UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: FEBRUARY 3, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission file number: 1-8057
L. LURIA & SON, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-0620505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5770 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 557-9000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
SHARES OF COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at April 18, 1996 (computed by reference to the
last reported sale price of the registrant's Common Stock on the New York Stock
Exchange on such date): $26,439,631.
Number of shares outstanding of each of the registrant's classes of Common
Stock at April 18, 1996: 4,082,986 shares of Common Stock, $.01 par value per
share; 1,340,528 shares of Class B Common Stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, which will be
filed with the Commission subsequent to the date hereof, (the "Proxy
Statement"), are incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
L. LURIA & SON, INC., (the "Company") is a specialty discount retailer
operating 43 stores throughout the State of Florida as of February 3, 1996. The
Company sells a broad line of jewelry, watches, kitchenware, and giftware
merchandise. In addition, the Company sells housewares, small appliances,
consumer electronics, home furnishings, luggage, cameras and other merchandise.
The Company intends to eliminate certain lines of merchandise in fiscal 1997 and
concentrate on jewelry, giftware and kitchenware. Merchandise is advertised
primarily by direct mail flyers and newspaper inserts. In addition, the Company
advertises on radio and television. The majority of the Company's stores display
samples, with inventories of such items being maintained in warehouse areas
adjoining each store, although the Company has opened eleven superstores where
the merchandise is available to the customer on a self service basis. The
Company maintains a central distribution facility at its headquarters in Miami
Lakes, Florida, and until April, 1996 maintained a satellite distribution
facility in Orlando, Florida, which service all of its stores.
The Company was incorporated in Florida in November, 1976 and is the
successor, through combinations of affiliated companies, to a general wholesale
merchandise business established in 1898. The Company discontinued its wholesale
operations in 1970 and, since that time, has conducted a specialty retail
business exclusively. Unless the context indicates otherwise, the term "Company"
refers to L. Luria & Son, Inc. and its predecessors.
MERCHANDISING
During the fiscal years 1996, 1995 and 1994, the principal categories of
merchandise sold by the Company, and as a percentage of total net sales of the
Company, were as follows:
<TABLE>
<CAPTION>
PERCENT OF NET SALES
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Jewelry and watches.............................................................. 40% 37% 38%
Consumer electronics, cameras and home
office......................................................................... 16% 20% 22%
Housewares, home furnishings, luggage and
juvenile....................................................................... 28% 28% 26%
Tabletop, giftware, clocks, and other............................................ 16% 15% 14%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Profit margins vary among the items sold, with jewelry and watches
accounting for the highest relative contribution to the Company's gross margin.
The Company purchases loose diamonds and other precious stones and standard
mountings or mountings fabricated to its specifications. Gems are then set in
mountings at the Company's facilities or are subcontracted to others for
setting. The Company accepts special jewelry orders and offers in-house repairs,
sizing, and engraving services in connection with its jewelry sales.
The Company's inventory increases prior to the Fall selling season. The
increase generally is financed through working capital, credit advanced by
suppliers on normal trade terms, and short-term borrowings. The Company
purchases merchandise from approximately 2,000 suppliers, no one of which
accounted for more than 5% of the total purchases during the fiscal year ended
February 3, 1996. The Company has no long-term purchase commitments with any of
its suppliers and believes that alternative sources of supply are available for
each category of merchandise carried.
A substantial part of the Company's jewelry inventory consists of diamonds
and gold, the market values of which are subject to fluctuations in the world
markets. The Company continuously monitors those markets in an effort to
anticipate price changes and adjusts its purchasing practices and selling prices
in order to minimize its inventory exposure. The Company has not incurred any
material loss due to a decline in market values of diamonds and gold.
2
<PAGE>
The Company's purchasing is done from the Company's headquarters in Miami
Lakes. Virtually all merchandise is delivered directly to the Company's
distribution facility located in Miami Lakes and is distributed on a daily basis
to the stores on Company trucks.
MARKETING
The Company's principal promotional efforts are made through color flyers
distributed to persons on the Company's mailing list, as well as color inserts
in newspapers circulated within the Company's markets. The Company also conducts
television, radio, and newspaper advertising.
The Company's business is affected by the same pattern of seasonality as
retail businesses in general. For the fiscal year ended February 3, 1996,
approximately $70 million (41%) of the Company's annual sales occurred in the
fourth quarter ended February 3, 1996, while the Company's net sales were
approximately $38 million (22%) in the first quarter; $34 million (19%) in the
second quarter; and $31 million (18%) in the third quarter. The percentage of
sales occurring in the above mentioned quarters of the fiscal year ended
February 3, 1996 is comparable with the percentage of sales in each quarter of
the Company's five most recent fiscal years.
In fiscal 1996 each of the Company's stores contain a selling area and a
contiguous warehouse facility. The Company displays in the showrooms certain
merchandise as samples in each store's selling area, and the store's warehouse
is stocked with inventory in all merchandise categories. Other items are
displayed in bulk allowing the customer to more quickly select and purchase the
merchandise. For inventory stocked in the store warehouse, a customer's order is
electronically transmitted to the store warehouse from the selling floor where
the order is processed. The ordered merchandise is then dispatched to the
customer pick-up counter adjacent to the selling area, where payment is received
and the merchandise is delivered. In fiscal 1997, the Company intends to convert
an average of 7,000 square feet of contiguous warehouse space of its catalogue
showroom stores into selling space.
In fiscal 1993, the Company opened its first superstore. In fiscal 1994, the
Company renovated another store into a superstore and opened two new
superstores, in fiscal 1995 the Company opened five new superstores, and in
fiscal 1996 the Company opened two new superstores. The new design, which
displays more of the merchandise on the selling floor rather than in the
adjoining warehouse, features mass displays, self-service merchandise, shopping
carts and check-out counters, along with an enlarged jewelry display and selling
area. During fiscal year 1994, the Company took a restructuring charge of $5.5
million to replace twelve existing showrooms with superstores and to close one
showroom and two jewelry mall stores. In fiscal year 1996, the Company closed
six showrooms and one jewelry mall store. At the end of fiscal 1996 the Company
operated eleven superstores, 31 showrooms, and one jewelry mall store.
EMPLOYEES
The number of employees fluctuates seasonally and reaches its peak during
the Christmas season and its lowest point during the summer months. At February
3, 1996 the Company had approximately 1,258 full-time employees and
approximately 415 permanent part-time employees. During the 1995 Christmas
season, the Company employed approximately 1,095 additional part-time employees.
None of the employees are covered by a collective bargaining agreement.
TRADEMARKS
The Company registered the mark "Luria's", the stylized mark "Luria's", the
mark with the Luria's logo and "LURIA'S, NOW YOU'VE THOUGHT OF EVERYTHING!" with
the Patent and Trademark office. In order to maintain the registrations, the
Company must file a declaration stating that the mark is in use between the
fifth and sixth anniversary of the registration date. Assuming the declaration
of use is filed, the service mark will be valid for a period of ten (10) years
and can be renewed thereafter. The Company believes that registration of the
marks is important to protect the ability to use the marks.
COMPETITION
The retail merchandise business is highly competitive. The Company competes
with a variety of other retail merchandisers, including department, discount,
variety, specialty and catalog showroom stores and warehouse clubs. Many of the
competitors have national sales organizations which are larger and have greater
financial resources than the Company. To the best of the Company's knowledge,
only one competitor, a national chain, operates stores of a similar nature to
those of the Company. This competitor has 49 stores in the State of Florida.
Additionally, the Company also competes with jewelry and giftware and specialty
discount retailers of various sizes in various locations throughout the Florida
market area.
3
<PAGE>
The Company does not maintain charge accounts; however, it does extend
credit to its customers through a private label credit card. The Company accepts
all major credit cards.
ITEM 2. PROPERTIES
All of the Company's stores are located in Florida. All but six of the
Company's stores are leased to the Company under long-term leases, two of which
are with certain officers and former officers of the Company or their immediate
families. Reference is made to the information set forth in the Section entitled
"Certain Transactions with Management" in the Company's definitive Proxy
Statement which will be filed with the Commission subsequent to the date hereof
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Proxy Statement").
Three of the Company's stores were built on land subject to long-term land
leases at an aggregate cost of approximately $2.6 million, one of those stores
is closed and has not been sublet. Three stores were built on land owned by the
Company.
The leases for the stores and land expire at various dates ranging from 1997
to 2043. All but eight of the leases are subject to renewal options at the
option of the Company at either identical or increased rents. Most of the
renewal options are for five- or ten-year terms; in some cases, the Company has
one such option and in others it has several (up to six) successive options.
During the fiscal year ended February 3, 1996, total rental (excluding real
estate taxes and common area maintenance) expense incurred by the Company for
all of its stores and capital equipment leases was approximately $11.4 million.
For further information concerning the Company's rental obligations under
its long-term leases, reference is made to the information set forth in Note 5
of "Notes to Financial Statements".
All of the stores are air conditioned, concrete block structures, with a
contiguous warehouse. Store sites have been selected after consideration of such
factors as the geographic size of the market area, traffic patterns, population
density, average family income and existing competition.
The executive and administrative offices of the Company and its central
distribution facility are located in Miami Lakes, Florida, on 8.87 acres of land
owned by the Company. The facilities, which were built to the Company's
specifications, comprise approximately 40,000 square feet of office space and
approximately 163,000 square feet of distribution and warehousing space.
Approximately 92,000 square feet of office and warehouse space is collateral
for an industrial revenue bond due in 2001, with a principal balance of
approximately $ 1.0 million at February 3, 1996.
ITEM 3. LEGAL PROCEEDINGS
On November 30, 1995 the Company announced that a Florida Circuit Court jury
had returned a verdict of $13.8 million in favor of the Company in a case in
which the Company alleged that its competitor, Service Merchandise Company, had
tortiously interfered with the Company's business relationship and business
rights at the Sawgrass Mills Shopping Center in Broward County, Florida. The
Company had executed a letter of intent with the shopping center's landlord, had
successfully negotiated a formal lease, but was unable to obtain execution of
the formal lease by the landlord. The jury decided in favor of the Company in
both of its theories: that the letter of intent was a binding contract with
which Service Merchandise had intentionally interfered and that, at the very
least, the letter of intent created a business relationship with which Service
Merchandise had intentionally and wrongfully interfered. The trial judge has
denied various post-trial motions and entered final judgment in favor of the
Company. Service Merchandise has indicated that it will appeal from the final
judgment.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None - not applicable.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock has been listed on the New York Stock Exchange
(symbol: LUR) since December, 1994. The following table reflects the high and
low sales prices based on the New York Stock Exchange and the American Stock
Exchange.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter High-Low $8 7/8 $6 $14 7/8 $8 7/8 $13 3/4 $10 1/4
Second Quarter High-Low $7 3/8 $5 3/4 $ 9 7/8 $7 5/8 $13 $10 1/2
Third Quarter High-Low $7 1/4 $5 1/8 $ 8 3/8 $6 5/8 $12 7/8 $11 1/4
Fourth Quarter High-Low $6 1/2 $4 1/8 $ 7 5/8 $6 1/8 $15 1/2 $10 3/4
Yearly High-Low $8 7/8 $4 1/8 $14 7/8 $6 1/8 $15 1/2 $10 1/4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has followed the policy of reinvesting earnings in the business
and consequently has not paid any cash dividends. At the present time, no change
in this policy is under consideration by the Board of Directors. The payment of
cash dividends in the future will be determined by the Board of Directors in
light of future existing conditions, including the Company's earnings, financial
requirements, opportunities for reinvesting earnings, business conditions and
other factors.
On February 3, 1996, the number of shareholders of record of Common Stock
and Class B Stock was 1,082 and 19, respectively. The Company's Class B Stock is
not listed on the New York Stock Exchange or otherwise publicly traded.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except earnings per common share)
<TABLE>
<CAPTION>
Years Ended
February 3, January 28, January 29, January 30, February 1,
1996 (1) 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA
Net sales $173,272 $210,654 $242,281 $235,567 $207,581
Gross margin 40,202 58,520 65,658 62,185 58,521
Restructuring charge -- -- 5,494 -- --
Income(loss) from operations (24,833) 733 2,314 4,746 2,290
Net(loss) income (18,972) 155 1,395 2,927 936
Earnings (loss) per common share $(3.50) $.03 $.26 $.55 $.18
SELECTED BALANCE SHEET DATA
Current assets $71,342 $ 98,381 $109,323 $107,826 $100,520
Current liabilities 46,307 52,375 53,964 50,816 46,656
Working capital 25,035 46,006 55,359 57,010 53,864
Total assets 114,349 139,024 139,975 136,805 131,919
Long-term debt and obligations under capital leases 791 976 1,156 1,362 2,440
Shareholders' equity 64,797 83,778 83,572 81,680 78,639
Number of stores at end of fiscal year 43 48 50 50 53
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) 53 week year
</FN>
</TABLE>
5
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this document.
GENERAL
The jewelry and giftware retail industry historically has been cyclical,
fluctuating with general economic cycles. During economic downturns, the jewelry
and giftware retail industry tends to experience greater declines than the
general economy. Management believes that the industry is significantly
influenced by economic conditions generally and particularly by consumer
behavior and confidence, the level of personal discretionary spending, interest
rates and consumer credit availability. Jewelry and giftware purchases are
generally discretionary and are often deferred during times of economic
uncertainty.
In view of the intense promotional environment of the Company's business,
as well as a generally weak retail environment, management has devised a
strategy which includes the following: (i) limited unit growth for the new
fiscal year; (ii) reduction of advertising expenditures; (iii) a reduction on a
store by store basis, of controllable expenses; (iv) a transitioning from a
catalog showroom retailer to a jewelry, giftware and kitchenware retailer; and
(v) entering into a sale-leaseback arrangement with respect to its three owned
stores.
The Company operated eleven superstores, 31 catalog showrooms and one
jewelry mall store as of the fiscal year ended February 3, 1996. The Company
opened two superstores and closed six catalog showrooms and one jewelry mall
store during fiscal 1996.
RESULTS AND OPERATIONS
The following table sets forth the Company's results of operations
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
PERCENT OF NET SALES
FISCAL YEARS ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Net sales ........................................................ 100.0% 100.0% 100.0%
Cost of goods sold, buying and warehouse costs ................... 76.8 72.2 72.9
-------------- ------------- -------------
Gross margin...................................................... 23.2 27.8 27.1
Operating expenses................................................ 37.5 27.5 23.9
Restructuring charge.............................................. -- -- 2.2
-------------- ------------- -------------
Income (loss) from operations..................................... (14.3) .3 1.0
Interest, expense, net............................................ .6 .2 --
-------------- ------------- -------------
Income (loss before income taxes)................................. (14.9) .1 1.0
--------------
Provision for income taxes........................................ 4.0 .0 .4
-------------- ------------- -------------
Net income (loss)................................................. (10.9)% .1% .6%
============== ============= =============
Change in same store sales(1)..................................... (11.2) (13.0) 6.3
============== ============= =============
<FN>
(1) Same store sales are calculated by excluding the net sales of a store
for any month of one period if the store was not open during the same month of
the prior period. A store opened at any time during a month is deemed to have
been opened on the first day of that month.
</FN>
</TABLE>
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Net Sales. Net sales for fiscal 1996 were approximately $173.3 million, a
decrease of 17.7% from fiscal 1995 and 11.2% decrease on a same store basis. The
Company believes that the lower net sales were the result of closing stores,
softening demand in catalog showroom stores, strong competition in the general
merchandise categories and a generally weak retail environment. The Company's
business is highly seasonal, with a significant portion of its sales occurring
in the fourth
6
<PAGE>
quarter. Fourth quarter net sales accounted for 40.6% and 41.1% of total net
sales in fiscal 1996 and fiscal 1995, respectively. Fourth quarter sales for
fiscal 1996 decreased 18.6% when compared to fourth quarter of fiscal 1995.
During fiscal years 1996 and 1995, jewelry sales represented 40.0% and 37.0%,
respectively, of the Company's overall sales. The Company believes that jewelry
sales as a percent of total sales will continue at approximately the current
rate in the next fiscal year. The impact of inflation on sales was not
significant. In fiscal 1996 the effect of the 53rd week is not deemed
significant.
Gross Margins. The Company's gross margin varies depending on individual
product margins, the overall sales mix and the aggressiveness of sales
promotions. Gross margins decreased in fiscal 1996 to 23.2% from 27.8% in the
prior year primarily due to merchandise from closed stores being discounted,
reduced purchases of new lines because of the efforts to reduce the overall
inventory levels, increased cost of inventory acquisition due to reduced
purchases without concomitant reduction in purchasing and distribution
departments and increased promotional activity.
Operating Expenses. The Company's operating expenses increased $7.2 million
in fiscal 1996 to 37.5% from 27.5% in fiscal 1995. This percentage increase was
primarily due to decreased net sales, as well as an increase in net advertising
expense of approximately $5.8 million mainly due to decreased cooperative
advertising.
Restructuring Charge. In the fourth quarter of 1994, the Company recorded a
$5.5 million restructuring charge to implement its superstore strategy. The
restructuring charge covered the replacement of twelve existing showrooms with
jewelry and gift superstores and the closing of one showroom and two jewelry
mall stores. The charge includes the cost of retiring fixed assets, estimated
lease liabilities and costs of closing the showrooms.
In fiscal 1996, $2.2 million of the balance of the reserve was used to
close or relocate six catalog showrooms and to close one jewelry mall store. The
Company has included approximately $1.1 million in operating expense in fiscal
year 1996 for closed stores.
The Company also discontinued its annual merchandise catalog in fiscal year
1996.
Interest Expense. Interest expense for fiscal 1996 was $1.1 million
compared to $0.5 million in fiscal 1995, or a 120% increase, as a result of
increased borrowings to fund operating activities.
Net Loss. Net loss in fiscal 1996 was $19.0 million or $3.50 per share. The
loss was due to lower net sales, reduced gross margins and increased operating
and interest expenses.
COMPARISON OF FISCAL 1995 TO FISCAL 1994
Net Sales. Net sales for fiscal year 1995 were approximately $211 million,
a decrease of 13% from fiscal 1994 and a 13% decrease on a same store basis. The
Company believes that the lower net sales were the result of reduced advertising
expenditures, substantially reduced percent off promotions, increased
competition and a softening consumer demand in the South Florida market. The
Company's business is highly seasonal, with a significant portion of its sales
occurring in the fourth quarter. Fourth quarter net sales accounted for 41.1%
and 43.0% of total net sales in fiscal 1995 and fiscal 1994, respectively.
Fourth quarter net sales for fiscal 1995 decreased 17% when compared to fourth
quarter of fiscal 1994. The impact of inflation on sales was not significant.
Gross Margin. Overall, gross margins increased in fiscal 1995 to 27.8% from
27.1% in the prior year, primarily due to substantially reduced percent off
promotions. During fiscal years 1995 and 1994, jewelry sales represented 37.1%
and 37.9%, respectively, of the Company's overall sales.
Operating Expenses. In fiscal 1995 the Company's operating expenses as a
percent of net sales increased to 27.5% from 23.9% [25.1% before one time
insurance proceeds received in settlement for Hurricane Andrew] in fiscal 1994.
Operating expenses decreased $3.0 million in fiscal 1995 compared to fiscal 1994
after adjusting for the insurance proceeds. The reduction in operating expenses
was not sufficient to offset the decrease in sales and accordingly operating
expenses as a percent of sales increased. Significant reductions were achieved
in advertising, payroll and store expenses, which offset increases in occupancy
and depreciation expenses. Preopening expenses were $.8 million in fiscal 1995.
Restructuring Charge. During the fourth quarter of fiscal 1994, the Company
closed one of its catalog showrooms (charging $.4 million against the
restructuring reserve), opened two new superstores and remodeled an existing
store to the new superstore format. During fiscal 1995, the Company opened five
new superstores and closed six catalog showrooms and one jewelry mall store
resulting in charge to the reserves of $2.8 million.
7
<PAGE>
Net Income. Net income in fiscal 1995 was $155,000 or $.03 per share. The
lower net income was due primarily to lower net sales of $31.6 million, a 13.1%
decrease, and operating expenses of 27.5% versus 23.9% in the prior year (25.1%
after adjusting for the insurance proceeds) which offset the impact of higher
gross margin rates. Net income in fiscal 1994 was $1.4 million, or $.26 per
share.
FINANCIAL CONDITION
The Company had cash and cash equivalents of $4.9 million at February 3,
1996 (fiscal year 1996), compared to $11.1 million at January 28, 1995 (fiscal
year 1995). Working capital at February 3, 1996 was $25.0 million compared to
$46.0 million at the end of the prior fiscal year. Net cash used by operating
activities was approximately $3.7 million primarily due to the net operating
loss of $19.0 million, and a decrease in accounts payable ($11.8 million) and
partially offset by a decrease in inventory ($22.8 million). This compares to
cash flow from operating activities of $8.7 million in fiscal 1995 due to a
decrease in inventory and an increase in accounts payable partially offset by a
decrease in accrued liabilities. In fiscal year 1994 $0.3 million was provided
by operating activities and was principally an increase in inventory offset by
an increase in accounts payable, accrued liabilities and restructuring expenses.
Net Capital expenditures were approximately $2.2 million, $14.7 million and
$7.9 million in fiscal 1996, 1995 and 1994, respectively. Capital expenditures
are primarily made for land, buildings, leasehold improvements and furniture and
fixtures for new and remodeled superstores. In fiscal 1996 two superstores were
opened. In fiscal 1995, five superstores were opened. The planned capital
expenditures for 1997 are approximately $6.0 million. The Company's management
believes that cash provided by operating activities and access to the capital
markets at competitive rates will be adequate to fund its capital expenditure
requirements during the next fiscal year.
Subsequent to the end of fiscal year 1996 the Company entered into a
secured revolving credit arrangement providing up to $40.0 million. The line
available to the Company is based on the value of inventory. The Company feels
this line of credit is adequate for its working capital needs during the next
fiscal year.
CHANGE IN SHAREHOLDERS' EQUITY
All shares of Common Stock acquired by the Company are retired and returned
to unissued stock in the year acquired.
NEW ACCOUNTING PRONOUNCEMENTS
Adoption of Statement of Financial Accounting Standards No. 121 "Accounting
for Impairment of Long-Lived Assets to be Disposed of" in fiscal 1996 has not
had a significant impact on the Company's financial position or results of
operation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report ............................................. 9
Management Report ........................................................ 10
Balance Sheets ........................................................... 11
Statements of Operations ................................................. 12
Statements of Shareholders' Equity ....................................... 12
Statements of Cash Flows ................................................. 13
Notes to Financial Statements ............................................ 14
8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
L. Luria & Son, Inc.
Miami Lakes, Florida
We have audited the accompanying balance sheet of L. Luria & Son, Inc. as of
February 3, 1996, and the related statements of operations, cash flows and
shareholders' equity for the year then ended. 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 audit.
We conducted our audit 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of L. Luria & Son, Inc. as of February 3, 1996
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Publc Accountants
Miami, Florida
April 22, 1996
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
L. Luria & Son, Inc.
We have audited the accompanying balance sheet of L. Luria & Son, Inc. as of
January 28, 1995, and the statements of operations, shareholders' equity and
cash flows for each of the years on the two-year period ended January 28, 1995.
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 L. Luria & Son, Inc. as of
January 28, 1995, and the results of its operations and its cash flows for each
of the years in the two-year period ended January 28, 1995 in conformity with
generally accepted principles.
KPMG Peat Marwick LLP
March 24, 1995
9
<PAGE>
To Our Shareholders:
The Management of L. Luria & Son, Inc. is responsible for the integrity and
objectivity of the financial information presented in this Annual Report.
Management has prepared the financial statements in accordance with generally
accepted accounting principles, which involve the use of estimates and judgments
where appropriate.
To meet its responsibility, management maintains a comprehensive system of
internal controls to assure the proper authorization of transactions, the
safeguarding of assets, and the reliability of the financial records. This
system can provide only reasonable, not absolute, assurance that errors and
irregularities can be prevented or detected. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal controls must
be related to the benefits derived.
The Audit Committee of the Board of Directors, which consists of three members,
is composed solely of members of the Board of Directors who are not officers or
employees of the Company. The Audit Committee is responsible for the general
oversight of the Company's system of internal control and financial reporting.
The Committee consults regularly with management and meets as often as necessary
with the independent accountants to review the scope and results of their work.
The accounting firm of Deloitte & Touche LLP has performed an independent audit
of the Company's fiscal 1996 financial statements and has issued an unqualified
opinion as to the fairness of the financial information contained therein.
L. Luria & Son, Inc.
10
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
- --------------------------------------------------------------------------------
FEBRUARY 3, JANUARY 28,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $4,941 $11,100
Accounts receivable 1,129 1,634
Income tax receivable 3,392 0
Inventories 60,087 82,931
Prepaid expenses 1,037 2,716
Deferred taxes 756 0
-------- --------
Total current assets 71,342 98,381
-------- --------
Property and Equipment
Land 7,033 7,033
Buildings 14,420 14,279
Furniture and equipment 27,092 26,023
Leasehold improvements 25,627 25,812
Construction in progress 325 340
-------- --------
Total 74,497 73,487
-------- --------
Less accumulated depreciation (36,194) (33,058)
-------- --------
Property - net 38,303 40,429
-------- --------
Deferred Taxes 4,466 0
Other assets 238 214
-------- --------
Total $114,349 $139,024
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable
Trade $31,054 $43,397
Other 4,425 3,876
Accrued liabilities 7,004 4,361
Taxes payable 1,779 535
Current portion of long-term debt 206 206
Deferred taxes 1,839 0
-------- --------
Total current liabilities 46,307 52,375
-------- --------
Long-term debt 791 976
Deferred taxes and other liabilities 2,454 1,895
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par value, 5,000,000 shares authorized; no shares issued -- --
Common stock, $.01 par value, 14,000,000 shares authorized;
4,100,274 shares issued and outstanding at February 3, 1996; and
3,991,780 shares issued and outstanding at January 28, 1995 41 39
Class B common stock $.01 par value 6,000,000 shares authorized;
1,346,634 shares issued and outstanding at February 3, 1996; and
1,434,534 shares issued and outstanding at January 28, 1995 13 14
Additional paid-in capital 18,220 18,230
Retained earnings 46,523 65,495
-------- --------
Total shareholders' equity 64,797 83,778
-------- --------
Total $114,349 $139,024
======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended
----------------------------------------------------------------
(Dollars in thousands - February 3, January 28, January 29,
except earnings (loss) per common share) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $173,272 $210,654 $242,281
Cost of goods sold, buying and warehousing costs 133,070 152,134 176,623
-------- -------- --------
Gross margin 40,202 58,520 65,658
Operating expenses 65,035 57,787 57,850
Restructuring charge -- -- 5,494
-------- -------- --------
Income (loss) from operations (24,833) 733 2,314
Interest expense - net 1,096 497 79
-------- -------- --------
Income (loss) before income taxes (25,929) 236 2,235
Provision (benefit) for income taxes (6,957) 81 840
-------- -------- --------
Net income (loss) $(18,972) $ 155 $ 1,395
======== ======== ========
Earnings (loss) per common share $ (3.50) $ .03 $ .26
======== ======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Class B
Common Stock Common Stock Additional Common
--------------- -------------- Paid-in Retained Stock in
(In thousands) Shares Amount Shares Amount Capital Earnings Treasury
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 30, 1993 3,691 $ 37 1,673 $ 16 $ 17,682 $ 63,945 $ 0
401(k) Plan contribution 9 126
Conversion of Class B stock 246 2 (246) (2)
Treasury shares acquired (7) (88)
Retirement of treasury stock (88) 88
Stock Bonus Plan awards 1 23
Stock Options exercised 47 436
Net income 1,395
----- ----- ----- ----- --------- --------- -------
Balance, January 29, 1994 3,987 $ 39 1,427 $ 14 $ 18,179 $ 65,340 $ 0
401(k) Plan contribution 19 130
Conversion of Class B stock (8) 8
Treasury shares acquired (7) (92)
Retirement of treasury stock (92) 92
Stock Bonus Plan awards 1 13
Net income 155
----- ----- ----- ----- --------- --------- -------
Balance, January 28, 1995 3,992 $ 39 1,435 $ 14 $ 18,230 $ 65,495 $ 0
401(k) Plan contribution 21 102
Conversion of Class B stock 88 2 (88) (1)
Treasury shares acquired (1) (112)
Retirement of treasury stock (112) 112
Stock Bonus Plan awards
Net loss (18,972)
----- ----- ----- ----- --------- --------- -------
Balance, February 3, 1996 4,100 $ 41 1,347 $ 13 $ 18,220 $ 46,523 $ 0
===== ===== ===== ===== ========= ======== =======
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
12
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended
February 3, January 28, January 29,
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (18,972) $ 155 $ 1,395
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,982 4,311 3,933
Deferred taxes (benefit) (4,189) 612 (1,664)
Stock contributions to benefit plans 102 130 126
Write-off disposed property against
restructuring reserve 1,128 268 --
Write-off for disposal of property 297 -- 2,081
(Increase) decrease in other assets (24) 130 217
(Increase) decrease in accounts receivable
and income tax receivable (2,887) 643 351
(Increase) decrease in inventories 22,844 4,539 (9,570)
(Increase) decrease in prepaid expenses 1,679 (511) 235
Increase (decrease) in accounts payable (11,794) 3,847 1,074
Increase (decrease) in accrued liabilities,
taxes payable and other liabilities 4,125 (5,419) 2,090
----------- --------- ----------
Net cash provided by (used in) operating activities (3,709) 8,705 268
----------- --------- ----------
Cash flows from investing activities:
Additions to property (2,153) (14,700) (7,903)
----------- --------- ----------
Net cash used in investing activities (2,153) (14,700) (7,903)
----------- --------- ----------
Cash flows from financing activities:
Borrowings under line of credit agreements 24,700 23,100 16,500
Repayments of borrowings
under line of credit agreements (24,700) (23,100) (16,500)
Repayments of long-term debt (185) (197) (223)
Stock plan activity -- 13 459
Treasury shares acquired (112) (92) (88)
----------- --------- ----------
Net cash provided by (used in) financing activities (297) (276) 148
----------- --------- ----------
Net decrease in cash and cash equivalents (6,159) (6,271) (7,487)
Cash and cash equivalents, beginning of year 11,100 17,371 24,858
----------- --------- ----------
Cash and cash equivalents, end of year $ 4,941 $ 11,100 $ 17,371
=========== ========= ==========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 1,207 $ 740 $ 252
Income taxes paid (refunded) $ (1,017) $ 1,224 $ 3,320
=========== ========= ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - L. Luria & Son, Inc. (the "Company") operates in a single
business segment, the specialty discount retail industry. The Company reports on
a 52-53 week year ending the Saturday nearest January 31. Fiscal year 1996
consisted of 53 weeks and 1995 and 1994 consisted of 52 weeks. The Company sells
a broad line of jewelry, watches, kitchenware, and giftware merchandise. In
addition, the Company sells housewares, small appliances, consumer electronics,
home furnishings, luggage, cameras and other merchandise.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities during the
reported period. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of FIFO (first in, first
out) cost or market.
PROPERTY AND EQUIPMENT - Property is stated at cost. Depreciation and
amortization are provided on the straight-line method over the estimated useful
lives of the assets, or where applicable, the terms of the respective leases, as
follows:
Buildings.......................... 30 - 45 years
Leasehold improvements............. 10 years
Furniture and equipment............ 10 years
Computer and office equipment...... 5 years
Interest on borrowed funds is capitalized during construction of property.
During the fiscal years ended February 3, 1996, January 28, 1995 and, January
29, 1994, $44, $97, and $11 of interest was capitalized, respectively.
ADVERTISING AND START-UP COSTS - Advertising costs are charged to expense
when incurred. The Company and its vendors participate in cooperative
advertising programs in which the vendors reimburse the Company for a portion of
advertising costs. Advertising expense, net of vendor reimbursements, for fiscal
years 1996, 1995 and 1994 were $12,968, $7,138 and $9,366, respectively. Costs
related to the opening of new stores are charged to operations in the fiscal
year to which they pertain.
INCOME TAXES - The company recognizes deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities are recognized for future taxable amounts and deferred tax assets
are recognized for future deductions, as well as net operating loss
carryforwards, tax credits and other tax benefits. A valuation reserve is
recognized to reduce net deferred tax assets to amounts that are more likely
than not to be realized. At February 3, 1996 and January 28, 1995, the Company
recorded a net deferred tax asset of $2,294 and net deferred tax liability of
$1,895, respectively. No valuation allowance has been recorded against the
February 3, 1996 net deferred tax asset because management believes that it is
more likely than not that the assets will be realized based on projected
profitability and other specific transactions.
EARNINGS PER COMMON SHARE - Earnings per common share were computed by
dividing net income by the weighted average number of shares of common stock and
Class B common stock ("Class B stock") outstanding during the year. The weighted
average number of shares used in the computations were 5,417,000, 5,410,000 and
5,380,000 for fiscal years ended 1996, 1995 and 1994, respectively. Option
shares are antidilutive, therefore they have not been included for earnings per
share calculations.
NEW ACCOUNTING PRONOUNCEMENTS -The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of" which established accounting standards for
the impairment of long-lived assets and certain identifiable intangibles related
to those assets to be held and used and for disposal of long-lived assets and
certain intangibles. Long-lived assets and certain identifiable intangibles to
be held and used by a company are required to be reviewed for impairment
whenever events or changes in circumstances indicate that
14
<PAGE>
the carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and certain identifiable intangibles to be
disposed of are to be reported generally at the lower of the carrying cost
amount or fair value less cost to sell. Adoption of SFAS No. 121 did not have a
significant impact on the Company's financial position or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosure About Fair
Value of Financial Instruments" requires disclosure of the fair value of
financial instruments, both assets and liabilities, recognized and not
recognized in the Balance Sheet of the Company, for which it is practical to
estimate the fair value. There are no significant differences in the carrying
value and the fair value of the financial instruments reported on the Balance
Sheets presented.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with current year presentation.
2. INVENTORIES
Inventories at February 3, 1996 and January 28, 1995 are summarized as
follows:
1996 1995
---- ----
Jewelry............................... $32,620 $43,067
General Merchandise................... $27,467 39,864
------- -------
Total................................ $60,087 $82,931
======= =======
The Company allocates certain buying and warehousing costs to its
inventories in order to match these costs with related revenues. During fiscal
years 1996, 1995 and 1994, allocated buying and warehousing costs amounted to
$7,411, $7,495, and $7,070, respectively. Buying and warehousing costs remaining
in inventory at February 3, 1996 and January 28, 1995 were approximately $4,386
and $4,708, respectively.
3. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $5,494 in the fourth
quarter of 1994 to support the implementation of its superstore strategy. The
charge covers the cost of replacing twelve existing showrooms with superstores
and the closing of one showroom and two jewelry mall stores. The components of
the charge include the cost of retiring fixed assets, estimated lease
liabilities and the cost of closing the showrooms and jewelry stores. During the
fourth quarter of 1994, the Company closed one of its catalog showrooms
(charging $410 against the restructuring reserve), opened two new superstores
and remodeled an existing store to the new superstore format. During fiscal
1995, the Company opened five new superstores and closed six catalog showrooms
and one jewelry mall store resulting in a charge to the reserve of $2,835.
Approximately $2,185 of the reserve was charged in fiscal year 1996 to close or
relocate seven catalog showrooms and to close one jewelry mall store. The
Company has included approximately $1.1 million in operating expenses in fiscal
year 1996 for closed stores.
The Company's restructuring charge was based on a series of estimates, and
the final actual costs could vary from these estimates, depending on certain
factors, principally the Company's ability to sublease, assign or sell closed
locations on acceptable terms.
4. INCOME TAXES
The components of the provision for income taxes are as follows:
Fiscal Years Ended
1996 1995 1994
---- ---- ----
Current
Federal $(3,094) $ (501) $ 2,179
State 325 (30) 325
------- -------- -------
Total (2,769) (531) 2,504
------- -------- -------
Deferred (4,188) 612 (1,664)
Total $(6,957) $ 81 $ 840
======= ======== =======
15
<PAGE>
A reconciliation of the Federal statutory rate and the Company's effective tax
rate is as follows:
Fiscal Years Ended
1996 1995 1994
---- ---- ----
US federal tax rate (35.0)% 34.0% 34.0%
Effect of:
State income taxes,
net of federal
Income tax benefit 3.9 6.3 3.6
Graduated rate benefit 1.0 (5.3) --
Other 3.3 (.7) --
---- ---- ----
Effective tax rate (26.8)% 34.3% 37.6%
==== ==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at February 3, 1996 are
presented as follows:
<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Excess of financial statement basis in reserves over tax $ 756 $ 1,019
Carryforward tax benefits 4,466
------ -------
Total gross deferred tax assets $5,222 $ 1,019
------ -------
Deferred tax liabilities:
Property, plant & equipment $1,089 $ 1,465
Inventory costs 1,431 1,271
Other 408 178
------ -------
Total gross deferred tax liabilities $2,928 $ 2,914
------ -------
Net deferred tax asset (liability) $2,294 $(1,895)
====== =======
</TABLE>
5. LEASES AND RELATED PARTY TRANSACTIONS
Substantially all of the Company's stores and certain equipment are leased
under long-term leases and accounted for as operating leases. Two of the stores
are leased from related parties. Total rental expense is as follows:
Fiscal Years Ended
1996 1995 1994
---- ---- ----
Related parties $ 205 $ 152 $ 198
Other 11,156 8,385 8,290
------- ------ ------
Total $11,361 $8,537 $8,488
======= ====== ======
Future minimum payments on all non-cancelable operating leases in effect at
February 3, 1996 are as follows:
Related
Party
Fiscal Year Leases Other Total
- ------------------------------------------------------------
1997 $205 $ 7,131 $ 7,336
1998 205 6,416 6,621
1999 134 6,119 6,253
2000 -- 5,839 5,839
2001 -- 5,548 5,548
Thereafter -- 42,299 42,299
- ------------------------------------------------------------
Total $544 $73,352 $73,896
==== ======= =======
16
<PAGE>
Certain leases are on a net rental basis and include real estate taxes,
insurance and other items as additions to the minimum annual rental. Certain
other leases include provisions for additional rentals based on gross annual
sales in excess of stipulated amounts and increases for real estate taxes,
insurance and other items which exceeded amounts stated in the leases.
Contingent rent expense was immaterial. The majority of the leases are renewable
at slightly escalated rates at the Company's option.
6. EMPLOYEE BENEFIT PLANS
In 1981, the Board of Directors and shareholders adopted a Stock Option
Plan (the "Plan") granting options to purchase in the aggregate 203,000 shares
of Common Stock to officers and key employees of the Company at the discretion
of the Compensation and Stock Option Committee of the Board of Directors. In
July, 1987, the Plan was amended to provide for grants of both incentive stock
options and non-qualified stock options. All option shares become exercisable in
part beginning two years after date of grant and the term of such options does
not exceed ten years from the date of grant. The Plan expired in October 1991.
In 1992, the Board of Directors and shareholders approved the 1992 Stock Option
Plan (the "1992 Plan") granting options to purchase an aggregate of up to
350,000 shares of Common Stock to officers and key employees of the Company at
the discretion of the Compensation and Stock Option Committee of the Board of
Directors. The terms and conditions of the 1992 Plan are essentially the same as
the Plan. Options are exercisable at the discretion of the Compensation and
Stock Option Committee of the Board of Directors. Certain option shares granted
become exercisable in part beginning two years after the date of grant while
other option shares granted are excercisable one year from the date of grant. In
1993, the Board of Directors and shareholders approved an increase to 500,000 in
the number of shares of Common Stock reserved for grant under the 1992 Plan and
approved the Directors Stock Option Plan ("Directors Plan"). The Directors Plan
grants to non-employee Directors options to purchase an aggregate of up to
70,000 shares of Common Stock. Options are granted at the fair market value at
date of grant. The Directors Plan provides for the annual issuance of options to
purchase 1,000 shares to each Director after each annual meeting provided the
Company recognizes a net profit during the preceding fiscal year. In 1996, the
Board of Directors approved the 1996 Stock Option Plan (the "1996 Plan")
granting options to purchase an aggregate of up to 500,000 shares of Common
Stock to officers and key employees of the Company at the discretion of the
Compensation and Stock Option Committee of the Board of Directors. The terms and
conditions of the 1996 Plan are essentially the same as The Plan. Options are
excercisable at the discretion of the Compensation and Stock Option Committee of
the Board of Directors. The options which have been granted under the 1996 Plan
become excercisable immediately after the date of grant.
Changes in the number of shares subject to option and option prices are
summarized as follows:
Number
of Shares Option Prices
- -------------------------------------------------------------
Balance, January 30, 1993 297,500 $ 6.75 - 9.125
Granted 72,500 $11.00 - 12.75
Expired/Canceled (25,004) $ 6.75 - 9.125
Exercised (47,461) $ 6.75 - 7.875
Balance, January 29, 1994 297,535 $ 6.75 - 12.75
Granted 120,000 $ 7.50 - 9.625
Expired/Canceled (22,500) $ 9.25 -11.875
Balance, January 28, 1995 395,035 $ 6.75 - 12.75
Granted 557,000 $4.375 - 7.125
Expired/Canceled (196,668) $6.125 - 12.75
- -------------------------------------------------------------
Balance, February 3, 1996 755,367
- -------------------------------------------------------------
Available for future grant
At February 3, 1996 278,000
- -------------------------------------------------------------
The Stock Bonus Plan (the "Bonus Plan") authorizes awards in the aggregate
of 100,000 shares of Common Stock to officers and key employees of the Company
at the discretion of the Compensation and Stock Option Committee of the Board of
Directors. This Bonus Plan, which expires on April 1, 1999, provides that shares
of Common Stock awarded to any employee shall be delivered to such employee in
equal yearly installments for a period of three years commencing two years after
the date of such award. In fiscal 1990, stock awards for an aggregate of 8,500
shares of Common Stock were made under the Bonus Plan, of which awards for 4,000
shares have expired and the remaining 4,500 shares were distributed. In fiscal
1996 a stock award was made for 5,000 shares of Common Stock under the Bonus
Plan.
17
<PAGE>
On September 20, 1991, the Board of Directors approved a formula for
awarding a bonus to the President (the "President's Bonus") which authorizes a
bonus to be awarded to the President in the event that the Company's profit
before taxes is equal to or greater than $5,000. The formula is effective for
five (5) fiscal years beginning February 2, 1992.
The Company has a Tax Deferred Savings Plan (the "401(k) Plan") which
covers substantially all full-time employees with over one year of service.
Contributions to the 401(k) Plan are at the discretion of the Board of
Directors. In fiscal 1996, 1995 and 1994, 21,394, 18,756, and 8,804 of the
Company's shares of Common Stock were contributed to the 401(k) Plan,
respectively.
7. LONG-TERM DEBT
An industrial revenue bond is payable in annual principal installments of
$150 plus monthly interest payments at market rates which approximate 65% of the
prime rate. The industrial revenue bond is collateralized by property with a
carrying value at February 3, 1996 of approximately $2,800, representing the
Company's executive offices, central warehouse and certain land.
Future maturities of long-term debt outstanding at February 3, 1996 are as
follows:
Fiscal Year Amount
----------- ------
1997 $ 150
1998 150
1999 150
2000 150
2001 150
2002 and thereafter 226
------
Total $ 976
======
During fiscal year 1996, the Company had available $40 million under two
lines of credit with interest payable at LIBOR plus a margin based on a formula
not to exceed 1%. As of February 3, 1996, no amounts were outstanding under the
lines of credit. The new line of credit contains certain covenants regarding net
worth and other operating measures. One of the revolving lines of credit expired
in January 1996 and included certain restrictive covenants regarding financial
ratios. The Company terminated the remaining line of credit in February 1996 and
entered into a new $40 million secured facility. The amount available under the
new revolving line is based on the value of inventory.
8. SHAREHOLDERS' EQUITY
The Company offers terminating participants of the Tax Deferred Savings
Plan the ability to sell their shares of the Company's Common Stock to the
Company at the market price. Any shares which are repurchased by the Company are
returned to authorized but unissued in the fiscal year acquired. During fiscal
1996, 1995 and 1994 terminating participants' shares acquired were approximately
1,000, 7,000 and 7,000 shares respectively.
The Class B Stock differs from the outstanding Common Stock in certain
ways. Holders of Class B Stock are entitled to ten votes per share on each
matter that is submitted to shareholders for approval and entitled to elect 75%
of the Board of Directors. The Common Stock is entitled to a cash dividend
preference, such that each share of Class B Stock will be entitled to 90% of any
cash dividend to which each share of Common Stock is entitled, in the event a
cash dividend is declared.
9. HURRICANE EVENT
The Company's operations including sales, margin and expenses, were
impacted by Hurricane Andrew, which struck South Florida in August, 1992. The
Company filed a claim under its business interruption insurance policy for
profits lost as a result of the effects of the hurricane. During fiscal year
1994, the Company received approximately $1,200 in full settlement of the claim,
which is included as an offset to operating expenses.
In addition, during fiscal year 1994, the Company received approximately
$790 representing the excess of the insurance proceeds over the book value of
the property destroyed and additional costs incurred as a result of the
hurricane. The Company also obtained a $1,000 settlement in connection with the
delay in the reconstruction of a store destroyed by the hurricane. These amounts
are also included as offsets to operating expenses in the financial statements.
18
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
On November 30, 1995 the Company announced that a Florida Circuit Court
jury had returned a verdict of $13.8 million in favor of the Company in a case
in which the Company alleged that its competitor, Service Merchandise Company,
had tortiuously interfered with the Company's business relationship and business
rights at the Sawgrass Mills Shopping Center in Broward County, Florida. The
Company had executed a letter of intent with the shopping center's landlord, had
successfully negotiated a formal lease, but was unable to obtain execution of
the formal lease by the landlord. The jury decided in favor of the Company in
both of its theories: that the letter of intent was a binding contract with
which Service Merchandise had intentionally interfered and that, at the very
least, the letter of intent created a business relationship with which Service
Merchandise had intentionally and wrongfully interfered. The trial judge has
denied various post-trial motions and entered final judgment in favor of the
Company. Service Merchandise has indicated that it will appeal from the final
judgment. No award amount has been reflected in the financial statements.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
<TABLE>
<CAPTION>
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except earnings (loss) per common share)
Fiscal Year First Second Third Fourth
February 3, 1996 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $37,902 $33,840 $31,150 $70,380
Gross margin 11,049 9,328 6,220 13,605
Net income (loss) (982) (1,954) (5,285) (10,751)
Earnings (loss) per common share $ (.18) $ (.36) $ (.97) $( 1.99)
Fiscal Year First Second Third Fourth
January 28, 1995 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
Net sales $44,201 $42,303 $37,697 $86,453
Gross margin 12,561 9,881 10,764 25,314
Net income (loss) (310) (1,528) (1,533) 3,526
Earnings (loss) per common share $ (.06) $ (.28) $ (.28) $ .65
</TABLE>
The fiscal 1996 fourth quarter loss included a reduction in gross margin of
$11,700. This reduction was principally attributable to a $4,700 loss of gross
profit on reduced volume, shrinkage and inventory valuation adjustments of
approximately $3,000, and lower gross margin on realized sales due to increased
promotional activity.
Advertising in the fourth quarter was $2,900 higher in fiscal 1996 than the
same period in fiscal 1995. In the fourth quarter of fiscal 1996 the Company
included $1,090 as additional operating expense for closed stores.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information relating to the change in the Company's accountants is incorporated
by reference from the Current Report on Form 8-K, as amended by Form 8-K/A,
filed with the Commission on December 13, 1995 and December 20, 1995,
respectively.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference.
19
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ITEM 11. EXECUTIVE COMPENSATION
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference. The
information included in the Proxy Statement pursuant to Rule 401(i), (k) and (l)
is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the Index set forth on
page 8 of this Annual Report on Form 10(k).
(a)(2) Financial Statement Schedules
None
(a)(3) Exhibits
3(a) Restated Articles of Incorporation (incorporated by
reference to Exhibit 3(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1987).
3(b) By-Laws, as amended (incorporated by reference to Exhibit
(3(a) of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1987).
10(a) Loan and Security Agreement by and between L. Luria & Son,
Inc. and Foothill Capital Corporation dated as of February
22, 1996.
10(b) Lease Agreement, dated May 23, 1969, between the Company
and Leonard Luria, David Brawer, Bernard C. Gross relating
to the premises at 980 S.W. First Street, Miami, Florida,
as modified by Modification of Lease dated July 1, 1972
and First Modification of Lease, dated as of September 15,
1978 (incorporated by reference to Exhibit 13(d) to the
Company's Registration Statement on Form S-1 (Registration
No. 2-62646) filed with the Securities and Exchange
Commission on September 22, 1978).
10(d) Lease Agreement, dated September 1, 1973, between the
Company and GLL Associates, relating to the premises at
6411 Taft Street, Hollywood, Florida, as modified by
Modification of Lease dated September 15, 1978
(incorporated by reference to Exhibit 13(h) to the
Company's Registration Statement on Form S-1 (Registration
No. 2-62646) filed with the Securities and Exchange
Commission on September 22, 1978).
10(e) Profit Sharing Trust Agreement of the Company, as amended
(incorporated by reference to Exhibit 11(a) to the
Company's Registration Statement on Form S-1 (Registration
No. 2-62646) filed with the Securities and Exchange
Commission on September 22, 1978).
10(g)(1) Non-Qualified Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 5(b) to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 2-62646)
20
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filed with the Securities and Exchange Commission on
October 31, 1978).
10(g)(2) Stock Option Plan of the Company, as amended,
(incorporated by reference to Exhibit 10(g)(2) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1988).
10(g)(3) 1992 Stock Option Plan, as amended (incorporated by
reference to Exhibit 10(g)(3) of the Company's Annual
Report on Form 10-K for the fiscal year ended January 29,
1994).
10(g)(4) 1996 Stock Option Plan.
10(h) Stock Bonus Plan of the Company (incorporated by reference
to Exhibit 10(h) of the Company's Report on Form 10-Q for
the fiscal quarter ended July 31, 1989).
10(i)(1) 1991 Discretionary Bonus Formula for the President of the
Company (incorporated by reference to Exhibit 10(i) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1993).
10(j) 1993 Directors' Stock Option Plan (incorporated by
reference to Exhibit 10(j) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 29, 1994).
10(k) Form of Indemnification Agreement (incorporated by
reference to Exhibit 10(k) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 29, 1994).
10(l) Letter Agreement, dated January 4, 1993, between Harry J.
Diven, Jr., Director, and the Company, granting stock
option (incorporated by reference to Exhibit 10(l) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 1994).
10(m) Employment Agreement with Gerald Nathanson.
21. Subsidiaries of Registrant.
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
21
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Management employee contracts, compensatory plans and other
arrangements included as part of the exhibits referred to above are as follows:
10(e) Profit Sharing Trust Agreement of the Company, as amended.
10(g)(1) Non-Qualified Stock Option Plan of the Company, as
amended.
10(g)(2) Stock Option Plan of the Company, as amended.
10(g)(3) 1992 Stock Option Plan, as amended.
10(g)(4) 1996 Stock Option Plan.
10(h) Stock Bonus Plan of the Company.
10(i)(1) 1991 Discretionary Bonus Formula for the President of the
Company.
10(j) 1993 Directors' Stock Option Plan.
10(m) Employment Agreement with Gerald Nathanson.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
L. LURIA & SON, INC.
By: /s/ GERALD NATHANSON
-------------------------
Gerald Nathanson,
Chief Executive Officer
Dated: April 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
/s/ LEONARD LURIA April 30, 1996
------------------------------------------
LEONARD LURIA, Chairman of the Board
/s/ GERALD NATHANSON April 30, 1996
------------------------------------------
GERALD NATHANSON, Chief Executive Officer
and Director
/s/ PETER LURIA April 30, 1996
------------------------------------------
PETER LURIA, President, Chief Operating
Officer and Director
/s/ THOMAS A. FLOERCHINGER April 30, 1996
------------------------------------------
THOMAS A. FLOERCHINGER, Senior Vice President, Chief
Financial Officer and Principal Accounting Officer
23
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SIGNATURES
SIGNATURE AND TITLE DATE
/s/ HARRY J. DIVEN, JR. April 30, 1996
-----------------------------------------
HARRY J. DIVEN, JR., Director
/s/ SYDNEY A. LURIA April 30, 1996
-----------------------------------------
SYDNEY A. LURIA, Director
/s/ EDWIN D. MARKS April 30, 1996
-----------------------------------------
EDWIN D. MARKS, Director
April __, 1996
-----------------------------------------
JORGEN PETERSEN, Director
April __, 1996
-----------------------------------------
JEREMY SERWER, Director
/s/ CYNTHIA COHEN TURK April 30, 1996
-----------------------------------------
CYNTHIA COHEN TURK, Director
24
<PAGE>
EXHIBIT INDEX
10(a) Loan and Security Agreement by and between L. Luria &
Son, Inc. and Foothill Capital Corporation dated as of
February 22, 1996.
10(g)(4) 1996 Stock Option Plan.
10(m) Employment Agreement with Gerald Nathanson.
21 Subsidiaries of Registrant.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of KPMG Peat Marwick, LLP
27.1 Financial Data Schedule
25
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
L. LURIA & SON, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF FEBRUARY 22, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION...................................................... 1
1.1 Definitions.............................................................. 1
1.2 Accounting Terms......................................................... 15
1.3 Code..................................................................... 15
1.4 Construction............................................................. 15
1.5 Schedules and Exhibits................................................... 16
2. LOAN AND TERMS OF PAYMENT......................................................... 16
2.1 Revolving Advances....................................................... 16
2.2 Letters of Credit........................................................ 16
2.3 Increase of the Maximum Revolving Amount................................. 19
2.4 Overadvances............................................................. 19
2.5 Interest: Rates, Payments, and Calculations............................. 19
2.6 Collection of Accounts................................................... 21
2.7 Crediting Payments; Application of Collections........................... 21
2.8 Borrower's Designated Account............................................ 22
2.9 Maintenance of Loan Account; Statements of Obligations................... 22
2.10 Fees..................................................................... 22
3. CONDITIONS; TERM OF AGREEMENT..................................................... 23
3.1 Conditions Precedent to the Initial Advance or Letter of Credit.......... 23
3.2 Conditions Precedent to all Advances and Letters of Credit............... 25
3.3 Conditions Subsequent.................................................... 25
3.4 Term..................................................................... 25
3.5 Effect of Termination.................................................... 26
3.6 Early Termination by Borrower............................................ 26
3.7 Termination Upon Event of Default........................................ 26
4. CREATION OF SECURITY INTEREST..................................................... 27
4.1 Grant of Security Interest............................................... 27
4.2 Negotiable Collateral.................................................... 27
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral... 27
4.4 Delivery of Additional Documentation Required............................ 27
4.5 Power of Attorney........................................................ 27
4.6 Right to Inspect......................................................... 28
</TABLE>
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<TABLE>
<S> <C> <C>
5. REPRESENTATIONS AND WARRANTIES.................................................... 28
5.1 No Prior Encumbrances.................................................... 28
5.2 Eligible Inventory....................................................... 29
5.3 Equipment................................................................ 29
5.4 Location of Inventory and Equipment...................................... 29
5.5 Inventory Records........................................................ 29
5.6 Location of Chief Executive Office; FEIN................................. 29
5.7 Due Organization and Qualification; No Subsidiaries...................... 29
5.8 Due Authorization; No Conflict........................................... 29
5.9 Litigation............................................................... 29
5.10 No Material Adverse Change. ............................................. 30
5.11 Solvency................................................................. 30
5.12 Employee Benefits........................................................ 30
5.13 Environmental Condition.................................................. 30
5.14 Reliance by Foothill; Cumulative......................................... 31
6. AFFIRMATIVE COVENANTS............................................................. 31
6.1 Accounting System........................................................ 31
6.2 Collateral Reporting..................................................... 31
6.3 Financial Statements, Reports, Certificates.............................. 32
6.4 Tax Returns.............................................................. 33
6.5 Returns.................................................................. 33
6.6 Title to Equipment....................................................... 33
6.7 Maintenance of Equipment................................................. 33
6.8 Taxes.................................................................... 34
6.9 Insurance................................................................ 34
6.10 Financial Covenants...................................................... 35
6.11 No Setoffs or Counterclaims.............................................. 35
6.12 Location of Inventory and Equipment...................................... 35
6.13 Compliance with Laws..................................................... 35
6.14 Employee Benefits........................................................ 36
6.15 Leases................................................................... 36
7. NEGATIVE COVENANTS................................................................ 37
7.1 Indebtedness............................................................. 37
7.2 Liens.................................................................... 37
7.3 Restrictions on Fundamental Changes...................................... 38
7.4 Extraordinary Transactions and Disposal of Assets........................ 38
7.5 Change Name.............................................................. 38
7.6 Guarantee................................................................ 38
7.7 Restructure.............................................................. 38
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
7.8 Prepayments.............................................................. 38
7.9 Change of Control........................................................ 38
7.10 Capital Expenditures..................................................... 39
7.11 Consignments............................................................. 39
7.12 Distributions............................................................ 39
7.13 Accounting Methods....................................................... 39
7.14 Investments.............................................................. 39
7.15 Transactions with Affiliates............................................. 39
7.16 Suspension............................................................... 40
7.17 Use of Proceeds.......................................................... 40
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees............................................................. 40
7.19 No Prohibited Transactions Under ERISA................................... 40
8. EVENTS OF DEFAULT................................................................. 41
9. FOOTHILL'S RIGHTS AND REMEDIES.................................................... 43
9.1 Rights and Remedies...................................................... 43
9.2 Remedies Cumulative...................................................... 46
10. TAXES AND EXPENSES................................................................ 46
11. WAIVERS; INDEMNIFICATION.......................................................... 46
11.1 Demand; Protest; etc..................................................... 46
11.2 Foothill's Liability for Collateral...................................... 46
11.3 Indemnification.......................................................... 47
12. NOTICES........................................................................... 47
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................................ 48
14. DESTRUCTION OF BORROWER'S DOCUMENTS............................................... 49
15. GENERAL PROVISIONS................................................................ 49
15.1 Effectiveness............................................................ 49
15.2 Successors and Assigns................................................... 49
15.3 Section Headings......................................................... 50
15.4 Interpretation........................................................... 50
15.5 Severability of Provisions............................................... 50
15.6 Amendments in Writing.................................................... 50
15.7 Counterparts; Telefacsimile Execution.................................... 50
</TABLE>
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<TABLE>
<S> <C> <C>
15.8 Revival and Reinstatement of Obligations................................. 51
15.9 Integration.............................................................. 51
</TABLE>
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
Schedule 5.9 Litigation
Schedule 5.12 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Schedule 7.15 Affiliate Transactions
Exhibit C-1 Form of Compliance Certificate
Exhibit I-1 Form of Inventory Security Agreement
Exhibit T-1 Form of Trademark Security Agreement
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<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as
of February 22, 1996, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333 and L. LURIA & SON,
INC., a Florida corporation ("Borrower"), with its chief executive office
located at 5770 Miami Lakes Drive, Miami Lakes, Florida 33014.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the
following terms shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"ADVANCES" shall have the meaning ascribed thereto in
SECTION 2.1(A) hereof.
"AFFILIATE" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, is under common control
with or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote ten percent (10%) or more of the securities having ordinary voting power
for the election of directors or the direct or indirect power to direct the
management and policies of a Person.
"AGREEMENT" has the meaning set forth in the preamble hereto.
"AUTHORIZED OFFICER" means any officer or other employee of
Borrower.
"AVAILABILITY" means, as of the date of determination, (a) the
lesser of (i) the Maximum Revolving Amount, and (ii) the Borrowing Base, MINUS
(b) the outstanding amount of Advances and the undrawn or unreimbursed amount of
Letters of Credit.
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<PAGE>
"AVERAGE UNUSED PORTION OF MAXIMUM REVOLVING AMOUNT" means (a)
the Maximum Revolving Amount, LESS (b) the sum of (i) the average Daily Balance
of Advances that were outstanding during the immediately preceding month, PLUS
(ii) the average Daily Balance of the undrawn Letters of Credit that were
outstanding during the immediately preceding month.
"BANKRUPTCY CODE" means the United States Bankruptcy Code
(11 U.S.C. ss. 101 ET SEQ.), as amended, and any successor statute.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"BLOCKED ACCOUNT" shall mean the depositary account
established pursuant to the Blocked Account Agreement.
"BLOCKED ACCOUNT AGREEMENT" means that certain Blocked
Depository Account Agreement, in form and substance reasonably satisfactory to
Foothill, among Borrower, Foothill, and the Blocked Account Bank.
"BLOCKED ACCOUNT BANK" means NationsBank (South), N.A.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"BORROWER'S DESIGNATED ACCOUNT" means account number
3750130337 of Borrower maintained with Borrower's Designated Account Bank, or
such other deposit account (located within the United States) of Borrower
designated, in writing and from time to time, by Borrower to Foothill prior to
the date of the establishment of such other deposit account.
"BORROWER'S DESIGNATED ACCOUNT BANK" means NationsBank
(South), N.A., whose office is located at 100 S.E. 2nd Street, FL7-950-14-06,
Miami, Florida 33131, and whose ABA number is 111000012.
"BORROWING BASE" has the meaning set forth in SECTION 2.1(A)
hereof.
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<PAGE>
"BUSINESS DAY" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"CHANGE OF CONTROL" shall be deemed to have occurred at such
time as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 25% of the total voting power of all classes of stock
then outstanding of Borrower entitled to vote in the election of directors.
"CLOSING DATE" means the date of the making of the initial
Advance or the issuance of the initial Letter of Credit hereunder.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) to the extent required by SECTION 3.3(B) hereof,
the Real Property,
(h) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or
control of Foothill, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Borrower's
Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, Real Property, money, deposit
accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or
other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds
thereof.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver, bailee
letter, or a similar acknowledgement agreement, in each case, in form and
substance satisfactory to Foothill.
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<PAGE>
"COLLECTIONS" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form attached hereto as EXHIBIT C-1 and delivered by the chief accounting
officer of Borrower to Foothill.
"CONSOLIDATED CURRENT ASSETS" means, as of any date of
determination, the aggregate amount of all current assets of Borrower and its
Subsidiaries calculated on a consolidated basis that would, in accordance with
GAAP, be classified on a balance sheet as current assets.
"CONSOLIDATED CURRENT LIABILITIES" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower and
its Subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For purposes
of this definition, all Advances outstanding under this Agreement shall be
deemed to be current liabilities without regard to whether they would be deemed
to be so under GAAP.
"DAILY BALANCE" means the amount of an Obligation owed at
the end of a given day.
"DEFAULT" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"DISBURSEMENT LETTER" means an instructional letter executed
and delivered by Borrower to Foothill regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be satisfactory
to Foothill.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION PREMIUM" has the meaning set forth in
SECTION 3.6.
"ELIGIBLE IN-TRANSIT INVENTORY" means those items of Inventory
that do not qualify as Eligible Landed Inventory solely because they are not
located at a location set forth on SCHEDULE E-1 but: (a) currently are
in-transit from a location not set forth on SCHEDULE E-1 to a location set forth
on SCHEDULE E-1, (b) title to such Inventory has passed to Borrower, (c) are
insured against types of loss, damage, hazards, and risks, and in amounts,
satisfactory to Foothill in its reasonable discretion, and (d) was prepaid or,
if purchased under an Inventory Letter of Credit, such Inventory Letter of
Credit has been
-4-
<PAGE>
drawn upon in full and reimbursed; in each case, with documentation therefor in
form and substance satisfactory to Foothill in its discretion, and that do not
constitute Eligible Landed Inventory.
"ELIGIBLE INVENTORY" means the Eligible In-Transit Inventory
and the Eligible Landed Inventory.
"ELIGIBLE LANDED INVENTORY" means Inventory consisting of
finished goods held for sale in the ordinary course of Borrower's business and
raw materials for such finished goods, that are located at Borrower's premises
identified on SCHEDULE E-1, that strictly comply with each and all of the
representations and warranties respecting Inventory made by Borrower to Foothill
in the Loan Documents, and that are and at all times continue to be reasonably
acceptable to Foothill in all respects; PROVIDED, however, that standards of
eligibility may be fixed and revised from time to time by Foothill in Foothill's
reasonable credit judgment. In determining the amount to be so included,
Inventory shall be valued on a weighted average cost basis consistent with
Borrower's current and historical accounting practices. An item of Inventory
shall not be included in Eligible Landed Inventory if:
(a) it is not owned solely by Borrower or Borrower does not
have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on
SCHEDULE E-1 attached hereto;
(c) if it is in a distribution center or in a contract
warehouse and, in each case, is not subject to a Collateral Access Agreement
executed by the lessor or the warehouseman, as the case may be;
(d) it is not subject to a valid and perfected first
priority security interest in favor of Foothill;
(e) it consists of goods that are not reflected on Borrower's
perpetual inventory reporting system or goods that are supplies or samples;
(f) it consists of goods returned or rejected by Borrower's
customers that are not in new and resalable condition or goods in transit; and
(g) in the case of Inventory consisting of jewelry, it has
been owned by Borrower for more than two years, in the case of all other
Inventory, it has been owned by Borrower for more than one year, and, in the
case of any item of Inventory, it is
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obsolete or slow moving, a restrictive or custom item, work-in-process, a
component that is not part of finished goods, or constitutes spare parts,
packaging and shipping materials, supplies used or consumed in Borrower's
business, Inventory subject to a security interest or lien in favor of any third
Person, bill and hold goods, damaged or defective goods, "seconds," studio
products, or Inventory acquired on consignment.
"EQUIPMENT" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located.
"ERISA" the Employee Retirement Income Security Act of 1974,
29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA EVENT" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
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"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXISTING LENDER" means NationsBank of Florida, N.A.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this
Agreement.
"FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.6.
"FOOTHILL EXPENSES" means all reasonable: costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrower under
any of the Loan Documents that are paid or incurred by Foothill; fees or charges
paid or incurred by Foothill in connection with Foothill's transactions with
Borrower, including, fees or charges for photocopying, notarization,
telecommunication, public record searches (including tax lien, litigation, and
ucc searches), filing, recording, publication, appraisal (including periodic
Personal Property Collateral or Real Property appraisals), real estate surveys,
real estate title policies, and environmental audits; costs and expenses
incurred by Foothill in the disbursement of funds to Borrower (by wire transfer
or otherwise); charges paid or incurred by Foothill resulting from the dishonor
of checks; costs and expenses paid or incurred by Foothill to correct any
default or enforce any provision of the Loan Documents, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Personal Property Collateral or the Real
Property, or any portion thereof, irrespective of whether a sale is consummated;
costs and expenses paid or incurred by Foothill in examining Borrower's Books;
costs and expenses of third party claims or any other suit paid or incurred by
Foothill in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or Foothill's relationship with
Borrower; and attorneys fees and expenses incurred by Foothill in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower),
defending, or concerning the Loan Documents, irrespective of whether suit is
brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders,
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customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer disks
or tapes, literature, reports, catalogs, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.
"GOVERNING DOCUMENTS" means the certificates or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"HAZARDOUS MATERIALS" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per million.
"INDEBTEDNESS" means: (a) all obligations of Borrower for
borrowed money, (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of Borrower under
capital leases, (d) all obligations or liabilities of others secured by a lien
or security interest on any property or asset of Borrower, irrespective of
whether such obligation or liability is assumed, and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"INTANGIBLE ASSETS" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
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"INVENTORY" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title.
"INVENTORY LETTER OF CREDIT" means documentary Letters of
Credit issued to support the purchase by Borrower of Inventory prior to transit
to a location set forth on SCHEDULE E-1, that provides that all draws thereunder
must require presentation of customary documentation (including, if applicable,
commercial invoices, packing list, certificate of origin, bill of lading or
airwaybill, customs clearance documents, quota statement, inspection
certificate, beneficiaries statement, and bill of exchange, bills of lading,
dock warrants, dock receipts, warehouse receipts, or other documents of title)
in form and substance reasonably satisfactory to Foothill and reflecting the
passage to Borrower of title to Inventory that constitutes Eligible Inventory.
Any such Letter of Credit shall cease to be an "Inventory Letter of Credit" at
such time, if any, as the goods purchased thereunder become Eligible Landed
Inventory.
"INVENTORY RESERVES" means (a) reserves (determined from time
to time by Foothill in its reasonable discretion) for the estimated costs
relating to unpaid freight charges, warehousing or storage charges, taxes,
duties, and other similar unpaid costs associated with the acquisition of
Eligible In-Transit Inventory by Borrower, plus (b) reserves (determined from
time to time by Foothill in its reasonable discretion) for the estimated
reclamation claims of unpaid sellers of Inventory sold to Borrower.
"INVENTORY SECURITY AGREEMENT" means an Inventory Security
Agreement, dated as of the Closing Date, between Borrower and Foothill, which
agreement shall be substantially in the form of EXHIBIT I-1 attached hereto.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"L/C" has the meaning set forth in SECTION 2.2(A).
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(A).
"LETTER OF CREDIT" means an L/C or an L/C Guaranty, as the
context requires.
"LIQUIDITY" means, as of any date of determination, the
aggregate amount of the Availability plus Borrower's unrestricted cash and cash
equivalents that are free and clear of any liens, set-off rights, or any
restrictions as to the use thereof by Borrower.
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"LOAN ACCOUNT" has the meaning set forth in SECTION 2.9.
"LOAN DOCUMENTS" means this Agreement, the Disbursement
Letter, the Letters of Credit, the Inventory Security Agreement, the Trademark
Security Agreement, the Blocked Account Agreement, the Mortgage, any note or
notes executed by Borrower and payable to Foothill, and any other agreement
entered into, now or in the future, in connection with this Agreement.
"LOSSES" means, as of the date any determination thereof is to
be made, the aggregate amount of Borrower's losses incurred after February 3,
1996 and calculated in accordance with GAAP, excluding, to the extent deducted
in calculating such Losses and to the extent that they occur after February 3,
1996, non-cash restructuring charges accrued (subject to the reasonable approval
of Foothill and not to include severance costs, write-downs of current assets,
or other restructuring charges which may be deemed to be non-cash, on a current
basis, but would result in future cash outlays) in connection with the closure
of one or more of Borrower's facilities.
"MATERIAL ADVERSE CHANGE" means (a) a material adverse change
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower, (b) the material
impairment of Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of Foothill to enforce the Obligations or
realize upon the Collateral, (c) a material adverse effect on the value of the
Collateral or the amount that Foothill would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral, or (d) a material impairment of the priority of Foothill's
liens or security interests in the Collateral.
"MATURITY DATE" has the meaning set forth in SECTION 3.4.
"MAXIMUM FOOTHILL REVOLVING AMOUNT" means that portion of the
Maximum Revolving Amount for which Foothill shall be responsible, exclusive of
any participations with Participants, which amount as of the Closing Date is
Thirty Million Dollars ($30,000,000), and which amount automatically shall be
reduced to Twenty Million Dollars ($20,000,000) at such time as Borrower
requests that the Maximum Revolving Amount be increased to Forty Million Dollars
($40,000,000) and satisfies each of the conditions set forth in SECTION 2.3
hereof.
"MAXIMUM REVOLVING AMOUNT" means Thirty Million Dollars
($30,000,000), which amount, subject to the full satisfaction of the conditions
set forth in SECTION 2.3 hereof, may be increased by Borrower to Forty Million
Dollars ($40,000,000).
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"MORTGAGE" means one or more mortgages, deeds of trust, or
deeds to secure debt, executed by Borrower in favor of Foothill, the form and
substance of which shall be reasonably satisfactory to Foothill, that encumber
the Real Property and the related improvements thereto.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, certificated securities
(including the shares of stock of Subsidiaries of Borrower), documents, personal
property leases (wherein Borrower is the lessor), chattel paper, and Borrower's
Books relating to any of the foregoing.
"OBLIGATIONS" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations owing to
Foothill under any outstanding Letters of Credit, premiums (including Early
Termination Premiums), liabilities (including all amounts charged to Borrower's
Loan Account pursuant hereto), obligations, fees or Foothill Expenses (including
any fees or expenses that, but for the provisions of the Bankruptcy Code, would
have accrued) lease payments, guaranties, covenants, and duties owing by
Borrower to Foothill of any kind and description (whether pursuant to or
evidenced by the Loan Documents or pursuant to any other agreement between
Foothill and Borrower, and irrespective of whether for the payment of money),
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including any debt, liability, or obligation
owing from Borrower to others that Foothill may have obtained by assignment or
otherwise, and further including all interest not paid when due and all Foothill
Expenses that Borrower is required to pay or reimburse by the Loan Documents, by
law, or otherwise.
"OVERADVANCE" has the meaning set forth in SECTION 2.4.
"PARTICIPANT" means any Person, other than Foothill, that has
committed to participate in providing a portion of the financing contemplated
herein.
"PAY-OFF LETTER" means a letter, in form and substance
reasonably satisfactory to Foothill, from Existing Lender respecting the amount
necessary to repay in full all of the obligations of Borrower owing to Existing
Lender.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
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"PERMITTED DISPOSITION" means, so long as no Event of Default
has occurred and is continuing or would result therefrom, (a) the sale or other
disposition, free and clear of Foothill's security interest therein (other than
its security interest in the proceeds of such sale or other disposition), of
Inventory in the ordinary course of Borrower's business, (b) the sale or other
disposition of obsolete or worn-out Equipment in the ordinary course of
business, (c) the sale or other disposition of Equipment in connection with the
purchase of replacement Equipment, (d) the sale or other disposition of
Equipment in the ordinary course of business that does not aggregate in excess
of $200,000, on a book basis, per annum, (e) within 180 days of the Closing
Date, the Sale\Leaseback Transaction, (f) the sale or other disposition of the
apartment owned by Borrower located in New York, New York, and (g) the sale or
other disposition of all or any portion of Borrower's claims arising out of the
litigation involving Service Merchandise Co., Inc.
"PERMITTED LIENS" means (a) liens and security interests held
by Foothill, (b) liens for unpaid taxes, assessments, or other governmental
charges that are not yet due and payable, (c) liens and security interests set
forth on SCHEDULE P-1 attached hereto, (d) purchase money security interests and
liens of lessors under capital leases to the extent that the acquisition or
lease of the underlying asset was permitted under SECTION 7.10, and so long as
the security interest or lien only secures the purchase price of the asset, (e)
easements, rights of way, reservations, covenants, conditions, restrictions,
zoning variances, and other similar encumbrances that do not materially
interfere with the use or value of the property subject thereto, (f) obligations
and duties as lessee under any operating lease entered into in the ordinary
course of business, (g) mechanics', materialmen's, warehousemen's, or similar
liens that arise by operation of law, (h) exceptions (exclusive of obligations
for the payment of borrowed money) in respect of the Real Property as are
approved in the reasonable discretion of Foothill, (i) liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance, and other types of social security,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds, and other
similar obligations (exclusive of obligations for the payment of borrowed
money), and (j) liens covered by SECTIONS 8.8 AND 8.9 so long as they do not
constitute an Event of Default thereunder.
"PERMITTED PROTEST" means the right of Borrower to protest any
lien, tax, rental payment, or other charge, other than any such lien or charge
that secures the Obligations, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (c) Foothill reasonably is
satisfied that, while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of the liens or security
interests of Foothill in and to the Collateral.
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"PERSON" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PERSONAL PROPERTY COLLATERAL" means all Collateral other
than the Real Property.
"PLAN" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with respect to which it
may incur liability.
"REAL PROPERTY" means the parcel or parcels of real property
and the related improvements thereto identified on SCHEDULE R-1.
"REAL PROPERTY CONDITIONS" means (a) that Foothill shall have
received a Mortgage encumbering each of the parcels composing the Real Property,
such Mortgage shall have been duly executed and delivered by Borrower and shall
be in full force and effect, and such Mortgage shall have been recorded in the
office(s) of the applicable county recorder(s), and (b) that Foothill shall have
received:
(i) a mortgagee title insurance policy (or a marked commitment
to issue the same) for the Real Property issued by a title insurance company
satisfactory to Foothill (a "Mortgage Policy") in amounts reasonably
satisfactory to Foothill assuring Foothill that the Mortgage on the Real
Property is a valid and enforceable first priority mortgage lien free and clear
of all defects and encumbrances except Permitted Liens, and the Mortgage Policy
shall otherwise be in form and substance reasonably satisfactory to Foothill;
(ii) copies of a Phase-I environmental report or a clean site
letter and real estate surveys that shall have been completed with respect to
the Real Property; the environmental consultants retained for such environmental
report or site letter, the scope thereof, and the results thereof shall be
acceptable to Foothill in its reasonable discretion;
(iii) evidence that Borrower has paid any documentary stamp or
intangible taxes arising in connection with the execution, delivery, or
recordation of the Mortgage;
(iv) satisfactory evidence that all tax returns required to be
filed by Borrower have been timely filed and all Real Property taxes upon the
Real Property have been paid prior to delinquency, unless subject to a Permitted
Protest; and
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(v) supplemental opinions of Borrower's counsel respecting the
execution and delivery of the Mortgage, in form and substance reasonably
satisfactory to Foothill in its sole discretion.
"REFERENCE RATE" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate" or "reference rate," irrespective
of whether such announced rate is the best rate available from such financial
institution.
"REPORTABLE EVENT" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of thirty (30) days notice to the PBGC is waived
under applicable regulations.
"RETIREE HEALTH PLAN" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"SALE\LEASEBACK TRANSACTION" means the transaction consisting
of (a) a sale and leaseback by Borrower of the Real Property substantially on
the terms and conditions previously provided to Foothill and (b) the execution
and delivery of a Collateral Access Agreement with respect to the Real Property.
"SOLVENT" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"SUBSIDIARY" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the
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shares of stock or other ownership interests having ordinary voting power to
elect a majority of the board of directors or appoint other managers of such
corporation, partnership, limited liability company, or other entity.
"SYNDICATED REVOLVING AMOUNT" means that portion of the
Maximum Revolving Amount equal to the aggregate financing commitments (to the
extent not breached or terminated) of all Participants.
"TANGIBLE NET WORTH" means, as of the date any determination
thereof is to be made, the result of (a) Borrower's total stockholder's equity,
PLUS (b) (to the extent deducted in arriving at such total stockholder's equity)
non-cash restructuring charges accrued after February 3, 1996 (subject to the
reasonable approval of Foothil and not to include severance costs, write-downs
of current assets, or other restructuring charges which may be deemed to be
non-cash, on a current basis, but would result in future cash outlays) in
connection with the closure of one or more of Borrower's facilities, MINUS (c)
the sum of: (i) all Intangible Assets of Borrower, (ii) all of Borrower's
prepaid expenses, and (iii) all amounts due to Borrower from Affiliates,
calculated on a consolidated basis.
"TRADEMARK SECURITY AGREEMENT" means a Trademark Security
Agreement, substantially in the form of EXHIBIT T-1 attached hereto, dated as of
the Closing Date, between Borrower and Foothill.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been
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waived in writing by Foothill. Section, subsection, clause, schedule, and
exhibit references are to this Agreement unless otherwise specified. Any
reference in this Agreement or in the Loan Documents to this Agreement or any of
the Loan Documents shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, and
supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make advances ("Advances") to
Borrower in an amount at any one time outstanding not to exceed the lesser of
(i) the Maximum Revolving Amount, or (ii) the Borrowing Base LESS (A) the
aggregate amount of all undrawn or unreimbursed Letters of Credit (other than
Inventory Letters of Credit), LESS (B) fifty percent (50%) of the aggregate
amount of all undrawn or unreimbursed Inventory Letters of Credit, LESS (C) the
aggregate amount of the Inventory Reserves. For purposes of this Agreement,
"Borrowing Base", as of any date of determination, shall mean the sum of
fifty-five percent (55%) of the value of Eligible Inventory (fifty percent (50%)
during the month of January) minus the aggregate amount of reserves, if any,
established by Foothill under SECTION 2.1(B).
(b) Anything to the contrary in SECTION 2.1(A)
above notwithstanding, Foothill may create reserves against or reduce its
advance rates based upon Eligible Inventory without declaring an Event of
Default if it reasonably determines that there has occurred a Material Adverse
Change.
(c) Foothill shall have no obligation to make
Advances hereunder to the extent they would cause the outstanding Obligations to
exceed the Maximum Foothill Revolving Amount plus the Syndicated Revolving
Amount.
(d) Amounts borrowed pursuant to this SECTION
2.1 may be repaid and, subject to the terms and conditions of this Agreement,
reborrowed at any time during the term of this Agreement.
2.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue letters of credit for the account of
Borrower (each, an "L/C") or to issue guarantees of payment (each such guaranty,
an "L/C Guaranty") with respect to letters of
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credit issued by an issuing bank for the account of Borrower in an aggregate
undrawn and unreimbursed amount (taking into account any Letters of Credit
previously issued and outstanding and calculated after giving effect to any
proposed issuance) not to exceed the lowest of: (i) the Borrowing Base less the
amount of outstanding Advances, (ii) the Maximum Revolving Amount less the
amount of outstanding Advances, (iii) Ten Million Dollars ($10,000,000), or (iv)
the Maximum Foothill Revolving Amount PLUS the Syndicated Revolving Amount MINUS
Advances. Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of credit
that are to be the subject of L/C Guarantees. Borrower and Foothill acknowledge
and agree that certain of the letters of credit that are to be the subject of
L/C Guarantees may be outstanding on the Closing Date. Each Letter of Credit
shall have an expiry date no later than sixty (60) days prior to the date on
which this Agreement is scheduled to terminate under SECTION 3.4 (without regard
to any potential renewal term) and all such Letters of Credit shall be in form
and substance acceptable to Foothill in its sole discretion. If Foothill is
obligated to advance funds under a Letter of Credit, the amount so advanced
immediately shall be deemed to be an Advance made by Foothill to Borrower
pursuant to SECTION 2.1 and, thereafter, shall bear interest at the rate then
applicable to such Advances under SECTION 2.5.
(b) Borrower hereby agrees to indemnify, save,
defend, and hold Foothill harmless from any loss, cost, expense, or liability,
including payments made by Foothill, expenses, and reasonable attorneys fees
incurred by Foothill arising out of or in connection with any Letter of Credit.
Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any Letters of Credit guarantied by Foothill and opened to or
for Borrower's account or by Foothill's interpretations of any letter of credit
issued by Foothill to or for Borrower's account, even though this interpretation
may be different from Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for any error, negligence, or mistakes, whether of
omission or commission, in following Borrower's instructions or those contained
in the Letter of Credit or any modifications, amendments, or supplements
thereto. Borrower understands that the L/C Guarantees may require Foothill to
indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with respect to any loss,
cost, expense (including reasonable attorneys fees), or liability incurred by
Foothill under any L/C Guaranty as a result of Foothill's indemnification of any
such issuing bank, except, in any such case, to the extent that the same arises
from the gross negligence or wilful misconduct of Foothill or its officers,
agents, or employees.
(c) Borrower hereby authorizes and directs any
bank that issues a letter of credit guaranteed by Foothill to deliver to
Foothill all instruments, documents, and other writings and property received by
the issuing bank pursuant to such letter of credit,
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and to accept and rely upon Foothill's instructions and agreements with respect
to all matters arising in connection with such letter of credit and the related
application. Borrower may or may not be the "applicant" or "account party" with
respect to such letter of credit.
(d) Any and all service charges, commissions,
fees, and costs incurred by Foothill relating to the letters of credit
guaranteed by Foothill shall be considered Foothill Expenses for purposes of
this Agreement and immediately shall be reimbursable by Borrower to Foothill. On
the first day of each month, Borrower will pay Foothill a fee (in addition to
the aforementioned issuance charges) equal to one and one-half percent (1.5%)
per annum times the average Daily Balance of the Letters of Credit that were
outstanding during the immediately preceding month. Service charges,
commissions, fees, and costs may be charged to Borrower's Loan Account at the
time the service is rendered or the commission, fee, or cost is incurred.
(e) Immediately upon the termination of this
Agreement, Borrower agrees to either (i) provide cash collateral to be held by
Foothill in an amount equal to the maximum amount of Foothill's obligations
under Letters of Credit, or (ii) cause to be delivered to Foothill releases of
all of Foothill's obligations under outstanding Letters of Credit. At Foothill's
discretion, any proceeds of Collateral received by Foothill after the occurrence
and during the continuation of an Event of Default may be held as the cash
collateral required by this SECTION 2.2(E).
(f) If by reason of (i) any change in any
applicable law, treaty, rule, or regulation or any change in the interpretation
or application by any governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or Foothill with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar
requirement is or shall be imposed or modified in respect of any Letters of
Credit issued hereunder, or
(B) there shall be imposed on the issuing bank
or Foothill any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to directly or indirectly increase the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by
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such issuing bank or Foothill, then, and in any such case, Foothill may, at any
time within a reasonable period after the additional cost is incurred or the
amount received is reduced, notify Borrower, and Borrower shall pay on demand
such amounts as the issuing bank or Foothill may specify to be necessary to
compensate the issuing bank or Foothill for such additional cost or reduced
receipt, together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in SECTION 2.5(A) OR (B)(I),
as applicable. The determination by the issuing bank or Foothill, as the case
may be, of any amount due pursuant to this SECTION 2.2(F), as set forth in a
certificate setting forth the calculation thereof in reasonable detail, shall,
in the absence of manifest or demonstrable error, be final and conclusive and
binding on all of the parties hereto.
2.3 INCREASE OF THE MAXIMUM REVOLVING AMOUNT. Borrower shall
have the right, upon at least thirty (30) days prior written notice to Foothill,
to increase the Maximum Revolving Amount so long as each of the following
conditions are satisfied as of the date on which such request is to become
effective (a) no Default or Event of Default shall have occurred and be
continuing nor shall any result therefrom, (b) Foothill shall have entered into
written participation agreements (on terms and conditions satisfactory to
Foothill) with Participants who are satisfactory to Foothill wherein such
Participants have agreed to participate in providing $20,000,000, or more, of
the financing hereunder, (c) such request is to increase the Maximum Revolving
Amount to Forty Million Dollars ($40,000,000), and (d) Borrower has paid to
Foothill an additional fee in the amount of $75,000.
2.4 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1 AND
2.2 is greater than either the dollar or percentage limitations set forth in
SECTIONS 2.1 OR 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under SECTION 2.1 and, thereafter until the
Overadvance is discharged, to be held by Foothill as cash collateral to secure
Borrower's obligation to repay Foothill for all amounts paid pursuant to Letters
of Credit.
2.5 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations, except
for undrawn Letters of Credit, shall bear interest at a per annum rate equal to
one (1) percentage point above the Reference Rate.
(b) Default Rate. (i) All Obligations, except
for undrawn Letters of Credit, shall bear interest, from and after the
occurrence and during the continuance of an Event of Default, at a per annum
rate equal to four (4) percentage points above the
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Reference Rate. (ii) From and after the occurrence and during the continuance of
an Event of Default, the fee provided in SECTION 2.2(D) shall be increased to a
fee equal to four and one-half percent (4.5%) per annum times the amount of the
undrawn Letters of Credit that were outstanding during the immediately preceding
month.
(c) Minimum Interest. In no event shall the
rate of interest chargeable hereunder be less than seven percent (7%) per annum.
To the extent that interest accrued hereunder at the rate set forth herein would
be less than the foregoing minimum rate, the interest rate chargeable hereunder
for the period in question automatically shall be deemed increased to the
minimum rate.
(d) Payments. Interest hereunder shall be due
and payable, in arrears, on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest, all Foothill Expenses (as and when incurred),
and all installments or other payments due under any Loan Document to Borrower's
Loan Account, which amounts thereafter shall accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded and
shall thereafter accrue interest at the rate then applicable hereunder.
(e) Computation. The Reference Rate as of the
date of this Agreement is eight and one-quarter percent (8.25%) per annum. In
the event the Reference Rate is changed from time to time hereafter, the
applicable rate of interest hereunder automatically and immediately shall be
increased or decreased by an amount equal to such change in the Reference Rate.
All interest and fees chargeable under the Loan Documents shall be computed on
the basis of a three hundred sixty (360) day year for the actual number of days
elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate.
In no event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; PROVIDED, HOWEVER, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, IPSO FACTO as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
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2.6 COLLECTION OF ACCOUNTS. Borrower shall at all times
maintain the Blocked Account and, immediately after the Closing Date, shall
instruct all Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrower to remit ALL Collections in respect
thereof to such Blocked Account. Borrower, Foothill, and the Blocked Account
Bank shall enter into the Blocked Account Agreement, which among other things
shall provide for the opening of a Blocked Account for the deposit of
Collections at the Blocked Account Bank. Borrower agrees that all Collections
and other amounts received by Borrower from any Account Debtor or any other
source immediately upon receipt shall be deposited into the Blocked Account. No
Blocked Account Agreement or arrangement contemplated thereby shall be modified
by Borrower without the prior written consent of Foothill. Upon the terms and
subject to the conditions set forth in the Blocked Account Agreement, all
amounts received in the Blocked Account shall be wired each Business Day into an
account (the "Foothill Account") maintained by Foothill at a depositary selected
by Foothill.
2.7 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Foothill (whether from transfers to Foothill by
the Blocked Account Bank pursuant to the Blocked Account Agreement or otherwise)
immediately shall be applied provisionally to reduce the Obligations outstanding
under SECTION 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and is
made to the Foothill Account or unless and until such Collection item is honored
when presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for one-half of one (1/2) Business Day of
`clearance' or `float' at the rate set forth in SECTION 2.5(A) or SECTION
2.5(B)(I), as applicable, on all Collections that are received by Foothill
(regardless of whether forwarded by the Blocked Account Bank to Foothill,
whether provisionally applied to reduce the Obligations under SECTION 2.1, or
otherwise). This across-the-board one-half of one (1/2) Business Day clearance
or float charge on all Collections is acknowledged by the parties to constitute
an integral aspect of the pricing of Foothill's financing of Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging
one-half of one (1/2) Business Day of interest on such Collections. Should any
Collection item not be honored when presented for payment, then Borrower shall
be deemed not to have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein notwithstanding, any
Collection item shall be deemed received by Foothill only if it is received into
the Foothill Account on or before 11:00 a.m. Los Angeles time. If any Collection
item is received into the Foothill Account after 11:00 a.m. Los Angeles time it
shall be deemed to have been received by Foothill as of the opening of business
on the immediately following Business Day.
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2.8 BORROWER'S DESIGNATED ACCOUNT. Foothill is authorized to
make the Advances under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Officer of
Borrower, or without instructions if pursuant to SECTION 2.5(D). Borrower agrees
to establish and maintain Borrower's Designated Account with Borrower's
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Foothill hereunder. Unless otherwise
agreed by Foothill and Borrower, any Advance requested by Borrower and made by
Foothill hereunder shall be made to Borrower's Designated Account.
2.9 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances made by
Foothill to Borrower or for Borrower's account, including, accrued interest,
Foothill Expenses, and any other payment Obligations of Borrower. In accordance
with SECTION 2.7, the Loan Account will be credited with all payments received
by Foothill from Borrower or for Borrower's account, including all amounts
received in the Foothill Account from the Blocked Account Bank. Foothill shall
render statements, on a monthly basis, regarding the Loan Account to Borrower,
including principal, interest, fees, and including an itemization of all charges
and expenses constituting Foothill Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and Foothill unless, within thirty (30) days after
receipt thereof by Borrower, Borrower shall deliver to Foothill by registered or
certified mail at its address specified in SECTION 12, written objection thereto
describing the error or errors contained in any such statements.
2.10 FEES. Borrower shall pay to Foothill the following
fees:
(a) Closing Fee. A one time closing fee of
Two Hundred Twenty Five Thousand Dollars ($225,000) which is earned, in full, on
the Closing Date and is due and payable by Borrower to Foothill in connection
with this Agreement on the Closing Date;
(b) Unused Line Fee. On the first day of each
month during the term of this Agreement, a fee in an amount equal to one-quarter
of one percent (1/4%) per annum times the Average Unused Portion of the Maximum
Revolving Amount;
(c) Financial Examination, Documentation, and
Appraisal Fees. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per
day per examiner, plus out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel employed by
Foothill; Foothill's customary appraisal fee of One Thousand Five Hundred
Dollars ($1,500) per day per appraiser, plus out-of-pocket
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expenses for each appraisal of the Collateral performed by personnel employed by
Foothill; and, the actual charges paid or incurred by Foothill if it elects to
employ the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrower or to appraise the
Collateral; and, on each anniversary of the Closing Date, Foothill's customary
fee of One Thousand Dollars ($1,000) per year for its loan documentation review;
and
(d) Servicing Fee. On the first day of each
month during the term of this Agreement, and thereafter so long as any
Obligations are outstanding, a servicing fee in an amount equal to One Thousand
Dollars ($1,000) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE OR LETTER OF
CREDIT. The obligation of Foothill to make the initial Advance or issue the
initial Letter of Credit is subject to the fulfillment, to the satisfaction of
Foothill and its counsel, of each of the following conditions on or before the
Closing Date:
(a) the Closing Date shall occur on or before
February 28, 1996;
(b) Existing Lender shall have executed and
delivered the Pay-Off Letter;
(c) Foothill shall have received searches
reflecting the filing of its financing statements and fixture filings;
(d) Foothill shall have received each of the
following documents, duly executed, and each such document shall be in full
force and effect:
i) the Blocked Account Agreement;
ii) the Disbursement Letter;
iii) the Inventory Security Agreement; and
iv) the Trademark Security Agreement;
(e) Foothill shall have received a certificate
from the Secretary of Borrower attesting to the resolutions of Borrower's Board
of Directors authorizing its execution, delivery, and performance of this
Agreement and the other Loan Documents to which Borrower is a party and
authorizing specific officers of Borrower to execute same;
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(f) Foothill shall have received copies of
Borrower's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of Borrower;
(g) Foothill shall have received a certificate
of status with respect to Borrower, dated within ten (10) days of the Closing
Date, by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(h) Foothill shall have received certificates
of status with respect to Borrower, each dated within fifteen (15) days of the
Closing Date, such certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or licensed would have a
Material Adverse Change, which certificates shall indicate that Borrower is in
good standing in such jurisdictions;
(i) Foothill shall have received a certificate
of insurance, together with the endorsements thereto, as are required by SECTION
6.9 hereof, the form and substance of which shall be satisfactory to Foothill
and its counsel;
(j) Foothill shall have received duly executed
certificates of title with respect to that portion of the Collateral that is
subject to certificates of title and is not the subject of a Permitted Lien;
(k) Foothill shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Foothill in its
reasonable discretion;
(l) after giving effect to the payment of the
fees and expenses incurred hereunder and after deducting for payables past due
by more than thirty (30) days, Liquidity shall be not less than Twenty Million
Dollars ($20,000,000);
(m) Foothill shall have received a copy of an
appraisal of the Inventory conducted by a nationally recognized appraisal
company selected by Foothill and the results of such appraisal shall have been
reasonably satisfactory to Foothill in all respects;
(n) Foothill shall have received satisfactory
evidence that all returns required to be filed by Borrower have been timely
filed and all taxes upon Borrower or its properties, assets, income, and
franchises (including Real Property taxes and payroll taxes) have been paid
prior to delinquency, except such taxes that are the subject of a Permitted
Protest; and
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(o) all other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered or executed or recorded and shall be in form and substance reasonably
satisfactory to Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT. The following shall be conditions precedent to all Advances and Letters
of Credit hereunder:
(a) the representations and warranties
contained in this Agreement and the other Loan Documents shall be true and
correct in all respects on and as of the date of such extension of credit, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of credit, nor shall
either result from the making thereof; and
(c) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the extending of
such credit shall have been issued and remain in force by any governmental
authority against Borrower, Foothill, or any of their Affiliates.
3.3 CONDITIONS SUBSEQUENT. As conditions subsequent to the
making of the initial Advance or the issuance of the initial Letter of Credit,
Borrower shall perform or cause to be performed the following (the failure by
Borrower to so perform or cause to be performed constituting an Event of Default
hereunder):
(a) within thirty (30) days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by SECTION 6.9 hereof, the form and
substance of which shall be satisfactory to Foothill and its counsel;
(b) within one hundred eighty (180) days of the Closing
Date, either (i) the Sale\Leaseback Transaction, or (ii) each of the Real
Property Conditions; and
(c) Borrower shall use its reasonable best efforts to obtain
Collateral Access Agreements from the lessors or warehousemen of each
distribution center, contract warehouse, or retail location where Inventory is
located.
3.4 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a
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term ending on June 28, 1998 (the "Maturity Date"). The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until such time as Borrower
has discharged in full all non-contingent payment and reimbursement Obligations,
no Letters of Credit remain outstanding hereunder (or any outstanding Letters of
Credit have been fully supported by backup letters of credit or cash
collateralized in each case to the satisfaction of Foothill in its discretion),
any remaining Obligations consist solely of unasserted contingent claims, and
Foothill's obligation to provide additional credit hereunder is terminated.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION
3.4 that allow termination of this Agreement by Borrower only on the Maturity
Date and certain anniversaries thereof notwithstanding, Borrower has the option,
at any time upon ninety (90) days prior written notice to Foothill, to terminate
this Agreement by paying to Foothill, in cash, the Obligations (including an
amount equal to the undrawn amount of the Letters of Credit), in full, together
with a premium (the "Early Termination Premium") equal to (a) one eighth of one
percent (.125%) times the then applicable Maximum Revolving Amount, times (b)
the number of months remaining until the Maturity Date.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence and continuation of an Event of Default that
intentionally is caused by Borrower for the purpose, in Foothill's reasonable
judgment, of avoiding payment of the Early Termination Premium provided in
SECTION 3.6, in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Foothill's lost profits as a result thereof, Borrower
shall pay to Foothill upon the effective date of such termination, a premium in
an amount equal to the Early Termination Premium. The Early Termination Premium
shall be presumed to be the amount of damages sustained by Foothill as the
result of the early termination and Borrower agrees that it is reasonable under
the circumstances currently existing. The Early Termination Premium provided for
in this SECTION 3.7 shall be deemed included in the Obligations.
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4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Personal Property Collateral in order to secure prompt
repayment of any and all Obligations and in order to secure prompt performance
by Borrower of each of its covenants and duties under the Loan Documents.
Foothill's security interests in the Personal Property Collateral shall attach
to all Personal Property Collateral without further act on the part of Foothill
or Borrower. Anything contained in this Agreement or any other Loan Document to
the contrary notwithstanding, except for Permitted Dispositions to the extent
permitted hereby, Borrower has no authority, express or implied, to dispose of
any item or portion of the Personal Property Collateral or the Real Property.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time, Foothill or Foothill's designee may (a)
notify customers or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to the Loan Account.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill reasonably may request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral, and in
order to fully consummate all of the transactions contemplated hereby and under
the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in SECTION 4.4, sign the name of Borrower on any of
the documents described in SECTION 4.4, (b) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure
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(in accordance with Section 1208 of the Code), sign Borrower's name on any
invoice or bill of lading relating to any Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to Account Debtors, (c) send requests for verification of Accounts, (d)
endorse Borrower's name on any Collection item that may come into Foothill's
possession, (e) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure (in accordance with Section 1208 of
the Code), notify the post office authorities to change the address for delivery
of Borrower's mail to an address designated by Foothill, to receive and open all
mail addressed to Borrower, and to retain all mail relating to the Collateral
and forward all other mail to Borrower, (f) at any time that an Event of Default
has occurred and is continuing or Foothill deems itself insecure (in accordance
with Section 1208 of the Code), make, settle, and adjust all claims under
Borrower's policies of insurance and make all determinations and decisions with
respect to such policies of insurance, and (g) at any time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure (in
accordance with Section 1208 of the Code), settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms that Foothill determines to be reasonable, and Foothill may cause to be
executed and delivered any documents and releases that Foothill determines to be
necessary. The appointment of Foothill as Borrower's attorney, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until such time as Borrower has discharged in full all
non-contingent payment and reimbursement Obligations, no Letters of Credit
remain outstanding hereunder (or any outstanding Letters of Credit have been
fully supported by backup letters of credit or cash collateralized in each case
to the satisfaction of Foothill in its discretion), any remaining Obligations
consist solely of unasserted contingent claims, and Foothill's obligation to
provide additional credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and
indefeasible title to the Collateral, free and clear of liens, claims, security
interests, or encumbrances, except for Permitted Liens.
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5.2 ELIGIBLE INVENTORY. All Eligible Inventory is now
and at all times hereafter shall be of good and merchantable quality, free from
known defects.
5.3 EQUIPMENT. All of the Equipment owned by Borrower
is used or held for use in Borrower's business and is fit for such purposes.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on SCHEDULE 6.12 or otherwise permitted by SECTION 6.12.
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at
all times shall keep a perpetual inventory system that includes correct and
accurate records itemizing and describing the kind, type, quality, and quantity
of the Inventory, and Borrower's cost therefor.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of Borrower is located at the address indicated in the preamble
to this Agreement and Borrower's FEIN is 59-0620505.
5.7 DUE ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES.
Borrower is duly organized and existing and in good standing under the laws of
the jurisdiction of its incorporation and qualified and licensed to do business
in, and in good standing in, any state where the failure to be so licensed or
qualified could reasonably be expected to have a Material Adverse Change.
Borrower has no active Subsidiaries.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery,
and performance of the Loan Documents are within Borrower's corporate powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Articles or Certificate of
Incorporation, or By-laws, nor will they constitute an event of default under
any material agreement to which Borrower is a party or by which its properties
or assets may be bound.
5.9 LITIGATION. There are no actions or proceedings pending by
or against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for: (a) ongoing collection matters in which Borrower
is the plaintiff; (b) matters disclosed on SCHEDULE 5.9; and (c) matters arising
after the date hereof that, if decided adversely to Borrower, would not have a
Material Adverse Change.
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5.10 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower that have been delivered by Borrower to Foothill have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present, in all material respects, Borrower's financial
condition as of the date thereof and Borrower's results of operations for the
period then ended. There has not been a Material Adverse Change with respect to
Borrower since the date of the latest financial statements submitted to Foothill
on or before the Closing Date.
5.11 SOLVENCY. Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.12 EMPLOYEE BENEFITS. None of Borrower, any of its
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan, other than those listed on SCHEDULE 5.12. Borrower, each of its
Subsidiaries and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it is
obligated to contribute. No ERISA Event has occurred nor has any other event
occurred that may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. None of Borrower or its Subsidiaries, any
ERISA Affiliate, or any fiduciary of any Plan is subject to any direct or
indirect liability with respect to any Plan under any applicable law, treaty,
rule, regulation, or agreement. None of Borrower or its Subsidiaries or any
ERISA Affiliate is required to provide security to any Plan under Section
401(a)(29) of the IRC.
5.13 ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials. To the best of
Borrower's knowledge, none of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a Hazardous Materials disposal site, or a candidate for closure
pursuant to any environmental protection statute. To the best of Borrower's
knowledge, no lien arising under any environmental protection statute has
attached to any revenues or to any real or personal property owned or operated
by Borrower. Borrower has not received a summons, citation, notice, or directive
from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing or disposing of Hazardous Materials into the environment.
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5.14 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each extension of credit hereunder and shall be conclusively
presumed to have been relied on by Foothill regardless of any investigation made
or information possessed by Foothill. The warranties and representations set
forth herein shall be cumulative and in addition to any and all other warranties
and representations that Borrower now or hereafter shall give, or cause to be
given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system
of accounting in accordance with GAAP with ledger and account cards or computer
tapes, disks, printouts, and records pertaining to the Collateral which contain
information as from time to time reasonably may be requested by Foothill.
Borrower also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to its Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form reasonably satisfactory to Foothill:
(a) on a monthly basis and, in any event, by no later than the tenth (10th) day
of each month during the term of this Agreement, unless Borrower has utilized
greater than fifty percent (50%) of the Availability hereunder, in which case,
on a weekly basis, a detailed calculation of the Borrowing Base, together with a
reconciliation to the detailed calculation of the Borrowing Base previously
provided to Foothill, (b) on a monthly basis and, in any event, by no later than
the tenth (10th) day of each month during the term of this Agreement, a summary
listing, by vendor and, at Foothill's reasonable request, by invoice, of
Borrower's accounts payable and any book overdraft, (c) on a monthly basis and,
in any event, by no later than the tenth (10th) day of each month during the
term of this Agreement, unless Borrower has utilized greater than fifty percent
(50%) of the Availability hereunder, in which case, on a weekly basis, Inventory
reports specifying Borrower's average weighted cost of its Inventory by
category, with, at Foothill's reasonable request, additional detail showing
additions to and deletions from the Inventory, (d) on a weekly basis, notice of
total returns, disputes, and claims, (e) on a monthly basis and, in any event,
by no later than the tenth (10th) day of each month during the term of this
Agreement, a report stating that Borrower is current on rent payments under its
leases or, if Borrower is delinquent with respect to any such payments, a report
identifying such delinquent payments and the reasons therefor,
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and (f) such other reports as to the Collateral or the financial condition of
Borrower as Foothill reasonably may request from time to time.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within thirty (30) days
after the end of each first, second, fourth, fifth, seventh, eighth, tenth, and
eleventh months during each of Borrower's fiscal years, a company prepared
balance sheet and income statement covering Borrower's operations during such
period; (b) as soon as available, but in any event within forty-five (45) days
after the end of each of the third, sixth, and ninth months during each of
Borrower's fiscal years, a company prepared balance sheet, income statement, and
cash flow statement covering Borrower's operations during the fiscal quarter
then ended; and (c) as soon as available, but in any event within ninety (90)
days after the end of each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by a "big six" accounting firm or
any other independent certified public accountants reasonably acceptable to
Foothill and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do not have
knowledge of the existence of any Default or Event of Default. Such audited
financial statements shall include a balance sheet, profit and loss statement,
and cash flow statement, and, if prepared, such accountants' letter to
management.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Borrower with the
Securities and Exchange Commission, if any, as soon as the same are filed, or
any other information that is provided by Borrower to its shareholders, and any
other report reasonably requested by Foothill relating to the financial
condition of Borrower.
Each month and fiscal quarter, together with the financial
statements provided pursuant to SUBSECTIONS 6.3(A) AND (B), Borrower shall
deliver to Foothill a certificate signed on behalf of Borrower by its chief
financial officer to the effect that, to the best of his or her knowledge after
due inquiry: (i) all reports, statements, or computer prepared information of
any kind or nature delivered or caused to be delivered to Foothill hereunder
have been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and fairly present in all material respects the financial
condition of Borrower, (ii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), (iii) for each month that also is
the date on which a financial covenant in SECTION 6.10 is to be tested, a
Compliance Certificate
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demonstrating in reasonable detail compliance at the end of such period with the
applicable financial covenants contained in SECTION 6.10, and (iv) on the date
of delivery of such certificate to Foothill there does not exist any condition
or event that constitutes a Default or Event of Default (or, in each case, to
the extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request. Borrower hereby irrevocably authorizes and
directs all auditors or accountants to deliver to Foothill, at Borrower's
expense, copies of Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding Borrower's business affairs and
financial conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each
of Borrower's future federal income tax returns, and any amendments thereto,
within thirty (30) days of the filing thereof with the Internal Revenue Service.
6.5 RETURNS. Returns and allowances, if any, as between
Borrower and its Account Debtors shall be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill if such return is in an amount greater than Twenty Thousand Dollars
($20,000)) in the appropriate amount to such Account Debtor. If, at a time when
an Event of Default has occurred and is continuing, any Account Debtor returns
any Inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if Foothill consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to Foothill) in the
appropriate amount to such Account Debtor.
6.6 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment other than those items that are the subject of Permitted Liens.
6.7 MAINTENANCE OF EQUIPMENT. Other than in respect of
Permitted Dispositions, maintain the Equipment in good operating condition and
repair (ordinary wear
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and tear excepted), and make all necessary replacements thereto so that the
value and operating efficiency thereof shall at all times be maintained and
preserved. Borrower shall not permit any item of Equipment to become a fixture
to real estate or an accession to other property, and the Equipment is now and
shall at all times remain personal property.
6.8 TAXES. All assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property shall be paid in full, before delinquency or
before the expiration of any extension period. Borrower shall make due and
timely payment or deposit of all federal, state, and local taxes, assessments,
or contributions required of it by law, and will execute and deliver to
Foothill, on demand, appropriate certificates attesting to the payment thereof
or deposit with respect thereto. Borrower will make timely payment or deposit of
all tax payments and withholding taxes required of it by applicable laws,
including those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Foothill with
proof satisfactory to Foothill indicating that Borrower has made such payments
or deposits. The foregoing to the contrary notwithstanding, Borrower shall not
be required to pay or discharge any such assessment or tax (other than payroll
taxes or taxes that are the subject of a United States tax lien) so long as and
to the extent that the validity thereof shall be the subject of a Permitted
Protest.
6.9 INSURANCE.
(a) At its expense, keep the Personal Property
Collateral and the Real Property insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in such amounts, as
are ordinarily insured against by other owners in similar businesses. Borrower
also shall maintain business interruption, public liability, product liability,
and property damage insurance relating to Borrower's ownership and use of the
Personal Property Collateral and the Real Property, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. All such policies of insurance (except those of public
liability and property damage and except those relative to the Real Property if
Borrower has consummated the Sale\Leaseback Transaction in accordance with the
provisions contained herein) shall contain a 438BFU lender's loss payable
endorsement, or an equivalent endorsement in a form satisfactory to Foothill,
showing Foothill as sole loss payee thereof, and shall contain a waiver of
warranties, and shall specify that the insurer must give at least ten (10) days
prior written notice to Foothill before canceling its policy for any reason.
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.
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All proceeds payable under any such policy shall be payable to Foothill to be
applied on account of the Obligations.
6.10 FINANCIAL COVENANTS. Maintain:
(a) Current Ratio. A ratio of Consolidated
Current Assets divided by Consolidated Current Liabilities of at least one and
one-quarter to one (1.25 : 1.0), measured on a fiscal quarter-end basis;
(b) Total Liabilities to Tangible Net Worth
Ratio. A ratio of Borrower's total liabilities divided by Tangible Net Worth of
not more than one and forty-five one hundredths to one (1.45 : 1.0), measured
on a fiscal quarter-end basis;
(c) Tangible Net Worth. Tangible Net Worth
of at least Fifty Five Million Dollars ($55,000,000), measured on a fiscal
quarter-end basis; and
(d) Maximum Losses. Losses of not more than
Six Million Dollars ($6,000,000) during the term of this Agreement.
6.11 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory
and Equipment only at the locations identified on SCHEDULE 6.12; PROVIDED,
HOWEVER, that Borrower may amend SCHEDULE 6.12 so long as such amendment occurs
by written notice to Foothill not less than thirty (30) days prior to the date
on which the Inventory or Equipment is moved to such new location, so long as
such new location is within the continental United States, and so long as, at
the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests in such assets and, in the case of a distribution
center or contract warehouse, also provides to Foothill a Collateral Access
Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to have a Material Adverse Change.
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6.14 EMPLOYEE BENEFITS.
(a) Promptly, and in any event within ten (10) Business Days
after Borrower or any of its Subsidiaries knows or has reason to know that an
ERISA Event has occurred that reasonably could be expected to result in a
Material Adverse Change, a written statement of the chief financial officer of
Borrower describing such ERISA Event and any action that is being taking with
respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC. Borrower or
such Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within three (3) Business Days after the filing
thereof with the IRS, a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect
to such request, and (iii) promptly, and in any event within three (3) Business
Days after receipt by Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of each
such notice.
(b) Borrower will cause to be delivered to Foothill, upon
Foothill's request, each of the following: (i) a copy of each Plan (or, where
any such plan is not in writing, complete description thereof) (and if
applicable, related trust agreements or other funding instruments) and all
amendments thereto, all written interpretations thereof and written descriptions
thereof that have been distributed to employees or former employees of Borrower
or its Subsidiaries; (ii) the most recent determination letter issued by the IRS
with respect to each Benefit Plan; (iii) for the three most recent plan years,
annual reports on Form 5500 Series required to be filed with any governmental
agency for each Benefit Plan; (iv) all actuarial reports prepared for the last
three plan years for each Benefit Plan; (v) a listing of all Multiemployer
Plans, with the aggregate amount of the most recent annual contributions
required to be made by Borrower or any ERISA Affiliate to each such plan and
copies of the collective bargaining agreements requiring such contributions;
(vi) any information that has been provided to Borrower or any ERISA Affiliate
regarding withdrawal liability under any Multiemployer Plan; and (vii) the
aggregate amount of the most recent annual payments made to former employees of
Borrower or its Subsidiaries under any Retiree Health Plan.
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest. To the extent that Borrower fails timely to make payment of such rents
and other amounts payable when due under its leases, Foothill shall be entitled,
in its discretion, and without the necessity of
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declaring an Event of Default, to reserve an amount equal to such unpaid amounts
against the Borrowing Base.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's prior
written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest
financial statements of Borrower submitted to Foothill on or prior to the
Closing Date or on SCHEDULE 7.1 attached hereto;
(c) Indebtedness secured by Permitted Liens;
(d) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) and (c) of this SECTION 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions do
not materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness; and
(e) Indebtedness in an aggregate principal
amount not to exceed One Hundred Thousand Dollars ($100,000) at any one time
outstanding, to the extent at a time when no Event of Default has occurred and
is continuing and the Availability hereunder is greater than Five Million
Dollars ($5,000,000).
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted
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Liens (including liens that are replacements of Permitted Liens to the extent
that the original Indebtedness is refinanced under SECTION 7.1(D) and so long as
the replacement liens only encumber those assets or property that secured the
original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its business, property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all of the properties,
assets, stock, or other evidence of beneficial ownership of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
properties or assets; PROVIDED, HOWEVER, that the foregoing shall not preclude
Borrower from making Permitted Dispositions.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.7 RESTRUCTURE. Make any change in the principal nature
of Borrower's business operations or the date of its fiscal year.
7.8 PREPAYMENTS. (a) Except in connection with a refinancing
permitted by SECTION 7.1(D), prepay, redeem, retire, defease, purchase, or
otherwise acquire any Indebtedness owing to any third Person, other than the
Obligations in accordance with this Agreement, and (b) directly or indirectly,
amend, modify, alter, increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing evidencing or
concerning Indebtedness permitted under SECTIONS 7.1(B), (C), OR (D).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer,
directly or indirectly, any Change of Control.
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7.10 CAPITAL EXPENDITURES. Make any capital expenditure in
excess of Two Million Dollars ($2,000,000) for any individual transaction or
where the aggregate amount of such capital expenditures in any fiscal year is in
excess of Six Million Dollars ($6,000,000), except in any fiscal year during
which the Sale\Leaseback Transaction occurs and thereafter, where the aggregate
amount of capital expenditures is in excess of Ten Million Dollars
($10,000,000).
7.11 CONSIGNMENTS. Consign any Inventory or sell any
Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of Borrower's capital stock, of any
class, whether now or hereafter outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently existing,
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Foothill
information regarding the Collateral or Borrower's financial condition. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Foothill pursuant to or in accordance with this Agreement, and
agrees that Foothill may contact directly any such accounting firm or service
bureau in order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make, acquire, or
incur any liabilities (including contingent obligations) for or in connection
with (a) the acquisition of the securities of (whether debt or equity), or other
interests in, a Person, (b) loans, advances, capital contributions, or transfers
of property to a Person, other than loans in the amount of Fifty Thousand
Dollars ($50,000) at any one time outstanding to employees of Borrower , or (c)
the acquisition of all or substantially all of the properties or assets of a
Person; PROVIDED, HOWEVER, that the foregoing shall not prohibit short term
investments in cash or cash equivalents such as deposits in insured financial
institutions, government securities, repurchase and reverse repurchase
agreements with respect to government securities, or other similar low-risk
investments, or the purchase of precious metals or precious stones in reasonable
quantities for ordinary business purposes.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for (a) transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms, that are fully disclosed to
Foothill, and that are no less favorable to
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Borrower than would be obtained in an arm's length transaction with a
non-Affiliate or (b) transactions identified on SCHEDULE 7.15 attached hereto.
7.16 SUSPENSION. Suspend or go out of a substantial
portion of its business.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances made
hereunder for any purpose other than: (a) on the Closing Date, (i) to repay in
full the outstanding principal, accrued interest, and accrued fees and expenses
owing to Existing Lender, if any, and (ii) to pay transactional costs and
expenses incurred in connection with this Agreement; and (b) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written notification
to Foothill, relocate its chief executive office to a new location and so long
as, at the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests and also provides to Foothill a Collateral Access
Agreement. The Inventory and Equipment shall not at any time now or hereafter be
stored with a bailee, warehouseman, or similar party without Foothill's prior
written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly
or indirectly:
(a) Engage, or permit any Subsidiary of Borrower to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
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(e) fail, or permit any Subsidiary of Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of Four Hundred Thousand Dollars
($400,000).
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
PROVIDED, HOWEVER, that in the case of Overadvances that are caused by the
charging of interest, fees, or Foothill Expenses to Borrower's Loan Account
hereunder, such event shall not constitute an Event of Default if, within five
(5) days of the creation of any such Overadvance, Borrower eliminates such
Overadvance;
8.2 (a) If Borrower fails or neglects to perform, keep, or
observe any term, provision, condition, covenant, or agreement contained in
SECTION 6.2 (COLLATERAL REPORTING) of this Agreement and such failure or neglect
continues for a period of five (5) days from the date of such failure or
neglect; (b) If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in SECTIONS 6.3
(FINANCIAL STATEMENTS, ETC.), 6.4 (TAX RETURNS), 6.7 (MAINTENANCE OF EQUIPMENT),
6.12 (LOCATION OF INVENTORY AND EQUIPMENT), 6.13 (COMPLIANCE WITH LAWS),
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OR 6.15 (LEASES) of this Agreement and such failure or neglect continues for a
period of fifteen (15) days from the date of such failure or neglect; and (c) If
Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between
Borrower and Foothill;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within forty-five (45) calendar days
of the date of the filing thereof; PROVIDED, HOWEVER, that, during the pendency
of such period, Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, Borrower; or (e) an order for relief
shall have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 (a) If a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or if
any taxes or debts owing at any time hereafter thereto becomes a lien, whether
choate or otherwise, upon any of Borrower's properties or assets and the same is
not paid on the payment date thereof; or (b) if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's properties or
assets by any state, county, municipal, or governmental agency, or
instrumentality thereof, or if any taxes or debts owing at any time hereafter to
any one or more of such entities becomes a lien, whether choate or otherwise,
upon any of Borrower's properties or assets and the same is not paid on the
payment date thereof, unless the aggregate amount of such taxes is less than One
Hundred Fifty Thousand Dollars ($150,000), and, if to the extent such tax liens
would have priority over the security interest of Foothill, Foothill has been
instructed within five (5) days of the filing or attachment of same to reserve
the
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amount thereof entitled to such priority (together with interest and penalties
projected to be incurred with respect thereto) against the Borrowing Base;
8.9 If a judgment or other claim becomes a lien or encumbrance
upon any material portion of Borrower's properties or assets and the same is not
discharged or bonded against within thirty (30) days of the date of the
attachment of such lien or encumbrance; PROVIDED, HOWEVER, that during such
period Foothill shall have the right to create a reserve against the Borrowing
Base in an amount sufficient to discharge such lien or encumbrance and any and
all penalties or interest payable in connection therewith;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons resulting in a right by such
third Persons, irrespective of whether exercised, to accelerate the maturity of
Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any officer, employee, agent, or director of Borrower,
or if any such warranty or representation is withdrawn.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced
by this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable;
(b) Cease advancing money or extending credit
to or for the benefit of Borrower under this Agreement, under any of the Loan
Documents, or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the
other Loan Documents as to any future liability or obligation of Foothill, but
without affecting Foothill's rights and
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security interests in the Personal Property Collateral or the Real Property and
without affecting the Obligations;
(d) Settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms which Foothill
considers advisable, and in such cases, Foothill will credit Borrower's Loan
Account with only the net amounts received by Foothill in payment of such
disputed Accounts after deducting all Foothill Expenses incurred or expended in
connection therewith;
(e) Cause Borrower to hold all returned
Inventory in trust for Foothill, segregate all returned Inventory from all other
property of Borrower or in Borrower's possession and conspicuously label said
returned Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower,
make such payments and do such acts as Foothill considers necessary or
reasonable to protect its security interests in the Collateral. Borrower agrees
to assemble the Personal Property Collateral if Foothill so requires, and to
make the Personal Property Collateral available to Foothill as Foothill may
designate. Borrower authorizes Foothill to enter the premises where the Personal
Property Collateral is located, to take and maintain possession of the Personal
Property Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or lien that in Foothill's determination
appears to conflict with its security interests and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Foothill a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice
being expressly waived), and without constituting a retention of any collateral
in satisfaction of an obligation (within the meaning of Section 9505 of the
Code), set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Foothill (including any amounts received in the
Blocked Account), or (ii) indebtedness at any time owing to or for the credit or
the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all
balances and deposits of Borrower held by Foothill, and any amounts received in
the Blocked Account, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Personal
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Property Collateral. Foothill is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Personal
Property Collateral, in completing production of, advertising for sale, and
selling any Personal Property Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Foothill's benefit;
(j) Sell the Personal Property Collateral
at either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower's premises) as Foothill determines is commercially reasonable. It is
not necessary that the Personal Property Collateral be present at any such sale;
(k) Foothill shall give notice of the
disposition of the Personal Property Collateral as follows:
(1) Foothill shall give Borrower and each holder of a security
interest in the Personal Property Collateral who has filed with Foothill a
written request for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Personal Property Collateral, then the time on
or after which the private sale or other disposition is to be made;
(2) The notice shall be personally
delivered or mailed, postage prepaid, to Borrower as provided in SECTION 12, at
least five (5) days before the date fixed for the sale, or at least five (5)
days before the date on or after which the private sale or other disposition is
to be made; no notice needs to be given prior to the disposition of any portion
of the Personal Property Collateral that is perishable or threatens to decline
speedily in value or that is of a type customarily sold on a recognized market.
Notice to Persons other than Borrower claiming an interest in the Personal
Property Collateral shall be sent to such addresses as they have furnished to
Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a notice one
time at least five (5) days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at
any public sale; and
(m) Any deficiency that exists after
disposition of the Personal Property Collateral as provided above will be paid
immediately by Borrower. Any excess
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will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Foothill may do
any or all of the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrower's Loan Account as Foothill deems necessary
to protect Foothill from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type described in SECTION 6.9, and take any
action with respect to such policies as Foothill deems prudent. Any such amounts
paid by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance, or lien and the receipt of the
usual official notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Foothill on which Borrower may in any
way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or
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manner be liable or responsible for: (a) the safekeeping of the Collateral; (b)
any loss or damage thereto occurring or arising in any manner or fashion from
any cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other Person. All risk
of loss, damage, or destruction of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend,
and hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this SECTION 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail, postage prepaid,
return receipt requested, or by prepaid telex, overnight courier, telefacsimile,
or telegram (with messenger delivery specified) to Borrower or to Foothill, as
the case may be, at its address set forth below:
IF TO BORROWER: L. LURIA & SON, INC.
5770 Miami Lakes Drive
Miami Lakes, Florida 33014
Attn: Mr. Tom Floerchinger
Fax No. 305.825.3711
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WITH COPIES TO: GREENBERG, TRAURIG, HOFFMAN, LIPOFF,
ROSEN & QUENTEL, P.A.
1221 Brickell Avenue, 22nd Floor
Miami, Florida 33131-3200
Attn: Rebecca R. Orand, Esq.
Fax No. 305.579.0717
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.575.3435
WITH COPIES TO: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.239.1324
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this SECTION 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN
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DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION
OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH
HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill four
(4) months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding
and deemed effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any
rights or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Foothill shall release Borrower from its Obligations. Foothill may assign this
Agreement and its rights and duties hereunder and no consent or approval
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by Borrower is required in connection with any such assignment. Foothill
reserves the right to sell, assign, transfer, negotiate, or grant participations
in all or any part of, or any interest in Foothill's rights and benefits
hereunder. In connection with any such assignment or participation, Foothill may
disclose all documents and information which Foothill now or hereafter may have
relating to Borrower or Borrower's business. To the extent that Foothill assigns
its rights and obligations hereunder to a third Person, Foothill thereafter
shall be released from such assigned obligations to Borrower and such assignment
shall effect a novation between Borrower and such third Person. The foregoing
notwithstanding, except in connection with a bulk sale of all or a substantial
part of Foothill's loan portfolio, Foothill agrees to retain at least Ten
Million Dollars ($10,000,000) of its commitment to extend credit to Borrower and
to remain the lead lender administrating the loans hereunder.
15.3 SECTION HEADINGS. Headings and numbers have been
set forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
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15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or the transfer by it to
Foothill of any property of either or both of such parties should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required to repay or restore, in whole
or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Foothill is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill related thereto, the
liability of Borrower automatically shall be revived, reinstated, and restored
and shall exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
L. LURIA & SON, INC.,
a Florida corporation
By /s/ GERALD NATHANSON
---------------------------------
Name: Gerald Nathanson
Title: Chief Executive Officer
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ PATRICIA MCLOUGHLIN
----------------------------------
Name: Patricia McLoughlin
Title: Vice President
S-1
---------------------------------------
L. LURIA & SON, INC.
1996 STOCK OPTION PLAN
---------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of L.
Luria & Son, Inc., a Florida corporation (the "Company"), and its subsidiaries
by providing an additional incentive to attract and retain qualified and
competent persons who are key to the Company (as hereinafter defined), including
key employees, Officers and Employee Directors, and upon whose efforts and
judgment the success of the Company is largely dependent, through the
encouragement of stock ownership in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean the stock option committee
appointed by the Board pursuant to Section 13 hereof or, if not appointed, the
Board.
(d) "Common Stock" shall mean the Company's Common Stock, par
value $0.01 per share.
(e) "Company" shall refer to L. Luria & Son, Inc., a Florida
corporation.
(f) "Director" shall mean a member of the Board.
(g) "Disinterested Person" shall mean a Director who is not,
during the one year prior to his or her service as an administrator of this
Plan, or during such service, granted or awarded equity securities pursuant to
this Plan or any other plan of the Company or any of its affiliates, except
that:
(i) participation in a formula plan meeting the
conditions in paragraph (c)(2)(ii) of Rule 16b-3 promulgated under the
Securities Exchange Act shall not disqualify a Director from being a
Disinterested Person;
(ii) participation in an ongoing securities
acquisition plan meeting the conditions in paragraph (d)(2)(i) of Rule 16b-3
promulgated under the Securities Exchange Act shall not disqualify a Director
from being a Disinterested Person; and
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(iii) an election to receive an annual retainer fee
in either cash or an equivalent amount of securities, or partly in cash and
partly in securities, shall not disqualify a Director from being a Disinterested
Person.
(h) "Employee Director" shall mean a member of the Board who
is also an employee of the Company or a Subsidiary.
(i) "Fair Market Value" of a Share on any date of reference
shall be the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding such date, unless the Committee in its sole
discretion shall determine otherwise in a fair and uniform manner. For the
purpose of determining Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be (i) if the Common Stock is listed or admitted
for trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of Common Stock on such exchange or
reporting system, as reported in any newspaper of general circulation, (ii) if
the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the last
reported sale price of Common Stock for such day on such system, or (iii) if
neither clause (i) or (ii) is applicable, the mean between the high bid and low
asked quotations for the Common Stock as reported by the National Quotation
Bureau, Incorporated if at least two securities dealers have inserted both bid
and asked quotations for Common Stock on at least five of the ten preceding
days.
(j) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Code.
(k) "Non-Statutory Stock Option" shall mean an Option which is
not an Incentive Stock Option.
(l) "Officer" shall mean the Company's chief executive
officer, president, principal financial officer, principal accounting officer
(or, if there is no such accounting officer, the controller), any vice-president
of the Company in charge of a principal business unit, division or function
(such as sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the Company. Officers of Subsidiaries shall be deemed Officers of
the Company if they perform such policy-making functions for the Company. As
used in this paragraph, the phrase "policy-making function" does not include
policy-making functions that are not significant. Unless specified otherwise in
a resolution by the Board, an "executive officer" pursuant to Item 401(b) of
Regulation S-K (17 C.F.R. section 229.401(b)) shall be only such person
designated as an "Officer" pursuant to the foregoing provisions of this
paragraph.
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(m) "Option" (when capitalized) shall mean any option granted
under this Plan.
(n) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(o) "Plan" shall mean this Stock Option Plan for the Company.
(p) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(q) "Share(s)" shall mean a share or shares of the Common
Stock.
(r) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AND OPTIONS. The Company may grant to Optionees from time to
time Options to purchase an aggregate of up to 500,000 Shares from authorized
and unissued Shares. If any Option granted under the Plan shall terminate,
expire, or be canceled or surrendered as to any Shares, new Options may
thereafter be granted covering such Shares. Subject to the provisions of Section
14 hereof, an Option granted hereunder shall be either an Incentive Stock Option
or a Non-Statutory Stock Option as determined by the Committee at the time of
grant of such Option and shall clearly state whether it is an Incentive Stock
Option or Non-Statutory Stock Option. All Incentive Stock Options shall be
granted within 10 years from the effective date of this Plan.
4. DOLLAR LIMITATION. Options otherwise qualifying as Incentive Stock
Options hereunder will not be treated as Incentive Stock Options to the extent
that the aggregate Fair Market Value (determined at the time the Option is
granted) of the Shares, with respect to which Options meeting the requirements
of Code Section 422(b) are exercisable for the first time by any individual
during any calendar year (under all plans of the Company and any Subsidiary),
exceeds $100,000.
5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law. Optionees
shall be those persons selected by the Committee from the class of all regular
employees of the Company or its Subsidiaries, including Employee Directors and
Officers who are regular employees of the
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Company. Any person who files with the Committee, in a form satisfactory to the
Committee, a written waiver of eligibility to receive any Option under this Plan
shall not be eligible to receive any Option under this Plan for the duration of
such waiver.
(b) In granting Options to employees of the Company or its
Subsidiaries, the Committee shall take into consideration the contribution the
person has made to the success of the Company or its Subsidiaries and such other
factors as the Committee shall determine. The Committee shall also have the
authority to consult with and receive recommendations from officers and other
personnel of the Company and its Subsidiaries with regard to these matters. The
Committee may from time to time in granting Options to employees of the Company
or its Subsidiaries under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
(i) prescribing the date or dates on which the Option becomes exercisable, (ii)
providing that the Option rights accrue or become exercisable in installments
over a period of years, or upon the attainment of stated goals or both, or (iii)
relating an Option to the continued employment of the Optionee for a specified
period of time, provided that such terms and conditions are not more favorable
to an Optionee than those expressly permitted herein.
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither the
Plan nor any Option granted under the Plan shall confer upon any person any
right to employment or continuance of employment by the Company or its
Subsidiaries.
(d) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, Options may not be granted to
an Officer or Employee Director unless the grant of such Options is authorized
by, and all of the terms of such Options are determined by, a Committee that is
appointed in accordance with Section 13 of this Plan and all of whose members
are Disinterested Persons.
(e) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Options
granted to any one Director, Officer or employee may not exceed 500,000.
6. OPTION PRICE. The option price per Share of any Option shall be any
price determined by the Committee but shall not be less than the par value per
Share; provided, however, that in no event shall the option price per Share of
any Incentive Stock Option be less than the Fair Market Value of the Shares
underlying such Option on the date such Option is granted.
7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee
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in its sole discretion have been made for the Optionee's payment to the Company
of the amount that is necessary for the Company or Subsidiary employing the
Optionee to withhold in accordance with applicable Federal or state tax
withholding requirements. Unless further limited by the Committee in any Option,
the option price of any Shares purchased shall be paid in cash, by certified or
official bank check, by money order, with Shares or by a combination of the
above; provided, however, that the Committee in its sole discretion may accept a
personal check in full or partial payment of any Shares. If the exercise price
is paid in whole or in part with Shares, the value of the Shares surrendered
shall be their Fair Market Value on the date the Option is exercised. The
Company in its sole discretion may, on an individual basis or pursuant to a
general program established in connection with this Plan, lend money to an
Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to
obtain the cash necessary to exercise all or a portion of an Option granted
hereunder or to pay any tax liability of the Optionee attributable to such
exercise. If the exercise price is paid in whole or part with Optionee's
promissory note, such note shall (i) provide for full recourse to the maker,
(ii) be collateralized by the pledge of the Shares that the Optionee purchases
upon exercise of such Option, (iii) bear interest at the prime rate of the
Company's principal lender, and (iv) contain such other terms as the Board in
its sole discretion shall reasonably require. No Optionee shall be deemed to be
a holder of any Shares subject to an Option unless and until a stock certificate
or certificates for such Shares are issued to such person(s) under the terms of
this Plan. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as expressly provided in Section 10 hereof.
8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee shall
provide in such Option, except as otherwise provided in this Section 8.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall
include a series of transactions occurring within 60 days or occurring pursuant
to a plan), that has the result that shareholders of the Company immediately
before such transaction cease to own at least 51 percent of the voting stock of
the Company or of any entity that results from the participation of the Company
in a reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) if the shareholders of the Company shall
approve a plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does
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not survive (unless the approved merger, consolidation, reorganization,
liquidation or dissolution is subsequently abandoned); or
(iii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
(c) The Committee may in its sole discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to any Option or previously acquired by the exercise of any
Option.
9. TERMINATION OF OPTION PERIOD.
(a) The unexercised portion of any Option shall automatically
and without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) three months after the date on which the
Optionee's employment is terminated for any reason other than by reason of (A)
Cause, which, solely for purposes of this Plan, shall mean the termination of
the Optionee's employment by reason of the Optionee's wilful misconduct or
negligence, (B) a mental or physical disability as determined by a medical
doctor satisfactory to the Committee, or (C) death;
(ii) immediately upon the termination of the
Optionee's employment for Cause;
(iii) one year after the date on which the Optionee's
employment is terminated by reason of a mental or physical disability (within
the meaning of Code Section 22(e)) as determined by a medical doctor
satisfactory to the Committee; or
(iv) (A) twelve months after the date of termination
of the Optionee's employment by reason of death of the employee, or (B) three
months after the date on which the Optionee shall die if such death shall occur
during the one year period specified in Subsection 9(a)(iii) hereof.
(b) The Committee in its sole discretion may by giving written
notice ("cancellation notice") cancel, effective upon the date of the
consummation of any corporate transaction described in Subsections 8(b)(ii) or
(iii) hereof, any Option that remains unexercised on such date. Such
cancellation notice shall be given a reasonable period of time prior to the
proposed date of such cancellation and may be given either before or after
approval of such corporate transaction.
10. ADJUSTMENT OF SHARES.
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(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, with respect to the
option price or the number of Shares subject to the Options, or both, when, in
the Committee's sole discretion, such adjustments become appropriate by reason
of a corporate transaction described in Subsections 8(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under the
Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
11. TRANSFERABILITY OF OPTIONS. Each Option shall provide that such
Option shall not be transferable by the Optionee otherwise than by will or the
laws of descent and distribution, and each Option shall be exercisable during
the Optionee's lifetime only by the Optionee.
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12. ISSUANCE OF SHARES. As a condition of any sale or issuance of
Shares upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee
to the Company, at the time any Option is exercised, that he is acquiring the
Shares to be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to
be bound by any legends that are, in the opinion of the Committee, necessary or
appropriate to comply with the provisions of any securities law deemed by the
Committee to be applicable to the issuance of the Shares and are endorsed upon
the Share certificates.
13. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee, which
shall consist of not less than two Directors, each of whom shall be
Disinterested Persons to the extent required by Section 5(d) hereof. The
Committee shall have all of the powers of the Board with respect to the Plan.
Any member of the Committee may be removed at any time, with or without cause,
by resolution of the Board and any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
14. INCENTIVE OPTIONS FOR 10% SHAREHOLDERS. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly or indirectly (through attribution under
Section 424(d) of the Code) at the date of grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or of
its subsidiary [as defined in Section 424 of the Code] at the date of grant)
unless the option price of such Option is at least 110% of the Fair Market Value
of the Shares subject to such Option on the date the Option is granted, and such
Option by its terms is not exercisable after the expiration of five years from
the date such Option is granted.
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15. INTERPRETATION.
(a) The Plan shall be administered and interpreted so that all
Incentive Stock Options granted under the Plan will qualify as Incentive Stock
Options under section 422 of the Code. If any provision of the Plan should be
held invalid for the granting of Incentive Stock Options or illegal for any
reason, such determination shall not affect the remaining provisions hereof, but
instead the Plan shall be construed and enforced as if such provision had never
been included in the Plan.
(b) This Plan shall be governed by the laws of the State of
Florida.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
16. AMENDMENT AND DISCONTINUATION OF THE PLAN. Either the Board or the
Committee may from time to time amend the Plan or any Option; provided, however,
that, except to the extent provided in Section 10, no such amendment may,
without approval by the shareholders of the Company, (i) materially increase the
benefits accruing to participants under the Plan, (ii) materially increase the
number of securities which may be issued under the Plan, (iii) materially modify
the requirements as to eligibility for participation in the Plan, or (iv) extend
the termination date of the Plan as set forth in Section 17; and provided
further, that, except to the extent provided in Section 9, no amendment or
suspension of the Plan or any Option issued hereunder shall substantially impair
any Option previously granted to any Optionee without the consent of such
Optionee.
17. EFFECTIVE DATE AND TERMINATION DATE. The Plan shall be effective on
the date this Plan is adopted by the Board and shall terminate on December 31,
2006.
9
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of January 2, 1996 (the
"EFFECTIVE Date"), by and between L. LURIA & SON, INC., a Florida corporation
(the "COMPANY"), and GERALD NATHANSON (the "EXECUTIVE").
PRELIMINARY STATEMENTS:
A. The Company desires to retain the services of the Executive
pursuant to the terms and conditions of this Agreement.
B. The Executive is willing to make his services available to
the Company on the terms and subject to the conditions hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 GENERAL. The Company hereby agrees to employ the Executive
as the Chief Executive Officer of the Company, and the Executive hereby agrees
to provide services to the Company, on the terms and subject to the conditions
set forth herein.
1.2 DUTIES OF EXECUTIVE. The Executive shall devote his full
business time and attention to the affairs of the Company, render services to
the best of his ability, and use his best efforts to promote the interests of
the Company. Executive agrees to fulfill his fiduciary duties as an officer and
director of the Company. During the term of this Agreement, the Executive shall
serve as the Chief Executive Officer of the Company and perform all of the
duties generally recognized as being required of the Chief Executive Officer.
Subject to the authority of the Board of Directors, the Executive shall be
responsible for the management of the Company's day to day operations including,
but not limited to, all hiring and firing, merchandising, advertising, store and
warehouse operations, contracts, accounting, personnel, budgets and expenses;
provided, that decisions relating to the compensation, hiring and firing of the
officers of the Company shall require the approval of the Board of Directors.
The Executive shall also perform any other duties assigned to him by the Board
of Directors that are consistent with his title and position. All employees of
the Company will report directly or indirectly to Executive.
The Executive shall also be a member of the Board of Directors.
The Executive will report to the Board of Directors or the
Executive Committee of the Board of Directors. The Executive will seek and
require Board of Directors approval for major "out of the ordinary course of
business transactions" including
<PAGE>
but not limited to: buying or selling Company real estate, leasing stores, bank
loans, financings, lease transactions, pledging of assets and expenditures of
capital expenses in excess of budget. Beginning with the third quarter of 1996
all quarterly and annual Company budgets will require prior Board of Directors
approval. As part of his duties, the Executive will provide reports to or meet
with the Board or the Executive Committee of the Board as requested.
1.3 PLACE OF PERFORMANCE. In connection with the employment of
the Executive by the Company hereunder, the Executive shall perform his duties
and obligations hereunder primarily from the Company's offices located in Miami
Lakes, Florida, except for required travel on the Company's business.
2. TERM.
2.1 INITIAL TERM. The initial term of the employment of the
Executive hereunder shall be for a period commencing on the Effective Date and
expiring on April 30, 1998 (the "INITIAL TERM"), unless sooner terminated in
accordance with the terms and conditions hereof.
2.2 RENEWAL TERM. The employment of the Executive hereunder
may be renewed and extended for such period or periods as may be mutually agreed
to by the Company and the Executive in a written supplement to this Agreement
signed by the Executive and the Company (a "WRITTEN SUPPLEMENT"). If this
Agreement is not so renewed and extended prior to the expiration of the Initial
Term, the employment of the Executive hereunder shall automatically terminate
upon the expiration of the Initial Term.
3. COMPENSATION.
3.1 BASE SALARY. As compensation for all services rendered by
the Executive to the Company hereunder, the Executive shall receive a base
salary at an annual rate of $300,000 (the "BASE SALARY") during the term of his
employment hereunder, which shall be payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding and other
taxes. If the term of this Agreement shall be renewed and extended as provided
in Section 2.2 hereof, then during such renewal term the Executive shall be
paid a base salary as set forth in the Written Supplement.
3.2 SIGNING BONUS. On the Effective Date, the Executive
shall be paid a cash bonus of $200,000, less applicable withholding and other
taxes.
3.3 DISCRETIONARY BONUS. At the sole discretion of the Board,
the Executive shall be entitled to receive a discretionary annual bonus as
provided to other officers of the Company pursuant to bonus plans approved by
the Board after the Effective Date.
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4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSABLE EXPENSES. During the term of the Executive's
employment hereunder, the Company, upon the submission of proper substantiation
by the Executive, shall reimburse the Executive for all reasonable expenses
actually and necessarily paid or incurred by him in the course of and pursuant
to the business of the Company, excluding moving expenses incurred by Executive
in relocating to Florida.
4.2 OTHER BENEFITS. During the term of the Executive's
employment hereunder, the Executive shall be entitled to participate in all
medical and hospitalization, group life insurance, and any and all other fringe
benefit plans as are hereinafter provided by the Company to all of its officers
on the same terms as those of such other officers of the Company.
4.3 WORKING FACILITIES. During the term of the Executive's
employment hereunder, the Company shall furnish the Executive with an office and
secretarial help of his choice, and such other facilities adequate for the
performance of his duties hereunder at the Company's corporate headquarters
located in Miami Lakes, Florida.
4.4 STOCK OPTIONS. Subject to shareholder approval and the
terms and conditions of the Company's 1996 Stock Option Plan (the "Plan"), the
Company grants to the Executive, effective as of the Effective Date, a 10 year
option (the "Option") to purchase 400,000 shares of the Company's common stock,
$.01 par value, at an exercise price equal to the closing price of the common
stock on December 29, 1995. The Plan will be substantially similar to the
existing option plan of the Company. The Option shall vest immediately; provided
that, the Executive agrees not to sell any shares of common stock issued upon
exercise of the Option until the later to occur of (x) obtaining shareholder
approval of the Plan, or (y) April 30, 1998; provided, that, such April 30, 1998
date shall be accelerated in the event (i) an earlier date is agreed to by the
Board of Directors in its sole discretion, (ii) a Trigger Event (as hereinafter
defined) occurs, (iii) an underwritten public offering of the Company's common
stock for cash, pursuant to a registration statement filed under the Securities
Act of 1933, as amended, which results in net proceeds to the Company of at
least $15 million is consummated; or (iv) the Executive is terminated without
cause. The terms of this Section 4.4 shall survive the termination of this
Agreement.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for cause. For purposes of this Agreement, the term
"cause" shall mean solely (a) a willful breach by the Executive of any of the
material terms or provisions of this Agreement which is not cured within ten
(10) days after receipt by the Executive of written notice of same, (b) the
Executive's conviction of a felony involving moral turpitude, or (c) commission
by the Executive of an act or acts involving fraud, embezzlement,
misappropriation or theft against the Company. Upon any termination pursuant to
this Section 5.1, the Executive shall be entitled to be paid his Base Salary
to the date of termination and the Company
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shall have no further liability hereunder (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however to the provisions of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, fail to perform his duties and
responsibilities provided for herein for a period of more than 60 consecutive
days in any 365-day period. In the event of any termination pursuant to this
Section 5.4, (b) the Executive shall be entitled to be paid his Base Salary to
the date of termination and the Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however to the provisions of
Section 4.1).
5.3 DEATH. In the event of the death of the Executive during
the term of his employment hereunder, (a) the Company shall pay the estate of
the Executive (i) unpaid amounts of his Base Salary to the date of his death,
(ii) life insurance payments pursuant to the group life insurance plan then in
place for the Executive, and (iii) if the date of death occurs within six months
prior to a Trigger Event (as defined in Section 5.4) but before the delivery of
the bonus payment due to the Executive under Section 5.4, the bonus payment that
would otherwise have been made to the Executive under Section 5.4, subject to
the offsets set forth in Section 5.4, (b) the Executive's estate shall have the
right to exercise stock options during the 90-day period after the date of death
pursuant to Section 4.4, and (c) the Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however to the provisions of
Section 4.1).
5.4 BONUS UPON OCCURRENCE OF TRIGGER EVENT. For purposes of
this Section 5.4, a "TRIGGER EVENT" shall mean any event (other than an event in
which the Executive is deemed a member of the control group (within the meaning
of the rules and regulations of the United States Securities and Exchange
Commission) of the entity making an offer of the type referred to in (a) and (b)
below), which results in:
(a) the shareholders of the Company approving
a plan of merger or consolidation in which the Company does not survive, unless
such approved merger or consolidation is subsequently abandoned; or
(b) the shareholders of the Company approving
a plan for the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Company (unless such plan is
subsequently abandoned).
In the event a Trigger Event occurs during the terms of the Executive's
employment hereunder, the Executive will be entitled to a bonus (the "Bonus"),
determined as follows: (i) if such Trigger Event occurs prior to January 1,
1997, the Executive shall be entitled to be paid $1,000,000 within 60 days
following the date of the Trigger Event, and (ii) if such Trigger Event occurs
after December 31, 1996 but prior to January 1, 1998, the Executive
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<PAGE>
shall be entitled to be paid $2,000,000 within 60 days following the date of the
Trigger Event; provided, that, the Bonus shall be offset by the sum of (x) any
gains (but not losses) realized by the Executive prior to such payment date with
respect to shares sold pursuant to the Options, plus (y) any gains (but not
losses) that could be realized by such Executive if shares subject to the
Options were sold in the open market, calculated assuming a sales price equal to
the higher of the closing price of the Company's common stock on (I) the date
immediately prior to the payment to the Executive and (II) the date of the
Trigger Event. The parties to this Agreement understand and agree that the Bonus
will be paid to the Executive because of his efforts and abilities in
repositioning and improving the condition of the Company.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. During the Non-competition Period
(as hereinafter defined), the Executive shall not, directly or indirectly,
engage in or have any interest in any sole proprietorship, partnership,
corporation or business or any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that directly or indirectly is engaged in the jewelry or gift retail
business primarily in Florida; PROVIDED, HOWEVER, that (i) nothing herein shall
be deemed to prevent the Executive from owning an interest in the equity or debt
securities of the Company or any of its direct or indirect subsidiaries, and
(ii) nothing herein shall be deemed to prevent the Executive from acquiring
through market purchases and owning, solely as an investment, less than one
percent of the equity securities of any class of any issuer whose shares are
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and are listed or admitted for trading on any United States national
securities exchange or are quoted on the National Association of Securities
Dealers Automated Quotations System, or any similar system of automated
dissemination of quotations of securities prices in common use, so long as the
Executive is not a member of any "control group" (within the meaning of the
rules and regulations of the United States Securities and Exchange Commission)
of any such issuer. For purposes of this Section 6.1, the term "NON-COMPETITION
PERIOD" shall mean (a) at all times while the Executive is employed by the
Company, and (b) in the event the Executive's employment is terminated pursuant
to Section 5.4, the period commencing on the effective date of such termination
and ending on the date on which all severance payments payable thereunder have
been paid in full.
6.2 NONDISCLOSURE. Except as expressly permitted by the
Company or in connection with the performance of his duties hereunder, the
Executive shall not divulge, communicate, use to the detriment of the Company or
for the benefit of any other person or persons, or misuse in any way, any
confidential information pertaining to the business of the Company. Any
confidential information or data heretofore or hereafter acquired by the
Executive with respect to the business of the Company (which shall include, but
not be limited to, information concerning the Company's financial condition,
prospects, customers, suppliers, sources of leads, methods of doing business,
importation, marketing and distribution of the Company's services) shall be
deemed a valuable, special and unique asset of the Company that is received by
the Executive in confidence and as a fiduciary, and the
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<PAGE>
Executive shall remain a fiduciary to the Company with respect to all of such
information. Notwithstanding any provision hereof which may be to the contrary,
confidential information shall not include (a) information that is or becomes
generally available to the public other than as a result of a disclosure by the
Executive, or (b) information lawfully acquired by the Executive from sources
other than the Company or its affiliates who are not bound by any agreement of
confidentiality.
6.3 NONSOLICITATION OF EMPLOYEES. While employed by the
Company and for a period of two years following the date his employment is
terminated hereunder or not renewed, the Executive shall not, directly or
indirectly, for himself or for any other person, firm, corporation, partnership,
association or other entity, attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company, unless such
employee or former employee has not been employed by the Company (or its
predecessors) for a period in excess of six months.
6.4 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the Company, whether prepared by the Executive or
otherwise coming into the Executive's possession, shall be the exclusive
property of the Company and shall be returned immediately to the Company on
termination of the Executive's employment hereunder or on the Company's request
at any time. The Executive shall not retain copies, extracts or compilations of
any such books, records or accounts.
6.5 COMPANY INCLUDES SUBSIDIARIES. For purposes of this
Section 6 and Section 7 hereof, the term "Company" shall be deemed to include
the Company and any of its direct or indirect subsidiaries.
6.6 SURVIVAL. The terms of this Section 6 shall survive
the termination of this Agreement.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. INDEMNIFICATION. The Executive shall be entitled to be
indemnified and defended as provided to other directors of the Company in
accordance with the Company's charter documents and Florida law.
9. ASSIGNMENT. Subject to the provisions of Section 5.5 hereof, the
Executive agrees that any or all of the rights and interests of the Company
hereunder (i) may be assigned to any purchaser of substantially all of the
assets of the Company, and (ii) may be
6
<PAGE>
assigned as a matter of law to the surviving entity in any merger of the
Company. The Executive shall not delegate his employment obligations hereunder,
or any portion thereof, to any other person.
10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understandings and arrangements, both oral and
written, between the parties hereto with respect to such subject matter. This
Agreement may not be modified in any way unless by a written instrument signed
by each of the parties hereto.
12. NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and shall be given by personal delivery, facsimile
transmission, Federal Express (or other equivalent courier service) or by
registered or certified mail, postage prepaid, return receipt requested (a) if
to the Company, 5770 Miami Lakes Drive, Miami Lakes, Florida 33014, Attention:
General Counsel, and (b) if to the Executive, to his address as reflected on the
payroll records of the Company, or to such other addresses as either party
hereto may from time to time give notice of to the other. Notice by registered
or certified mail will be effective three days after deposit in the United
States mail. Notice by any other permitted means will be effective upon receipt.
13. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
14. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
15. WAIVERS. The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.
16. DAMAGES. Nothing contained herein shall be construed to prevent any
party hereto from seeking and recovering from the other damages sustained by
either or both of
7
<PAGE>
them as a result of its or his breach of any term or provision of this
Agreement. In the event that either party hereto brings suit for the collection
of any damages resulting from, or for the injunction of any action constituting,
a breach of any of the terms or provisions of this Agreement, then the
prevailing party shall pay all reasonable costs, fees (including reasonable
attorneys' fees) and expenses of the non-prevailing party.
17. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
18. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
L. LURIA & SON, INC.
By:/S/ LEONARD LURIA
-----------------------------
LEONARD LURIA, Chairman of
the Board
/S/ GERALD NATHANSON
--------------------------------
GERALD NATHANSON
8
L. LURIA & SON, INC.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Luria's Fine Jewelry, Inc. (*)
2. P & L Advertising, Inc. (*)
(*) Inactive
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-2070 of L. Luria & Son, Inc. on Form S-8 of our report dated April 22, 1996,
appearing in this Annual Report on Form 10-K of L. Luria & Son, Inc. for the
year ended February 3, 1996.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 30, 1996
[Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
L. Luria & Son, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-2070) on Form S-8 of L. Luria & Son, Inc. of our report dated March 24, 1995,
relating to the balance sheet of L. Luria & Son, Inc., as of January 28, 1995
and the statements of operations, shareholders' equity, and cash flows for each
of the years in the two-year period ended January 28, 1995, which report appears
in or is incorporated by reference in the annual report on Form 10-K of L. Luria
& Sons, Inc.
/s/ KPMG PEAT MARWICK LLP
April 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF L. LURIA & SON, INC. FOR THE YEAR ENDED FEBRUARY 3,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<EXCHANGE-RATE> 1
<CASH> 4,941
<SECURITIES> 0
<RECEIVABLES> 4,521
<ALLOWANCES> 0
<INVENTORY> 60,087
<CURRENT-ASSETS> 71,342
<PP&E> 74,497
<DEPRECIATION> (36,194)
<TOTAL-ASSETS> 114,349
<CURRENT-LIABILITIES> 46,307
<BONDS> 791
0
0
<COMMON> 54
<OTHER-SE> 64,743
<TOTAL-LIABILITY-AND-EQUITY> 114,349
<SALES> 173,272
<TOTAL-REVENUES> 173,272
<CGS> 133,070
<TOTAL-COSTS> 65,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,096
<INCOME-PRETAX> (25,929)
<INCOME-TAX> (6,957)
<INCOME-CONTINUING> (18,972)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,972)
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