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 March 1, 1997, Commission File No. 0-1500
Evans, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-1050870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
36 South State Street, Chicago, Illinois 60603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (312) 855-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $.20 par value
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 and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of voting stock of the Registrant held by
nonaffiliates of the Registrant was approximately $3,148,000. For
purposes of this calculation, all directors and officers of the
Registrant have been considered to be affiliates.
As of May 19, 1997, 4,918,301 shares of the Registrant's common
stock were outstanding.
Portions of the Registrant's Proxy Statement for its Annual Meeting
of Stockholders to be held on July 29, 1997 are incorporated into
Parts I and III of this Form 10-K.
<PAGE>
PART I
Item 1. Business
Evans, Inc. (together with its subsidiaries, hereinafter "Evans" or
the "Company"), founded in 1929, was conducted by a predecessor and
affiliates until 1963 when the Company was incorporated under Delaware
law. Evans' executive offices are located at its main store at 36
South State Street, Chicago, Illinois 60603 and its telephone number
is (312) 855-2000.
Evans is a retailer of fur apparel, cloth coats and suits, dresses,
sportswear, and related items and services. Fur apparel is carried in
all Company-owned stores, excluding the two Evans Woman locations,
while women's ready-to-wear apparel is carried in the 10 Chicago area
Evans and Evans Woman stores. Company stores are located in
Metropolitan Chicago, Austin, Dallas and Washington D.C. areas. The
Company operated leased departments in 41 locations in 7 major
department store chains located in major metropolitan areas throughout
the eastern half of the United States.
The Company's Black Diamond mink trademark is registered in the United
States Patent and Trademark Office and in the trademark offices of 18
other countries. Black Diamond mink is known as a luxurious fur made
from among the finest and darkest natural ranch mink. All
Company-owned stores, as well as most of the leased fur salons, market
Black Diamond fashions.
Evans intends to continue its business activities as described above
in the future.
Buying is conducted by buyers and merchandising personnel in the open
market under competitive conditions.
Compliance with federal, state and local regulations related to the
protection of the environment had no material effect upon the capital
expenditures, earnings or competitive position of Evans. Fur apparel
sold by Evans does not include any so-called "endangered species" and
is primarily ranch bred for apparel purposes.
Evans employs regularly on a full or part-time basis approximately 800
employees whose number increases during the Christmas season to a peak
of approximately 875.
Evans' business is seasonal in nature and historically realizes a
major portion of its annual revenues in the second half and most of
its earnings in the fourth quarter of its fiscal year. This
seasonality results in an increase in short-term borrowings in the
beginning of the third quarter which continues well into the second
half of the year due to increased inventories and accounts receivable
during such period.
<PAGE>
Item 1. Business, continued
During fiscal 1997, the Company closed its one full-time salon at
Strawbridge and Clothier in Philadelphia. Also, during fiscal 1997,
the Company discontinued thirteen seasonal leased locations, of which
eleven were at various stores within the department stores division of
the Dayton Hudson Corporation and two were at stores in the Lazarus
division of Federated Department Stores, Inc. During the fourth
quarter of fiscal 1997, the Company initiated additional staff
reductions in various corporate departments.
During fiscal 1997, the Company opened an additional full-time leased
location in the new Hudson's Sommerset store in Troy, Michigan.
The Company offers retail customers a program of fur services,
including cleaning, storage, repair, restyling and insurance. The
Company provides storage for approximately 120,000 fur garments
annually, primarily at facilities in its retail locations. Repair and
restyling services are usually performed by Company personnel.
Information regarding the percentage composition of the total revenues
of the Company during the period indicated is set forth below:
<TABLE>
For the Year Ended
---------------------------------------------------
<CAPTION>
Mar. 1, Mar. 2, Feb. 25, Feb. 26, Feb. 27,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Retail Fur Operations:
Company-owned Stores 19.0% 19.0% 22.8% 28.6% 27.7%
Leased 41.1 40.1 30.5 27.7 31.0
Fur Service 15.6 14.4 13.4 10.6 11.4
Wholesale and
Catalog Sales 0.6 1.4
------ ------ ------ ------ ------
Subtotal 75.7 73.5 66.7 67.5 71.5
Women's Ready-To-Wear
and Accessories 24.3 26.5 33.3 32.5 28.5
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
Evans believes that its continued operation of leased departments, and
its operation of additional leased departments, as these stores may
expand, depends in large part on the continuance of present
satisfactory relations with these department store chains.
The business in which Evans is engaged is highly competitive. In all
locations, Evans competes with numerous furriers, department stores
and specialty stores as well as mail order houses. Evans believes its
emphasis on design and quality, broad coverage of price
<PAGE>
Item 1. Business, continued
and size ranges and its advertising, promotional programs and
competitive pricing have resulted in a substantial degree of customer
acceptance of merchandise and services.
Based on statistics compiled by the Fur Information Council of
America, Evans further believes that it is the nation's largest retail
fur apparel merchandiser.
The following table sets forth information concerning the number of
Company-owned stores and Leased locations operated during the last
five fiscal years:
<TABLE>
For the Year Ended
---------------------------------------------------
<CAPTION>
Mar. 1, Mar. 2, Feb. 25, Feb. 26, Feb. 27,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Locations Opened
or Acquired:
Company-owned 2
Leased (1) 1 1 27 4 11
Locations Closed:
Company-owned 4 1 1
Leased (1) 14 1 5 49
End of Period:
Company-owned 15 15 19 19 18
Leased (1) 41 54 54 27 28
<FN>
(1) Includes seasonal leased locations (generally operated October
through January).
</FN>
</TABLE>
Financial Information about Industry Segments
The Company's operations are in a single industry, retailing furs and
apparel through the operation of stores and leased departments. All
operations are within the United States and no one customer accounts
for more than 10% of revenues.
<PAGE>
Item 2. Properties
All Company stores and distribution centers are operated in leased
premises deemed suitable for their activities, except the State Street
store in downtown Chicago, which is owned subject to a ground lease.
The leased premises, the sizes thereof and the lease expiration dates
are as follows:
<TABLE>
<CAPTION>
Expiration Square
Dates (a) Feet
------------ ---------
<S> <C> <C>
Store
Chicago Area:
(Evans)
36 South State Street 04/30/2000 103,069 (b)(c)
(includes executive offices)
Shopping Centers:
(Evans)
River Oaks 02/28/2007 26,174
North Riverside Mall 02/28/2003 14,326
Yorktown 05/31/2006 15,718
Evergreen Plaza 04/30/2001 11,862
Ford City 02/28/2002 12,181
Orland Square 02/28/2002 12,000
Harlem Irving Plaza 01/31/1999 7,800
(Evans Woman)
Ford City 02/28/2002 3,034
Evergreen Plaza 04/30/2001 2,633
Washington D.C. Area:
(Evans/Rosendorf)
1750 K Street, N.W. 02/28/2005 9,718
Tyson's Corner Center 06/30/2006 2,664
Montgomery Mall 01/31/2002 3,342
Texas (Koslow's)
Caruth Plaza, Dallas 04/30/2000 14,363
The Arboretum, Austin 07/31/2005 6,000
Distribution Center
Hillside, Illinois 06/30/1999 36,625
<FN>
(a) Includes options to renew.
<PAGE>
Item 2. Properties, continued
(b) 33,103 square feet in the 36 South State Street premises are
leased out as store and office space. Upon termination of the
ground lease, lessor is required to purchase the building at its then
fair market value.
(c) On June 19, 1997, the Company entered into a contract for the
sale of the 36 S. State Street Building. As part of the agreement,
the Company will execute 15 year and 10 year lease agreements covering
61,775 square feet for the existing retail premises and 36,020 square
feet for the corporate operation space, respectively.
</FN>
</TABLE>
Item 3. Legal Proceedings
Evans is involved in various claims and lawsuits incidental to its
business. In the opinion of management, the ultimate liability will
not have a material effect on the consolidated financial statements of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the shareholders of the Company for
a vote during the fourth quarter of the fiscal year ended March 1,
1997.
<PAGE>
Item 4A. Executive Officers of the Registrant
Served
Name Age Title as Title
Since
David B. Meltzer 68 Chairman of the Board 1988
Samuel B. Garber 62 Vice President, Secretary
and General Counsel 1981
William E. Koziel 39 Vice President - Finance
and Chief Financial Officer 1995
Vice President and Controller 1989
Robert K. Meltzer 43 Executive Vice President -
General Merchandise Manager 1990
Patrick J. Regan 47 President and Chief Executive 1995
Officer
Chief Operating Officer,
Executive Vice President-
Finance, Chief Financial Officer 1991
John Sarama 45 Vice President of Operations 1990
Dean Obrecht 52 Vice President of Human Resources 1996
No executive officer of the Company has a family relationship to any
other executive officer, except that Robert K. Meltzer is the son of
David B. Meltzer.
Executive Officers
The executive officers are elected annually by the Board of Directors
at the first meeting following the annual meeting of shareholders.
Vacancies may be filled and additional officers elected at any meeting
of the Board of Directors. Any officer elected serves until the next
annual meeting of the Board of Directors and until a successor shall
have been elected and qualified or until his death, resignation or
removal by the Board.
These officers have held the positions set forth in the above
tabulation for the last five years or have served the Company in
various executive or administrative capacities for at least that
length of time.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters
The Company's common stock is traded in the Over-the-Counter Market.
High and low bid quotations, as reported on NASDAQ for each quarterly
period during the past two fiscal years and cash dividends declared,
were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
BID BID BID BID
PRICE PRICE DIVIDENDS PRICE PRICE DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
-------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $2-3/4 $1-1/8 --- $1-7/8 $1 ---
2nd Quarter $2-5/8 $1-3/4 --- $1-5/8 $1-1/8 ---
3rd Quarter $2-1/2 $1-5/8 --- $1-3/4 $1 ---
4th Quarter $1-7/8 $1 --- $1-5/8 $1-1/4 ---
</TABLE>
As of March 1, 1997, there were approximately 750 holders of the
Company's common stock.
The Company is restricted, under the terms of a debt agreement, from
paying any dividends at March 1, 1997 (see Note 3 to the consolidated
financial statements).
<PAGE>
<TABLE>
Item 6. Selected Financial Data
($ In Thousand's, Except Per Share Amounts)
<CAPTION>
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Financial Position:
- -------------------
Total assets $42,622 $46,011 $48,816 $53,943 $59,940
Total liabilities 25,568 24,233 27,272 20,335 28,292
Shareholders' equity 17,054 21,778 21,544 33,608 31,648
Current assets 35,597 32,119 35,152 39,374 46,206
Current liabilities 24,301 22,334 26,078 20,266 27,546
(a) (a) (a)
Current ratio 1.46 1.44 1.35 1.94 1.68
Long-term debt 1,224 1,888 1,178
Results from Operations:
- ------------------------
Total revenues $82,704 $96,566 $86,817 $96,785 $107,072
Restructuring 3,176
Net (loss) earnings (4,724) 234 (12,064) 1,960 1,620
(a) (c) (d) (e)
Common Share Data:
- ------------------
Net earnings (loss)
per share $(0.96) $.05 $(2.45) $.39 $.33
(a) (c) (d) (e)
Weighted average
common and common
equivalent shares
outstanding 4,918,301 4,918,301 4,918,301 5,051,255 4,950,230
Book value per share $3.47 $4.43 $4.38 $6.65 $6.39
<FN>
(a) Certain long-term debt obligations have been reclassified to
current liabilities in conformance with Emerging Issues Task Force
Abstract Issue No. 95-22, "Balance Sheet Classification of Borrowings
Outstanding under Revolving Credit Agreements".
(b) Net loss includes a $729 or $.15 per share charge for the
write-down to fair market value of the 36 South State Street property.
(c) Net loss includes a $1,333 or $.27 per share tax provision for
an increase of its valuation allowance with respect to future tax
benefits of the net operating loss reflected in deferred income taxes.
(d) Net earnings include $1,500 or $.30 per share for the
cumulative effect of an income tax accounting change from adopting
Statement of Financial Accounting Standards 109 "Accounting for Income
Taxes".
(e) Net earnings include $593 or $.12 per share from the utilization
of net operating loss carryforwards, which were recorded as an
extraordinary item.
</FN>
</TABLE>
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Total revenues during fiscal 1997 decreased $13,862,000 (14.4%) in
comparison to fiscal 1996 as the result of decreases of $7,314,000
(12.8%) in fur merchandise sales, $5,547,000 (21.6%) in women's
ready-to-wear sales, and $1,001,000 (7.2% ) in service revenues. The
decrease in fur merchandise sales was due primarily to a decrease of
$6,537,000 (12.8%) in sales at comparable locations and a decrease of
$4,843,000 in sales associated with four Company-owned locations, one
full time leased location, and thirteen seasonal leased locations in
several department store chains closed during and subsequent to fiscal
1996. These decreases were partially offset by sales of $3,378,000
associated with store closing events in the Marshall Fields stores in
Texas and an increase in sales of $688,000 from two new full time
leased locations opened subsequent to the second quarter of fiscal
1996. The Company believes that fur merchandise sales at comparable
locations were adversely impacted by the significant increase in fur
prices, primarily mink, and the lack of availability of finished goods
at certain affordable retail price levels, as well as the record high
consumer debt levels. The decrease in women's ready-to-wear sales was
due primarily to a decrease of $4,184,000 (17.2%) in sales at
comparable locations and a decrease of $1,363,000 in sales associated
with the closing of two Company-owned locations during fiscal 1996.
The Company believes that women's ready-to-wear sales at comparable
locations were adversely impacted by competition from department and
discount stores. The Company has refocused its efforts on providing
product in line with the tastes of its target consumers. The decrease
in service revenues was primarily the result of a decrease of $791,000
in sales associated with four Company-owned locations closed during
fiscal 1996 and one leased location closed during fiscal 1997 and a
decrease of $210,000 (1.6%) in sales at comparable locations.
During fiscal 1996, total revenues increased $9,749,000 (11.2%) in
comparison to fiscal 1995 due primarily to an increase of $10,728,000
(23.2%) in fur merchandise sales and an increase of $2,294,000 (19.7%)
in service revenues, partially offset by a decrease of $3,273,000
(11.3%) in women's ready-to-wear sales. The increase in fur
merchandise sales was largely due to an increase of $12,454,000 in
sales associated with leased locations acquired during the fourth
quarter of fiscal 1995 partially offset by a decrease of $1,681,000 in
sales associated with four Company-owned locations closed during
fiscal 1996. Fur merchandise sales at comparable locations were
essentially flat with levels of the prior year. During the fourth
quarter, fur merchandise sales at comparable locations increased
$1,694,000 (8.1%) as compared to the prior fiscal year. The Company
believes that the return to normal seasonal weather which began in the
month of November and continued through the end of fiscal 1996
favorably impacted the sales of fur merchandise. The decrease in
women's ready-to-wear sales was due primarily to a $1,665,000 (6.4%)
decrease in sales at comparable locations and a $1,608,000 decrease in
sales associated with the closing of the Company's Southlake location
in Merrillville, Indiana during the first quarter and the Company's
Woodfield location in Schaumburg, Illinois during the
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Results of Operations, continued
fourth quarter. The increase in service revenues was primarily the
result of an increase of $3,397,000 in sales associated with leased
locations acquired during the fourth quarter of fiscal 1995 and an
increase of $139,000 (1.5%) in sales at comparable locations,
partially offset by a decrease of $1,242,000 in sales associated with
four Company-owned locations closed during fiscal 1996.
Costs of goods and services sold, buying and occupancy costs were
65.3% of total revenues in fiscal 1997 as compared to 64.0% in fiscal
1996 and 69.2% in fiscal 1995. During fiscal 1997, cost of goods
and services sold as a percentage of total revenues increased slightly
over the prior year (50.5% versus 50.0%) due primarily to lower
overall margins on sales of fur merchandise during the fourth quarter
as the Company attempted to stimulate demand at certain lower retail
price points, primarily in the mink classifications. Occupancy costs
as a percentage of total revenues increased in fiscal 1997 as compared
to the prior year (12.4% versus 12.1%) due primarily to the impact of
fixed rental costs as measured against the overall decrease in sales.
Buying costs as a percentage of total revenues were up slightly over
the prior year. Cost of goods and services sold, as a percentage of
total revenues, decreased by 5.4% in fiscal 1996 as compared to fiscal
1995 due primarily to improved margins on fur sales resulting from
higher initial markups. Buying costs decreased as a percentage of
total revenues largely due to the closing of the Company's fur
inspection office in New York during the first quarter of fiscal 1996.
Occupancy costs as a percentage of total revenues were higher in
fiscal 1996 as compared to the prior year largely as a result of
higher average rental percentages.
During fiscal 1997, selling and general expenses decreased by
$1,892,000 (5.8%) as compared to the prior year. Payroll and related
fringe benefits decreased $723,000 or 4.1% due to a sales commission
related decrease of $231,000 at comparable locations and a $662,000
decrease at locations closed during and subsequent to fiscal 1996
partially offset by $170,000 of payroll and related fringe benefits
associated with a Marshall Field's store closing event in three stores
in Texas. Data processing costs decreased by $171,000 or 20% as
compared to the prior year due to continued savings associated with
the migration to a lower cost based operating platform for the
Company's systems. Advertising expense decreased by $984,000 or 11.3%
due largely to a decrease of $600,000 at locations closed during and
subsequent to fiscal 1996. During fiscal 1996, selling and general
expenses decreased by $65,000 (0.2%) as compared to fiscal 1995.
Payroll and related fringe benefits decreased by $75,000 (0.4%) as
compared to the prior year due primarily to the reduction of staff in
various corporate departments partially offset by higher sales
commissions associated with the increase in total revenues.
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Results of Operations, continued
Interest expense for fiscal 1997 increased $63,000 (4.5%) as compared
to fiscal 1996 due in large part to higher average short-term
borrowings partially offset by lower average interest rates as
compared to the prior year. Interest expense for fiscal 1996
increased $253,000 (22.4%) as compared to fiscal 1995 due primarily to
higher average short-term borrowings and higher average interest rates
as compared to the prior year.
During the fourth quarter of fiscal 1995, the Company recorded a
pre-tax restructuring charge of $3,176,000. Approximately 40% of the
charge was related to costs associated with the closing of several
Company-owned retail locations, the closing of the Company's fur
inspection office in New York and the reduction of staff in various
corporate departments. Approximately 39% of the charge was related to
costs associated with the migration of the Company's data processing
and information systems structure to a lower cost alternative.
Approximately 8% of the charge was related to employee termination
benefits. The remaining charges were due primarily to the refinancing
of the Company's revolving credit facility and senior secured
long-term note payable obligations as well as other administrative
costs.
The Company recorded net other expense of $673,000 for fiscal 1997 as
compared to net other income for fiscal 1996 and fiscal 1995 of $5,000
and $43,000, respectively. The net other expense for fiscal 1997 was
the result of a charge of $729,000 recorded for the write-down to fair
market value of the property located at 36 S. State Street partially
offset by a gain from the sale of the Fort Worth real estate during
the fourth quarter. The net other income for fiscal 1996 and fiscal
1995 was primarily interest income from temporary cash investments.
The effective tax rate in fiscal 1997 was 1.8% as compared to 19.6%
and 12.6% in fiscal 1996 and 1995, respectively.
During fiscal 1997, the Company increased its valuation allowance with
respect to the future tax benefits of the net operating loss due to
the uncertainty of its ultimate realization. The Company will
continue to evaluate the valuation allowance recorded with respect to
the future tax benefits of the total net operating loss reflected in
deferred income taxes. During fiscal 1996, the Company utilized a
portion of its net operating loss carry forward to fully offset the
tax provision. During fiscal 1995, the Company recorded a $1,333,000
tax provision due to an increase in its valuation allowance with
respect to the future tax benefits of the net operating loss reflected
in different income taxes as a result of the uncertainty of their
ultimate realization.
Fiscal 1997 resulted in a net loss of $4,724,000 as compared to net
earnings of $234,000 in fiscal 1996 and a net loss of $12,064,000 in
fiscal 1995. The net loss for fiscal 1997
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Results of Operations, continued
was due primarily to the decline in total fur sales and related gross
margins which the Company believes was the result of the significant
increase in fur prices, primarily mink, coupled with the lack of
availability of finished goods at certain affordable retail price
levels. The Company believes that the significant increase in demand
worldwide (primarily markets in Korea, Russia and China) for mink
during fiscal 1997 combined with a static supply of fur precipitated
both the highest price increase ever recorded at the wholesale level
and the lack of product availability. In addition, record high
consumer debt levels had an adverse impact on consumer purchasing
power. The Company also recorded a $729,000 write-down to fair market
value for its 36 South State Street property.
The net earnings for fiscal 1996 were largely due to the increase in
total revenues and improved gross margins as well as the cost
reductions achieved as part of the Company's restructuring initiated
at the end of fiscal 1995, partially offset by the increase in
occupancy costs and interest expense.
The net loss for fiscal 1995 was due in part to the decline in total
sales and related gross margins from continuing operations during the
latter half of the fiscal year. The results reflected the impact of
the abnormally warm fall and winter weather experienced in all of the
Company's operating markets during the third and fourth quarters of
fiscal 1995. The unusual climatic situation began in September and
carried on through the end of the fiscal year. In addition, the
Company recorded a charge of $3,176,000 during the fourth quarter for
reorganization, severance and refinancing costs related to the
Company's plan to exit certain underperforming locations, the
refinancing of its senior secured debt and the migration of its data
processing systems to a lower operating cost alternative.
All indications are that the price of fur merchandise, primarily mink,
will decrease moderately in fiscal 1998 due to an easing in the demand
for fur, primarily in markets outside of North America. Also,
preliminary indications are that finished goods will be available in
sufficient quantities at all price levels to meet the Company's needs
for fiscal 1998.
Liquidity and Capital Resources
Cash and cash equivalents at March 1, 1997 were $153,000, a decrease
of $67,000 as compared to March 2, 1996. The decrease was due
primarily to cash used in financing and investing activities of
$926,000 and $124,000, respectively, partially offset by cash provided
by operating activities of $983,000.
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Liquidity and Capital Resources, continued
The cash provided by operating activities was due primarily to an
increase in accounts payable of $2,707,000 and an increase in
merchandise inventories of $2,369,000 partially offset by a decrease
in receivables of $2,698,000. The increase in accounts payable was
due in large part to negotiating longer payment terms on fur trade
payables as well as to the higher cost for furs as compared to the
prior year. The increase in merchandise inventories was due primarily
to the higher average cost for fur as compared to the prior year. The
decrease in accounts receivable was due in large part to a decline in
the Company's proprietary credit card portfolio which was related to
the decline in women's ready-to-wear sales as compared to the prior
year.
The cash used in investing activities of $124,000 was due to additions
to property and equipment of $484,000 partially offset by cash
provided from the sale of the Company's Fort Worth, Texas real estate
for $360,000.
The cash used in financing activities was for principal payments on
long-term debt obligations of $1,015,000 partially offset by proceeds
from short-term borrowings of $89,000.
On June 16, 1997, the Company finalized an agreement with a new lender
to refinance the existing senior secured debt and provide for the
Company's working capital needs. The new agreement provides for a
three year $27,000,000 credit facility which includes a term loan of
$2,000,000. The agreement provides for interest at 0.25% over the
base rate (prime) for the revolving facility and the term loan. The
agreement provides for monthly principal payments of $23,810 beginning
October 1, 1997 with the remaining unamortized balance due June 15,
2000.
On June 19, 1997, the Company entered into a contract for the sale of
its 36 S. State building in Chicago, Illinois. The proceeds generated
from the sale will be used first to pay down the unamortized senior
secured long-term payable obligation and then the secured revolving
loan obligation. The building, as such, has been classified as an
asset held for sale within the current asset section of the balance
sheet as of March 1, 1997.
The Company's anticipated capital expenditures for fiscal 1998 are
approximately $600,000 to be used primarily for improvements to
existing locations.
The credit facility which expires June 15, 2000 is considered adequate
to finance seasonal inventory requirements as well as capital
expenditures through fiscal 1998.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Liquidity and Capital Resources, continued
Compensation", which establishes a fair value based method of
accounting for employee stock-based compensation. Under this method,
compensation cost is measured at the grant date, based on the market
price of the stock at that date, and is recognized as expense over the
life of the option. SFAS 123 encourages companies to adopt a fair
value based method of accounting for such plans but continues to allow
the use of the intrinsic value method prescribed by Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees". As permitted under SFAS 123, the Company has elected to
continue accounting for stock-based compensation in accordance with
APB No. 25. The differences between the recognition and measurement
provisions of FAS 123 and APB 25 are immaterial to the Company's
financial condition and results of operations.
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, Earnings
Per Share (FAS 128). FAS 128 is designed to improve the EPS
information provided in financial statements by simplifying the
existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of EPS data on an
international basis. FAS 128 is effective for financial statements
issued for periods ending after December 15, 1997. The Company has
not yet determined the impact that adoption of FAS 128 will have on
the financial statements.
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 129, Disclosure
of Information about Capital Structure (FAS 129). FAS 129 establishes
standards for disclosing information about an entity's capital
structure. This Statement is effective for financial statements for
periods ending after December 15, 1997. It contains no change in
disclosure requirements for entities that were previously subject to
the requirements of Opinions No. 10 (Omnibus Opinion -- 1966) and No.
15 (Earnings per Share) and Statement No. 47 (Disclosure of Long-Term
Obligations). Thus the Company does not anticipate any impact from
this pronouncement as it is complying with the disclosure requirements
for Opinion No. 15 (Earnings per Share).
<PAGE>
Item 8. Financial Statement and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Evans, Inc.
We have audited the accompanying consolidated balance sheets of Evans,
Inc. and Subsidiaries as of March 1, 1997 and March 2, 1996, and the
related consolidated statements of operations, shareholders' equity,
and cash flows for the years ended March 1, 1997, March 2, 1996 and
February 25, 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 consolidated financial position
of Evans, Inc. and Subsidiaries at March 1, 1997 and March 2, 1996,
and the consolidated results of their operations and their cash flows
for the years ended March 1, 1997, March 2, 1996 and February 25, 1995
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
May 23, 1997
except as to the information presented in Notes 3 and 12,
for which the date is June 19, 1997
Chicago, Illinois
<PAGE>
<TABLE>
EVANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended March 1, 1997,
March 2, 1996 and February 25, 1995
($ In Thousands Except Per Share Amounts)
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net sales $69,789 $82,650 $75,195
Service revenues 12,915 13,916 11,622
------- ------- -------
Total revenues 82,704 96,566 86,817
------- ------- -------
Cost of goods and services sold,
occupancy and buying costs 53,988 61,787 60,085
Selling and general expenses 30,617 32,510 32,575
Provision for doubtful accounts 621 600 609
Interest expense 1,446 1,383 1,130
Other expense (income), net 673 (5) (43)
Restructuring 3,176
------- ------- -------
87,345 96,275 97,532
------- ------- -------
(Loss) earnings before provision
for income taxes (4,641) 291 (10,715)
Provision for income taxes 83 57 1,349
------- ------- -------
Net (loss) earnings ($4,724) $234 ($12,064)
======= ======= =======
Net (loss) earnings per share ($0.96) $0.05 ($2.45)
======= ======= =======
Weighted average common and
common equivalent shares 4,918,301 4,918,301 4,918,301
========= ========= =========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
EVANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 1, 1997 and March 2, 1996
($ In Thousands)
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
- -------
Current assets:
Cash and cash equivalents $153 $220
Accounts receivable, less allowance for
doubtful accounts of $755 and $864 12,665 15,984
Merchandise inventories 17,130 14,761
Prepaid expenses and other current 899 1,154
Assets held for sale 4,750
-------- --------
Total current assets 35,597 32,119
-------- --------
Property and equipment:
Buildings 4,861
Furniture and equipment 5,524 6,080
Leasehold improvements 5,792 9,775
-------- --------
11,316 20,716
Accumulated depreciation and amortization (7,398) (10,293)
-------- --------
3,918 10,423
-------- --------
Long-lived assets, principally intangible assets
(net of accumulated amortization of $1,090 and
and $793) 3,107 3,469
-------- --------
$42,622 $46,011
======== ========
1997 1996
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Notes payable $9,308 $9,219
Current portion of long-term debt 692 1,043
Accounts payable 9,318 6,611
Accrued liabilities:
Payroll 455 680
Taxes, other than on income 1,267 1,446
Rent 1,395 1,153
Vacations 789 774
Restructuring 215
Other 1,077 1,193
-------- --------
Total current liabilities 24,301 22,334
-------- --------
Long-term debt 1,224 1,888
-------- --------
Other liabilities 43 11
-------- --------
Shareholders' equity:
Preferred stock, $1.00 par value, 3,000,000
shares authorized, none issued
Common stock, $.20 par value, 8,000,000
shares authorized, 6,333,435 shares issued 1,267 1,267
Capital in excess of par value 15,660 15,660
Retained earnings 4,725 9,449
Treasury stock, 1,415,134 shares at cost (4,598) (4,598)
-------- --------
Total shareholders' equity 17,054 21,778
-------- --------
$42,622 $46,011
======== ========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
EVANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
for the years ended March 1, 1997,
March 2, 1996, and February 25, 1995
($ In Thousands)
<CAPTION>
Capital in
Common Excess of Retained Treasury
Stock Par Value Earnings Stock Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, February 26,
1994 1,267 15,660 21,279 (4,598) 33,608
Net loss (12,064) (12,064)
---------- ---------- ---------- ---------- ----------
Balance, February 25,
1995 1,267 15,660 9,215 (4,598) 21,544
Net earnings 234 234
---------- ---------- ---------- ---------- ----------
Balance, March 2,
1996 $1,267 $15,660 $9,449 ($4,598) $21,778
Net loss (4,724) (4,724)
---------- ---------- ---------- ---------- ----------
Balance, March 1,
1997 $1,267 $15,660 $4,725 ($4,598) $17,054
========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
EVANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended March 1, 1997, March 2, 1996 and February 25, 1995
($ In Thousands)
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Net (loss) earnings ($4,724) $234 ($12,064)
Adjustments to reconcile net (loss)
earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,426 1,435 1,652
Net gain from the disposition of
property and equipment (55) (3)
Net loss (gain) from write-down of
property and equipment 729 (154) 1,423
Provision for doubtful accounts 621 600 609
Change in assets and liabilities:
Accounts receivable 2,698 521 2,487
Merchandise inventories (2,369) 1,640 2,175
Prepaid expenses and
other current assets 255 (642) 480
Long-lived assets 141 (673) 410
Accounts payable 2,707 (2,300) (3,049)
Accrued liabilities (478) (1,469) 851
Other liabilities 32 (5) (53)
Income taxes payable (115)
Deferred income taxes 1,300
-------- -------- --------
Net cash provided by (used in)
operating activities 983 (816) (3,894)
Cash Flows from Investing Activities:
- -------------------------------------
Proceeds from the sale of property
and equipment 360 3
Additions to property and equipment (484) (836) (1,552)
Acquisition less cash acquired (750)
-------- -------- --------
Net cash used in investing activities (124) (833) (2,302)
Cash Flows from Financing Activities:
- -------------------------------------
Proceeds from short-term borrowing 89 1,400
Principal payments on short-term borrowing (746)
Additional long-term debt 2,000
Principal payments on long-term debt (1,015) (519)
-------- -------- --------
Net cash (used in) provided by
financing activities (926) 735 1,400
-------- -------- --------
Net decrease in cash and cash equivalents (67) (914) (4,796)
Cash and cash equivalents at beginning
of period 220 1,134 5,930
-------- -------- --------
Cash and cash equivalents at end
of period $153 $220 $1,134
======== ======== ========
Supplemental Disclosures of Cash Flow
Information:
- -------------------------------------
Cash paid during the period for:
Interest $1,454 $1,393 $1,164
Income taxes 98 57 128
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
The following is a summary of the significant accounting policies
followed in the preparation of the financial statements:
A. Principles of Consolidation
The consolidated financial statements include the accounts of
Evans, Inc. and it subsidiaries, all of which are wholly-owned.
B. Recognition of Revenues
All revenues, including installment and revolving credit sales,
are included in the financial statements on the accrual method.
C. Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents.
D. Merchandise Inventories
Merchandise inventories are stated at the lower of cost or
market with cost determined on the basis of specific
identification for furs (approximately 88% and 85% of total
inventory in fiscal 1997 and 1996, respectively) and on the
retail method on a first-in, first-out basis for other
inventories. The Company includes in inventory certain
purchasing and handling costs. The Company believes this
method provides for matching the full cost of obtaining
merchandise and preparing it for sale with related revenues.
E. Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided on the straight-line method in the financial statements
over the estimated useful lives of the assets. The estimated
useful lives are 3-10 years for furniture, fixtures and other
equipment and 12 years for customized software. Leasehold
improvements are amortized generally over the shorter of the
life of the related asset or the remaining term of the lease.
Accelerated methods of depreciation are used for tax purposes.
During the fourth
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Significant Accounting Policies, continued
E. Property and Equipment, continued
quarter of fiscal 1997, the Company recorded a write-down of
$729,000 ($0.15 per share) on the 36 S. State Street building
to reflect the current fair market value. The write-down was
recorded in other expenses in the Consolidated Statements of
Operations. In addition, there is a commitment by the lessor,
under a related land lease, that requires the lessor to purchase
the building in the year 2000 at its then fair market value.
On June 19, 1997, the Company entered into a contract for the
sale of the building at 36 S. State Street for a purchase price
of $5,000,000 which, net of expected closing costs, is
comparable to the current carrying value of the building
including improvements. The building, as such, has been
classified as an asset held for sale within the current asset
section of the balance sheet as of March 1, 1997.
Upon disposal of property and equipment, the cost of the asset
retired and the related accumulated depreciation or amortization
are eliminated from the accounts and the resulting gain or loss
is reflected in the consolidated statement of operations.
Expenditures for maintenance and repairs are charged against
earnings and expenditures for betterments and major renewals
are capitalized.
The Company evaluates the recoverability of asset carrying
values using estimates of future cash flows over remaining
asset lives. When impairment is dictated, any impairment loss
is measured by the excess of carrying values over full values.
F. Long-Lived Assets
Intangibles, contracts and other deferred charges are included
in other assets at cost less amortization provided on a
straight-line basis over periods ranging from 4 to 40 years.
Approximately 90% of total other assets are intangibles with
amortization periods of 20 to 40 years. The Company assesses
the recoverability of intangible assets by determining whether
the amortization of the asset balance over its remaining life
can be recovered through undiscounted future operating cash
flows. The amount of impairment, if any, would be measured
based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds.
EVANS, INC. AND SUBSIDIARIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. Significant Accounting Policies, continued
G. Advertising and Preopening Costs
Advertising costs and costs incurred in connection with the
opening of new locations are expensed as incurred. Total
advertising expense for the fiscal years ended March 1, 1997,
March 2, 1996 and February 25, 1995 was $7,737,000, $8,721,000
and $8,510,000 respectively.
H. Fiscal Year
The Company's fiscal year ends on the Saturday nearest the end
of February. Fiscal 1997 and 1995 ended March 1, 1997 and
February 25, 1995, respectively, and were comprised of 52 weeks
each. Fiscal 1996 ended March 2, 1996 and was comprised of 53
weeks.
I. Industry Segment Information
The Company's operations are in a single industry, retailing
furs, apparel and related items and services through the
operation of stores and leased departments. All operations are
within the United States and no one customer accounts for more
than 10% of revenues.
Inherent in the accompanying financial statements are certain
risks and uncertainties. These risks and uncertainties include,
but are not limited to the impact of competition and available
sources of supply.
J. Income Taxes
Taxes on income are accounted for under the liability method.
Deferred income taxes are recognized for the tax consequences
in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory tax rates
applicable to the period in which the differences are expected
to affect taxable earnings. Valuation allowances are
established when necessary to reduce deferred tax assets due to
the uncertainty of their ultimate realization. Income tax
expense is the tax payable for the period and the change during
the period in deferred tax assets and liabilities.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
K. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
2. Cash and Cash Equivalents Concentration
A significant portion of the Company's cash and cash equivalents are
maintained with one financial institution. The assets of this
financial institution are fully insured with the federal government.
3. Debt Obligations
At March 1, 1997 and March 2, 1996, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Note payable, floating prime rate
plus 1% (Maximum rate of 11%).
$91,000 principal amount due July,
1995; subsequent principal due in
semi-annual amounts of
$181,000 beginning January, 1996,
through January, 1999;
$91,000 due July, 1999. $ 816,000 $1,178,000
Note payable, floating prime
rate plus 2%. Principal due in
monthly installments of $27,500
beginning July, 1995 through April, 1998;
$715,000 due May, 1998. 1,100,000 1,403,000
Note payable, floating prime rate
plus 2%. Principal due November, 1996 -0- 350,000
--------- ---------
1,916,000 2,931,000
Less amounts due in one year 692,000 1,043,000
--------- ---------
$1,224,000 $1,888,000
========= =========
</TABLE>
At March 1, the Company had an available line of credit of $21,500,000
($13,370,000 of which was used in support of letters of credit,
bankers acceptances, direct borrowings and other reserves).
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Debt Obligations, continued
On June 16, 1997, the Company finalized an agreement with a new
lender to refinance the existing senior secured debt and provide for
the Company's working capital needs. The agreement provides for a
three year $27,000,000 credit facility which includes a term loan of
$2,000,000. The agreement provides for interest at 0.25% over the
base rate (prime) for direct borrowings under the revolving facility
and the term loan. Prime was 8.25% at March 1, 1997. The agreement
contains provisions which, among other things, require the maintenance
of certain financial covenants, the most restrictive of which is the
maintenance of a certain level of earnings before interest, taxes,
depreciation and amortization (EBITDA). The agreement prohibits the
payment of cash dividends and requires a commitment fee of
three-tenths of one percent per annum on the unused portion of the
revolving loan. Also, all assets, rights, interest and properties of
the Company are pledged as collateral for the revolving and term loan
obligations.
As of March 2, 1996, the Company was required to adopt new guidance
issued by the Financial Accounting Standards Board Emerging Issues
Task Force in Abstract 95-22. This Abstract requires classification
of the outstanding borrowings under the Company's current Credit
Agreement as a current liability. Accordingly, borrowings under the
Credit Agreement are included in current liabilities in the balance
sheets as of March 1, 1997 and March 2, 1996. The Company believes
that the stated amount of their debt obligations approximates fair
value.
On June 19, 1997, the Company entered into a contract for the sale
of its 36 S. State building in Chicago, Illinois. The proceeds
generated from the sale will be used first to pay down the unamortized
senior secured long-term payable obligation and then the secured
revolving loan obligation.
During fiscal 1997, the Company used the proceeds from its sale of
the Fort Worth real estate to pay down the $350,000 long-term
payable obligation which it collateralized.
Scheduled payments on long term debt, adjusting for the refinancing
and the new term loan, for the fiscal years 1998, 1999, 2000 and 2001
are $591,000, $648,000, $377,000 and $1,309,000, respectively.
The weighted average interest rate on short-term borrowings was
10.41%, 11.24% and 9.69% for fiscal years 1997, 1996 and 1995,
respectively.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Common Stock
During fiscal 1991, the Company granted options for 295,000 shares
of the Company's common stock to five officers at a price of $1.65 per
share being 100% of the average market value for the ten trading days
preceding the date of grant. Options granted on 20,000 and 50,000
shares expired during fiscal 1995 and fiscal 1992, respectively.
During fiscal 1996, the remaining 225,000 options were canceled and
reissued at a price of $1.50 per share being 100% of the market price
at the date of reissue.
During fiscal 1996, the Company granted key employees and members of
the Board of Directors options for 166,000 and 10,000 shares at
prices of $1.50 and $1.375, respectively, the prices being 100% of
market value at the dates of grant.
During fiscal 1997, the Company granted additional key employees and
a new member of the Board of Directors options for 36,500 and 10,000
shares at prices of $2.25 and $2.00, respectively, the prices being
100% of market value at the dates of grant. Also, options granted on
7,000 shares expired during fiscal 1997.
As of March 1, 1997, 440,500 options were exercisable and 59,500
were available for grant under the Company's stock option plan.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", which establishes a fair
value based method of accounting for employee stock-based
compensation. Under this method, compensation cost is measured at the
grant date, based on the market price of the stock at that date, and
is recognized as expense over the life of the option. SFAS 123
encourages companies to adopt a fair value based method of accounting
for such plans but continues to allow the use of the intrinsic value
method prescribed by Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees". As permitted under SFAS
123, the Company has elected to continue accounting for stock-based
compensation in accordance with APB No. 25. The differences between
the recognition and measurement provisions of FAS 123 and APB 25 are
immaterial to the Company's financial condition and results of
operations.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Service Charges
Service charges on customer credit accounts are netted against selling
and general expenses. Service charges amounted to $1,811,000,
$2,142,000 and $2,268,000 in the years ended March 1, 1997, March 2,
1996 and February 25, 1995, respectively.
6. Income Taxes
The components of the net deferred tax asset as of March 1, 1997 and
March 2, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <S> <S>
Deferred tax assets:
Net operating loss $10,721,000 $9,115,000
Sales taxes 319,000 380,000
Vacations 263,000 257,000
Store Closings -0- 90,000
Other 1,313,000 976,000
Valuation allowance (11,546,000) (9,660,000)
---------- ---------
Total deferred tax assets 1,070,000 1,158,000
Deferred tax liabilities:
Property and equipment (909,000) (1,001,000)
Accounts receivable (161,000) (157,000)
---------- ---------
Total deferred tax liabilities (1,070,000) (1,158,000)
---------- ---------
Net deferred tax balance $ -0- $ -0-
========== =========
</TABLE>
The Company has recorded a valuation allowance with respect to the
future tax benefits of the net operating loss reflected in deferred
income taxes as a result of the uncertainty of their ultimate
realization.
The Company has net operating loss carryforwards of approximately
$25,526,000 are available to offset future taxable income. These
carryforwards expire in the years 2005 through 2012.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Income Taxes, continued
The provision for income taxes is comprised of:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ---------
<S> <C> <C> <C>
Current
Federal $ 33,000
State $83,000 $57,000 16,000
Deferred
Federal 1,300,000
State
------- ------- ---------
Total $83,000 $57,000 $1,349,000
======= ======= =========
</TABLE>
The income tax provision differed from a provision computed at the
U.S. statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal tax rate (34.0)% 34.0% (34.0)%
Losses with no current tax
benefit 33.8
Increase (decrease) in
valuation allowance 33.5 (25.1) 12.1
State taxes on income, net
of federal tax benefit 1.2 12.9 0.1
Other 1.1 (2.2) 0.6
------ ------ ------
1.8% 19.6% 12.6%
====== ====== ======
7. Profit-Sharing Plan
The Company maintains a profit-sharing plan covering substantially
all employees. The Company funds all amounts as accrued which
totaled $38,000, $27,000 and $44,000 for the years ended
March 1, 1997, March 2, 1996 and February 25, 1995, respectively.
8. Leases
The Company operates primarily in leased facilities under long-term
leases. Noncancelable lease terms generally range from 2 to 12 years.
The principal leases are for sales facilities with options to renew
for additional periods and provide for minimum annual rentals plus
additional rentals based on a percentage of sales, and payment of
taxes, insurance and maintenance costs.
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Leases, continued.
Future minimum lease payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one
year are as follows:
1998 $ 2,413,000
1999 2,425,000
2000 2,188,000
2001 2,026,000
2002 1,794,000
Total thereafter 4,769,000
----------
Total minimum payments required $15,615,000
==========
The following schedule shows the composition of total rental
expenses for all operating leases:
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Minimum rentals $2,374,000 $2,578,000 $2,714,000
Contingent rentals 6,053,000 7,010,000 4,567,000
--------- --------- ---------
$8,427,000 $9,588,000 $7,281,000
========= ========= =========
9. Earnings (loss) per Share
Net earnings (loss) per share is computed on the basis of the
weighted average number of common shares outstanding and common share
equivalents resulting from the assumed exercise of common stock
options. Common share equivalents, representing 440,500 shares, were
not included in the computation of earnings per share for fiscal 1997
because the period resulted in a net loss and the effect would be
antidilutive. Common share equivalents, representing 401,000 shares,
were not included in the computation of earnings per share for fiscal
1996 because the market price of the common stock obtainable was not
in excess of the exercise price for substantially all of the fourth
quarter.
10. Restructuring
During the fourth quarter of fiscal 1995, the Company recorded a
pre-tax restructuring charge of $3,176,000. Approximately 40% of the
charge was related to costs associated with the closing of several
Company-owned retail locations, the closing of the Company's fur
inspection office in New York and the reduction of staff in various
corporate departments. Approximately 39% of the charge was related to
costs associated with the migration of the Company's data processing
and information systems structure to a lower cost alternative.
Approximately 8% of the charge was related to employee termination
benefits. The remaining
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Restructuring, continued
charges were due primarily to the refinancing of the Company's
revolving credit facility and senior secured long-term note payable
obligations as well as other administrative costs. During fiscal
1996, the Company reversed approximately 5% of the previously recorded
restructuring charge associated with store closings. Approximately 7%
of the original restructuring charge recorded remained outstanding at
the end of fiscal 1996 and was fully utilized by the end of the first
quarter of fiscal 1997.
11. Acquisition
On January 13, 1995 the Company finalized its agreement to acquire
the assets and assume certain liabilities of Gilson Incorporated, a
retailer of fur apparel which operated leased departments in four
major department store chains. The total purchase price was
$3,500,000 which included $300,000 related to a covenant not to
compete agreement, and warrants to purchase 100,000 shares of Evans
common stock, $.20 par value per share, with an exercise price of
$2.50 per share and an expiry on the warrants of December 31, 1999.
A down payment of $1,750,000 was made on January 17, 1995 and a
payment of $300,000 related to the covenant not to compete was made on
July 15, 1995. The remaining $1,450,000 is due as follows; $91,000
due July, 1995, installments of$181,000 commencing January, 1996, with
subsequent payments every July and January through January, 1999 and
$91,000 due July, 1999.
The acquisition, which was effective as of December 31, 1994, was
accounted for by the purchase method of accounting and, accordingly,
the net assets and results of operations were included in the
Company's consolidated financial statements commencing on January 1,
1995. The total acquisition cost exceeded the fair market value of
the net assets acquired by $2,157,000 which was recorded as goodwill
and will be amortized over a twenty year period on a straight line
basis.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Acquisition, continued.
The following table summarized the unaudited consolidated pro forma
results of operations, assuming the acquisition had occurred at the
beginning of the following period:
1995
(Dollars in Thousands, except per share amounts)
Sales of products and services $101,825
Net loss (11,263)
Primary loss per common share (2.29)
12. Subsequent Event
On June 19, 1997, the Company entered into a contract for the sale
and leaseback of its flagship store and corporate office headquarters
building located at 36 S. State Street in Chicago, Illinois with a
purchase price of $5,000,000. The transaction is expected to close on
or before August 2, 1997. As part of the agreement, the Company will
execute 15 year and 10 year lease agreements covering 61,775 square
feet for the existing retail premises and 36,020 square feet for the
corporate operation space, respectively. The leases provide for a
rental rate of $12.50 per square foot gross with an escalation of 2.5%
per annum. The agreement also requires a $500,000 deposit to secure
the lease obligations. The net proceeds from the transaction will be
used first to retire the senior secured long-term payable obligation
and then to pay down the secured revolving credit facility obligation.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company will file with the Securities and Exchange Commission a
definitive Proxy Statement no later than 120 days after the close of
its fiscal year ended March 1, 1997 (the "Proxy Statement"). The
information required by this Item and not given in Item 4A, Executive
Officers of the Registrant, is incorporated by reference from the
Proxy Statement.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Item 11. Executive Compensation
The information required by this Item is incorporated by reference
from the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is incorporated by reference
from the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference
from the Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. (1) Financial Statements Pages
Included in Part II of this report:
Report of Independent Accountants 15
Financial Statements:
Consolidated Balance Sheets, March 1, 1997
and March 2, 1996 16
Consolidated Statements of Operations for the years
ended March 1, 1997, March 2, 1996 and February
25, 1995 17
Consolidated Statements of Changes in
Shareholders' Equity for the years ended March 1,
1997, March 2, 1996 and February 25, 1995 18
Consolidated Statements of Cash Flows for the years
ended March 1, 1997, March 2, 1996 and February
25, 1995 19
Notes of Consolidated Financial Statements 20 - 30
a. (2) Financial Statement Schedules
Included in Part IV of this report:
Report of Independent Accountants 42
Schedules:
II. Valuation and Qualifying Accounts and Reserves
for the years ended March 1, 1997, March 2, 1996 43
and February 25, 1995.
Notes: Schedules other than those listed are omitted for the reason
that they are inapplicable, are not required, or equivalent
information has been included elsewhere herein.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits
3.1 The Certificate of Incorporation of the Company is incorporated herein
by reference to Exhibit 3 (a) to Form 2-1 under Registration No.
2-21433 and the Certificate of Amendment of Certificate of
Incorporation effective July 15, 1968 is incorporated herein by
reference to Exhibit 3(c) to Form S-1 under Registration No. 2-29193
and all amendments thereto.
3.2 Bylaws as presently in effect are herein incorporated by reference to
the Form 10-K filed for the fiscal year ending February 28, 1981 (File
No. 0-1500).
4.1 Loan agreement dated August 16, 1978, as amended, between Registrant
and The Prudential Insurance Company of American relating to 10.125%
promissory note due August 15, 1993 as modified by Credit Agreement
dated August 30, 1984 between Registrant and Prudential Interfunding
Corporation relating to a revolving loan agreement not exceeding
$21,000,000 terminating August 30, 1988 is herein incorporated by
reference to the Form 10-Q filed for the quarter ended September 1,
1984 (File No. 0-1500).
4.2 Loan agreement dated October 29, 1984 modifying credit agreement dated
August 30, 1984 with Prudential Interfunding Corporation, whereby
Registrant reduced its revolving loan commitment from $21,000,000 to
$16,000,000 and converted $4,200,000 into a fixed rate term loan at
13.725% due October 1994, is herein incorporated by reference to the
10-Q filed for the quarter ended December 1, 1984 (File No. 0-1500).
4.3 Loan agreement dated October 15, 1985 effective as of September 30,
1985 with Prudential Interfunding Corp. whereby Prudential
Interfunding Corp. will make available to Registrant up to and
including September 30, 1989 sums which shall not exceed $21,000,000
at interest rates equal to 1.875% per annum plus the rate charged to
Prudential Interfunding Corp. by an affiliate on 30-day dealer-placed
promissory notes is hereby incorporated by reference to the Form 10-Q
filed for the quarter ended November 30, 1985.
4.4 Loan agreement (Promissory Note) dated August 6, 1986 with Prudential
Insurance Company of America (Prudential) whereby Prudential will make
available to Registrant $17,500,000 with interest at a rate of 9.375%
on the unpaid balance. This agreement which replaces Registrant's
agreement with Prudential dated October 15, 1985 is herein
incorporated by reference to the Exhibit to the Form 10-Q filed for
the quarter ended August 30, 1986.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits, continued
4.5 Amendment dated July 6, 1990 which amends the Loan Agreements with
Prudential Insurance Company of America dated August 16, 1978 and with
Prudential Interfunding Corporation dated August 30, 1984 and August
6, 1986.
4.6 Amended and restated secured credit agreement dated August 9, 1990
between registrant and American National Bank and Trust Company of
Chicago, individually and as agent is herein incorporated by reference
to the Exhibit to the Form 10-Q filed for the quarter ended September
1, 1990 and the amendment thereto dated December 7, 1990 is
incorporated by reference to the Exhibit to Form 10-Q file for the
quarter ended December 1, 1990. In addition, letters of notification
pursuant to section 7.3(c) of the amended and restated secured credit
agreement are herein incorporated by reference to the exhibit to the
Form 10-Q filed for the quarter ended December 1, 1990.
4.7 Amendment dated August 9, 1990 which amends the loan agreements with
Prudential Insurance Company of American dated August 16, 1978 and
with Prudential Interfunding Corporation dated August 30, 1984 and
August 6, 1986 is herein incorporated by reference to the Exhibit to
the Form 10-Q filed for quarter ended September 1, 1990.
4.8 Amendment dated June 20, 1991 which amends the amended and restated
secured credit agreement dated August 9, 1990 between registrant and
American National Bank and Trust Company of Chicago, individually and
as agent and the amendment thereto dated December 7, 1990.
4.9 Amendment dated June 20, 1991 which amends the loan agreements with
Prudential Insurance Company of America dated August 16, 1978 and with
Prudential Interfunding Corporation dated August 30, 1984 and August
6, 1986 and the amendment thereto dated August 9, 1990.
4.10 Amended and Restated Revolving Note dated June 20, 1991 between
registrant and American National Bank, individually and as agent.
4.11 Amendment dated February 7, 1992 which amends the amended and restated
secured credit agreement dated August 9, 1990 between registrant and
American National Bank and Trust Company of Chicago, individually and
as agent and the amendments thereto dated December 7, 1990 and June
20, 1991.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits, continued
4.12 Amendment dated February 7, 1992 which amends the loan agreements with
Prudential Insurance Company of America dated August 16, 1978 and with
Prudential Interfunding Corporation dated August 30, 1984 and August
6, 1986 and the amendments thereto dated August 9, 1990 and June 20,
1991.
4.13 Second Amended and Restated Revolving Noted dated February 7, 1992
between registrant and American National Bank, individually and as
agent.
4.14 Amendment dated May 29, 1992, which amends the amended and restated
secured credit agreement dated August 9, 1990 between registrant and
American National Bank and Trust Company of Chicago, individually and
as agent and the amendments thereto dated December 7, 1990, June 20,
1991 and February 7, 1992.
4.15 Amendment dated May 29, 1992 which amends the loan agreements with
Prudential Insurance Company of America dated August 16, 1978 and with
Prudential Interfunding Corporation dated August 30, 1984 and August
6, 1986 and the amendments thereto dated August 9, 1990, June 20, 1991
and February 7, 1992.
4.16 Second Amended and restated secured credit agreement dated May 28,
1993, which amends and restates the amended and restated secured
credit agreement dated August 9, 1990 between registrant and American
National Bank and Trust Company of Chicago, individually and as agent
and the amendments thereto dated December 7, 1990, June 20, 1991 and
February 7, 1992 and May 29, 1992.
4.17 Amendment dated May 28, 1993, which amends the loan agreements with
Prudential Insurance Company of America dated August 16, 1978 and with
Prudential Interfunding Corporation dated August 30, 1984 and August
6, 1986 and the amendments thereto dated August 9, 1990, June 20, 1991
and February 7, 1992 and May 29, 1992.
4.18 Amendment dated May 10, 1994, which amends the second amended and
restated secured credit agreement dated May 28, 1993 between
registrant and American National Bank and Trust Company of Chicago,
individually and as agent.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits, continued
4.19 Amendment dated May 10, 1994, which amends the loan agreement with
Prudential Interfunding Corporation dated August 6, 1986 and the
amendments thereto dated August 9, 1990, June 20, 1991, February 7,
1992, May 29, 1992 and May 28, 1993.
4.20 Amendment dated January 13, 1995, which amends the second amended and
restated secured credit agreement dated May 28, 1993 between
registrant and American National Bank and Trust Company of Chicago,
individually and as agent, and the amendment thereto dated May 10,
1994.
4.21 Amendment dated January 13, 1995, which amends the loan agreement with
Prudential Interfunding Corporation dated August 6, 1986 and the
amendments thereto dated August 9, 1990, June 20, 1991, February 7,
1992, May 28, 1993 and May 10, 1994.
4.22 Amendment dated February 17, 1995 which amends the second amended and
restated secured credit agreement dated May 28, 1993 between
registrant and American National Bank and Trust Company of Chicago,
individually and as agent and the amendments thereto dated May 10,
1994 and January 13, 1995.
4.23 Amendment dated February 17, 1995 which amends the loan agreements
with Prudential Interfunding Corporation dated August 9, 1990, June
20, 1991, February 7, 1992, May 28, 1993, May 10, 1994 and January 13,
1995.
4.24 Amendment dated March 31, 1995 which amends the second amended and
restated secured credit agreement dated May 28, 1993 between
registrant and American National Bank and Trust Company of Chicago,
individually and as agent and the amendments thereto dated May 10,
1994, January 13, 1995, February 17, 1995 and March 3, 1995.
4.25 Amendment dated March 31, 1995 which amends the loan agreements with
Prudential Interfunding Corporation dated August 6, 1986 and the
amendments thereto dated August 9, 1990, June 20, 1991, February 7,
1992, May 28, 1993, May 10, 1994, January 13, 1995 and February 17,
1995.
4.26 Amendment dated March 3, 1995 which amends the second amended and
restated secured credit agreement dated May 28, 1993 between
registrant and American National Bank and Trust Company of Chicago,
individually and as agent and the amendments thereto dated May 10,
1994, January 13, 1995 and February 17, 1995.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits, continued
4.27 Letter of termination dated May 31, 1995, which terminates the second
amended and restated secured credit agreement dated May 28, 1993
between registrant and American National Bank and Trust Company of
Chicago, individually and as agent and the amendments thereto dated
May 10, 1994, January 13, 1995, February 17, 1995 and March 3, 1995
and March 31, 1995.
4.28 Letter of termination dated May 31, 1995 which terminates the loan
agreements with Prudential Interfunding Corporation dated August 6,
1986 and the amendments thereto dated August 9, 1990, June 20, 1991,
February 7, 1992, May 28, 1993, May 10, 1994, January 13, 1995,
February 17, 1995 and March 31, 1995.
4.29 Loan and Security Agreement dated May 31, 1995 between registrant and
Transamerica Business Credit Corporation.
4.30 Amendment dated October 3, 1995 which amends the Loan and Security
Agreement dated May 31, 1995 with Transamerica Business Credit
Corporation.
4.40 Amendment dated November 20, 1995 which amends the Loan and Security
Agreement dated May 31, 995 with Transamerica Business Credit
Corporation and the amendment thereto dated October 3, 1995.
4.50 Amendment dated January 5, 1996 which amends the Loan and Security
Agreement dated May 31, 1995 with Transamerica Business Credit
Corporation and the amendments thereto dated October 3, 1995 and
November 20, 1995.
4.51 Amendment dated May 30, 1996 which amends the Loan and Security
Agreement dated May 31, 1995 with Transamerica Business Credit
Corporation and the amendments thereto dated October 3, 1995, November
20, 1995 and January 5, 1996.
4.52 Amendment dated July 5, 1996 which amends the Loan and Security
Agreement dated May 31, 1995 with Transamerica Business Credit
Corporation and the amendments thereto dated October 3, 1995, November
20, 1995, January 5, 1996 and May 30, 1996.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits, continued
4.53 Amendment dated October 11, 1996 which amends the Loan and
Security Agreement dated May 31, 1995 with Transamerica Business
Credit Corporation and the amendments thereto dated October 3, 1995,
November 20, 1995, January 5, 1996, May 30, 1996 and July 5, 1996.
4.54 Amendment dated November 25, 1996 which amends the Loan and Security
Agreement dated May 31, 1995 with Transamerica Business Credit
Corporation and the amendments thereto dated October 3, 1995, November
20, 1995, January 5, 1996, May 30, 1996, July 5, 1996 and October 11,
1996.
4.55 Amendment dated January 9, 1997 which amends the Loan and
Security Agreement dated May 31, 1995 with Transamerica Business
Credit Corporation and the amendments thereto dated October 3, 1995,
November 20, 1996, January 5, 1996, May 30, 1996, July 5, 1996,
October 11, 1996 and November 25, 1996.
4.56 Amendment dated April 17, 1997 which amends the Loan and
Security Agreement dated May 31, 1995 with Transamerica Business
Credit Corporation and the amendments thereto dated October 3, 1995,
November 20, 1995, January 5, 1996, May 30, 1996, July 5, 1996,
October 11, 1996, November 25, 1996 and January 9, 1997.
4.57 Letter of termination dated June 17, 1997, which terminates the
Loan and Security Agreement dated May 31, 1995, as amended, between
registrant and Transamerica Business Credit Corporation.
4.58 Loan and Security Agreement dated June 16, 1997 between registrant and
Jackson National Life Insurance Company, a Michigan Insurance Company
with PPM Finance, Inc. as Attorney-in fact.
10.1 1971 Stock Option Plan of the Company is incorporated herein by
reference to Appendix A of the Company's definitive proxy statement
for its annual meeting held July 11, 1978 (File No. 0-1500).
10.2 Deferred Compensation Plan dated July 8, 1975 is incorporated
herein by reference to Exhibit 4 to the Form 10-K filed for the fiscal
year ended February 28, 1976 and the amendment thereto dated July 14,
1977 is incorporated herein by reference to the Exhibit to the Form
10-K filed for the fiscal year ended February 25, 1978 (File No.
0-1500).
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits, continued
10.4 Key Employees' Supplemental Medical Expense Benefit Plan is
herein incorporated by reference to the Form 10-K for the fiscal year
ended February 28, 1981 (File No. 0-1500).
10.5 Employment Agreement dated as of November 17, 1982 with David
B. Meltzer is incorporated by reference to the Form 10-K for the
fiscal year ended February 28, 1981 (File No. 0-1500).
10.6 Stock purchase agreement dated December 17, 1984 is
incorporated by reference to the exhibit to the Form S-1 Registration
statement dated June 27, 1986.
10.7 Letter agreement dated January 4, 1982 and May 18, 1983 between the
Company and each of two officer is incorporated by reference to the
exhibit to the Form S-1 Registration statement dated June 27, 1986.
10.8 Credit and Security Agreement with American National Bank and Trust
Company of Chicago dated July 6, 1990.
10.9 Inter-Creditor Agreement dated July 6, 1990, between American National
Bank and Trust Company of Chicago and Prudential Insurance Company of
America.
10.10 Commitment Letter dated June 29, 1990 for the secured revolving credit
agreement with American National Bank and Trust Co. of Chicago.
10.11 Employment agreement dated July 5, 1990 with Leonard Levey is
incorporated by reference to the Exhibit to the form 10-Q filed for
the quarter ended June 2, 1990 and the Amendment thereto dated August
21, 1990 is incorporated by reference to the Exhibit to the form 10-Q
filed for the quarter ended September 1, 1990.
10.12 Commitment letter dated January 20, 1992 for certain modifications to
the amended and restated secured credit agreement dated August 9, 1990
and as amended June 20, 1991, between registrant, American National
Bank and Trust Company of Chicago, individually and as agent, the
Prudential Insurance Company of America, and the Prudential
Interfunding Corporation.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
continued
a. (3) Exhibits, continued
10.13 Purchase agreement dated as of January 13, 1995 by and between
registrant and Gilson, Incorporated, a Delaware Corporation.
10.14 Covenant not to compete agreement dated as of January 13, 1995 by and
between registrant, Karl B. Gittelman and C. Richard Gittelman.
10.15 Warrant to purchase shares of registrant's common stock.
10.16 Real Estate Purchase Agreement dated as of June 19, 1997.
11.0 Computation of Earnings Per Share.
22.1 A list of the Registrant's subsidiaries is incorporated by reference
to the Form 10-K filed for the fiscal year ended March 1, 1980 (File
No. 0-1500).
b. Reports on Form 8-K
Items other than those listed are omitted because they are not required.
<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 of the undersigned, thereunto duly authorized.
EVANS, INC.
By: William E. Koziel
--------------------
William E. Koziel
Vice President and
Chief Financial Officer
Date: June 19, 1997
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 Title Date
----------- ------- ------
David B. Meltzer Chairman of the Board June 19, 1997
- ----------------------
David B. Meltzer
Patrick J. Regan President and Chief June 19, 1997
- ---------------------- Executive Officer
Patrick J. Regan
Robert K. Meltzer Executive Vice President June 19, 1997
- ---------------------- General Merchandise Manager
Robert K. Meltzer
Samuel B. Garber Vice President, June 19, 1997
- ---------------------- General Counsel and Secretary
Samuel B. Garber
Ernest R. Wish Director June 19, 1997
- ----------------------
Ernest R. Wish
Harold Sussman Director June 19, 1997
- ----------------------
Harold Sussman
Dennis Bookshester Director June 19, 1997
- ----------------------
Dennis Bookshester
Gwendolyn L. Stanback Director June 19, 1997
- ----------------------
Gwendolyn L. Stanback
Edmond D. Cicala
- ---------------------- Director June 19, 1997
Edmond D. Cicala
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Evans, Inc.
Our report on the consolidated financial statements of
Evans, Inc. and Subsidiaries is included on page 15 of this
Form 10-K. In connection with our audit of such financial
statements, we have also audited the related financial
statement schedule listed in the index on page 32 of this
Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all
material respects, the information required to be included
therein.
COOPERS & LYBRAND L.L.P.
May 23, 1997
except as to the information presented in Notes 3 and 12,
for which the date is June 19, 1997
Chicago, Illinois
<PAGE>
</TABLE>
<TABLE>
EVANS, INC. AND SUBSIDIAIRES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended March 1, 1997, March 2, 1996, February 25, 1995
($ IN THOUSANDS)
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
--------------------
(1) (2)
Balance Charged Charged Balance
at to to at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deduction(a) Period
--------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Year ended
March 1, 1997
Allowance for doubtful
accounts $864 $621 $730 $755
Year ended
March 2, 1996
Allowance for doubtful
accounts $794 $600 $530 $864
Year ended
February 25, 1995
Allowance for doubtful
accounts $702 $609 $517 $794
<FN>
Note:
(a) Uncollectible accounts receivable and inventory charged off,
net of recoveries.
</FN>
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11
EVANS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Primary:
------------
Weighted average shares outstanding 4,918,301 4,918,301 4,918,301
Incremental shares for
exercise of stock options
---------- ---------- ----------
Adjusted number of common
shares outstanding 4,918,301 4,918,301 4,918,301
========== ========== ==========
Net (loss) earnings ($4,724,000) $234,000 ($12,064,000)
========== ========== ==========
Net (loss) earnings per share ($0.96) $0.05 ($2.45)
========== ========== ==========
Fully diluted:
------------------
Weighted average shares outstanding 4,918,301 4,918,301 4,918,301
Incremental shares for
exercise of stock options 31,543 113,917
---------- ---------- ----------
Adjusted number of common
shares outstanding 4,949,844 4,918,301 5,032,218
========== ========== ==========
Net (loss) earnings ($4,724,000) $234,000 ($12,064,000)
========== ========== ==========
Net (loss) earnings per share ($0.95) $0.05 ($2.40)
========== ========== ==========
</TABLE>
<PAGE>
EVANS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit Page Nos.
------- ---------
4.56 46 - 50
4.57 51 - 55
4.58 56 - 102
10.16 103 - 128
<PAGE>
AMENDMENT NO. 9 TO LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 9, dated as of April 17, 1997, between
TRANSAMERICA BUSINESS CREDIT CORPORATION ("Lender"), and EVANS,
INC. ("Borrower"), and Borrower's wholly-owned Subsidiaries,
KOSLOW'S, INC. ("Koslow") and EVANS-ROSENDORF OF MARYLAND, INC.
("Rosendorf") (Koslow and Rosendorf individually, a "Borrowing
Subsidiary", and collectively, "Borrowing Subsidiaries").
Lender and Borrower and Borrowing Subsidiaries are parties
to a Loan and Security Agreement dated as of May 31, 1995, as
amended by Amendment No. 1 to Loan and Security Agreement dated
as of October 3, 1995, by Amendment No. 2 to Loan and Security
Agreement dated as of November 20, 1995, by Amendment No. 3 to
Loan and Security Agreement dated as of January 5, 1996, by
Amendment No. 4 to Loan and Security Agreement dated as of May
30, 1996, by Amendment No. 5 to Loan and Security Agreement dated
as of July 5, 1996, by Amendment No. 6 to Loan and Security
Agreement dated as of October 11, 1996, by Amendment No. 7 to Loan
and Security Agreement dated as of November 25, 1996, and by
Amendment No. 8 to Loan and Security Agreement dated as of January
9, 1997 (the "Loan and Security Agreement"). Lender, Borrower and
Borrowing Subsidiaries desire to amend the Loan and Security
Agreement in certain respects and, accordingly, the parties
hereto agree as follows:
1. Definitions. Except as otherwise provided herein, the
terms defined in the Loan and Security Agreement are used herein
as defined therein.
2. Amendments. Subject to the satisfaction of the
conditions precedent set forth in Section 4 hereof, the Loan and
Security Agreement is amended, effective as of April 17, 1997, as
follows:
A. Section 1.1 is amended by adding the following
additional definitions:
Applicable Revolving Loan Margin: three and
one-half percent (3 1/2%) during the Over Formula
Advance Period, and one and one-half percent
(1 1/2%) during all other times.
Applicable Term Loan Margin: four percent
(4%) during the Over Formula Advance Period, and
two percent (2%) during all other times.
L/C - B/A Rate: three percent (3%) during the
Over Formula Advance Period, and two percent (2%)
during all other times.
<PAGE>
Over Formula Advance Period: the period
beginning on April 17, 1997 and ending on the
earlier of October 31, 1997 or the date on which
Borrower sells its leasehold estate in the State
Street Property.
B. Section 2.3 is amended and restated as follows:
2.3 Interest on Revolving Loan Liabilities. With respect
to the Revolving Loan Liabilities, Borrower and Borrowing
Subsidiaries shall pay to Lender interest in arrears on the first
day of each calendar month in an amount equal to the
quotient of (i) the sum of the products of the unpaid
principal amount of the Revolving Loan on each day during
the preceding calendar month, multiplied by a rate equal to
the Base Rate in effect on each such day plus the Applicable
Revolving Loan Margin, divided by (ii) three hundred sixty
(360); any change in the Base Rate resulting from a change
in the applicable corporate rate or the commercial paper
rate shall be effective as of the date of the relevant
change. In no contingency or event whatsoever shall the
interest rate charged with respect to the Revolving Loan
liabilities pursuant to the terms of this Agreement exceed
the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem
applicable hereto. If such a court determines that Lender
has received interest hereunder in excess of the highest
applicable rate, Lender shall promptly refund such excess
interest to Borrower and Borrowing Subsidiaries.
C. Section 2.4 is amended and restated as follows:
2.4 Interest on Term Loan Liabilities. With respect
to the Term Loan Liabilities, Borrower and Borrowing
Subsidiaries shall pay to Lender interest in arrears on the
first day of each calendar month in an amount equal to the
quotient of (i) the sum of the products of the unpaid
principal amount of the Term Loans on each day during the
preceding calendar month, multiplied by a rate equal to the
Base Rate in effect on each such day plus the Applicable
Term Loan Margin, divided by (ii) three hundred sixty (360);
any change in the Base Rate resulting from a change in the
applicable corporate rate or commercial paper rate shall be
effective as of the date of the relevant change. In no
contingency or event whatsoever shall the interest rate
charged with respect to the Term Loan Liabilities pursuant
to the terms of this Agreement exceed the highest rate
permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem
applicable hereto. If such a court determines that Lender
has received interest hereunder in excess of the highest
applicable rate, Lender shall promptly refund such excess
interest to Borrower and Borrowing Subsidiaries.
D. The definition of "Borrowing Base" in Section 3.1
is amended and restated as follows:
<PAGE>
The "Borrowing Base" shall mean, at any particular
time, an amount equal to the lesser of the Maximum
Revolving Loan, or the sum of the following:
(i) Seventy-five percent (75 %) (an "Advance
Rate") of Eligible Owned Store Sales
Accounts; plus
(ii) Eighty percent (80%) (an "Advance Rate")
of Eligible Licensed Department Sales
Accounts; plus
(iii) Fifty percent (50%) (an "Advance Rate")
of Eligible Owned Store Service Accounts
and Eligible Licensed Department Service
Accounts; plus
(iv) The lesser of (x) Twelve Million Dollars
($12,000,000) during the months of January,
February, March and April, and Thirteen
Million Dollars ($13,000,000) during the
months of May, June, July, August, September,
October, November and December, or (y)
the sum of the following:
(A) Thirty-five percent (35%) (an
"Advance Rate") of Eligible Apparel
Inventory; plus
(B) Fifty-five percent (55%) (an
"Advance Rate") of Eligible Fur Inventory.
E. Section 3.5(f) is amended and restated as follows:
(f) If Lender shall incur any L/C-B/A Obligations
pursuant hereto at the request or on behalf of Borrower
hereunder, Borrower agrees to pay to Lender, as compensation
to Lender for such L/C-B/A Obligations, (i) all fees and
charges paid by Lender on account of such L/C-B/A Obligation
to the issuer or like party, and (ii) commencing with the
month in which such L/C-B/A Obligation is incurred by Lender
and monthly thereafter for each month during which such L/C-
B/A Obligation shall remain outstanding, a fee in an amount
equal to the quotient of (x) an amount equal to (A) the sum
of the daily outstanding amount of such L/C-B/A Obligations
on each day during the previous month multiplied by (B) a
rate equal to the L/C-B/A Rate, divided by (y) three
hundred sixty (360). Fees payable in respect of L/C-B/A
Obligations shall be paid to Lender, in arrears, on the
first day of each month.
<PAGE>
F. A new Section 3.1A is added following Section
3.1, as follows:
3.1A Over Formula Advances: In the event
that at anytime during the Over Formula Advance
Period there is no Collateral Availability, upon
the request of Borrower therefor, Lender, at its
option, may make an over formula advance under the
Revolving Loan to Borrower or a Borrowing
Subsidiary (an "Over Formula Advance"). Any such
Over Formula Advance shall not exceed the positive
difference, if any, between (x) the lesser of
fifteen percent (15 %) of Eligible Inventory, (ii)
Two Million Dollars ($2,000,000), or (iii) the
Unused Revolving Loan Facility, and (y) the
aggregate outstanding Over Formula Advances. Any
such Over Formula Advance shall be deemed to be a
Revolving Loan Advance for all other purposes
hereunder.
3. Appraisals: Physical Inventory. Borrower and each
Borrowing Subsidiary covenants that it shall deliver to Lender,
on or before May 15, 1997, the following: (i) an appraisal of the
Inventory of Borrower and Borrowing Subsidiaries prepared by BGA
Consulting; (ii) an appraisal of the charge card portfolio of
Borrower and Borrowing Subsidiaries prepared by H.E. Ring &
Associates, Inc.; and (iii) a written report on the physical
inventory conducted by Borrower and Borrowing Subsidiaries during
March 1997.
4. Conditions Precedent. This Amendment No. 9 shall be
effective upon the satisfaction of the following conditions
precedent:
4.1 Execution and Delivery of Amendment No. 9. This
Amendment No. 9 or counterparts thereof shall have been duly
executed and delivered to Lender, Borrower and Borrowing
Subsidiaries.
4.2 Amendment Fee. Borrower and Borrowing Subsidiaries
shall have paid to Lender solely as consideration for Lender
agreeing to enter into this Amendment No. 9 an amendment fee
in the amount of $40,000.
5. Representation and Warranty. Borrower and each
Borrowing Subsidiary represents and warrants to Lender that the
execution and delivery by Borrower and each Borrowing Subsidiary
of this Amendment No.9 are within Borrower's and each Borrowing
Subsidiary's corporate power, have been duly authorized by all
necessary or proper corporate action, are not in contravention of
any provision of Borrower's or either Borrowing Subsidiary's
Articles or Certificate of Incorporation or Bylaws, will not
violate any law or regulation, or any order or decree of any
court or governmental instrumentality, will not conflict with or
result in the breach or termination of, constitute a default
under, or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to
which Borrower or either Borrowing Subsidiary is a party or by
which Borrower or either Borrowing Subsidiary or any of its
property is bound and do not require the consent or approval of
any governmental body, agency, authority or any other person.
<PAGE>
6. Miscellaneous. Except as herein provided, the Loan and
Security Agreement shall remain unchanged and in full force and
effect. This Amendment No. 9 may be executed in any number of
separate counterparts, each of which shall, collectively and
separately, constitute one agreement. This Amendment No. 9 and the
obligations arising hereunder shall be governed by, and construed
and enforced in accordance with, the laws of the State of
Illinois applicable to contracts made and performed in such
state, without regard to the principles thereof regarding
conflict of laws, and any applicable laws of the United States of
America.
IN WITNESS WHEREOF, this Amendment No.9 has been duly
executed as of the day and year specified at the beginning
hereof.
TRANSAMERICA BUSINESS CREDIT EVANS, INC.
CORPORATION
By: Matthew N. McAlpine By: William E. Koziel
Name: Matthew N. McAlpine Name: William E. Koziel
Title: Vice-President Title: Vice-President and
Chief Financial Officer
KOSLOW'S, INC.
By: William E. Koziel
Name: William E. Koziel
Title: Vice-President and
Chief Financial Officer
EVANS - ROSENDORF OF
MARYLAND, INC.
By: William E. Koziel
Name: William E. Koziel
Title: Vice-President and
Chief Financial Officer
<PAGE>
June 16, 1997
Evans, Inc. Jackson National Life Insurance Company
Koslow's, Inc. and C/O PPM Finance, Inc.
Evans-Rosendorf of Maryland, Inc. 225 W. Wacker Drive
36 South State Street Suite 1200
Chicago, Illinois 60603 Chicago, Illinois 60606
Re: Loan and Security Agreement, dated as of May 31, 1995, between
Transamerica Business Credit Corporation ("Lender"), and Evans, Inc.
("Borrower") and Koslow's, Inc. ("Koslow") and Evans-Rosendorf of
Maryland, Inc. ("Rosendorf") (Koslow and Rosendorf collectively,
"Borrowing Subsidiaries"), as amended to date (the "Loan Agreement";
capitalized terms used but not defined herein have the meanings
ascribed to them in the Loan Agreement)
Ladies and Gentlemen:
Borrower has notified us that it intends to repay all of the
Liabilities under the Loan Agreement on June 17, 1997. Pursuant
to your request, we hereby notify you that the amounts necessary
to discharge the Liabilities on June 17, 1997, if paid on said
date by 1:00 p.m. (Chicago time), assuming that there are no additional
Revolving Loan Advances, that Lender does not incur any
additional L/C - B/A (Letters of Credit - Banker's Acceptances)
Obligations and that there are no payments on the Liabilities
prior to June 17, 1997, and assuming that the other terms and
conditions described below are satisfied, are as follows:
Revolving Loan - Principal $13,642,954.73
Revolving Loan - Interest 76,147.80
Term Loan A - Principal 990,000.00
Term Loan A - Interest 5,509.55
Fees:
L/C - B/A Obligations Fees 2,411.03
Unused Revolving Loan Fee 1,118.40
Reserves:
Legal And Other Fees 20,000.00
PAYOFF AMOUNT $14,738,141.51
<PAGE>
Evans, Inc., et al.
Jackson National Life Insurance Company
June 16, 1997
We caution, however, that there may be additional Revolving
Loan Advances, that we may incur additional L/C - B/A Obligations
and that there may be payments on the Liabilities prior to June
17, 1997; therefore, you should confirm with us on June 17, 1997,
the exact amount necessary to discharge all Liabilities on June
17, 1997, if paid on said date by 1:00 p.m. (Chicago time).
Payment of the Liabilities should be remitted by wire
transfer of immediately available funds to Lender's bank account
in accordance with the following instructions:
The First National Bank of Chicago
Chicago, Illinois
ABA No. 071-000-013
For credit to the account of
Transamerica Business Credit Corporation
Account No. 52-95416
Ref: Evans
In consideration of (a) the payment in full of the
Liabilities and (b) the agreements by Jackson National Life
Insurance Company and Bank of America National Trust and Savings
Association with respect to the L/C-B/A Obligations, as set forth
in the Assignment and Assumption Agreement ("Assignment and
Assumption") and the consent and release ("Release") attached
hereto as Exhibit A, we hereby (i) acknowledge and agree that
payment of the above Payoff Amount, as confirmed or revised by
us, and execution and delivery of the Assignment and Assumption
and the Release in the form attached hereto as Exhibit A, will
constitute payment and satisfaction of all of the Liabilities,
except pursuant to (A) the Indemnity, Release and Termination
Agreement by Borrower and (B) the Acknowledgment and Agreement by
Jackson National Life Insurance Company which are set forth
following the end of this letter, (ii) represent that we have no
other credit arrangements with, loans outstanding to, or
guarantees by Borrower or Borrowing Subsidiaries, (iii) agree
that immediately following such payment, together with the
delivery of each of the documents described above, we will
release all security interests and liens, if any, that Borrower
and Borrowing Subsidiaries may have granted to us, and (iv) agree
that upon such payment and delivery the Loan Agreement will be
terminated.
<PAGE>
Evans, Inc., et al.
Jackson National Life Insurance Company
June 16, 1997
Immediately following the payment of the Payoff Amount, as
confirmed or revised by us, together with the delivery of each of
the documents described above, we will deliver to you Uniform
Commercial Code termination statements and such other release
agreements, in form and substance reasonably satisfactory to you,
as you may reasonably request in connection with our release of
the security interests and liens granted pursuant to the Loan
Agreement.
Very truly yours,
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: Matthew N. McAlpine
Matthew N. McAlpine
Vice President
INDEMNITY, RELEASE AND TERMINATION AGREEMENT
FOR VALUE RECEIVED, each of the undersigned, Evans, Inc.,
Koslow's Inc., and Evans-Rosendorf of Maryland, Inc.
(individually and collectively "Borrower"), in consideration of
(i) the termination of that certain Loan and Security Agreement,
dated as of May 31, 1995, as amended to date (the "Loan
Agreement"), between Evans, Inc., Koslow's Inc., and Evans-
Rosendorf of Maryland, Inc. and Transamerica Business Credit
Corporation ("Lender"), (ii) the agreement of Lender, evidenced
above, to release all of its liens, security interests and
encumbrances in the assets of Borrower, and (iii) the sum of Ten
Dollars and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, do hereby
release and discharge Lender, its affiliates and their respective
successors, representatives and assigns, from any and all claims,
demands, accounts, actions, causes of action, proceedings and sum
of money that it had, has or may have or claim, against Lender,
any of its affiliates or any of their respective successors,
representatives and assigns by reason of any act, omission,
cause, claim, counterclaim, cross-claim, right, matter or thing
whatsoever, howsoever created, evidenced, arising or incurred,
whether known or unknown, up to and including the date of this
release, under, pursuant to or in connection with the Loan
Agreement, and each of the undersigned, jointly and severally,
further agree to indemnify, save and hold harmless, Lender (a)
from any losses arising from the failure on the part of Lender to
collect or retain the full amount of customers' or other checks
previously received by Lender or by any bank for the account of
Lender and credited to the account of Borrower
<PAGE>
Evans, Inc., et al.
Jackson National Life Insurance Company
June 16, 1997
in computing the balance of the Liabilities (as that term is
defined in the Loan Agreement) owing to Lender under the Loan
Agreement and (b) for any interest, fees, charges, reimbursement
for expenses or any other sums due to Lender under the Loan
Agreement which, for any reason other than the bad faith of
Lender, were not included in computing the balance of the
Liabilities owing to Lender under the Loan Agreement.
IN WITNESS WHEREOF, the undersigned has caused this
Indemnity, Release and Termination Agreement to be executed by
its duly authorized officer this 17th day of June, 1997.
EVANS, INC.
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
KOSLOW'S, INC.
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
EVANS-ROSENDORF OF MARYLAND, INC.
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
<PAGE>
Evans, Inc., et al.
Jackson National Life Insurance Company
June 16, 1997
ACKNOWLEDGMENT AND AGREEMENT
BY
JACKSON NATIONAL LIFE INSURANCE COMPANY
The undersigned, Jackson National Life Insurance Company,
hereby acknowledges the foregoing indemnity and release of Lender
by Evans, Inc., Koslow's Inc., and Evans-Rosendorf of Maryland,
Inc. (individually and collectively, "Borrower"), and in
consideration thereof, does hereby agree to reimburse Lender,
upon demand by Lender made at any time within forty-five (45)
days after the date hereof, (a) for any losses arising from the
failure on the part of Lender to collect or retain the full
amount of customers' or other checks previously received by
Lender or by any bank for the account of Lender and credited to
the account of Borrower in computing the balance of the
Liabilities owing the Lender under the Loan Agreement and (b) for
any Letters of Credit-Banker's Acceptances fees due to Lender
under the Loan Agreement which, for any reason other than the bad
faith of Lender, were not included in computing the balance of
the Liabilities owing to Lender under the Loan Agreement, and for
which, in either case, Lender does not receive prompt payment or
reimbursement from Borrower after written demand therefor.
IN WITNESS WHEREOF, the undersigned has caused this
Acknowledgment and Agreement to be executed by one of its duly
authorized agents this 17th day of June, 1997.
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM FINANCE, INC., ATTORNEY-IN-FACT
By: Jeffrey J. Podwicka
Name: Jeffrey J. Podwicka
Title: Vice President
<PAGE>
LOAN AND SECURITY AGREEMENT
Dated as of June 16, 1997
between
JACKSON NATIONAL LIFE INSURANCE COMPANY
Lender
and
EVANS, INC.
Borrower
KOSLOW'S, INC.
and
EVANS-ROSENDORF OF MARYLAND, INC.
Borrowing Subsidiaries
RE:
$27,000,000 CREDIT FACILITY
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
2. LOANS AND TERMS OF PAYMENT 11
2.1 Revolving Loans 11
2.2 Letters of Credit 12
2.3 Term Loan 12
2.4 Interest 12
2.5 Fees 13
2.6 Disbursement 14
3. GRANT OF SECURITY INTEREST TO LENDER 14
4. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY
INTERESTS THEREIN 14
5. POSSESSION OF COLLATERAL AND RELATED MATTERS 15
6. COLLECTIONS 15
7. SCHEDULES AND REPORTS 17
8. TERMINATION 18
9. WARRANTIES AND REPRESENTATIONS 18
10. COVENANTS AND CONTINUING AGREEMENTS 23
11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 28
12. CONDITIONS PRECEDENT 31
13. INDEMNIFICATION. 33
14. MISCELLANEOUS. 34
<PAGE>
LIST OF SCHEDULES
Schedule 9.1(b) Permitted Liens
Schedule 9.1(c) Material Contracts
Schedule 9.1(h) List of Evans, Inc. Store Locations
including executive offices and other
offices
Schedule 9.1(j) List of additional names under which
Evans, Inc. has conducted business during
past 5 years
Schedule 9.1(o)(1) Consolidated Financials statements of
Evans, Inc.
Schedule 9.1(o)(2) Legal Actions and Proceedings and
Indebtedness
Schedule 9.1(r) List of Intellectual Property Rights
Schedule 9.1(s) List of Leased Property
Schedule 9.1(v) Environmental
Schedule 10.2 Salary of Employees, Outstanding Company
Loans
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made
as of this 16th day of June, 1997, by and among JACKSON NATIONAL
LIFE INSURANCE COMPANY, a Michigan insurance company ("Lender")
and EVANS, INC. ("Borrower"), a Delaware corporation, and
Borrower's wholly-owned subsidiaries, KOSLOW'S INC. ("Koslow"), a
Texas corporation and EVANS-ROSENDORF OF MARYLAND, INC.
("Rosendorf"), a Delaware corporation (Koslow and Rosendorf are
hereinafter referred to individually as a "Borrowing Subsidiary"
and collectively as "Borrowing Subsidiaries").
W I T N E S S E T H :
WHEREAS, from time to time Borrower and Borrowing
Subsidiaries may request Lender to make loans and advances to and
extend certain credit accommodations to Borrower and Borrowing
Subsidiaries, and the parties wish to provide for the terms and
conditions upon which such loans, advances and credit
accommodations shall be made;
NOW, THEREFORE, in consideration of any loans, advances
and credit accommodations (including any loans by renewal or
extension) hereafter made to Borrower and Borrowing Subsidiaries
by Lender, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by
Borrower and Borrowing Subsidiaries, the parties agree as
follows:
1. DEFINITIONS.
(a) General Definitions
"Account," "Account Debtor," "Chattel Paper,"
"Documents," "Equipment," "General Intangibles," "Goods,"
"Instruments," and "Inventory" shall have the respective meanings
assigned to such terms in the UCC.
"Advance" means any loan made to the Borrower or a
Borrowing Subsidiary by Lender pursuant to paragraph 2.1 and the
undrawn amount of any Letter of Credit.
"Affiliate" means any Person who owns at least 5% of
the outstanding capital stock of the Borrower or any Person
directly or indirectly controlling, controlled by or under common
control with the Borrower.
"Availability" means, at any time, the lesser of the
Revolving Loan Commitment or the Borrowing Base minus, in either
case, the aggregate amount of all outstanding Obligations other
than Term Loan Obligations.
"Availability Reserves" means, as of any date of
determination, such amounts as Lender may from time to time
establish and revise in good faith reducing the amount of
Advances which would otherwise be available to Borrower and
Borrowing Subsidiaries under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or
risks which, as determined by Lender in good faith, do or may
affect either (i) the Collateral or any other property which is
security for the obligations hereunder or its value, (ii) the
assets, business or prospects of Borrower or any Borrowing
Subsidiary, on a consolidated basis or (iii) the security
interests and other rights of Lender in the Collateral (including
the enforceability, perfection and priority thereof) or (b) to
reflect Lender's good faith belief that any collateral report or
financial information furnished by or on behalf of Borrower or
any Borrowing Subsidiary to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or
(c) in respect of any state of facts which Lender determines in
good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default.
"Bankruptcy Code" shall have the meaning specified in
<PAGE>
paragraph 10.1(i) hereof.
"Borrowing Base" shall have the meaning specified in
paragraph 2.1 hereof.
"Business Day" means any day other than a Saturday,
Sunday, or such other day as banks in Chicago, Illinois are
authorized or required to be closed for business.
"Capital Expenditures" means, with respect to any
period, the aggregate of all expenditures (whether paid in cash,
in kind or accrued as liabilities and including Capital Lease
obligations during such period that are required by GAAP to be
included or reflected in the property, plant or equipment or
similar fixed asset accounts (or in intangible accounts subject
to amortization) on a balance sheet.
"Capital Lease" means any lease of Property required to
be reflected as a liability on the Borrower's balance sheet.
"CERCLA" means the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from
time to time, 42 U.S.C. 9601 et seq.
"Charges" shall have the meaning specified in paragraph
9.1(g).
"Closing Date" shall mean the date upon which the
initial Loan is made.
"Collateral" means: (i) all property referred to in
paragraph 3, wherever located and whether now existing or
hereafter acquired, in which the Borrower or any Borrowing
Subsidiary now has or may hereafter acquire any interest; (ii)
any other property of the Borrower or a Borrowing Subsidiary of
any kind or nature coming into the Lender's possession, custody
or control; and (iii) all other property and interests in
property, real or personal, now owned or leased or hereafter
acquired or leased, now or hereafter pledged or assigned as
collateral security for payment of any of the Obligations.
"Commission" means the Securities and Exchange
Commission or any other federal agency then administering the
Securities Act of 1933, as amended, and other federal securities
laws.
"Consolidated Tangible Net Worth" means the amount,
computed in accordance with GAAP, equal to the excess of the
Borrower's Consolidated Total Assets plus Subordinated Debt over
its Consolidated Total Liabilities, less the amounts then being
presented on the applicable Financial Statement as: (i) the
excess of cost over net assets of purchased businesses; and (ii)
licenses, franchises, permits, patents, copyrights, trademarks,
tradenames and other like intangibles and organizational
expenses.
"Consolidated Total Assets" means the amount, computed
in accordance with GAAP, of the total assets of the Borrower and
its consolidated Subsidiaries, including the Borrowing
Subsidiaries, excluding: (i) all Intercompany Accounts; (ii) all
transactions with Affiliates not permitted by paragraph 10.2(e);
and (iii) minority interests in Subsidiaries.
"Consolidated Total Liabilities" means the amount,
computed in accordance with GAAP, of the total liabilities
(including all Indebtedness) of the Borrower and its consolidated
Subsidiaries, including the Borrowing Subsidiaries, and all
reserves and deferred credits of any thereof.
"Default" shall mean any event, condition or default
which with the giving of notice, the lapse of time or both would
be an Event of Default.
"Department Licenses" means those agreements, leases
and/or licenses pursuant to which Borrower operates the Licensed
Departments.
<PAGE>
"Dilution" shall mean, with respect to any period, the
percentage obtained by dividing: (a) the sum of non-cash credits
against Accounts of Borrower and each Borrowing Subsidiary for
such period, plus pending or probable, but not yet applied,
non-cash credits against Accounts of Borrower and each Borrowing
Subsidiary for such period, as determined by Lender, by (b) gross
invoiced sales of Borrower and its Borrowing Subsidiaries for
such period.
"EBITDA " shall mean, with respect to any period, net
income after taxes for such period (excluding: (i) any after-tax
gains or losses on the sale of assets other than in the ordinary
course of business; and (ii) other after-tax extraordinary gains
or losses) plus interest expense, income tax expense,
depreciation and amortization for such period, less gains and
losses attributable to any fixed asset sales made during such
period, plus or minus any other non-cash charges or gains which
have been subtracted or added in calculating net income after
taxes for such period.
"Eligible Account" means a bona fide outstanding
Account which arose in the ordinary course of business, less all
unearned finance charges, late fees, and other fees which are
unearned, as to which the Lender has a first priority perfected
Security Interest under the UCC and : (x) if for the sale of
services, as to which all applicable services have been duly
performed and acknowledged and accepted by the Account Debtor;
(y) if for a lease of merchandise, as to which all applicable
merchandise has been duly leased for the term covered thereby;
and (z) if for the sale of goods, as to which all goods have been
shipped or delivered to an Account Debtor against a receipt
therefor pursuant to a purchase order or otherwise on an absolute
sale basis and as to which no rejections or returns have been
made or offered. Eligible Accounts shall not include any
Accounts:
(i) which arise from an Owned Store and: (i)
if related to the sale of Inventory, have either
remained unpaid for more than sixty (60) days from
the original due date or as to which principal and
interest payments have been made at any time on an
amortization schedule (the "Amortization
Schedule") in excess of 24 months; provided,
however, if payments are made on an Amortization
Schedule not to exceed 36 months, the balance of
all payments due within 24 months of the last
scheduled installment shall be deemed to be
eligible in calculating the Borrowing Base or,
(ii) if related to the provision of services or
storage, have remained unpaid for a period
exceeding one (1) year from the original invoice
date;
(ii) which arise from a Licensed Department
and have remained unpaid for more than sixty (60)
days from the original date of sale;
(iii) owed by an Account Debtor (other than an
Account arising out of the operation of an Owned
Store) which collectively has more than fifty
percent (50%) of the aggregate amount of its
Accounts unpaid more than sixty (60) days past its
original due date or more than ninety (90) days
from its original invoice date;
(iv) if: (x) the aggregate amount of all
otherwise eligible Accounts owed by the Account
Debtor, together with all Accounts owed by its
Affiliates, exceeds 10% of the aggregate amount of
all eligible Accounts at such time, but only to
the extent of such excess; or (y) 10% or more of
the aggregate dollar amount of outstanding
Accounts owed at such time by the Account Debtor,
together with all Accounts owed by its Affiliates,
is ineligible under the other criteria set forth
herein;
(v) as to which any of the representations
<PAGE>
and warranties of the Borrower or Borrowing
Subsidiaries to the Lender are not true and
correct or as to which any of the Borrower's or
Borrowing Subsidiary's covenants or agreements
with the Lender have not been performed or
complied with;
(vi) with respect to which a check,
promissory note, draft, trade acceptance or other
instrument for the payment of money has been
received, presented for payment and returned
uncollected for any reason;
(vii) which relates to a sale which is subject
to any repurchase obligation or return right, such
as a consignment sale, bill-and-hold sale,
guaranteed sale, sale on approval or sale or
return arrangement;
(viii) which is evidenced by a promissory note
or other instrument or by chattel paper or is not
payable in United States dollars;
(ix) as to which the Borrower or any
Borrowing Subsidiary has extended the time for
payment without the consent of the Lender or which
is for goods sold or leased or services rendered
under a contract or agreement pursuant to which
the Account Debtor's obligation to pay such
invoice is conditioned upon the Borrower's or such
Borrowing Subsidiary's completion of any further
performance under the contract or agreement;
(x) owed by an Account Debtor as to which an
Insolvency Proceeding has commenced or, in the
case of an individual, as to whom death or a
judicial declaration of incompetency has occurred;
(xi) owed by an Account Debtor which: (w) is
an Affiliate of the Borrower; (x) does not
maintain its chief executive office in the United
States; (y) is not organized under the laws of the
United States or any state thereof; or (z) is the
government of any foreign country or sovereign
state, or of any state, province, municipality, or
other political subdivision thereof, or of any
department, agency, public corporation, or other
instrumentality thereof; [except to the extent
that such Account is secured or payable by letter
of credit or acceptance, or insured under foreign
credit insurance, on terms and conditions
satisfactory to the Lender in its discretion;]
(xii) except as provided in clause (xiv)
below, as to which either the perfection,
enforceability, or validity of the Lender's
security interest in such Account, or the Lender's
right or ability to obtain direct payment to the
Lender of the Proceeds of such Account, is
governed by any federal, state, or local statutory
requirements other than those of the UCC;
(xiii) is not a valid, legally enforceable and
unconditional obligation of the Account Debtor or
is subject to setoff, counterclaim, credit,
allowance or adjustment by the Account Debtor, or
to any claim by such Account Debtor denying
liability thereunder in whole or in part;
(xiv) which is owed by the government of the
United States of America, or any department,
agency, public corporation, or other
instrumentality thereof, unless the Borrower has
assigned its right to payment of such Account to
the Lender in full compliance with the Federal
Assignment of Claims Act of 1940, as amended;
<PAGE>
(xv) which is owed by any state,
municipality, or other political subdivision of
the United States of America, or any department,
agency, public corporation, or other
instrumentality thereof and as to which the Lender
determines that its Security Interest therein is
not or cannot be perfected;
(xvi) which is owed by an Account Debtor
located in a state which requires the Borrower, in
order to commence or maintain an action in the
courts of that state, to either have qualified to
do business and be in good standing in such state
or file a notice of business activities report or
similar report with such state's taxing authority,
unless the Borrower has either complied with such
requirement or is exempt from any such
requirement;
(xvii) which arises out of a contract or order
which fails in any material respect to comply with
any requirement of applicable law or which is not
fully enforceable by the Borrower or a Borrowing
Subsidiary in the courts of the jurisdiction of
the Account Debtor's residence; or
(xviii) which are otherwise unacceptable to the
Lender as collateral for lending purposes.
"Eligible Inventory" means, at the time of
determination, Inventory owned by the Borrower or a Borrowing
Subsidiary located at premises listed on Schedule 9.1(h) in which
the Lender has a first priority Security Interest under the UCC
which:
(i) is new and in good condition, in a
finished state and ready for immediate sale, free
from defects and not, in the Lender's judgment,
obsolete or unmerchantable;
(ii) meets all applicable standards imposed
by any governmental or other regulatory authority
over such Inventory;
(iii) in the ordinary course of the Borrower's
business: is currently saleable and is being held
for sale;
(iv) is either Letter of Credit Inventory or
is not in transit (other than Inventory which is
in transit from an Owned Store, the Hillside
Distribution Center or a Licensed Department to an
Owned Store, the Hillside Distribution Center or a
Licensed Department, provided such Inventory is
fully covered by insurance and does not exceed in
the aggregate at any one time $2,500,000) or
subject to any other assignment, bailment,
consignment, claim, lien, charge, encumbrance,
third party dispute, offset or counterclaim;
(v) does not fail in any material respect to
comply with any requirement of applicable law;
(vi) if located in a Licensed Department, is
subject to a license or lease agreement which
acknowledges the Lender's Lien on terms and
conditions acceptable to the Lender;
(vii) as to which all applicable
representations and warranties of the Borrower or
Borrowing Subsidiary to the Lender are true and
correct or as to which all of the Borrower's and
each Borrowing Subsidiary applicable covenants and
agreements with the Lender have been performed and
complied with; and
(viii) is otherwise acceptable to the Lender as
collateral for lending purposes.
<PAGE>
"Environmental Laws" means all federal, state and local
laws, rules, regulations, ordinances, programs, permits,
guidances, orders and consent decrees relating to health, safety,
hazardous substances, and environmental matters applicable to the
Borrower's business and facilities (whether or not owned by it)
as any of the same may be from time to time hereafter amended.
"Event of Default" shall have the meaning specified in
paragraph 11 hereof.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Excess Availability" means, as of any date of
determination by Lender, the excess, if any, of (i) the Borrowing
Base over (ii) the outstanding Advances and Letter of Credit
Obligations, in each case as of the close of business on such
date. For purposes of calculating Excess Availability and the
amount of the Borrowing Base relating thereto, all of Borrower's
and each Borrowing Subsidiary's trade payables and outstanding
debt, other than the Obligations hereunder, which remain unpaid
more than thirty (30) days after the due dates thereof shall, on
the date of the determination of Excess Availability, be deemed
to have been paid by Borrower.
"Extension" means any grant to an Account Debtor of
additional time within which to pay an Account beyond its
original due date.
"Facility" means the credit facility extended to the
Borrower and the Borrowing Subsidiaries hereunder in the
principal amount of $27,000,000.
"Financials" means those consolidated financial
statements of Borrower and its Subsidiaries described on Schedule
9.1(o)(1) hereto, all of which financial statements have been
certified as accurate and complete by the chief financial officer
of Borrower and with respect to Fiscal Year end Financials,
certified by Coopers & Lybrand or another independent certified
public accounting firm acceptable to the Lender.
"Fiscal Quarter" means in a Fiscal Year consisting of
52 weeks each of the 4 thirteen-week accounting periods in such
Fiscal Year, and in a Fiscal Year consisting of 53 weeks each of
the 3 thirteen-week accounting periods in such Fiscal and the 1
fourteen-week accounting period in such Fiscal Year.
"Fiscal Year" means the Borrower's Fiscal Year for
financial accounting purposes. The Borrower's current Fiscal
Year will end on February 28, 1998.
"GAAP" means generally accepted accounting principles
and practices as in effect from time to time, consistently
applied during each interval and from interval to interval.
"Hazardous Substances" means all materials, substances,
compounds and solutions the use transportation, storage,
generation or disposal of which are regulated by any
Environmental Law. Without limiting the generality of the
foregoing, Hazardous Substances shall including (a) "hazardous
substances", as defined in CERCLA 42 U.S.C. 9601 (14), (b)
"petroleum' as defined in RCRA 42 U.S.C. 6991(2)(B), and (c)
"pollutant" and "contaminant", defined in CERCLA 42 U.S.C. 9601
33.
"Hillside Distribution Center" means the Borrower's
leased facility located at 4180 West Madison, Hillside, IL 60162.
"Indebtedness" means all liabilities, obligations and
indebtedness of any and every kind an nature, including, without
limitation, the Obligations and all obligations to trade
creditors whether heretofore, now or hereafter owing, arising,
<PAGE>
due, or payable from Borrower or a Borrowing Subsidiary to any
Person and howsoever evidenced, created, incurred, acquired, or
owing, whether primary, secondary, direct, contingent, fixed, or
otherwise. Without in any way limiting the generality of the
foregoing, Indebtedness specifically includes (i) all obligations
or liabilities of any Person that are secured by any lien, claim,
encumbrance, or security interest upon property owned by Borrower
or a Borrowing Subsidiary, even though Borrower or such Borrowing
Subsidiary has not assumed or become liable for the payment
thereof; (ii) obligations or liabilities created or arising under
any lease of real or personal property or conditional sale or
other title retention agreement with respect to property used or
acquired by Borrower or a Borrowing Subsidiary, even though the
rights and remedies of the lessor, seller or lender thereunder
are limited to repossession of such property; (iii) all unfunded
pension fund obligations and liabilities; and (iv) deferred or
accrued taxes.
"Indemnified Party" shall have the meaning specified in
paragraph 13 hereof.
"Insolvency Proceeding" means, with respect to the
Person in question, the commencement or filing by or against it
of a request or petition for liquidation, reorganization,
arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or other similar relief under the bankruptcy,
insolvency, or similar laws of the United States, any state or
territory thereof, or any foreign jurisdiction, now or hereafter
in effect; the making of any general assignment for the benefit
of creditors; the appointment of a receiver, trustee or custodian
for it or for any of its assets; the institution by or against it
of any of the foregoing or of any formal or informal proceeding
for the dissolution or liquidation of, settlement of claims
against, or winding up of its affairs; the sale, assignment, or
transfer of all or any material part of its assets; the
nonpayment generally of its debts as they become due; or the
cessation of its business as a going concern.
"Intercompany Accounts" means all Accounts, however
arising, which are due to the Borrower or a Borrowing Subsidiary
from, or which are due from the Borrower or a Borrowing
Subsidiary to, any Affiliate.
"Letter of Credit" means any documentary or stand-by
letters of credit or bankers' acceptances issued for the
Borrower's or any Borrowing Subsidiary's account pursuant to
paragraph 2.2 hereof, which Letter of Credit: (x) may be either a
trade letter of credit or a stand-by letter of credit; and (y)
unless the Lender otherwise agrees, shall have an expiration date
no later than the earlier of: (i) the day numerically
corresponding to the date of issuance in the twelfth month
thereafter (or, if there is no such day, on the last day of such
month); and (ii) six Business Days prior to the expiration of the
Original Term or any Renewal Term.
"Letter of Credit Inventory" means any Eligible
Inventory which the Borrower or a Borrowing Subsidiary has
purchased subject to any documentary Letter of Credit
Obligations.
"Letter of Credit Inventory Obligations" means the
aggregate amount outstanding, drawn and undrawn, of all
documentary Letter of Credit Obligations issued for the purchase
of Eligible Inventory.
"Letter of Credit Obligations" means the maximum
undrawn amount of all Letters of Credit and to the extent not
charged to Borrower's account as an Advance, all drawn amounts of
all Letters of Credit not paid directly by the Borrower,
including, without limitation, all Letter of Credit Inventory
Obligations and all fees, costs and expenses of any kind payable
by the Borrower or the Lender directly or indirectly in
connection therewith.
"Licensed Departments" means those retail departments
operated by Borrower with department stores (whether pursuant to
lease, license or other agreement), which Licensed Departments
are operated under the trade name of the respective department
stores.
<PAGE>
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), security interest or preference, priority
or other security agreement or preferential arrangement of any
kind or nature whatsoever, including any conditional sale or
other title retention agreement. "Lien" includes reservations,
exceptions, easements, leases and other restrictions and
encumbrances affecting real property. For purposes hereof a
Person shall be deemed to own property acquired or held pursuant
to a conditional sale or similar security arrangement.
"Loans" collectively means the Term Loan and the
resolving loan Advances.
"Lock Box" and "Blocked Account" shall have the
meanings specified in paragraph 6 hereof.
"Material Adverse Effect" shall mean with respect to
any event, act, condition or occurrence of whatever nature
(including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), whether
singly or in conjunction with any other event or events, act or
acts, condition or conditions, occurrence or occurrences, whether
or not related, a material adverse change in, or a material
adverse effect upon, any of the business, property, assets,
operations, condition (financial or otherwise) or prospects of
Borrower and Borrowing Subsidiaries, taken as a whole.
"Mortgages" means the fee or leasehold mortgages, deeds
of trust or similar instruments concurrently or hereafter entered
into by the Borrower or any guarantor. At any time when there is
only one Mortgage, references to "Mortgages" shall be deemed to
refer only to such Mortgage.
"Net Income" means, with respect to any fiscal period
of the Borrower and Borrowing Subsidiaries, the net income after
the provision for income and franchise taxes for such fiscal
period of the Borrower and Borrowing Subsidiaries, as determined
in accordance with GAAP.
"Notes" collectively means the Notes which evidence the
revolving loan Advances and the Term Loan substantially in the
form of Exhibits A-1 and A-2, respectively.
"Obligations" means and includes the aggregate of the
unpaid principal balance of the Term Loan and all revolving loan
Advances and all accrued interest on all thereof, the Letter of
Credit Obligations, and all other loans, indebtedness, debts,
liabilities, obligations, interest, fees, premiums, guarantees,
covenants and duties owing by the Borrower or any Borrowing
Subsidiary to the Lender, of every kind and description (whether
or not evidenced by any note or other instrument and whether or
not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter
arising, including those arising under the Other Agreements.
"Obligations" includes: (i) any debt, liability or obligation
owing from the Borrower to others which the Lender may obtain by
assignment or otherwise; (ii) all interest, fees, charges or
other costs and payments that the Borrower is required to pay to
the Lender under or as a result of the Loan Documents or by law;
(iii) all fees, costs and expenses described in paragraph 14.2 or
otherwise required to be paid by the Borrower to the Lender
pursuant to any Loan Document.
"Original Term" shall have the meaning specified in
paragraph 8 hereof.
"Other Agreements" means all agreements, instruments
and documents including, without limitation, guaranties,
mortgages, trust deeds, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases,
financing statements and all other writings heretofore, now or
<PAGE>
from time to time hereafter executed by or on behalf of Borrower,
Borrowing Subsidiaries or any other Person and delivered to
Lender or to any parent, affiliate or subsidiary of Lender in
connection with the Obligations or the transactions contemplated
hereby.
"Over Advance" shall have the meaning specified in
paragraph 2.1(c).
"Owned Stores" shall mean those retail stores operated
by Borrower or a Borrowing Subsidiary in its own name or under an
assumed name, but in no event shall Owned Stores include the
Licensed Departments.
"Parent" shall mean any Person now or at any time or
times hereafter owning or controlling (alone or with any other
Person) at least a majority of the issued and outstanding stock
or other similar ownership interest of Borrower or any
Subsidiary.
"Permitted Liens" means: (i) Liens for taxes not yet
payable or being contested in good faith and by appropriate
proceedings diligently pursued, provided that the reserve or
other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor; (ii) deposits or pledges to secure
the payment of workmen's compensation, unemployment insurance,
old age pensions or other social security benefits or
obligations; (iii) deposits or pledges to secure the performance
of bids, tenders, contracts, leases, public or statutory
obligations, surety or appeal bonds, or other deposits or pledges
for purposes of a like general nature made or given in the
ordinary course of business and not in connection with the
borrowing of money; (iv) Liens in favor of the Lender; (v) such
utility, access and other easements, rights of way, restrictions,
exceptions, minor defects or irregularities in or clouds on title
or encumbrances not arising out of the borrowing of money or the
securing of advances or credit, and which will not interfere with
or impair in any respect the utility, operation or value of any
properties of the Borrower; and (vii) Liens described on Schedule
9.1(b).
"Person" means any individual, trust, firm,
partnership, corporation or any other form of public, private or
governmental entity or authority.
"Prime Rate" means the highest prime or equivalent rate
of interest (expressed as an annual rate) publicly announced by
The Chase Manhattan Bank, N.A. or Bank of America from time to
time as its "prime rate", each change in such a rate to take
effect on the date of effective change of such prime rate.
"Proceeds" means all products and proceeds (as defined
in the UCC) of any Collateral, and all proceeds of any such
proceeds, including all cash, credit balances and all payments
under any indemnity, warranty, or guaranty payable with respect
to any Collateral, all awards for taking by eminent domain, all
proceeds of fire or other insurance and all proceeds obtained as
a result of any legal action or proceeding with respect to any
Collateral.
"Property" means any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or
intangible.
"Real Property" means all right, title and interest now
or hereafter held by Borrower or a Borrowing Subsidiary (whether
in fee, under leasehold or otherwise) to or in any real property.
"Release" shall have the meanings assigned to such term
in CERCLA 42 U.S.C. 9601(22).
"Renewal Term" shall have the meaning specified in
paragraph 8 hereof.
"Reportable Event" shall have the meaning specified in
paragraph 9.1(f).
<PAGE>
"Revolving Loan Commitment" shall mean the sum of
$25,000,000.
"Revolving Note" shall mean the promissory note in the
original principal amount of $25,000,000, executed by Borrower
and each Borrowing Subsidiary to the order of Lender, dated as of
the Closing Date.
"Security Interest" collectively means the liens and
security interests created for the benefit of the Lender pursuant
to this Agreement and the Other Agreements.
"Special Collateral" shall have the meaning specified
in paragraph 3.
"Solvent" means when used with respect to any Person,
that:
(a) the fair value and present fair salable value
of such Person's assets is in excess of the total
amount of such Person's stated liabilities including
identified contingent liabilities;
(b) the present fair salable value of such
Person's assets is in excess of the amount that will be
required to pay such Person's probable liability on
such Person's debts as they become absolute and mature;
(c) such Person does not have unreasonably small
capital to carry on the business in which such Person
is engaged and all businesses in which such Person is
about to engage; and
(d) such Person has not incurred debts beyond such
Person's ability to pay such debts as they mature.
"State Street Property" means the real property
commonly described as 36 South State Street, Chicago, Illinois.
"Subordinated Debt" means that portion of the
Indebtedness which is subordinated in a manner satisfactory in
form and substance to Lender as to right and time of payment of
principal and interest thereon to any and all of the Obligations.
"Subsidiary" means any corporation of which more than
50% of the outstanding stock having by its terms the ordinary
voting power to elect a majority of the board of directors,
managers or trustees of such corporation is at the time, directly
or indirectly through one or more intermediaries, owned or
controlled by the Borrower and/or one or more of its
Subsidiaries, irrespective of whether or not, at the time, stock
of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any
contingency. If at any time, and only for so long as, the
Borrower has no Subsidiaries, provisions of this Agreement which
refer to Subsidiaries shall be of no force and effect insofar as
they pertain to Subsidiaries although they shall remain in full
force and effect as to all other Persons in question.
"Term Loan" shall have the meaning specified in
paragraph 2.3 hereof.
"Term Loan Obligations" collectively means all
Obligations which arise under or in connection with the Term
Loan, including the outstanding principal thereof, accrued but
unpaid interest thereon, all fees and premiums payable in
connection with either and any costs and expenses incurred by the
Lender in collecting the Term Loan Obligations and enforcing the
Term Note.
"Term Note" shall mean the promissory note in the
original principal amount equal to the amount of the Term Loan,
executed by Borrower and each Borrowing Subsidiary to the order
of Lender and dated as of the Closing Date.
<PAGE>
"UCC" means the Uniform Commercial Code (or any
successor statute) of the State of Illinois or of any other state
the laws of which are required by Section 9-103 of the UCC of
Illinois to be applied in connection with the issue of perfection
of security interests.
2. LOANS AND TERMS OF PAYMENT.
2.1 Revolving Loans. (a) Upon the Borrower's requests
made during the Original Term and any Renewal Term, the Lender
will make revolving loan Advances to the Borrower or a Borrowing
Subsidiary in an aggregate principal amount at any time
outstanding not in excess of the lesser of: (i) the Borrowing
Base or the Revolving Loan Commitment less all Letter of Credit
Obligations. As used herein, the term "Borrowing Base" shall
mean an amount as of any time of determination equal to the sum
of:
(i) the lesser of: (x) the sum of eighty (80%)
percent of the net amount of the Borrower's and each
Borrowing Subsidiary's Eligible Accounts or; (y)
$13,000,000, plus
(ii) the lesser of: (x) $12,000,000 during the months
of January through April and $19,000,000 during the months
of May through December; or (y) the sum of the following:
(A) during the months of January through
April, Sixty (60%) percent of the value of the
Borrower's and each Borrowing Subsidiary's Eligible
Inventory such value not to exceed 83% of the off-peak
mid-range GOB appraisal value of finished goods based
on the most recent appraisal prepared by an independent
appraiser acceptable to Lender; and
(B) during the months of May through
December, Sixty-eight (68%) percent of the value of the
Borrower's and each Borrowing Subsidiary's Eligible
Inventory such value not to exceed 75% of the peak GOB
appraisal value of finished goods based on the most
recent appraisal prepared by an independent appraiser
acceptable to Lender; minus
(iii) all Letter of Credit Inventory Obligations and all
other Letter of Credit Obligations, minus
(iv) any Availability Reserves.
For purposes of this Agreement, Eligible Inventory shall be
valued in accordance with GAAP at the lower of cost, calculated
on a first-in, first-out basis, or market. Lender, at Borrower's
sole cost and expense, may obtain appropriate inventory
appraisals. So long as no Event of Default has occurred and is
continuing, however, Borrower shall only be required to pay for
one inventory appraisal annually.
(b) Lender may, in its discretion, from time to time:
(i) upon not less than five (5) days prior notice to Borrower,
reduce the lending formula with respect to Eligible Accounts to
the extent that Lender determines in good faith that the Dilution
has increased with respect to the Accounts for any period in any
material respect or may be reasonably anticipated to increase in
any material respect above historical levels; or (ii) upon not
less than one (1) day's prior notice to Borrower, establish any
Availability Reserves.
(c) The Borrower shall request each Advance not later
than 11:00 a.m. (Chicago time) on the Business Day on which any
proposed Advance is to be made by telephone or facsimile
transmission and shall specify the requested date and amount of
such Advance. Each such notice shall be irrevocable. Each oral
request for an Advance shall be conclusively presumed to be made
by a person authorized by the Borrower to do so. The Advances
shall be evidenced by a Note in the form of Exhibit A-1. All
<PAGE>
Advances shall be repaid in full upon the earlier to occur at (A)
the end of the Original Term or any Renewal Term, if either the
Lender or Borrower elects to terminate this Agreement as of the
end of any such term and (B) the acceleration of the Obligations
pursuant to paragraph 11 of this Agreement. If, at any time and
for any reason, the amount of unpaid Advances and Letter of
Credit Obligations exceeds the Borrowing Base or if all of the
Obligations other than Term Loan Obligations (including, without
limitation, any Advances made pursuant to this paragraph 2.1, or
pursuant to any note or notes), at any time and for any reason,
exceed the sum of Twenty-Five Million Dollars ($25,000,000) less
Letter of Credit Obligations (an "Over Advance"), then the
Borrower and each Borrowing Subsidiary, upon Lender's election
and demand, shall be jointly and severally obligated to
immediately pay to Lender, in cash, the amount of such excess.
Borrower and Borrowing Subsidiaries hereby authorize the Lender
to charge any of Borrower's or Borrowing Subsidiaries' accounts
to make any payments of principal or interest required by this
Agreement.
2.2 Letters of Credit. Upon the Borrower's request, and
subject to the terms and conditions of this Agreement, the Lender
will cause the issuance of Letters of Credit for the account of
the Borrower or a Borrowing Subsidiary within the limits of the
Borrowing Base up to a maximum aggregate undrawn face amount of
$10,000,000. Each Letter of Credit shall be acceptable in form
and substance to the Lender. Borrower's and each Borrowing
Subsidiary's reimbursement obligation in respect of each Letter
of Credit shall automatically reduce, dollar for dollar, the
amount which Borrower and Borrowing Subsidiaries may borrow based
upon the Revolving Loan Commitment and the Borrowing Base. Any
payment made by Lender to any Person on account of any Letter of
Credit shall constitute an Advance hereunder. At no time shall
the aggregate sum of direct Advances by Lender to Borrower plus
the contingent liability of Lender under the outstanding Letters
of Credit be in excess of the Revolving Loan Commitment or the
Borrowing Base.
2.3 Term Loan. (a) On the terms and subject to the
conditions contained in this Agreement, the Lender agrees to make
a term loan of $2,000,000 to the Borrower and the Borrowing
Subsidiaries (the "Term Loan") upon the execution and delivery of
this Agreement. The Term Loan shall be evidenced by a note in
the form of Exhibit A-2. Principal payable on account of the
Term Loan shall be payable in successive monthly installments (i)
payable on the first day of each month, the first of which
installments shall be due and payable on the first day of
October, 1997 and (ii) based on an amortization schedule
consisting of eighty-four equal payments; provided, however, that
the entire unpaid principal balance of the Term Loan shall be due
and payable in full upon the expiration of the Original Term of
this Agreement; and, provided further, that in the event that the
Original Term of this Agreement is initially or subsequently
renewed in accordance with paragraph 8 hereof, then Borrower and
Borrowing Subsidiaries shall continue to make such installment
payments, with a final installment equal to the unpaid principal
balance and any other amounts outstanding due and payable upon
the expiration of the Renewal Term. Notwithstanding anything
hereinabove to the contrary, the entire unpaid principal balance
of the Term Loan, and any accrued and unpaid interest thereon,
shall be immediately due and payable upon the earlier to occur of
(i) the last day of the Original Term or the last day of any
Renewal Term, if either Lender or Borrower elects to terminate
this Agreement as of the end of any such Original or Renewal Term
and (ii) the acceleration of the Obligations pursuant to
paragraph 11 of this Agreement.
(b) If Borrower sells its interest in the State Street
Property, Borrower shall pay to Lender, as a mandatory
prepayment, the entire outstanding principal balance of the Term
Loan plus accrued interest, and the balance of any proceeds
received by the Borrower from the sale of the State Street
Property shall be applied to the repayment of outstanding
revolving loan Advances.
2.4 Interest.
(a) The Borrower will pay interest to the Lender on
the unpaid principal amount of the Term Loan, and all revolving
loan Advances and all other Obligations, if any, at a fluctuating
<PAGE>
rate per annum equal to one-quarter of one per cent (0.25%) above
the Prime Rate. The fluctuating rate of interest provided for
above shall increase or decrease by an amount equal to any
increase or decrease in the Prime Rate, effective as of the
opening of business on the day that any such change in the Prime
Rate occurs. Interest will be calculated with respect to the
outstanding principal balance of the Loans at the close of each
day computed on the basis of the actual number of days elapsed
over a 360-day year and all payment items which the Lender
receives shall be credited to the principal balance of the
Obligations, subject to collection, on the first Business Day
after the Lender receives good funds therefor at its account
designated by Lender. Without affecting the Borrower's and each
Borrowing Subsidiary's obligation to immediately repay to Lender
the amount of any and all Over Advances in accordance with the
provisions of paragraph 2.1 of this Agreement, at any time when
any Over Advance exists, the Obligations shall bear interest, on
the daily balance thereof owing, at two percent (2%) percentage
points above the Prime Rate (the "Over Advance Rate"). At any
time when an Event of Default has occurred and is continuing the
unpaid principal amount of all Obligations shall bear interest at
the respective applicable per annum rates provided for above plus
three percent (3%) (the "Default Rate"). All interest payable by
Borrower and each Borrowing Subsidiary shall be due and payable
on the last business day of each calendar month during the term
of this Agreement and Lender may, at its option, charge such
interest to Borrower's or a Borrowing Subsidiary's account with
Lender as an Advance.
(b) It is the intent of the parties that the rate of
interest and the other charges to the Borrower and the Borrowing
subsidiaries under this Agreement shall be lawful; therefore, if
for any reason the interest or other charges payable under this
Agreement are found by a court of competent jurisdiction, in a
final determination, to exceed the limit which the Lender may
lawfully charge the Borrower and the Borrowing Subsidiaries, then
the obligation to pay interest and other charges shall
automatically be reduced to such limit and, if any amount in
excess of such limit shall have been paid, then such amount shall
be refunded to the Borrower and the Borrowing Subsidiaries.
2.5 Fees. The Borrower and Borrowing Subsidiaries will pay
the fees described below to the Lender during the Term of this
Agreement.
(a) An unused line fee of three-tenths of one percent
(0.3%) per annum on the difference between $25,000,000 and the
average unpaid monthly balance of the revolving loan Advances and
undrawn Letter of Credit Obligations outstanding under the
Facility, payable monthly.
(b) A Letter of Credit fee equal to one and one-half
percent (1.5%) per annum on the aggregate undrawn face amount of
all outstanding Letters of Credit issued for the account of
Borrower or a Borrowing Subsidiary, which fee shall be payable
monthly in arrears on the first day of each month. Borrower
shall also pay on demand the normal and customary administrative
charges for issuance, amendment, negotiation, renewal or
extension of any Letter of Credit imposed by the bank issuing
such Letter of Credit. Upon the occurrence and during the
continuance of an Event of Default, all Letter of Credit fees
shall be payable on demand at a rate equal to percent (4.5%) per
annum on the aggregate undrawn face amount thereof.
(c) An examination fee of $600 per person, per day,
plus applicable expenses, for each examination performed by or at
Lender's direction of Borrower's and Borrowing Subsidiaries'
books and records and Collateral and such other matters as Lender
shall deem appropriate in its commercially reasonable judgment,
each such fee to be paid upon the completion of each such
examination.
(d) An early termination fee if the Original Term ends
for any reason prior to the third anniversary of the Closing Date
or prior to the end of any Renewal Term, determined with
reference to the date on which the Original Term or Renewal Term,
as applicable, ends in relation to the anniversaries of the
Closing Date indicated below:
<PAGE>
2.00% of the Facility through the first anniversary
1.50% of the Facility through the second anniversary
1.00% of the Facility prior to the third anniversary or
during any Renewal Term
2.6 Disbursement. Borrower and each Borrowing Subsidiary
hereby irrevocably authorize the Lender to disburse the proceeds
of each Advance requested by Borrower, or deemed to be requested
by Borrower, as follows: the proceeds of each Advance requested
under paragraph 2.1 shall be disbursed by the Lender in lawful
money of the United States of America in immediately available
funds, in the case of the initial borrowing, in accordance with
the terms of the written disbursement letter from Borrower, and
in the case of each subsequent borrowing, by wire transfer to
such bank account as may be agreed upon by Borrower and the
Lender from time to time, or elsewhere if pursuant to a written
direction from Borrower.
3. GRANT OF SECURITY INTEREST TO LENDER. (a) As security
for the payment of all Loans now or in the future made by Lender
to Borrower and Borrowing Subsidiaries hereunder and for the
payment or other satisfaction of all other Obligations, Borrower
and each Borrowing Subsidiary hereby assigns to Lender and grants
to Lender a continuing security interest in the following
property of Borrower and each Borrowing Subsidiary, whether now
or hereafter owned, existing, acquired or arising and wherever
now or hereafter located: (a) all Accounts and all Goods whose
sale, lease or other disposition by Borrower has given rise to
Accounts and have been returned to or repossessed or stopped in
transit by Borrower; (b) all Chattel Paper, Instruments,
Documents and General Intangibles (including, without limitation,
all patents, patent applications, trademarks, trademark
applications, tradenames, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, tax refund
claims, claims against carriers and shippers, guarantee claims,
contracts rights, security interests, security deposits and any
rights to indemnification); (c) all Inventory; (d) all Goods
(other than Inventory) including, without limitation, Equipment,
vehicles and fixtures; (e) all deposits and cash and any other
property of Borrower and each Borrowing Subsidiary now or
hereafter in the possession, custody or control of Lender or any
agent or any parent, affiliate or subsidiary of Lender or any
participant with Lender in the Loans for any purpose (whether for
safekeeping, deposit, collection, custody, pledge, transmission
or otherwise); (f) all Real Property; and (g) all additions and
accessions to, substitutions for, and replacements, products and
Proceeds of the foregoing property, including, without
limitation, proceeds of all insurance policies insuring the
foregoing property, and all of Borrower's and each Borrowing
Subsidiary's books and records relating to any of the foregoing
and to Borrower's and each Borrowing Subsidiary's business.
Immediately upon Borrower's or a Borrowing Subsidiary's
receipt of that portion of the Collateral which is or becomes
evidenced by an agreement, instrument and/or document, including,
without limitation, promissory notes, trade acceptances,
documents of tide and warehouse receipts (the "Special
Collateral"), Borrower or such Borrowing Subsidiary shall deliver
the original thereof to Lender, together with appropriate
endorsements or other specific evidence (in form and substance
acceptable to Lender) of assignment thereof to Lender.
4. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY
INTERESTS THEREIN. Borrower and each Borrowing Subsidiary shall,
at Lender's request, at any time and from time to time, execute
and deliver to Lender such financing statements, documents and
other agreements and instruments (and pay the cost of filing or
recording the same in all public offices deemed reasonably
necessary or desirable by Lender) and do such other acts and
things as Lender may deem necessary or desirable in order to
establish and maintain a valid, attached and perfected security
interest in the Collateral in favor of Lender (free and clear of
all other liens, claims and rights of third parties whatsoever,
<PAGE>
whether voluntarily or involuntarily created, except Permitted
Liens) to secure payment of the Obligations, and in order to
facilitate the collection of the Collateral. Borrower and each
Borrowing Subsidiary irrevocably hereby makes, constitutes and
appoints Lender (and all Persons designated by Lender for that
purpose) as Borrower's and each Borrowing Subsidiary's true and
lawful attorney and agent-in-fact to execute such financing
statements, documents and other agreements and instruments and do
such other acts and things as may be necessary to preserve and
perfect Lender's security interest in the Collateral. Borrower
and each Borrowing Subsidiary further agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement
or of a financing statement shall be sufficient as a financing
statement.
5. POSSESSION OF COLLATERAL AND RELATED MATTERS. (a)
Until an Event of Default has occurred, Borrower and each
Borrowing Subsidiary shall have the right, except as otherwise
provided in this Agreement, in the ordinary course of Borrower's
and each Borrowing Subsidiary's business, to (i) sell, lease or
furnish under contracts of service any of Borrower's and each
Borrowing Subsidiary Inventory normally held by Borrower and each
Borrowing Subsidiary for any such purpose, and (ii) use and
consume any raw materials, work in process or other materials
normally held by Borrower and each Borrowing Subsidiary for such
purpose; provided, however, that a sale in the ordinary course of
business shall not include any transfer or sale in satisfaction,
partial or complete, of a debt owed by Borrower or any Borrowing
Subsidiary.
(b) If Borrower or any Borrowing Subsidiary sells any
Real Property subject to a Mortgage or if any of the Collateral
is damaged, destroyed or taken by condemnation, Borrower and
Borrowing Subsidiary shall pay to Lender, unless otherwise
specifically provided herein or otherwise agreed to by Lender, as
and when received by Borrower and Borrowing Subsidiary and as a
mandatory prepayment of the Term Loan, to be applied against the
last maturing installments of principal thereof, in the inverse
order thereof (or, at Lender's option, such of the other
Obligations of Borrower and Borrowing Subsidiaries as Lender may
elect), a sum equal to the proceeds received from (i) such sale
or (ii) such damage, destruction or condemnation; provided,
however, that without Lender's consent, unless and until an Event
of Default has occurred and is continuing:
(i) obsolete or worn out Equipment may be
sold or otherwise disposed of by Borrower or a
Borrowing Subsidiary and the proceeds thereof may be
retained by Borrower or such Borrowing Subsidiary, so
long as the fair market value of any such Equipment
sold or otherwise disposed of in any single transaction
is less than $100,000, and the fair market value, in
the aggregate, of all such Equipment sold or otherwise
disposed of by Borrower during any twelve-month period
is less than $250,000; and
(ii) proceeds of Collateral arising from the
damage, destruction or condemnation thereof may be
retained by Borrower and used by Borrower to repair,
restore or replace such Collateral, as the case may be,
so long as the fair market value of any such Collateral
damaged, destroyed or condemned in any single incident
is less than $100,000, and the fair market value, in
the aggregate, of all such Collateral owned by Borrower
and Borrowing subsidiaries and damaged, destroyed or
condemned during any twelve-month period is less than
$250,000.
6. COLLECTIONS.
(a) Borrower and each Borrowing Subsidiary shall
direct all of its Account Debtors to make all payments
on the Accounts directly to a post office box ("Lock
Box") with a financial institution acceptable to, and
in the name and under exclusive control of, Lender.
Borrower and each Borrowing Subsidiary shall establish
an account ("Blocked Account") in Lender's name for the
benefit of Borrower and each Borrowing Subsidiary with
a financial institution acceptable to Lender, into
<PAGE>
which all payments received in the Lock Box shall be
deposited, and into which Borrower and each Borrowing
Subsidiary will immediately deposit all payments made
for Inventory or services sold or rendered by Borrower
and each Borrowing Subsidiary and received by Borrower
and each Borrowing Subsidiary in the identical form in
which such payments were made, whether by cash or
check. If Borrower, Borrowing Subsidiaries, any
Affiliate or Subsidiary of Borrower, or a Borrowing
Subsidiary, or any shareholder, officer, director,
employee or agent of Borrower or a Borrowing Subsidiary
or any Affiliate or Subsidiary, or any other Person
acting for or in concert with Borrower and a Borrowing
Subsidiary shall receive any monies, checks, notes,
drafts or other payments relating to or as proceeds of
Accounts or other Collateral, Borrower, and each
Borrowing Subsidiary and each such Person shall receive
all such items in trust for, and as the sole and
exclusive property of, Lender and, immediately upon
receipt thereof, shall remit the same (or cause the
same to be remitted) in kind to the Blocked Account.
Each financial institution with which a Lock Box and
Blocked Account are established shall acknowledge and
agree, in a manner satisfactory to Lender, that the
amounts on deposit in such Lock Box and Blocked Account
are the sole and exclusive property of Lender, that
such financial institution has no right to setoff
against such Lock Box or Blocked Account or against any
other account maintained by such financial institution
into which the contents of such Blocked Account are
transferred, and that such financial institution shall
wire, or otherwise transfer in immediately available
funds in a manner satisfactory to Lender, funds
deposited in the Blocked Account on a daily basis as
such funds are collected. Borrower and each Borrowing
Subsidiary agrees that all payments made to the Blocked
Account established by Borrower and each Borrowing
Subsidiary or otherwise received by Lender, whether in
respect of the Accounts of Borrower or a Borrowing
Subsidiary or as proceeds of other Collateral of
Borrower or otherwise, will be applied on account of
the Obligations of Borrower or a Borrowing Subsidiary
in accordance with the terms of this Agreement.
Borrower and each Borrowing Subsidiary agrees to pay
all fees, costs and expenses which Borrower and
Borrowing Subsidiary incur in connection with opening
and maintaining a Lock Box and Blocked Account. All of
such fees, costs and expenses which remain unpaid
pursuant to any Lock Box or Blocked Account Agreement
with Borrower and Borrowing Subsidiary, to the extent
same shall have been paid by Lender hereunder, shall
constitute Advances hereunder, shall be payable to
Lender by Borrower and Borrowing Subsidiary upon
demand, and, until paid, shall bear interest at the
highest rate then applicable to Advances hereunder.
All checks, drafts, instruments and other items of
payment or proceeds of Collateral delivered to Lender
in kind shall be endorsed by Borrower or a Borrowing
Subsidiary, as applicable, to Lender, and, if that
endorsement of any such item shall not be made for any
reason, Lender is hereby irrevocably authorized to
endorse the same on Borrower's or such Borrowing
Subsidiary's behalf. For the purpose of this
paragraph, Borrower and each Borrowing Subsidiary
irrevocably hereby makes, constitutes and appoints
Lender (and all Persons designated by Lender for that
purpose) as Borrower's and each Borrowing Subsidiary's
true and lawful attorney and agent-in-fact (i) to
endorse Borrower's or Borrowing Subsidiary's name upon
said items of payment and/or proceeds of Collateral of
Borrower or Borrowing Subsidiary and upon any Chattel
Paper, document, instrument, invoice or similar
document or agreement relating to any Account of
Borrower or a Borrowing Subsidiary or goods pertaining
thereto; (ii) to take control in any manner of any item
of payment or proceeds thereof; (iii) to have access to
any lock box or postal box into which any of Borrower's
or a Borrowing Subsidiary's mail is deposited; and (iv)
open and process all mail addressed to Borrower or a
Borrowing Subsidiary and deposited therein; provided,
however, that Lender shall not exercise any such powers
<PAGE>
described in subparagraphs (i) and (ii) (except for
routine Lock Box payments/proceeds) unless and until an
Event of Default has occurred.
(b) Lender may, at any time and from time to time
after the occurrence of an Event of Default, whether before or
after notification to any Account Debtor and whether before or
after the maturity of any of the Obligations, (i) enforce
collection of any of Borrower's or a Borrowing Subsidiary's
Accounts or contract rights by suit or otherwise; (ii) exercise
all of Borrower's and each Borrowing Subsidiary's rights and
remedies with respect to proceedings brought to collect any
Accounts; (iii) surrender, release or exchange all or any part of
any Accounts of Borrower and Borrowing Subsidiaries, or
compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder;
(iv) sell or assign any Account of Borrower or a Borrowing
Subsidiary upon such terms, for such amount and at such time or
times as Lender deems advisable; (v) prepare, file and sign
Borrower's and Borrowing Subsidiary's name on any proof of claim
in bankruptcy or other similar document against any Account
Debtor indebted on an Account of Borrower or Borrowing
Subsidiary; and (vi) do all other acts and things which are
necessary, in Lender's sole discretion, to fulfill Borrower's and
each Borrowing Subsidiary's Obligations under this Agreement and
to allow Lender to collect the Accounts. In addition to any
other provision hereof, Lender may at any time on or after the
occurrence of an Event of Default, at Borrower's and each
Borrowing Subsidiary's expense, notify any parties obligated on
any of the Accounts of Borrower and Borrowing Subsidiaries to
make payment directly to Lender of any amounts due or to become
due thereunder.
(c) For the purpose of determining the Borrowing Base
hereunder, Lender shall, upon receipt by Lender at its office in
Chicago, Illinois, of cash or other immediately available funds
from collections of items of payment and proceeds of any
Collateral, apply the whole or any part of such collections or
proceeds against the Obligations in such order as Lender shall
determine in its sole discretion.
(d) Immediately upon Borrower's or a Borrowing
Subsidiary's receipt of any portion of the Collateral evidenced
by an agreement, Instrument or Document including, without
limitation, any Chattel Paper, Borrower or Borrowing Subsidiary,
as applicable, shall deliver the original thereof to Lender
together with an appropriate endorsement or other specific
evidence of assignment thereof to Lender (in form and substance
acceptable to Lender). If an endorsement or assignment of any
such items shall not be made for any reason, Lender is hereby
irrevocably authorized, as Borrower's and each Borrowing
Subsidiary's attorney and agent-in-fact, to endorse or assign the
same on Borrower's and each Borrowing Subsidiary's behalf.
7. SCHEDULES AND REPORTS.
(a) Borrower shall deliver to Lender by mail daily (or
any other frequency agreed to by Lender) other than on a day
which is not a Business Day, a report of Borrower's and each
Borrowing Subsidiary's invoice activity for the previous day,
together with details of credit memos and credit notes issued by
Borrower and each Borrowing Subsidiary and a schedule showing
cash receipts, all Inventory purchases and cost of sales.
(b) Within five (5) days after the close of each
calendar week, and at such other times as may be requested by
Lender from time to time hereafter, Borrower shall deliver to
Lender a borrowing base certificate for such week, which shall
include calculations of the Borrowing Base (excluding reserves
but including calculations of Eligible Accounts and Eligible
Inventory) and shall otherwise be in form and substance
satisfactory to Lender together with (i) an aged trial balance of
Borrower's and each Borrowing Subsidiary's accounts payable as of
the end of such week and (ii) a schedule identifying by age each
Account a reconciliation thereof to the above Borrowing Base
<PAGE>
calculations, and copies of the invoices when requested by Lender
(with evidence of shipment attached) pertaining to each such
Account, for the week (or other applicable period) immediately
preceding. At such times as may be requested by Lender from time
to time hereafter, Borrower shall deliver to Lender (A) such
additional schedules, certificates, reports and information with
respect to the Collateral as Lender may from time to time require
and (B) a collateral assignment of any or all items of Collateral
to Lender. Lender, through its officers, employees or agents,
shall have the right, at any time and from time to time in
Lender's name, in the name of a nominee of Lender or in
Borrower's or a Borrowing Subsidiary's name, to verify the
validity, amount or any other matter relating to any of the
Accounts, by mail, telephone, telegraph or otherwise. Borrower
and each Borrowing Subsidiary shall reimburse Lender, on demand,
for all reasonable costs, fees and expenses incurred by Lender in
this regard.
(c) Without limiting the generality of the foregoing,
Borrower shall deliver to Lender, at least once a month within
ten (10) days after the close of each fiscal month (or more
frequently when requested by Lender), a report with respect to
Borrower's and each Borrowing Subsidiary's Inventory, other than
Inventory located in Licensed Departments, and within 30 days
after the close of each fiscal month, a report with respect to
Borrower's and each Borrowing Subsidiary's Inventory located at
Licensed Departments, including a reconciliation thereof to the
above Borrowing Base calculations and designations of balances
and activity at each Licensed Department. Borrower shall
immediately notify Lender of any event causing loss or
depreciation in value of such Inventory (other than normal
depreciation occurring in the ordinary course of business).
(d) All schedules, certificates, reports and
assignments and other items delivered by Borrower or a Borrowing
Subsidiary to Lender hereunder shall be executed by an authorized
representative of Borrower or such Borrowing Subsidiary and shall
be in such form and contain such information as Lender shall
reasonably request. Borrower shall deliver from time to time
such other schedules and reports pertaining to the Collateral as
Lender may reasonably request.
8. TERMINATION.
(a) This Agreement shall be in effect from the date
hereof until June 15, 2000 (the "Original Term") and shall
automatically renew itself from year to year thereafter (each
such one year renewal being referred to herein as a "Renewal
Term") unless (i) the due date of the Obligations is accelerated
pursuant to paragraph 11.2 hereof; or (ii) Borrower elects or
Lender elects to terminate this Agreement at the end of the
Original Term or at the end of any Renewal Term by giving the
other party written notice of such election at least ninety (90)
days prior to the end of the Original Term or the then current
Renewal Term, in which case Borrower and each Borrowing
Subsidiary shall pay all of the Obligations in full on the last
day of such term. If one or more of the events specified in
subparagraphs (i) or (ii) occurs, this Agreement shall terminate
on the date thereafter that the Obligations are paid in full;
provided, however, that the security interests and liens created
under this Agreement and the Other Agreements shall survive such
termination until the date upon which payment and satisfaction in
full of the Obligations shall have occurred. At such time as
Borrower and Borrowing Subsidiary has repaid all of the
Obligations and this Agreement has terminated, (i) Borrower and
each Borrowing Subsidiary shall deliver to Lender a release, in
form and substance reasonably satisfactory to Lender, of all
obligations and liabilities of Lender and its officers,
directors, employees, agents, parents, subsidiaries and
affiliates to Borrower, and if Borrower is obtaining new
financing from another lender, Borrower shall deliver such
lender's indemnification of Lender, in form and substance
satisfactory to Lender, for checks which Lender has credited to
Borrower's account, but which subsequently are dishonored for any
reason and (ii) upon Borrower's request, Lender shall deliver to
Borrower a release in form and substance reasonably satisfactory
to Borrower.
9. WARRANTIES AND REPRESENTATIONS.
<PAGE>
9.1 General Warranties and Representations. Borrower and
each Borrowing Subsidiary warrants and represents that at all
times during the Original Term and any Renewal Term of this
Agreement:
(a) Borrower and each Borrowing Subsidiary is a
corporation duly organized and existing and in good standing
under the laws of the state of its incorporation and is
qualified or licensed to do business in all other countries,
states and provinces the laws of which require Borrower or
such Borrowing Subsidiary to be so qualified or licensed;
(b) Borrower or a Borrowing Subsidiary has good,
indefeasible and merchantable title to and ownership of the
Collateral, free and clear of Liens, except those of Lender
and those, if any, described on Schedule 9.1(b) hereto:
(c) Except as set forth in the Schedule 9.1(c) hereto,
neither Borrower nor either Borrowing Subsidiary is a party
to any contract, lease, license agreement or other agreement
or subject to any charge, corporate restriction, judgment,
decree or order which could reasonably be expected to have a
Material Adverse Effect, and is not a party to any labor
dispute, and there are no strikes or walkouts relating to
any labor contract, and no such contract is scheduled to
expire during the Original Term; each of the Department
Licenses is in full force and effect and no event has
occurred or failed to occur which with the giving of notice
or passage of time or both would constitute a default under
any Department License;
(d) Neither Borrower nor either Borrowing Subsidiary
is in violation of any applicable statute, regulation or
ordinance of any governmental entity, or of any agency
thereof, which could reasonably be expected to have a
Material Adverse Effect;
(e) Neither Borrower nor either Borrowing Subsidiary
is in default with respect to any indenture, loan agreement,
mortgage, lease, deed or other similar agreement to which it
is a party or by which it is bound;
(f) Neither Borrower nor either Borrowing Subsidiary
has received any notice to the effect that it is not in full
compliance with any of the requirements of ERISA, and the
regulations promulgated thereunder and, to the best
knowledge of Borrower's and Borrowing Subsidiaries'
executive officers, there exists no event described in
Section 4043(b)(3) thereof ("Reportable Event");
(g) Borrower and each Borrowing Subsidiary has filed
all federal, state and local tax returns and other reports
it is required by law to file and has paid, to the extent
due and payable, all taxes, levies, assessments, charges,
liens, claims or encumbrances upon or relating to the
Collateral, the Obligations, its employees, payroll, income,
and gross receipts, its ownership or use of any of its
assets, and any other aspect of its business (collectively,
the "Charges");
(h) The offices or locations where Borrower and each
Borrowing Subsidiary keeps the Collateral and books and
records, including, without limitation, computer programs,
printouts and other computer materials and records
concerning the Collateral, are at the locations set forth on
Schedule 9.1(h) hereto;
(i) The addresses specified on Schedule 9.1(h) hereto
include and designate Borrower's and each Borrowing
Subsidiary's chief executive office, chief place of business
and other offices and places of business and are Borrower's
and Borrowing Subsidiaries' sole offices and places of
business;
(j) Neither Borrower nor either Borrowing Subsidiary
has, during the preceding five (5) years, been known as or
<PAGE>
used any other corporate or fictitious name, except as
disclosed on Schedule 9.1(j) hereto;
(k) Borrower and each Borrowing Subsidiary has the
right and power and is duly authorized and empowered to
enter into, execute, deliver and perform this Agreement and
the other Agreements, and its officers executing and
delivering this Agreement and the Other Agreements are duly
authorized and empowered to do so;
(l) The execution, delivery and performance by
Borrower and each Borrowing Subsidiary of this Agreement and
the Other Agreements shall not, by the lapse of time, the
giving of notice or otherwise, constitute a violation of any
applicable law or a breach of any provision contained in its
Articles or Certificate of Incorporation or By-Laws or
contained in any agreement, instrument or document to which
it is now a party or by which it is bound including, without
limitation, the Department Licenses;
(m) Borrower and each Borrowing Subsidiary has, and is
current and in good standing with respect to, all
governmental approvals, permits, certificates, inspections,
consents and franchises necessary to continue to conduct its
business as heretofore conducted, and to own or lease and
operate the properties now owned or leased by it;
(n) After giving effect to the initial Advance, and
the funding of the Term Loan, the transactions contemplated
by this Agreement and the Other Agreements, and the payment
of all estimated legal, accounting and other fees related
hereto and thereto, Borrower and Borrowing Subsidiaries, on
a consolidated basis, will be Solvent as of the date of the
initial Advance and at all times thereafter;
(o) The Financials as set forth on Schedule 9.1(o)(1)
hereto have been prepared in accordance with GAAP and fairly
present the assets, liabilities and financial condition and
results of operations of Borrower and such other Persons
described therein as of the dates thereof; there are no
omissions or other facts or circumstances which are or may
be material and no event has occurred since the date of the
Financials and is continuing which could reasonably be
expected to have a Material Adverse Effect; there exists no
equity or long term investments in, or outstanding advances
to, any Person not reflected in the Financials; there are no
actions or proceedings which are pending or, to the best
knowledge of Borrower's and Borrowing Subsidiaries'
executive officers, threatened, against Borrower or either
Borrowing Subsidiary or any other Person which could
reasonably be expected to have a Material Adverse Effect;
except for trade payables arising in the ordinary course of
its business since the dates reflected in the Financials and
except as disclosed on Schedule 9.1(o)(2) hereto and in the
Financials, neither Borrower nor either Borrowing Subsidiary
has any actions or proceedings pending or has any
Indebtedness or has guaranteed the obligations of any other
Person;
(p) The execution and delivery of this Agreement and
the Other Agreements by Borrower and each Borrowing
Subsidiary does not directly or indirectly violate or result
in a violation of Section 7 of the Securities and Exchange
Act of 1934, as amended, or any regulations issued pursuant
thereto, including, without limitation, Regulations G, U, T
and X of the Board of Governors of the Federal Reserve
System, and neither Borrower nor either Borrowing Subsidiary
owns or intends to purchase or carry any "margin security"
as defined in said Regulations;
(q) Neither Borrower nor either Borrowing Subsidiary
is in default in the payment when due of any Indebtedness;
(r) Borrower and each Borrowing Subsidiary has
sufficient personnel and possesses adequate assets,
licenses, patents, patent applications, copyrights,
trademarks and trade names to continue to conduct its
<PAGE>
business as heretofore conducted by it, and all such
licenses, patents, patent applications, copyrights,
trademarks and trade names are listed on Schedule 9.1(r)
hereto;
(s) Schedule 9.1(s) hereto lists all owned and leased
Real Property, and, except as described in Schedule 9.1(s),
neither Borrower nor either Borrowing Subsidiary is a party
to any contract or agreement for the sale, transfer,
assignment or other disposition of the Real Property or any
portion thereof or interest therein;
(t) The Liens granted to Lender pursuant to this
Agreement are fully perfected first priority Liens in and to
the Collateral, subject only to the Liens permitted by
paragraph 10.2(l) hereof;
(u) No event has occurred since March 1, 1997, and is
continuing which has had or could reasonably be expected to
have a Material Adverse Effect;
(v) Except as disclosed in Schedule 9.1(v), all
premises and facilities owned, leased, used or operated by
Borrower or any Subsidiary of Borrower or, to the knowledge
of any executive officer of Borrower after a reasonable
investigation, any predecessor in interest, have been, and
continue to be, owned, leased, used or operated in
compliance in all material respects with all applicable
Environmental Laws. Schedule 9.1(v) identifies with respect
to Borrower and each Subsidiary of Borrower, or, to the
knowledge of any executive officer of Borrower after a
reasonable investigation, any predecessor in interest (i)
all environmental audits, assessments or occupational health
studies undertaken by, or at the direction of, governmental
agencies; (ii) any claim, or complaint concerning
environmental matters; and (iii) all permits issued under
any Environmental Laws;
(w) No broker or finder acting on behalf of Borrower
or a Borrowing Subsidiary brought about the obtaining,
making or closing of the loans pursuant to this Agreement
and neither Borrower nor either Borrowing Subsidiary has any
obligation to any other Person in respect of any finder's or
brokerage fees in connection with the loans contemplated by
this Agreement;
(x) There has been no change in the credit terms or
policies which Borrower offers to its customers from those
disclosed to Lender prior to the date of this Agreement;
(y) No information contained in this Agreement, the
Other Agreements, the Financials or any written statement
furnished by or on behalf of Borrower or either Borrowing
Subsidiary pursuant to the terms of this Agreement, which
has previously been delivered to Lender, contains any untrue
statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or
therein not misleading at the time and in light of the
circumstances under which made.
9.2 Account Warranties and Representations. With respect
to its Accounts, Borrower and each Borrowing Subsidiary warrants
and represents to Lender that Lender may rely, in determining
which Accounts listed on any schedule of Accounts are Eligible
Accounts, on all statements or representations made by Borrower
or a Borrowing Subsidiary on or with respect to any such schedule
and, unless otherwise indicated in writing by Borrower or a
Borrowing Subsidiary, that:
(a) They are genuine, are in all respects what they
purport to be, are not evidenced by a judgment and are
evidenced by executed original instruments, agreements,
contracts, or documents, which will be delivered to Lender
upon request therefor;
(b) They represent undisputed bona fide transactions
completed in accordance with the terms and provisions
<PAGE>
contained in any documents related thereto;
(c) The face amounts shown on any schedule of Accounts
provided to Lender and all invoices and statements delivered
to Lender with respect to any Account are actually and
absolutely owing to Borrower or a Borrowing Subsidiary and
are not contingent for any reason;
(d) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, there are no setoffs,
counterclaims or disputes existing or asserted with respect
thereto and neither Borrower nor either Borrowing Subsidiary
has made any agreement with any Account Debtor thereunder
for any deduction therefrom, except (a) discounts or
allowances allowed by Borrower or such Borrowing Subsidiary
in the ordinary course of its business for prompt payment,
and (b) setoffs allowed under the Department Licenses, all
of which discounts, allowances and setoffs are either (x)
reflected in the calculation of the face amount of the
invoices to which such discounts, allowances or setoffs
relate, or (y) evidenced on a general ledger account of
Borrower or a Borrowing Subsidiary;
(e) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, there are no facts, events
or occurrences which in any way impair the validity or
enforcement thereof or tend to reduce the amount payable
thereunder from the invoice face amount shown on any
schedule of Accounts and on all contracts, invoices and
statements delivered to Lender with respect thereto;
(f) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, all Account Debtors
thereunder (i) had the capacity to contract at the time any
contract or other document giving rise to the Account was
executed and (ii) are Solvent;
(g) They are not subject to any Liens, except those of
Lender;
(h) No executive officer of Borrower or either
Borrowing Subsidiary has knowledge of any fact or
circumstance which would impair the validity or
collectability thereof;
(i) To the best knowledge of Borrower's and Borrowing
Subsidiaries' executive officers, there are no proceedings
or actions which are threatened or pending against any
Account Debtor thereunder which could reasonably be expected
to have a Material Adverse Effect; and
(j) The goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any Liens,
except those of Lender and those removed or terminated prior
to the date hereof; and
(k) They comply in all respects with all applicable
laws and regulations, including, but not limited to,
truth-in-lending and consumer credit disclosure laws and
regulations and, in the case of Account Debtors who are
subject to the United States Bankruptcy Code, Section 524(c)
thereof.
9.3 Inventory Warranties and Representations. With respect
to its Inventory, Borrower and each Borrowing Subsidiary warrants
and represents to Lender that Lender may rely, in determining
which items of Inventory listed on any Schedule of Inventory are
Eligible Inventory, on all statements or representations made by
Borrower or a Borrowing Subsidiary or with respect to any such
Schedule and, unless otherwise indicated in writing by Borrower a
Borrowing Subsidiary that:
(a) All Inventory is located on premises listed on
Schedule 9.1(h) hereto;
(b) No Inventory is now, or shall at any time or times
<PAGE>
hereafter be, stored with a bailee, warehouseman or similar
party without Lender's prior written consent an if Lender
gives such consent, Borrower or a Borrowing Subsidiary will
concurrent therewith cause any such bailee, warehouseman or
similar party to issue and deliver to Lender, in form and
substance acceptable to Lender, warehouse receipts therefor
in Lender's name;
(c) No Inventory is under consignment to any Person;
and
(d) All Inventory is currently usable or currently
salable in the normal course of Borrower's or a Borrowing
Subsidiary's business.
9.4 Warranty and Reaffirmation of Warranties and
Representations; Survival of Warranties and Representations.
Each request for an Advance made by Borrower or Borrowing
Subsidiary pursuant to this Agreement or the Other Agreements
shall constitute (i) a warranty and representation by Borrower
and each Borrowing Subsidiary to Lender that there does not then
exist an Event of Default or any event or condition which, with
notice, lapse of time or the making of such advance, would
constitute an Event of Default, except as otherwise notified by
Borrower or a Borrowing Subsidiary and (ii) a reaffirmation as of
the date of said request of the representations and warranties of
Borrower and Borrowing Subsidiaries contained in paragraphs (a)
through (j) of paragraph 9.1 and in paragraphs 9.2 and 9.3 with
respect to Collateral then existing. All representations and
warranties of Borrower and Borrowing Subsidiaries contained in
this Agreement and the Other Agreements shall survive the
execution, delivery and acceptance thereof by the parties thereto
and the closing of the transactions described therein or related
thereto.
10. COVENANTS AND CONTINUING AGREEMENTS.
10.1 Affirmative Covenants. Borrower and each Borrowing
Subsidiary covenants that it shall:
(a) Keep books of account and prepare financial
statements and shall cause to be furnished to Lender the
following (all of the foregoing and following to be kept and
prepared in accordance with GAAP):
(i) as soon as available, but not later than
seven days after the date of this Agreement, audited
consolidated financial statements of Borrower and its
Subsidiaries as at March 1, 1997, certified by a firm
of independent certified public accountants of
recognized standing, reasonably acceptable to Lender
and selected by Borrower (and which has acknowledged a
letter of the type referred to in paragraph 12.4(k))
which do not reflect changes, if any, of greater than
5% in any material item from those presented to Lender
prior to the date of this Agreement;
(ii) as soon as available, but not later than
ninety (90) days after the close of each Fiscal Year of
Borrower hereafter, audited consolidated financial
statements of Borrower and its Subsidiaries as at the
end of such year certified by a firm of independent
certified public accountants of recognized standing,
reasonably acceptable to Lender and selected by
Borrower (and which has acknowledged a letter of the
type referred to in paragraph 12.4(k)), together with
any management letter or other letters or certificates
supplied by Borrower to such accountants;
(iii) concurrently with the delivery of the
financial statements described in subsection (ii)
above, (a) a statement in reasonable detail showing the
calculations used in determining the financial
covenants, and (b) a certificate of such certified
public accountants certifying to Lender that, based
upon their examination of the affairs of Borrower and
<PAGE>
its Subsidiaries performed in connection with the
preparation of said financial statements, they are not
aware of the existence of any condition or event which
constitutes or would, upon notice or lapse of time or
both, constitute an Event of Default or, if they are
aware of such condition or event, the nature thereof;
(iv) as soon as available, but not later than
twenty-five (25) days after the end of each month
thereafter, unaudited interim internal, consolidating
and consolidated income statements, an unaudited
internal consolidated balance sheet and an unaudited
internal consolidated statement of cash flows of
Borrower and its Subsidiaries as at the end of the
portion of Borrower's Fiscal Year then elapsed,
together with: (a) a statement in reasonable detail
showing the calculations used in determining the
financial covenants, and (b) the certification of
Borrower's principal financial officer that all such
financial statements were prepared in accordance with
GAAP (subject to normal year-end adjustments and the
absence of footnotes) and fairly present the financial
position and results of operations of Borrower and its
Subsidiaries for such period;
(v) as soon as possible, but not later than
thirty (30) days following the beginning of each Fiscal
Year, a copy of Borrower's operating plan for such
Fiscal Year, as approved by Borrower's Board of
Directors, which shall include monthly cash flow
projections for Borrower and each of its Subsidiaries
and operating groups on a consolidating and
consolidated basis, and a capital expenditure budget,
all in reasonable detail;
(vi) such other data and information
(financial and otherwise) as Lender, from time to time,
may reasonably request, bearing upon or related to the
Collateral, Borrower's and each Borrowing Subsidiary's
financial condition or results of operations;
(b) Promptly upon, but in no event later than three
Business Days after, Borrower's or a Borrowing Subsidiary's
learning thereof, inform Lender, in writing, of (i) any
material delay in Borrower's or a Borrowing Subsidiary's
performance of any of its obligations to any Account Debtor
and of any assertion of any material claims, offsets or
counterclaims by any Account Debtor and of any material
allowances, credits or other monies granted by Borrower or a
Borrowing Subsidiary to any Account Debtor; (ii) all
material adverse information relating to the financial
condition of any Account Debtor; (iii) any facts relating to
any Account or Inventory which would render untrue any
representation or warranty made pursuant to paragraphs 9.2
or 9.3 hereof with respect to such Account or Inventory;
(iv) any litigation affecting Borrower or a Borrowing
Subsidiary, whether or not the claim is considered by
Borrower or such Borrowing Subsidiary to be covered by
insurance, and of the institution of any suit or
administrative proceeding which litigation, suit or
administrative proceeding could reasonably be expected to
have a Material Adverse Effect; and (v) a default by any
party under any Department License.
(c) Keep and maintain the Equipment in good operating
condition and repair; make all necessary replacements
thereof so that the value and operating efficiency thereof
shall at all times be maintained and preserved; promptly
inform Lender of any additions to or deletions from the
Equipment; and prevent any such Equipment from becoming a
fixture to real estate or accession to other personal
property;
(d) Pay, and cause its Subsidiaries to pay, promptly
when due, all of the changes and promptly discharge any
liens, encumbrances or other claims against the Collateral;
(e) Maintain, and cause each Subsidiary to maintain,
such insurance as may be required by law and such other
<PAGE>
insurance to such extent and against such hazards and
liabilities as is customarily maintained by companies
similarly situated, and include Lender as an additional
insured on all liability policies;
(f) Comply, and cause each Subsidiary to comply,
strictly and in all respects with all applicable
Environmental Laws, notify Lender, and cause each Subsidiary
to notify Lender, promptly in the event of any Release of
any Hazardous Substance reportable under Section 103 of
CERCLA upon any premises owned or operated by Borrower or
any Subsidiary, and promptly forward, and cause each
Subsidiary to promptly forward, to Lender a copy of any
order, notice, permit, application, or any other
communication or report in connection with any such Release
of any Hazardous Substance or any other matter relating to
the Environmental Laws as they may affect such premises.
Borrower shall indemnify Lender and hold Lender harmless
from and against any loss, liability, damage or expense,
including attorneys' fees, suffered or incurred by Lender,
whether as mortgagee pursuant to any mortgage or leasehold
mortgage, as mortgagee in possession, or as successor in
interest to Borrower or any of its Subsidiaries as owner or
lessee of any premises by virtue of foreclosure or
acceptance of deed in lieu of foreclosure (i) under or on
account of the Environmental Laws, including the assertion
of any lien thereunder; and (ii) with respect to any Release
of any Hazardous Substance whether or not reportable under
Section 103 of CERCLA affecting such premises or facility,
whether or not the same originates or emanates from such
premises or any contiguous real estate, including any loss
of value of such premises as a result of a Release of any
Hazardous Substance; provided, however, that Borrower will
not be liable for such indemnification to Lender to the
extent that any such loss, liability, damage or expense
results from the gross negligence or willful misconduct of
the Person who would otherwise be entitled to be indemnified
pursuant to this paragraph 10.1(f);
(g) Keep or cause to be kept in full force and effect
each Department License;
(h) Furnish to Lender (i) promptly after the filing
thereof with the Commission, a copy of each report, notice
or other filing, if any, by Borrower with the Commission,
and (ii) a copy of each written communication received by
Borrower from or delivered by Borrower to the Commission,
promptly after such receipt or delivery; and
(i) Obtain and perfect first priority security
interests on all merchandise sold on credit and, in the case
of Account Debtors who are subject to the United States
Bankruptcy Code (the "Bankruptcy Code"), to the extent
Borrower or a Borrowing Subsidiary accepts payment from such
Account Debtor, with respect to obligations incurred prior
to the Account Debtor becoming subject to the Bankruptcy
Code, require compliance with respect to Bankruptcy Code
Section 524(c) thereunder.
10.2 Negative Covenants. Without Lender's prior written
consent, which Lender may or may not in its sole discretion give,
Borrower and each Borrowing Subsidiary covenants that it shall
not:
(a) Merge or consolidate with or acquire any Person;
(b) Open any new Owned Stores or Licensed Departments
or make any investment other than in the ordinary course of
its business;
(c) Declare or pay dividends upon any of its capital
stock or make any distributions of its property or assets;
provided that a Borrowing Subsidiary may declare or pay
dividends upon its stock to Borrower;
(d) Redeem, retire, purchase or other-wise acquire,
directly or indirectly, any of its capital stock, or make
any material change in its capital structure or in any of
<PAGE>
its business objectives, purposes and operations which might
in any way adversely affect the repayment of the
Obligations;
(e) Enter into, or be a party to, any transaction with
any Affiliate, except in the ordinary course of and pursuant
to the reasonable requirements of its business and upon fair
and reasonable terms which are fully disclosed to Lender and
are no less favorable to it than would obtain in a
comparable arm's length transaction with a Person not an
Affiliate;
(f) Guarantee or otherwise, in any way, become liable
with respect to the obligations or liabilities of any Person
except (i) its Affiliates' obligations to Lender and (ii) by
endorsement of instruments or items of payment for deposit
to its general account or for delivery to Lender on account
of the Obligations;
(g) Except as otherwise expressly permitted herein or
in the Other Agreements, encumber, pledge, mortgage, grant a
security interest in, assign, sell (except for the sale of
inventory and property in the ordinary course of business),
lease or otherwise dispose of or transfer, whether by sale,
merger, consolidation, liquidation, dissolution, or
otherwise, any of its assets;
(h) Make any loans or advances of money to any Person
(other than intercompany loans between Borrower and
Borrowing Subsidiaries), including, without limitation, its
employees or Affiliates (other than salary and routine
travel or expense account advances made in the ordinary
course of business) or permit the annual salary and bonus,
including any stock option or incentive plans, to its
officers to exceed the amounts set forth in Schedule 10.2
except as such amounts and all other direct and indirect
remuneration may be adjusted for cost of living increases,
without the prior written consent of Lender;
(i) Make Capital Expenditures (including Capital
Leases) during any Fiscal Year, which, in the aggregate,
exceed consolidated depreciation for such Fiscal Year as
determined in accordance with GAAP;
(j) Remove its books and records and/or the Collateral
from the locations set forth in Schedule 9.1(h) or keep any
of such books and records and/or the Collateral at any other
office(s) or location(s) unless (i) Borrower gives Lender
written notice thereof and of the new location of said books
and records and/or the Collateral at least thirty (30) days
prior thereto and (ii) the other office or location is
within the continental United States of America;
(k) Create, incur, assume or have outstanding any
Indebtedness, except: (i) Indebtedness owing to Lender; (ii)
Indebtedness incurred by it in the ordinary course of
business, other than Indebtedness for borrowed money; or
(iii) Indebtedness existing on the date hereof and listed in
Schedule 9.1(o);
(l) Create or permit any Lien on any of its properties
or assets except: (i) presently existing or hereinafter
created Liens in favor of Lender; and (b) Permitted Liens;
or
(m) Create any new Subsidiaries or permit any
Subsidiary to incur Indebtedness or other fixed or
contingent obligations of more than $100,000 in any Fiscal
Year or to accept or incur any obligations for trade credit
other than to the Borrower.
10.3 Financial Covenants.
(a) Borrower and Borrowing Subsidiaries shall
continuously maintain, on a consolidated basis:
(i) For the Fiscal Year ending March 1,
<PAGE>
1997, Consolidated Tangible Net Worth equal to or
greater than Eight Million Five Hundred Thousand
Dollars ($8,500,000) and thereafter Consolidated
Tangible Net Worth equal to greater than Eight Million
Five Hundred Thousand Dollars increased quarterly by
75% of the Borrower's year to date consolidated Net
Income.
(ii) For each period specified below,
Borrower and Borrowing Subsidiaries will not permit
consolidated EBITDA to be less than the amounts set
forth below:
March 1, 1997 through: Amount
May 31, 1997 ($1,100,000)
August 31, 1997 ($2,500,000)
November 30, 1997 ($1,300,000)
February 28, 1998 $2,800,000
Thereafter, Borrower and Borrowing Subsidiaries shall
maintain a minimum ratio of EBITDA to interest expense of
2:00 to 1:00 for each Fiscal Quarter calculated on a rolling
twelve month basis.
(b) Borrower and Borrowing Subsidiaries shall not
permit, as of each Fiscal Year-end, Net Income excluding any
after-tax extraordinary gains or losses plus depreciation
and amortization deducted in determining Net Income for such
period minus (i) Capital Expenditures for such period not
financed and (ii) current principal maturities of long term
debt and Capital Leases paid during such period to be less
than zero.
10.4 Payment of Charges and Claims.
(a) If Borrower or a Borrowing Subsidiary, at any time
or times hereafter, shall fail to pay the Charges when due
or promptly obtain the discharge of such Charges or of any
Lien against the Collateral, subject to the provisions of
paragraph 10.4(b) below, Lender may, without waiving or
releasing any obligation or liability of Borrower and
Borrowing Subsidiaries hereunder or any Event of Default, in
its sole discretion, at any time or times thereafter, make
such payment, or any part thereof, or obtain such discharge
and take any other action with respect thereto which Lender
deems advisable. All sums so paid by Lender and any
expenses, including reasonable attorneys' fees, court costs,
expenses and other charges relating thereto, shall be
payable, upon demand, by Borrower and Borrowing Subsidiaries
to Lender and shall be additional Obligations hereunder
secured by the Collateral.
(b) Borrower or a Borrowing Subsidiary may in good
faith contest, by proper legal actions or proceedings, the
validity or amount of any Charges or claims, and provided
that Borrower or such Borrowing Subsidiary gives Lender
advance notice of its intention to contest the validity or
amount of any such Charge or claim, Lender will forebear
from making any payment or otherwise obtaining the discharge
of such Charge or claim if at the time of the commencement
of any such action or proceeding, and during the pendency
thereof (i) no Event of Default shall have occurred and be
continuing, (ii) reserves with respect thereto are
maintained on the books of Borrower or such Borrowing
Subsidiary in an amount acceptable to Lender, (iii) such
contest operates to suspend collection of the contested
Charges or claims and is maintained and prosecuted
continuously with diligence, (iv) none of the Collateral
will be subject to forfeiture or loss of any Lien in favor
of Lender by reason of the institution or prosecution of
such contest, (v) no Lien shall exist for such Charges or
claims during such action or proceeding, (vi) Borrower or
such Borrowing Subsidiary shall promptly pay or discharge
<PAGE>
such contested Charges and all additional charges,
interests, penalties and expenses, if any, and shall deliver
to Lender evidence acceptable to Lender of such compliance,
payment or discharge, if such contest is terminated or
discontinued adversely to Borrower or such Borrowing
Subsidiary, and (vii) Lender has not advised Borrower or
such Borrowing Subsidiary in writing that Lender reasonably
believes that non-payment or non-discharge thereof would
have a Material Adverse Effect.
11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT.
11.1 Events of Default. The occurrence of any one or more
of the following events shall constitute an "Event of Default".
(a) Borrower and Borrowing Subsidiaries fail to pay
the Obligations when due and payable or declared due and
payable;
(b) Lender notifies Borrower and Borrowing
Subsidiaries that the outstanding balance of the Advances
exceeds the limitation set forth under paragraph 2.1(a) and
such condition is not corrected within two (2) Business Days
after such notice;
(c) Borrower and Borrowing Subsidiaries fail or
neglect to perform, keep or observe any of the provisions of
paragraphs 10.2 and 10.3;
(d) Borrower or a Borrowing Subsidiary or any
Affiliate or any guarantor of the Obligations fails to
perform, keep or observe any other term, provision,
condition, covenant, warranty or representation contained in
this Agreement or in the Other Agreements, which is required
to be performed, kept or observed by Borrower or such
Borrowing Subsidiary or such Affiliate or such guarantor,
and such failure is not cured to Lender's satisfaction
within thirty (30) days after Lender gives Borrower and
Borrowing Subsidiaries written notice identifying such
failure;
(e) A default shall occur under any agreement,
document or instrument, other than this Agreement or the
Other Agreements, to which Borrower or a Borrowing
Subsidiary is a party, the consequences of which could have
a Material Adverse Effect;
(f) Any statement, report, financial statement or
certificate made or delivered by Borrower or a Borrowing
Subsidiary, or any of its officers, employees or agents, to
Lender is untrue, incomplete or incorrect in any material
respect;
(g) There shall occur any material uninsured damage
to, or loss, theft, or destruction of, any of the
Collateral;
(h) The Collateral or any other of Borrower's or a
Borrowing Subsidiary's assets are attached, seized, levied
upon or subjected to a writ or distress warrant, or come
within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors and the same is not
cured within forty-five (45) days thereafter; an application
is made by any Person, other than Borrower or a Borrowing
Subsidiary, for the appointment of a receiver, trustee, or
custodian for any of Borrower's or a Borrowing Subsidiary's
assets and the same is not dismissed within forty-five (45)
days after the application therefor;
(i) Borrower or a Borrowing Subsidiary is the subject
of an Insolvency Proceeding;
(j) Borrower or a Borrowing Subsidiary ceases to
conduct its business as now conducted or is enjoined,
restrained or in any way prevented by court order from
conducting all or any material part of its business affairs;
a petition under any section or chapter of the Bankruptcy
Code or any similar law or regulation is filed against
Borrower or a Borrowing Subsidiary or any case or proceeding
is filed against Borrower or a Borrowing Subsidiary for its
<PAGE>
dissolution or liquidation, and such injunction, restraint
or petition is not dismissed within forty-five (45) days
after the entry or filing thereof;
(k) A notice of lien, levy or assessment is filed of
record with respect to all or any of Borrower's or a
Borrowing Subsidiary's assets by the United States, or any
department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental agency,
including, without limitation, the Pension Benefit Guaranty
Corporation, or if any taxes or debts owing at any time or
times hereafter to any one of these becomes a lien or
encumbrance upon any of Borrower's or a Borrowing
Subsidiary's assets and the same is not released within
thirty (30) days after the same becomes a lien or
encumbrance; provided that Borrower or such Borrowing
Subsidiary shall have the right to contest in good faith and
by appropriate proceedings any such lien, levy or assessment
if Borrower or such Borrowing Subsidiary provides Lender
with a bond or indemnity satisfactory to Lender assuring the
payment of such lien, levy or assessment;
(l) Borrower or a Borrowing Subsidiary becomes
insolvent or admits in writing its inability to pay its
debts as they mature;
(m) Borrower or a Borrowing Subsidiary fails to (i)
furnish Lender, within fifteen (15) days thereafter, with
written notice upon the occurrence of any of the following
events: (a) the happening of a Reportable Event with respect
to any pension plan of Borrower or such Borrowing Subsidiary
governed by ERISA, (b) the termination of any such plan, (c)
the appointment of a trustee by an appropriate United States
District Court to administer any such plan, or (d) the
institution of any proceedings by the Pension Benefit
Guaranty Corporation to terminate any such plan or to
appoint a trustee to administer any such plan; or (H) notify
Lender promptly upon receipt by Borrower or any Borrowing
Subsidiary of any notice of the institution of any
proceeding or other action which may result in the
termination of such plan;
(n) A default shall occur under any other agreement,
document or instrument to which Borrower or a Borrowing
Subsidiary is a party and such default is not cured within
any applicable grace period, waived in writing or being
contested pursuant to the provisions of paragraph 10.4
hereof, and such default (i) involves the failure to make
any payment when due in respect of any Indebtedness (other
than the Obligations) of Borrower or a Borrowing Subsidiary
in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate, or (ii) causes such Indebtedness or a portion
thereof in excess of One Hundred Thousand Dollars ($100,000)
in the aggregate to become due prior to its stated maturity
or prior to its regularly scheduled dates of payment, or
(iii) permits any holder of such Indebtedness or a trustee
to cause such Indebtedness or a portion thereof in excess of
One Hundred Thousand Dollars ($100,000) in the aggregate to
become due prior to its stated maturity or prior to the
regularly scheduled dates of payment and such default is not
cured or waived within thirty (30) days after the occurrence
thereof;
(o) Any other event shall have occurred and be
continuing which could reasonably be expected to have a
Material Adverse Effect and Lender shall have given Borrower
and Borrowing Subsidiaries at least ten (10) days' notice
thereof.
11.2 Acceleration of the Obligations. Upon the occurrence
and continuation of an Event of Default, all of the Obligations
may, at the option of Lender and without demand, notice, or legal
process of any kind, be declared, and immediately shall become,
due and payable.
11.3 Remedies. Upon the occurrence and during the
continuation of an Event of Default, Lender shall have the
following rights and remedies:
(a) The right to terminate the financing arrangements
under this Agreement and the Other Agreements;
<PAGE>
(b) In addition to any other rights and remedies
contained in this Agreement and in all of the Other
Agreements, all of the rights and remedies of a secured
party under the UCC or other applicable law, all of which
rights and remedies shall be cumulative and non-exclusive,
to the extent permitted by law;
(c) The right to open Borrower's and each Borrowing
Subsidiary's mail and collect any and all amounts due
Borrower and a Borrowing Subsidiary from Account Debtors;
(d) The right to (i) enter upon the premises of
Borrower and each Borrowing Subsidiary, without any
obligation to pay rent to Borrower or such Borrowing
Subsidiary, through self-help and without judicial process,
without first obtaining a final judgment or giving Borrower
or such Borrowing Subsidiary notice and opportunity for a
hearing on the validity of Lender's claim, or any other
place or places where the Collateral is located and kept,
and remove the Collateral therefrom to the premises of
Lender or any agent of Lender, for such time as Lender may
desire, in order to effectively collect or liquidate the
Collateral, or (ii) require Borrower and Borrowing
Subsidiaries to assemble the Collateral and make it
available to Lender at a place to be designated by Lender,
in its sole discretion;
(e) The right to (i) sell or to otherwise dispose of
all or any Collateral at public or private sale or sales,
with such notice as may be required by law, in lots or in
bulk, for cash or on credit, all as Lender, in its sole
discretion, may deem advisable; (ii) adjourn such sales from
time to time with or without notice; (iii) conduct such
sales on Borrower's or a Borrowing Subsidiary's premises or
elsewhere and use Borrower's or a Borrowing Subsidiary's
premises without charge for such sales for such time or
times as Lender may see fit. Lender is hereby granted a
license or other right to use, without charge, Borrower's
and each Borrowing Subsidiary's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and
Borrower's and each Borrowing Subsidiary's rights under all
licenses and all franchise agreements shall inure to
Lender's benefit. Lender shall have the right to sell,
lease or otherwise dispose of the Collateral, or any part
thereof, for cash, credit or any combination thereof, and
Lender may purchase all or any part of the Collateral at
public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may setoff the amount
of such price against the Obligations. The proceeds
realized from the sale of any Collateral shall be applied
first to the reasonable costs, expenses and attorneys' fees
and expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage, sale
and delivery of the Collateral; second to interest due upon
any of the Obligations; and third to the principal of the
Obligations. If any deficiency shall arise, Borrower and
Borrowing Subsidiaries shall remain liable to Lender
therefor.
11.4 Notice. Any notice required to be given by Lender of
a sale, lease, other disposition of the Collateral or any other
intended action by Lender, if given ten (10) days prior to such
proposed action, shall constitute commercially reasonable and
fair notice thereof to Borrower and Borrowing Subsidiaries.
11.5 Marshalling; Payments Set Aside. Lender shall be under
no obligation to marshall any assets in favor of Borrower and
Borrowing Subsidiaries or any other party or against or in
payment of any or all of the Liabilities. To the extent that
Borrower and Borrowing Subsidiaries make a payment or payments to
Lender or Lender enforces its security interests or exercises its
rights of set-off, and such payment or payments or the proceeds
of such enforcement or set-off or any part thereof are
<PAGE>
subsequently invalidated, declared to be fraudulent or
preferential, set-aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable cause, then to the
extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not
been made or such enforcement or set-off had not occurred.
12. CONDITIONS PRECEDENT.
This Agreement shall become effective upon the satisfaction
of the following conditions precedent:
12.1 Excess Revolving Loan Availability. Lender shall have
determined, in its sole discretion, that immediately after Lender
has made the loans and advances to Borrower and Borrowing
Subsidiaries contemplated hereby, Excess Availability will not be
less than Two Million Dollars ($2,000,000).
12.2 Financial Statements. Lender shall have received and
reviewed with Borrower's independent certified public accountants
a draft of the audited consolidated financial statements of
Borrower and its Subsidiaries as of March 1, 1997, and such
financial statements shall be satisfactory to Lender in its sole
discretion.
12.3 Execution and Delivery of Agreement. This Agreement
or counterparts thereof shall have been duty executed by, and
delivered to, Borrower, Borrowing Subsidiaries and Lender.
12.4 Documents and Other Agreements. Lender shall have
received all of the following, each in form and substance
satisfactory to Lender:
(a) Revolving Note of Borrower and Borrowing
Subsidiaries payable to Lender as required by paragraph
2.1;
(b) Term Note of Borrower and Borrowing
Subsidiaries payable to Lender as required by paragraph
2.3;
(c) A Certificate of the Secretary of Borrower
and each Borrowing Subsidiary, together with true and
correct copies of the Articles or Certificate of
Incorporation and By-Laws of Borrower or such Borrowing
Subsidiary, and all amendments thereto, and correct
copies of the resolutions of the Board of Directors of
Borrower or Borrowing Subsidiary authorizing or
ratifying the execution, delivery and perform of this
Agreement and the Other Agreements to be executed by
Borrower or Borrowing Subsidiary, and the names of the
officer or officers of 'Borrower or Borrowing
Subsidiary authorized to sign said documents, together
with a sample of true signature of each such officer;
(d) The Opinion of Samuel B. Garber, Esq.,
addressed to Lender, in the form of Exhibit B attached
hereto and made a part hereof;
(e) Articles or Certificate of Incorporation of
Borrower and each Borrowing Subsidiary, certified by
the Secretary of State of the jurisdiction of
incorporation of Borrower or such Borrowing Subsidiary;
(f) Good Standing Certificates for Borrower and
each Borrowing Subsidiary from the Secretaries of State
of each state in which Borrower or such Borrowing
Subsidiary is authorized to do business;
(g) UCC lien search reports of filings against
Borrower and each Borrowing Subsidiary and tax lien and
judgment searches relating to Borrower and each
Borrowing Subsidiary for such jurisdictions as Lender
deems appropriate;
<PAGE>
(h) UCC financing statements filed against
Borrower and each Borrowing Subsidiary in respect to
the locations listed in paragraph 9.1 (h);
(i) Trademark Collateral Assignment and Security
Agreement respecting those trademarks, trade names and
related licenses described on Schedule 9.1(r)
(j) Pledge Agreement with respect to the issued
and outstanding capital stock of each of the Borrowing
Subsidiaries.
(k) A letter from Borrower to its independent
certified public accountant advising that Borrower
intends Lender to rely on the opinions and reports of
such accountants described in paragraph 10.1(a)(i),
(ii) and (iii);
(l) Depository Account Agreements;
(m) Appraisals of the Inventory prepared by BGA
Consulting, a division of Buxbaum, Ginsberg &
Associates, Inc.;
(n) Appraisal of the State Street Property
prepared by Gadd, Tibble & Associates, Inc.;
(o) Duly executed and acknowledged Leasehold
Mortgage covering the State Street Property, together
with evidence, of the payment of all recording charges
and taxes and filing fees incurred in connection with
the recording of the Leasehold Mortgage required
hereunder;
(p) (i) Mortgagee title insurance policies issued
by the Title Company insuring the Leasehold Mortgage is
a valid first priority Lien on the Real Property
described in such Leasehold Mortgage, subject only to
such exceptions to title as shall be acceptable to
Lender in its reasonable discretion and containing such
endorsements and affirmative insurance as Lender may
require, and true copies of each document, instrument
or certificate required by the terms of each such title
insurance policy, and/or Leasehold Mortgage, to be, or
to have been, filed, recorded, executed or delivered in
connection therewith, and (ii) opinions satisfactory to
Lender of local counsel retained by Lender with respect
to the validity, enforceability and priority of such
Leasehold Mortgage;
(q) Duly executed licensor or landlord waivers
from all licensor's or lessors under all Department
Licenses and all Leases, in form and substance
satisfactory to Lender;
(r) Originals or copies of each policy of
insurance, and evidence of payment of all premiums
therefor, together with a properly executed Lender's
Loss Payable Clause;
(s) Officers' Solvency Certificate in the form of
Exhibit C hereto from Borrower's chief executive
officer and chief financial officer;
(t) Pay-Off Letters and releases and UCC
termination statements with respect to existing liens
and encumbrances affecting the Collateral;
(u) Subordination Agreement between Lender and
Gilson Incorporated in form and substance satisfactory
to Lender; and
(v) Such additional materials as Lender may
reasonably request.
<PAGE>
12.5 Absence of Material Adverse Change. As of the date
hereof, since March 1, 1997, there shall have been (i) no
material adverse change in the business, financial or other
condition of Borrower or its Subsidiaries or in the Collateral or
in the prospects or projections of Borrower and its Subsidiaries,
(H) no material increase in the Indebtedness of Borrower or any
Subsidiary, whether or not disclosed or required to be reserved
against on any pro bono balance sheet, and (iii) no material
decrease in the assets of Borrower or its Subsidiaries nor any
distribution by Borrower or either Borrowing Subsidiary either by
dividends or otherwise, except such distributions as would be
permitted by paragraph 10.2 hereof. As of the date hereof, no
litigation against Borrower or its Subsidiaries shall have been
commenced or threatened which, if successful, would be materially
adverse to Borrower and its Subsidiaries or challenge any
transaction contemplated by this Agreement, and the financing
contemplated by this Agreement would not violate any agreement of
Borrower or any of its Subsidiaries or any law, statute, court
order, administrative rule or regulation by which Borrower or its
Subsidiaries are bound. Borrower and its Subsidiaries shall have
paid its Indebtedness in accordance with good business and
historical practices.
12.6 Conditions to the Initial Advance the Term Loan and to
the Issuance of the Initial Letter of Credit. It shall be a
condition to the Term Loan, the initial Advance and to the
issuance of the initial Letter of Credit that the conditions
contained in paragraphs 12.1, 12.2, 12.3, 12.4 and 12.5 shall
have been fulfilled and that Borrower shall have delivered to
Lender a Borrowing Base Certificate (as of the day immediately
preceding the day of the requested initial Advance or issuance of
the initial Letter of Credit).
12.7 Conditions to Each Advance and the Issuance of Each
Letter of Credit. It shall be a further condition to the funding
of each initial Advance and each subsequent Advance after the
initial Advance and the issuance of the initial Letter of Credit
and each subsequent Letter of Credit after the issuance of the
initial Letter of Credit that the following statements shall be
true on the date of each such advance or issuance:
(a) All of the representations and warranties of
Borrower and Borrowing Subsidiaries contained herein shall
be correct in all material respects on and as of the date of
each such Advance and the issuance of each such Letter of
Credit as though made on and as of such date, except (i) to
the extent that any such representation or warranty
expressly relates to an earlier date, and (ii) for changes
therein permitted or contemplated by this Agreement. All of
the representations and warranties of Borrower and Borrowing
Subsidiaries contained in any of the Other Agreements shall
be correct in all material respects as of the date
delivered, except to the extent that any such representation
or warranty expressly relates to an earlier date.
(b) No event shall have occurred and be continuing, or
would result from the funding of the Advance or the issuance
of such Letter of Credit, which constitutes or would
constitute a Default or an Event of Default.
(c) The sum of the aggregate unpaid principal amount
of all Advances plus the outstanding Letter of Credit
Obligations, after giving effect to such Advance or the
issuance of such Letter of Credit, shall not exceed the
lesser of (i) the Borrowing Base or (ii) the Revolving Loan
Commitment.
The acceptance by Borrower and Borrowing Subsidiaries of the
proceeds of any Advance shall be deemed to constitute, as of the
date of such acceptance, (i) a representation and warranty by
Borrower and Borrowing Subsidiaries that the conditions in this
paragraph 12.7 have been satisfied, and (ii) a confirmation by
Borrower and Borrowing Subsidiaries of the granting and
continuance of Lender's Lien pursuant hereto.
13. INDEMNIFICATION. Borrower and each Borrowing
<PAGE>
Subsidiary agrees to defend (with counsel reasonably satisfactory
to Lender), protect, indemnify and hold harmless (to the fullest
extent permitted by law) Lender, each affiliate or subsidiary of
Lender, and each of their respective officers, directors,
employees, attorneys, agents and attorneys-in-fact (each an
"Indemnified Party") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or
nature (including, without limitation, the disbursements and the
reasonable fees of counsel for each Indemnified Party in
connection with any investigative, administrative or judicial
proceeding, whether or not the Indemnified Party shall be
designated a party thereto), which may be imposed on, incurred
by, or asserted against, any Indemnified Party (whether direct,
indirect or consequential and whether based on any federal, state
or local laws or regulations including, without limitation,
securities, environmental and commercial laws and regulations,
under common law or in equity, or based on contract or otherwise)
in any manner relating to or arising out of the execution,
delivery, enforcement, performance and administration of this
Agreement or any Other Agreement, or any act, event, transaction
or omission, related or attendant thereto, the making and the
management of the Loans or any Letters of Credit or the use or
intended use of the proceeds of the Loans or any Letters of
Credit and with respect to any investigation, litigation or
proceeding related to this Agreement or the Other Documents;
provided, however, that Borrower shall not have any obligation
hereunder to any Indemnified Party with respect to matters caused
by or resulting from the willful misconduct or gross negligence
of such Indemnified Party. To the extent that the undertaking to
indemnify set forth in the preceding sentence may be
unenforceable because it is violative of any law or public
policy, Borrower and each Borrowing Subsidiary shall satisfy such
undertaking to the maximum extent permitted by applicable law.
Any liability, obligation, loss, damage, penalty, cost or expense
covered by this indemnity shall be paid to each Indemnified Party
on demand, and, failing prompt payment, shall, together with
interest thereon at the highest rate then applicable to Advances
hereunder from the date incurred by each Indemnified Party until
paid by Borrower and Borrowing Subsidiaries, be added to the
Obligations of Borrower and Borrowing Subsidiaries and be secured
by the Collateral. The provisions of this paragraph 13 shall
survive the satisfaction and payment of the Obligations and the
termination of this Agreement.
14. MISCELLANEOUS.
14.1 Modification of Agreement: Sale of Interest. This
Agreement and the Other Agreements may not be modified, altered
or amended, except by an agreement in writing signed by Borrower,
Borrowing Subsidiaries and Lender. Borrower and Borrowing
Subsidiaries may not sell, assign or transfer this Agreement, or
the Other Agreements or any portion thereof, including, without
limitation, their rights, title, interests, remedies, powers,
and/or duties hereunder or thereunder. Borrower and each
Borrowing Subsidiary hereby consents to Lender's participation,
sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement, or the Other Agreements, or
of any portion hereof or thereof, including, without limitation,
Lender's rights, title, interests, remedies, powers, and/or
duties hereunder or thereunder.
14.2 Expenses (Including Attorneys' Fees). Borrower and
each Borrowing Subsidiary shall reimburse Lender on demand for
all of its expenses (including, but not limited to, reasonable
attorneys' fees) of, or incidental to:
(a) The preparation of this Agreement, all Other
Agreements, any amendment of or modification of this
Agreement or the Other Agreements;
(b) Any litigation, contest, dispute, suit, proceeding
or action (whether instituted by Lender, Borrower, a
Borrowing Subsidiary or any other Person) in any way
relating to the Collateral, this Agreement, the Other
Agreements or Borrower's or a Borrowing Subsidiary's
affairs;
<PAGE>
(c) Any Default or Event of Default or advice or any
action in connection with any Default or Event of Default,
or any attempt to enforce any rights of Lender or any
Participant against Borrower, a Borrowing Subsidiary or any
other Person which may be obligated to Lender by virtue of
this Agreement or the Other Agreements, including, without
limitation, the Account Debtors;
(d) Any attempt to inspect, verify, protect, collect,
sell, liquidate or otherwise dispose of the Collateral;
and/or
(e) Examination of Borrower's and Borrowing
Subsidiaries' books and records and the Collateral,
including auditor fees of Six Hundred Dollars ($600) per
auditor per day plus expenses.
Such expenses shall be additional Obligations hereunder
secured by the Collateral. Without limiting the generality of
the foregoing, such expenses, costs, charges and fees may include
paralegal fees, costs and expenses; accountants' fees, costs and
expenses; court costs and expenses; photocopying and duplicating
expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges;
secretarial over-time charges; and expenses for travel, lodging
and food.
14.3 Waiver by Lender. Lender's failure, at any time or
times hereafter, to require strict performance by Borrower or a
Borrowing Subsidiary of any provision of this Agreement shall not
waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance. Any suspension or
waiver by Lender of an Event of Default by Borrower or a
Borrowing Subsidiary under this Agreement or the Other Agreements
shall not suspend, waive or affect any other Event of Default by
Borrower or a Borrowing Subsidiary under this Agreement or the
Other Agreements, whether the same is prior or subsequent thereto
and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and
representations of Borrower and Borrowing Subsidiaries contained
in this Agreement or the Other Agreements and no Event of Default
by Borrower or a Borrowing Subsidiary under this Agreement or the
Other Agreements shall be deemed to have been suspended or waived
by Lender, unless such suspension or waiver is by an instrument
in writing signed by an officer of Lender and directed to
Borrower and Borrowing Subsidiaries specifying such suspension or
waiver.
14.4 Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law. If, however, any
provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of
this Agreement, unless the ineffectiveness of such provision
materially and adversely alters the benefits accruing to either
party hereunder.
14.5 Parties. This Agreement and the Other Agreements shall
be binding upon and inure to the benefit of the successors and
assigns of Borrower and each Borrowing Subsidiary and Lender.
This provision, however, shall not be deemed to modify paragraph
14.1 hereof.
14.6 Joint and Several Liability; Rights of Contribution.
(a) Borrower and each Borrowing Subsidiary states and
acknowledges that: (i) pursuant to this Agreement, Borrower
and each Borrowing Subsidiary desire to utilize their
borrowing potential on a consolidated basis to the same
extent possible if they were merged into a single corporate
entity; (ii) it has determined that it will benefit
specifically and materially from the advances of credit
contemplated by this Agreement; (iii) it is both a condition
precedent to the obligations of Lender hereunder and a
desire of Borrower and each Borrowing Subsidiary that each
<PAGE>
Borrower and Borrowing Subsidiary execute and deliver to
Lender this Agreement; and (iv) Borrower and each Borrowing
Subsidiary have requested and bargained for the structure
and terms of security for the advances contemplated by this
Agreement.
(b) Borrower and each Borrowing Subsidiary hereby
irrevocably and unconditionally: (i) agree that it is
jointly and severally liable to Lender for the full and
prompt payment of all the Obligations and the full and
prompt performance of all obligations of Borrower or any
Borrowing Subsidiary under this Agreement or any Other
Agreement, notwithstanding anything herein or in any Other
Agreement specifying that a particular party is responsible
for a given payment or performance; (ii) agrees to fully and
promptly perform all of its obligations hereunder with
respect to each advance of credit hereunder as if such
advance had been made directly to it; and (iii) agrees as a
primary obligation to indemnify Lender on demand for and
against any loss incurred by Lender as a result of any of
the obligations of the Borrower or any Borrowing Subsidiary
being or becoming void, voidable, unenforceable or
ineffective for any reason whatsoever, whether or not known
to Lender or any Person, the amount of such loss being the
amount which Lender would otherwise have been entitled to
recover from Borrower or any Borrowing Subsidiary.
(c) Notwithstanding anything herein, it is the desire
and intent of each of the parties hereto that this Agreement
shall be enforced against Borrower and each Borrowing
Subsidiary to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which
enforcement is sought. If, however, and to the extent that,
the obligations of Borrower or a Borrowing Subsidiary under
this Agreement shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation,
because of any applicable state or federal law relating to
fraudulent conveyances or transfers), then the amount of the
Obligations of such Borrower or Borrowing Subsidiary shall
be deemed to be reduced and such Borrower or Borrowing
Subsidiary shall pay the maximum amount of the Obligations
which would be permissible under applicable law.
14.7 Conflict of Terms. The Other Agreements and all
Schedules and Exhibits hereto are incorporated in this Agreement
by this reference thereto. Except as otherwise provided in this
Agreement and except as otherwise provided in the Other
Agreements by specific reference to the applicable provision of
this Agreement, if any provision contained in this Agreement is
in conflict with, or inconsistent with, any provision in the
Other Agreements, the provision contained in this Agreement shall
govern and control.
14.8 Waivers by Borrower and Borrowing Subsidiaries.
Except as otherwise provided for in this Agreement, Borrower and
each Borrowing Subsidiary waives (i) presentment, demand and
protest and notice of presentment, protest, default, non-payment,
maturity, release, compromise, settlement, extension or renewal
of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time
held by Lender on which Borrower or a Borrowing Subsidiary may in
any way be liable and hereby ratifies and confirms whatever
Lender may do in this regard; (ii) all rights to notice of a
hearing prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, the Collateral or any
bond or security which might be required by any court prior to
allowing Lender to exercise any of Lender's remedies; and (iii)
the benefit of all valuation, appraisement and exemption laws.
Borrower and each Borrowing Subsidiary acknowledges that it has
been advised by counsel with respect to this Agreement and the
transactions evidenced by this Agreement.
14.9 Remedies. Lender's rights and remedies under this
Agreement shall be cumulative and nonexclusive of any other
rights and remedies which Lender may have under any other
agreement, including without limitation, the Other Agreements, by
operation of law or otherwise. Recourse to the Collateral shall
not be required.
14.10 Power of Attorney. Borrower and each Borrowing
<PAGE>
Subsidiary acknowledges and agrees that its appointment of Lender
as its attorney and agent-in-fact for the purposes specified in
this Agreement is an appointment coupled with an interest and
shall be irrevocable until all of the Obligations are paid in
full and this Agreement is terminated.
14.11 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE
MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE
THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF
THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS AGREEMENT OR ANY OF THE OTHER AGREEMENTS.
14.12 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN ANY OF THE OTHER AGREEMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA. LENDER AND BORROWER AND EACH BORROWING
SUBSIDIARY AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE
ANY OBJECTION AS TO VENUE IN COOK COUNTY, ILLINOIS OR NEW YORK
COUNTY, NEW YORK. SERVICE OF PROCESS ON BORROWER OR A BORROWING
SUBSIDIARY OR LENDER IN ANY ACTION ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OTHER AGREEMENTS SHALL BE EFFECTIVE IF
MAILED TO SUCH PARTY AT THE ADDRESS LISTED IN SECTION 14.13
HEREOF. BORROWER AND EACH BORROWING SUBSIDIARY HEREBY
IRREVOCABLY APPOINTS CT CORPORATION SYSTEM AS ITS AGENT FOR THE
PURPOSE OF ACCEPTING THE SERVICE OF ANY PROCESS WITHIN THE STATE
OF NEW YORK. BORROWER, EACH BORROWING SUBSIDIARY AND LENDER
AGREE THAT NOTHING HEREIN SHALL PRECLUDE LENDER OR BORROWER OR
BORROWING SUBSIDIARY FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION.
14.13 Notice. Except as otherwise provided herein, any
notice or demand which, by the provisions hereof, is required or
which may be given to or served upon Borrower, a Borrowing
Subsidiary or Lender shall be in writing and, if by telecopy,
shall be deemed to have been validly served, given or delivered
when transmitted and confirmed by telecopy answerback, if by
personal delivery, shall be deemed to have been validly served,
given or delivered upon actual delivery, if by overnight air
courier, shall be deemed to have been validly served, given or
delivered one (1) Business Day after delivery to the overnight
air courier, and, if mailed, shall be deemed to have been validly
served, given or delivered three (3) Business Days after deposit
in the United States mails, as registered or certified mail, with
proper postage prepaid and addressed to-the party to be notified,
at the following addresses (or such other addressees) as a party
may designate for itself by like notice):
(a) If to Lender, at
Jackson National Life Insurance Company
c/o PPM America, Inc.
225 West Wacker Drive
Chicago, Illinois 60603
Attention: Mr. Martin Battaglia
Telecopier No. (312) 634-0908
(b) If to Borrower or either Borrowing Subsidiary, at:
Evans, Inc.
36 South State Street
Chicago, Illinois 60603
Attention: President
Telecopier No. (312) 855-3138
<PAGE>
with a copy to:
Evans, Inc.
36 South State Street
Chicago, Illinois 60603
Attention: Samuel B. Garber, General Counsel
Telecopier No. (312) 855-3138
14.14 Section Titles. The section titles contained in this
Agreement are and shall be without substantive meaning or content
of any kind whatsoever and are not a part of the agreement
between the parties hereto.
14.15 Entire Agreement. This Agreement and the Other
Agreements set forth the entire agreement of the parties hereto
with respect to the matters addressed herein and therein, and
this Agreement and the Other Agreements supersede all prior
written or oral agreements, documents or instruments respecting
such matters.
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year specified at the beginning hereof.
JACKSON NATIONAL LIFE
INSURANCE COMPANY
By: PPM Finance, Inc.,
Attorney-in-Fact
By: Jeffrey J. Podwicka
EVANS, INC.
By: William E. Koziel
KOSLOW'S, INC.
By: William E. Koziel
EVANS-ROSENDORF OF MARYLAND,
INC.
By: William E. Koziel
<PAGE>
LIST OF EXHIBITS
Exhibit A-1 Form of Note for Revolving Loan
Exhibit A-2 Form of Note for Term Loan
Exhibit B Form of Opinion of Samuel Garber,
Esq.
Exhibit C Form of Solvency Opinion from
Evans, Inc.
<PAGE>
REVOLVING NOTE
$25,000,000
June 16, 1997
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, EVANS, INC., a
Delaware corporation ("Evans") and its subsidiaries, including
KOSLOW'S, INC., a Texas corporation, and EVANS-ROSENDORF OF
MARYLAND, INC., a Delaware corporation (collectively, with Evans,
the "Borrowers"), hereby jointly and severally and unconditionally
promise to pay to the order of JACKSON NATIONAL LIFE INSURANCE
COMPANY, a Michigan insurance corporation ("Jackson" or the
"Lender"), c/o PPM Finance, Inc. at 225 West Wacker Drive, Suite
1200, Chicago, Illinois 60606, or at such other place as the
holder of this Revolving Note may from time to time designate in
writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of Twenty-five
Million and No/100 Dollars ($25,000,000.00), or, if less, the
aggregate unpaid principal amount of all Advances made pursuant
to the "Credit Agreement" (as hereinafter defined), at such times
as are specified in and in accordance with the provisions of the
Credit Agreement. This Revolving Note is referred to in and was
executed and delivered pursuant to that certain Loan and Security
Agreement of even date herewith by and among the Borrowers and
Lender (which hereafter modified or amended in accordance with
its terms, is referred to as the "Credit Agreement"), to which
reference is hereby made for a statement of the terms and
conditions under which the Revolving Loan evidenced hereby was
made and is to be repaid and for a statement of the Lender's
remedies. All terms which are capitalized and used herein (which
are not otherwise specifically defined herein) and which are
defined in the Credit Agreement shall be used in this Revolving
Note as defined in the Credit Agreement. Borrower may pre-pay
and re-borrow the Revolving Loan in whole or in part at any time
and from time to time, subject to the terms and provisions of the
Credit Agreement.
Each of the Borrowers further unconditionally promises
to pay interest on the outstanding unpaid principal amount
hereof, as provided in the Credit Agreement from the date hereof
until payment in full hereof at the applicable rate specified in
subsection 2.4(a) of the Credit Agreement; provided, however,
that if the Lender, in its sole discretion, so elects, following
the occurrence and during the continuance of an Event of Default,
each Borrower promises to pay to Lender interest on the unpaid
principal amount hereof at the applicable rate specified in
subsection 2.4(a) of the Credit Agreement. Interest shall be
calculated on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed and shall be payable
monthly in arrears as specified in the Credit Agreement.
<PAGE>
This Revolving Note is secured by the Collateral
pursuant to the Credit Agreement and the Other Agreements
referred to therein, and reference is made thereto for a
statement of the terms and conditions of such security.
The manner of making payment with respect to this
Revolving Note and the credit therefor shall be governed by the
Credit Agreement and the Other Agreements. In no contingency or
event whatsoever shall interest charged hereunder, however such
interest may be characterized or computed, exceed the highest
rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable
hereto. In the event of any such determination, the provisions
of subsection 2.4(b) of the Credit Agreement shall govern.
This Revolving Note is subject to certain mandatory and
optional prepayments prior to its express maturity date, in the
events, on the terms and conditions and in the amounts set forth
in the Credit Agreement.
Principal payments and prepayments made hereunder shall
be applied in accordance with the Credit Agreement.
EACH OF THE BORROWERS AND EACH ENDORSEE, GUARANTOR AND
SURETY OF THIS REVOLVING NOTE HEREBY WAIVES PRESENTMENT FOR
PAYMENT, PROTEST AND DEMAND, AND NOTICE OF DEMAND, PROTEST,
DISHONOR AND NONPAYMENT OF THIS REVOLVING NOTE. EACH OF THE
BORROWERS ALSO WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND UPON THE OCCURRENCE OF AN EVENT OF DEFAULT PRIOR TO THE
EXERCISE BY THE LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL
WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL WITHOUT NOTICE OR HEARING.
In addition to and not in limitation of the foregoing
and the provisions of the Credit Agreement, the undersigned
further agrees to pay all costs of collection and other expenses,
including reasonable attorneys' fees, court costs and other legal
expenses, incurred by the holder of this Revolving Note in
endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise, if any
suit or action is instituted in order to collect this Revolving
Note or any part thereof.
THIS REVOLVING NOTE HAS BEEN DELIVERED AT CHICAGO,
ILLINOIS AND SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
Whenever possible each provision of this Revolving Note shall be
interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Revolving Note shall
be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Revolving Note. Whenever in
<PAGE>
this Revolving Note reference is made to the Lender, the
Borrowers or Borrower, such reference shall be deemed to include,
as applicable, a reference to their respective successors and
assigns. The provisions of this Revolving Note shall be binding
upon and shall inure to the benefit of such successors and
assigns. Each Borrower's successors and assigns shall include,
without limitation, a receiver, trustee or debtor in possession
of or for such Borrower.
IN WITNESS WHEREOF, each Borrower has executed this
Revolving Note as of the day and year first written above.
EVANS, INC.,
a Delaware Corporation
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
KOSLOW'S, INC.,
a Texas Corporation
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
EVANS-ROSENDORF OF MARYLAND, INC.,
a Delaware Corporation
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
<PAGE>
TERM NOTE
$2,000,000
June 16, 1997
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, EVANS, INC., a
Delaware corporation ("Evans") and its subsidiaries, KOSLOW'S,
INC., a Texas corporation, and EVANS-ROSENDORF OF MARYLAND, INC.,
a Delaware corporation (collectively, with Evans, the "Borrowers"),
hereby jointly and severally and unconditionally promise to pay
to the order of JACKSON NATIONAL LIFE INSURANCE COMPANY, a
Michigan insurance corporation ("Jackson" or the "Lender"), c/o
PPM Finance, Inc. at 225 West Wacker Drive, Suite 1200, Chicago,
Illinois 60606, or at such other place as the holder of this Term
Note may from time to time designate in writing, in lawful money
of the United States of America and in immediately available
funds, the principal sum of Two Million and No/100 Dollars
($2,000,000.00), at such times as are specified in and in
accordance with provisions of the Credit Agreement (as
hereinafter defined). This Term Note is referred to in and was
executed and delivered pursuant to that certain Loan and Security
Agreement of even date herewith by and among the Borrowers and
the Lender, (as hereafter modified or amended in accordance with
its terms, the "Credit Agreement"), to which reference is hereby
made for a statement of the terms and conditions under which the
Term Loan evidenced hereby was made and is to be repaid and for a
statement of the Lender's remedies. All terms which are
capitalized and used herein (which are not otherwise specifically
defined herein) and which are defined in the Credit Agreement
shall be used in this Term Note as defined in the Credit
Agreement.
Each of the Borrowers further unconditionally promises
to pay interest on the outstanding unpaid principal amount
hereof, as provided in the Credit Agreement from the date hereof
until payment in full hereof at the applicable rate specified in
subsection 2.4(a) of the Credit Agreement; provided, however,
that if the Lender, in its sole discretion, so elects, following
the occurrence and during the continuance of an Event of Default,
each Borrower promises to pay to Lender interest on the unpaid
principal amount hereof at the applicable rate specified in
subsection 2.4(a) of the Credit Agreement. Interest shall be
calculated on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed and shall be payable
monthly in arrears as specified in the Credit Agreement.
This Term Note is secured by the Collateral pursuant to
the Credit Agreement and the Other Agreements referred to
therein, and reference is made thereto for a statement of the
terms and conditions of such security.
<PAGE>
The manner of making payment with respect to this Term
Note and the credit therefor shall be governed by the Credit
Agreement and the Other Agreements. In no contingency or event
whatsoever shall interest charged hereunder, however such
interest may be characterized or computed, exceed the highest
rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable
hereto. In the event of any such determination, the provisions
of subsection 2.4(b) of the Credit Agreement shall govern.
This Term Note is subject to certain mandatory and
optional prepayments prior to its express maturity date, in the
events, on the terms and conditions and in the amounts set forth
in the Credit Agreement.
Principal payments and prepayments made hereunder shall
be applied in accordance with the Credit Agreement.
EACH OF THE BORROWERS AND EACH ENDORSEE, GUARANTOR AND
SURETY OF THIS TERM NOTE HEREBY WAIVES PRESENTMENT FOR PAYMENT,
PROTEST AND DEMAND, AND (NOTICE OF DEMAND, PROTEST, DISHONOR AND
NONPAYMENT OF THIS TERM NOTE. EACH OF THE BORROWERS ALSO WAIVES
ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND UPON THE OCCURRENCE
OF AN EVENT OF DEFAULT PRIOR TO THE EXERCISE BY THE LENDER OF ITS
RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT NOTICE OR
HEARING.
In addition to and not in limitation of the foregoing
and the provisions of the Credit Agreement, the undersigned
further agrees to pay all costs of collection and other expenses,
including reasonable attorneys' fees, court costs and other legal
expenses, incurred by the holder of this Term Note in endeavoring
to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise, if any suit or action
is instituted in order to collect this Term Note or any part
thereof.
THIS TERM NOTE HAS BEEN DELIVERED AT CHICAGO, ILLINOIS
AND SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. Whenever possible
each provision of this Term Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if
any provision of this Term Note shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of
this Term Note. Whenever in this Term Note reference is made to
the Lender, the Borrowers or Borrower, such reference shall be
deemed to Include, as applicable, a reference to their respective
successors and assigns. The provisions of this Term Note shall
be binding upon and shall inure to the benefit of such successors
and assigns. Each Borrower's successors and assigns shall
<PAGE>
include, without limitation, a receiver, trustee or debtor in
possession of or for such Borrower.
IN WITNESS WHEREOF, each Borrower has executed this
Term Note as of the day and year first written above.
EVANS, INC.,
a Delaware Corporation
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
KOSLOW'S, INC.,
a Texas Corporation
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
EVANS-ROSENDORF OF MARYLAND, INC.,
a Delaware Corporation
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
<PAGE>
<PAGE>
REAL ESTATE PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE
I. DEFINITIONS
1.01 Definitions
II. PURCHASE AND SALE
2.01 Purchase and Sale
III. PURCHASE PRICE
3.01 Purchase Price
IV. SURVEY
4.01 Survey
V. TITLE AND SEARCHES
5.01 Title
5.02 Searches
VI. POSSESSION, PRORATIONS AND CLOSING COSTS
6.01 Possession
6.02 Prorations
6.03 Closing Costs
VII. ESCROW
7.01 Escrow
VIII. BROKERAGE
8.01 Brokerage
IX. DESTRUCTION OR DAMAGE
9.01 Destruction or Damage
X. CONDEMNATION
10.01 Condemnation
XI. AFFIRMATIVE COVENANTS OF SELLER
11.01 Affirmative Covenants of Seller
<PAGE>
XII. REPRESENTATIONS AND WARRANTIES OF SELLER
12.01 Representations and Warranties of Seller
XIII. REPRESENTATIONS AND WARRANTIES OF PURCHASER
13.01 Representations and Warranties of Purchaser
XIV. CONDITIONS PRECEDENT AND TERMINATION
14.01 General Feasibility and Review
14.03 Truth of Seller's Representations and Warranties and
Performance of Seller's Obligations
14.04 Performance of Purchase's Obligations
XV. CLOSING
15.01 Time and Place
15.02 Seller's Deliveries
15.03 Purchaser's Deliveries
15.04 Concurrent Deliveries
15.05 Closing Documents; Form, Execution and Substance
15.06 New York Style Closing
15.07 Concurrent Transactions
XVI. INDEMNIFICATION
16.01 Seller's Indemnity
16.02 Purchaser's Indemnity
XVII. SELLER'S LEASES
17.01 Seller's Leases
XVIII. ENVIRONMENTAL
18.01 Environmental
IXX. ASSIGNMENT
19.01 Assignment
XX. DEFAULT
20.01 Default
XXI. NOTICES
21.01 Notices
<PAGE>
XXII. MISCELLANEOUS
22.01 Entire Agreement, Amendments and Waivers
22.02 Further Assurances
22.03 Survival and Benefit
22.04 No Third Party Benefits
22.05 Interpretation
22.06 Public Disclosure
<PAGE>
REAL ESTATE PURCHASE AGREEMENT
THIS AGREEMENT is made this 19th day of June, 1997, in
Chicago, Illinois, by and between EVANS, INC., ("Seller"),
and STATE STREET PARTNERS I LLC, or its nominee
("Purchaser").
R E C I T A L S:
A. The Seller is the owner of a Real Property Interest
(as hereinafter defined), in the Real Property commonly
referred to as, 36 South State Street, Chicago, Illinois and
the owner of the Personal Property, Contracts and Licenses
(as such terms are hereinafter defined and, together with
the Real Property, collectively referred to herein as the
"Property").
B. Seller desires to sell, and Purchaser desires to
purchase, the Real Property Interest and Personal Property
upon and subject to the terms and conditions hereinafter set
forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises
and the respective representations, warranties, agreements,
covenants and conditions herein contained, and other good
and valuable consideration, Seller and Purchaser agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. When used herein, the following terms
shall have the respective meanings set forth opposite each
such term:
Agreement: This Purchase Agreement.
Closing Date: August 2, 1997, or a date prior by
agreement of the parties hereto, or, in accordance with the
provisions of Section 18.01 of this Agreement, on or before
September 1, 1997.
Contracts: All written or oral: (i) service,
maintenance, operating, repair and other contracts and
commitments (excluding the recorded documents evidencing the
Permitted Title Exceptions) in any way relating to the
Property or any part thereof which shall survive the closing
hereunder; and (ii) guaranties and
warranties in effect with respect to the Property or any
portion thereof which shall survive the closing hereunder.
<PAGE>
Deed: That certain recordable Warranty Deed to be
delivered by Seller to Purchaser at the closing conveying
all improvements constructed upon the Property to Purchaser
(or its designee).
Deposit: The sum of $100,000.00 which shall be deposited by
Purchaser in an escrow account at Chicago Title and Trust
or, at Purchaser's option, an Irrevocable Letter of Credit
for $100,000.00 as earnest money at the time of the
contract execution and at such time, all earnest monies
deposited shall be non-refundable to Purchaser except as
provided in Section 18.01 of this Agreement.
Environmental Laws: As defined in Section 11.01.
Environmental Study: As defined in Section 11.01.
Hazardous Materials: As defined in Section 12.01.
Legal Requirements: All laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, permits, licenses, authorizations, directions
and requirements of all governments and governmental
authorities having jurisdiction of the Property (including,
for purposes hereof any local Board of Fire Underwriters),
and the operation thereof.
Licenses: All licenses, franchises, certifications,
authorizations, approvals and permits issued or approved by
any governmental authority and relating to the operation,
ownership and maintenance of the Property or any part
thereof including elevator permits, machinery permits,
ingress and egress permits and the like.
Permitted Title Exceptions: The covenants, conditions and
restrictions of record; private, public and utility
easements; rights-of-way or drainage ditches, feeders and
laterals; railroad rights-of-way, spurs and spur track
agreements; rights of the public, the State of Illinois and
the municipality in and to those parts of the Property
falling within roads and highways; leases, reservations and
conveyances of oil, gas and mineral rights; zoning and other
municipal ordinances; drainage and utility district charges
and assessments; general real estate taxes; special taxes
and assessments for improvements not yet completed; and
installments not due at the date hereof of special taxes and
assessments for improvements heretofore completed; acts of
Purchaser; rights of persons claiming by, through or under
Purchaser; and any other matters which Purchaser shall
approve in writing.
Personal Property: All machinery, equipment, fixtures,
furnishings, and other tangible personal property situated
in or upon or used in connection with the operation or
<PAGE>
maintenance of the Property or any party thereof and all
replacements, additions or accessories thereto between the
date hereof and the Closing Date.
Real Property: A parcel of land to be determined by
survey, but not less than 11,000 square feet, the legal
description of which shall be defined by current surveys to
be furnished by the Seller and certified to Purchaser, its
lender(s) and title insurance company.
Real Property Interest: Lessee's interest under that
certain Lease dated December 13, 1900 by and between the
Board of Education, City of Chicago, as lessor, and Louis M.
Strumer, Benjamin J. Rosenthal and Louis Eckstein, as
lessees ("Ground Lease"), the lessees' interest thereunder
having heretofore been assigned to Seller.
Property: Collectively, the Real Property, the Personal
Property, the Contracts and the Licenses and the Real
Property Interest.
Purchase Price: The consideration payable by Purchaser to
Seller for the Property and all other covenants and
warranties contained herein, as provided in Section 3.01.
Survey: Current ALTA/ACSM survey of the Real Property
prepared by a surveyor licensed by the State of Illinois and
certified to the Purchaser, the Title Insurer and such other
parties as Purchaser shall designate to be prepared in
accordance with the standards for Land Title Surveys of the
American Land title Associations and the American Congress
on Surveying and Mapping Class A survey, setting forth the
legal description and street address of the Real Property
and showing thereon all buildings and other improvements
(including fences), the number of stories in such buildings,
easements (visible or recorded), building lines, curb cuts,
party walls (if any), parking, sewage, water, electricity,
gas and other utility facilities (together with recording
information concerning the documents creating any such
easements and building lines), roads and other rights-of-way
and means of physical and record ingress and egress to and
from the Real Property by public roads (including the
dimensions of abutting streets) and the net (after deduction
of land dedicated or used or subject to easements for roads,
highways, fire lanes, utilities, storm drains or any other
public purpose) and gross area of the land included in the
Real Property, and spotting improvements on adjoining
property which are within five (5) feet of the property
lines of the Real Property. The survey shall also reflect
thereon that the Real Property is not located in a flood
zone.
Title Commitment: A title commitment for an Owner's Title
Insurance Policy issued by the Chicago Title Insurance
Company in the full amount of the Purchaser Price, covering
title to the Real Property on or after the date hereof
showing status of title to the property , subject only to
the Permitted Title Exceptions, and other exceptions
<PAGE>
pertaining to liens or encumbrances of a definite or
ascertainable amount (which in the aggregate do not exceed
that portion of the Purchase Price payable to Seller on the
Closing Date) which may be removed by the payment of money
at closing and over all general title exceptions contained
in such policies and the following special endorsements:
Zoning Endorsement 3.1 (including parking); access
endorsement; location endorsement and such other
endorsements reasonably required by Purchaser. Provided,
Seller shall pay for all such endorsements only to the
extent said endorsements do not exceed one thousand dollars
($1,000.00), above and beyond which amount Purchaser shall
be responsible for payment.
Title Insurer: Chicago Title Insurance Company.
ARTICLE II
PURCHASE AND SALE
2.01 Purchase and Sale: Subject to the conditions and on
the terms contained in this Agreement:
(a) Purchaser agrees to purchase and acquire from
Seller, and Seller agrees to sell and transfer to Purchaser,
the Real Property Interest by assignment.
(b) Purchaser agrees to purchase and acquire from
Seller, and Seller agrees to sell, convey and transfer all
the improvements constructed upon the Property by special
warranty deed.
(c) Purchaser agrees to purchase and acquire from
Seller, and Seller agrees to sell, convey and transfer to
Purchaser all fixtures and Personal Property located on, or
used in connection with, the operation and maintenance of
the Property whether owned or leased by Seller, by good and
sufficient bill of sale containing all warranties of title
fee and clear of liens, claims, encumbrances and
restrictions of every kind and description except the
Permitted Title Exceptions to the extent applicable thereto.
The aforesaid shall specifically exclude Seller's trade
fixtures that are used in the ordinary course of Seller's
retail business.
(d) Purchaser agrees to purchase and acquire from
Seller, and Seller agrees to sell, assign and convey to
Purchaser Seller's rights under any other Contracts or
Leases which are acceptable to Purchaser affecting the
Property.
<PAGE>
ARTICLE III
PURCHASE PRICE
3.01 Purchase Price. The Purchase Price of the Property
shall be Five Million and 00/100 Dollars ($5,000,000.00)
payable as hereinafter provided. Purchaser agrees to pay to
Seller and Seller agrees to accept payment of the Purchase
Price as follows:
(a) The Deposit (and any interest thereon) shall be
applied against the cash portion of the Purchase Price at
closing.
(b) Purchaser shall pay to Seller at closing Five
Million and 00/00 Dollars ($5,000,000.00), in cash subject
to credits, prorations, and or adjustments of rent,
utilities, real estate taxes and assessments as of the
closing date.
ARTICLE IV
SURVEY
4.01 Survey. No later than three (3) business days prior
to the Closing Date Seller shall deliver the Survey to
Purchaser and Purchaser's counsel, at Seller's sole cost and
expense. The Survey shall show no encroachments onto the
Real Property from any adjacent property, no encroachments
by or from the Real Property onto any adjacent property and
no violation of or encroachments upon any recorded building
lines, restrictions or easements affecting the Real
Property. If the Survey is dated more than thirty (30) days
prior to the Closing Date, Seller should furnish at closing
a certificate of the surveyor to Purchaser, the Title
Insurer and such other parties as Purchaser shall designate
dated within ninety (90) days prior to closing certifying
that there have been no changes or additions to the Property
since the date of the Survey. If the Survey discloses any
such encroachment or violation or any exceptions to title or
matters indicating possible rights of third parties other
than the Permitted Title Exceptions, Seller shall have ten
(10) days from the date of delivery thereof to have the
Title Insurer issue its endorsement insuring against damage
caused by such encroachments, violations or unpermitted
exceptions, and provide evidence thereof to Purchaser, and
if Seller fails to have the same insured against, within
said 10-day period, Purchaser may elect, on or before the
Closing Date, to (i) terminate this Agreement, or (ii)
accept the Real Property subject to such encroachments,
violations and unpermitted exceptions.
ARTICLE V
TITLE AND SEARCHES
5.01 Title. No later than fifteen (15) days following
the date of Seller's acceptance of this Agreement, Seller
<PAGE>
shall deliver the Title Commitment to Purchaser, at Seller's
sole cost and expense. If the Title Commitment discloses
exceptions to title other than the Permitted Title
Exceptions and liens or encumbrances of a definite or
ascertainable amount which can be removed by the payment of
money at the time of closing in an amount not in excess of
the amount to be paid in cash hereunder by Purchaser on the
Closing Date, which Seller may so remove on the Closing Date
by using the funds to be paid on delivery of the Deed,
Seller shall have thirty (30) days from the date thereof to
have such exceptions removed from the Title Commitment and
provide evidence thereof to Purchaser, and if Seller fails
to have such exceptions removed, Purchaser may elect, on or
before the Closing Date, to (i) terminate this Agreement, or
(ii) accept title subject to such unpermitted exceptions
with the further right to deduct from the Purchase Price
amounts secured by or constituting unpermitted liens or
encumbrances of a definite or ascertainable amount, and/or
cause the Title Insurer to issue its endorsement insuring
against damage caused by such exceptions and deduct from the
Purchase Price the cost of the premiums and security
provided for said endorsement, as the case may be.
Purchaser's exercise of the foregoing rights shall not be
deemed a waiver or release of any of its remedies, at law or
in equity or pursuant to this Agreement, for default if said
exceptions to title were caused or suffered by or through
Seller or any party claiming by, through or under Seller.
On the Closing Date, Seller shall cause the Title Insurer to
issue an owner's title insurance policy or prepaid
commitment thereby pursuant to and in accordance with the
Title Commitment insuring leasehold title to the Real
Property in the Purchaser as of the Closing Date, subject
only to the Permitted Title Exceptions and such other
exceptions as Purchaser may approve pursuant to clause (ii)
above.
5.02 Searches. No later than five (5) business days
prior to the Closing Date, Seller shall furnish to
Purchaser, at Seller's sole cost and expense, searches of
the records of the Recorder of Deeds of Cook County,
Illinois, and the Secretary of State of Illinois confirming
the absence of security interests, judgments, and tax liens
which affect or could affect the Property or any interest
therein to be transferred to Purchaser pursuant to this
Agreement (other than Permitted Title Exceptions). If said
searches disclose the existence of any security interests,
judgments or tax liens which affect or could affect Seller's
interest in the Property (other than Permitted Title
Exceptions), Seller shall have thirty (30) days from the
date thereof to secure the release, satisfaction or
termination (as appropriate) Purchaser may elect, upon
notice to Seller on or before the Closing Date to (i)
terminate this Agreement, or (ii) accept title subject to
such unpermitted exceptions with the further right to deduct
from the Purchase Price amounts secured by or constituting
any such security interests, judgments and tax liens (other
than Permitted Title Exceptions) of a definite or
ascertainable amount. Purchaser's exercise of the foregoing
rights shall not be deemed a waiver or release of any of its
remedies, at law or in equity or pursuant to this Agreement,
for default if said security interests, judgments or tax
<PAGE>
liens were caused or suffered by or through Seller or any
party claiming by, through or under Seller.
ARTICLE VI
POSSESSION, PRORATIONS AND CLOSING COSTS
6.01 Possession. Sole and exclusive possession of the
Property shall be delivered to Purchaser on the Closing
Date.
6.02 Prorations. General and specific real estate and
other ad valorem taxes and assessments and other state or
city taxes, fees, charges and assessments affecting the
Property; utility charges and deposits; fuels; and all other
items of accrued or prepaid income and expenses customarily
prorated on the transfer of office properties in the
Chicago, Illinois area shall be prorated at 105% on the
basis of the most recent ascertainable amount of or other
reliable information in respect to each such item of income
and expense, and the net credit to Purchaser or Seller shall
be paid in cash or as a credit against that portion of the
Purchase Price payable on the Closing Date. Purchaser shall
assume and timely discharge all obligations with respect to
accrued expenses and prepaid income for which it receives
proration credit. Notwithstanding the foregoing, if at any
time within six (6) months following the Closing Date,
either party discovers any items which should have been
included in the Closing Statements but were omitted
therefrom, then such items shall be adjusted in the same
manner as if their existence had been known at the time of
the preparation of the Closing Statements.
6.03 Closing Costs. Seller shall pay all charges
customarily attributable to sellers, including, without
limitation, all title charges and premiums, survey charges
and fees for the searches required by Section 5.02, all
state and county transfer taxes in connection with the
transaction contemplated hereby. Purchaser shall pay all
charges customarily attributable to purchasers, including,
without limitation, all recordation, title insurance and
money lender's escrow charges incurred in connection with
any mortgage loans obtained by Purchaser. Any municipal
transfer tax shall be paid by the Purchaser. The parties
shall each be solely responsible for their respective
professional advisers.
ARTICLE VII
ESCROW
7.01 Escrow. Prior to the closing, the parties, through
their respective attorneys, shall establish an escrow with
the Title Insurer through which the transaction contemplated
hereby shall be closed. The aforementioned Deposit shall be
placed in said escrow within two (2) business days of
execution hereof by both parties. The parties shall direct
<PAGE>
the Title Insurer to invest any cash portion of the Deposit
in accounts or securities permitted by Title Insurer at the
highest available rate of earnings, which earnings (all
references in this Agreement to earnings shall be net of any
investment charges, which shall be borne by Purchaser) shall
be applied on account of the cash portion of the Purchase
Price at closing. The escrow instructions shall be in the
form customarily used by the Title Insurer with such special
provision added thereto as may be required to conform to the
provisions of this Agreement, including provisions with
respect to a related money lender's escrow from which all or
part of the cash portion of the Purchase Price may be paid.
Said escrow shall be auxiliary to this Agreement, and this
Agreement shall not be merged into nor in any manner
superseded by said escrow. The escrow costs and fees shall
be equally divided between Purchaser and Seller. The Title
Insurer shall file, unless otherwise directed by Purchaser,
with the Internal Revenue Service the information return
(Form 1099B) required by Section 6045(e) of the Internal
Revenue Code and any regulations issued pursuant thereto.
Seller shall be responsible to give to the Title Insurer
such information of the Seller that the Title Insurer needs
in order to complete such form.
ARTICLE VIII
BROKERAGE
8.01 Brokerage. Seller hereby represents and warrants to
Purchaser that Seller has not dealt with any broker or
finder in respect to the transaction contemplated hereby
except for Julien J. Studley, Inc., whose commission shall
be paid by Seller in the amount of 2.5% of the total
purchase price; and Seller hereby agrees to indemnify
Purchaser for any claim for brokerage commission or finder's
fee asserted by any other person, firm or corporation
claiming to have been engaged by Seller. Purchaser hereby
represents and warrants to Seller that Purchaser has not
dealt with any broker or finder in respect to the
transaction contemplated hereby except for Julien J.
Studley, Inc., and Purchaser hereby agrees to indemnify
Seller for any claim for brokerage commission or finder's
fee asserted by a person, firm or corporation other than
Julien J. Studley, Inc., claiming to have been engaged by
Purchaser.
ARTICLE IX
DESTRUCTION OR DAMAGE
9.01 Destruction or Damage. If subsequent to the date
hereof and prior to the Closing Date, all or any portion
which will cost more than one million dollars
($1,000,000.00) to repair or restore (in the judgment of
Purchaser or its lenders, if any) of the Property shall be
destroyed or damaged by one or more incidents of vandalism,
fire and/or other casualty, whether or not covered by
insurance, Seller shall immediately give Purchaser notice of
such occurrence, and Purchaser may, within fifteen (15) days
after receipt of such notice, elect to (a) terminate this
<PAGE>
Agreement, or (b) close the transaction contemplated hereby
as scheduled (except that if the Closing Date is less than
fifteen (15) days following Purchaser's receipt of such
notice, closing shall be delayed until Purchaser makes such
election), in which event Purchaser shall have the right to
participate in the adjustment and settlement of any
insurance claim relating to said damage, and Seller shall
assign and/or pay to Purchaser at closing all insurance
proceeds (and other related choses in action, if any)
collected or claimed with respect to said loss or damage
plus any deductible or self-insured amount.
ARTICLE X
CONDEMNATION
10.01 Condemnation. If subsequent to the date hereof and
prior to the Closing Date, any proceeding, judicial,
administrative or otherwise, which shall relate to the
proposed taking of all or any substantial portion of the
Property by condemnation or eminent domain or any action in
the nature of eminent domain, or the taking or closing of
any right of access to the Property, is instituted or
commenced, Purchaser shall have the right and option to
terminate this Agreement by giving Seller written notice to
such effect within ten (10) days after actual receipt of
written notification of any such occurrence or occurrences.
Failure to give such notice within such time shall be
conclusive evidence that Purchaser has waived the option to
terminate by reason of the occurrence or occurrences of
which it has received notice, and Purchaser shall be
credited with or be assigned all Seller's right to any
proceeds therefrom. Seller hereby agrees to furnish
Purchaser written notification in respect to any such
proceedings within forty-eight (48) hours of Seller's
receipt of any such notification or learning of the
institution of such proceedings. If the Closing Date is
less than ten (10) days following the last day on which
Purchaser is entitled to elect to terminate this Agreement,
then the eminent domain shall be "insubstantial" Purchaser
shall not have the right to terminate this Agreement but
shall be credited with or be assigned all Seller's right to
any proceeds therefrom. An "insubstantial" proceeding shall
be one which (i) does not relate to the taking or closing of
any right of access to the Property, (ii) and does not
involve more than the equivalent of five hundred thousand
dollars ($500,000.00) in value.
ARTICLE XI
AFFIRMATIVE COVENANTS OF SELLER
11.01 Affirmative Covenants of Seller.
(a) Seller, at Seller's sole cost and expense, shall
maintain or cause to be maintained the Property free from
waste and neglect and in as good order and repair as of the
date hereof and shall keep and perform or cause to be
performed all obligations of the Property owner or its
agents under the Contracts and Licenses and under the Legal
<PAGE>
Requirements, and all obligations of the holder of any
mortgage to and including the Closing Date or termination of
this Agreement. Subject to closing and Sections 9.01 and
10.01 hereof on the Closing Date, Seller shall tender
possession of the Property to Purchaser in the same
condition the Property was in when last inspected by
Purchaser, except for ordinary wear and tear and casualty
loss and condemnation (provided Purchaser shall not have
elected to terminate this Agreement pursuant to Sections
9.01 or 10.01 as a result of such casualty loss or
condemnation).
(b) From the date of Seller's acceptance hereof to the
Closing Date, Seller shall maintain or cause to be
maintained in full force and effect liability, casualty and
other insurance upon and with respect to the Property
against such hazards and in such amounts as shall be
currently retained by Seller.
(c) From the date of Seller's acceptance hereof to the
Closing Date or earlier termination of this Agreement,
Seller shall operate and maintain the Property in the same
manner as it has been operated and maintained heretofore,
provided that during said period, without the prior written
consent of Purchaser or by oral agreement between Michael
Lynch and Samuel Garber, Seller shall not do, suffer or
permit, or agree to do, any of the following:
(i) Enter into any other transaction with respect
to or affecting the Property;
(ii) Sell, encumber or grant any interest in the
Property or any part thereof in any form or manner
whatsoever, or otherwise perform or permit any act which
will diminish or otherwise affect Purchaser's interest under
this Agreement or in or to the Property or which will
prevent Seller's full performance of its obligations
hereunder;
(iii) Enter into, amend, waive any rights under,
terminate or extend any Contract;
(iv) Intentionally omitted.
(v) Remove from the Property any of the fixtures
thereon or any of the Personal Property.
(d) From the date of Seller's acceptance hereof to the
Closing Date, Seller shall permit, during reasonable
business hours, representatives, agents, employees, lenders,
contractors, appraisers, architects and engineers designated
by Purchaser access to and entry upon the Real Property and
the improvements thereon to examine, inspect, measure and
test the Property.
<PAGE>
(e) Seller, to the best of his ability, shall deliver
to Purchaser not later than fifteen (15) days following
Seller's acceptance of this Agreement true, correct and
complete copies of the following documents which Seller is
in possession of;
(i) All Licenses and Contracts, including all
amendments and modifications of any of the foregoing;
(ii) All documents evidencing the title exceptions
referenced or to be referenced on the Title Commitment;
(iii) Copies of any building and use restrictions or
declarations of easements, covenants and restrictions
applicable to any portion of the Property;
(iv) Copies of all security agreements, real estate
leasing, service contracts or operating agreements which
relate to the use, occupancy, operation and management of
the Property;
(v) A complete schedule of personal property located
in or used in connection with the Property;
(vi) To-be-built or as-built plans and specifications
for the improvements on the Property including the plans and
specifications for and a complete description of all
existing renovations to the Property, if available;
(vii) To-be-built or as-built drawings of underground
utilities, if any, (including gas, sewer, water, telephone
and electrical service cables) located under or upon the
Property, if available;
(viii) Copies of all existing licenses, permits or
other governmental or administrative authorizations issued
or required to be issued in connection with existing
improvements or operations conducted on the Property;
(ix) Copies of any and all public or private
utility easements, access agreements, special assessment
arrangements, tap-in or connection fee agreements or
procedures, and any public financial assistance relating to
the Property;
(x) Any soil bearing reports, environmental
studies, hydrological studies, engineering studies, percolation tests
or data, septic permits, or other permits issued by the
Illinois Department of Energy and Natural Resources or other
governmental authority in connection with the development of
the Property, if available;
<PAGE>
(xi) Copies of current tax bills as well as the
prior three (3) years' tax bills and any documents relating to tax
or assessment proceedings, abatements, exemptions, or
notices; and
(xii) All essential data, correspondence, documents,
agreements, waivers, notices, applications and other records
with respect to the Property, if any, (including, without
limitation, any records relating to transactions with taxing
authorities, governmental agencies, utilities, and others
with whom Purchaser may be dealing subsequent to closing).
(f) Seller shall notify Purchaser promptly if Seller
becomes aware of any transaction or occurrence prior to the
Closing Date which would make any of the representations and
warranties of Seller contained in Section 12.01 not true in
any material respect.
ARTICLE XII
REPRESENTATIONS AND WARRANTIES OF SELLER
12.01 Representations and Warranties of Seller. To
induce Purchaser to execute, deliver and perform this
Agreement, Seller hereby represents and warrants to
Purchaser on and as of the date hereof and on and as of the
Closing Date as follows:
(a) All representations and warranties of Seller
appearing in other Sections of this Agreement are true and
correct.
(b) Seller has all capacity, right, power and authority
to execute, deliver and perform this Agreement and all
documents to be executed by Seller pursuant hereto, and all
required action and approvals therefor have been duly taken
and obtained. The individuals signing this Agreement and
all other documents executed or to be executed pursuant
hereto on behalf of Seller are and shall be duly authorized
to sign the same on Seller's behalf and to bind Seller
thereto. This Agreement and all documents to be executed
pursuant hereto by Seller are and shall be binding upon and
enforceable against Seller in accordance with their
respective terms, and the transaction contemplated hereby
will not result in a breach of or constitute a default or
permit acceleration of maturity under any mortgage, deed of
trust, loan agreement or other agreement to which Seller or
the Property is subject or by which Seller or the Property
is bound.
(c) The information included in the documents to be
delivered to Purchaser pursuant to Section 11.01(e) shall be
true, correct and complete in all material respects, and the
same shall not omit any material information required to
make the submission thereof fair and complete.
<PAGE>
(d) There are no defaults under any of the Contracts
associated with the Property, all of the Contracts are in
good standing and in full force and effect. Seller shall
identify any non-terminable contracts within fifteen (15)
days of execution hereof. Seller represents and warrants
that all other Contracts are terminable, without cost to the
Purchaser, on or before the Closing Date.
(e) Each of the licenses in effect concerning the
Property is in full force and effect and in good standing,
and neither Seller nor any agent or employee of Seller has
received notice of any intention on the part of the issuing
authority to cancel, suspend or modify any of the Licenses
or to take any action or institute any proceedings to effect
such a cancellation, suspension or modification. The
disclosed Licenses shall comprise all licenses, franchises,
certifications, authorizations, approvals and permits
required by any governmental or quasi-governmental authority
for the use and operation of the Property as the same was
used and operated by Seller, and the Property was operated
and occupied by Seller in compliance with each of the
Licenses. The Purchaser shall be entitled to the use and
benefit of all Licenses upon further action by the parties.
(f) The information to be furnished by Seller on which
the computation of prorations is based shall be true,
correct and complete in all respects.
(g) Seller holds the Real Property Interest free and
clear of liens, encumbrances, options and restrictions of
every kind and description, except the Permitted Title
Exceptions.
(h) Seller has good and marketable title to the
Personal Property and each item thereof free and clear of
liens, security interests, encumbrances, leases and
restrictions of every kind and description, except the
Permitted Title Exceptions.
(i) The interest of Seller in the contracts and
Licenses is free and clear of all encumbrances and has not
been assigned to any other person, except as reflected in
the Permitted Title Exceptions.
(j) Prior to and at the time of closing, the
improvements on the Real Property are structurally sound and
said improvements are in good condition and working order.
This warranty shall not survive closing.
(k) To the best of Seller's knowledge, there are no
claims, causes of action or other litigation or proceedings
pending or threatened with respect to the ownership or
operation of the Property or any part thereof (including
disputes with the holder of the Mortgage or any other
mortgagees, governmental authorities, utilities, contractors
or adjoining land owners) except possible claims for workers
<PAGE>
compensation, personal injury or property damage which are
fully insured and as to which the insurer has accepted
defense without reservation.
(l) Seller has not received any notice of any
violations of any Legal Requirements in respect to the
Property which have not been entirely corrected.
(m) To the best of Seller's knowledge, there is no
existing, pending, contemplated, threatened or anticipated
(i) condemnation of any part of the Real Property, (ii)
widening, change of grade or limitation on use of streets
abutting the Real Property, (iii) special tax or assessment
to be levied against the Real Property, or (v) change in the
tax assessment of the Real Property.
(n) To the best of Seller's knowledge, all water,
sewer, gas, electric, telephone and drainage facilities and
all other utilities and public or quasi-public improvements
upon or adjacent to the Real Property required by law or by
the normal operation of the Property are installed, are
connected under valid permits, are in good working order,
are adequate to service the Property and are fully paid for.
(o) To the best of Seller's knowledge, Seller has
obtained all licenses, permits, easements and rights-of-way,
including proof of dedication, required from all
governmental authorities having jurisdiction over the
Property or for private parties to make use of utilities
serving the Property and to insure ingress and egress to and
from the Property.
(p) At all times during Seller's ownership of the
Property and to the best of Seller's knowledge prior to its
ownership, (i) no Hazardous Materials (as defined below)
have been located on the Property or have been released into
the environment, or discharged, placed or disposed of at, on
or under the Property other than as noted in the June 3,
1997, Clayton Mittelhauser Phase I Environmental Study; (ii)
no underground storage tanks other than the two (2) five
thousand (5,000) gallon heating oil tanks, have been located
on the Property; (iii) the Property has never been used as a
dump for waste material; and (iv) the Property and its prior
uses comply with and at all times have complied with, any
applicable governmental law, regulation or requirement
relating to environmental and occupational health and safety
matters and Hazardous Materials.
The term "Hazardous Materials" shall mean any substance,
material, waste, gas or particulate matter which is
regulated by any local governmental authority, the State of
Illinois, or the United States government, including, but
not limited to, any material or substance which is (i)
defined as a "hazardous waste, "hazardous material,"
"hazardous substance," "extremely hazardous waste," or
"restricted hazardous waste" under any provision of Illinois
law, (ii) petroleum, (iii) asbestos, (iv) poly-chlorinated
<PAGE>
biphenyl, (v) radioactive material, (vi) designated as a
hazardous substance pursuant to section 311 of the Clean
Water Act, 33 U.S.C. Sec. 1251 et seq. (33 U.S.C. Sec.
1317), (vii) defined as a "hazardous waste" pursuant to
Section 1004 of the Resource Conservation and Recovery Act,
42 U.S.C. Sec. 6901 et seq. (421 U.S.C. Sec. 6903), or
(viii) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Sec. 9601 et seq.
(42 U.S.C. Sec. 9601). The term "Environmental Laws" shall
mean all statutes specifically described in the foregoing
sentence and all federal, state and local environmental
health and safety statutes, ordinances, codes, rules,
regulations, orders and decrees regulating, relating to or
imposing liability or standards concerning or in connection
with Hazardous Materials.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES OF PURCHASER
13.01 Representations and Warranties of Purchaser. To
induce Seller to execute, deliver and perform this
Agreement, Purchaser hereby represents and warrants to
Seller on and as of the date hereof and on and as of the
Closing Date as follows:
(a) All representations and warranties of Purchaser
appearing in other Sections of this Agreement are true and
correct.
(b) Purchaser is a limited liability company duly
organized and in good standing under the laws of the State
of Illinois and is duly qualified to do business in and in
good standing under the laws of the State of Illinois.
(c) Purchaser has all capacity, right, power and
authority to execute, deliver and perform this Agreement and
all documents to be executed by Purchaser pursuant hereto,
and all required action and approvals therefor have been
duly taken and obtained. The individuals signing this
Agreement and all other documents executed or to be executed
pursuant hereto on behalf of Purchaser are and shall be duly
authorized to sign the same on Purchaser's behalf and to
bind Purchaser thereto. This Agreement and all documents to
be executed pursuant hereto by Purchaser are and shall be
binding upon and enforceable against Purchaser in accordance
with their respective terms.
ARTICLE XIV
CONDITIONS PRECEDENT AND TERMINATION
14.01 General Feasibility and Review. Intentionally omitted.
<PAGE>
ARTICLE XV
CLOSING
15.01 Time and Place. The transaction contemplated
hereby shall close on the Closing Date at the offices of the
Title Insurer, in Chicago, Illinois, or on such other date,
time and place as the parties may mutually agree before
August 2, 1997 or, as provided in Section 18.01 of this
Agreement, on or before September 1, 1997.
15.02 Seller's Deliveries. On the Closing Date, Seller
shall deposit in the escrow the following:
(i) The Deed;
(ii) Seller's assignment of the Leases, Contracts and
Licenses, if any.
(iii) Good and sufficient Bill of Sale for fixtures
and Personal Property containing all applicable warranties.
(iv) The title and search documents as provided in
Sections 5.01 and 5.02;
(v) Original executed counterparts of all Contracts
and Licenses assigned to Purchaser pursuant to Section
15.02(ii) above (or, in Purchaser's sole discretion where
originals are unavailable, copies duly certified by Seller
as being true, correct and complete copies of the
originals);
(vi) Intentionally omitted.
(vii) An ALTA statement in form required by the Title
Insurer;
(viii) Evidence satisfactory to Purchaser of
termination of all terminable Contracts and other agreements
which Purchaser has elected to terminate by fifteen (15) day
written notice to Seller.
(ix) An executed Affidavit or a qualifying statement
from the U.S. Treasury Department that the transaction is
exempt from the withholding tax requirement imposed by
Section 1445A of the Internal Revenue Code and the rules and
regulations promulgated thereunder ("Section 1445A"). In
the event that Seller fails to deliver either the affidavit
or the qualifying statement as aforesaid, Seller agrees that
Purchaser may, at closing, deduct and withhold from the
proceeds that are due to Seller the amount necessary to
<PAGE>
comply with the withholding tax requirement imposed by
Section 1445A. Purchaser shall deposit the amount so
withheld in escrow with the Escrowee pursuant to terms and
conditions acceptable to Seller, Purchaser and the Escrowee,
but in any event, complying with Section 1445A;
(x) An original disclosure document as may be required by
the Illinois Responsible Property Transfer Act.
15.03 Purchaser's Deliveries. On the Closing Date,
Purchaser shall deliver the following to Seller:
(i) An ALTA statement in form required by the Title
Insurer;
(ii) The cash portion of the Purchase Price as
provided in Section 3.01(b);
15.04 Concurrent Deliveries. Seller and Purchaser shall
jointly deposit in the escrow or deliver to each other at
closing an agreed proration statement and certificates
complying with the provisions of state, county and local law
applicable to the determination of transfer taxes.
15.05 Closing Documents. Form, Execution and Substance.
All closing documents to be furnished by Seller pursuant
hereto shall be in form, execution and substance reasonably
satisfactory to Purchaser and its counsel.
15.06 New York Style Closing. Intentionally omitted.
15.07 Concurrent Transactions. All documents or other
deliveries required to be made by Purchaser or Seller at
Closing, and all transactions required to be consummated
concurrently with Closing, shall be deemed to have been
delivered and to have been consummated simultaneously with
all other transactions and all other deliveries, and no
delivery shall be deemed to have been made, and no
transaction shall be deemed to have been consummated, until
all deliveries required by Purchaser, and Seller shall
have been made, and all concurrent or other transactions
shall have been consummated.
ARTICLE XVI
INDEMNIFICATION
16.01 Seller's Indemnity. Intentionally omitted.
<PAGE>
16.02 Purchaser's Indemnity. Purchaser agrees to
indemnify and hold Seller and, if any, Seller's agents and
assigns, harmless from and against any damage to Property
caused by Purchaser, its agents or assigns, in the course of
its inspection(s). Purchaser agrees to indemnify and hold
Seller and Seller's agents and assigns, harmless from and
against any claim or cause filed against Seller by Richard
Fanslow and/or HC-Woodstock Holdings, Inc., and their
assigns concerning the Property subject of this Purchase
Agreement.
ARTICLE XVII
SELLER'S LEASES
17.01 Leases. Not later than twenty-one (21) days prior
to the closing the parties hereto shall enter into two (2)
lease agreements, one of which shall be for certain office
space in the Property (the "Office Lease") and the other of
which shall be for certain retail space in the Property (the
"Retail Lease").
The aforesaid lease agreements shall include the following
pertinent terms:
Office Lease: The lease will be for Thirty Six Thousand
Twenty (36,020) square feet of space, the exact identity of
which shall be mutually agreed upon by the parties by the
closing. The lease will be for a period of ten (10) years
and shall provide for a rental rate of $12.50 per square
foot gross with an escalation of 2.5% per annum. The lease
shall call for a 1997 Base Tax year with Tenant responsible
for their prorata share of any real estate taxes above that
Base Year. Landlord and Tenant each shall have the right to
cancel said office Lease at anytime by delivering six (6)
months written notice to the other party. If requested,
Tenant shall have an additional sixty (60) days following
the six (6) month period to vacate said office space.
Retail Lease: The lease will be for Sixty-One Thousand,
Seven Hundred Seventy-Five (61,775) square feet of space at
the Property, and is currently used by Seller for those
spaces on floors 1-7. The lease will be for a period of
fifteen (15) years and shall provide for a rent of $12.50
per square foot gross with an escalation of 2.5% per annum.
The lease shall call for a 1997 Base Tax Year with Tenant
responsible for their prorata share of any real estate taxes
above that Base Year.
Tenant shall provide a security deposit of Five Hundred
Thousand Dollars ($500,000.00) in form which is acceptable
to Purchaser. In the event said security deposit is in the
form of cash, Tenant shall reasonably instruct Landlord
where to place the money with any interest accruing to
Tenant. Such deposit shall maintained in a segregated
account and subject to remittance back to Tenant upon
<PAGE>
termination without default of Tenant. There shall be a
prorata (per square footage) release of the security deposit
in the event of termination or non-formation of either the
office or retail lease.
Landlord has the right to relocate Tenant to a mutually
agreeable location. Provided: The new location shall be
located on State Street in the City of Chicago, County of
Cook, State of Illinois; The new location shall be south of
Lake Street and north of Monroe Street; The lease terms and
conditions agreed upon with regard to any new location shall
not exceed the current escalated rates.
ARTICLE XVIII
ENVIRONMENTAL
18.01 Environmental: If the June 3, 1997 Clayton
Mittelhauser Phase I Report indicates that remediation
and/or further investigation is or may be necessary or
prudent, Purchaser, at its expense, may secure a current
Phase II Environmental Report ("Phase II Report"). Seller
shall provide, at its expense, a Reliance Letter to the
Purchaser based on the June 3, 1997 Clayton Mittelhauser
Phase I Report.
If the Phase II report substantiates the need for
remediation for or less than Three Hundred Twenty-Five
Thousand Dollars ($325,000.00), then Purchaser shall be
liable for all costs of remediation. Seller represents and
warrants that, should remediation exceed $325,000.00, it
shall be liable for costs of remediation above Three Hundred
Twenty-Five Thousand Dollars ($325,000.00), Seller's
liability not to exceed Two Hundred Fifty Thousand Dollars
($250,000.00). If the estimated cost of remediation exceeds
Five Hundred Seventy-Five Thousand Dollars ($575,000.00)
then Purchaser may, at its discretion, declare this
Agreement null and void in which case all earnest money
deposited shall be returned to Purchaser. Should
remediation exceed $575,000.00 and should Purchaser elect to
proceed under this Agreement, for any remediation above and
beyond Five Hundred Seventy-Five Thousand Dollars
($575,000.00), Purchaser shall be liable.
Further, should remediation exceed Three Hundred
Twenty-Five Thousand Dollars ($325,000.00) and should
Purchaser elect to proceed under this Agreement in
accordance with the provisions of this Article, Purchaser
shall be allowed thirty (30) additional days in which to
close, or on or before September 1, 1997.
All environmental reports shall be prepared (i) by an
environmental engineer acceptable to both Purchaser and
Seller, and (ii) for the benefit of Purchaser and for such
other party as shall from time to time be identified to the
environmental engineer by Purchaser.
<PAGE>
ARTICLE IXX
ASSIGNMENT
19.01 Assignment. The Purchaser may assign its rights
hereunder.
ARTICLE XX
DEFAULT
20.01 Defaults. Should Purchaser default in performing
its covenants hereunder, the Seller, as its sole and
exclusive remedies at law or in equity, shall be entitled to
retain the Deposit (unless said default is in accordance
with the provisions of 18.01 of this Agreement) and shall be
entitled to liquidated damages in an aggregate amount of
$100,000.00 as against Purchaser and/or Michael Lynch,
individually, absent default by Seller in performing its
covenants hereunder. Should Seller default in performing
its covenants hereunder, at the option of the Purchaser,
this contract shall become null and void, and/or Purchaser
may elect to proceed with any other remedy available to it
at law or in equity.
ARTICLE XXI
NOTICES
21.01 Notices. Any notice, request, demand, instruction
or other document to be given or served hereunder or under
any document or instrument executed pursuant hereto shall be
in writing and shall be delivered personally or sent by
United States registered or certified mail, return receipt
requested, postage prepaid or by overnight express courier,
postage prepaid and addressed to the parties at their
respective addresses set forth below, and the same shall be
effective upon receipt if delivered personally or two
business days after deposit in the mails if mailed. A party
may change its address for receipt of notices by service of
a notice of such change in accordance.
If to Purchaser, to: Michael Lynch
State Street Partners I LLC
200 N. Michigan Ave, Suite 600
Chicago, Illinois 60601
With a copy to: Anthony J. Nasharr, Esq.
Foran, Nasharr & O'Toole
55 West Wacker Drive, Suite 1000
Chicago, Illinois 60601
<PAGE>
If to Seller, to: Mr. Samuel Garber
Vice President
Evans, Inc.
36 South State Street
Chicago, Illinois 60603
ARTICLE XXII
MISCELLANEOUS
22.01 Entire Agreement, Amendments and Waivers. This
Agreement contains the entire agreement and understanding of
the parties in respect to the subject matter hereof and the
same may not be amended, modified or discharged nor may any
of its terms be waived except by an instrument in writing
signed by the party to be bound thereby.
22.02 Further Assurances. (a) The parties each agree to
do, execute, acknowledge and deliver all such further acts,
instruments and assurances and to take all and effect the
transactions contemplated hereby.
22.03 Survival and Benefit. All representations,
warranties, agreements, obligations and indemnities of the
parties shall, notwithstanding any investigation made by any
party hereto, survive closing for a period of one (1) year
only and the same shall inure to the benefit of and be
binding upon the respective successors and assigns of the
parties.
22.04 No Third Party Benefits. This Agreement is for the
sole and exclusive benefit of the parties hereto and their
respective successors and assigns, and no third party is
intended to or shall have any rights hereunder.
22.05 Interpretation.
(a) The headings and captions herein are inserted for
convenient reference only and the same shall not limit or
construe the paragraphs or sections to which they apply or
otherwise affect the interpretation hereof.
(b) The terms "hereby," "hereof," "hereto," "herein,"
"hereunder" and any similar terms shall refer to this
Agreement, the term "hereafter" shall mean after, and the
term "heretofore" shall mean before, the date of this
Agreement.
<PAGE>
(c) Words of the masculine, feminine or neutral gender
shall mean and include the correlative words of other
genders, and words importing the singular number shall mean
and include the plural number and vice versa.
(d) Words importing persons shall include firms,
associations, partnerships (including limited partnerships),
trusts, corporations and other legal entities, including
public bodies, as well as natural persons.
(e) The terms "include," "including" and similar terms
shall be construed as if followed by the phrase "without
being limited to."
(f) This Agreement and any document or instrument
executed pursuant hereto may be executed in any number of
counterparts each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
(g) Whenever under the terms of this Agreement the time
for performance of a covenant or condition falls upon a
Saturday, Sunday or holiday, such time for performance shall
be extended to the next business day. Otherwise all
references herein to "days" shall mean calendar days.
(h) This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
(i) Time is of the essence of this Agreement.
22.06 Public Disclosure. Before Closing, neither
Purchaser nor Seller shall make any public release of
information regarding the matters contemplated herein except
(i) that a joint press release in mutually agreed form may
be issued by Purchaser and Seller after the execution of
this Agreement, (ii) that Purchaser and Seller may each
continue such communications with employees, customers,
suppliers, franchisees, lenders, lessors, shareholders, and
other particular groups as may be legally required or
necessary or appropriate and not inconsistent with the best
interest of the other party or the prompt consummation of
the transactions contemplated by this Agreement, and (iii)
as required by law.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by Seller and Purchaser on the respective dates
set forth beneath each of their signatures and is intended
to be effective as of the latest such date.
SELLER:
EVANS, INC.
By: William E. Koziel
Name: William E. Koziel
Title: Vice President
ATTEST:
By: Samuel B. Garber
Name: Samuel B. Garber
Title: Secretary
Dated: June 19, 1997
PURCHASER:
STATE STREET PARTNERS I LLC
By: Michael Lynch
Name: Michael Lynch
Title: President
Dated: June 19, 1997
<PAGE>
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<FISCAL-YEAR-END> Mar-01-1997
<PERIOD-START> Mar-02-1996
<PERIOD-END> Mar-01-1997
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0
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