<PAGE> 1
CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
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 (I.R.S. Employer
in corporation or organization) Identification No.)
45 Dan Road
Canton, Massachusetts 02021
- ----------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(617) 830-4000
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
periods 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 the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $.01 Par Value - 26,474,113 shares as of May 9, 1996,
exclusive of 42,849 shares held as treasury shares.
<PAGE> 2
GROSSMAN'S INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1996
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
GROSSMAN'S INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996, December 31, 1995 and March 31, 1995.......... 3
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995.................... 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995.................... 6
Notes to Unaudited Interim Consolidated Financial Statements.... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 14
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 19
SIGNATURES......................................................... 20
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
March 31, December 31, March 31,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 1,745 $ 2,536 $ 917
Receivables, less allowance of
$3,041 in 1996, $3,339 at
December 31, 1995 and $4,450
at March 31, 1995 for doubtful
accounts 20,604 23,940 14,529
Inventories 53,106 102,009 124,890
Note receivable, net - 13,000 -
Property held for sale 4,500 2,572 7,152
Other current assets 2,852 3,940 3,015
-------- -------- --------
Total current assets 82,807 147,997 150,503
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation
of $14,608 in 1996, $54,663 at
December 31, 1995 and $59,473
at March 31, 1995 50,955 94,256 103,695
PROPERTY HELD FOR SALE 31,294 - -
INVESTMENT IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATE 100 108 1,020
OTHER ASSETS 1,088 1,168 1,413
-------- -------- --------
TOTAL ASSETS $166,244 $243,529 $256,631
======== ======== ========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
March 31, December 31, March 31,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 97,040 $ 91,308 $ 92,137
Accrued interest 1,829 1,403 696
Current portion of long-term debt
and capital lease obligations
14% Debentures, paid April 1996 16,201 16,201 16,201
Mortgage notes, paid April 1996 3,419 385 221
Other notes and capital lease
obligations 3,366 3,859 11,335
-------- -------- ---------
Total current liabilities 121,855 113,156 120,590
REVOLVING TERM NOTE PAYABLE 68 32,844 41,252
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 2,002 5,668 9,721
PENSION LIABILITY 8,206 8,270 3,827
OTHER LIABILITIES 15,005 9,796 12,131
--------- --------- ---------
Total liabilities 147,136 169,734 187,521
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT
Common stock, $.01 par value:
Shares authorized - 50,000
Shares issued - 26,137 in 1996
and 1995 261 261 261
Additional paid-in-capital 155,762 155,768 155,840
Retained earnings (accumulated
deficit) (118,893) (64,206) (74,680)
Minimum pension liability (16,476) (16,476) (10,576)
Cumulative foreign currency
translation adjustment (1,442) (1,442) (872)
Less shares in treasury, at cost -
43 in 1996,
45 at December 31, 1995, and
355 at March 31, 1995 (104) (110) (863)
--------- --------- ---------
Total stockholders' investment 19,108 73,795 69,110
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $166,244 $243,529 $256,631
========= ========= =========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
SALES $112,981 $126,770
COST OF SALES 86,481 95,777
--------- ---------
Gross Profit 26,500 30,993
OPERATING EXPENSES
Selling and administrative 38,034 38,088
Depreciation and amortization 1,849 3,011
Store closing expense 40,150 -
Store preopening expense 361 135
--------- ---------
80,394 41,234
--------- ---------
OPERATING LOSS (53,894) (10,241)
OTHER EXPENSES (INCOME)
Interest expense 1,620 2,197
Net gain on disposals of property (27) (46)
Other (1,008) (732)
--------- ---------
585 1,419
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE 208 198
--------- ---------
LOSS BEFORE INCOME TAXES (54,687) (11,858)
CREDIT FOR INCOME TAXES - (1,186)
--------- ---------
NET LOSS $(54,687) $(10,672)
========= =========
NET LOSS PER COMMON SHARE
(PRIMARY AND FULLY DILUTED) $ (2.10) $ (0.41)
========= =========
WEIGHTED AVERAGE SHARES AND EQUIVALENT
SHARES OUTSTANDING (PRIMARY AND FULLY DILUTED) 26,089 25,782
========= =========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
GROSSMAN'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(54,687) $(10,672)
Adjustments to reconcile net loss to net cash
(used for) operating activities:
Depreciation and amortization 1,849 3,011
Net gain on disposals of property (27) (46)
Provision for losses on account receivable 465 341
Provision for store closing 40,150 -
Undistributed loss of unconsolidated affiliate 208 198
(Increase) decrease in assets:
Receivables 3,071 4,579
Inventories 35,572 (8,288)
Note receivable and other assets 13,507 480
(Decrease) in accounts payable and
accrued and other liabilities (7,603) (3,984)
--------- ---------
Total adjustments 87,192 (3,709)
--------- ---------
NET CASH (USED FOR) OPERATING ACTIVITIES 32,505 (14,381)
INVESTING ACTIVITIES:
Capital expenditures (1,550) (1,153)
Proceeds from sales of property, net 2,474 9,243
Investment in unconsolidated affiliate (200) (194)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 724 7,896
FINANCING ACTIVITIES:
Payments on long-term debt and capital lease
obligations (1,244) (7,005)
Net borrowings from (repayments to) revolving
term note payable (32,776) 11,364
Issuance of common stock - 9
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (34,020) 4,368
Net decrease in cash and cash equivalents (791) (2,117)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,536 3,034
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,745 $ 917
========= =========
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
</TABLE>
6
<PAGE> 7
GROSSMAN'S INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying Unaudited Interim Consolidated Financial Statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and, in the opinion of management, include
all adjustments, consisting of normal recurring accruals along with any
transactions relating to the restructuring and refinancing discussed in
Note 2, necessary for a fair presentation of the results for the interim
periods. The results of operations for the interim periods are not
necessarily indicative of results to be expected for the year.
These interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Annual Report on Form 10-K of Grossman's Inc. for the
year ended December 31, 1995. The balance sheet as of December 31, 1995
has been derived from the audited financial statements as of that date.
The Unaudited Interim Consolidated Financial Statements include the
accounts of Grossman's Inc. and its wholly-owned subsidiaries (the
"Company") after elimination of intercompany balances and transactions.
The Company's fiscal year end is December 31. The Company records
activity in quarterly accounting periods of equal length, ending on the
last Saturday of each quarter. The differences in amounts presented and
those which would have been presented using actual quarter end dates are
not material.
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.
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------
In March 1996, the Company announced a restructuring and refinancing plan
under which its 60 Grossman's stores, located in eight Northeastern
states, were closed. Approximately half of the charge was non-cash and
was charged against the recorded reserve in March 1996 to cover inventory
costs and the net unrecoverable amount of property, plant and equipment.
Approximately $8 million of the reserve relates to estimated severance
costs. The remaining reserve will principally result in cash outflow to
cover exit costs over an estimated three year period.
The Company began the closing and liquidation of its Grossman's stores on
March 28, 1996. The Company entered into an Agency Agreement for the
liquidation of inventories at closed stores, and partial prepayment
totalling $27.0 million was received in March 1996. Concurrent with the
timing of the store closings, expected to take up to ten weeks,
administrative support functions in the Company's headquarters were
reduced. Upon completion of the store closings, the Company's total
workforce will have been reduced from approximately 3,400 to 1,800.
7
<PAGE> 8
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------------------
Four transactions were undertaken to improve liquidity. The $15.8 million
note receivable from Kmart Corporation was sold in March 1996. The
Company's 14% Debentures due January 1996 were refinanced, with cash and
notes issued in April 1996. A mortgage loan, secured by owned properties
was obtained, with funding occurring in April 1996. A new $50 million
long-term revolving credit agreement, with increased borrowing
availability, was obtained beginning in May 1996.
In December 1995, the Company announced that it was renegotiating the
$16.2 million of 14% Debentures and related interest due in January 1996.
In March 1996, settlement with holders of these Debentures was reached.
Holders were paid in April 1996 for principal and interest due, in a
combination of cash and notes payable. Cash payments totalled
approximately $12 million. Notes payable of $3 million due in three
years, with interest payable semi-annually at 10%, were issued. These
notes are convertible at the holder's option into shares of the Company's
Common Stock at $1.30 per share. In April 1996, $500 thousand of notes
were converted into 384,615 shares of Common Stock. An additional $2.7
million of non-convertible notes payable, with interest payable
semi-annually at 15% per annum, were also issued. These notes are due in
three years and may be repaid prior to maturity from proceeds of real
estate sales, after full repayment of the mortgage notes described below.
Interest on these notes may be deferred at the Company's option.
The Company's $15.8 million note receivable from Kmart Corporation,
originally discounted for financial reporting purposes to $12.4 million,
was sold for cash of $13 million on March 22, 1996.
GRS Realty Company, Inc., a subsidiary of the Company, issued a series of
mortgage notes payable to a non-affiliated investor group. The mortgage
notes are secured by both closed and operating owned properties conveyed
to GRS Realty Company, Inc. and are required to be repaid with proceeds
from the sale of closed stores. The notes total $33.0 million, $2.9
million of which is non-interest bearing and is payable from the first
sale of properties. An additional $4.0 million is non-interest bearing
and convertible into Common Stock at $0.75 per share, subsequent to
repayment of the mortgage notes. The remaining $26.1 million bears
interest at 15% per annum, payable monthly and include a right to convert
$2 million into shares of the Company's Common Stock at $1.50 per share
upon certain events, including default at maturity. Minimum required
principal payments are as follows: $4.5 million is due by October 1996; an
additional $6.0 million is due by April 1997; and additional $9.0 million
is due by October 1997 and the remainder is due by April 1998. Fees due
under the various notes, totalling $2.9 million, were paid in April 1996
upon the loan closing.
The pro forma balance sheet adjustments also reflect the retirement of
$3.4 million of mortgage notes paid in April 1996.
In May 1996, the Company received a three-year line of credit for
borrowings up to $50 million, including letters of credit up to $15
million, under a formula based on a percentage of qualified inventory and
8
<PAGE> 9
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------------------
accounts receivable. The new agreement replaces the revolving term note
payable previously in effect. Borrowings pursuant to this new agreement
are secured by inventory, receivables and other assets. The agreement,
which provides interest at 1% over Prime Rate, contains no financial ratio
covenants or dollar limitations on spending for new store properties.
The following unaudited condensed pro forma financial statements have been
prepared in accordance with applicable rules of the Securities and
Exchange Commission, giving effect to the restructuring and refinancing
plan transactions as if they had occurred, for balance sheet purposes, on
March 31, 1996 and, for statement of operations purposes, on January 1,
1996. The pro forma information is not necessarily indicative of the
results that would have been reported had such events actually occurred on
the dates specified, nor is it indicative of the Company's future results.
9
<PAGE> 10
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
(in thousands, except per share data)
March 31, 1996
-----------------------------------
Pro Forma
As Pro Forma Continuing
Reported Adjustments Operations
-------- ----------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,745 $ - $ 1,745
Receivables, net 20,604 - 20,604
Inventories 53,106 (7,694)(a) 45,412
Note receivable, net - - -
Property held for sale 4,500 - 4,500
Other current assets 2,852 - 2,852
--------- --------- ---------
Total current assets 82,807 (7,694) 75,113
PROPERTY, PLANT AND EQUIPMENT, NET 50,955 - 50,955
PROPERTY HELD FOR SALE 31,294 - 31,294
OTHER ASSETS 1,188 - 1,188
--------- --------- ---------
TOTAL ASSETS $166,244 $ (7,694) $158,550
========= ========= =========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 98,869 $(34,127)(b)(c) $ 64,742
Current portion of long-term debt
and capital lease obligations 22,986 (15,120)(b) 7,866
--------- --------- ---------
Total current liabilities 121,855 (49,247) 72,608
REVOLVING TERM NOTE PAYABLE 68 7,352 (d) 7,420
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 2,002 34,201 (c) 36,203
OTHER LIABILITIES 23,211 - 23,211
--------- --------- ---------
Total liabilities 147,136 (7,694) 139,442
TOTAL STOCKHOLDERS' INVESTMENT 19,108 - 19,108
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $166,244 $ (7,694) $158,550
========= ========= =========
<F1>
(a) Estimated value of remaining Grossman's stores inventory.
<F2>
(b) Elimination of amounts pertaining to closed Grossman's stores.
<F3>
(c) Payment of $16.2 million of 14% Debentures and related accrued
interest, and addition of notes payable totalling $38.7 million.
<F4>
(d) Projected borrowings necessary after reflecting activity described in
(a) through (c)
</TABLE>
10
<PAGE> 11
NOTE 2 - RESTRUCTURING, REFINANCING AND UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except per share data)
Quarter Ended March 31, 1996
-----------------------------------------
Less Pro Forma
As Closed Pro Forma Continuing
Reported Operations Adjustments Operations
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
SALES $112,981 $ 47,953 $ - $ 65,028
COST OF SALES 86,481 36,161 - 50,320
--------- --------- --------- ---------
Gross Profit 26,500 11,792 - 14,708
OPERATING EXPENSES
Selling and administrative 38,034 17,060 (921)(a) 20,053
Depreciation and amortization 1,849 875 974
Store closing expense 40,150 40,150 - -
Preopening expense 361 45 - 316
--------- --------- --------- ---------
80,394 58,130 (921) 21,343
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (53,894) (46,338) (921) (6,635)
OTHER EXPENSES (INCOME)
Interest expense 1,620 645 (16)(b) 959
Net gain on disposals
of property (27) (12) - (15)
Other (1,008) (173) - (835)
--------- --------- --------- ---------
585 460 (16) 109
--------- --------- --------- ---------
EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE 208 - - 208
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (54,687) (46,798) (937) (6,952)
PROVISION FOR INCOME TAXES - - - -
--------- --------- --------- ---------
NET LOSS $(54,687) $(46,798) $ (937) $ (6,952)
========= ========= ========= =========
NET LOSS PER COMMON SHARE
(PRIMARY AND FULLY DILUTED) $(2.10) $(0.27)
========= =========
WEIGHTED AVERAGE SHARES AND
EQUIVALENT SHARES OUTSTANDING
Primary and Fully Diluted 26,089 26,089
========= =========
<F1>
(a) Net corporate overhead reduction related to the restructuring.
<F2>
(b) Assumes retirement of 14% Debentures, capital lease obligation
reductions, reductions to revolving credit borrowings, net of
increases for new secured debt and notes payable.
</TABLE>
11
<PAGE> 12
NOTE 3 - LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT
- ------------------------------------------------------
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
March 31, December 31, March 31,
1996 1995 1995
--------- ------------ ----------
<S> <C> <C> <C>
14% Debentures, paid April 1996 $16,201 $16,201 $16,201
Mortgage and other notes 3,805 4,063 10,795
Capital lease obligations 4,982 5,849 10,482
------- ------- -------
24,988 26,113 37,478
Less current portion 22,986 20,445 27,757
------- ------- -------
$ 2,002 $ 5,668 $ 9,721
======= ======= =======
</TABLE>
At March 31, 1996, cash borrowings under the Company's loan and security
agreement totalled $68.0 thousand and outstanding standby letters of
credit totalled $9.5 million. The maximum borrowings under this agreement
during the three months ended March 1996 was $52.3 million, including
letters of credit of $9.2 million. The maximum borrowings under this
agreement for the three months ended March 31, 1995 were $57.9 million,
including letters of credit of $11.5 million. The weighted average annual
interest rate on such borrowings in the first quarters of 1995 and 1996
was 9.4% and 11.6%, respectively. At March 31, 1996, the loan and
security agreement provided for borrowings of $37.5 million.
In April 1996, the Company repaid the $3.4 million of mortgage notes
outstanding at March 31, 1996.
See Note 2 for discussion of repayment of the 14% Debentures, new debt
agreements funded in April 1996 and the refinancing of the loan and
security agreement.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- -------------------------------------------------
<TABLE>
<CAPTION>
Accounts payable and accrued liabilities consist of the following (in
thousands):
March 31, December 31, March 31,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
Accounts payable $55,448 $63,236 $62,368
Accrued salaries, wages,
commissions and related taxes 4,853 3,630 6,635
Accrued income and franchise taxes 318 391 -
Accrued taxes other than income
and franchise 2,921 2,819 2,545
Accrued store closing costs 15,813 4,593 3,298
Accrued insurance 11,136 9,933 10,740
Other accrued liabilities 6,551 6,706 6,551
------- -------- -------
$97,040 $91,308 $92,137
======= ======= =======
</TABLE>
12
<PAGE> 13
NOTE 5 - OTHER LIABILITIES
- --------------------------
<TABLE>
<CAPTION>
Other long-term liabilities consist of the following (in thousands):
March 31, December 31, March 31,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
Accrued insurance claims $ 6,281 $6,955 $ 7,889
Accrued store closing costs 8,332 2,347 3,572
Other accrued liabilities 392 494 670
------- ------ -------
$15,005 $9,796 $12,131
======= ====== =======
</TABLE>
13
<PAGE> 14
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
MARCH 31, 1996 COMPARED WITH DECEMBER 31, 1995
- ----------------------------------------------
Financial condition at March 31, 1996 reflects the initial actions taken
with regard to the restructuring and refinancing plan announced by the
Company on March 28, 1996. Under this plan, the closing and liquidation
of the remaining 60 Grossman's stores began on March 29, 1996. The
Company entered into an Agency Agreement for the liquidation of
inventories at closed stores, and partial prepayment totalling $27.0
million was received prior to month end. The liquidation of the stores
and payment for the remainder of the inventory will occur in the second
quarter. A $40.2 million restructuring charge was recorded in March 1996
related to severance costs, lease payments, inventory liquidation costs,
other expenses and the net unrecoverable amount of property, plant and
equipment. Approximately half of the charge was non-cash and was charged
against the recorded reserve in March 1996 to cover inventory costs and
the net unrecoverable amount of property, plant and equipment.
Approximately $8 million of the reserve relates to estimated severance
costs, most of which will be paid in the second quarter of 1996. The
remaining reserve will principally result in cash outflow to cover exit
costs over an estimated three year period.
The Company's first quarter historically reflected a seasonal buildup of
inventory, particularly in the Grossman's stores, as these stores were
located entirely in the Northeast where fewer home improvement projects
were undertaken in winter months. Although the ongoing operations of the
Company will reflect a lower than historical seasonal effect, a seasonal
increase in inventories from year end should still be expected. Prior to
the announcement of the reorganization, supply difficulties were
encountered causing a decline in inventory levels within ongoing
operations from $51.2 million at year end to $45.4 million at March 31,
1996. Accounts payable, which normally trend with inventory, remained
relatively level between year end and the end of the first quarter,
reflecting liquidity difficulties. Following the announcement of the
refinancing plan, management has focused on reestablishing vendor
relationships, including timely payment to all vendors, rectifying
inventory shortages, and reestablishing customer relationships which were
strained due to these shortages. Sales and results of operations
throughout the second quarter will be hindered by the lingering effects of
these difficulties.
Four transactions were undertaken in the first quarter to improve
liquidity, three of which were finalized subsequent to March month end.
In March, the Company sold its $15.8 million note receivable from Kmart
Corporation for cash of $13 million. This note was originally discounted
for financial reporting purposes to $12.4 million. The Company's 14%
Debentures due January 1996 were refinanced, with cash and notes issued in
April 1996. A mortgage loan, secured by owned properties was obtained,
with funding occurring in April 1996. A new $50 million long-term
revolving credit agreement, with increased borrowing availability, was
obtained in May 1996 replacing the former facility.
14
<PAGE> 15
MARCH 31, 1996 COMPARED WITH DECEMBER 31, 1995 (CONTINUED)
- ----------------------------------------------------------
Settlement with holders of 14% Debentures for principal and interest due
was reached in March 1996 and holders were paid in April 1996, in a
combination of cash and notes payable. Cash payments totalled
approximately $12 million. Notes payable of $3 million due in three
years, with interest payable semi-annually at 10%, were issued. These
notes are convertible at the holder's option into shares of the Company's
Common Stock at $1.30 per share. In April 1996, $500 thousand of notes
were converted into 384,615 shares of Common Stock. An additional $2.7
million of non-convertible notes payable, with interest payable
semi-annually at 15% per annum, were also issued. These notes are due in
three years and may be repaid prior to maturity from proceeds of real
estate sales, after full repayment of the mortgage notes described below.
Interest on these notes may be deferred at the Company's option.
In April 1996, GRS Realty Company, Inc., a subsidiary of the Company,
issued a series of mortgage notes payable to a non-affiliated investor
group. The mortgage notes are secured by both closed and owned store
properties conveyed to GRS Realty Company, Inc. and are required to be
repaid with proceeds from the sale of closed stores. The notes total
$33.0 million, $2.9 million of which is non-interest bearing and is
payable from the first sale of properties. In April 1996, two properties
were sold and $1.6 million was paid toward this non-interest bearing note.
An additional $4.0 million is also non-interest bearing and convertible
into Common Stock at $0.75 per share, subsequent to repayment of the
remaining $26.1 million of interest bearing mortgage notes. The $26.1
million of notes bear interest at 15% per annum, payable monthly and
include a right to convert $2.0 million into shares of the Company's
Common Stock at $1.50 per share upon certain events, including default at
maturity. Minimum required principal payments for the total series of
mortgage notes are as follows: $4.5 million is due by October 1996; an
additional $6.0 million is due by April 1997; an additional $9.0 million
is due by October 1997 and the remainder is due by April 1998. Fees due
under the various notes, totalling $2.9 million, were paid in April 1996
upon the loan closing. The Company has 53 owned properties which are
being actively marketed, and management expects proceeds to be sufficient
to meet the required payment timetable.
In May 1996, the Company entered into an agreement for a three-year line
of credit for borrowings up to $50 million, including letters of credit up
to $15 million, under a formula based arrangement based upon inventory and
accounts receivable. The new agreement replaces the revolving term note
payable previously in effect. Borrowings pursuant to this new agreement
are secured by inventory, receivables and other assets. The agreement,
which bears interest at 1% over Prime Rate, contains no financial ratio
covenants or dollar limitations on spending for new store properties.
Revolving credit borrowings at March 31, 1996 total $68 thousand, as
compared to $32.8 million at year end. This reduction was principally due
to the aforementioned $27.0 million partial payment for inventory in
closed stores. Revolving credit borrowings increased subsequent to the
end of the first quarter, as vendor payments were made. Management
anticipates the use of the revolving credit facility throughout the
remainder of 1996 and beyond, with availability sufficient to meet
requirements.
In April 1996, the Company repaid the $3.4 million of mortgage notes
outstanding at March 31, 1996.
15
<PAGE> 16
MARCH 31, 1996 COMPARED WITH DECEMBER 31, 1995 (CONTINUED)
- ----------------------------------------------------------
Property, plant and equipment within ongoing operations decreased from
$53.2 million at year end to $51.0 million at March 31, 1996, reflecting
depreciation offset in part by capital expenditures of $1.6 million made
in connection with new stores. During the quarter three new Mr. 2nd's
Bargain Outlet stores were opened in Massachusetts in former Grossman's
store locations. In addition, construction was completed on a
Contractors' Warehouse store in Lexington, Kentucky, which opened in the
second quarter.
Property held for sale totals $35.8 million at March 31, 1996, reflecting
the book value of owned real property and the estimated market value of
personal property. Market values of real property are expected to exceed
book values and, in accordance with generally accepted accounting
principles, gains, if any, will be deferred until sales disposition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1995
- ------------------------------------------------------------------
The Company's first quarter historically has been a period of low sales
activity with resultant operating losses, as fewer do-it-yourself home
improvement projects and construction activities in the Company's markets
are undertaken during the winter months. First quarter sales have
historically been less than 20% of full year sales. Results of operations
include both the results of ongoing operations and of the Grossman's
Division, whose operations terminated on March 28, 1996, as previously
described. Pro forma results of operations, which exclude the Grossman's
Division, are presented in the Notes To Financial Statements.
<TABLE>
<CAPTION>
The following table shows comparative sales results by store type (dollars
in millions):
Three Months
Ended March
------------------
1996 1995
---- ----
<S> <C> <C>
SALES (in millions)
Ongoing Operations
Contractors' Warehouse $ 54.5 $ 51.1
Mr. 2nd's Bargain Outlet 10.5 10.3
------ ------
Total Ongoing Operations 65.0 61.4
Closed Stores
Grossman's 48.0 65.4
------ ------
Total Grossman's Inc. $113.0 $126.8
====== ======
</TABLE>
16
<PAGE> 17
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS
ENDED MARCH 31, 1995 (CONTINUED)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March
------------------
1996 1995
---- ----
<S> <C> <C>
% OF TOTAL SALES
Ongoing Operations
Contractors' Warehouse 48.2 % 40.3 %
Mr. 2nd's Bargain Outlet 9.3 8.1
------ ------
Total Ongoing Operations 57.5 48.4
Closed Stores
Grossman's 42.5 51.6
------ ------
Total Grossman's Inc. 100.0 % 100.0 %
====== ======
SALES % INCREASE (DECREASE)
VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse 6.7 % 5.8 %
Mr. 2nd's Bargain Outlet 1.9 21.2
------- -------
Total Ongoing Operations 5.9 8.1
Closed Stores
Grossman's (26.6) (16.5)
------- -------
Total Grossman's Inc. (10.9)% (6.1)%
======= =======
COMPARABLE STORE SALES % INCREASE
(DECREASE) VERSUS PRIOR YEAR
Ongoing Operations
Contractors' Warehouse (3.7)% (6.6)%
Mr. 2nd's Bargain Outlet (12.7) 12.9
------- -------
Total Ongoing Operations (5.2) (3.7)
Closed Stores
Grossman's NA 4.0
------- -------
Total Grossman's Inc. (5.2)% 0.3 %
======= =======
NUMBER OF STORES AT MONTH END
Ongoing Operations
Contractors' Warehouse 15 13
Mr. 2nd's Bargain Outlet 24 20
Closed Stores
Grossman's - 72
------ ------
Total Number of Stores 39 105
====== ======
</TABLE>
17
<PAGE> 18
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS
ENDED MARCH 31, 1995 (CONTINUED)
- ------------------------------------------------------------
Sales results in 1996 were affected by inventory supply problems and
out-of-stock situations, as previously discussed. Management also expects
both sales and results of operations throughout the second quarter to be
hindered by the effects of these difficulties.
Sales results were affected by the store openings and closings. The 1996
results include the results of three Contractors' Warehouse stores opened
in 1995, two of which were opened subsequent to the first quarter. The
1996 results include the sales of two Mr. 2nd's Bargain Outlets opened in
1995, one which opened late in the first quarter and one subsequent to the
first quarter, and the results of three stores which opened in March 1996.
The 1996 results exclude the results of 18 Grossman's stores which closed
in late 1995. Additionally, Contractors' Warehouse sales results in 1995
were dampened by heavy rainfall in California in the months of January and
March.
Gross profit declined by $4.4 million as the result of the sales decline
and a decline in gross margin from 24.4% in 1995 to 23.5% in 1996. The
decline in gross margin reflects the increase in Contractors' Warehouse
sales, which focus on lower margin professional sales, as a percent of
total sales. Gross margins were also affected by the Company's inability
to avoid out-of-stock situations in the first quarter of 1996. Margins
on commodity lumber, which were extremely low in 1995 due to falling
prices, rebounded slightly in 1996 when prices were relatively stable.
Selling and administrative expenses, which remained flat from 1995 to
1996, will decrease in the future as a result of the store closings.
Depreciation expense declined from $3.0 million in 1995 to $1.8 million in
1996, reflecting store closings, partially offset by depreciation for new
stores. First quarter 1996 depreciation for ongoing operations was
approximately $1.0 million.
As a result of the restructuring and refinancing plan, the Company
reflected a $40.2 million restructuring charge in the first quarter of
1996 related to severance costs, lease payments, inventory liquidation
costs, other expenses and the net unrecoverable amount of property plant
and equipment.
Interest expense declined from $2.2 million in 1995 to $1.6 million
reflecting lower revolving credit borrowings and a lower level of capital
lease obligations as a result of closing stores in 1995. Interest expense
throughout the remainder of 1996 will reflect the new debt entered into as
a result of the previously discussed refinancing.
18
<PAGE> 19
PART II. OTHER INFORMATION
- ---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4(o)-7 Eighth Amendment, dated as of March 28, 1996, to
the Loan and Security Agreement between
Grossman's Inc. and BankAmerica Business Credit,
Inc., dated December 15, 1993.
4(o)-8 Waiver and Ninth Amendment, dated as April 4,
1996, to the Loan and Security Agreement between
Grossman's Inc. and BankAmerica Business Credit,
Inc., dated December 15, 1993.
4(p) Schedule of Tranche A Convertible Promissory
Notes and Tranche B Promissory Notes Delivered on
April 9, 1996, filed herewith.
4(p)-1 Tranche A Convertible Promissory Note, dated
April 9, 1996, between Grossman's Inc. and
Continental Assurance Company, filed herewith.
4(p)-2 Tranche B Convertible Promissory Note, dated
April 9, 1996, between Grossman's Inc. and
Continental Assurance Company, filed herewith.
4(q) Loan Agreement, dated April 4, 1996, between GRS
Realty Company, Inc. and Combined Investors,
L.L.C., filed herewith.
4(r) Loan and Security Agreement, dated May 2, 1996,
by and between Congress Financial Corporation
(New England) and Grossman's Inc., filed
herewith.
10(q) Agency Agreement, dated March 29, 1996, by and
between Gordon Brothers Partners, Inc. and
Grossman's Inc., filed herewith.
11(a) Statement re computation of earnings per share,
filed herewith.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K with the Securities and
Exchange Commission, dated and filed January 12, 1996,
reporting on the Sixth and Seventh Amendments to the Loan
and Security Agreement between Grossman's Inc. and
BankAmerica Business Credit, Inc.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GROSSMAN'S INC.
Company
by /s/ Steven L. Shapiro
-------------------------------------
Steven L. Shapiro
Vice President - Controller
(Principal Accounting Officer)
DATE: May 13, 1996
20
EIGHTH AMENDMENT, dated as of March 28, 1996 (this
"Amendment"), to the Loan and Security Agreement, dated as of
December 15, 1993 (as heretofore amended, supplemented or
otherwise modified, the "Loan Agreement"), between BankAmerica
Business Credit, Inc. (the "Lender") and Grossman's Inc. (the
"Borrower").
W I T N E S S E T H :
WHEREAS, the Lender and the Borrower are parties to the Loan
Agreement;
WHEREAS, the Borrower has requested that the Lender amend
the Loan Agreement in certain respects; and
WHEREAS, the Lender is willing to agree to such amendment
but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the respective meanings
ascribed thereto in the Loan Agreement.
Section 2. Amendment of Loan Agreement. The Loan Agreement
shall be, and upon the fulfillment of the conditions set forth in
Section 4 hereof is, amended as follows:
2.1 The first WHEREAS clause of the Loan Agreement is
hereby amended by deleting the amount "$60,000,000" contained
therein and substituting therefor the amount "$40,000,000".
2.2 Section 1.1 of the Loan Agreement (Defined Terms)
is hereby amended by:
(a) deleting the amount "$75,000,000" in the
definition "Availability" and substituting therefor the amount
"$40,000,000".
(b) adding the following sentence to the end of the
definition "Eligible Accounts":
"Notwithstanding anything herein, in no event shall any
Accounts created by the Eastern Division of the Borrower be
considered Eligible Accounts."
(c) adding the following sentence to the end of the
definition Eligible Inventory:
"Notwithstanding anything herein, in no event shall any
Inventory of the Eastern Division of the Borrower be
considered Eligible Inventory."
(d) adding the following definitions in the correct
alphabetical order:
"'Eastern Division' means the division of the Borrower
whose stores use the tradename "Grossman's" and are located
in Massachusetts, New York, Vermont, New Hampshire, Maine,
Connecticut, Pennsylvania and Rhode Island.
'Gordon Brothers' means Gordon Brothers Partners, Inc.,
a Massachusetts corporation.
'Gordon Brothers Agency Agreement' means the Agency
Agreement between the Borrower and Gordon Brothers in
substantially the form of Exhibit G hereto, as originally
executed and as amended, modified or supplemented from time
to time in accordance with the terms thereof and hereof.
'Gordon Brothers Security Agreement' means the Security
Agreement (Grossmans) between the Borrower and Gordon
Brothers in substantially the form of Exhibit H hereto, as
originally executed and as amended, modified or supplemented
from time to time in accordance with the terms thereof and
hereof.
'Sale Inventory' has the meaning set forth in clause
(l) of the definition Permitted Liens."
(e) (i) deleting the word "and" at the end of
clause (j) of the definition "Permitted Liens", (ii) deleting the
period at the end of clause (k) of such definition and
substituting ; and therefor and (iii) adding the following
clause (l) to such definition:
(l) Liens by the Borrower in favor of Gordon Brothers
granted under the Gordon Brothers Security Agreement in that
inventory (and proceeds thereof) of the Eastern Division of
the Borrower which is located at those stores of the
Borrower set forth on Exhibit 1 to the form of Gordon
Brothers Agency Agreement attached hereto as Exhibit G on
the respective dates that Gordon Brothers commences taking
inventory at each such location as provided in Section 2(a)
of the Gordon Brothers Agency Agreement (the Sale
Inventory); provided that such inventory lien shall not be
granted until such time as the Lender receives for
application to the payment of the Obligations cash in an
amount not less than 80% of the Guaranteed Amount (as
defined in the Gordon Brothers Agency Agreement) for all the
Sale Inventory and such inventory lien shall in no event
cover any other inventory (or proceeds thereof) of the
Borrower.
2.3 Section 2.1 of the Loan Agreement (Total Facility)
is hereby amended by deleting the amount "$75,000,000" contained
therein and substituting therefor the amount "$40,000,000".
2.4 Section 2.3 of the Loan Agreement (Letters of
Credit) is hereby amended by deleting the amount "$15,000,000"
contained therein and substituting therefor the amount
"$12,000,000".
2.5 Section 7.2 of the Loan Agreement (Financial
Information) is hereby amended by adding the following clause (n)
thereto:
"(n) On a daily basis, an inventory report for each
Contractor's Warehouse store of the Borrower for the
immediately preceding day."
2.6 Section 9.5 of the Loan Agreement (Mergers,
Consolidations, Acquisitions, or Sales) is hereby amended by
(i) deleting the word "and" immediately before clause (vi)
thereof and substituting a comma therefor and (ii) adding the
following immediately before the period at the end of such
section:
", (vii) the Borrower may, pursuant to documentation
satisfactory to the Lender, sell to Goldman Sachs the
promissory note dated September 26, 1995 by KMart to the
order of the Borrower in the original principal amount of
$15,800,000 for a cash purchase price of not less than
$13,035,000, with respect to which an amount equal to the
net cash proceeds thereof may be applied to the payment of
the Obligations and (viii) the Borrower may sell the Sale
Inventory in accordance with the terms of the Gordon
Brothers Agency Agreement so long as at such time as the
Borrower shall be entitled under the terms of the Gordon
Brothers Agency Agreement to receive any monies from the
sale of any such inventory, the Borrower shall cause Gordon
Brothers to remit same directly to the Lender in immediately
available funds in U.S. Dollars, such monies to be applied
to the payment of the Obligations"
2.7 Section 9.9 of the Loan Agreement (Debt) is hereby
amended by (i) deleting the word "and" at the end of clause (h)
thereof, (ii) deleting the period at the end of clause (i)
thereof and substituting "; and" therefor and (iii) adding the
following clause (j) thereto:
"(j) Debt under the Gordon Brothers Agency Agreement."
2.8 A new Section 9.12 is added to the Loan Agreement
and reads as follows:
"9.12 "Availability. The Borrower shall at all
times cause Availability (less, if the real estate loan
to a Subsidiary of the Borrower contemplated by the
Letter of Intent, dated March 22, 1996, from Gordon
Brothers to the Borrower shall close, the aggregate
amount of all payables owing by the Borrower which are
more than sixty days (thirty days from June 30, 1996
and thereafter) overdue on the date of determination)
to be not less than $2,500,000; it being agreed
notwithstanding Section 11.1 hereof that the failure of
the Borrower to comply with the foregoing covenant on
any particular date shall constitute an Event of
Default if the Borrower is not in compliance with this
Section 9.12 within 5 Business Days after such date."
2.9 Sections 9.18 (Capital Expenditures), 9.20
(Minimum Interest Coverage), 9.21 (Adjusted Tangible Net Worth),
9.22 (Fixed Maturity Coverage), 9.24 (Sufficient Cash From Asset
Sales) and 9.25 (Proceeds of Store Sales and Note) of the Loan
Agreement are deleted in their entirety.
2.10 New Section 9.26 is added to the Loan Agreement
and reads as follows:
"9.26 Amendments. The Borrower shall not directly or
indirectly amend, modify, supplement, waive compliance with,
or assent to noncompliance with, any term or provision of
the Gordon Brothers Agency Agreement or the Gordon Brothers
Security Agreement."
2.11 New Exhibits G and H to the Loan Agreement are
added and read as set forth on Exhibit 2.11 hereto.
Section 3. Representations and Warranties. To induce the
Lender to enter into this Amendment, the Borrower hereby
represents and warrants to the Lender as follows, with the same
effect as if such representations and warranties were set forth
in the Loan Agreement:
(a) The Borrower has the corporate power and authority
to enter into this Amendment, the Gordon Brothers Agency
Agreement and the Gordon Brothers Security Agreement and has
taken or will take all corporate action required to authorize or
ratify its execution, delivery and performance of such agreements
and its performance of the Loan Agreement, as amended hereby (as
so amended, the "Amended Agreement"). Each of this Amendment,
the Gordon Brothers Agency Agreement and the Gordon Brothers
Security Agreement has been duly executed and delivered by the
Borrower and each such agreement and the Amended Agreement
constitutes the valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms.
The execution, delivery and performance by the Borrower of this
Amendment, the Gordon Brothers Agency Agreement, the Gordon
Brothers Security Agreement and the Amended Agreement will not
violate the certificate of incorporation or by-laws of the
Borrower or any agreement or legal requirement binding on the
Borrower.
(b) On the date hereof and after giving effect to the
terms of this Amendment, (i) the Loan Agreement and the other
Loan Documents are in full force and effect and constitute the
Borrower's binding obligations, enforceable against the Borrower
in accordance with their respective terms; (ii) no Event or Event
of Default has occurred and is continuing; and (iii) the Borrower
does not have any defense to or setoff, counterclaim or claim
against payment of the Obligations and enforcement of the Loan
Documents based upon a fact or circumstance existing or occurring
on or prior to the date hereof.
Section 4. Effectiveness. This Amendment shall be
effective upon fulfillment of the following conditions:
(a) the receipt by the Lender of a counterpart hereof
duly executed by the Borrower;
(b) the receipt by the Lender of immediately available
funds in U.S. dollars in an amount not less than $23,700,000 from
monies payable to the Borrower under the Gordon Brothers Agency
Agreement to be applied to the payment of the Obligations; and
(c) immediately after giving effect to the
effectiveness of this Amendment and the consummation of the
transactions contemplated hereby and by the Gordon Brothers
Agency Agreement, there shall exist no Event, Event of Default or
event of default under any of the Gordon Brothers Agency
Agreement or Gordon Brothers Security Agreement.
Section 5. Subordination. Effective upon the effectiveness
of this Amendment, the Lender agrees that, from and after the
Lender's receipt in immediately available funds in U.S. dollars
of 80% of the Guaranteed Amount (as such term is defined in the
Gordon Brothers Agency Agreement as defined in Section 2.2(d)
hereof) for all Sale Inventory (as such term is defined below),
the Lender's security interest and lien in the Sale Inventory and
all proceeds thereof shall be subordinated to the security
interest and lien of Gordon Brothers Partners, Inc. therein
created under the Gordon Brothers Security Agreement (as such
term is defined in Section 2.2(d) hereof). "Sale Inventory"
means that inventory of the Eastern Division (as such term is
defined in Section 2.2(d) hereof) of the Borrower which is
located at those stores of the Borrower set forth on Exhibit 1 to
the form of Gordon Brothers Agency Agreement attached hereto as
part of Exhibit 2.11 on the respective dates that Gordon Brothers
Partners, Inc. commences inventory taking at each such store as
provided in Section 2(a) of the Gordon Brothers Agency Agreement.
In no event shall the foregoing subordination cover any other
inventory of the Borrower (or any proceeds, including, without
limitation, receivables, thereof). The subordination provided in
this Section 5 is for the sole benefit of Gordon Brothers
Partners, Inc. and such Person may rely on this Section 5. The
agreements made in this Section 5 are solely for the purpose of
establishing the relative priorities of the Lender and Gordon
Brothers Partners, Inc. and there are no other Persons
(including, without limitation, the Borrower or any trustee in
bankruptcy) who are intended to be benefitted in any way by this
Section 5.
Section 6. Agency Agreement As Collateral. The Borrower
acknowledges that all right, title and interest of the Borrower
to receive monies under the Gordon Brothers Agency Agreement
constitutes Collateral.
Section 7. Limited Effect. This Amendment shall be limited
solely to the matters expressly set forth herein and shall not
(a) constitute an amendment of any other term or condition of the
Loan Agreement or of any instrument or agreement referred to
therein or (b) prejudice any right or rights which the Lender may
now have or may have in the future under or in connection with
the Loan Agreement or any instrument or agreement referred to
therein. Except as expressly amended hereby, all of the
covenants and provisions of the Loan Agreement are and shall
continue to be in full force and effect.
Section 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
Section 9. Counterparts. This Amendment may be executed by
the parties hereto in any number of separate counterparts, each
of which shall be an original, and all of which taken together
shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective
proper and duly authorized officers as of the day and year first
above written.
BANKAMERICA BUSINESS CREDIT, INC.
By: ____________________________
Name:
Title:
GROSSMAN'S INC.
By: ____________________________
Name:
Title:<PAGE>
Exhibit 2.11
[Exhibits G and H to Loan Agreement]
WAIVER AND NINTH AMENDMENT, dated as of April 4, 1996 (this
"Waiver and Amendment"), to the Loan and Security Agreement,
dated as of December 15, 1993 (as heretofore amended,
supplemented or otherwise modified, the "Loan Agreement"),
between BankAmerica Business Credit, Inc. (the "Lender") and
Grossman's Inc. (the "Borrower").
W I T N E S S E T H :
WHEREAS, the Lender and the Borrower are parties to the Loan
Agreement;
WHEREAS, the Borrower has requested that the Lender amend
the Loan Agreement in certain respects and waive compliance with
certain provisions contained therein; and
WHEREAS, the Lender is willing to agree to such amendment
and waiver but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the respective meanings
ascribed thereto in the Loan Agreement.
Section 2. Amendment of Loan Agreement. The Loan Agreement
shall be, and upon the fulfillment of the conditions set forth in
Section 5 hereof is, amended as follows:
2.1 Section 1.1 of the Loan Agreement (Defined Terms)
is hereby amended by:
(a) adding the following definitions in the correct
alphabetical order:
"'Consulting Agreement' means the Real Estate Marketing
Consulting Agreement to be entered into by Newco Subsidiary
with a real estate consultant in substantially the form of
the "Consulting Agreement" Exhibit attached to the form of
Gordon Brothers Loan Agreement attached hereto as part of
Exhibit I, as originally executed and as amended, modified
or supplemented from time to time in accordance with the
terms thereof and hereof.
'Gordon Brothers Documents' means, collectively, the
Gordon Brothers Agency Agreement, the Gordon Brothers
Security Agreement, the Gordon Brothers Loan Documents, the
Master Lease and the Consulting Agreement.
'Gordon Brothers Lender means Combined Investors,
L.L.C., a Delaware limited liability company.
'Gordon Brothers Loan Agreement' means the Loan
Agreement between Gordon Brothers Lender and Newco
Subsidiary in substantially the form set forth as part of
Exhibit I hereto, as originally executed and as amended,
modified or supplemented from time to time in accordance
with the terms thereof and hereof.
'Gordon Brothers Loan Documents' means, collectively,
the Gordon Brothers Loan Agreement, the Notes, the Security
Instruments, the FF&E Commission Agreement and the
Grossman's Agreement (as such terms are defined in the
Gordon Brothers Loan Agreement) in substantially the forms
set forth as part of Exhibit I hereto and the other
documents and instruments executed in connection therewith,
each as originally executed and as amended, modified or
supplemented from time to time in accordance with the terms
thereof and hereof.
'Master Lease' means the Master Lease between Newco
Subsidiary and the Borrower in substantially the form of
Exhibit J hereto, as originally executed and as amended,
modified or supplemented from time to time in accordance
with the terms thereof and hereof.
'Newco Subsidiary' means GRS Realty Company, Inc., a
Delaware corporation and a direct wholly-owned Subsidiary of
Newco Holdings.
'Newco FF&E' means the Equipment of the Eastern
Division of the Borrower to be transferred to Newco
Subsidiary and intended to be sold pursuant to the FF&E
Commision Agreement (as such term is defined in the Gordon
Brothers Loan Agreement).
'Newco Holdings' means GRS Holding Company, Inc., a
Delaware corporation and a direct wholly-owned Subsidiary of
the Borrower.
'Newco Real Property' means the real property set forth
on Exhibits A and B to the form of Gordon Brothers Loan
Agreement attached hereto as part of Exhibit I hereto.
'Newco Sale Property' means the real property set forth
on Exhibit A to the form of Gordon Brothers Loan Agreement
attached hereto as part of Exhibit I hereto.
'Replacement Debenture Documents' means, collectively,
the Tranche A Convertible Promissory Notes in the original
aggregate principal amount of $3,000,000 and the Tranche B
Promissory Note in the original principal amount of
approximately $2,700,000, each by the Borrower and in
substantially the forms of Exhibit K hereto and the other
documents and instruments executed in connection therewith,
each as originally executed and as amended, modified or
supplemented from time to time in accordance with the terms
thereof and hereof.
(b) (i) deleting the word "and" at the end of
clause (k) of the definition "Permitted Liens", (ii) deleting the
period at the end of clause (l) of such definition and
substituting ; and therefor and (iii) adding the following
clause (m) to such definition:
"(m) Liens by Newco Subsidiary in favor of the Gordon
Brothers Lender granted under the Gordon Brothers Loan
Documents on the interest of Newco Subsidiary in the Newco
Real Property, the Newco FF&E and certain other assets of
Newco Subsidiary and Liens by Newco Holdings in favor of the
Gordon Brothers Lender granted under the Gordon Brothers
Loan Documents on the capital stock of Newco Subsidiary, in
each instance, securing solely the obligations of Newco
Subsidiary and Newco Holdings, as the case may be, under the
Gordon Brothers Loan Documents."
(c) deleting the word "and" at the end of clause (i)
in the definition "Restricted Investment", (ii) deleting the
period at the end of clause (j) of such definition and
substituting "; and" therefor and (iii) adding the following
clause (k) to such definition:
"(k) the investment by the Borrower in the capital
stock of Newco Holdings and the investment by Newco Holdings
in the capital stock of Newco Subsidiary, such investment by
the Borrower to be limited solely to the contribution of the
Newco Real Property and the Newco FF&E."
2.2 Section 9.5 of the Loan Agreement (Mergers,
Consolidations, Acquisitions, or Sales) is hereby amended by
(i) deleting the word "and" immediately before clause (viii)
thereof and substituting a comma therefor and (ii) adding the
following immediately before the period at the end of such
section:
", (ix) the Borrower may contribute the Newco Real
Property and Newco FF&E in connection with the transactions
contemplated by the Gordon Brothers Loan Documents and
(x) Newco Subsidiary may sell (1) the Newco Sale Property in
accordance with the terms of the Consulting Agreement and
(2) the Newco FF&E in accordance with the terms of the FF&E
Commission Agreement (as such term is defined in the Gordon
Brothers Loan Agreement) substantially in the form attached
hereto as part of Exhibit I so long as, in each instance
under such clauses (1) and (2), within 5 Business Days of
receipt by Newco Subsidiary of any net cash proceeds thereof
which Newco Subsidiary is entitled to retain (and which are
not required by the Gordon Brothers Loan Documents to be
applied to the payment of Newco Subsidiary's obligations
thereunder), such net cash proceeds are dividended to the
Borrower to be applied to the payment of the Obligations."
2.3 Section 9.8 of the Loan Agreement (Guarantees) is
hereby amended by (i) deleting the word "and" at the end of
clause (e) thereof, (ii) deleting the period at the end of
clause (f) thereof and substituting "; and" therefor and
(iii) adding the following clause (g) thereto:
"(g) the guarantee by Newco Holdings of the obligations
of Newco Subsidiary as provided by the Gordon Brothers Loan
Documents."
2.4 Section 9.9 of the Loan Agreement (Debt) is hereby
amended by (i) deleting the word "and" at the end of clause (i)
thereof, (ii) deleting the phrase Gordon Brothers Agency
Agreement. in clause (j) thereof and substituting therefor the
phrase Gordon Brothers Document; and and (iii) adding the
following clause (k) thereto:
(k) Debt under the Replacement Debenture Documents,
which Debt, together with the payment of $12,100,000 in cash from
borrowings hereunder, shall replace the Debt under the Borrower's
14% debentures due January 1, 1996."
2.5 Section 9.11 of the Loan Agreement (Transactions
with Affiliates) is hereby amended by adding the following phrase
immediately before the period at the end thereof:
"and other than as contemplated by the Master Lease and
Sections 9.5(vii), 9.6(a) and 9.8(g) hereof; provided,
however, in no event shall (x) the aggregate payments by the
Borrower under the Master Lease (other than payments by the
Borrower for net operating costs, not constituting rent,
which are paid by the Borrower directly to taxing
authorities, insurance companies and other third parties
with the exception of Newco Subsidiary, the Gordon Brothers
Lender, Gordon Brothers and any affiliates thereof) exceed
$2,500,000 and (y) the Borrower sell, transfer, lend or
contribute to Newco Subsidiary or Newco Holdings any cash or
other property other than the Newco Real Property, the Newco
FF&E and lease payments under the Master Lease subject to
the limitation in clause (x) above"
2.6 Section 9.15 of the Loan Agreement (Sale and
Leaseback Transactions) is hereby amended by adding after the
phrase "Sections 9.5(ii) or (iii)" the phrase ", the contribution
and lease of stores contemplated by the Master Lease"
2.7 Section 9.19 of the Loan Agreement (Operating
Lease Obligations) is hereby amended by adding the following
sentence thereto.
"Notwithstanding the foregoing and in
addition to amounts permitted by the
foregoing, the Borrower and Newco Subsidiary
may enter into the Master Lease (the payments
by the Borrower thereunder being limited as
provided in Section 9.11 above).
2.8 Section 9.26 of the Loan Agreement (Amendments)
is deleted in its entirety and a new Section 9.26 shall be
substituted therefor and reads as follows:
"9.26 Amendments. The Borrower shall not (and shall
not permit any of its Subsidiaries to) directly or
indirectly amend, modify, supplement, waive compliance with,
or assent to noncompliance with, any term or provision of
any of the Gordon Brothers Documents or the Replacement
Debenture Documents."
2.9 Section 11.1 of the Loan Agreement (Events of
Default) is hereby amended by (i) deleting the word "or" at the
end of clause (p) thereof, (ii) deleting the period at the end of
clause (q) thereof and substituting a semicolon therefor and
(iii) adding the following clauses (r) and (s) to such section:
"(r) the Borrower shall have
failed, during the continuance of
an Event or Event of Default, to
issue additional debentures or
notes as payment (in lieu of cash)
of interest under the Replacement
Debenture Documents to the extent
the Borrower is permitted to do so
under such documents; or
"(s) the Borrower shall pay greater
than $2,500,000 in the aggregate
under the Master Lease (other than
payments by the Borrower for net
operating costs, not constituting
rent, which are paid by the
Borrower directly to taxing
authorities, insurance companies
and other third parties with the
exception of Newco Subsidiary, the
Gordon Brothers Lender, Gordon
Brothers and any affiliates
thereof)."
2.10 Schedule 8.5 to the Loan Agreement is hereby
replaced with a new Schedule 8.5 which reads as set forth on
Exhibit 2.10 hereto.
2.11 New Exhibits I, J and K to the Loan Agreement are
added and read as set forth on Exhibit 2.11 hereto.
Section 3. Representations and Warranties. To induce the
Lender to enter into this Waiver and Amendment, the Borrower
hereby represents and warrants to the Lender as follows, with the
same effect as if such representations and warranties were set
forth in the Loan Agreement:
(a) Each of the Borrower, Newco Holdings and Newco
Subsidiary, as the case may be, has the corporate power and
authority to enter into this Waiver and Amendment, the Gordon
Brothers Documents and the Replacement Debenture Documents to
which it is a party and has taken or will take all corporate
action required to authorize or ratify its execution and delivery
of such agreements to which it is a party and, with respect to
the Borrower, its performance of the Loan Agreement, as amended
hereby (as so amended, the "Amended Agreement"). Each of this
Waiver and Amendment, the Gordon Brothers Documents and the
Replacement Debenture Documents has been duly executed and
delivered by the Borrower, Newco Holdings and Newco Subsidiary,
as the case may be, and each such agreement and the Amended
Agreement constitutes the valid and binding obligation of the
Borrower, Newco Holdings and Newco Subsidiary, as the case may
be, enforceable against such Person in accordance with its terms.
The execution, delivery and performance by the Borrower, Newco
Holdings and Newco Subsidiary, as the case may be, of this Waiver
and Amendment, the Gordon Brothers Documents, the Replacement
Debenture Documents and the Amended Agreement will not violate
the certificate of incorporation or by-laws of the Borrower or
any of its Subsidiaries or any agreement or legal requirement
binding on the Borrower or any of its Subsidiaries.
(b) On the date hereof and after giving effect to the
terms of this Waiver and Amendment, (i) the Loan Agreement and
the other Loan Documents are in full force and effect and
constitute the Borrower's binding obligations, enforceable
against the Borrower in accordance with their respective terms;
(ii) no Event or Event of Default has occurred and is continuing;
and (iii) the Borrower does not have any defense to or setoff,
counterclaim or claim against payment of the Obligations and
enforcement of the Loan Documents based upon a fact or
circumstance existing or occurring on or prior to the date
hereof.
(c) The transfer by Newco Subsidiary to Newco Holdings
and of Newco Holdings to the Borrower of proceeds of the loans
made under the Gordon Brothers Loan Documents constitute
dividends (and not loans) by the respective transferor to the
respective transferee. The payment of such dividends will not
violate the certificate of incorporation or by-laws of the
Borrower or any of its Subsidiaries or any agreement or legal
requirement (including, without limitation, corporate laws)
binding on the Borrower or any of its Subsidiaries.
Section 4. Waiver and Agreement. Subject to fulfillment of
the conditions set forth in Section 5 hereof, the Lender hereby
waives compliance with any requirement in any Loan Document that
the Borrower pledge or cause to be pledged to the Lender the
capital stock of Newco Subsidiary or Newco Holdings. The
Borrower agrees that it shall not pledge, encumber, sell, assign,
transfer or otherwise dispose of any capital stock of Newco
Holdings. The failure of the Borrower to comply with the
immediately preceding sentence shall constitute an Event of
Default.
Section 5. Effectiveness. This Waiver and Amendment shall
be effective upon fulfillment of the following conditions:
(a) the receipt by the Lender of a counterpart hereof
duly executed by the Borrower;
(b) the receipt by the Lender of a Landlord Waiver
duly executed by Newco Subsidiary and of a Mortgagee Waiver duly
executed by Combined Investors, L.L.C., each in form and
substance satisfactory to the Lender;
(c) the receipt by the Lender of (x) a legal opinion
from Messrs. Ropes & Gray, counsel to the Borrower and its
Subsidiaries, in form and substance satisfactory to the Lender
and its counsel and (y) reliance letters, in the form and
substance satisfactory to the Lender and its counsel, addressed
to the Lender allowing the Lender to rely on any opinions
delivered by counsel to the Borrower or any of its Subsidiaries
in connection with the Gordon Brothers Documents or Replacement
Debenture Documents; and
(d) immediately after giving effect to the
effectiveness of this Waiver and Amendment and the consummation
of the transactions contemplated hereby and by the Gordon
Brothers Documents and Replacement Debenture Documents, there
shall exist no Event, Event of Default or event of default under
any of the Gordon Brothers Documents or Replacement Debenture
Documents.
Section 6. Dividend of Funds From Newco Subsidiary. In
addition to any monies to be dividended by Newco Subsidiary as
provided in Section 9.5(x) of the Loan Agreement as amended
hereby, the Borrower shall cause Newco Subsidiary to promptly
dividend to Newco Holdings (and Newco Holdings to promptly
dividend to the Borrower) all monies received and to be retained
by Newco Subsidiary which are not required to be applied to the
payment of Newco Subsidiary's obligations under the Gordon
Brothers Loan Documents and which are permitted by Section 4.7 of
the Gordon Brothers Loan Agreement to be so dividended by Newco
Subsidiary. All such monies received by the Borrower shall be
promptly remitted to the Lender to be applied to the payment of
the Obligations. The failure of the Borrower to comply with this
Section 6 shall constitute an Event of Default.
Section 7. Payments Under Master Lease. The Borrower
agrees that, in addition to any other conditions precedent for
the making of any financial accommodations under the Loan
Agreement, it shall be a condition precedent that the Borrower
shall not have paid greater than $2,500,000 in the aggregate
under the Master Lease (as such term is defined in Section 2.2(a)
hereof) (other than payments by the Borrower for net operating
costs, not constituting rent, which are paid by the Borrower
directly to taxing authorities, insurance companies and other
third parties with the exception of Newco Subsidiary, the Gordon
Brothers Lender, Gordon Brothers and any affiliates thereof).
Section 8. Limited Effect. This Waiver and Amendment shall
be limited solely to the matters expressly set forth herein and
shall not (a) constitute an amendment or waiver of any other term
or condition of the Loan Agreement or of any instrument or
agreement referred to therein or (b) prejudice any right or
rights which the Lender may now have or may have in the future
under or in connection with the Loan Agreement or any instrument
or agreement referred to therein. Except as expressly waived or
amended hereby, all of the covenants and provisions of the Loan
Agreement are and shall continue to be in full force and effect.
Section 9. GOVERNING LAW. THIS WAIVER AND AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK.
Section 10. Counterparts. This Waiver and Amendment may be
executed by the parties hereto in any number of separate
counterparts, each of which shall be an original, and all of
which taken together shall be deemed to constitute one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Waiver and Amendment to be duly executed and delivered by their
respective proper and duly authorized officers as of the day and
year first above written.
BANKAMERICA BUSINESS CREDIT, INC.
By: ____________________________
Name:
Title:
GROSSMAN'S INC.
By: ____________________________
Name:
Title:<PAGE>
Exhibit 2.10
[Schedule 8.5 to Loan Agreement]<PAGE>
Exhibit 2.11
[Exhibits I, J and K to Loan Agreement]
Schedule of Tranche A Convertible Promissory Notes
and Tranche B Promissory Notes Delivered on April 9, 1996
---------------------------------------------------------
1. Continental Assurance Company
Tranche A Convertible Note: $ 250,000.00
Tranche B Note: $ 231,000.00
2. Continental Casualty Company
Tranche A Convertible Notes: $ 500,000.00
Tranche A Convertible Notes: $ 500,000.00
Tranche A Convertible Notes: $ 500,000.00
Tranche A Convertible Notes: $ 500,000.00
Tranche A Convertible Notes: $ 125,000.00
Tranche B Note: $1,970,155.68
3. Continental Assurance Company on behalf of its
separate account
Continental Assurance Company Pension Investment Fund
Tranche A Convertible Note: $ 625,000.00
Tranche B Note: $ 579,000.00
TRANCHE A
CONVERTIBLE PROMISSORY NOTE
$250,000 Boston, Massachusetts
April 9, 1996
FOR VALUE RECEIVED, the undersigned, GROSSMAN'S
INC., a Delaware corporation (the "Company"), having its principal offices at
45 Dan Road, Canton, Massachusetts 02021, hereby unconditionally promises
to pay to CONTINENTAL ASSURANCE COMPANY, or any subsequent
holder of this Note (the "Payee"), at 333 South Wabash, 41 South, Chicago,
Illinois 60685, or at such other place as the Payee may designate from time to
time in writing to the Company, in lawful money of the United States of
America and in immediately available funds, the principal amount of Two
Hundred Fifty Thousand Dollars ($250,000), together with interest on the
unpaid principal amount of this Note from time to time outstanding from and
including the date hereof until this Note is paid in full, at 10% per annum,
payable in semi-annual installments as set forth below.
1. Payment.
(a) The principal amount of the indebtedness
evidenced hereby shall be payable in full on March 31, 1999.
(b) The Company shall pay interest on the unpaid
principal amount of this Note (including, without limitation, each Interest
Deferral Note (as defined below) issued pursuant to this Section 1(b)) semi-
annually in arrears on March 31 and September 30 of each year (each, an
"Interest Payment Date") commencing on September 30, 1996, and on each
date of payment of principal of this Note (at maturity, by acceleration or
otherwise), at a rate equal to 10% per annum (based on a year of 360 days and
the actual number of days elapsed); provided, however, that on each such
Interest Payment Date, unless there exists an Event of Default hereunder, the
regularly scheduled interest payable hereunder may be paid, at the election of
the Company, either (i) all in cash, (ii) by delivery to the Payee of a note for
such amount dated such Interest Payment Date, payable to Payee and duly
executed and delivered by Payee substantially in the form of Exhibit I hereto
(each, an "Interest Deferral Note") or (iii) in part in cash and with the
balance evidenced by an Interest Deferred Note. Without limiting the generality
of the foregoing, interest paid in connection with any prepayment of principal
pursuant to Section 1(d) hereof may be paid only in cash.
(c) If any date set for payment is not a business day,
then the payment date shall be extended to the next succeeding business day,
and during any such extension interest on the principal amount of this Note
outstanding shall accrue and be payable at the applicable rate.
(d) This Note may not be prepaid in whole or in part
without the prior written consent of the Payee; provided, however, that the
Company shall have the right to prepay, without premium or penalty, the
outstanding principal amount of this Note, in whole in part, in the event of the
merger or consolidation of the Company, or the sale, transfer, assignment or
disposition of all or substantially all of the Company's assets. Any
prepayment made pursuant to the preceding proviso (i) shall be made upon
thirty days' irrevocable prior written notice to the Payee specifying (A) the
date and amount of such prepayment and (B) the event giving rise to such
prepayment and (ii) shall be accompanied by the payment of accrued and
unpaid interest in cash on the amount being prepaid through the date of such
prepayment (it being understood that the Payee is entitled to elect to exercise
its conversion rights under Section 4 hereof in whole or in part from time to
time during the period after such irrevocable notice of prepayment has been
given).
2. Affirmative Covenants. For as long as any principal or
interest remains unpaid under this Note or any Interest Deferral Note:
(a) Reports by the Company.
(i) The Company shall deliver to the Payee,
promptly after the Company files them with the Securities and
Exchange Commission ("SEC"), copies of the annual and quarterly
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the
SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(ii) If the Company is not subject to the
requirements of such Section 13 or 15(d) of the Exchange Act, the
Company shall deliver to the Payee, on or before the Company would
have been required to file them with the SEC, financial statements,
including any notes thereto (and with respect to annual reports, an
auditors' report by a firm of established national reputation), and a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," both comparable to that which the Company
would have been required to include in such annual and quarterly
reports, information, documents or other reports if the Company were
subject to the requirements of such Section 13 or 15(d) of the Exchange
Act.
(b) Notice of Default. The Company shall give
prompt written notice to the Payee of the occurrence of any Event of Default
hereunder; provided, however, that if any such Event of Default has been
remedied, then the failure to give notice hereunder shall not in and of itself
constitute an Event of Default hereunder.
(c) Payment of taxes and other claims. The
Company shall pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income, profits or property, and
(2) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon its property; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity
is being contested in good faith by appropriate proceedings if the Company
shall have set aside on its books adequate reserves with respect thereto in
accordance with generally accepted accounting principles.
(d) Maintenance of properties and assets. The
Company shall cause all properties and assets (or groups of similar properties
and assets) which are used or useful in any material respect in the conduct of
its business or the business of any Subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the reasonable
judgment of the Company or such Subsidiary, as the case may be, may be
necessary so that the businesses carried on in connection therewith may be
properly and advantageously conducted; provided, however, that nothing in
this Section 2(d) shall prevent the Company or any Subsidiary from
discontinuing the operation or maintenance of any of such properties or assets
if such discontinuance is, in the judgment of the Company or the Subsidiary,
as the case may be, desirable in the conduct of their respective businesses.
(e) Corporate existence. The Company shall, and
shall cause each Subsidiary to, do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
(charter and statutory) and franchises; provided, however, that neither the
Company nor any Subsidiary shall be required to preserve any right or
franchise if the Board of Directors of the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company or the Subsidiary, as the case may be.
(f) Books and records. The Company shall maintain,
and shall cause each Subsidiary to maintain, at their respective principal
offices books, accounts and records necessary to prepare financial statements
in accordance with generally accepted accounting principles, and in compliance
with the regulations of any governmental regulatory body having jurisdiction in
respect thereof.
(g) Insurance. The Company shall maintain and shall
cause each Subsidiary to maintain with responsible insurers such insurance in
such amounts as is customary and appropriate for their respective businesses.
3. Negative Covenants. For so long as any principal or
interest remains unpaid under this Note or any Interest Deferral Note, the
Company shall not, and shall not permit any of its direct or indirect
subsidiaries ("Subsidiaries" or a "Subsidiary") without prior written consent of
the Payee:
(a) merge or consolidate with or into any other
corporation, except (i) any merger or consolidation in which the Company is
the surviving corporation and (ii) any merger or consolidation of any entity
(other than the Company) with or into any wholly-owned subsidiary of the
Company; provided, however, that in no event shall a merger be permitted in
which the consolidated net worth of the surviving corporation immediately
following such merger is less than the consolidated net worth of such
corporation immediately prior to such merger; or
(b) sell, assign, transfer or otherwise dispose of all or
substantially all of the Company's assets; or
(c) declare, authorize or make any dividend or other
distribution on any capital stock of the Company (except a dividend or
distribution in shares of common stock), and neither the Company nor any
Subsidiary shall acquire or redeem shares of capital stock of the Company if,
after giving effect thereto, the aggregate payments for all such purposes would
exceed 50% of consolidated net income (as determined in accordance with
generally accepted accounting principles) for the period commencing January
1, 1996 and ending on the last day of the fiscal quarter immediately preceding
the date of payment; provided, however, that nothing shall prohibit any
Subsidiary from paying a dividend to the Company or any other wholly-owned
subsidiary.
(i) The provisions of this Section 3(c) shall
not prevent the Company from paying a dividend on common stock
within 60 days after the declaration thereof if, on the date of
declaration, the Company could have paid such dividend in compliance
with the other provisions of this Section 3(c).
(ii) Notwithstanding the foregoing, the
Company may acquire shares of its capital stock (A) solely in exchange
for other shares of capital stock, whether upon conversion or otherwise,
(B) to eliminate fractional shares, (C) from an employee who has
purchased or otherwise acquired such shares under an employee stock
option or a stock purchase agreement or other plan or agreement
reserving to the Company the option to repurchase the shares (but in no
event for a price greater than the higher of fair market value or the
price at which such securities were sold by the Company), (D) to the
extent required by applicable law, and (E) pursuant to a court order.
The amount of aggregate consideration paid by the Company pursuant
to this paragraph shall be included in all subsequent computations of
payments pursuant to the first paragraph of this Section 3(c). The
aggregate consideration paid pursuant to subclauses (B) and (C) of this
paragraph shall not exceed the aggregate amount of $1,000,000 in any
fiscal year of the Company.
4. Conversion Rights.
(a) Right to Convert. Subject to the terms and
conditions contained herein, the Payee has the right, at its option and in its
sole discretion, to convert at any time and from time to time, up to the
aggregate outstanding principal amount payable under this Note and the other
Tranche A Convertible Promissory Notes payable to such Payee (but in no
event in an aggregate amount less than $500,000 at any time) on the date of
conversion into a number of shares of common stock of the Company, par
value $.01 per share (the "Common Stock"), equal to the dollar amount of the
Note then to be converted divided by $1.30 (the "Initial Conversion Price"), as
adjusted as herein provided; provided, however, that if the aggregate
outstanding principal amount of all of the Tranche A Convertible Promissory
Notes payable to such Payee is less than $500,000, the Payee may convert all
of such outstanding principal amount. The Initial Conversion Price is subject
to adjustment from time to time as provided in Section 4(c), and as so adjusted
is referred to herein as the "Conversion Price".
The conversion rights of the Payee may be exercised by
the Payee partially or in full in its sole discretion. The exercise of such
rights on any one or more occasions shall not in any way impair or limit the
rights and remedies available to the Payee to take any and all actions available
to it under the Note to collect any amounts due to the Payee under the Note
which have not been converted to Common Stock. Further, the enforcement from
time to time of such rights and remedies by Payee shall not limit the rights of
the Payee to elect to convert outstanding amounts under the Note as provided
herein notwithstanding the prior initiation or pendency of enforcement actions
by the Payee to collect amounts the Payee is then electing to convert.
(b) Method of Conversion. The Payee shall exercise
its rights to convert, as described herein, by surrendering the Note, at the
office or agency of the Company at 45 Dan Road, Canton, MA 02021 or such
other address as the Company has provided, in writing, to the Payee. The
Note shall be accompanied by written notice stating the portion of the Note
which the Payee intends to convert. No fractional shares or scrip representing
fractional shares will be issued upon any conversion, but an adjustment in cash
will be made, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of the Note for conversion. If any such
conversion shall be for less than the sum of the then principal amount of the
Note held by the Payee, the Company will forthwith issue to the Payee a new
note or notes in the principal amount remaining after such conversion, dated
the date hereof, and otherwise upon all of the terms and conditions and in the
form hereof.
The Note shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of the Note
for conversion in accordance with the foregoing provisions, and at such time
the rights of the Payee, as holder thereof, shall cease to the extent of the
portion of the Note converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders thereof at such time. As promptly as
practicable on or after the date of any conversion in full or in part of the
Note, but in no event later than three business days thereafter, the Company
shall, at its expense (including the payment by it of any applicable issue
taxes), issue and deliver to the Payee, or as the Payee may direct, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with (a) payment in lieu of any fraction
of a share, as hereinabove provided, and (b) in the case of a partial conversion
of the Note, a new note or notes as hereinabove provided.
(c) Certain Adjustments.
(i) Definitions. The following terms, where
used herein, shall have the respective meanings hereinafter provided:
a. "Common Stock", where used in
this Section 4(c), shall include, in addition to the Common Stock
referred to in Section 4(a), any stock into which such Common Stock
shall have been changed or any stock resulting from any capital
reorganization or reclassification of such Common Stock, and all other
stock of any class or classes (however designated) of the Company.
b. "Convertible Securities" shall mean
any evidence of indebtedness or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
c. "Market Price" shall mean, as used
with reference to any Common Stock on any specified date, the average
of the daily high and low trading prices for the five consecutive trading
days prior to the specified date as reported in The Wall Street Journal,
New York edition.
d. "Note" shall mean this Note and
each note in the form hereof that shall be issued in replacement of all
or any part hereof as provided for herein;
e. "Options" shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire
either Common Stock or Convertible Securities.
f. "Other Securities" shall mean any
stock (other than Common Stock) and other securities of the Company
or any other person (corporate or otherwise) which the Payee of the
Note at any time shall be entitled to receive upon the conversion of the
Note, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or other securities pursuant to this
Section 4(c) or otherwise.
(ii) Stock Dividends, Etc. In the event that
the Company (A) pays a stock dividend or makes a distribution (other
than cash dividend) on its outstanding shares of Common Stock in
Common Stock or Convertible Securities, (B) subdivides its outstanding
shares of Common Stock, (C) combines its outstanding shares of
Common Stock into a smaller number of shares, or (D) issues any
shares and/or Convertible Securities by reclassification of its shares of
Common Stock then, (x) the number of additional shares of Common
Stock or Convertible Securities issuable in such event shall be deemed
to have been issued immediately after the close of business on the
record date (or other date) for the determination of holders of securities
in connection with such event and (y) the Conversion Price shall be
adjusted so that the Payee shall be entitled to receive the number of
shares of Common Stock of the Company which the Payee would have
been entitled to receive had the entire outstanding amount of the Note
which may be converted been converted immediately prior to such
event.
(iii) Issuance of Additional Shares of Common
Stock. In case the Company shall at any time or from time to time on
or after the date of the Note issue or sell, or be deemed under any
provision of this Section 4(c) to have issued or sold, any additional
shares of its Common Stock, without consideration or for a
consideration per share which shall be less than the Market Price of the
Common Stock or the Conversion Price then in effect, then and in each
such case the Conversion Price in effect immediately prior to such issue
or sale shall be reduced, effective concurrently with such issue or sale,
to a price (calculated to the nearest cent) determined by multiplying the
Conversion Price then in effect by a fraction, (x) the numerator of
which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue, including, without
duplication, those deemed to have been issued under any provision of
this Section 4 plus (2) the number of shares of Common Stock which
the aggregate consideration received by the Company for such
additional shares would purchase at such Market Price or Conversion
Price, as the case may be, then in effect; and (y) the denominator of
which shall be the number of shares of Common Stock of the Company
outstanding immediately after such issue or sale including, without
duplication, those deemed to have been issued under any provision of
this Section 4(c).
(iv) Options and Convertible Securities. In the
event that at any time or from time to time the Company shall (whether
directly or by assumption in a merger or otherwise) grant, issue or sell
any Options or Convertible Securities (other than any Convertible
Securities issued pursuant to an option), whether or not such Options or
Convertible Securities are immediately exercisable or convertible, then
the number of shares of Common Stock issuable upon the exercise of
such Options (or issuable upon the conversion of such Convertible
Securities issuable pursuant to such Options) or upon the conversion of
such Convertible Securities, shall be deemed to be outstanding and to
have been issued immediately after the opening of business on the date
of the grant of such options or of the issuance or sale of such
Convertible Securities.
(v) Determination of Consideration.
a. Cash Consideration. In the event
of the issuance of shares of Common Stock for a consideration part or
all of which shall be cash, the amount of the cash consideration
therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if such shares of Common Stock are
offered by the Company for subscription, the subscription price, or, if
such shares of Common Stock are sold to underwriters or dealers for a
public offering without a subscription offering, the public offering
price), after deducting therefrom any expenses incurred in connection
therewith other than any compensation or discount in the sale,
underwriting or purchase thereof by underwriters or dealers or others
performing similar services. The consideration for shares of Common
Stock deemed to have been issued under Section 4(c)(iv) hereof shall be
deemed to have been received by the Company at the time such shares
of Common Stock are deemed to have been issued.
b. Consideration Other Than Cash. In
the event of the issuance (otherwise than as a dividend or other
distribution on any class of capital stock of the Company or upon
conversion or exchange of any Convertible Securities or upon any
exercise of any Options) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount
of the consideration therefor other than cash shall be the fair value
thereof as determined by the Board of Directors of the Company in its
sole discretion exercised in its capacity as such Board of Directors,
without regard to the accounting treatment thereof; provided, however,
that if the holders of one or more Notes evidencing 50% or more of the
Common Stock into which all of the Notes may then or thereafter by
converted shall object to such determination of the Board of Directors,
such fair value shall be determined by the appraisal of a single
appraiser agreed upon by such holders and the Company within ten (10)
days after such objection is made by, or on behalf of such holders, or,
if they shall not so agree, by a panel of three appraisers acting by
majority vote, one selected by such holders, one by the Company and
the third by the other two appraisers. If any one of the three appraisers
shall not be so appointed within fifteen (15) days after the expiration of
such ten-day period, any such holder or the Company may apply to any
court sitting in New York for the appointment of such appraiser. All
such appraisers shall be experienced with valuation of properties of
types similar to such other consideration. The findings of such
appraiser(s) shall be final, binding and non-appealable.
Notwithstanding anything herein to the contrary, if such fair value is
determined by the Board of Directors pursuant to the preceding
sentence and if the number of shares so to be issued therefor is based
on the Market Price of the Common Stock at the time of such
determination, no increase in such Market Price between the date of
such determination and the date of issuance of such Common Stock for
consideration other than cash shall require any adjustment under this
Section 4(c)(v). The reclassification of securities other than Common
Stock into securities including Common Stock, Convertible Securities
and Options, shall be deemed to involve the issuance for consideration
other than cash of such Common Stock on the date fixed for the
determination of security holders entitled to receive such Common
Stock.
c. Options and Convertible Securities.
In the event of the issuance of shares of Common Stock deemed to
occur under Section 4(c)(iv) with respect to the conversion or exchange
of any Convertible Securities or the exercise of any options of the
Company, the amount of the consideration received by the Company
for such shares of Common Stock shall be deemed to be the total of (a)
the amount of the consideration, if any, received by the Company upon
the issuance of such Convertible Securities or upon the grant of such
Options, as the case may be, determined pursuant to paragraphs (i) and
(ii) of this Section 4(c)(v), plus (b) the amount of consideration, if
any, to be received or deemed to be received by the Company upon such
conversion, exchange or exercise.
d. Stock Dividends, etc. In the event
that shares of Common Stock are deemed to have been issued pursuant
to a stock dividend or subdivision under Section 4(b), such shares shall
be deemed to have been issued without consideration.
(vi) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this Section 4(c).
(vii) Certain Issues Excepted. Anything in this
Section 4(c) to the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Conversion Price in respect of:
a. shares of Common Stock deemed to
have been issued pursuant to Section 4(c)(iv) prior to the date hereof;
b. any issuance, sale or grant of
options or stock appreciation or other rights to purchase Common Stock
to any member of the Company's Board of Directors or to any
employee involved in the management of the Company's business
under, any employee stock option, stock appreciation, stock bonus,
thrift, restricted stock, stock purchase or other similar employee benefit
plan now or hereafter established or assumed by the Company and
approved by the Board of Directors, and any issuance of shares of
Common Stock pursuant thereto, or upon the exercise of any option,
right or instrument issued thereunder, provided that the amount of
Common Stock granted, issued or issuable pursuant to the foregoing
does not exceed, in the aggregate, 8% of the amount of Common Stock
outstanding on January 1, 1996 (for purposes of making the foregoing
determination, stock appreciation rights shall be treated as providing for
the issuance of the amount of Common Stock with respect to which any
appreciation thereunder is to be determined);
c. issuances of Common Stock
pursuant to, or upon the exercise of any option, right or instrument
issued to any underwriter of a public offering of the Company Common
Stock, provided that the difference between the consideration paid in
connection with such issuances and the Market Price or Conversion
Price in effect immediately prior to such issuances, as the case may be,
reflects only reasonable and customary underwriter's discounts,
commission, deductions of customary expenses associated with the
offering in connection with which such discounts commissions or
deductions are granted; and
d. the issuance, exchange or transfer
of the (x) $26,100,000 Real Estate Promissory Note executed by the
Company as of April 4, 1996 in favor of Combined Investors, L.L.C.
("Combined Investors") and (y) the $4,000,000 Convertible Promissory
Note executed by the Company as of April 4, 1996 in favor of
Combined Investors, or the issuance of Common Stock upon
conversion of either of such notes.
(viii)Other Securities. In the event that any
Other Securities shall be issued or shall become subject to issue upon
the conversion or exchange of any stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person
referred to in Section 4(c)(ix)) or subject to subscription, purchase or
other acquisition pursuant to any Convertible Securities or options
issued by the Company (or any other issuer or Person) for a
consideration such as to dilute the conversion rights of the Payees, the
computations, adjustments and readjustments provided for in this
Section 4(c) with respect to the Conversion Price shall be made as
nearly as possible in the manner so provided and applied to determine
the amount of Other Securities from time to time receivable upon the
conversion of the Note, so as to protect the Payees against the effects
of such dilution in a manner consistent with the terms of the Note.
(ix) Adjustments For Consolidation Merger,
Sale of Assets, Reorganization Etc.
a. General Provisions. If at any time
the Company shall be a party to any transaction (including without
limitation a merger, consolidation, sale of all or substantially all of
the Company's assets or recapitalization of the Common Stock) in which
the previously outstanding Common Stock shall be changed into or
exchanged for different securities of the Company or common stock or
other securities of another corporation or interests in a noncorporate
entity or other property (including cash) or any combination of any of
the foregoing (each such transaction being hereinafter referred to as a
"Transaction," the date of the consummation of the Transaction being
hereinafter referred to as the "Consummation Date," the Company (in
the case of a recapitalization of the Common Stock) or such other
corporation or entity (in each other case) being hereinafter referred to
as the "Acquiring Company," and the common stock (or equivalent
equity interests) of the Acquiring Company being hereinafter referred to
as the "Acquirer's Common Stock"), then, as a condition to the
consummation of the transaction, lawful and adequate provision shall be
made so that, upon the basis and the terms and in the manner provided
in this Section 4(c), the Payee, upon the conversion thereof at any time
after the consummation of the Transaction, shall be entitled to receive,
in lieu of the Common Stock or Other Securities issuable upon such
conversion prior to such consummation, the stock and other securities,
cash and property to which the Note would have been entitled upon the
consummation of the Transaction if the Payee had converted the Note
immediately prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the adjustments
provided for in this Section 4(c) including, without limitation, this
Section 4(c)(ix)).
b. Marketable Stock. In the event that
(A) the Company enters into any Transaction following the
consummation of which the Payee would be entitled in accordance with
the foregoing provisions of this Section 4(c)(ix) to receive the
Acquirer's Common Stock or other securities of the Acquiring
Company upon conversion of the Note and (B) the Acquiring
Company's common stock or such other securities are not listed on the
New York Stock Exchange or other national securities exchange or
NASDAQ or such common stock or other securities do not continue to
met the requirements for listing thereon, then at the election of the
Payee and pursuant to notice given to the Company on or before the
later of (x) the day on which the holders of the stock of the Company
approves the Transaction, and (y) the sixtieth (60th) day following the
date of delivery or mailing of the last proxy statement relating to the
vote on the Transaction by the holders of the stock of the Company,
the Payee shall have the right to elect to receive on the Consummation
Date, and as a condition precedent to the Transaction, in full payment
and in consideration for the surrender of the Note, a cash amount equal
to the Market Price of the number of shares of stock (or Other
Securities) to which the Payee hereof would have been entitled had
such Payee converted the Note immediately prior to the consummation
of the Transaction (regardless of whether the Note is in fact then
convertible).
c. Assumption of Obligations.
Anything contained in the Note to the contrary notwithstanding, the
Company will not effect any Transaction unless, prior to the
consummation thereof, each corporation or entity (other than the
Company) which may be required to deliver any stock, securities, cash
or property upon the conversion of the Note as provided herein shall
assume, by written instrument delivered to the Payee hereof, the
obligation to deliver to such Payee such shares of stock, securities, cash
or property as, in accordance with the foregoing provisions, such Payee
may be entitled to receive, and such corporation or entity shall have
similarly delivered to such Payees an opinion of counsel for such
corporation or entity, which counsel shall be reasonably satisfactory to
such Payee, stating that the Note shall thereafter continue in full force
and effect and the terms hereof (including, without limitation, all of the
provisions of this Section 4(c)) shall be applicable to the stock,
securities, cash or property which such corporation or entity may be
required to deliver upon the exercise hereof.
(x) Notice of Adjustment of Conversion Price.
Whenever the Conversion Price is adjusted as provided in this Section
4(c), the Company shall, within thirty (30) days following the
occurrence of the event requiring such adjustment, compute the
adjusted Conversion Price and shall give notice to the Payee of such
adjustment, showing in detail the method of calculation and the facts
upon which such adjustment is based. Upon the request of the Payee,
the Company shall cause certified public accounts of recognized
national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation and notice, if not
previously verified to the Payee; provided, however, that if such
verification substantially confirms the Company's calculation the Payee
shall bear the Company's cost of procuring such verification, including
but not limited to accounting and legal fees. The Company shall also
keep copies of all such notices and verifications at its principal office
and shall cause the same to be available at such office during normal
business hours for inspection by the Payee.
(xi) Notice of Certain Corporate Actions. In
case:
a. the Company shall declare a
dividend (including without limitation a special non-recurring cash
dividend, any distribution in or on account of a redemption of Common
Stock or any other distribution) on its Common Stock;
b. the Company shall authorize the
granting to the holders of its Common Stock of rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of
any other rights;
c. of any reclassification of the
Common Stock, any capital reorganization of the Company, of any
consolidation or merger to which the Company is a party, or of the sale
or transfer of all or substantially all of the assets of the Company; or
d. of the voluntary or involuntary
reorganization, dissolution, liquidation or winding-up of the Company;
the Company shall, in each event, at least fifteen (15) business days
prior to the applicable record date hereinafter specified, give to the
Payee notice of (x) the record date for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record will be
determined to be entitled to such dividend, distribution, rights or
warrants or (y) the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, reorganization, dissolution,
liquidation or winding-up is expected to become effective and the date
as of which it is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such event.
(xii) Continuing Obligation of the Company.
The Company will, at the time of each conversion of the Note in full or
in part, upon the request of the Payee, acknowledge in writing its
continuing obligation to afford the Payee any rights to which the Payee
shall continue to be entitled after such conversion in accordance with
the provisions of the Note; provided, however, that if the Payee shall
fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to the Payee all such
rights.
(xiii)Other Dilutive Events. In case any event
shall occur (including, without limitation, the occurrence of events
described in Section 4(c)(xi) hereof at a time when any portion or all of
the Note may not be converted) as to which the other provisions of this
Section 4(c) are not strictly applicable, but in respect of which the
failure to make any adjustment would not, in the opinion of the Payee
or of the Company, fairly protect the conversion right granted by the
Note in accordance with the essential intent and the principles of the
Note, then in each such case, upon the written request of the Payee or
on its own motion, the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may
be the regular auditors of the Company) which shall give its opinion as
to the adjustment, if any, on a basis consistent with the essential intent
and principles established in this Section 4(c), necessary to preserve,
without dilution, such conversion rights. Upon receipt of such opinion,
the Company shall promptly mail a copy thereof to the Payee and any
adjustment to the Conversion Price described therein shall be made. If
such opinion confirms that the requesting party is entitled to an
adjustment of the Conversion Price, then the other party shall bear the
cost of procuring such opinion, including but not limited to accounting
and legal fees. If such opinion refutes such entitlement of the
requesting party, the requesting party shall bear such cost.
(xiv) No Dilution or Impairment. The
Company will not by amendment of its charter or through any
consolidation, merger, reorganization, transfer of assets, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be
observed or performed hereunder by it, but the Company will, at all
times, in good faith, assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights granted by the Note against
dilution. Without limiting the generality of the foregoing, the Company
(a) will not permit the par value of any shares of Common Stock at the
time receivable upon the conversion of the Note to exceed the
Conversion Price then in effect, (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock
upon any conversion of the Note, (c) will not take any action which
results in adjustment of the Conversion Price if the total number of
shares of Common Stock (or Other Securities) issuable after the actio
upon the conversion or exercise of the Note and all other Options and
Convertible Securities would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company
and available for the purpose of issue upon such exercise.
(d) Reservation of Stock Issuable On Conversion.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock or out of
Common Stock held in the Company's treasury or a combination of both, for
the purpose of effecting the conversion of the Note, the full number of shares
of Common Stock then issuable upon the conversion of the Note. The
Company covenants that all shares of Common Stock which are issued upon
conversion will be duly authorized and will upon issue be validly issued and
fully paid and nonassessable with no liability on the part of holders thereof.
The Company will take all such action as may reasonably be necessary to best
insure that such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirements of any securities
exchange upon which the Common Stock may be listed.
(e) Taxes on Conversions. The Company will pay
any and all taxes and charges (other than taxes on or measured by income,
capital or franchises or similar taxes) that may be payable in respect of the
issue or delivery of shares of Common Stock upon conversion of the Note
pursuant hereto.
(f) Listing On Securities Exchanges. The Company
will list the Common Stock or Other Securities on each national securities
exchange or NASDAQ on which any Common Stock of the Company or Other
Securities may at any time be listed, subject to official notice of issuance
from time to time upon the conversion of the Note, and, for so long as any
principal indebtedness remains outstanding under the Note or for three (3)
years after the date of the Note, whichever is greater, will maintain such
listing of all shares of Common Stock and Other Securities from time to time
issuable upon the conversion of the Note.
(g) Survival of Rights in Event of Merger or
Consolidation. In the event of any merger or consolidation of the Company
where the Company is not to be the surviving entity and the Note is to be
assumed by such surviving entity, the conversion rights provided to the Payee
in this Section 4 shall be amended or modified as necessary so that the benefits
of such rights shall be preserved in full following such merger or
consolidation.
5. Representations and Warranties. The Company hereby
represents and warrants to the Payee as follows:
(a) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware and
has full power and authority to own its respective property, carry on its
respective business as now being conducted, and enter into and perform its
obligations hereunder.
(b) This Note has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms and not subject to any defense based upon usury or capacity of
the Company, but subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally and to general principles of equity.
(c) The entry by the Company into this Note, or the
incurrence by the Company of indebtedness hereunder and the performance by
the Company of its obligations hereunder, do not constitute a violation of or
default under or conflict with the Company's certificate of incorporation or by-
laws or any agreement, contract or instrument to which the Company or any
Subsidiary is a party or is bound or any court or administrative order, or any
law, rule or regulation, to which it is subject or by which it is bound.
(d) The Company (i) is in compliance in all material
respects with all applicable provisions of any law, rule or regulation to which
it is subject or by which it is bound, (ii) is in compliance with its
certificate of incorporation and by-laws and (iii) is not in default, nor to
the Company's knowledge is any third party in default, under or with respect to
any agreement, contract or other instrument to which it is a party, except where
such default would not have a material adverse effect on the business, assets,
operations or prospects of the Company and its Subsidiaries taken as a whole.
(e) The shares of Common Stock of the Company
into which this Note may be converted have been duly authorized and, when
issued as contemplated by this Note, will be validly issued, fully paid and
nonassessable and free of preemptive rights.
(f) By reason of the exchange of the exchange of the
Company's 14% Debentures due 1996, issued pursuant to the Indenture, dated
as of January 1, 1986, between the Company and United States Trust
Company of New York, as trustee, it is not necessary to register this Note,
any Interest Deferral Note and any shares of Common Stock of the Company
into which this Note may be converted in accordance with the Securities Act
of 1933, as amended. No commissions or other remuneration has been or will
be paid or given directly or indirectly for soliciting such exchange. This
Note, any Interest Deferral Note and any shares of Common Stock of the Company
into which this Note may be converted may be freely transferred without
registration under the Securities Act.
6. Events of Default.
(a) Each of the following shall constitute an "Event
of Default" hereunder:
(i) failure by the Company to pay all or any
portion of principal under this Note when the same shall be due and
payable in accordance with the terms hereof whether by maturity,
acceleration or otherwise;
(ii) failure by the Company to pay all or any
portion of any interest under this Note within five (5) business days
after the same shall be due and payable;
(iii) any default by the Company in the due and
punctual performance or observance of any of the covenants and
agreements of the Company contained in this Note;
(iv) any representation or warranty herein or in
any report, financial statement or certification made or deliver to the
Payee by the Company shall be untrue or incorrect in any material
respect, as of the date when made or deemed made;
(v) any one or more events constituting
"Bankruptcy", which shall mean, for the purposes of this Note: (A)
the filing by the Company, or by any Subsidiary, of a voluntary
petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 7 or Title 11 of the
United States Code (or corresponding provisions of future laws) or any
other federal or state insolvency law, or the filing by the Company or
any Subsidiary of an answer consenting to or acquiescing in any such
petition, (B) the making by the Company or any Subsidiary of any
assignment for the benefit of its creditors, or the admission by the
Company or any Subsidiary in writing of its inability to pay its debts as
they mature, (C) the filing of (x) an involuntary petition against the
Company or any Subsidiary under Title 7 or Title 11 of the United
States Code, or any other federal or state insolvency law (or
corresponding provisions of future laws), (y) an application for the
appointment of a receiver for the assets of the Company or any
Subsidiary, or (z) an involuntary petition against the Company or any
Subsidiary seeking liquidation, reorganization, arrangement or
readjustment of its debts under any other federal or state insolvency
law, provided that any such filing referred to in clauses (x), (y) or (z)
above shall not have been vacated, set aside or stayed within a 60-day
period from the date thereof, or (D) the entry against the Company or
any Subsidiary of a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect; or
(vi) any default (or series of related defaults)
under any bond, debenture or note or under any evidence of
indebtedness for borrowed money of the Company or any Subsidiary in
excess of $500,000, whether such indebtedness now exists or shall
hereafter be created beyond any grace period provided for therein,
which default may at the option of the holder thereof or shall result in
such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise have been due and payable.
(b) Upon the occurrence of any such Event of
Default, Payee may, at any time after such occurrence, by written notice to the
Company, declare the entire unpaid balance of this Note to be immediately due
and payable, together with interest accrued thereon, if any; provided, however,
that in the event of a Bankruptcy such acceleration shall be automatic without
any further action or notice by Payee. Demand, presentment, protest and
notice of non-payment are hereby waived by the Company. All payments
made following an Event of Default shall be applied to payment of interest
before application to principal.
7. Overdue or Default Rate. In the event that any payment
of principal or interest provided for herein is not paid by the Company when
due, whether by maturity, acceleration or otherwise, and upon the occurrence
and during the continuance of an Event of Default hereunder the principal of
this Note or any overdue interest, as the case may be, shall bear interest at
the rate of 2% per annum above the rate otherwise applicable, which interest
shall be payable upon demand of Payee.
8. Waiver or Alteration. None of the provisions hereof
may be waived, altered or amended, except by a written instrument signed by
the party to be charged therewith. In the case of any waiver, the Company
and the Payee shall be restored to their former respective positions and rights
hereunder, and any Event of Default waived shall be deemed to be cured and
not continuing; provided, however, no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereon
except to the extent expressly provided in such waiver.
9. Remedies Cumulative. No failure to exercise or delay in
exercising any right, remedy, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
10. Notices. Any notices or other communications required
or permitted hereunder shall be given in writing and shall be delivered
personally, sent by facsimile transmission, Federal Express or similar
overnight delivery service, or sent by certified or registered mail, postage
prepaid, and shall be deemed given when so delivered personally or sent by
facsimile transmission or, if mailed, three days after being deposited in the
U.S. mail, to the parties at the address specified below:
(a) If to the Company, to
Grossman's Inc.
45 Dan Road
Canton, Massachusetts 02021
Attention: Richard E. Kent
Telecopy: 617-830-4901
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Don S. DeAmicis, Esq.
Telecopy: 617-951-7050
(b) If to the Payee, to:
Continental Assurance Company
333 South Wabash
41 South
Chicago, Illinois 60685
Attention: Lynne Gugenheim
Telecopy: 312-822-4175
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Michael F. Walsh, Esq.
Telecopy: 212-310-8007
Either party may change the address to which notices to it, or
copies thereof, shall be addressed by giving notice thereof to the other party
in conformity with the foregoing.
11. Governing Law. This Note shall be governed by, and
construed and enforced in accordance with the laws of the State of New York
as in effect from time to time, without giving effect to any choice of laws or
conflict of laws principles thereof.
12. Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions hereof
shall be liberally construed in favor of the holder hereof in order to
effectuate the provisions hereof and the invalidity of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of any other
provision in any other jurisdiction, including the State of New York.
13. Costs of Collection, Expenses. If the Payee is required
to commence suit to recover any amount due under this Note following an
Event of Default, the Payee shall be entitled to collect from the Company
reimbursement of such reasonable attorneys' fees and expenses as may be
incurred by the Payee in collecting or attempting to collect any amount due
hereunder. The Company shall pay on demand the costs of Payee in preparing
this Note and any amendment or waiver thereof requested by the Company and
in connection with the restructuring transaction related to the issuance of this
Note, including the reasonable fees and disbursements of counsel for the
Payee.
14. Successors and Assigns; Transferability. This Note shall
be binding upon and inure to the benefit of the Company and its successors
and assigns; provided, however, that the Company may not transfer any of its
rights or obligations hereunder without the prior written consent of the Payee.
The Payee may transfer this Note in whole or in part. The Company agrees to
issue replacement Notes from time to time to the Payee or its transferees in
such principal amount as Payee shall request so long as the aggregate principal
amount of such replacement Notes does not exceed the aggregate outstanding
principal amount of the Notes being replaced.
15. Replacement of Note. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and the Company's receipt of any indemnity
agreement of the Payee reasonably satisfactory to the Company, the Company
will execute and deliver, in lieu thereof, a new Note of like terms.
16. No Set-Off. The obligations of the Company under this
Note are absolute and not subject to any right of set-off, counterclaim,
recoupment or defenses against the Payee of any kind whatsoever.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note
to be executed by its duly authorized officer as of the day and year first
written above.
GROSSMAN'S INC.
By:__________________________
Name:
Title:
TRANCHE B
PROMISSORY NOTE
$231,000 Boston, Massachusetts
April 8, 1996
FOR VALUE RECEIVED, the undersigned, GROSSMAN'S
INC., a Delaware corporation (the "Company"), having its principal offices at
45 Dan Road, Canton, Massachusetts 02021, hereby unconditionally promises
to pay to CONTINENTAL ASSURANCE COMPANY, or any subsequent
holder of this Note (the "Payee"), at 333 Wabash, 41 South, Chicago, Illinois
60685, or at such other place as the Payee may designate from time to time in
writing to the Company, in lawful money of the United States of America and
in immediately available funds, the principal amount of Two Hundred Thirty-
One Thousand Dollars ($231,000), together with interest on the unpaid
principal amount of this Note from time to time outstanding from and
including the date hereof until this Note is paid in full, at 15% per annum,
payable in semi-annual installments as set forth below.
1. Payment.
(a) The principal amount of the indebtedness
evidenced hereby shall be payable in full on March 31, 1999.
(b) The Company shall pay interest on the unpaid
principal amount of this Note (including, without limitation, each Interest
Deferral Note (as defined below) issued pursuant to this Section 1(b)) semi-
annually in arrears on March 31 and September 30 of each year (each, an
"Interest Payment Date") commencing on September 30, 1996, and on each
date of payment of principal of this Note (at maturity, by acceleration or
otherwise), at a rate equal to 15% per annum (based on a year of 360 days and
the actual number of days elapsed); provided, however, that on each such
Interest Payment Date, unless there exists an Event of Default hereunder, the
regularly scheduled interest payable hereunder may be paid, at the election of
the Company, either (i) all in cash, (ii) by delivery to the Payee of a note for
such amount dated such Interest Payment Date, payable to Payee and duly
executed and delivered by Payee and having terms identical to this Note,
except as to the issuance date and the principal amount thereof (each, an
"Interest Deferral Note") or (iii) in part in cash and with the balance
evidenced by an Interest Deferred Note. Without limiting the generality of the
foregoing, interest paid in connection with any prepayment of principal
pursuant to Section 1(d) hereof may be paid only in cash.
(c) If any date set for payment is not a business day,
then the payment date shall be extended to the next succeeding business day,
and during any such extension interest on the principal amount of this Note
outstanding shall accrue and be payable at the applicable rate.
(d) This Note may not be prepaid in whole or in part
without the prior written consent of the Payee; provided, however, that the
Company shall have the right to prepay, without premium or penalty, the
outstanding principal amount of this Note, in whole or in part, (x) out of net
proceeds received by the Company or any Subsidiary (as hereinafter defined)
from any sale, transfer or other disposition of one or more of the properties
set forth on Annex A hereto after such time that the loans set forth on Annex
B hereto have been satisfied or discharged in full or (y) in the event of the
merger or consolidation of the Company, or the sale, transfer, assignment or
disposition of all or substantially all of the Company's assets. Each
prepayment made pursuant to the preceding proviso (i) shall be made upon
thirty days' irrevocable prior written notice to the Payee specifying (A) the
date and amount of such prepayment and (B) the event giving rise to such
prepayment, including, if such event is a sale of property referred to clause
(x) above, the particular property that was sold, the date of such sale, and the
consideration received by the Company therefrom and (ii) shall be
accompanied by the payment of accrued and unpaid interest in cash on the
amount being prepaid through the date of such prepayment .
2. Affirmative Covenants. For as long as any principal or
interest remains unpaid under this Note or any Interest Deferral Note:
(a) Reports by the Company.
(i) The Company shall deliver to the Payee,
promptly after the Company files them with the Securities and
Exchange Commission ("SEC"), copies of the annual and quarterly
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with the
SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(ii) If the Company is not subject to the
requirements of such Section 13 or 15(d) of the Exchange Act, the
Company shall deliver to the Payee, on or before the Company would
have been required to file them with the SEC, financial statements,
including any notes thereto (and with respect to annual reports, an
auditors' report by a firm of established national reputation), and a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," both comparable to that which the Company
would have been required to include in such annual and quarterly
reports, information, documents or other reports if the Company were
subject to the requirements of such Section 13 or 15(d) of the Exchange
Act.
(b) Notice of Default. The Company shall give
prompt written notice to the Payee of the occurrence of any Event of Default
hereunder; provided, however, that if any such Event of Default has been
remedied, then the failure to give notice hereunder shall not in and of itself
constitute an Event of Default hereunder.
(c) Payment of taxes and other claims. The
Company shall pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income, profits or property, and
(2) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon its property; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity
is being contested in good faith by appropriate proceedings if the Company
shall have set aside on its books adequate reserves with respect thereto in
accordance with generally accepted accounting principles.
(d) Maintenance of properties and assets. The
Company shall cause all properties and assets (or groups of similar properties
and assets) which are used or useful in any material respect in the conduct of
its business or the business of any Subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the reasonable
judgment of the Company or such Subsidiary, as the case may be, may be
necessary so that the businesses carried on in connection therewith may be
properly and advantageously conducted; provided, however, that nothing in
this Section 2(d) shall prevent the Company or any Subsidiary from
discontinuing the operation or maintenance of any of such properties or assets
if such discontinuance is, in the judgment of the Company or the Subsidiary,
as the case may be, desirable in the conduct of their respective businesses.
(e) Corporate existence. The Company shall, and
shall cause each Subsidiary to, do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
(charger and statutory) and franchises; provided, however, that neither the
Company nor any Subsidiary shall be required to preserve any right or
franchise if the Board shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company or the
Subsidiary, as the case may be.
(f) Books and records. The Company shall maintain,
and shall cause each Subsidiary to maintain, at their respective principal
offices books, accounts and records necessary to prepare financial statements
in accordance with generally accepted accounting principles, and in compliance
with the regulations of any governmental regulatory body having jurisdiction in
respect thereof.
(g) Insurance. The Company shall maintain and shall
cause each Subsidiary to maintain with responsible insurers such insurance in
such amounts as is customary and appropriate for their respective businesses.
3. Negative Covenants. For so long as any principal or
interest remains unpaid under this Note or any Interest Deferral Note, the
Company shall not, and shall not permit any of its direct or indirect
subsidiaries ("Subsidiaries" or a "Subsidiary") without prior written consent of
the Payee:
(a) merge or consolidate with or into any other
corporation, except (i) any merger or consolidation in which the Company is
the surviving corporation and (ii) any merger or consolidation of any entity
(other than the Company) with or into any wholly-owned subsidiary of the
Company; provided, however, that in no event shall a merger be permitted in
which the consolidated net worth of the surviving corporation immediately
following such merger is less than the consolidated net worth of such
corporation immediately prior to such merger; or
(b) sell, assign, transfer or otherwise dispose of all or
substantially all of the Company's assets; or
(c) declare, authorize or make any dividend or other
distribution on any capital stock of the Company (except a dividend or
distribution in shares of common stock of the Company), and neither the
Company nor any Subsidiary shall acquire or redeem shares of capital stock of
the Company if, after giving effect thereto, the aggregate payments for all
such purposes would exceed 50% of consolidated net income (as determined in
accordance with generally accepted accounting principles) for the period
commencing as of January 1, 1996 and ending on the last day of the fiscal
quarter immediately preceding the date of payment; provided, however, that
nothing shall prohibit any subsidiary from paying a dividend to the Company
or any other wholly owned subsidiary.
(i) The provisions of this Section 3(c) shall
not prevent the Company from (A) paying any regular dividend on, or
redeeming any shares of, preferred stock for adequate consideration, or
(B) paying a dividend on Common Stock within 60 days after the
declaration thereof if, on the date of declaration, the Company could
have paid such dividend in compliance with the other provisions of this
Section 3(c).
(ii) Notwithstanding the foregoing, the
Company may acquire shares of its capital stock (A) solely in exchange
for other shares of capital stock, whether upon conversion or otherwise,
(B) to eliminate fractional shares, (C) from an employee who has
purchased or otherwise acquired such shares under an employee stock
option or a stock purchase agreement or other plan or agreement
reserving to the Company the option to repurchase the shares (but in no
event for a price greater than the higher of fair market value or the
price at which such securities were sold by the Company), (D) to the
extent required by applicable law, and (E) pursuant to a court order.
The amount of aggregate consideration paid by the Company pursuant
to this paragraph shall be included in all subsequent computations of
payments pursuant to the first paragraph of this Section 3(c), except
that amounts paid by the Company to acquire its shares pursuant to
subclause (i) of this paragraph shall not be included in any subsequent
computations of such payments for purposes of this Section 3(c). The
aggregate consideration paid pursuant to subclauses (B) and (C) of this
paragraph shall not exceed the aggregate amount of $1,000,000 in any
fiscal year of the Company.
4. Representations and Warranties. The Company hereby
represents and warrants to the Payee as follows:
(a) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware and
has full power and authority to own its respective property, carry on its
respective business as now being conducted, and enter into and perform its
obligations hereunder.
(b) This Note has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms and not subject to any defense based upon usury or capacity of
the Company, but subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally and to general principles of equity.
(c) The entry by the Company into this Note, or the
incurrence by the Company of indebtedness hereunder and the performance by
the Company of its obligations hereunder, do not constitute a violation of or
default under or conflict with the Company's certificate of incorporation or by-
laws or any agreement, contract or instrument to which the Company or any
Subsidiary is a party or is bound or any court or administrative order, or any
law, rule or regulation, to which it is subject or by which it is bound.
(d) The Company (i) is in compliance in all material respects
with all applicable provisions of any law, rule or regulation to which it is
subject or by which it is bound, (ii) is in compliance with its certificate of
incorporation and by-laws and (iii) is not in default, nor to the Company's
knowledge is any third party in default, under or with respect to any
agreement, contract or other instrument to which it is a party, except where
such default would not have a material adverse effect on the business, assets,
operations or prospects of the Company and its Subsidiaries taken as a whole.
(e) By reason of the exchange of the Company's 14%
Debentures due 1996, issued pursuant to the Indenture, dated as of January 1,
1986, between the Company and United States Trust Company of New York,
as trustee for this Note, it is not necessary to register this Note and any
Interest Deferral Note in accordance with the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the
"Securities Act"). No commissions or other remuneration has been or will be
paid or given directly or indirectly for soliciting such exchange. This Note
and any Interest Deferral Note may be freely transferred without registration
under the Securities Act.
5. Events of Default.
(a) Each of the following shall constitute an "Event
of Default" hereunder:
(i) failure by the Company to pay all or any
portion of principal under this Note when the same shall be due and
payable in accordance with the terms hereof whether by maturity,
acceleration or otherwise;
(ii) failure by the Company to pay all or any
portion of any interest under this Note within five (5) business days
after the same shall be due and payable;
(iii)any default by the Company in the due and
punctual performance or observance of any of the covenants and
agreements of the Company contained in this Note;
(iv) any representation or warranty herein or in
any report, financial statement or certification made or deliver to the
Payee by the Company shall be untrue or incorrect in any material
respect, as of the date when made or deemed made;
(v) any one or more events constituting
"Bankruptcy", which shall mean, for the purposes of this Note: (A)
the filing by the Company, or by any Subsidiary, of a voluntary
petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 7 or Title 11 of the
United States Code (or corresponding provisions of future laws) or any
other federal or state insolvency law, or the filing by the Company or
any Subsidiary of an answer consenting to or acquiescing in any such
petition, (B) the making by the Company or any Subsidiary of any
assignment for the benefit of its creditors, or the admission by the
Company or any Subsidiary in writing of its inability to pay its debts as
they mature, (C) the filing of (x) an involuntary petition against the
Company or any Subsidiary under Title 7 or Title 11 of the United
States Code, or any other federal or state insolvency law (or
corresponding provisions of future laws), (y) an application for the
appointment of a receiver for the assets of the Company or any
Subsidiary, or (z) an involuntary petition against the Company or any
Subsidiary seeking liquidation, reorganization, arrangement or
readjustment of its debts under any other federal or state insolvency
law, provided that any such filing referred to in clauses (x), (y) or (z)
above shall not have been vacated, set aside or stayed within a 90-day
period from the date thereof, or (D) the entry against the Company or
any Subsidiary of a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect; or
(vi) any default (or series of related defaults)
under any bond, debenture or note or under any evidence of
indebtedness for borrowed money of the Company or any Subsidiary in
excess of $500,000, whether such indebtedness now exists or shall
hereafter be created beyond any grace period provided for therein,
which default may at the option of the holder thereof or shall result in
such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise have been due and payable.
(b) Upon the occurrence of any such Event of
Default, Payee may, at any time after such occurrence, by written notice to the
Company, declare the entire unpaid balance of this Note to be immediately due
and payable, together with interest accrued thereon, if any; provided, however,
that in the event of a Bankruptcy such acceleration shall be automatic without
any further action or notice by Payee. Demand, presentment, protest and
notice of non-payment are hereby waived by the Company. All payments
made following an Event of Default shall be applied to payment of interest
before application to principal.
6. Overdue or Default Rate. In the event that any payment
of principal or interest provided for herein is not paid by the Company when
due, whether by maturity, acceleration or otherwise, and upon the occurrence
and during the continuance of an Event of Default hereunder the principal of
this Note or any overdue interest, as the case may be, shall bear interest at
the rate of 2% per annum above the rate otherwise applicable, which interest
shall be payable upon demand of Payee.
7. Waiver or Alteration. None of the provisions hereof
may be waived, altered or amended, except by a written instrument signed by
the party to be charged therewith. In the case of any waiver, the Company
and the Payee shall be restored to their former respective positions and rights
hereunder, and any Event of Default waived shall be deemed to be cured and
not continuing; provided, however, no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereon
except to the extent expressly provided in such waiver.
8. Remedies Cumulative. No failure to exercise or delay in
exercising any right, remedy, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
9. Notices. Any notices or other communications required
or permitted hereunder shall be given in writing and shall be delivered
personally, sent by facsimile transmission, Federal Express or similar
overnight delivery service, or sent by certified or registered mail, postage
prepaid, and shall be deemed given when so delivered personally or sent by
facsimile transmission or, if mailed, three days after being deposited in the
U.S. mail, to the parties at the address specified below:
(a) If to the Company, to
Grossman's Inc.
45 Dan Road
Canton, Massachusetts 02021
Attention:Richard E. Kent
Telecopy: 617-830-4901
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention:Don S. DeAmicis, Esq.
Telecopy: 617-951-7050
(b) If to the Payee, to:
Continental Assurance Company
333 South Wabash
41 South
Chicago, Illinois 60685
Attention:Lynne Gugenheim
Telecopy: 312-822-4175
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention:Michael F. Walsh, Esq.
Telecopy: 212-310-8007
Either party may change the address to which notices to it, or
copies thereof, shall be addressed by giving notice thereof to the other party
in conformity with the foregoing.
10. Governing Law. This Note shall be governed by, and
construed and enforced in accordance with the laws of the State of New York
as in effect from time to time, without giving effect to any choice of laws or
conflict of laws principles thereof.
11. Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions hereof
shall be liberally construed in favor of the holder hereof in order to
effectuate the provisions hereof and the invalidity of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of any other
provision in any other jurisdiction, including the State of New York.
12. Costs of Collection, Expenses. If the Payee is required
to commence suit to recover any amount due under this Note following an
Event of Default, the Payee shall be entitled to collect from the Company
reimbursement of such reasonable attorneys' fees and expenses as may be
incurred by the Payee in collecting or attempting to collect any amount due
hereunder. The Company shall pay on demand the costs of Payee in preparing
this Note and any amendment or waiver thereof requested by the Company and
in connection with the restructuring transaction related to the issuance of this
Note, including the reasonable fees and disbursements of counsel for the
Payee.
13. Successors and Assigns; Transferability. This Note shall
be binding upon and inure to the benefit of the Company and its successors
and assigns; provided, however, that the Company may not transfer any of its
rights or obligations hereunder without the prior written consent of the Payee.
The Payee may transfer this Note in whole or in part. The Company agrees to
issue replacement Notes from time to time to the Payee or its transferees in
such principal amount as Payee shall request so long as the aggregate principal
amount of such replacement Notes does not exceed the aggregate outstanding
principal amount of the Notes being replaced.
14. Replacement of Note. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and the Company's receipt of any indemnity
agreement of the Payee reasonably satisfactory to the Company, the Company
will execute and deliver, in lieu thereof, a new Note of like terms.
15. No Set-Off. The obligations of the Company under this
Note are absolute and not subject to any right of set-off, counterclaim,
recoupment or defenses against the Payee of any kind whatsoever.
IN WITNESS WHEREOF, the Company has caused this Note
to be executed by its duly authorized officer as of the day and year first
written above.
GROSSMAN'S INC.
By:__________________________
Name:
Title:
LOAN AGREEMENT
DATED AS OF APRIL 4, 1996
BETWEEN
COMBINED INVESTORS, L.L.C., AS LENDER
AND
GRS REALTY COMPANY, INC., AS BORROWER
<PAGE>
TABLE OF CONTENTS
Section Title
Page
Article 1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 1
Article 2 DEFINITIONS AND RULES OF INTERPRETATION 1
2.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Rules of Interpretation. . . . . . . . . . . . . . . . . 8
Article 3 THE LOAN 9
3.1 Agreement to Loan and Borrow . . . . . . . . . . . . . . 9
3.2 Loan Commitment Fee. . . . . . . . . . . . . . . . . . .10
3.3 Loan Terms . . . . . . . . . . . . . . . . . . . . . . .10
3.4 Draw Requests and Advances . . . . . . . . . . . . . . .12
Article 4 BORROWER'S GENERAL REPRESENTATIONS AND
COVENANTS 17
4.1 Representations and Warranties. . . . . . . . . . . . .17
4.2 Master Lease, Consulting Agreement and Related
Documents 25
4.3 Sales of Sale Properties. . . . . . . . . . . . . . . .26
4.4 Environmental Matters . . . . . . . . . . . . . . . . .30
4.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . .31
4.6 Minimum Return/Prepayments. . . . . . . . . . . . . . .32
4.7 Restrictions on Distributions . . . . . . . . . . . . .32
4.8 Single Purpose Entity Representations and Covenants . .32
4.9 Punctual Payment/Full Performance . . . . . . . . . . .34
4.10 Records and Accounts. . . . . . . . . . . . . . . . . .34
4.11 Insurance/Condemnation Proceeds . . . . . . . . . . . .34
4.12 Calculation of Lender's Return. . . . . . . . . . . . .35
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . .36
4.14 Inspection of Properties and Books. . . . . . . . . . .37
4.15 Compliance with Laws, Contracts, Licenses, and
Permits 37
4.16 Subsequent Mortgages. . . . . . . . . . . . . . . . . .37
4.17 Post-Closing Obligation of Borrower . . . . . . . . . .38
Article 5 BORROWER'S FINANCIAL STATEMENTS 38
Article 6 ADDITIONAL COVENANTS 39
6.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . .39
6.2 Restrictions on Indebtedness . . . . . . . . . . . . . .40
6.3 Restrictions on Liens, Etc.. . . . . . . . . . . . . . .40
6.4 Restrictions on Investments. . . . . . . . . . . . . . .41
6.5 Merger, Consolidation. . . . . . . . . . . . . . . . . .42
6.6 Sale and Leaseback . . . . . . . . . . . . . . . . . . .42
6.7 Restrictions on Transfers. . . . . . . . . . . . . . . .42
6.8 Restrictions on Leases . . . . . . . . . . . . . . . . .42
6.9 No Amendments to Certain Documents . . . . . . . . . . .42
6.10 Issuance of Stock. . . . . . . . . . . . . . . . . . . .42
6.11 Other Agreements . . . . . . . . . . . . . . . . . . . .42
6.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . .43
Article 7 EVENTS OF DEFAULT AND REMEDIES 43
7.1 Events of Default and Acceleration . . . . . . . . . . .43
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . .46
7.3 Distribution of Collateral Proceeds. . . . . . . . . . .47
7.4 Limitations on Certain Remedies of Lender. . . . . . . .47
Article 8 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . .48
8.1 Sale or Participation. . . . . . . . . . . . . . . . . .48
8.2 Survival of Covenants, Etc.. . . . . . . . . . . . . . .48
8.3 Consents and Notices . . . . . . . . . . . . . . . . . .49
8.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . .49
8.5 No Assignment by Borrower Parties. . . . . . . . . . . .50
8.6 Assignment . . . . . . . . . . . . . . . . . . . . . . .50
8.7 Brokerage Commission . . . . . . . . . . . . . . . . . .50
8.8 Lender's Expenses and Indemnification. . . . . . . . . .50
8.9 No Third Party Beneficiaries . . . . . . . . . . . . . .50
8.10 Further Assurances/New Notes . . . . . . . . . . . . . .50
8.11 Releases of Security
Instruments...........................................
.........51
8.12 Time is of the Essence.. . . . . . . . . . . . . . . . .51
8.13 Severability . . . . . . . . . . . . . . . . . . . . . .51
8.14 Entire Agreement . . . . . . . . . . . . . . . . . . . .51
8.15 Amendments, Waivers, Etc.. . . . . . . . . . . . . . . .52
8.16 Bind and Inure . . . . . . . . . . . . . . . . . . . . .52
8.17 Headings . . . . . . . . . . . . . . . . . . . . . . . .52
8.18 Governing Law. . . . . . . . . . . . . . . . . . . . . .52
8.19 Counterparts . . . . . . . . . . . . . . . . . . . . . .52
8.20 Jurisdiction and Venue: Waiver of Jury Trial . . . . . .52
8.21 Waiver of Special Damages. . . . . . . . . . . . . . . .53
Exhibits
Exhibit A - List of Sale Properties
Exhibit B - List of Other Properties
Exhibit Draw Requests - Form of Draw Request
Exhibit Consulting Agreement - Form of Consulting
Agreement
Exhibit Reports - List of Site Assessment Reports
Exhibit IRR - Calculation of Lender's Return
Exhibit Title - List of Post-Closing Title/Survey Matters
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of the 4th day of April,
1996, between GRS Realty Company, Inc., a Delaware corporation
(the "Borrower") having its principal place of business at 70
Walnut Street, Wellesley, MA 02181, and Combined Investors,
L.L.C., a Delaware limited liability company (the "Lender"), with
its principal place of business at 40 Broad Street, Boston, MA
02109.
ARTICLE 1 - INTRODUCTION
The following are facts relating to this Agreement which, to
the extent that the same relate to the ownership interests or the
conduct of the Borrower, shall be treated as representations of
fact by the Borrower to the Lender:
1.1 Borrower is the owner of the real estate properties
(collectively the "Properties" and singularly, a "Property")
listed on Exhibits A and B annexed hereto and incorporated herein
by reference and certain furniture, fixtures and equipment as
identified on certain lists heretofore or concurrently provided to
Lender ("FF&E"). The Properties listed on Exhibit A are referred
to herein as the "Sale Properties." The Properties listed on
Exhibit B are referred to herein as the "Other Properties".
1.2 Borrower is a wholly-owned subsidiary of GRS Holding
Company, Inc., a Delaware corporation (the "Holding Company").
The Holding Company is a wholly-owned subsidiary of Grossman's
Inc., a Delaware corporation ("Grossman's").
1.3 Borrower has requested and Lender has agreed to
provide certain secured financing to Borrower which financing is
hereinafter defined and referred to as the "Loan". Affiliates of
the Lender are also providing certain asset disposition services
related to Borrower with respect to the FF&E and to Grossman's
with respect to the "Inventory" (as hereinafter defined).
Borrower is providing certain collateral to Lender for the Loan,
including mortgages on the Properties and a security interest in
the FF&E. The Holding Company is providing a guaranty of the Loan
secured by a pledge of the stock in Borrower held by the Holding
Company.
ARTICLE 2 - DEFINITIONS AND RULES OF INTERPRETATION
Section 2.1 Definitions. As used herein, the following
terms shall have the following meanings:
Advance shall have the meaning set forth in Section 3.4
hereof.
Advance Termination Date shall have the meaning set forth
in Section 3.4 hereof.
Affiliate means, with reference to any Person (including
an individual, a corporation, a partnership, a limited liability
company and a trust), (i) any director, officer or employee of
that person, (ii) any other Person controlling, controlled by or
under direct or indirect common control of that Person, (iii) any
other Person directly or indirectly holding 10% or more of the
legal or beneficial ownership or membership interests in that
Person (including partnership or membership interests, classes of
capital stock or other equity interests, options, warrants,
convertible securities and similar rights) and (iv) any other
Person 10% or more of whose legal or beneficial ownership or
membership interests is held directly or indirectly by that
Person.
Agreement means this Loan Agreement, including the
schedules and exhibits attached hereto, as the same may hereafter
be amended, modified, supplemented and/or restated from time to
time.
Attornment and Subordination Agreements mean, for the
Master Lease, the Attornment and Subordination Agreement among
Grossman's, as Master Tenant, Borrower, as landlord, and Lender,
as lender, as the same may hereafter be amended, modified,
supplemented and/or restated from time to time.
Borrower is defined in the preamble hereto and includes
its successors and assigns permitted hereunder.
Borrower Parties is defined in Section 4.1a)(i).
Cleveland Property means the Property listed on Exhibit B
which is in Cleveland, Ohio.
Code means The Internal Revenue Code of 1986, as amended
from time to time.
Collateral Assignment means that certain Collateral
Assignment of Contracts, Permits, Warranties, etc. of even date
herewith from Borrower to Lender, as the same may hereafter be
amended, modified, supplemented and/or restated from time to time.
Consultant means the Consultant, as approved by Lender,
under the Consulting Agreement.
Consulting Agreement means an Agreement executed or to be
executed substantially in the form annexed hereto as Exhibit
Consulting Agreement or such other form as Lender may hereafter
approve and as the same may hereafter or thereafter be amended,
modified, supplemented and/or restated from time to time with the
consent of Lender.
Convertible Note, see definition of Notes.
Debenture Restructure Documents shall mean the Tranche A
Convertible Promissory Notes in an approximate amount of
$3,000,000 and a Tranche B Convertible Promissory Notes in an
approximate principal amount of $2,750,000 both such notes being
dated of even date herewith, which notes are being issued by
Grossman's to Continental Assurance Corporation and affiliates,
together with $11,000,000 in cash in exchange for $15,001,000
principal amount of 14% Debentures due 1996 of Grossman's Inc.,
and a letter agreement dated April 2, 1996 between Grossman's and
Illinois State Board of Investments.
Default means any condition or occurrence which with
notice and/or the passage of time would be an Event of Default.
Designated Sale Property is defined in Section 4.3.2
hereof.
Distribution means the declaration or payment of any
dividend on or in respect of any shares of any class of capital
stock of the Borrower, or any other distribution on or in respect
of or buybacks of any shares of any class of capital stock of the
Borrower or the making of any loan to an Affiliate of Borrower.
Draw Requests is defined in Section 3.4 hereof.
Drawdown Date is defined in Section 3.4 hereof.
Environmental Laws shall have the meaning set forth in
Section 4.1.i).
ERISA means the Employee Retirement Income Security Act
of 1974, as amended and in effect from time to time.
ERISA Affiliate means any Person which is treated as a
single employer with the Borrower under 414 of the Code.
Event of Default shall have the meaning set forth in
Section 7.1 hereof.
Expense Note, see definition of Notes.
FF&E Commission Agreement means that certain FF&E
Commission Agreement between Borrower and Gordon Brothers
Partners, Inc. ("Gordon Brothers") of even date herewith, as the
same may hereafter be amended from time to time.
FF&E Note, see definition of Notes.
Fixed Interest is defined in Section 3.3 and refers to a
15% per annum rate of interest.
Grossman's Agreement or Grossman's Agreements refers
collectively to that certain Inducement Letter of even date
herewith from Grossman's to Lender and any side letter agreements
provided by Grossman's and/or Borrower in connection herewith,
including the side letter agreement dealing with the registration
and listing of the stock referred to in the Real Estate Note and
the Convertible Note.
Guaranteed Pension Plan means any employee pension benefit
plan within the meaning of 3(2) of ERISA maintained or
contributed to by the Borrower or any ERISA Affiliate the benefits
of which are guaranteed on termination in full or in part by the
PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Guarantor shall mean the Holding Company, a Delaware
corporation, having a usual place of business at 70 Walnut Street,
Wellesley, MA 02181.
Guaranty means the Unconditional Guaranty of Payment and
Performance, dated or to be dated on or prior to the closing
hereunder, made by the Guarantor in favor of the Lender pursuant
to which, inter alia, the Guarantor guarantees to the Lender the
payment and performance of the Obligations.
Hazardous Substances shall have the meaning set forth in
Section 4.1.i) (ii).
Indebtedness shall mean all obligations, contingent and
otherwise, including intercompany debts and advances, that in
accordance with generally accepted accounting principles should be
classified upon the obligor's balance sheet as liabilities, or to
which reference should be made by footnotes thereto, including in
any event and whether or not so classified: (a) all debt and
similar monetary obligations, whether direct or indirect; (b) all
liabilities secured by any mortgage, pledge, security interest,
lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured
thereby shall have been assumed; and (c) all guarantees,
endorsements and other contingent obligations whether direct or
indirect in respect of indebtedness of others, including any
obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or
to assure the owner of indebtedness against loss, through an
agreement to purchase goods, supplies, or services for the purpose
of enabling the debtor to make payment of the indebtedness held by
such owner or otherwise, and the obligations to reimburse the
issuer in respect of any letters of credit.
Initial Participants refers to Carl Marks Capital
Management, LLC; Third Avenue Value Fund, Inc.; Goldman, Sachs &
Co.; and GBP, LLC.
Insolvent or Insolvency means that there shall have
occurred one or more of the following events with respect to a
Person: death; dissolution; termination of existence; insolvency
within the meaning of the United States Bankruptcy Code or any
other Federal or state bankruptcy or insolvency, fraudulent
transfer or fraudulent conveyance statute; such Person's inability
to pay its debts as they come due; the appointment of a receiver
for any part of the property of such Person, or execution of a
trust mortgage or an assignment for the benefit of creditors of
any part of the property of such Person; the offering of a plan to
creditors for reorganization, restructuring, composition or
extension; the filing of a petition in bankruptcy by such Person,
or the commencement by such Person of any proceedings under any
Federal or State bankruptcy or insolvency laws, or any laws
relating to the relief of debtors, the readjustment of
indebtedness or the reorganization of debtors; or the filing of an
involuntary petition in bankruptcy against such Person or the
commencement of any proceedings with respect to such Person under
any Federal or state bankruptcy or insolvency laws, or any laws
relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors.
Inventory shall have the meaning set forth in the
Inventory Agreement.
Inventory Agreement means that certain Inventory Agency
Agreement between Grossman's and Gordon Brothers dated March 29,
1996, as the same may hereafter be amended, modified, supplemented
and/or restated from time to time. Such term shall also include
any security agreement, UCC-1 Financing Statements, intercreditor
agreement or other document executed and delivered in connection
therewith.
Investments mean all expenditures made and all liabilities
incurred (contingently or otherwise) for the acquisition of stock
or Indebtedness of, or for loans, advances, capital contributions
or transfers of property to, or in respect of any guaranties (or
other commitments as described under Indebtedness), or obligations
of, any Person. In determining the aggregate amount of
Investments outstanding at any particular time: (a) the amount of
any Investment represented by a guaranty shall be taken at not
less than the principal amount of the obligations guaranteed and
still outstanding; (b) there shall be included as an Investment
all interest accrued with respect to Indebtedness constituting an
Investment unless and until such interest is paid; (c) there shall
be deducted in respect of each such Investment any amount received
as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating
distribution); (d) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment,
whether as dividends, interest or otherwise, except that accrued
interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the
aggregate amount of Investments any decrease in the value thereof.
Lender is defined in the preamble hereto and includes its
successors and assigns.
Loan shall have the meaning set forth in Section 3.1.
Loan Documents means, collectively, this Agreement, the
Notes, the Security Instruments and all other agreements,
instruments and documents now or hereafter executed and delivered
in connection with the Loan, all as the same may hereafter be
amended, modified, supplemented and/or restated from time to time.
Master Lease means that certain Master Lease of even date
herewith between Borrower and Grossman's for the Sale Properties
and the Other Properties, as the same may hereafter be amended,
modified, supplemented and/or restated from time to time with the
consent of Lender.
Master Tenant means Grossman's Inc. or any successor
tenant approved by Lender under the Master Lease.
Maturity Date is defined in the Notes.
Minimum Return has the meaning set forth in Section 4.6.
Mortgage means with respect to each of the Properties the
mortgage or deed of trust recorded incident or subsequent hereto
for such Property. The term "Mortgages" shall refer to all such
mortgages and refers to each Mortgage granted concurrently
herewith as well as all mortgages subsequently granted pursuant to
Section 4.16. References to Mortgage or Mortgages shall include
such instruments as the same may hereafter be amended from time to
time.
Multiemployer Plan means any multiemployer plan within the
meaning of 3.(37) of ERISA maintained or contributed to by the
Borrower or any ERISA Affiliate.
Niagara Property means the Property listed on Exhibit A
which is in Niagara Falls, New York.
Notes mean those certain Promissory Notes, dated as of the
date hereof and as the same may hereafter be amended (or
substituted for as set forth in Section 8.10 hereof) from time to
time, made by the Borrower to the order of the Lender as follows:
(a) a $2,900,000 Expense Promissory Note (the Expense
Note):
(b) a $2,500,000 FF&E Promissory Note (the FF&E Note);
(c) a $26,100,000 Real Estate Promissory Note (the Real
Estate Note); and
(d) a $4,000,000 Convertible Promissory Note (the
Convertible Note).
Obligations means any and all obligations of the Borrower,
the Guarantor or Grossman's to the Lender or any other permitted
holder of any of the Notes arising out of or in connection with
the Loan, of every kind and description, direct or indirect,
absolute or contingent, primary or secondary, due or to become
due, now existing or hereafter arising, regardless of how they
arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument, and includes
obligations to perform acts and to refrain from acting as well as
obligations to pay money and all obligations owing to Lender (or
any other holders of any of the Notes) under any of the Notes or
other Loan Documents, including, without limitation, the
obligations contained in Exhibits A and B of each of the Real
Estate Note and the Convertible Note and all of Borrower's
obligations to pay Fixed Interest and Additional Interest as
referred to in Section 4.12 hereof.
Other Properties is defined in Section 1.1 hereof.
PBGC is The Pension Benefit Guaranty Corporation created
by 4002 of ERISA and any successor entity or entities having
similar responsibilities.
Person means any individual, corporation, partnership,
trust, unincorporated association, business, or other legal
entity, and any government or any governmental agency or political
subdivision thereof.
Property or Properties is defined in Section 1.1 hereof.
Real Estate Note, see definition of Notes.
Related Documents is defined in Section 3.4.2.2 hereof.
Sale Proceeds is defined in Section 3.3.B., hereof.
Sale Properties is defined in Section 1.1 hereof and
includes each of the Properties listed on Exhibit A hereto whether
or not Lender has concurrently herewith been granted a Mortgage on
such property.
Salem Property means the Property listed on Exhibit A
which is in Salem, New Hampshire.
Scheduled Amounts mean, for each of the Properties, the
Scheduled Amount, if any, set forth as the Scheduled Amount for
such Property on Exhibits A and B (it not being intended, however,
that such term shall imply or be interpreted as an estimate or
determination of fair market value).
Security Agreement means that certain Security Agreement
of even date herewith between Borrower and Lender, as the same may
hereafter be amended, modified, supplemented and/or restated from
time to time.
Security Instruments means all of the Mortgages, the
Security Agreement, the Stock Pledge Agreement, the Guaranty, the
Collateral Assignment, the Attornment and Non-Disturbance
Agreement, UCC-1 Financing Statements, and all other instruments
or documents that secure the Obligations, all as the same may
hereafter be amended, modified, supplemented and/or restated from
time to time.
Site Assessment Reports mean those site assessment reports
listed on Exhibit Reports annexed hereto.
Stock Pledge Agreement means that certain Stock Pledge
Agreement of even date herewith provided by Guarantor to Lender as
security for Guarantor's obligations under the Guaranty, as the
same may hereafter be amended, modified, supplemented and/or
restated from time to time.
Title Insurance Company means Lawyers Title Insurance
Corporation, or such other national title insurance as shall be
approved in writing by the Lender.
Title Policy shall mean, as accepted and approved by
Lender, an ALTA standard form title insurance policy or policies
issued by the Title Insurance Company (with such reinsurance or
co-insurance as Lender may require, any such reinsurance to be
with direct access endorsements) in an aggregate amount equal to
the full amount of the Loan insuring the priority of all of the
Mortgages as first priority liens on the Properties and that the
Borrower holds good clear record and marketable fee simple title
to the Properties, subject only to the encumbrances approved by
Lender and which shall not contain exceptions for creditors rights
(except to the extent otherwise specifically approved by Lender),
mechanics liens, persons in occupancy (other than pursuant to the
Master Lease) or matters which would be shown by a survey, shall
not insure over any matter except to the extent that any such
affirmative insurance is acceptable to Lender in its sole
discretion, and shall contain such endorsements and affirmative
insurance as the Lender in its discretion may require, including
but not limited to the following: (a) comprehensive endorsement,
(b) usury endorsement, and (c) doing business endorsement.
UCC-1 Financing Statements means Uniform Commercial Code
Financing Statements, perfecting security interests of the Lender
in certain collateral, including, the FF&E and items which are now
personalty but which hereafter may become a part of the Properties
or which will remain personalty to be used in the operation of the
Properties, as the same may hereafter be amended from time to
time.
Section 2.2 Rules of Interpretation. For all purposes of
this Agreement and the other Loan Documents, except as otherwise
expressly provided herein or therein or unless the context
otherwise requires:
(i) references to any Person defined herein refer to
such Person and (as the case may be) his
permitted successors, assigns, heirs, executors,
administrators and other legal representatives;
(ii) references to any agreement, instrument or
document refer to such document as originally
executed, or if subsequently varied or
supplemented in writing from time to time, as so
varied or supplemented and in effect at the
relevant time of reference thereto;
(iii) words importing the singular only shall include
the plural and words importing the plural only
shall include the singular; words importing the
masculine gender shall include the feminine
gender and words importing the feminine gender
shall include the masculine gender; and all
references to dollars shall be United States
dollars;
(iv) references to any law include any amendment or
modification to such law;
(v) the words include,includes and including
should always be read as include, without
limitation,includes, without limitation, and
including, without limitation,. The use of
words following any of the words include,
includes, or including is not intended to be
an exclusive list to which any of the foregoing
prepositions apply;
(vi) the words herein, hereof, hereunder and
words of like import shall refer to this
Agreement as a whole and not to any particular
section or subdivision of this Agreement;
(vii) accounting terms not otherwise defined in this
Agreement or any of the other Loan Documents
have the meanings assigned to them in accordance
with GAAP;
(viii) except as expressly provided to the
contrary in a particular provision, whenever a
Loan Document requires the Lender to give its
consent or approval, such consent or approval
shall be in writing and the Lender may grant or
withhold its consent or approval in its sole
and absolute discretion, and the quoted phrase
shall be deemed included in any reference to the
Lender's consent or approval if not already set
forth with respect thereto; and
(ix) to the extent there are any inconsistencies or
conflicts between the terms and provisions of
this Agreement and the terms and provisions of
any other Loan Documents, the terms and
provisions of this Agreement shall control the
terms and provisions of any of the other Loan
Documents.
ARTICLE 3 - THE LOAN
Section 3.1 Agreement to Loan and Borrow. Upon and subject
to the terms and conditions of this Agreement and the other Loan
Documents, and in reliance upon the representations, warranties
and covenants of the Borrower made herein and therein, the Lender
agrees to lend to the Borrower and the Borrower agrees to borrow
from the Lender, up to a total sum (the "Loan Amount") of Thirty-
Five Million Five Hundred Thousand
and 00/100ths Dollars ($35,500,000) (the "Loan"); provided,
however, Lender shall never be obligated to advance funds under
the Loan in excess of the amounts qualified to be funded prior to
the Advance Termination Date as set forth in Section 3.4 hereof.
Section 3.2 Loan Commitment Fee. In consideration of the
agreement of the Lender to make the Loan contemplated by and enter
into this Agreement, and in addition to interest payable on
account thereof, the Borrower is paying to the Lender various Loan
commitment fees totaling Two Million Dollars ($2,000,000) which
amount is evidenced by the Expense Note. Borrower acknowledges
that these fees have been fully earned by the Lender.
Section 3.3 Loan Terms. The Loan is evidenced by the
Notes. As set forth in the Notes, the term of each Note is two
(2) years. Each of the FF&E Note and the Real Estate Note shall
bear interest at a fixed rate of fifteen percent (15%) per annum
("Fixed Interest") and, subject, to the provisions of Section 4.12
hereof, such Notes shall also bear "Additional Interest" (as
defined in Section 4.12). The Expense Note and Convertible Note
do not require additional interest thereon with interest in
recognition of amounts advanced under such notes having been
provided under the FF&E Note and the Real Estate Note. The FF&E
Note, the Real Estate Note, the Expense Note and the Convertible
Note evidence a single loan transaction with separate tranches of
the Loan being separately evidenced by such Notes for convenience.
Borrower acknowledges and agrees that a Default or Event of
Default under any of the Notes shall be, respectively, a Default
or Event of Default under each of the other Notes.
With respect to the Expense Note and the Real Estate Note,
Borrower hereby agrees to make aggregate required principal
payments under such Notes during the term of the Loan as follows:
A. Scheduled Principal Payments (Scheduled
Payments). Subject to the application of any Principal Credits
(as set forth below),
1. on the date which is six (6) months from
the date hereof, the sum of $4,500,000 ("1st Scheduled Payment")
with the 1st Scheduled Payment to be applied first to any amounts
outstanding under the Expense Note until it has been paid in full
and then to the Real Estate Note;
2. on the date which is twelve (12) months
from the date hereof, the sum of $6,000,000 (2nd Scheduled
Payment);
3. on the date which is eighteen (18) months
from the date hereof, the sum of $9,000,000 (3rd Scheduled
Payment) ; and
with the balance of all outstanding principal under the Real
Estate Note and the other Notes being due on the Maturity Date
(accelerated or otherwise).
B. Non-Scheduled Payments (Non-Scheduled
Payments)
In addition to the requirement for Scheduled Payments, if,
as and when any Sale Properties are sold, all of the proceeds of
such sales as they occur, net of reasonable closing costs
customarily payable by a seller of property (such net proceeds are
referred to herein as the "Sale Proceeds", it being understood and
agreed that, in no event shall closing fees or costs paid or
payable to Borrower or Affiliates of Borrower qualify as closing
costs to be deducted from the proceeds of a sale) and shall be
immediately paid over to Lender by Borrower for application by
Lender as follows:
(a) First, to Lender to pay all unpaid amounts under
the Expense Note.
(b) Second, to Lender to pay any amounts necessary
to bring Borrower into compliance with its
Scheduled Payment obligations.
(c) Third, to Lender to pay all unpaid amounts under
the FF&E Note.
(d) Fourth, to the extent not previously paid over
to Borrower by a prior operation of this Fourth
priority, and provided no Default or Event of
Default exists, to Borrower in an amount equal
to the amount theretofore paid to Lender by
Borrower for Fixed Interest under the FF&E Note
and the Real Estate Note.
(e) Fifth, to Lender for application, upon Lender's
receipt thereof, to Borrower's next ensuing
Scheduled Payment obligation up to a level of
75% of such principal payment obligation amount.
(f) Sixth, to the extent not previously paid over to
Borrower by a prior operation of this Sixth
priority and provided no Default or Event of
Default exists, to Borrower in an amount equal
to any "Cash Cure Amounts" if any, as defined in
Section 4.3, previously paid by Borrower to
Lender.
(g) Seventh, to Lender to reduce principal
indebtedness under the Real Estate Note until
all outstanding obligations under such Note have
been paid in full (subject to Lender's
conversion and other rights set forth in such
Note if such Note is not paid in full by the
Maturity Date).
(h) Eighth, to Lender, to reduce indebtedness under
the Convertible Note (subject to the conversion
and other rights of Lender set forth in such
Note) until such Note is paid in full.
(i) Ninth, to Lender, the amount necessary to
provide the Lender with the Minimum Return
through the date of application of Sale Proceeds
under this Section 3.3.B.
(j) Tenth, any remaining amounts to Borrower.
Notwithstanding the foregoing, provided the Expense
Note has been repaid in full and no Default or Event
of Default exists under the Loan, Borrower shall be
entitled to retain the following Sale Proceeds, if
any:
(i) Sale Proceeds in excess of $1.5 million
resulting from the sale of the Salem
Property which closes within six (6)
months of the date of this Agreement; and
(ii) Sale Proceeds in excess of $1.4 million
resulting from the sale of the Niagara
Property which closes within six (6)
months of the date of this Agreement.
To the extent of Lender's receipt of Non-Scheduled Payments
under priorities Fifth and Seventh, Borrower shall be entitled to
a credit ("Principal Credit"), on a cumulative basis, against its
obligations to make future Scheduled Payments.
Section 3.4 Draw Requests and Advances.
Section 3.4.1 General Provisions for Advances. Subject
to the provisions of this Agreement, including this Section 3.4.1
and Sections 3.4.2 and 3.4.3 hereof and the other Loan Documents,
(a) Borrower may elect to draw down the Loan Amount in increments
upon submission of draw requests ("Draw Requests") to Lender
specifying the amount to be drawn and provided that, in any event,
each increment(referred to herein as an "Advance") shall be for a
minimum amount of $5,000,000.00 and (b) to the extent Borrower
qualifies hereunder for funding of the requested Advances, Lender
shall fund such Advances under the Notes in the following order:
first, under the Expense Note; second, under the Convertible Note;
third, under the FF&E Note; and fourth, under the Real Estate
Note.
Each Draw Request for an Advance hereunder shall be in the
form of Exhibit "Draw Requests" annexed hereto or such other form
as is acceptable to Lender and shall be accompanied by such
information as Lender reasonably requests with respect to the
status of the Properties and Borrower's marketing and sales
efforts with respect to the Sale Properties. Each Draw Request
hereunder shall constitute a confirmation by Borrower that all
representations and warranties made to or for the benefit of
Lender under the Loan Documents or the Grossman's Agreement are
true and complete in all material respects as of the date of the
submission of the Draw Request and that all of the conditions in
this Section 3.4 have been satisfied as of the date of submission
of the Draw Request.
In no event however, shall Lender be obligated to fund
amounts under the Loan or Borrower be entitled to draw down
proceeds of the Loan except to the extent set forth in Draw
Requests which satisfy all conditions of this Agreement, including
this Section 3.4, and are received by Lender prior to September
30, 1996 (the "Advance Termination Date"). In no event, shall
Borrower submit or Lender be obligated to make Advances pursuant
to more than three Draw Requests, with the initial Advance under
the Loan being considered as a funding under a Draw Request for
these purposes.
Funds advanced under the Loan and repaid by Borrower shall
not be readvanced under the Loan, it being the intent of the
parties that the Loan not be a revolver-type facility of any kind.
At such time as the Borrower shall desire to obtain an
Advance, the Borrower shall complete, execute and deliver to the
Lender the Borrower's Draw Request. Each Draw Request (other than
the Draw Request for the initial Advance hereunder) shall be
submitted to the Lender by no earlier than thirty (30) days before
and no later than fourteen (14) days prior to the date of the
requested Advance.
No Advance made by the Lender shall constitute a waiver of
any of the conditions to the obligation of the Lender to make
further Advances.
Each Draw Request submitted to the Lender requesting an
Advance shall be irrevocable and binding on the Borrower and shall
obligate the Borrower to accept the Advance requested on the date
of funding thereof by Lender (the "Drawdown Date"). Borrower, by
its receipt of such funds, shall be deemed to have confirmed to
Lender that, as of the Drawdown Date, all representations and
warranties made to or for the benefit of Lender under the Loan
Documents or the Grossman's Agreement are true and complete as of
such Drawdown Date.
The Borrower irrevocably authorizes Lender to make or cause
to be made, at or about the time of the funding of any Advance or
at the time of receipt of any payments made under or received on
account of the Notes, or any of them, an appropriate notation on
Lender's records reflecting the making of such Advance or (as the
case may be) the receipt of such payment and the allocation of
such Advance amount or receipt among the Notes. The outstanding
amount of the Advances set forth on Lender's record shall be prima
facie evidence of the principal amount thereof owing and unpaid to
such Lender under each Note, but the failure to record, or any
error in so recording, any such amount on Lender's records shall
not limit or otherwise affect the obligations of the Borrower
hereunder or under any of the Notes to make payments of principal
of or interest on any Note when due.
Section 3.4.2 Conditions to Initial Advance. The
obligation of the Lender to make the initial Advance shall be
subject to the satisfaction of the following conditions precedent,
in addition to satisfaction of Lender's other closing requirements
not specifically enumerated below:
Section 3.4.2.1. Loan Documents. Each of the Loan
Documents shall have been duly executed and delivered by the
respective parties thereto, shall be in full force and effect and
shall be in form and substance satisfactory to the Lender. Lender
shall have received a fully executed copy of each such document.
Section 3.4.2.2. Related Documents. Each of the
Attornment and Subordination Agreements, Master Lease, FF&E
Commission Agreement, Grossman's Agreement, Inventory Agreement
and Debenture Restructure Documents (sometimes collectively
referred to herein as the "Related Documents") shall have been
duly executed and delivered by the respective parties thereto,
shall be in full force and effect with no default thereunder, and
shall be in form and substance satisfactory to Lender (which, in
the case of the Debenture Restructure Documents, shall mean that
such documents will be, in all material respects, on the same
terms and conditions outlined to Lender in Schedule I to the
Commitment Letter dated March 22, 1996, between Lender and
Borrower (the "Commitment Letter"). Lender shall have received a
certified or a fully executed copy of each such document.
Section 3.4.2.3. Certified Copies of Organization
Documents. Lender shall have received from the Borrower and the
Guarantor, a copy, certified as of a recent date by the
appropriate officer of the State in which the Borrower and/or the
Guarantor is organized to be true and complete, of its corporate
charter and any other of its organization documents as in effect
on such date of certification.
Section 3.4.2.4. Resolutions. All action
necessary for the valid execution, delivery and performance by the
Borrower and the Guarantor of this Agreement and the other Loan
Documents and all action necessary for the valid execution,
delivery and performance by all other parties to the Related
Documents of such Related Documents shall have been duly and
effectively taken, and evidence thereof satisfactory to the Lender
shall have been provided to the Lender. Lender shall have
received from the Borrower, the Guarantor and all other parties to
the Related Documents, true copies of the resolutions adopted by
their respective shareholders and board of directors, partners,
beneficiaries and trustees, as applicable, authorizing the
transactions described or referred to herein, each certified in a
manner satisfactory to Lender as of a recent date to be true and
complete.
Section 3.4.2.5. Incumbency Certificate;
Authorized Signers. Lender shall have received from the Borrower
and the Guarantor an incumbency certificate, dated as of the date
of closing hereunder, signed by a duly authorized officer of the
Borrower or the Guarantor and giving the name and bearing a
specimen signature of each individual who shall be authorized: (a)
to sign, in the name and on behalf of the Borrower and the
Guarantor, each of the Loan Documents to which such Person is or
is to become a party; (b) in the case of the Borrower, to make
Draw Requests; and (c) to give notices and to take other action
on its behalf under the Loan Documents.
Section 3.4.2.6. Validity of Liens. The Security
Instruments shall be effective to create in favor of the Lender a
legal, valid and enforceable first lien and security interest in
all collateral described in the Security Instruments. All
filings, recordings, deliveries of instruments and other actions
necessary or desirable in the opinion of the Lender to protect and
preserve such lien and security interest shall have been duly
effected. Lender shall have received evidence thereof in form and
substance satisfactory to Lender.
Section 3.4.2.7. Deliveries. The following items
or documents shall have been delivered to Lender by the Borrower
(except to the extent Lender otherwise agrees in writing that such
delivery may be deferred until the next requested Advance) and
shall be in form and substance satisfactory to Lender:
(a) Title Policies. Title Policies for each
of the Properties to be covered by Mortgages, together with proof
of payment of all fees and premiums for such policies and true and
accurate copies of all documents listed as exceptions under such
policies.
(b) Other Insurance. Duplicate originals or
certified copies of all policies of insurance required by the Loan
Documents to be obtained and maintained by the Borrower together
with such endorsements and riders thereto as Lender requires,
including requirements for Lender to be named as mortgagee and
first loss payee on all property insurance coverages and as an
additional insured on all liability coverages.
(c) Environmental Reports. Environmental
site assessment reports of one or more qualified environmental
engineering or similar inspection firms approved by the Lender for
each of the Properties.
(d) Surveys and Taxes. Surveys of all
Properties to be covered by Mortgages (and any existing
improvements thereon) and surveyor's certificates with respect
thereto, and evidence of payment of all real estate taxes and
municipal charges on any of such Properties (and any existing
improvements thereon) which were due and payable prior to the date
of closing hereof.
(e) Draw Request. A Draw Request complying
with the provisions of Section 3.4.1 hereof.
(f) Legal Opinions. Lender shall have
received favorable opinions in form and substance satisfactory to
Lender and its legal counsel, addressed to Lender and dated as of
the date of closing hereof, from Ropes and Gray and Richard Kent,
Esq., General Counsel of Grossman's, as to such matters as Lender
shall require.
Section 3.4.2.9 Lien Search. Lender shall have
received a certification from Title Insurance Company or counsel
satisfactory to Lender that a search of the public records
disclosed no encumbrances, mortgages, conditional sales contracts,
security agreements, chattel mortgages, leases, financing
statements, title retention agreements or other security
instruments of any kind which affect any of the collateral
encumbered by the Security Instruments.
Section 3.4.2.10 Valuation. Lender shall have
determined Scheduled Amounts for the Properties which amounts
shall be satisfactory to Lender (such amounts as approved by
Lender being set forth on Exhibits A and B hereto).
Section 3.4.2.11 Payment of Fees. From the
proceeds of the initial Advance Borrower shall have paid to the
Lender the commitment fees referred to in Section 3.2, and all
other fees and expenses incurred by Lender in connection herewith,
including all legal fees and costs incurred by Lender and all
other fees and expenses, if any, set forth in Borrower's Draw
Request of even date herewith.
Section 3.4.2.12. Performance; No Default. The
Borrower shall have performed and complied with all terms and
conditions herein required to be performed or complied with by it
on or prior to the Drawdown Date of the initial Advance, and on
the Drawdown Date of the initial Advance, there shall exist no
Default or Event of Default.
Section 3.4.2.13. Representations and Warranties.
The representations of warranties made by the Borrower and the
Guarantor in the Loan Documents and by Grossman's in the
Grossman's Agreement or otherwise made by or on behalf of the
Borrower, Guarantor or Grossman's in connection therewith or after
the date thereof shall have been true and correct in all respects
when made and shall also be true and correct in all material
respects on the Drawdown Date of the initial Advance.
Section 3.4.2.14. Proceedings and Documents. All
proceedings in connection with the transactions contemplated by
this Agreement and the other Loan Documents shall be satisfactory
to Lender in form and substance, and Lender shall have received
all information and such counterpart originals or certified copies
of such documents and such other certificates, opinions or
documents as Lender may require.
Section 3.4.3 Conditions to Subsequent Advances. The
obligation of the Lenders to make any Advance hereunder subsequent
to the initial Advance shall be subject to the satisfaction of the
following conditions precedent:
(a) All conditions precedent to the initial Advance and any
prior Advance shall continue to be satisfied as of the Drawdown
Date of such subsequent Advance (except as to any Related
Documents which have terminated by their terms);
(b) Borrower shall have performed and complied with all
terms and conditions herein or in any other Loan Document required
to be performed or complied with by it on or prior to the Drawdown
Date of such Advance, and on the Drawdown Date of such Advance
there shall exist no Default or Event of Default;
(c) Each of the representations and warranties made by the
Borrower and the Guarantor in the Loan Documents and by Grossman's
in the Grossman's Agreement or otherwise made by or on behalf of
the Borrower, Guarantor or Grossman's in connection therewith or
after the date thereof shall have been true and correct in all
respects on the date when made and shall also be true and correct
in all material respects on the Drawdown Date of such Advance
(except to the extent of changes resulting from transactions
contemplated or permitted by the Loan Documents).
(d) Lender shall have received the following items or
documents from Borrower which shall be in form and substance
satisfactory to Lender:
(i) A Draw Request complying with the requirements
hereof;
(ii) Any items required to have been submitted as a
condition for the initial Advance which Lender agreed could be
deferred to a subsequent Advance including, Title Policies,
surveys, and surveyor's certificates for all Properties covered by
Mortgages and Phase I Environmental Site Assessment Reports for
all Properties; and
(ii) At the expense of Borrower, "date down"
endorsements to the Title Policies for all Properties covered by
Mortgages indicating no change in the state of title and
containing no survey exceptions not approved by Lender, which
endorsement shall, expressly or by virtue of a proper "pending
disbursements" clause or endorsement in the Title Policies,
increase the coverage of the Title Policies to the aggregate
amount of all proceeds of the Loan advanced on or before the
effective date of such endorsement.
ARTICLE 4 - BORROWER'S GENERAL REPRESENTATIONS AND COVENANTS.
Section 4.1 Representations and Warranties. Borrower
represents to Lender as follows (which representations Borrower
covenants with Lender shall remain true and complete until all
Obligations are fully satisfied):
a) Corporate Authority; Etc.
(i) Organization; Good Standing. The Borrower is a
Delaware corporation duly organized pursuant to the laws of
Delaware and is validly existing and in good standing under the
laws of the State of Delaware. The Holding Company is a Delaware
corporation duly organized pursuant to the laws of Delaware and is
validly existing and in good standing under the laws of the State
of Delaware. Each of the foregoing entities (sometimes
collectively referred to as the "Borrower Parties") (i) has all
requisite power to own its property (including, without
limitation, the Properties and FF&E) and conduct its business as
now conducted and as presently contemplated, and (ii) as
applicable, is in good standing as a foreign entity and is duly
authorized to do business in each jurisdiction where the
Properties and FF&E are located and in each other jurisdiction
where such failure to so qualifying would materially affect the
business or prospects of the Borrower Parties.
(ii) Authorization. The execution, delivery and
performance of this Agreement and the other Loan Documents to
which the Borrower or the Guarantor is or is to become a party and
the transactions contemplated hereby and thereby (i) are within
the authority of the Borrower and the Guarantor (ii) have been
duly authorized by all necessary proceedings on the part of each
such entity, (iii) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation
to which the Borrower or Guarantor is subject or any judgment,
order, writ, injunction, license or permit applicable to the
Borrower or Guarantor and (iv) do not conflict with any provision
of the applicable organizational documents, other charter
documents or bylaws of, or any agreement or other instrument
binding upon, the Borrower or Guarantor and (v) do not require the
approval or consent of, or filing with, any governmental agency or
authority other than those already obtained and the recording
and/or filing of the Mortgages and any other Loan Document in the
appropriate public records with respect thereto.
(iii) Enforceability. The execution and delivery of
this Agreement and the other Loan Documents to which the Borrower
or Guarantor is or is to become a party will result in valid and
legally binding obligations of the Borrower and Guarantor
enforceable against each of them in accordance with the respective
terms and provisions hereof and thereof, except as enforceability
is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement
of creditors' rights and except to the extent that availability of
the remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding
therefor may be brought.
b) Title to Properties; Leases. The Borrower warrants
that it holds good and marketable title to the Properties and the
FF&E and owns all of the Properties, and FF&E and the assets
relating to the Properties subject to no rights of others,
including any mortgages, leases, conditional sales agreements,
title retention agreements, liens or other encumbrances except for
encumbrances or liens specifically set forth in the Title Policies
provided to Lender concurrently herewith and by reason of the
Master Lease, which Master Lease Borrower covenants shall be
subordinate to the liens of the Mortgages unless otherwise elected
by Lender.
c) Litigation. There are no actions, suits, proceedings
or investigations of any kind pending or threatened against the
Borrower, the Guarantor or the Master Tenant before any court,
tribunal or administrative agency or board that, if adversely
determined, might reasonably be expected to either in any case or
in the aggregate, materially adversely affect the properties,
assets, prospects, financial condition or business of the
Borrower, Guarantor or the Master Tenant or materially impair the
right of the Borrower, Guarantor or the Master Tenant to carry on
business substantially as now conducted by it, or result in any
substantial liability not adequately covered by insurance, or for
which adequate reserves are not maintained on the balance sheet of
the Borrower, Guarantor or the Master Tenant or which question the
validity of this Agreement or any of the other Loan Documents or
any of the Grossman's Agreement, Consulting Agreement, Related
Documents or Master Lease, or any action taken or to be taken
pursuant hereto or thereto.
d) No Materially Adverse Contracts, Etc. Neither the
Borrower, Guarantor nor the Master Tenant is subject to any
charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation that has or may reasonably be
expected in the future to have a materially adverse effect on the
business, prospects, assets or financial condition of the
Borrower, Guarantor or Master Tenant. Neither the Borrower,
Guarantor nor the Master Tenant is a party to any contract or
agreement that has or may reasonably be expected, in the judgment
of such party's officers, to have any materially adverse effect on
the prospects or business of the Borrower, Guarantor or the Master
Tenant.
e) Compliance With Other Instruments, Laws, Etc. Neither
the Borrower, Guarantor nor the Master Tenant is in violation of
any provision of its organizational documents, by-laws, or any
agreement or instrument to which it may be subject or by which it
or any of its properties (including the Properties and FF&E) may
be bound or any decree, order, judgment, statute, license, rule or
regulation, in any of the foregoing cases in a manner that could
result in the imposition of substantial penalties or materially
and adversely affect the financial condition, prospects,
properties (including the Properties and FF&E) or business of the
Borrower, Guarantor or the Master Tenant.
f) Tax Status. The Borrower and Guarantor (a) have each
made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to
which it is subject, (b) have each paid all taxes and other
governmental assessments and charges shown or determined to be due
on such returns, reports and declarations, except those being
contested in good faith and by appropriate proceedings for which
adequate reserves have been set aside and (c) have each set aside
on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and Borrower knows of no basis for any such claim.
g) No Default or Event of Default. No Default or Event
of Default has occurred and is continuing.
h) Absence of UCC Financing Statements, Etc. Except for
the lien and encumbrance of the Loan Documents or as disclosed in
the Title Policies to the extent approved by Lender, there is no
financing statement, security agreement, chattel mortgage, real
estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, that purports to
cover, affect or give notice of any present or possible future
lien on, or security interest in, the Properties or the FF&E or
any other collateral subject to the Security Instruments.
i) Environmental Compliance. The Borrower has taken
commercially reasonable steps to investigate the present condition
and past usage of the Properties and the operations conducted
thereon and, based upon such diligent investigation, makes the
following representations and warranties:
(i) With respect to the Properties, except as
expressly otherwise disclosed in the Site Assessment Reports: none
of the Borrower or any tenant or operator of the Properties, or
any operations thereon is in violation, or alleged violation, of
any judgment, decree, order, law, license, rule or regulation
pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, or any state or local statute, regulation, ordinance,
order or decree relating to health, safety or the environment
(hereinafter "Environmental Laws"), which violation involves the
Properties and would have a material adverse effect on the
environment or the business, prospects, assets or financial
condition of the Borrower or on the fair market value of the
Properties.
(ii) With respect to the Properties, except as
expressly otherwise disclosed in the Site Assessment Reports:
neither the Borrower, Guarantor nor the Master Tenant has received
notice from any third party including, without limitation, any
federal, state or local governmental authority, asserting (i) that
it has been identified by the United States Environmental
Protection Agency (EPA) as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any
hazardous waste, as defined by 42 U.S.C. 9601(5), any hazardous
substances as defined by 42 U.S.C. 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. 9601(33) or any toxic
substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous
Substances") which it has generated, transported or disposed of
have been found at any site at which a federal, state or local
agency or other third party has conducted or has ordered that the
Borrower, any other Borrower Party or Master Tenant conduct a
remedial investigation, removal or other response action pursuant
to any Environmental Law; or (iii) that it is or shall be a named
party to any claim, action, cause of action, complaint, or legal
or administrative proceeding (in each case, contingent or
otherwise) arising out of any third party's incurrence of costs,
expenses, losses or damages of any kind whatsoever in connection
with the release of Hazardous Substances. The term "Hazardous
Substances" shall also include in this Agreement any material
containing more than one percent (1%) by weight of asbestos,
including all varieties and forms of materials defined as asbestos
under any Environmental Law.
(iii) With respect to the Properties, except as
expressly otherwise disclosed in the Site Assessment Reports or
with respect to events which would not have a material adverse
effect on the business, prospects, assets or financial condition
of Borrower or on the fair market value of the Properties in the
aggregate: (i) no portion of the Properties has been used for the
handling, processing, storage or disposal of Hazardous Substances
except for use incidental to the primary use of the Properties
which use has been in accordance with applicable Environmental
Laws; and, to the best of Borrower's knowledge, no underground
tank or other underground storage receptacle for Hazardous
Substances is located on any portion of the Properties; (ii) in
the course of any activities conducted by the Borrower or the
operators of its properties, no Hazardous Substances have been
generated or are being used on the Properties except in accordance
with applicable Environmental Laws; (iii) there has been no
release, i.e. any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping (a "Release") or threatened Release
of Hazardous Substances on, upon, into or from the Properties, or,
to the best of Borrower's knowledge, on upon, into or from the
other properties of the Borrower or any of the other Borrower
Parties, which Release would in the case of such other properties
have a material adverse effect on the value of any of the
Properties or adjacent properties or the environment; (iv) to the
best of the Borrower's knowledge, there have been no Releases on,
upon, from or into any real property in the vicinity of any of the
Properties which, through soil or groundwater contamination, may
have come to be located on, and which would have a material
adverse effect on the fair market value of, the Properties; and
(v) any Hazardous Substances that have been generated on any of
the Properties and any underground tank or underground storage
receptacle for Hazardous Materials formerly located on any portion
of the Properties have been transported off-site only by carriers
having an identification number issued by the EPA, treated or
disposed of only by treatment or disposal facilities maintaining
valid permits as required under applicable Environmental Laws then
in effect, which transporters and facilities have been and are, to
the best of the Borrower's knowledge, operating in compliance
with such permits and applicable Environmental Laws.
(iv) To the best of Borrower's knowledge, neither the
Borrower nor any of the Properties is subject to any applicable
Environmental Law requiring the performance of Hazardous
Substances site assessments, or the removal or remediation of
Hazardous Substances, or the giving of notice to any governmental
agency or the recording or delivery to other Persons of an
environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or as a
condition to the recording of the Mortgages or to the
effectiveness of any other transactions contemplated hereby.
j) Loan Documents. All of the representations and
warranties of the Borrower or Borrower Parties made in the other
Loan Documents or any document or instrument delivered to the
Lender pursuant to or in connection with any of such Loan
Documents are true and correct in all material respects.
k) Governmental Approvals. The execution, delivery and
performance by the Borrower and the other Borrower Parties of this
Agreement and the other Loan Documents to which the Borrower or
the other Borrower Parties is or is to become a party and the
transactions contemplated hereby and thereby do not require the
approval or consent of, or filing with, any governmental agency or
authority other than those already obtained and the filing of the
Mortgages and related financing statements in the appropriate
records office with respect thereto.
l) No Material Changes, Etc. Since the date of the
financial statements and information provided to Lender in
connection herewith, there has occurred no event which could
reasonably be expected to have a materially adverse change in the
financial condition, prospects, liquidity condition or business of
the Borrower, the Guarantor or the Master Tenant except for the
liquidation of inventory and the closing of certain Grossman's
stores other than changes in the ordinary course of business that
have not had any materially adverse effect either individually or
in the aggregate on the business or financial condition of the
Borrower, Guarantor or Master Tenant.
m) Employee Benefit Plans; Multiemployer Plans;
Guaranteed Pension Plans. Neither the Borrower nor any ERISA
Affiliate maintains or contributes to any Employee Benefit Plan,
Multiemployer Plan or Guaranteed Pension Plan. The foregoing
representation is not intended to apply to the Master Tenant.
n) Margin Security. Borrower does not own any margin
security and none of the funds advanced hereunder will be used for
the purpose of purchasing or carrying any margin securities or for
the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase any margin securities or for any
other purpose not permitted by Regulation U of the Board of
Governors of the Federal Reserve System.
o) Subsidiaries. Borrower has no subsidiaries.
p) Securities Matters. The making of the Loan, the
application of the proceeds and repayment thereof by Borrower and
the consummation of the transactions contemplated by this
Agreement, the Notes and the Loan Documents will not violate any
provision of any federal or state securities statutes, rules or
regulations, or any order issued by the Securities and Exchange
Commission (collectively the "Securities Laws"). Borrower agrees
to indemnify Lender and hold Lender harmless from the claims of
any Persons in connection with any of the Securities Laws and
relating to the Loans or the transactions contemplated by this
Agreement and the Loan Documents.
q) Investment Company Act. Borrower is not an
"investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of
1940, as amended.
r) Public Utility Holding Company Act. Borrower is not a
"holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company," or of a
"subsidiary company" of a "holding company, within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
s) The Properties. Except as could not reasonably be
expected to have a material adverse effect on the business,
prospects, assets or financial condition of Borrower or on the
fair market value of the Properties, in the aggregate, the
following representation and warranties concerning the Properties
are true and correct:
(i) Off-Site Utilities. Except for Properties which
are vacant lots, all water, sewer, electric, gas, telephone and
other utilities are installed to the property lines of the
Properties and, except in the case of drainage facilities, are
connected to the buildings located thereon with valid permits and
are adequate to service such buildings in their present use and in
full compliance with applicable law. The buildings are properly
and legally connected directly to, and served exclusively by,
public water and sewer systems.
(ii) Access; Etc. The streets abutting the
Properties are public roads, to which the Properties have direct
access by trucks and other motor vehicles and by foot, or are
private ways (with direct access by trucks and other motor
vehicles and by foot to public roads) to which the Properties have
direct access.
(iii) Independent Buildings. The buildings located on
the Properties are each fully independent from buildings owned by
parties other than Borrower in all material respects including,
without limitation, in respect of structural integrity, heating,
ventilating and air conditioning, plumbing, mechanical and other
operating and mechanical systems, and electrical, sanitation and
water systems, all of which are connected directly to off-site
utilities located in public streets or ways. Each such building
is located on a lot which is separately assessed for purposes of
real estate tax assessment and payment. Except to the extent
disclosed by surveys provided to Lender prior to the closing
hereof, each such building and all paved or landscaped areas
related to or used in connection with such are located wholly
within the perimeter lines of the lot or lots on which the
Properties are located.
(iv) Condition of Building. There are no material
defects (given age and usage) in the roof, foundation, structural
elements and masonry walls of any of the buildings or their
heating, ventilating and air conditioning, electrical, sprinkler,
plumbing or other mechanical systems.
(v) Compliance with Law. Each of the buildings, as
presently constructed, does not violate, in any material respect,
any applicable federal or state law or governmental regulation, or
any local ordinance, order or regulation, including but not
limited to laws, regulations, or ordinances relating to zoning,
building use and occupancy, subdivision control, fire protection,
health and sanitation. Each of the buildings complies with
applicable zoning laws and regulations in all material respects.
The zoning laws permit use of each of the buildings for its
current use. No notice has been received by Borrower or by the
Master Tenant from any governmental authority that the number of
parking spaces on the lot or lots on which the Properties is
located as is inadequate under the zoning laws and regulations to
permit use of the Building for its current use.
(vi) No Required Real Property Consents, Permits,
Etc. Neither the Borrower nor the Master Tenant has received
written notices of, nor has any knowledge of, any approvals,
consents, licenses, permits, utility installations and connections
(including, without limitation, drainage facilities), curb cuts
and street openings, required for the maintenance, operation,
servicing and use of any of the Properties or any of the buildings
thereon for its current use which have not been granted, effected,
or performed and completed (as the case may be) or any fees or
charges therefor which have not been fully paid. There are no
outstanding notices, suits, orders, decrees or judgments relating
to zoning, building use and occupancy, fire, health, sanitation,
or other violations affecting, against, or with respect to, any of
the Properties or any part thereof.
(vii) Insurance. Neither the Borrower nor the Master
Tenant has received any written notices from any insurer or its
agent requiring performance of any work with respect to any of the
Properties or canceling or threatening to cancel any policy of
insurance, and the Properties comply with the requirements of all
insurance carriers.
(viii) Real Property Taxes; Special Assessments.
There are no unpaid or outstanding real estate or other taxes or
assessments on or against any of the Properties or any part
thereof which are payable by Borrower (except only real estate
taxes not yet due and payable). There are no betterment
assessments or other special assessments presently pending with
respect to any portion of the Properties, and Borrower has
received no notice of any such special assessment being
contemplated.
(ix) Historic Status. Neither Borrower nor the
Master Tenant has received any written notice indicating that any
buildings located on any of the Properties are historic structures
or landmarks or that any such buildings or Property is located
within any historic district pursuant to any federal, state or
local law or governmental regulation.
(x) Eminent Domain/Unrestored Casualties. There are
no pending eminent domain proceedings against any of the
Properties or any part thereof, and, to the Borrower's knowledge,
no such proceedings are presently threatened or contemplated by
any taking authority. None of the Properties are subject to any
unrestored fire or other casualty condition.
(xi) Leases. The Master Lease constitutes the sole
agreements and understandings relating to leasing or licensing of
premises included in the Properties. The Borrower has delivered
to the Lender true and accurate copies of the Master Lease. There
are no occupancies, rights, privileges or licenses in or to any
part of the Properties other than pursuant to the Master Lease.
The Master Lease is in full force and effect, in accordance with
its respective terms, without any payment default or any other
material default thereunder, nor are there any defenses,
counterclaims, offsets, concessions or rebates available to any
tenant thereunder, and the Borrower has not given or made, or
received, any notice of default, or any claim, which remains
uncured or unsatisfied, with respect to the Master Lease and, to
the best of the Borrower's knowledge there is no basis for any
such claim or notice of default by any tenant. No leasing,
brokerage or like commissions, fees or payments are due from the
Borrower in respect of the Master Lease.
(xii) Other Material Real Property Agreements; No
Options. There are no material agreements pertaining to any of
the Properties, or the operation or maintenance thereof other than
as described in this Agreement (including the Schedules hereto) or
otherwise disclosed in writing to the Lender by the Borrower; and
no person or entity has any right or option to acquire any of the
Properties or any portion thereof or interest therein. The
foregoing representation is not intended to apply to the currently
outstanding purchase and sale contracts or offers to buy covering
the Cleveland Property, the Niagara Property or the Salem
Property; true and complete copies of which have heretofore been
provided to Lender.
t) General. Each of the Borrower and the Guarantor has
disclosed any material fact or condition which is necessary to
make the representations and warranties set forth herein or in any
other Loan Document and the disclosures made by them not
materially misleading.
Section 4.2 Master Lease, Consulting Agreement and Related
Documents . Borrower covenants and agrees not to permit to occur
any modification, termination or cancellation of the Master Lease
(other than releases of Properties leased thereunder in connection
with permitted sales of Sale Properties and Other Properties), the
Consulting Agreement (once executed) or any of the Related
Documents to which Borrower is a party and agrees faithfully to
perform and observe all of Borrower's obligations under the Master
Lease, Consulting Agreement and such Related Documents and to
cause the other parties to such agreements to faithfully perform
and observe all of their respective obligations under such leases
and agreements, it being understood and agreed, without
limitation, that any material breach of the obligations or
representations and warranties of Grossman's and/or Borrower in
any of the Grossman's Agreements shall be an Event of Default
hereunder. Borrower represents to Lender that the terms and
conditions of the Debenture Restructure Documents are, in all
material respects, the same terms and conditions as outlined by
Borrower to Lender in Schedule I to the Commitment Letter.
Borrower further agrees not to enter into any other agreements
with respect to the Properties other than agreements for
maintenance and operations that are terminable upon not more than
thirty (30) days notice and agreements in connection with
permitted sales of Sale Properties and Other Properties hereunder
and entered into consistent with the terms and conditions of this
Agreement (including contracts for alterations to be made to
facilitate such permitted sales). On the request of Lender,
Borrower agrees to assign or cause to be assigned to Lender, in
form acceptable to Lender, the Master Lease, the Consulting
Agreement and any other agreements or benefits related to the
Properties as designated by Lender, including, the benefits of any
representations and warranties provided Borrower by Grossman's
with respect to the Properties and their transfer to Borrower (the
Lender, however, not being obligated to perform any of Borrower's
obligations thereunder unless Lender elects to do so).
Section 4.3 Sales of Properties.
Section 4.3.1 Except as otherwise provided in the
second paragraph of this Section 4.3.1, Borrower shall not market,
sell or permit to be sold any Sale Property except for a cash
purchase price payable in its entirety at the closing thereof and,
in any event, shall not market, sell or permit to be sold any Sale
Property for an amount less than 80% of the Scheduled Amount for
such Property. Further, Borrower shall not, without Lender's
prior written consent, encumber or lease any Sale Property (other
than under the Master Lease which Borrower covenants shall be
fully terminable by Borrower as to a Property upon its sale) or
enter into or cause to be entered into an agreement for the sale
of any Sale Property contemplating a closing more than six months
from the date of the offer accepted by Borrower for such property.
Borrower shall not market, sell or permit to be sold any Sale
Property except in a manner consistent with this Section 4.3 and
all other provisions of the Loan Document pertaining to such sales
and otherwise in accordance with the Consulting Agreement.
Notwithstanding anything to the contrary contained in the
first paragraph of this Section 4.3.1, Borrower shall be permitted
to market, sell or permit to be sold a Sale Property on terms
other than an all cash basis if such sale provides for a cash
payment at closing in an amount of not less than 80% of the
Estimated Value for such property, with (i) the balance being
payable by means of a first priority purchase money mortgage note
payable to Borrower and secured by such Property and with such
note and mortgage being on terms reasonably acceptable to Lender
and pledged and assigned to Lender as additional security for the
Loan; or (ii) the balance being payable in some other manner
approved by Lender.
Section 4.3.2 Borrower shall cause the Consulting
Agreement to contain and Borrower shall comply and cause the
Consultant to comply with the following obligations ("Price
Adjustment Obligations"):
(a) if Borrower fails to make the 1st
Scheduled Payment when due, each then "Designated Sale
Property" (as hereinafter defined) shall be offered for sale
at a purchase price equal to 100% of the Scheduled Amount
for such Property, and Borrower will, following such due
date, accept any cash offer received for such a Designated
Sale Property which is equal to or greater than 100% of the
Scheduled Amount for such Property; provided that at such
time as Borrower has accepted such number of offers as is
required to generate Sale Proceeds sufficient to make such
Scheduled Payment, the Borrower may revoke unaccepted
outstanding offers for the remaining Designated Sale
Property until such time, if any, as additional offers may
be required to assure the generation of such Sale Proceeds
(nothing in the foregoing proviso is, however, intended to
limit or otherwise derogate from any of Lender's rights and
remedies under this Agreement with respect to any Scheduled
Payment Event of Default);
(b) if Borrower fails to make the 2nd
Scheduled Payment when due, each then Designated Sale
Property shall be offered for sale at a purchase price equal
to 90% of the Scheduled Amount for such Property, and
Borrower will, following such due date, accept any cash
offer received for such a Designated Sale Property which is
equal to or greater than 90% of the Scheduled Amount for
such Property; provided that at such time as Borrower has
accepted such number of offers as is required to generate
Sale Proceeds sufficient to make such Scheduled Payment, the
Borrower may revoke unaccepted outstanding offers for the
remaining Designated Sale Property until such time, if any,
as additional offers may be required to assure the
generation of such Sale Proceeds (nothing in the foregoing
proviso is, however, intended to limit or otherwise derogate
from any of lender's rights and remedies under this
Agreement with respect to any Scheduled Payment Event of
Default);
(c) if Borrower fails to make the 3rd
Scheduled Payment when due, each then Designated Sale
Property shall be offered for sale at a purchase price equal
to 80% of the Scheduled Amount for such Property, and
Borrower will, following such due date, accept any cash
offer received for such a Designated Sale Property which is
equal to or greater than 80% of the Scheduled Amount for
such Property; provided that at such time as Borrower has
accepted such number of offers as is required to generate
Sale Proceeds sufficient to make such Scheduled Payment, the
Borrower may revoke unaccepted outstanding offers for the
remaining Designated Sale Property until such time, if any,
as additional offers may be required to assure the
generation of such Sale Proceeds (nothing in the foregoing
proviso is, however, intended to limit or otherwise derogate
from any of Lender's rights and remedies under this
Agreement with respect to any Scheduled Payment Event of
Default);
(d) in no event shall Borrower or Consultant
market or sell any Sale Property in violation of the
covenants of Borrower set forth in this Agreement, including
those contained in Sections 4.3.1, 4.3.2(a) - (c) and 4.3.5
hereof;
For the purposes of the foregoing provisions of this Section
4.3.2, the term "Designated Sale Property" shall refer, as
applicable to the times set forth, respectively, in clauses (a)-
(c) above, to such then unsold Sale Properties as are designated
as "Designated Sale Properties" in accordance with the provisions
set forth below in Section 4.3.8.
Section 4.3.3 Deferral of Price Adjustment
Obligations.
Notwithstanding the foregoing, Borrower shall have the
right to defer the effective date for implementation of the Price
Adjustment Obligations during "Borrower's Price Adjustment Cure
Period", as set forth in Section 4.3.4, below:
Section 4.3.4 Borrower's Price Adjustment Deferral
Rights. Borrower shall have the right to defer the effective date
for compliance with the Price Adjustment Obligations otherwise
required on account of a failure by Borrower to comply with its
obligation to make a Scheduled Payment, for up to 45 days
following the occurrence of any such payment failure ("Borrower's
Deferral Period") by either (a) making the required payment in
full within Borrower's Deferral Period from cash sources other
than proceeds of the Sale Properties ("Cash Cure Amounts"), or (b)
consummating sufficient sales of Sale Properties within Borrower's
Deferral Period which, after applying the Sale Proceeds therefrom
as provided in Section 3.3.B hereof, results in Borrower making
such overdue payment in full with such Sale Proceeds on or before
the expiration of Borrower's Deferral Period.
Borrower shall only be able to exercise such
"deferral" right if it provides to Lender written notice of
Borrower's election so to defer on or before the applicable due
date of the Scheduled Payment, together with: in the case of a
deferral under clause (a) of this Section 4.3.4, copies of binding
commitments or other evidence reasonably satisfactory to Lender
that there will be available to Borrower sufficient Cash Cure
Amounts by the end of the Borrower's Deferral Period to effectuate
a cure of such payment default and, in the case of a deferral
under clause (b) of this Section 4.3.4, copies of binding,
executed purchase agreements evidencing to Lender's reasonable
satisfaction Borrower's ability to effectuate a cure of such
payment default under such clause.
Provided Borrower has made such election in compliance
with the foregoing notice requirements, Lender agrees that during
Borrower's Deferral Period compliance by the Consultant or the
Borrower with the Price Adjustment Obligations referred to above
in Section 4.3.2(a), (b) and (c), above, shall be deferred until
the earlier of the expiration of Borrower's Deferral Period with
no cure of the payment default being effectuated or the occurrence
of any other Default or Event of Default under the Loan. Nothing
in this Section 4.3.4 is intended to delay or defer, however, the
process of selecting Designated Sale Properties as provided for in
Section 4.3.8, it being the intent of the parties that such
process be commenced promptly upon a failure to make a Scheduled
Payment for the purpose of having the Designated Sale Properties
fully selected should Borrower be unsuccessful in achieving a cure
of such payment default within Borrower's Deferral Period or
otherwise fail to qualify for the right to have the benefit of
Borrower's Deferral Period.
Borrower's right to defer the effectiveness of the
Price Adjustment Obligations is not intended to imply any waiver
by Lender of the fact that a failure by Borrower to make a
Scheduled Payment is an Event of Default under Section 7.1.1
hereof; provided, however, Lender agrees that its remedies on
account of such Event of Default are subject to the limitations in
Sections 4.3.3 and this 4.3.4 with respect to the implementation
of price adjustments under Section 4.3.2 during Borrower's
Deferral Period and in Section 7.4 with respect to acceleration
and foreclosure in the case where the deficiency in the Scheduled
Payment is 25% or less.
Section 4.3.5 Sales to Related Parties. It is
understood and agreed that neither the Borrower nor the Consultant
shall accept or be permitted to accept an offer for a Sale
Property from or sell a Sale Property to any of Borrower, Holding
Company, Grossman's, any Affiliates thereof or any Person to whom
Borrower, directly or indirectly, has granted the right to
participate in gains from any such sale. Further, during any
period that the Price Adjustment Obligations are in effect and not
subject to deferral under Sections 4.3.3 and 4.3.4 hereof, and
then only with respect to the Designated Sale Properties, as
applicable under Section 4.3.2 (a) - (c), above, it is understood
and agreed that neither the Borrower nor the Consultant shall
accept or be permitted to accept, prior to the exercise by Lender
of any foreclosure remedy, an offer for a Designated Sale Property
from or sell a Designated Sale Property to any of Lender, Gordon
Brothers, any Affiliates thereof, any Person holding a
participation in Lender's rights and obligations under this
Agreement or any Person to whom the Lender, directly or
indirectly, has granted the right to participate in gains from any
such sale.
Section 4.3.6 Cleveland Property. Notwithstanding
anything to the contrary herein and provided no Default or Event
of Default exists, Borrower shall be entitled to retain and have
released from the Lender's collateral the Cleveland Property upon
payment to Lender of principal paydown under the Loan, in addition
to the Scheduled Payments, in an amount equal to 100% of such
property's Scheduled Amount. Such paydown shall be applied to the
Notes in accordance with the priorities set forth in Section
3.3.B.
Section 4.3.7 Sales of Other Properties. Provided
no Default or Event of Default exists, Borrower shall be entitled
to sell any of the Other Properties and obtain a release for such
property from the liens of the Security Instruments upon payment
to Lender of 100% of the Scheduled Amount set forth for such
property on Exhibit B, together with payment of Lender's
reasonable third-party fees and expenses involved in effectuating
such release. In no event shall any such release act as a release
or waiver of any of the Obligations other than to the extent the
Obligations are paid down by such release payment. Lender shall
apply any such release amount to the paydown of the Notes in
accordance with the priorities set forth in Section 3.3.B.
Section 4.3.8 Selection of Designated Sales
Properties. The parties agree to the following process for
selecting Designated Sale Properties (which process shall be
implemented in each of the situations described in Section
4.3.2(a)-(c)):
(a) Within three (3) days following a failure
by Borrower to pay when due a Scheduled Payment, Borrower shall
submit to Lender a written proposal from Borrower ("Borrower's
Proposal") for the designation of then unsold Sale Properties as
Designated Sale Properties. Borrower's Proposal shall be prepared
with the objective of maximizing the prospect of closing
sufficient sales of Sale Properties to satisfy any deficiency in a
Scheduled Payment within as short a period as practicable and, in
all events, within Borrower's Deferral Period.
(b) Within one week after receipt by Lender of
Borrower's Proposal, Lender, Borrower and Consultant shall meet
with Lender to explain the basis for Borrower's Proposal and the
reasons for the selections reflected therein for the purpose of
attempting to obtain Lender's approval thereof.
(c) If Borrower is unable to obtain Lender's
approval, Borrower shall within one week after being informed of
Lender's decision and receiving Lender's counter-proposal either
(i) accept Lender's counter-proposal for the Properties to be so
designated or (ii) submit the matter to arbitration under clause
(d), below. If Lender refuses to provide its approval, it shall
suggest a counter-proposal to Borrower.
(d) If Borrower is unable to obtain Lender's
approval, as aforesaid, the Borrower shall submit the dispute for
resolution by binding arbitration by an arbitrator mutually
designated by Lender and Borrower, or, if Lender and Borrower are
unable to agree upon an arbitrator, by an arbitrator appointed by
the American Arbitration Association. Any such arbitration shall
be held in Boston, Massachusetts unless the parties agree on some
other location. The arbitrator shall have the discretion to order
that the costs of arbitration, including fees, other costs and
reasonable attorney's fees, shall be borne by the losing party.
The parties jointly agree to use their respective best efforts to
have the arbitration commence and conclude within two (2) weeks of
submittal.
(e) Any failure of the Borrower to comply with
the foregoing process or to abide by the results of such
arbitration shall be an Event of Default hereunder.
Section 4.4 Environmental Matters. The Borrower shall not
do any of the following except in the ordinary course of its or
Master Tenant's business in compliance with Environmental Laws:
(a) use or permit to be used any of the Properties or any portion
thereof as a facility for the handling, processing, storage or
disposal of Hazardous Substances, (b) cause or permit to be
located on any of the Properties any underground tank or other
underground storage receptacle for Hazardous Substances except in
full compliance with the Environmental Laws, (c) generate or
permit to be generated any Hazardous Substances on any of the
Properties except in full compliance with the Environmental Laws,
or (d) conduct or permit to be conducted any activity at any of
the Properties or use or permit to be used any of the Properties
in any manner so as to cause a Release or threatened Release of
Hazardous Substances on, upon or into any of the Properties.
The Borrower hereby covenants and agrees, to indemnify, defend with
counsel, consultants and experts reasonably acceptable to the Lender and
hold harmless the Lender, its officers, directors, employees and agents, and
any successors to the Lender's interest in the Properties (or any portion
thereof), their directors, officers, employees and agents (collectively,
"Indemnitees") against and from any and all liens, claims, demands, fines,
settlement payments, penalties, assessments, judgments, directions, orders,
suits, litigation, losses, liabilities, costs and expenses (including
reasonable attorneys, consultants and experts fees prior to and at trial
and on any appeal or petition for review) (collectively, "Claims") arising
out of, in connection with or in any way relating to (i) the breach of any
of the representations, warranties or covenants contained in this Agreement
with respect to Environmental Laws or Hazardous Substances (ii) Borrower's
or Master Tenant's (or any Affiliates thereof) use, treatment, storage,
generation, manufacture, transport, release, spill, disposal or other
handling of Hazardous Substances on any of the Properties, or (iii) any
other presence or alleged presence of Hazardous Substances on or about the
Properties caused by Borrower, Master Tenant or any Affiliates thereof or
otherwise in existence prior to the date hereof. Claims shall include,
without limitation, (a) the cost of all investigatory, removal, remedial and
other response action required by any Environmental Law, by judicial order
or by order of or agreement with any governmental authority having
jurisdiction under any Environmental Law, (b) claims for injury or death of
any person, including an Indemnitee, and (c) claims for damages to property
of an Indemnitee or any other person, including claims for diminution in
value or loss of use.
The liability of the Borrower under the foregoing indemnity shall
survive the payment and cancellation of the Notes, the satisfaction of
record of the Mortgages and the performance of all obligations under the
Loan Documents and shall survive the delivery of a deed or deeds in lieu of
foreclosure to the Lender or any successor or assign of the Lender and shall
survive any foreclosure, whether judicial or nonjudicial, of any of the
Properties (or any portion thereof) by the Lender or any successor or assign
of the Lender, and shall be for the benefit of the Lender and any successor
or assign of the Lender as holder of any security interest in any of the
Properties (or any portion thereof) and for the benefit of Lender or any
party claiming title through the Lender as owner of any of the Properties
(or any portion thereof) following foreclosure or the delivery of a deed in
lieu thereof.
Section 4.5 Use of Proceeds. Borrower represents to and
covenants with Lender that the proceeds of the Loan shall be used solely
for the following purposes: (a) to pay, at the Loan closing, the
matters set forth in Borrower's initial Draw Request, as approved by
Lender, and (b) for working capital purposes of Borrower and to maintain
the Properties and comply with Borrower's covenants and obligations
hereunder (other than with respect to the payment of principal under the
Loan); and (c) to the extent of proceeds in excess of amounts used in
(a) and (b) above, to make Distributions (subject to Section 4.7 hereof)
for the purpose of making funds available to Grossman's for use in
accordance with Grossman's business plan as previously described or
referred to in the Grossman's Agreement.
Section 4.6 Minimum Return/Prepayments. In all events, Borrower
agrees to provide to Lender a minimum return on the FF&E Note and Real
Estate Note equal to the greater as of the date of determination, of (i)
$2,000,000 and (ii) 25% per annum cash return calculated as set forth in
Section 4.12 (the "Minimum Return").
If, at the time of any prepayment of the entire FF&E Note and Real
Estate Note, the Minimum Return (calculated as aforesaid) has been
exceeded, Lender shall rebate to Borrower such excess with no interest
payable on such rebated amount. Nothing contained herein shall limit
the rights of Lender to the full exercise of the conversion and other
rights set forth in Exhibits A and B to each of the Real Estate Note and
the Convertible Note.
To the extent Borrower voluntarily makes a permitted prepayment
under the Loan, such prepayment amount should be applied in the order
set forth in Section 3.3B, disregarding for this purpose clauses (d),
(f) and (j) and the 75% restriction in clause (e).
Section 4.7 Restrictions on Distributions. The Borrower will not
make any Distributions during any period when a Default or Event of
Default shall have occurred and be continuing, or which could reasonably
be anticipated to result in the occurrence of a Default or Event of
Default or the Borrower being unable to meet all anticipated operating
expenses relating to the Properties.
Section 4.8 Single Purpose Entity Representations and Covenants.
Borrower further represents and covenants with Lender as follows:
(a) Borrower
(i) Borrower is and will continue to be, a duly formed and
existing and a Single Purpose Entity. As used in this Instrument,
"Single Purpose Entity" shall mean an entity which is formed or
organized solely for the purpose of directly holding an ownership
interest in the Properties and FF&E, does not engage in any business
unrelated to such Properties and FF&E, does not have any assets other
than cash and other assets related to its interest in the Properties and
FF&E or any indebtedness other than the Loan and normal operating
expenses of the Properties, has its own separate books and records and
its own accounts, in each case which are separate and apart from the
books and records and accounts of any other entity and holds itself out
as being an entity separate and apart from any other entity.
(ii) Borrower at all times since its formation has
complied, and will continue to comply, with the provisions of its
organizational documents and the laws of its jurisdiction of formation
relating to its organization.
(iii) All customary formalities regarding the existence of
Borrower have been at all times since its formation and will continue to
be observed.
(iv) Borrower has at all times since its formation itself
or through its agents accurately maintained, and will continue to
accurately maintain, its financial statements, accounting records and
organizational documents, separate from those of any other person or
entity. Borrower has not at any time since its formation commingled,
and will not commingle, its assets with those of any other person or
entity. Borrower itself or through its agent has at all times since its
formation accurately maintained, and will continue to accurately
maintain, its own bank accounts, payroll and separate books of account.
(v) Borrower has at all times since its formation paid,
and will continue to pay, its own liabilities from its own separate
assets.
(vi) Borrower has at all times since its formation
identified itself, and will continue to identify itself, in all dealings
with the public, under Borrower's own name and as a separate and
distinct entity. Borrower has not at any time since its formation
identified itself, and will not identify itself, as being a division or
a part of any other entity. Borrower has not at any time since its
formation identified, and will not identify, any general partner or any
affiliate of Borrower as being a division or part of Borrower.
(vii) Borrower has been at all times since its formation and
will continue to be adequately capitalized in light of the nature of its
business.
(viii) Borrower has not at any time since its formation
assumed or guaranteed, and will not assume or guarantee, the liabilities
of any Affiliate of Borrower or any other person or entity. Borrower
has not at any time since its formation acquired, and will not acquire,
obligations or securities of any Affiliate of Borrower. Borrower has
not at any time since its formation made, and will not make, loans or
advances to or any Investment in any Affiliate of Borrower, provided
that Borrower may make Distributions to the extent permitted under
Section 4.7 hereof.
(ix) Borrower has not at any time since its formation
entered into and was not a party to, and, will not enter into or be a
party to, any transaction with any person or entity affiliated or
related to Borrower, except in the ordinary course of business of
Borrower on terms which are no less favorable to Borrower than would be
obtained in a comparable arm's length transaction with an unrelated
third party.
(x) Borrower shall at all times, except as noted
hereafter, have at least one director (an "Independent Director") who
(i) is not (and to such director's knowledge is not a relative of) a
direct, indirect or beneficial stockholder, officer, director, employee
or supplier of Grossman's or any of its Affiliates, and (ii) is an
established member of the business community in which he or she resides
or is employed, having a sound reputation and at least five years of
academic or other employment experience, in the fields of business or
finance. In the event of the death, incapacity, expiration of the term
of, resignation or removal of all Independent Directors, the Board of
Directors of Borrower shall promptly appoint (with, so long as any
Obligations remain outstanding, Lender's prior written approval) at
least one Independent Director provided, however, that the Board of
Directors of Borrower shall not vote on any matter unless and until at
least one Independent Director has been duly appointed to serve on such
Board. So long as any of the Obligations remain outstanding, no
Independent Director shall be removed by Borrower without the prior
written approval of the Lender. No Independent Director may serve as
trustee in bankruptcy (or any similar position) for Grossman's or any
Affiliate. As used in this clause (x) the term "Affiliate" means, with
respect to any Person, any other Person controlling, controlled by, or
under common control with, such Person; provided, the foregoing is not
intended to prohibit the same Person from serving as an Independent
Director of both Borrower and Guarantor.
Without the prior written consent of Lender, Borrower shall not do
any of the following so long as Borrower has any unsatisfied Obligations
hereunder: without the affirmative vote of all of the members of the
Board of Directors of Borrower (which must include the affirmative vote
of all duly appointed Independent Directors), (1) dissolve or liquidate
in whole or in part, (2) institute proceedings to be adjudicated
bankrupt or insolvent, (3) consent to the institution of bankruptcy or
insolvency proceedings against it, (4) file a petition seeking or
consent to reorganization or relief under any applicable federal or
state law relating to bankruptcy, (5) consent to the appointment of a
receiver, liquidator, assignee, trustee sequestrator (or other similar
official) of Borrower or a substantial part of its property, (6) make
any assignment for the benefit of creditors, (7) admit in writing its
inability to pay its debts generally as they become due or (8) take any
corporate action in furtherance of the actions set forth in clauses (1)
through (7) of this clause (x).
Section 4.9 Punctual Payment/Full Performance. The Borrower will
duly and punctually pay or cause to be paid the principal, interest and
other charges due under the Loan and all interest and fees provided for
in this Agreement, all in accordance with the terms of this Agreement
and the Notes as well as all other sums owing pursuant to the Loan
Documents and shall duly, timely and fully perform all of its other
obligations to be performed under each of the Loan Documents.
Section 4.10 Records and Accounts. The Borrower will (a)
keep true and accurate records and books of account in which full, true
and correct entries will be made in accordance with generally accepted
accounting principles and (b) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation and amortization of
its properties, contingencies, and other reserves.
Section 4.11 Insurance/Condemnation Proceeds. The Borrower
will maintain insurance on the Properties and deliver copies thereof and
certificates with respect thereto as required by the Mortgages with
financially sound and reputable insurers, insurance with respect to such
properties and its business against such casualties and contingencies as
shall be in accordance with the general practices of businesses engaged
in similar activities in similar geographic areas and in amounts,
containing such terms, in such forms and for such periods as may be
reasonable and prudent. All such insurance shall be in such amounts and
form, to include such coverages, deductibles and endorsements, and shall
be issued by such insurers as shall be approved by the Lender, and shall
contain the written agreement of the insurer to give the Lender thirty
(30) days prior written notice of cancellation, nonrenewal, modification
or expiration. The Borrower will provide the Lender with certificates
evidencing such insurance prior to the closing hereunder and thereafter
annual renewal certificates evidencing such coverage as being
continuously in effect shall be delivered to Lender by no later than
thirty (30) days prior to the expiration of any policy then scheduled to
expire.
Lender shall have the right to apply insurance and condemnation
proceeds as set forth in the Mortgages, subject to applicable provisions
of the Attornment and Subordination Agreement; provided that, to the
extent Lender is in receipt of any such proceeds with the right to apply
such to the Obligations and there does not then exist any Default or
Event of Default, Lender agrees to apply such proceeds to the
Obligations in the manner set forth in Section 3.3B for the application
of Sale Proceeds.
Section 4.12 Calculation of Lender's Return. It is intended that
Lender receive an overall cash internal rate of return ("IRR") on the
principal amounts outstanding under the FF&E and Real Estate Notes from
time to time equal to 25% per annum over the term of the Loan ("Lender's
Targeted IRR"), taking into account Fixed Interest paid to Lender and
the timing of principal repayments under the FF&E, Real Estate and
Expense Note. To effectuate the foregoing, interest on the principal
outstanding balances of the FF&E Note and the Real Estate Note shall
accrue as Fixed Interest and "Additional Interest" (as defined below)
and be determined and payable as follows:
(a) At the end of each month during the term of the Loan and on
the earlier of the date the FF&E and Real Estate Notes are paid in full
("Payoff Date") or the Maturity Date (a "Month") the average daily
outstanding principal amount under the FF&E and Real Estate Notes during
such full or partial Month shall be calculated (the "Average Daily
Principal Amount");
(b) Commencing on the first day of May, 1996, and on the first
day of each Month thereafter and on the earlier of the Payoff Date or
the Maturity Date (each a "Fixed Interest Payment Date") Borrower shall
pay a Fixed Interest monthly interest payment to Lender in an amount
determined by applying a 15% per annum Fixed Interest rate to the
Average Daily Principal Amount for the preceding full or partial Month;
provided, however, that the per annum rate for calculating Fixed
Interest is subject to possible adjustment as set forth below in clause
(c) of this Section 4.12.
(c) On October 2, 1996 and April 1, 1997, an interim IRR
calculation will be made in substantially the form of Exhibit "IRR"
attached, taking into account the actual principal reductions under the
FF&E and Real Estate Notes ("Principal Reductions"), Fixed Interest
payments and timing of the payment of the Expense Note to the date of
such calculation and a good faith projection of the timing of the
Principal Reductions and Fixed Interest payments to thereafter occur.
If, as a result of such interim calculations, it is estimated that the
25% IRR will be exceeded at the scheduled Maturity Date and provided no
Default or Event of Default exists, a prospective reduction shall be
made in the Fixed Interest rate of the Loan to a level reasonably
foreseeable as the level needed to result in receipt by Lender during
the remaining period of the Loan of an amount of Fixed Interest which,
when combined with Lender's receipt of Fixed Interest, Principal
Reductions, payments of the Expense Note in the prior periods and future
expected Principal Reductions will result in the achievement of Lender's
Targeted IRR by the scheduled Maturity Date.
(d) On the 30th day preceding the earlier of the Payoff Date or
the scheduled Maturity Date, another interim calculation shall be made
to determine whether Lender is likely to have received by the earlier of
the Payoff Date or scheduled Maturity Date Lender's Targeted IRR as a
result of all Fixed Interest, Principal Reductions and payments of the
Expense Note received to the date of such calculation or payable during
the 30-day period ending on the earlier of the Payoff Date or the
scheduled Maturity Date (the "End Period").
If Lender has or is expected to receive less than Lender's
Targeted IRR Amount on the earlier of the Payoff Date or the scheduled
Maturity Date, the Borrower shall pay any such deficiency to Lender on
such date, in addition to all other amounts otherwise due Lender at such
time. If such calculations show that Lender has received or is expected
to receive on the earlier of the Payoff Date or the scheduled Maturity
Date more than Lender's Targeted IRR, Borrower shall be entitled to a
credit without interest thereon, in the amount of such excess against
amounts otherwise due at the earlier of the Payoff Date or the scheduled
Maturity Date.
(e) "Additional Interest" refers to that amount, when combined
with Fixed Interest paid to Lender, results in Lender receiving Lender's
Targeted IRR at the earlier of the Payoff Date or the scheduled Maturity
Date, it being understood that the payment of the Expense Note shall be
considered as Additional Interest.
(f) After the Maturity Date, in lieu of Fixed Interest and
Additional Interest, interest shall accrue and be due and payable on a
daily basis rate equal to 25% per annum on the outstanding principal
amounts under the FF&E Note and the Real Estate Note until paid.
All Fixed Interest amounts, Additional Interest and interest due
under clause (f), above, shall be Obligations under this Agreement and
be fully secured by the Security Instruments.
Section 4.13 Taxes. The Borrower will pay or cause to be
paid taxes, assessments and other governmental charges against the
Properties as required by the Mortgages and will duly pay and discharge,
or cause to be paid and discharged, before the same shall become
overdue, all taxes, assessments and other governmental charges imposed
upon it and its other real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims
for labor, materials, or supplies that if unpaid might by law become a
lien or charge upon any of its property; provided that any such tax,
assessment, charge, levy or claim with respect to properties other than
the Properties need not be paid if the validity or amount thereof shall
currently be contested in good faith by appropriate proceedings and if
the Borrower shall have set aside on its books adequate reserves with
respect thereto or otherwise provided for the timely payment thereof
through the Master Lease; and provided further that the Borrower will
pay all such taxes, assessments, charges, levies or claims forthwith
upon the commencement of proceedings to foreclose any lien that may have
attached as security therefor.
Section 4.14 Inspection of Properties and Books. The
Borrower shall permit Lender at the Borrower's expense to visit and
inspect any of the Properties, to examine the books of account of the
Borrower (and to make copies thereof and extracts therefrom) and to
discuss the affairs, finances and accounts of the Borrower with, and to
be advised as to the same by, its officers, or the Consultant, all at
such reasonable times and intervals as Lender may reasonably request.
Section 4.15 Compliance with Laws, Contracts, Licenses, and
Permits. The Borrower will comply with (a) in all material respects,
all applicable laws and regulations now or hereafter in effect wherever
its business is conducted, including all Environmental Laws, (b) the
provisions of its corporate charter, and other charter documents and by-
laws, (c) all agreements and instruments to which it is a party or by
which it or any of its properties may be bound, (d) all applicable
decrees, orders, and judgments, and (e) in all material respects, all
licenses and permits required by applicable laws and regulations for the
conduct of its business or the ownership, use or operation of the
Properties, including all permits and approvals related thereto. If at
any time while any Loan or Note is outstanding or Lender has any
obligation to make advances hereunder, any authorization, consent,
approval, permit or license from any officer, agency or instrumentality
of any government shall become necessary or required in order that the
Borrower may fulfill any of its obligations hereunder, the Borrower will
immediately take or cause to be taken all reasonable steps to obtain
such authorization, consent, approval, permit or license and furnish
Lender with evidence thereof.
4.16 Subsequent Mortgages. Without the prior consent of Lender,
Borrower agrees it shall not encumber or grant mortgages on any of the
Properties other than Mortgages or Future Mortgages (as defined herein).
Upon Lender's request, as made by Lender from time to time, Borrower
agrees to grant first priority Mortgages on all or any of the Properties
that are not concurrently herewith being mortgaged to Lender ("Future
Mortgages"). Each future Mortgage shall be in form used by Lender in
connection with the Initial Advance. Upon the grant thereof, the Future
Mortgages shall be additional security for all the Obligations and be
included in the term Security Instruments hereunder. Any Default or
Event of Default under a Future Mortgage shall be, respectively, a
Default or Event of Default hereunder and under all other Mortgages and
Loan Documents. In connection with the grant of a Future Mortgage,
Borrower shall provide Lender, at Borrower's expense, with the following
for each such mortgage (all in form and substance satisfactory to
Lender): (i) a Title Policy; (ii) a perfected, first priority security
interest in all fixtures, furnishings, equipment and personalty located
on or used in connection with the property encumbered by such mortgage;
(iii) a current (not more than 6 months old) title survey and surveyor's
certificate for such property; and (iv) a current (not more than 6
months old) environmental site assessment report for such property. Any
failure by Borrower to grant such mortgages and provide such Title
Policies, security interests, surveys, surveyor's certificates and site
assessment reports within thirty (30) days of Lender's request shall be
an Event of Default hereunder on account of which Lender may exercise
any of its rights and remedies set forth in this Agreement or any other
Loan Document, including, the right to withhold any Advance hereunder.
Borrower agrees to be liable for all costs and expenses incurred by
Lender in connection with the grant of a Future Mortgage to Lender,
including, the reasonable fees and expenses of Lender's attorneys and
environmental consultants. Borrower acknowledges and agrees that,
whether or not a Property is now the subject of a current Mortgage or
becomes the subject of a Future Mortgage, such Property, if listed on
Exhibit A hereto, shall nonetheless be a Sale Property hereunder for all
purposes set forth in this Agreement or any other Loan Document.
4.17 Post-Closing Obligation of Borrower. Borrower acknowledges
that it is a closing requirement of Lender that Borrower enter into the
Consulting Agreement with a Consultant approved by Lender. Without
waiving this requirement Lender has agreed to permit Borrower a period
of time after the closing hereunder to enter into the Consulting
Agreement with a Consultant acceptable to Lender. Borrower hereby
agrees to use its best efforts to enter into such an agreement with a
consultant acceptable to Lender as soon as possible after closing, but,
in all events, by no later than May 15, 1996; provided Borrower shall
provide a written report to Lender by no later than April 20, 1996 of
its efforts to retain such a consultant.
Borrower further acknowledges that it has not been able, by the
closing hereunder, to provide certain Title Policies and/or surveys for
various of the Properties, as set forth on Exhibit "Title" annexed
hereto. Borrower agrees to provide to Lender by no later than the
earlier of (i) Borrower's next requested Advance or (ii) May 1, 1996,
the matters listed on Exhibit "Title".
ARTICLE 5- BORROWER'S FINANCIAL STATEMENTS AND OTHER REPORTS
The Borrower shall deliver or cause to be delivered to the Lender:
(a) monthly reports of the progress and activities of the
Borrower and the Consultant by no later than the 10th day of the month
following the monthly period to be reported upon with such reports
containing such information and detail as Lender shall, from time to
time reasonably require, including information concerning the status and
activities of the marketing and sale efforts for the Sale Properties
(such reports to include copies of all reports, memorandum,
correspondence and the like provided to Borrower by the Consultant or
any parties working in conjunction with the Consultant or Borrower with
respect to the marketing and sale of the Sale Properties). In addition,
on a bi-monthly basis, Borrower shall, at Lender's election, meet with
Lender and provide a status report to Lender of the progress of
Borrower's plan to market and sell the Sale Properties.
b) as soon as practicable, but in any event not later
than ninety (90) days after the end of each fiscal year of the Borrower,
the balance sheet of the Borrower at the end of such year, and the
related statements of earnings and cash flows for such year, each
setting forth in comparative form the figures for the previous fiscal
year and all such statements to be in reasonable detail, prepared in
accordance with generally accepted accounting principles; and
(c) from time to time such other financial data and
information concerning the Properties as Lender may reasonably request.
ARTICLE 6 - ADDITIONAL COVENANTS
The Borrower additionally covenants and agrees that, so long as
the Loan is outstanding:
Section 6.1 Notices.
(a) Defaults. The Borrower will promptly notify the
Lender in writing of the occurrence of any Default or Event of Default.
If any Person shall give any notice or take any other action in respect
of a claimed default (whether or not constituting an Event of Default)
under this Agreement or under any note, evidence of indebtedness,
indenture or other obligation to which or with respect to which the
Borrower or any other Borrower Party is a party or obligor, whether as
principal or surety, and such default would permit the holder of such
note or obligation or other evidence of indebtedness to accelerate the
maturity thereof, which acceleration would have a material adverse
effect on the Borrower or such other party, the Borrower shall forthwith
give written notice thereof to Lender, describing the notice or action
and the nature of the claimed default.
(b) Environmental Events. The Borrower will promptly give
notice to Lender (i) of any violation of any Environmental Law that the
Borrower or any other Borrower Party reports in writing or is reportable
by such Person in writing (or for which any written report supplemental
to any oral report is made) to any federal, state or local environmental
agency and (ii) upon becoming aware thereof, of any inquiry, proceeding,
investigation, or other action, including a notice from any agency of
potential environmental liability, or any federal, state or local
environmental agency or board, that in either case involves any of the
Properties or has the potential to materially affect the assets,
liabilities, financial conditions or operations of the Borrower, such
other Borrower Party or Lender's security interests pursuant to the
Security Instruments.
(c) Notification of Claims against Collateral. The
Borrower will, immediately upon becoming aware thereof, notify Lender in
writing of any setoff, claims (including, with respect to the
Properties, environmental claims), withholdings or other defenses to
which any of the Lender's collateral, or the Lender's rights with
respect to the such collateral, are subject.
(d) Notice of Litigation and Judgments. The Borrower will
give notice to Lender in writing within fifteen (15) days of becoming
aware of any litigation or proceedings (including administrative
proceedings) threatened in writing or any pending litigation and
proceedings (including any administrative proceedings) affecting the
Borrower or any other Borrower Party or to which the Borrower or any
other Borrower Party is or is to become a party involving an uninsured
claim against the Borrower or any other Borrower Party that could
reasonably be expected to have a materially adverse effect on such Party
and stating the nature and status of such litigation or proceedings.
Section 6.2 Restrictions on Indebtedness. The Borrower will not
create, incur, assume, guarantee or be or remain liable, contingently or
otherwise, with respect to any Indebtedness other than:
(a) Indebtedness to Lender arising under any of the Loan
Documents;
(b) current liabilities of the Borrower incurred in the
ordinary course of business, taking into account the special purpose
nature of Borrower, but not incurred through (i) the borrowing of money,
or (ii) the obtaining of credit except for credit on an open account
basis customarily extended and in fact extended in connection with
normal purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions hereof;
(d) Indebtedness in respect of judgments or awards that
have been in force for less than the applicable period for taking an
appeal so long as execution is not levied thereunder or in respect of
which the Borrower shall at the time in good faith be prosecuting an
appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review; and
(e) Endorsements for collection, deposit or negotiation
and warranties of products or services, in each case incurred in the
ordinary course of business, taking into account the special purpose
nature of Borrower.
Section 6.3 Restrictions on Liens, Etc. The Borrower will not (a)
create or incur or suffer to be created or incurred or to exist any
lien, encumbrance, mortgage, pledge, charge, restriction or other
security interest of any kind upon any of its property or assets of any
character whether now owned or hereafter acquired, or upon the income or
profits therefrom; (b) transfer any of its property or assets or the
income or profits therefrom for the purpose of subjecting the same to
the payment of Indebtedness or performance of any other obligation in
priority to payment of its general creditors; (c) acquire, or agree or
have an option to acquire, any property or assets upon conditional sale
or other title retention or purchase money security agreement, device or
arrangement; (d) suffer to exist for a period of more than thirty (30)
days after the same shall have been incurred any Indebtedness or claim
or demand against it that if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its
general creditors; or (e) sell, assign, pledge or otherwise transfer any
accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse (collectively, "Liens"); provided
that the Borrower may create or incur or suffer to be created or
incurred or to exist taking into account the special purpose nature of
Borrower:
(i) deposits or pledges made in connection with, or to
secure payment of, workmen's compensation, unemployment insurance, old
age pensions or other social security obligations;
(ii) presently outstanding liens on the Properties listed
on Schedules B, Parts II on the Title Policies delivered to and accepted
by Lender in connection with this transaction;
(iii) liens in favor of Lender under the Loan Documents;
and
(iv) other liens and encumbrances expressly permitted under
the terms of the Security Instruments.
Section 6.4 Restrictions on Investments. The Borrower will not
make or permit to exist or to remain outstanding any Investment except
Investments in:
(a) marketable direct or guaranteed obligations of the
United States of America or any agency thereof that mature within one
(1) year from the date of purchase by the Borrower;
(b) demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total assets
in excess of $1,000,000,000;
(c) securities commonly known as "commercial paper" issued
by a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase have
been rated and the ratings for which are not less than "P 1" if rated by
Moody's Investors Services, Inc., and not less than "A 1" if rated by
Standard and Poor's; and
(d) any purchase money financing related to sales of
Properties to the extent permitted under Section 4.3.1 hereof.
Section 6.5 Merger, Consolidation. The Borrower will not become a
party to any merger or consolidation, or agree to or effect any asset
acquisition or disposition (other than sales of Properties to the extent
not restricted hereby) or stock acquisition or disposition.
Section 6.6 Sale and Leaseback. The Borrower will not enter into
any arrangement, directly or indirectly, whereby the Borrower shall sell
or transfer any property owned by it in order then or thereafter to
lease such property or lease other property that the Borrower intends to
use for substantially the same purpose as the property being sold or
transferred.
Section 6.7 Restrictions on Transfers. Without in each instance
first obtaining the written consent of Lender (which consent may be
granted or withheld by Lender in its sole discretion) or as otherwise
permitted or contemplated by the provisions of Section 4.3, the Borrower
covenants and agrees not to sell or transfer its legal or equitable
interest (or any portion thereof) in any of the Properties at any time
while this Agreement is in effect; and the Borrower agrees not to permit
to occur, directly or indirectly, any transfer of direct or indirect
ownership or control of the Borrower or the Guarantor. At all times
during the term of the Loan, the Holding Company in the aggregate, shall
own and control 100% of the voting and equity interests in the Borrower.
Section 6.8 Restrictions on Leases. The Borrower will not become
a party to, or agree to become a party to, any Lease (other than the
Master Lease) without the prior written approval of Lender. The
Borrower will not amend, supplement or otherwise modify, or terminate or
cancel, or accept the surrender, or grant any concessions to or waive
the performance of any obligations of any tenant or guarantor under, any
Lease, or give any consent, without the prior approval of Lender. The
Borrower will not, directly or indirectly, cause or permit to exist any
condition which would result in the termination or cancellation of, or
which would relieve the performance of any obligations of any party
under, any Lease, (including the Master Lease).
Section 6.9 No Amendments to Certain Documents. Neither the
Borrower nor the Guarantor will at any time cause or permit any of its
or the Guarantor's charter or other incorporation documents (if any) to
be modified, amended or supplemented in any respect, without (in each
case) the express prior written agreement, consent or approval of the
Lender.
Section 6.10 Issuance of Stock. Borrower shall not issue or
distribute any capital stock or other securities.
Section 6.11 Other Agreements. Borrower shall not enter into
any agreement containing any provision which would be violated or
breached by the performance of its obligations hereunder or under any
instrument or document delivered or to be delivered by it hereunder or
in connection herewith or which would violate or breach any provision
hereof or of any such instrument or document.
Section 6.12 Subsidiaries. Borrower shall not create any
subsidiary.
ARTICLE 7 - EVENTS OF DEFAULT AND REMEDIES.
Section 7.1 Events of Default and Acceleration. If any of the
following events ("Events of Default") shall occur:
Section 7.1.1 the Borrower shall fail to pay any
principal of the Notes when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment (provided that with
respect to Scheduled Payments, Lender's remedies for such failure shall
be subject to the provisions of Section 4.3.4 and Section 7.4 hereof);
or
Section 7.1.2 the Borrower shall fail to pay any
interest on the Notes or any other sums due hereunder or under any of
the other Loan Documents, within two (2) days of the date when the same
shall become due and payable, whether at the stated date of maturity or
any accelerated date of maturity or at any other date fixed for payment;
or
Section 7.1.3 the Borrower or the Guarantor shall fail
to comply with any of its agreements, representations or covenants
contained in Section 4.2, Section 4.3, Section 4.4, Section 4.5, Section
4.7, Section 4.8, Section 6.2, Section 6.3, Section 6.4, Section 6.5,
Section 6.6, Section 6.7, Section 6.8, Section 6.9, Section 6.10,
Section 6.11 and 6.12 hereof; or
Section 7.1.4 the Borrower or the Guarantor shall fail
to perform any other term, covenant or agreement contained herein or in
any of the other Loan Documents (other than those specified elsewhere in
this Section 7.1), for fifteen (15) days after written notice of such
failure has been given to the Borrower by Lender (provided, however,
that if such failure is not reasonably susceptible of being cured within
such 15-day period through diligent efforts, Borrower's 15-day cure
period shall be extended for an additional fifteen (15) days (but not
beyond the Maturity Date) if Borrower commences such cure within the
initial 15-day period and thereafter diligently prosecutes such cure to
completion; or
Section 7.1.5 any representation or warranty of the
Borrower, or the Guarantor in this Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to
or in connection with this Agreement shall prove to have been false in
any material respect upon the date when made or deemed to have been made
or repeated; or
Section 7.1.6 with respect to any Indebtedness of the
Borrower, or the Guarantor,
(a) either of them shall fail to pay such
Indebtedness or any portion thereof when due
(taking into account applicable grace periods,
if any); or
(b) either of them shall fail to observe or perform
any term, covenant, or agreement contained in
any agreement by which it is bound evidencing or
securing such Indebtedness which gives or would
give after the passage of time or the giving of
notice or both) the payee of such Indebtedness
the right to accelerate the payment thereof; or
(c) an event shall occur, or shall fail to occur,
which gives (or would give after the passage of
time or the giving of notice or both) the payee
of such Indebtedness the right to accelerate the
payment thereof; or
Section 7.1.7 the Borrower, the Guarantor or Master
Tenant shall make an assignment for the benefit of creditors, or admit
in writing its inability to pay or generally fail to pay its debts as
they mature or become due, or shall petition or apply for the
appointment of a trustee or other custodian, liquidator or receiver of
the Borrower, Master Tenant or Guarantor or of any substantial part of
the assets of the Borrower, Master Tenant, or Guarantor or shall
commence any case or other proceeding relating to the Borrower, Master
Tenant, or Guarantor under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law of any jurisdiction, now or hereafter in effect, or shall take any
action to authorize or in furtherance of any of the foregoing, or if any
such petition or application shall be filed or any such case or other
proceeding shall be commenced against the Borrower, Master Tenant, or
Guarantor and the Borrower, Master Tenant, or Guarantor shall indicate
its approval thereof, consent thereto or acquiescence therein or shall
fail to cause such case to be dismissed within 60 days of its
commencement; or
Section 7.1.8 a decree or order is entered appointing
any such trustee, custodian, liquidator or receiver or adjudicating the
Borrower, Master Tenant, or Guarantor bankrupt or Insolvent, or
approving a petition in any such case or other proceeding, or a decree
or order for relief is entered in respect of the Borrower, Master
Tenant, or Guarantor in an involuntary case under federal bankruptcy
laws as now or hereafter constituted; or
Section 7.1.9 there shall remain in force, undischarged,
unsatisfied and unstayed, for more than thirty days, whether or not
consecutive, any uninsured final judgment against the Borrower, Master
Tenant, or Guarantor that, with other outstanding uninsured final
judgments, undischarged, against the Borrower or any other Borrower
Party, or Guarantor exceeds in the aggregate $500,000; or
Section 7.1.10 if any of the Loan Documents shall be
canceled, terminated, revoked or rescinded otherwise than in accordance
with the terms thereof or with the express prior written agreement,
consent or approval of Lender, or any action at law, suit or in equity
or other legal proceeding to cancel, revoke or rescind any of the Loan
Documents shall be commenced by or on behalf of the Borrower or any
other Borrower Party, or Guarantor or any of their respective holders of
voting interests, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination
that, or issue a judgment, order, decree or ruling to the effect that,
any one or more of the Loan Documents is illegal, invalid or
unenforceable in accordance with the terms thereof; or
Section 7.1.11 the Borrower, Master Tenant or Guarantor
shall be indicted for a crime, a punishment for which could include the
forfeiture of any assets of Guarantor, Borrower or Master Tenant; or
Section 7.1.12 if any of the Related Documents are
modified or amended without the prior written consent of Lender
(waivers of Grossman's obligations under the Debenture Restructure
Documents not being considered modifications or amendments for this
purpose) or if Grossman's shall fail to comply with any of its
agreements, representations, warranties or covenants contained in any of
the Notes, the Grossman's Agreement or any of the Related Documents to
which Grossman's is a party; or any representation or warranty of
Grossman's contained in the Grossman's Agreement or in any other
document or writing delivered or to be delivered by Grossman's in
connection with the loan transaction contemplated hereby shall have been
false or incomplete in any material respect upon the date when made or
repeated or deemed to have been made or repeated; or
Section 7.1.13 any "Event of Default", as defined in or
referred to in any of the Notes (including, any breach of the Exhibit
Obligations, as defined in the Real Estate Note and the Convertible
Note), the other Loan Documents or in any other provision of this
Agreement, shall occur;
then, and in any such event, so long as the same may be continuing,
Lender may, except as otherwise provided herein, by notice in writing to
the Borrower declare all amounts owing with respect to this Agreement,
the Notes and the other Loan Documents to be, and they shall thereupon
forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby
expressly waived by the Borrower; provided that in the event of any
Event of Default specified in 7.1.6, 7.1.7 or 7.1.8, all such amounts
shall become immediately due and payable automatically and without any
requirement of notice from Lender.
The notice and grace provisions provided in this Section 7.1 or in
Section 4.3.4 shall not be applicable if the Borrower or Guarantor
knowingly or intentionally breaches any of their respective obligations
under this Agreement. Further, notwithstanding anything to the contrary
contained herein, the prosecution of the cure of any Default under this
Agreement shall not preclude a separate Default or Event of Default from
arising under any other provision of this Agreement. No notice and
grace period provided in this Section 7.1 or any other Loan Document is
intended to extend or enlarge upon, in any way, Borrower's Deferral
Period.
Section 7.2 Remedies. If a Default or an Event of Default shall
occur the Lender may, at its option, take any or all of the following
actions:
Section 7.2.1 Withhold any Advances hereunder which
would otherwise become due to the Borrower;
Section 7.2.2 If such condition continues beyond any
applicable period of notice and/or grace, declare all Obligations of the
Borrower to the Lender to be immediately due and payable without further
notice or demand, whereupon the same shall become immediately due and
payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower (provided that, if
an Event of Default occurs under Section 7.1.7 or 7.1.8, all Obligations
of the Borrower to Lender shall be automatically due and payable without
the need for any declaration or notice or demand);
Section 7.2.3 Incur and pay reasonable expenses in
protecting and enforcing the Lender's rights under this Agreement and
the Lender's security for the Loan (including reasonable attorney fees
and expenses). The payment of any such expenses shall be treated as
advances on account of the Loan. Such expenses may include, but shall
not be limited to, payments on account of any real estate tax, charge,
assessment, or other lien against the Properties and any interest, fee,
charge or cost which the Borrower has failed to pay in accordance with
the requirements of the Loan Documents. The foregoing shall authorize,
but not obligate, the Lender to do all such things in connection with
the Properties as the Lender, in its sole and unrestricted discretion,
may consider advisable, including, without limitation, the right to make
additions to and changes in any agreements executed by the Borrower
relative to the Properties, to employ contractors, subcontractors and
agents and to take any and all such action, either in its own name or in
the name of the Borrower, and the Borrower hereby grants to the Lender
an irrevocable power of attorney coupled with an interest to act in
Borrower's name in connection with the foregoing.
Section 7.2.4 Any deposits, credits, collateral, other
property or other sums at any time credited by or due from the Lender,
or any Affiliate of Lender, or any other Person which acquires or
participates in all or a portion of the Loan, to the Borrower may,
without notice (any such notice being expressly waived hereby) and to
the fullest extent permitted by law and without regard to any source of
payment whatsoever, at any time after the occurrence and during the
continuance of an Event of Default, be applied to or set off against any
of the Obligations of the Borrower hereunder; and
Section 7.2.5 Exercise all other rights and remedies of
the Lender under the Loan Documents and at law and in equity.
All rights and remedies of the Lender are cumulative and not
exclusive of any other rights and remedies otherwise available to
Lender. Except as otherwise limited by the provisions of Section 7.4
hereof, all such rights and remedies may be exercised singularly or
concurrently and from time to time.
Section 7.3 Distribution of Collateral Proceeds. In the event
that, following the occurrence or during the continuance of any Default
or Event of Default, Lender receives any monies in connection with the
enforcement of any the Security Instruments, or otherwise with respect
to the realization upon any of the collateral securing the Obligations,
or parts thereof, such monies shall be distributed for application as
follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of Lender for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by Lender in connection with the collection of such monies by
Lender, for the exercise, protection or enforcement by Lender of all or
any of the rights, remedies, powers and privileges of Lender under this
Agreement or any of the other Loan Documents or in respect of such
collateral or in support of any provision of adequate indemnity to
Lender against any taxes or liens which by law shall have, or may have,
priority over the rights of Lender to such monies;
(b) Second, to all other Obligations in such order or
preference as Lender may determine; provided, however, that Lender may
in its discretion make proper allowance to take into account any
Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to Lender of all of the
Obligations, to the payment of any obligations required to be paid
pursuant to applicable provisions of the Uniform Commercial Code;
(d) Fourth, the excess, if any, shall be returned to the
Borrower or to such other Persons as are entitled thereto.
Section 7.4 Limitations on Certain Remedies of Lender.
Notwithstanding anything to the contrary contained herein or in any of
the other Loan Documents, and provided Borrower, Guarantor and all
Affiliates of both are cooperating with and not seeking, in any way, to
interfere with, delay or frustrate the exercise by Lender of any of its
other rights and remedies hereunder, Lender agrees that,
(a) if an Event of Default occurs hereunder, Lender shall
forebear from commencing any foreclosure actions against or seeking to
take possession of any of the Other Properties until the earlier of (i)
the Maturity Date or (ii) one year from the date the Event of Default
occurs; provided further, however, that Lender shall not be required to
forebear with respect to any Other Property which has ceased to be
operated by Grossman's in any material way for a period of three months
or more with no resumption of substantial operation of such store having
occurred within such three month period by a tenant acceptable to Lender
and under a lease approved by Lender; and
(b) that, so long as no Defaults or Events of Default have
occurred hereunder other than a failure by Borrower to have made a
Scheduled Payment, Lender shall forbear from accelerating for payment
amounts owed hereunder or the other Loan Documents and exercising its
rights and remedies hereunder on account of such failure by Borrower to
make a Scheduled Payment for the period of the "Special Cure Period" (as
defined below), but only if the extent of such failure does not exceed
twenty-five percent (25%) of the Scheduled Payment amount which was due.
Other than as set forth in this clause (b), and subject, in all events
to clause (a) of this Section 7.4, Lender shall not have any restriction
upon its rights to exercise remedies on account of any failure by
Borrower to make a Scheduled Payment, including the remedy of
acceleration and foreclosure (without limitation, it being understood
and agreed that in the event Borrower is deficient in making a Scheduled
Payment by more than 25%, the provisions of Section 4.3.4 hereof shall
not operate to restrain, impair or delay foreclosure by Lender). For
the foregoing purposes, the term "Special Cure Period" shall mean (i) in
the event Borrower has provided a timely notice of its election to defer
compliance with the Price Adjustment Obligations in accordance with
Section 4.3.4 hereof but is unsuccessful in completing a cure of the
Scheduled Payment Default within Borrower's Deferral Period, the 60-day
period following elapse of such Borrower's Deferral Period or (ii) in
the event Borrower fails timely to provide such notice in compliance
with Section 4.3.4, the 60-day period following the failure of Borrower
to have paid the Scheduled Payment when due.
ARTICLE 8 - MISCELLANEOUS
Section 8.1 Sale or Participation. The Lender may, with the prior
written consent of Borrower, not to be unreasonably withheld or delayed
(Borrower acknowledging, however, that it has provided its consent for
the Initial Participants) sell or assign to any Person all or a portion
of its rights and obligations under this Agreement and the other Loan
Documents. Consistent with the foregoing sentence, the Lender may also
sell participations to any Person in all or a portion of the Lender's
rights and obligations under this Agreement and the other Loan
Documents. Any Person which acquires, invests in or participates in the
Loan or any part thereof may rely upon all of the representations,
warranties, covenants and other provisions of this Agreement, the Notes
and the other Loan Documents.
Section 8.2 Survival Of Covenants, Etc. All covenants,
agreements, representations and warranties made herein, in the Note, in
any of the other Loan Documents or in any documents or other papers
delivered by or on behalf of the Borrower or any other Borrower Party
pursuant hereto or thereto shall be deemed to have been relied upon by
Lender, notwithstanding any investigation heretofore or hereafter made
by it, and shall survive the making by Lender of the Loan, as herein
contemplated, and shall continue in full force and effect so long as any
Obligations remain outstanding. The indemnification obligations of the
Borrower provided herein and the other Loan Documents shall survive the
full repayment of amounts due and the termination of the obligations of
Lender hereunder and thereunder to the extent provided herein and
therein. All statements contained in any certificate or other paper
delivered to Lender at any time by or on behalf of the Borrower or any
other Borrower Party pursuant hereto or in connection with the
transactions contemplated hereby shall constitute representations and
warranties by the Borrower or such Borrower Party hereunder.
Section 8.3 Consents and Notices. Except as otherwise expressly
provided in this Agreement, all approvals and consents to be given by
the Lender, and determinations to be made by the Lender, shall only be
effective if given or made in writing and may be given or withheld, or
made, in Lender's unrestricted discretion, subject, however, to any
requirement of law imposing an obligation on Lender to act in a
commercially reasonable fashion.
Whenever notice is appropriately to be given by either party to
the other under this Agreement, such notices shall be provided in the
manner set forth below:
(a) if to the Borrower, at 70 Walnut Street, Wellesley, MA
02181 Attention: Richard Kent, Secretary, or at such other address for
notice as the Borrower shall last have furnished in writing to Lender;
and
(b) if to Lender, 40 Broad Street, Boston, Massachusetts
02109, Attention: Alan R. Goldstein, Executive Vice President, with a
copy in like fashion to Goulston & Storrs, P.C., 400 Atlantic Avenue,
Boston, Massachusetts 02110, Attention: Kitt Sawitsky, Esq. or Michael
J. Haroz, Esq., or such other address for notice as Lender shall last
have furnished in writing to the Borrower.
Any such notice or demand shall be deemed to have been duly given
or made and to have become effective (i) if delivered by hand, overnight
courier or facsimile to a responsible officer of the party to which it
is directed, at the time of the receipt thereof by such officer or the
sending of such facsimile and (ii) if sent by registered or certified
first-class mail, postage prepaid, on the third business day following
the mailing thereof.
Section 8.4 Waiver. Failure on the part of the Lender to complain
of any action or non-action on the part of the Borrower, no matter how
long the same may continue, shall never be a waiver by the Lender of any
of its rights hereunder. Further, no waiver by the Lender at any time
of any of the provisions hereof shall be construed as a waiver of any of
the other provisions hereof, and a waiver at any time of any of the
provisions hereof shall not be construed as a waiver at any subsequent
time of the same provisions. The consent or approval by the Lender to
or of any action by the Borrower requiring the Lender's consent or
approval shall not waive or render unnecessary the Lender's consent or
approval to or of any subsequent similar act by the Borrower.
Section 8.5 No Assignment by Borrower Parties. Neither the
Borrower nor any other Borrower Party shall assign or transfer any of
its rights or obligations under any of the Loan Documents without the
prior written consent of Lender.
Section 8.6 Assignment. In the event of any assignment by Lender
under Section 8.1, this Agreement and the other Loan Documents shall be
amended and additional documents executed and delivered to the extent
reasonably determined by Lender to reflect the assignment, including
modifying this Agreement to add any assignee as a party hereto.
Section 8.7 Brokerage Commission. Each of the Borrower and Lender
agrees to pay for any and all of their respective brokerage fees, if
any, which may have been incurred incident to this Agreement.
Section 8.8 Lender's Expenses and Indemnification.
Section 8.8.1 Whether or not the transaction
contemplated by this Agreement shall be consummated, the Borrower shall
reimburse the Lender for all out-of-pocket expenses reasonably incurred
by the Lender in connection with the transaction contemplated by this
Agreement and administration of the Loan, including, the cost of
preparation of documents, appraisal fees, the Lender's reasonable
counsel fees and the fees of any inspecting engineers or architects..
Section 8.8.2 The Borrower shall indemnify and hold the
Lender and its Affiliates harmless against any and all claims, causes of
action, damages, losses, settlement payments, obligations, costs,
expenses and all other liabilities of any kind whatsoever, including
reasonable attorneys fees, which may be incurred or sustained by the
Lender and/or its Affiliates arising out of or in any way relating to
the Loan, this Agreement, the other Loan Documents and the arrangements
or transactions contemplated therein, whether or not the transactions
contemplated by this Agreement shall be consummated.
Section 8.9 No Third Party Beneficiaries. This Agreement is
solely for the benefit of the Lender, its participants, successors and
assigns, and the Borrower and nothing contained herein shall confer upon
anyone other than Borrower or the Lender, its participants, successors
and assigns, any right to insist upon or to enforce the performance or
observance of any of the obligations contained herein.
Section 8.10 Further Assurances/New Notes. The Borrower
shall do, make, execute and deliver all such additional and further
acts, things, assurances, and instruments as the Lender may reasonably
require more completely to carry into effect the provisions and intent
of this Agreement and the other Loan Documents. Without limiting the
foregoing, Borrower agrees that at the request of the Lender, Borrower
will issue new notes in exchange for an existing Note in amounts to be
designated by the Lender, so long as the aggregate amount of the notes
being substituted do not exceed the original principal amount of the
Note for which the substitution is made and such substituted notes are
otherwise on the same terms and conditions of the Note for which the
substitution is made.
Section 8.11 Releases of Security Instruments.
Notwithstanding that the Borrower may continue to have certain
indemnification obligations and the Master Tenant may continue to have
registration rights obligations under certain Loan Documents, when all
other portions of the Obligations, including, principal, interest (Fixed
and Additional) fees and costs, have been paid indefeasibly and
fulfilled in full, the Lender agrees that it shall promptly thereafter,
at the Borrower's sole cost and expense, prepare, execute and deliver,
in recordable form, if required, all necessary discharges, releases, UCC
termination statements and other documents required to release,
terminate and discharge all Security Instruments.
In addition, at such time or times a sale of a Property occurs in
accordance with the terms and conditions hereof and all sums required to
be paid over to Lender on account of such sale have been paid and if
there does not then exist any Default or Event of Default, Lender shall
deliver to the Borrower, at the Borrower's sole cost and expense, in
recordable form, all necessary discharges, releases, UCC termination
statements and other documents required to release, terminate and
discharge any Security Instrument with respect to such Property,
together with such other documents or instruments as may be reasonably
necessary to permit Borrower to transfer clear title to such Property.
Section 8.12 Time is of the Essence. Time is of the essence
of each and every provision of this Agreement.
Section 8.13 Severability. If any term or provision of this
Agreement, or the application thereof to any person or circumstance,
shall, to any extent, be invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and be enforced to-the
fullest extent permitted by law. If any clause or provision hereof is
held to be illegal, invalid or unenforceable, there shall be substituted
in lieu thereof a clause or provision as similar in terms to such clause
or provision as may be legal, valid or enforceable, as possible.
Section 8.14 Entire Agreement. This Agreement, including the
exhibits hereto, sets forth the entire agreement and understanding of
the parties hereto in respect of the subject matter contained herein,
and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations, warranties, whether oral or written, by
any officer, employee or representative of any party hereto. All of the
schedules and exhibits attached hereto are and shall constitute a part
of this Agreement. In the event of an inconsistency between the terms
of this Agreement and any of the other Loan Documents, the documents
shall be construed to the maximum extent possible so as to avoid said
inconsistency; in any event, if not withstanding such construction an
inconsistency remains, the provisions of this Agreement shall govern and
be controlling.
Section 8.15 Amendments, Waivers, Etc. This Agreement, the
Notes and any provision hereof or thereof may be waived only by an
instrument in writing signed by the Lender and may be amended only by an
instrument in writing signed by the Borrower and the Lender. No waiver
shall extend to or affect any obligation not expressly waived or impair
any right consequent thereon. No course of dealing or delay or omission
on the part of Lender in exercising any right shall operate as a waiver
thereof or otherwise be prejudicial thereto. No notice to or demand
upon the Borrower shall entitle the Borrower to other or further notice
or demand in similar or other circumstances.
Section 8.16 Bind and Inure. The obligations of the Borrower
and the Lender hereunder shall be binding upon the successors and
assigns of the Borrower and the Lender (but such reference is not
intended as a consent to any assignment not specifically permitted by
the Lender or, with respect to Lender, under Section 8.1 hereof) and
shall inure to the benefit of the successors and assigns of the Lender
and the Borrower.
Section 8.17 Headings. The captions in this Agreement are
for convenience of reference only and shall not define or limit the
provisions hereof.
Section 8.18 Governing Law. This Agreement has been
negotiated, executed and delivered in the Commonwealth of Massachusetts
and shall be construed in accordance with and governed by the laws of
the Commonwealth of Massachusetts (without regard to conflicts of laws
rules).
Section 8.19 Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an original for all
purposes.
Section 8.20 JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
BORROWER HEREBY ACKNOWLEDGES THAT THE TRANSACTION EVIDENCED HEREBY IS A
COMMERCIAL TRANSACTION. BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY
(A) SUBMITS TO PERSONAL JURISDICTION IN THE COMMONWEALTH OF
MASSACHUSETTS OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS
UNDER THE LAWS OF ANY STATE (I) TO OBJECT TO JURISDICTION WITHIN THE
COMMONWEALTH OF MASSACHUSETTS OR VENUE IN ANY PARTICULAR FORUM WITHIN
THE COMMONWEALTH OF MASSACHUSETTS, AND (II) TO THE RIGHT, IF ANY, TO
CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN ACTUAL DAMAGES. BORROWER AGREES THAT,
IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER
APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO BORROWER AT THE ADDRESS SET FORTH ABOVE, AND
SERVICE SO MADE SHALL BE COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL BE
SO MAILED. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT LENDER FROM
BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST
ANY SECURITY AND AGAINST BORROWER, AND AGAINST ANY PROPERTY OF BORROWER,
IN ANY OTHER STATE. INITIATING SUCH SUIT, ACTION OR PROCEEDING OR
TAKING SUCH ACTION IN ANY STATE SHALL IN NO EVENT CONSTITUTE A WAIVER OF
THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF BORROWER AND
LENDER HEREUNDER OR THE SUBMISSION HEREIN MADE BY BORROWER TO PERSONAL
JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS. THE BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TO A
TRIAL BY JURY IN ANY JURISDICTION AND IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OBLIGATIONS, THE
OTHER LOAN DOCUMENTS, OR ANY CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN
THE BORROWER AND THE LENDER. THIS WAIVER OF JURY TRIAL SHALL BE
EFFECTIVE FOR EACH AND EVERY DOCUMENT EXECUTED BY BORROWER OR LENDER,
AND DELIVERED TO LENDER OR BORROWER, AS THE CASE MAY BE, WHETHER OR NOT
SUCH DOCUMENT SHALL CONTAIN A WAIVER OF JURY TRIAL. THE BORROWER
FURTHER CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY
MADE.
Section 8.21 Waiver of Special Damages. Except as prohibited
by law, the Borrower hereby waives any rights which it may have to claim
or recover in any litigation with respect to any action or claim arising
out of any dispute in connection with the Loan Documents, any special,
exemplary or punitive damages. The Borrower (a) certifies that neither
the Lender nor any representative, agent or attorney of the Lender has
represented, expressly or otherwise, that the Lender would not, in the
event of litigation, seek to enforce the foregoing waivers and (b)
acknowledge that, in entering into this Agreement, the Lender is relying
upon, among other things, the waivers and certifications contained in
this Section 8.21.
<PAGE>
WITNESS the execution hereof as an instrument under seal on the
day and year first above written.
WITNESS GRS Realty Company, Inc.,
a Delaware corporation
______________________ By: __________________________
Name: ________________________
Title: _________________________
Hereunto duly authorized
Combined Investors, L.L.C.,
a Delaware limited liability company
______________________ By: ___________________________
Name: ________________________
Title: ________________________
Hereunto duly authorized
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (NEW ENGLAND)
as Lender
and
GROSSMAN'S INC.
as Borrower
Dated: May 2, 1996<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . . . 11
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . 11
2.2 Letter of Credit Accommodations . . . . . . . . . . . 12
2.3 Availability Reserves . . . . . . . . . . . . . . . . 14
SECTION 3. INTEREST AND FEES . . . . . . . . . . . . . . . . . . 14
3.1 Interest. . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . 15
3.3 Servicing Fee . . . . . . . . . . . . . . . . . . . . 15
3.4 Unused Line Fee . . . . . . . . . . . . . . . . . . . 15
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . 16
4.1 Conditions Precedent to Initial Loans and Letter
of Credit Accommodations. . . . . . . . . . . . . . . 16
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations . . . . . . . . . . . . . . . . 19
SECTION 5. GRANT OF SECURITY INTEREST. . . . . . . . . . . . . . 20
SECTION 6. COLLECTION AND ADMINISTRATION . . . . . . . . . . . . 21
6.1 Borrower's Loan Account . . . . . . . . . . . . . . . 21
6.2 Statements. . . . . . . . . . . . . . . . . . . . . . 21
6.3 Collection of Accounts. . . . . . . . . . . . . . . . 21
6.4 Payments. . . . . . . . . . . . . . . . . . . . . . . 22
6.5 Authorization to Make Loans . . . . . . . . . . . . . 23
6.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . 23
SECTION 7. COLLATERAL REPORTING AND COVENANTS. . . . . . . . . . 24
7.1 Collateral Reporting. . . . . . . . . . . . . . . . . 24
7.2 Accounts Covenants. . . . . . . . . . . . . . . . . . 25
7.3 Inventory Covenants . . . . . . . . . . . . . . . . . 26
7.4 Equipment Covenants . . . . . . . . . . . . . . . . . 27
7.5 Power of Attorney . . . . . . . . . . . . . . . . . . 27
7.6 Right to Cure . . . . . . . . . . . . . . . . . . . . 28
7.7 Access to Premises. . . . . . . . . . . . . . . . . . 28
SECTION 8. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . 28
8.1 Corporate Existence, Power and Authority;
Subsidiaries. . . . . . . . . . . . . . . . . . . . . 29
8.2 Financial Statements; No Material Adverse
Change. . . . . . . . . . . . . . . . . . . . . . . . 29
8.3 Chief Executive Office; Collateral Locations. . . . . 29
8.4 Priority of Liens; Title to Properties. . . . . . . . 29
8.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . 30
8.6 Litigation. . . . . . . . . . . . . . . . . . . . . . 30
8.7 Compliance with Other Agreements and Applicable
Laws. . . . . . . . . . . . . . . . . . . . . . . . . 30
8.9 Employee Benefits . . . . . . . . . . . . . . . . . . 31
8.10 Gordon Brothers Agreements. . . . . . . . . . . . . . 32
8.11 Capitalization. . . . . . . . . . . . . . . . . . . . 32
8.13 Survival of Warranties; Cumulative. . . . . . . . . . 33
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS. . . . . . . . . . 33
9.1 Maintenance of Existence. . . . . . . . . . . . . . . 33
9.2 New Collateral Locations. . . . . . . . . . . . . . . 33
9.3 Compliance with Laws, Regulations, Etc. . . . . . . . 33
9.4 Payment of Taxes and Claims . . . . . . . . . . . . . 34
9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . 34
9.6 Financial Statements and Other Information. . . . . . 34
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc. . . . . . . . . . . . . . . . . . . 35
9.8 Encumbrances. . . . . . . . . . . . . . . . . . . . . 36
9.9 Indebtedness. . . . . . . . . . . . . . . . . . . . . 37
9.10 Loans, Investments, Guarantees, Etc . . . . . . . . . 37
9.11 Dividends and Redemptions . . . . . . . . . . . . . . 38
9.12 Transactions with Affiliates. . . . . . . . . . . . . 38
9.13 Credit Card Agreements. . . . . . . . . . . . . . . . 38
9.14 Compliance with ERISA . . . . . . . . . . . . . . . . 38
9.15 Costs and Expenses. . . . . . . . . . . . . . . . . . 39
9.16 Further Assurances. . . . . . . . . . . . . . . . . . 39
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . 40
10.1 Events of Default . . . . . . . . . . . . . . . . . . 40
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW . . . . . . . . . . 43
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver. . . . . . . . . . . . . . 43
11.2 Waiver of Notices . . . . . . . . . . . . . . . . . . 44
11.3 Amendments and Waivers. . . . . . . . . . . . . . . . 44
11.4 Waiver of Counterclaims . . . . . . . . . . . . . . . 44
11.5 Indemnification . . . . . . . . . . . . . . . . . . . 44
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS. . . . . . . . . . . 45
12.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . 45
12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . 46
12.3 Partial Invalidity. . . . . . . . . . . . . . . . . . 46
12.4 Successors. . . . . . . . . . . . . . . . . . . . . . 46
12.5 Entire Agreement. . . . . . . . . . . . . . . . . . . 46
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B Ineligible Inventory Locations
Exhibit C Other Locations of Transferred
Assets
Exhibit D Schedule of Restructuring Notes
Schedule 8.1 Subsidiaries
Schedule 8.4 Existing Liens
Schedule 8.8 Credit Card Agreements
Schedule 9.9 Existing Indebtedness
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated May 2, 1996 is
entered into by and between Congress Financial Corporation (New
England), a Massachusetts corporation ("Lender") and Grossman's
Inc., a Delaware corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into
certain financing arrangements with Borrower pursuant to which
Lender may make loans and provide other financial accommodations
to Borrower; and
WHEREAS, Lender is willing to make such loans and provide
such financial accommodations on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual conditions
and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or
Article 9 of the Uniform Commercial Code shall have the meanings
given therein unless otherwise defined in this Agreement. All
references to the plural herein shall also mean the singular and
to the singular shall also mean the plural. All references to
Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include
their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar
import when used in this Agreement shall refer to this Agreement
as a whole and not any particular provision of this Agreement and
as this Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
An Event of Default shall exist or continue or be continuing until
such Event of Default is waived or cured in accordance with
Section 11.3. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings
given to them below:
1.1 "Accounts" shall mean all present and future rights of
Borrower to payment for goods sold or leased or for services
rendered, which are not evidenced by instruments or chattel paper,
and whether or not earned by performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to
each Interest Period for any Eurodollar Rate Loan, the rate per
annum (rounded upwards, if necessary, to the next one-sixteenth
(1/16) of one (1%) percent) determined by dividing (1) the
Eurodollar Rate for such Interest Period by (2) a percentage equal
to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign
banking authority for determining the reserve requirement which is
or would be applicable to deposits of United States dollars in a
non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate
Loan made with the proceeds of such deposit, whether or not the
Reference Bank actually holds or has made any such deposits or
loans. The Adjusted Eurodollar Rate shall be adjusted on and as
of the effective day of any change in the Reserve Percentage.
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time
establish and revise in good faith reducing the amount of
Revolving Loans and Letter of Credit Accommodations that would
otherwise be available to Borrower under the lending formula(s)
provided for herein: (a) to reflect events, conditions,
contingencies or risks that, as determined by Lender in good
faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value
(including, without limitation, pursuant to the lending formulas
set forth in Sections 2.1(a)(ii)(A) and 2.1(a)(ii)(B)), (ii) the
assets or business of Borrower or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral
(including the enforceability, perfection and priority thereof),
including, without limitation, (A) the establishment of a dilution
reserve of up to ten percent (10%) of Borrower's outstanding
Eligible Accounts, which dilution reserve percentage may be
subsequently reduced in Lender's good faith judgment based upon an
improvement in the ratio of collections to the gross amount of
Borrower's Accounts arising after the date hereof as compared to
such ratio existing prior to the date hereof, and (B) the
establishment of a liquidation value reserve to be deducted from
the Inventory Loan Limit of up to two (2%) percent of the Cost of
Eligible Inventory, which liquidation value reserve may be
subsequently reduced in Lender's good faith judgment based upon an
improvement after the date hereof in the Net Recovery Cost
Percentage as compared to the Net Recovery Cost Percentage
existing prior to the date hereof, or (b) to reflect Lender's good
faith belief that any collateral report or financial information
furnished by or on behalf of Borrower or any Obligor to Lender is
or may have been incomplete, inaccurate or misleading in any
material respect or (c) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or
may, with notice or passage of time or both, constitute an Event
of Default.
1.4 "Blocked Account" shall have the meaning set forth in
Section 6.3 hereof.
1.5 "Business Day" shall mean (a) for the Prime Rate
Loans, any day other than a Saturday, Sunday, or other day on
which commercial banks are authorized or required to close under
the laws of the State of New York, the Commonwealth of
Pennsylvania or the Commonwealth of Massachusetts, and a day on
which the Reference Bank and Lender are open for the transaction
of business, and (b) for all Eurodollar Rate Loans, any such day
as described in (a) above in this definition of Business Day,
excluding any day on which banks are closed for dealings in dollar
deposits in the London interbank market or other applicable
Eurodollar Rate market.
1.6 "Capital Stock" shall mean any and all shares,
interests, participations, or other equivalents (however
designated) of corporate stock or partnership interests and any
options or warrants with respect to any of the foregoing.
1.7 "Code" shall mean the Internal Revenue Code of 1986,
as the same now exists or may from time to time hereafter be
amended, modified, recodified or supplemented, together with all
rules, regulations and interpretations thereunder or related
thereto.
1.8 "Collateral" shall have the meaning set forth in
Section 5 hereof.
1.9 "Cost" shall mean, as to Inventory as of any date, the
cost of such Inventory as of such date calculated on a basis
consistent with Borrower's current accounting system and in
accordance with GAAP.
1.10 "Credit Card Acknowledgments" shall mean, individually
and collectively, the agreements by Credit Card Issuers or Credit
Card Processors who are parties to Credit Card Agreements in favor
of Lender acknowledging Lender's first priority security interest
in the monies due and to become due to Borrower (including,
without limitation, credits and reserves) under the Credit Card
Agreements, and agreeing to transfer all such amounts to the
Blocked Accounts, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
1.11 "Credit Card Agreements" shall mean all agreements now
or hereafter entered into by Borrower with any Credit Card Issuer
or any Credit Card Processor, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, including, but not limited to, each such
agreement listed on Schedule 8.8 hereto.
1.12 "Credit Card Issuer" shall mean any person (other than
Borrower) who issues or whose members issue credit cards,
including, without limitation, MasterCard or VISA bank credit or
debit cards or other bank credit or debit cards, and American
Express, Discover, Diners Club, Carte Blanche and other non-bank
credit or debit cards.
1.13 "Credit Card Processor" shall mean any servicing or
processing agent or any factor or financial intermediary who
facilitates, services, processes or manages the credit
authorization, billing transfer and/or payment procedures with
respect to any of Borrower's sales transactions involving credit
card or debit card purchases by customers using credit cards or
debit cards issued by any Credit Card Issuer, including, but not
limited to, each such Person listed on Schedule 8.8 hereto who is
a party with Borrower to a Credit Card Agreement.
1.14 "Credit Card Receivables" shall mean all Accounts
consisting of the present and future rights of Borrower to payment
for Inventory sold and delivered to customers who have purchased
such goods using a credit card or a debit card issued by a Credit
Card Issuer, whether payable by the Credit Card Issuer, Credit
Card Processor, or otherwise.
1.15 "Debentures" shall mean Borrower's 14% Debentures due
1996 issued pursuant to the Indenture dated as of January 1, 1986
by and between Borrower and United States Trust Company of New
York as Trustee.
1.16 "Division" shall mean each of the operating divisions
of Borrower established for the conduct of its business, including
its Contractor's Warehouse and Mr. 2nd Bargain Outlet divisions.
1.17 "Eligible Accounts" shall mean Accounts created by
Borrower which are and continue to be acceptable to Lender based
on the criteria set forth below. In general, Accounts shall be
Eligible Accounts if:
(a) such Accounts arise from the actual and bona
fide sale and delivery of goods by Borrower or rendition of
services by Borrower in the ordinary course of its business which
transactions are completed in accordance with the terms and
provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than the
earlier of: (i) ninety (90) days after the date of the original
invoice for them and (ii) sixty (60) days after their original due
date;
(c) such Accounts comply with the terms and
conditions contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on
consignment, guaranteed sale, sale and return, sale on approval,
or other terms under which payment by the account debtor may be
conditional or contingent;
(e) the chief executive office of the account debtor
with respect to such Accounts is located in the United States of
America (a "Domestic Account"), provided, that, at Lender's option
(on an Account by Account basis), Lender may deem an Account that
is not a Domestic Account (a "Foreign Account") to be an Eligible
Account where (i) such Foreign Account is payable only in the
United States and in U.S. dollars, (ii) either: (A) the account
debtor has delivered to Borrower an irrevocable letter of credit
issued or confirmed by a bank satisfactory to Lender, sufficient
to cover such Foreign Account, in form and substance satisfactory
to Lender and, if required by Lender, the original of such letter
of credit has been delivered to Lender or Lender's agent and the
issuer thereof has been notified of the assignment of the proceeds
of such letter of credit to Lender, or (B) such Foreign Account is
subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (C) such
Account is otherwise acceptable in all respects to Lender, and
(iii) any such Foreign Account shall be subject to such lending
formula with respect thereto as Lender may determine on an Account
by Account basis);
(f) such Accounts do not consist of progress
billings, bill and hold invoices or retainage invoices, except as
to bill and hold invoices, if Lender shall have received an
agreement in writing from the account debtor, in form and
substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto
and pay such invoice;
(g) the account debtor with respect to such Accounts
has not asserted a counterclaim, defense or dispute and does not
have any right of setoff against such Accounts;
(h) there are no facts, events or occurrences which
would impair the validity, enforceability or collectability of
such Accounts or reduce the amount payable or delay payment
thereunder;
(i) such Accounts are subject to the first priority,
valid and perfected security interest of Lender and any goods
giving rise thereto are not, and were not at the time of the sale
thereof, subject to any liens except those permitted in this
Agreement;
(j) neither the account debtor nor any officer or
employee of the account debtor with respect to such Accounts is an
officer, employee or agent of or affiliated with Borrower directly
or indirectly by virtue of family membership, ownership, control,
management or otherwise;
(k) the account debtors with respect to such
Accounts are not any foreign government, the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, unless, if the account debtor is the
United States of America, any State, political subdivision,
department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended
or any similar State or local law, if applicable, has been
complied with in a manner satisfactory to Lender;
(l) there are no proceedings or actions which are
threatened or pending against the account debtors with respect to
such Accounts which might result in any material adverse change in
any such account debtor's financial condition;
(m) such Accounts of a single account debtor or its
affiliates do not constitute more than twenty (20%) percent of all
otherwise Eligible Accounts (but the portion of the Accounts not
in excess of such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor
who has Accounts unpaid which constitute more than fifty (50%)
percent of the total Accounts of such account debtor more than the
earlier of: (i) ninety (90) days after the date of the original
invoice for them, and (ii) sixty days (60) after their original
due date;
(o) such Accounts are owed by account debtors whose
total indebtedness to Borrower does not exceed the credit limit,
if any, with respect to such account debtors as determined by
Lender from time to time (but the portion of the Accounts not in
excess of such credit limit may still be deemed Eligible
Accounts);
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender;
(q) such Accounts are not Credit Card Receivables;
and
(r) such Accounts do not arise from or relate to
obligations owed or payable to Borrower or Newco pursuant to the
Gordon Brothers Agreements.
General criteria for Eligible Accounts may be established and
revised from time to time by Lender in good faith. Any Accounts
which are not Eligible Accounts shall nevertheless be part of the
Collateral.
1.18 "Eligible Inventory" shall mean Inventory consisting
of finished goods held for resale in the ordinary course of the
business of Borrower which are acceptable to Lender based on the
criteria set forth below. In general, Eligible Inventory shall
not include (a) any Excluded Inventory or other Inventory to be
sold pursuant to the Gordon Brothers Agency Agreement, including
without limitation, all Inventory located at any of the locations
listed on Exhibit B hereto, (b) work-in-process; (c) components
which are not part of finished goods unless such components are
held for resale in the ordinary course of Borrower's business; (d)
spare parts for equipment; (e) packaging and shipping materials;
(f) supplies used or consumed in Borrower's business; (g)
Inventory at premises other than those owned and controlled by
Borrower, except if (i) Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the
owner or operator of such premises in form and substance
satisfactory to Lender acknowledging Lender's first priority
security interest in the Inventory, waiving security interests and
claims by such person against the Inventory and permitting Lender
access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the
Collateral or (ii) Lender has agreed in writing to waive or defer
the requirement set forth in clause (i) of this subsection (g);
(h) Inventory subject to a security interest or lien in favor of
any person other than Lender except those permitted in this
Agreement; (i) bill and hold goods; (j) unserviceable, obsolete or
slow moving Inventory; (k) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender;
(l) returned, damaged and/or defective Inventory not suitable for
resale in the ordinary course of Borrower's business; (m)
Inventory purchased or sold on consignment; and (n) Inventory
consisting of samples. General criteria for Eligible Inventory
may be established and revised from time to time by Lender in good
faith. Any Inventory which is not Eligible Inventory shall
nevertheless be part of the Collateral.
1.19 "Environmental Laws" shall mean all federal, state,
district, local and foreign laws, rules, regulations, ordinances,
and consent decrees relating to health, safety, hazardous
substances, pollution and environmental matters, as now or at any
time hereafter in effect, applicable to Borrower's business and
facilities (whether or not owned by it), including laws relating
to emissions, discharges, releases or threatened releases of
pollutants, contamination, chemicals, or hazardous, toxic or
dangerous substances, materials or wastes into the environment
(including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to
the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals, or hazardous, toxic or dangerous
substances, materials or wastes.
1.20 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles,
tools, furniture, fixtures, all attachments, accessions and
property now or hereafter affixed thereto or used in connection
therewith, and substitutions and replacements thereof, wherever
located.
1.21 "ERISA" shall mean the United States Employee
Retirement Income Security Act of 1974, as the same now exists or
may hereafter from time to time be amended, modified, recodified
or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.22 "ERISA Affiliate" shall mean any person required to be
aggregated with Borrower or any of its subsidiaries under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.
1.23 "Eurodollar Rate" shall mean with respect to the
Interest Period for a Eurodollar Rate Loan, the interest rate per
annum equal to the arithmetic average of the rates of interest per
annum (rounded upwards, if necessary, to the next one-sixteenth
(1/16) of one (1%) percent) at which Reference Bank is offered
deposits of United States dollars in the London interbank market
(or other Eurodollar Rate market selected by Borrower and approved
by Lender) on or about 9:00 a.m. (New York time) two (2) Business
Days prior to the commencement of such Interest Period in amounts
substantially equal to the principal amount of the Eurodollar Rate
Loans requested by and available to Borrower in accordance with
this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.24 "Eurodollar Rate Loans" shall mean any Loans or
portion thereof on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the terms hereof.
1.25 "Event of Default" shall mean the occurrence or
existence of any event or condition described in Section 10.1
hereof.
1.26 "Excess Availability" shall mean the amount, as
determined by Lender, calculated at any time, equal to: (a) the
lesser of (i) amount of the Revolving Loans available to Borrower
as of such time based on the applicable lending formula set forth
in Section 2.1(a) hereof, subject to any then applicable
Availability Reserves and (ii) the Maximum Credit, minus (b) the
sum of: (i) the amount of all then outstanding and unpaid
Obligations, plus (ii) the aggregate amount of all outstanding and
unpaid trade payables owed by Borrower and/or any Subsidiary which
are more than sixty (60) days past due as of such time and which
are not disputed in good faith.
1.27 "Excluded Inventory" shall mean all Inventory which is
to be sold pursuant to the Gordon Brothers Agency Agreement,
including, without limitation, all Inventory at the locations of
Borrower listed on Exhibit B hereto.
1.28 "Existing Financing Agreements" shall mean the Loan
and Security Agreement dated as of December 15, 1993 by and
between Borrower and the Existing Lender, together with all notes,
guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or
delivered by Borrower or any Obligator in connection therewith,
from time to time amended, modified and supplemented as the same
now exists.
1.29 "Existing Lender" shall mean BankAmerica Business
Credit, Inc., a Delaware
corporation and to its successors and assigns.
1.30 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and other
agreements, documents and instruments now or at any time hereafter
executed and/or delivered by Borrower or any Obligor in connection
with this Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
1.31 "GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect from time
to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable
to the circumstances as of the date of determination consistently
applied, except that, for purposes of Sections 9.13 and 9.14
hereof, GAAP shall be determined on the basis of such principles
in effect on the date hereof and consistent with those used in the
preparation of the audited financial statements delivered to
Lender prior to the date hereof.
1.32 "Gordon Brothers" shall mean Gordon Brothers Partners,
Inc., a Massachusetts corporation and its successors and assigns.
1.33 "Gordon Brothers Agency Agreement" shall mean the
Inventory Agency Agreement dated as of March 29, 1996 between
Borrower and Gordon Brothers, together with all exhibits,
schedules and supplements thereto, as in effect on the date
hereof.
1.34 "Gordon Brothers Agreements" shall mean, collectively,
(i) the Gordon Brothers Commitment, (ii) the Gordon Brothers
Agency Agreement, (iii) the Security Agreement (Grossmans) dated
as of March 29, 1996 between Newco and Gordon Brothers (iv) the
FF&E Commission Agreement dated as of April 5, 1996 between Newco
and Gordon Brothers, (v) the Bill of Sale made as of April 4, 1996
by Borrower in favor of Newco, (vi) the Master Lease dated as of
April 4, 1996 between Newco and Borrower, (vii) the Loan Agreement
dated as of April 4, 1996 between Combined Investors, L.L.C. and
Newco, and (viii) in the case of each of the above, all notes,
guarantees, mortgages, deeds of trust, security agreements and
other agreements, documents and instruments to which Borrower,
Newco Holdings, Newco or any other Subsidiary is a party executed
or delivered at any time pursuant thereto or in connection
therewith, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.35 "Gordon Brothers Commitment" shall mean the letter
agreement between Borrower and Gordon Brothers, dated March 22,
1996.
1.36 "Information Certificate" shall mean the Information
Certificate of Borrower constituting Exhibit A hereto containing
material information with respect to Borrower, its business and
assets provided by or on behalf of Borrower to Lender in
connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for
herein.
1.37 "Interest Period" shall mean for any Eurodollar Rate
Loan, a period of approximately one (1), two (2), or three (3)
months duration as Borrower may elect, the exact duration to be
determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, Borrower may
not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.38 "Interest Rate" shall mean, as to Prime Rate Loans, a
rate of one (1.00%) percent per annum in excess of the Prime Rate
and, as to Eurodollar Rate Loans, a rate of two and three-quarters
(2.75%) percent per annum in excess of the Adjusted Eurodollar
Rate, (based on the Eurodollar Rate applicable for the Interest
Period selected by Borrower as in effect three (3) Business Days
after the date of receipt by Lender of the request of Borrower for
such Eurodollar Rate Loans in accordance with the terms hereof,
whether such rate is higher or lower than any rate previously
quoted to Borrower); provided, that, the Interest Rate shall mean
the rate of three (3.0%) percent per annum in excess of the Prime
Rate as to all Loans, at Lender's option, without notice, (a) for
the period on and after the date of termination or non-renewal
hereof, or the date of the occurrence of any Event of Default or
event which with notice or passage of time or both would
constitute an Event of Default, and for so long as such Event of
Default or other event is continuing as determined by Lender and
until such time as all Obligations are indefeasibly paid in full
(notwithstanding entry of any judgment against Borrower) and (b)
on the Revolving Loans at any time outstanding in excess of the
amounts available to Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge
or consent and whether made before or after an Event of Default).
1.39 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process,
finished goods and all other inventory of whatsoever kind or
nature, wherever located.
1.40 "Inventory Loan Limit" shall have the meaning ascribed
thereto in Section 2.1(a)(ii) hereof.
1.41 "Letter of Credit Accommodations" shall mean the
letters of credit and merchandise purchase or other guaranties
which are from time to time either (a) issued or opened by Lender
for the account of Borrower or any Obligor or (b) with respect to
which Lender has agreed to indemnify the issuer thereof or with
respect to which Lender has guaranteed to such issuer the
performance by Borrower of its obligations to such issuer.
1.42 "Loans" shall mean the Revolving Loans.
1.43 "Maximum Credit" shall mean the amount of $50,000,000.
1.44 "Maximum Interest Rate" shall mean the maximum non-
usurious rate of interest under applicable Federal or State law as
in effect from time to time that may be contracted for, taken,
reserved, charged or received in respect of indebtedness of
Borrower to Lender.
1.45 "Net Amount of Eligible Accounts" shall mean the gross
amount of Eligible Accounts less (a) sales, excise or similar
taxes included in the amount thereof and (b) returns, discounts,
claims, credits and allowances of any nature at any time issued,
owing, granted, outstanding, available or claimed with respect
thereto.
1.46 "Net Recovery Cost Percentage" shall mean, at any
time, a percentage equal to the net recovery percentage at Cost of
Inventory, determined on a "going out of business sale" basis and
after deduction of estimated operating expenses, liquidation
expenses and commissions, as set forth in the most recent
Valuation Review received by Lender in accordance with
Section 7.3(d) hereof.
1.47 "Net Recovery Retail Percentage" shall mean, at any
time, a percentage equal to the net recovery percentage at retail
of Inventory, determined on a "going out of business sale" basis
and after deduction of estimated operating expenses, liquidation
expenses and commissions, as set forth in the most recent
Valuation Review received by Lender in accordance with
Section 7.3(d) hereof.
1.48 "Newco" shall mean GRS Realty Company, Inc., a
Delaware corporation.
1.49 "Newco Holding Company" shall mean GRS Holding
Company, Inc., a Delaware corporation.
1.50 "Obligations" shall mean any and all Revolving Loans,
Letter of Credit Accommodations and all other obligations,
liabilities and indebtedness of every kind, nature and description
owing by Borrower to Lender and/or its affiliates, including
principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise,
whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement
or after the commencement of any case with respect to Borrower
under the United States Bankruptcy Code or any similar statute
(including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement
of such case), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by
Lender.
1.51 "Obligor" shall mean any guarantor, endorser,
acceptor, surety or other person liable on or with respect to the
Obligations or who is the owner of any property which is security
for the Obligations, other than Borrower.
1.52 "Payment Account" shall have the meaning set forth in
Section 6.3 hereof.
1.53 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without
limitation, any corporation which elects subchapter S status under
the Internal Revenue Code of 1986, as amended), business trust,
unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or
instrumentality or political subdivision thereof.
1.54 "Prime Rate" shall mean the rate from time to time
publicly announced by CoreStates Bank, N.A., or its successors, at
its office in Philadelphia, Pennsylvania, as its prime rate,
whether or not such announced rate is the best rate available at
such bank, provided, that, for all purposes of this Agreement, any
publicly announced change in the Prime Rate shall not be effective
until the first day of the month immediately following the
publicly announced effective date of such change.
1.55 "Prime Rate Loans" shall mean any Loans or portion
thereof on which interest is payable based on the Prime Rate in
accordance with the terms thereof.
1.56 "Real Property" shall mean all and now owned and
hereafter acquired real property of Borrower, including leasehold
interests, together with all buildings, structures and other
improvements located thereon, and all licenses, easements and
appurtenance relating thereto, but excluding Transferred Assets.
1.57 "Records" shall mean all of Borrower's present and
future books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit
files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data
and software storage media and devices, file cabinets or
containers in or on which the foregoing are stored (including any
rights of Borrower with respect to the foregoing maintained with
or by any other person).
1.58 "Reference Bank" shall mean Philadelphia National
Bank, incorporated as CoreStates Bank, N.A., or such other bank as
Lender may from time to time designate.
1.59 "Restructuring Notes" shall mean, individually and
collectively, each Tranche A Convertible Promissory Note issued on
April 9, 1996 by the Borrower in favor of each Person and in the
amount set forth with respect to such Person on Exhibit D hereto,
each Tranche B Promissory Note issued on April 9, 1996 by the
Borrower to each Person and in the amount set forth with respect
to such Person on Exhibit D hereto, and each Interest Deferral
Note (as defined therein) with respect thereto hereafter issued by
Borrower.
1.60 "Retail Sales Price" shall mean the current ticketed
sales price to its customers, net of markdowns from the original
ticketed sales price, for the types and categories of Eligible
Inventory.
1.61 "Revolving Loans" shall mean the loans now or
hereafter made by Lender to or for the benefit of Borrower on a
revolving basis (involving advances, repayments and readvances) as
set forth in Section 2.1 hereof.
1.62 "Subsidiary" shall mean any corporation of which fifty
percent (50%) or more of the outstanding securities of any class
or classes thereof, as to which the holders thereof are
ordinarily, in the absence of contingencies, entitled to elect a
majority of the directors (or Persons performing similar
functions) of such corporation, is now or hereafter directly or
indirectly (through one or more intermediaries) owned by Borrower
and/or any one or more of its Subsidiaries but such term shall not
include Construcentro De America S.A. D.C.V., a Mexican joint
venture.
1.63 "Transferred Assets" shall mean the real property,
fixtures and equipment at the locations listed on Exhibits B and C
hereto transferred to Newco by Borrower pursuant to the Gordon
Brothers Agreements.
1.64 "Valuation Review" shall mean, at any time, the
inventory valuation and appraisal, dated March 22, 1996 prepared
by Gordon Brothers or the most recent subsequent appraisal of
Borrower's Inventory prepared by Gordon Brothers or by other
appraisers acceptable to Lender and delivered to Lender pursuant
to Section 7.3(d) hereof.
1.65 "Value" shall mean, as determined by Lender in good
faith, with respect to Inventory, the lower of (a) Cost, and (b)
market value as recorded by Borrower, net of discounts.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to
Borrower from time to time in amounts requested by Borrower up to
an amount equal to the sum of:
(i) eighty (80%) percent of the Net Amount of
Eligible Accounts; plus
(ii) the least of (the "Inventory Loan Limit"):
(A) sixty-five (65%) percent of the Cost of
Eligible Inventory;
(B) eighty-five (85%) percent of the Cost of
Eligible Inventory, multiplied by the Net
Recovery Cost Percentage; or
(C) eighty-five (85%) percent of the Retail
Sales Price of Eligible Inventory,
multiplied by the Net Recovery Retail
Percentage;
provided, however, if the amount calculated
pursuant to either clause (B) or (C) is less
than sixty (60%) percent of the Cost of Eligible
Inventory, then, the Inventory Loan Limit shall
be sixty (60%) percent of the Cost of Eligible
Inventory; minus
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to
time, upon not less than five (5) Business Days prior notice to
Borrower, (i) reduce the lending formula with respect to Eligible
Accounts to the extent that Lender determines in good faith that:
(A) the dilution with respect to the Accounts for any period
(based on the ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash to (2) the
aggregate amount of total sales) has increased in any material
respect or may be reasonably anticipated to increase in any
material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce
the lending formula(s) with respect to Eligible Inventory to the
extent that Lender determines that: (A) the number of days of the
turnover of the Inventory for any period has changed in any
material respect or (B) the liquidation value of the Eligible
Inventory, or any category thereof, has decreased, or (C) the
nature and quality of the Inventory has deteriorated. In
determining whether to reduce the lending formula(s), Lender may
consider events, conditions, contingencies or risks which are also
considered in determining Eligible Accounts, Eligible Inventory or
in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate
amount of the Loans and the Letter of Credit Accommodations
outstanding at any time shall not exceed the Maximum Credit. In
the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter
of Credit Accommodations, exceed the amounts available under the
lending formulas, the sublimits for Letter of Credit Accommoda-
tions set forth in Section 2.2(c) or the Maximum Credit, as
applicable, such event shall not limit, waive or otherwise affect
any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be
made at any time or from time to time, immediately repay to Lender
the entire amount of any such excess(es) for which payment is
demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions
contained herein, at the request of Borrower, Lender agrees to
provide or arrange for Letter of Credit Accommodations for the
account of Borrower containing terms and conditions acceptable to
Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional
Revolving Loans to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses
charged by any bank or issuer in connection with the Letter of
Credit Accommodations, Borrower shall pay to Lender a letter of
credit fee (i) so long as no Event of Default shall then exist and
be continuing and this Agreement has not been terminated or, if
terminated, has been renewed, at a rate equal to one and three-
quarters (1.75%) percent per annum and (ii) wherever an Event of
Default shall exist and be continuing or this Agreement shall have
been terminated and not renewed, at a rate equal to three and
three-quarters (3.75%) percent per annum, in either case, on the
daily outstanding balance of the Letter of Credit Accommodations
for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each succeeding month. Such letter
of credit fee shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed and the obligation of
Borrower to pay such fee shall survive the termination or non-
renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance of any
Letter of Credit Accommodations, the Revolving Loans available to
Borrower (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than: (i) if the proposed
Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory or indemnifying the issuer of a letter of
credit for the account of Borrower for the purpose of purchasing
Eligible Inventory, the sum of (A) one hundred (100%) percent of
the face amount thereof, minus the amount calculated pursuant to
the lending formula applicable to the Eligible Inventory which is
the subject thereof pursuant to Section 2.1(a)(ii) hereof, plus
(B) freight, taxes, duty and other amounts which Lender estimates
must be paid in connection with such Inventory upon arrival and
for delivery to one of Borrower's locations for Eligible Inventory
within the United States of America and (ii) if the proposed
Letter of Credit Accommodation is for any other purpose, an amount
equal to one hundred (100%) percent of the face amount thereof and
all other commitments and obligations made or incurred by Lender
with respect thereto. Effective on the issuance of each Letter of
Credit Accommodation, an Availability Reserve shall be established
in the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other
commitments and obligations made or incurred by Lender in
connection therewith, shall not at any time exceed $15,000,000.
At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish
cash collateral to secure the reimbursement obligations to the
issuer in connection with any Letter of Credit Accommodations or
furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise
available to Borrower shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender
harmless from and against any and all losses, claims, damages,
liabilities, costs and expenses which Lender may suffer or incur
in connection with any Letter of Credit Accommodations and any
documents, drafts or acceptances relating thereto, including, but
not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or
correspondent with respect to any Letter of Credit Accommodation.
Borrower assumes all risks with respect to the acts or omissions
of the drawer under or beneficiary of any Letter of Credit
Accommodation. Borrower assumes all risks for, and agrees to pay,
all foreign, Federal, State and local taxes, duties and levies
relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder.
Borrower hereby releases and holds Lender harmless from and
against any acts, waivers, errors, delays or omissions, whether
caused by Borrower, by any issuer or correspondent or otherwise
with respect to or relating to any Letter of Credit Accommodation.
The provisions of this Section 2.2(e) shall survive the payment of
Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or
construed to grant Borrower any right or authority to pledge the
credit of Lender in any manner. Lender shall have no liability of
any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such
Letter of Credit Accommodation. Borrower shall be bound by any
interpretation made in good faith by Lender, or any other issuer
or correspondent under or in connection with any Letter of Credit
Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower. Lender shall have the sole and
exclusive right and authority to, and Borrower shall not: (i) at
any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-compliance
of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all
applications for steamship or airway guaranties, indemnities or
delivery orders, and (ii) at all times, (A) grant any extensions
of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the
applications, Letter of Credit Accommodations, or documents,
drafts or acceptances thereunder or any letters of credit included
in the Collateral. Lender may take such actions either in its own
name or in Borrower's name.
(g) Any rights, remedies, duties or obligations
granted or undertaken by Borrower to any issuer or correspondent
in any application for any Letter of Credit Accommodation, or any
other agreement in favor of any issuer or correspondent relating
to any Letter of Credit Accommodation, shall be deemed to have
been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in
any application for any Letter of Credit Accommodation, or any
other agreement by Lender in favor of any issuer or correspondent
relating to any Letter of Credit Accommodation, shall be deemed to
have been undertaken by Borrower to Lender and to apply in all re-
spects to Borrower.
2.3 Availability Reserves. Without limiting Lender's
rights to establish Availability Reserves in respect of Letter of
Credit Accommodations pursuant to Section 2.2(c) hereof, all
Revolving Loans otherwise available to Borrower pursuant to the
lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's
continuing right to establish and revise Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at
the Interest Rate. All interest accruing hereunder on and after
the date of any Event of Default or termination or non-renewal
hereof shall be payable on demand.
(b) Except as provided in this Section 3.1(b), all
Loans shall be Prime Rate Loans. Borrower may from time to time
request that any Prime Rate Loans be converted to Eurodollar Rate
Loans or that any existing Eurodollar Rate Loans continue for an
additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below) and
the Interest Period to be applicable to such Eurodollar Rate
Loans. Subject to the terms and conditions contained herein,
three (3) Business Days after receipt by Lender of such a request
from Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans shall
continue, as the case may be, provided, that, (i) no Event of
Default, or event which with notice or passage of time or both
would constitute an Event of Default exists or has occurred and is
continuing, (ii) no party hereto shall have sent any notice of
termination or non-renewal of this Agreement, (iii) Borrower shall
have complied with such customary procedures as are established by
Lender and specified by Lender to Borrower from time to time for
requests by Borrower for Eurodollar Rate Loans, (iv) no more than
four (4) Interest Periods may be in effect at any one time, (v)
the aggregate amount of the Eurodollar Rate Loans must be in an
amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, (vi) the maximum amount of the
Eurodollar Rate Loans at any time requested by Borrower shall not
exceed the amount equal to eighty (80%) percent of the daily
average of the principal amount of the Revolving Loans which it is
anticipated will be outstanding during the applicable Interest
Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii)
Lender shall have determined that the Interest Period or Adjusted
Eurodollar Rate is available to Lender through the Reference Bank
and can be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrower. Any request by Borrower to
convert Prime Rate Loans to Eurodollar Rate Loans or to continue
any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States
Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the
provisions hereof shall be deemed to apply as if Lender and
Reference Bank had purchased such deposits to fund the Eurodollar
Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically
convert to Prime Rate Loans upon the last day of the applicable
Interest Period, unless Lender has received and approved a request
to continue such Eurodollar Rate Loan at least three (3) Business
Days prior to such last day in accordance with the terms hereof.
Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event
that (i) an Event of Default or event which with the notice or
passage of time or both would constitute an Event of Default,
shall exist, (ii) this Agreement shall terminate or not be
renewed, or (iii) the aggregate principal amount of the Prime Rate
Loans which have previously been converted to Eurodollar Rate
Loans or existing Eurodollar Rate Loans continued, as the case may
be, at the beginning of an Interest Period shall at any time
during such Interest Period exceed either (A) the aggregate
principal amount of the Loans then outstanding, or (B) the sum of
the then outstanding principal amount of the Revolving Loans then
available to Borrower under Section 2 hereof. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with
Lender for any loss (including loss of anticipated profits), cost
or expense incurred by such person, as a result of the conversion
of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of
the foregoing.
(d) Interest shall be payable by Borrower to Lender
monthly in arrears not later than the first day of each calendar
month and shall be calculated on the basis of a three hundred
sixty (360) day year and actual days elapsed. The interest rate
on non-contingent Obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the
Prime Rate in effect on the last day of the month in which any
such change occurs. In no event shall charges constituting
interest payable by Borrower to Lender exceed the maximum amount
or the rate permitted under any applicable law or regulation, and
if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a
closing fee (which shall be in addition to any commitment fee paid
in respect of the financing arrangements provided for hereunder)
the amount of $250,000, which shall be fully earned as of the date
hereof, payable in two equal installments of $125,000 each on the
date that is the sixth month after the date hereof and the date
that is the first anniversary of the date hereof.
3.3 Servicing Fee. Borrower shall pay to Lender quarterly
a servicing fee, while this Agreement is in effect and for so long
thereafter as any of the Obligations are outstanding, in an amount
equal to $12,500 in respect of Lender's services for each calendar
quarter (or part thereof) while this Agreement remains in effect
and for so long thereafter as any of the Obligations are
outstanding, which fee (pro rated for the period from the date
hereof until June 30, 1996) shall be payable in advance on the
date hereof for the calendar quarter ending June 30, 1996 and on
the first day of each calendar quarter thereafter, commencing on
July 1, 1996.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly
an unused line fee at a rate equal to one-half of one (1/2 of 1%)
percent per annum calculated upon the greater of (a) the amount by
which the average of the loans and other credit accommodations
available to Borrower under the lending formulas set forth in
Section 1.2(a) exceeds the average monthly principal balance of
the Revolving Loans and Letter of Credit Accommodations
outstanding during the immediately preceding month (or part
thereof) and (b) the amount by which $37,500,000 exceeds the
average monthly principal balance of the outstanding Revolving
Loans and Letter of Credit Accommodations during the immediately
preceding month (or part thereof); which fee shall be payable on
the first day of each month in arrears.
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary
contained herein, all Eurodollar Rate Loans shall, upon notice by
Lender to Borrower, convert to Prime Rate Loans in the event that
(i) any change in applicable law or regulation (or the
interpretation or administration thereof) shall either (A) make it
unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof
in connection with the Eurodollar Rate Loans, by an amount deemed
by Lender to be material, or (B) shall result in the increase in
the costs to Lender, Reference Bank or any participant of making
or maintaining any Eurodollar Rate Loans or (C) reduce the amounts
received or receivable by Lender in respect thereof, by an amount
deemed by Lender to be material or (ii) the cost to Lender,
Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed
by Lender to be material. Borrower shall pay to Lender, upon
demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender,
the Reference Bank or any participant with Lender for any loss
(including loss of anticipated profits), cost or expense incurred
by such person as a result of the foregoing, including, without
limitation, any such loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain the Eurodollar Rate
Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrower and
shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the
last day of the applicable Interest Period (whether pursuant to
acceleration, upon maturity or otherwise), including any payments
pursuant to the application of collections under Section 6.3 or
any other payments made with the proceeds of Collateral, Borrower
shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required
to compensate Lender, the Reference Bank or any participant with
Lender for any additional loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of
such prepayment or payment, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such person to
make or maintain such Eurodollar Rate Loans or any portion
thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of
Credit Accommodations. Each of the following is a condition
precedent to Lender making the initial Loans and providing the
initial Letter of Credit Accommodations hereunder:
(a) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected
and first priority security interests in and liens upon the
Collateral and any other property which is intended to be security
for the Obligations or the liability of any Obligor in respect
thereof, subject only to the security interests and liens
permitted herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings
in connection with this Agreement and the other Financing
Agreements shall be satisfactory in form and substance to Lender,
and Lender shall have received all information and copies of all
documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested
in connection therewith, such documents where requested by Lender
or its counsel to be certified by appropriate corporate officers
or governmental authorities;
(c) except as disclosed in writing to, and
acceptable to, Lender, no material adverse change shall have
occurred in the business operations or prospects of Borrower and
Subsidiaries or in the condition of the assets of Borrower and
Subsidiaries since the date of Lender's latest field examination,
and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations
hereunder or under any of the other Financing Agreements to which
it is a party or of Lender to enforce the Obligations or realize
upon the Collateral, and no material adverse change in the
business, operations or prospects of Borrower and Subsidiaries or
in the condition of the assets of Borrower and Subsidiaries shall
have occurred since the date of Lender's latest field
examinations. Lender shall have updated Lender's field
examinations, at Borrower's expense, prior to commencing
financing, the results of which must be satisfactory to Lender.
Without limiting the generality of the foregoing, (i) no Event of
Default or act, condition or event which, with notice or the
passage of time or both, would constitute an Event of Default
shall exist, (ii) no material investigation, litigation,
bankruptcy or other proceedings shall be pending or threatened
against Borrower or Subsidiaries or any affiliate, and (iii) the
Collateral shall not have materially declined in value from the
values set forth in any of the appraisals or field examinations
previously done.
(d) Lender shall have received, in form and
substance satisfactory to Lender, guarantees, duly authorized,
executed and delivered by each of the Subsidiaries (except for
Newco and Newco Holding Company) in Lender's favor absolutely and
unconditionally guaranteeing all present and future obligations of
Borrower to Lender, as well as such security agreements and UCC
financing statements as may be necessary or desirable to
effectuate the grant by such guarantors in Lender's favor of first
and only security interests in and liens upon (except as otherwise
expressly provided herein) all of their respective present and
future assets.
(e) Lender shall have received, in form and
substance satisfactory to Lender, true, correct and complete
copies of the executed Gordon Brothers Commitment and the other
Gordon Brothers Agreements relating to approximately $30,000,000
of loans to Newco, without recourse to Borrower, to be arranged by
Gordon Brothers and made by affiliates of Gordon Brothers and
other participants (the "Gordon Brothers Loans") and the Gordon
Brothers Agency Agreement under which Gordon Brothers or an
affiliate thereof, as agent for Borrower, shall conduct a going
out of business sale of Excluded Inventory having a retail selling
price of approximately $65,000,000 in approximately 60 of
Borrower's store locations.
(f) The Gordon Brothers Agreements and related
documentation with respect to the financing and asset disposition
services to be provided to Borrower pursuant to and as
contemplated by the Gordon Brothers Commitment shall have been
executed and delivered substantially in accordance with the terms
of such Gordon Brothers Commitment, in form and substance
satisfactory to Lender.
(g) Borrower shall have (i) formed Newco Holding
Company and Newco, each as a wholly owned subsidiary of Borrower,
and Borrower shall have (ii) transferred the Transferred Assets to
Newco, substantially in accordance with the terms and conditions
with respect thereto as set forth in the Gordon Brothers
Commitment and the other Gordon Brothers Agreements, and (iii)
contributed the stock of Newco to Newco Holding Company as a
capital contribution to Newco Holding Company.
(h) Borrower shall have received unconditional and
binding commitments in writing (in form and substance satisfactory
to Lender) with respect to, and/or the proceeds of, (i) the Gordon
Brothers Loans of approximately $30,000,000 and (ii) the
"Guaranteed Return" (as defined in the Gordon Brothers
Commitment"), which Guaranteed Return shall not be less than the
approximate amount of $31,000,000.
(i) Borrower and Existing Lender shall have (i)
terminated the Existing Financing Agreements and their other
financing arrangements and (ii) executed a Release Agreement, in
form and substance satisfactory to Lender, evidencing the
repayment of all indebtedness by Borrower to Existing Lender,
other than reimbursement obligations for undrawn letters of credit
arranged by Existing Lender for the account of Borrower, and the
release of Existing Lender's security interests in the assets of
Borrower.
(j) The Debentures shall have been cancelled. The
Restructuring Notes shall have been executed and Lender shall have
received true, correct and complete copies of the Restructuring
Notes.
(k) The Excess Availability, as determined by
Lender, as of the date of closing, after giving effect to the
initial revolving loans made and letter of credit accommodations
issued in connection with the Credit Facility and after the
payment of fees and expenses incurred in connection with such
transactions, shall be not less than $3,000,000.
(l) Lender shall have received evidence, in form and
substance satisfactory to Lender, that all consents and approvals
appropriate or necessary to consummate the transactions
contemplated under this Agreement have been obtained.
(m) Each of the local depository banks used by
Borrower or Subsidiaries for the handling of receipts from the
sale of Inventory at Borrower's locations (other than from sales
of Excluded Inventory) and other proceeds of collateral shall have
been notified of Lender's security interests in and liens upon the
assets and properties of Borrower and such banks shall have been
irrevocably authorized and directed by Borrower to remit all
proceeds thereof only to the Blocked Account and to only follow
Lender's instructions with respect to such proceeds. All entities
obligated on Credit Card Receivables shall have been irrevocably
authorized and directed and shall have agreed, in a manner
satisfactory to Lender, to remit all proceeds thereof only to the
Blocked Account and to only follow Lender's instructions with
respect to such proceeds.
(n) Lender shall have received, in form and
substance satisfactory to Lender, an agreement with the depository
bank at which the Blocked Account is maintained, providing that
(i) all amounts received in the Blocked Account are Lender's
property to the extent constituting proceeds of Lender's
Collateral and shall be sent by federal funds wire transfer on a
daily basis to a bank account of Lender designated for such
purpose and (ii) the depository bank shall only follow Lender's
instructions with respect to amounts on deposit with it.
(o) (i) Borrower shall have opened, in a manner
satisfactory to Lender, separate deposit accounts to be used only
for the deposit of proceeds of Excluded Inventory, excluding
Credit Card Receivables with respect thereto, (ii) Newco shall
have opened, in a manner satisfactory to Lender, separate deposit
accounts to be used only for the deposit of proceeds of the
Transferred Assets and, (iii) arrangements, satisfactory to
Lender, shall have been entered into among Lender, Borrower and
Gordon Brothers for the protection of the respective security
interests of Lender and Gordon Brothers in proceeds consisting of
Credit Card Receivables.
(p) Lender shall have completed a field review of
the Records and such other information with respect to the
Collateral as Lender may require to determine the amount of
Revolving Loans available to Borrower, the results of which shall
be satisfactory to Lender, not more than three (3) Business Days
prior to the date hereof.
(q) Borrower shall have prepared and delivered to
Lender consolidated pro forma balance sheets, in form and
substance satisfactory to Lender, as of March 31, 1996, prepared
in accordance with GAAP, of Borrower, Newco and Newco Holding
Company, giving effect to the initial transactions contemplated
hereunder, the transactions under the Gordon Brothers Agreements
and the payment and/or restructure of the Borrower's outstanding
14% Indentures due 1996;
(r) Lender shall have received, in form and sub-
stance satisfactory to Lender, all consents, waivers, acknowl-
edgments and other agreements from third persons (including,
without limitation, Newco and the holders of any mortgages or
liens on the property of Newco located at or with respect to the
locations listed on Exhibit C hereto) which Lender may deem
necessary or desirable in order to permit, protect and perfect its
security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the
other Financing Agreements, including, without limitation,
acknowledgements by lessors, mortgagees and warehousemen of
Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its
rights and remedies and otherwise deal with the Collateral;
(s) Lender shall have received in form and substance
satisfactory to Lender evidence of insurance coverage, including
Lender's loss payee endorsements in favor of Lender as to casualty
insurance and containing all endorsements, assurances or
affirmative coverage requested by Lender for the protection of
Lender's interests.
(t) Lender shall have received, in form and
substance satisfactory to Lender, such opinion letters of counsel
to Borrower with respect to the Financing Agreements and such
other matters as Lender may request; and
(u) the other Financing Agreements and all
instruments and documents hereunder and thereunder shall have been
duly executed and delivered to Lender, in form and substance
satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition
precedent to Lender making Loans and/or providing Letter of Credit
Accommodations to Borrower, including the initial Loans and Letter
of Credit Accommodations and any future Loans and Letter of Credit
Accommodations:
(a) all representations and warranties contained
herein and in the other Financing Agreements shall be true and
correct in all material respects with the same effect as though
such representations and warranties had been made on and as of the
date of the making of each such Loan or providing each such Letter
of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition
which, with notice or passage of time or both, would constitute an
Event of Default, shall exist or have occurred and be continuing
on and as of the date of the making of such Loan or providing each
such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations,
Borrower hereby grants to Lender a continuing security interest
in, a lien upon, and a right of set off against, and hereby
assigns to Lender as security, the following property and
interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general
intangibles (including, but not limited to, tax and duty refunds,
registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade
secrets, goodwill, processes, drawings, blueprints, customer
lists, franchises, licenses, whether as licensor or licensee,
choses in action and other claims and existing and future
leasehold interests in equipment, real estate and fixtures),
chattel paper, documents, instruments, letters of credit, bankers'
acceptances and guaranties and, without limiting the foregoing,
including all other intellectual property, intercompany debt and
collateral therefor, Credit Card Receivables, amounts owed or
payable to Borrower pursuant to the Gordon Brothers Agreements, or
received by Borrower from proceeds of amounts owed or payable to
Newco pursuant to the Gordon Brothers Agreements, securities, such
as short-term and long-term municipal bonds, mutual funds,
treasury bills or notes, investor certificates, government agency
mortgage backed securities and other investment instruments and
the cash surrender value of life insurance policies payable to
Borrower;
5.3 all present and future monies, securities, credit
balances, deposits, deposit accounts and other property of
Borrower now or hereafter held or received by or in transit to
Lender or its affiliates or at any other depository or other
institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of
Accounts and other Collateral, including, without limitation, (a)
rights and remedies under or relating to guaranties, contracts of
suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit,
replevin, repossession, reclamation and other rights and remedies
of an unpaid vendor, lienor or secured party, (c) goods described
in invoices, documents, contracts or instruments with respect to,
or otherwise representing or evidencing, Accounts or other
Collateral, including, without limitation, returned, repossessed
and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account
debtors;
5.4 Inventory, including, without limitation, in-transit
Inventory located both inside and outside the United States;
5.5 Equipment;
5.6 Records;
5.7 Fixtures and Real Property;
5.8 all products and proceeds of the foregoing, in any
form, including, without limitation, insurance proceeds and all
claims against third parties for loss or damage to or destruction
of any or all of the foregoing;
provided, that, the Collateral shall not include the Capital Stock
of Newco Holding Company or any of the Transferred Assets or
Excluded Inventory.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or
more loan account(s) on its books in which shall be recorded (a)
all Loans, Letter of Credit Accommodations and other Obligations
and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as
provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan
account(s) shall be made in accordance with Lender's customary
practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each
month a statement setting forth the balance in the Borrower's loan
account(s) maintained by Lender for Borrower pursuant to the
provisions of this Agreement, including principal, interest, fees,
costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors
or omissions, be considered correct and deemed accepted by
Borrower and conclusively binding upon Borrower as an account
stated except to the extent that Lender receives a written notice
from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been
mailed by Lender. Until such time as Lender shall have rendered
to Borrower a written statement as provided above, the balance in
Borrower's loan account(s) shall be presumptive evidence of the
amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its
expense, Account No. 3015754884 with First Union National Bank or
an account at any other bank as shall be acceptable to Lender (the
"Blocked Account") into which Borrower shall promptly deposit or
cause to be deposited all payments on Accounts, Credit Card
Receivables, and amounts owed or payable to Borrower pursuant to
the Gordon Brothers Agreements in the identical form in which such
payments are made, and in which Borrower shall deposit or cause to
be deposited all other payments constituting proceeds of Inventory
or other Collateral, whether by cash, check or other manner.
Borrower shall deposit all payments from cash sales of Inventory
or rendition of services by Borrower into such Blocked Accounts or
into a local depository account with respect to which there has
been compliance with, as applicable, Section 4.1(m) or 4.1(n)
hereof. The banks at which the Blocked Accounts are established
shall enter into an agreement, in form and substance satisfactory
to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository
bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds
from time to time on deposit therein and that the depository bank
will wire, or otherwise transfer, in immediately available funds,
on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to
time designate for such purpose ("Payment Account"). Borrower
agrees that all payments made to such Blocked Accounts or other
funds received and collected by Lender, whether on the Accounts or
as proceeds of Inventory or other Collateral or otherwise shall be
the property of Lender. Notwithstanding anything to the contrary
set forth in this Agreement, Lender may establish a reserve,
reducing the amount of Revolving Loans and Letter of Credit
Accommodations that would otherwise be available to Borrower
hereunder, of up to the amount of proceeds of Credit Card
Receivables and other sales arising from sales of Excluded
Inventory remitted to the Payment Account, as determined by
Lender, (the "Gordon Brothers Reserve"), provided, however, at the
request of Borrower, Lender is authorized to debit the Gordon
Brothers Reserve and make Loans of up to the then outstanding
amount of the Gordon Brothers Reserve by remitting the proceeds of
such Loans to Gordon Brothers for the account of Borrower pursuant
to the Gordon Brothers Agency Agreement.
(b) For purposes of calculating interest on the
Obligations, such payments or other funds received will be applied
(conditional upon final collection) to the Obligations one (1)
Business Day following the date of receipt of immediately
available funds by Lender in the Payment Account. For purposes of
calculating the amount of the Revolving Loans available to
Borrower such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by
Lender in the Payment Account, if such payments are received
within sufficient time (in accordance with Lender's usual and
customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next
Business Day.
(c) Borrower and all of its affiliates,
subsidiaries, shareholders, directors, employees or agents shall,
acting as trustee for Lender, receive, as the property of Lender,
any monies, checks, notes, drafts or any other payment relating to
and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited
in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Lender. In no event shall the same be
commingled with Borrower's own funds. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any
bank at which a Blocked Account is established or any other bank
or person involved in the transfer of funds to or from the Blocked
Accounts or arising out of Lender's payments to or indemnification
of such bank, Existing Lender or any other person for any
liability of Borrower or with respect thereto, and Lender may
establish an Availability Reserve for such potential liability of
Lender. The obligation of Borrower to reimburse Lender for such
amounts pursuant to this Section 6.3 shall survive the termination
or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the
Payment Account as provided in Section 6.3 or such other place as
Lender may designate from time to time. Lender will apply
payments received or collected from Borrower or for the account of
Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the
Obligations, whether or not then due, in such order and manner as
Lender determines. At Lender's option, all principal, interest,
fees, costs, expenses and other charges provided for in this
Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrower. Borrower shall make
all payments to Lender on the Obligations free and clear of, and
without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind.
If after receipt of any payment of, or proceeds of Collateral
applied to the payment of, any of the Obligations, Lender is
required to surrender or return such payment or proceeds to any
Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by
Lender. Borrower shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any
payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any contrary action which
may be taken by Lender in reliance upon such payment or proceeds.
This Section 6.4 shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to
make the Loans and provide the Letter of Credit Accommodations
based upon telephonic or other instructions received from anyone
purporting to be an authorized officer of Borrower or other
authorized person or, at the discretion of Lender, if such Loans
are necessary to satisfy any Obligations. All requests for Loans
or Letter of Credit Accommodations hereunder shall specify the
date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business
Day) and the amount of the requested Loan. Requests received
after 12:00 noon Boston, Massachusetts time on any Business Day
shall be deemed to have been made as of the opening of business on
the immediately following Business Day. All Loans and Letter of
Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or
otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and
conditions of this Agreement.
6.6 Use of Proceeds.
(a) Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (i) the
satisfaction of the balance of the outstanding indebtedness of
Borrower to the Existing Lender, as of the date hereof, under the
Existing Financing Agreements in the amount and manner set forth
in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof, (ii) costs, expenses and fees
in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements, and
(iii) the satisfaction of all other outstanding obligations of
Borrower due and payable to Lender as of the date hereof.
(b) The initial Letter of Credit Accommodations
shall be issued by Lender hereunder only in favor of the Existing
Lender with respect to documentary letters of credit previously
issued or arranged by the Existing Lender on behalf of Borrower
pursuant to the Existing Financing Agreement and which may be
subject to draw after the date hereof.
(c) All other Loans made or Letter of Credit
Accommodations provided by Lender to Borrower pursuant to the
provisions hereof shall be used by Borrower only for (i) general
operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof and
interest, costs, expenses, fees and other Obligations owed to
Lender in connection with this Agreement and the transactions
contemplated in connection herewith which become due and payable
after the date hereof.
(d) None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin
security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry
any margin security or for any other purpose which might cause any
of the Loans to be considered a "purpose credit" within the
meaning of Regulation G of the Board of Governors of the Federal
Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender
with the following documents in a form satisfactory to Lender:
(a) on a weekly basis, or more frequently if
required by Lender, an accounts receivable summary aging of all
outstanding Accounts as of the end of the immediately prior week
and on a monthly basis, or more frequently if required by Lender,
an aging of all accounts by account debtor and the amount thereof
and, at Lender's reasonable request, on a daily basis a report of
Borrower's invoice register and credit register for the
immediately prior Business Day;
(b) on each Business Day, the aggregate amount of
deposits made to the Blocked Account during the immediately
preceding Business Day;
(c) on each Business Day, the aggregate amount of
sales of Excluded Inventory, setting forth separately such sales
for cash and by Credit Card Receivables and the aggregate deposits
of proceeds of such sales in the Blocked Account for the second
immediately preceding Business Day;
(d) other than for and without including Excluded
Inventory, (i) once a week for the immediately preceding week, or
more frequently as Lender may request, a summary perpetual
Inventory report by location and category at Cost for the
Contractor's Warehouse Division and on a monthly basis a detailed
perpetual Inventory report by location and category for such
Division, and (ii) once a month for the immediately preceding
month, or more frequently as Lender may request, a summary stock
ledger by location and category at Cost and Retail Sales Price for
the Mr. 2nd Bargain Outlet Division;
(e) on a monthly basis, within ten (10) Business
Days after the end of each month, or more frequently as Lender may
request, as of the end or for the immediately preceding month, (i)
reports of markdowns, if any, by Division of Inventory (other than
for Excluded Inventory) sold during the immediately preceding
month from such Inventory's original Retail Sales Price, (ii)
monthly roll forwards by Division of Inventory (other than for and
without including Excluded Inventory) beginning with such
Inventory at the end of the immediately prior month, indicating
(A) all Inventory purchases (including all costs related thereto,
such as freight, duty and taxes) by Division, (B) the aggregate
amount by Division of all Inventory sales for all retail
locations, multiplied by the cost of goods sold percentage, and
(C) ending Cost for Contractor's Warehouse Division and Retail
Sales Price for Mr. 2nd Bargain Outlet Division for all Inventory,
(iii) reports by Division of scheduled physical counts of
Inventory (other than Excluded Inventory) conducted by Borrower or
any third party counting service at the locations of Borrower,
together with the percentage of any variances, (iv) reports of
returns by Division of Inventory (other than Excluded Inventory)
by Borrower to vendors, indicating each of the vendors to whom
such Inventory is being returned in amounts greater than $50,000
to any one vendor, (v) a listing of accounts payable by Division
(including Grossman's East Division) until ninety (90) days from
the date hereof, and thereafter agings of accounts payable of
Borrower by Division (including Grossman's East Division), (vi)
reports of sales by Division for each category of Inventory, (vii)
evidence of payment of sales and use taxes due during such
immediately preceding month, and (viii) a listing of each of
Borrower's retail locations, that have closed or are in the
process of closing during the preceding month and a listing of
each of Borrower's retail locations, that have completed or are
engaging in a "going out of business sale", indicating thereon the
gross recovery on sales of Inventory during the immediately
preceding month at each such retail location stated both as a
percentage of original Cost of such Inventory and as a percentage
of Retail Sales Price, each net of related selling expenses;
(f) on a monthly basis, within twenty (20) Business
Days after the end of each calendar month, monthly consolidated
statements by Division and for each retail location of sales and
gross profits and profit or loss in the present reporting format;
(g) other than for and without including Excluded
Inventory, as soon as available after Lender's periodic request,
but in any event within seven (7) Business Days of such request,
the Borrower will make available (i) copies of shipping and
delivery documents, (ii) copies of purchase orders, invoices and
delivery documents for Inventory and Equipment acquired by
Borrower, (iii) account debtor statements and invoices, credit
memos, remittances, advices and reports relating to account
debtors, (iv) deposit slips and bank statements, and (v) any
statements or reports furnished to Borrower by the parties to any
of the Credit Card Agreements, including any Credit Card Issuer or
Credit Card Processor, and as soon as available, but in any event
within seven (7) Business Days after receipt by Borrower, or as
otherwise provided herein, any material notice or document sent or
received by Borrower in connection therewith, together with such
additional information as shall be sufficient to enable Lender to
monitor the transactions pursuant to the Credit Card Agreements;
and
(h) within a reasonable period of time, but in any
event within seven (7) Business Days after the request of Lender,
such other reports as to the Collateral and other property which
is security for the Obligations as Lender shall reasonably request
from time to time.
If any of Borrower's records or reports of the Collateral
are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes
such service, contractor, shipper or agent to deliver such
records, reports, and related documents to Lender and to follow
Lender's instructions with respect to further services at any time
that an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i)
any material delay in Borrower's performance of any of its
obligations to any account debtor or the assertion of any claims,
offsets, defenses or counterclaims by any account debtor, or any
disputes with account debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information relating
to the financial condition of any account debtor and (iii) any
event or circumstance which, to Borrower's knowledge would cause
Lender to consider any then existing Accounts as no longer
constituting Eligible Accounts. No credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted
to any account debtor without Lender's consent, except in the
ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender.
So long as no Event of Default exists or has occurred and is
continuing, Borrower shall settle, adjust or compromise any claim,
offset, counterclaim or dispute with any account debtor. At any
time that an Event of Default exists or has occurred and is
continuing, Lender shall, at its option, have the exclusive right
to settle, adjust or compromise any claim, offset, counterclaim or
dispute with account debtors or grant any credits, discounts or
allowances.
(b) Borrower shall promptly report to Lender any
return of Inventory by an account debtor having a sales price in
excess of $50,000. At any time that Inventory is returned,
reclaimed or repossessed, the related Account shall not be deemed
an Eligible Account. In the event any account debtor returns
Inventory when an Event of Default exists or has occurred and is
continuing, Borrower shall, upon Lender's request, (i) hold the
returned Inventory in trust for Lender, (ii) segregate all
returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or
allowances with respect thereto for an amount in excess of $25,000
for any account debtor without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts
shown on any invoice delivered to Lender or schedule thereof
delivered to Lender shall be true and complete, (ii) no payments
shall be made thereon except payments immediately delivered to
Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as
reported to Lender in accordance with this Agreement and except
for credits, discounts, allowances or extensions made or given in
the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed to Lender, (iv) there
shall be no setoffs, deductions, contras, defenses, counterclaims
or disputes existing or asserted with respect thereto except as
reported to Lender in accordance with the terms of this Agreement,
(v) none of the transactions giving rise thereto will violate any
applicable State or Federal laws or regulations, all documentation
relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or
times, in Lender's name or in the name of a nominee of Lender, to
verify the validity, amount or any other matter relating to any
Account or other Collateral, by mail, telephone, facsimile
transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered
to Lender, with appropriate endorsement and assignment, with full
recourse to Borrower, all chattel paper and instruments which
Borrower now owns or may at any time acquire immediately upon
Borrower's receipt thereof, except as Lender may otherwise agree.
Lender may, at any time or times that an Event
of Default exists or has occurred and is continuing, (i) notify
any or all account debtors that the Accounts have been assigned to
Lender and that Lender has a security interest therein and Lender
may direct any or all accounts debtors to make payment of Accounts
directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any
and all Accounts or other obligations included in the Collateral
and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without
affecting any of the Obligations, (iii) demand, collect or enforce
payment of any Accounts or such other obligations, but without any
duty to do so, and Lender shall not be liable for its failure to
collect or enforce the payment thereof nor for the negligence of
its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for
the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's
request, all invoices and statements sent to any account debtor
shall state that the Accounts and such other obligations have been
assigned to Lender and are payable directly and only to Lender and
Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory:
(a) Borrower shall at all times maintain inventory records
reasonably satisfactory to Lender, keeping correct and accurate
records itemizing and describing the kind, type, quality and
quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall
conduct a physical count of the Inventory at least once each year,
but at any time or times as Lender may request on or after an
Event of Default, and promptly following such physical inventory
shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory
from the locations set forth or permitted herein, without the
prior written consent of Lender, except for sales of Inventory in
the ordinary course of Borrower's business and except to move
Inventory directly from one location set forth or permitted herein
to another such location, provided, that, Borrower may not without
Lender's prior written consent, move any Inventory not located at
a location listed on Exhibit B hereto to a location listed on
Exhibit B hereto; (d) upon Lender's request, Borrower shall, at
its expense, no more than once in any twelve (12) month period,
but at any time or times as Lender may request on or after an
Event of Default, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory in form, scope
and methodology acceptable to Lender and prepared by Gordon
Brothers or another appraiser acceptable to Lender, addressed to
Lender or upon which Lender is expressly permitted to rely; (e)
Borrower shall produce, use, store and maintain the Inventory,
with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with
applicable laws (including, but not limited to, the requirements
of the Federal Fair Labor Standards Act of 1938, as amended and
all rules, regulations and orders related thereto); (f) Borrower
assumes all responsibility and liability arising from or relating
to the production, use, sale or other disposition of the
Inventory; (g) Borrower shall not sell Inventory to any customer
on approval, or any other basis which entitles the customer to
return or may obligate Borrower to repurchase such Inventory,
unless reported in writing to Lender and except for the customer's
right of return with respect to defective or unsatisfactory goods;
and (h) Borrower shall keep the Inventory in good and marketable
condition.
7.4 Equipment Covenants. With respect to the Equipment:
(a) upon Lender's request, Borrower shall, at its expense, at any
time or times as Lender may request on or after an Event of
Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to
Lender; (b) Borrower shall keep the Equipment in good order,
repair, running and marketable condition (ordinary wear and tear
excepted); (c) Borrower shall use the Equipment with all
reasonable care and caution and in accordance with applicable
standards of any insurance and in conformity with all applicable
laws; (d) the Equipment is and shall be used in Borrower's
business and not for personal, family, household or farming use;
(e) Borrower shall not remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have
any Equipment repaired or maintained in the ordinary course of the
business of Borrower or to move Equipment directly from one
location set forth or permitted herein to another such location
and except for the movement of motor vehicles used by or for the
benefit of Borrower in the ordinary course of business; (the
Equipment is now and shall remain personal property and Borrower
shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (g) Borrower assumes all
responsibility and liability arising from the use of the
Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably
designates and appoints Lender (and all persons designated by
Lender) as Borrower's true and lawful attorney-in-fact, and
authorizes Lender, in Borrower's or Lender's name, to: (a) at any
time an Event of Default exists or has occurred and is continuing
(i) demand payment on Accounts, Credit Card Receivables or other
proceeds of Inventory or other Collateral, (ii) enforce payment of
Accounts, Credit Card Receivables by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to
collect any Account, Credit Card Receivables or other Collateral,
(iv) sell or assign any Account or Credit Card Receivables upon
such terms, for such amount and at such time or times as the
Lender deems advisable, (v) settle, adjust, compromise, extend or
renew an Account or Credit Card Receivable, (vi) discharge and
release any Account or Credit Card Receivable, (vii) prepare, file
and sign Borrower's name on any proof of claim in bankruptcy or
other similar document against an account debtor, (viii) notify
the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and
dispose of all mail addressed to Borrower, and (ix) do all acts
and things which are necessary, in Lender's determination, to
fulfill Borrower's obligations under this Agreement and the other
Financing Agreements and at any time to (i) take control in
any manner of any item of payment or proceeds thereof, (ii) have
access to any lockbox into which proceeds of Collateral are
deposited, (iii) endorse Borrower's name upon any items of payment
or proceeds thereof and deposit the same in the Lender's account
for application to the Obligations, (iv) endorse Borrower's name
upon any chattel paper, document, instrument, invoice, or similar
document or agreement received by Lender relating to any Account
or any goods pertaining thereto or any other Collateral, (v) sign
Borrower's name on any verification of Accounts or Credit Card
Receivables and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements
or amendments thereto with respect to the Collateral. Borrower
hereby releases Lender and its officers, employees and designees
from any liabilities arising from any act or acts under this power
of attorney and in furtherance thereof, whether of omission or
commission, except as a result of Lender's own gross negligence or
wilful misconduct as determined pursuant to a final non-appealable
order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure
any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, (b)
discharge taxes, liens, security interests or other encumbrances
at any time levied on or existing with respect to the Collateral
and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the
rights of Lender with respect thereto. Lender may add any amounts
so expended to the Obligations and charge Borrower's account
therefor, such amounts to be repayable by Borrower on demand.
Lender shall be under no obligation to effect such cure, payment
or bonding and shall not, by doing so, be deemed to have assumed
any obligation or liability of Borrower. Any payment made or
other action taken by Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and
to proceed accordingly.
7.7 Access to Premises. From time to time as requested by
Lender, at the cost and expense of Borrower, (a) Lender or its
designee shall have complete access to all of Borrower's premises
during normal business hours and after notice to Borrower, or at
any time and without notice to Borrower if an Event of Default
exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of
Borrower's books and records, including, without limitation, the
Records, and (b) Borrower shall promptly furnish to Lender such
copies of such books and records or extracts therefrom as Lender
may request, and (c) use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default
exists or has occurred and is continuing for the collection of
Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the
following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which are a continuing
condition of the making of Loans and providing Letter of Credit
Accommodations by Lender to Borrower:
8. Corporate Existence, Power and Authority;
Subsidiaries. Borrower is a corporation duly organized and in
good standing under the laws of its state of incorporation and is
duly qualified as a foreign corporation and in good standing in
all states or other jurisdictions where the nature and extent of
the business transacted by it or the ownership of assets makes
such qualification necessary, except for those jurisdictions in
which the failure to so qualify would not have a material adverse
effect on Borrower's financial condition, results of operation or
business or the rights of Lender in or to any of the Collateral.
The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Borrower's corporate
powers, have been duly authorized and are not in contravention of
law or the terms of Borrower's certificate of incorporation,
by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which
Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their
respective terms. Borrower does not have any Subsidiaries other
than Newco, Newco Holding Company and the inactive subsidiaries
listed on Schedule 8.1 hereto. Except for Newco and Newco
Holding, none of the Borrower's Subsidiaries has any assets or
liabilities, nor does it engage in any business or other
activities, Newco Holdings has no material assets other than its
one-hundred percent (100%) ownership interest of all outstanding
capital stock of Newco, has guaranteed the obligations of Newco,
and does not engage in any business or other activity other than
to hold such capital stock of Newco and guarantee Newco
obligations.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrower which have been or may
hereafter be delivered by Borrower to Lender have been prepared in
accordance with GAAP and fairly present the financial condition
and the results of operation of Borrower as at the dates and for
the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the
date of this Agreement, there has been no material adverse change
in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower since the date of the most recent audited
financial statements furnished by Borrower to Lender prior to the
date of this Agreement, except as set forth in the pro forma
financial statements as of March 31, 1996 (giving effect to the
initial transactions contemplated hereunder, under the Gordon
Brothers Agreements and the payment and/or restructure of
Borrower's 14% Debentures due 1996) delivered by Borrower to
Lender.
8.3 Chief Executive Office; Collateral Locations. The
chief executive office of Borrower and Borrower's Records
concerning Accounts, Credit Card Receivables and Inventory are
located only at the address set forth below and its only other
places of business and the only other locations of Collateral, if
any, are the addresses set forth in the Information Certificate,
subject to the right of Borrower to establish new locations in
accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof and to
the best of Borrower's knowledge, the holders of any mortgages on
such locations.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and the
other Financing Agreements constitute valid and perfected first
priority liens and security interests in and upon the Collateral.
Borrower has good and marketable title to all of its properties
and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those
granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be
filed, in a timely manner all tax returns, reports and
declarations which are required to be filed by it (without
requests for extension except as previously disclosed in writing
to Lender), including, without limitation, with respect to all
sales and/or use taxes applicable to the conduct of its business.
All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid
or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, and has collected,
deposited and remitted in accordance with all applicable laws all
sales and/or use taxes applicable to the conduct of its business,
except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available
to Borrower and with respect to which adequate reserves have been
set aside on its books. Adequate provision has been made for the
payment of all accrued and unpaid Federal, State, county, local,
foreign and other taxes whether or not yet due and payable and
whether or not disputed.
8.6 Litigation. Except as set forth on the Information
Certificate, there is no present investigation by any governmental
agency pending, or to the best of Borrower's knowledge threatened,
against or affecting Borrower, its assets or business and there is
no action, suit, proceeding or claim by any Person pending, or to
the best of Borrower's knowledge threatened, against Borrower or
its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined
against Borrower would result in any material adverse change in
the assets, business or prospects of Borrower or would impair the
ability of Borrower to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of
Lender to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
(a) Borrower, Newco, Newco Holding Company and the
other Subsidiaries are not in default in any respect under, or in
violation in any respect of any of the terms of, any material
agreement, contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets are bound,
including, without limitation, the Gordon Brothers Agreements and
the Restructuring Notes. Borrower is in compliance in all
material respects with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority
relating to its business, including, without limitation, those set
forth in or promulgated pursuant to the Occupational Safety and
Hazard Act of 1970, as amended, the Fair Labor Standards Act of
1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, all federal, state and local statutes,
regulations, rules and orders relating to consumer credit
(including, without limitation, as each has been amended, the
Truth-in-Lending Act, the Fair Credit Billing Act, the Equal
Credit Opportunity Act and the Fair Credit Reporting Act, and
regulations, rules and orders promulgated thereunder), all
federal, state and local states, regulations, rules and orders
pertaining to sales of consumer goods (including, without
limitation, the Consumer Products Safety Act of 1972, as amended,
and the Federal Trade Commission Act of 1914, as amended, and all
regulations, rules and orders promulgated thereunder).
(b) Borrower has obtained all material permits,
licenses, approvals, consents, certificates, orders or
authorizations of any governmental agency required for the lawful
conduct of its business and is in compliance in all material
respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental agency (including, but
not limited to, the Department of State, the Department of
Commerce, the Bureau of Alcohol, Tobacco and Firearms, and the
Environmental Protection Agency) relating to its business
(including, without limitation, those set forth in or promulgated
pursuant to ERISA, the Occupational Safety and Hazard Act of 1970,
as amended, the Fair Labor Standards Act of 1938, as amended, the
Code, and the Environmental Laws).
8.8 Credit Card Agreements. Set forth in Schedule 8.8
hereto is a correct and complete list of (a) all of the Credit
Card Agreements and all other agreements, documents and
instruments existing as of the date hereof between or among
Borrower, any of its affiliates, the Credit Card Issuers, the
Credit Card Processors and any of their affiliates, (b) the
percentage of each sale payable to the Credit Card Issuer or
Credit Card Processor under the terms of the Credit Card
Agreements, (c) all other fees and charges payable by Borrower
under or in connection with the Credit Card Agreements, (d) the
Credit Card Agreements relating to Sales of Excluded Inventory and
(e) the term of such Credit Card Agreements. The Credit Card
Agreements constitute all of such agreements necessary for
Borrower to operate its business as presently conducted with
respect to credit cards and debit cards and no Accounts of
Borrower arise from purchases by customers of Inventory with
credit cards or debit cards, other than those which are issued by
Credit Card Issuers with whom Borrower has entered into one of the
Credit Card Agreements set forth on Schedule 8.8 hereto or with
whom Borrower has entered into a Credit Card Agreement in
accordance with Section 9.13 hereof. Each of the Credit Card
Agreements constitutes the legal, valid and binding obligations of
Borrower and, to the best of Borrower's knowledge, the other
parties thereto, and is enforceable in accordance with its
respective terms and are in full force and effect. No default or
event of default, or act, condition or event which after notice or
passage of time or both, would constitute a default or an event of
default under any of the Credit Card Agreements exists or has
occurred. Borrower and the other parties thereto have complied
with all of the terms and conditions of the Credit Card Agreements
to the extent necessary for Borrower to be entitled to receive all
payments thereunder. Borrower has delivered, or caused to be
delivered to Lender, true, correct and complete copies of all of
the Credit Card Agreements.
8.9 Employee Benefits.
(a) Borrower has not engaged in any transaction in
connection with which Borrower or any of its ERISA Affiliates
could be subject to either a civil penalty assessed pursuant to
ERISA or a tax imposed by the Code, including any accumulated
funding deficiency described in Section 8.9(c) hereof and any
deficiency with respect to vested accrued benefits described in
Section 8.9(d) hereof.
(b) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by Borrower to be incurred
with respect to any employee benefit plan of Borrower or any of
its ERISA Affiliates. There has been no reportable event (within
the meaning of ERISA) or any other event or condition with respect
to any employee benefit plan of Borrower or any of its ERISA
Affiliates which presents a risk of termination of any such plan
by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which
Borrower or any of its ERISA Affiliates is required under ERISA
and the Code to have paid under the terms of each employee benefit
plan as contributions to such plan as of the last day of the most
recent fiscal year of such plan ended prior to the date hereof,
and no accumulated funding deficiency (as defined in ERISA and the
Code), whether or not waived, exists with respect to any employee
pension benefit plan, including any penalty or tax described in
Section 8.9(a) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.9(d) hereof.
(d) The current value of all vested accrued benefits
under all employee pension benefit plans maintained by Borrower
that are subject to Title IV of ERISA does not exceed the current
value of the assets of such plans allocable to such vested accrued
benefits, including any penalty or tax described in Section 8.9(a)
hereof and any accumulated funding deficiency described in Section
8.9(c) hereof. The terms "current value" and "accrued benefit"
have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates
is or has ever been obligated to contribute to any "multiemployer
plan" (as such term is defined in ERISA) that is subject to Title
IV of ERISA.
8.10 Gordon Brothers Agreements. Borrower has delivered,
or caused to be delivered, to Lender true, correct and complete
copies of all of the Gordon Brothers Agreements. The Gordon
Brothers Agreements constitute the legal and valid obligations of
Borrower and Newco as to each of the Gordon Brothers Agreements to
which it is a party and, to the best of Borrower's knowledge, the
other parties thereto, and is enforceable in accordance with its
respective terms and is in full force and effect. No default or
event of default or act, condition or event which, after notice or
the passage of time or both, would constitute a default or event
of default exists under the Gordon Brothers Agreements.
8.11 Capitalization.
(a) All of the issued and outstanding shares of
Capital Stock of: (i) Newco Holding Company is directly and
beneficially owned and held by Borrower, (ii) Newco is directly
and beneficially owned and held by Newco Holding Company, and
(iii) each other of the Subsidiaries are directly and beneficially
owned and held by Borrower or another Subsidiary of Borrower as to
which all of its issued and outstanding shares of capital stock
are directly and beneficially owned and held by Borrower.
(b) Borrower is solvent and will continue to be
solvent after the creation of the Obligations, the security
interests of Lender and the other transactions contemplated
hereunder, is able to pay its debts as they mature and has (and
has reason to believe it will continue to have) sufficient capital
(and not unreasonably small capital) to carry on its business and
all businesses in which it is about to engage. The assets and
properties of Borrower at a fair valuation and at their present
fair salable value are, and will be, greater than the indebtedness
of Borrower, and including subordinated and contingent liabilities
computed at the amount which, to the best of Borrower's knowledge,
represents an amount which can reasonably be expected to become an
actual or matured liability.
(c) Borrower has delivered, or caused to be
delivered, to Lender true, correct and complete copies of the
Restructuring Notes. The Debentures have been cancelled and each
of the Restructuring Notes constitute the legal and valid
obligation of Borrower and, to the best of Borrower's knowledge,
the other parties thereto and are enforceable in accordance with
their respective terms. No default or event of default or act,
condition or event which, after notice or the passage of time or
both, would constitute a default or event of default exists under
the Restructuring Notes.
8.12 Accuracy and Completeness of Information. All
information furnished by or on behalf of Borrower in writing to
Lender in connection with this Agreement or any of the other
Financing Agreements or any transaction contemplated hereby or
thereby, including, without limitation, all information on the
Information Certificate is true and correct in all material
respects on the date as of which such information is dated or
certified and does not omit any material fact necessary in order
to make such information not misleading. No event or circumstance
has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to
Lender in writing.
8.13 Survival of Warranties; Cumulative. All representa-
tions and warranties contained in this Agreement or any of the
other Financing Agreements shall survive the execution and
delivery of this Agreement and shall be deemed to have been made
again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed
to have been relied on by Lender regardless of any investigation
made or information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition to
any other representations or warranties which Borrower shall now
or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times
preserve, renew and keep in full, force and effect its corporate
existence and rights and franchises with respect thereto and
maintain in full force and effect all permits, licenses,
trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or
proposed to be conducted. Borrower shall give Lender thirty (30)
days prior written notice of any proposed change in its corporate
name, which notice shall set forth the new name and Borrower shall
deliver to Lender a copy of the amendment to the Certificate of
Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new
location within the continental United States provided Borrower
(a) gives Lender thirty (30) days prior written notice of the
intended opening of any such new location and (b) executes and
delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC
financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower
shall at all times comply in all material respects with all
applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders and duly observe all material
requirements, of any foreign, federal, state or local governmental
authority, including, without limitation, the Occupational Safety
and Hazard Act of 1970, as amended, the Fair Labor Standards Act
of 1938, as amended, and the rules and regulations thereunder, all
federal, state and local statutes, regulations, rules and orders
relating to consumer credit (including, without limitation, as
each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act, and regulations, rules and orders promulgated
thereunder), all federal, state and local statutes, regulations,
rules and orders pertaining to sales of consumer goods (including,
without limitation, the Consumer Products Safety Act of 1972, as
amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder) and
all statutes, rules, regulations, orders, permits and stipulations
relating to environmental pollution and employee health and
safety, including, without limitation, all Environmental Laws.
9.4 Payment of Taxes and Claims. Borrower shall duly pay
and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves
have been set aside on its books. Borrower shall be liable for
any tax or penalties imposed on Lender as a result of the
financing arrangements provided for herein and Borrower agrees to
indemnify and hold Lender harmless with respect to the foregoing,
and to repay to Lender on demand the amount thereof, and until
paid by Borrower such amount shall be added and deemed part of the
Loans, provided, that, nothing contained herein shall be construed
to require Borrower to pay any income or franchise taxes
attributable to the income of Lender from any amounts charged or
paid hereunder to Lender. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal
of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain
with financially sound and reputable insurers insurance with
respect to the Collateral against loss or damage and all other
insurance of the kinds and in the amounts customarily insured
against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated.
Said policies of insurance shall be satisfactory to Lender as to
form, amount and insurer. Borrower shall furnish certificates,
policies or endorsements to Lender as Lender shall require as
proof of such insurance, and, if Borrower fails to do so, Lender
is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least
thirty (30) days prior written notice to Lender of any
cancellation or reduction of coverage and that Lender may act as
attorney for Borrower in obtaining, and at any time an Event of
Default exists or has occurred and is continuing, adjusting,
settling, amending and canceling such insurance. Borrower shall
cause Lender to be named as a loss payee and an additional insured
(but without any liability for any premiums) under such insurance
policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and
substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further
specify that Lender shall be paid regardless of any act or
omission by Borrower or any of its affiliates. At its option,
Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order
and in such manner as Lender may determine or hold such proceeds
as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in
which true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the business
of Borrower and its subsidiaries (if any) in accordance with GAAP
and Borrower shall furnish or cause to be furnished to Lender:
(i) within twenty (20) days after the end of each fiscal month,
monthly unaudited consolidated financial statements and unaudited
consolidating financial statements (including statements of income
and loss for each of Borrower's locations at which it sells
Inventory) for Borrower, Newco Holding Company and Newco, all in
reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and such subsidiaries as
of the end of and through such fiscal month and (ii) within ninety
(90) days after the end of each fiscal year, audited consolidated
financial statements and, if Borrower has any subsidiaries,
unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of
cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and
for such fiscal year, together with the opinion of independent
certified public accountants, which accountants shall be an
independent accounting firm selected by Borrower and reasonably
acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results
of operations and financial condition of Borrower and its
subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing
of the details of (i) any loss, damage, investigation, action,
suit, proceeding or claim relating to the Collateral or any other
property which is security for the Obligations which would result
in any material adverse change in the Collateral or Borrower's
business, properties, assets, goodwill or condition, financial or
otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
(c) Borrower shall promptly after the sending or
filing thereof furnish or cause to be furnished to Lender copies
of all reports which Borrower sends to its stockholders generally
and copies of all reports and registration statements which
Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished
to Lender such budgets, forecasts, projections and other
information respecting the Collateral and the business of
Borrower, as Lender may, from time to time, reasonably request.
Lender is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of
Borrower to any court or other government agency on a confidential
basis unless otherwise required by law, or to any participant or
assignee or prospective participant or assignee. Borrower hereby
irrevocably authorizes all accountants or auditors to deliver to
Lender, at Borrower's expense, copies of the financial statements
of Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower and to disclose to
Lender such information as they may have regarding the business of
Borrower. Any documents, schedules, invoices or other papers
delivered to Lender may be destroyed or otherwise disposed of by
Lender one (1) year after the same are delivered to Lender, except
as otherwise designated by Borrower to Lender in writing.
(e) Borrower shall furnish or cause to be furnished
to Lender, not later than five (5) Business Days after receipt of
same by Borrower or Newco, copies of all reports received by
Borrower or Newco relating to the sale of the Transferred Assets
and Inventory which is the subject of the Gordon Brothers
Agreements.
(f) Borrower shall deliver, or cause to be
delivered, to Lender, by no later than May 15, 1996, balance
sheets as of March 31, 1996, reviewed by independent certified
public accountants, which accountants shall be a nationally
recognized independent accounting firm selected by Borrower and
reasonably acceptable to Lender, and certified by such accountants
to the effect that such opening balance sheets have been prepared
in accordance with GAAP and present fairly the financial condition
of borrower as of such date.
9.7 Sale of Assets, Consolidation, Merger, Dissolution,
Etc. Borrower shall not, directly or indirectly:
(a) merge into or with or consolidate with any other
Person or permit any other Person to merge into or with or
consolidate with it, or
(b) sell, assign, lease, transfer, abandon or
otherwise dispose of any stock or indebtedness to any other Person
or any of its assets to any other Person, except for (i) sales of
Inventory in the ordinary course of business, (ii) sales or other
disposition of the Transferred Assets by Borrower to Newco and
going-out-of-business sales of Inventory at the locations listed
on Exhibit B pursuant to the Gordon Brothers Agreements, provided
that all proceeds of any subsequent sales or other disposition of
the Transferred Assets, and sales of such Inventory, payable or
owed to Borrower or Newco on or after the date hereof as provided
in the Gordon Brothers Agreements are paid or delivered to Lender
for application to the Obligations, (iii) the sale and leaseback
on commercially reasonable terms with a non-affiliate of
Borrower's of real property and Equipment at any of its locations
permitted hereunder, provided that (A) no Event of Default or
condition or event which , with notice or passage of time or both,
would constitute an Event of Default then exists or would result
therefrom and (B) all proceeds of such sales are remitted to
Lender for application to the Obligations, and (iv) the
disposition of worn-out or obsolete Equipment or Equipment no
longer used in the business of Borrower so long as (A) any
proceeds are paid to Lender for application to the Obligations and
(B) such sales do not involve Equipment having an aggregate fair
market value in excess of $1,000,000 for all such Equipment
disposed of in any fiscal year of Borrower commencing on or after
January 1, 1997, or
(c) form or acquire any subsidiaries, or
(d) wind up, liquidate or dissolve, or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur,
assume or suffer to exist any security interest, mortgage, pledge,
lien, charge or other encumbrance of any nature whatsoever on any
of its assets or properties or of Newco and Newco Holding
Company,, including, without limitation, the Collateral, except:
(a) liens and security interests of Lender; (b) liens securing the
payment of taxes, either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books; (c) non-
consensual statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of Borrower's business to
the extent: (i) such liens secure indebtedness which is not
overdue or (ii) such liens secure indebtedness relating to claims
or liabilities which are fully insured and being defended at the
sole cost and expense and at the sole risk of the insurer or being
contested in good faith by appropriate proceedings diligently
pursued and available to Borrower, in each case prior to the
commencement of foreclosure or other similar proceedings and with
respect to which adequate reserves have been set aside on its
books; (d) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of real property which do not
interfere in any material respect with the use of such real
property or ordinary conduct of the business of Borrower as
presently conducted thereon or materially impair the value of the
real property which may be subject thereto; (e) purchase money
security interests in Equipment (including capital leases) and
purchase money mortgages on real estate not to exceed $3,000,000
in the aggregate at any time outstanding plus such additional
security interests and mortgages (including capital leases)
relating to the acquisition or financing of Equipment and/or Real
Property to be used for each new store location opened by Borrower
after the date hereof pursuant to Section 9.2 hereof, so long as
such security interests and mortgages do not apply to any property
of Borrower other than the Equipment or real estate so acquired,
and the indebtedness secured thereby does not exceed the cost of
the Equipment or real estate so acquired, as the case may be;
(f) liens and security interests in the Transferred Assets
pursuant to the Gordon Brothers Agreements; and (g) the security
interests and liens set forth on Schedule 8.4 hereto.
9.9 Indebtedness. Borrower shall not incur, create,
assume, become or be liable in any manner with respect to, or
permit to exist, any obligations or indebtedness, except (a) the
Obligations; (b) trade obligations and normal accruals in the
ordinary course of business which are not more than sixty (60)
days past due or with respect to which the Borrower is contesting
in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower, and with
respect to which adequate reserves have been set aside on its
books; (c) purchase money indebtedness (including capital and
operating leases) to the extent not incurred or secured by liens
(including capital and operating leases) in violation of any other
provision of this Agreement; (d) obligations or indebtedness
evidenced by the Restructuring Notes or set forth on Schedule 9.9
hereto; provided, that, (i) Borrower may only make regularly
scheduled payments of principal and interest in respect of such
indebtedness evidenced by the Restructuring Notes or set forth on
Schedule 9.9 hereto in accordance with the terms of the agreement
or instrument evidencing or giving rise to such indebtedness as in
effect on the date hereof, (ii) Borrower shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related
thereto in any manner which would be less favorable to Borrower
than with respect to the terms and conditions thereof as in effect
on the date hereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (iii) Borrower
shall furnish to Lender all notices or demands in connection with
such indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be;
(e) rentals pursuant to the Master Lease, dated April 4, 1996,
between Borrower and GRS Realty Company, Inc. and other leases
entered into in the ordinary course of business; (f) indebtedness
secured by liens permitted by Section 9.8 hereof; and (g) any
refinancing of any of the foregoing.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall
not, directly or indirectly, make any loans or advance money or
property to any person, or invest in (by capital contribution,
dividend or otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets or
property of any person, or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the
indebtedness, performance, obligations or dividends of any Person
or agree to do any of the foregoing, except: (a) the endorsement
of instruments for collection or deposit in the ordinary course of
business; (b) investments in: (i) short-term direct obligations
of the United States Government or any agency or instrumentality
thereof, negotiable certificates of deposit issued by any
bank satisfactory to Lender, payable to the order of the Borrower
or to bearer and delivered to Lender, and overnight bank deposits
with such banks, and (iii) commercial paper rated A1 or P1;
provided, that, as to any of the foregoing, unless waived in
writing by Lender, Borrower shall take such actions as are deemed
necessary by Lender to perfect the security interest of Lender in
such investments, (c) the guarantees set forth in the Information
Certificate, (d) the transfer of the Transferred Assets to Newco
as a capital contribution, (e) the contribution of the stock of
Newco to Newco Holding Company as a capital contribution, (f)
investments in Construcentro De America, S.A. D.C.V. not to exceed
$100,000 as reflected on Borrower's balance sheet as of March 31,
1996, plus provided no Event of Default or condition or event
which with notice or the passage of time or both then exist or
would result therefrom, an additional cash investment of up to
$3,000,000, (g) unsecured obligations with respect to surety and
appeal bonds, performance bond and other obligations of a like
nature incurred in the ordinary course of Borrower's business, (h)
loans or advances to employees in the ordinary course of
Borrower's business for travel, entertainment and relocation
expenses and the like, not to exceed $500,000 at any one time
outstanding (i) existing guarantees of the obligations of Project-
Pros, Inc. not in excess of the aggregate amount of $500,000 at
any one time outstanding and (j) investments by Borrower for other
purposes not exceeding $500,000 in the aggregate at any one time
outstanding.
9.11 Dividends and Redemptions. Borrower shall not,
directly or indirectly, declare or pay any dividends on account of
any shares of class of capital stock of Borrower now or hereafter
outstanding, or set aside or otherwise deposit or invest any sums
for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital stock (or set
aside or otherwise deposit or invest any sums for such purpose)
for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of
capital or otherwise) in respect of any such shares or agree to do
any of the foregoing, except as set forth on Schedule 9.11 hereto.
9.12 Transactions with Affiliates. Borrower shall not
enter into any transaction for the purchase, sale or exchange of
property or the rendering of any service to or by any affiliate,
except (a) in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower
would obtain in a comparable arm's length transaction with an
unaffiliated person, and (b) the sale or other disposition by
Borrower to Newco of the Transferred Assets pursuant to the Gordon
Brothers Agreements and the leaseback by Borrower from Newco of
the Transferred Assets listed on Exhibit C hereto on fair and
reasonable terms.
9.13 Credit Card Agreements. Borrower shall (a) observe
and perform all material terms, covenants, conditions and
provisions of the Credit Card Agreements to be observed and
performed by it at the times set forth therein; (b) not do,
permit, suffer or refrain from doing anything, as a result of
which there could be a default under or breach of any of the terms
of any of the Credit Card Agreements and (c) at all times maintain
in full force and effect the Credit Card Agreements and not
terminate, cancel, surrender, modify, amend, waive or release any
of the Credit Card Agreements, or consent to or permit to occur
any of the foregoing; except, that, (i) Borrower may terminate or
cancel any of the Credit Card Agreements in the ordinary course of
the business of Borrower; provided, that, Borrower shall give
Lender not less than fifteen (15) days prior written notice of its
intention to so terminate or cancel any of the Credit Card
Agreements; (d) not enter into any new Credit Card Agreements with
any new Credit Card Issuer unless (i) Lender shall have received
not less than thirty (30) days prior written notice of the
intention of Borrower to enter into such agreement (together with
such other information with respect thereto as Lender may request)
and (ii) Borrower delivers, or causes to be delivered to Lender, a
Credit Card Acknowledgment in favor of Lender; (e) give Lender
immediate written notice of any Credit Card Agreement entered into
by Borrower after the date hereof, together with a true, correct
and complete copy thereof and such other information with respect
thereto as Lender may request; and (f) furnish to Lender, promptly
upon the request of Lender, such information and evidence as
Lender may require from time to time concerning the observance,
performance and compliance by Borrower or the other party or
parties thereto with the terms, covenants or provisions of the
Credit Card Agreements.
9.14 Compliance with ERISA. Borrower shall not with
respect to any "employee benefit plans" maintained by Borrower or
any of its ERISA Affiliates:
(a) (i) terminate any of such employee pension plans
so as to incur any liability to the Pension Benefit Guaranty
Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee
benefit plans or any trust created thereunder which would subject
Borrower or such ERISA Affiliate to a tax or penalty or other
liability on prohibited transactions imposed under the Code or
ERISA,
(b) fail to pay to any such employee benefit plan
any contribution which it is obligated to pay under ERISA, the
Code or the terms of such plan, (i) allow or suffer to exist any
accumulated funding deficiency, whether or not waived, with
respect to any such employee benefit plan, (ii) allow or suffer to
exist any occurrence of a reportable event or any other event or
condition which presents a material risk of termination by the
Pension Benefit Guaranty Corporation of any such employee benefit
plan that is a single employer plan, which termination could
result in any liability to the Pension Benefit Guaranty
Corporation or (iii) incur any withdrawal liability with respect
to any multiemployer pension plan.
As used in this Section 9.17, the term "employee
pension benefit plans," "employee benefit plans", "accumulated
funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in
the Code and ERISA.
9.15 Costs and Expenses. Borrower shall pay to Lender on
demand all out-of-pocket costs, expenses, filing fees and taxes
paid or payable in connection with the preparation, negotiation,
execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing
Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered
into in respect hereof and thereof, including, but not limited to:
(a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes
and fees, if applicable); (b) all title insurance and other
insurance premiums, appraisal fees and search fees; (c) costs and
expenses of remitting loan proceeds, collecting checks and other
items of payment, and establishing and maintaining the Blocked
Accounts, together with Lender's customary charges and fees with
respect thereto; (d) charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations;
(e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection
with obtaining payment of the Obligations, enforcing the security
interests and liens of Lender, selling or otherwise realizing upon
the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any
claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without
limitation, preparations for and consultations concerning any such
matters); (g) all out-of-pocket expenses and costs heretofore and
from time to time hereafter incurred by Lender during the course
of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $600 per person
per day for Lender's examiners in the field and office; and (h)
the reasonable fees and disbursements of counsel (including legal
assistants) to Lender in connection with any of the foregoing.
9.16 Further Assurances. At the request of Lender at any
time and from time to time, Borrower shall, at its expense, duly
execute and deliver, or cause to be duly executed and delivered,
such further agreements, documents and instruments, and do or
cause to be done such further acts as may be necessary or proper
to evidence, perfect, maintain and enforce the security interests
and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of
the other Financing Agreements. Lender may at any time and from
time to time request a certificate from an officer of Borrower
representing that all conditions precedent to the making of Loans
and providing Letter of Credit Accommodations contained herein are
satisfied. In the event of such request by Lender, Lender may, at
its option, cease to make any further Loans or provide any further
Letter of Credit Accommodations until Lender has received such
certificate and, in addition, Lender has determined that such
conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing
statements signed only by Lender with respect to the Collateral.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any
one or more of the following events are referred to herein
individually as an "Event of Default", and collectively as "Events
of Default":
(a) Borrower (i) fails to pay when due, for three
(3) consecutive Business Days, any of the Obligations, or (ii)
within ten (10) Business Days after performance is due, fails to
perform any other of the terms, covenants, conditions or
provisions contained in this Agreement or any of the other
Financing Agreements, provided, that, the foregoing grace period
shall not apply (A) to any intentional failure of due performance,
or (B) with respect to any term, condition or provision the
failure of which to perform is not susceptible to being cured
within such grace period, or which has been the subject of a prior
failure to perform within the prior six (6) month period or (C)
with respect to events described in clauses (g) and (h) below;
(b) any representation, warranty or statement of
fact made by Borrower to Lender in this Agreement, the other
Financing Agreements or any other agreement, schedule,
confirmatory assignment or otherwise shall when made or deemed
made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to
perform any of the terms, covenants, conditions or provisions of
any guarantee, endorsement or other agreement of such party in
favor of Lender;
(d) any judgment for the payment of money is
rendered against Borrower or any Obligor in excess of $250,000 in
any one case or in excess of $500,000 in the aggregate and shall
remain undischarged or unvacated for a period in excess of thirty
(30) days or execution shall at any time not be effectively
stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered
against Borrower or any Obligor or any of their assets;
(e) Borrower or any Obligor, which is a partnership
or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent
(however defined or evidenced), makes an assignment for the
benefit of creditors, makes or sends notice of a bulk transfer or
calls a meeting of its creditors or principal creditors;
(g) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment
of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or in
equity) is filed against Borrower or any Obligor or all or any
part of its properties and such petition or application is not
dismissed within thirty (30) days after the date of its filing or
Borrower or any Obligor shall file any answer admitting or not
contesting such petition or application or indicates its consent
to, acquiescence in or approval of, any such action or proceeding
or the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment
of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at a law or
equity) is filed by Borrower or any Obligor or for all or any part
of its property;
(i) any default by Borrower, any Obligor, Newco
Holding Company or Newco under any agreement, document or
instrument relating to any indebtedness for borrowed money owing
to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any
guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lender, in any case
in an amount in excess of $350,000, which default continues for
more than the applicable cure period, if any, with respect
thereto, or any default by Borrower, any Obligor, Newco Holding
Company or Newco, under any material contract, lease, license or
other obligation to any person other than Lender, which default
continues for more than the applicable cure period, if any, with
respect thereto, the foregoing including without limitation any
defaults under the Gordon Brothers Agreements and the
Restructuring Notes;
(j) any termination of the President or any
Executive Vice President of Borrower which in the good faith
judgment of Lender will result in a material adverse change in the
business or assets of Borrower and provided such executive is not
replaced within 90 days after such termination by an executive
satisfactory to Lender;
(k) the indictment or threatened indictment of
Borrower or any Obligor under any criminal statute, or
commencement or threatened commencement of criminal or civil
proceedings against Borrower or any Obligor, pursuant to which
statute or proceedings the penalties or remedies sought or
available include forfeiture of any of the property of Borrower or
such Obligor;
(l) there shall be a material adverse change in the
business or assets of Borrower or any Obligor after the date
hereof; or
(m) there shall be an event of default under any of
the other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and
remedies provided in this Agreement, the other Financing
Agreements, the Uniform Commercial Code and other applicable law,
all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or
consent is expressly provided for hereunder or required by
applicable law. All rights, remedies and powers granted to Lender
hereunder, under any of the other Financing Agreements, the
Uniform Commercial Code or other applicable law, are cumulative,
not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more
occasions, and shall include, without limitation, the right to
apply to a court of equity for an injunction to restrain a breach
or threatened breach by Borrower of this Agreement or any of the
other Financing Agreements. Lender may, at any time or times,
proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an
Event of Default exists or has occurred and is continuing, Lender
may, in its discretion and without limitation, (i) accelerate the
payment of all Obligations and demand immediate payment thereof to
Lender (provided, that, upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with
or without judicial process or the aid or assistance of others,
enter upon any premises on or in which any of the Collateral may
be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the
Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (iv)
collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the
purpose of effecting the sale, foreclosure or other disposition
thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral
(including, without limitation, entering into contracts with
respect thereto, public or private sales at any exchange, broker's
board, at any office of Lender or elsewhere) at such prices or
terms as Lender may deem reasonable, for cash, upon credit or for
future delivery, with the Lender having the right to purchase the
whole or any part of the Collateral at any such public sale, all
of the foregoing being free from any right or equity of redemption
of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower and/or (vii) terminate
this Agreement. If any of the Collateral is sold or leased by
Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is
finally collected by Lender. If notice of disposition of
Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public
sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice.
In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy,
Borrower waives the posting of any bond which might otherwise be
required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of the Obligations,
in whole or in part and in such order as Lender may elect, whether
or not then due. Borrower shall remain liable to Lender for the
payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the
occurrence of an Event of Default or an event which with notice or
passage of time or both would constitute an Event of Default,
Lender may, at its option, without notice, (i) cease making Loans
or arranging for Letter of Credit Accommodations or reduce the
lending formulas or amounts of Revolving Loans and Letter of
Credit Accommodations available to Borrower and/or (ii) terminate
any provision of this Agreement providing for any future Loans or
Letter of Credit Accommodations to be made by Lender to Borrower.
(e) Borrower acknowledges and agrees that each and
every Event of Default described above shall be of equal weight
and significance, and equally and fully shall allow Lender to
exercise its rights and remedies hereunder. Borrower acknowledges
and agrees that each such Event of Default has been a material
inducement for Lender to enter into this Agreement and that Lender
would be irreparably harmed if Lender, in any way, were unable to
exercise its rights and remedies on the basis that certain Events
of Default (for example, Events of Default not relating to
payment) were of less weight or significance than certain other
Events of Default (for example, Events of Default relating to
payment).
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver.
(a) The validity, interpretation and enforcement of
this Agreement and the other Financing Agreements and any dispute
arising out of the relationship between the parties hereto,
whether in contract, tort, equity or otherwise, shall be governed
by the internal laws of the Commonwealth of Massachusetts (without
giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and
submit to the non-exclusive jurisdiction of the Superior Court of
Suffolk County of the Commonwealth of Massachusetts and the United
States District Court for the District of Massachusetts and waive
any objection based on venue or forum non conveniens with respect
to any action instituted therein arising under this Agreement or
any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in
respect of this Agreement or any of the other Financing Agreements
or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute
with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring
any action or proceeding against Borrower or its property in the
courts of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on the Collateral or to otherwise
enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any
and all process upon it and consents that all such service of
process may be made by certified mail (return receipt requested)
directed to its address set forth on the signature pages hereof
and service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner
provided under the rules of any such courts. Within thirty (30)
days after such service, Borrower shall appear in answer to such
process, failing which Borrower shall be deemed in default and
judgment may be entered by Lender against Borrower for the amount
of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
(i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses
suffered by Borrower in connection with, arising out of, or in any
way related to the transactions or relationships contemplated by
this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross
negligence or willful misconduct. In any such litigation, Lender
shall be entitled to the benefit of the rebuttable presumption
that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives
demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and commercial
paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind
or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on Borrower which
Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor
any provision hereof shall be amended, modified, waived or
discharged orally or by course of conduct, but only by a written
agreement signed by an authorized officer of Lender. Lender shall
not, by any act, delay, omission or otherwise be deemed to have
expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be
enforceable only to the extent specifically set forth therein. A
waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such
right, power and/or remedy which Lender would otherwise have on
any future occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights
to interpose any claims, deductions, setoffs or counterclaims of
any nature (other then compulsory counterclaims) in any action or
proceeding with respect to this Agreement, the Obligations, the
Collateral or any matter arising therefrom or relating hereto or
thereto.
11.5 Indemnification. Borrower shall indemnify and hold
Lender, and its directors, agents, employees and counsel, harmless
from and against any and all losses, claims, damages, liabilities,
costs or expenses imposed on, incurred by or asserted against any
of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation,
preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any of the other Financing
Agreements, or any undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission, event or
transaction related or attendant thereto, including, without
limitation, any and all losses, claims, damages, liabilities,
costs or expenses caused by the negligence (but not the gross
negligence or wilful misconduct) of Lender and Lender's directors,
agents, employees and counsel, and further including, without
limitation, amounts paid in settlement, court costs, and the fees
and expenses of counsel. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be
unenforceable because it violates any law or public policy,
Borrower shall pay the maximum portion which it is permitted to
pay under applicable law to Lender in satisfaction of indemnified
matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal
of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing
Agreements shall become effective as of the date set forth on the
first page hereof and shall continue in full force and effect for
a term ending on the date three (3) years from the date hereof
(the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Lender or
Borrower may terminate this Agreement and the other Financing
Agreements effective on the Renewal Date or on the anniversary of
the Renewal Date in any year by giving to the other party at least
sixty (60) s prior written notice; provided, that, this Agreement
and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-
renewal of the Financing Agreements, Borrower shall pay to Lender,
in full, all outstanding and unpaid Obligations and shall furnish
cash collateral to Lender in such amounts as Lender determines are
reasonably necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees and legal expenses,
in connection with any contingent Obligations, including issued
and outstanding Letter of Credit Accommodations and checks or
other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible
payment. Such cash collateral shall be remitted by wire transfer
in Federal funds to such bank account of Lender, as Lender may, in
its discretion, designate in writing to Borrower for such purpose.
Interest shall be due until and including the next Business Day,
if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon,
Boston, Massachusetts time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge Borrower of its
respective duties, obligations and covenants under this Agreement
or the other Financing Agreements until all Obligations have been
fully and finally discharged and paid, and Lender's continuing
security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations
have been fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated
prior to the end of the then current term or renewal term of this
Agreement at the request of Borrower or by Lender or as the result
of an Event of Default, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement
of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender,
upon the effective date of such termination, an early termination
fee in the amount set forth below if such termination is effective
in the period indicated:
Amount Period
(i) 2% of Maximum Credit From the date
hereof to and
including May __,
1997
(ii) 1-1/2% of Maximum Credit From May __, 1997
to and including
May __, 1998
(iii) 1% of Maximum Credit From May __, 1998
to and including
May __, 1999.
Such early termination fee shall be presumed to be the amount of
damages sustained by Lender as a result of such early termination
and Borrower agrees that it is reasonable under the circumstances
currently existing. The early termination fee provided for in
this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder
shall be in writing and (a) made to Lender at its address set
forth below and to Borrower at its chief executive office set
forth below, or to such other address as either party may
designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered
in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next Business
Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this
Agreement is held to be invalid or unenforceable, such invalidity
or unenforceability shall not invalidate this Agreement as a
whole, but this Agreement shall be construed as though it did not
contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be
permitted by applicable law.
12.4 Successors. This Agreement, the other Financing
Agreements and any other document referred to herein or therein
shall be binding upon and inure to the benefit of and be
enforceable by Lender, Borrower and their respective successors
and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written
consent of Lender. Lender may, after notice to Borrower, assign
its rights and delegate its obligations under this Agreement and
the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of
Credit Accommodations or any other interest herein to another
financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such
assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise
provided by the terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments
or documents delivered or to be delivered in connection herewith
or therewith represents the entire agreement and understanding
concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations,
warranties, commitments, proposals, offers and contracts
concerning the subject matter hereof, whether oral or written.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused these
presents to be duly executed as an instrument as of the day and
year first above written.
LENDER
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
By:_____________________________
Title:___________________________
Address:
One Post Office Square
Boston Massachusetts 02109
<PAGE>
BORROWER
GROSSMAN'S INC.
By:_____________________________
Title:___________________________
Chief Executive Office:
45 Dan Road
Canton, Massachusetts 02021-2817
AGENCY AGREEMENT
This Agency Agreement is made this 29th day of March, 1996
by and between Gordon Brothers Partners, Inc., a Massachusetts
corporation with a principal place of business at 40 Broad Street,
Boston, Massachusetts, 02109 (the "Agent") and Grossman's, Inc. a
Delaware corporation with a principal place of business at 45 Dan
Road, Canton, MA 02021 (the "Merchant").
WHEREAS, the Merchant operates home building center stores
and desires that the Agent act as the Merchant's exclusive sales
agent for the limited purpose of conducting the Sale (as
hereinafter defined); and
WHEREAS, the Merchant occupies certain of the Stores (as
hereinafter defined) and uses certain of the furniture, fixtures
and equipment located at the Stores as now owned and as will be
leased pursuant to the terms of a Master Lease Agreement by and
between the Merchant, as tenant and an entity to be
formed as landlord (as amended and in effect from time
to time, the "Lease").
NOW THEREFORE, in consideration of the mutual
covenants and agreements set forth hereinafter and for
other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as
follows:
1. Agency Appointment
The Agent shall serve as the Merchant's exclusive
agent to conduct "going out of business"/"store closing" sales
(the "Sale") of all inventory assets as further defined in
subsection 2(c) hereof (the "Merchandise") from Merchant's stores
located at those locations identified on Exhibit 1 (the "Stores").
It is expressly agreed that Agent shall be entitled to advertise
the Sale consistent with the preceding sentence, subject to
obtaining landlord approvals (if needed) and obtaining necessary
government approvals. Pending receipt of government approvals,
Agent agrees not to advertise the Sale in violation of municipal
ordinances or governing bodies but in any event, it is agreed that
such government approvals will be obtained by the close of
business on April 15, 1996.
2. Merchandise
(a) Inventory
The Agent shall cause to be taken a "Retail
Price" physical inventory (as hereinafter defined) of the
Merchandise, as defined in subsection 2(c), to be conducted
beginning on or before April 3, 1996, or as agreed upon by the
parties (the date of commencement of the inventory taking at each
Store being the "Inventory Date" for such Store). Merchant and
Agent shall jointly employ RGIS or Washington Inventory Service to
conduct such inventory, and Merchant and Agent each shall pay
fifty percent (50%) of the costs and fees of such inventory taking
service. Other than such costs and fees, each of Merchant and
Agent shall bear their own costs relative thereto. Merchant and
Agent shall each have representatives present during the inventory
taking, and each shall have the right to review and verify the
listing and tabulation of the inventory count as provided by the
inventory taking service. The Stores will be closed for the
inventory taking. The procedures to perform the inventory taking
and its verification are set forth in
Exhibit 2(a)(i). Prior to the inventory taking, Agent shall have
reasonable access to cost and pricing files to test the Retail
Prices of the Merchandise.
(b) Valuation
For purposes of this Agreement "Retail Price"
shall mean (i) except as provided in (ii) and (iii) below, the
lowest price of each item of Merchandise as sold to retail
customers at each individual Store on or after March 24, 1996,
whether such price is reflected on tickets, on circulars, in
advertisements, by P.O.S. markdowns or otherwise, on a cash and
carry basis, exclusive of installation and other charges, (ii) as
to those categories of Merchandise inventory described in
Exhibit 2(a)(i), the values therein described as a percentage of
Retail Price; or (iii) as to goods deemed defective by Agent and
Merchant as defined in Section 2(c), the values as mutually agreed
by Merchant and Agent. Goods deemed unsalable and goods deemed
defective by Agent but not by Merchant as defined in Section 2(c)
will be disposed of by Merchant at its expense
and will not be made available to the Sale unless with the
approval of Agent and Merchant.
(c) Merchandise Subject to this Agreement
For purposes hereof, Merchandise shall mean all
merchandise inventory that is located at the Stores on the
Inventory Date, returned merchandise identified in Section 4(a),
and "defective" goods, excluding "unsalable" items and goods
deemed "defective" by Agent, but not by Merchant. "Defective"
goods are goods agreed upon and identified by Merchant and Agent
as defective during the inventory taking process as being not of
"first quality" because they are dented, cracked, scratched,
soiled, faded, mechanically defective, mismatched, shopworn, torn,
ripped, "dated" or possess characteristics which would be
construed as less than first quality in the normal course. Display
merchandise shall not be deemed defective per se.
"Dated" means those goods where the passage of time defined by the
manufacturer as indicated on the goods would alter the quality of
the goods. Merchandise shall not include goods held by Merchant on
consignment; key blanks; rental supplies, equipment and chemicals;
goods retained by Merchant as bailee; furnishings, fixtures and
equipment; goods on order or held for specific customers subject
to "layaway" or held for repair. Merchant shall remain
responsible for processing and handling all goods and matters
referred to in the preceding sentence prior to the Sale
Commencement Date, and contracts relating thereto, and Agent shall
have no cost, expense or responsibility in connection therewith,
except Agent agrees to cooperate in administering such remaining
matters during the Sale conditioned upon arrangements satisfactory
to Agent that amounts reimbursed or credited to customers during
the Sale at Agent's cost or expense shall be promptly reimbursed
to Agent by Merchant.
(d) Supplies and Equipment; Inventory Transfers
(i) After March 14, 1996, supplies (e.g.
boxes, bags) and equipment (e.g. inventory carts, baskets,
forklifts) have not been, and shall not be prior to the Inventory
Date redirected or directed by Merchant between or among Stores
and/or other stores or affiliated divisions of Merchant or its
affiliates (hereinafter, "Other Stores") so as to alter supplies
or equipment levels of the Stores from that existing on
March 14, 1996, except in the ordinary course of business.
Merchant does not represent that adequate stocks of supplies are
or will be available at the Stores as of the Sale Commencement
Date, but Agent shall have the right to purchase from Merchant, at
Merchant's cost, additional supplies during the Sale Term.
(ii) From and after March 24, 1996, Merchant
has not and shall not transfer inventory to or from the Stores so
as to alter the mix or quantity levels of inventory in the Stores
from that usually maintained in the ordinary course of business,
except for sales in the ordinary course of business.
3. Sale
(a) Term
The Sale shall commence immediately after the
physical inventory is completed at each Store (the "Sale
Commencement Date"). The Agent shall complete the Sale no later
than June 9, 1996. The Agent shall have the discretion to
terminate the Sale as to any Store at any time within that time
frame, unless the Sale is extended by mutual written agreement of
Agent and Merchant (the "Sale Termination Date") in accordance
with state and local laws governing such sales. The period from
the Sale Commencement Date to the Sale Termination Date as to each
Store is herein referred to as the "Sale Term."
(b) Rights of Agent
The Agent shall conduct the Sale during the Sale
Term in the name of and on behalf of the Merchant in a
commercially reasonable manner. Prior to the Sale Termination
Date, the Agent, in fulfilling its obligations under this
Agreement, shall be entitled: (i) subject to Section 1 hereof and
approval by Merchant, to establish and implement advertising and
promotion programs consistent with the "going out of business" and
"store closing" themes; Agent shall submit all advertising and
media copy to either Thomas Ford or Steven Shapiro who shall
reasonably comment thereon within one (1) business day of receipt
thereof, but failing comment, such advertising and media shall be
considered approved (with any approval not to be unreasonably
withheld), (ii) to establish Sale prices, (iii) to use, during the
Sale Term and for purposes of selling the Merchandise, without
charge, retail customer lists (if any), equipment, advertising
materials (if any), supplies, intangible assets (including
Merchant's name and logo to fulfill Agent's rights and obligations
under this Agreement), central services (including MIS, payroll
processing, inventory processing, sales tracking and related
services) and other assets of Merchant (whether owned, leased, or
licensed) which will be returned to Merchant at the end of the
Sale Term, to the extent the same are remaining at the end of the
Sale Term, and have not been used (e.g. supplies) or otherwise
disposed of through no fault of Agent, (iv) to use the Merchant's
personnel, to the extent that the Agent, in the exercise of its
sole discretion, shall deem appropriate, (v) to have access to the
Stores upon the execution of this Agreement to prepare for the
Sale in a manner so as not to disrupt Merchant's ongoing business
operations, (vi) after the Inventory Date, to use all Store keys,
case keys, security codes, and safe and lock combinations to
operate the Stores and (vii) to transfer Merchandise among Stores,
subject to applicable law. All sales of Merchandise will be "final
sales" and "as is", and all advertisements and sales receipts will
reflect the same. Neither Merchant nor Agent shall warrant the
Merchandise in any manner, but will pass to the customers
manufacturer's warranties to the extent transferable. Merchant
shall indemnify and hold harmless Agent for all liabilities and
costs of whatever kind related to or resulting from any consumer
warranty or products liability claims relating to the Merchandise,
and at Agent's cost, Agent shall be added as an insured on
Merchant's products liability insurance coverage. Agent shall
indemnify and hold harmless Merchant for all liabilities and costs
of whatever kind, which Merchant sustains related to or resulting
from (x) the negligence, misconduct and misdeeds of Agent, Agent's
employees and independent contractors and (y) the breach by Agent
of any obligation or liability undertaken by Agent under this
Agreement. Agent shall provide worker's compensation for its
employees and independent contractors as legally required.
(c) Obligations of Agent
(i) During the Sale Term, the Agent shall
collect from sales at the Stores all Sale-related sales, excise
and gross receipts taxes payable to any taxing authorities having
jurisdiction, which taxes shall be added to the sales price and
shall be paid by the customer. The Agent shall remit said taxes to
the Merchant which shall pay such taxes to the taxing authorities
in the correct amounts so collected. Records of said payments and
payments will be delivered with accompanying schedules, as
directed, to Merchant on a timely basis for filing for the due
date therefore. So long as Agent complies with the provisions of
this subsection, the Merchant shall indemnify and hold harmless
the Agent from and against any and all costs including, but not
limited to, reasonable attorneys' fees, assessments, fines or
penalties which the Agent sustains or incurs as a result or
consequence of the failure by the Merchant to promptly pay such
taxes to the proper taxing authorities and/or the failure by the
Merchant to promptly file with such
taxing authorities any and all reports and other documents
required, by applicable law, to be filed with or delivered to such
taxing authorities.
(ii) The Agent shall pay, or if paid by
Merchant, reimburse Merchant on a timely basis for, all operating
expenses of the Sale which arise during the Sale Term at the
Stores, limited to the following: base payroll for hours worked
and vacation and sick days taken (proportionate for the Sale Term
to the number of paid vacation and sick days allowed to such
employee annually) of Merchant's personnel used by Agent as
specified in Section 3(c)(iii) of this Agreement; "related
payroll expenses," which for purposes hereof shall be 28% of such
base payroll of Merchant's personnel used by Agent as specified in
Section 3(c)(iii) of this Agreement; inventory insurance; routine
equipment maintenance; check authorization expenses; trash
removal; postage; advertising and signage; new supplies including
tint for paint mixing supplied by Merchant at Merchant's cost;
freight charges to transfer Merchandise between the Stores; long-
distance telephone expenses during the Sale Term as are
attributable to the Sale; 50% of the costs and fees of the
inventory taking service; normal course routine repairs and
maintenance to Store premises, excluding snow removal; credit card
fees, charge backs and discounts; bank fees of accounts
established for purposes of the Sale; costs of security personnel;
those expenses categorized in Exhibit 3(c)(ii) hereto; and all
costs and expenses of providing such additional services which the
Agent in its discretion considers appropriate (collectively, the
"Expenses"). For the time Stores are not operating during the
taking of the physical inventory, Agent shall pay or reimburse
Merchant for fifty percent (50%) of Expenses otherwise due or
payable for that time (with appropriate prorations). "Expenses"
shall not include rent, percentage rent, CAM, HVAC, utilities,
base telephone charges, building insurance, inventory taxes, snow
removal and real estate taxes relating to the Stores, all of which
shall remain the responsibility of Merchant. Expenses specifically
excludes any other costs and expenses payable by Merchant; other
costs and expenses not enumerated above; central office and
administrative expenses; and rental for furniture, fixtures and
equipment. All Expenses shall be paid to or on behalf of Merchant
by Agent on each Wednesday for the prior week's (i.e. Sunday
through Saturday) Expenses, or in the alternative, as billed to
Agent by Merchant.
(iii) During the Sale Term, the Merchant shall
process the payroll for all Merchant employees utilized by the
Agent. Such employees will be identified by Agent prior to the
Sale Commencement Date. Agent may cease using any such employees
at any time during the Sale (except Store Managers and one (1)
Assistant Store Manager for each Store, each of whom will be
employed for a minimum of four (4) weeks, except "for cause" as
hereinafter provided). Agent will notify Thomas Ford or Steven
Shapiro at least seven (7) days prior to the time any employee's
services are no longer required, except "for cause" such as
dishonesty, fraud or breach of employee duties. Each week during
the Sale Term the Agent shall pay to Merchant, or shall deposit to
an account designated by the Merchant, the base payroll documented
in accordance with Section 3(c)(ii) plus "related payroll
expenses" as aforesaid in Section 3(c)(ii). Merchant shall not
transfer employees between Stores and Other Stores without Agent's
consent. The Agent shall not be responsible for reimbursement or
payment of any other compensation or costs due to employees.
Nothing herein shall make Agent liable under any collective
bargaining or employment agreement, nor shall Agent be deemed a
joint or successor employer.
(iv) Agent shall pay to Merchant, for payment
by Merchant to employees a "bonus" pool of 5% of Proceeds
(as defined in Section 4) in excess of sixty percent
(60%) of Retail Price of Merchandise. The bonuses earned per Store
location will be based 60% on the individual Store recovery and
60% on the overall recovery from the Sale. Store Managers will
receive a bonus of $1000 from such "pool", or such pro rata
portion thereof as hereinafter provided, with the balance being
divided in Agent's discretion. For fractions of a percent, over
the said sixty percent threshold, pro rata bonuses will be paid.
Each such employee will be eligible to receive said bonuses unless
such employee is terminated for cause (such as fraud, dishonesty
or breach of employee duties) or voluntarily leaves employment
prior to the Sale Termination Date. If any such employee is
terminated due to a closing of his/her Store prior to the Sale
Termination Date, such employee will receive a bonus based solely
on the overall recovery from the Sale. The amount of the "bonus"
pool calculated under the first sentence of this
Section 3(c)(iv) shall be inclusive of all related taxes and
benefits attributable to the payment of such bonuses.
(v) Except as specifically set forth in this
Agreement, the Agent shall not assume, nor shall its actions be
construed as an assumption of, any other of the Merchant's
liabilities or obligations. The Merchant shall indemnify and hold
the Agent harmless in respect to all claims, if any, for those
obligations and liabilities of Merchant not specifically assumed
by Agent hereunder.
(vi) Agent shall leave the Store premises at
the end of the Sale Term in the same condition as existed on the
Sale Commencement Date and broom clean, reasonable wear and tear
excepted. In addition Agent shall be responsible for any damage to
the Store premises due to the negligence of Agent.
(vii) On the Sale Commencement Date, Agent will
purchase the petty cash at each Store, and Agent and Merchant
shall document such purchase appropriately as part of the
reconciliation of Expenses of the first week of the Sale.
4. Proceeds
(a) (i) For the purposes of this Agreement,
"Proceeds" shall mean the total amount (in dollars) of all sales
of Merchandise made under this Agreement (exclusive of sales,
excise and gross receipts taxes; credit card fees; and, returns,
allowances and Merchandise credits). All sales will be made only
for cash, and by credit cards currently accepted by Merchant
except Merchant's in-house charge card. Agent will not accept
payments for in-house charges, however, Agent will advise
customers to remit payments to Merchant at 45 Dan Road, Canton, MA
02021, Attn: Credit Department, and if Agent accepts payment, then
Merchant will have recourse against Agent. The Agent will only
accept Merchant validated gift certificates, store credits
and due bills issued prior to the Inventory Date, conditioned
upon arrangements satisfactory to Agent that such total amount
will be reimbursed to Agent by Merchant.
(ii) Agent also shall accept returns of goods
sold prior to the Inventory Date in accordance with Merchant's
historic return policy which Merchant shall provide to Agent prior
to the Sale Commencement Date, conditioned upon arrangements
satisfactory to Agent that total amounts reimbursed to the
customer will be paid by Merchant to Agent. All returns shall be
documented daily by Agent by department, using return forms set
forth in Exhibit 4(a)(ii), and according to Merchant's procedures.
Agent shall, at Merchant's request, include as "Merchandise" for
all purposes hereunder, such returned goods that are of "first
quality" (as previously defined) and resalable at that percentage
of Retail Price determined by multiplying the percentage described
in Section 5(a) hereof, by a fraction, the numerator of which is
the price payable by the consumer for that item or type of good at
the time of the return or delivery of the goods, and the
denominator of which is the price payable by the
consumer for that item or type of good at the Sale Commencement
Date. All other returned goods will be excluded from Merchandise
and be retained by Merchant.
(b) All Proceeds shall be deposited in special
agency accounts, but the Agent shall have sole signatory authority
and
control over such accounts. Merchant's tax identification number
will not be used to open such accounts.
5. Payment
(a) Payment Amounts
The Merchant shall receive from Agent the sum of
forty-eight percent (48%) of the Retail Price of the Merchandise
(the "Guaranteed Amount"). In the event that Proceeds of the Sale
exceed the sum of (i) the Guaranteed Amount, plus (ii) the Agent's
Fee (as hereinafter defined), plus (iii) the lesser of (A) all
Expenses, or (B) an amount equal to 11% of the aggregate Retail
Price of the Merchandise, then Merchant shall receive from Agent
seventy percent (70%) of such excess Proceeds (the "Recovery
Amount").
(b)Time and Manner of Payment; Reporting
(i) The Agent shall pay to Merchant the sum of
$27,000,000 on March 29, 1996, which sum represents a good faith estimate of
eighty percent (80%) of the Guaranteed Amount on the basis of an estimated
Retail Price of Merchandise of $70,000,000. Such estimate is being paid as an
advance by Agent to Merchant against the Guaranteed Amount. The balance of the
Guaranteed Amount shall be paid by Agent to Merchant when the inventory taking
and reporting processes are complete and final pursuant to and described in
Section 2 and Exhibit 2(a)(i) hereof. Following the Sale Termination Date, the
Agent shall prepare and deliver to Merchant a final reconciliation of the Sale
which shall include, in reasonable detail, a statement of Proceeds and
Expenses and a calculation of the Recovery Amount, if any, due to Merchant. As
soon as practicable but in any event within thirty (30) days after the Sale
Termination Date, Agent shall pay to Merchant the Recovery Amount. Payment of
the Guaranteed Amount, and other amounts due to Merchant hereunder shall be
made by deposits or wire transfers to accounts to be designated by Merchant.
(ii) In the event that the Sale is not commenced within
seven (7) days of the delivery to Merchant of the payment by Agent on account
of the Guaranteed Amount referred to in the first sentence of Section 5(b)(i)
above for any reason other than the negligence or misconduct of Agent,
Merchant shall immediately repay to Agent all amounts received by it on
account of the Guaranteed Amount. The foregoing right to repayment shall be in
addition to and not in limitation of any other rights or remedies available to
the parties.
(c) Agent's Payments
(i) The Merchant shall not be entitled to the payment of
any other monies from the Sale or otherwise, except as specified in this
Agreement. In consideration of services provided by Agent hereunder and the
payment by Agent of the Guaranteed Amount, the Agent shall receive as its fee
hereunder (A) 100% of the Proceeds of the Sale in excess of the sum of the
Guaranteed Amount and the Expenses up to an amount equal to 2% of the
aggregate Retail Price of the Merchandise (the "Agent's Fee"), and (B) to the
extent that Proceeds of the Sale exceed the sum of (x) the Guaranteed Amount,
plus (y) the lesser of (1) the Expenses, or (2) an amount equal to 11% of the
aggregate Retail Price of the Merchandise, plus (z) the Agent's Fee, then
Agent shall receive 30% of such excess Proceeds. All Merchandise remaining at
the conclusion of the Sale shall become the property of Agent, free and clear
of all liens, claims and encumbrances of any kind or nature whatsoever except
as incurred by or due to acts or omissions of Agent; sums received by Agent
from dispositions of such remaining Merchandise shall be Proceeds for purposes
hereof and reported to Merchant, but the manner and terms of such dispositions
shall be in Agent's sole discretion.
(ii) Upon the execution of a certain Loan Agreement between
and among GRS Realty Company, Inc. and an entity affiliated or related to
Agent, Merchant shall cause GRS Realty Company, Inc. to pay to Agent the sum
of $650,000 as additional consideration for services to be rendered to
Merchant by Agent hereunder (the "Inventory Management Fee").
6. Conditions Precedent
The Agent's and Merchant's willingness to enter into the
transaction contemplated hereunder and Agent's and Merchant's obligations
hereunder are directly conditioned upon the
satisfaction, compliance, and completion of the following prior to or at the
Sale Commencement Date:
(a) The Merchant having obtained with Agent's cooperation all
necessary licenses, consents and approvals of government authorities necessary
to conduct a "store
closing"/"going out of business" type sale as herein contemplated from the
Stores by April 15, 1996.
(b) The estimated 80% of the Guaranteed Amount shall have been
paid to Merchant as herein provided.
(c) The Merchant possessing and the Agent having the right to
the undisturbed and unencumbered use and occupancy of, and the peaceful and
quiet possession of, the Stores and assets currently located thereat and the
services provided thereto to
conduct the Sale, including but not limited to landlord consents to the Sale.
(d) The Merchant continuing to operate the Stores in the
ordinary course of business from the date hereof to the date of a Store
closing in preparation for inventory, selling goods during said period at
prices currently charged therefor and not promoting or advertising any "sales"
or in-store promotions to the public except pursuant to the Ad Schedule
attached as
Exhibit 6(d)(i), and not making any management personnel moves or changes in
the Stores. If any casualty or act of God substantially inhibits the conduct
of business in the ordinary course at any Store, such Store and Merchandise
thereat shall be deleted from this Agreement.
(e) The inventory taking shall have been completed at each
Store, and the inventory taking service shall have issued its report to
Merchant and Agent.
(f) All representations and warranties hereunder shall be
considered made again at the Sale Commencement Date, and shall
be true on that date, and there shall have been no breaches or defaults of any
covenants herein contained.
(g) The Merchant shall have executed and delivered to Agent a
security agreement together with accompanying forms UCC-1 sufficient to grant
to Agent a first priority perfected security interest in the Merchandise and
the Proceeds.
(h) Merchant shall have obtained the consent of BankAmerica
Business Credit, Inc. to the transactions contemplated to this Agreement.
7. Representations and Warranties
(a) The Merchant hereby makes the following representations and
warranties to the Agent, which shall survive the execution and delivery of
this Agreement:
(i) The Merchant is a corporation, duly organized,
validly existing and in good standing under the laws of Delaware and has the
corporate power and authority to own,
lease and operate its assets, properties and business and to carry on its
business as now being conducted.
(ii) The Merchant has the right, power and authority
required to execute, deliver and perform fully its obligations hereunder. This
Agreement has been duly executed and delivered by the Merchant and constitutes
the valid and binding obligation of the Merchant enforceable against Merchant
in accordance with its terms subject only to any applicable bankruptcy,
insolvency or similar laws affecting the rights of creditors generally. No
court order or decree of any federal, state, or local governmental authority
or regulatory body is in effect that would prevent or impair consummation of
the transactions contemplated by this Agreement, and no consent of any third
party is required therefor,[except BankAmerica
Business Credit, Inc. which shall be obtained as a condition precedent].
(iii) The Merchant has operated the Stores and Other Stores in
the ordinary course of business consistent with historical operations, and has
not conducted any promotions or advertised sales outside of the ordinary
course of business within the last one month except promotions and sales
identified in Exhibit 6(d)(i).
(iv) All employees of the Merchant at the Stores
entitled to participate in the Merchant's benefit plans that the
Agent has agreed to pay, will continue to participate in such plans as
provided therein.
(v) The Merchant is authorized to conduct business in
each state in which the Stores are located and has all licenses, permits and
authorizations of governmental bodies necessary therefor.
(vi) The Merchandise is owned free and clear of liens,
claims and encumbrances, except as listed on Exhibit 7(a)(vi).
(vii) Since March 1, 1996 Merchant has maintained its pricing
files of the goods in the Stores and Other Stores in the ordinary course, and
prices charged to the public for the goods (whether in-store, by advertisement
or otherwise) are the same as set forth in the said pricing files as of and
for the periods indicated, except for the promotions and sales described in
Section 7(a)(iii). Certain pricing files and records since March 1, 1996 with
respect to all goods in the Stores have been made available to Agent and are
described in Exhibit 7(a)(vii), and are true and accurate in all material
respects as to the regular retail selling price therefore, excluding
promotional discounts, as of the dates and for the periods of such files and
records. From March 1, 1996 to the Inventory Date, Merchant has not
adjusted, and shall not adjust the prices of inventory
constituting Merchandise from those existing on March 1, 1996
except as reflected in promotional circulars dated on or after
March 14, 1996, and except for raising prices on those items in
those circulars to their historical prices after the expiration
of those circulars as reflected in Exhibit 7(a)(vii).
(viii) As of the Inventory Date, the mix of goods
constituting Merchandise (as to the type, category, style, brand
and description) and quality and condition of goods constituting
Merchandise at the Stores will be substantially the same as of
March 14, 1996, except as agreed upon by the parties in writing
subject to deviations only from sales in the ordinary course of
business since March 14, 1996. Inventory constituting Merchandise
at the Stores on the Inventory Date shall have a Retail Price of
no less than $60,000,000 and no more than $70,000,000.
(ix) Attached as Exhibit 7(a)(ix) is a summary of
sales, expenses and other financial information, by Store, which
Merchant represents is substantially true and correct for the
time periods indicated.
(b) The Agent represents and warrants to Merchant as
follows, which representations and warranties shall survive the
execution of this Agreement:
(i) The Agent is a corporation, duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the power and authority to
consummate the transactions contemplated hereby.
(ii) The Agent has the right, power and
authority to execute and deliver this Agreement and perform its
obligations hereunder and has taken all necessary action required
to authorize the execution, delivery, and performance of this
Agreement and no further approval is required for the Agent to
enter into and deliver this Agreement and to perform its
obligations hereunder.
(iii) This Agreement has been duly executed and
delivered by the Agent and constitutes the legal, valid and
binding obligation of the Agent enforceable against the Agent in
accordance with its terms subject only to any applicable
bankruptcy, insolvency or similar laws affecting the rights of
creditors generally. No court order or decree of any federal,
state, or local governmental authority or regulatory body is in
effect that would prevent or impair or is required for the
Agent's consummation of the transactions contemplated by this
Agreement and no consent of any third party is required therefor.
No contract or other agreement to which the Agent is a party or
by which the Agent is otherwise bound will prevent or impair the
consummation of the transactions contemplated by this Agreement.
(iv) To the Agent's knowledge, no actions or
proceedings have been instituted by or against the Agent, or have
been threatened, which question the validity of this Agreement or
any action taken or to be taken by the Agent in connection with
this Agreement or that, if adversely determined, would have a
material adverse effect upon the Agent's ability to perform its
obligations under this Agreement.
(v) No actions or proceedings (including, but not
limited to, bankruptcy or other insolvency proceedings) have been
instituted against the Agent or, to its knowledge, are threatened
to be instituted against the Agent, which would impair Agent's
performance of its obligations hereunder.
8. Insurance
(a) Until the expiration of the Sale Term, the
Merchant shall continue in force all insurance in such amounts as
it currently has in effect which the Merchant represents is
accurately shown on Exhibit 8 attached hereto subject to
deductibles therein shown. The Agent shall be named as an
additional loss payee as its interests may appear, and shall have
the right to settle all insurance losses and claims as to the
Merchandise. The Agent shall reimburse the Merchant for costs of
inventory insurance (which is defined as an Expense) during the
Sale Term upon receipt of an invoice therefor from the Merchant.
(b) During the Sale Term, the Agent shall maintain, at
its cost, general liability insurance for injury to persons in an
amount equal to at least $1,000,000 per occurrence and for
property in an amount equal to at least $500,000 per occurrence,
naming Merchant as additional insured as its interests may
appear, subject to a $100,000 deductible per occurrence. Agent
shall be liable for the $100,000 deductible on Agent's general
liability insurance policy.
9. Defaults. The following shall be "Events of Default"
hereunder.
(a) The Merchant or Agent shall fail to perform any
material obligation hereunder if such failure remains uncured
seven days after written notice thereof; or
(b) Any representation or warranty made by Merchant or
Agent proves untrue when made; or
(c) The Sale is terminated at any Store not caused by
a breach, default, negligence or misconduct of Agent.
Any party's damages or entitlement to equitable relief
on account of an Event of Default referred to in (a), (b) or (c)
shall be determined by appropriate proceedings in a court of
competent jurisdiction.
10. Miscellaneous
(a) All communications provided for pursuant to this
Agreement must be in writing, and mailed by Federal Express or
other overnight delivery services, as follows:
If to the Agent: Gordon Brothers Partners, Inc.
40 Broad Street
Boston, MA 02109
Attn: William S. Weinstein
If to the Merchant: Grossman's, Inc.
45 Dan Road
Canton, MA 02021
Attn: Michael Shea
With a copy to: Richard Kent, Esq.
(b) This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
(c) This Agreement contains the entire agreement
between the parties hereto, and no variations shall be binding
upon any party unless set forth in a document duly executed by
and on behalf of such party.
(d) No consent or waiver, express or implied, by any
party, to or of any breach or default by the other in the
performance by the other of its obligations hereunder shall be
deemed or construed to be a consent or a waiver to or of any
other breach or default in the performance by such other party of
the same or any other obligations of such party. Failure on the
part of any party to complain of any act or failure to act by the
other party or to declare the other party in default,
irrespective of how long such failure continues, shall not
constitute a waiver by such party of its rights hereunder.
(e) This Agreement shall inure to the benefit of and
be binding upon the undersigned and their respective successors
and assigns.
IN WITNESS WHEREOF, the Agent, the Merchant and [Newco]
hereby execute this Agreement by their duly authorized
representative as a sealed instrument as of the day and year
first written above.
GORDON BROTHERS PARTNERS, INC.
By:
Its:
GROSSMAN'S, INC.
By:
Its:
grsmnag6
EXHIBIT 11(a)
<TABLE>
<CAPTION>
GROSSMAN'S INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Net loss for primary and fully
diluted earnings per share $(54,687) $(10,672)
========= =========
Weighted average number of shares
outstanding 26,089 25,782
Net effect of dilutive stock options - -
Total weighted average shares
outstanding and common stock
equivalents used in primary
calculation of earnings per share 26,089 25,782
Additional dilution from stock
options - -
Total weighted average shares
outstanding and common stock
equivalents used in fully diluted
calculation of earnings per share 26,089 25,782
========= ========
Primary loss per share $ (2.10) $(0.41)
========= ========
Fully diluted loss per share $ (2.10) $(0.41)
========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,745
<SECURITIES> 0
<RECEIVABLES> 23,645
<ALLOWANCES> 3,041
<INVENTORY> 53,106
<CURRENT-ASSETS> 82,807
<PP&E> 65,563
<DEPRECIATION> 14,608
<TOTAL-ASSETS> 166,244
<CURRENT-LIABILITIES> 121,855
<BONDS> 2,070
<COMMON> 261
0
0
<OTHER-SE> 18,847
<TOTAL-LIABILITY-AND-EQUITY> 166,244
<SALES> 112,981
<TOTAL-REVENUES> 112,981
<CGS> 86,481
<TOTAL-COSTS> 86,481
<OTHER-EXPENSES> 80,394
<LOSS-PROVISION> 465
<INTEREST-EXPENSE> 1,620
<INCOME-PRETAX> (54,687)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,687)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,687)
<EPS-PRIMARY> (2.10)
<EPS-DILUTED> (2.10)
</TABLE>
