order, law, rule or
regulation to which it is a party or which is otherwise applicable to it.
9.2.4 STANDARDS
The System Services will be diligently performed in a good,
workmanlike and timely manner in conformity with the Service Levels and to
-21-
<PAGE>
the other applicable schedules and provisions of this Agreement (as amended
from time to time to reflect Changes and other mutually-agreed provisions)
and consistently with professional standards; provided, however, that AC's
use of any of Client's employees to perform System Operation Services until
the System Cutover Date shall not in and of itself constitute a breach of
this warranty.
9.2.5 RIGHT TO USE SYSTEMS
From and after the System Cutover Date, AC will have the right to
manage, operate and maintain the New System to perform the System Services,
as contemplated by this Agreement.
9.2.6 DISCLAIMER OF WARRANTIES
This is a license and services agreement. ACCORDINGLY, EXCEPT AS
SPECIFIED IN SECTION 9.2.4 ABOVE, AC MAKES NO WARRANTIES OR GUARANTEES,
EXPRESS OR IMPLIED, FROM A COURSE OF PERFORMANCE OR DEALING OR TRADE USAGE,
(A) ABOUT SERVICES OR OTHER DELIVERABLES, OR (B) OF UNINTERRUPTED OPERATION
WITHOUT ERROR. THERE ARE NO IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
10.0 RELATIONSHIP MANAGEMENT
10.1 LIAISON DIRECTORS
Each party shall appoint a "Liaison Director" by May 31, 1994, subject
to the approval of the other party (which approval shall not be
unreasonably withheld).
10.1.1 CLIENT'S LIAISON DIRECTOR
The primary responsibility of the Client's Liaison Director shall be
the following:
a) preparation and monitoring of Client's MIS budget;
b) communicating Client needs and requirements;
c) monitoring Client's performance of its responsibilities;
d) assisting in development of operations procedures;
e) reviewing of AC invoices;
f) assistance in preparing for monthly Management Steering Committee
meetings; and
-22-
<PAGE>
g) assistance in preparing for quarterly Joint Executive Oversight
Committee meetings;
10.1.2 AC'S LIAISON DIRECTOR
The primary responsibilities of AC's Liaison Director shall be the
following:
a) directing of performance of AC responsibilities;
b) reporting AC performance;
c) development and maintenance operations procedures;
d) preparation of annual System Operation Services report;
e) participation in Client's annual planning process to forecast
growth and new requirements;
f) preparation of documents for the Joint Executive Oversight
Committee quarterly meetings; and
g) preparation for AC's semi-annual quality management assessments.
10.2 JOINT EXECUTIVE OVERSIGHT COMMITTEE
10.2.1 STRUCTURE OF COMMITTEE
Client and AC shall each appoint an equal number of representatives,
not to exceed three (3) persons each, to a Joint Executive Oversight
Committee. The primary responsibility of this Committee is to manage the
human resources and technology assets appropriately to match Client's
business needs. The Committee shall be composed of Client and AC
executives, and shall meet at regularly scheduled quarterly meetings
throughout the year, and more frequently as the parties may wish. AC shall
have responsibility for coordination and scheduling of meetings and for
meeting materials. Initially, the Committee will be composed of the
following individuals:
Leslie Dietzman (Co-Chairman of Committee);
Richard Butler;
Neil Topham;
Jeffrey R. Smith (Co-Chairman of Committee);
Donald P. Wingard; and
Steven W. Louis.
10.2.2 SPECIFIC ACTIVITIES OF COMMITTEE
The Committee shall engage in the following specific activities:
-23-
<PAGE>
a) review and approve annual plans and budgets for Changes;
b) review Family business plans and activities and assess possible
amendments to this Agreement;
c) review and approve significant changes in MIS policies and
procedures;
d) receive status reports and make decisions on other management
issues;
e) review performance of each party's responsibilities;
f) review and approve recommendations for Changes to System Services
or Special Services;
g) review and respond to recommendations of Client's systems-auditor;
h) attempt to resolve disputes, disagreements and Problems,
including designation of individuals to resolve disputes or
disagreements;
i) participation in the semi-annual AC quality management process;
j) general oversight of the Agreement; and
k) such other duties as delegated from time to time by Client and AC
to the Committee.
Committee membership will be reviewed yearly, and each party may
propose changes in its representatives from time to time, based upon
changes in responsibilities or business needs.
10.3 MANAGEMENT STEERING COMMITTEE
The Management Steering Committee shall be composed of management
representatives from AC and Client. The primary responsibilities of the
Management Steering Committee are to foster cooperation and assist with
effective communication between Client's corporate functions and field
operations, and the MIS department; to support development of technology
plans; promote technology deployment among the various organizational units
within Client; to take responsibility for annual technology plan updates
(using the Phase 1 Information Technology Strategy developed in 1993 as a
working document); to provide adequate user resource participation on
projects and other initiatives; and to consider Changes proposed by either
party. The Management Steering Committee shall meet monthly and shall
engage in the following specific activities:
a) approve the initiative of major projects;
-24-
<PAGE>
b) resolve cross-functional user issues;
c) establish application and project priorities and resolve
conflicts based upon costs, business benefits and project time
frames;
d) review the status of key projects;
e) review the plans for the upcoming month;
f) agree upon and monitor the key performance indicators established
for the arrangement; and
g) organize and implement subcommittees or other action groups
required to fulfill committee responsibilities.
Initially, the Management Steering Committee shall be composed of the
following individuals:
Leslie Dietzman (Co-Chairman of Committee);
Richard Butler;
Craig Klamer;
Dennis Wade;
Hal Bailey;
Jeffrey R. Smith (Co-Chairman of Committee);
John E. Fite;
Michael Gelaude;
Robert Szambelan; and
Steven W. Louis.
10.4 CROSS-PARTICIPATION
AC participants will require access to and/or participation in
committees, projects and management meetings associated with the roles and
responsibilities in which they are functioning and consistent with Client's
practices. However, AC will only participate by invitation of Client in
the monthly Client Information Services management meeting as a technology
representative for Family to the staff of the Vice President of Information
Systems for Client. In this way, AC will serve Family by providing monthly
status reports to the Client MIS community, and staying informed about
directions, plans and issues with potential impact on Family.
10.5 ACTIONS
Any action taken by the Joint Executive Oversight Committee or the
Management Steering Committee shall require the mutual consent of both
parties, evidenced by the written consent of the Co-Chairmen of the
respective parties.
-25-
<PAGE>
11.0 FURTHER MATTERS TO BE RESOLVED
The parties agree to negotiate in good faith and use commercially
reasonable efforts to accomplish the following, as soon as reasonably
possible:
11.1 CONFIGURATION OF NEW SYSTEM
The execution by the parties of a mutually acceptable, revised, final
version of Schedule 3.1.1 hereto, setting forth a detailed listing of all
Hardware and Software to be acquired or developed by, or leased or licensed
to, AC and to become the components of the New System.
11.2 SYSTEM OPERATING SERVICES
The execution by the parties of a mutually acceptable, revised, final
version of Schedule 3.3.2 hereto, setting forth a detailed description of
the nature and scope of the services that, from and after the System
Cutover Date, are to constitute the System Operating Services.
11.3 SERVICE LEVELS
The execution by the parties of a mutually acceptable, revised, final
version of Schedule 3.3.3 hereto, setting forth a detailed specification of
the Service Levels to be applicable from and after the System Cutover Date.
11.4 REQUIRED CONSENTS
The obtaining by Client of all of the Required Consents.
11.5 ACCESS, RESOURCES
Provisions for the furnishing of other resources as contemplated by
Section 4.3.
12.0 DISPUTE PREVENTION AND RESOLUTION
12.1 PROBLEMS
A "Problem," as that term is used herein, shall mean any problem or
circumstance (other than a matter involving the provisions of Articles 6.0
or 7.0 hereof) that consists of or results from: (i) an alleged failure by
either party to perform its obligations under this Agreement (other than a
failure to pay an undisputed invoice), (ii) the alleged inadequacy of
either party's performance, (iii) a request for products, services or
resources where the parties disagree whether such products, services or
resources are within the scope of this Agreement, (iv) any dispute
regarding the correct meaning of interpretation of this Agreement, or (v)
any event described in Section 16.11 (Force Majeure).
-26-
<PAGE>
12.2 PROBLEM RESOLUTION
If a Problem arises, the complaining party shall promptly notify the
other party of such Problem, including a detailed description of the
circumstances relating to that Problem and (if available) reasonable
documentation of the existence of the Problem. The parties shall discuss
and make an effort to resolve such Problem prior to the next Joint
Executive Oversight Committee meeting, by following, if applicable, any
incident-management provisions of the relevant Schedules hereto and, if
that fails, by referring the matter to the Joint Executive Oversight
Committee. If an authorized representative of each party shall have
executed a "Problem Report" describing the agreed upon solution to the
Problem, each party shall begin performance in accordance with such Problem
Report. At any time, a party may refer a Problem to the Joint Executive
Oversight Committee for resolution.
12.3 MEDIATION
The parties agree to attempt to resolve any Problem not resolved
pursuant to procedures described in Section 12.2 hereof, by non-binding
mediation prior to litigation. Unless otherwise agreed in writing, the
following procedures will apply to any mediation. The mediation will be
commenced by notifying the other party in writing to both its Liaison and
its Legal Department of its demand for mediation and its mediator, and
demanding that the other party select its mediator. The proceeding shall
be held by a panel of three mediators, one selected by each party and a
third appointed by the two so chosen (and if no such third in fourteen (14)
days after the notice is served then per the rules of the American
Arbitration Association ("AAA"). The mediators may only be persons who
have held management positions in companies engaged in, and who
individually have been responsible for, maintenance and use of mainframe
computer package and custom business software applications and systems for
at least eight of the last ten years, but who have not had in the last ten
years any employment, investment, personal or other relationship with
either party or their attorneys or certified public accountants. The
mediation will be conducted per the AAA Commercial Dispute rules and be
held in a mutually agreed-upon location. The mediators will decide whether
or not the formal rules of evidence and discovery procedures will be used.
The initiation and outcome of the proceeding will be maintained
confidential by both parties and their representatives.
12.4 TIMING
The parties mutually consent and agree to use their best efforts to
bring about an expeditious conclusion and resolution of all Problems
pursuant to the foregoing procedures. If Client shall assert that there is
a Problem consisting of a breach or default hereunder by AC that Client
believes in good faith to be causing a material disruption or breakdown in
-27-
<PAGE>
Client's business ("Major Problem"), then the parties shall attempt to
resolve and cure the Problem within thirty (30) days.
13.0 TERMINATION
13.1 TERMINATION FOR CAUSE
The non-defaulting party may end the Term of this Agreement
immediately, by delivering written notice to the other party of such
termination, if:
13.1.1 NON-PAYMENT
Either party fails to pay in full any invoice when due hereunder and:
(i) if the invoice was not properly and timely disputed in accordance with
Section 8.6 hereof, such party fails to pay in full such invoice within
twenty (20) days after the delivery to it by the non-defaulting party of
written notice of non-payment; or, (ii) if all or any portion of such
invoice was properly and timely disputed by the recipient party, such
recipient party is deemed to be in default under the provisions of Section
8.6 hereof; or
13.1.2 PROPRIETARY RIGHTS, SECURITY MATTERS
Either party breaches any of its obligations under Article 6.0 or
Article 7.0 of this Agreement and fails to cure such breach within five (5)
days after the delivery to it by the non-defaulting party of written notice
that the breach has occurred; or
13.1.3 OTHER OBLIGATIONS
Either party fails, neglects or refuses to duly observe or perform any
material obligation, covenant or condition under this Agreement other than
those described in Sections 13.1.1 or 13.1.2 hereof and fails to cure such
default by 5:00 p.m, local time, on whichever is applicable of the
following: (i) in the case of a Major Problem, the 30th day after delivery
to the defaulting party by the non-defaulting party of notice of the
existence of the Problem, in accordance with Article 12.0 hereof, or (ii)
in the case of any Problem that is not a Major Problem, the 60th day after
delivery to the defaulting party by the non-defaulting party of notice of
the existence of the Problem, in accordance with Article 12.0 hereof.
13.1.4 BREACH OF BASE SOFTWARE LICENSE
The Base Software License described in Section 3.3.1 hereof is
terminated on account of a breach or default thereunder by Client.
-28-
<PAGE>
13.2 TERMINATION FOR CONVENIENCE
Client may end the Term of this Agreement for any reason (other than
pursuant to the other provisions of this Article 13.0) by delivering to AC
ninety (90) days' advance notice of termination, delivered no earlier than
the third anniversary of the Effective Date.
13.3 TERMINATION FOR CONDITIONS NOT FULFILLED
Either party may end the Term of this Agreement by giving written
notice to the other at any time after (i) May 31, 1994, in the case of the
Required Consents referred to in clauses (i) and (ii) of Section 2.21
hereof, or (ii) March 1, 1995, in the case of the Required Consents
referred to in clause (iii) of Section 2.21 hereof, if (in the event AC is
the party effecting termination) by the time of its giving such notice
Client, having received at least thirty (30) days' prior notice of AC's
intention to terminate if the Required Consents are not obtained, shall
have failed to obtain the Required Consents and shall have failed to make
alternative arrangements satisfactory to AC.
13.4 TERMINATION FOR INSOLVENCY
Either party shall have the right to end the Term of this Agreement
immediately by delivery of notice to the other party if such other party:
becomes insolvent or generally fails to pay, or admits in writing its
inability to pay, debts as they become due; or applies for, consents to, or
acquiesces in the appointment of, a trustee, receiver or other custodian
for such party, or its property, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for such
party or for a substantial part of its property and is not discharged
within sixty (60) days; or any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding in respect of such party,
and if such case or proceeding is not commenced by such party, consented to
or acquiesced in by such party or remains for sixty (60) days undismissed;
or such party takes any action to authorize, or in furtherance of, any of
the foregoing.
13.5 TERMINATION RESULTING FROM A CHANGE IN CONTROL
If there is a material change in the ownership or management control
of The Zondervan Corporation or of Family or the assets of Family that
could have the effect of making the continued performance of this Agreement
by AC in violation of any applicable law, regulation or accounting rule or
standard, AC may end the Term of this Agreement by giving Client at least
sixty (60) days' advance notice of termination.
-29-
<PAGE>
13.6 TERMINATION FOR NON-ACCEPTANCE OF SYSTEM
Notwithstanding any requirement of notice set forth elsewhere in this
Article 13.0, the Term of this Agreement shall end, without any notice or
other action by either party, as of July 1, 1995, unless Client, on or
before July 1, 1995 (or at or before the end of any applicable cure-period
with respect to any Problem as to which notice of the existence of the
Problem was delivered to AC on or before July 1, 1995), shall have executed
and delivered to AC a written "System Acceptance" stating that Client has
accepted the New System (including the Base Software) and has waived and
released any and all claims that AC may have failed in any way to perform
and discharge any of its material obligations, covenants and conditions set
forth in Section 3.1 of this Agreement.
13.7 AC'S OBLIGATIONS UPON TERMINATION
Upon the ending or expiration of the Term, and in addition to any
other remedies available to either party at law, in equity, by statute, or
otherwise:
13.7.1 CLIENT DATA
AC shall deliver to Client all copies of Client data in AC's
possession upon termination.
13.7.2 SOFTWARE LICENSES
Subject to any rights of repossession of, or deprivation of Client of
the use of, the Base Software to which AC (or its assignee) may be entitled
under the terms of the Base Software License, (i) AC shall assign to Client
the JDA License and all other third-party licenses or sublicenses for any
of the Base Software, and Client shall assume and perform all of AC's
obligations thereunder arising after the date of the assignment and defend
and indemnify AC with regard thereto, and (ii) AC shall grant to Client a
non-exclusive licenses to all of the other Base Software, which assignment,
assumption and grant (A) shall take effect automatically (i.e., as to the
JDA license, within thirty (30) days after JDA's receipt of notice from
either AC or Client, as specified in Section 4 of Exhibit 2 of the JDA
License) and with no further action by either party (other than such prior
notice to JDA) simultaneously with the ending of the Term, and (B) which
assignment and grant shall be on the same terms and conditions as the Base
Software License, except that it shall be for a term that shall expire on
June 30, 2024.
13.7.3 TERMINATION ASSISTANCE
AC shall provide Client with termination assistance and a reasonable
amount of advice and training to persons designated by Client to render
comparable System Operation Services.
-30-
<PAGE>
13.7.4 THIRD PARTY NOTICES
AC shall assist Client in notification of all third-party vendors,
with Client paying any fees associated with the transfer to Client or its
designated agent.
13.8 CLIENT'S OBLIGATIONS UPON TERMINATION
Upon the ending or expiration of the Term, and in addition to any
other remedies available to either party at law, in equity, by statute, or
otherwise:
13.8.1 MEDIA AND EQUIPMENT USAGE
Client shall reimburse AC for the cost of any tapes, diskettes and
other data-storage media requested by Client.
13.8.2 COSTS
Unless termination is pursuant to Section 13.5 (regarding changes in
control), Client shall reimburse AC for all additional expenses incurred by
AC as a result of the termination, including, without limitation, (i) all
demobilization expenses of AC and AC's Subcontractors, including reasonable
and customary severance payments and benefits for employees terminated on
account of termination of the Agreement; (ii) all penalties incurred by AC
for early termination of any lease for equipment or facilities that AC
leased in connection with its performance under this Agreement, based upon
the expectation of completion of the Term, and other costs related thereto;
and (iii) all penalties incurred by AC for early termination of any
Software License entered into by AC based upon the expectation of
completion of the Term, and other costs related thereto; provided, however,
that Client's obligation to make payment of such reimbursement (A) shall be
subject, at the time of such payment and thereafter, to any damages to
which Client may be entitled under the terms of this Agreement and to any
right of set-off to which it may be entitled with respect to such damages
and (B) shall not constitute a determination as to the ultimate liability
of Client with respect to such payment or the amount thereof or of AC's
entitlement to receive or retain such amount. Client's rights under clause
(A) above shall include, without limitation, Client's rights to claim as
damages its liability to AC for the payment by Client of the amount set
forth in this Section 13.8.2 if the term of this Agreement is ended as a
result of any breach or default by AC hereunder (subject to the provisions
and limitations of Article 14.0 hereof) and any right of set-off to which
it may be entitled with respect to such damages.
13.8.3 LICENSE TERMINATION FEE
In the event that the Term of this Agreement is ended as of July 1,
1995 pursuant to the provisions of Section 13.6 hereof, or on or before
-31-
<PAGE>
July 1, 1995, pursuant to any other provision of this Article 13.0, then
regardless of which party has given the notice of termination and
regardless of the reason why it was terminated, Client shall immediately
pay to AC an amount determined in accordance with the provisions of
Schedule 13.8.3 hereto (less any amounts that may have been paid by then by
Client under said Base Software License), based upon the date on which the
Term shall have ended; provided that Client's obligation to make such
payment (i) shall be subject, at the time of such payment and thereafter,
to any damages to which Client may be entitled under the terms of this
Agreement and to any right of set-off to which it may be entitled with
respect to such damages and (ii) shall not constitute a determination as to
the ultimate liability of Client with respect to such payment or the amount
thereof or of AC's entitlement to receive and retain such amount. Client's
rights under clause (i) above shall include, without limitation, Client's
rights to claim as damages its liability to AC for the payment by Client of
the amount set forth on Schedule 13.8.3 if the term of this Agreement is
ended as a result of any breach or default by AC hereunder (subject to the
provisions and limitations of Article 14.0 hereof), and any right of set-
off to which it may be entitled with respect to such damages.
13.9 TERMINATION ASSISTANCE AFTER TERMINATION DATE
13.9.1 TRANSITION SERVICES
Provided that termination of this Agreement was not by AC pursuant to
Sections 13.1, 13.3 or 13.4, nor by Client pursuant to Section 13.2, AC
shall provide Client reasonable assistance to provide an orderly transition
of System Operation Services to Client or its representatives or agents.
This assistance shall be provided for a period of six (6) months following
termination date unless mutually agreed otherwise.
13.9.2 COST
Client shall pay AC for transition assistance services performed after
the termination date at the rates provided for herein for services of that
type, if applicable, or if rates for such services are not provided for
herein, then at AC's normal rates then in effect for clients similar to
Client, and shall reimburse AC for reasonable out-of-pocket costs and
expenses.
14.0 REMEDIES
14.1 MEASURE OF DAMAGES
The measure of damages recoverable from one party by the other for any
reason, whether arising by negligence, intended conduct or otherwise, shall
not include any amounts for indirect, special, consequential, incidental,
or punitive damages or expenses of any party (including lost profits or
-32-
<PAGE>
savings), including third parties, even if such damages are foreseeable.
Further, AC shall have no liability for damages that could have been
avoided had Client exercised reasonable efforts to verify the data
furnished by AC before utilization of such data.
14.2 LIMITATION OF DAMAGES
The limit of AC's liability (whether in contract, tort, negligence,
strict liability in tort or by statute or otherwise) to Client or to any
third party concerning performance or non-performance by AC, or in any
manner related to this Agreement, for any and all claims shall not in the
aggregate exceed the sum of: (i) the fees and expenses paid by Client to AC
for AC's services hereunder; plus (ii) the amounts paid by Client under the
Base Software License described in Section 3.3.1 hereof, provided, however,
that these limitations shall not apply to personal injury caused by the
gross negligence or willful misconduct of AC's employees or agents and not
consisting of the loss of anticipated benefits under this Agreement.
14.3 LIMITATION PERIOD
Any action by either party based upon any claim or breach or default
of any provision of this Agreement must be brought within two (2) years
after the cause of action arose.
14.4 BARGAINED-FOR EXCHANGE
The allocations of liability in this Article 14.0 represent the agreed
and bargained-for understanding of the parties, and AC's compensation under
Article 8.0 hereof reflects such allocations.
14.5 OTHER REMEDIES
Notwithstanding anything to the contrary contained in Articles 12.0 or
13.0 or in any other provision of this Agreement, either party, in the
event of a breach or default by the other party of any of the provisions of
Articles 6.0 or 7.0 of this Agreement, shall have the right, in addition to
any other remedies that might be available to it, to seek immediate
injunctive or other equitable relief without having to pursue or exhaust
any other procedures or remedies set forth in this Agreement.
15.0 INDEMNITIES
15.1 INDEMNITY BY CLIENT
Client agrees to indemnify, defend and hold harmless AC, and its
officers, directors, partners, employees, agents, successors and assigns,
in accordance with the procedures described in Section 15.4 of this
Agreement, from and against any and all third-party claims and Losses
arising from or in connection with:
-33-
<PAGE>
15.1.1 AC'S SERVICES
AC's services or any use by Client of any deliverable item, except to
the extent any such claim results from gross negligence or willful
misconduct of AC or (b) is covered by AC's indemnities specified in Section
15.2;
15.1.2 INFRINGEMENTS
Any claims of infringement made against AC of any United States of
America letters patent, or a trade secret, or any copyright, trademark,
service mark, trade name or similar proprietary rights conferred by
contract or by common law or by any law of the United States of America or
any state, alleged to have occurred because of Systems or other resources
or items provided to AC by Client;
15.1.3 THIRD PARTY AGREEMENTS
Any obligations to be performed by Client pursuant to any contracts or
other arrangements between Client and any third parties;
15.1.4 REQUIRED CONSENTS
The performance by AC of System Services being deemed a breach or
default under any lease, contract or agreement as to which Client was to
obtain a Required Consent;
15.1.5 HAZARDOUS MATERIALS
Any: (i) "hazardous materials" or "hazardous substances" (as defined
in any applicable law or regulation) in, on, under or above the Data Center
as of or prior to the Effective Date; (ii) violation or alleged violation
of or any liability under any law, regulation, or ordinance, or order,
pertaining to any Hazardous Material located in, on, under or above the
Data Center as of or prior to the System Cutover Date; (iii) step taken by
any person or entity other than AC, to clean up, remedy, or remove
Hazardous Materials released or disposed of prior to the System Cutover
Date; (iv) off-site disposal, treatment, or storage of Hazardous Materials
generated by Client's operation of Data Center prior to the System Cutover
Date; or (v) violation or alleged violation by Client of any federal, state
or local laws relating to environmental matters; and
15.1.6 EMPLOYEE PLANS
Any Employee Plan.
-34-
<PAGE>
15.2 INDEMNITY BY AC
AC agrees to indemnify, defend and hold harmless Client and its
officers, directors, employees, agents, successors and assigns, in
accordance with the procedures described in Section 15.4 of this Agreement,
from and against any and all third-party claims and Losses arising from or
in connection with:
15.2.1 INFRINGEMENT
Any claims of infringement made against Client for infringement of any
United States of America letters patent, or a trade secret, or any
copyright, trademark, service mark, trade name or similar proprietary
rights conferred by contract or by common law or by any law of the United
States of America or any state, alleged to have occurred because of Systems
or other resources or items provided to Client by AC;
15.2.2 HAZARDOUS MATERIALS
Any (i) hazardous materials, or hazardous substances (as defined in
any applicable law or regulation) placed in, on, under or above the Data
Center by AC or its agents or invitees ("Subsequent Hazardous Materials");
(ii) violation or alleged violation of or any liability under any law,
regulation, or ordinance or order, pertaining to any Subsequent Hazardous
Material; (iii) step taken by AC, to clean up, remedy, or remove Hazardous
Materials released or disposed of subsequent to the Effective Date; (iv)
off-site disposal, treatment, or storage of Hazardous Materials generated
by AC's operation of the Data Center subsequent to the Effective Date; or
(v) violation or alleged violation by AC after the Effective Date of any
federal, state or local laws relating to environmental matters; or
15.2.3 THIRD PARTY AGREEMENTS
Any obligations to be performed by AC pursuant to any contracts or
other arrangements between AC and third parties.
15.3 CROSS INDEMNITY
AC and Client each agree to indemnify, defend and hold harmless the
other, and the other's officers, directors, partners, employees, agents,
successors and assigns in accordance with the procedures described in
Section 15.4 of this Agreement, from any and all Losses arising from or in
connection with: (a) the death or bodily injury of any agent, employee,
customer, business invitee or business visitor of the indemnitor; or (b)
the damage, loss or destruction of any real or tangible personal property
in the possession or under the control of the indemnitor. The employees or
agents of either party shall not, when at the premises of the other party,
be deemed the other party's business invitee or business visitor.
-35-
<PAGE>
15.4 INDEMNIFICATION PROCEDURES
Promptly after receipt by any person entitled to indemnification under
Sections 15.1 through 15.3 of this Agreement (an "Indemnified Party") of
notice of the commencement (or threatened commencement) of any claim in
respect of which the Indemnified Party will seek indemnification, the
Indemnified Party shall notify the party which is obligated to provide such
indemnification (an "Indemnifying Party") of such claim in writing. The
Indemnifying Party shall be entitled to have sole control over the defense
and/or settlement of such claim, provided that, within fifteen (15) days
after receipt of such written notice, the Indemnifying Party notifies the
Indemnified Party of its election to so assume full control. In that
event: (a) the Indemnified Party shall be entitled to participate in the
defense of such claim and to employ counsel at its own expense to assist in
the handling of such claim, and (b) the Indemnifying Party shall obtain the
prior written approval of the Indemnified Party before the entering into
any settlement of such claim or ceasing to defend against such claim if
such settlement or cessation would cause injunctive or other relief to be
imposed against the Indemnified Party. After notice by the Indemnifying
Party to the Indemnified Party of its election to assume full control of
the defense of any such action, the Indemnifying Party shall not be liable
to the Indemnified Party for any legal expenses incurred by such
Indemnified Party in connection with the defense of that claim. If the
Indemnifying Party does not assume sole control over the defense of such
claim as provided in this Section 14.4, the Indemnifying Party may
participate in such defense and the Indemnified party shall have the right
to defend the claim in such manner as it may deem appropriate, at the cost
and expense of the Indemnifying Party. The Indemnifying Party shall
promptly reimburse the Indemnified Party for such costs and expenses, in
accordance with the applicable Section of this Article 15.0.
15.5 SUBROGATION
In the event that an Indemnifying Party shall be obliged to indemnify
an Indemnified Party pursuant to Section 15.1 through 15.3 of this
Agreement, the Indemnifying Party shall, upon payment of such indemnity in
full, be subrogated to all rights of the Indemnified Party with respect to
the claims to which such indemnification relates.
15.6 EXCLUSIVE REMEDY
The indemnification rights of each Indemnified Party pursuant to this
Article 15.0 of this Agreement shall be the exclusive remedy of such
Indemnified Party with respect to the third-party claims to which such
indemnification relates; provided, however, that such Indemnified Party
shall retain the right to seek injunctive or other non monetary equitable
remedies with respect to such claims.
-36-
<PAGE>
15.7 INSURANCE
Each party represents and agrees that it presently has, and throughout
the Term shall maintain in force and effect, the levels and types of
insurance coverage listed for it in Schedule 15.7 hereto.
16.0 MISCELLANEOUS
16.1 ENTIRE AGREEMENT
Except as expressly stated herein, this Agreement, together with the
annexed schedules and exhibits, constitutes the entire understanding and
agreement between the parties with respect to the transactions contemplated
herein, and supersedes any and all prior or contemporaneous, oral or
written communication with respect to the subject matter hereof. No other
document, usage of trade, or other regular practice or method of dealing
between the parties hereto or others, will be used to modify, interpret,
supplement, or alter in any manner the express terms of this Agreement.
Subject to AC's representation and agreement that it shall perform the
System Services in conformity with the Service Levels and in accordance
with all of the other terms and conditions of this Agreement, Client
acknowledges that AC does not represent or guarantee that any of the
objectives of Client will be achieved, that there will be any benefits to
Client from the use of the New System, nor that the Hardware or Software to
be utilized in the New System will necessarily prove to be the most
appropriate for the intended purposes.
16.2 CAPTIONS; COUNTERPARTS; SECTION NUMBERS
Captions, Tables of Contents, Index of Definitions, and Schedule
Titles are used herein for convenience only and will not be used in the
construction or interpretation of this Agreement. This Agreement may be
executed in more than one counterpart, in which case all of them shall be
deemed one and the same Agreement. This Agreement shall be deemed executed
as soon as each party has executed a counterpart, even if not the same one
as executed by the other parties. Any reference herein to a particular
Section number (e.g., "Section 14.1"), shall be deemed a reference as well
to all Sections that bear sub-numbers to the number of the referenced
Section (e.g., Sections 14.1.1, etc.).
16.3 BINDING NATURE AND ASSIGNMENT
This Agreement shall bind the parties and their successors and
permitted assigns. Neither party may assign this Agreement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed; provided that either party shall have the right to
assign this Agreement to any Affiliate of such party without the other
party's consent, upon giving the other party written notice of such
-37-
<PAGE>
assignment, and further provided that Client may assign this Agreement to
any person or entity that acquires substantially all of the assets of
Client's Family division. Any other assignment attempted without the
written consent of the other party shall be void. Notwithstanding the
foregoing, no assignment shall relieve the assignor of its liability for
the performance of any or all of its duties and obligations under this
Agreement.
16.4 RELATIONSHIP OF PARTIES
In connection with this Agreement, each party is an independent
contractor and, as such, will not have any authority to bind or commit the
other. Nothing herein shall be deemed or construed to create a joint
venture, partnership or agency relationship between the parties for any
purpose. Without limiting the generality of the foregoing and except where
this Agreement expressly provides otherwise, AC does not undertake by this
Agreement or otherwise to perform any obligation of Client, whether
regulatory or contractual, or to assume any responsibility for Client's
business or operations.
16.5 EMPLOYEES
AC reserves the right to determine which of its personnel shall be
assigned to perform services, and to replace or reassign such personnel
during the term hereof; provided, however, that it will, subject to
scheduling and staffing considerations, attempt to honor Client's request
for specific individuals.
16.6 AUDIT RIGHTS
In addition to any reviews specified in this Agreement or in any
schedule hereto, Client shall have the right to review the status of
budgets, cost records, and billings with AC, subject to at least seven (7)
days' advance notice. Costs of AC's assistance for any reviews of this
type will be billable to Client separately from this Agreement at AC's
normal hourly rates plus out-of-pocket expenses. However, AC shall not
provide any of its competitors, if Client designates any such competitor to
perform such audit, with access to AC's trade secrets or Confidential
Information. Client shall pay AC for AC's costs for any resources required
by the audit or inspection in addition to the resources that AC would
otherwise use in the performance of this Agreement.
16.7 AMENDMENTS; WAIVERS
Except as provided expressly herein, this Agreement shall not be
modified, amended or in any way altered except by written document signed
by both of the parties hereto. No waiver of any provision of this
Agreement, or of any rights or obligations of any party hereunder, shall be
-38-
<PAGE>
effective unless in writing and signed by the party waiving compliance, and
such waiver shall be effective only in the specific instance, and for the
specific purpose, stated in such writing. No waiver of breach of, or
default under, any provision of this Agreement shall be deemed a waiver of
any other provision, or of any subsequent breach or default of the same
provision, of this Agreement.
16.8 APPROVALS AND SIMILAR ACTIONS
Where agreement, approval, acceptance, consent or similar action by
either party is required by any provision of this Agreement, such action
shall not be unreasonably delayed or withheld, unless specifically
permitted by this Agreement.
16.9 NOTICES
Any notice, invoice, or other communication given pursuant to this
Agreement shall be in writing and shall be effective either when delivered
personally by hand or transmitted electronically to the premises of the
party for whom intended, on the next business day after it is deposited
with an overnight delivery service such as Federal Express, or at close of
business on the third (3rd) business day following deposit of the same into
the United States mail (certified mail, return receipt requested, or first
class postage prepaid), addressed to such party at the address set forth on
the initial page of this Agreement. Either party may designate a different
address by notice to the other given in accordance herewith. To be
effective, any notice asserting a material breach or termination of this
Agreement must also be sent to the recipient party's legal department by
the same method and, if delivered on or before July 1, 1995 (or in respect
of a Problem arising on or before said date), to the assignee (if any) of
AC's rights under the Base Software License at the address specified by
such assignee in the instrument of assignment. Either party may designate
a different address by notice to the other given in accordance herewith.
16.10 RIGHT OF AC TO PERFORM SERVICES FOR OTHERS
Client understands and agrees that AC may perform services as AC sees
fit for third parties excepting solely that, during the Term of this
Agreement, AC agrees not to provide the System Services using the New
System and the JDA Software to other full members from time to time of the
Christian Booksellers Association ("CBA") headquartered and located in the
United States, unless otherwise agreed between the parties. However, the
prohibition in the prior sentence does not apply to nor bar AC from
providing (i) any other type of service(s) and/or product(s) to any third
party, (ii) any service(s) and/or product(s) to any third party that joins
the CBA after AC arranges to provide that third party such service(s)
and/or product(s), (iii) AC staff for other services to a CBA full member,
(iv) any type of service(s) and/or product(s) to any associate or affiliate
-39-
<PAGE>
member of the CBA (e.g., providers of services or materials to CBA full
members, if any) or (v) after the Term of this Agreement. Client agrees to
furnish a complete copy of the list of CBA full members promptly upon
request by AC. In the event that the CBA's purpose, mission and/or overall
membership changes during the Term to include primarily secular retailers
of books, gifts and/or other consumer products (i.e., rather than the
current scope of solely U.S. retailers that specialize in Christian books,
gifts and related products), then this Section 16.10 shall be reformed so
as to continue to accomplish its essential, initial purpose. This
provision of the Agreement does not modify the confidential information
non-disclosure provision of the Agreement.
16.11 FORCE MAJEURE
Each party shall be excused from performance under this Agreement and
shall have no liability to the other party for any period it is prevented
from performing any of its obligations (other than payment obligations), in
whole or in part, as a result of delays caused by the other party or by an
act of God, war, civil disturbance, court order, labor dispute, third party
performance or nonperformance, or other cause beyond its reasonable
control, including failures or fluctuations in electrical power, heat,
light, or telecommunications, and such nonperformance shall not be a
default under, or grounds for termination of, this Agreement; provided,
however, that the delayed party shall promptly notify the other party of
the occurrence, cause, nature and expected duration and severity of impact
and all shall cooperate with the other party in minimizing any adverse
impact of such occurrence. In the event AC's performance of this Agreement
is prevented by an event of force majeure and a material disruption to
Client's business operations results or is reasonably foreseen by Client,
Client may engage one or more third parties to perform the System Operation
Services or any other services required of AC hereunder, utilizing the New
System or any other Hardware or Software; provided that Client shall assure
that each such third party shall be appropriately qualified to do the work,
shall cooperate with AC in its performance of the work, and shall perform
the work in a manner that does not interfere with AC's performance of the
System Services nor affect the Hardware or Software so as to make more
difficult or costly AC's future performance of the System Services.
16.12 SEVERABILITY
If any provision of this Agreement is held to be unenforceable, then
both parties shall be relieved of all obligations arising under such
provision, but only to the extent that such provision is unenforceable, and
this Agreement shall be deemed amended by modifying such provision to the
extent necessary to make it enforceable while preserving its intent or, if
that is not possible, by substituting another provision that is enforceable
and achieves the same objective and economic result. If such unenforceable
provision does not relate to the payments to be made to AC, and if the
-40-
<PAGE>
remainder of this Agreement is capable of substantial performance, then the
remainder of this Agreement shall be enforced to the extent permitted by
law. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH PROVISION OF THIS
AGREEMENT WHICH PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF
WARRANTIES, INDEMNIFICATION OR EXCLUSION OF DAMAGES OR OTHER REMEDIES IS
INTENDED TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE
ENFORCED AS SUCH. FURTHER, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT IN
THE EVENT ANY REMEDY UNDER THIS AGREEMENT IS DETERMINED TO HAVE FAILED OF
ITS ESSENTIAL PURPOSE, ALL LIMITATIONS OF LIABILITY AND EXCLUSIONS OF
DAMAGES OR OTHER REMEDIES SHALL REMAIN IN EFFECT.
16.13 SURVIVAL OF RIGHTS AND OBLIGATIONS
The rights and obligations of the parties under the following Sections
and Articles of this Agreement shall survive and continue after the ending
or expiration of the Term, and shall bind the parties and their legal
representatives, successors, heirs, and assigns: Section 4.2.3 and Articles
6.0, 7.0, 8.0, 9.0, 12.0, 13.0, 14.0, 15.0 and (to the extent appropriate
in context) 16.0. Claims under this Agreement arising prior to the end of
the Term, shall also survive the ending or expiration of the Term.
16.14 SCHEDULES
The Schedules attached hereto or incorporated herein by reference are
an integral part of the Agreement. To the extent that there are any
conflicts between the terms and conditions in the Schedules and those
contained in the Agreement itself, the terms and conditions set forth in
the Agreement itself shall control.
16.15 EXPENSES
Each party shall bear all of its own costs and expenses (including
attorneys' fees) relating to the negotiation, preparation, drafting and
execution of this Agreement.
16.16 MEDIA RELEASES
All media releases, public announcements and public disclosures by
Client or AC or its employees or agents relating to this Agreement or its
subject matter, including promotional or marketing materials, shall be
coordinated with and approved by the other party prior to release. This
restriction does not apply (a) to any announcement intended solely for
internal distribution at Client or at AC, (b) any disclosure required by
legal, accounting or regulatory requirements beyond the reasonable control
of the disclosing party, nor (c) to descriptions of this project (including
identification of Client) in private communications with other clients and
prospective clients of AC.
-41-
<PAGE>
16.17 NO THIRD PARTY BENEFICIARIES
The parties agree that this Agreement is solely for the benefit of the
parties hereto and is not intended to, and shall not, confer any legal
rights or benefits on any third party and that there are no third party
beneficiaries to this Agreement nor to any part or specific provision of
this Agreement.
16.18 GOVERNING LAW; VENUE
This Agreement shall be governed by and construed in accordance with
the substantive laws of Illinois. Any action or proceeding arising out of,
or related to this Agreement may be brought only in an appropriate court in
Illinois.
IN WITNESS WHEREOF, each party has caused this Agreement to be signed
and delivered by its duly authorized representative.
Andersen Consulting The Zondervan Corporation
By: /S/__________________________ By: /S/ LESLIE E. DIETZMAN
-----------------------
Title: __________________________ Title: PRESIDENT
Date: __________________________ Date: MAY 9, 1994
-42-
<PAGE>
EXHIBIT 10.22
MODIFICATION AGREEMENT
This is an agreement made on November 1, 1994, by and among The
Zondervan Corporation ("Zondervan"), a Michigan corporation with its
principal place of business at 5300 Patterson S.E., Grand Rapids, Michigan;
HarperCollins Publishers Inc. ("HC"), a Delaware corporation having an
office at 10 E. 53rd Street, New York, New York 10022; Andersen Consulting
("AC"), an Illinois partnership with its principal place of business at 69
W. Washington Street, Chicago, Illinois; General Electric Capital Computer
Leasing Corporation ("GE"), a California corporation having an office at
2000 Powell Street, Suite 2000, Emeryville, California; and Family
Bookstores Company, Inc. ("FBS"), a Michigan corporation having an office
at 5300 Patterson S.E., Grand Rapids, Michigan.
This Agreement is made with reference to the following existing
agreements: (a) Strategic Technology License and Services Agreement
("Service Agreement") between AC and Zondervan; (b) Base Software License
("Software License") between AC and Zondervan; (c) Agreement of Assignment
("Assignment Agreement") between AC and GE; and (d) Guaranty ("Guaranty")
by HC; all of which agreements are dated May 9, 1994.
I. RECITALS
Zondervan wishes to sell the assets of its Family Bookstores Division
to FBS (a newly formed entity) and, in conjunction with the sale, wishes
for its obligations under the Service Agreement and the Software License,
and those of HC (Zondervan's corporate parent) under the Guaranty, to be
released or reduced.
AC is willing to accede to such requests, in consideration of certain
modifications to the Service Agreement and the Software License, including
a provision for FBS to pre-pay certain of the payments to be made by
Zondervan under the Software License.
GE, as assignee of the right to receive payments under the Software
License pursuant to the Assignment Agreement and as beneficiary of the
Guaranty, is willing to consent to such modifications, in consideration of
being relieved by AC of a portion of its obligation to acquire from AC the
entirety of the anticipated stream of payments from Zondervan to AC under
the Software License, and AC is willing to grant such relief.
<PAGE>
II. AGREEMENT
A. AMENDMENTS TO SOFTWARE LICENSE.
1. Schedule I of the Software License is hereby amended by
Zondervan and AC so as to read, in its entirety, as set forth in Schedule I
to this Agreement.
2. The first sentence of Section 4 of the Software License is
hereby amended by Zondervan and AC so as to read, in its entirety, as
follows:
"The obligations of Client to make payment of the amounts
required under paragraph 2 hereof or under any other paragraphs
hereof and to perform and observe the other covenants and
agreements contained herein shall be absolute and unconditional
in all events, except that Client shall have no obligation
(except for payments and/or damages recoverable pursuant to
subparagraph (iii) of Section 8 hereof) to make any payment for
which the date for payment, as specified in Schedule I hereto,
shall occur after the term of the license granted hereunder shall
have terminated."
3. The introductory clause of Section 8 of the Software License
is hereby amended by Zondervan and AC so as to read, in its entirety, as
follows:
"Whenever any event of default referred to in Section 7
hereof shall have happened and be continuing, or the term of the
licenses granted under this License Agreement shall end for any
reason, AC shall have the right, at its sole option without
further demand or notice, to take one or any combination of the
following remedial steps:"
4. Subparagraph (i) of Section 8 of the Software License is
hereby amended by Zondervan and AC by inserting after the words "License
Agreement" in the first sentence, the parenthetical phrase, "(if not by
then already terminated)".
5. Subparagraph (iii) of Section 8 of the Software License is
hereby amended by Zondervan and AC so as to read, in its entirety, as
follows:
"(iii) Recover payment from, and/or damages against, Client in an
amount equal to the present value (based upon an assumed
internal interest rate per annum equal to the then-current
yield on U.S. Treasury bills of a term equal to the period
between the date of such recovery and June 30, 2001) of the
-2-
<PAGE>
sum of all payments scheduled to be made under this License
Agreement for which the scheduled date for payment (as set
forth in Schedule I hereto) is July 1, 1995 or later and
that shall not yet have been paid, plus all other damages to
which AC is legally or equitably entitled and all of its
expenses (including reasonable attorneys' fees) of
collection; and"
6. GE hereby acknowledges and consents to the foregoing
provisions of this Section II.A.
B. AMENDMENT TO SERVICE AGREEMENT.
1. The Service Agreement is hereby amended by Zondervan and AC
by deleting therefrom the entirety of Section 13.8.3 (including Schedule
13.8.3 thereto).
2. Clause (ii) of Section 14.2 of the Service Agreement is
hereby amended by Zondervan and AC by inserting, after the words "Section
3.3.1 hereof" and before the comma and the word "provided," the words:
"and for which the scheduled date for payment, as set forth in
Schedule I to said Base Software License, is prior to July 1,
1995".
3. GE hereby acknowledges and consents to the foregoing
provisions of this Section II. B.
C. AMENDMENTS TO ASSIGNMENT AGREEMENT.
1. The fourth paragraph on the first page (introductory
paragraphs) of the Assignment Agreement is hereby amended by AC and GE, by
substituting the word "some" for the word "all".
2. Clause (a) of Section 1., "Assignment," of the Assignment
Agreement is hereby amended by AC and GE so as to read, in its entirety, as
follows:
"(a) all of Assignor's rights to receive any and all payments due
to Assignor under the License Agreement for which the
scheduled date for payment, as set forth in Schedule I to
said agreement, is July 1, 1995 or thereafter; and".
3. Section 4 of the Assignment Agreement is hereby amended by
AC and GE by changing the caption thereof from "Repurchase" to
"Reassignment," by deleting therefrom the entirety of paragraph 4(a), by
re-lettering paragraphs 4(b) and 4(c) as 4(a) and 4(b), respectively, and
by amending said paragraphs 4(a) and 4(b) so as to read, in their
respective entireties, as follows:
-3-
<PAGE>
"(a) In no event shall Assignee have any right of reimbursement,
indemnity, setoff, or other recourse against Assignor for
any failure by Obligor to make payments that are to be made
under the License Agreement. At such time as Assignee shall
have received or collected the entire sum of all amounts to
be paid by Obligor to Assignor under the License Agreement,
Assignee shall reassign to Assignor, free and clear of all
claims, liens, security interests and encumbrances arising
through any act or omission of Assignee or any person
claiming by, through or under Assignee, all of Assignee's
right, title and interest in and to the License Agreement,
the Base Software, any security interests in any of same,
and any other rights, properties or interests theretofore
assigned to or obtained by Assignee.
(b) Assignor shall have the right, in its discretion, but shall
not be obligated, to pay to Assignee any payment owing by
the Obligor under the License Agreement (and shall be
subrogated to the rights of Assignee against the Obligor
with respect to such amounts provided Assignor shall be
subordinated in payment to claims of Assignee against
Obligor)."
4. Paragraph 5(b) of the Assignment Agreement is hereby amended
by AC and GE by deleting therefrom the second sentence thereof and by
amending what had been the third sentence thereof so as to read, in its
entirety, as follows:
"If Assignor desires to arrange third-party financing for
any such increase in costs under the Principal Agreement,
any such financing shall be accomplished through
documentation separate from the License Agreement unless
Assignee provides such financing pursuant to an amendment to
the License Agreement."
5. Schedule A to the Assignment Agreement is hereby amended by
AC and GE so as to read, in its entirety, as set forth in Schedule A to
this Agreement.
6. Schedule B to the Assignment Agreement is hereby deleted by
AC and GE.
D. CONSENTS, ASSUMPTIONS, AND RELEASES.
1. AC and GE hereby consent to the sale or assignment by
Zondervan to FBS of all of the rights of Zondervan under the Service
Agreement and the Software License, subject to the assumption by FBS of all
of the duties, obligations, and liabilities of Zondervan under said
agreements.
-4-
<PAGE>
2. FBS hereby assumes and agrees to perform, discharge, and be
fully and unconditionally bound by all of the duties, obligations, and
liabilities of Zondervan under the Service Agreement and by all of the
duties, obligations, and liabilities of Zondervan under the Software
License.
3. AC and GE hereby release Zondervan from all duties,
obligations, and liabilities under the Service Agreement and the Software
License except for the following (for which Zondervan shall remain fully
responsible and liable): the duties and obligations of Zondervan under the
Software License with respect to payments for which the scheduled date for
payment (as set forth in Schedule I to said agreement, as herein amended)
is July 1, 1995 or thereafter.
E. GUARANTOR'S AGREEMENTS, GE CONSENT.
1. HC hereby acknowledges and consents to all of the amendments,
consents, assumptions, releases, and other agreements set forth above in
this Agreement.
2. HC hereby consents and agrees that Section 1. of the Guaranty is
hereby amended so as to read, its entirety, as follows:
"OBLIGATIONS. The term "Obligations" shall mean: (a) all
payments, fees and other amounts of any kind to be paid by
Company (or by any successor, assignee or delegates of the
Company) to AC pursuant to the License Agreement (and thus to
GECCL pursuant to the Assignment Agreement) for which the
scheduled date for payment, as set forth in Schedule I to the
License Agreement is July 1, 1995 or thereafter; and (b) all
representations, warranties, covenants, duties, actions,
indemnities and responsibilities of any kind to be performed by
Company (or by any such assignee or delegatee) pursuant to the
License Agreement."
3. HC and GE further acknowledge and agree that,
notwithstanding all of the foregoing provisions of this Agreement, the
Guaranty, as hereinabove amended, is hereby re-affirmed and shall be and
remain in full force and effect.
4. GE hereby acknowledges and consents and agrees to the
amendments to the Guaranty as set forth above in this Section II.E.
F. ACCEPTANCE.
To induce AC and GE to enter into this Agreement, Zondervan, HC
and FBS hereby jointly and severally represent, acknowledge, and agree: (a)
that all work to have been performed by AC up to the date of this
-5-
<PAGE>
Agreement, including the entirety of the Store System and all of the
preliminary design deliverables for the Home Office, have been delivered by
AC to Zondervan, tested, and accepted by Zondervan as being, and are hereby
agreed by FBS to be, fully in conformity with all of the Applicable
Specifications under the Service Agreement; and (b) that the sum of the
value of said work plus the value of all third-party licenses as to which
the Software License constitutes or includes a sublicense to Zondervan, as
components of the total value of the Software License, is fairly
represented by the amounts that are scheduled (under Schedule I to the
Software License as hereinabove amended) to be paid on July 1, 1995 or
thereafter.
G. CONDITION PRECEDENT.
All of the parties hereto do hereby mutually acknowledge and
agree that all of the provisions of this Agreement are subject to the
closing and consummation, by not later than December 15, 1994, of a sale by
Zondervan to FBS of all or substantially all of the assets of the Family
Bookstores Division of Zondervan, and that this Agreement shall be deemed
void AB INITIO and of no force or effect unless and until the consummation
of said sale transaction.
In witness and acceptance of the foregoing, the parties have executed
this Agreement on the date first written above.
THE ZONDERVAN CORPORATION
By: /S/_________________________________
Its: ___________________________________
HARPERCOLLINS PUBLISHERS INC.
By: /S/_________________________________
Its: ___________________________________
ANDERSEN CONSULTING
By: /S/_________________________________
Its: ___________________________________
GENERAL ELECTRIC CAPITAL
COMPUTER LEASING CORPORATION
By: /S/_________________________________
Its: ___________________________________
-6-
<PAGE>
FAMILY BOOKSTORES COMPANY, INC.
By: /S/_________________________________
Its: ___________________________________
-7-
<PAGE>
EXHIBIT 10.23
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated as of November 14, 1994 (the
"Agreement"), between FAMILY BOOKSTORES COMPANY, INC., a Michigan corporation
(the "Corporation"), and ELECTRA, INC., a Delaware corporation ("ELECTRA").
R E C I T A L S :
The Corporation, Electra Investment Trust P.L.C., a U.K.
corporation ("EIT"), and Electra Associates, Inc., a Delaware corporation
("Associates" and, together with EIT, the "Purchasers"), have entered into
that certain Securities Purchase Agreement, dated as of November 14, 1994
(the "Securities Purchase Agreement"), pursuant to which the Purchasers have
purchased from the Corporation its senior subordinated notes due 2003 in the
aggregate principal amount of $5,000,000, together with certain warrants in
respect of the Corporation's common stock (collectively the "Financing").
Capitalized terms used and not defined herein shall have the respective
meanings given to such terms in the Securities Purchase Agreement. Electra
has provided valuable financial, consulting and advisory services in
connection with the Financing.
Electra, by and through its officers, employees, agents and
affiliates, has expertise in the fields of management, finance, equity
markets and strategic planning. The Corporation desires to avail itself of
the expertise of Electra in these and other areas in which Electra is
acknowledged to have expertise.
AGREEMENT
The parties hereby agree as follows:
1. SERVICES. The Corporation hereby retains Electra to render
consulting services to the Corporation and its subsidiaries of up to an
aggregate of 50 hours per quarter to be provided by such of Electra's
personnel as Electra shall deem appropriate, and Electra hereby agrees to
render such services, for the period commencing on the date hereof and
continuing during the term of this Agreement. Electra shall render such
consulting services to the Corporation in connection with strategic planning,
financings, acquisitions and dispositions as the Board of Directors of the
Corporation may from time to time reasonably request.
2. TERM. This Agreement shall terminate on the earlier of (i) the
occurrence of a Triggering Event or (ii) the date on which (x) the Purchasers
(or any of their controlled affiliates) cease to own any combination of Common
Stock or Warrants exchangeable into Common Stock, collectively equivalent to at
least 5% of the Common Stock
<PAGE>
on a Fully Diluted basis, and (y) the Notes have been repaid in full,
together with any accrued and unpaid interest thereon to the date of
repayment.
3. FEES AND EXPENSES.
(a) As compensation for Electra's consulting services
rendered pursuant to Section 1, so long as this Agreement shall be in effect,
the Corporation shall pay to Electra an annual fee of $100,000, which shall
be payable in four (4) equal quarterly installments of $25,000 each, payable
on the first day of each quarter during each fiscal year of the Corporation,
with the first such quarterly payment to be payable on the Closing Date (with
the first such payment pro rated from the Closing Date to December 31, 1994).
(b) In addition to the fees provided for above, upon
submission of an expense account with reasonably necessary supporting
documentation, the Corporation shall promptly reimburse Electra for
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of the consulting services under this Agreement. Electra's
reimbursement requests will comply with the Company's expense and travel
policies generally available.
4. LATE PAYMENTS; DEFAULT.
(a) In the event that the Corporation shall fail to pay all
or any part of the fees described in Section 3 when due, and the Corporation
does not cure such failure prior to the 10th day of the quarter in which such
payment is due, then Electra shall be entitled to interest on the unpaid
amount equal to 14% per annum until paid.
(b) While a default hereunder is continuing, Electra shall be
excused from rendering any further services pursuant to this Agreement. The
right and privilege of Electra to withhold services is intended to be in
addition to any and all other remedies available because of the Corporation's
default, including Electra's right to payment of all fees set forth herein.
Further, in the event of a default by the Corporation, the Corporation shall
reimburse Electra for all costs and expenses incurred by Electra, including,
without limitation, reasonable attorney's fees, in connection with such
default and any litigation or other proceeds instituted for the collection of
payment due hereunder.
5. INDEMNITY. The Corporation shall indemnify and hold harmless
Electra and its controlling persons, and their respective stockholders,
partners, directors, officers, agents, representatives and employees, to the
full extent lawful, from and against any losses, claims, damages or
liabilities related to or arising out of the specific services rendered under
this Agreement and shall promptly reimburse Electra and any other party
entitled to be indemnified hereunder for all reasonable out-of-pocket
expenses (including attorney's fees and
-2-
<PAGE>
expenses) incurred by Electra or any such party in connection with
investigating, preparing or defending any claim in connection with pending or
threatened litigation in which Electra or any other party entitled to be
indemnified hereunder is a party or is threatened or otherwise likely to
become a party. The Corporation will not, however, be responsible for any
claims, liabilities, losses, damages or expenses to the extent they are
finally judicially determined to have resulted primarily from Electra's
willful misconduct after the expiration of all appeals or appeal periods,
recklessness, or material breach of its obligations hereunder. If such
indemnification is for any reason not available, the Corporation shall
contribute to the losses, claims, damages and liabilities involved in such
proportion as it is appropriate to reflect the relative fault of the
Corporation and its subsidiaries on the one hand and Electra on the other
hand. Under no circumstances shall Electra and the other parties entitled to
be indemnified hereunder be responsible for any amounts in excess of the
amount of any fees actually received and retained by Electra. The foregoing
agreement shall be in addition to any rights that Electra or any indemnified
party may have under any of the agreements executed in connection with the
Financing or at common law or otherwise.
The Corporation shall not, without Electra's prior consent, settle
or compromise any pending or threatened claim, action or suit in respect of
which indemnification or contribution may be sought hereunder unless the
foregoing contains an unconditional release of Electra and any other party
entitled to be indemnified hereunder from all liability and obligation
arising therefrom. Electra shall have no liability to the Corporation or any
of its subsidiaries arising out of or in connection with this engagement
except to the extent a loss results to the Corporation or any of its
subsidiaries that is finally judicially determined after the expiration of
all applicable appeals or appeal periods to have resulted primarily from
Electra's willful misconduct, recklessness, or material breach of its
obligations hereunder. The Corporation on its own behalf and on behalf of
each of its subsidiaries, hereby consents to personal jurisdiction, service
and venue in any court in which any claim which is subject to this Agreement
is brought against Electra or any other party entitled to be indemnified
hereunder. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION
ARISING OUT OF OR CONTEMPLATED BY THIS SECTION 5 IS HEREBY WAIVED. The
provisions of this Section 5 shall survive the expiration of this Agreement.
6. LITIGATION EXPENSES. In the event of any litigation or other
proceedings between the Corporation or any of its subsidiaries on the one
hand, and Electra on the other hand, relating to or arising out of this
Agreement, all costs, charges and expenses incurred by the prevailing party
in connection with such litigation or other proceedings (including attorneys'
fees) shall be borne by the other party in such litigation or other
proceedings.
7. NOTICES. Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed sufficient if (i) delivered
in person, (ii) mailed by certified mail or (iii) sent by facsimile
transmission, with a copy sent simultaneously by the U.S. mail,
-3-
<PAGE>
as follows:
If to the Corporation, to:
Family Bookstores Company, Inc.
5300 Patterson, S.E.
Grand Rapids, Michigan 49530
Telephone: (616) 698-6900
Telecopier: (616) 698-3421
Attention: President
With a copy to:
Warner Norcross & Judd LLP
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
Telephone: (616) 752-2000
Telecopier: (616) 752-2500
Attention: John G. Cameron, Jr., Esq.
If to Electra to:
Electra, Inc.
70 E. 55th Street
(25th Floor)
New York, NY 10022
Telephone: (212) 319-0081
Telecopier: (212) 319-3069
Attention: John L. Pouschine
With a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4677
Telephone: (212) 821-8000
Telecopier: (212) 821-8111
Attention: Peter J. Hanlon, Esq.
Any party, by notice to the other parties hereto, may designate additional or
different
-4-
<PAGE>
addresses for subsequent notices or communications.
8. PERMISSIBLE ACTIVITIES. Nothing herein shall in any way
preclude Electra from engaging in any business activities or from performing
services for its own account or for the account of others, including, without
limitation, EIT.
9. AMENDMENTS. This Agreement supersedes all prior agreements
among the parties with respect to its subject matter, is intended as a
complete and exclusive statement of the terms of the agreement among the
parties with respect thereto and cannot be changed or terminated orally. The
failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement. A waiver by any party of any breach of this
Agreement shall not operate as, or be construed to be, a waiver of any
subsequent breach. Any waiver must be in writing.
10. CONSULTING RELATIONSHIP. It is understood and agreed that
nothing contained herein shall be deemed to create any employer/employee
relationship or agency relationship between the Corporation or any of its
Subsidiaries, on the one hand, and Electra, on the other hand. No federal,
state or local withholding deductions shall be withheld from the fees payable
to Electra pursuant to this Agreement.
11. JURISDICTION. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may be
brought against any of the parties in the courts of the State of New York, or
if it has or can acquire jurisdiction, in the United States District Court
for the Southern District of New York, and each of the parties hereby
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue
laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world, whether
within or without the State of New York.
12. MISCELLANEOUS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, including any corporation into which the Corporation shall
consolidate or merge or to which it shall transfer substantially all of its
assets. This Agreement may not be assigned by the Corporation and may be
assigned by Electra only to a corporation or other entity controlled by or
under common control with Electra. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such state (without giving
effect to conflict of law rules).
IN WITNESS WHEREOF, the parties hereto have duly executed this
Advisory Agreement as of the day and year first above written.
-5-
<PAGE>
FAMILY BOOKSTORES, INC.
By /s/ Leslie E. Dietzman
--------------------------
Name: Leslie E. Dietzman
Title: President
ELECTRA, INC.
By /s/ John L. Pouschine
--------------------------
Name: John L. Pouschine
Title: Senior Vice President
-6-
<PAGE>
EXHIBIT 10.24
LEASE
THIS LEASE made and entered into as of this _____ day of
____________, 199__, by and between _____________________, a ____________
______, the business address of which is ________________________________,
hereinafter called "LESSOR", and FAMILY BOOKSTORES COMPANY, INC., a
Michigan corporation, with its principal business offices at 5300 Patterson
Avenue, SE, Grand Rapids, MI 49530, hereinafter called "LESSEE,"
W I T N E S S E T H :
1. GRANT: THAT LESSOR, in consideration of the rents and covenants
hereinafter stipulated to be paid and performed by LESSEE, does hereby
lease, demise and let unto the LESSEE, the premises situated in the City of
_______________, County of ________________, and State of _____________,
and being a single level (with no mezzanine) storeroom consisting of
approximately _____________ square feet of floor space in a shopping center
commonly known and referred to as ___________________________, hereinafter
referred to as the CENTER, which storeroom premises are more particularly
described as follows:
2. DESCRIPTION:
[ADD DESCRIPTION]
Within thirty (30) days after the date of this Lease, LESSEE shall
have the right to have the leased premises measured to verify the square
footage of space contained therein and the results of such measurement
certified to LESSOR. In the event the leased premises as constructed
(measuring to the center line of the interior walls and the outside of
exterior walls) is less than ______________ square feet or greater than
_________ square feet, the Minimum Rent, Common Area Maintenance Payment,
Tax and insurance payments ("Rent"), as provided for in Section 6., Section
7., Section 8., and all other payments under the Lease calculated by
reference to square footage of the leased premises, shall be adjusted to
reflect the correct Rent based upon the actual square footage of the leased
premises; provided, however, if LESSOR disputes such calculation of square
footage by LESSEE, the matter shall be referred to a third party architect
agreed upon by both LESSOR and LESSEE whose calculations of square footage
of the leased premises as herein provided for shall be binding upon both
parties hereto.
3. TERM AND OPTIONS: TO HAVE AND TO HOLD said premises and the
appurtenances thereto unto LESSEE for and during a primary lease term of
ten (10) years commencing on the first day of the month following the "Rent
<PAGE>
Commencement Date", as that term is hereinafter defined, and ending at
midnight on the last day of said ten (10) year term ("Primary Term").
Notwithstanding the foregoing to the contrary, if the Rent Commencement
Date shall fall on the first day of the month, then the lease term shall
commence on such same date. Provided LESSEE shall not then be in any
default of this Lease beyond any cure period and that it shall give LESSOR
written notice thereof not less than six (6) months prior to the expiration
of the Primary Term, LESSEE shall have the option and right to renew and
extend this Lease for one (1) additional term of five (5) years ("First
Renewal Term"), commencing upon the expiration of the Primary Term, upon
the rents, terms and conditions specified in this Lease. Thereafter,
provided LESSEE shall not then be in any default of this Lease beyond any
cure period and that it shall give LESSOR written notice thereof not less
than six (6) months prior to the expiration of the First Renewal Term,
LESSEE shall have the option and right to renew and extend this Lease for a
second additional term of five (5) years ("Second Renewal Term"),
commencing upon the expiration of the First Renewal Term, upon the rents,
terms and conditions specified in this Lease. Following the determination
of said Rent Commencement Date and said Primary Term and Renewal Term
commencement and expiration dates, the parties hereto shall (upon request
by either party) execute a written acknowledgment thereof.
4. RENT COMMENCEMENT: LESSEE'S monthly rent and other charges hereunder
(prorated for a fractional month) shall commence on the earlier of (a) the
sixty-first (61st) calendar day following the date LESSEE is given
possession of the premises (as evidenced by the delivery of the keys
thereto to LESSEE) or (b) the date LESSEE opens for business. Such date
shall be referred to as the "Rent Commencement Date". LESSEE shall use
such sixty (60) day period following the delivery of possession of the
premises to accomplish any remodeling work it may be required hereunder to
do or that it may desire to do (including any fixturing or stocking the
premises). In the event LESSEE (except for reasons of force majeure as
that term is hereinafter defined) shall fail to open for business within
sixty (60) days after said "Rent Commencement Date", such failure shall be
and constitute a default under this lease.
For purposes of this Section, the Minimum Rent shall be $______ per
square foot for lease years one through five; $_____ per square foot for
lease years six through ten; $______ per square foot for the First Renewal
Term; and $_____ per square foot for the Second Renewal Term.
5. COMMON AREA: In conjunction with the lease of said premises, the
LESSEE shall also have the non-exclusive right to use, in common with other
tenants of the CENTER, all facilities within the Common Area provided by
LESSOR in said CENTER for the common use of said tenants, their customers,
employees and invitees. Such facilities, hereinafter simply referred to as
"Common Area", shall include but not be limited to, the parking areas,
driveways, service roads, service areas, sidewalks, landscaped areas,
-2-
<PAGE>
approaches and exits. The LESSOR shall keep and maintain the Common Area
in good repair and condition, including lighting, cleaning, resurfacing,
painting and striping said Common Area, removing snow, ice and debris
therefrom and regulating traffic thereon; and shall maintain, repair and/or
replace when necessary the paving, curbs, walkways, lighting, landscaping,
parking bumpers, drainage pipes, ducts, conduits and similar or dissimilar
items therein. The LESSOR shall neither fence nor otherwise unreasonably
obstruct LESSEE'S free use of the Common Area; provided, however, that said
Common Area shall at all times remain under the full control of LESSOR and
that LESSEE shall respect all reasonable rules and regulations regarding
the use of such Common Area as from time to time may be prescribed by the
LESSOR. LESSOR reserves the right to close any or all portions of the
Common Area to such extent as may, in LESSOR'S opinion, be legally
sufficient to prevent a dedication thereof or the accrual of any rights
therein to any person or to the public and to close temporarily, if
necessary, any part of the Common Area in order to discourage non-customer
parking; provided, however, that such actions by the LESSOR do not prohibit
free ingress to and egress from the CENTER. LESSOR further reserves the
right from time to time to make such changes in and to the Common Area as
LESSOR in its sole discretion deems appropriate and to erect or place
improvements, structures or buildings thereon or do any other thing with
respect thereto so long as the doing of such things does not unreasonably
interfere with the business of tenants in the CENTER.
6. MINIMUM RENT: The LESSEE does hereby covenant and agree to pay to
LESSOR during said lease term, a "Minimum Rent" in the following annual
amounts:
A. PRIMARY TERM
1. RENT COMMENCEMENT DATE THROUGH FIFTH LEASE YEAR - At the
annual rate of _____________________________________ Dollars
($____________), Payable in equal monthly installments of
_________________________________ Dollars ($___________) each.
2. SIXTH THROUGH TENTH LEASE YEAR - At the annual rate of
_______________________________ Dollars ($____________), payable
in equal monthly installments of ________________________ Dollars
($__________) each.
B. FIRST RENEWAL TERM - At the annual rate of ____________________
_______________ Dollars ($___________), payable in equal monthly
installments of _____________________ Dollars ($____________)
each.
C. SECOND RENEWAL TERM - At the annual rate of ___________________
______________ Dollars ($__________) payable in equal monthly
installments of ________________________________ Dollars
($____________) each.
-3-
<PAGE>
All monthly rent payments, together with all other sums payable
monthly hereunder, shall be paid in advance and without demand upon the
first day of each and every month throughout said lease term.
7. COMMON AREA PAYMENT: In addition to the "Minimum Rent" hereinbefore
expressly reserved, and as LESSEE'S contribution toward the full costs of
maintaining the Common Area of said CENTER, the LESSEE shall further pay to
LESSOR during said lease term the minimum annual sum of ________________
_________ Dollars ($____________), payable, in advance and without demand
on the first day of each and every month throughout said term, in equal
monthly installments of _______________________________________ Dollars
($____________), each provided, however, that such Common Area Payment
shall be subject to the following adjustments:
The amount payable per month by LESSEE as above set forth under this
Clause 7., so long as it shall never be less than said amount, shall be
adjusted on the first anniversary of the commencement date of the term of
this lease and annually thereafter during said lease term by a percentage
equal to the percentage increase or decrease in the Revised 1978 Consumer
Price Index-U.S. Average All Urban Consumers CPI-U (U.S. City Average All
Items) (1982-84=100) published by the Bureau of Labor Statistics of the
United States Department of Labor for the third month immediately preceding
the date hereinabove designated for such adjustment, over or under said
Consumer Price Index so published for the month in which this lease is
dated (e.g. If the commencement date of the term of this Lease, and each
annual anniversary thereof, is January 1st, then the CPI index for the
month of October (i.e. the 3rd month preceding the lease term commencement
date) shall be the month used for such adjustment); provided, however, that
no annual adjustment shall result in excess of a four percent (4%) increase
in the amount then being adjusted. In the event the said Bureau of Labor
Statistics shall change the base period of such Consumer Price Index
(hereinabove set forth as being 1982-84=100), such new base period shall be
substituted for the above stated base period in making the above mentioned
adjustment. If during the term of this lease, the U. S. Department of
Labor, Bureau of Labor Statistics, ceases to maintain said Consumer Price
Index, such other U. S. government index or standard or, if none, such
other non-government index or standard as will most nearly accomplish the
aim and purpose of said Consumer Price Index and the use thereof by the
parties hereto shall be used in determining the amount of the adjustment
provided for under this Clause 7.
8. OTHER SUMS PAYABLE: In addition to the "Minimum Rent" and "Common Area
Payment" hereinbefore expressly reserved, the LESSEE further agrees to pay
to LESSOR for each lease year of said lease term (or as otherwise provided)
the following sums:
A. SECURITY DEPOSIT - LESSEE shall pay to LESSOR the sum of
____________________________ Dollars ($__________), to be held by LESSOR
-4-
<PAGE>
without interest as security for the performance by LESSEE of LESSEE'S
covenants and obligations under this Lease, it being expressly understood
that such deposit may be commingled with LESSOR'S other funds and is not an
advance payment of rental or a measure of LESSOR'S damages in case of
default by LESSEE. Upon the occurrence of any event of default by LESSEE,
LESSOR may, from time to time, without prejudice to any other remedy
provided herein or by law, use such fund to the extent necessary to make
good any arrearage of rentals and any other damage, injury, expense or
liability caused to LESSOR by such event or default, and LESSEE shall pay
to LESSOR on demand the amount so applied in order to restore the security
deposit to its original amount. If LESSEE is not then in default
hereunder, any remaining balance of such deposit shall be returned by
LESSOR to LESSEE within thirty (30) days after termination of this lease.
B. TAXES ON BUILDING - A prorata share of any and all real estate
taxes and assessments, both general and special ("Taxes"), attributable to
and imposed upon the building within which the leased premises is contained
or of which same is a part (inclusive of the land beneath said building)
becoming due and payable semi-annually as provided for under subparagraph
D. below. Such Taxes shall also include the ________________ County annual
disposal service charge applicable to the premises referenced in Clause
13.B. below, if such charge shall be added to LESSOR'S tax bill for the
Shopping Center. Such prorata share of Taxes (excluding the above disposal
service charge which shall be determined separately in accordance with
Exhibit "D" attached hereto) due and payable by LESSEE shall be determined
by multiplying the total sum thereof by a fraction, the numerator of which
shall be the total number of square feet contained within said leased
premises and the denominator of which shall be and consist of the total
number of square feet of leaseable storeroom space contained within said
building.
C. TAXES ON COMMON AREA - A prorata share of said Taxes attributable
to and imposed upon the Common Area and improvements thereon within the
CENTER (inclusive of any Taxes for highway and highway-related improvements
which may be imposed upon or against said property) becoming due and
payable semi-annually as provided for under subparagraph D. below. Such
common area shall include all land, with or without improvements thereon,
within said CENTER which is set aside for the common use, benefit and
enjoyment of all tenants in the CENTER. Such prorata share of Taxes due
and payable by LESSEE shall be determined by multiplying the total sum
thereof by a fraction, the numerator of which shall be the total number of
square feet contained within said leased premises and the denominator of
which shall be and consist of the total number of square feet of leaseable
storeroom space in the CENTER.
Any costs, expenses and attorneys' fees (including the costs of tax
consultants) incurred by LESSOR in connection with the negotiation for
reduction in the assessed valuation of land, buildings and improvements
-5-
<PAGE>
comprising the Shopping Center and any protest or contest of real estate
taxes and/or assessments shall be included within the term "Taxes".
D. TAX BILLS - Unless hereafter changed by the taxing authority, the
Taxes for which LESSEE shall be responsible under this lease as mentioned
under subparagraphs B. and C. above shall be evidenced by the semi-annual
real estate tax bills (regardless of the periods to which such bills
actually apply or the time when such bills actually become due and payable)
starting with the first semi-annual tax bill being issued after the Rent
Commencement Date and ending with the twentieth (20th) semi-annual tax bill
being issued after said Rent Commencement Date (inclusive of all semi-
annual tax bills becoming due and payable during the period between said
dates). In the event LESSEE shall exercise its options hereunder to renew
and extend this Lease, LESSEE shall continue the payment of its prorata
share of such Taxes through and inclusive of the period ending with the (i)
thirtieth (30th) semi-annual tax bill after said Rent Commencement Date (as
to the First Renewal Term), and (ii) fortieth (40th) semi-annual tax bill
after said Rent Commencement Date (as to the Second Renewal Term).
E. FIRE INSURANCE - A prorata share of the full cost incurred by
LESSOR of fire and extended coverage insurance (including standard all risk
perils and rent loss insurance and any costs incurred by LESSOR for repair
of casualty damage to the CENTER not covered by such insurance due to the
deductible clause of such insurance) carried and maintained upon the
building (inclusive of improvements therein or thereto) within which the
leased premises is contained or of which same is a part. Unless otherwise
determined by the insurance carrier, such prorata share of insurance cost
due and payable by LESSEE shall be determined by multiplying the total cost
of such insurance by a fraction, the numerator of which shall be the total
number of square feet contained within said leased premises and the
denominator of which shall be and consist of the total number of square
feet of leaseable storeroom space contained within said building. It is
understood and agreed by LESSEE that the insurance carried and maintained
by LESSOR as provided for under this subparagraph E. does not include
insurance coverage on or for casualty damage to the premises of $1,000 or
less nor building contents insurance on LESSEE'S personal property,
equipment, fixtures or inventory, which insurance the LESSEE herein
covenants and agrees to carry and maintain at its expense throughout the
term of this lease.
F. HOW AND WHEN PAYABLE - LESSEE'S security deposit, prorata share
of Taxes and fire insurance as provided for above, shall be paid as
follows:
(1) SECURITY DEPOSIT - LESSEE shall pay the security deposit
hereinabove provided for upon LESSEE'S execution and delivery of this
Lease to LESSOR.
-6-
<PAGE>
(2) TAXES - Commencing with the Commencement Date of this lease
as provided for under Clause 3. above, or upon such earlier date as
LESSEE shall first be required to pay rent hereunder, LESSEE shall pay
to LESSOR monthly, in advance, throughout the term of this lease or
other period of occupancy of the premises by LESSEE the sum of
_______________________________ Dollars ($__________), to be applied
against LESSEE'S tax liability under subparagraphs B., C. and D. of
this Clause 8. Such monthly sum payable by LESSEE shall be determined
on the basis of at least two (2) semi-annual tax bills applicable to
the premises or CENTER for the period immediately preceding the first
lease year hereunder (unless LESSOR shall be aware of some other
evidence indicating a lesser or greater tax liability for the first
lease year, in which case said monthly sum shall be determined on the
basis of such other evidence). Thereafter, on an annual basis
following the end of the first lease year and each subsequent lease
year (or at the end of each calendar year if LESSOR so elects, such
lease or calendar year, as the case may be, being hereinafter referred
to as "tax year"), LESSOR shall, if necessary adjust said monthly
amount for Taxes on the basis of LESSEE'S actual tax liability for the
immediately preceding tax year (unless LESSOR shall be aware of some
other evidence indicating a lesser or greater tax liability for such
tax year, in which case said monthly sum shall be determined on the
basis of such other evidence), and LESSEE, upon notice from LESSOR,
shall commence paying such adjusted monthly sum.
Concurrently with such annual adjustment (whether or not an
adjustment is actually made), LESSOR shall furnish to LESSEE a copy of
the tax bill or bills and a statement in reasonable detail of LESSEE'S
actual tax liability for the preceding tax year. If the actual amount
of LESSEE'S tax liability with respect to any tax year, once
determined, is less than the total amount theretofore paid for such
period, the excess amount so paid shall then be refunded to LESSEE.
If the actual amount of LESSEE'S tax liability with respect to any tax
year, once determined, shall exceed the total amount theretofore paid
by LESSEE for such period, LESSEE shall then pay to LESSOR such
deficiency within ten (10) days following notice from LESSOR. Any
deficiency assessed may include a deficiency for the period between
the end of the tax year in question and the date of determination by
LESSOR.
(3) FIRE INSURANCE - Following the date of this lease, LESSEE
shall be billed by LESSOR for its prorata share of insurance costs
under subparagraph E. of this Clause 8. covering the period from the
Rent Commencement Date of this lease to the next following annual
insurance premium payment date (currently April 1 of each year).
LESSEE shall pay such insurance bill concurrently with the payment of
its first full month's rent due under this lease.
-7-
<PAGE>
Thereafter, within thirty (30) days prior to such annual insurance
premium payment date, or at any time thereafter, LESSEE, upon billing from
LESSOR, shall pay its prorata share of insurance costs for the next
following insurance premium payment year (i.e., April 1 through March 31)
or part thereof during which the lease term hereunder is in effect or
during any other period of occupancy of the premises by LESSEE.
LESSOR shall furnish LESSEE with a reasonable explanation of the
computation of LESSEE'S prorata share of insurance costs with each such
billing. In the event this lease shall be terminated other than for reason
of default by LESSEE, or shall expire, LESSOR shall promptly refund any
portion of such insurance costs paid by LESSEE which are applicable to any
period following such termination or expiration date. LESSEE shall have
the right, upon prior written notice to LESSOR, to examine LESSOR'S records
with respect to both tax and insurance billings under this Lease (such
examination to be conducted at LESSOR'S offices during normal business
hours).
9. LEASE YEAR AND LEASE TERM: The term "lease year" is hereby defined as
meaning the twelve (12) month period beginning with the commencement date
of the term of this lease as defined in Clause 3. hereof or with any annual
anniversary of said date during the lease term. The term "lease term"
shall, unless otherwise expressly provided, be deemed to mean and refer to
both the Primary Term and any renewals thereof.
10. RENT PAYABLE: All rent and/or other sums due and payable hereunder
shall be paid in lawful United States currency on or before the due date
specified for such payment, or if no date specified, as may be directed by
the LESSOR, to ___________________________________________________________,
unless and until otherwise directed in writing by LESSOR. LESSEE shall
insert on each rent check payable to LESSOR. LESSOR'S Lease Identification
No. _______________.
11. REMODELING OF PREMISES: Following the execution of this lease by the
parties hereto, the LESSOR shall cause possession of the premises to be
delivered to LESSEE on _____________, ____ (unless LESSEE chooses to take
possession of the premises prior to such date), and LESSEE hereby agrees to
accept same, subject to the terms of this Lease, in "as is condition";
provided, however, LESSOR, at its expense, shall _______________________
__________________ prior to LESSEE'S acceptance of the premises.
Additionally, if during any phase of LESSEE'S construction, or at any time
during the lease term, any hazardous materials, such as asbestos, are
discovered in the premises, the LESSOR agrees that it will be solely
responsible, at its expense, to remediate such condition.
Upon delivery of possession of the premises to LESSEE and during the
period preceding the Rent Commencement Date as specified in Clause 4.
above, LESSEE shall commence and complete any remodeling work which it may
-8-
<PAGE>
desire or hereunder be required to do (including fixturing and stocking the
premises for business); provided, however that prior to the commencement of
any such remodeling work (other than installing normal or customary
business fixtures), LESSEE shall first obtain LESSOR'S written approval
thereof. In order to obtain LESSOR'S approval as aforesaid, LESSEE shall
furnish LESSOR with a sufficiently detailed set of Plans and Specifications
outlining the scope of LESSEE'S work. LESSOR shall not unreasonably delay
or withhold its approval thereof.
12. REPAIRS AND MAINTENANCE: During said lease term or any other period of
occupancy prior to or after said lease term the LESSOR shall maintain and
keep in good repair the exterior of the building within which the leased
premises is contained (inclusive of the obligation to maintain and repair
the roof, gutters and downspouts and to keep said building structurally
sound, but exclusive of any such exterior part of the premises damaged by
the negligence of LESSEE or its employees, agents, contractors or
representatives) and the entire Common Area within said CENTER; provided,
however, LESSOR shall not be obligated to repair and maintain any part of
the exterior storefront of said premises (meaning any part of any door,
doorframe or doorjamb, window or window frame), or any other exterior door
or window or part thereof, or any exterior sign, awning, light fixture or
canopy or part thereof which has been installed by or for LESSEE and which
constitutes part of or is affixed to said premises.
During said same period or periods, in addition to being responsible
for the maintenance and repair of those parts of the premises which as
above mentioned are not obligations of the LESSOR, LESSEE shall maintain
and keep in good repair and condition the interior of the demised premises,
including but not limited to the walls, floors and ceilings and any parts
thereof; and LESSEE shall further be responsible for the repair,
maintenance and replacement, if necessary, of all mechanical, electrical
and plumbing systems or parts thereof within or exclusively serving said
premises, including but not limited to, the heating, ventilating and air
conditioning (HVAC) systems. LESSEE shall enter into a preventive
maintenance service contract with a reputable company approved by LESSOR
for the regular and periodic servicing (not less than twice each year) of
the HVAC system upon and serving the premises. LESSEE shall also contract
with a filter replacement service for monthly replacement of filters in the
HVAC equipment. LESSEE shall maintain such service contracts in effect
throughout the lease term and LESSEE'S occupancy of the premises. If
LESSEE shall fail to enter into and maintain such HVAC service contract and
such filter replacement service contract, or shall fail to furnish LESSOR
on request with satisfactory evidence that such contracts are in effect,
LESSOR may, at its option, enter into such contracts for and on behalf of
LESSEE and the cost thereof shall, on demand, be promptly paid by LESSEE to
LESSOR; provided, however, LESSOR shall have no obligation by virtue of
this provision to contract for such services. Additionally, LESSEE
understands that failure to cause such HVAC equipment to be regularly and
-9-
<PAGE>
properly serviced and maintained may also negate or void any existing
warranties on such equipment. Notwithstanding the LESSOR'S covenants
herein set forth, LESSEE shall be solely responsible for keeping the
sidewalk immediately in front of its storeroom premises free from snow and
ice. Further notwithstanding the foregoing to the contrary, LESSOR
warrants that the HVAC system shall be in good working condition and repair
upon delivery of possession of the premises to LESSEE; and that LESSOR
shall be responsible for such HVAC repair (excluding routine changing of
filters) should anything go wrong with the system during the first six (6)
months of said Primary Term.
13. OTHER COVENANTS OF LESSEE: In addition to the foregoing covenants and
conditions with which LESSEE has agreed to comply, the LESSEE hereby
further agrees that it shall:
A. USE - Use and occupy the leased premises for and during the term
of this lease for the following purposes, to wit: a store primarily for the
retail sale, rental, display and use of family, religious and inspirational
merchandise, including but not limited to printed and recorded books and
music and church supplies, and for the incidental sale, in connection with
said primary use, of gifts, cards, videos, children's products, stationery,
toys and games, textiles, jewelry, figurines, software, calendars,
novelties, wall hangings, pictures, posters, gift wrap and other items
customarily sold in a majority of LESSEE's other Family Bookstores and/or
Family Christian Stores, it being intended that LESSEE'S primary use of the
premises shall be for the operation of a Family Bookstore and/or a Family
Christian Store substantially like those stores now operated by LESSEE. In
the event that the business operated by LESSEE is a franchise business, and
if LESSEE for any reason shall cease to be and remain a franchisee of such
business, then LESSOR may, on written notice to LESSEE at any time
thereafter, cancel and terminate this lease. Said leased premises shall
not be used for any other purpose other than as above set forth without the
express written consent of the LESSOR being first obtained. LESSEE shall
use no part of the sidewalk or other Common Area outside the premises for
display, storage or sales purposes and shall cause all deliveries to the
premises to be made through the rear entrance, if provided, to such
premises.
Provided LESSEE shall not be and remain in any material default under
this Lease, LESSOR agrees not to permit any other tenant in the CENTER to
operate a business which is primarily for the sale of Christian products,
nor shall it allow a tenant who has more than 1,000 square feet of floor
space set aside for the sale or rental of Christian books and Christian
music. LESSOR warrants that there are no restrictions in any existing
tenant leases that would restrict LESSEE'S use of the premises above
described. However, LESSEE acknowledges that LESSOR may grant exclusives
to other tenants for the sale of items which LESSEE sells on an incidental
basis and that such exclusives could restrict LESSEE from substantially
-10-
<PAGE>
increasing (as a percentage of its gross sales) the sale of such items.
For example, LESSOR may grant an exclusive to a jewelry store or to a toy
store, which would restrict LESSEE from conducting a business primarily for
the sale of jewelry or the sale of toys. Notwithstanding the foregoing,
LESSEE shall not be restricted in the sale of any such "incidental items"
so long as its sale of any one category of incidental items (e.g. toys or
jewelry) does not exceed fifteen percent (15%) of LESSEE'S gross sales.
LESSEE shall not allow the leased premises to be used for any purpose
that in any way will increase the cost of hazard insurance to the LESSOR
over and above the normal cost of such insurance for the type and location
of the building of which the demised premises are a part, and for the
intended business of the LESSEE hereinabove set forth; nor bring nor suffer
to be brought into or upon said premises any substance that will increase
the hazard of fire in or on said premises (the parties not hereby intending
to exclude items customarily carried in inventory in a retail business of
the kind described in this lease); and provided further that should the
insurance rate for fire or other hazard to increased by reason of a
condition created by LESSEE in its use or occupancy of the premises, even
if with the consent of the LESSOR, said increase in such insurance rate
created or occasioned by LESSEE'S use or occupancy for extra-hazard
purposes shall be paid by the LESSEE as additional rent within ten (10)
days after receipt by LESSEE of invoice therefor from the LESSOR.
B. UTILITIES - Be solely responsible and promptly pay for all public
utility and private services rendered or furnished to the leased premises
from and after the date that possession of the premises is delivered to
LESSEE and during the term hereof (whether furnished or invoiced to the
LESSEE by the utility supplier or by the LESSOR) in the nature of heat, air
conditioning, water and sewer charges, gas, electricity and trash hauling,
together with all taxes, levies or other charges based on the use of such
utilities or services. Additionally, if during said lease term or any
occupancy of the premises by LESSEE, LESSOR shall be required by any law,
regulation or ordinance promulgated, passed or created by any governmental
authority or agency thereof, whether federal, state, county, regional, city
or other, to pay any service charge levied, assessed or imposed upon LESSOR
because of its ownership of the premises hereby leased (an example of such
charge being the disposal service charge for disposal of garbage and/or
refuse which is imposed pursuant to Resolution No. __________, passed by
the County Commissioners of _____________ County, ___________, or any
amendment thereof, a copy of said Resolution with accompanying rate
schedule being attached hereto as Exhibit "C" and made a part hereof), then
and in such event, LESSEE shall promptly reimburse LESSOR for the full
actual amount of such service charge paid by LESSOR upon being billed by
LESSOR therefor or, if same can be arranged, such service charge shall be
paid by LESSEE directly to the charging authority. In the event the
disposal service charge for the premises above mentioned is shown as an
assessment on LESSOR'S real estate tax bills for the Shopping Center,
-11-
<PAGE>
LESSEE shall nevertheless reimburse LESSOR for same upon receipt of a
statement from LESSOR (such charge to be calculated as provided for in
Exhibit "D" to this Lease). The intent of this provision is to make the
LESSEE responsible for all such service charges which are or would be
imposed upon LESSOR merely by virtue of the fact that it is the owner of
the leased premises, but which service charges are, in essence or in
effect, imposed for or relate to a specific service or services (such as
trash disposal) rendered to, upon or for the premises, or to the use to
which the premises have been put by LESSEE, or which primarily benefits the
business conducted by LESSEE. This provision is not intended to and does
not impose any liability or responsibility upon LESSEE for any charge or
charges against LESSOR or the leased premises which are not imposed for or
do not relate to such service or services.
Additionally, the parties hereto specifically understand and agree
that LESSOR is not responsible for providing and shall not in any way be
liable hereunder unto the LESSEE for the quality or quantity of any utility
service in the nature of water, gas and electricity which is or might be
necessary for heating, air conditioning and other such purposes upon and
within the premises. In the event any local, state or federal government,
government body, department, branch, agency or public utility shall
restrict or reduce the amount of any fuel or energy which may be utilized
to provide the utilities and services hereinbefore referred to, then such
reduction or restriction and the reduction in utilities and services to the
premises and the CENTER which may result therefrom shall in no way create
or constitute a default on the part of the LESSOR under this lease or
otherwise, and there shall be no reduction in rents or other sums due and
payable by LESSEE under this lease, nor shall LESSEE have or be entitled to
any other claim against LESSOR, for the period or periods during which the
said utilities and services are so restricted or reduced. Any expense to
provide the premises with an alternate source of fuel or energy for or
during any period in which regular fuel and energy supplies are curtailed
shall be LESSEE'S sole responsibility.
C. ALTERATIONS - Not make major or structural additions or
alterations to the interior or any additions or alterations to the exterior
of the leased premises without LESSOR'S prior written consent (which
consent shall not be unreasonably delayed or withheld), and when such
consent be given, cause all such permitted additions and alterations to be
done in a good workmanlike manner. LESSOR'S written approval of LESSEE'S
construction and/or remodeling Plans and Specifications furnished to LESSOR
prior to the commencement of such work shall constitute LESSOR'S consent.
LESSEE further agrees that, in undertaking any such additions or
alterations, it shall obtain and pay for all permits from all public
authorities, as may be required, pay all cost and expense arising from such
undertaking, as well as for all damage occasioned in connection therewith;
and LESSEE shall obtain and furnish satisfactory evidence of such
additional insurance protecting LESSOR as LESSOR may reasonably request.
-12-
<PAGE>
LESSEE shall cause all permitted work to be done in accordance with the
Plans and Specifications approved by LESSOR, and shall be solely
responsible to see that such Plans and Specifications comply with all
building, fire and sanitary codes and regulations of governmental
authorities having jurisdiction, and any other such laws, codes and
regulations, including the requirements and recommendations of LESSOR'S
insurance underwriters, relative to such work. LESSEE understands that
LESSOR'S approval of said Plans and Specifications as above provided for
shall not in any manner be deemed or construed to be an indication or
acknowledgment that same are in conformity with such codes, regulations,
laws, recommendations or other requirements relating thereto. If LESSEE
shall install business fixtures and equipment, or construct partitions,
soffits, lofts, shelves, or other improvements (including the installation
or relocation of light fixtures) which overload utility lines or result in
excessive spacing of sprinkler heads, or which obstruct or impede the
sprinklers and/or operation thereof in any way, LESSEE shall, on demand and
at its sole expense, make whatever changes are necessary including, but
without limit to, the extending, addition, or lowering of sprinkler lines
and heads to comply with the requirements or recommendations of LESSOR'S
insurance underwriters and/or governmental authorities having jurisdiction
thereof. All such additions and alterations (including wall to wall
carpeting) shall be and become a part of the realty which shall at LESSOR'S
option, upon the termination or expiration of the lease term, remain with
and be a part of the premises for the benefit of LESSOR, and LESSOR shall
be under no obligation to compensate LESSEE therefor. However, if directed
by LESSOR, LESSEE at its sole expense shall remove all such additions and
alterations, repair all damage occasioned by such removal, and restore the
premises to as good a condition as when received, reasonable wear and tear,
excepted.
D. TRASH AND ODORS - Keep all trash, rubbish, garbage and other
refuse in proper containers within the interior of the leased premises or
upon the exterior rear of said premises until called for to be removed, and
not cause or permit objectionable odors to emanate or be dispelled from
said leased premises.
E. LAWS - Comply with all laws and ordinances and all rules and
regulations of governmental authorities, and all recommendations of the
____________________________, with respect to the use and occupancy of said
leased premises by LESSEE.
F. BUSINESS HOURS - Cause its business to be conducted and operated
on all business days (excepting Easter, Thanksgiving, Christmas and New
Year's day and all Sundays) during at least the hours of 10:00 A.M. to 9:00
P.M., Mondays through Saturdays. By this covenant, it is meant that
LESSEE, except for reasons of force majeure, shall continuously operate and
keep open its business upon the premises during the hours above specified
throughout the term of this lease. If LESSEE fails to comply with this
-13-
<PAGE>
covenant, it shall be in default of this lease even though it may continue
to pay the rent and other charges provided for hereunder. Notwithstanding
the foregoing to the contrary, LESSEE shall also be permitted to close one
additional business day to conduct physical inventory.
G. SIGNS - Install and erect a business identification sign on the
exterior storefront of said leased premises in accordance with LESSOR'S
sign criteria as set forth and described on Exhibit "D" attached hereto and
made a part hereof; provided, however, LESSEE shall as soon as possible
after the signing of this Lease furnish LESSOR for LESSOR'S approval with a
detailed, to scale rendering of such sign prior to ordering or installing
same, which rendering shall include all sign specifications required by
LESSOR. LESSOR shall not unreasonably withhold its approval of such sign.
LESSEE shall cause said sign to be illuminated each business day during the
hours from dusk to one-half hour past LESSEE'S closing time; provided,
however, if LESSEE'S closing time is earlier than the majority of other
stores in the CENTER, LESSEE shall keep said sign illuminated until one-
half hour past the closing time of the majority of said other stores.
Further, LESSEE shall not place or erect any awnings, canopies or other
fixtures or apparatus on the exterior of said leased premises unless the
same be expressly provided for herein or otherwise approved in writing by
the LESSOR. When so approved and/or permitted hereunder, LESSEE agrees
that it shall maintain such signs, awnings, canopies, fixtures or apparatus
in good condition and repair and save LESSOR harmless from all cost,
expense, loss or damage which may result from the erection, maintenance,
existence or removal of same. Upon vacating the premises, LESSEE agrees
that it shall remove all such signs, awnings, canopies, fixtures or
apparatus as it may have installed on the leased premises and repair all
damage caused by or resulting from such removal. Any refusal by LESSOR to
approve a sign or signs which fail to meet the sign criteria as set forth
on said Exhibit "D" shall not be deemed nor construed to be an unreasonable
withholding of approval hereunder by LESSOR. Additionally, LESSOR shall
have the right to remove LESSEE'S storefront sign (or any awning, canopy,
fixture or apparatus installed by LESSEE) at any time it may be necessary
or advisable to do so for the purpose of remodeling or repairing any part
of the structure of which the demised premises are a part, but LESSOR
agrees to promptly reinstall said sign, awning, canopy, fixture or
apparatus upon completion of the work.
H. LIENS - Promptly pay all contractors and materialmen hired by
LESSEE and secure from said parties and their respective subcontractors and
suppliers proper releases or waivers of lien so as to minimize the
possibility of any lien attaching to the leased premises or CENTER and,
should any such lien be filed, bond against or cause same to be discharged
within thirty (30) days after receipt of written request from LESSOR to do
so.
I. LIABILITY INSURANCE - Keep in force at its own expense, so long
as this lease remains in effect, public liability and property damage
-14-
<PAGE>
insurance in companies authorized to do business in ______________ and
___________________ County with respect to the leased premises, insuring
both LESSOR and LESSEE as their interests may appear (LESSOR to be named an
Additional Insured Party in said policy), with a combined single limit
coverage of not less than One Million and no/100 Dollars ($1,000,000.00) on
account of bodily injuries and/or death and property damage. Such policy
shall also require the LESSOR to be notified in writing by the insurer at
least thirty (30) days prior to the cancellation or reduction in the amount
of such insurance. LESSEE shall furnish the LESSOR with an original
certificate or certificates (and with renewal certificates) from the
insurer or insurers evidencing such insurance coverage to be in effect.
Should LESSEE fail at any time to provide this coverage and evidence
thereof, LESSOR may cause a policy with such dollar limits to be issued by
a reputable insurance company for and on behalf of LESSEE, and LESSEE shall
promptly reimburse LESSOR on demand for the full cost thereof.
J. ASSIGNMENT OR SUBLEASE - Not voluntarily, involuntarily or by
operation of law assign or encumber this lease, in whole or in part, or
sublet the whole or any part of the demised premises, or permit any other
persons to occupy same without the express written consent of the LESSOR,
references elsewhere in this lease to assignees, subtenants or other
persons notwithstanding. In the event that LESSEE requests permission to
either assign this lease, or to sublet the whole or any part of the demised
premises, or should this lease be deemed to be assigned as hereinafter
provided, then LESSOR shall not unreasonably withhold its consent. In the
absence of such consent, no person or entity to whom or to which an
assignment has been made or with whom or which a sublease has been entered
into shall have any claim, right or remedy whatsoever hereunder, against
LESSOR, and LESSOR shall have no duty to recognize any person or entity
claiming under or through the same. Additionally, each request on the part
of LESSEE to assign this lease or sublet the premises shall be accompanied
by a processing fee payable to LESSOR in the amount of Two Hundred and
no/100 Dollars ($200.00), which fee constitutes reimbursement to LESSOR for
its administrative, legal and other overhead costs and expenses incurred in
reviewing and/or preparing necessary and related documents and otherwise
processing such request. Any assignment or subletting, even with the
consent of LESSOR, shall not relieve LESSEE from liability for payment of
rent or other sums herein provided or from the obligation to keep and be
bound by the terms, conditions and covenants of this lease. LESSOR shall
also have the right to condition its consent to any assignment or sublease
upon the assignee's or sublessee's entry into an agreement with or for the
benefit of (and in form and substance satisfactory to) LESSOR, providing
for such assignee's or sublessee's assumption of all of the LESSEE'S
obligations under this lease. The acceptance of rent from any other
persons shall not be deemed to be a waiver of any of the provisions of this
lease or to be a consent to the assignment of this lease or subletting of
the demised premises. In the event LESSEE shall sublet the demised
premises for a rental in excess of the rental hereunder payable by LESSEE,
-15-
<PAGE>
the full amount of such excess rental shall be automatically due and
payable by LESSEE to LESSOR as additional rent under this lease.
Notwithstanding anything in this Lease to the contrary, LESSEE shall
have the right, on one occasion only during the lease term, and upon thirty
(30) days' prior written notice to LESSOR, together with sufficient
documentation which verifies that all of the requirements set forth
hereunder have been fulfilled and the conditions have been met, to (a)
assign and transfer this Lease to another entity to which LESSEE has sold
all of its assets, or (b) to merge or consolidate with another entity with
the result that the merged or consolidated entity shall have all of the
assets of LESSEE, provided that (i) LESSEE shall not at the time of such
assignment be in default under any of the terms, covenants and conditions
of this Lease, (ii) such assignee or merged entity shall have a net worth
equal to or greater than the net worth of LESSEE as of the date of this
Lease or as of the date immediately preceding such assignment, whichever of
such net worth amounts shall be greater (and, in the event of an assignee
other than a merged entity, such assignee shall be required to satisfy such
net worth test both immediately before and after the date of assignment),
(iii) such assignee or merged entity shall agree in writing to perform all
of LESSEE'S unperformed and remaining terms, covenants and conditions of
this Lease, (iv) LESSEE shall at all times remain primarily obligated for
the performance of all of the terms, covenants and conditions of this
Lease, and (v) such assignee or merged entity shall have substantial and
proven experience in the successful operation of the type of business set
forth in the permitted uses described above, or such assignee or merged
entity shall (for the lease term) retain substantially the same management
personnel as employed by LESSEE immediately prior to such assignment and
transfer, and the experience of such assignee or merged entity or proof
reasonably satisfactory to LESSOR that substantially the same management
personnel has been retained shall be documented to LESSOR. Subject to the
foregoing conditions, a permitted assignment and transfer may also be
implemented by means of a transfer of all of LESSEE'S voting capital stock,
provided that the purchaser of such voting capital stock shall guarantee
the performance by LESSEE of all of the terms, covenants and conditions of
this Lease and shall provide to LESSOR, prior to the effective date of such
purchase, an executed guaranty in the form required by LESSOR; provided,
however, that such guaranty shall not be required in the event that such
purchaser shall have a net worth at least equal to the net worth of LESSEE
as of the date of this Lease or as of the date immediately preceding such
assignment, whichever of such net worth amounts shall be greater (provided
that such purchaser must satisfy such net worth test both immediately
before and after the date of purchase of LESSEE'S voting capital stock).
Within twenty (20) days prior to the effective date of any such assignment
or transfer, LESSEE shall provide LESSOR with all documents and evidence
necessary for LESSOR to determine that the foregoing terms and conditions
have been or will be met and satisfied; and provided such conditions are
met and satisfied, LESSEE shall have the right to proceed with such merger,
-16-
<PAGE>
consolidation or assignment. Also, within twenty (20) days after the
effective date of any such assignment or transfer, LESSEE shall provide
LESSOR with a copy of the fully-executed and dated merger, consolidation
and/or assignment documents. LESSOR'S prior consent shall not be required
for any "going public" transaction by LESSEE or transfers of LESSEE'S stock
by operation of law due to the death or incapacity of any shareholder or in
connection with any disposition to a family trust or other estate-planning
vehicle by any such shareholder.
If LESSEE is a corporation (other than one whose stock is traded on a
national stock exchange), then any transfer of this lease from LESSEE by
merger, consolidation or liquidation, or any change in ownership or power
to vote of a majority of its outstanding voting stock from the owners of
such stock or those controlling the power to vote of such stock as of the
date of this lease shall constitute an assignment for the purpose of this
lease. An assignment for the benefit of creditors or by operation of law
shall not be effective to transfer any rights to the assignee without the
express written consent of the LESSOR having been obtained.
Notwithstanding any provision above or in this lease to the contrary,
before LESSEE may negotiate with any other person or party for the
assignment of this lease or subletting of all or part of said premises,
LESSEE must first notify LESSOR if it's desire to do so and offer to
relinquish its lease and lease rights in and to said premises, and to
surrender same, to the LESSOR; and upon receipt of such notice from LESSEE,
LESSOR shall have the right and option, upon notice to LESSEE, to terminate
this lease and to recapture for its own use and benefit the demised
premises; and LESSEE hereby agrees that if LESSOR exercises such right of
termination and recapture, this lease shall terminate and become absolutely
null and void upon not less than thirty (30) or more than sixty (60) days
after that date of LESSOR'S notice of termination to LESSEE. Upon such
termination, LESSEE shall surrender the premises and all leasehold
improvements to the LESSOR, and all accounts and interest of the parties
shall be settled to the effective date of termination. LESSEE further
understands and agrees that LESSOR'S right and option to terminate this
lease and recapture the premises shall be separate and distinct from its
right hereunder to consent or withhold consent to any proposed assignment
or sublease.
K. RULES AND REGULATIONS - Comply with and observe all reasonable
rules and regulations adopted by the LESSOR and applicable to the leased
premises and the CENTER as the same may from time to time be amended by
LESSOR, provided, however, that such rules and regulations shall be equally
and uniformly applicable to the majority of LESSOR'S other tenants in said
CENTER and LESSEE shall have been given written notice thereof.
L. SUBORDINATION - DOCUMENTATION REQUIRED BY MORTGAGEE - Provided
LESSOR'S mortgagee agrees to deliver to LESSEE a fully executed Non-
Disturbance Agreement in substance agreeable to LESSEE, LESSEE shall
-17-
<PAGE>
execute and deliver any instruments which may be required to effect the
subordination of this lease to the lien or liens of any mortgages or deeds
of trust upon the leased premises, whether in being or hereafter created,
and all renewals, replacements and extensions thereof, provided the
mortgagee or trustee named in said mortgages or deeds of trust shall agree
in writing to recognize LESSEE'S lease in the event of foreclosure so long
as LESSEE is not in default of this lease (it being hereby agreed by LESSEE
that, in any event, this lease shall, on the request of either LESSOR or
any mortgagee of the premises, be subordinate to any first mortgages or
deeds of trust that may now exist or be hereafter placed upon the subject
premises and to any and all advances made or to be made thereunder).
LESSEE also agrees that any mortgagee or trustee may elect to have this
lease made a prior lien to its mortgage or deed of trust, and in the event
of such election and upon notice by such mortgagee or trustee, or by
LESSOR, to LESSEE to that effect, this lease shall be deemed prior in lien
to said mortgage or deed of trust, whether this lease is dated prior or
subsequent to the date of said mortgage or deed of trust. LESSEE further
agrees that upon request, it shall promptly execute and deliver whatever
instruments may be reasonably required for such purposes and to carry out
the intent of this provision.
Additionally, LESSEE shall, at any time and from time to time upon
request by LESSOR, promptly execute and deliver to LESSOR or to such other
party designated by LESSOR a statement in writing in such form as may be
prescribed certifying that this lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), and the dates to
which the Minimum Rents and other sums and charges due under the lease have
been paid, and stating whether or not to the best of LESSEE's knowledge
LESSOR is in default in the performance of any covenant, agreement, term,
provision or condition contained in this lease, and if so, specifying each
such default of which the LESSEE may have knowledge, it being intended that
any such statement delivered pursuant hereto may be relied upon by any
prospective purchaser or tenant of the improvements or of the improvements
and the land, any mortgagee or prospective mortgagee thereof, or any
prospective assignee of any mortgagee thereof. LESSEE also shall promptly
execute and deliver on request by LESSOR such other similar or related
certificates or instruments as LESSOR or any institutional lender may
reasonably require or desire with respect to this lease.
In the event of the sale or assignment of all or part of LESSOR'S
interest in the CENTER, or in the event of any proceedings brought for the
foreclosure of, or exercise of the power of sale under, any mortgage
covering said premises and all or part of the CENTER, LESSEE shall and
hereby agrees to attorn to and recognize such purchaser or mortgagee as
landlord under this lease, and in any of such events, LESSOR shall not
thereafter be liable under this lease.
-18-
<PAGE>
M. SURRENDER OF PREMISES - Except as otherwise expressly provided in
other provisions of this Lease, surrender said leased premises to LESSOR
upon the expiration of the tenancy hereby created or hereinafter permitted
in as good condition as received, normal wear and tear, damage by acts of
God or other unavoidable casualty, excepted.
N. WASTE OR NUISANCE - Not commit or suffer to be committed any
waste upon the leased premises or any nuisance to be maintained thereon
which may disturb the quiet enjoyment of any other tenants in the building
or the CENTER of which the leased premises are a part.
O. INSPECTION - Permit the LESSOR or LESSOR'S authorized agents to
enter the leased premises at all reasonable times with prior notice to
LESSEE, except in cases of emergency, for the purpose of making
examinations of and/or necessary repairs to same and, within six (6) months
from the expiration of the lease term, to show said premises to prospective
purchasers or tenants, provided, however, that no rights hereunder
exercised by LESSOR shall be deemed to impose upon the LESSOR any
obligation for the care, maintenance or repair of said leased premises or
any part thereof except as otherwise in this lease expressly stated and
contained.
P. EMPLOYEE PARKING - Cause its employees to park their cars only in
locations in said CENTER designated by LESSOR. Upon written request from
the LESSOR, LESSEE shall promptly furnish to LESSOR the license numbers of
its employees' automobiles for the purpose of aiding LESSOR to ascertain
employees violating this parking restriction.
Q. ADVERTISING - Cooperate fully with the LESSOR and other tenants
of the CENTER in promoting the use of trade names, slogans, logos and the
like as may be adopted for promotion of the CENTER; and to specify in all
forms of advertising of its business at said CENTER that same is located in
the THE SHOPPES AT PRESTIGE PLAZA Shopping Center.
R. SOLICITATION - Not solicit, or permit its employees, agents or
representatives to solicit, any business in or upon the common areas of the
CENTER nor distribute any handbills or other advertising matter in such
areas.
S. AUCTION AND OTHER SALES - Not conduct or permit any sale by
auction in, upon or about the premises, whether said auction be voluntary,
involuntary or pursuant to any assignment for the benefit of creditors, or
pursuant to any bankruptcy or other insolvency proceeding; and no fire,
bankruptcy, and or going out of business sale shall be conducted in, upon
or about the premises.
14. OTHER COVENANTS OF LESSOR: In addition to the foregoing covenants and
conditions with which LESSOR has agreed to comply, the LESSOR hereby
further agrees that it shall:
-19-
<PAGE>
A. LIABILITY INSURANCE - Keep in force at all times public liability
and property damage insurance in companies authorized to do business in
______________ and ______________ County with respect to all common areas
of said CENTER, with a combined single limit coverage of not less than One
Million and no/100 Dollars ($1,000,000.00) on account of bodily injuries
and/or death and property damage.
B. FIRE INSURANCE - Carry and maintain fire and extended coverage
insurance (including standard all risk perils and rent loss coverage) upon
the entire CENTER and the premises hereby leased. Such insurance coverage
(except for a $1,000 deductible) shall cover LESSOR'S insurable value in
the CENTER and premises hereby leased, designated as "replacement cost",
and not less than the amount which may from time to time be required by any
mortgagee or other lending institution having an interest in the CENTER.
C. QUIET ENJOYMENT - Be lawfully seized and in possession of the
leased premises on the date hereof and, upon LESSEE paying the rent and
performing all covenants and agreements herein stipulated to be performed
by LESSEE, allow said LESSEE to have the peaceful and quiet enjoyment and
possession of said premises during the full term of this lease without any
manner of hindrance or molestation on the part of LESSOR or anyone claiming
by, through or under LESSOR.
15. OTHER MUTUAL COVENANTS: In addition to the foregoing covenants and
conditions with which the parties hereto have agreed to comply, the LESSOR
and LESSEE do hereby further mutually agree that:
A. WAIVER OF SUBROGATION - LESSOR and LESSEE hereby waive all rights
of recovery in causes of action which either party has or may have or which
may arise hereafter against the other, whether caused by negligence or
otherwise, for any damage to the premises or contents therein or to the
CENTER or any part thereof caused by any of the perils which are normally
covered under approved ______________ broad form policies of fire and
extended coverage, building and contents and business interruption
insurance or for which either party may be reimbursed as a result of
insurance coverage affecting any loss suffered by it; and further provided
that the foregoing waivers do not invalidate any policy of insurance of the
parties hereto, now or hereafter issued, it being stipulated by the parties
hereto that the waivers shall not apply in any case in which the insurance
application thereof would result in the invalidation of any such policy of
insurance.
B. FIXTURES AND PERSONALTY - All personal property installed in or
brought upon the leased premises by the LESSEE, in the nature of furniture,
fixtures, business equipment, display cases, racks and supplies, shall
remain the sole property of the LESSEE, and the same at any time may be
removed (and if directed by LESSOR at the expiration or sooner termination
of this lease, shall be removed) by the LESSEE, provided, however, that
-20-
<PAGE>
LESSEE shall promptly repair any damage to the premises occasioned by such
removal. In addition to repairs of any and all damage to the walls,
floors, ceiling or roof or parts thereof, or any other appurtenant parts of
the demised premises, which may be occasioned by removal of LESSEE'S
property, LESSEE shall also be required, at LESSOR'S direction, to repair
and/or restore such other improvements or changes in and to the premises
which are specifically made for the conduct of LESSEE'S business such as
but not limited to (if applicable) the restoration of the floor to a single
uniform level, the repair and restoration of the roof of the premises by a
contractor selected or approved by LESSOR of all roof or wall cuts
necessitated for LESSEE'S business, and the removal (to the point of entry
into the premises) of all electrical, plumbing, gas and telephone lines, as
well as all mechanical lines, pipes or stacks, and the proper stubbing of
said lines, pipes or stacks at such point of entry into the premises. Any
such personal property left by LESSEE upon the premises after the
expiration of the term of this lease may be placed in storage by LESSOR at
LESSEE'S sole expense or retained by LESSOR at the premises and, if same
shall not be called for within ten (10) calendar days after written notice
from LESSOR, said property shall be deemed to be abandoned by LESSEE, and
LESSOR may do as it sees fit with same.
C. INDEMNIFICATION - Except for damages and/or injuries sustained by
persons or property while in or upon the leased premises which damages or
injuries are caused in whole or in part by the negligence or misconduct of
the LESSOR, its employees, agents or representatives, the LESSEE does
hereby covenant and agree to indemnify and hold harmless the LESSOR from
and against any and all claims and causes of action relating or with
respect to such damages or injuries arising during the term of this lease.
D. DAMAGE OR DESTRUCTION - In the event the leased premises shall be
damaged or destroyed by fire or other casualty, the LESSOR hereby agrees
that it shall, subject to delays which may arise by reason of adjustment of
loss under insurance policies and except as otherwise provided in this
Lease, promptly commence the complete restoration or replacement of same
(except for leasehold improvements hereafter made by LESSEE which shall be
LESSEE's responsibility) to a tenantable condition at least as good as, or
better than, the condition of said premises prior to the happening of such
fire or other casualty. If the LESSOR shall not cause said restoration or
replacement to be substantially completed and the said premises made ready
for occupancy within 180 calendar days after the date of such fire or other
casualty, provided, however, that LESSOR shall have an additional number of
calendar days over and above said 180 calendar days equal to the number of
calendar days that LESSOR is actually delayed in said completion by reason
of any "force majeure", as that term is hereinafter defined, then LESSEE
shall have the option of terminating this lease by giving written notice to
LESSOR of its intention to do so, and such termination shall be deemed to
be effective upon the date such notice is received by LESSOR.
Additionally, during the time said leased premises are being restored or
-21-
<PAGE>
replaced and until completion thereof, the LESSEE's Minimum Rent, other
than Percentage Rent, shall be proportionately and equitably reduced based
upon the total usable space remaining available to LESSEE for the operation
of its business.
In the event that the leased premises shall at any time be
substantially or wholly damaged or destroyed by fire or other casualty
(meaning damage equal to fifty percent (50%) or more of the full value of
the replacement cost thereof), and such damage shall occur at a time when
there is less than one (1) year of said primary lease term or any renewal
term remaining, the LESSOR shall have the option of terminating this lease
by giving written notice to the LESSEE within sixty (60) calendar days
after the happening of such fire or other casualty of its intention to do
so. If the LESSOR shall not give to the LESSEE such written notice of
termination within the aforesaid prescribed time, it shall be presumed and
binding upon said LESSOR that LESSOR does not intend to terminate this
lease and, from and thereafter, LESSOR shall not have such right of
termination. Additionally, after the elapse of said sixty (60) calendar
days period and without the LESSOR having given notice of termination as
aforesaid, the LESSOR shall as aforesaid promptly commence the complete
restoration or replacement of said premises.
E. FORCE MAJEURE - The term "force majeure" is hereby defined as
being any strike, embargo, material, labor or transportation shortage, act
of God, act of public enemy, act of duly constituted governmental
authority, flood, fire, riot, civil disturbance, or any other circumstance
beyond the party's control other than a party's financial inability to pay
its debts as they come due, whether of the kind or nature specified or not,
the specification herein of certain causes not being exclusive of any other
causes beyond said party's control.
F. CONDEMNATION - In the event the leased premises or any part
thereof shall be taken in any condemnation proceeding under the right of
eminent domain, whether the same be exercised by any Federal, state or
local government agency or by anyone else having such right, or should said
leased premises or any part thereof be conveyed under threat of such a
taking or condemnation, so that the said leased premises or remaining
portion thereof shall not be reasonably adequate and satisfactory for the
conduct and operation of LESSEE's business in substantially the same manner
and degree as immediately prior to said taking, condemnation or conveyance,
then either LESSOR or LESSEE, upon written notice to the other party within
thirty (30) calendar days after such taking, condemnation or conveyance,
may cancel and terminate this lease. Upon such notice of cancellation and
termination, all rights and obligations of the parties hereunder (except
for claims of either party in existence prior to such condemnation or
conveyance) shall cease and be and become null and void as of the actual
date of such taking, condemnation or conveyance. Except for the
unamortized portion of any leasehold improvements provided and paid for by
-22-
<PAGE>
LESSEE, or for any claim LESSEE may have for relocation expenses, the
proceeds of any such condemnation or taking, whether for all or part of
said premises, shall belong to the LESSOR.
G. DEFAULT OF LESSEE - In the event the LESSEE shall fail to pay any
of the rent or other sums and charges herein required by it to be paid and
LESSEE shall further fail to pay all of aforesaid sums due within ten (10)
calendar days after receipt of written notice from LESSOR advising LESSEE
of such default, or in the event the LESSEE shall fail to perform and
comply with any other covenants and conditions of this lease herein
required by it to be performed and complied with, and LESSEE shall further
fail to perform and comply with such covenants and conditions and cure such
default within thirty (30) calendar days after receipt of written notice
from LESSOR advising LESSEE of such default (provided, that if LESSEE
proceeds with due diligence during such thirty (30) day period to cure such
default and is unable by reason of the nature of the work involved to cure
the same within said thirty (30) days, then LESSEE shall have an additional
period of time not to exceed fifteen (15) days to cure such default;
provided, further, however, that such extension of time shall not subject
LESSOR to any liability, and the interest of LESSOR in the demised premises
shall not be jeopardized by reason thereof), or in the event the LESSEE
shall be adjudicated a bankrupt or a voluntary petition in bankruptcy be
filed by LESSEE, or should this leasehold be taken under execution,
attachment or other process of law, or should LESSEE make an assignment for
the benefit of creditors or a receiver or trustee be appointed for LESSEE,
and said bankruptcy adjudication or petition, execution or attachment,
assignment for the benefit of creditors or appointment of receiver or
trustee, not be vacated, released, dismissed or otherwise corrected within
sixty (60) calendar days after the date of same, or should LESSEE vacate or
abandon said premises, the terms "vacate" or "abandon" for purposes of this
paragraph being defined as LESSEE'S failure to open the leased premises for
a period of five (5) consecutive days, except where LESSEE shall either
have the right hereunder to remain closed for such period or same is due to
reasons constituting force majeure, then, in any of the aforesaid events,
without further written notice from LESSOR to LESSEE, and without
terminating this lease, or, if LESSOR shall elect to terminate this lease,
upon notice to LESSEE of such termination, the said LESSOR shall have the
immediate right to enter and repossess the leased premises by force or
otherwise, without any requirement of legal proceeding or court order, to
have the locks on all doors to the premises changed, and to remove
therefrom the said LESSEE and LESSEE's property, and anyone claiming by,
through or under the LESSEE; or, in the alternative, LESSOR may terminate
this lease and allow LESSEE to remain in possession of said premises and to
continue in business thereon upon a month to month tenancy at the same
rents, terms and conditions as set forth in the terminated lease except as
to term, and LESSOR may thereafter terminate such month to month tenancy
upon thirty (30) days written notice to LESSEE; and, whether or not LESSOR
shall have terminated this lease or LESSEE'S occupancy of the premises,
-23-
<PAGE>
LESSOR shall have full right to sue for and collect all sums or amounts
with respect to which LESSEE may then be in default and accrued up to the
time of such entry or termination, including damages to the LESSOR by
reason of any breach or default on the part of the LESSEE, or the LESSOR
may bring suit for the collection of such rents and damages without
entering into possession of the premises or avoiding this lease.
LESSEE agrees that LESSOR'S election hereunder to terminate this lease
and to allow LESSEE to remain in occupancy of the premises and to continue
in business thereon pursuant to the same rents, terms and conditions set
forth in the terminated lease, except as to term, shall not in any way
relieve LESSEE from its responsibility and obligation to be and remain
liable for all rents and other sums due and to become due and all other
obligations of the LESSEE set forth in the lease, including repair and
maintenance obligations, for the period equating to the balance of time
remaining between the date of termination of the lease and the date which
would have been the normal expiration date of the lease term had this lease
not been terminated; and LESSEE specifically agrees that LESSOR'S damages
shall include but not be limited to the value of such rents and other sums
and obligations which will continue for such period, plus interest thereon,
court costs and legal fees.
In addition to, but not in limitation of any of the remedies set forth
in this lease or given to the LESSOR by law or in equity, LESSOR shall have
the right and option, in the event of any default by the LESSEE under this
lease and the continuance of such default after the period of notice above
provided, to retake possession of the premises from the LESSEE by summary
proceedings or otherwise, and it is agreed that the commencement and
prosecution of any action by the LESSOR in forcible entry and detainer,
ejectment or otherwise, or any execution of any judgment or decree obtained
in any action to recover possession of the premises, shall not be construed
as an election to terminate this lease unless LESSOR expressly exercises
its option hereinbefore provided to declare the term hereof ended, whether
or not such entry or reentry be had or taken under summary proceedings or
otherwise, and shall not be deemed to have absolved or discharged the
LESSEE from any of its obligations and liabilities for the remainder of the
term of this lease, and the LESSEE shall, notwithstanding such entry or
reentry, continue to be liable for the payment of the rents and all other
sums and charges hereunder and the performance of the other covenants and
conditions hereof and shall pay to the LESSOR all monthly deficits after
such reentry in monthly installments as the amounts of such deficits from
time to time are ascertained, and, if in the event of any such ouster, the
LESSOR rents or leases the premises to some other person, firm or
corporation (whether for a term greater, less than or equal to the
unexpired portion of the term created hereunder) for an aggregate rent
during the portion of such new lease coextensive with the term created
hereunder which is less than the rent and other charges which the LESSEE
would pay hereunder for such period LESSOR may, immediately upon the making
-24-
<PAGE>
of such new lease or the creation of such new tenancy, sue for and recover
the difference between the aggregate rental provided for in said new lease
for the portion of the term coextensive with the term created hereunder and
the rent which LESSEE would pay hereunder for such period, together with
any expense to which the LESSOR may be put for brokerage commission,
placing the premises in tenantable condition for any new tenant, or
otherwise with respect to said premises. If such new lease or tenancy is
made for a shorter term than the balance of the term of this lease, any
such action brought by the LESSOR to collect the deficit for that period,
shall not bar the LESSOR from thereafter suing for any loss accruing during
the balance of the unexpired term of this lease. Notwithstanding any
provisions to the contrary elsewhere in this subparagraph G., in the event
LESSOR shall give LESSEE written notice twice in any lease year that the
payment of rent or other lease charges is more than ten (10) days late past
the due date thereof, LESSOR shall not thereafter during such same lease
year be required to further notify LESSEE of such a late payment. Further,
LESSOR may then proceed, without further notice, to terminate this lease
and/or to commence eviction proceedings against LESSEE, or to take any
other action against LESSEE for default as may be permitted under this
lease, at law or in equity, without the LESSEE having any further rights
hereunder to cure or remedy such default; and LESSEE hereby waives any
right it may have or to which it may be entitled, to cure or remedy a
default in the payment of rent or other lease charges after it has in any
lease year been twice notified by LESSOR of such late payment thereof, the
LESSEE acknowledging and agreeing that LESSOR ought not to be required,
more than twice in any lease year, to suffer or permit any tenant to
unfairly circumvent (for whatever reason) the rental provisions of this
lease which require rent and other charges to be paid by certain specified
dates, without notice or demand.
If LESSEE at any time shall fail to pay any Taxes, assessments, liens
or insurance payments provided for hereunder, or shall fail to make any
other payment or perform any other act required by this lease to be made or
performed by it, LESSOR, without waiving or releasing LESSEE from any
obligation or default under this lease, may (but shall not be obligated to)
at any time thereafter make such payment or perform such act for the
account and at the expense of LESSEE. All sums so paid by LESSOR and all
costs and expenses so incurred, shall accrue interest at the highest annual
rate allowed under the laws of the State of ___________, from the date of
payment or incurring thereof by LESSOR and shall constitute additional rent
payable by LESSEE under this lease and shall be paid by LESSEE to LESSOR
upon demand. All rights and remedies of LESSOR herein enumerated shall be
cumulative and none shall exclude any other remedies allowed at law or in
equity.
H. LIABILITY FOR DAMAGE - Except for its own negligence or as
otherwise in this lease provided, LESSOR shall not be liable for any damage
to the premises nor to any of its contents or other personal property
-25-
<PAGE>
therein done or occasioned by or from the electrical system, the heating or
air conditioning system, the sprinkler system or the plumbing and sewer
systems (including damage caused by the freezing or bursting of pipes), in,
upon or about the premises or the building of which the premises are a
part, nor for damages occasioned by water, snow or ice being upon or coming
through the roof, walls, windows, doors or otherwise, nor for any damage
arising from acts of negligence of co-tenants or other occupants of the
building or buildings of which the premises may be a part, or the acts of
any owners or occupants of adjoining or contiguous property.
I. EXCULPATION - If LESSOR shall fail to perform any covenant, term
or condition of this Lease upon LESSOR'S part to be performed, or, if
LESSOR is liable for any negligent act or omission hereunder, and if as a
consequence of such default LESSEE shall recover a money judgment against
LESSOR, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the
right, title and interest of LESSOR in the Shopping Center and out of rents
or other income from such Shopping Center receivable by LESSOR, or out of
the consideration received by LESSOR from the sale or other disposition of
all or any part of LESSOR'S right, title and interest in the Shopping
Center, and neither LESSOR nor any of the general or limited partners of
LESSOR if LESSOR is a partnership shall be liable for any deficiency.
J. NOTICES - Whenever any notice is required or permitted hereunder,
the same shall be given in writing, sent by registered or certified United
States mail, or by reputable nationwide, overnight carrier, postage or fees
prepaid, return receipt requested, and shall be addressed to the address of
the party to be served as first hereinbefore given, or at such other
address as either party may hereafter and from time to time designate in
writing to the other. If either party's address shall be changed during
the term hereof and written notice of such change not be given to the other
party as hereinbefore prescribed, any notice and the contents thereof, if
properly mailed or delivered as stated to the last known address of the
party whose address has been changed, shall be valid and binding upon said
party for all intents and purposes. All notices hereunder, if given as
herein directed, shall be deemed to be effective upon the date such notice
is received. Any refusal to accept delivery of any notice by a party
hereto shall be deemed to be a receipt of such notice as of the date of
such refusal.
K. LACHES - The waiver of any covenants or conditions or of the
performance of and compliance with same, or the acquiesced breach thereof,
shall not constitute a waiver of any subsequent non-performance and non-
compliance or of any subsequent breach of such covenants or conditions, nor
will such waiver justify or authorize the non-observance of any other
covenant or condition hereof.
L. LEGALITY - Should any one or more of the terms and provisions of
this lease be declared void or in violation of law by any competent
-26-
<PAGE>
authority, this lease and its remaining covenants and conditions shall,
notwithstanding such determinations, continue and be of full force and
effect.
M. TITLES - All paragraph titles herein contained shall be for
reference and convenience only and shall not constitute a substantive part
of this lease.
N. LAW - This lease and each and every provision herein contained,
as the same may from time to time be amended, or any disputes or
misunderstandings involving same, shall at all times during the term hereof
be governed and controlled by the applicable laws of the State of
__________. Any action or proceeding arising under this lease shall be
brought in the courts of ________________ County, _______________;
provided, however, that if any such action or proceeding arises under the
Constitution, laws or treaties of the United States of America, or if there
is a diversity of citizenship between the parties hereto, so that it is to
be brought in a United States District Court, it shall be brought in the
United States District Court for the Southern District of Ohio.
O. MEMORANDUM OF LEASE - In the event, either simultaneously with
the execution of this lease or at anytime thereafter during the term
hereof, LESSOR shall request that a Memorandum of this lease ("Memorandum
of Lease") be executed and recorded in the public records of
________________ County, LESSEE hereby agrees to cooperate with LESSOR and
to execute said Memorandum of Lease for such purposes. When prepared, such
document shall set forth the names and addresses of both LESSOR and LESSEE,
a description of said leased premises and said CENTER, the duration of the
term of lease (including the exact commencement and ending dates of each
term) and a reference to any special clauses contained in this lease which
might be of particular significance for recording purposes. Such
Memorandum of Lease shall not set forth the amount of any rents or other
sums or charges provided for under this lease. The parties further agree
that this lease instrument shall not at any time be recorded or made
public.
P. TIME OF ESSENCE - Time is of the essence with respect to the
compliance with and performance of each of the covenants and agreements
under this lease.
Q. LATE CHARGES - In the event that payment of any sum of money due
under this lease, including but not limited to Rent, Common Area
Maintenance charges, Taxes, Insurance charges, Marketing Fund fees and the
like, shall become overdue for ten (10) calendar days beyond the date on
which said sums of money are due and payable as in this lease provided, a
late charge of 1.50% per month (computed on a 30 day month) on the sums so
overdue, computed from the actual date stipulated for payment under this
lease to the date of receipt by LESSOR, shall become immediately due and
-27-
<PAGE>
payable by LESSEE to LESSOR for LESSEE's failure to make prompt payment of
said sums, and the full amount of late charges shall be payable by LESSEE
on demand. In the event of the non-payment for any reason of any such late
charges or any part thereof, LESSOR, in addition to all other rights and
remedies which it may have, shall have all the rights and remedies provided
for herein and by law as in the case of non-payment of rent. No failure by
LESSOR to insist upon the strict performance by LESSEE of LESSEE's
obligations hereunder to pay late charges shall constitute a waiver by
LESSOR of its right to enforce the provisions of this subparagraph in any
instance thereafter occurring. The provisions of this subparagraph Q.
shall not be construed in any way to extend the notice periods for default
as provided for in Clause 15.G. of this lease. By way of example only, the
amount of a late charge due and payable on a monthly rental payment of
$1,500.00 which was paid ten (10) days beyond the due date for such rental
payment would be computed as follows: $1,500.00 X .0150 = $22.50 (late
payment for 30 days) divided by 3 (i.e., late period of 10 days being 1/3rd
of 30 days) = $7.50 (amount of late payment actually due).
R. HOLDING OVER - LESSEE shall at the expiration or termination of
this lease by lapse of time or otherwise yield up and surrender immediate
possession of the demised premises to LESSOR. If LESSEE does not do so and
remains in possession of the demised premises after the expiration of the
term of this lease without having entered into a new written lease with
LESSOR, then even if LESSEE shall have paid and LESSOR shall have accepted
rent for such period of occupancy, LESSEE shall be deemed to be occupying
the premises only as a tenant from month-to-month, subject to all
covenants, conditions and agreements of this lease except as to the term
and rent, and either party hereto may terminate such tenancy by giving the
other party thirty (30) days written notice of such intent to terminate.
S. HEIRS AND ASSIGNS - This lease and all rights and obligations of
the parties herein contained shall inure to the benefit of and be binding
upon said parties and their respective heirs, executors, administrators,
successors and assigns.
T. ENTIRE AGREEMENT - This lease and all exhibits attached hereto
and forming a part hereof, or any amendments hereto, set forth all the
covenants, promises, agreements, conditions and understandings between the
LESSOR and LESSEE concerning the leased premises, and no subsequent
alteration, amendment, change or addition to this lease shall be binding
upon either LESSOR or LESSEE unless the same be reduced to writing and
signed by the party to be bound thereby.
U. NO RESERVATION - The submission of this lease to any party for
examination does not and shall not be nor constitute a reservation of or
option for said premises, and shall vest no right of any kind whatsoever in
any such party. This lease shall be and become effective as a lease only
upon the proper execution and delivery thereof by both LESSOR and LESSEE.
-28-
<PAGE>
V. MORTGAGEE PROTECTION CLAUSE - LESSEE agrees to give any mortgagee
by registered mail, a copy of any notice of default served upon LESSOR,
provided that prior to such notice LESSEE has been notified, in writing (by
way of notice of assignment of rents and leases, or otherwise) of the name
and address of such mortgagee. LESSEE further agrees that if LESSOR shall
fail to cure such default within the time provided for in this lease, then
the mortgagee shall have an additional thirty (30) days within which to
cure such default or if such default cannot be cured within that time, then
such additional time as may be necessary if within such thirty (30) days,
any mortgagee has commenced and is diligently pursuing the remedies to cure
such default (including but not limited to commencement of foreclosure
provided for, if necessary to effect such cure) in which event this lease
shall not be terminated while such remedies are being so diligently
pursued.
W. JOINT AND SEVERAL LIABILITY - In the event the parties signing
this lease for and on behalf of the LESSEE shall consist of more than one
individual, firm or corporation, then and in such event all such
individuals, firms or corporations shall be jointly and severally liable as
LESSEE under this lease.
X. PYLON SIGN - LESSOR agrees to erect a pylon sign on the Shopping
Center property, which pylon shall permit sign panels for four (4) tenants
in the Shopping Center. LESSOR further agrees that LESSEE may have one of
the sign panel spaces (34" x 70") on such pylon (LESSEE to choose the
location it prefers), the cost of which will be $____________. LESSEE
agrees to pay LESSOR (upon receipt of an invoice from LESSOR) the sum of
$______________ for such sign panel at the time same is to be installed.
-29-
<PAGE>
IN WITNESS WHEREOF, the LESSOR and LESSEE have caused this lease
to be duly executed as of the day and year first above set forth.
WITNESSES: LESSOR
____________________________ By______________________________________
____________________________
LESSEE
FAMILY BOOKSTORES COMPANY, INC.
____________________________ By______________________________________
____________________________
-30-
<PAGE>
EXHIBIT 10.25
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made as of ___________,
1998, by and between FAMILY CHRISTIAN STORES, INC., a Michigan corporation
(the "Corporation"), and ______________________ ("Indemnitee").
It is essential to the Corporation to attract and retain as
directors and executive officers the most capable persons available. The
substantial increase in corporate litigation subjects directors and
executive officers to expensive litigation risks at the same time that the
availability and coverage of directors and officers liability insurance has
been limited. It is the express policy of the Corporation to indemnify its
directors and executive officers so as to provide them with the maximum
possible protection permitted by law, and in furtherance of that policy and
in consideration of Indemnitee's agreement to serve as a director or
executive officer of the Corporation, the parties are entering into this
Agreement.
ACCORDINGLY, the parties agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement:
(a) "Expenses" means all costs, expenses and obligations paid or
incurred in connection with investigating, litigating, being a witness
in, defending or participating in, or preparing to litigate, defend,
be a witness in or participate in any matter that is the subject of a
Proceeding (as defined below), including attorneys' and accountants'
fees and court costs.
(b) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether
brought by or in the right of the Corporation or otherwise and whether
of a civil, criminal, administrative or investigative nature, in which
Indemnitee may be or may have been involved as a party or otherwise by
reason of the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Corporation, or by reason of any
action taken by Indemnitee or any inaction on Indemnitee's part while
acting as a director, officer, employee, agent or fiduciary of the
Corporation, or by reason of the fact that Indemnitee is or was
serving at the request of the Corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise.
<PAGE>
(c) "Resolution Costs" includes any amount paid in connection
with a Proceeding in satisfaction of a judgment, fine, penalty or any
amount paid in settlement.
SECTION 2. AGREEMENT TO SERVE. Indemnitee agrees to serve as a
director or officer of the Corporation for so long as Indemnitee is duly
elected or appointed or until the tender of Indemnitee's written
resignation.
SECTION 3. INDEMNIFICATION. The Corporation shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by
Indemnitee in connection with any Proceeding. Additionally, the
Corporation shall indemnify Indemnitee against all Resolution Costs
actually and reasonably incurred by Indemnitee in connection with any
Proceeding. It is the intent of the parties to provide Indemnitee, to the
fullest extent allowed by law as now or later enacted or interpreted, with
indemnification against any Expenses and Resolution Costs incurred by
Indemnitee in connection with any Proceeding. To the extent a change in
the laws of the state of Michigan (whether by statute or judicial decision)
permits greater indemnification, either by agreement or otherwise, than
presently provided by law or this Agreement, it is the intent of the
parties that Indemnitee shall enjoy by this Agreement the greater benefits
afforded by the change. Notwithstanding the foregoing, no indemnification
shall be made under this Agreement:
(a) with respect to remuneration paid to Indemnitee if the
remuneration was in violation of law;
(b) on account of Indemnitee's conduct that was knowingly
fraudulent, deliberately dishonest or willful misconduct;
(c) on account of Indemnitee's conduct that was an intentional
infliction of harm on the Corporation or its shareholders or an
intentional criminal act;
(d) if a final decision by a court having jurisdiction in the
matter determines that indemnification under this Agreement is not
lawful; or
(e) in connection with any Proceeding initiated by Indemnitee
against the Corporation or any director, officer, employee, agent or
fiduciary of the Corporation (in such capacity) unless the Corporation
has joined in or consented to the initiation of the Proceeding or such
Proceeding relates to the enforcement by Indemnitee of Indemnitee's
rights under this Agreement.
-2-
<PAGE>
SECTION 4. PAYMENT OF INDEMNIFICATION.
(a) Expenses incurred by Indemnitee and subject to
indemnification under Section 3 above shall be paid directly by the
Corporation within five (5) days after the receipt of a written
request of Indemnitee setting forth in reasonable detail the amount
requested and accompanied by copies of relevant invoices or other
documentation. Resolution Costs incurred by Indemnitee and subject to
indemnification under Section 3 above shall be paid directly by the
Corporation within thirty (30) days after the receipt of a written
request of Indemnitee setting forth in reasonable detail the amount
requested and accompanied by relevant invoices or other documentation.
Indemnitee's request for indemnification must be accompanied by a
signed certificate that Indemnitee in good faith believes that he or
she is entitled to indemnification in accordance with the requirements
of this Agreement. If Indemnitee certifies that Indemnitee in good
faith believes that he or she is entitled to indemnification under
this Agreement, Indemnitee will be deemed to have met the necessary
standard of conduct unless and until it is determined by a final
judgment or other final adjudication that Indemnitee is not entitled
to indemnification.
(b) Indemnitee agrees to promptly repay any amounts paid or
advanced under this Agreement to the extent that it is ultimately
determined in accordance with Section 4(a) above that Indemnitee is
not entitled to indemnification of such amounts under this Agreement
and amounts advanced to cover Expenses which Indemnitee does not in
fact incur.
(c) The Corporation shall take all actions necessary to enable
it to indemnify Indemnitee under this Agreement. The right to
indemnification payments as provided by this Agreement shall be
enforceable by Indemnitee in any court of competent jurisdiction. The
burden of proving that indemnification is not permitted by this
Agreement shall be on the Corporation or on the person challenging the
indemnification. Neither the failure of the Corporation, including
its Board of Directors, to have made a determination before the
commencement of any Proceeding that indemnification is proper, nor an
actual determination by the Corporation, including its Board of
Directors or legal counsel, that indemnification is not proper, shall
bar an action by Indemnitee to enforce this Agreement or create a
presumption that Indemnitee is not entitled to indemnification under
this Agreement. Expenses incurred by Indemnitee in connection with
successfully establishing Indemnitee's right to indemnification, in
whole or in part, also shall be fully reimbursed by the Corporation.
-3-
<PAGE>
SECTION 5. DEFENSE OF CLAIM.
(a) The Corporation, jointly with any other indemnifying party,
shall be entitled to assume the defense of any Proceeding as to which
Indemnitee requests indemnification. After notice from the
Corporation to Indemnitee of its election to assume the defense of a
Proceeding, the Corporation shall not be liable to Indemnitee under
this Agreement for any legal or other Expenses subsequently incurred
by Indemnitee in connection with the defense of such matter other than
reasonable costs of investigation or as otherwise provided in
subsection (c) below.
(b) Except as provided in Section 5(c) below, the Corporation
need not, in any action or actions, employ or approve the employment
of more than one counsel to represent Indemnitee and any other
director, officer or other party entitled to indemnification pursuant
to an agreement similar to this Agreement or otherwise.
(c) Indemnitee may employ his or her own counsel in a Proceeding
and be indemnified therefor if (i) the Corporation approves, in
writing, the employment of such counsel, or (ii) either (A) Indemnitee
has reasonably concluded that there are conflicts of interest between
the Corporation and Indemnitee or between Indemnitee and other parties
represented by counsel employed by the Corporation to represent
Indemnitee in the Proceeding, or (B) the Corporation has not employed
counsel to assume the defense of the Proceeding.
SECTION 6. PARTIAL INDEMNIFICATION; SUCCESSFUL DEFENSE. If
Indemnitee is entitled under any provision of this Agreement to
indemnification by the Corporation for some or a portion of the Expenses or
Resolution Costs actually and reasonably incurred by Indemnitee but not,
however, for the total amount, the Corporation shall nevertheless indemnify
Indemnitee for the portion of the Expenses or Resolution Costs to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the
merits or otherwise in defense of any or all claims relating in whole or in
part to a Proceeding or in defense of any issue or matter in a Proceeding,
including dismissal with or without prejudice, Indemnitee shall be
indemnified against all Expenses incurred in connection with that
Proceeding.
SECTION 7. CONSENT. Neither party may settle any Proceeding
without the other's written consent, and the Corporation shall not be
liable to indemnify Indemnitee under this Agreement for amounts paid in
settlement of a Proceeding made without the Corporation's written consent.
Neither the Corporation nor Indemnitee will unreasonably withhold consent
to any proposed settlement.
-4-
<PAGE>
SECTION 8. SEVERABILITY. If this Agreement or any portion of this
Agreement (including any provision within a single section, subsection or
sentence) shall be held to be invalid, void or otherwise unenforceable on
any ground by any court of competent jurisdiction, the Corporation shall
nevertheless indemnify Indemnitee as to any Expenses or Resolution Costs
with respect to any Proceeding to the full extent permitted by law or any
applicable portion of this Agreement that shall not have been invalidated,
declared void or otherwise held to be unenforceable.
SECTION 9. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The
indemnification provided by this Agreement shall be in addition to any
other rights that Indemnitee may be entitled under the Corporation's
Restated Articles of Incorporation, the Bylaws, any agreement, any vote of
shareholders or the Board of Directors, the Michigan Business Corporation
Act or otherwise.
SECTION 10. NO PRESUMPTION. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon
a plea of nolo contendere, or its equivalent, shall not create a
presumption that Indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
SECTION 11. SUBROGATION. In the event of payment under this
Agreement, the Corporation shall be subrogated to the extent of the payment
to all of the rights of recovery of Indemnitee, who shall execute all
documents required and shall do everything that may be necessary to secure
those rights, including the execution of all documents necessary to enable
the Corporation to effectively bring suit to enforce those rights.
SECTION 12. NO DUPLICATION OF PAYMENT. The Corporation shall not
be liable under this Agreement to make any payment to the extent Indemnitee
has otherwise actually received payment (under any insurance policy, Bylaw
or otherwise) of the amounts otherwise indemnifiable under this Agreement.
SECTION 13. NOTICE. Indemnitee shall, as a condition precedent to
his or her right to be indemnified under this Agreement, give to the
Corporation notice in writing as soon as practicable of any claim for which
indemnity will or could be sought under this Agreement. Notice to the
Corporation shall be directed to FAMILY CHRISTIAN STORES, INC., 5300
Patterson Avenue, SE, Grand Rapids, Michigan 49530, Attention: Corporate
Secretary (or to any other individual or address that the Corporation
designates in writing to Indemnitee). Notice shall be deemed received
three (3) days after the date postmarked if sent by prepaid mail properly
addressed. In addition, Indemnitee shall give the Corporation any
information and cooperation that it may reasonably require and is within
Indemnitee's power to give.
-5-
<PAGE>
SECTION 14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original, and all
of which taken together shall constitute a single document.
SECTION 15. CONTINUATION OF INDEMNIFICATION. The indemnification
rights provided to Indemnitee under this Agreement shall continue after
Indemnitee has ceased to be a director, officer, employee, agent or
fiduciary of the Corporation or any other corporation, partnership, joint
venture, trust or other enterprise that Indemnitee served in any of those
capacities at the request of the Corporation.
SECTION 16. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the Corporation and Indemnitee and
their respective successors and assigns, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Corporation, spouses,
heirs, and personal and legal representatives.
SECTION 17. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the laws of the state of Michigan
applicable to contracts made and to be performed in Michigan without giving
effects to the principles of conflicts of laws.
SECTION 18. LIABILITY INSURANCE. To the extent the Corporation
maintains an insurance policy or policies providing directors' and
officers' liability insurance, Indemnitee shall be covered by the policy or
policies, in accordance with its or their terms, to the maximum extent of
the coverage available for any director, officer, employee, agent or
fiduciary of the Corporation.
SECTION 19. AMENDMENTS; WAIVER. No supplement, modification,
amendment or waiver of this Agreement or any of its terms shall be binding
unless executed in writing by all of the parties to this Agreement or, in
the case of waiver, by the party against whom the waiver is asserted. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions of this Agreement (whether or
not similar) nor shall any waiver constitute a continuing waiver.
The parties have executed this Agreement as of the date stated in the
first paragraph of this Agreement.
FAMILY CHRISTIAN STORES, INC.
By__________________________________________
Its_________________________________________
INDEMNITEE
____________________________________________
-6-
<PAGE>
EXHIBIT 10.26
PROMISSORY NOTE
November 14, 1994
$225,000 Grand Rapids, Michigan
FOR VALUE RECEIVED, the undersigned ("Obligor") promises to pay
to the order of FAMILY BOOKSTORES COMPANY, INC. ("Payee"), the principal
amount of Two Hundred Twenty-five Thousand Dollars ($225,000) and interest
on the unpaid principal balance at a rate per annum equal to the lesser of
(i) 8 percent (8%) or (ii) the highest rate permitted by law, without
compounding until the principal balance is paid in full.
The principal of and interest on this Note shall be paid in
annual equal installments of Forty-three Thousand Two Hundred Sixteen and
29/100 Dollars ($43,216.29) commencing on the first anniversary of this
Note, and continuing each anniversary thereafter until the anniversary date
in November, 2001, at which time the remaining balance of principal and
interest shall be paid in full. Interest shall accrue from the date of
this Note.
PREPAYMENTS. Obligor may prepay all or part of the principal of
this Note at any time without penalty. Any partial prepayment will first
be applied to the installment or installments of principal next falling due
under this Note. Any proceeds which Obligor is entitled to receive upon
the sale of any common stock pledged as security for this Note (net of any
amounts due any other secured party with a senior interest in the pledged
common stock) shall be applied as a prepayment to discharge Payee's
remaining obligations under this Note, and such amount shall be immediately
due and payable under this Note.
SECURITY. This Note and all obligations of Obligor hereunder are
secured by Obligor's 1,125 shares of common stock of Payee, as more fully
described in a Pledge Agreement entered into between Obligor and Payee of
even date herewith (the "Pledge Agreement"), and any and all security
agreements, guaranties, mortgages, pledge agreements, assignments, and all
other agreements and instruments, if any, given by Obligor to Payee after
the date of this Note (collectively, the "Security Documents"). Payee
shall have all of the rights and powers set forth in the Security Documents
and in any other written agreements given to Payee by Obligor.
DEFAULT AND ACCELERATION. Upon the occurrence of any event of
default under the Security Documents, all or any part of the indebtedness
evidenced hereby and all or any part of all other indebtedness and
obligations then owing by Obligor to the holder shall, at the option of the
holder, become immediately due and payable without notice or demand. If a
voluntary or involuntary case in bankruptcy, receivership, or insolvency
shall at any time be instituted by or against Obligor or if any levy, writ
of attachment, garnishment, execution, or similar process shall be issued
against or placed upon any property of Obligor then all such indebtedness
<PAGE>
shall automatically become immediately due and payable. All or any part of
the indebtedness evidenced hereby also may become, or may be declared to
be, immediately due and payable under the terms and conditions contained in
any Security Document or other agreement hereafter entered into between
Obligor and the holder of this Note, including upon the Obligor's voluntary
termination of employment with the Payee or the Payee's termination for
cause (as defined in the Security Documents) of Obligor's employment with
the Payee.
PLACE AND APPLICATION OF PAYMENTS. Each payment upon this Note
shall be made at Payee's address set forth above or such other place as
Payee may direct in writing. Any payment upon this Note shall be applied
first to any accrued and unpaid interest hereunder, and then to the unpaid
principal balance.
SETOFF. To the maximum extent permitted by law, the holder of
this Note shall have the right at any time to set off any indebtedness that
the holder then owes to Obligor against any indebtedness evidenced by this
Note that is then due and payable.
REMEDIES. The holder of this Note shall have all rights and
remedies provided by law and by agreement of Obligor. Obligor agrees to
pay any and all expenses, including reasonable attorney fees and legal
expenses, paid or incurred by the holder in protecting and enforcing the
rights of and obligations to the holder under any provision of this Note or
any Security Document.
WAIVERS. No delay by Payee in the exercise of any right or
remedy shall operate as a waiver thereof. No single or partial exercise by
the holder of any right or remedy shall preclude any other or future
exercise thereof or the exercise of any other right or remedy. No waiver
by the holder of any default or of any provision hereof shall be effective
unless in writing and signed by the holder. No waiver of any right or
remedy on one occasion shall be a waiver of that right or remedy on any
future occasion.
Obligor waives demand for payment, presentment, notice of
dishonor, and protest of this Note and consents to any extension or
postponement of time of its payment, to any substitution, exchange, or
release of all or any part of any security given to secure this Note, to
the addition of any party hereto, and to the release, discharge, waiver,
modification, or suspension of any rights and remedies against any person
who may be liable for the indebtedness evidenced by this Note.
ASSIGNMENT. Obligor acknowledges and consents to the assignment
of this Note by Payee to Bank of Scotland, as agent for itself and other
financial institutions, to collateralize certain obligations of Payee to
Bank of Scotland and such other financial institutions.
<PAGE>
WAIVER OF JURY TRIAL. OBLIGOR AND PAYEE KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS NOTE OR ANY SECURITY DOCUMENTS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF EITHER OBLIGOR OR PAYEE.
APPLICABLE LAW AND JURISDICTION. This Note shall be governed by
and interpreted according to the laws of the State of Michigan, without
giving effect to principles of conflict of laws. Obligor irrevocably
agrees and consents that any action against Obligor for collection or
enforcement of this Note may be brought in any state or federal court that
has subject matter jurisdiction and is located in, or whose district
includes, Kent County, Michigan, and that any such court shall have
personal jurisdiction over Obligor for purposes of such action.
OBLIGOR HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
OBLIGOR BROUGHT BY BANK OF SCOTLAND (INDIVIDUALLY OR AS AGENT AS SET FORTH
ABOVE) WITH RESPECT TO THIS NOTE OR ANY SECURITY DOCUMENT MAY BE BROUGHT IN
ANY COURT IN THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, as Bank of Scotland may elect, and by
execution and delivery of this Note Obligor generally and unconditionally
accepts for himself and in respect to his property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Obligor waives
any right to stay or to dismiss any action or proceeding brought before any
of said courts on the basis of FORUM NON CONVENIENS. Obligor agrees that
process against Obligor in any such action or proceeding may be served
against Obligor by registered or certified mail sent to Obligor at its
address set forth below (or such other address as Bank of Scotland is
notified of), such service being hereby acknowledged by Obligor as being
effective and binding service in every respect. Nothing herein shall
affect the right of Payee or Bank of Scotland to serve process in any other
manner permitted by applicable law or shall limit the right of Payee or
Bank of Scotland to bring actions and proceedings against Obligor in the
courts of any other jurisdiction.
KNOWING AND VOLUNTARY UNDERTAKING. OBLIGOR ACKNOWLEDGES THAT HE
HAS CAREFULLY READ THIS ENTIRE NOTE AND THE SECURITY DOCUMENTS AND IS FULLY
AWARE OF AND UNDERSTANDS THEIR CONTENTS. OBLIGOR, BY HIS SIGNATURE,
ACKNOWLEDGES THAT HE MAKES THIS NOTE AND ENTERS INTO THE SECURITY DOCUMENTS
KNOWINGLY AND VOLUNTARILY, AFTER AMPLE TIME FOR REFLECTION AND
CONSIDERATION AND THE OPPORTUNITY TO CONSULT WITH HIS OWN ATTORNEY AND
AFTER EITHER HAVING DONE SO OR VOLUNTARILY DECLINING TO DO SO.
<PAGE>
Signed as of the date first written above.
\S\ LESLIE E. DIETZMAN
--------------------------------
Leslie E. Dietzman
3730 Honeycreek, N.E.
Ada, Michigan 49301
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
Subscribed and sworn to before me this 12th day of November,
1994.
/S/ MATTHEW E. MARTIN
--------------------------------
Matthew E. Martin, Notary Public
Kent County, Michigan.
My commission expires: 6-29-96
<PAGE>
EXHIBIT 10.27
PROMISSORY NOTE
November 14, 1994
$80,000 Grand Rapids, Michigan
FOR VALUE RECEIVED, the undersigned ("Obligor") promises to pay
to the order of FAMILY BOOKSTORES COMPANY, INC. ("Payee"), the principal
amount of Eighty Thousand Dollars ($80,000) and interest on the unpaid
principal balance at a rate per annum equal to the lesser of (i) 8 percent
(8%) or (ii) the highest rate permitted by law, without compounding until
the principal balance is paid in full.
The principal of and interest on this Note shall be paid in
annual equal installments of Fifteen Thousand Three Hundred Sixty-five and
79/100 Dollars ($15,365.79) commencing on the first anniversary of this
Note, and continuing each anniversary thereafter until the anniversary date
in November, 2001, at which time the remaining balance of principal and
interest shall be paid in full. Interest shall accrue from the date of
this Note.
PREPAYMENTS. Obligor may prepay all or part of the principal of
this Note at any time without penalty. Any partial prepayment will first
be applied to the installment or installments of principal next falling due
under this Note. Any proceeds which Obligor is entitled to receive upon
the sale of any common stock pledged as security for this Note (net of any
amounts due any other secured party with a senior interest in the pledged
common stock) shall be applied as a prepayment to discharge Payee's
remaining obligations under this Note, and such amount shall be immediately
due and payable under this Note.
SECURITY. This Note and all obligations of Obligor hereunder are
secured by Obligor's 400 shares of common stock of Payee, as more fully
described in a Pledge Agreement entered into between Obligor and Payee of
even date herewith (the "Pledge Agreement"), and any and all security
agreements, guaranties, mortgages, pledge agreements, assignments, and all
other agreements and instruments, if any, given by Obligor to Payee after
the date of this Note (collectively, the "Security Documents"). Payee
shall have all of the rights and powers set forth in the Security Documents
and in any other written agreements given to Payee by Obligor.
DEFAULT AND ACCELERATION. Upon the occurrence of any event of
default under the Security Documents, all or any part of the indebtedness
evidenced hereby and all or any part of all other indebtedness and
obligations then owing by Obligor to the holder shall, at the option of the
holder, become immediately due and payable without notice or demand. If a
voluntary or involuntary case in bankruptcy, receivership, or insolvency
shall at any time be instituted by or against Obligor or if any levy, writ
of attachment, garnishment, execution, or similar process shall be issued
against or placed upon any property of Obligor then all such indebtedness
<PAGE>
shall automatically become immediately due and payable. All or any part of
the indebtedness evidenced hereby also may become, or may be declared to
be, immediately due and payable under the terms and conditions contained in
any Security Document or other agreement hereafter entered into between
Obligor and the holder of this Note, including upon the Obligor's voluntary
termination of employment with the Payee or the Payee's termination for
cause (as defined in the Security Documents) of Obligor's employment with
the Payee.
PLACE AND APPLICATION OF PAYMENTS. Each payment upon this Note
shall be made at Payee's address set forth above or such other place as
Payee may direct in writing. Any payment upon this Note shall be applied
first to any accrued and unpaid interest hereunder, and then to the unpaid
principal balance.
SETOFF. To the maximum extent permitted by law, the holder of
this Note shall have the right at any time to set off any indebtedness that
the holder then owes to Obligor against any indebtedness evidenced by this
Note that is then due and payable.
REMEDIES. The holder of this Note shall have all rights and
remedies provided by law and by agreement of Obligor. Obligor agrees to
pay any and all expenses, including reasonable attorney fees and legal
expenses, paid or incurred by the holder in protecting and enforcing the
rights of and obligations to the holder under any provision of this Note or
any Security Document.
WAIVERS. No delay by Payee in the exercise of any right or
remedy shall operate as a waiver thereof. No single or partial exercise by
the holder of any right or remedy shall preclude any other or future
exercise thereof or the exercise of any other right or remedy. No waiver
by the holder of any default or of any provision hereof shall be effective
unless in writing and signed by the holder. No waiver of any right or
remedy on one occasion shall be a waiver of that right or remedy on any
future occasion.
Obligor waives demand for payment, presentment, notice of
dishonor, and protest of this Note and consents to any extension or
postponement of time of its payment, to any substitution, exchange, or
release of all or any part of any security given to secure this Note, to
the addition of any party hereto, and to the release, discharge, waiver,
modification, or suspension of any rights and remedies against any person
who may be liable for the indebtedness evidenced by this Note.
WAIVER OF JURY TRIAL. OBLIGOR AND PAYEE KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS NOTE OR ANY SECURITY DOCUMENTS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF EITHER OBLIGOR OR PAYEE.
-2-
<PAGE>
APPLICABLE LAW AND JURISDICTION. This Note shall be governed by
and interpreted according to the laws of the State of Michigan, without
giving effect to principles of conflict of laws. Obligor irrevocably
agrees and consents that any action against Obligor for collection or
enforcement of this Note may be brought in any state or federal court that
has subject matter jurisdiction and is located in, or whose district
includes, Kent County, Michigan, and that any such court shall have
personal jurisdiction over Obligor for purposes of such action.
OBLIGOR HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
OBLIGOR BROUGHT BY BANK OF SCOTLAND (INDIVIDUALLY OR AS AGENT AS SET FORTH
ABOVE) WITH RESPECT TO THIS NOTE OR ANY SECURITY DOCUMENT MAY BE BROUGHT IN
ANY COURT IN THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, as Bank of Scotland may elect, and by
execution and delivery of this Note Obligor generally and unconditionally
accepts for himself and in respect to his property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Obligor waives
any right to stay or to dismiss any action or proceeding brought before any
of said courts on the basis of FORUM NON CONVENIENS. Obligor agrees that
process against Obligor in any such action or proceeding may be served
against Obligor by registered or certified mail sent to Obligor at its
address set forth below (or such other address as Bank of Scotland is
notified of), such service being hereby acknowledged by Obligor as being
effective and binding service in every respect. Nothing herein shall
affect the right of Payee or Bank of Scotland to serve process in any other
manner permitted by applicable law or shall limit the right of Payee or
Bank of Scotland to bring actions and proceedings against Obligor in the
courts of any other jurisdiction.
KNOWING AND VOLUNTARY UNDERTAKING. OBLIGOR ACKNOWLEDGES THAT HE
HAS CAREFULLY READ THIS ENTIRE NOTE AND THE SECURITY DOCUMENTS AND IS FULLY
AWARE OF AND UNDERSTANDS THEIR CONTENTS. OBLIGOR, BY HIS SIGNATURE,
ACKNOWLEDGES THAT HE MAKES THIS NOTE AND ENTERS INTO THE SECURITY DOCUMENTS
KNOWINGLY AND VOLUNTARILY, AFTER AMPLE TIME FOR REFLECTION AND
CONSIDERATION AND THE OPPORTUNITY TO CONSULT WITH HIS OWN ATTORNEY AND
AFTER EITHER HAVING DONE SO OR VOLUNTARILY DECLINING TO DO SO.
-3-
<PAGE>
Signed as of the date first written above.
/S/ RICHARD M. BUTLER
--------------------------------
Richard M. Butler
1724 Whitewood, S.W.
Wyoming, Michigan 49509
STATE OF MICHIGAN )
) ss.
COUNTY OF KENT )
Subscribed and sworn to before me this 12th day of November,
1994.
/S/ SANDRA K. COONAN
--------------------------
Sandra K. Coonan, Notary Public
Kent County, Michigan.
My commission expires: 6-5-96
-4-
<PAGE>
EXHIBIT 10.28
PROMISSORY NOTE
November 14, 1994
$60,000 Grand Rapids, Michigan
FOR VALUE RECEIVED, the undersigned ("Obligor") promises to pay
to the order of FAMILY BOOKSTORES COMPANY, INC. ("Payee"), the principal
amount of Sixty Thousand Dollars ($60,000) and interest on the unpaid
principal balance at a rate per annum equal to the lesser of (i) 8 percent
(8%) or (ii) the highest rate permitted by law, without compounding until
the principal balance is paid in full.
The principal of and interest on this Note shall be paid in
annual equal installments of Eleven Thousand Five Hundred Twenty-four and
34/100 Dollars ($11,524.34) commencing on the first anniversary of this
Note, and continuing each anniversary thereafter until the anniversary date
in November, 2001, at which time the remaining balance of principal and
interest shall be paid in full. Interest shall accrue from the date of
this Note.
PREPAYMENTS. Obligor may prepay all or part of the principal of
this Note at any time without penalty. Any partial prepayment will first
be applied to the installment or installments of principal next falling due
under this Note. Any proceeds which Obligor is entitled to receive upon
the sale of any common stock pledged as security for this Note (net of any
amounts due any other secured party with a senior interest in the pledged
common stock) shall be applied as a prepayment to discharge Payee's
remaining obligations under this Note, and such amount shall be immediately
due and payable under this Note.
SECURITY. This Note and all obligations of Obligor hereunder are
secured by Obligor's 300 shares of common stock of Payee, as more fully
described in a Pledge Agreement entered into between Obligor and Payee of
even date herewith (the "Pledge Agreement"), and any and all security
agreements, guaranties, mortgages, pledge agreements, assignments, and all
other agreements and instruments, if any, given by Obligor to Payee after
the date of this Note (collectively, the "Security Documents"). Payee
shall have all of the rights and powers set forth in the Security Documents
and in any other written agreements given to Payee by Obligor.
DEFAULT AND ACCELERATION. Upon the occurrence of any event of
default under the Security Documents, all or any part of the indebtedness
evidenced hereby and all or any part of all other indebtedness and
obligations then owing by Obligor to the holder shall, at the option of the
holder, become immediately due and payable without notice or demand. If a
voluntary or involuntary case in bankruptcy, receivership, or insolvency
shall at any time be instituted by or against Obligor or if any levy, writ
of attachment, garnishment, execution, or similar process shall be issued
against or placed upon any property of Obligor then all such indebtedness
<PAGE>
shall automatically become immediately due and payable. All or any part of
the indebtedness evidenced hereby also may become, or may be declared to
be, immediately due and payable under the terms and conditions contained in
any Security Document or other agreement hereafter entered into between
Obligor and the holder of this Note, including upon the Obligor's voluntary
termination of employment with the Payee or the Payee's termination for
cause (as defined in the Security Documents) of Obligor's employment with
the Payee.
PLACE AND APPLICATION OF PAYMENTS. Each payment upon this Note
shall be made at Payee's address set forth above or such other place as
Payee may direct in writing. Any payment upon this Note shall be applied
first to any accrued and unpaid interest hereunder, and then to the unpaid
principal balance.
SETOFF. To the maximum extent permitted by law, the holder of
this Note shall have the right at any time to set off any indebtedness that
the holder then owes to Obligor against any indebtedness evidenced by this
Note that is then due and payable.
REMEDIES. The holder of this Note shall have all rights and
remedies provided by law and by agreement of Obligor. Obligor agrees to
pay any and all expenses, including reasonable attorney fees and legal
expenses, paid or incurred by the holder in protecting and enforcing the
rights of and obligations to the holder under any provision of this Note or
any Security Document.
WAIVERS. No delay by Payee in the exercise of any right or
remedy shall operate as a waiver thereof. No single or partial exercise by
the holder of any right or remedy shall preclude any other or future
exercise thereof or the exercise of any other right or remedy. No waiver
by the holder of any default or of any provision hereof shall be effective
unless in writing and signed by the holder. No waiver of any right or
remedy on one occasion shall be a waiver of that right or remedy on any
future occasion.
Obligor waives demand for payment, presentment, notice of
dishonor, and protest of this Note and consents to any extension or
postponement of time of its payment, to any substitution, exchange, or
release of all or any part of any security given to secure this Note, to
the addition of any party hereto, and to the release, discharge, waiver,
modification, or suspension of any rights and remedies against any person
who may be liable for the indebtedness evidenced by this Note.
WAIVER OF JURY TRIAL. OBLIGOR AND PAYEE KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS NOTE OR ANY SECURITY DOCUMENTS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF EITHER OBLIGOR OR PAYEE.
<PAGE>
APPLICABLE LAW AND JURISDICTION. This Note shall be governed by
and interpreted according to the laws of the State of Michigan, without
giving effect to principles of conflict of laws. Obligor irrevocably
agrees and consents that any action against Obligor for collection or
enforcement of this Note may be brought in any state or federal court that
has subject matter jurisdiction and is located in, or whose district
includes, Kent County, Michigan, and that any such court shall have
personal jurisdiction over Obligor for purposes of such action.
OBLIGOR HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
OBLIGOR BROUGHT BY BANK OF SCOTLAND (INDIVIDUALLY OR AS AGENT AS SET FORTH
ABOVE) WITH RESPECT TO THIS NOTE OR ANY SECURITY DOCUMENT MAY BE BROUGHT IN
ANY COURT IN THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, as Bank of Scotland may elect, and by
execution and delivery of this Note Obligor generally and unconditionally
accepts for himself and in respect to his property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Obligor waives
any right to stay or to dismiss any action or proceeding brought before any
of said courts on the basis of FORUM NON CONVENIENS. Obligor agrees that
process against Obligor in any such action or proceeding may be served
against Obligor by registered or certified mail sent to Obligor at its
address set forth below (or such other address as Bank of Scotland is
notified of), such service being hereby acknowledged by Obligor as being
effective and binding service in every respect. Nothing herein shall
affect the right of Payee or Bank of Scotland to serve process in any other
manner permitted by applicable law or shall limit the right of Payee or
Bank of Scotland to bring actions and proceedings against Obligor in the
courts of any other jurisdiction.
KNOWING AND VOLUNTARY UNDERTAKING. OBLIGOR ACKNOWLEDGES THAT HE
HAS CAREFULLY READ THIS ENTIRE NOTE AND THE SECURITY DOCUMENTS AND IS FULLY
AWARE OF AND UNDERSTANDS THEIR CONTENTS. OBLIGOR, BY HIS SIGNATURE,
ACKNOWLEDGES THAT HE MAKES THIS NOTE AND ENTERS INTO THE SECURITY DOCUMENTS
KNOWINGLY AND VOLUNTARILY, AFTER AMPLE TIME FOR REFLECTION AND
CONSIDERATION AND THE OPPORTUNITY TO CONSULT WITH HIS OWN ATTORNEY AND
AFTER EITHER HAVING DONE SO OR VOLUNTARILY DECLINING TO DO SO.
Signed as of the date first written above.
/S/ J. HAL BAILEY
--------------------------------
J. Hal Bailey
3143 Windgate, Ct., S.E., Apt 3B
Kentwood, Michigan 49512
<PAGE>
STATE OF MICHIGAN )
) ss.
COUNTY OF KENT )
Subscribed and sworn to before me this 12th day of November,
1994.
/S/ SANDRA K. COONAN
--------------------------------
Sandra K. Coonan, Notary Public
Kent County, Michigan.
My commission expires: 6-5-96
<PAGE>
Exhibit 10.29
PROMISSORY NOTE
November 14, 1994
$50,000 Grand Rapids, Michigan
FOR VALUE RECEIVED, the undersigned ("Obligor") promises to pay to the
order of FAMILY BOOKSTORES COMPANY, INC. ("Payee"), the principal amount of
Fifty Thousand Dollars ($50,000) and interest on the unpaid principal
balance at a rate per annum equal to the lesser of (i) 8 percent (8%) or (ii)
the highest rate permitted by law, without compounding until the principal
balance is paid in full.
The principal of and interest on this Note shall be paid in annual equal
installments of Nine Thousand Six Hundred Three and 62/100 Dollars
($9,603.62) commencing on the first anniversary of this Note, and continuing
each anniversary thereafter until the anniversary date in November, 2001, at
which time the remaining balance of principal and interest shall be paid in
full. Interest shall accrue from the date of this Note.
PREPAYMENTS. Obligor may prepay all or part of the principal of this
Note at any time without penalty. Any partial prepayment will first be
applied to the installment or installments of principal next falling due
under this Note. Any proceeds which Obligor is entitled to receive upon the
sale of any common stock pledged as security for this Note (net of any
amounts due any other secured party with a senior interest in the pledged
common stock) shall be applied as a prepayment to discharge Payee's remaining
obligations under this Note, and such amount shall be immediately due and
payable under this Note.
SECURITY. This Note and all obligations of Obligor hereunder are secured
by Obligor's 250 shares of common stock of Payee, as more fully described in
a Pledge Agreement entered into between Obligor and Payee of even date
herewith (the "Pledge Agreement"), and any and all security agreements,
guaranties, mortgages, pledge agreements, assignments, and all other
agreements and instruments, if any, given by Obligor to Payee after the date
of this Note (collectively, the "Security Documents"). Payee shall have all
of the rights and powers set forth in the Security Documents and in any
other written agreements given to Payee by Obligor.
DEFAULT AND ACCELERATION. Upon the occurrence of any event of default
under the Security Documents, all or any part of the indebtedness evidenced
hereby and all or any part of all other indebtedness and obligations then
owing by Obligor to the holder shall, at the option of the holder, become
immediately due and payable without notice or demand. If a voluntary or
involuntary case in bankruptcy, receivership, or insolvency shall at any time
be instituted by or against Obligor or if any levy, writ of attachment,
garnishment, execution, or similar process shall be issued against or placed
upon any property of Obligor then all such indebtedness shall automatically
become immediately due and payable. All or any part of the indebtedness
evidenced hereby also may become, or may be declared to be, immediately due
and payable under the terms and conditions contained in any Security Document
or other agreement hereafter entered into between Obligor and the holder of
this Note, including upon the Obligor's voluntary termination of employment
with the Payee or the Payee's termination for cause (as defined in the
Security Documents) of Obligor's employment with the Payee.
PLACE AND APPLICATION OF PAYMENTS. Each payment upon this Note shall be
made at Payee's address set forth above or such other place as Payee may
direct in writing.
<PAGE>
Any payment upon this Note shall be applied first to any accrued and unpaid
interest hereunder, and then to the unpaid principal balance.
SETOFF. To the maximum extent permitted by law, the holder of this Note
shall have the right at any time to set off any indebtedness that the holder
then owes to Obligor against any indebtedness evidenced by this Note that is
then due and payable.
REMEDIES. The holder of this Note shall have all rights and remedies
provided by law and by agreement of Obligor. Obligor agrees to pay any and
all expenses, including reasonable attorney fees and legal expenses, paid or
incurred by the holder in protecting and enforcing the rights of and
obligations to the holder under any provision of this Note or any Security
Document.
WAIVERS. No delay by Payee in the exercise of any right or remedy shall
operate as a waiver thereof. No single or partial exercise by the holder of
any right or remedy shall preclude any other or future exercise thereof or
the exercise of any other right or remedy. No waiver by the holder of any
default or of any provision hereof shall be effective unless in writing and
signed by the holder. No waiver of any right or remedy on one occasion shall
be a waiver of that right or remedy on any future occasion.
Obligor waives demand for payment, presentment, notice of dishonor, and
protest of this Note and consents to any extension or postponement of time of
its payment, to any substitution, exchange, or release of all or any part of
any security given to secure this Note, to the addition of any party hereto,
and to the release, discharge, waiver, modification, or suspension of any
rights and remedies against any person who may be liable for the indebtedness
evidenced by this Note.
WAIVER OF JURY TRIAL. OBLIGOR AND PAYEE KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS NOTE OR ANY SECURITY DOCUMENTS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS
OF EITHER OBLIGOR OR PAYEE.
APPLICABLE LAW AND JURISDICTION. This Note shall be governed by and
interpreted according to the laws of the State of Michigan, without giving
effect to principles of conflict of laws. Obligor irrevocably agrees and
consents that any action against Obligor for collection or enforcement of this
Note may be brought in any state or federal court that has subject matter
jurisdiction and is located in, or whose district includes, Kent County,
Michigan, and that any such courts shall have personal jurisdiction over
Obligor for purposes of such action.
OBLIGOR HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
OBLIGOR BROUGHT BY BANK OF SCOTLAND (INDIVIDUALLY OR AS AGENT AS SET FORTH
ABOVE) WITH RESPECT TO THIS NOTE OR ANY SECURITY DOCUMENT MAY BE BROUGHT IN
ANY COURT IN THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, as Bank of Scotland may elect, and by
execution
-2-
<PAGE>
and delivery of this Note Obligor generally and unconditionally accepts for
himself and in respect to his property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Obligor waives any right to stay or to
dismiss any action or proceeding brought before any of said courts on the
basis of FORUM NON CONVENIENS. Obligor agrees that process against Obligor in
any such action or proceeding may be served against Obligor by registered or
certified mail sent to Obligor at its address set forth below (or such other
address as Bank of Scotland is notified of), such service being hereby
acknowledged by Obligor as being effective and binding service in every
respect. Nothing herein shall affect the right of Payee or Bank of Scotland
to serve process in any other manner permitted by applicable law or shall
limit the right of Payee or Bank of Scotland to bring actions and proceedings
against Obligor in the courts of any other jurisdiction.
KNOWING AND VOLUNTARY UNDERTAKING. OBLIGOR ACKNOWLEDGES THAT HE HAS
CAREFULLY READ THIS ENTIRE NOTE AND THE SECURITY DOCUMENTS AND IS FULLY AWARE
OF AND UNDERSTANDS THEIR CONTENTS. OBLIGOR, BY HIS SIGNATURE, ACKNOWLEDGES
THAT HE MAKES THIS NOTE AND ENTERS INTO THE SECURITY DOCUMENTS KNOWINGLY AND
VOLUNTARILY, AFTER AMPLE TIME FOR REFLECTION AND CONSIDERATION AND THE
OPPORTUNITY TO CONSULT WITH HIS OWN ATTORNEY AND AFTER EITHER HAVING DONE SO
OR VOLUNTARILY DECLINING TO DO SO.
Signed as of the date first written above.
/s/ Craig B. Klamer
_________________________
Craig B. Klamer
3544 Vinewood Avenue, S.E.
Grand Rapids, Michigan 49546
STATE OF MICHIGAN )
) ss.
COUNTY OF KENT )
Subscribed and sworn to before me this 12th day of November, 1994.
/s/ Sindra K. Coonan
__________________________
Sindra K. Coonan, Notary Public
Kent County, Michigan
My commission expires: 6-5-96
-3-
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 2, 1998, in the Registration Statement on
Form S-1 and related Prospectus of Family Christian Stores, Inc. dated
August 6, 1998.
Grand Rapids, Michigan
August 4, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hearby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 27, 1998 relating
to the financial statements of Joshua's Christian Stores ( a division of The
Development Association, Inc.), which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Fort Worth, Texas
August 6, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-START> JAN-27-1997
<PERIOD-END> JAN-25-1998
<EXCHANGE-RATE> 1.000
<CASH> 5,370
<SECURITIES> 0
<RECEIVABLES> 1,587
<ALLOWANCES> 89
<INVENTORY> 32,109
<CURRENT-ASSETS> 40,844
<PP&E> 19,753
<DEPRECIATION> 7,540
<TOTAL-ASSETS> 61,286
<CURRENT-LIABILITIES> 40,105
<BONDS> 0
9,199
0
<COMMON> 1,752
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 61,286
<SALES> 168,063
<TOTAL-REVENUES> 168,063
<CGS> 118,473
<TOTAL-COSTS> 44,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 36
<INTEREST-EXPENSE> 2,794
<INCOME-PRETAX> 2,693
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,693
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.22
</TABLE>
