<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1993
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ________________ to _______________
Commission File Number 1-542
GROSSMAN'S INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 38-0524830
- ------------------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 UNION STREET, BRAINTREE, MASSACHUSETTS 02184
- ------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(617) 848-0100
--------------------------------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
- --------------------------------------- --------------------------------------
Common Stock, par value $0.01 per share The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 2, 1994 was $117,443,066.
The number of shares of the registrant's class of Common Stock ($.01 par value)
outstanding on March 2, 1994 was 25,740,946, exclusive of 396,421 shares held
as treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1994 Annual Meeting of
Stockholders, to be filed with the Commission on not later than 120 days after
the end of the fiscal year covered hereby, is incorporated by reference into
Part III of this Form 10-K to the extent set forth herein.
1
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PART I
Item 1. BUSINESS
(a) General Development of Business
-------------------------------
Grossman's Inc. (the "Company") was first incorporated in Michigan in 1919 as
E.S. Evans and Co., Inc., then was reincorporated in Delaware in 1923. In 1931
the Company's name was changed to Evans Products Company. In 1986, in
conjunction with the reorganization of the Company described herein, the
Company adopted the name Grossman's Inc.
On March 11, 1985, Evans Products Company ("Evans") and certain of its
subsidiaries filed voluntary petitions for relief under Chapter 11 of the
Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of Florida. On November 19, 1986, the Company emerged from the
Chapter 11 proceedings. Under a court approved Reorganization Plan, the
following transactions took place in 1986. Substantially all of Evans' assets,
other than those of the retail building materials business conducted by Evans'
wholly-owned subsidiary, Grossman's Inc. ("Old Grossman's"), were transferred
to Evans Asset Holding Company ("EAHC") and a trust (collectively "AHC"), each
beneficially owned by the lenders to Evans and one of its subsidiaries (the
"Lenders") for the purpose of liquidating such assets. Evans and its filing
subsidiaries (including Old Grossman's) were discharged from substantially all
of their pre-Chapter 11 petition indebtedness. All of Evans' outstanding
shares of common stock and preferred stock were cancelled. Old Grossman's was
then merged into Evans, which adopted the name Grossman's Inc. (the "Company"),
and the Company distributed to its creditors or to a trust or reserve for
unpaid and unliquidated claims, $60,000,000 of its 13% Debentures due
1991, $73,000,000 of its 14% Debentures due 1996, $105,200,000 face value of
its Zero Coupon Notes, which matured and the final installment paid in January
1993, and 20,000,000 shares of its Common Stock (of which 1,859,852 shares were
sold by the trust and the Company in a private placement in December, 1986).
On July 31, 1987, the Company completed a public offering of 11,000,000 shares
of its Common Stock. Of the shares offered, 6,131,347 shares were sold by the
Company, with the net proceeds of $45,092,000 used to purchase 13% and 14%
Debentures. The remaining 4,868,653 shares sold in the offering were sold by
stockholders.
On February 1, 1989, the Company announced that it had engaged Shearson Lehman
Hutton Inc. as the Company's financial adviser to assist the Company in
reviewing strategic alternatives to realize the values inherent in its
business. As a result of this effort, on September 12, 1989, the Company sold
the assets and business of its Moore's Division to Harcros Lumber & Building
Supplies Inc., an indirect wholly-owned subsidiary of Harrisons & Crosfield
plc of London, England. The Moore's Division consisted of 59 retail building
materials stores and yards located in Maryland, North Carolina, Ohio,
Pennsylvania, Tennessee, Texas, Virginia and West Virginia.
2
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Independent of the Shearson engagement, on August 25, 1989, the Company sold
its Northwest Division, consisting of 28 retail building materials stores
located in California to GNW Partners, L.P., a California limited partnership.
Certain of the former management employees of the Northwest Division were
partners in GNW.
Net proceeds from the 1989 sales of the Moore's and Northwest Divisions
totalled $105.7 million. Such proceeds were principally used for the
retirement on long-term debt.
In September 1993, the Company announced plans to close 22 marginally
performing Eastern Division stores. The closings were completed in the fourth
quarter.
(b) Financial Information About Industry Segments
---------------------------------------------
The Company's operations during the last three years have been entirely in the
retail building materials industry.
(c) Narrative Description of Business
---------------------------------
Grossman's is a retailer of lumber, building materials, and other home
improvement products emphasizing sales to its target customers; contractors,
remodelers and serious do-it-yourselfers. The Company operates 119 stores,
under the names "Grossman's", "Contractors' Warehouse" and "Mr. 2nd's Bargain
Outlets", as listed in Item 2 below.
<TABLE>
The Company's sales mix by product category, as a percentage of total sales,
is shown in the following table:
<CAPTION>
Products Year Ended December 31,
- -------- ------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Wood building materials 28% 27% 25% 25% 27%
Non-wood building materials 14 13 13 16 13
Millwork, doors and windows 16 17 17 17 17
Paint, decorator products, panelling,
floor coverings and ceilings 10 11 12 11 14
Kitchen, bath and plumbing products 13 13 14 13 13
Hardware, electrical supplies and tools 15 15 15 14 12
Seasonal items 4 4 4 4 4
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
The Company's target customers are contractors, remodelers and serious
do-it-yourselfers. The Company promotes its stores as project oriented,
offering assistance and building materials for a wide variety of home
improvement projects.
In 1993, the Company and individual entrepreneurs formed an 80% Company-owned
subsidiary, Project-Pros Inc. Project-Pros provides design and building
services, including materials, for a variety of home improvement projects.
The Project-Pros concept is designed for franchising. During 1993,
Project-Pros activities were insignificant to total Company operations.
3
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<TABLE>
CUSTOMERS
The following table shows the percentage of total sales by type of customer
within each of the Company's divisions:
<CAPTION>
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
% OF TOTAL SALES
Eastern Division
Retail Sales 48.4% 55.2% 64.5% 70.1% 66.7%
Professional Sales 27.9 25.4 18.9 15.8 16.4
------ ------ ------ ------ ------
Total Eastern Division 76.3 80.6 83.4 85.9 87.7
Contractors' Warehouse Division 23.7 19.4 16.6 14.1 12.3
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
Retail sales are primarily to serious do-it-yourself customers, principally
homeowners purchasing materials for projects on a cash-and-carry basis.
Professional sales within the Eastern Division and most Contractors' Warehouse
Division sales are made to remodelers, small independent contractors, home
builders and other contractors primarily for work at job sites. The Company
extends credit on open account to qualified contractors, principally in the
Northeast.
The Company's stores are one-stop shopping centers designed to supply
customers with materials and tools necessary to carry out home improvement
projects. Stores are organized and operated on the principle of customer
self-selection. Merchandise layout is designed for ease in locating and
loading products including, in many locations, a drive-thru outdoor lumber
yard. Each store is staffed with knowledgeable store personnel who are able
to assist customers in selecting the building materials and other home
improvement products needed for their projects. Customers are provided with
information, usually in the form of "how-to" pamphlets and in-store seminars
providing detailed instructions and advice needed to enable customers to carry
out their home improvement projects.
Within most of its stores, the Company operates Contractor Services Offices
which provide designated contractor specialists, free computer estimating
services, quick bid job quotes, special discount pricing and early opening
hours for remodelers and contractors. In addition, Contractor Appreciation
Nights are held throughout the year, during which customers are given the
opportunity to talk with manufacturers' representatives.
As a service to home builders and other contractors, trained sales personnel
specializing in contractor sales call upon contractors on the job site, and a
fleet of trucks is available to make timely delivery of materials.
The Company's customers number in the millions. Accordingly, its business is
not dependent upon any limited number of customers.
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PROMOTION
The Company considers its advertising program vital in attracting remodeler
contractors and serious do-it-yourself customers to its stores. The Company
relies on printed materials in its advertising, including newspaper circulars,
flyers, tabloids and direct mailings. In addition, in certain markets, the
Company uses radio and television advertising.
SUPPLIERS
The Company purchases its merchandise from several thousand manufacturers and
suppliers. No single supplier accounted for more than 7% of purchases in
1993, and alternative sources of supply are generally available for most major
product categories. Contractual arrangements with suppliers are generally
limited to individual purchase orders.
The Company stocks inventory at levels designed to meet both the recurring and
seasonal needs of its customers. Inventory levels are highest during the
increased sales activity periods of the second and third quarters. In 1992,
the Company began to implement an automated, integrated replenishment system
in its Eastern Division. When fully operational, the system is expected to
improve in-stock position on all inventory items and allow for just-in-time
inventory management. In the Company's Western Division, an automated,
integrated replenishment system is in place.
The Company receives merchandise directly from manufacturers or through
distributors. Bulk materials are ordered in full railcar or truckload
quantities. Shipments are made directly to stores or to a distribution center
or redistribution locations for ultimate distribution to stores.
COMPETITION
Competition in the retail building materials industry is highly fragmented,
with the 10 largest retail building materials chains accounting for
approximately 25% of the total retail lumber, building materials and hardware
supply sales nationwide (source: National Home Center News - May 24, 1993,
covering calendar 1993 year). The Company competes with national building
materials and home center chains and with regional or local firms. In
addition, certain general merchandise chains are significant retail
merchandisers of home improvement products. In Eastern markets, competition
has intensified in recent years, as national building materials chains have
opened building material warehouse stores to compete with the smaller stores
more prevalent in the region. These chains have also announced plans to
continue actively pursuing growth in the New England area. Competitive
intrusions have resulted, in some cases, in large concentrations of building
material retailers in certain geographic locations. As a result, margins have
been decreased to react to diminishing market share for retail customers, and
the Company has heavily promoted sales to remodeler contractors, for which its
drive-thru covered lumber yards and Contractors Services Offices offer a
competitive advantage. In California, the Company primarily competes with
retail building material warehouses.
5
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COMPETITION (CONTINUED)
Competition in the Company's markets has also increased as a result of a
decline in housing construction and the economic downturn, particularly in the
Northeast. In 1993, 22 Eastern Division stores were closed, principally in
areas most affected by competition.
The Company competes in each of its market areas primarily on the basis of
store location, customer service, product mix, pricing and advertising
policies. In 1993, the Company continued repositioning its Eastern Division
stores to focus on marketing to target customers by offering more competitive
pricing on high-quality, brand name merchandise.
SEASONALITY
Historically, the Company has recorded its highest sales level in the second
and third quarters. The first quarter has traditionally been a period of low
sales activity with resultant operating losses for most of the stores, as
fewer home improvement projects in the Company's markets are undertaken during
winter months.
EMPLOYEES
The Company employs approximately 4,300 people, including 1,600 part-time
employees. Management personnel at all levels, including store managers and
assistant managers, participate in incentive bonus programs based upon sales,
cost center profitability, inventory management or other defined goals.
TRADE NAMES
The Company has no material patents, trademarks, licenses, franchises, or
concessions other than the name "Grossman's" under which most of its Eastern
Division stores operate. Additional Eastern Division stores operate under the
name "Mr. 2nd's Bargain Outlet." The remainder of the Company's stores
operate under the name "Contractors' Warehouse".
6
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<TABLE>
Executive Officers of the Company
---------------------------------
<CAPTION>
YEARS
OF
NAME AGE POSITION SERVICE (1)
---- --- -------- -------
<S> <C> <C> <C>
Thomas R. Schwarz 57 Chairman of the Board and Chief 4
Executive Officer
Alan T. Kane 51 Executive Vice President and 1
President and Chief Executive Officer
Eastern Division
Sydney L. Katz 52 Executive Vice President - 11
Chief Financial Officer and
Treasurer
Robert L. Flowers 68 Executive Vice President - 24
Real Estate and Assistant Secretary
Richard E. Kent 65 Vice President, Secretary and 22
General Counsel
<FN>
(1) Years of service represent total years with the Company
and its predecessors.
</TABLE>
7
<PAGE> 8
THOMAS R. SCHWARZ Chairman of the Board and
Chief Executive Officer
Mr. Schwarz has been Chairman of the Board and Chief Executive Officer since
September 18, 1990. Prior to that he was President and Chief Operating Officer
since June 25, 1990. Prior to June 25, 1990, he was President and Chief
Operating Officer of Dunkin' Donuts Incorporated since August 1983. Mr.
Schwarz serves on the Board of Directors of The Timberland Company.
ALAN T. KANE Executive Vice President and
President and Chief Executive Officer
Eastern Division
Mr. Kane has been Executive Vice President - President of the Eastern Division
since February 15, 1993. From February 1991 through August 1992 he was
President and Chief Executive Officer of Pergament Home Centers. Prior to such
time he was President and Chief Executive Officer of Hahne's Department Store
of New Jersey, a division of May Department Stores for eight years.
SYDNEY L. KATZ Executive Vice President -
Chief Financial Officer and Treasurer
Mr. Katz has been Executive Vice President, Chief Financial Officer and
Treasurer since November 19, 1986 and was Executive Vice President and Chief
Financial Officer of Old Grossman's from October 1983 to November 1986.
Mr. Katz has been a director since February 1, 1994. Prior to October 1983, he
was Senior Vice President and Chief Financial Officer of the Retail Group of
W.R. Grace & Co. Mr. Katz held a number of financial positions with W.R. Grace
& Co. from 1968 to 1983. From 1963 to 1968 he was employed in public
accounting as a Certified Public Accountant.
ROBERT L. FLOWERS Executive Vice President - Real Estate
and Assistant Secretary
Mr. Flowers has been Executive Vice President - Real Estate since April 24,
1990. Prior to such date he was Vice President - Real Estate since November
19, 1986 and held the same position with Old Grossman's for more than 5 years
prior to such date.
RICHARD E. KENT Vice President, Secretary and
General Counsel
Mr. Kent has been Vice President, Secretary and General Counsel since
November 19, 1986. He was in the private practice of law in Portland, Oregon
from May 1984 to November 19, 1986 and prior to May 1984 was Vice President,
Secretary and General Counsel of Evans for more than 5 years. Mr. Kent serves
as a director and Vice Chairman of Epigen, Inc.
8
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ITEM 2. PROPERTIES
The Company's stores are generally located on or adjacent to major
transportation arteries to be convenient to urban and suburban markets. The
Company seeks to match the size of a store to market sales potential. The
typical store in smaller markets contains 49,000 square feet of selling space,
24,000 square feet under roof and the remainder in a merchandised outdoor
lumber yard. In larger markets, the Company's stores may have as much as
100,000 square feet of selling space, up to 60,000 square feet of which is
enclosed and the remainder in an adjacent lumber yard. Most stores have an
adjacent outdoor sales area with storage buildings to dispense lumber and other
building materials.
The Company's dual yard stores, which cater to consumers, builders and
contractors, are typically located on three or more acres of land and have
approximately 45,000 square feet of building area, of which 12,000 square feet
are showroom and the balance, warehouse storage. Dual yards also have large
outside selling and storage areas (40,000 to 60,000 square feet) to service the
contractor business.
<TABLE>
The Company's 119 stores operate under the names Contractors' Warehouse,
Grossman's and Mr. 2nd's Bargain Outlet and are located in cities and towns in
11 states, as follows:
<CAPTION>
CONTRACTORS' WAREHOUSE
- ----------------------
<S> <C>
CALIFORNIA NEVADA
Carson Reno
Colton
La Habra
Long Beach OHIO
Montebello Cincinnati
North Hollywood
Pomona
Sacramento
Ventura
GROSSMAN'S
- ----------
CONNECTICUT MASSACHUSETTS
Branford Auburn
Bristol Billerica
Brookfield Braintree
Groton Fitchburg
Manchester Gardner
Middletown Hatfield
Torrington Hyannis
Waterbury Indian Orchard
North Attleboro
North Plymouth
Pittsfield
Raynham
Saugus
Walpole
Wellesley
West Springfield
Worcester
</TABLE>
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<TABLE>
<CAPTION>
GROSSMAN'S (CONTINUED)
- ----------------------
<S> <C>
MAINE NEW YORK (CONTINUED)
Auburn Johnstown
Augusta Kingston
Bangor Lakewood
Brunswick Latham
Ellsworth Malone
Houlton Middletown
Portland Niagara Falls
Presque Isle Olean
Rockland Plattsburgh
Scarborough Rensselaer
Waterville Rome
Saranac Lake
Schenectady
NEW HAMPSHIRE Utica
Dover Vestal
Keene Wappinger Falls
Laconia Watertown
North Haverhill West Babylon
Portsmouth
NEW JERSEY PENNSYLVANIA
Glassboro Bristol
Lawrenceville Bustleton
Pennsauken Harbor Creek
Woodbury Hazelton
Norristown
NEW YORK Pottstown
Amherst Reading
Auburn Scranton
Ballston Spa
Binghamton
Camillus RHODE ISLAND
Canandaigua Johnston
Cortland
Depew
Dewitt VERMONT
Glens Falls Montpelier
Hamburg Rutland
Herkimer South Burlington
Hudson
Ithaca
</TABLE>
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MR. 2ND'S BARGAIN OUTLET
- -----------------------
MASSACHUSETTS
Braintree
Brighton
Framingham
Malden
Marshfield
Peabody
Waltham
NEW YORK
Brighton
Buffalo
Cheektowaga
East Dewitt
North Syracuse
Rochester
Tonawanda
Webster
West Seneca
RHODE ISLAND
Central Falls
Warwick
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The Company owns 70 of its stores and leases 49 stores, of which 22 have leases
that expire without renewal or purchase options within the next ten years.
Historically, leases without renewal options have been actively negotiated and
renewed by the Company prior to expiration.
Four leases have options for the Company to purchase the stores from the
lessors at various times at an aggregate purchase price estimated to be below
aggregate current market value.
In 1993, a decision was made to close 22 Eastern Division stores. Closings
were completed in the 1993 fourth quarter. One additional store, in Erie,
Pennsylvania, was closed and sold in early 1994. Of the 22 closed locations,
11 were leased and 11 were Company-owned. Of the 11 owned properties, two were
sold in early 1994, two are under agreement to be sold in 1994 and the
remainder are being actively marketed. One lease was terminated in early 1994.
In addition to the Company's stores, the Company owns and operates two
distribution centers, a data processing center and two office facilities, one
of which includes the Company's corporate office.
The net book value of the Company's owned real properties as of December 31,
1993 is approximately $84.1 million. Mortgage debt of approximately $23
million is outstanding on ten of the Company's owned properties.
The Company's properties are considered well maintained and are in good
condition. Since 1986, the Company has invested $123.2 million in capital
assets in the its Eastern and Contractors' Warehouse Division stores and
distribution centers.
<TABLE>
Changes in the number of stores since 1986 are as follows:
<CAPTION>
Stores Opened Stores Closed Stores of
(including (including Divisions Period End
Year relocations) relocations) Sold Total
- ---- ------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
1986 3 7 - 272
1987 3 17 - 258
1988 8 20 - 246
1989 4 7 87 156
1990 1 2 - 155
1991 1 17 - 139
1992 1 2 - 138
1993 5 24 - 119
</TABLE>
The majority of store closings during 1987 and 1988 occurred in markets served
by the divisions sold in 1989.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation incidental to the conduct of its business,
most of which is covered by insurance and none of which is expected to have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
<TABLE>
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED SECURITY HOLDER MATTERS
Grossman's Inc. Common Stock trades on The Nasdaq Stock Market under the
symbol GROS. The number of holders of the Company's Common Stock on
February 16, 1994 was 2,062. This number does not include beneficial
owners holding Common Stock in bank or broker name, which the Company
believes represents approximately 7,500 owners.
<CAPTION>
1993 1992
-------------- ---------------
High Low High Low
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 4 7/8 3 3/4 5 1/2 2 7/16
Second Quarter 4 1/8 2 7/8 5 3
Third Quarter 3 5/8 2 7/8 4 3 1/4
Fourth Quarter 3 5/8 2 5/8 4 5/8 3 1/4
</TABLE>
No cash dividends have been paid on the Company's Common Stock since
its initial issuance on November 19, 1986.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial and statistical data for the seven years ended
December 31, 1993 are derived from the audited consolidated financial
statements of the Company and other available operating information. The data
should be read in conjunction with the consolidated financial statements,
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<CAPTION>
(Dollar amounts in thousands, except 1993 1992 1991 1990 1989
per share and per square foot data) (53 Weeks)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING INFORMATION
Sales $841,974 $833,370 $806,636 $812,485 $1,052,095
Gross profit 212,885 223,390 219,057 224,651 296,387
Operating expenses 241,988 208,902 205,533 224,795 272,346
Operating income (loss) (29,103) 14,488 13,524 (144) 24,041
Interest expense 8,422 8,275 9,444 11,410 19,818
Other income (expenses) (595) 3,839 2,833 8,105 15,166
Income (loss) before income taxes (38,120) 10,052 6,913 (3,449) 19,389
Income taxes (credits) 30,228 3,820 2,622 (1,050) 7,396
Extraordinary items, net - - - (1,262)
Net income (loss) (68,348) 6,232 4,291 (2,399) 10,731
Net income (loss) per share (2.66) 0.24 0.17 (0.09) 0.41
Weighted average number of shares (000's) 25,661 26,193 25,878 26,052 26,397
SELECTED OPERATING INFORMATION
AS A PERCENTAGE OF SALES
Gross profit 25.3% 26.8% 27.2% 27.6% 28.2%
Operating expenses 28.7 25.1 25.5 27.7 25.9
Operating income (loss) (3.5) 1.7 1.7 - 2.3
Interest expense 1.0 1.0 1.2 1.4 1.9
Income (loss) before income taxes (4.5) 1.2 0.9 (0.4) 1.8
Net income (loss) (8.1) 0.7 0.5 (0.3) 1.0
BALANCE SHEET INFORMATION
Inventories $121,820 $123,230 $109,815 $119,537 $ 132,825
Current assets 154,594 179,587 193,787 202,263 220,693
Property, plant and equipment, net 130,164 134,693 118,635 120,095 107,602
Total assets 287,448 339,002 341,944 353,600 357,310
Current liabilities 119,768 112,980 113,047 132,786 112,417
Working capital 34,826 66,607 80,740 69,477 108,276
Long-term obligations 64,505 52,985 64,177 62,126 87,784
Total stockholders' investment 72,368 161,023 154,529 148,161 154,189
OTHER FINANCIAL INFORMATION
Capital expenditures, excluding capital
lease additions $ 15,050 $ 26,602 $ 11,929 $ 20,864 $ 17,959
Long-term debt to equity ratio 1.1:1 0.4:1 0.5:1 0.6:1 0.7:1
Inventory turnover (1) 4.3 4.6 4.6 4.1 4.4
STORES AND EMPLOYEES
Number of stores - year end 119 138 139 155 156
Average sales per store (2) $ 6,200 $ 5,995 $ 5,563 $ 5,208 $ 4,726
Square footage (000's) 4,216 4,628 4,565 4,718 4,599
Average sales per square foot (3) $ 174.40 $ 180.57 $ 174.73 $ 172.22 $ 156.50
Number of employees
Full time 2,700 3,100 2,900 3,200 3,300
Part time 1,600 1,900 1,800 2,000 2,000
----- ----- ----- ----- -----
4,300 5,000 4,700 5,200 5,300
<FN>
(1) Calculated based upon inventory at the end of each quarterly period.
(2) Calculated based upon the number of stores in operation at the end of each quarterly period
(adjusted for divisions sold in 1989).
(3) Calculated based upon the square footage at the end of each quarterly period (adjusted for
divisions sold in 1989).
</TABLE>
14
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<TABLE>
<CAPTION>
(Dollar amounts in thousands, except 1988 1987
per share and per square foot data) (53 Weeks)
- --------------------------------------------------------------------
<S> <C> <C>
OPERATING INFORMATION
Sales $1,141,602 $1,077,297
Gross profit 331,762 315,733
Operating expenses 303,277 275,679
Operating income 28,485 40,054
Interest expense 22,013 26,131
Interest and other income 7,562 8,001
Income (loss) before income taxes 14,034 21,924
Income taxes 5,209 9,753
Extraordinary items, net - (1,204)
Net income (loss) 8,825 10,967
Net income (loss) per share 0.34 0.49
Weighted average number of shares (000's) 26,216 22,707
SELECTED OPERATING INFORMATION
AS A PERCENTAGE OF SALES
Gross profit 29.1% 29.3%
Operating expenses 26.6 25.6
Operating income 2.5 3.7
Interest expense 1.9 2.4
Income (loss) before income taxes 1.2 2.0
Net income (loss) 0.8 1.0
BALANCE SHEET INFORMATION
Inventory $ 164,364 $155,964
Current assets 251,317 273,044
Property, plant and equipment, net 156,722 115,922
Total assets 434,689 421,994
Current liabilities 129,091 126,821
Working capital 122,226 146,223
Long-term obligations 160,574 159,966
Total stockholders' investment 143,432 134,657
OTHER FINANCIAL INFORMATION
Capital expenditures, excluding capital
lease additions $ 43,402 $ 21,505
Long-term debt to equity ratio 1.3:1 1.3:1
Inventory turnover (1) 4.5 4.6
STORES AND EMPLOYEES
Number of stores - year end 246 258
Average sales per store (2) $ 4,505 $ 4,023
Square footage (000's) 7,840 7,560
Average sales per square foot (3) $ 150.33 $ 139.10
Number of employees
Full time 5,600 5,200
Part time 2,500 2,500
---------- --------
8,100 7,700
<FN>
(1) Calculated based upon inventory at the end of each quarterly period.
(2) Calculated based upon the number of stores in operation at the end of
each quarterly period (adjusted for divisions sold in 1989).
(3) Calculated based upon the square footage at the end of each quarterly
period (adjusted for divisions sold in 1989).
</TABLE>
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
FINANCIAL CONDITION
Grossman's Inc. financial condition at December 31, 1993 reflects management
actions taken to improve future liquidity. Significant 1993 events affecting
year end financial condition are as follows:
- - Operating results in Eastern Division stores were significantly below
prior year levels and current year expectations, resulting in lower than
anticipated cash flows and necessitating unplanned borrowings under the
Company's revolving credit agreements.
- - The Company reviewed both individual store and market performance and
determined that 22 Eastern Division stores should be closed and the
assets redeployed. A $34.3 million store closing provision was recorded
in the third quarter.
- - The Company announced an agreement for the sale of its 35 acre
headquarters site in Braintree, Massachusetts to Kmart Corporation.
Financial reporting of the sale is being deferred until certain
contingencies are resolved and the sale is consummated.
- - A non-cash adjustment of $30.2 million was recorded, establishing a
valuation allowance to offset deferred tax assets recorded in 1991.
- - The Company entered into a new three-year revolving credit agreement,
secured by receivables, inventory and certain other assets.
- - A $20.5 million non-cash adjustment to stockholders' investment was
recorded to reflect the difference between the accumulated pension
benefit obligation and the estimated value of pension plan assets. This
adjustment resulted from a reduction in the discount rate assumption used
to compute actuarially the cost of the future obligation.
- - Three Contractors' Warehouse stores were opened, including the first in
the Midwest, and 15 Eastern Division stores were repositioned.
- - The Eastern Division distribution center became fully operational, and
long-term financing for the facility was finalized.
Eastern Division operating returns and cash flows during the first nine months
of 1993 were significantly below expectations, principally due to increased
competition, concurrent with a continued stagnant Northeast economy. As a
result, management actions were taken to improve operating returns, liquidity
and future cash flows.
During the first four months of 1993, operating performance was affected
negatively by severe spring weather conditions, resulting in declines in
comparable store sales during each of these months. As ground conditions
dried out, operating performance normalized and the Company realized increases
in comparable store sales during the balance of the second quarter. Operating
performance in the second quarter exceeded the prior year level. During the
third quarter, operating performance began to decline significantly in the
16
<PAGE> 17
Eastern Division. Steps taken to react to diminishing store performance,
including price reductions, inventory management and promotional activities,
did not counterbalance the declining operational results, particularly in
those stores affected most by competition. As the quarter progressed,
management performed a review of each Eastern Division store and a
determination was made to close 22 marginally performing stores. A charge of
$34.3 million was recorded at the end of the quarter to cover closing costs,
lease expenses in eleven of the closed stores, severance and outplacement
costs, inventory writedowns, other anticipated expenses and the net
unrecoverable amount of property, plant and equipment.
The process of closing the 22 stores was completed in the fourth quarter of
1993. One additional store was closed in early 1994. Three properties, the
former Nashua, New Hampshire, Eastport, Maine and Erie, Pennsylvania stores,
have been sold, the latter two in early 1994. Two additional properties are
under agreement to be sold in 1994, and one lease agreement has been
terminated in a favorable settlement. The remaining seven owned properties
and ten leased properties continue to be marketed actively. It is anticipated
that the sale of some or all of the properties will occur over a period of
years, resulting in a liquidity improvement at the time of each respective
sale.
In a separate transaction, the Company announced an agreement to sell its 35
acre headquarters site in Braintree, Massachusetts to Kmart Corporation. The
sale is contingent upon certain approvals and conditions customary in
commercial real estate transactions. The purchase price is dependent upon the
number of square feet finally approved by local authorities having
jurisdiction over the proposed site plan. Consummating the transaction is
subject to the permitting process, the timing of which cannot be predicted at
this time. If the transaction is consummated, the Company expects to realize
significant cash flow and a gain from the sale. Upon the sale of the site,
the Company plans to relocate its offices to available space in the vicinity
of its current offices.
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109. This standard requires,
among other things, recognition of future tax benefits, measured by enacted tax
rates, attributable to deductible temporary differences between financial
statement and income tax bases of assets and liabilities and net operating loss
carryforwards to the extent that management assesses the utilization of such
net operating loss carryforwards to be more likely than not. The statement
also requires deferred tax assets to be reduced by a valuation allowance if,
based on the weight of available evidence, management cannot make a
determination that it is more likely than not that some portion or all of the
related tax benefits will be realized. Furthermore, the statement requires
that a valuation allowance be established or adjusted if a change in
circumstances causes a change in judgment about the future realizability of the
deferred tax assets. At December 31, 1992, the Company had recorded deferred
tax assets totalling $30.2 million, with no related valuation allowance, based
upon management's assessment at that time that taxable income of the Company
would more likely than not be sufficient to utilize fully the net operating
loss carryforwards prior to their ultimate expiration in the year 2001.
At September 30, 1993, based upon unanticipated 1993 operating results and a
17
<PAGE> 18
reassessment of future expectations, the Company established a valuation
allowance to reduce the carrying value of deferred tax assets to zero. The
Company has not recognized any future tax benefits that may be realized from
taxable losses incurred in 1993. The Company anticipates that its judgment
about the future realizability of the deferred tax assets will not be amended
until a sustained period of income has been achieved and is likely to continue.
As a result of the charges discussed above and the Company's nine-month
operating performance, at September 30, 1993, the Company was not in
compliance with certain covenants contained in its revolving credit agreement
and certain other loan agreements. The Company's lenders waived such defaults
through December 15, 1993.
On December 15, 1993, the Company entered into a loan and security agreement
with BankAmerica Business Credit, Inc., which provides for borrowings up to
$60 million, including letters of credit up to $15 million. Borrowings
pursuant to this agreement are secured by inventories, receivables and certain
other assets. At December 31, 1993, cash borrowings under this agreement
totalled $23.2 million and outstanding standby letters of credit, issued in
the normal course of business principally to guarantee payment of insurance
obligations, totalled $11.4 million. The agreement has a three-year term,
with one-year renewal periods thereafter. Interest is payable at 1% over
Prime Rate (7% at December 31, 1993), with a Eurodollar option available for
borrowings in excess of $5 million. The agreement contains various covenants
which, among other things, require minimum levels of net worth, establish
minimum interest and fixed charge coverage ratios, and establish maximum
levels of capital expenditures. Other loan agreements were amended to contain
similar covenants. The borrowings under the revolving credit agreement have
been classified as long-term at December 31, 1993, as borrowings during 1994
are expected to remain at or above the year end 1993 level.
The Company has changed its actuarial assumption for the discount rate used to
value pension obligations from 9.5% to 7.0%. As a result, a non-cash
adjustment of $21.9 million was recorded, reducing prepaid pension assets and
establishing a $15.2 million minimum liability equal to the difference between
the accumulated pension benefit obligation and the estimated value of pension
plan assets. An intangible asset was established of $1.4 million, equal to
unrecognized prior service cost, and a $20.5 million adjustment to
stockholders' investment was recorded in accordance with Statement of
Financial Accounting Standards No. 87. The minimum liability, intangible
asset and adjustment to stockholders' investment will be measured annually and
will change based on interest rate assumptions, changes in the benefit
obligation and changes in the value of plan assets.
Inventory at December 31, 1993 totalled $121.8 million, a $1.4 million
decrease from the prior year end. Inventory declines as a result of Eastern
Division store closings were offset by inventory in three Contractors'
Warehouse stores opened during 1993 and increased lumber prices.
Property, plant and equipment and capital lease obligations reflect the
results of actions taken in support of three principal strategic initiatives:
repositioning of Eastern Division stores to strengthen their appeal to target
customers, expanding the Company's Contractors' Warehouse concept and
development and installation of its Eastern Division automated, integrated
replenishment system. Capital expenditures of $15.1 million and capital lease
18
<PAGE> 19
additions of $7.2 million were made principally in support of these
initiatives. Subject to funds availability, management plans to continue
capital expenditures in support of the Contractors' Warehouse expansion and
Eastern Division replenishment system, including new register systems;
however, in light of 1993 store performance, repositioning of additional
Eastern Division stores will be slowed.
Expansion of the Contractors' Warehouse concept continued in 1993, with a
store opening in Colton, California in March and store openings in Carson,
California and Cincinnati, Ohio in June. Expansion of this concept will
continue in 1994 with two planned store openings in the Midwest. In addition,
the Company's Mexican joint venture is scheduled to open its first store in
Monterrey, Mexico in the 1994 second quarter. This store will be modeled
after the Contractors' Warehouse concept. The Company also opened one
Grossman's store and three Mr. 2nd's Bargain Outlet Stores during 1993.
The repositioning of 15 Eastern Division stores was completed prior to the
1993 spring selling season. The Company also completed the expansion to
300,000 square feet of its Distribution Center in Manchester, Connecticut.
The Company purchased and expanded the distribution facility to support the
Eastern Division's new automated, integrated replenishment system, which is
currently operational.
In January 1993, the Company paid $10.8 million as the final installment on
its Zero Coupon Notes. In February 1993, the Company entered into long-term
financing of $6.1 million on the Eastern Division distribution center. Upon
receipt of the loan proceeds, full payment was made on the existing two-year
$4.9 million mortgage. The new mortgage has a 15 year amortization period,
with the balance due at the end of ten years. The Company also received
$750,000 in proceeds from two mortgage loans provided by the State of
Connecticut for equipment within the distribution facility.
The Company believes that existing funds, funds generated from operations,
proceeds to be received from the sale of properties and funds available under
the $60 million loan and security agreement will be sufficient to satisfy debt
service requirements, to pay other liabilities in the normal course of
business and to finance planned capital expenditures.
19
<PAGE> 20
RESULTS OF OPERATIONS
1993 COMPARED WITH 1992
The 1993 net loss of $68.3 million compares to net income of $6.2 million in
1992. Significant items affecting 1993 net income were as follows:
- - Higher seasonal operating losses during the first quarter of 1993
resulting from severe weather conditions in the Northeast and West
adversely affected sales.
- - Staff reductions were effected in the Eastern Division, largely as a
result of the continued implementation of the division's automated,
integrated replenishment system. Expenses related to these reductions
were recorded in the third quarter.
- - Eastern Division store operating results and cash flows declined
significantly in the third quarter. These results were affected negatively
by Northeast economic conditions and competition. Steps taken to offset
these declines were only partially successful.
- - After a complete review of all stores in all markets, 22 marginally
performing Eastern Division stores were closed and a store closing
provision of $34.3 million was recorded in the third quarter. Store
closings were completed in the fourth quarter.
- - Based upon unanticipated operating losses and a reassessment of future
expectations, in the third quarter, the Company established a $30.2 million
valuation allowance to reduce to zero the carrying value of deferred tax
assets previously established in 1991.
- - Gross margin declines occurred throughout the year resulting from
increases in sales to professional customers, growth in Contractors'
Warehouse store sales, increasingly competitive market conditions and
rising lumber prices.
- - Operating income improved by $2.9 million in the fourth quarter,
reflecting Eastern Division overhead reductions and increased comparable
store sales in each month during the quarter.
20
<PAGE> 21
<TABLE>
The following table shows three year comparative sales results by division
(dollars in millions):
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
SALES
Eastern Division
Retail Sales $407.4 $460.0 $520.6
Professional Sales 235.1 211.4 152.0
------ ------ ------
Total Eastern Division 642.5 671.4 672.6
Contractors' Warehouse Division 199.5 162.0 134.0
------ ------ ------
Total $842.0 $833.4 $806.6
====== ====== ======
% OF TOTAL SALES
Eastern Division
Retail Sales 48.4% 55.2% 64.5%
Professional Sales 27.9 25.4 18.9
------- ------- -------
Total Eastern Division 76.3 80.6 83.4
Contractors' Warehouse Division 23.7 19.4 16.6
------- ------- -------
Total 100.0% 100.0% 100.0%
======= ======= =======
SALES % INCREASE
(DECREASE) VERSUS
PRIOR YEAR
Eastern Division
Retail Sales (11.4)% (11.6)% (8.5)%
Professional Sales 11.2 39.1 18.2
------- ------- -------
Total Eastern Division (4.3) (0.2) (3.6)
Contractors' Warehouse Division 23.1 20.9 16.8
------- ------- -------
Total 1.0 % 3.3 % (0.7)%
======= ======= =======
COMPARABLE STORE SALES
% INCREASE (DECREASE)
VERSUS PRIOR YEAR
Eastern Division
Retail Sales (7.0)% (10.1)% (5.1)%
Professional Sales 23.5 40.0 20.0
-------- -------- --------
Total Eastern Division 1.3 1.3 (0.4)
Contractors' Warehouse Division 1.0 1.7 4.1
-------- -------- --------
Total 1.2 % 1.4 % 0.3 %
======== ======== ========
</TABLE>
The Company's two principal operating strategies are to reposition Grossman's
stores to strengthen their appeal to target customers and to grow the
Contractors' Warehouse concept, both of which emphasize sales to the
professional customer. During 1992, within Grossman's stores, sales growth in
the professional segment offset a decline in the retail segment. In 1993,
21
<PAGE> 22
sales to the retail segment continued to decline, and the growth in
professional sales was not sufficient to cover this shortfall. Sales in the
first four months of 1993 were affected negatively by severe weather
conditions and prolonged wet ground conditions. In May and June, both total
sales and comparable store sales increased. This trend did not continue into
the third quarter, when sales declines occurred in all months. Total fourth
quarter sales, which included one additional week in 1993, declined in the
Eastern Division, reflecting closed stores, and continued to grow in
Contractors' Warehouse stores. Eastern Division comparable store sales in the
fourth quarter rose by 17.2%, partially due to the transfer of professional
customers from closed stores to stores continuing to operate within these
markets. Contractors' Warehouse comparable store sales in the fourth quarter
rose by 0.7%.
Gross margin declined from 26.8% in 1992 to 25.3% in 1993. Throughout 1993,
margin declines occurred as the result of the increase in sales to
professional customers, who receive discounts from normal retail pricing, and
the growth in Contractors' Warehouse stores, which operate at higher per
store sales volume with lower gross margins and lower expenses. Margin
declines were also due to competitive market conditions and rising lumber
prices. Economic and competitive conditions did not fully allow these price
increases to be passed on to customers. Gross profit declined from $223.4
million in 1992 to $212.9 million in 1993, reflecting the overall sales
decline, partially due to closed stores, and gross margin declines.
Operating losses during the first quarter, which are normal due to the
seasonality of the Company's business, were high due to the severe weather
conditions in the Northeast and West, the Company's two principal operating
markets. In the first quarter of 1993, the operating loss was $11.3 million,
compared to a $4.8 million loss in the comparable period of 1992. In the 1993
second quarter, as conditions improved, operating income of $11.7 million
compared favorably to the 1992 level of $10.7 million.
In the third quarter of 1993, the Company's operating income prior to
recognition of store closing expense was $2.9 million, as compared to $9.8
million for the same period in 1992. The decline in operating income was
principally due to declining Eastern Division store results, as previously
discussed. Steps taken to react to diminishing store performance, including
price reductions, inventory management and promotional activities, did not
counterbalance the declining operational results, particularly in those stores
affected most by competition. As the third quarter progressed, management
reviewed each Eastern Division store and decided to close 22 marginally
performing stores. Store closing expense of $34.3 million was recorded at the
end of the quarter to cover costs related to the leases in 11 of the stores,
severance and outplacement expenses, inventory write downs, other anticipated
expenses and the net unrecoverable amount of property, plant and equipment.
Selling and administrative expenses in 1993 approximated the 1992 level, but
varied significantly by quarter, with a first quarter increase of $3.6
million, a second quarter decrease of $2.6 million, a third quarter increase
of $2.2 million and a fourth quarter decrease of $3.3 million. The first
quarter increase was primarily due to activities in support of strategic
22
<PAGE> 23
initiatives. Expenses related to these activities were higher in the second
quarter of 1992 than in the same period in 1993, the principal reason for the
second quarter decline. At the end of the second quarter, the Company
announced a restructuring of the Eastern Division, largely as a result of the
continued implementation of the automated, integrated replenishment system.
Staff reductions were effected in the third quarter, with additional
reductions anticipated when further efficiencies from the system are attained.
In the third quarter of 1993, selling and administrative expenses included
severance payments, outplacement services and other expenses related to the
restructuring, resulting in the overall expense increase. In 1994, the
Company expects the restructuring to yield continuing savings in operating
expenses. The fourth quarter decline in selling and administrative expenses
reflects the reduced overhead as a result of closed stores and Eastern
Division staff reductions.
Although selling and administrative expenses in 1994 will be favorably impacted
by the Eastern Division downsizing, pension expense will rise significantly as
a result of changes in assumptions used to determine actuarially the pension
liability and expense. Pension expense is expected to increase from $1.8
million in 1993 to approximately $5 million in 1994.
Depreciation and amortization increased by $1.8 million in 1993, related to
ongoing capital spending in support of strategic initiatives. Future capital
spending will continue in support of the Contractors' Warehouse expansion and
Eastern Division replenishment system. Preopening expense, associated with
the development, opening, expansion and modernization of stores, decreased
from $3.5 million in 1992 to $630 thousand in 1993 as the result of a
curtailment of the repositioning of Eastern Division stores. Remodeling of
Eastern Division stores planned for the 1993 fourth quarter was not undertaken
due to the poor nine-month operating results. In 1992, fourth quarter
preopening expenses totalled $2.4 million.
Interest expense remained relatively constant from 1992 to 1993. Interest
expense savings related to the retirement of high-interest rate debt were
offset by $1.3 million of interest expense on borrowings under the Company's
revolving credit agreement. There were no revolving credit borrowings in
1992.
At September 30, 1993, based on unanticipated operating losses and a
reassessment of future expectations, the Company established a valuation
allowance to reduce the carrying value of deferred tax assets to zero. Tax
credits recorded earlier in 1993 were also reversed, resulting in a total
provision for income taxes of $30.2 million. The Company has not recognized
any future tax benefits that may be realized from taxable losses incurred in
1993.
Other than the effects of rising lumber prices, as previously discussed, the
Company's business was not materially affected by inflation in any of the
years presented.
23
<PAGE> 24
1992 COMPARED WITH 1991
Net income of $6.2 million for the year ended December 31, 1992 exceeded the
1991 level of $4.3 million by 45%. The earnings improvement represents a 7.1%
improvement in operating income, supplemented by a reduction in interest
expense and gains on the sale of real estate.
An overall 0.2% decline in Eastern Division sales resulted from an 11.6%
decline in retail sales, virtually offset by a 39.1% increase in professional
sales. The retail segment in the Eastern Division continued to reflect the
effects of a prolonged slump in the housing sector, coupled with increased
competition. Western Division sales increased as the result of new store
openings combined with comparable store sales increases.
Gross margin decreased from 27.2% to 26.8% as a result of changes in sales mix
toward lower margin professional sales. An increase in retail margin was
offset by this change in mix. In 1991, aggressive promotion of the Company's
private label credit card was undertaken coincident to the sale of the credit
card portfolio, which reduced gross margins.
Economic conditions in the Northeast housing sector affected negatively sales
growth in both years. Throughout 1992, the Company continued to counter the
effects of the recession and increased competition with more aggressive
pricing and marketing to target customers. Sales to professionals, who
receive discounts from normal retail pricing, grew as a percent of overall
Eastern Division sales. Further offsetting the increase in retail gross
margin was the continued growth in Contractors' Warehouse store sales as a
percent of total Company sales. Also favorably impacting both retail and
professional margins in 1992 was improved inventory shrinkage results
throughout the chain.
Selling and administrative expenses increased by $1.6 million, or 0.9%, but
decreased as a percent of sales from 23.8% to 23.2%. During the first six
months of 1992, operating expenses increased as a percent of sales, primarily
in support of the operating strategies. During the second half of the year,
the Company was successful at reducing operating expenses during a period when
sales increased by 4.8%, thereby reducing selling and administrative expenses
as a percent of sales. Within selling and administrative expenses, payroll
expense increased by 4.8%, slightly higher than the overall sales increase and
reflective of the activities in support of the Company's strategies.
Advertising expense decreased by 14.6%, reflective of more targeted marketing
efforts. In addition, the provision for losses on accounts receivable
declined by $2.0 million, the result of continued tightened credit policies
and stronger collection efforts.
Depreciation and amortization increased by 4.8% in 1992, related to capital
spending. Preopening expense, which included expenses related to stores
scheduled for 1993 openings, totalled $3.5 million as compared to $2.3 million
in 1991.
Interest expense declined by $1.2 million, or 12.4%. Savings related to
retirement of high-interest debt were partially offset by financing secured in
the second and fourth quarter of 1991, as well as interest expense related to
24
<PAGE> 25
the $4.9 million mortgage on the Company's Eastern Division distribution
center, entered into in September 1992. Included in interest expense in 1991
was $364 thousand of interest on revolving credit borrowings. There were no
borrowings in 1992.
Interest and other income increased by $1.0 million from 1991 to 1992, which
includes net gains of $4.2 million on sales of property, less other
non-operating expenses and other declines due to the receipt in 1991 of state
income tax refunds, and interest income in 1991 related to the Company's
private label revolving credit card accounts receivable portfolio, which was
sold in May 1991.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Grossman's Inc.
We have audited the accompanying consolidated balance sheets of Grossman's
Inc. and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, stockholders' investment and cash
flows for each of the three years in the period ended December 31, 1993.
Our audits also included the financial statement schedules listed in the Index
at Item 14(a). These financial statements are the responsibility of
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Grossman's Inc. and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respectes the information set forth therein.
ERNST & YOUNG
Boston, Massachusetts
January 31, 1994
26
<PAGE> 27
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,163 $ 22,107
Receivables, less allowance
of $5,212 in 1993 and $3,904
in 1992 for doubtful accounts 20,751 21,651
Inventories 121,820 123,230
Deferred income taxes - 6,333
Other current assets 9,860 6,266
--------- ---------
Total current assets 154,594 179,587
PROPERTY, PLANT AND EQUIPMENT
Land 25,740 28,117
Buildings and leasehold improvements 103,949 101,382
Machinery and equipment 59,009 50,541
Construction in progress 1,222 12,589
--------- ---------
189,920 192,629
Accumulated depreciation and amortization (59,756) (57,936)
--------- ---------
130,164 134,693
DEFERRED INCOME TAXES - 23,895
OTHER ASSETS 2,690 827
--------- ---------
TOTAL ASSETS $287,448 $339,002
========= =========
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $102,616 $ 94,825
Accrued interest 2,174 1,469
Current portion of long-term debt and
capital lease obligations 14,978 16,686
---------- ----------
Total current liabilities 119,768 112,980
REVOLVING TERM NOTE PAYABLE 23,238 -
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 41,267 52,985
PENSION LIABILITY 15,199 -
OTHER LIABILITIES 15,608 12,014
---------- ----------
Total liabilities 215,080 177,979
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value:
Shares authorized - 50,000
Shares issued - 26,137 in 1993 and 1992 261 261
Additional paid-in-capital 155,852 155,857
Retained earnings (deficit) (62,103) 6,245
Minimum pension liability (20,528) -
Less 458 shares in 1993 and 551 shares
in 1992 in treasury, at cost (1,114) (1,340)
---------- ----------
Total stockholders' investment 72,368 161,023
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $287,448 $339,002
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 29
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
---- ---- ----
(53 weeks)
<S> <C> <C> <C>
SALES $841,974 $833,370 $806,636
COST OF SALES 629,089 609,980 587,579
--------- --------- ---------
Gross Profit 212,885 223,390 219,057
OPERATING EXPENSES
Selling and administrative 193,662 193,755 192,116
Depreciation and amortization 13,433 11,655 11,120
Preopening expense 630 3,492 2,297
Store closing expense 34,263 - -
--------- --------- ---------
241,988 208,902 205,533
--------- --------- ---------
OPERATING INCOME (LOSS) (29,103) 14,488 13,524
OTHER EXPENSES (INCOME)
Interest expense 8,422 8,275 9,444
Other 595 (3,839) (2,833)
--------- --------- ---------
9,017 4,436 6,611
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (38,120) 10,052 6,913
PROVISION FOR INCOME TAXES 30,228 3,820 2,622
--------- --------- ---------
NET INCOME (LOSS) $(68,348) $ 6,232 $ 4,291
========= ========= =========
NET INCOME PER COMMON SHARE
(PRIMARY AND FULLY DILUTED) $ (2.66) $ 0.24 $ 0.17
========= ========= =========
WEIGHTED AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING
Primary 25,661 26,193 25,878
========= ========= =========
Fully Diluted 25,661 26,241 25,878
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
Year Ended December 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(68,348) $ 6,232 $ 4,291
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 13,433 11,655 11,120
Deferred income taxes 30,228 2,620 2,205
Amortization of discount on Zero Coupon Notes - 1,321 2,918
Net gain on sales of property (215) (4,159) (239)
Provision for losses on accounts receivable 2,911 1,944 3,989
Store closing expense 19,069 - -
(Increase) decrease in assets:
Sale of private label credit card accounts
receivable - - 13,973
Receivables (2,011) (3,952) (3,613)
Inventories 1,410 (13,415) 9,722
Other assets 462 (1,525) (1,324)
Increase (decrease) in accounts payable and
accrued and other liabilities (5,643) 4,161 (5,079)
--------- --------- ---------
Total adjustments 59,644 (1,350) 33,672
--------- --------- ---------
NET CASH (USED FOR) PROVIDED BY OPERATING
ACTIVITIES (8,704) 4,882 37,963
INVESTING ACTIVITIES
Proceeds from sales of property, net 1,014 5,787 4,050
Capital expenditures (15,050) (21,702) (11,929)
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (14,036) (15,915) (7,879)
FINANCING ACTIVITIES
Payments on long-term debt and capital lease
obligations (27,637) (22,557) (29,860)
Proceeds from sale and leaseback transactions - - 1,440
Proceeds from mortgage financings 6,974 - 15,508
Net borrowings from revolving term note payables 23,238 - -
Issuance of common stock 221 262 -
--------- --------- ---------
NET CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES 2,796 (22,295) (12,912)
Net increase (decrease) in cash and cash
equivalents (19,944) (33,328) 17,172
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,107 55,435 38,263
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,163 $ 22,107 $ 55,435
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 31
<TABLE>
GROSSMAN'S INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' INVESTMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Common
Stock
$.01 Additional Retained Minimum Total
Par Paid-In- Earnings Pension Treasury Stockholders'
Value Capital (Deficit) Liability Stock Investment
---- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991 $261 $155,865 $ (4,278) $ (2,077) $(1,610) $148,161
Net income - - 4,291 - - 4,291
Minimum pension liability - - - 2,077 - 2,077
---- -------- --------- --------- -------- ---------
Balance at December 31, 1991 261 155,865 13 - (1,610) 154,529
Net income - - 6,232 - - 6,232
Exercise of stock options - (13) - - 259 246
Issuance of treasury stock - 5 - - 11 16
---- -------- --------- --------- -------- ---------
Balance at December 31, 1992 261 155,857 6,245 - (1,340) 161,023
Net loss - - (68,348) - - (68,348)
Exercise of stock options - (10) - - 215 205
Issuance of treasury stock - 5 - - 11 16
Minimum pension liability - - - (20,528) - (20,528)
---- -------- --------- --------- -------- ---------
Balance at December 31, 1993 $261 $155,852 $(62,103) $(20,528) $(1,114) $ 72,368
==== ======== ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE> 32
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements present the results of operations,
financial position and cash flows of Grossman's Inc. and its subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated.
Fiscal Periods
- --------------
The Company's year end is December 31. The Company records activity in
quarterly accounting periods of equal length ending on the last Saturday of
each quarter. Differences in amounts presented and those which would have been
presented using actual quarter-end dates are not material.
Fiscal year 1993 contained 53 weeks while fiscal 1992 and 1991 contained 52
weeks. The additional week in 1993 was included in the fourth quarter.
Cash Equivalents
- ----------------
The Company considers all highly liquid investments, with a maturity of three
months or less at date of purchase, to be cash equivalents.
Accounts Receivable
- -------------------
The Company extends credit on open account to qualified contractors and
remodelers, principally in the Northeast.
Finance charge income, included in interest and other income, amounted to
$587.4 thousand, $619.6 thousand and $1.5 million in 1993, 1992 and 1991,
respectively.
Inventories
- -----------
Merchandise inventories are valued at the lower of cost, as determined by the
average cost method, or market.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life of the improvements. Ranges of useful lives by principal
classification are as follows:
Buildings and leasehold improvements 10 - 33 years
Machinery and equipment 3 - 7 years
Accrued Insurance Claims
- ------------------------
The Company maintains insurance coverage for general liability and workers'
compensation risks under contractual arrangements which retroactively adjust
premiums for claims paid subject to specified limitations. Expenses associated
with such risks are accrued as amounts required to cover incurred incidents can
be estimated.
32
<PAGE> 33
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
Leases
- ------
Capital leases, those leases which transfer substantially all benefits and
risk of ownership, are accounted for as the acquisition of an asset and the
incurrence of an obligation. Capital lease amortization is included in
depreciation and amortization expense, with the amortization period restricted
to the lease term. The related obligation is amortized over the lease term at
a constant periodic rate of interest.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109-Accounting for Income Taxes. Tax provisions and
credits are recorded at statutory rates for taxable items included in the
consolidated statements of operations regardless of the period for which such
items are reported for tax purposes. Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of
assets and liabilities for which income tax benefits will be realized in
future years. Deferred tax assets are reduced by a valuation allowance when
the Company cannot make the determination that it is more likely than not that
some portion or all of the related tax asset will be realized.
Pension Plan
- ------------
The Company sponsors a noncontributory retirement plan for the benefit of
substantially all employees. The Company funds pension costs in accordance
with the Employee Retirement Income Security Act. Prior service costs, the
unrecognized net transition assets and gains and losses, whether realized or
unrealized, are amortized on a straight-line basis over estimated average
remaining service periods.
Preopening Expense
- ------------------
Expenses associated with the opening of new stores and facilities and the
expansion or major remodeling of existing stores are expensed as incurred.
Store Closing Expense
- ---------------------
Store closing costs, net of amounts expected to be recovered, are recorded
when the decision to close a store is made. Store closing costs include
estimated losses, lease payments, other expenses and the net unrecoverable
amount of property, plant and equipment.
Earnings Per Common Share
- -------------------------
Earnings per common share are computed based on the weighted average number of
common shares outstanding, less shares in treasury, plus common share
equivalents attributable to stock options, when dilutive.
Business Segment
- ----------------
The Company operates in one business segment: the retail sale, distribution
and installation of building materials and related products.
33
<PAGE> 34
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------
Classification
- --------------
Certain amounts in the consolidated financial statements for prior years have
been reclassified to conform to the current year presentation. Such
reclassifications had no effect on previously reported results of operations.
<TABLE>
NOTE 2 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- -------------------------------------------------
Accounts payable and accrued liabilities consist of the following (in
thousands):
<CAPTION>
December 31,
---------------------------
1993 1992
-------- -------
<S> <C> <C>
Accounts payable $ 60,607 $54,438
Accrued salaries, wages,
commissions and related taxes 8,155 11,589
Accrued income and franchise taxes 734 1,779
Accrued taxes other than income and
franchise 4,809 3,762
Accrued store closing costs 8,343 1,543
Accrued insurance 10,273 9,589
Other accrued liabilities 9,695 12,125
-------- -------
$102,616 $94,825
======== =======
</TABLE>
NOTE 3 - REVOLVING TERM NOTE PAYABLE
- ------------------------------------
On December 15, 1993, the Company entered into a loan and security agreement
with BankAmerica Business Credit, Inc., which provides for borrowings up to
$60 million, including letters of credit up to $15 million. Borrowings
pursuant to this agreement are secured by inventories, receivables and certain
other assets. At December 31, 1993, cash borrowings under this agreement
totalled $23.2 million and outstanding standby letters of credit, issued in
the normal course of business principally to guarantee payment of insurance
obligations, totalled $11.4 million. The agreement has a three-year term,
with one-year renewal periods thereafter. Interest is payable monthly at 1%
over Prime Rate (7% at December 31, 1993), with a Eurodollar option available
for borrowings in excess of $5 million. The agreement also provides for a
1/2% per annum commitment fee on the average daily unused amount under $50
million. The agreement contains various covenants which, among other things,
require minimum levels of net worth and establish minimum interest and fixed
charge coverage ratios, establish maximum levels of capital expenditures.
Upon entering into the loan and security agreement, the Company's prior
revolving credit agreement with a group of banks was terminated.
The maximum borrowings under the prior revolving credit agreement in 1993 and
1991 were $36 million and $13 million, respectively. The weighted average
annual interest rate on such borrowings during 1993 and 1991 were 5.9% and
8.9%, respectively. There were no borrowings under the agreement in 1992.
34
<PAGE> 35
<TABLE>
NOTE 4 - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following (in thousands):
<CAPTION>
December 31,
----------------------------
1993 1992
------- -------
<S> <C> <C>
Zero Coupon Notes $ - $10,813
14% Debentures, due January 1, 1996 16,201 21,334
Mortgage notes 22,638 21,665
Capital lease obligations 17,406 15,859
------- -------
56,245 69,671
Less current portion 14,978 16,686
------- -------
$41,267 $52,985
======= =======
</TABLE>
In 1986, the Company issued $105.2 million of Zero Coupon Notes. The seventh
and final principal payment on the notes was made in January 1993. These
noninterest bearing notes were initially discounted for financial statement
purposes to yield 13% per annum.
Interest on the 14% Debentures is payable semi-annually on January 1 and
July 1. At any time prior to maturity, upon 30 days notice, the Company may
redeem the 14% Debentures, in whole or in part, on any interest payment date,
at 100% of principal (in minimum amounts of $5 million), plus a yield
maintenance premium based upon quoted Treasury Constant Maturity Series
yields.
Mortgage notes bear interest at a weighted average rate of 10.1% and are
secured by real estate and equipment with a net book value of $34.2 million at
December 31, 1993.
During 1993, the Company purchased $5.1 million of its 14% Debentures with no
material gain or loss. During 1992, the Company purchased and retired $2.9
million of the remaining principal on its Zero Coupon Notes and $228 thousand
of its 14% Debentures with no material gain or loss.
In February 1993, the Company received $6.1 million of mortgage loan proceeds
for its new Eastern Division distribution center. The mortgage note is
amortized over 15 years, with full payment due in February 2003. Interest
accrues at an annual rate of 8.8% and is payable monthly. Upon receipt of the
mortgage proceeds the Company paid in full the existing $4.9 million mortgage
note. The Company also received $750 thousand in proceeds from two secured
loans provided by the State of Connecticut for equipment within the
distribution facility at annual interest rates of 5.0% for terms between seven
and ten years.
35
<PAGE> 36
NOTE 4 - LONG-TERM DEBT (CONTINUED)
- -----------------------------------
The 14% Debentures, mortgage notes and certain lease agreements contain
various covenants which, among other things, restrict dividends and
distributions on and repurchases of Common Stock; require specified levels of
net worth; limit capital expenditures; restrict liens, the incurrence of
indebtedness and lease obligations; and restrict loans and investments. Under
the most restrictive of these agreements, the Company had no retained earnings
available for the payment of dividends at December 31, 1993.
<TABLE>
As of December 31, 1993, long-term debt maturities in each of the next five
fiscal years and thereafter are as follows (in thousands):
<CAPTION>
14% Mortgage
Debentures Notes
---------- --------
<S> <C> <C>
Year Ending December 31,
1994 $ - $ 9,028
1995 - 672
1996 16,201 704
1997 - 697
1998 727
Thereafter - 10,810
------- -------
$16,201 $22,638
======= =======
</TABLE>
Mortgage notes due in 1994 include $8,333 thousand related to properties under
agreement to be sold in 1994.
Interest paid during 1993, 1992 and 1991 amounted to (in thousands) $7,639,
$8,286 and $9,911, respectively.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
Statement of Financial Accounting Standards No. 107 - Disclosures About Fair
Value of Financial Instruments requires disclosure of fair value information
about financial instruments for which it is practicable to estimate fair
value. The Company estimates fair values based on the following assumptions:
cash and cash equivalents are reported in the balance sheet at amounts which
approximate fair value; and the carrying values of the Company's long-term
debt and revolving term note payable are estimated using discounted cash flow
analyses, based upon the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
36
<PAGE> 37
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
- --------------------------------------------------------
<TABLE>
The estimated fair values are as follows (in thousands):
<CAPTION>
December 31,
----------------------------------------
1993 1992
------------------- -------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Revolving term note payable $23,238 $23,238 $ - $ -
Zero Coupon Notes - - 10,813 10,813
14% Debentures due January 1, 1996 16,201 18,900 21,334 24,800
Mortgage notes 22,638 23,900 21,665 26,400
------- ------- ------- -------
$62,077 $66,038 $53,812 $62,013
======= ======= ======= =======
</TABLE>
NOTE 6 - LEASE COMMITMENTS (IN THOUSANDS)
- -----------------------------------------
The Company has entered into leases for certain retail locations, office
space, equipment and vehicles. The fixed terms of the leases range up to
seven years and, in general, leases for retail locations contain multiple
renewal options for various periods between one and ten years. Certain leases
contain provisions which include additional payments based upon sales
performance, operating and real estate tax escalations and purchase options.
Total rent expense charged to operations during 1993, 1992 and 1991 amounted
to $7,615, $8,819 and $8,801, respectively. Total contingent rentals included
in rent expense were $923, $999 and $969, respectively.
Included in property, plant and equipment as of December 31, 1993 and 1992 is
$36,359 and $37,231, respectively, of machinery and equipment under capital
leases. The related accumulated amortization is $24,049 and $22,961,
respectively. Capital lease additions for machinery and equipment totalled
$7,238 in 1993, $2,739 in 1992 and $2,982 in 1991.
<TABLE>
Future minimum lease payments in each of the next five years and thereafter
are as follows:
<CAPTION>
Capital Leases Operating Leases
-------------- --------------
Year Ending December 31,
<S> <C> <C>
1994 $ 7,289 $ 5,150
1995 7,539 3,867
1996 3,055 2,988
1997 1,164 2,167
1998 631 1,866
Thereafter 251 530
------- -------
Total minimum lease payments $19,929 $16,568
Less imputed interest 2,523 =======
-------
Present value of net minimum
lease payments 17,406
Less current portion 5,950
-------
Long-term capital lease obligations $11,456
=======
</TABLE>
37
<PAGE> 38
NOTE 7 - SALE OF PROPERTY
- -------------------------
In October 1993, the Company announced an agreement for the sale of its 35
acre headquarters site in Braintree, Massachusetts to Kmart Corporation. The
sale is contingent upon certain approvals and conditions. The purchase price
is dependent upon the number of square feet finally approved by local
authorities having jurisdiction over the proposed site plan. Consummating the
transaction is subject to the permitting process, the timing of which cannot
be predicted at this time. Other contingencies customary in commercial real
estate transactions also exist. If the transaction is consummated, the
Company expects to realize a significant gain from this sale.
NOTE 8 - STOCKHOLDERS' INVESTMENT
- ---------------------------------
The Company's Restated Certificate of Incorporation contains certain
provisions restricting accumulations of Common Stock. Under these provisions,
as modified by the Board of Directors and currently in effect, no person may
acquire shares of Common Stock on or prior to December 31, 1996 (or such later
date as may be fixed by the Board of Directors) if the number of shares
actually and constructively owned by such person, as defined, would exceed 5%
of the outstanding Common Stock on any date. Attempted acquisitions of Common
Stock in excess of these limits will be null and void and all shares
purportedly acquired in excess of these limits will have no rights, except the
right to receive out of the proceeds of resale thereof an amount not in excess
of the amount paid for such excess shares plus brokers' commissions. Such
restrictions may be waived by the Board of Directors and are not applicable to
an acquisition of more than 50% of the outstanding shares of Common Stock for
cash pursuant to a tender offer, merger or other business combination in which
all holders of Common Stock are afforded an opportunity to sell all their
shares.
NOTE 9 - EMPLOYEE BENEFIT PLANS
- -------------------------------
The Company sponsors a noncontributory defined benefit pension plan, the
Grossman's Inc. Retirement Plan (the "Retirement Plan"), which covers
substantially all employees. Employees are eligible to participate in the
Retirement Plan at age 21 with one year of service. Benefits through 1990 are
based upon years of service multiplied by a percentage of reference earnings.
Beginning in 1991, the benefit is based upon annual reference earnings.
<TABLE>
The components of net periodic pension cost are as follows (in thousands):
<CAPTION>
Year ended December 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Service cost for the year $ 1,376 $ 1,325 $ 1,472
Interest accrued on projected benefit obligation 4,277 3,896 3,619
Return on plan assets (4,019) (2,894) (6,545)
Net amortization and deferral 180 (661) 3,143
-------- -------- --------
Net periodic pension cost for the year $ 1,814 $ 1,666 $ 1,689
======= ======== ========
</TABLE>
38
<PAGE> 39
NOTE 9 - EMPLOYEE BENEFIT PLANS (CONTINUED)
- -------------------------------------------
<TABLE>
The funded status of the Retirement Plan is as follows (in thousands):
<CAPTION>
December 31,
-------------------
1993 1992
--------- --------
<S> <C> <C>
Actuarial present value of projected benefit obligation:
Vested employees $ 61,823 $39,868
Non-vested employees 1,766 1,447
--------- --------
Accumulated benefit obligation 63,589 41,315
Impact of future salary increases 3,480 2,062
--------- --------
Projected benefit obligation for service rendered
to date 67,069 43,377
Estimated market value of plan assets, primarily
cash equivalents and publicly traded stocks and bonds 48,390 42,067
--------- --------
Projected benefit obligation in excess of
plan assets 18,679 1,310
Items not yet recognized in earnings:
Unrecognized net transition asset 1,795 2,319
Unrecognized prior service cost (1,410) (1,745)
Adjustment required to recognize minimum liability 21,938 -
Unrecognized net loss (25,803) (6,075)
--------- --------
Pension liability (prepaid pension asset) $ 15,199 $(4,191)
========= ========
</TABLE>
Statement of Financial Accounting Standards No. 87 ("FAS 87") requires the
recognition of a minimum liability, to the extent that actuarially computed
accumulated plan benefits exceed the fair value of plan assets, and the
recognition of a related intangible asset, to the extent of any unfunded prior
service cost. At December 31, 1993, the Company recorded an adjustment of
$21,938 thousand, reducing its prepaid pension asset and establishing a
minimum liability of $15,199 thousand. The increase in minimum liability in
1993 reflects a change in the discount rate assumption from 9.5% to 7.0%. An
intangible asset of $1,410 thousand was also recorded, equal to unrecognized
prior service cost. The difference between the minimum pension liability
adjustment and the intangible asset has been charged to stockholders'
investment in accordance with FAS 87.
<TABLE>
Actuarial assumptions used by the Retirement Plan's actuaries to develop the
funded status of the Retirement Plan under the unit credit actuarial cost
method are as follows:
<CAPTION>
1993 1992 1991
---- ----- ----
<S> <C> <C> <C>
Discount rate 7.0% 9.5% 9.5%
Expected long-term rate of return on assets 9.0 10.0 10.0
Rate of general wage increase 4.5 4.5 4.5
</TABLE>
The Company also sponsors a Savings Plan for the benefit of substantially all
employees. The plan provides that employees may contribute up to 14% of their
compensation, with a fully vested Company match of a portion of the
contribution. During 1991, the plan was amended to provide for an increase in
the Company's matching contribution, suspension of profit sharing contributions
and full vesting of all participants in previous profit sharing contributions
by the Company. The Company contributed $574 thousand in 1993, $555 thousand
in 1992 and $477 thousand in 1991 to the plan.
39
<PAGE> 40
NOTE 10 - OTHER LIABILITIES
- ---------------------------
<TABLE>
Other long-term liabilities consist of the following (in thousands):
<CAPTION>
December 31,
--------------------
1993 1992
------- -------
<S> <C> <C>
Accrued insurance claims $ 9,424 $ 9,200
Accrued store closing costs 5,418 -
Other accrued liabilities 766 2,814
------- -------
$15,608 $12,014
======= =======
</TABLE>
Standby letters of credit which guarantee general liability and workers'
compensation insurance claims are outstanding under the Company's revolving
credit agreement.
NOTE 11 - EMPLOYEE STOCK OPTION PLAN
- ------------------------------------
The Company has a nonqualified stock option plan covering officers and other
key management employees ("1986 Plan"). The plan provides for nonqualified
options to purchase shares of Common Stock. On April 28, 1992, the Company's
Stockholders approved an increase in the total number of shares of Common
Stock of the Company that may be issued under the 1986 Plan from 2,000,000
shares to 3,750,000 shares.
In April 1993, the Board of Directors approved the 1993 Key Employee Stock
Option Plan ("1993 Plan") covering key management employees who are not
officers of the Company. The 1993 Plan provides for nonqualified options to
purchase a total of 600,000 shares of Common Stock, with a maximum of 5,000
shares per employee. The maximum number of options which may be granted in
any calendar year is 300,000.
<TABLE>
A summary of option transactions is as follows:
<CAPTION>
Year Ended December 31,
------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding, January 1 2,932,500 1,848,000 1,821,000
Options granted 915,300 1,611,000 42,000
Price range $2.75-$4.38 $3.63-$4.50 $ 3.75
Options exercised 88,000 106,250 -
Price range $ 2.31 $ 2.31 $ -
Options cancelled 447,100 420,250 15,000
Price range $2.31-$4.50 $2.31-$4.50 $2.31-$3.75
------------ ------------ ------------
Options outstanding, December 31 3,312,700 2,932,500 1,848,000
Price range $2.31-$4.50 $2.31-$4.50 $2.31-$3.75
============ ============ ============
Options exercisable, December 31 1,376,500 867,917 636,083
Price range $2.31-$4.50 $2.31-$3.75 $ 2.31
============ ============ ============
</TABLE>
40
<PAGE> 41
NOTE 11 - EMPLOYEE STOCK OPTION PLAN (CONTINUED)
- ------------------------------------------------
All options granted are ten-year nonqualified options and were granted at
market value. Of the options outstanding at December 31, 1993, 200,000 were
exercisable when issued, 400,000 become exercisable in three equal annual
installments following the December 11, 1990 date of grant, and the balance
become exercisable in four equal annual installments following the respective
dates of grant. All outstanding options become exercisable upon a change in
control, as defined in the option agreements. At December 31, 1993, the
Company had 4,155,750 shares of Common Stock reserved for future issuance
under the plans.
NOTE 12 - INCOME TAXES
- ----------------------
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109-Accounting for Income
Taxes ("FAS 109"). This standard requires, among other things, recognition of
future tax benefits, measured by enacted tax rates, attributable to deductible
temporary differences between financial statement and income tax bases of
assets and liabilities and net operating loss carryforwards to the extent that
management assesses the utilization of such net operating loss carryforwards
to be more likely than not. The statement also requires deferred tax assets
to be reduced by a valuation allowance if, based on the weight of available
evidence, management cannot make a determination that it is more likely than
not that some portion or all of the related tax benefits will be realized.
Furthermore, the statement requires that a valuation allowance be established
or adjusted if a change in circumstances causes a change in judgment about the
future realizability of the deferred tax assets.
At December 31, 1992, the Company had recorded deferred tax assets totalling
$30.2 million, with no related valuation allowance, based upon management's
assessment at that time that taxable income of the Company would more likely
than not be sufficient to utilize fully the net operating loss carryforwards
prior to their ultimate expiration in the year 2001. At September 30, 1993,
based upon unanticipated 1993 operating results and a reassessment of future
expectations, the Company established a valuation allowance to reduce the
carrying value of deferred tax assets to zero. The Company has not recognized
any future tax benefits that may be realized from taxable losses incurred in
1993.
At December 31, 1993, the Company has net operating loss carryforwards of
$109 million, expiring as follows: 1998-$15 million, 1999-$28 million,
2000-$23 million, 2001-$15 million and 2008-$28 million.
41
<PAGE> 42
NOTE 12 - INCOME TAXES (CONTINUED)
- ----------------------------------
<TABLE>
The provision (credit) for income taxes consists of the following (in
thousands):
<CAPTION>
Year ended December 31,
----------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Federal
Current $ - $ 240 $ 80
Deferred 27,046 2,977 1,935
------- ------- -------
27,046 3,217 2,015
State
Current - 960 337
Deferred 3,182 (357) 270
------- ------- -------
3,182 603 607
------- ------- -------
$30,228 $3,820 $2,622
======= ======= =======
</TABLE>
<TABLE>
The difference between income taxes at the Company's effective tax rate and
the U.S. federal statutory rate is as follows (in thousands):
<CAPTION>
Year ended December 31,
-----------------------------
1993 1992 1991
--------- ------- -------
<S> <C> <C> <C>
U.S. federal income tax (benefit) at $(12,961) $3,418 $2,350
statutory rate
1993 taxable losses for which tax
benefits were not recognized 12,961 - -
Valuation allowance for deferred tax
assets recorded in prior year 30,228 - -
Other items - (201) (335)
--------- ------- -------
Total federal 30,228 3,217 2,015
State and other local income taxes - 603 607
--------- ------- -------
$ 30,228 $3,820 $2,622
========= ======= =======
</TABLE>
42
<PAGE> 43
NOTE 12 - INCOME TAXES (CONTINUED)
- ----------------------------------
<TABLE>
Deferred income taxes reflect the future tax benefits attributable to net
operating loss carryforwards and temporary differences as follows (in
thousands):
<CAPTION>
December 31,
--------------------
1993 1992
--------- --------
<S> <C> <C>
Net operating loss carryforwards $ 38,299 $27,606
Allowance for doubtful accounts 1,615 1,340
Accrued store closing costs 5,685 586
Depreciation (1,789) (1,915)
Other (16) 2,611
--------- --------
43,794 30,228
Less current portion - 6,333
--------- --------
43,794 23,895
Less valuation allowance (43,794) -
--------- --------
Non-current deferred income taxes $ - $23,895
========= ========
</TABLE>
The Company's tax returns for years subsequent to 1982 have not been reviewed
by the Internal Revenue Service ("IRS"). Availability of the net operating
loss carryforwards might be challenged by the IRS upon review of such returns
and may be limited under the Tax Reform Act of 1986 as a result of changes
that may occur in the ownership of the Company's stock in the future,
principally relating to a change in control.
The Company believes, however, that IRS challenges that would limit the
utilization of available net operating loss carryforwards are unlikely, and
that the adjustments to tax liability, if any, for years through 1993 will not
have a material adverse effect on the Company's financial position.
Income and franchise taxes paid in 1993, 1992 and 1991 amounted to (in
thousands) $920, $1,158 and $848, respectively.
43
<PAGE> 44
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected quarterly financial data should be read in conjunction
with the consolidated financial statements, related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Certain amounts in individual quarters have been reclassified to conform with
year end presentation.
<CAPTION>
1993
--------------------------------------------------------
Three Months Ended
--------------------------------------------
March 31 June 30 September 30 December 31 Full Year
(in thousands, except per share data) (14 Weeks) (53 Weeks)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES $141,562 $253,105 $247,671 $199,636 $841,974
COST OF SALES 102,530 186,879 189,099 150,581 629,089
--------- --------- --------- --------- ---------
Gross Profit 39,032 66,226 58,572 49,055 212,885
OPERATING EXPENSES
Selling and administrative 46,902 50,797 52,053 43,910 193,662
Depreciation and amortization 3,020 3,442 3,617 3,354 13,433
Store preopening expense 391 239 - - 630
Store closing expense - - 34,263 - 34,263
--------- --------- --------- --------- ---------
50,313 54,478 89,933 47,264 241,988
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) (11,281) 11,748 (31,361) 1,791 (29,103)
OTHER EXPENSES (INCOME)
Interest expense 1,922 2,110 2,233 2,157 8,422
Other (19) 472 271 (129) 595
--------- --------- --------- --------- ---------
1,903 2,582 2,504 2,028 9,017
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (13,184) 9,166 (33,865) (237) (38,120)
PROVISION (CREDIT) FOR INCOME TAXES (5,010) 3,483 31,755 - 30,228
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (8,174) $ 5,683 $(65,620) $ (237) $(68,348)
======== ========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE
(PRIMARY AND FULLY DILUTED) $ (0.32) $ 0.22 $ (2.56) $ (0.01) $ (2.66)
======== ========= ========= ========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
Primary 25,617 26,121 25,677 25,679 25,661
======== ========= ========= ========= =========
Fully Diluted 25,617 26,121 25,677 25,679 25,661
======== ========= ========= ========= =========
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
1992
--------------------------------------------------------
Three Months Ended
--------------------------------------------
March 31 June 30 September 30 December 31 Full Year
(in thousands, except per share data)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES $153,533 $249,833 $245,765 $184,239 $833,370
COST OF SALES 111,473 182,645 183,133 132,729 609,980
--------- --------- --------- --------- ---------
Gross Profit 42,060 67,188 62,632 51,510 223,390
OPERATING EXPENSES
Selling and administrative 43,285 53,377 49,845 47,248 193,755
Depreciation and amortization 2,782 2,921 2,972 2,980 11,655
Store preopening expense 833 198 50 2,411 3,492
Store closing expense - - - - -
--------- --------- --------- --------- ---------
46,900 56,496 52,867 52,639 208,902
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) (4,840) 10,692 9,765 (1,129) 14,488
OTHER EXPENSES (INCOME)
Interest expense 2,099 2,070 2,026 2,080 8,275
Other (223) 500 155 (4,271) (3,839)
--------- --------- --------- --------- ---------
1,876 2,570 2,181 (2,191) 4,436
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (6,716) 8,122 7,584 1,062 10,052
PROVISION (CREDIT) FOR INCOME TAXES (2,552) 3,087 2,882 403 3,820
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (4,164) $ 5,035 $ 4,702 $ 659 $ 6,232
========= ======== ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE
(PRIMARY AND FULLY DILUTED) $ (0.16) $ 0.19 $ 0.18 $ 0.03 $ 0.24
========= ======== ========= ========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
Primary 25,491 26,245 26,061 26,164 26,193
========= ======== ========= ========= =========
Fully Diluted 25,491 26,245 26,061 26,273 26,241
========= ======== ========= ========= =========
</TABLE>
45
<PAGE> 46
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item regarding Directors is hereby incorporated by reference to the
Company's definitive proxy statement for its 1994 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A with the Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K.
Information regarding the Company's Executive Officers is set forth above
following Item 1 of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item is hereby incorporated by reference to the Company's definitive
proxy statement for its 1994 Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A with the Commission not later than 120 days after
the end of the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item is hereby incorporated by reference to the Company's definitive
proxy statement for its 1994 Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A with the Commission not later than 120 days after
the end of the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item is hereby incorporated by reference to the Company's definitive
proxy statement for its 1994 Annual Meeting of Stockholders to be filed
pursuant to Regulation 14A with the Commission not later than 120 days after
the end of the fiscal year covered by this Form 10-K.
46
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1 - Index to Financial Statements
Page Number
in this Report
--------------
Consolidated Balance Sheets
December 31, 1993 and 1992........................................ 27
Consolidated Statements of Operations
Years Ended December 31, 1993, 1992 and 1991...................... 29
Consolidated Statements of Cash Flows
Years Ended December 31, 1993, 1992 and 1991...................... 30
Consolidated Statements of Changes in Stockholders' Investment
Years Ended December 31, 1993, 1992 and 1991...................... 31
Notes to Consolidated Financial Statements.......................... 32
(a) 2 - Index to Financial Statement Schedules
The following consolidated financial statement schedules
of Grossman's Inc. and Subsidiaries are included in
Item 14(d) and filed herewith (page numbers refer to page
numbers in this Form 10-K):
Schedule V - Property, Plant and Equipment....................... 56
Schedule VI - Accumulated Depreciation, Depletion, and
Amortization of Property, Plant
and Equipment....................................... 57
Schedule VIII - Valuation and Qualifying Accounts................... 58
Schedule IX - Short-Term Borrowings............................... 58
Schedule X - Supplementary Income Statement
Information......................................... 59
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions, or are inapplicable,
and, therefore, have been omitted.
(b) Reports on Form 8-K
None.
(a) 3. and (c) - Exhibits
47
<PAGE> 48
Exhibit
Number
- -------
2(e) Final Decree and Order Closing Cases, dated October 2, 1987, of
the United States Bankruptcy Court for the Southern District of
Florida, filed as Exhibit 2(e) to the Company's Form 10-Q for the
quarter ended September 30, 1987, is incorporated herein by
reference.
2(f) Asset Purchase Agreement between GNW Partners, L.P. and
Grossman's Inc., dated June 28, 1989, without exhibits, filed as
Exhibit 2(f) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989 (File 1-542), is incorporated herein
by reference.
2(g) Asset Purchase Agreement between Harcros Lumber & Building
Supplies Inc. and Grossman's Inc., dated August 14, 1989, without
exhibits, filed as Exhibit 2(a) to the Company's Form 8-K, dated
September 12, 1989, is incorporated herein by reference.
3(a) Restated Certificate of Incorporation of the Company, as in
effect November 19, 1986, filed as Exhibit 3(a) to the Company's
Form 8-K, dated November 19, 1986 (File No. 1-542), is
incorporated herein by reference.
3(a)-1 Resolutions adopted by the Company's Board of Directors on
December 15, 1987, modifying and extending restrictions on
acquisition of Common Stock under Article Ninth of Company's
Restated Certificate of Incorporation, filed as Exhibit 3(a)-1 to
the Company's Form 8-K, dated December 15, 1987 (File 1-542), is
incorporated herein by reference.
3(a)-2 Notice to Stockholders of modification and extension of
restrictions on acquisition of Common Stock pursuant to Article
Ninth of Company's Restated Certificate of Incorporation, filed
as Exhibit 3(a)-2 to the Company's Form 8-K, dated December 15,
1987 (File 1-542), is incorporated herein by reference.
3(a)-3 Certificate of Designation Relating to Certain Restrictions on
the Acquisition of Common Stock pursuant to Article Ninth of the
Company's Restated Certificate of Incorporation, filed as Exhibit
3(1)-2 to the Company's Form 8-K dated November 19, 1986 (File
No. 1-542), is incorporated herein by reference.
3(a)-4 Resolutions adopted by the Company's Board of Directors on
October 23, 1990 extending restrictions on acquisition of Common
Stock under Article Ninth of Company's Restated Certificate of
Incorporation, filed as Exhibit 3(a)-4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990 (File
No. 1-542), is incorporated herein by reference.
48
<PAGE> 49
3(a)-5 Notice to Stockholders of extension of restrictions on
acquisition of Common Stock pursuant to Article Ninth of the
Company's Restated Certificate of Incorporation, filed as Exhibit
3(a)-5 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990 (File No. 1-542), is incorporated herein
by reference.
3(a)-6 Certificate of Designation Relating to Certain Restrictions on
the Acquisition of Common Stock pursuant to Article Ninth of the
Company's Restated Certificate of Incorporation, filed as Exhibit
3(a)-6 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990 (File No. 1-542), is incorporated herein
by reference.
3(a)-7 Notice to Stockholders of extension of restrictions on
acquisition of Common Stock pursuant to Article Ninth of the
Company's Restated Certificate of Incorporation, filed herewith.
3(a)-8 Certificate of Designation Relating to Certain Restrictions on
the Acquisition of Common Stock pursuant to Article Ninth of the
Company's Restated Certificate of Incorporation, filed herewith.
3(b) By-Laws of the Company, as in effect November 19, 1986, filed as
Exhibit 3(b) to the Company's Form 8-K, dated November 19, 1986
(File No. 1-542), is incorporated herein by reference.
3(b)-1 Copy of the amendments to the Grossman's Inc. By-Laws as adopted
by the Board of Directors of Grossman's Inc. on December 15,
1987, filed as Exhibit 3(b)-1 to the Company's Form 8-K, dated
December 15, 1987 (File 1-542), is incorporated herein by
reference.
4(c) Indenture, dated January 1, 1986, from the Company to United
States Trust Company of New York, as Trustee, with respect to the
Company's 14% Debentures due 1996, filed as Exhibit 4(c) to the
Company's Form 8-K, dated November 19, 1986 (File No. 1-542), is
incorporated herein by reference.
4(c)-1 First Supplemental Indenture, dated January 1, 1987, to
Indenture, dated January 1, 1986 (Exhibit 4(c) above), for the
Company's 14% Debentures due 1996, filed as Exhibit 4(h) to the
Company's Registration Statement on Form S-1, No. 33-15107, is
incorporated herein by reference.
4(c)-2 Second Supplemental Indenture, dated March 15, 1987, to
Indenture, dated January 1, 1986, for the Company's 14%
Debentures due 1996 (Exhibit 4(c) above), filed as Exhibit 4(j)
to the Company's Registration Statement on Form S-1, No.
33-15107, is incorporated herein by reference.
49
<PAGE> 50
4(c)-3 Third Supplemental Indenture, dated June 15, 1987, to Indenture,
dated January 1, 1986, for the Company's 14% Debentures due 1996
(Exhibit 4(c) above), filed as Exhibit 4(c)-3 to the Company's
Form 8-K, dated July 15, 1988 (File No. 1-542), is incorporated
herein by reference.
4(c)-4 Fourth Supplemental Indenture, dated June 15, 1987, to Indenture,
dated January 1, 1986, for the Company's 14% Debentures due 1996
(Exhibit 4(c) above), filed as Exhibit 4(c)-4 to the Company's
Form 8-K, dated July 15, 1988 (File No. 1-542), is incorporated
herein by reference.
4(c)-5 Form of Waiver dated December 21, 1988 of certain provisions of
Section 5.11 to the Indenture, dated January 1, 1986, for the
Company's 14% Debentures due 1996 (Exhibit 4(c) above), filed as
Exhibit 4(c)-5 to the Company's Form 8-K, dated December 13,
1988, is incorporated herein by reference.
4(c)-6 Fifth Supplemental Indenture, dated September 30, 1989, to
Indenture, dated January 1, 1986, for the Company's 14%
Debentures due 1996 (Exhibit 4(c) above), filed as Exhibit 4(c)-6
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-542), is incorporated herein by
reference.
4(c)-7 Sixth Supplemental Indenture, dated March 1, 1990, to Indenture,
dated January 1, 1986, for the Company's 14% Debentures due 1996
(Exhibit 4(c) above), filed as Exhibit 4(c)-7 to the Company's
Form 10-Q for the quarter ended June 30, 1990, is incorporated
herein by reference.
4(c)-8 Seventh Supplemental Indenture, dated May 17, 1991, to Indenture,
dated January 1, 1986, for the Company's 14% Debentures due 1996
(Exhibit 4(c) above), filed as Exhibit 4(c)-8 to the Company's
Form 10-K for the year ended December 31, 1991 (File No. 1-542),
is incorporated herein by reference.
4(e)-1 Amended and Restated Registration Rights and Transfer Restriction
Agreement, dated April 30, 1987, among the Company; the Common
Holders, Debt Holders, Offering Committee and Custodian named
therein; and Herzog, Heine Geduld Inc., filed as Exhibit 4(e)-1
to the Company's Registration Statement on Form S-1,
No. 33-15107, is incorporated herein by reference.
4(m) Term Loan and Security Agreement without Exhibits and Installment
Note, dated October 15, 1991, between Grossman's Inc. and Sanwa
Business Credit Corporation, filed as Exhibit 4(m) to the
Company's Form 10-Q for the quarter ended September 30, 1991, is
incorporated herein by reference.
4(n) First Amendment, dated December 14, 1993, to Term Loan and
Security Agreement between Grossman's Inc. and Sanwa Business
Credit Corporation, dated October 15, 1991, filed herewith.
50
<PAGE> 51
4(o) Loan and Security Agreement between Grossman's Inc. and
BankAmerica Business Credit, Inc. dated December 15, 1993
(without exhibits), filed herewith.
10(a) Amended and Restated Employment Agreement dated September 8,
1986, among Evans Products Company, Grossman's Inc. and Maurice
Grossman, filed as Exhibit 10 to the Evans Products Company
Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1985 (File No. 1-542), is incorporated herein by reference.
10(a)-1 Amendment, dated April 29, 1988, to Amended and Restated
Employment Agreement between Grossman's Inc. and Maurice Grossman
(Exhibit 10(a) above), filed as an unnumbered exhibit to the
Company's Form 8-K, dated April 28, 1988 (File No. 1-542), is
incorporated herein by reference.
10(a)-2 Amendment, dated December 13, 1988, to Amended and Restated
Employment Agreement, dated September 8, 1986, between Grossman's
Inc. and Maurice Grossman, filed as Exhibit 10(a)-2 to the
Company's Form 8-K, dated December 13, 1988, is incorporated
herein by reference.
10(a)-3 Amendment, dated April 24, 1990, to Amended and Restated
Employment Agreement between Grossman's Inc. and Maurice Grossman
(Exhibit 10(a) above), filed as an unnumbered exhibit to the
Company's Form 8-K, dated April 24, 1990 (File No. 1-542), is
incorporated herein by reference.
10(a)-4 Amendment, dated November 6, 1990, to Amended and Restated
Employment Agreement, between Grossman's Inc. and Maurice
Grossman (Exhibit 10(a) above), filed as Exhibit 10(a)-4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990 (File No. 1-542), is incorporated herein by
reference.
10(iii)(g) Employment Agreement, dated May 23, 1990, between Grossman's Inc.
and Thomas R. Schwarz, filed as Exhibit 10(iii)(g) to the
Company's Form 10-Q for the quarter ended June 30, 1990 (File
No. 1-542), is incorporated herein by reference.
10(iii)(g)-1 Amendment, dated November 6, 1990, to Employment Agreement,
between Grossman's Inc. and Thomas R. Schwarz (Exhibit 10(iii)(g)
above), filed as Exhibit 10(iii)(g)-1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990 (File
No. 1-542), is incorporated herein by reference.
10(iii)(h) Amended and Restated Employment Agreement, dated July 1, 1991,
between Grossman's Inc. and Sydney L. Katz, filed as Exhibit
10(iii)(h) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991 (File No. 1-542), is incorporated
herein by reference.
51
<PAGE> 52
10(iii)(k) Amended and Restated Employment Agreement, dated July 1, 1991,
between Grossman's Inc. and Robert L. Flowers, filed as Exhibit
10(iii)(k) to the Company's Annual Report on Form 10-K for year
ended December 31, 1991 (File No. 1-542), is incorporated herein
by reference.
10(iii)(l) Amended and Restated Employment Agreement, dated July 1, 1991,
between Grossman's Inc. and Richard E. Kent, filed as Exhibit
10(iii)(l) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993 (File No. 1-542), is incorporated
herein by reference.
10(iii)(m) Employment Agreement, dated February 1, 1993, between Grossman's
Inc. and Alan T. Kane, filed as an unnumbered exhibit to the
Company's Form 8-K, dated February 15, 1993 (File No. 1-542), is
incorporated herein by reference.
10(b) Restated and Amended Grossman's Inc./Evans Asset Holding Company
General Pension Plan, filed as Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1986
(File No. 1-542), is incorporated herein by reference.
10(c) Agreement Re General Pension Plan, dated November 18, 1986, among
Evans Products Company, Grossman's Inc., Evans Financial Corp.,
Evans Transportation Company and Evans Asset Holding Company,
filed as Exhibit 10(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1986 (File No. 1-542), is
incorporated herein by reference.
10(c)-1 Agreement Re Spin-off of General Pension Plan, dated January 1,
1987, among the Company, Evans Asset Holding Company, Evans
Financial Corp. and Evans Transportation Company, filed as
Exhibit 10(c)-1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987 (File No. 1-542), is
incorporated herein by reference.
10(c)-2 Letter, dated December 30, 1987, documenting certain
understandings reached among the Company, Grossman's Inc.
Retirement Plan, Evans Asset Holding Company and Evans Asset
Holding Company/Grossman's Inc. General Pension Plan, regarding
the proper interpretation of the Agreement Re Spin-off of General
Pension Plan (Exhibit 10(c)-1 above), filed as Exhibit 10(c)-2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1987 (File No. 1-542), is incorporated herein by
reference.
10(c)-3 Grossman's Inc. Retirement Plan (Effective January 1, 1987), as
amended and restated effective as of January 1, 1989, filed as
Exhibit 10(c)-3 to the Company's Annual Report on Form 10-K for
year ended December 31, 1988 (File No. 1-542), is incorporated
herein by reference.
52
<PAGE> 53
10(c)-4 Grossman's Inc. Retirement Plan, as amended and restated as of
October 2, 1989, effective as of January 1, 1989, filed as
Exhibit 10(c)-4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989 (File No. 1-542), is
incorporated herein by reference.
10(c)-5 Amendment, adopted October 24, 1989, to the Grossman's Inc.
Retirement Plan, as amended and restated as of October 2, 1989
(Exhibit 10(c)-4 above), filed as exhibit 10(c)-5 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1989 (File No. 1-542), is incorporated herein by reference.
10(c)-6 Amendment, adopted December 12, 1989, to the Grossman's Inc.
Retirement Plan, as amended and restated as of October 2, 1989
(Exhibit 10(c)-4 above), filed as exhibit 10(c)-6 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-542), is incorporated herein by
reference.
10(c)-7 Amendment, adopted August 1, 1990, to the Grossman's Inc.
Retirement Plan, as amended and restated as of October 2, 1989,
filed as Exhibit 10(c)-7 to the Company's Form 10-Q for the
quarter ended September 30, 1990 (File No. 1-542), is
incorporated herein by reference.
10(d) Claim Allocation Agreement, dated November 19, 1986, by and
between Evans Asset Holding Company, EFC Mortgage Trust and
Grossman's Inc., filed as Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1986 (File
No. 1-542), is incorporated herein by reference.
10(e) EPC Asset Transfer Agreement, dated November 19, 1986, among
Evans Products Company, Evans Asset Holding Company, EPC
Properties Company, Minneapolis Electric Steel Castings Company,
Racine Steel Castings Company, RSC Properties Company, Duluth
Steel Castings Company, Aberdeen Forest Products Company and
Evans Engineered Products Company, filed as Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1986 (File No. 1-542), is incorporated herein by reference.
10(f) EFC Asset Transfer Agreement, dated November 19, 1986, among
Evans Financial Corp. and EFC Mortgage Trust, filed as Exhibit
10(f) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1986 (File No. 1-542), is incorporated herein
by reference.
10(g) Assumption Agreement, dated November 19, 1986, among Evans Asset
Holding Company, EFC Mortgage Trust, Evans Products Company,
Evans Financial Corp. and Bank of America National Trust and
Savings Association, as agent, filed as Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1986 (File No. 1-542), is incorporated herein by
reference.
53
<PAGE> 54
10(h) Grossman's Inc. 1986 Nonqualified Stock Option Plan, filed as
Exhibit A to the Company's Proxy Statement for the 1987 Annual
Meeting of Stockholders, dated September 28, 1987, is
incorporated herein by reference.
10(h)-1 Amendment, dated December 11, 1990, to 1986 Nonqualified Stock
Option Plan, filed as Exhibit 10(h)-1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990 (File
No. 1-542), is incorporated herein by reference.
10(h)-2 Amendment, dated January 28, 1992, to 1986 Nonqualified Stock
Option Plan, filed as Exhibit 10(h)-2 to the Company's Form 10-Q
for the quarter ended March 31, 1992 (File No. 1-542), is
incorporated herein by reference.
10(i) Grossman's Inc. Executive Severance Plan, filed as Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1986 (File No. 1-542), is incorporated herein by
reference.
10(i)-1 Grossman's Inc. Amended and Restated Executive Severance Plan,
dated August 1, 1990, filed as Exhibit 10(i)-1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1990
(File No. 1-542), is incorporated herein by reference.
10(i)-2 Amendment, dated November 6, 1990, to Grossman's Inc. Amended and
Restated Executive Severance Plan (Exhibit 10(i)-1 above), filed
as Exhibit 10(i)-2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990 (File No. 1-542), is
incorporated herein by reference.
10(m)-1 Grossman's Inc. Supplemental Executive Retirement Plan, dated
January 1, 1992, filed as Exhibit 10(m)-1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991 (File
No. 1-542), is incorporated herein by reference.
10(n) Grossman's Savings and Profit Sharing Plan (Effective as of
May 1, 1988), dated April 29, 1988, filed as Exhibit 10(c)-4 to
the Company's Form 10-Q for the quarter ended June 30, 1988, is
incorporated herein by reference.
10(n)-1 Amendment, effective as of May 1, 1988, to Grossman's Savings and
Profit Sharing Plan (Effective as of May 1, 1988) (Exhibit 10(n)
above), dated February 28, 1989, filed as Exhibit 10(n)-1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 1-542), is incorporated herein by
reference.
54
<PAGE> 55
10(n)-2 Amendment, effective as of September 12, 1989, to Grossman's Inc.
Savings and Profit Sharing Plan (Effective as of May 1, 1988)
(Exhibit 10(n) above), dated October 24, 1989, filed as Exhibit
10(n)-2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1989 (File No. 1-542), is incorporated herein
by reference.
10(n)-3 Amendment No. 3 to Grossman's Inc. Savings and Profit Sharing
Plan (Effective as of May 1, 1988) (Exhibit 10(n) above), filed
as Exhibit 10(n)-3 to the Company's Form 10-K for the year ended
December 31, 1990 (File No. 1-542), is incorporated herein by
reference.
10(n)-4 Amendment No. 4 to Grossman's Inc. Savings and Profit Sharing
Plan, dated May 1, 1991, filed as Exhibit 10(n)-4 to the
Company's Form 10-Q for the quarter ended March 31, 1991, is
incorporated herein by reference.
10(o) Grossman's Inc. 1993 Key Employee Stock Option Plan, dated
April 27, 1993, filed herewith.
11(a) Statement re computation of earnings per share, filed herewith.
22 Subsidiaries of the Company, filed as Exhibit 22 to the Company's
Annual Report on Form 10-Q for the quarter ended September 30,
1991 (File No. 1-542), is incorporated herein by reference.
24(a) Consent of Ernst & Young, Independent Auditors, filed herewith.
55
<PAGE> 56
(d) Financial Statement Schedules
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<CAPTION>
Balance at Balance
Beginning Additions at Sales and at End
Classification of Year Cost(1)(2) Retirements(3) of Year
- -------------- ---------- ------------ -------------- -------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1993
Land $ 28,117 $ 163 $ 2,540 $ 25,740
Buildings
and leasehold
improvements 101,382 16,731 14,164 103,949
Machinery and
equipment 50,541 16,354 7,886 59,009
Construction
in progress(2) 12,589 (10,960) 407 1,222
-------- --------- ------- --------
Total $192,629 $ 22,288 $24,997 $189,920
======== ========= ======= ========
Year Ended
December 31, 1992
Land $ 26,313 $ 1,990 $ 186 $ 28,117
Buildings
and leasehold
improvements 91,517 11,545 1,680 101,382
Machinery and
equipment 45,696 6,707 1,862 50,541
Construction
in progress(2) 3,494 9,148 53 12,589
-------- --------- ------- --------
Total $167,020 $ 29,390 $ 3,781 $192,629
======== ========= ======= ========
Year Ended
December 31, 1991
Land $ 24,406 $ 3,447 $ 1,540 $ 26,313
Buildings
and leasehold
improvements 85,432 9,277 3,192 91,517
Machinery and
equipment 47,231 6,486 8,021 45,696
Construction
in progress(2) 8,005 (4,300) 211 3,494
-------- --------- ------- --------
Total $165,074 $ 14,910 $12,964 $167,020
======== ========= ======= ========
<FN>
(1) Additions, which include capital lease additions, relate principally to
the Company's store remodeling and expansion program, started in 1987, and
the opening of new stores.
(2) Additions to construction in progress are shown net of transfers to other
asset classifications.
(3) Sales and retirements in 1993 include reclassifications to current assets
and adjustments to reflect net realizable value for closed stores.
</TABLE>
56
<PAGE> 57
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION,
AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
(in thousands)
<CAPTION>
Balance at Additions Balance
Beginning Charged to Sales and at End
Description of Year Cost & Expenses Retirements of Year
- ----------- ---------- --------------- ----------- -------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1993
Buildings
and leasehold
improvements $27,527 $ 2,320 $ 2,551 $27,296
Machinery and
equipment 30,409 11,113 9,062 32,460
------- ------- ------- --------
Total $57,936 $13,433 $11,613 $59,756
======= ======= ======= ========
Year Ended
December 31, 1992
Buildings
and leasehold
improvements $24,187 $ 3,772 $ 432 $27,527
Machinery and
equipment 24,198 7,883 1,672 30,409
------- ------- ------- --------
Total $48,385 $11,655 $2,104 $57,936
======= ======= ======= ========
Year Ended
December 31, 1991
Buildings
and leasehold
improvements $22,236 $ 3,347 $ 1,396 $24,187
Machinery and
equipment 22,743 7,773 6,318 24,198
------- ------- ------- --------
Total $44,979 $11,120 $ 7,714 $48,385
======= ======= ======= ========
</TABLE>
57
<PAGE> 58
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance at Additions Balance
Beginning Charged to Costs at End
Description of Year and Expenses Deductions (1) of Year
- ----------- ---------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1993
Allowance for
doubtful accounts $3,904 $2,911 $1,603 $5,212
======== ======== ======== ========
Year Ended
December 31, 1992
Allowance for
doubtful accounts $3,974 $1,944 $2,014 $3,904
======== ======== ======== ========
Year Ended
December 31, 1991
Allowance for
doubtful accounts $2,682 $3,989 $2,697 $3,974
======== ======== ======== ========
<FN>
(1) Write-off of bad debts less recoveries.
</TABLE>
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
SCHEDULE IX
SHORT-TERM BORROWINGS
(in thousands, except percentages)
<CAPTION>
Weighted Maximum Amt. Average Amt. Weighted
Balance Average Outstanding Outstanding Average Interest
Category of Aggregate at End of Interest During the During the Rate During
Short-term borrowings Period Rate Period Period the Period (2)
- --------------------- --------- -------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1993
Revolving Credit Agreement $ - - $36,000 $21,129 5.9%
Year Ended
December 31, 1992
Revolving Credit Agreement $ - - $ - $ - -%
Year Ended
December 31, 1991
Revolving Credit Agreement $ - - $13,000 $ 2,951 8.9%
<FN>
(1) The average amount oustanding during the period was computed based on the toal of daily ending
principal balances.
(2) The weighted average interest rate during the period was computed by dividing the actual interest
expense by average short-term debt outstanding.
</TABLE>
58
<PAGE> 59
<TABLE>
GROSSMAN'S INC. AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
<CAPTION>
Item Charged to Costs and Expenses
---- -----------------------------
Year Ended December 31,
------------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Advertising $15,129 $12,923 $15,144
======= ======= =======
</TABLE>
Amounts for maintenance and repairs, depreciation and amortization of
intangible assets, taxes other than payroll and income taxes, and royalties
are not presented as such amounts are less than 1% of total sales and
revenues.
59
<PAGE> 60
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GROSSMAN'S INC.
Company
Date: March 16, 1994 By /s/ Sydney L. Katz
-------------------------------------
Sydney L. Katz
Executive Vice President,
Chief Financial Officer and Treasurer
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 Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ------------------------------- --------------
<S> <C> <C>
Chairman of the Board March 16, 1994
and Chief Executive Officer
/s/ Thomas R. Schwarz Executive Officer and Director
- --------------------------- (Principal Executive Officer)
Thomas R. Schwarz
Executive Vice President, March 16, 1994
Chief Financial Officer
/s/ Sydney L. Katz and Treasurer and Director
- --------------------------- (Principal Financial Officer)
Sydney L. Katz
/s/ Steven L. Shapiro Controller March 16, 1994
- --------------------------- (Principal Accounting Officer)
Steven L. Shapiro
/s/ Russell Cox Director March 16, 1994
- ---------------------------
Russell Cox
/s/ John Grey Director March 16, 1994
- ---------------------------
John Grey
/s/ Maurice Grossman Director March 16, 1994
- ---------------------------
Maurice Grossman
/s/ Leo Kahn Director March 16, 1994
- ---------------------------
Leo Kahn
/s/ W. Wallace McDowell, Jr. Director March 16, 1994
- ---------------------------
W. Wallace McDowell, Jr.
/s/ Robert Swanson Director March 16, 1994
- ---------------------------
Robert Swanson
/s/ Harold Tanner Director March 16, 1994
- ---------------------------
Harold Tanner
/s/ Abraham Zaleznik Director March 16, 1994
- ---------------------------
Dr. Abraham Zaleznik
/s/ Stephen B. Oresman Director March 16, 1994
- ---------------------------
Stephen B. Oresman
</TABLE>
60
<PAGE> 1
EXHIBIT 3(a)-7
Notice to Stockholders of extension of restrictions on acquisition of Common
Stock pursuant to Article Ninth of the company's Restated Certificate of
Incorporation.
61
<PAGE> 2
Notice of Extension of Restrictions
on Accumulation of Common Stock
TO ALL Holders of Common Stock of Grossman's Inc.:
In order to assist in protecting the Company's tax net operating loss
carryover and investment tax credit carryover, Article Ninth of the Company's
Restated Certificate of Incorporation contains provisions restricting the
acquisition of shares of the Company's Common Stock by any person (including
any partnership, corporation or other entity). In general, Article Ninth, as
previously modified and extended by the Board of Directors, provides that no
person may, voluntarily or involuntarily, acquire any shares of Common Stock on
or prior to December 31, 1993, (or such later date as may be determined by the
Board of Directors), if the number of shares owned by such person (actually or
constructively under certain attribution rules) would be more than 5% of the
outstanding Common Stock.
As of December 31, 1992, the Company had unexpired tax net operating
loss carryovers of approximately $176 million and investment tax credit
carryovers of approximately $4 million, the availability of which to offset
liability for future federal income taxes would be jeopardized by increases in
stock ownership by 5% shareholders under applicable Internal Revenue Code
rules. Accordingly, at its meeting on November 15, 1993, the Board of
Directors of the Company extended the restrictions of Article Ninth on the
accumulation of common Stock for a further three-year period to December 31,
1996, subject to further extension or earlier termination, and to further
modification, by the Board of Directors in accordance with Article Ninth. A
copy of the resolutions adopted by the Board of Directors is enclosed herewith.
A copy of Article Ninth, as so modified and extended, is available without
charge upon application to the Secretary of the Company.
By order of the Board of Directors,
/s/ Richard E. Kent, Secretary
Richard E. Kent, Secretary
Enclosure
Dated: November 18, 1993
62
<PAGE> 1
EXHIBIT 3(a)-8
Certificate of Designation Relating to Certain Restrictions on the Acquisition
of Common Stock pursuant to Article Ninth of the Company's Restated
Certificate of Incorporation.
63
<PAGE> 2
GROSSMAN'S INC.
RESOLUTION EXTENDING
ARTICLE NINTH TO RESTATED
CERTIFICATE OF INCORPORATION
RESOLVED, that pursuant to Paragraphs A and I of Article
Ninth of the Restated Certificate of Incorporation of the
Company, the period of time during which the restrictions on
acquisition of the Company's Common Stock contained in such
Paragraph A (as heretofore modified and extended) shall apply,
be and it hereby is further extended to December 31, 1996,
subject to further extension or earlier termination, and to
further modification, in accordance with said Paragraph I by
resolution of the Board of Directors of the Company; and
FURTHER RESOLVED, that this Board of Directors hereby
determines that the foregoing extension of such restrictions is
necessary to preserve the Company's Net Operating Loss Carryover
and Investment Tax Credit Carryover by virtue of the amendment of
the applicable provisions of the Internal Revenue Code effected
by the Tax Reform Act of 1986; and
FURTHER RESOLVED, that copies of the foregoing resolution
shall be filed with the Secretary of the Company and mailed to
all stockholders of the Company within ten days after the date
hereof.
64
<PAGE> 1
<PAGE> 2
EXHIBIT 4(n)
First Amendment, dated December 14, 1993, to Term Loan and Security Agreement
between Grossman's Inc. and Sanwa Business Credit Corporation, dated October
15, 1991.
65
<PAGE> 3
FIRST AMENDMENT TO TERM LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO TERM LOAN AND SECURITY
AGREEMENT (this "Amendment") is made as of this 15th day of
December, 1993, by and between GROSSMAN'S, INC., a Delaware
corporation ("Borrower"), and SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation ("Lender").
BACKGROUND
A. Borrower and Lender are parties to a Term Loan
and Security Agreement dated October 15, 1991 (including all
exhibits and riders thereto and as supplemented and amended from
time to time referred to herein as the "Loan Agreement").
B. Borrower has or is about to close and cease to
operate its Danvers, Massachusetts location and as a consequence
pursuant to Section 3.8 of the Loan Agreement, Borrower must
either (i) immediately prepay the outstanding principal balance
of the Note plus all accrued interest or (ii) subject to the
approval of Lender, substitute as Collateral another of its
locations having a minimum appraised value equal to at least
Four Million Seven Hundred Fifty Thousand and No/100 Dollars
($4,750,000.00). Borrower has advised Lender that it is unable
to substitute suitable Collateral.
C. Borrower has requested Lender to waive the
requirement that it immediately prepay the outstanding principal
balance of the Note and to waive certain defaults that will be
created by the Danvers closing and certain other store closings.
D. Lender has considered Borrower's requests and is
amenable to such requests provided that Borrower executes this
Amendment and complies with all of the terms and conditions
contained therein.
NOW, THEREFORE, in consideration of the premises set
forth above and the mutual covenants and promises contained in
this Amendment, Borrower and Lender agree as follows:
1. Amendment to Loan Agreement. Effective as of the
date hereof and subject to the conditions set forth in Paragraph
4, Lender and Borrower agree to amend the Loan Agreement as
follows:
(a) Section 1.1 Terms Defined. Section 1.1 of the
Loan Agreement is amended as follows:
66
<PAGE> 4
(i) By adding alphabetically the following
definitions thereto:
"Account" means the Borrower's right to payment
for a sale or lease and delivery or goods or
rendition of services in the ordinary course of the
Borrower's business.
"Account Debtor" means each Person obligated in
any way on or in connection with an Account.
"Adjusted Net Earnings from Operations" means,
with respect to any fiscal period of the Borrower,
the consolidated net income of the Borrower and its
Subsidiaries after provision for income taxes for
such fiscal period, as determined in accordance with
GAAP and reported on the Financial Statements for
such period, less any and all of the following
included in such net income: (a) gain or loss
arising from the sale of capital assets; (b) gain
arising from any write-up in the book value of any
asset; (c) earnings of any corporation, substantially
all the assets of which have been acquired by the
Borrower or any of its Subsidiaries in any manner, to
the extent realized by such other corporation prior
to the date of acquisition; (d) earnings of any
business entity in which the Borrower or any of its
Subsidiaries has an ownership interest unless (and
only to the extent) such earnings shall actually have
been received by the Borrower or such Subsidiary in
the form of cash distributions; (e) earnings of any
Person to which assets of the Borrower or any of its
Subsidiaries shall have been sold, transferred or
disposed of, or into which the Borrower or any of its
Subsidiaries shall have been merged, or which has
been a party with the Borrower to any consolidation
or other form of reorganization, prior to the date of
such transaction; (f) gain arising from the
acquisition of debt or equity securities of the
Borrower or any of its Subsidiaries or from
cancellation or forgiveness of Debt; (g) gain or loss
arising from extraordinary items or from any other
non recurring transaction, as determined in
accordance with GAAP; and (h) losses of Construcento
de America, S.A. De C.V.
"Adjusted Tangible Assets" means all of the
assets of the Borrower and its Subsidiaries on a
consolidated basis except: (a) deferred assets
(other than prepaid insurance, prepaid taxes and
other assets constituting items prepaid by the
67
<PAGE> 5
Borrower or any of its Subsidiaries in the ordinary
course of its business) in excess of $500,000; (b)
patents, copyrights, trademarks, trade names,
franchises, goodwill, and other similar intangibles;
(c) Restricted Investments; (d) unamortized debt
discount and expense; (e) assets of the Borrower or
any of its Subsidiaries constituting Intercompany
Accounts; and (f) fixed assets to the extent of any
write-up in the book value thereof resulting from a
revaluation effective after the date hereof.
"Adjusted Tangible Net Worth" means, at any
date: (a) the book value after deducting related
depreciation, obsolescence, amortization, valuation,
and other proper reserves as determined in accordance
with GAAP) at which the Adjusted Tangible Assets
would be shown on a balance sheet of the Borrower and
its Subsidiaries on a consolidated basis at such date
prepared in accordance with GAAP; less (b) the amount
at which the Borrower's and its Subsidiaries,
liabilities on a consolidated basis would be shown on
such balance sheet; provided, that Adjusted Tangible
Net Worth shall exclude the effect of the
establishment (or reversal) after the date hereof of
a minimum pension liability in accordance with the
Financial Accounting Standards Board's Statement of
Financial Account Standards No. 87; and shall
additionally exclude any net gain from the sale of
the Borrower's corporate headquarters at 200 Union
Street, Braintree, Massachusetts.
"Intercompany Accounts" means all assets and
liabilities, however arising, which are due to the
Borrower from, which are due from the Borrower to, or
which otherwise arise from any transaction by the
Borrower with, any Affiliate.
"Restricted Investment" means any acquisition of
Property by the Borrower or any of its Subsidiaries
in exchange for cash or other Property, whether in
the form of an acquisition of stock, indebtedness or
other obligation, or by loan, advance, capital
contribution, or otherwise, except the following:
(a) Property to be used in the business of
the Borrower and its Subsidiaries;
(b) current assets arising from the sale
or lease of goods or rendition of services in
the ordinary course of business of the Borrower
and its Subsidiaries;
68
<PAGE> 6
(c) if no Revolving Loans are outstanding
at the time of the acquisition, direct
obligations of the United States of America, or
any agency thereof, or obligations of the United
States of America, or any agency thereof, or
obligations guaranteed by the United States of
America, provided that such obligations mature
within one year from the date of acquisition
thereof;
(d) if no Revolving Loans are outstanding
at the time of the acquisition, certificates of
deposit or time deposits maturing within one
year from the date of acquisition in each case
issued by, created by, or with a bank or trust
company organized under the laws of the United
States (including overseas branches thereof,
provided, that such branches are not treated as
entities separate and apart therefrom) or any
state thereof having capital and surplus
aggregating at least $100,000,000;
(e) if no Revolving Loans are outstanding
at the time of the acquisition, commercial paper
given the highest rating by a national credit
agency and maturing not more than 270 days from
the date of creation thereof;
(f) consistent with historic practices of
the Borrower with respect to its cash management
practices, (x) overnight bank deposits with a
bank or trust company organized under the laws
of the United States (including overseas
branches thereof, provided, that such branches
are not treated as entities separate and apart
therefrom) or any state thereof having capital
and surplus aggregating at least $100,000,000
and (y) repurchase agreements with a term of not
more than seven days for underlying securities
of the types described in clauses (c) and (d)
above, entered into with any bank with
securities dealers of recognized national
standing, provided, that the terms of such
agreements comply with the guidelines set forth
in the Federal Financial Institutions
Examination Council Supervisory Policy
Repurchase Agreements of Depositary Institutions
with Securities Dealers and Others as adopted by
the Comptroller of the Currency on October 31,
1985 (the "Supervisory Policy"), and provided,
further, that possession or control of the
underlying securities is established as provided
in the Supervisory Policy;
69
<PAGE> 7
(g) investments as of the date hereof by
the Borrower in any of its Subsidiaries existing
on the date hereof and additional investments
therein not to exceed $5,000,000 in the
aggregate;
(h) investments as of the date hereof by
the Borrower in Construcentro De America, S.A.
De C.V. and additional investments by the
Borrower therein not to exceed $5,000,000 in the
aggregate;
(i) investments consisting of loans or
advances by the Borrower and its Subsidiaries to
its employees in the ordinary course of business
of the Borrower and its Subsidiaries not in
excess of $1,000,000 in the aggregate
outstanding at any time for the Borrower and its
Subsidiaries; and
(j) other investments by the Borrower not
exceeding $500,000 in the aggregate.
(ii) By deleting the following definitions:
"Consolidated Current Assets"
"Consolidated Current Liabilities"
"Consolidated Fixed Charges"
"Consolidated Funds Available for Fixed Charges"
"Consolidated Net Income"
"Consolidated Tangible Assets
"Consolidated Tangible Net Worth"
"Funded Debt"
"Subordinated Funded Debt"
(iii) By amending certain definitions to
read as follows:
"Revolving Credit Agreement" shall mean that
certain Loan and Security Agreement dated December
15, 1993, as amended from time to time, and all
documents related thereto between Borrower and the
Revolving Credit Lender, copies of which have been
provided to Lender, or any replacement thereof."
"Revolving Credit Lender" shall mean BankAmerica
Business Credit Inc., a national banking association,
having an office at 40 East 52nd Street, New York,
NY 10022 or any placement thereof."
70
<PAGE> 8
"Subsidiary" shall mean any present or future
corporation or other entity of which the Borrower
owns, directly or indirectly, more than 50% of the
voting stock or other voting equity interest (other
than voting stock or other voting equity interest
which has voting rights only by reason of the
happening of a contingency.
(b) Section 1.3 Other Terms. The first sentence of
Section 1.3 of the Loan Agreement is amended to read as follows:
"All undefined terms contained in Section 1.1 of
this Agreement shall, unless the context indicates
otherwise, have the meanings provided for by the
Revolving Credit Agreement, and any other undefined
terms contained in this Agreement shall, unless the
context indicates otherwise, have the meanings
provided for by the Code to the extent the same are
used or defined therein."
(c) Section 2.2 Repayment of Term Loan; Interest
Payments. Section 2.2(a) of the Loan Agreement is amended in
full to read as follows:
"(a) Payments of principal and interest due on
the Term Note shall be made in five (5) installments,
the first four (4) of which shall be in the amount of
Ninety Three Thousand Seven Hundred and Fifty Dollars
($93,750.00) each plus interest on the principal
balance of the Term Loan from time to time remaining
unpaid, calculated at the Original Interest Rate as
set forth in Section 2.4 below, and the final
installment shall be in an amount equal to the sum of
the then outstanding principal amount of the Term
Loan and all accrued and unpaid interest thereon
calculated at the Original Interest Rate, such
payments commencing on the 15th day of January, 1994
and continuing on the same day of April, July and
October, 1994, with the final payment due and payable
on October 31, 1994, or if earlier, on the date
Borrower closes the sale of its Danvers,
Massachusetts facility."
(d) Section 2.3 Prepayments. No Prepayment Fee shall
be due and payable pursuant to Section 2.3 of the Loan Agreement
if payment of the Term Loan is made as provided in Section 2.2
of the Loan Agreement, as amended.
(e) Section 2.4 Interest. All references in Section
2.4 of the Loan Agreement to the Thirty Two-Month Treasury Note
interest rate and the Five Year Interest Rate are deleted.
71
<PAGE> 9
(f) Section 3.7 Maintenance and Disposition of Equipment.
Notwithstanding anything to the contrary contained in Section 3.7 of the Loan
Agreement, so long as no Event of Default exists at the time of the intended
disposition of the Equipment located at the Borrower's Danvers, Massachusetts
facility, Borrower may move the Equipment located at its Danvers,
Massachusetts facility to any of its other locations without notice or any
accounting thereof to Lender. All cash proceeds received from the disposition
of Equipment will be promptly delivered to Lender for application to the
Obligations.
(g) Section 3.8 Substitution of Collateral. Lender
hereby waives (effective as of such time as this Amendment shall
become effective) the prepayment or substitution of Collateral
requirement contained in Section 3.8 in connection with the
closing of its Danvers, Massachusetts facility. All other
requirements of Section 3.8 shall remain in full force and
effect.
Article 7 Financial Covenants. Article 7 of the Loan
Agreement is amended in full to read as follows:
"Borrower covenants and agrees that as at the end of
each month after the date hereof (as provided below) and
so long as any of the Obligations of Borrower to Lender
under this Agreement exist or this Agreement remains in
effect, unless otherwise consented to by Lender in
writing:
<TABLE>
7.1 Minimum Interest Coverage. The Borrower shall
not permit the ratio (the "Interest Coverage Ratio) of (a)
Adjusted Net Earnings from Operations for any period
specified below plus interest expense of the Borrower and
its Subsidiaries for such period and provision for income
taxes of the Borrower and its Subsidiaries for such period
plus depreciation and amortization expense of the Borrower
and its Subsidiaries for such period to (b) interest
expense of the Borrower and its Subsidiaries for such
period to be less than the ration set forth opposite any
such period:
<CAPTION>
Period Ratio
<S> <C>
Second fiscal quarter of 1994 Fiscal Year 4.7/1
Third fiscal quarter of 1994 Fiscal Year 6.4/1
</TABLE>
7.2 Adjusted Tangible Net Worth. The Borrower shall
not permit Adjusted Tangible Net Worth to be less than the
following amounts at any time during any of the following
respective periods or on any of the following respective
dates, as appropriate:
72
<PAGE> 10
<TABLE>
<CAPTION>
Period or Date Amount
<S> <C>
First fiscal quarter of
1994 Fiscal Year $78,500,000
Second fiscal quarter of
1994 Fiscal Year (other than
last day of such quarter) 78,000,000
Last day of second fiscal
quarter of 1994 Fiscal Year 81,800,000
Third fiscal quarter of 1994
Fiscal Year (other than last
day of such quarter) 83,100,000
Last day of third fiscal
quarter of 1994 Fiscal Year 88,200,000"
</TABLE>
(h) Section 8.2 Officers' Certificate. Section 8.2
of the Loan Agreement is hereby amended to add a new subsection
8.2.1 at the end of said Section 8.2, as follows:
"8.2.1 Additional Information and Compliance
Certificates. In addition to the Officers' Certificate
required by Section 8.2 above, Borrower shall submit to
Lender monthly within 25 days of the end of each month,
except March, June and September which will be within 55
days of the end of the quarter, commencing with the month
ending December 31, 1993, a covenant compliance
certificate in the form required by Section 8.2. The
monthly certificates will be accompanied by monthly
financial statements in the form and type required by
Section 8.1(a)(1) and (2), together with a statement of
cash flow (in the form requested by Lender). Borrower
shall also submit to Lender a copy of the monthly
compliance certificate Borrower is supplying to the
Revolving Credit Lender simultaneously with the delivery
of such certificate to the Revolving Credit Lender."
(i) Section 12.3 Notices. The reference in Section
12.3 of the Loan Agreement to Jenner & Block is hereby deleted
and the following is substituted therefor:
Fagel & Haber
140 S. Dearborn, Suite 1400
Chicago, Illinois 60603
Attn: James B. Gottlieb
73
<PAGE> 11
2. Waiver of Defaults. Lender hereby waives (effective as of
such time as this Amendment shall become effective) the occurrence of an Event
of Default on account of Borrower's failure to comply with any of the
financial covenants contained in Sections 7.1 through 7.5 of the Loan
Agreement (as existed prior to the effective date of this Amendment) and any
Event of Default created or that may hereafter be created on account of
Borrower's failure to occupy the Danvers, Massachusetts Collateral Location.
3. Fees.
(a) Borrower shall pay to Lender an extension fee
(the "Extension Fee") in the amount of $100,000.00, which
Extension Fee shall be payable on the date of this Amendment.
(b) Borrower agrees to pay Lender an accelerating
charge (the "Accelerating Charge") for each month that the Term
Loan remains unpaid, commencing with $7,000.00 in January, 1994
and increasing by $1,000.00 each month thereafter (e.g.,
$8,000.00 in February, $9,000.00 in March and so forth), which
Accelerating Charge shall be payable on the 15th day of each
month it is due.
(c) Borrower agrees to pay all fees and expenses of
Lender in connection with the preparation of this Amendment and
all other documents related thereto, including without
limitation all attorneys' fees and expenses (including any title
or search fees and recordation taxes) incurred in connection
with the negotiation and preparation of this Amendment and all
other documents related thereto.
4. Effectiveness of Amendment. This Amendment shall
become effective and be deemed effective as of the date hereof
provided that on or before such date, Lender shall have received
(a)(i) three (3) copies of this Amendment executed by Borrower,
(ii) one (1) copy of a Note Modification Agreement executed by
Borrower in the form attached to this Amendment as Exhibit A,
(iii) a Certificate of the Secretary of Borrower certifying
Resolutions adopted by the Board of Directors of Borrower
authorizing the transactions and documentation and documents
entered into in connection with this Amendment, (iv) the
Restructuring Fee by federal funds wire transfer, (v) all other
documents, instruments and agreements reasonably requested by
Lender, and (b) Borrower shall have entered into the Revolving
Credit Agreement with the Revolving Credit Lender and shall have
satisfied all the conditions precedent for the initial
borrowings thereunder.
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<PAGE> 12
5. Amendments to Mortgages. If requested by Lender, Borrower
will execute and deliver to Lender amendments to the Mortgages referred to in
Section 9.4 of the Loan Agreement in the form reasonably requested by Lender
within five (5) Business Days after the delivery of such mortgage amendment
documents to Borrower, together with any documents related thereto that Lender
may reasonably request.
6. To induce Lender to amend the Loan Agreement,
Borrower represents and warrants to Lender that:
(a) Compliance with Loan Agreement. On the date
hereof, Borrower is in compliance with all of the terms and
provisions set forth in the Loan Agreement (as modified by this
Amendment) and no Event of Default specified in Section 10.1 of
the Loan Agreement, nor any event which, upon notice or lapse
of time or both, would constitute such an Event of Default, has
occurred.
(b) Representations and Warranties. On the date
hereof, the representations and warranties set forth in Article
4 of the Loan Agreement (as modified by this Amendment) are true
and correct with the same effect as though such representations
and warranties had been made on the date hereof, except to the
extent that such representations and warranties expressly relate
to an earlier date.
(c) Corporate Authority of Borrower. Borrower has
the full power and authority to enter into this Amendment, to
make the borrowings under the Loan Agreement as amended by this
Amendment, and to incur and perform the obligations provided for
under the Loan Agreement and this Amendment, all of which have
been duly authorized by all proper and necessary corporate
action. No consent or approval of shareholders or of any public
authority or regulatory body is required as a condition to the
validity or enforceability of this Amendment.
(d) Amendment as Binding Agreement. This Amendment
constitutes the valid and legally binding obligations of
Borrower, fully enforceable against Borrower in accordance with
its terms.
(e) No Conflicting Agreements. The execution and
performance by Borrower of this Amendment and the borrowings by
Borrower under the Loan Agreement, as amended, will not (i)
violate any provision of law, any order of any court or other
agency of government, or the Charter or By-Laws of Borrower, or
(ii) violate any indenture, contract, agreement or other
instrument to which Borrower is a party, or by which its
property is bound, or be in conflict with, result in a breach
of or constitute (with due notice and/or lapse of time) a
75
<PAGE> 13
default under, any such indenture, contract, agreement or other
instrument or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the
property or assets of Borrower.
7. Effect Upon Loan Agreement.
(a) Except as specifically set forth in Paragraph 1,
(i) the Loan Agreement shall remain in full force and effect and
is hereby ratified and confirmed; (ii) the rights and
obligations of the parties set forth in the Loan Agreement
remain unchanged; and (iii) the execution, delivery and
performance of this Amendment shall not operate as a waiver of
any right, power or remedy of the Lender under the Loan
Agreement, and shall not constitute a waiver of any provision
of the Loan Agreement.
(b) Borrower and Lender hereby agree that this
Amendment shall not be construed as an agreement to substitute
a new obligation or to extinguish the obligations under the Loan
Agreement and shall not constitute a novation of the obligations
of Borrower under the Loan Agreement.
8. Capitalized Terms. The capitalized terms used
in this Amendment shall have the same meanings ascribed to them
in the Loan Agreement unless otherwise defined herein.
9. Governing Law. This Amendment has been delivered
and shall be deemed to have been made at Chicago, Illinois and
shall be interpreted, and the rights and liabilities of the
parties hereto determined, in accordance with the internal laws
(as opposed to the conflicts of law provisions) of the State of
Illinois.
10. Section Titles. The section title contained in
this Amendment are and shall be without substance, meaning or
content of any kind whatsoever and are not a part of the
agreement between the parties.
11. Counterparts. This Amendment may be executed in
any number of counterparts, each of which, when so executed and
delivered, shall be an original, but such counterparts shall
together constitute but one and the same Amendment.
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<PAGE> 14
IN WITNESS WHEREOF, the parties to this Agreement, have executed it
as of the day and year set forth above.
BORROWER:
GROSSMAN'S, INC.
By: /s/ Arthur S. Ryan
-------------------------------------
Its: Vice President - Assistant Treasurer
-------------------------------------
LENDER:
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Peter Skavla
-------------------------------------
Its: Regional Credit Manager
-------------------------------------
77
<PAGE> 1
Exhibit 4(o)
Loan and Security Agreement between Grossman's Inc. and BankAmerica Business
Credit, Inc. dated December 15, 1993 (without exhibits).
78
<PAGE> 2
LOAN AND SECURITY AGREEMENT
between
GROSSMAN'S INC.
as Borrower
and
BANKAMERICA BUSINESS CREDIT, INC.
as Lender
Dated as of December 15, 1993
79
<PAGE> 3
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . 23
1.3 Other Terms. . . . . . . . . . . . . . . . . . . . . . 23
2. LOANS AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . 24
2.1 Total Facility . . . . . . . . . . . . . . . . . . . . 24
2.2 Revolving Loans. . . . . . . . . . . . . . . . . . . . 24
2.3 Letters of Credit. . . . . . . . . . . . . . . . . . . 27
3. INTEREST AND OTHER CHARGES. . . . . . . . . . . . . . . . . . 28
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Maximum Interest Rate. . . . . . . . . . . . . . . . . 29
3.3 Facility Fee . . . . . . . . . . . . . . . . . . . . . 30
3.4 Commitment Fee . . . . . . . . . . . . . . . . . . . . 30
4. PAYMENTS AND PREPAYMENTS. . . . . . . . . . . . . . . . . . . 30
4.1 Revolving Loans. . . . . . . . . . . . . . . . . . . . 30
4.2 Place and Form of Payments; Extension of Time. . . . . 31
4.3 Application and Reversal of Payments . . . . . . . . . 31
4.4 Indemnity for Returned Payments. . . . . . . . . . . . 31
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS. . . . . . . . 32
5.1 Lender's Books and Records; Monthly Statements . . . . . 32
6. COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Grant of Security Interest . . . . . . . . . . . . . . 32
6.2 Perfection and Protection of Security Interest . . . . 34
6.3 Location of Collateral . . . . . . . . . . . . . . . . 36
6.4 Title to, Liens on, and Sale and Use of Collateral . . 37
6.5 Reimbursement for Appraisals . . . . . . . . . . . . . 37
6.6 Access and Examination . . . . . . . . . . . . . . . . 37
6.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . 38
6.8 Collateral Reporting . . . . . . . . . . . . . . . . . 39
6.9 Accounts . . . . . . . . . . . . . . . . . . . . . . . 40
6.10 Collection of Accounts; Payments . . . . . . . . . . . 41
6.11 Inventory; Perpetual Inventory . . . . . . . . . . . . 42
6.12 Equipment. . . . . . . . . . . . . . . . . . . . . . . 43
6.13 Documents, Instruments, and Chattel Paper. . . . . . . 44
6.14 Right to Cure. . . . . . . . . . . . . . . . . . . . . 44
6.15 Power of Attorney. . . . . . . . . . . . . . . . . . . 44
6.16 Lender's Rights, Duties, and Liabilities . . . . . . . 45
</TABLE>
80
<PAGE> 4
<TABLE>
<S> <C> <C>
7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES. . . . . . . 46
7.1 Books and Records. . . . . . . . . . . . . . . . . . . 46
7.2 Financial Information. . . . . . . . . . . . . . . . . 46
7.3 Notices to Lender. . . . . . . . . . . . . . . . . . . 49
8. GENERAL WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . 50
8.1 Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents . . . . . . . . . . . 50
8.2 Validity and Priority of Security Interest . . . . . . 51
8.3 Organization and Qualification . . . . . . . . . . . . 51
8.4 Corporate Name; Prior Transactions . . . . . . . . . . 51
8.5 Subsidiaries and Affiliates. . . . . . . . . . . . . . 52
8.6 Financial Statements and Forecasts . . . . . . . . . . 52
8.7 Capitalization . . . . . . . . . . . . . . . . . . . . 52
8.8 Solvency . . . . . . . . . . . . . . . . . . . . . . . 53
8.9 Title to Property. . . . . . . . . . . . . . . . . . . 53
8.10 Real Property; Leases. . . . . . . . . . . . . . . . . 53
8.11 Proprietary Rights . . . . . . . . . . . . . . . . . . 53
8.12 Trade Names and Terms of Sale. . . . . . . . . . . . . 53
8.13 Litigation . . . . . . . . . . . . . . . . . . . . . . 53
8.14 Restrictive Agreements . . . . . . . . . . . . . . . . 54
8.15 Labor Disputes . . . . . . . . . . . . . . . . . . . . 54
8.16 Environmental Laws . . . . . . . . . . . . . . . . . . 54
8.17 No Violation of Law. . . . . . . . . . . . . . . . . . 55
8.18 No Default . . . . . . . . . . . . . . . . . . . . . . 55
8.19 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 55
8.20 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 56
8.21 Use of Proceeds. . . . . . . . . . . . . . . . . . . . 56
8.22 Private Offerings. . . . . . . . . . . . . . . . . . . 56
8.23 Broker's Fees. . . . . . . . . . . . . . . . . . . . . 57
8.24 No Material Adverse Change . . . . . . . . . . . . . . 57
8.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . 57
8.26 Material Agreements. . . . . . . . . . . . . . . . . . 57
9. AFFIRMATIVE AND NEGATIVE COVENANTS. . . . . . . . . . . . . . 57
9.1 Taxes and Other Obligations. . . . . . . . . . . . . . 57
9.2 Corporate Existence and Good Standing. . . . . . . . . 58
9.3 Maintenance of Property and Insurance. . . . . . . . . 58
9.4 Environmental Laws . . . . . . . . . . . . . . . . . . 59
9.5 Mergers, Consolidations, Acquisitions, or Sales. . . . 59
9.6 Distributions; Issuance of Shares; Etc.. . . . . . . . 59
9.7 Transactions Affecting Collateral or Obligations;
Landlord Waivers . . . . . . . . . . . . . . . . . . . 60
9.8 Guarantees . . . . . . . . . . . . . . . . . . . . . . 60
9.9 Debt . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.10 Prepayment . . . . . . . . . . . . . . . . . . . . . . 63
9.11 Transactions with Affiliates . . . . . . . . . . . . . 63
9.12 [Intentionally Omitted]. . . . . . . . . . . . . . . . 64
9.13 Business Conducted . . . . . . . . . . . . . . . . . . 64
9.14 Liens. . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
81
<PAGE> 5
<TABLE>
<S> <C> <C>
9.15 Sale and Leaseback Transactions. . . . . . . . . . . . 64
9.16 New Subsidiaries . . . . . . . . . . . . . . . . . . . 64
9.17 Restricted Investments . . . . . . . . . . . . . . . . 64
9.18 Capital Expenditures . . . . . . . . . . . . . . . . . 64
9.19 Operating Lease Obligations. . . . . . . . . . . . . . 65
9.20 Minimum Interest Coverage. . . . . . . . . . . . . . . 66
9.21 Adjusted Tangible Net Worth. . . . . . . . . . . . . . 66
9.22 Fixed Maturity Coverage. . . . . . . . . . . . . . . . 67
9.23 Further Assurances . . . . . . . . . . . . . . . . . . 68
10. CLOSING; CONDITIONS TO CLOSING . . . . . . . . . . . . . . . 68
10.1 Representations and Warranties; Covenants;
Events . . . . . . . . . . . . . . . . . . . . . . . . 68
10.2 Delivery of Documents. . . . . . . . . . . . . . . . . 68
10.3 Financing Statements; Termination of Liens . . . . . . 69
10.4 [Intentionally Omitted]. . . . . . . . . . . . . . . . 69
10.5 Environmental Compliance . . . . . . . . . . . . . . . 69
10.6 Release and Termination. . . . . . . . . . . . . . . . 69
10.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.8 Required Approvals . . . . . . . . . . . . . . . . . . 69
10.9 Financial Statements . . . . . . . . . . . . . . . . . 69
10.10 No Material Adverse Change . . . . . . . . . . . . . . 69
10.11 Availability . . . . . . . . . . . . . . . . . . . . . 70
10.12 Proceedings. . . . . . . . . . . . . . . . . . . . . . 70
10.13 Opinions of Counsel. . . . . . . . . . . . . . . . . . 70
10.14 Evidence of Insurance. . . . . . . . . . . . . . . . . 70
10.15 Absence of Litigation. . . . . . . . . . . . . . . . . 70
10.16 Collection Account . . . . . . . . . . . . . . . . . . 70
10.17 Net Worth. . . . . . . . . . . . . . . . . . . . . . . 71
11. DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . 71
11.1 Events of Default. . . . . . . . . . . . . . . . . . . 71
11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . 73
12. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . . . 76
12.1 Term and Termination . . . . . . . . . . . . . . . . . 76
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 77
13.1 Cumulative Remedies; No Prior Recourse to
Collateral . . . . . . . . . . . . . . . . . . . . . . 77
13.2 No Implied Waivers . . . . . . . . . . . . . . . . . . 77
13.3 Severability . . . . . . . . . . . . . . . . . . . . . 77
13.4 Governing Law. . . . . . . . . . . . . . . . . . . . . 77
13.5 Consent to Jurisdiction and Venue; Service of
Process. . . . . . . . . . . . . . . . . . . . . . . . 77
13.6 Waiver of Jury Trial, Etc. . . . . . . . . . . . . . . 79
13.7 Survival of Representations and Warranties . . . . . . 79
13.8 General Indemnification. . . . . . . . . . . . . . . . 80
13.9 Indemnification for Increased Costs. . . . . . . . . . 81
</TABLE>
82
<PAGE> 6
<TABLE>
<S> <C> <C>
13.10 Fees and Expenses. . . . . . . . . . . . . . . . . . . 84
13.11 Notices. . . . . . . . . . . . . . . . . . . . . . . . 85
13.12 Waiver of Notices. . . . . . . . . . . . . . . . . . . 87
13.13 Binding Effect; Assignment; Participations;
Disclosure . . . . . . . . . . . . . . . . . . . . . . 87
13.14 Modification . . . . . . . . . . . . . . . . . . . . . 88
13.15 Counterparts. .. . . . . . . . . . . . . . . . . . . . 88
13.16 Captions . . . . . . . . . . . . . . . . . . . . . . . 89
13.17 Right of Setoff. . . . . . . . . . . . . . . . . . . . 89
13.18 Participating Lender's Security Interests. . . . . . . 89
13.19 Other Security and Guaranties. . . . . . . . . . . . . 89
</TABLE>
83
<PAGE> 7
<TABLE>
<CAPTION>
Schedules and Exhibits
<S> <C>
Schedule 6.3 Locations of Collateral
Schedule 6.7 Insurance
Schedule 8.4 Corporate Name; Prior Transactions
Schedule 8.5 Subsidiaries and Affiliates
Schedule 8.9 Owned Premises
Schedule 8.10 Real Property
Schedule 8.11 Proprietary Rights
Schedule 8.12 Trade Names and Terms of Sale
Schedule 8.13 Litigation
Schedule 8.14 Restrictive Agreements
Schedule 8.15 Labor Disputes
Schedule 8.16 Environmental
Schedule 8.19 ERISA
Schedule 8.26 Material Agreements
Schedule 9.5 Stores to be Closed
Schedule 9.8(c) Existing Guarantees
Schedule 9.8(d) The First National Bank of Boston Letters of
Credit
Schedule 9.9 Debt
Schedule 9.11 Transactions with Affiliates
Schedule 9.14 Permitted Liens
Schedule 10.2 Documents
Exhibit A Financial Statements of the Borrower
and its Subsidiaries
Exhibit B Forecasts
Exhibit C Form of Security Agreement and Mortgage -
Trademarks and Patents
Exhibit D Form of Pledge Agreement
Exhibit E Form of Letter of Credit Financing
Agreement - Supplement to Loan and
Security Agreement
Exhibit F Form of Borrowing Base Certificate
</TABLE>
84
<PAGE> 8
LOAN AND SECURITY AGREEMENT, dated as of December 15, 1993, between
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation with offices at 40
East 52nd Street, New York, New York 10022 (the "Lender"), and GROSSMAN'S
INC., a Delaware corporation, with offices at 200 Union Street, Braintree,
Massachusetts 02184 (the "Borrower").
W I T N E S S E T H
WHEREAS, the Borrower has requested the Lender to make available to the
Borrower a revolving line of credit for loans and letters of credit in an
aggregate amount not to exceed $60,000,000 outstanding at any one time, which
revolving line of credit the Borrower will use to refinance certain existing
debt and for its ongoing working capital needs;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth in this Agreement, and for good and valuable consideration, the
receipt of which is hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. As used herein:
"Account" means the Borrower's right to payment for a sale or lease and
delivery of goods or rendition of services in the ordinary course of the
Borrower's business.
"Account Debtor" means each Person obligated in any way on or in
connection with an Account.
"Adjusted Net Earnings from Operations" means, with respect to any fiscal
period of the Borrower, the consolidated net income of the Borrower and its
Subsidiaries after provision for income taxes for such fiscal period, as
determined in accordance with GAAP and reported on the Financial Statements
for such period, less any and all of the following included in such net
income: (a) gain or loss arising from the sale of capital assets; (b) gain
arising from any write-up in the book value of any asset; (c) earnings of any
corporation, substantially all the assets of which have been acquired by the
Borrower or any of its Subsidiaries in any manner, to the extent realized by
such other corporation prior to the date of acquisition; (d) earnings of any
business entity in which the Borrower or any of its Subsidiaries has an
ownership interest unless (and only to the extent) such earnings shall
actually have been received by the Borrower or such Subsidiary in the form of
cash distributions; (e) earnings of any Person to which assets of the Borrower
or any of its Subsidiaries shall have been sold, transferred or disposed of,
or into which the Borrower or any of its Subsidiaries shall have been merged,
or which has been a party with the Borrower to any consolidation or other form
of reorganization, prior to the date of such transaction; (f) gain arising
from the acquisition of debt or equity securities of the Borrower or any of
its Subsidiaries or from cancellation or forgiveness of Debt; (g) gain or loss
85
<PAGE> 9
arising from extraordinary items or from any other non-recurring transaction,
as determined in accordance with GAAP; and (h) losses of Construcentro De
America, S.A. De C.V., a Mexican corporation.
"Adjusted Tangible Assets" means all of the assets of the Borrower and
its Subsidiaries on a consolidated basis except: (a) deferred assets (other
than prepaid insurance, prepaid taxes and other assets constituting items
prepaid by the Borrower or any of its Subsidiaries in the ordinary course of
its business) in excess of $500,000; (b) patents, copyrights, trademarks,
trade names, franchises, goodwill, and other similar intangibles; (c)
Restricted Investments; (d) unamortized debt discount and expense; (e) assets
of the Borrower or any of its Subsidiaries constituting Intercompany Accounts;
and (f) fixed assets to the extent of any write-up in the book value thereof
resulting from a revaluation effective after the date hereof.
"Adjusted Tangible Net Worth" means, at any date: (a) the book value
(after deducting related depreciation, obsolescence, amortization, valuation,
and other proper reserves as determined in accordance with GAAP) at which the
Adjusted Tangible Assets would be shown on a balance sheet of the Borrower
and its Subsidiaries on a consolidated basis at such date prepared in
accordance with GAAP; less (b) the amount at which the Borrower's and its
Subsidiaries' liabilities on a consolidated basis would be shown on such
balance sheet; provided, that "Adjusted Tangible Net Worth" shall exclude the
effect of the establishment (or reversal) after the date hereof of a minimum
pension liability in accordance with the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 87 and shall
additionally exclude any net gain from the sale of the Borrower's corporate
headquarters at 200 Union Street, Braintree, Massachusetts.
"Affiliate" means a Person (other than the Lender or an affiliate of the
Lender) (a) which, directly or indirectly, controls, is controlled by or is
under common control with, the Borrower; (b) which beneficially owns or holds,
directly or indirectly, five percent (5%) or more of any class of voting stock
of the Borrower; or (c) five percent (5%) or more of any class of the voting
stock (or if such person is not a corporation, five percent (5%) or more of
the equity interest) of which is beneficially owned or held, directly or
indirectly, by the Borrower. The term control (including the terms
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Person in question.
"Availability" means:
(a) the lesser at any point in time of: (i) $60,000,000 or (ii) the sum
of (A) fifty percent (50%) of the Net Amount of Eligible Accounts of the
Borrower plus (B) an amount equal to fifty percent (50%) of the value of
Eligible Inventory of the Borrower, calculated in accordance with GAAP at the
lower of average cost (determined in accordance with the Borrower's accounting
practices) or market value plus (C) an amount equal to fifty percent (50%) of
the undrawn amount of all Letters of Credit issued to secure the payment by
the Borrower of the purchase price of inventory purchased by the Borrower in
the ordinary course of its business, minus
86
<PAGE> 10
(b) the sum of: (i) the unpaid principal balance of Revolving Loans at
that time plus the amount, if any, of (A) amounts drawn under the Letters of
Credit to the extent not already included in the Revolving Loans, and (B) the
undrawn amount of all Letters of Credit plus (ii) reserves, in the Lender's
sole discretion, for accrued interest on the Revolving Loans plus (iii)
subject to the provisions of Section 6.2(b), reserves with respect to rent
payments due and owing by the Borrower relating to premisis leased by the
Borrower for which a landlord's waiver, in form and substance satisfactory to
the Lender, has not been obtained plus (iv) reserves for rebates due the
Borrower on Inventory purchases made by the Borrower and reserves for
shrinkage of Inventory (in each instance in this clause (v) to the extent not
reflected in the valuation of such Inventory as provided in clause (a)(ii)(B)
above) plus (v) all other reserves which the Lender in its sole discretion
(exercised in good faith) deems necessary or desirable to maintain with
respect to the Borrower's account, including, without limitation, any amounts
which the Lender may be obligated to pay in the future for the account of the
Borrower.
"Borrower" has the meaning specified in the preamble to this Agreement.
"Business Day" means any day that is not a Saturday, Sunday, or day on
which banks in New York City are required or permitted to close except that if
any determination of a "Business Day" shall relate to a Eurodollar Rate Loan,
the term "Business Day" shall in addition exclude any day on which banks are
not open for dealings in dollar deposits in the London interbank market.
"Capital Expenditures" means all payments due (whether or not paid)
during a Fiscal Year in respect of the cost of any fixed asset or improvement,
or replacement, substitution, or addition thereto, which have a useful life of
more than one year, including, without limitation, those arising in connection
with the direct or indirect acquisition of such assets by way of increased
product or service charges or offset items, but excluding those arising in
connection with Capital Leases.
"Capital Lease" means any lease of Property by the Borrower or any of its
Subsidiaries that, in accordance with GAAP, should be reflected as a liability
on the balance sheet of the Borrower or such Subsidiary.
"Change of Control" means such time as (i) any Person or group of Persons
acting as a group shall have acquired beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of fifty percent
(50%) or more of the voting capital stock of the Borrower, whether through a
stock purchase, merger, consolidation or other transaction, or (ii) (x) any
Person or group of Persons acting as a group shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of twenty percent (20%) or more of the voting capital stock of the
Borrower, whether through a stock purchase, merger, consolidation or other
transaction, (y) Mr. Sydney Katz shall no longer be employed by the Borrower
as the Chief Financial Officer of the Borrower having substantially the same
responsibilities as he has on the date hereof and (z) within 90 days after the
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date Mr. Sydney Katz is no longer so employed by the Borrower, one or more
persons reasonably satisfactory to the Lender shall not have assumed such
position and responsibilities.
"Claim" has the meaning specified in Section 13.8.
"Closing Date" means the earlier of the date of the making of the first
Revolving Loan hereunder or the date of the issuance of the first Letter of
Credit hereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning given to such term in Section 6.1.
"Commitment Fee" has the meaning specified in Section 3.4.
"Confidential Information" has the meaning given to such term in Section
13.13.
"Debt" means all liabilities, obligations and indebtedness of the
Borrower or any Subsidiary of the Borrower to any Person, of any kind or
nature, now or hereafter owing, arising, due or payable, 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, Debt shall specifically include the following:
(i) the Borrower's or any of its Subsidiaries' liabilities and
obligations to trade creditors;
(ii) all Obligations;
(iii) all obligations and liabilities of any Person secured by any Lien on
the Borrower's or any of its Subsidiaries' Property, even though the Borrower
or such Subsidiary shall not have assumed or become liable for the payment
thereof; provided, however, that all such obligations and liabilities which
are limited in recourse to such Property shall be included in Debt only to the
extent of the book value of such Property as would be shown on a balance sheet
of the Borrower or such Subsidiary, as the case may be, prepared in accordance
with GAAP;
(iv) all obligations and liabilities created or arising under any Capital
Lease or conditional sale or other title retention agreement with respect to
Property used or acquired by the Borrower or any Subsidiary of the Borrower,
even if the rights and remedies of the lessor, seller or lender thereunder are
limited to repossession of such Property; provided, however, that all such
obligations and liabilities which are limited in recourse to such Property
shall be included in Debt only to the extent of the book value of such
Property as would be shown on a balance sheet of the Borrower or such
Subsidiary, as the case may be, prepared in accordance with GAAP;
(v) all accrued pension fund and other employee benefit plan obligations
and liabilities;
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(vi) all obligations and liabilities under Guaranties; and
(vii) deferred taxes.
"Debt for borrowed money" means Debt for borrowed money or as evidenced
by notes, bonds, debentures or similar evidences of any such Debt of such
Person, the deferred and unpaid purchase price of any property or business
(other than trade accounts payable incurred in the ordinary course of business
and constituting current liabilities), and all obligations under Capital
Leases.
"Distribution" means, in respect of any corporation: (a) the payment or
making of any dividend or other distribution of Property in respect of capital
stock of such corporation, other than distributions in capital stock of the
same class (or in rights to acquire such capital stock); and (b) the
redemption or other acquisition of any capital stock of such corporation.
"Eligible Accounts" means those Accounts which are not ineligible as the
basis for Revolving Loans and Letters of Credit, based on the following
criteria and on such other criteria as the Lender may from time to time
establish in its sole discretion. Without intending to limit the Lender's
discretion to establish other criteria of eligibility, Eligible Accounts shall
not include any Account:
(a) with respect to which more than 120 days have elapsed since the date
of the original invoice therefor or with respect to which more than 90 days
have elapsed since the original date on which payment was due;
(b) of a customer for which, as to at least 50% of the aggregate gross
amount of such Accounts owing from such customer, more than 120 days have
elapsed from their respective original invoice dates or more than 90 days have
elapsed from the respective original dates on which payment was due;
(c) with respect to which any of the representations, warranties,
covenants, and agreements contained in this Agreement are not or have ceased
to be complete and correct or have been breached;
(d) with respect to which, in whole or in part, a check or other
instrument for the payment of money has been received, presented for payment
and returned (and remains) uncollected for any reason;
(e) which represents a Progress Billing or as to which the Borrower has
extended the time for payment without the consent of the Lender;
(f) as to which any one or more of the following events has occurred
with respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as
a bankrupt, winding-up, or other 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 by the Account Debtor for the benefit of creditors; the appointment
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of a receiver or trustee for the Account Debtor or for any of the assets of
the Account Debtor; the institution by or against the Account Debtor of any
other type of insolvency proceeding (under the bankruptcy laws of the United
States or otherwise) or of any formal or informal proceeding for the
dissolution or liquidation of, settlement of claims against, or winding up of
affairs of, the Account Debtor; the sale, assignment, or transfer of all or
any material part of the assets of the Account Debtor; the nonpayment
generally by the Account Debtor of its debts as they become due; or the
cessation of the business of the Account Debtor as a going concern;
(g) if the aggregate dollar amount of all Accounts owed by the Account
Debtor thereon exceeds $500,000 (or such higher limit as the Lender may agree
to in writing), but only to the extent such Account exceeds such limit;
(h) owed by an Account Debtor which: (i) does not maintain its chief
executive office in the United States; or (ii) is not organized under the laws
of the United States or any state thereof; or (iii) 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 a letter of credit or acceptance on terms
acceptable to the Lender from a financial institution acceptable to the
Lender;
(i) owed by an Account Debtor which is an Affiliate;
(j) except as provided in (l) below, as to which either the perfection,
enforceability, or validity of the 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;
(k) which is owed by an Account Debtor to which the Borrower is indebted
in any way, or which is subject to any right of setoff by the Account Debtor,
unless the Account Debtor has entered into an agreement acceptable to the
Lender to waive setoff rights; or if the Account Debtor thereon has disputed
liability or made any claim with respect to any other Account due from such
Account Debtor; but in each such case only to the extent of such indebtedness,
setoff, dispute, or claim;
(l) which are owed by the government of the United States of America, or
any department, agency, public corporation, or other instrumentality thereof,
unless the Federal Assignment of Claims Act of 1940, as amended, and any other
steps necessary to perfect the Lender's Security Interest therein, have been
complied with to the Lender's satisfaction with respect to such Account
(provided that in no event shall greater than $50,000 in the aggregate at any
one time of all such Accounts be considered Eligible Accounts);
(m) 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;
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(n) which arises out of a sale to an Account Debtor on a bill-and-hold
(but only to the extent such bill-and-hold transaction, together with all
other then outstanding bill-and-hold transactions of the Borrower, exceeds
$500,000 in the aggregate at any one time), guaranteed sale, sale or return,
sale on approval, consignment, or other repurchase or return basis (other than
the Borrower's historical customer return policy as in effect on the date
hereof);
(o) which is evidenced by a promissory note or other instrument or by
chattel paper;
(p) the goods giving rise to such Account have not been shipped and
delivered to and accepted by the Account Debtor or the services giving rise to
such Accounts have not been performed by the Borrower and accepted by the
Account Debtor (except to the extent that such Account arises from a
bill-and-hold transaction and is not considered ineligible under clause (n)
above);
(q) if the Lender believes in its sole discretion (exercised in good
faith) that the prospect of collection of such Account is impaired or that the
Account may not be paid by reason of the Account Debtor's financial inability
to pay; or
(r) which is owed by an Account Debtor which the Lender, in its sole
discretion (exercised in good faith), otherwise deems to be uncreditworthy.
The Lender agrees to use reasonable efforts to give the Borrower not less
than five (5) Business Days prior notice of an event set forth in clauses (q)
or (r) above, in each instance, which causes an Eligible Account to become an
ineligible Account.
"Eligible Inventory" means finished goods Inventory that:
(a) is not, in the Lender's sole judgment (exercised in good faith),
obsolete or unmerchantable;
(b) upon which the Lender has a first priority perfected security
interest;
(c) is located at premises owned by or leased to the Borrower or on
premises otherwise reasonably acceptable to the Lender (or is in transit in
the ordinary course of business of the Borrower and for which the Borrower has
complied with the requirements set forth in the parenthetical in clause (d)
below);
(d) is not in-transit (unless such Inventory is in transit in the
ordinary course of business of the Borrower and (x) the Borrower shall have
delivered to the Lender from each Person which shall possess or control the
possession of such Inventory while in-transit a lien waiver letter, in form
and substance satisfactory to the Lender, duly executed by each such Person
and (y) the Lender shall otherwise be satisfied that the interest of the
Lender in such Inventory shall be protected and that the Lender shall have the
ability to promptly possess and take control of such Inventory during the
continuance of an Event of Default); and
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(e) the Lender otherwise deems eligible as the basis for Revolving Loans
and Letters of Credit based on such other credit and collateral considerations
as the Lender may from time to time establish in its sole discretion
(exercised in good faith).
Without intending to limit the Lender's discretion (exercised in good faith)
to establish other criteria of eligibility, packaging and shipping material,
supplies, bill and hold Inventory, non-first quality returned Inventory,
defective Inventory, raw materials, work-in-process, excess or slow moving
Inventory, out-of-season Inventory or Inventory delivered to the Borrower on
consignment shall not constitute Eligible Inventory. Eligible Inventory shall
in no event include any Inventory for which a Letter of Credit described in
clause (a)(ii)(C) of the defined term "Availability" is securing the payment
by the Borrower of the purchase price therefor.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, and consent decrees relating to the health, safety,
hazardous substances, and environmental matters applicable to the Borrower's
or any of its Subsidiaries' business and facilities (whether or not owned by
it). Such laws and regulations include but are not limited to the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. ## 6901 et seq., as amended;
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. ## 9601 et seq., as amended; the Toxic Substances Control Act,
15 U.S.C. ## 2601 et seq., as amended; the Clean Water Act, 33 U.S.C. ## 466
et seq., as amended; the Clean Air Act, 42 U.S.C. ## 7401 et seq., as amended;
any federal state or local "Superfund" or "Superlien" law and other
environmental cleanup programs; and any other federal, state, or local
statute, rule, regulation, order judgment or decree, as now or at any time
hereafter amended or in effect and then applicable to the Borrower or any of
its Subsidiaries that regulates, restates or imposes liability or standards of
conduct concerning air emissions, water discharges or run-off, noise
emissions, waste management or otherwise concerns the protection of the
environment or of health or safety from environmental risks.
"Equipment" means all of the Borrower's now owned and hereafter acquired
machinery, equipment, furniture, furnishings, fixtures, and other tangible
personal property (except Inventory), including, without limitation, data
processing hardware and software, motor vehicles, aircraft, dies, tools, jigs,
and office equipment, as well as all of such types of property leased by the
Borrower and all of the Borrower's rights and interests with respect thereto
under such leases (including, without limitation, options to purchase);
together with all present and future additions and accessions thereto,
replacements therefor, component and auxiliary parts and supplies used or to
be used in connection therewith, and all substitutes for any of the foregoing,
and all manuals, equipment drawings, instructions, warranties and rights with
respect thereto wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Eurodollar Rate" means, for each Interest Period in respect of any
Eurodollar Rate Loan, an interest rate per annum (rounded upward to the
nearest 1/16th of 1%) determined pursuant to the following formula:
Eurodollar Rate = LIBOR
1.00 - Eurodollar Reserve Percentage,
Where
"Eurodollar Reserve Percentage" means the maximum reserve percentage
(expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in
effect on the date LIBOR for such Interest Period is determined (whether or
not applicable to Bank of America National Trust and Savings Association)
under regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency liabilities")
having a term comparable to such Interest Period; and
"LIBOR" means the rate of interest per annum determined by Bank of
America National Trust and Savings Association to be the arithmetic mean
(rounded upward, if necessary, to the nearest one-hundredth of one percent
(1/100%)) of the rates of interest per annum notified to Bank of America
National Trust and Savings Association as the rate of interest at which dollar
deposits in an amount approximately equal to the amount of the Revolving Loan
to be made or continued as, or converted into, a Eurodollar Rate Loan by the
Lender and having a maturity equal to such Interest Period would be offered to
major banks in the London interbank market at their request at or about 11:00
a.m. (London time) on the second Business Day before the commencement of such
Interest Period.
"Eurodollar Rate Loan" shall mean a Revolving Loan bearing interest based
on the Eurodollar Rate in accordance with Article 2.
"Event" means any event or condition which, with notice, the passage of
time, or any combination thereof, would constitute an Event of Default.
"Event of Default" has the meaning specified in Section 11.1.
"Facility Fee" has the meaning specified in Section 3.3.
"Federal Reserve Board" shall have the meaning specified in Section 8.21.
"Federal Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto.
"Financial Statements" means, with respect to the Borrower and its
Subsidiaries for any period, the then most recent consolidated and
consolidating financial statements of the Borrower and its Subsidiaries
delivered pursuant to Section 7.2(a) or (b) and prior to the delivery of
financial statements pursuant to Section 7.2(a) or (b), the financial
statements of the Borrower and its Subsidiaries attached hereto as Exhibit A.
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"Fiscal Year" means the Borrower's fiscal year for financial accounting
purposes. The fiscal year of the Borrower is the calendar year.
"GAAP" means at any particular time generally accepted accounting
principles consistently applied and as in effect at such time; provided,
however, that for the purpose of determining compliance by the Borrower with
Sections 9.18 through and including 9.22 of this Agreement and with the
financial tests set forth in Section 3.1, "GAAP" shall mean generally accepted
accounting principles consistently applied and as in effect as of the date
hereof; and provided, further, that if any changes in accounting principles
from those in effect on the date hereof are hereafter occasioned by
promulgation of rules, regulations, pronouncements or opinions by or are
otherwise required by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants (or successors thereto or agencies
with similar functions) and any of such changes results in a change in the
method of calculation of, or affects the results of such calculation of, any
of the financial covenants set forth in Sections 9.18 through and including
9.22 of this Agreement or with any of the financial tests set forth in Section
3.1, then the Borrower and the Lender agree to enter into and diligently
pursue in good faith negotiations in order to amend such financial covenants
and tests (or the terms used therein or the calculation thereof) so as to
equitably reflect such accounting changes with the desired result that the
criteria for evaluating the Borrower's financial condition and results of
operation based upon such financial covenants and tests shall be the same
after such accounting changes as if such accounting changes had not been made.
"Guaranty" by any Person means all obligations of such Person which in
any manner directly or indirectly guarantee the payment or performance of any
indebtedness or other obligation of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including, without limitation,
any such obligations incurred through an agreement, (a) to purchase the
guaranteed obligations or any Property constituting security therefor; or (b)
to advance or supply funds for the purchase or payment of the guaranteed
obligations or to maintain a working capital or other balance sheet condition.
"Indemnified Party" has the meaning specified in Section 13.8.
"Intercompany Accounts" means all assets and liabilities, however
arising, which are due to the Borrower from, which are due from the Borrower
to, or which otherwise arise from any transaction by the Borrower with, any
Affiliate.
"Interest Payment Date" means (i) with respect to any Reference Rate
Loan, the first Business Day of each month, commencing January 3, 1994, and
(ii) with respect to any Eurodollar Rate Loan, the last day of the Interest
Period applicable thereto.
"Interest Period" means, as to any Eurodollar Rate Loan, the period
commencing on the date of such Eurodollar Rate Loan and ending on the
numerically corresponding day (or, if there is no numerically corresponding
day, on the last day) in the calendar month that is one (1), two (2) or three
(3) months thereafter, as the Borrower may elect with respect to Eurodollar
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Rate Loans; provided, however, that (x) if an Interest Period would end on a
day that is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless, with respect to Eurodollar Rate Loans,
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day,
(y) no Interest Period shall end later than the last day of the scheduled term
of this Agreement and (z) interest shall accrue from and including the first
day of an Interest Period to but excluding the last day of such Interest
Period.
"Inventory" means all of the Borrower's now owned and hereafter acquired
inventory, goods, merchandise, and other personal property, wherever located,
to be furnished under any contract of service or held for sale or lease, all
raw materials, work-in-process, finished goods, returned and repossessed
goods, and materials and supplies of any kind, nature or description which are
or might be used or consumed in the Borrower's business or used in connection
with the manufacture, packing, shipping, advertising, selling or finishing of
such inventory, goods, merchandise and such other personal property, and all
documents of title or other documents representing them. For purposes of all
calculations and valuations in this Agreement, all Inventory shall be
calculated and valued in accordance with GAAP at the lower of average cost
(determined in accordance with the Borrower's accounting practices) and market
value.
"IRS" means the Internal Revenue Service or any successor agency.
"Latest Forecasts" means: (a) on the date hereof and thereafter until
the Lender receives new forecasts pursuant to Section 7.2(f), the forecasts of
the financial condition, results of operations, and cash flow of the Borrower
and its Subsidiaries on a consolidated basis for the Borrower's 1994 Fiscal
Year, attached hereto as Exhibit B; and (b) thereafter, the forecasts most
recently received by the Lender pursuant to Section 7.2(f).
"Lender" has the meaning specified in the preamble to this Agreement.
"Letter of Credit" has the meaning specified in Section 2.3.
"Letter of Credit Agreement" has the meaning specified in Section 2.3.
"Lien" means: any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, agreement, or conditional sale, or a lease, consignment
or bailment for security purposes, or any reservation, exception,
encroachment, easement, right-of-way, condition, restriction, lease or other
title exception or encumbrance affecting Property.
"Loan Account" means the loan account of the Borrower, which account
shall be maintained by the Lender or an affiliate of the Lender.
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"Loan Documents" means this Agreement, the Letter of Credit Agreement,
the Patent and Trademark Assignments, the Pledge Agreement and all
other agreements, instruments and documents heretofore, now or hereafter
evidencing, securing, guaranteeing or otherwise relating to the Obligations,
the Collateral, the Security Interest or any other aspect of the transactions
contemplated by this Agreement.
"Loans" means, collectively, all loans and advances provided for in
Article 2.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
"Net Amount of Eligible Accounts" means the gross amount of Eligible
Accounts less returns, discounts, claims, credits, rebates, allowances and
late or finance charges, in each instance, of any nature at any time issued,
owing, granted, outstanding, available or claimed.
"Net Cash Proceeds" means, with respect to any sale of assets of the
Borrower, cash (freely convertible into U.S. dollars) received by the Borrower
from such sale (including cash received as consideration for the assumption or
incurrence of liabilities incurred in connection with or in anticipation of
such sale, after (a) provision for all income, title, recording or other taxes
measured by or resulting from such sale, (b) payment of all brokerage
commissions, investment banking and legal fees and other fees and expenses
related to such sale (including, without limitation, relocation expenses), (c)
deduction of appropriate amounts to be provided by the Borrower as a reserve,
in accordance with GAAP, against any liabilities associated with the assets
sold or disposed of in such transaction and retained by the Borrower after
such transaction, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with the assets
sold or disposed of in such transaction and (d) amounts paid to satisfy Debt
(other than the Obligations) which are required to be repaid in connection
with any such sale.
"Obligations" means all present and future loans, advances, liabilities,
obligations, covenants, duties, and Debts owing by the Borrower to the Lender,
whether or not arising under this Agreement, whether or not evidenced by any
note, or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment from others, and any participation by
the Lender in the Borrower's debts owing to others), absolute or contingent,
due or to become due, primary or secondary, as principal or guarantor, and
including, without limitation, all interest, charges, expenses, fees,
attorneys' fees (including, without limitation, allocated in-house counsel
fees and disbursements), filing fees and any other sums chargeable to the
Borrower hereunder, under another Loan Document, or under any other agreement
or instrument with the Lender. The term "Obligations" includes, without
limitation, all debts, liabilities and obligations now or hereafter owing from
the Borrower to the Lender under or in connection with any Letter of Credit
and the Letter of Credit Agreement.
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"Participating Lender" means any Person who shall have been granted the
right by the Lender to participate in the Loans and who shall have entered
into a participation agreement in form and substance satisfactory to the
Lender.
"Patent and Trademark Assignments" means the Security Agreement and
Mortgage - Trademarks and Patents, together with the corresponding Assignment
for Security (Patents) and the Assignment for Security (Trademarks) for the
Borrower, each dated as of the date hereof and substantially in the form of
Exhibit C hereto, and executed and delivered by the Borrower to the Lender to
evidence and perfect the Lender's Security Interest in the Borrower's present
and future Proprietary Rights.
"Payment Account" means each blocked bank account, concentration account
or other bank account established pursuant to or referred to in Section 6.10
to which the funds of the Borrower (including, without limitation, Proceeds of
Accounts and other Collateral) are deposited or credited, and which is
maintained in the name of the Lender or the Borrower, as the Lender may
determine, on terms acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"Permitted Liens" means:
(a) Liens for taxes not yet overdue or Liens for taxes being contested
in good faith and by proper proceedings diligently pursued, provided that a
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor on the applicable Financial Statements and that
a stay of enforcement of any such Lien is in effect;
(b) Liens in favor of the Lender;
(c) Liens upon Equipment granted in connection with the acquisition of
such Equipment after the date hereof (including, without limitation, pursuant
to leases), provided, that (i) the cost of each such acquisition constitutes a
Capital Expenditure permitted by Section 9.18, (ii) the Debt incurred to
finance each such acquisition is permitted by Section 9.9, (iii) each such
Lien attaches only to the Equipment acquired with the Debt secured thereby,
and (iv) the principal amount of the indebtedness secured by any item of
equipment shall not exceed 100% of the cost thereof;
(d) reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other similar title exceptions
or encumbrances affecting the Real Property provided they do not in the
aggregate materially detract from the value of said Properties or materially
interfere with their use in the ordinary conduct of the Borrower's business;
(e) deposits under workmen's compensation, unemployment insurance,
social security and other similar laws;
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(f) Liens relating to statutory obligations with respect to surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(g) carriers', warehousemen's, mechanics', landlords', materialmen's or
other similar Liens arising in the ordinary course of business securing sums
which are not overdue (except to the extent that any such sums are being
contested in good faith and by proper proceedings diligently pursued, provided
that (i) a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor on the applicable Financial
Statements, (ii) any Inventory which is the subject of a Lien arising from the
non-payment thereof when due will not constitute Eligible Inventory and (iii)
the aggregate amount of such sums being contested at any one time shall not
exceed $100,000 with respect to any one location or premises of the Borrower
or with respect to any one holder of such a Lien or $1,000,000 in the
aggregate for all such contests;
(h) Liens reflected on Schedule 9.14 hereto securing Debt on Schedule
9.9 hereto, but not any increases in the principal amount secured thereby or
the extension thereof to other property, and Liens securing Debt permitted to
be incurred under Section 9.9(f) which refinances Debt secured by Liens on
Schedule 9.14 hereto, but such Liens shall be secured only by such property
which was securing the Debt which is being refinanced and not any increases in
the principal amount secured thereby or any extension thereof to other
property;
(i) Liens consented to in writing by the Lender securing Debt permitted
under Section 9.9(h);
(j) Liens on an item of Inventory of the Borrower the purchase of which
was financed or assured by a letter of credit permitted by Section 9.8(e)
(which Inventory, so long as such Lien is in effect, shall in no event
constitute Eligible Inventory) securing solely the reimbursement obligation of
the Borrower with respect to such letter of credit and which Lien shall in any
event be released when the Borrower or its agent or bailee shall have
possession or control or the right to possession or control of such Inventory;
and
(k) Liens on Real Property and Equipment thereon consisting of new
stores opened by the Borrower after the date of this Agreement securing Debt
permitted hereunder (1) the proceeds of which were used to enable the Borrower
to recover its cash outlay relating to funding by the Borrower of the cost of
the acquisition and/or improvement by the Borrower of such Real Property and
Equipment in the ordinary course of business of the Borrower or (2) to
refinance Debt permitted hereunder which was used to so acquire or improve
such Real Property and Equipment in the ordinary course of business of the
Borrower, provided, that in either instance (i) the cost of each such
acquisition or improvement constitutes a Capital Expenditure permitted by
Section 9.18, (ii) the Debt secured by such Lien is permitted hereunder, (iii)
each such Lien attaches only to the Real Property and Equipment which was
secured by the Debt being refinanced or which was acquired or improved by the
Borrower with its own monies, as appropriate, and (iv) the principal amount of
the Debt secured by any such Lien shall not exceed 100% of the cash outlay
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made by the Borrower for such acquisition or improvement of such Real Property
and Equipment or of the principal amount of the Debt being refinanced, as
appropriate.
"Permitted Rentals" has the meaning specified in Section 9.19.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, Public
Authority, or any other entity.
"Personal Property" means any interest in any kind of personal property
or asset, tangible or intangible, other than fixtures attached to Real
Property.
"Plan" means any pension or other employee benefit plan including any
such plan which is subject to Title IV of ERISA, and which is: (a) a plan
maintained by the Borrower or any Related Company; (b) a plan to which the
Borrower or any Related Company contributes or is required to contribute; (c)
a plan to which the Borrower, any predecessor corporation, or any Related
Company was required to make contributions at any time during the five (5)
calendar years preceding the date of this Agreement; or (d) any other plan
with respect to which the Borrower or any Related Company has incurred or may
incur liability, including contingent liability, under Title IV of ERISA,
either to such plan or to the PBGC.
"Pledge Agreement" means the pledge agreement dated as of the date hereof
and substantially in the form of Exhibit D between the Borrower and the Lender
executed and delivered to evidence the Lender's Security Interest in the
capital stock or other equity interests now or hereafter owned by the Borrower
in each Subsidiary of the Borrower or other Person in which the Borrower now
or hereafter shall have an equity interest having assets exceeding 1% of the
assets of the Borrower and its Subsidiaries on a consolidated basis.
"Premises" means all of the Borrower's rights, title, and interest in the
real property described in Schedule 8.10 attached hereto, including all rights
and easements in connection therewith and all buildings and improvements now
or hereafter constructed thereon.
"Prior Lender" means, collectively, The First National Bank of Boston,
Fleet Bank of Massachusetts, N.A., Maryland National Bank and Chemical Bank.
"Prior Loan" means the Revolving Credit Agreement dated as of October 31,
1990, as amended, between the Borrower, as obligor, and the Prior Lender and
related documents.
"Proceeds" means all products and proceeds of any Collateral, and all
proceeds of such proceeds and products, including, without limitation, all
cash and credit balances, 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 money and
other Property obtained as a result of any claims against third parties or any
legal action or proceeding, in each case, with respect to Collateral.
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"Progress Billing" means any invoice 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 completion
of any further performance under the contract or agreement.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Proprietary Rights" means all of the Borrower's now owned and hereafter
arising or acquired: licenses, franchises, permits, patents, patent rights,
copyrights, works which are the subject matter of copyrights, trademarks,
trade names, trade styles, patent and trademark applications and licenses and
rights thereunder, including without limitation those patents, trademarks and
filed copyrights set forth on Schedule 8.11 hereto, and all other rights under
any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all
rights to sue for past, present, and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds,
drawings, designs, blueprints, surveys, reports, manuals, and operating
standards; goodwill; customer and other lists in whatever form maintained; and
trade secret rights, copyright rights, rights in works of authorship, and
contract rights relating to computer software programs, in whatever form
created or maintained.
"Public Authority" means the government of any country or sovereign
state, or of any state, province, municipality, or other political subdivision
thereof, or any department, agency, public corporation or other
instrumentality of any of the foregoing.
"Real Property" means all of the Borrower's rights, title, and interest
in real property now owned or hereafter acquired by the Borrower, including,
without limitation, the real property more particularly described in Schedule
8.10 attached hereto, including all rights and easements in connection
therewith and all buildings and improvements (including, without limitation,
fixtures) now or hereafter constructed thereon.
"Receivables" means all of the Borrower's now owned and hereafter arising
or acquired: Accounts (whether or not earned by performance), including
Accounts owed to the Borrower by any of its Subsidiaries or Affiliates,
together with all interest, late charges, penalties, collection fees, and
other sums which shall be due and payable in connection with any Account;
proceeds of any letters of credit naming the Borrower as beneficiary; contract
rights, chattel paper, instruments, documents, general intangibles (including
without limitation, choses in action, causes of action, tax refunds, tax
refund claims, Reversions and other amounts payable to the Borrower from
pension and employee benefit plans, rights and claims against shippers and
carriers, rights to indemnification and business interruption insurance), and
all forms of obligations owing to the Borrower (including, without limitation,
obligations owing to the Borrower by its Subsidiaries and Affiliates);
guarantees and other security for any of the foregoing; and rights of stoppage
in transit, replevin, and reclamation; and other rights or remedies of an
unpaid vendor, lienor, or secured party.
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"Reference Rate" means the rate of interest publicly announced from time
to time by Bank of America National Trust and Savings Association in San
Francisco, California, as its reference rate. It is a rate set by Bank of
America National Trust and Savings Association based upon various factors
including the Bank of America National Trust and Savings Association's costs
and desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above, or
below such announced rate.
"Reference Rate Loan" shall mean a Revolving Loan bearing interest based
on the Reference Rate in accordance with Article 2.
"Related Company" means any member of any controlled group of
corporations (as defined in Section 414 of the Code) of which the Borrower is
or was a part, or any trade or business (whether or not incorporated) which
together with the Borrower would be or would have been treated as a single
employer under Section 4001 of ERISA.
"Reportable Event" shall have the meaning assigned to that term in Title
IV of ERISA, including, without limitation, a reportable event described in
Section 4043 of ERISA or the regulations thereunder, a withdrawal from a Plan
described in Section 4063 of ERISA, or a cessation of operations described in
Section 4062(e) of ERISA.
"Restricted Investment" means any acquisition of Property by the Borrower
or any of its Subsidiaries in exchange for cash or other Property, whether in
the form of an acquisition of stock, indebtedness or other obligation, or by
loan, advance, capital contribution, or otherwise, except the following:
(a) Property to be used in the business of the Borrower and its
Subsidiaries;
(b) current assets arising from the sale or lease of goods or rendition
of services in the ordinary course of business of the Borrower and its
Subsidiaries;
(c) if no Revolving Loans are outstanding at the time of the
acquisition, direct obligations of the United States of America, or any agency
thereof, or obligations guaranteed by the United States of America, provided
that such obligations mature within one year from the date of acquisition
thereof, in each case pledged in favor of the Lender;
(d) if no Revolving Loans are outstanding at the time of the
acquisition, certificates of deposit or time deposits maturing within one year
from the date of acquisition, in each case issued by, created by, or with a
bank or trust company organized under the laws of the United States (including
overseas branches thereof, provided, that such branches are not treated as
entities separate and apart therefrom) or any state thereof having capital and
surplus aggregating at least $100,000,000, in each case pledged in favor of
the Lender;
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(e) if no Revolving Loans are outstanding at the time of the
acquisition, commercial paper given the highest rating by a national credit
rating agency and maturing not more than 270 days from the date of creation
thereof, in each case pledged in favor of the Lender;
(f) consistent with historic practices of the Borrower with respect to
its cash management practices, (x) overnight bank deposits with a bank or
trust company organized under the laws of the United States (including
overseas branches thereof, provided, that such branches are not treated as
entities separate and apart therefrom) or any state thereof having capital and
surplus aggregating at least $100,000,000 and (y) repurchase agreements with a
term of not more than seven days for underlying securities of the types
described in clauses (c) and (d) above, entered into with any bank meeting the
qualifications specified in clause (d) above or with securities dealers of
recognized national standing, provided, that the terms of such agreements
comply with the guidelines set forth in the Federal Financial Institutions
Examination Council Supervisory Policy Repurchase Agreements of Depositary
Institutions with Securities Dealers and Others as adopted by the Comptroller
of the Currency on October 31, 1985 (the "Supervisory Policy"), and provided,
further, that possession or control of the underlying securities is
established as provided in the Supervisory Policy;
(g) investments as of the date hereof by the Borrower in any of its
Subsidiaries existing on the date hereof and additional investments therein
not to exceed $7,500,000 in the aggregate;
(h) investments as of the date hereof by the Borrower in Construcentro
De America, S.A. De C.V., a Mexican corporation, and additional investments by
the Borrower therein not to exceed $5,000,000 in the aggregate;
(i) investments consisting of loans or advances by the Borrower and its
Subsidiaries to its employees in the ordinary course of business of the
Borrower and its Subsidiaries not in excess of $1,000,000 in the aggregate
outstanding at any time for the Borrower and its Subsidiaries; and
(j) other investments by the Borrower not exceeding $500,000 in the
aggregate.
"Reversions" means any funds which may become due to the Borrower in
connection with the termination of any Plan or other employee benefit plan.
"Revolving Loans" has the meaning specified in Section 2.2.
"Security Interest" means collectively the Liens granted to the Lender in
the Collateral pursuant to this Agreement, the other Loan Documents or any
other agreement.
"Solvent" means, when used with respect to any Person, that: (a) the
fair value of all its Property is in excess of the total amount of its debts
(including contingent liabilities); (b) it is able to pay its debts as they
mature; and (c) it does not have unreasonably small capital for the business
in which it is engaged or for any business or transaction in which it is about
to engage.
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"Subsidiary" means any present or future corporation or other entity of
which the Borrower owns, directly or indirectly, more than 50% of the voting
stock or other voting equity interest (other than voting stock or other voting
equity interest which has voting rights only by reason of the happening of a
contingency).
"Termination Event" means: (a) a Reportable Event; or (b) the withdrawal
of the Borrower or any Related Company from a Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; or
(c) the filing of a notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA; or (d) the
institution of proceedings by the PBGC to terminate or have a trustee
appointed to administer a Plan; (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or (f) the partial or
complete withdrawal of the Borrower or any Related Company from a
Multiemployer Plan.
"Total Facility" has the meaning specified in Section 2.1.
"UCC" means the Uniform Commercial Code (or any successor statute) of the
State of New York or of any other state the laws of which are required by
Section 9-103 thereof to be applied in connection with the issue of perfection
of security interests.
1.2 Accounting Terms. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
1.3 Other Terms. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and vice versa, and each masculine, feminine, or neuter
pronoun shall also include the other genders.
2. LOANS AND LETTERS OF CREDIT.
2.1 Total Facility. Subject to the terms and conditions of this
Agreement, the Lender shall make available up to a $60,000,000 total credit
facility (the "Total Facility") for the Borrower's use from time to time
during the term of this Agreement. The Total Facility shall be comprised of a
revolving line of credit up to the limits of the Availability, consisting of
Revolving Loans and Letters of Credit as described in Sections 2.2 and 2.3.
2.2 Revolving Loans. (a) Subject to all the terms and conditions of
this Agreement and in the absence of an Event or Event of Default (either
before or after giving effect to the relevant Revolving Loan), the Lender
shall, upon the Borrower's request from time to time in accordance with
paragraph (b) below, make revolving loans (the "Revolving Loans") to the
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Borrower up to the limits of the Availability. Each Revolving Loan shall be
either a Reference Rate Loan or a Eurodollar Rate Loan as the Borrower may
request pursuant to paragraph (b) below. The Lender, in its sole discretion,
may elect to exceed the limits of the Availability on one or more occasions,
but if it does so, the Lender shall not be deemed thereby to have changed the
limits of the Availability or to be obligated to exceed the limits of the
Availability on any other occasion. In addition, the Lender may, in its sole
discretion (exercised in good faith), based on such collateral and credit
considerations as the Lender deems appropriate, at any time and from time to
time decrease one or more of the amounts or percentages used to determine the
Availability. Without intending to limit the Lender's discretion with respect
to Revolving Loans, if the unpaid balance of the Revolving Loans exceeds the
Availability (with Availability determined as if the amount of the Revolving
Loans were zero), then the Lender may refuse to make or may otherwise restrict
Revolving Loans on such terms as the Lender determines until such excess has
been eliminated.
(b) The Borrower shall give the Lender irrevocable written or facsimile
notice (promptly confirmed in writing) of each borrowing of a Revolving Loan
(including, without limitation, a conversion or continuation as permitted by
paragraph (e) below) not later than 12:00 Noon, New York City time, (i) three
(3) Business Days before a proposed Eurodollar Rate Loan borrowing or
conversion to or continuation of a Eurodollar Rate Loan or portion thereof and
(ii) on the same Business Day of a proposed Reference Rate Loan borrowing or
conversion to a Reference Rate Loan. Such notice shall specify (w) whether
the Revolving Loans then being requested are to be Reference Rate Loans or
Eurodollar Rate Loans and if a Eurodollar Rate Loan or portion thereof is to
be converted or continued, the particular Eurodollar Rate Loan, (x) the date
of such borrowing or conversion or continuation (which shall be a Business
Day) and the amount of such borrowing or conversion or continuation and (y) if
such Revolving Loans are to be Eurodollar Rate Loans (including, without
limitation, a conversion to or continuation of a Eurodollar Rate Loan or
portion thereof), the Interest Period with respect thereto. If no election as
to the type of Revolving Loan is specified in any such notice, all such
Revolving Loans shall be Reference Rate Loans. If no Interest Period with
respect to any Eurodollar Rate Loan is specified in any such notice, then an
Interest Period of one (1) month's duration shall be deemed to have been
selected. Each such notice for a Revolving Loan shall be conclusively
presumed to be made by a person authorized by the Borrower to do so and the
crediting of a Revolving Loan to the Borrower's deposit or operating account
shall conclusively establish the obligation of the Borrower to repay such
Revolving Loan. The Borrower shall not be permitted to make a borrowing of a
Eurodollar Rate Loan or convert to or continue a Eurodollar Rate Loan or
portion thereof if an Event or Event of Default shall have occurred and be
continuing.
(c) The Lender will charge all Revolving Loans and other Obligations to
a Loan Account. All fees, commissions, costs, expenses, and other charges due
from the Borrower pursuant to the Loan Documents, and all payments made and
out-of-pocket expenses incurred by the Lender and authorized to be charged to
the Borrower pursuant to the Loan Documents, will be charged as Reference Rate
Loans to a Loan Account as of the date due from the Borrower or the date paid
or incurred by the Lender, as the case may be.
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(d) The Revolving Loans made by the Lender on any date shall be in
integral multiples of $1,000; provided, however, that each Eurodollar Rate
Loan made on any date shall be in a minimum principal amount of $5,000,000 or
an integral multiple of $1,000,000 in excess thereof. Not more than five (5)
Eurodollar Rate Loans may be outstanding at any one time and the Borrower may
only request a borrowing of a Eurodollar Rate Loan (or any conversion of a
Reference Rate Loan into a Eurodollar Rate Loan) once in any calendar month.
Conversions to and continuations of Eurodollar Rate Loans of portions thereof
shall be in the amount of $5,000,000 or an integral multiple of $1,000,000 in
excess thereof.
(e) The Borrower shall have the right at any time upon prior irrevocable
written or facsimile notice (promptly confirmed in writing) to the Lender
given in the manner and at the times specified in paragraph (b) above with
respect to the Revolving Loans into which conversion or continuation is to be
made, to convert all or any portion of Eurodollar Rate Loans into Reference
Rate Loans, to convert all or any portion of Reference Rate Loans into
Eurodollar Rate Loans (specifying the Interest Period to be applicable
thereto) and to continue all or any portion of any Eurodollar Rate Loans into
a subsequent Interest Period (specifying the Interest Period to be applicable
thereto), subject to the terms and conditions hereof (including, without
limitation, the provisions of paragraphs (b) and (d) above) and to the
following:
(i) accrued interest on a Revolving Loan (or portion thereof)
being converted or continued shall be paid by the Borrower at the time of
such conversion or continuation;
(ii) no Eurodollar Rate Loan or portion thereof may be
converted to a Reference Rate Loan or continued as a Eurodollar Rate Loan
other than at the end of the Interest Period applicable thereto;
(iii) any portion of a Eurodollar Rate Loan which is subject to
an Interest Period ending on a date that is less than one (1) month prior
to the last day of the scheduled term of this Agreement may not be
converted into, or continued as, a Eurodollar Rate Loan, and shall be
automatically converted at the end of such Interest Period into a
Reference Rate Loan; and
(iv) no Event or Event of Default shall have occurred and be
continuing.
The Interest Period applicable to any Eurodollar Rate Loan resulting from
a conversion or continuation shall be specified by the Borrower in the
irrevocable notice of conversion or continuation delivered pursuant hereto;
provided, however, that if no such Interest Period shall be specified, the
Borrower shall be deemed to have selected an Interest Period of one (1)
month's duration. If the Borrower shall not have given timely notice to
continue any Eurodollar Rate Loan into a subsequent Interest Period (and shall
not otherwise have given notice to convert such Revolving Loan), such
Revolving Loan (unless repaid or required to be repaid pursuant to the terms
hereof) shall automatically be converted into a Reference Rate Loan.
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(f) Notwithstanding anything to the contrary herein contained, if any
change in any law or regulation or in the interpretation thereof by any
governmental authority charged with the administration or interpretation
thereof shall make it unlawful for the Lender to make or maintain any
Eurodollar Rate Loan or to give effect to its obligations to make Eurodollar
Rate Loans as contemplated hereby, then, by written notice to the Borrower,
the Lender may:
(i) declare that Eurodollar Rate Loans will not thereafter be
made hereunder, whereupon the Borrower shall be prohibited from
requesting Eurodollar Rate Loans hereunder (including, without
limitation, the conversion to or continuation of Eurodollar Rate Loans or
portions thereof) unless such declaration is subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Rate Loans be
converted to Reference Rate Loans, in which event (A) all such Eurodollar
Rate Loans shall be automatically converted to Reference Rate Loans as of
the effective date of such notice as provided below and (B) all payments
of principal which would otherwise have been applied to repay the
converted Eurodollar Rate Loans shall instead be applied to repay the
Reference Rate Loans resulting from the conversion of such Eurodollar
Rate Loans.
For purposes of this paragraph (f), a notice to the Borrower shall be
effective, if lawful, on the last day of the then current Interest Period or,
if there are then two or more current Interest Periods, on the last day of
each such Interest Period, respectively; otherwise, such notice shall be
effective with respect to the Borrower on the date of receipt by the Borrower.
(g) In the event, and on each occasion, that on the day two (2) Business
Days prior to the commencement of any Interest Period for a Eurodollar Rate
Loan the Lender shall have determined that dollar deposits in the amount of
each Eurodollar Rate Loan are not generally available in the London interbank
market, or that the rate at which dollar deposits are being offered will not
reflect adequately and fairly the cost to the Lender of making or maintaining
such Eurodollar Rate Loan during such Interest Period, or that reasonable
means do not exist for ascertaining LIBOR, the Lender shall as soon as
practicable thereafter give written notice (or facsimile notice) of such
determination to the Borrower, and any request by the Borrower for the making
of a Eurodollar Rate Loan or conversion or continuation of any Revolving Loan
or portion thereof into a Eurodollar Rate Loan shall, until the circumstances
giving rise to such notice no longer exist, be deemed to be a request for a
Reference Rate Loan. Each determination by the Lender made hereunder shall be
conclusive absent manifest error.
2.3 Letters of Credit. The Lender may, in its sole discretion, and
upon the Borrower's request from time to time, cause merchandise and standby
letters of credit to be issued for the Borrower's account (each, a "Letter of
Credit"). The expiration date of any (i) merchandise Letter of Credit shall
not be later than 180 days from the date of issuance thereof and (ii) standby
Letter of Credit shall not be later than 365 days from the date of issuance
thereof (and no standby Letters of Credit shall have any automatic or
"evergreen" renewal provisions) and, in any event, no Letter of Credit shall
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have an expiration date later than the last day of the scheduled term of this
Agreement. Without intending to limit the Lender's discretion with respect to
Letters of Credit, the Lender will not cause to be opened any Letter of Credit
if: (a) the maximum face amount of the requested Letter of Credit, plus the
aggregate undrawn amount of all outstanding Letters of Credit and the
aggregate amount of unreimbursed drawings under Letters of Credit to the
extent not included in the Revolving Loans, would exceed $15,000,000; or (b)
the maximum face amount of the requested Letter of Credit, and all
commissions, fees, and charges due from the Borrower to the Lender in
connection with the opening thereof, exceed the Availability at such time.
The Letters of Credit shall be governed by a Letter of Credit Financing
Agreement - Supplement to Loan and Security Agreement between the Lender and
the Borrower ("Letter of Credit Agreement"), attached hereto as Exhibit E, in
addition to the terms and conditions hereof. All payments made and expenses
incurred by the Lender pursuant to or in connection with the Letters of Credit
and Letter of Credit Agreement will be charged to a Loan Account as Reference
Rate Loans.
3. INTEREST AND OTHER CHARGES.
3.1 Interest. (a) The Borrower agrees to pay the Lender interest on
the unpaid daily principal balance of the Revolving Loans constituting
Reference Rate Loans at the close of each day at a fluctuating per annum rate
equal to one percent (1.00%) plus the Reference Rate. The Borrower agrees to
pay the Lender interest on the unpaid daily principal balance of each
Revolving Loan constituting a Eurodollar Rate Loan at the close of each day at
a per annum rate equal to three percent (3.00%) plus the Eurodollar Rate for
such Eurodollar Rate Loan. Such per annum rates shall, subject to the fifth
sentence of this subsection (a), decline to three-quarters percent (.75%) plus
the Reference Rate and two and three-quarters percent (2-3/4%) plus the
Eurodollar Rate, as the case maybe, effective as provided in the sixth
sentence of this subsection (a), after the Lender shall have determined, based
upon the audited financial statements of the Borrower for the 1994 Fiscal Year
delivered to the Lender pursuant to Section 7.2(a), that the Interest Coverage
Ratio and Fixed Maturity Coverage Ratio for such Fiscal Year are not less than
3.96/1 and 1.54/1, respectively. In the event that the Lender shall have
determined, based upon the audited financial statements of the Borrower for
the 1995 Fiscal Year delivered to the Lender pursuant to Section 7.2(a), that
the Interest Coverage Ratio and Fixed Maturity Coverage Ratio for such Fiscal
Year are not less than 5.72/1 and 1.51/1, respectively, then, subject to the
fifth sentence of this subsection (a), the interest rates payable on the Loans
shall continue at the reduced rates described in the immediately preceding
sentence (or if not reduced the prior Fiscal Year, will be reduced, effective
as provided in the sixth sentence of this subsection (a), to the interest
rates described in the immediately preceding sentence) for the remaining
scheduled initial term of this Agreement. During the continuance of an Event
of Default, the Borrower shall not be entitled to the benefit of the two
immediately preceding sentences and the interest rates payable on the Loans
shall be those rates set forth in the first two sentences of this subsection
(a) plus the two percent (2%) increase set forth in subsection (b) below. Any
reduction in the interest rate provided for in this subsection (a) shall
become effective on the first day of the month following receipt by the Lender
of the appropriate audited financial statements showing compliance with the
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financial tests described above. At the request of the Lender and if so
requested as a condition to any reduction in the interest rate, the Borrower
shall deliver to the Lender a certificate of the chief financial officer of
the Borrower stating that at such time there exists no Event of Default. For
purposes of this Section 3.1 only, the Fixed Maturity Coverage Ratio shall be
calculated without giving effect to Capital Expenditures made and incurred by
the Borrower with respect to the relocation, leasing and improvement of the
Borrower's new corporate headquarters to replace the existing headquarters at
200 Union Street, Braintree, Massachusetts. The Lender agrees that it shall
consider in its sole discretion a greater interest rate reduction for the
second reduction referred to above if the Borrower achieves certain
performance standards acceptable to the Lender in its sole discretion. Each
change in the Reference Rate shall be reflected in the foregoing interest
rates for Reference Rate Loans as of the effective date of such change.
Interest charges shall be computed on the basis of a year of 360 days and
actual days elapsed and will be payable to the Lender on each applicable
Interest Payment Date and on the date of the termination of this Agreement.
(b) If any Event of Default occurs, then, from the date such Event of
Default occurs until it is cured, or until all Obligations are paid and
performed in full, the Borrower agrees to pay interest on the unpaid principal
balance of the Revolving Loans at a per annum rate two percent (2%) greater
than the rate(s) of interest otherwise specified herein.
3.2 Maximum Interest Rate. In no event shall the interest rate and
other charges hereunder 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 that a court determines that the Lender has
received interest and other charges hereunder in excess of the highest rate
applicable hereto, such excess shall be deemed received on account of, and
shall automatically be applied to reduce, the Obligations other than interest
and the provisions hereof shall be deemed amended to provide for the highest
permissible rate. If there are no Obligations outstanding, the Lender shall
refund to the Borrower such excess.
3.3 Facility Fee. The Borrower agrees to pay the Lender on the
Closing Date a facility fee (the "Facility Fee") with respect to the revolving
credit facility herein provided in the amount of $600,000 subject to the
application of the $250,000 commitment fee and $75,000 deposit already paid by
the Borrower in accordance with and as provided in the Commitment Letter,
dated November 12, 1993, between the Borrower and the Lender. The Lender and
the Borrower agree that the Facility Fee shall be financed by the Lender as a
Revolving Loan.
3.4 Commitment Fee. The Borrower agrees to pay the Lender on the
first Business Day of each calendar month through the termination of this
Agreement and on the date of the termination of this Agreement and upon any
earlier maturity of the Revolving Loans, a commitment fee with respect to the
Revolving Loans for the month or shorter period just ended, computed at the
rate of one-half of one percent (1/2%) per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) on an amount equal to
the excess of (a) $50,000,000 over (b) the average daily outstanding principal
balance of the Revolving Loans during such month or shorter period.
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4. PAYMENTS AND PREPAYMENTS.
4.1 Revolving Loans. The Borrower agrees to pay to the Lender the
interest on the Revolving Loans (as determined under Section 3.1 hereof) on
each Interest Payment Date until the termination of this Agreement and to
repay the outstanding principal balance of the Revolving Loans, plus all
accrued but unpaid interest thereon, upon the termination of this Agreement.
In addition, the Borrower agrees to pay to the Lender, on demand, the amount
by which (A) the sum of (x) the unpaid principal balance of the Revolving
Loans at any time plus (y) the amount, if any, of (1) amounts drawn under the
Letters of Credit at such time to the extent not already included in Revolving
Loans and (2) the undrawn amount of all Letters of Credit at such time exceeds
(B) the Availability at such time (with clause (b) of such defined term
determined as if the amount of the Revolving Loans, the undrawn amount of
Letters of Credit and the amount of unreimbursed drawings under Letters of
Credit were zero). If after repaying in full the Revolving Loans as provided
in the immediately preceding sentence any portion of such excess still
remains, then the Borrower shall deposit cash in the amount thereof in a cash
collateral account with the Lender to be held in such account on terms
satisfactory to the Lender. Any prepayments required pursuant to the second
preceding sentence shall be first applied to outstanding Reference Rate Loans
up to the full amount thereof before they are applied to outstanding
Eurodollar Rate Loans; provided, however, that absent the existence of an
Event or Event of Default the Borrower shall not be required to make any
prepayment of any Eurodollar Rate Loan pursuant to this Section 4.1 until the
last day of the Interest Period with respect thereto so long as an amount
equal to such prepayment is deposited by the Borrower in a cash collateral
account with the Lender to be held in such account on terms satisfactory to
the Lender.
4.2 Place and Form of Payments; Extension of Time. All payments of
principal, interest, and other sums due to the Lender shall be made on the day
when due in U.S. dollars at the Lender's address set forth in Section 13.11
not later than 12:00 Noon (New York City time) or charged by the Lender to a
Loan Account as a Reference Rate Loan. All such payments shall be made in
immediately available funds. If any payment of principal, interest, or other
sum to be made hereunder becomes due and payable on a day other than a
Business Day, the due date of such payment shall be extended to the next
succeeding Business Day (except as otherwise specified in the definition of
"Interest Period") and interest thereon shall be payable at the applicable
interest rate during such extension.
4.3 Application and Reversal of Payments. Except as otherwise
provided in Section 4.1 hereof, the Lender shall determine in its sole
discretion the order and manner in which Proceeds of Collateral and other
payments that the Lender receives are applied to the Revolving Loans, interest
thereon, and the other Obligations, and the Borrower hereby irrevocably waives
the right to direct the application of any payment or Proceeds. The Lender
shall have the continuing and exclusive right to apply and reverse and reapply
any and all such Proceeds and payments to any portion of the Obligations.
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4.4 Indemnity for Returned Payments. If after receipt of any payment
of, or Proceeds applied to the payment of, all or any part of the Obligations,
the Lender is for any reason required to surrender such payment or Proceeds to
any Person because such payment or Proceeds is invalidated, declared
fraudulent, set aside, determined to be void or voidable as a preference, or a
diversion of trust funds, or for any other reason, then: the Obligations or
part thereof intended to be satisfied shall be revived and continue and this
Agreement shall continue in full force as if such payment or Proceeds had not
been received by the Lender and the Borrower shall pay to the Lender, and
hereby does indemnify the Lender and hold the Lender harmless for, the amount
of such payment or Proceeds surrendered. The provisions of this Section 4.4
shall be and remain effective notwithstanding any contrary action which may
have been taken by the Lender in reliance upon such payment or Proceeds, and
any such contrary action so taken shall be without prejudice to the Lender's
rights under this Agreement and shall be deemed to have been conditioned upon
such payment or Proceeds having become final and irrevocable. The provisions
of this Section 4.4 shall survive the termination of this Agreement.
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS.
5.1 Lender's Books and Records; Monthly Statements. The Borrower agrees
that the Lender's books and records showing the Obligations and the
transactions pursuant to this Agreement and the other Loan Documents shall be
admissible in any action or proceeding arising therefrom, and shall constitute
prima facie proof thereof, irrespective of whether any Obligation is also
evidenced by a promissory note or other instrument. The Lender will provide
to the Borrower a monthly statement of Loans, payments, and other transactions
pursuant to this Agreement. Such statement shall be deemed correct, accurate,
and binding on the Borrower, absent manifest error, and as an account stated
(except for reversals and reapplications of payments made as provided in
Section 4.3 and corrections of errors discovered by the Lender), unless the
Borrower notifies the Lender in writing to the contrary within thirty (30)
days after such statement is delivered, sent or mailed to the Borrower. In
the event a timely written notice of objections is given by the Borrower, only
the items to which exception is expressly made will be considered to be
disputed by the Borrower.
6. COLLATERAL.
6.1 Grant of Security Interest. (a) As security for the Obligations,
the Borrower hereby grants to the Lender a continuing security interest in,
lien on, and assignment of:
(i) all Receivables, Inventory, Proprietary Rights, and Proceeds,
wherever located and whether now existing or hereafter arising or
acquired;
(ii) all moneys, securities and other Personal Property and the
Proceeds thereof, now or hereafter held or received by, or in transit to,
the Lender from or for the Borrower, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, including, without
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limitation, all of the Borrower's deposit accounts, credits, and balances
with the Lender and all claims of the Borrower against the Lender at any
time existing;
(iii) all of the Borrower's deposit accounts with any financial
institutions with which the Borrower maintains deposits; and
(iv) all books, records and other Property relating to or
referring to any of the foregoing, including, without limitation, all
books, records, ledger cards, data processing records, computer software
and other property and general intangibles at any time evidencing or
relating to the Receivables, Inventory, Proprietary Rights, Proceeds, and
other property referred to above (all of the foregoing, together with all
other property in which the Lender may at any time be granted a Lien,
being herein collectively referred to as the "Collateral").
The Lender shall have all of the rights of a secured party with respect to the
Collateral under the UCC and other applicable laws.
(b) As additional security for the Obligations (and not in limitation
of Section 11.2(e)), the Borrower shall simultaneously upon the acquisition of
any Real Property during the continuance of an Event of Default (but only if
at such time the Borrower's 14% debentures maturing January 1, 1996 are repaid
or discharged in full or the terms of the documents governing such debentures
permit same or the relevant restriction therein is waived), execute and
deliver to the Lender one or more mortgages or deeds of trust, in form and
substance satisfactory to the Lender, to grant to the Lender continuing and
perfected first (or second behind a purchase money Lien thereon permitted
hereunder) mortgage liens on such Real Property and shall cause to be
delivered to the Lender such title insurance, surveys, non-disturbance
agreements, waivers, leasehold amendments, legal opinions, certificates and
other documents as the Lender may request in connection with such mortgages
and deeds of trust. The Lender and the Borrower agree that, with respect to
the acquisition by the Borrower of any Real Property for which the Borrower
shall have granted a purchase money Lien permitted hereunder, if the Person
providing the financing to the Borrower for the acquisition thereof shall not
permit a second Lien for such Real Property in favor of the Lender (after the
Borrower shall have provided evidence satisfactory to the Lender that the
Borrower used its best efforts (without the expenditure of money or the giving
of financial or business consideration) to persuade such Person to permit
same), the Lien on such property in favor of the Lender shall no longer be
required so long as the Debt with respect to such purchase money Lien is
outstanding.
(c) All Obligations shall constitute a single loan secured by the
Collateral. The Lender may, in its sole discretion, (i) exchange, waive, or
release any of the Collateral; (ii) during the continuance of an Event of
Default and as otherwise provided herein, apply Collateral and direct the
order or manner of sale thereof as the Lender may determine; and (iii) during
the continuance of an Event of Default, settle, compromise, collect, or
otherwise liquidate any Collateral in any manner, all without affecting the
Obligations or the Lender's right to take any other action with respect to any
other Collateral.
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(d) Notwithstanding anything contained in Section 6.1(a), the
Obligations shall not be secured by (i) any Equipment and fixtures in which a
Lien has been granted by the Borrower under any agreement entered into by the
Borrower prior to the date hereof and which is listed on Schedule 9.14 hereto
which validly prohibits the creation by the Borrower of a security interest in
favor of the Lender in such Equipment or fixtures (but only so long as the
debt owing by the Borrower under any such agreement remains unpaid) or (ii)
any monies received by the Borrower in respect of the sale of Real Property
not subject to a Lien in favor of the Lender to the extent such monies are
used to prepay the Debt secured by such Real Property in accordance with
Section 9.10.
6.2 Perfection and Protection of Security Interest. (a) The Borrower
shall, at its expense, perform all steps reasonably requested by the Lender at
any time to perfect, maintain, protect, and enforce the Security Interest
including, without limitation: (a) executing and recording of the Patent and
Trademark Assignments and any mortgage or deed of trust required pursuant to
Section 6.1(b) or 11.2(e) and executing and filing financing or continuation
statements, and amendments thereof, in form and substance reasonably
satisfactory to the Lender; (b) delivering to the Lender, when a Lien is
required to be granted to the Lender on Equipment as provided in Section
11.2(e), the original certificates of title for motor vehicles now owned or
hereafter acquired with the Security Interest properly endorsed thereon to the
extent requested by the Lender; (c) delivering to the Lender the originals of
all instruments, documents, and chattel paper, and all other Collateral of
which the Lender determines it should have physical possession in order to
perfect and protect the Security Interest therein, duly endorsed or assigned
to the Lender without restriction; (d) delivering to the Lender warehouse
receipts covering any portion of the Collateral with a value in excess of
$50,000 located in a warehouse and for which warehouse receipts are issued,
or, in lieu thereof, within fifteen days after the knowledge by any member of
the Borrower's senior management or by any other personnel of the Borrower
which deal with the Lender that any such Collateral is located in a warehouse
either (x) delivering to the Lender a warehouseman's letter, in form and
substance satisfactory to the Lender, duly executed by the relevant
warehouseman or (y) removing such Collateral to premises owned by the
Borrower; (e) placing notations on the Borrower's books of account to disclose
the Security Interest; (f) delivering to the Lender all letters of credit on
which the Borrower is named beneficiary; and (g) taking such other steps as
are deemed necessary by the Lender to maintain the Security Interest. The
Lender may file, without the Borrower's signature, one or more financing
statements disclosing the Security Interest. The Borrower agrees that a
carbon, photographic, photostatic, or other reproduction of this Agreement or
of a financing statement is sufficient as a financing statement. If any
Collateral having a value in excess of $1,000,000 is at any time in the
possession or control of any warehouseman, bailee or any of the Borrower's
agents or processors or if the aggregate value of Collateral in the possession
or control of warehousemen, bailees or the Borrower's agents or processors is
in excess of $5,000,000 at any time, then the Borrower shall notify the Lender
thereof and shall notify such Person(s) of the Security Interest in such
Collateral and, upon the Lender's request after the occurrence of an Event of
Default, instruct such Person(s) to hold all such Collateral for the Lender's
account subject to the Lender's instructions (it being understood that any
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Inventory in the possession or control of a warehouseman, bailee or any of the
Borrower's agents or processors shall not constitute Eligible Inventory except
as expressly provided in the parenthetical in clause (d) of the defined term
"Eligible Inventory"). Subject to Section 6.2(b), if at any time any
Collateral having an aggregate value in excess of $50,000 is located on any
premises that are not owned by the Borrower or on any premises subject to a
mortgage, the Lender shall establish reserves against Availability with
respect to such premises unless and until the Borrower shall have obtained
written waivers, in form and substance satisfactory to the Lender, of all
present and future Liens to which the owner or lessor or any mortgagee of such
premises may be entitled to assert against the Collateral. From time to time,
the Borrower shall, upon the Lender's request, execute and deliver
confirmatory written instruments pledging to the Lender the Collateral, but
the Borrower's failure to do so shall not affect or limit the Security
Interest. So long as this Agreement is in effect and until all Obligations
have been fully satisfied, the Security Interest shall continue in full force
and effect in all Collateral (whether or not deemed eligible for the purpose
of calculating the Availability or as the basis for any advance, loan, or
other financial accommodation).
(b) The Borrower and the Lender agree that with respect to any
premises which are leased to the Borrower on the date hereof at which
Collateral is or may in the future be located for which the Borrower has not
on the date hereof obtained a written waiver, duly executed by the appropriate
landlord and in form and substance satisfactory to the Lender, of any present
and future statutory, common law or contractual Liens which the lessor of such
premises may be entitled to assert against such Collateral as follows:
(i) with respect to each such premises located in the states of
Nevada, New Jersey and Pennsylvania, the Lender shall, commencing on the
date hereof and until a waiver described above shall be obtained from the
appropriate landlord for such premises, establish reserves against
Availability therefor as permitted by clause (b)(iii) of such defined
term;
(ii) with respect to each such premises located in other states,
the Lender shall not establish reserves against Availability therefor as
permitted by clause (b) (iii) of such defined term until the date ninety
(90) days after the date hereof; provided, that, subject to clause (iii)
below, no such reserves shall be established under clause (b)(iii) of the
defined term "Availability" with respect to any such premises if on or
prior to such ninetieth day the Borrower shall have delivered to the
Lender either (i) a waiver described above from the appropriate landlord
for such premises or (ii) an opinion, addressed to the Lender and in form
and substance satisfactory to the Lender, from counsel acceptable to the
Lender which is admitted to practice law in the state where such premises
are located to the effect that such state has no statutory or common law
landlord Lien or similar Lien afforded landlords for unpaid rent and the
terms of the lease agreement between the landlord and the Borrower with
respect to the lease of such premises contains no provision for a
contractual Lien on any Collateral (provided, that with respect to the
portion of the opinion relating to contractual Liens under lease
agreements, the Borrower shall be permitted to obtain such portion of the
opinion from other counsel acceptable to the Lender in lieu of utilizing
local counsel therefor); and
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(iii) if after the Borrower has delivered to the Lender a waiver
or opinion of counsel with respect to any premises leased to the Borrower
on the date hereof as provided above, there shall occur a change in law
in the state where such premises are located or the lease agreement with
respect to such premises is amended or replaced or such premises shall be
conveyed by such landlord to another person or any other event shall
occur, in each instance, which results in the Lender determining in its
sole discretion (exercised in good faith) that a reserve under clause
(b)(iii) of the defined term "Availability" is now necessary with respect
to such premises, then the Lender may, upon not less than 10 days prior
notice to the Borrower, establish any such reserve with respect to such
premises.
6.3 Location of Collateral. The Borrower represents and warrants to
the Lender that: (a) Schedule 6.3 hereto is a correct and complete list of
the Borrower's chief executive office, the location of its books and records,
the locations of the Collateral, and the locations of all of its other places
of business; (b) Schedule 6.3 correctly identifies any of such facilities and
locations that are not owned by the Borrower and sets forth the names of the
owners and lessors of such facilities and locations and the holders of any
mortgages on any such facilities and locations and (c) on or after the
ninetieth day after the date hereof the aggregate value of all Collateral at
all the facilities and locations identified on Schedule 6.3 which are not
owned by the Borrower and for which, subject to Section 6.2(b), a landlord
waiver in form and substance satisfactory to the Lender or an opinion of
counsel as provided in Section 6.2(b)(ii) has not been obtained will not at
any time exceed $2,500,000. The Borrower agrees that it will not maintain any
Collateral at any location other than those listed on Schedule 6.3, and it
will not otherwise change or add to any of such locations, unless it gives the
Lender at least 15 days' prior written notice and executes such financing
statements and other documents that the Lender requests in connection
therewith.
6.4 Title to, Liens on, and Sale and Use of Collateral. The Borrower
represents and warrants to the Lender that: (a) all Collateral is and will
continue to be owned by the Borrower free and clear of all Liens whatsoever,
except for the Security Interest and other Permitted Liens; (b) the Security
Interest will not be subject to any prior Lien except Permitted Liens, if any;
(c) the Borrower will use, store, and maintain the Collateral with all
reasonable care and will use the Collateral for lawful purposes only; and (d)
the Borrower will not, without the Lender's prior written approval, sell or
dispose of or permit the sale or disposition of any Collateral, except as
permitted by Section 9.5. The inclusion of Proceeds as part of the Collateral
shall not be deemed the Lender's consent to any sale or other disposition of
the Collateral except as expressly permitted herein.
6.5 Reimbursement for Appraisals. The Borrower shall, within three
Business Days after demand therefor by the Lender, reimburse the Lender for
any and all costs and expenses incurred by the Lender with respect to
appraisals or updates thereof of any or all of the Collateral from time to
time conducted or ordered by the Lender, such appraisals or updates to
include, without limitation, any of the foregoing required under any
applicable laws or regulations or any internal policies of the Lender or any
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of its affiliates; provided, however, that the Lender shall not, at the
expense of the Borrower, perform or cause to be performed more than one such
appraisal in any calendar year unless an Event of Default shall have occurred
and be continuing or unless additional appraisals are required by law, in
which case the foregoing limitation shall not apply.
6.6 Access and Examination. The Lender may at all reasonable times
have access to, examine, audit, make extracts from and inspect the Borrower's
records, files and books of account and the Collateral and to discuss the
Borrower's affairs with the Borrower's officers and management; provided,
however, that with respect to examinations, audits and inspections at the
Borrower's stores, the Lender shall use reasonable efforts to provide the
Borrower (at its address set forth in Section 13.11 hereof) two Business Days'
notice (written or telephonic) prior to such examination, audit or inspection.
The Borrower will deliver to the Lender any instrument necessary for the
Lender to obtain records from any service bureau maintaining records for the
Borrower. The Lender may, at any time and at the Borrower's expense, make
copies of all of the Borrower's books and records, or require the Borrower to
deliver such copies to the Lender. The Lender may, without expense to the
Lender, use such of the Borrower's personnel, supplies, and premises as may be
reasonably necessary for maintaining or enforcing the Security Interest. The
Lender shall have the right, at any time, in the Lender's name or in the name
of a nominee of the Lender, to verify the validity, amount or any other
matter relating to the Accounts, by mail, telephone, or otherwise.
6.7 Insurance. (a) The Borrower shall insure the Collateral and all
other tangible Property of the Borrower against loss or damage by fire with
extended coverage, theft, burglary, pilferage, loss in transit, and such other
hazards as the Lender shall specify and shall also maintain, and cause each of
its Subsidiaries to maintain, such other insurance as the Lender may
reasonably require, including, without limitation, liability insurance, in
each case in amounts, under policies and by insurers acceptable to the Lender.
(b) The Borrower shall also maintain flood insurance, in the event of a
designation of the area in which any Real Property is located as "flood prone"
or a "flood risk area," as defined by the Flood Disaster Protection Act of
1973, in an amount to be reasonably determined by the Lender, and shall comply
with the additional requirements of the National Flood Insurance Program asset
forth therein.
(c) The Borrower shall cause the Lender to be named in each such policy
as secured party or mortgagee and loss payee or additional insured, as
appropriate, in a manner acceptable to the Lender. Schedule 6.7 is a
certificate of insurance certified by the Borrower's insurer as to the
insurance maintained by the Borrower and its Subsidiaries as of the date
hereof naming the Lender as loss payee and additional insured as and to the
extent herein required. Each policy of insurance shall contain a clause or
endorsement requiring the insurer to give not less than thirty (30) days prior
written notice to the Lender in the event of cancellation of the policy for
any reason whatsoever and a clause or endorsement stating that the interest of
the Lender shall not be impaired or invalidated by any act or neglect of the
Borrower or the owner of any premises where Collateral is located nor by the
use of such premises for purposes more hazardous than are permitted by such
policy.
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(d) All premiums for such insurance shall be paid by the Borrower when
due, and certificates of insurance and, if requested, photocopies of the
policies shall be delivered to the Lender. If the Borrower fails to procure
such insurance or to pay the premiums therefor when due, the Lender may (but
shall not be required to) do so and charge the costs thereof to a Loan
Account.
(e) The Borrower shall promptly notify the Lender of any loss, damage,
or destruction to the Collateral or any other tangible Property with a value
in excess of $50,000 of the Borrower or any of its Subsidiaries or arising
from its use, whether or not covered by insurance.
(f) The Lender is hereby authorized to collect directly all insurance
proceeds with respect to property damage insurance or liability insurance for
which the Lender is named as loss-payee (as its interests may appear),
beneficiary or additional insured. After deducting from such proceeds the
expenses, if any, incurred by the Lender in the collection or handling
thereof, the Lender may apply such proceeds to the reduction of the
Obligations, in such order as the Lender determines (subject to Section 4.3
hereof), or at the Lender's option if such proceeds are received with respect
to the loss, damage or destruction to Collateral, may permit or require the
Borrower to use such money, or any part thereof, to replace, repair, restore
or rebuild the Collateral in a diligent and expeditious manner with materials
and workmanship of substantially the same quality as existed before the loss,
damage or destruction (it being agreed by the Lender that so long as no Event
or Event of Default shall be continuing, the Borrower shall be entitled to use
such money to replace, repair, restore or rebuild the Collateral as aforesaid
where the amount of such moneys on account of a single event of loss, damage
or destruction is less than $25,000), provided, further, that the Borrower
first (i) provides the Lender with plans and contracts reasonably satisfactory
to the Lender and (ii) demonstrates to the Lender's reasonable satisfaction
that the funds available to it will be sufficient to complete such project in
the manner provided therein.
6.8 Collateral Reporting. The Borrower will provide the Lender with
the following documents at the following times in form satisfactory to the
Lender:
(a) upon request, copies of shipping and delivery documents, invoices of
Accounts and customer statements and credit memos;
(b) monthly agings of accounts receivable;
(c) semi-monthly (based upon the Borrower's fiscal month) inventory
reports and monthly perpetual inventory reports;
(d) on a monthly basis, reconciliations of all amounts listed in the
reports delivered pursuant to subsections (b) and (c) hereof with the general
ledger of the Borrower;
(e) on a weekly basis, a weekly cash statement report (or if such
reports are no longer available, the equivalent thereof), the weekly cash
receipts report and the weekly roll forward of accounts receivable;
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(f) on a weekly basis, a duly executed borrowing base certificate
substantially in the form of Exhibit F hereto;
(g) such other reports as to the Collateral as the Lender shall
reasonably request from time to time; and
(h) certificates of an officer of the Borrower certifying as to the
foregoing.
If any of the Borrower's records or reports of the Collateral are prepared by
an accounting service or other agent, the Borrower hereby authorizes such
service or agent to deliver such records, reports, and related documents to
the Lender.
6.9 Accounts. (a) The Borrower represents and warrants to the Lender
that:
(i) each existing Account represents, and each future Account
will represent, a bona fide sale or lease and delivery of goods by the
Borrower, or rendition of services by the Borrower, in the ordinary
course of its business;
(ii) each existing Account is, and each future Account will be,
for a liquidated amount payable by the Account Debtor thereon on the
terms set forth in the invoice therefor or in the schedule thereof
delivered to the Lender, without offset, deduction, defense or
counterclaim;
(iii) each copy of an account statement with respect to an
Account Debtor delivered to the Lender by the Borrower will be a true
copy of the original account statement sent to such Account Debtor; and
(iv) all goods described in each invoice will have been shipped
to the Account Debtor and all services of the Borrower described in each
invoice will have been performed.
(b) Without the prior written consent of the Lender, the Borrower shall
not re-date any invoice or sale or make sales on extended dating beyond that
customary in the Borrower's business or extend or modify any Account.
(c) The Borrower shall not accept any note or other instrument (except a
check or other instrument for the immediate payment of money) with respect to
any Account without the Lender's written consent except for any note or other
instrument for any Account which when first created was an Eligible Account
and which due to the failure of the Account Debtor to pay such Account on a
timely basis became an ineligible Account. If the Lender consents to the
acceptance of any such instrument, it shall be considered as evidence of the
Account and not payment thereof and the Borrower will promptly deliver such
instrument to the Lender appropriately endorsed. Regardless of the form of
presentment, demand, notice of dishonor, protest, and notice of protest with
respect thereto, the Borrower will remain liable thereon until such instrument
is paid in full.
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(d) The Borrower shall notify the Lender promptly of all disputes and
claims in excess of $50,000 in the aggregate with any Account Debtor and
settle, contest or adjust them at no expense to the Lender, but no discount,
credit or allowance shall be granted to any Account Debtor without the
Lender's consent, except for discounts, credits and allowances made or given
in the ordinary course of the Borrower's business when no Event of Default
exists hereunder. The Lender may, at all times when an Event of Default
exists hereunder, settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which the Lender considers advisable and,
in all cases, the Lender will credit a Loan Account with only the net amounts
received by the Lender in payment of any Accounts.
(e) If an Account Debtor returns any Inventory to the Borrower when no
Event of Default exists, then the Borrower shall promptly determine the reason
for such return and, if credit is to be given to such Account Debtor for such
return, shall issue a credit memorandum to the Account Debtor in the
appropriate amount. All returned Inventory shall remain subject to the
Security Interest. Whenever any Inventory is returned, the related Account
shall be deemed ineligible to extent of the amount owing by the Account Debtor
with respect to such returned Inventory (unless the Account Debtor fails to
pay such Account (other than the portion thereof relating to the returned
Inventory) when due and payable as provided in the original invoice therefor
in which case the entire Account shall be deemed ineligible) and Availability
shall be adjusted accordingly.
6.10 Collection of Accounts; Payments. (a) The Borrower will, at its
own cost and expense, cause all payments received by the Borrower on account
of Receivables, inventory and other collateral and all other payments received
by any of the Borrower's stores, whether in the form of cash, checks, notes,
drafts, bills of exchange, money orders or otherwise (referred to herein as
"Payments"), (i) to be deposited not less often than weekly in one or more
bank accounts maintained by the Borrower and acceptable to the Lender and (ii)
to be transferred on each business day from the accounts referred to in clause
(i) to one or more concentration accounts designated by the Lender with a bank
acceptable to the Lender. Each bank requested by the Lender at which an
account referred to in clause (i) of the first sentence of this Section
6.10(a) is maintained and each bank at which a concentration account referred
to in clause (ii) of such sentence shall execute and deliver to the Lender
such agreements, in form and substance satisfactory to the Lender, as the
Lender shall request with respect to such accounts, including, without
limitation, with respect to prohibitions on the Borrower, upon notice from the
Lender to the bank, withdrawing funds from such accounts or otherwise
directing or modifying actions with respect to such accounts. The Lender may,
at any time during the continuance of an Event of Default, notify obligors
that the Accounts have been assigned to the Lender and of the Security
Interest therein, and may collect them directly and charge the collection
costs and expenses to a Loan Account. The Borrower, at the Lender's request,
shall execute and deliver to the Lender such documents as the Lender shall
require to grant the Lender access to any post office box in which collections
of Accounts are received.
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(b) If sales of Inventory are made for cash, the Borrower shall
immediately deposit them into a Payment Account (and until so deposited, such
payment shall be received by the Borrower in trust for the Lender).
(c) All payments received by the Lender on account of Accounts or as
Proceeds of other Collateral will be the Lender's sole property and will be
credited to a Loan Account upon receipt of immediately available funds by the
Lender at its bank account in New York City.
(d) In the event the Borrower repays all of the Obligations upon the
termination of this Agreement, other than through the Lender's receipt of
payments on account of Accounts or Proceeds of other Collateral, such payment
will be credited to a Loan Account one (1) Business Day after receipt of good
funds by the Lender at its bank account in New York City.
6.11 Inventory; Perpetual Inventory. The Borrower represents and
warrants to the Lender that all of the Inventory is and will be held for sale
or lease, or to be furnished in connection with the rendition of services in
the ordinary course of the Borrower's business, and is and will be fit for
such purposes. The Borrower will keep the Inventory in good and marketable
condition, at its own expense. The Borrower will not, without prior written
notice to the Lender, acquire or accept any inventory on consignment or
approval; provided, that no such notice is necessary so long as not greater
than $1,000,000 at any one time in inventory is so acquired, accepted or held
by the Borrower. After written notice to the Lender as required by the
previous sentence, the Borrower may acquire or accept inventory on consignment
or approval provided that the Borrower (i) at all times as such inventory is
not located in the Borrower's stores, segregates such inventory from all other
Inventory or (ii) if such inventory is located in the Borrower's stores,
indicates on its records and reports (which shall promptly be provided to the
Lender) that such inventory is owned by a Person other than the Borrower. The
Borrower agrees that any Inventory produced by the Borrower will be produced
in accordance with the Federal Fair Labor Standards Act of 1938, as amended,
and all rules, regulations, and orders thereunder. The Borrower will conduct
a physical count of the Inventory at least once per Fiscal Year, and after and
during the continuation of an Event of Default, at such other times as the
Lender requests, and shall promptly, when available, supply the Lender with a
copy of the results of such count accompanied by a report of the value of such
Inventory (valued in accordance with GAAP at the lower of average cost,
determined in accordance with the Borrower's accounting practices, or market
value). The Borrower will maintain a perpetual inventory reporting system at
all times. The Borrower will not, without the Lender's written consent, sell
any Inventory on a guaranteed sale, sale on approval, consignment, or other
repurchase or return basis (other than on the Borrower's historical customer
return policy as in effect on the date hereof) if the aggregate amount of all
such transactions in any Fiscal Year, including the contemplated transaction,
would exceed $2,500,000, provided, that in any event all such transactions
shall be done in the ordinary course of business of the Borrower. The Borrower
will not, without the Lender's written consent, sell any Inventory on a
bill-and-hold basis if the aggregate amount of all such bill-and-hold
transactions, at any one time shall exceed $1,000,000, provided that in any
event all such transactions shall be done in the ordinary course of business
of the Borrower.
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6.12 Equipment. The Borrower represents and warrants to the Lender that
all of the Equipment is and will be used or held for use in the Borrower's
business. The Borrower shall keep and maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted) and shall
make all necessary replacements thereof. If the Borrower shall be required to
grant the Lender a Lien in Equipment as provided in Section 11.2(e), the
Borrower shall not permit any Equipment to become a fixture to real property
or an accession to other personal property, unless the Lender has a valid,
perfected, and first (subject to Permitted Liens) priority Security Interest
in such Equipment. If the Borrower shall be required to grant the Lender a
Lien in Equipment as provided in Section 11.2(e), the Borrower will not,
without the Lender's prior written consent, alter or remove any identifying
symbol or number on the Equipment. The Borrower shall not, without the
Lender's prior written consent, sell, lease as a lessor, or otherwise dispose
of any of the Equipment; provided, however, so long as no Event of Default has
occurred and is continuing, the Borrower may dispose of obsolete or unusable
Equipment or other Equipment no longer necessary for the proper conduct of the
Borrower's business, in each instance, in the ordinary course of its business
without the Lender's consent. All Equipment shall be free and clear of all
liens, claims and encumbrances, except for Permitted Liens.
6.13 Documents, Instruments, and Chattel Paper. The Borrower
represents and warrants to the Lender that: (a) all documents, instruments,
and chattel paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine and (b) all goods evidenced by such documents, instruments, and
chattel paper are and will be owned by the Borrower free and clear of all
Liens other than Permitted Liens.
6.14 Right to Cure. The Lender may in its sole discretion pay any
amount or do any act required of the Borrower hereunder or under any other
Loan Document in order to preserve, protect, maintain or enforce the
Obligations, the Collateral or the Security Interest, and which the Borrower
fails to pay or do, including, without limitation, payment of any judgment
against the Borrower, any insurance premium, any warehouse charge, processing
charge, any landlord's claim, and any other Lien upon the Collateral. All
payments that the Lender makes under this Section and all out-of-pocket costs
and expenses that the Lender pays or incurs in connection with any action
taken by it hereunder shall be charged to a Loan Account. Any payment made or
other action taken by the Lender under this Section shall be without prejudice
to any right to assert an Event of Default hereunder and to proceed
accordingly.
6.15 Power of Attorney. (a) The Borrower hereby appoints the Lender
and the Lender's designees as the Borrower's attorney, with power:
(i) during the continuance of an Event or an Event of Default to
endorse the Borrower's name on any checks, notes, acceptances, money
orders, or other forms of payment or security that come into the Lender's
possession;
(ii) to sign the Borrower's name on financing statements with
respect to Collateral and other public records;
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(iii) to sign the Borrower's name on any invoice, bill of lading,
or other document of title relating to any Collateral, on drafts against
customers, on assignments of Accounts, on notices of assignment and on
verification of Accounts and on notices to Account Debtors;
(iv) to notify the post office authorities, upon the acceleration
of any of the Obligations, to change the address for delivery of the
Borrower's mail to an address designated by the Lender and to receive,
open and dispose of all mail addressed to the Borrower;
(v) to send requests for verification of Accounts to Account
Debtors; and
(vi) during the continuance of an Event or an Event of Default to
do all things necessary to carry out this Agreement.
(b) The Borrower hereby ratifies and approves all acts of such attorney
taken in accordance with this Agreement. Neither the Lender nor the attorney
will be liable for any acts or omissions or for any error of judgment or
mistake of fact or law, except the Lender's own willful misconduct or bad
faith.
(c) This power, being coupled with an interest, is irrevocable until
this Agreement has been terminated and the Obligations have been fully
satisfied.
6.16 Lender's Rights, Duties, and Liabilities. The Borrower assumes all
responsibility and liability arising from or relating to the use, sale, or
other disposition of the Collateral. Neither the Lender nor any of its
officers, directors, employees, and agents shall be liable or responsible in
any way for the safekeeping of any of the Collateral, or for any act or
failure to act with respect to the Collateral, or for any loss or damage
thereto, or for any diminution in the value thereof, or for any act of default
by any warehouseman, carrier, forwarding agency or other person whomsoever,
all of which shall be at the Borrower's sole risk. Notwithstanding the
foregoing, the Lender agrees to use reasonable care in the custody and
preservation of Collateral in its possession. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the
Security Interest or to collect or realize upon the Collateral, nor shall loss
of or damage to the Collateral release the Borrower from any of the
Obligations. The Lender may (but shall not be required to), without notice to
or consent from the Borrower, sue upon or otherwise collect, extend the time
for payment of, modify or amend the terms of, compromise or settle for cash or
credit, grant other indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with respect to the
Collateral, any security therefor, any agreement relating thereto, any
insurance applicable thereto, or any Person liable directly or indirectly in
connection with any of the foregoing, without discharging or otherwise
affecting the liability of the Borrower for the Obligations.
7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
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7.1 Books and Records. The Borrower shall maintain, at all times,
correct and complete books, records and accounts in which complete, correct
and timely entries are made of its transactions in accordance with GAAP. The
Borrower shall, by means of appropriate entries, reflect in such accounts and
in all Financial Statements proper liabilities and reserves for all taxes and
proper provision for depreciation and amortization of Property and bad debts,
all in accordance with GAAP. The Borrower shall maintain at all times books
and records pertaining to the Collateral in such detail, form, and scope as
the Lender shall reasonably require, including without limitation records of:
(a) all payments received and all credits and extensions granted with respect
to the Accounts; (b) the return, repossession, stoppage in transit, loss,
damage, or destruction of any Inventory; and (c) all other dealings affecting
the Collateral.
7.2 Financial Information. The Borrower shall promptly furnish to the
Lender all such financial information as the Lender shall reasonably request.
The Borrower hereby authorizes the Lender to meet with and/or contact the
Borrower's auditors and accountants regarding the financial condition of the
Borrower and its Subsidiaries. The Borrower will authorize its accountants
and auditors to cooperate with the Lender. Without limiting the foregoing,
the Borrower will furnish to the Lender, in such detail as the Lender shall
request, the following:
(a) As soon as available, but in any event not later than 90 days after
the close of each Fiscal Year, (i) consolidated and consolidating audited
balance sheets of the Borrower and its Subsidiaries as of the end of such
Fiscal Year and (ii) consolidated and consolidating audited statements of
income and expense, retained earnings and cash flow for the Borrower and its
Subsidiaries for such Fiscal Year, and the accompanying notes thereto, setting
forth in each case in comparative form figures for the previous Fiscal Year,
all in reasonable detail, fairly presenting the financial position and the
results of operations of the Borrower and its Subsidiaries as at the date
thereof and for the Fiscal Year then ended, and prepared in accordance with
GAAP. Such statements shall be examined in accordance with generally accepted
auditing standards by and accompanied by a report thereon unqualified as to
scope of independent certified public accountants selected by the Borrower and
reasonably satisfactory to the Lender.
(b) As soon as available, but in any event not later than 45 days after
the close of each fiscal quarter of the Borrower other than the fourth quarter
of a Fiscal Year, (i) consolidated and consolidating unaudited balance sheets
of the Borrower and its Subsidiaries as at the end of such quarter and (ii)
consolidated and consolidating unaudited statements of income and expense and
cash flow for the Borrower and its Subsidiaries for such quarter and for the
period from the beginning of the Fiscal Year to the end of such quarter,
together with the accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and results of operation of the Borrower and
its Subsidiaries as at the date thereof and for such periods, and prepared in
accordance with GAAP consistent with the audited Financial Statements required
pursuant to Section 7.2(a). The Borrower shall certify, by a certificate
signed by its chief financial officer, that all such statements have been
prepared in accordance with GAAP and present fairly, subject to normal
year-end adjustments, the Borrower's financial position as at the dates
thereof and its results of operations for the periods then ended.
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(c) As soon as available, but in any event not later than (x) 30 days
after the end of each fiscal month of the Borrower (other than the last fiscal
month of each fiscal quarter of the Borrower), and (y) 45 days after the end
of the last fiscal month of each fiscal quarter of the Borrower, (i)
consolidated and consolidating unaudited balance sheets of the Borrower and
its Subsidiaries as at the end of such month and (ii) consolidated and
consolidating unaudited statements of income and expense and cash flow for the
Borrower and its Subsidiaries for such month and for the period from the
beginning of the Fiscal Year to the end of such month, in each instance
setting forth next to such monthly figures and year to end of month figures,
the budgeted figures for such periods and the actual figures for the
corresponding periods of the previous Fiscal Year, respectively, all in
reasonable detail, fairly presenting the financial position and results of
operation of the Borrower and its Subsidiaries as at the date thereof and for
such periods. The Borrower shall certify, by a certificate signed by its
chief financial officer, that all such statements present fairly, subject to
normal year-end adjustments, the Borrower's financial position as at the dates
thereof and its results of operations for the periods then ended.
(d) With each of the audited Financial Statements delivered pursuant to
Section 7.2(a), a certificate of the independent certified public accountants
that examined such statements to the effect that they have reviewed and are
familiar with the Loan Documents and that, in the course of examining such
Financial Statements, they did not become aware of any fact or condition which
then constituted an Event or Event of Default, except for those, if any,
described in reasonable detail in such certificate.
(e) With each of the annual audited and quarterly unaudited Financial
Statements delivered pursuant to Sections 7.2(a) and 7.2(b), a certificate of
the chief financial officer of the Borrower (i) setting forth in reasonable
detail the calculations required to establish that the Borrower was in
compliance with its covenants set forth in Sections 9.18 through 9.22 during
the period covered in such Financial Statements; (ii) stating that, except as
explained in reasonable detail in such certificate, (A) all of the
representations, warranties and covenants of the Borrower contained in this
Agreement and the other Loan Documents are correct and complete in all
material respects as at the date of such certificate, and (B) no Event of
Default then exists or existed during the period covered by such Financial
Statements, (iii) describing and analyzing in reasonable detail all material
trends, changes and developments in each and all Financial Statements and (iv)
explaining the variances of the figures in such Financial Statements from
those figures in the corresponding budgets and prior Fiscal Year financial
statements. If such certificate discloses that a representation or warranty
is not correct or complete, or that a covenant has not been complied with, or
that an Event of Default existed or exists, such certificate shall set forth
what action the Borrowers have taken or proposes to take with respect thereto.
(f) No less than 30 days prior to the beginning of each Fiscal Year,
annual forecasts (to include forecasted consolidated and consolidating balance
sheets, statements of income and expenses and statements of cash flow) for the
Borrower and its Subsidiaries as at the end of and for each month of such
Fiscal Year.
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(g) As soon as available, but in any event not later than 15 days after
the Borrower's receipt thereof, a copy of all management reports and
management letters prepared for the Borrower by Ernst & Young or any other
independent certified public accountants of the Borrower.
(h) Promptly upon their becoming available, copies of each proxy
statement, financial statement, and report which the Borrower sends to its
stockholders.
(i) Promptly after filing with the PBGC and the IRS a copy of each
annual report or other filing filed with respect to each Plan of the Borrower
or any Related Company.
(j) Promptly upon the filing thereof, copies of all reports, if any, to
or other documents filed by the Borrower or any of its Subsidiaries with the
Securities and Exchange Commission under the Securities Act of 1933 or the
Securities Exchange Act of 1934, and all reports, notices or statements sent
or received by the Borrower or any of its Subsidiaries to or from the holders
of any equity interests of the Borrower (other than routine non-material
correspondence sent by shareholders of the Borrower to the Borrower) or any
such Subsidiary or of any Debt for borrowed money of the Borrower or any of
its Subsidiaries registered under the Securities Act of 1933 or to or from the
trustee under any indenture under which the same is issued.
(k) Such additional information as the Lender may from time to time
reasonably request regarding the financial and business affairs of the
Borrower or any Subsidiary of the Borrower.
7.3 Notices to Lender. The Borrower shall notify the Lender in writing
of the following matters at the following times:
(a) Immediately after becoming aware of the existence of any Event or
Event of Default.
(b) Within two Business Days of becoming aware that the holder of any
Debt in excess of $1,000,000 owing by the Borrower or any Subsidiary of the
Borrower has given notice or taken any action with respect to a claimed
default or of becoming aware of the existence of a default or an event of
default under or with respect to any such Debt.
(c) Within two Business Days after becoming aware of any material
adverse change in the Borrower's Property, business, operations, prospects or
condition (financial or otherwise).
(d) Within two Business Days of becoming aware of any pending or
threatened action, proceeding, or counterclaim by any Person, or any pending
or threatened investigation by a Public Authority, which in either case may
materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrower's
Property, business, operations, prospects or condition (financial or
otherwise).
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(e) Within two Business Days after becoming aware of any pending or
threatened strike, work stoppage, unfair labor practice claim, or other labor
dispute affecting the Borrower or any of its Subsidiaries in a manner which
could reasonably be expected to have a material adverse affect on the
Borrower's or any of its Subsidiaries' Property, business, operations,
prospects or condition (financial or otherwise).
(f) Within two Business Days after becoming aware of any violation of
any law, statute, regulation, or ordinance of a Public Authority applicable to
the Borrower, which may materially and adversely affect the Collateral, the
repayment of the Obligations, the Lender's rights under the Loan Documents, or
the Borrower's Property, business, operations, prospects or condition
(financial or otherwise).
(g) Within two Business Days after becoming aware of any material
violation by the Borrower of Environmental Laws or that its compliance is
being investigated.
(h) Immediately after becoming aware of any Termination Event with
respect to a Plan, or any other Reportable Event with respect to a Plan,
accompanied by any materials required to be filed with the PBGC with respect
thereto; immediately upon the establishment of any Plan not existing at the
date hereof or the commencement of contributions by the Borrower to any Plan
to which the Borrower was not contributing at the date hereof; immediately
upon becoming aware that an application is to be or has been made to the
Secretary of the Treasury for a waiver of the minimum funding standard under
the provisions of Section 412 of the Internal Revenue Code, together with a
copy of such application; and immediately upon becoming aware of any other
event or condition regarding a Plan or the Borrower's or a Related Company's
compliance with ERISA which may materially and adversely affect the Borrower's
Property, business, operations, prospects or condition (financial or
otherwise).
(i) Thirty (30) days prior to the Borrower changing its name.
Each notice given under this Section shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
8. GENERAL WARRANTIES AND REPRESENTATIONS.
The Borrower continuously warrants and represents to the Lender, at all
times during the term of this Agreement (other than a representation or
warranty which is stated to be made as of a specific date which shall be
deemed repeated as of such date) and until all Obligations have been
satisfied, that, except as hereafter disclosed to and accepted by the Lender
in writing:
8.1 Authorization, Validity, and Enforceability of this Agreement and
the Loan Documents. The Borrower has the corporate power and authority to
execute, deliver and perform this Agreement and the other Loan Documents, to
incur the Obligations, and to grant the Security Interest. The Borrower has
taken all necessary corporate action (including, without limitation, obtaining
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approval of its stockholders if necessary) to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents. No
consent, approval, or authorization of, or filing with, any Public Authority,
and no consent of any other Person, is required in connection with the
Borrower's execution, delivery, and performance of this Agreement and the
other Loan Documents, except for those already duly obtained and in full force
and effect. This Agreement and the other Loan Documents have been duly
executed and delivered by the Borrower and constitute the legal, valid and
binding obligation of the Borrower, enforceable against it in accordance with
its terms without defense, setoff, or counterclaim except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and by
general principles of equity. The Borrower's execution, delivery, and
performance of this Agreement and the other Loan Documents do not and will not
conflict with, or constitute a violation or breach of, or constitute a default
under, or result in the creation or imposition of any Lien upon the Property
of the Borrower or any of its Subsidiaries (except as contemplated by this
Agreement and the other Loan Documents) by reason of the terms of (a) any
mortgage, lease, agreement or instrument to which the Borrower or any of its
Subsidiaries is a party or which is binding upon it, (b) any judgment, law,
statute, rule or governmental regulation applicable to the Borrower or any of
its Subsidiaries, or (c) the Certificate or Articles of Incorporation or By
Laws or other charter documents of the Borrower or any of its Subsidiaries.
8.2 Validity and Priority of Security Interest. The provisions of
this Agreement and the other Loan Documents create legal and valid Liens on
all the Collateral in the Lender's favor and when all proper filings,
recordings, and other actions necessary to perfect such Liens have been made
or taken such Liens will constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral, except for
Permitted Liens, securing all the Obligations, and enforceable against the
Borrower and all third parties.
8.3 Organization and Qualification. The Borrower: (a) is duly
incorporated and organized and validly existing in good standing under the
laws of the state of its incorporation; (b) is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
failure to so qualify or be in good standing could reasonably be expected to
have a material adverse effect on the Borrower's Property, business,
operations, prospects or condition (financial or otherwise); and (c) has all
requisite power and authority to conduct its business and to own its Property.
8.4 Corporate Name; Prior Transactions. The Borrower, during the past
five years, has not been known by or used any other corporate or fictitious
name, or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or acquired any of its Property
out of the ordinary course of business, except as otherwise set forth on
Schedule 8.4.
8.5 Subsidiaries and Affiliates. Schedule 8.5 is a correct and
complete list of the name and relationship to the Borrower of each and all of
the Borrower's Subsidiaries and other Affiliates. Each Subsidiary (a) is duly
incorporated and organized and validly existing in good standing under the
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laws of its jurisdiction of incorporation set forth on Schedule 8.5, (b) is
qualified to do business as a foreign corporation and in good standing in the
jurisdictions set forth opposite its name on Schedule 8.5, which are the only
jurisdictions in which the failure to so qualify or be in good standing could
reasonably be expected to have a material adverse effect on any such
Subsidiaries' business, operations, prospects, Property or condition
(financial or otherwise) and (c) has all requisite power and authority to
conduct its business and own its Property.
8.6 Financial Statements and Forecasts. (a) The Latest Forecasts
when submitted to the Lender as required herein represent the Borrower's best
estimate at that time of the Borrower's future financial performance for the
periods set forth therein. The Latest Forecasts have been prepared on the
basis of the assumptions set forth therein, which the Borrower believes are
fair and reasonable in light of current and reasonably foreseeable business
conditions at the time submitted to the Lender.
(b) The Borrower has delivered to the Lender on or prior to the date
hereof the audited balance sheet and related statements of income and expense,
retained earnings, changes in financial position, changes in stockholders
equity and cash flow for the Borrower and its Subsidiaries (and related
footnotes), as of December 31, 1992 and for the Fiscal Year then ended,
accompanied by the report thereon of Ernst & Young, the Borrower's independent
certified public accountants. The Borrower has also delivered to the Lender
the unaudited balance sheet and related statements of income and expense,
retained earnings, changes in financial position, changes in stockholders
equity and cash flow for the Borrower and its Subsidiaries, as of November 30,
1993 and for the eleven months then ended. Since the date of such unaudited
financial statements, no material adverse change has occurred in the
Collateral or in the Borrower's business, operations, prospects, condition
(financial or otherwise), performance or properties, except as reflected in
such financial statements. All such financial statements present fairly the
Borrower's financial position as at the dates thereof and its results of
operations for the periods then ended. The December 31, 1992 audited
financial statements of the Borrower have been prepared in accordance with
GAAP.
8.7 Capitalization. The Borrower's authorized capital stock consists
of 50,000,000 shares of common stock, par value $0.01 per share, of which
25,678,926 shares are validly issued and outstanding as of November 30, 1993,
and all of which outstanding shares are fully paid and non-assessable.
8.8 Solvency. The Borrower was and is Solvent prior to and after
giving effect to the transactions contemplated by this Agreement and the
making of the Revolving Loans and the issuance of the Letters of Credit. The
Borrower possesses adequate assets for the conduct of its business.
8.9 Title to Property. Except for Permitted Liens, and except for
Property which the Borrower leases, the Borrower has good and marketable title
in fee simple to its real property listed on Schedule 8.9 and good,
indefeasible, and merchantable title to all of its other Property free of all
Liens except Permitted Liens.
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8.10 Real Property; Leases. Schedule 8.10 hereto is a correct and
complete list of all real property owned by the Borrower, all leases and
subleases of real or personal property by the Borrower as lessee or sublessee
(other than leases of personal property as to which the Borrower is lessee or
sublessee for which the value of such personal property is less than $50,000
individually or $300,000 in the aggregate), and all leases and subleases of
real or personal property by the Borrower as lessor or sublessor. Each of
such leases and subleases is valid and enforceable in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity), and is in
full force and effect and no default by any party to any such lease or
sublease exists.
8.11 Proprietary Rights. Schedule 8.11 hereto is a correct and complete
list of all registered or material Proprietary Rights. None of the
Proprietary Rights is subject to any licensing agreement or similar
arrangement except as set forth on Schedule 8.11. None of the Proprietary
Rights, to the best of the Borrower's knowledge, infringes on any other
Person's Property. The Proprietary Rights described on Schedule 8.11
constitutes all of the Property of such type necessary to the current and
anticipated future conduct of the Borrower's business.
8.12 Trade Names and Terms of Sale. All trade names or styles under
which the Borrower will sell Inventory or create Accounts, or to which
instruments in Payment of Accounts may be made payable, are listed on Schedule
8.12. The customary terms of payment on which sales of Inventory on credit
will be made are set forth on Schedule 8.12.
8.13 Litigation. Except as set forth on Schedule 8.13, there is no
pending or, to the best of the Borrower's knowledge, threatened suit,
proceeding, or counterclaim by any Person, or investigation by any Public
Authority, or any basis for any of the foregoing, which is reasonably likely
to have a material adverse effect on the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrower's
Property, business, operations, prospects or condition (financial or
otherwise).
8.14 Restrictive Agreements. Except as set forth on Schedule 8.14, the
Borrower is not a party to any agreement, or subject to any corporate
restriction, which affects its ability to execute, deliver, and perform the
Loan Documents and repay the Obligations or which materially and adversely
affects the Borrower's Property, business, operations, prospects or condition
(financial or otherwise).
8.15 Labor Disputes. Except as set forth on Schedule 8.15: (a) there
is no collective bargaining agreement or other labor contract covering
employees of the Borrower or any of its Subsidiaries; (b) no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement; (c) to the best of the Borrower's knowledge, no union
or other labor organization is seeking to organize, or to be recognized as, a
collective bargaining unit of employees of the Borrower or any of its
Subsidiaries; and (d) there is no pending or, to the best of the Borrower's
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knowledge, threatened strike, work stoppage, material unfair labor practice
claims, or other material labor dispute against or affecting the Borrower or
any of its Subsidiaries, or any of its employees.
8.16 Environmental Laws. The Borrower has not generated, handled,
used, stored, or disposed of any hazardous or toxic waste or substance, as
defined pursuant to Environmental Laws, on or off its premises (whether or not
owned by it) in violation of any Environmental Laws, and the Borrower has
complied in all material respects with all Environmental Laws applicable to
transfer, construction on, and operation of its Property and business. Except
as disclosed in Schedule 8.16, the Borrower has no material contingent
liability with respect to non-compliance with Environmental Laws or the
generation, handling, use, storage, or disposal of hazardous or toxic wastes
or substances. Except as disclosed in Schedule 8.16, the Borrower has not
received any summons, complaint, order or similar notice that the Borrower is
not in compliance with, or that any Public Authority is investigating its
compliance with, Environmental Laws where the Borrower is reasonably expected
to have a liability in excess of $500,000 or which is reasonably likely to
materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents or the Borrower's
Property, business, operations, prospects or condition (financial or
otherwise).
8.17 No Violation of Law. The Borrower is not in violation of any law,
statute, regulation, ordinance, judgment, order, or decree applicable to it
which violation would in any respect materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights under the
Loan Documents, or the Borrower's Property, business, operations, prospects or
condition (financial or otherwise).
8.18 No Default. The Borrower is not in default with respect to any
note, loan agreement, mortgage, lease, or other agreement to which the
Borrower is a party or bound, which default would materially and adversely
affect the Collateral, the repayment of the Obligations, the Lender's rights
under the Loan Documents, or the Borrower's Property, business, operations,
prospects or condition (financial or otherwise).
8.19 ERISA. Neither the Borrower nor any Related Company maintains or
contributes to any Plan other than those listed on Schedule 8.19. The
Borrower has given to the Lender (i) a summary plan description or copy of the
Plan document of each Plan in existence as of the date of this Agreement and
(ii) a list designating each multiemployer Plan to which the Borrower or any
Related Company is obligated to make an annual contribution and a copy of the
collective bargaining agreement pursuant to which such contribution is
required to be made. The Borrower has made available to the Lender copies of
all Plans which are in existence as of the date of this Agreement. No Plan
has incurred any "accumulated funding deficiency", as defined in Section
302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived, nor
has any Reportable Event occurred with respect to any Plan. Each Plan which
is intended to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined to be qualified under Section 401(a)
of the Code and the trust related thereto is exempt from federal income tax
under Section 501(a) of the Code. Neither the Borrower nor any Related
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Company has incurred any liability to the PBGC other than the payment of
premiums, and there are no premiums payments which have become due which are
unpaid. Neither the Borrower nor any of its Subsidiaries has breached any of
the responsibilities, obligations or duties imposed on it by ERISA with
respect to any Plan. Neither the Borrower nor any Related Company nor any
fiduciary of or any trustee to any Plan has engaged in a nonexempt "prohibited
transaction" described in Section 406 of ERISA or Section 4975 of the Code nor
taken any action which would constitute or result in a Termination Event with
respect to any such Plan which is subject to ERISA. There are no actions,
suits or claims pending (other than routine claims for benefits) or, to the
knowledge of the Borrower, which could reasonably be expected to be asserted
against any Plan, or the assets of any such Plan. No Plan has been terminated
by the plan administrator thereof or by the PBGC. With respect to each Plan
that is subject to the provisions of Title I, Subtitle B, Part 3 of ERISA, the
funding method used in connection with such Plan is acceptable under ERISA,
and the actuarial assumptions and methods used in connection with funding such
Plan satisfies the requirements of Section 302 of ERISA. As of October 31,
1993, the assets of all such Plans (other than multiemployer Plans) in the
aggregate were approximately $48,500,000 and, as of December 31, 1993, the
"accumulated benefit obligations" of all such Plans (determined in accordance
with the same actuarial assumptions and methods as those used by the Plans'
actuary in its valuation of such Plans as of October 31, 1993, except that the
interest rate used for this purpose was 8%) in the aggregate were
approximately $56,000,000, and thereafter such shortfall (determined using the
same assumptions and interest rate) will not and has not increased to an
amount that is reasonably likely to have a material adverse effect on the
Borrower's Property, business, operations or condition (financial or
otherwise). The Borrower is currently contributing (and will continue to
contribute) to each Plan in accordance with the requirements of ERISA and the
Code. Neither the Borrower nor any Related Company has suffered a complete or
partial withdrawal from a Multiemployer Plan.
8.20 Taxes. The Borrower has filed all tax returns and other reports
which it was required by law to file on or prior to the date hereof and has
paid all taxes, assessments, fees, and other governmental charges, and
penalties and interest, if any, against it or its Property, income, or
franchise, that are due and payable (except to the extent that (i) any such
taxes, assessments, fees, and other governmental charges, and penalties and
interests are diligently contested in good faith by appropriate proceedings
and proper reserves are established on the books of the Borrower as provided
in GAAP and (ii) a stay of enforcement of any Liens arising from the
nonpayment thereof when due is in effect).
8.21 Use of Proceeds. None of the transactions contemplated in this
Agreement (including, without limitation, the use of certain proceeds from the
Loans) will violate or result in the violation of Section 7 of the Securities
Exchange Act of 1934, as amended, or any regulations issued pursuant thereto,
including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System ("Federal Reserve Board"), 12 C.F.R.,
Chapter II. The Borrower does not own or intend to carry or purchase any
"margin stock" within the meaning of said Regulation G (other than treasury
shares of its own capital stock). None of the proceeds of the Loans will be
used, directly or indirectly, to purchase or carry (or refinance any
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borrowing, the proceeds of which were used to purchase or carry) any "margin
stock" within the meaning of said Regulation G.
8.22 Private Offerings. The Borrower has not, directly or indirectly,
offered the Revolving Loans for sale to, or solicited offers to buy part
thereof from, or otherwise approached or negotiated with respect thereto with,
any prospective purchaser other than the Lender. The Borrower hereby agrees
that neither it nor anyone acting on its behalf has offered or will offer the
Revolving Loans or any part thereof or any similar securities for issue or
sale to or solicit any offer to acquire any of the same from anyone so as to
bring the issuance thereof within the provisions of Section 5 of the
Securities Act of 1933, as amended.
8.23 Broker's Fees. The Borrower represents that it has not made any
commitment or taken any action which will result in a claim for any finders'
or similar fees or commitments in respect to the transaction described in this
Agreement. The Borrower agrees to defend the Lender and save it harmless from
all claims of any Person for any such fees and this indemnity shall include
reasonable attorneys' fees and legal expenses. This indemnity shall survive
the repayment of the Obligations and the termination of this Agreement.
8.24 No Material Adverse Change. No material adverse change has
occurred in the Property, business, operations, prospects or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a
whole, since the date of the Financial Statements delivered to the Lender,
except as reflected in the financial statements of the Borrower as of and for
the period ending September 30, 1993 heretofore delivered to the Lender.
8.25 Disclosure. Neither this Agreement nor any document or statement
furnished to the Lender by or on behalf of the Borrower hereunder contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
8.26 Material Agreements. Schedule 8.26 hereto sets forth all
agreements and contracts (other than purchase orders, true leases, stock
option plans, computer hardware and software license agreements and employment
agreements) to which the Borrower or any of its Subsidiaries is a party or is
bound as of the date hereof which involve obligations in excess of $300,000.
9. AFFIRMATIVE AND NEGATIVE COVENANTS.
The Borrower covenants that, so long as any of the Obligations remain
outstanding or this Agreement is in effect:
9.1 Taxes and Other Obligations. The Borrower shall, and shall cause
each of its Subsidiaries to: (a) file when due all tax returns and other
reports which it is required to file, pay when due all taxes, fees,
assessments and other governmental charges against it or upon its Property,
income and franchises, make all required withholding and other tax deposits,
and establish adequate reserves for the payment of all such items, and shall
provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due all Debt owed by it and
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perform and discharge in a timely manner all other obligations undertaken by
it; provided, however, that, so long as the Borrower has notified the Lender
in writing, the Borrower or its Subsidiary, as the case may be, need not pay
any tax, fee, assessment, governmental charge, or Debt, or perform or
discharge any other obligation, that (i) it is contesting in good faith by
appropriate proceedings diligently pursued, (ii) the Borrower or its
Subsidiary, as the case may be, has established proper reserves for as
provided in GAAP and (iii) a stay of enforcement is in effect with respect to
any Lien arising or securing the non-payment thereof.
9.2 Corporate Existence and Good Standing. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain its corporate existence.
The Borrower shall, and shall cause each of its Subsidiaries to, maintain its
qualification and good standing in all jurisdictions in which the failure to
maintain such qualification or good standing could reasonably be expected to
have a material adverse effect on the Borrower's or such Subsidiary's
Property, business, operations, prospects or condition (financial or
otherwise), and shall, and shall cause each of its Subsidiaries to, obtain and
maintain all licenses, permits, franchises and governmental authorizations the
failure of which to obtain or maintain could reasonably be expected to have a
material adverse effect on the Borrower's or such Subsidiary's Property,
business, operations, prospects or condition (financial or otherwise).
9.3 Maintenance of Property and Insurance. (a) The Borrower shall,
and shall cause each of its Subsidiaries to, maintain all of its Property
necessary in its business in good operating condition and repair, ordinary
wear and tear excepted; and (b) in addition to the insurance required by
Section 6.7, the Borrower shall, and shall cause each of its Subsidiaries to,
maintain with financially sound and reputable insurers that have received a
rating of A VII or better by A.M. Best & Co. (or similar rating by another
nationally recognized rating service) such other insurance with respect to its
Property and business against casualties and contingencies of such types
(including, without limitation, business interruption, environmental
liability, public liability, product liability, and larceny, embezzlement or
other criminal misappropriation) and in such amounts as is customary for
Persons of established reputation engaged in the same or a similar business
and similarly situated, naming the Lender, at its request, as additional
insured under each such policy.
9.4 Environmental Laws. Except for any violation of Environmental
Laws disclosed on Schedule 8.16, the Borrower shall, and shall cause each of
its Subsidiaries to, conduct its business in material compliance with all
Environmental Laws applicable to it, including, without limitation, those
relating to the Borrower's or such Subsidiary's generation, handling, use,
storage, and disposal of hazardous and toxic wastes and substances. The
Borrower shall, and shall cause each of its Subsidiaries to, take prompt and
appropriate action to respond to any non-compliance with Environmental Laws
and shall regularly report to the Lender on such response. Without limiting
the generality of the foregoing, whenever there is potential non-compliance
with any Environmental Law with respect to Real Property on which the Borrower
granted the Lender a Lien pursuant to Section 11.2(e), the Borrower shall, at
the Lender's request and the Borrower's expense: (a) cause an independent
environmental engineer acceptable to the Lender to conduct such tests of the
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site on such Real Property where the Borrower's or such Subsidiary's
non-compliance or alleged non-compliance with Environmental Laws has occurred
and prepare and deliver to the Lender a report setting forth the results of
such tests, a proposed plan for responding to any environmental problems
described therein, and an estimate of the costs thereof; and (b) provide to
the Lender a supplemental report of such engineer whenever the scope of the
environmental problems, or the Borrower's or the Subsidiary's response thereof
or the estimated costs thereof, shall materially change.
9.5 Mergers, Consolidations, Acquisitions, or Sales. The Borrower
shall not, and shall not permit any of its Subsidiaries to, enter into any
transaction of merger, reorganization, or consolidation, or transfer, sell,
assign, lease, or otherwise dispose of all or any part of its Property, or
wind up, liquidate or dissolve, or agree to do any of the foregoing, except
(i) sales of inventory in the ordinary course of business; (ii) sales of those
stores listed on Schedule 9.5 to non-Affiliates of the Borrower; (iii) sales
of stores other than those listed on Schedule 9.5 in the ordinary course of
business of the Borrower to non-Affiliates of the Borrower, provided, that the
gross sales of all such stores in the Fiscal Year just ended does not exceed
15% of the total gross sales of the Borrower for such prior Fiscal Year; (iv)
the merger of a Subsidiary of the Borrower into the Borrower, provided, that,
immediately after giving effect to the merger, the net worth of the Borrower
is not less than the net worth of the Borrower immediately prior to the merger
and (v) as permitted by Section 6.12.
9.6 Distributions; Issuance of Shares; Etc. (a) The Borrower shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly
declare or make, or incur any liability to make, any Distribution, except
Distributions to the Borrower by any of its Subsidiaries.
(b) The Borrower shall not after the Closing Date authorize or issue any
shares of its capital stock so as to result in a Change of Control.
(c) The Borrower shall not after the Closing Date amend or modify its
certificate of incorporation in a manner which might materially adversely
affect the repayment of the Obligations or the Lender's rights under the Loan
Documents without the prior written consent of the Lender provided that the
Borrower may change its name upon thirty (30) days' prior written notice to
the Lender.
9.7 Transactions Affecting Collateral or Obligations; Landlord
Waivers. (a) The Borrower shall not, and shall not permit any of its
Subsidiaries to, enter into any transaction which materially and adversely
affects the Collateral or the Borrower's ability to repay the Obligations.
(b) Subject to the provisions of Section 6.2(b), if at any time any
Collateral having an aggregate value in excess of $50,000 is located on any
premises that are not owned by the Borrower or on mortgaged premises owned by
the Borrower, the Borrower shall obtain and deliver to the Lender a written
waiver, duly executed on behalf of the appropriate landlord or mortgagee and
in form and substance satisfactory to the Lender, of all present and future
statutory, common law or contractual Liens which the owner or lessor or any
mortgagee of such premises may be entitled to assert against such Collateral.
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If any such waiver is not obtained with respect to any premises, then the
Lender shall, subject to Section 6.2(b), establish reserves against
Availability with respect thereto as permitted under such defined term.
9.8 Guarantees. The Borrower shall not, and shall not permit any of
its Subsidiaries to, make, issue, or become liable on any Guaranty, except
(a) Guarantees in favor of the Lender;
(b) endorsements of instruments for deposit;
(c) unsecured Guarantees by the Borrower of obligations of the
Borrower's Subsidiaries existing on the date hereof and listed on Schedule 9.8
(c) hereto and other Guarantees by the Borrower of obligations of the
Borrower's Subsidiaries not prohibited under Section 9.9 (other than clause
(e) thereof) incurred by such Subsidiaries in the ordinary course of their
business; provided, that the aggregate liability of the Borrower under all
Guarantees permitted under this clause (c) shall not exceed at any one time
$4,000,000;
(d) reimbursement obligations of the Borrower with respect to those
letters of credit issued by The First National Bank of Boston existing on the
date hereof described on Schedule 9.8(d) hereto; provided, that (i) the
expiration date of any such letters of credit may not be extended, the undrawn
amount of any such letters of credit may not be increased or reinstated and
none of such letters of credit may otherwise be amended, (ii) any inventory
the purchase of which is financed or assured by any such letter of credit
shall not be Eligible Inventory until the reimbursement obligations with
respect to all letters of credit on such Schedule 9.8(d) have been paid in
full and all such letters of credit have expired or have otherwise terminated
or been cancelled, and (iii) the Borrower shall cause all such letters of
credit to be terminated or cancelled by October 31, 1994 to the extent that
such letters of credit shall not expire by such date;
(e) reimbursement obligations of the Borrower with respect to letters of
credit issued for the account of the Borrower (other than Letters of Credit
and letters of credit described in clause (d) above) to finance or assure the
payment by the Borrower of the purchase price of inventory of the Borrower
purchased by the Borrower in the ordinary course of the Borrower's business
(which inventory shall in no event constitute Eligible Inventory until any
Lien thereon in favor of the issuer of the relevant letter of credit is
released); provided, that (i) the aggregate undrawn and unreimbursed amount of
all such letters of credit shall not at any time exceed $2,500,000, (ii) the
terms of all applications and other agreements with respect to such letters of
credit shall be satisfactory to the Lender, (iii) the Borrower shall, not
later than 2 days after the end of each week, deliver to the Lender a
certificate, in form and substance satisfactory to the Lender, as to each such
letter of credit and the inventory purchased therewith (including, without
limitation, as to which inventory is purchased with such letters of credit,
the undrawn amount of each such letter of credit outstanding as of the end of
such week just ended and the amount of all payments made during such week just
ended with respect to reimbursement obligations under any such letters of
credit), (iv) so long as the issuer of any letter of credit under this clause
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(e) shall have a Lien on inventory purchased with such letter of credit all
inventory purchased with any such letter of credit shall be segregated from
all other inventory of the Borrower, except at store locations to the extent
impracticable and (v) not less than three (3) Business Days prior to the
issuance of any such letter of credit, the Borrower shall have provided the
Lender with written notice of the terms of such letter of credit; and
(f) unsecured Guarantees by the Borrower of lease obligations and
other customary contingent liabilities (not constituting Debt for borrowed
money) incurred in connection with sales of the Borrower's stores permitted by
Section 9.5(ii) or (iii); provided, that such Guarantees do not exceed in the
aggregate in connection with any such sale of a store 25% of the purchase
price paid to the Borrower upon such sale and all obligations so guaranteed
shall be obligations for which the Borrower was the primary obligor
immediately prior to the relevant store sale.
9.9 Debt. The Borrower shall not, and shall not permit any of its
Subsidiaries to, incur or maintain any Debt, other than:
(a) the Obligations;
(b) trade payables and other current liabilities (other than Debt for
borrowed money or with respect to letters of credit) incurred in the ordinary
course of business (subject, in the case of any such trade payables and other
current liabilities owing by the Borrower to Affiliates of the Borrower, to
Section 9.11);
(c) Debt incurred to finance the purchase of Equipment constituting
Capital Expenditures permitted by Section 9.18, so long as the principal
amount of Debt incurred for any such purchase of Equipment does not exceed
100% of the cost of such Equipment;
(d) Permitted Rentals;
(e) Debt permitted under Section 9.8;
(f) Debt existing on the Closing Date and listed on Schedule 9.9 hereto
(but not any increase in the principal amount of any thereof), and any
extension or refinancing thereof (other than of the Borrower's 14% debentures
due January 1, 1996) (but not any increase in any of the principal amounts
thereof); provided that in any event (A) the principal amount of such new Debt
is not greater than that of the Debt being refinanced at the time of such
refinancing, (B) the terms and conditions of such new Debt, including each of
the effective cash interest rate, the amortization schedule, the covenants and
the events of default, governing such new Debt are no less favorable to the
Borrower or its Subsidiaries or to the Lender's interest under the Loan
Documents than were the terms and conditions of the Debt being refinanced, (C)
the maturity of the new Debt does not occur prior to the maturity of the Debt
being refinanced and (D) to the extent the Debt being refinanced is
subordinated to other Debt, the new Debt is likewise subordinated to such
other Debt and the terms of subordination with respect to such new Debt are no
less favorable to the beneficiaries of such other Debt than were the terms of
subordination under the Debt being refinanced;
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(g) Debt owing to the Prior Lender in connection with the Prior Loan,
so long as all such Debt is paid in full on the Closing Date and all
commitments under the Prior Loan are terminated on the Closing Date;
(h) Debt incurred by the Borrower with the prior written consent of
the Lender and having terms satisfactory to the Lender, the proceeds of which
Debt shall be used to repay or repurchase on or before scheduled maturity the
Borrower's 14% debentures due January 1, 1996; and
(i) Debt described in the defined term "Permitted Liens".
9.10 Prepayment. The Borrower shall not, and shall not permit any of
its Subsidiaries to, voluntarily prepay any Debt, except (i) the Obligations
in accordance with their terms and trade payables in order to obtain the
benefits of discounts on such payables, (ii) the prepayment in full of the
Prior Loan on the Closing Date, (iii) the repayment or repurchase before
scheduled maturity of the Borrower's 14% debentures due January 1, 1996 as and
in the manner contemplated by Section 9.9(h), (iv) Debt permitted to be
incurred by the Borrower hereunder which is secured by Real Property on which
is located one or more stores of the Borrower permitted to be sold hereunder,
provided, that such Debt shall only be prepaid upon the sale of any such store
and only to the extent required by the documents governing such Debt or the
lender to whom such Debt is owed as a result of such sale and (v) so long as
(1) there shall exist no Event of Default either immediately before or after
giving effect thereto, (2) for each day of the 60 day period immediately
preceding such event Availability was not less than $10,000,000 and (3) on the
date of such event Availability (less the aggregate amount of all payables
owing by the Borrower which are more than thirty (30) days overdue on such
date) shall not be less than $10,000,000, the repayment or repurchase before
scheduled maturity of the Borrower's 14% debentures due January 1, 1996 with
proceeds from sales permitted under Sections 9.5 (ii) and (iii) and the
voluntary prepayment of unsubordinated Debt (other than the aforementioned
debentures), including, without limitation, Capital Leases.
9.11 Transactions with Affiliates. Except as set forth on Schedule
9.11 hereto, the Borrower shall not, and shall not permit any of its
Subsidiaries to, sell, transfer, distribute, or pay any money or Property to
any Affiliate, or lend or advance money or Property to any Affiliate, or
invest in (by capital contribution or otherwise) or purchase or repurchase any
stock or indebtedness, or any Property, of any Affiliate, or become liable on
any Guaranty of the indebtedness, dividends, or other obligations of any
Affiliate, or otherwise become indebted to any Affiliate, other than upon
terms (including, without limitation, pricing) no less favorable to it than it
would be able to obtain in a comparable arm's length transaction with a third
party who is not an Affiliate.
9.12 [Intentionally Omitted].
9.13 Business Conducted. The Borrower shall not, and shall not permit
any of its Subsidiaries to, engage, directly or indirectly, in any line of
business other than the businesses in which they are engaged on the date
hereof.
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9.14 Liens. The Borrower shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume, or permit to exist any Lien on any
Property now owned or hereafter acquired by any of them, except Permitted
Liens.
9.15 Sale and Leaseback Transactions. The Borrower shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, enter into any
arrangement with any Person providing for the Borrower or a Subsidiary to
lease or rent Property that the Borrower or Subsidiary has or will sell or
otherwise transfer to such Person, other than with respect to stores acquired
by the Borrower after the date hereof permitted to be sold under Sections
9.5(ii) or (iii) and other sale and leaseback arrangements reasonably
satisfactory to the Lender.
9.16 New Subsidiaries. The Borrower shall not, directly or indirectly,
organize or acquire any Subsidiary other than those listed on Schedule 8.5.
9.17 Restricted Investments. The Borrower shall not, and shall not
permit any of its Subsidiaries to, make any Restricted Investment.
9.18 Capital Expenditures. The Borrower shall not, and shall not permit
any of its Subsidiaries to, make or incur any Capital Expenditure (other than
the relocation, leasing and improvement of a new corporate headquarters for
the Borrower to replace the current corporate headquarters of the Borrower at
200 Union Street, Braintree, Massachusetts) during any of the periods set
forth below if, after giving effect thereto, the aggregate amount of all
Capital Expenditures (other than the relocation, leasing and improvement of a
new corporate headquarters for the Borrower to replace the current corporate
headquarters of the Borrower at 200 Union Street, Braintree, Massachusetts) by
the Borrower and its Subsidiaries during any such period would exceed the
amount set forth opposite such period:
<TABLE>
<CAPTION>
Period Amount
<S> <C>
1994 Fiscal Year $8,800,000
1995 Fiscal Year 13,900,000
1996 Fiscal Year and 11,600,000
each Fiscal Year thereafter
</TABLE>
The Lender agrees that if the actual Capital Expenditures made and
incurred by the Borrower and its Subsidiaries in any of the periods set forth
above (other than with respect to the new corporate headquarters of the
Borrower as described above) shall be less than the amount set forth above in
the above schedule for such period, then 50% of such difference may be
expended by the Borrower and its Subsidiaries as Capital Expenditures (other
than with respect to the new corporate headquarters of the Borrower as
described above) in the immediately succeeding period set forth above (and
only such period).
The Lender further agrees that on and after such time as the Net Cash Proceeds
received by the Borrower with respect to sales permitted under Sections
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9.5(ii) and (iii) which occur after the date hereof shall exceed an amount
necessary to pay in full upon scheduled maturity the then outstanding
principal amount of the Borrower's 14% debentures due January 1, 1996 the
Capital Expenditure limitations set forth in the above schedule shall be
increased in total by 50% of such excess. Any such increase resulting from
such a sale (with respect to the first such sale which causes such excess, the
portion of the Net Cash Proceeds thereof received by the Borrower causing such
excess and with respect to all subsequent sales, 50% of the Net Cash Proceeds
thereof) shall be added to the Capital Expenditure limitation for the period
set forth above in which such sale occurred.
The Borrower shall not make or incur (or permit any of its Subsidiaries
to make or incur) any Capital Expenditures with respect to the relocation,
leasing and improvement of a new corporate headquarters for the Borrower to
replace the current corporate headquarters of the Borrower at 200 Union
Street, Braintree, Massachusetts, in excess of $5,000,000.
9.19 Operating Lease Obligations. The Borrower shall not enter into or
suffer to exist, and shall not permit any of its Subsidiaries to enter into or
suffer to exist, any lease of real or personal property as lessee or sublessee
(other than Capital Leases), if, after giving effect thereto, the aggregate
amount of Rentals (as hereinafter defined) payable by the Borrower and its
Subsidiaries in any Fiscal Year in respect of such lease and all other such
leases would exceed 3% of the gross revenues of the Borrower and its
Subsidiaries for the immediately preceding Fiscal Year (such amount being
referred to herein as "Permitted Rentals"). The term "Rentals" means all
payments due from the lessee or sublessee under a lease, including, without
limitation, basic rent, percentage rent, property taxes, utility or
maintenance costs, and insurance premiums.
9.20 Minimum Interest Coverage. The Borrower shall not permit the ratio
(the "Interest Coverage Ratio") of (a) Adjusted Net Earnings from Operations
for any period specified below plus interest expense of the Borrower and its
Subsidiaries for such period and provision for income taxes of the Borrower
and its Subsidiaries for such period plus depreciation and amortization
expense of the Borrower and its Subsidiaries for such period to (b) interest
expense of the Borrower and its Subsidiaries for such period to be less than
the ratio set forth opposite any such period:
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
Second fiscal quarter of 1994 Fiscal Year 4.7/1
Third fiscal quarter of 1994 Fiscal Year 6.4/1
Fourth fiscal quarter of 1994 Fiscal Year 2.2/1
1994 Fiscal Year 2.5/1
1995 Fiscal Year 3.4/1
1996 Fiscal Year and each Fiscal Year 7.2/1
thereafter
</TABLE>
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Promptly upon the receipt by the Lender of the forecasts required to be
delivered to the Lender under Section 7.2(f) for each of the Borrower's 1995
and 1996 Fiscal Years, respectively, the Borrower and the Lender agree to
enter into and diligently pursue in good faith negotiations to amend this
financial covenant so as to additionally test this covenant at the end of each
fiscal quarter of the Borrower during the respective Fiscal Year for which the
forecasts were just delivered.
9.21 Adjusted Tangible Net Worth. The Borrower shall not permit
Adjusted Tangible Net Worth to be less than the following amounts at any time
during any of the following respective periods or on any of the following
respective dates, as appropriate:
<TABLE>
<CAPTION>
Period or Date Amount
<S> <C>
First fiscal quarter of
1994 Fiscal Year $78,500,000
Second fiscal quarter of
1994 Fiscal Year (other than
last day of such quarter) 78,000,000
Last day of second fiscal
quarter of 1994 Fiscal Year 81,800,000
Third fiscal quarter of 1994
Fiscal Year (other than last
day of such quarter) 83,100,000
Last day of third fiscal
quarter of 1994 Fiscal Year 88,200,000
Fourth fiscal quarter of 1994
Fiscal Year 87,100,000
1995 Fiscal Year 89,000,000
1996 Fiscal Year and each
Fiscal Year thereafter 92,000,000
</TABLE>
Promptly upon the receipt by the Lender of the forecasts required to be
delivered to the Lender under Section 7.2(f) for each of the Borrower's 1995
and 1996 Fiscal Years, respectively, the Borrower and the Lender agree to
enter into and diligently pursue in good faith negotiations to amend this
financial covenant so as to additionally test this covenant at the end of each
fiscal quarter of the Borrower during the respective Fiscal Year for which the
forecasts were just delivered.
9.22 Fixed Maturity Coverage. The Borrower shall not permit the ratio
(the "Fixed Maturity Coverage Ratio") of (a) Adjusted Net Earnings from
Operations for any period specified below plus interest expense of the
Borrower and its Subsidiaries for such period and provision for income taxes
of the Borrower and its Subsidiaries for such period plus depreciation and
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amortization expense of the Borrower and its Subsidiaries for such period to
(b) the sum of (i) scheduled principal payments which the Borrower was
required to make on Debt for borrowed money during such period (other than on
the Borrower's 14% debentures due and payable on January 1, 1996), plus (ii)
interest expense of the Borrower and its Subsidiaries for such period plus
(iii) Capital Expenditures of the Borrower and its Subsidiaries during such
period and, to the extent not included in clause (i) above, payments on
Capital Leases made during such period to the extent permitted hereunder to be
less than the ratio set forth opposite any such period:
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
1994 Fiscal Year 1.0/1
1995 Fiscal Year 1.0/1
1996 Fiscal Year and each 1.3/1
Fiscal Year thereafter
</TABLE>
9.23 Further Assurances. The Borrower shall execute and deliver, or
cause to be executed and delivered, to the Lender such documents and
agreements, and shall take or cause to be taken such actions, as the Lender
may, from time to time, reasonably request to carry out the terms and
conditions of this Agreement and the other Loan Documents.
10. CLOSING; CONDITIONS TO CLOSING.
The Lender will not be obligated to make any Loans or obtain any Letters
of Credit unless the following conditions precedent have been satisfied as
determined by the Lender on or prior to January 14, 1994 and the Closing Date
shall have occurred on or prior to such date:
10.1 Representations and Warranties; Covenants; Events. The Borrower's
representations and warranties contained in this Agreement and the other Loan
Documents shall be correct and complete as of the Closing Date; the Borrower
shall have performed and complied with all covenants, agreements, and
conditions contained herein and in the other Loan Documents which are required
to have been performed or complied with on or before the Closing Date; and
there shall exist no Event or Event of Default on the Closing Date.
10.2 Delivery of Documents. The Borrower shall have delivered, or
caused to be delivered, to the Lender this Agreement, the Letter of Credit
Agreement, the Patent and Trademark Assignments, the Pledge Agreement and the
other documents listed on Schedule 10.2 hereto and such other documents,
instruments and agreements as the Lender shall request in connection herewith,
duly executed by all parties thereto other than the Lender and, in each
instance, in form and substance satisfactory to the Lender and its counsel.
10.3 Financing Statements; Termination of Liens. (a) The Lender shall
have received acknowledgment copies of proper financing statements, duly filed
on or before the Closing Date under the UCC of all jurisdictions that the
Lender may deem necessary or desirable in order to perfect the Lender's
security interests in the Collateral.
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(b) The Lender shall have received duly executed UCC-3 Termination
Statements from such parties who maintain liens (other than Permitted Liens)
on the Property of the Borrower, and shall have received such other
instruments, in form and substance satisfactory to the Lender, in each
instance, as shall be necessary to terminate and satisfy all Liens on the
Property of the Borrower and its Subsidiaries (except Permitted Liens).
10.4 [Intentionally Omitted].
10.5 Environmental Compliance. The Lender shall be satisfied that there
does not exist on the Real Property or in connection with the operation
thereof or of the Borrower's business any material violation of any
Environmental Laws, except as set forth on Schedule 8.16.
10.6 Release and Termination. The Borrower shall have received a
complete and unconditional release and termination of the financing
arrangements between the Borrower and the Prior Lender, satisfactory in form,
scope and substance to the Lender, from the Prior Lender with respect to the
Prior Loan.
10.7 Fees. The Borrower shall have paid in full to the Lender all fees
due hereunder to the Lender on or prior to the Closing Date.
10.8 Required Approvals. The Lender shall have received certified
copies of all consents or approvals of any Public Authority or other Person
which the Lender determines is required in connection with the transactions
contemplated by this Agreement.
10.9 Financial Statements. The Borrower shall have delivered to the
Lender the audited financial statements of the Borrower and its Subsidiaries
as of December 31, 1992 and for the Fiscal Year then ended and the unaudited
interim financial statements of the Borrower and its Subsidiaries as of
November 30, 1993 and for the eleven months then ended, each as required under
Section 8.6(b), and each in form and substance satisfactory to the Lender.
10.10 No Material Adverse Change. There shall have occurred no material
adverse change in the business, operations, Property, profits, prospects or
condition (financial or otherwise) of the Borrower or the Borrower and its
Subsidiaries taken as a whole or in the Collateral since September 30, 1993
and the Lender shall have received a certificate of the Borrower's chief
financial officer to such effect.
10.11 Availability. Availability on the Closing Date, after giving
effect to the consummation of the transactions contemplated hereby and all
borrowings of Loans on the Closing Date and all issuances of Letters of Credit
on the Closing Date, less the aggregate amount of all payables owing by the
Borrower which are more than thirty (30) days overdue on the Closing Date,
shall be no less than $6,000,000.
10.12 Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement, the Loan Documents and other
documents, contemplated in connection herewith, shall be satisfactory in form,
scope and substance to the Lender and its counsel.
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10.13 Opinions of Counsel. The Lender shall have received such opinions
of counsel for the Borrower and its Subsidiaries as the Lender shall request,
each such opinion to be in form, scope and substance satisfactory to the
Lender.
10.14 Evidence of Insurance. The Lender shall have received evidence,
in form, scope and substance reasonably satisfactory to the Lender, of all
insurance coverage as required pursuant to Sections 6.7 and 9.3.
10.15 Absence of Litigation. Except as disclosed on Schedule 8.13,
there shall exist no action, suit, investigation, litigation or proceeding
affecting the Borrower or any of its Subsidiaries pending or threatened before
any court, governmental agency or arbitrator that might reasonably be expected
to have a material adverse effect upon the business, operations, Property,
prospects or condition (financial or otherwise) of the Borrower or any of its
Subsidiaries or upon the creditworthiness of the Borrower or that purports to
affect the legality, validity or enforceability of this Agreement or any other
Loan Document or the consummation of the transactions contemplated hereby and
the Lender shall have received a certificate of the Borrower's chief financial
officer to such effect.
10.16 Collection Account. The Borrower shall have established blocked
accounts or collection accounts at banks acceptable to the Lender and the
Borrower for depositing its collections and/or proceeds of Collateral and the
Lender shall have received agreements, in form and substance acceptable to the
Lender, from such banks restricting the Borrower's access to funds deposited
in such accounts upon notice to such banks from the Lender after an Event has
occurred.
10.17 Net Worth. The Lender shall have received evidence in form and
substance satisfactory to the Lender that the Adjusted Tangible Net Worth of
the Borrower shall be at least $79,000,000 immediately prior to the Closing
Date and the Lender shall have received a certificate of the Borrower's chief
financial officer to such effect.
11. DEFAULT; REMEDIES.
11.1 Events of Default. It shall constitute an event of default ("Event
of Default") if any one or more of the following shall occur for any reason:
(a) any failure to make payment of principal, interest, fees or premium
on any of the Obligations when due;
(b) any representation or warranty made by the Borrower in this
Agreement, any of the other Loan Documents, any Financial Statement, or any
certificate furnished by the Borrower or any Subsidiary at any time to the
Lender shall prove to be untrue in any material respect as of the date when
made or furnished;
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(c) any default shall occur in the observance or performance of any of
the covenants and agreements contained in this Agreement, any other Loan
Documents, or any other agreement entered into at any time to which the
Borrower or any Subsidiary and the Lender are party and such default shall
continue for ten (10) days after such default first occurs or if any such
agreement or document shall terminate (other than in accordance with its terms
or the terms hereof or with the written consent of the Lender) or become void
or unenforceable without the written consent of the Lender;
(d) any default by the Borrower or any Subsidiary under any material
agreement or instrument (other than an agreement or instrument evidencing the
lending of money), which default continues for ten (10) days after such
default first occurs; provided, however, that such grace period shall not
apply, and an Event of Default shall exist promptly upon such default, if (i)
parties other than the Lender commence to pursue remedies against the Borrower
or such Subsidiary, or (ii) such default may not, in Lender's reasonable
determination, be cured by the Borrower or such Subsidiary during such ten
(10) day grace period;
(e) any default by the Borrower or any Subsidiary in any payment of
principal of or interest on any indebtedness (other than the Obligations) for
borrowed money of greater than $500,000 (including, without limitation, any
guarantee thereof) beyond any period of grace provided with respect thereto or
in the performance of any other agreement, term or condition contained in any
agreement under which any such obligation is created if the effect of such
default is to cause, or permit the holder or holders of such obligation to
cause, such obligation to become due prior to its stated maturity, unless in
each instance any such default is unconditionally waived in writing by the
necessary party and such written waiver is in form and substance satisfactory
to the Lender;
(f) the Borrower or any Subsidiary shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by the
Borrower or any Subsidiary seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking
entry of an order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its property; or
the Borrower or any Subsidiary shall take any corporate action to authorize
any of the actions set forth above in this Section 11.1(f);
(g) an involuntary petition shall be filed or an action or proceeding
otherwise commenced against the Borrower or any Subsidiary seeking
reorganization, arrangement or readjustment of the Borrower's or any
Subsidiary's debts or for any other relief under the Federal Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency act or law, state,
federal or foreign, now or hereafter existing and remain undismissed or
unvacated for a period of sixty (60) days; provided that the Lender shall have
no obligations to make any Revolving Loans or obtain Letters of Credit during
such sixty (60) day grace period;
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(h) a receiver, assignee, liquidator, trustee or similar officer for the
Borrower or any Subsidiary or for all or any material part of its Property
shall be appointed involuntarily;
(i) the Borrower or any Subsidiary of the Borrower having at least 5% of
the assets or annual sales of the Borrower and its Subsidiaries on a
consolidated basis shall file a certificate of dissolution under applicable
state or foreign law or shall be liquidated, dissolved or wound-up or shall
commence or have commenced against it any action or proceeding for
dissolution, winding-up or liquidation, or shall take any corporate action in
furtherance thereof;
(j) all or any material part of the Property of the Borrower or any
Subsidiary shall be nationalized, expropriated or condemned, seized or
otherwise appropriated, or custody or control of such Property or of the
Borrower or any Subsidiary shall be assumed by any Public Authority or any
court of competent jurisdiction at the instance of any Public Authority,
except where contested in good faith by proper proceedings diligently pursued
where a stay of enforcement is in effect;
(k) one or more final judgments for the payment of money aggregating in
excess of $500,000 not fully covered by insurance (except customary
deductibles) shall be rendered against the Borrower or any Subsidiary and the
Borrower or such Subsidiary shall fail to discharge the same within twenty
(20) days from the date of notice of entry thereof or to appeal therefrom and
a stay of execution shall not then be in effect pending determination of such
appeal;
(l) any loss, theft, damage or destruction of any item or items of
Collateral or other Property of the Borrower or any Subsidiary occurs which:
(i) materially and adversely affects the operation of the Borrower's or any of
its Subsidiaries' business; or (ii) is material in amount and is not
adequately covered by insurance;
(m) any event or condition shall occur or exist with respect to a Plan
that could, in the Lender's reasonable judgment, subject the Borrower or any
Subsidiary to any tax, penalty or other liabilities under ERISA or the Code in
the aggregate material in relation to the business, operations, Property or
financial or other condition of the Borrower and its Subsidiaries taken as a
whole;
(n) there occurs any material adverse change in the Property, business,
operations, prospects or condition (financial or otherwise) of the Borrower
and its Subsidiaries, taken as a whole;
(o) a Change of Control occurs;
(p) the Borrower or any Subsidiary shall generally not pay its debts as
such debts become due or shall admit its inability to pay its debts generally;
or
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(q) the Borrower shall have failed to demonstrate to the Lender's
satisfaction on or after June 1, 1995 but on or prior to September 1, 1995
that the Borrower shall have the ability (other than through the Borrower's
operations after September 1, 1995) to repay upon scheduled maturity the
Borrower's 14% debentures maturing January 1, 1996.
11.2 Remedies. (a) If an Event of Default exists, the Lender may,
without notice to or demand on the Borrower, do one or more of the following
at any time or times and in any order: (i) reduce the amount of or refuse to
make Revolving Loans and restrict or refuse to arrange for Letters of Credit;
(ii) terminate this Agreement; (iii) declare any or all Obligations to be
immediately due and payable (provided however that upon the occurrence of any
Event of Default described in Section 11.1(f), 11.1(g), 11.1(h), or 11.1(i),
all Obligations shall automatically become immediately due and payable and all
obligations of the Lender to make Revolving Loans or obtain Letters of Credit
shall terminate); and (iv) pursue its other rights and remedies under the Loan
Documents and applicable law. The foregoing shall not be construed to limit
the Lender's discretion to take the actions described in clause (i) at any
other time.
(b) If an Event of Default exists: (i) the Lender shall have, in
addition to all other rights, the rights and remedies of a secured party under
the UCC; (ii) the Lender may, at any time, take possession of the Collateral
and keep it on the Borrower's premises, at no cost to the Lender, or remove
any part of it to such other place or places as the Lender may desire, or the
Borrower shall, upon the Lender's demand, at the Borrower's cost, assemble the
Collateral and make it available to the Lender at a place reasonably
convenient to the Lender; and (iii) the Lender may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as the Lender deems advisable, in its sole
discretion, and may, if the Lender deems it reasonable, postpone or adjourn
any sale of the Collateral by an announcement at the time and place of sale or
of such postponed or adjourned sale without giving a new notice of sale.
Without in any way requiring notice to be given in the following manner, the
Borrower agrees that any notice by the Lender of sale, disposition or other
intended action hereunder or in connection herewith, whether required by the
UCC or otherwise, shall constitute reasonable notice to the Borrower if such
notice is mailed by registered or certified mail, return receipt requested,
postage prepaid, or by overnight mail or is delivered personally against
receipt, at least five (5) days prior to such action to the Borrower's address
specified in or pursuant to Section 13.11. If any Collateral is sold on terms
other than payment in full at the time of sale, no credit shall be given
against the Obligations until the Lender receives payment, and if the buyer
defaults in payment, the Lender may resell the Collateral without further
notice to the Borrower. In the event the Lender seeks to take possession of
all or any portion of the Collateral by judicial process, the Borrower
irrevocably waives: (a) the posting of any bond, surety or security with
respect thereto which might otherwise be required; (b) any demand for
possession prior to the commencement of any suit or action to recover the
Collateral; and (c) any requirement that the Lender retain possession and not
dispose of any Collateral until after trial or final judgment. The Borrower
agrees that the Lender has no obligation to preserve rights to the Collateral
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or marshal any Collateral for the benefit of any Person. The Lender is hereby
granted a license or other right to use, without charge, the Borrower's
labels, patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and the Borrower's rights under all
licenses and all franchise agreements shall inure to the Lender's benefit.
The proceeds of sale shall be applied first to all expenses of sale, including
attorneys' fees, and second, in whatever order the Lender elects, to all
Obligations. The Lender will return any excess to the Borrower and the
Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, the Borrower hereby waives, to the
full extent permitted by law, all rights to notice and hearing prior to the
exercise by the Lender of the Lender's rights to repossess the Collateral
without judicial process or to replevy, attach or levy upon the Collateral
without notice or hearing.
(d) If the Lender terminates this Agreement due to an Event of Default
existing, the Borrower shall pay the Lender, immediately upon termination, an
early termination fee equal to the early termination fee that would have been
payable under Article 12 if this Agreement had been terminated on that date
pursuant to the Borrower's election.
(e) Without limiting the rights and remedies of the Lender upon the
occurrence of an Event of Default, upon the occurrence and during the
continuance of an Event of Default, the Borrower shall, upon the request of
the Lender, duly execute and deliver to the Lender one or more security
agreements, mortgages or deeds of trust, all consents of third parties
necessary to permit the effective granting of the Liens created in such
agreements, financing statements pursuant to the Uniform Commercial Code and
other documents, all in form and substance satisfactory to the Lender, as may
be required by the Lender to grant to the Lender a valid, perfected and
enforceable first priority Lien on and security interest in (subject only to
Permitted Liens) all now owned or hereafter acquired or created Equipment,
Real Property and fixtures of the Borrower and all proceeds thereof (with
respect to Real Property and fixtures, only if the Borrower's 14% debentures
maturing January 1, 1996 are repaid or discharged in full at such time or the
terms of the documents governing such debentures permit such Lien or the
relevant restriction therein is waived). The Borrower shall at such time
additionally execute and deliver or cause to be executed and delivered to the
Lender such other documents, evidences of corporate authority and action,
opinions of counsel and the like (including, without limitation, with respect
to Real Property, those items described in Section 6.1(b)), all in form and
substance satisfactory to the Lender, as the Lender shall request in
connection therewith.
(f) In such an instance as provided in paragraph (e) above, the Borrower
shall, at its sole cost and expense, cause all instruments and documents given
as evidence of security pursuant to this Agreement to be duly recorded and/or
filed or otherwise perfected in all places necessary, in the opinion of the
Lender, and take such other actions as the Lender may request, in order to
perfect and protect the Liens of the Lender in such Collateral.
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12. TERM AND TERMINATION.
12.1 Term and Termination. The initial term of this Agreement shall be
until the third anniversary of the Closing Date. This Agreement shall
automatically be renewed thereafter for successive one-year terms, unless this
Agreement is terminated as provided below. The Lender and the Borrower shall
each have the right to terminate this Agreement, without premium, penalty or
termination fee, at the end of the initial term or at the end of any renewal
term by giving the other written notice not less than ninety (90) days prior
to the end of such term by registered or certified mail. The Borrower may
also terminate this Agreement at any time during its initial term or any
successive renewal term if: (a) it gives the Lender ninety (90) days' prior
written notice of termination by registered or certified mail, (b) it pays and
performs all Obligations on or prior to the effective date of termination and
all Letters of Credit are cancelled on or prior to the effective date of
termination and (c) with respect to a termination during the initial term
only, except only as otherwise expressly provided in the last sentence of
Section 13.9(a), it pays the Lender, on or prior to the effective date of
termination, an early termination fee equal to (i) three percent (3%) of the
average daily unpaid principal balance of the Revolving Loans and undrawn
amount of the Letters of Credit during the period commencing on the Closing
Date and ending on the effective date of such termination if the effective
date of termination is on or before the first anniversary of the Closing Date,
(ii) two percent (2%) of the average daily unpaid principal balance of the
Revolving Loans and undrawn amount of the Letters of Credit during the twelve
month period ending on the effective date of such termination if the effective
date of termination is after the first anniversary of the Closing Date and on
or before the second anniversary of the Closing Date or (iii) one percent (1%)
of the average daily unpaid principal balance of the Revolving Loans and
undrawn amount of the Letters of Credit during the twelve month period ending
on the effective date of such termination if the termination is after the
second anniversary of the Closing Date and prior to the last day of the
initial term of this Agreement. The Lender may also terminate this Agreement
without notice upon an Event of Default. Upon the effective date of
termination of this Agreement for any reason whatsoever, all Obligations shall
become immediately due and payable. Notwithstanding the termination of this
Agreement, until all Obligations are paid and performed in full, the Lender
shall retain all its rights and remedies hereunder (including, without
limitation, in all then existing and after-arising Collateral). Upon the
indefeasible payment in full of all Obligations and the termination of this
Agreement, the Lender shall, at the Borrower's cost and expense, execute and
deliver to the Borrower such releases and terminations as the Borrower may
reasonably request to evidence the payment in full of the Obligations and the
termination of the Lender's Lien on the Collateral.
13. MISCELLANEOUS.
13.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
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which order. The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative. The Lender may,
without limitation, proceed directly against the Borrower to collect the
Obligations without any prior recourse to the Collateral.
13.2 No Implied Waivers. No act, failure or delay by the Lender shall
constitute a waiver of any of its rights and remedies. No single or partial
waiver by the Lender of any provision of this Agreement, or any other Loan
Document, or of breach or default hereunder or thereunder, or of any right or
remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
13.3 Severability. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be ineffective only to
such extent, without invalidating the remainder of this Agreement.
13.4 Governing Law. This Agreement shall be deemed to have been made in
the State of New York and shall be governed by and interpreted in accordance
with the internal laws of such state, except that no doctrine of choice of law
shall be used to apply the laws of any other state or jurisdiction.
13.5 Consent to Jurisdiction and Venue; Service of Process. (a) The
Borrower agrees that, in addition to any other courts that may have
jurisdiction under applicable laws, any action or proceeding to enforce or
arising out of this Agreement or any of the other Loan Documents may be
commenced in the Courts of the State of New York, or in the United States
District Court for the Southern District of New York, and the Borrower
consents and submits in advance to such jurisdiction and agrees that venue
will be proper in such courts on any such matter. The Borrower hereby waives
personal service of process and agrees that a summons and complaint commencing
an action or proceeding in any such court shall be properly served and shall
confer personal jurisdiction if served by registered or certified mail return
receipt requested to the Borrower. Should the Borrower fail to appear or
answer any summons, complaint, process or papers so served within thirty (30)
days after the mailing or other service thereof, it shall be deemed in default
and an order or judgment may be entered against it as demanded or prayed for
in such summons, complaint, process or papers. The choice of forum set forth
in this section shall not be deemed to preclude the enforcement of any
judgment obtained in such forum, or the taking of any action under this
Agreement to enforce the same, in any appropriate jurisdiction.
(b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE
CONTRARY, ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES, INCLUDING BUT
NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT AND ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT
THE REQUEST OF EITHER PARTY HERETO BE DETERMINED BY ARBITRATION. The
arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
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whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial
relief or pursuant to a provisional or ancillary remedy shall not constitute a
waiver of the right of either party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action
for judicial relief.
(c) Notwithstanding the provisions of subparagraph (b), no controversy
or claim shall be submitted to arbitration without the consent of all parties
if, at the time of the proposed submission, such controversy or claim arises
from or related to an obligation to the Lender which is secured by real estate
property collateral (exclusive of real estate space lease assignments). If
all parties do not consent to submission of such a controversy or claim to
arbitration, the controversy or claim shall be determined as provided in
Section 13.5(d).
(d) At the request of either party a controversy or claim which is not
submitted to arbitration as provided and limited in Section 13.5(b) and (c)
shall be determined by judicial reference. If such an election is made, the
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered
in the court in which such proceeding was commenced.
(e) No provision of Sections 13.5(b) through (d) shall limit the right
of either party to this Agreement to exercise self-help remedies such as
setoff, foreclosure against or sale of any real or personal property
collateral or security, or obtaining provisional or ancillary remedies from a
court of competent jurisdiction before, after, or during the pendency of any
arbitration or other proceeding. The exercise of a remedy does not waive the
right of either party to resort to arbitration or reference. At the Lender's
option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure.
13.6 Waiver of Jury Trial, Etc. THE BORROWER HEREBY WAIVES TRIAL BY
JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS (OTHER THAN
THOSE RIGHTS OF SETOFF AND COUNTERCLAIMS WHICH COULD NOT, BY REASON OF ANY
APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED
IN ANY OTHER ACTION) IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,
BETWEEN THE BORROWER AND THE LENDER. THE BORROWER CONFIRMS THAT THE FOREGOING
WAIVERS WERE NEGOTIATED AND ARE INFORMED AND FREELY MADE. NO CLAIM MAY BE
MADE AGAINST THE LENDER FOR ANY LOST PROFITS OR OTHER CONSEQUENTIAL DAMAGES IN
RESPECT OF ANY BREACH OR ANY WRONGFUL CONDUCT IN CONNECTION WITH, ARISING OUT
OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY
ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; AND THE BORROWER
HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH
DAMAGES.
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13.7 Survival of Representations and Warranties. All of the Borrower's
representations and warranties contained in this Agreement shall survive the
execution, delivery and acceptance thereof by the parties, notwithstanding any
investigation by the Lender or its agents.
13.8 General Indemnification. (a) The Borrower hereby indemnifies,
defends and holds the Lender and its affiliates, and their respective
directors, officers, agents, employees, counsel and consultants (each, an
"Indemnified Party"), harmless from and against any and all losses, claims,
damages, liabilities, deficiencies, judgments, penalties, costs or expenses
(each, a "Claim"), imposed on, incurred by or asserted against any of them,
whether direct, indirect or consequential arising out of or by reason of any
litigation, investigations, claims, or proceedings (whether based on any
federal, state or local laws or other statutes or regulations, including,
without limitation, securities, environmental, or commercial laws and
regulations, under common law or at equitable cause, or on contract or
otherwise) commenced or threatened, which arise out of or are in any way based
upon the negotiation, preparation, execution, delivery, enforcement,
performance or administration of this Agreement, the Letter of Credit
Agreement, any other Loan Document, or any undertaking or proceeding related
to any of the transactions contemplated hereby or any act, omission to act,
event or transaction related or attendant thereto, including, without
limitation, amounts paid in settlement, court costs, and the fees and expenses
of counsel reasonably incurred in connection with any such litigation,
investigation, claim or proceeding. The Borrower will not, however, be
responsible to any Indemnified Party hereunder for any Claim to the extent
that a court having jurisdiction shall have determined (which determination
has not been successfully appealed by the Lender) that any such Claim shall
have arisen out of or resulted from actions taken or omitted to be taken by
such Indemnified Party which constitute the bad faith or willful misconduct of
such Indemnified Party. Without limiting the foregoing, if, by reason of any
suit or proceeding of any kind, nature, or description against the Borrower,
or by the Borrower or any other party against the Lender, which in the
Lender's sole discretion makes it advisable for the Lender to seek counsel for
protection and preservation of its liens and security assets, or to defend its
own interest, such expenses and counsel fees shall be allowed to the Lender.
The Borrower shall have the right at any time during which a Claim is pending
to select counsel reasonably acceptable to the applicable Indemnified Party to
defend and control the defense thereof and settle any Claims for which it is
an indemnitor hereunder so long as in any such event (i) the Borrower shall
have stated in a writing delivered to the applicable Indemnified Party that,
as between the Borrower and such Indemnified Party, the Borrower is
responsible to such Indemnified Party with respect to such Claim and (ii) the
applicable Indemnified Party shall have determined, in its reasonable
judgment, that the Borrower has the financial ability to adequately pay such
Claim or has adequate insurance coverage to pay same; provided, however, that
the Indemnified Party (and not the Borrower) shall, at the expense of the
Borrower, be entitled to control the defense of any Claim for which, in the
reasonable opinion of counsel for the Indemnified Party, there are material
defenses available to the Indemnified Party which are not available to the
Borrower. In any other case, the Indemnified Party shall have the right to
select counsel and control the defense of any Claims; provided, however, that
no Indemnified Party shall settle any Claim as to which it is controlling the
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defense without the consent of the Borrower, which consent shall not be
unreasonably withheld or delayed. With respect to any Claim for which the
Borrower is entitled to select counsel, each Indemnified Party shall have the
right, at its expense, to participate in the defense of such Claim. With
respect to any Claim in which any Indemnified Party shall be entitled to
control the defense thereof, the Borrower shall have the right, at its
expense, to participate in the defense of such Claim. The Indemnified Parties
and the Borrower shall cooperate with each other in all reasonable respects in
any investigation, trial or defense of any such Claim and any appeal arising
therefrom.
(b) To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable because it is
violative of any law or public policy, the Borrower shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all indemnified matters incurred by Lender
and the other Indemnified Parties. The indemnity under this Section 13.8
shall survive the payment of the Obligations and the termination of this
Agreement. All of the foregoing costs and expenses referred to in this
Section 13.8 shall be part of the Obligations and secured by the Collateral.
13.9 Indemnification for Increased Costs; Change in Circumstances. (a)
If (A) on account of any law, rule, regulation or guideline adopted pursuant
to or arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards"; or (B) after the date hereof on
account of (i) any change in or in the interpretation of any law, rule,
regulation or guideline with respect to capital adequacy being introduced; or
(ii) the Lender or any of its affiliates complying with any future guideline
or request from any central bank or other governmental authority applying
generally to a class of banks or its affiliates; or (iii) the Lender or any of
its affiliates determining that the adoption after the date hereof of any
applicable law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, has or would have
the effect described below, or the Lender or any of its affiliates complies
with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency applying generally to a class of banks or its affiliates, and in the
case of clause (A), such law, rule, regulation or guideline, and in the case
of clause (B), such adoption, change or compliance, has or would have the
direct or indirect effect of reducing the rate of return on the Lender or any
of its affiliate's capital as a consequence of its obligations hereunder or
under or with respect to any Letter of Credit or Revolving Loan to a level
below that which the Lender or its affiliate could have achieved but for such
adoption, change or compliance (taking into consideration the Lender's and its
affiliates' policies with respect to capital adequacy) by an amount deemed by
the Lender to be material, or the result of any of the foregoing events
described in clause (A) or (B) is an increase in the cost of the Lender or
affiliate thereof of funding or maintaining the Lender's commitment to provide
the Total Facility (including, without limitation, any Letters of Credit)
herein contemplated or contemplated in the Letter of Credit Agreement, then
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the Borrower agrees to pay, from time to time upon demand by the Lender in
accordance with the terms hereof, to the Lender additional amounts sufficient
to compensate the Lender or its affiliate for such increased cost. In the
event that any additional amounts shall be payable by the Borrower under this
Section 13.9(a) which increase the effective lending rate hereunder to greater
than 50 basis points in excess of the effective lending rate payable hereunder
without giving effect to such additional amounts (and similar increases in
effective lending rates due to events of the type requiring the Borrower to
make payments under this Section 13.9(a) are not occurring generally under
loan facilities of other lenders organized under the laws of the United States
or any state thereof), then the Borrower may terminate this Agreement and
prepay the Obligations as provided in Section 12.1 without the early
termination fee set forth in such Section (but only if the Borrower notifies
the Lender of its intention to so terminate this Agreement within 60 days
after such increase in the Borrower's effective lending rate hereunder).
(b) Notwithstanding any other provision herein, if after the date hereof
any change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall (i) subject the Lender (which for purposes of this Section 13.9
shall include any assignee or lending office of the Lender or any affiliate of
the Lender) to any tax with respect to any amount paid or to be paid by the
Lender with respect to any Eurodollar Rate Loans or any Letter of Credit or
with respect to any commitment to obtain or issue a Letter of Credit (other
than (x) taxes imposed on the overall net income of the Lender and (y)
franchise taxes imposed on the Lender, in either case by the jurisdiction in
which the Lender has its principal office or its lending office with respect
to such Eurodollar Rate Loan or any political subdivision or taxing authority
thereof); (ii) change the basis of taxation of payments to the Lender of the
principal of or interest on any Eurodollar Rate Loan or the payment of any
amounts with respect to a Letter of Credit or any other fees or amounts
payable hereunder (other than taxes imposed on the overall net income of the
Lender by the jurisdiction in which the Lender has its principal office or by
any political subdivision or taxing authority therein); (iii) impose, modify
or deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, or loans or loan commitments
extended by, or Letters of Credit or Letter of Credit obligations or
commitments of, the Lender; or (iv) impose on the Lender or the London
interbank market any other condition affecting this Agreement or Eurodollar
Rate Loans or Letters of Credit; and the result of any of the foregoing shall
be to increase the cost to the Lender of making or maintaining any Eurodollar
Rate Loan, Letter of Credit or Letter of Credit obligation or commitment, or
to reduce the amount of any payment (whether of principal, interest or
otherwise) receivable by the Lender or to require the Lender to make any
payment in respect of any Eurodollar Rate Loan or Letter of Credit, then the
Borrower shall pay to the Lender, subject to paragraph (c) below, such
additional amount or amounts as will compensate the Lender for such additional
costs or reduction. The Lender agrees to give notice to the Borrower of any
such change in law, regulation, interpretation or administration with
reasonable promptness after becoming actually aware thereof and of the
applicability thereof to the transactions herein contemplated.
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(c) A certificate as to the amount of and also setting forth the reasons
for and, to the extent made available to other borrowers, the calculation of,
such increased cost under paragraph (a) or (b) above shall be submitted to the
Borrower by the Lender and shall be conclusive absent manifest error. The
Borrower shall pay the amount of such certified cost to the Lender within 10
days after its receipt of such certificate from the Lender.
(d) Failure on the part of the Lender to demand compensation for any
increased costs, reduction in amounts received or receivable with respect to
any Interest Period or Letter of Credit or reduction in the rate of return
earned on the Lender's capital, shall not constitute a waiver of the Lender's
rights to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in rate of return in such Interest Period
or in any other Interest Period or with respect to such Letter of Credit or
any other Letter of Credit. The protection hereunder shall be available to
the Lender regardless of any possible contention of the invalidity or
inapplicability of any law, regulation or other condition which shall give
rise to any demand by the Lender for compensation.
(e) The Borrower shall indemnify the Lender against any loss (including,
without limitation, loss of profits) or expense (including, but not limited
to, any loss or expense sustained or incurred or to be sustained or incurred
in liquidating or employing deposits from third parties acquired to affect or
maintain any Revolving Loan or part thereof as a Eurodollar Rate Loan) which
the Lender may sustain or incur as a consequence of the following events
(regardless of whether such events occur as a result of the occurrence of an
Event or an Event of Default or the exercise of any right or remedy of the
Lender hereunder or under any other agreement, or at law): any failure of the
Borrower to fulfill on the date of any borrowing hereunder the applicable
conditions set forth herein applicable to it; any failure of the Borrower to
borrow hereunder after irrevocable notice of borrowing pursuant to Article 2
has been given; any payment, prepayment or conversion of a Eurodollar Rate
Loan on a date other than the last day of the relevant Interest Period; any
default in payment or prepayment of the principal amount of any Eurodollar
Rate Loan or any part thereof or interest accrued thereon, as and when due and
payable (at the due date thereof, by irrevocable notice of prepayment or
otherwise) or the occurrence of an Event of Default. Such loss or expense
shall include, without limitation, an amount equal to the excess, if any, of
(i) the amount of interest which would have accrued on the principal amount so
paid, prepaid or converted or not borrowed for the period from the date of
such payment, prepayment or conversion or failure to borrow to the last day of
the Interest Period for such Eurodollar Rate Loan (or, in the case of a
failure to borrow, the Interest Period for such Revolving Loan which would
have commenced on the date of such failure to borrow), at the applicable rate
of interest for such Revolving Loan provided for herein over (ii) the amount
of interest (as reasonably determined by the Lender) that would be realized by
the Lender in reemploying the funds so paid, prepaid or converted or not
borrowed in United States Treasury obligations with comparable maturities for
comparable periods. The Lender shall provide to the Borrower a statement,
signed by an officer of the Lender, explaining any loss or expense and setting
forth, if applicable, the computation pursuant to the preceding sentence, and
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such statement shall be conclusive absent manifest error. The Borrower shall
pay the Lender the amount shown as due on any such statement within 10 days
after the receipt of the same.
13.10 Fees and Expenses. Whether or not any of the transactions herein
contemplated are consummated and regardless of the reasons for which such
transactions are not consummated, the Borrower agrees to pay to the Lender on
demand all costs and expenses that the Lender pays or incurs in connection
with the negotiation, preparation, consummation, administration, enforcement,
and termination of this Agreement and the other Loan Documents, including,
without limitation: (a) attorneys' and paralegals' fees and disbursements of
counsel to the Lender (including allocated in-house counsel fees and
disbursements); (b) costs and expenses (including attorneys' and paralegals'
fees and disbursements) for any amendment, supplement, waiver, consent, or
subsequent closing in connection with the Loan Documents and the transactions
contemplated thereby; (c) costs and expenses of lien searches; (d) taxes, fees
and other charges for filing financing statements and continuations, and other
actions to perfect, protect, and continue the Security Interest (including
costs and expenses paid or incurred by the Lender in connection with the
consummation of this Agreement); (e) sums paid or incurred to pay any amount
or take any action required of the Borrower under the Loan Documents that the
Borrower fails to pay or take; (f) subject to the provisions of Section 6.5,
costs of appraisals, audits, inspections, and verifications of the Collateral,
including, without limitation, travel, lodging, and meals for inspections of
the Collateral and the Borrower's operations by the Lender's agents plus the
Lender's then customary charge for field examinations and audits and the
preparation of reports thereof (such charge currently being $500 per day (or
portion thereof) for each agent or employee of the Lender with respect to any
such examination or audit); (g) costs and expenses of forwarding loan
proceeds, collecting checks and other items of payment and establishing and
maintaining Payment Accounts and lock boxes; (h) costs and expenses of
preserving and protecting the Collateral; (i) all amounts that the Borrower is
required to pay under the Letter of Credit Agreement and (j) costs and
expenses (including attorneys' and paralegals' fees and disbursements) paid or
incurred to obtain payment of the Obligations, enforce the Security Interest,
sell or otherwise realize upon the Collateral, and otherwise enforce the
provisions of the Loan Documents, or to defend any claims made or threatened
against the Lender arising out of the transactions contemplated hereby
(including without limitation, preparations for and consultations concerning
any such matters). The foregoing shall not be construed to limit any other
provisions of the Loan Documents regarding costs and expenses to be paid by
the Borrower.
13.11 Notices. All notices, demands and requests that either party is
required or elects to give to the other shall be in writing (unless otherwise
expressly provided herein), shall be delivered personally against receipt, or
sent by recognized overnight courier service, or mailed by registered or
certified mail, return receipt requested, postage prepaid, or sent by
telecopy, and shall be addressed to the party to be notified as follows:
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If to the Lender:
BankAmerica Business Credit, Inc.
40 East 52nd Street
New York, New York 10022
Attention: Division Manager
Telecopier: (212) 836-5169
with a copy to:
Bank of America National Trust and Savings Association
335 Madison Avenue
New York, New York 10017
Attention: Legal Department (Reference: Grossman's Inc.)
Telecopier: (212) 503-7255
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Jeffrey Epstein, Esq.
Telecopier: (212) 836-7151
If to the Borrower:
Grossman's Inc.
200 Union Street
Braintree, Massachusetts 02184
Attention: General Counsel
Telecopier: (617) 848-8173
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: David C. Chapin, Esq.
Telecopier: (617) 951-7050
or to such other address as each party may designate for itself by like
notice. Any such notice, demand, or request shall be deemed given when
received if personally delivered or sent by overnight courier, or when
deposited in the United States mails, postage paid, if sent by registered or
certified mail, or when sent, if sent by telecopy.
13.12 Waiver of Notices. Unless otherwise expressly provided herein,
the Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, as well as any and all other notices to which it
might otherwise be entitled. No notice to or demand on the Borrower which the
Lender may elect to give shall entitle the Borrower to any further notice or
demand in the same, similar or other circumstances.
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13.13 Binding Effect; Assignment; Participations; Disclosure. The
provisions of this Agreement shall be binding upon and inure to the benefit of
the respective representatives, successors and assigns of the parties hereto;
provided, however, that no interest herein may be assigned by the Borrower
without the prior written consent of the Lender. The rights and benefits of
the Lender hereunder shall, if the Lender so agrees, inure to any party
acquiring any interest in the Obligations or any part thereof; provided, that
the Lender shall not, without the prior written consent of the Borrower,
effect any assignments of the Loans unless at all times while this Agreement
is in effect BankAmerica Business Credit, Inc. retains at least 51% of the
voting rights hereunder with respect to amendments and modifications to the
Loan Documents and waivers of observance of provisions of the Loan Documents
(it being understood and agreed to by the Borrower that amendments,
modifications and waivers with respect to fees payable, interest rates
payable, extensions of payment, renewal or termination dates and releases or
substitutions of Collateral shall require greater than 51% of the voting
rights hereunder). The Lender may effect participations in the Loans, Letters
of Credit and other Obligations or any portion thereof without the prior
written consent of the Borrower; provided, that in such an instance the
participant shall not have any rights under this Agreement or any other Loan
Documents (the participant's rights against the Lender in respect of such
participation to be those set forth in the agreement executed by the Lender in
favor of the participant relating thereto which agreement shall not, in any
event, grant to the participant the right of consent as to any matter under
the Loan Documents other than those referred to in the parenthetical at the
end of the immediately preceding sentence). BankAmerica Business Credit, Inc.
agrees that, so long as it retains any interest in the Loans and there shall
be additional lenders hereunder, BankAmerica Business Credit, Inc. shall act
as agent for all the lenders hereunder. The Borrower agrees that, subject to
the Borrower's prior consent for uses other than in a traditional tombstone,
which consent shall not be unreasonably withheld or delayed, the Lender may
use the Borrower's name in advertising and promotional materials and in
conjunction therewith disclose the general terms of this Agreement. The
Lender is hereby authorized to deliver a copy of any financial statement or
any other information relating to the business, operations or financial
condition of the Borrower and its Subsidiaries which may be furnished to the
Lender hereunder or otherwise, to any prospective assignee or Participating
Lender. The Lender shall hold all non-public, proprietary or confidential
information obtained pursuant to or in connection with the transactions
contemplated by the Loan Documents (the "Confidential Information") in
confidence and shall not use or disclose any such Confidential Information
except for purposes of the transactions contemplated by and in accordance with
the Loan Documents; provided, however, that the Lender may disclose any such
Confidential Information (i) to its examiners, outside auditors, counsel,
consultants, appraisers and other professional advisors in connection with the
transactions contemplated by the Loan Documents, (ii) as required by any
applicable laws and regulations or by any subpoena or similar legal process or
as requested by any governmental, judicial or regulatory body, or (iii) to any
proposed assignee or Participating Lender in connection with the contemplated
transfer or assignment of any Loan (or portion thereof) or participation
therein, provided that any such Person under the clause (iii) shall execute a
confidentiality agreement containing confidentiality provisions substantially
identical to those contained in this Section 13.13. Notwithstanding the
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foregoing, the confidentiality provisions of this Section 13.13 shall not
apply to such portions of the Confidential Information that (i) are or become
available to the public through no fault or action of the Lender or its
representatives, (ii) become available to the Lender or its representatives on
a non-confidential basis from a source other than the Borrower or its
representatives, (iii) were available to the Lender on a non-confidential
basis prior to its disclosure to the Lender by the Borrower, (iv) the Borrower
shall have consented to in writing or (v) are disclosed in connection with the
sale of any Collateral pursuant to the provisions of any of the Loan
Documents.
13.14 Modification. This Agreement and the other Loan Documents are
intended by the Borrower and the Lender to be the final, complete, and
exclusive expression of the agreement between them as to the subject matter
hereof. This Agreement and the other Loan Documents supersede any and all
prior oral or written agreements relating to the subject matter hereof. No
modification, rescission, waiver, release, or amendment of any provision of
this Agreement or any other Loan Document shall be made, except by a written
agreement signed by the Borrower and a duly authorized officer of the Lender.
13.15 Counterparts. This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrower in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.
13.16 Captions. The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed
to modify, enlarge, or restrict any provision.
13.17 Right of Setoff. Whenever an Event of Default exists, the Lender
is hereby authorized at any time and from time to time, to set off and apply
any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Lender
or any affiliate of the Lender to or for the credit or the account of the
Borrower against any and all of the Obligations, whether or not then due and
payable.
13.18 Participating Lender's Security Interests. If a Participating
Lender shall at any time with the Borrower's knowledge participate with the
Lender in the Loans or Letters of Credit, the Borrower hereby grants to such
Participating Lender, and the Lender and such Participating Lender shall have
and are hereby given, a continuing lien on and security interest in any money,
securities and other property of the Borrower in the custody or possession of
the Participating Lender, including the right of setoff, to the extent of the
Participating Lender's participation in the Obligations, and such
Participating Lender shall be deemed to have the same right of setoff to the
extent of the Participating Lender's participation in the Obligations under
this Agreement, as it would have if it were a direct lender.
13.19 Other Security and Guaranties. The Lender may, without notice or
demand and without affecting the Borrower's obligations hereunder, from time
to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and
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exchange, enforce or release such collateral or any part thereof; and (b)
accept and hold any endorsement or guaranty of payment of all or any part of
the Obligations and release any such endorser or guarantor, or any Person who
has given any Lien in any other collateral as security for the payment of all
or any part of the Obligations, or any other Person in any way obligated to
pay all or any part of the Obligations.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
GROSSMAN'S INC.
By: /s/ Sydney L. Katz
-----------------------------------
Name: Sydney L. Katz
Title: Executive Vice President, Chief
Financial Officer and Treasurer
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Ira A. Mermelstein
-----------------------------------
Name: Ira A. Mermelstein
Title: Vice President
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Schedule 6.3
Locations of Collateral
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Schedule 6.7
Insurance
160
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Schedule 8.4
Corporate Name; Prior Transactions
161
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Schedule 8.5
Subsidiaries and Affiliates
162
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Schedule 8.9
Owned Premises
163
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Schedule 8.10
Real Property
164
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Schedule 8.11
Proprietary Rights
165
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Schedule 8.12
Trade Names and Terms of Sale
166
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Schedule 8.13
Litigation
167
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Schedule 8.14
Restrictive Agreements
The Prior Loan, as defined in this Agreement, which will be terminated
upon initial funding of this Agreement.
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Schedule 8.15
Labor Disputes
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Schedule 8.16
Environmental
170
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Schedule 8.19
ERISA
171
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Schedule 8.26
Material Agreements
None, except as listed on Schedules 9.9 - Debt and 9.8(d) - Letters of Credit.
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<TABLE>
Schedule 9.5
Stores to be Closed
<CAPTION>
Connecticut Maine Massachusetts
<S> <C> <C>
Enfield Eastport Brockton
North Haven Danvers
Hartford Hanover
Stratford Medford
West Haven New Bedford
Quincy
Shrewsbury
New Hampshire New York Rhode Island
Manchester Brighton North Kingstown
Nashua Colonie Woonsocket
Salem Irondequoit
Port Jefferson
Pennsylvania
Erie
Corporate Headquarters site
200 Union Street
Braintree, Massachusetts
</TABLE>
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Schedule 9.8(c)
Existing GuaranteesSchedule 9.8(d)
The First National Bank of Boston Letters of Credit
Letter of
Expiration Undrawn
Credit No. Beneficiary Issue Date
Date Amount
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Schedule 9.9
Debt
175
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Schedule 9.11
Transactions with Affiliates
None
Schedule 9.14
Permitted Liens
The interest of Chemical Bank in real property for which a mortgage has been
given for the following locations:
Amherst, New York
Hamburg, New York
Depew, New York
Lakewood, New York
Camillus, New York
Hanover, Massachusetts
Manchester, Connecticut
The interest of Sanwa Business Credit Corporation in real property for which a
mortgage has been given for the following locations:
Sacramento, California
Danvers, Massachusetts
Niagara, New York
The interest of the State of Connecticut - Department of Economic Development
in equipment (Rack) located at:
Distribution Center in Manchester, Connecticut
for which a lien has been given.
Interest in various Capitalized Leases for equipment reflected on Schedule
9.9.
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Schedule 10.2
Documents
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EXHIBIT 10(o)
Grossman's Inc. 1993 Key Employee Stock Option Plan, dated April 27, 1993.
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GROSSMAN'S INC.
1993 Key Employee Stock Option Plan
1. Purpose
The Grossman's Inc. 1993 Key Employee Stock Option
Plan (the "Plan") is intended to provide incentives and
rewards to selected employees of Grossman's Inc. (the
"Corporation") and its subsidiaries who are not executive
officers, but whose performance is critical to the
Corporation's success, by providing them with opportunities to
purchase stock in the Corporation pursuant to options
("Options") which are not "incentive stock options" under
section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
2. Administration
The board of directors of the Corporation (the
"Board") shall appoint an officer or director (or a committee
of officers or directors) of the Corporation to administer the
Plan (such officer, director or committee shall hereinafter be
referred to as the "Administrator"). If the Board does not
appoint an Administrator, the Corporation's Chief Executive
Officer shall be the Administrator.
The Administrator shall have the authority, subject
to the terms of the Plan, to determine the employees to whom
Options shall be granted, the number of shares to be covered by
each Option, the purchase price of the stock covered by each
Option, the time or times at which Options shall be granted,
the time or times at which and the terms and conditions upon
which Options shall become exercisable, and the terms and
provisions of the instruments by which Options shall be
evidenced. The Administrator shall also have the authority to
interpret the Plan, to establish such rules and regulations not
inconsistent with the terms of the Plan as it deems necessary
or appropriate for the administration of the Plan and to make
all determinations necessary or advisable for the
administration of the Plan. With the consent of employees to
whom Options have been granted, the Board or any committee
thereof designated by the Board (the "Committee") may grant
replacement Options, which may be at a lower exercise price, in
substitution for outstanding Options and to cancel such
outstanding options.
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No member of the Board or the Committee nor the
individual or individuals serving as the Administrator shall
be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under the
Plan.
3. Eligibility
Options may be granted only to key employees of the
Corporation or any of its subsidiaries, including, without
limitation, store management personnel, administrative and
professional staff and merchandising managers, selected by the
Administrator. No executive officer of the Corporation (within
the meaning of Section 16(a) of the Securities Exchange Act of
1934, as amended), shall be eligible to receive Options under
the Plan. Unless otherwise determined by the Board or the
Committee, no employee of the Corporation or any of its
subsidiaries who has received an option grant under any other
option plan maintained by the Corporation shall thereafter be
eligible to receive any Options hereunder. Granting an Option
to an employee shall neither entitle such employee to, nor
disqualify him from, participation in any other grant of
Options or in any other incentive plan or give him any right
to, or disqualify him from receiving, any additional Option
grants under the Plan.
4. Stock
The stock as to which Options may be granted is the
Corporation's Common Stock ("Stock"). When Options are
exercised the Corporation may either issue unissued Stock or
transfer issued Stock held in its treasury. The total
amount of Stock of the Corporation which may be issued upon
the exercise of Options granted under the Plan shall not
exceed 600,000 shares. Any shares of Stock subject to an
option which is forfeited due to termination of employment
or which otherwise lapses without being exercised shall
again be available for grant hereunder.
5. Granting of Options
Unless otherwise determined by the Board or the
Committee, no employee shall receive Options under the Plan
with respect to more than 5,000 shares of Stock and Options
for not more than 300,000 shares shall be granted in any
calendar year. The date of grant of an Option under the
Plan will be the date on which the Option is awarded by
Administrator, unless a later date is specified by the
Administrator at the time of the award with respect to all
or any portion of such award.
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6. Terms and Conditions of Options
Options shall be evidenced by instruments in such
form as the Administrator may from time to time approve. Such
instruments shall conform to the following terms and
conditions:
(a) Option Price. The Option price per share
shall be not less than the fair market value of a share
of Stock on the day the Option is granted. For purposes
of this Plan, fair market value of a share of Stock shall
mean the closing price of a share on NASDAQ on the
relevant date.
(b) Term of Options. Each Option shall expire no
later than the tenth anniversary of the date of its
grant.
(c) Exercisability. Each Option shall become
exercisable immediately or in one or more installments
at such time or times or upon the satisfaction of such
conditions as may be determined by the Administrator
and provided in the instrument evidencing the Option.
Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the
Option.
An Option may be exercised from time to time, in
whole or in part, up to the total number of shares with
respect to which it is then exercisable.
(d) Payment. Each instrument evidencing an
Option shall provide for the terms of payment of the
Option price. In accordance with the terms of such
instrument, an employee may purchase Stock upon exercise
of the Option for cash or Stock. If Stock is used as
whole or partial payment of the Option price, such
Stock shall be valued at its fair market value on the
date of exercise.
(e) Termination of Employment. If an employee to
whom or for whose benefit an Option is granted ceases
to be employed by the Corporation or any subsidiary
other than by reason of death, no further installments
of his Options will become exercisable, and his Options
shall terminate after the passage of three months from
the date of termination of his employment (or such
shorter or longer period as may be approved by the
Administrator and provided in the instrument evidencing
the option), except in the case of termination due to a
disability within the meaning of section 22(e)(3) of
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the Code, in which case his Options shall terminate
after the passage of one year from the date of termination
of his employment, but in any event not later than thier
specified expiration dates. Whether authorized leave
of absence or absence on military or governmental
service may constitute employment for the purposes of
the Plan shall be conclusively determined by the
Administrator.
(f) Death. If an employee to whom an Option is
granted dies, such Option may be exercised, to the
extent of the number of shares with respect to which
the employee could have exercised it on the date of his
death, by his estate, personal representative or
beneficiary who acquires the Option by will or by the
laws of descent and distribution, at any time prior to
the earlier of the specified expiration date of the Option
or the first anniversary of the employee's death. On
the earlier of such dates, the Option shall terminate.
(g) Assignability. Unless otherwise determined
by the Board or the Committee, no Option shall be
assignable or transferable by the employee to whom an
Option is granted except by will or by the laws of
descent and distribution, and during the lifetime of
the employee each Option shall be exercisable only by
him. At the request of an employee, stock purchased on
exercise of an Option may be issued in or transferred
into the name of the employee and another person
jointly with the right of survivorship.
(h) Withholding. The Corporation's obligation to
deliver stock upon the exercise of any Option shall be
subject to applicable federal, state and local tax
withholding requirements.
Instruments evidencing Options may contain such other
provisions, not inconsistent with the Plan, as the
Administrator deems advisable. Among these provisions may
be a provision under which the Corporation, in the discretion
of the Board or the Committee, shall have the right, in lieu of
delivering any or all Stock as to which the Option has been
exercised, to elect instead to pay the employee an amount in
cash or Stock equal to the difference between the fair market
value of such Stock on the date of exercise and the option
exercise price that would otherwise be payable by the employee
to acquire such Stock.
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7. Capital Adjustments
The number and purchase price of shares covered by
each Option and the total number of shares that may be sold
under the Plan shall be proportionately adjusted to reflect,
as deemed equitable and appropriate by the Board or the
Committee, any stock dividend, stock split, combination or
exchange of shares, recapitalization, reclassification, or
other similar transaction of the Corporation. Such adjustment
may take the form of a grant of either a substitute option, an
additional option, or a change in the number or purchase price
of the shares of stock subject to an Option. To the extent
deemed equitable and appropriate by the Board or the Committee,
subject to any required action by stockholders, in any other
merger, consolidation, reorganization, liquidation or
dissolution, any Option granted under the Plan shall pertain to
the stock and other property which a holder of the Stock
covered by the Option would have been entitled to receive in
connection with such event.
8. Indemnification
In addition to such other rights of indemnification
as he may have by reason of his position with the Corporation,
each member of the Board or the Committee and each and every
individual serving as the Administrator shall be indemnified by
the Corporation against all costs and expenses reasonably
incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason
of any action taken or failure to act under or in connection
with the Plan, or any Option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such
settlement is approved by legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except a judgment based
upon a finding of bad faith. Upon the institution of any such
action, suit or proceeding a Board or Committee member shall
notify the Corporation in writing, giving the Corporation an
opportun-ity, at its own expense, to handle and defend the same
before such Board or Committee member undertakes to handle it
on his own behalf.
9. Term and Amendment of the Plan
The Plan has been adopted by the Board on April 27,
1993. The Board or the Committee may terminate or amend the
Plan in any respect at any time, except that no action of the
Board or the Committee may alter or impair an employee's rights
under any outstanding Option without his con-sent. The
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Administrator may amend the Plan at any time provided that such
amendment does not (a) materially increase the cost of the Plan
to the Corporation, (b) increase the number of shares
authorized for issuance under this Plan, (c) reduce the
exercise price at which an Option may be granted below that
established under Section 6(a), (d) increase the maximum number
of shares that may be purchased by any employee pursuant to
Options granted under the Plan or (e) conflict with or violate
any applicable provision of Federal, state or local law. 10.
Use of Proceeds
Proceeds from the sale of Stock pursuant to
Options granted under the Plan shall constitute general
funds of the Corporation. Shares of Stock tendered upon the
exercise of Options granted under the Plan shall become
treasury shares of the Corporation.
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EXHIBIT 11(a)
Statement re computation of earnings per share.
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<TABLE>
Exhibit 11(a)
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1993 December 31, 1992 December 31, 1991
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net income (loss) for primary and
fully diluted earnings per share $(68,348) $ 6,232 $ 4,291
========== ======== ========
Weighted average number of
shares outstanding 25,661 25,518 25,475
Net effect of dilutive stock
options - 675 403
--------- -------- --------
Total weighted average shares
outstanding and common stock
equivalents used in primary
calculation of earnings per
share 25,661 26,193 25,878
Additional dilution from
stock options - 48 -
--------- -------- --------
Total weighted average shares
outstanding and common stock
equivalents used in fully
diluted calculation of earnings
per share 25,661 26,241 25,878
========== ======== ========
Net Income Per Common Share
(Primary and Fully Diluted) $(2.66) $0.24 $ 0.17
========== ======== ========
</TABLE>
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EXHIBIT 24(a)
Consent of Ernst & Young, Independent Auditors.
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CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-18114) pertaining to
the 1986 Nonqualified Stock Option Plan of Grossman's Inc. of
our report dated January 31, 1994, with respect to the
consolidated financial statements and schedules of Grossman's
Inc. and subsidiaries included in the Annual Report (Form 10-K)
for the year ended December 31, 1993.
ERNST & YOUNG
Boston, Massachusetts
March 16, 1994
189
