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 EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period from __________________ to _________________
Commission file number 1-6083
NOODLE KIDOODLE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-1771705
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
6801 JERICHO TURNPIKE, SYOSSET, NEW YORK 11791
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 677-0500
105 PRICE PARKWAY, FARMINGDALE, NEW YORK 11735
(Former Address)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days. YES X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date
7,579,640 shares outstanding as of September 2, 1997.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Condensed Consolidated Balance Sheets
August 2, 1997, August 3, 1996 and February 1, 1997 3
Condensed Consolidated Statements of Operations
Thirteen and Twenty-Six Weeks Ended August 2, 1997
and August 3, 1996 4
Condensed Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended August 2, 1997 and August 3, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION 10
SIGNATURES 12
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<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
August 2, August 3, February 1,
1997 1996 1997
(In thousands, except share data)
<CAPTION>
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,946 $18,074 $11,333
Merchandise inventories 17,681 14,110 17,318
Prepaid expenses and other current assets 3,140 3,210 2,752
Total current assets 26,767 35,394 31,403
Property, plant and equipment - net 18,851 15,627 19,583
Other assets 93 69 50
Total Assets $45,711 $51,090 $51,036
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 18 $ - $ 18
Trade accounts payable 5,752 5,251 5,049
Accrued expenses and taxes 6,371 4,473 7,092
Net liabilities of discontinued operations 1,849 4,032 2,425
Total current liabilities 13,990 13,756 14,584
Long-term debt 744 - 753
Commitments and contingencies - - -
Stockholders' equity:
Preferred stock-authorized 1,000,000
shares, par value $.001,(none issued) - - -
Common stock-authorized 15,000,000,
par value $.001, issued 8,503,901,
8,483,901 and 8,503,901 shares,
respectively 9 8 9
Capital in excess of par value 43,063 42,975 43,063
Retained earnings (deficit) (8,303) (1,857) (3,581)
34,769 41,126 39,491
Less treasury stock, at cost, 924,261
shares 3,792 3,792 3,792
Total stockholders' equity 30,977 37,334 35,699
Total Liabilities and Stockholders' Equity $45,711 $51,090 $51,036
See accompanying notes to Condensed Consolidated Financial Statements.
</TABLE>
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<TABLE>
NOODLE KIDOODLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
(In thousands, except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $13,654 $ 9,531 $29,189 $18,644
Costs and expenses:
Cost of product sold including
buying and warehousing costs 8,539 6,085 18,203 12,012
Selling and administrative expenses
expenses 7,948 6,731 15,922 12,831
16,487 12,816 34,125 24,843
Operating loss (2,833) (3,285) (4,936) (6,199)
Interest income 137 220 260 451
Interest expense (23) (10) (46) (20)
Loss before income tax (2,719) (3,075) (4,722) (5,768)
Income taxes (benefit) - - - -
Net loss $(2,719) $(3,075) $(4,722) $(5,768)
Net loss per share $ (.36) $ (.41) $ (.62) $ (.78)
Weighted average shares outstanding 7,580 7,558 7,580 7,399
See accompanying notes to Condensed Consolidated Financial Statements
</TABLE>
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NOODLE KIDODOLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
UNAUDITED
Twenty-Six Weeks Ended
August 2, August 3,
1997 1996
(In thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations $(4,722) $(5,768)
Adjustments to reconcile to net cash provided
(used):
Depreciation 1,207 824
Decrease (increase) in non-cash working capital
accounts:
Merchandise inventories (363) (3,782)
Prepaid expenses, taxes and other current assets (388) (167)
Trade accounts payable, accrued expenses and taxes (18) 130
Net cash (used in) continuing operations (4,284) (8,763)
Decrease (increase) in non-cash working capital
accounts and other of discontinued operations (576) 7,616
Net cash provided by (used in) discontinued
operations (576) 7,616
Net cash (used in)operating activities (4,860) (1,147)
Cash flows from investing activities:
Property additions (479) (4,059)
Other (39) (14)
Net cash (used in)investing activities (518) (4,073)
Cash flows from financing activities:
Proceeds from public offering - 16,009
Proceeds form exercise of employee stock options - 13
Reduction of long-term debt (9) -
Net cash provided by (used in) financing
activities (9) 16,022
Net increase (decrease) in cash and cash equivalents (5,387) 10,802
Cash and cash equivalents - beginning of period 11,333 7,272
Cash and cash equivalents - end of period $ 5,946 $18,074
See accompanying notes to Condensed Consolidated Financial Statements
</TABLE>
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NOODLE KIDOODLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1.
The accompanying unaudited condensed consolidated
financial statements have been prepared in
accordance with the instructions to Form 10-Q and do
not include all the information and footnotes
required by generally accepted accounting principles
for complete financial statements and are subject to
year-end adjustments. However, in the opinion of
management, all known adjustments (which consist
primarily of normal recurring accruals) have been
made to present fairly the consolidated operating
results for the unaudited periods. This financial
information should be read in conjunction with the
financial statements and notes thereto included in
the Registrant's annual report on Form 10-K for the
year ended February 1, 1997.
It should be noted that amounts included in the
financial statements of the prior year have been
reclassified to conform to the current year's
presentation.
Due to the seasonal nature of the Company's
business, results for the interim period are not
necessarily indicative of the results to be expected
for the fiscal year.
NOTE 2.
All highly liquid investments with a maturity date
of three months or less are considered to be cash
equivalents. These investments are stated at cost
which approximates market.
NOTE 3.
Income tax provisions are based on estimated annual
effective tax rates. The loss for the periods ended
August 2, 1997 and August 3, 1996 provided no tax
benefit.
NOTE 4.
Recent Accounting Pronouncements: In February 1997,
the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 changes
the computational guidelines for earnings per share
information. The Company will adopt the provisions
of SFAS 128 in its January 31, 1998 consolidated
financial statements. SFAS 128 will eliminate the
presentation of primary earnings per share and
replace it with basic earnings per share. Basic
earnings per share differs from primary earnings per
share because common stock equivalents are not
considered in computing basic earnings per share.
Fully diluted earnings per share will be replaced
with diluted earnings per share. Diluted earnings
per share is similar to fully diluted earnings per
share, except in determining the number of dilutive
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shares outstanding for options and warrants, the
proceeds that would be received upon the conversion
of all dilutive options and warrants are assumed to
be used to repurchase the Company's common shares at
the average market price of such stock during the
period. For fully diluted earnings per share, the
higher of the average market price or ending market
price is used. The Company expects that the
adoption of SFAS 128 will have no material effect
upon its reported results.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended August 2, 1997 Compared With
Thirteen Weeks Ended August 3, 1996
Net sales increased $4.2 million to $13.7 million in the
thirteen week period ended August 2, 1997 from $9.5 million
in the comparable period in the prior year. Sales from
Noodle Kidoodle stores increased $4.6 million to $13.6
million in the second quarter from $9.0 million in the
comparable period in the prior year, primarily due to the
addition of nine new stores, of which eight opened in the
second half of last year and one opened in the first half of
the current year, coupled with an increase in comparable
store sales of 7.9%. Other retail sales decreased $.4
million to $.1 million in the thirteen week period ended
August 2, 1997 from $.5 million in the comparable period in
the prior year. The Company operated thirty-two Noodle
Kidoodle stores and one Playworld store at August 2, 1997
compared to twenty-three Noodle Kidoodle stores and one
Playworld store at August 3, 1996.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
$1.7 million to $5.1 million in the thirteen week period
ended August 2, 1997 from $3.4 million in the comparable
period in the prior year. Gross profit, as a percentage of
net sales ("gross profit percentage"), increased to 37.5% in
the second quarter ended August 2, 1997 from 36.2% in the
comparable period in the prior year. Gross profit percentage
at Noodle Kidoodle stores increased to 37.5% in the current
quarter from 36.4% in the comparable period in the prior
year, primarily due to the leveraging of buying and
warehousing costs and lower merchandise costs.
Selling and administrative expenses increased $1.2 million to
$7.9 million in the thirteen week period ended August 2, 1997
from $6.7 million in the comparable period in the prior year.
These increases resulted from higher direct store expenses of
$1.4 million as a result of changes in the store base, offset
by reductions in home office costs of $.1 million and reduced
store pre-opening expenses of $.1 million. Selling and
administrative expenses, as a percent of net sales, decreased
to 58.2% in the thirteen week period ended August 2, 1997
from 70.6% in the comparable period in the prior year. The
decrease resulted primarily from the leveraging of home
office and advertising expenses over a larger sales base.
Net loss decreased $.4 million to $2.7 million ($.36 per
share) in the period ended August 2, 1997 from $3.1 million
($.41 per share) in the comparable period in the prior year.
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Twenty-Six Weeks Ended August 2, 1997
Compared with Twenty-Six Weeks Ended August 3, 1996
Net sales increased $10.6 million to $29.2 million in the
twenty-six week period ended August 2, 1997 from $18.6
million in the comparable period in the prior year. Sales
from Noodle Kidoodle stores increased $11.9 million to $29.1
million in the current six month period from $17.2 million in
the comparable period in the prior year, primarily due to the
addition of nine new stores, of which eight opened in the
second half of last year, and one opened in the first half of
this year, coupled with an increase in comparable store sales
of 12.6%. Other retail sales decreased $1.3 million to $.1
million in the six-month period ended August 2, 1997 from
$1.4 million in the comparable period in the prior year,
primarily due to the closing of one Playworld store and two
Toy Park stores during the first half of last year. The
Company operated thirty-two Noodle Kidoodle stores and one
Playworld store at August 2, 1997, compared to twenty-three
Noodle Kidoodle stores and one Playworld store at August 3,
1996.
Gross profit (derived from net sales less the cost of product
sold, which includes buying and warehousing costs) increased
$4.4 million to $11.0 million in the twenty-six week period
ended August 2, 1997 from $6.6 million in the comparable
period in the prior year. Gross profit as a percent of net
sales ("gross profit percentage") increased to 37.6% in the
current six-month period from 35.6% in the comparable period
in the prior year. Gross profit percentage at Noodle
Kidoodle stores increased to 37.7% for the six-month period
ended August 2, 1997 from 35.8% in the comparable period in
the prior year, primarily due to the leveraging of buying and
warehousing costs over a larger sales base. Gross profit
percentage in the other retail stores decreased to 21.4% in
the six month period ended August 2, 1997 from 32.4% in the
comparable period in the prior year, primarily from markdowns
taken in the one remaining Playworld store.
Selling and administrative expenses increased $3.1 million to
$15.9 million in the twenty-six week period ended August 2,
1997 from $12.8 million in the comparable period in the prior
year. These increases resulted from higher direct store
expenses of $3.2 million due to changes in the store base,
offset by reduced home office and store pre-opening costs of
$.1 million. Selling and administrative expenses as a
percent of net sales decreased to 54.5% in the twenty-six
week period ended August 2, 1997 from 68.8% in the comparable
period in the prior year. The decrease resulted primarily
from leveraging of home office and advertising expenses over
a larger sales base.
Net loss decreased $1.1 million to $4.7 million ($.62 per
share) in the six-month period ended August 2, 1997 from $5.8
million ($.78 per share) in the comparable period in the
prior year.
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Liquidity and Capital Resources
During the twenty-six week period ended August 2, 1997 the
Company used $4.9 million of cash in its operating
activities, primarily to fund the net loss of $4.7 million
and an increase in working capital of $.8 million, offset by
$1.2 million of depreciation. Also, $.6 million of cash was
used to reduce the net liabilities of discontinued
operations. The Company used $.5 million of cash to fund
investing activities primarily to purchase fixed assets for
new stores. As a result of the foregoing, cash and cash
equivalents decreased during the period by $5.4 million.
In June 1997 the Company entered into a $15.0 million, three
year revolving credit facility with The CIT Group/Business
Credit, Inc. This facility may be used for direct borrowings
and letters of credit, and is secured by the Company's
inventory.
The Company has available net operating loss carryforwards of
approximately $20.0 million for income tax purposes.
Quarterly fluctuation in results and seasonality.
The timing of new store openings and related pre-opening
expenses and the amount of revenue contributed by new stores
have caused, and are expected to cause in the future, the
Company's quarterly results of operations to fluctuate. In
addition, the Company's operations are highly seasonal, a
significant portion of a typical store's revenue is generated
during the Company's fourth fiscal quarter, which coincides
with the Christmas selling season. The Company does not
expect to generate positive operating income during the first
three fiscal quarters for the foreseeable future.
Part II - Other Information
Item 4.
Submission of Matters to a Vote of Security Holders:
At the Annual Meeting of Shareholders held July 8,
1997, the following persons were elected as
directors of the Company:
Class 3 Directors: (until the 2000 meeting)
Stanley Greenman
Joseph A. Madenberg
Class 1 Director: (until the 1998 meeting)
Melvin C. Redman
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The following Directors continue in office for the
duration of their terms:
Class 1 Directors: (until the 1998 meeting)
Lester Greenman
Barry W. Ridings
Class 2 Directors: (until the 1999 meeting)
Robin Farkas
Stewart Katz
Robert Stokvis
In addition, it was voted and resolved at the Annual
Shareholders Meeting of July 8, 1997 to amend the Company's
Certificate of Incorporation to reduce the number of
Directors to serve on the Board from nine to eight as set
forth in the Proxy Statement dated June 2, 1997. The holders
of 5,911,160 shares voted in favor of the proposal; the
holders of 72,651 shares voted against the proposal; the
holders of 19,304 shares abstained from voting on the
proposal and the balance of shares were not voted.
Item 6.
Exhibits and Reports on Form 8-K.
(a) (i) Financing Agreement dated June 27, 1997 between
Noodle Kidoodle, Inc. and The CIT Group/Business
Credit, Inc. is attached as an exhibit to this
quarterly report on Form 10-Q for the period ended
August 2, 1997.
(ii) Amended and Restated Certificate of Incorporation,
as of July 11, 1997, is attached as an exhibit to
this quarterly report on Form 10-Q for the period
ended August 2, 1997.
(b) None
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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.
NOODLE KIDOODLE, INC.
(Registrant)
Date: September 15, 1997 STANLEY GREENMAN
/s/ Stanley Greenman, Chairman
of the Board, Chief
Executive Officer, and
Treasurer
(Principal Executive
Officer)
Date: September 15, 1997 KENNETH S. BETUKER
/s/ Kenneth S. Betuker
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 5,946
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 17,681
<CURRENT-ASSETS> 26,767
<PP&E> 24,274
<DEPRECIATION> 5,423
<TOTAL-ASSETS> 45,711
<CURRENT-LIABILITIES> 13,990
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 30,968
<TOTAL-LIABILITY-AND-EQUITY> 45,711
<SALES> 29,189
<TOTAL-REVENUES> 29,189
<CGS> 18,203
<TOTAL-COSTS> 18,203
<OTHER-EXPENSES> 15,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> (4,722)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,722)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,722)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
FINANCING AGREEMENT
The CIT Group/Business Credit, Inc.
(as Lender)
And
Noodle Kidoodle, Inc.
(as Borrower)
Dated: June 27, 1997
TABLE OF CONTENTS
Page
SECTION 1. Definitions 3
SECTION 2. Conditions Precedent 10
SECTION 3. Revolving Loans 12
SECTION 4. Letters of Credit 15
SECTION 5. Collateral 18
SECTION 6. Representations, Warranties and Covenants 20
SECTION 7. Interest, Fees and Expenses 25
SECTION 8. Powers 28
SECTION 9. Events of Default and Remedies 28
SECTION 10. Termination 31
SECTION 11. Miscellaneous 31
EXHIBIT
Exhibit A - Form of Credit Card Letters
SCHEDULES
Schedule 1 - Existing Liens
Schedule 2 - Collateral Locations and Chief Executive Office
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THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation,
(hereinafter "CITBC") with offices located at 1211 Avenue of the Americas,
New York, NY 10036, is pleased to confirm the terms and conditions under
which CITBC shall make revolving loans and other financial accommodations
to Noodle Kidoodle, Inc., a Delaware corporation (herein the "Company"),
with a principal place of business at 6801 Jericho Turnpike, Syosset, NY
11791.
SECTION 1. Definitions
Accounts shall mean all of the Company's now existing and future: (a)
accounts (as defined in the U.C.C.) and any and all other receivables
(whether or not specifically listed on schedules furnished to CITBC)
(including but not limited to any and all rights to payments under bank and
non-bank credit cards), including, without limitation, all accounts created
by or arising from all of the Company's sales of Inventory to its
customers, and all accounts arising from such sales made under any of the
Company's trade names or styles, or through any of the Company's divisions;
(b) any and all instruments (as defined in the U.C.C.), documents (as
defined in the U.C.C.), contract rights (as defined in the U.C.C.) ,
general intangibles (as defined in the U.C.C.) and chattel paper (as
defined in the U.C.C.) which are created by or arise from the sale of
Inventory; (c) unpaid seller's rights (including rescission, replevin,
reclamation and stoppage in transit) relating to the foregoing or arising
therefrom; (d) rights to any goods represented by any of the foregoing,
including rights to returned or repossessed goods; (e) reserves and credit
balances arising hereunder; (f) guarantees or collateral for any of the
foregoing; (g) insurance policies or rights relating to any of the
foregoing; and (h) cash and non-cash proceeds of any and all the foregoing.
Anniversary Date shall mean the date occurring three (3) years from the
date hereof and the same date in every year thereafter.
Availability shall mean at any time the excess of a) Eligible Inventory
multiplied by the Inventory Advance Percentage over (b) the sum of x) the
outstanding aggregate amount of all Obligations, including without
limitation, all Obligations with respect to Revolving Loans and Letters of
Credit of the Company and y) the Availability Reserve.
Availability Reserve shall mean the sum of (a) two (2) months rental
payments on all of the Company's leased premises for which the Company has
not delivered to CITBC a landlord's waiver (in form and substance
satisfactory to CITBC in the exercise of its reasonable business judgment),
provided that such amount shall be increased or decreased from time to time
hereafter upon (i) delivery to CITBC of any such acceptable waiver, (ii)
the opening or closing of a Collateral location and/or (iii) any change in
rental payment, (b) at CITBC's option, the amount of all sales taxes
collected by the Company and not yet remitted to the authority to which
such taxes are owed and (c) such other reserves as CITBC deems necessary in
its reasonable judgment.
Business Day shall mean any day that CITBC is open for business in New
York, New York, which is not (i) a Saturday, Sunday or legal holiday in the
state of New York or (ii) a day on which banking institution chartered by
the state of New York or the United States are legally required to close.
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Chase Bank Rate shall mean the rate of interest per annum announced by
Chase Manhattan Bank, N.A. from time to time as its prime rate in effect at
its principal office in the City of New York. (The prime rate is not
intended to be the lowest rate of interest charged by Chase Manhattan Bank,
N.A. to its borrowers).
Closing Date shall mean the date of execution of this Financing Agreement.
Collateral shall mean all present and future Accounts, Inventory, Documents
of Title, and Other Collateral of the Company.
Collateral Management Fee shall mean the sum which shall be paid to CITBC
in accordance with Section 7, Paragraph 7 hereof to offset the expenses and
costs of CITBC in connection with record keeping, periodic examinations,
analyzing and evaluating the Collateral.
Consolidated Balance Sheet shall mean a consolidated balance sheet for the
Company and its consolidated subsidiaries (if any) eliminating all
inter-company transactions and prepared in accordance with GAAP.
Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Company, and its subsidiaries (if any) of
each showing all eliminations of inter-company transactions and prepared in
accordance with GAAP and including a balance sheet for the Company
exclusively.
Credit Card Letters shall mean those letters by and among the Company,
CITBC and each remitter with respect to credit card receipts, in the form
annexed hereto as Exhibit A.
Customarily Permitted Liens shall mean
(a) liens of local or state authorities for franchise or other like
taxes provided the aggregate amounts of such liens shall not exceed
$100,000.00 at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate
actions which are sufficient to prevent imminent foreclosure of such liens)
and with respect to which adequate reserves or other appropriate provisions
are being maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of
business (including, without limitation, security deposits for leases,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to
secure the performance of tenders, bids, contracts (other than for the
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repayment or guarantee of borrowed money or purchase money obligations),
statutory obligations and other similar obligations arising as a result of
progress payments under government contracts; and
(d) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, minor defects or
irregularities in title, variation and other restrictions, charges or
encumbrances (whether or not recorded) affecting the Real Estate and which
in the aggregate (x) do not materially interfere with the occupation, use
or enjoyment by the Company in its business of the property so encumbered
and (y) in the reasonable business judgment of CITBC do not materially and
adversely affect the value of such Real Estate.
Default shall mean any event specified in Section 9 hereof, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, event or act, has been satisfied.
Default Rate of Interest shall mean a rate of interest per annum equal to
the sum of: a) two percent (2%) and b) the applicable contract rate of
interest based upon the applicable increment over the Chase Bank Rate as
determined under Section 7 hereof, which CITBC shall be entitled to charge
the Company on all Obligations due CITBC by the Company to the extent
provided in Section 9, Paragraph 2 of this Financing Agreement.
Depository Accounts shall have the meaning specified in Section 3,
Paragraph 4 hereof.
Documentation Fee shall mean i) the sum included in the initial Collateral
Management Fee which is intended to compensate CITBC for the use of CITBC's
in-house Legal Department and facilities in documenting, in whole or in
part, the initial transaction solely on behalf of CITBC, exclusive of
Out-of-Pocket Expenses, and ii) CITBC's standard fees relating to any and
all future modifications, waivers, releases, amendments or additional
collateral with respect to this Financing Agreement, the Collateral and/or
the Obligations.
Documents of Title shall mean all present and future documents (as defined
in the U.C.C.) including, without limitation all warehouse receipts, bills
of lading, shipping documents, chattel paper, instruments and similar
documents, all whether negotiable or not and all goods and Inventory
relating thereto and all cash and non-cash proceeds of the foregoing.
Early Termination Date shall mean the date on which the Company terminates
this Financing Agreement or the Line of Credit pursuant to Section 10
hereof which date is prior to an Anniversary Date.
Early Termination Fee shall: i) mean the fee CITBC is entitled to charge
the Company in the event the Company terminates the Line of Credit or this
Financing Agreement on a date prior to an Anniversary Date; and ii) be
equal to (x) one percent (1%) of the Line of Credit if the Early
Termination Date occurs prior to one (1) year after the Closing Date, (y)
one-half of one percent (1/2 of 1%) if the Early Termination Date occurs on
or after one (1) year after the Closing Date but prior to two (2) years
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after the Closing Date and (z) zero percent (0%) if the Early Termination
Date occurs on or after two (2) years after the Closing Date.
Eligible Inventory shall mean the gross amount of the Company's Inventory
that is subject to a valid, first priority and fully perfected security
interest in favor of CITBC and which conform to the warranties contained
herein and which at all times continue to be acceptable to CITBC in the
exercise of its reasonable business judgment less any work-in-process,
supplies (other than raw material), (subject to the last sentence hereof)
goods not present in the United States of America, goods returned or
rejected by the Company's customers other than goods that are undamaged and
resalable in the normal course of business, goods to be returned to the
Company's suppliers, goods in transit to third parties (other than the
Company's agents or warehouses), Inventory in possession of a warehouseman,
bailee or other third party unless such warehouseman, bailee or third party
has executed a notice of security interest agreement (in form and substance
reasonably satisfactory to CITBC) and CITBC has taken all other action
required to perfect its security interest in such Inventory, and less any
reserves required by CITBC in its reasonable discretion for the following:
(a) market value declines; (b) bill and hold (deferred shipment) or
consignment sales; (c) markdowns; (d) shrinkage; (e) Inventory which is not
located at a Company's retail store locations or warehouses; (f) customer
lay-a-ways; (g) demonstration open stock or display items; (h) damaged or
defective Inventory; (i) slow-moving Inventory; (j) Inventory at outlet
locations; (k) outstanding gift certificates for purchases of Inventory in
excess of $200,000 in the aggregate (based upon Inventory valued at cost)
and (l) any other reserves required by CITBC in the exercise of its
reasonable business judgement. Notwithstanding the foregoing, Eligible
Inventory shall include Inventory in transit to the United States (whether
or not present in the United States) under Letters of Credit opened with
CITBC's assistance hereunder, provided such Inventory (x) is covered by
insurance satisfactory to CITBC and (y) is otherwise deemed eligible by
CITBC in accordance with, and subject to, the foregoing definition of
Eligible Inventory.
Equipment shall mean all present and hereafter acquired equipment (as
defined in the U.C.C.) including, without limitation, all machinery,
equipment, furnishings and fixtures, and all additions, substitutions and
replacements thereof, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto and all proceeds thereof of whatever sort.
ERISA shall mean the Employee Retirement Income Security Act or 1974, as
amended from time to time and the rules and regulations promulgated
thereunder from time to time.
Event(s) of Default shall have the meaning provided for in Section 9 of
this Financing Agreement.
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time and for the period as to
which such accounting principles are to apply.
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Indebtedness shall mean, without duplication, all liabilities, contingent
or otherwise, which are any of the following: (a) obligations in respect of
money (borrowed or otherwise) or for the deferred purchase price of
property, services or assets, other than Inventory, or (b) lease
obligations which, in accordance with GAAP, have been, or which should be
capitalized.
Inventory shall mean all of the Company's present and hereafter acquired
inventory (as defined in the U.C.C.) including, without limitation, all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and
materials used or usable in manufacturing, processing, packaging or
shipping same; in all stages of production- from raw materials through
work-in-process to finished goods - and all proceeds thereof of whatever
sort.
Inventory Advance Percentage shall mean sixty-five percent (65%).
Issuing Bank shall mean the bank issuing Letters of Credit for the Company.
Letters of Credit shall mean all letters of credit issued with the
assistance of CITBC by the Issuing Bank for or on behalf of the Company.
Letter of Credit Guaranty shall mean the guaranty delivered by CITBC to the
Issuing Bank of the Company's reimbursement obligation under the Issuing
Bank's Reimbursement Agreement, Application for Letter of Credit or other
like document.
Letter of Credit Guaranty Fee shall mean the fee CITBC may charge the
Company under Section 7, Paragraph 3 of this Financing Agreement for: i)
issuing the Letter of Credit Guaranty or ii) otherwise aiding the Company
in obtaining Letters of Credit.
Letter of Credit Sub-Line shall mean $5,000,000 in the aggregate.
Libor shall mean at any time of determination, and subject to availability,
for each interest period the higher of the applicable London Interbank
Offered rate paid in London on dollar deposits from other banks as (x)
quoted by Chase Manhattan Bank, N.A., (y) published under "Money Rates" in
the New York City edition of the Wall Street Journal or if there is no such
publication or statement therein as to Libor then in any publication used
in the New York City financial community or (z) determined by CITBC based
upon information presented on Telerate Systems at Page 3750 as of 11:00
a.m. (London Time).
Libor Loan shall mean those Revolving Loans for which the Company has
elected to use Libor for interest rate computations.
Libor Period shall mean the Libor for one month, two month, three month or
six month U.S. dollar deposits, as selected by the Company.
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Line of Credit shall mean the commitment of CITBC to make Revolving Loans
pursuant to Section 3 of this Financing Agreement and to assist the Company
in opening Letters of Credit pursuant to Section 4 of this Financing
Agreement, in the aggregate amount equal to $15,000,000.
Line of Credit Fee shall: i) mean the fee due CITBC at the end of each
month for the Line of Credit, and ii) be determined by multiplying the
difference between (a) the Line of Credit and (b) the sum of (x) the
average daily balance of Revolving Loans of the Company plus (y) the
average daily balance of Letters of Credit for said month by three eighths
of one percent (3/8 of 1%) per annum for the number of days in said month.
Obligations shall mean all loans and advances made or to be made hereunder
by CITBC to the Company or to others for the Company's account pursuant to
the instructions of the Company or otherwise in accordance with the
provisions of this Financing Agreement (including, without limitation, all
Revolving Loans and Letters of Credit); any and all Indebtedness and
obligations which may at any time be owing by the Company to CITBC
howsoever arising, whether now in existence or incurred by the Company from
time to time hereafter; whether secured by pledge, lien upon or security
interest in any of the Company's assets or property or the assets or
property of any other person, firm, entity or corporation; whether such
Indebtedness is absolute or contingent, joint or several, matured or
unmatured, direct or indirect and whether the Company is liable to CITBC
for such Indebtedness as principal, surety, endorser, guarantor or
otherwise. Obligations shall also include Indebtedness owing to CITBC by
the Company under this Financing Agreement or under any other agreement or
arrangement now or hereafter entered into between the Company and CITBC;
Indebtedness or obligations incurred by, or imposed on, CITBC as a result
of environmental claims (other than as a result of actions of CITBC)
arising out of the Company's operation, premises or waste disposal
practices or sites; the Company's liability to CITBC as maker or endorser
on any promissory note or other instrument for the payment of money; the
Company's liability to CITBC under any instrument of guaranty or indemnity,
or arising under any guaranty, endorsement or undertaking which CITBC may
make or issue to others for the Company's account, including any
accommodation extended with respect to applications for Letters of Credit,
CITBC's acceptance of drafts or CITBC's endorsement of notes or other
instruments for the Company's account and benefit.
Other Collateral shall mean all now owned and hereafter acquired deposit
accounts maintained with any bank or financial institutions (including,
without limitation, all such accounts into which the proceeds of Inventory
and/or other Collateral are deposited); all cash and other monies and
property in the possession or control of CITBC; all books, records, ledger
cards, disks and related data processing software at any time evidencing or
containing information relating to any of the Collateral described herein
or otherwise necessary or helpful in the collection thereof or realization
thereon, and all cash and non-cash proceeds of the foregoing.
Out-of-Pocket Expenses shall mean all of CITBC's present and future
expenses incurred relative to this Financing Agreement, whether incurred
heretofore or hereafter, which expenses shall include, without being
limited to, the cost of record searches, all reasonable costs and expenses
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incurred by CITBC in opening bank accounts, depositing checks, receiving
and transferring funds, and any charges imposed on CITBC due to
"insufficient funds" of deposited checks and CITBC's standard fee relating
thereto, any amounts paid by CITBC, incurred by or charged to CITBC by the
Issuing Bank under the Letter of Credit Guaranty or the Company's
Reimbursement Agreement, Application for Letter of Credit or other like
document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, fees and taxes relative to the filing of financing
statements and all expenses, costs and fees set forth in Section 9,
Paragraph 3 of this Financing Agreement.
Permitted Encumbrances shall mean: i) liens existing on the date hereof on
specific items of Equipment and listed on Schedule 1 hereto and other liens
expressly permitted, or consented to, by CITBC; ii) Purchase Money Liens;
iii) Customarily Permitted Liens; iv) liens granted CITBC by the Company
under this Financing Agreement; v) liens of judgment creditors provided
such liens do not exceed, in the aggregate, at any time, $50,000.00 (other
than liens bonded or insured to the reasonable satisfaction of CITBC); and
vi) liens for taxes not yet due and payable or which are being diligently
contested in good faith by the Company by appropriate proceedings and which
liens are not x) senior to the liens of CITBC or y) for taxes due the
United States of America and which have been filed of record (i.e - federal
taxes).
Permitted Indebtedness shall mean: i) current indebtedness maturing in
less than one year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, taxes or labor; ii) the
indebtedness secured by the Purchase Money Liens; iii) Subordinated Debt;
iv) indebtedness arising under the Letters of Credit and this Financing
Agreement; v) deferred taxes and other expenses incurred in the ordinary
course of business; and vi) other indebtedness existing on the date of
execution of this Financing Agreement and listed in the most recent
financial statement delivered to CITBC or otherwise disclosed to CITBC in
writing.
Purchase Money Liens shall mean liens on and/or Capitalized Leases with
respect to any item of Equipment acquired after the date of this Financing
Agreement provided that i) each such lien shall attach only to the property
to be acquired and ii) the debt incurred in connection with such
acquisitions shall not exceed in the aggregate $5,000,000 in any fiscal
year.
Real Estate shall mean the Company's fee and/or leasehold interests in the
real property.
Retained Cash shall mean an amount of cash sufficient to provide the
Company's retail stores with x) petty cash, consistent with the respective
business practices of the Company and y) cash register coins and currency
in an amount consistent with the Company's business practices.
Revolving Loans shall mean the loans and advances made, from time to time,
to or for the account of the Company by CITBC pursuant to Section 3 of this
Financing Agreement.
Revolving Loan Account shall have the meaning specified in Section 3,
Paragraph 6 hereof.
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Subordinated Debt shall mean any debt due a Subordinating Creditor (and the
note evidencing such) which has been subordinated, by a Subordination
Agreement, to the prior payment and satisfaction of the Obligations of the
Company to CITBC (in form and substance satisfactory to CITBC).
Subordinating Creditor shall mean any party hereafter executing a
Subordination Agreement.
Subordination Agreement shall mean the agreement among the Company, a
Subordinating Creditor and CITBC pursuant to which Subordinated Debt is
subordinated to the prior payment and satisfaction of the Company's
Obligations to CITBC (in form and substance satisfactory to CITBC).
Trade Accounts Receivable shall mean that portion of Accounts which arises
from the sale of Inventory in the ordinary course of business.
Trademarks shall mean all present and hereafter acquired trademarks and/or
trademark rights (together with the goodwill associated therewith) and all
cash and non-cash proceeds thereof.
U.C.C. shall mean the Uniform Commercial Code as in effect from time to
time in the state of New York.
SECTION 2. Conditions Precedent
The obligation of CITBC to make the initial loans hereunder is subject
to the satisfaction of, or waiver of, immediately prior to or concurrently
with the making of such loans, the following conditions precedent:
a) Lien Searches - CITBC shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to CITBC for all locations
presently occupied or used by the Company.
b) Casualty Insurance - The Company shall have delivered to CITBC
evidence satisfactory to CITBC that casualty insurance policies listing
CITBC as loss payee or mortgagee, as the case may be, are in full force and
effect, all as set forth in Section 6, Paragraph 4 of this Financing
Agreement.
c) UCC Filings - Any documents (including without limitation,
financing statements) required to be filed in order to create, in favor of
CITBC, a first and exclusive perfected security interest in the Collateral
with respect to which a security interest may be perfected by a filing
under the U.C.C. shall have been properly filed in each office in each
jurisdiction required in order to create in favor of CITBC a perfected lien
on the Collateral. CITBC shall have received acknowledgment copies of all
such filings (or, in lieu thereof, CITBC shall have received other evidence
reasonably satisfactory to CITBC that all such filings have been made); and
CITBC shall have received evidence that all necessary filing fees and all
taxes or other expenses related to such filings have been paid in full.
d) Opinion - Counsel for the Company shall have delivered to CITBC an
opinion satisfactory to CITBC opining, inter alia, that, subject to the i)
filing, priority and remedies provisions of the Uniform Commercial Code,
ii) the provisions of the Bankruptcy Code, insolvency statutes or other
like laws, iii) the equity powers of a court of law and iv) such other
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matters as may be agreed upon with CITBC: (a) this Financing Agreement,
and (b) all other loan documents of the Company are x) valid, binding and
enforceable according to their terms, y) are duly authorized and z) do not
violate any terms, provisions, representations or covenants in the charter
or by-laws of the Company or, to the best knowledge of such counsel, of any
material loan agreement, mortgage, deed of trust, note, security or pledge
agreement or indenture to which the Company is a signatory or by which the
Company or its assets is bound.
e) Additional Documents - The Company shall have executed and
delivered to CITBC all loan documents necessary to consummate the lending
arrangement contemplated herein between the Company and CITBC.
f) Board Resolution - CITBC shall have received a copy of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of (i) this Financing Agreement, and
(ii) any related loan documents executed in connection therewith, in each
case certified by the Secretary or Assistant Secretary of the Company as of
the date hereof, together with a certificate of the Secretary or Assistant
Secretary of the Company as to the incumbency and signature of the officers
of the Company executing such agreements and any certificate or other
documents to be delivered by them pursuant hereto, together with evidence
of the incumbency of such Secretary or Assistant Secretary.
g) Corporate Organization - CITBC shall have received (i) a copy of
the Certificate of Incorporation of the Company certified by the Secretary
of State of its incorporation, and (ii) a copy of the By-Laws (as amended
through the date hereof) of the Company certified by the Secretary or
Assistant Secretary thereof.
h) Officer's Certificate - CITBC shall have received an executed
Officer's Certificate of the Company, reasonably satisfactory in form and
substance to CITBC, certifying that (i) the representations and warranties
contained herein are true and correct in all material respects on and as of
the date hereof; (ii) the Company is in compliance in all material respects
with all of the applicable terms and provisions set forth herein; and (iii)
no Default or Event of Default has occurred.
i) Absence of Default - No Default, Event of Default or material
adverse change in the financial condition, business, profits, operations or
assets of the Company shall have occurred.
j) Legal Restraints/Litigation - At the date of execution of this
Financing Agreement, there shall be no x) litigation, investigation or
proceeding (judicial or administrative) pending or to the best knowledge of
the Company, threatened against the Company or its assets, by any agency,
division or department of any county, city, state or federal government
arising out of this Financing Agreement, y) injunction, writ or
restraining order restraining or prohibiting the consummation of the
financing arrangements contemplated under this Financing Agreement or z) to
the best knowledge of the Company, suit, action, investigation or
proceeding (judicial or administrative) pending or threatened against the
Company or its assets, which in case of clauses x), y) or z), in the
opinion of CITBC, if adversely determined could have a material adverse
effect on the business, operation, assets, financial condition or
Collateral of the Company.
k) Disbursement Authorization - The Company shall have delivered to
CITBC all information necessary for CITBC to issue wire transfer
instructions on behalf of the Company for the initial and subsequent loans
and/or advances to be made under this Financing Agreement including, but
not limited to, disbursement authorizations in form acceptable to CITBC.
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l) Examination & Verification - CITBC shall have completed to the
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, books and records of the Company which examination shall
indicate that, after giving effect to all loans, advances and extensions of
credit to be made on the Closing Date or the initial funding date, as
applicable, the Company shall have an opening additional Availability of
$10,000,000. It is understood that such requirement contemplates that all
debts, obligations and payables of the Company are current.
m) Cash Budget Projections - CITBC shall have received, reviewed and
be satisfied with a 12 month cash budget projection prepared by the Company
in the form provided by CITBC.
n) Depository Accounts - The Company shall have established a system
of bank accounts with respect to the collection of Accounts and the deposit
of proceeds of Inventory as shall be acceptable to CITBC (in its reasonable
business judgment) in all respects, within thirty (30) days of the Closing
Date.
o) Credit Card Letters - CITBC shall have received a Credit Card
Letter executed by each remitter of credit card receipts, within thirty
(30) days of the Closing Date.
p) Existing Revolving Credit Agreement - The Company's existing
credit agreement with Chase Manhattan Bank, N.A. ("Chase") shall be (x)
terminated and (y) all loans and obligations of the Company thereunder
(other than reimbursement obligations in connection with letters of credit
opened by Chase and outstanding on the Closing Date) shall be paid or
satisfied in full.
Except as otherwise set forth herein, upon the execution of this Financing
Agreement and the initial disbursement of loans hereunder, all of the above
Conditions Precedent shall have been deemed satisfied except as the Company
and CITBC shall otherwise agree herein or in a separate writing.
SECTION 3. Revolving Loans
1. CITBC agrees, subject to the terms and conditions of this
Financing Agreement from time to time, and within x) the Availability and
y) the Line of Credit, but subject to CITBC's right to make "overadvances",
to make loans and advances to the Company on a revolving basis (i.e.
subject to the limitations set forth herein, the Company may borrow, repay
and re-borrow Revolving Loans). Such loans and advances shall be in
amounts up to the sum of the aggregate value of Eligible Inventory of the
Company as determined at the lower of cost or market multiplied by the
Inventory Advance Percentage. Each request shall constitute, unless
otherwise disclosed in writing to CITBC, a representation and warranty by
the Company that (i) after giving effect to the requested advance, no
Default or Event of Default has occurred and (ii) such requested Revolving
Loan is within the Line of Credit and Availability. All requests for loans
and advances must be received by an officer of CITBC no later than 1:00
p.m., New York time, of the day on which such loans and advances are
required. Should CITBC for any reason honor requests for advances in
excess of the limitations set forth herein, such advances shall be
considered "overadvances" and shall be made in CITBC's sole discretion,
subject to any additional terms CITBC deems necessary.
2. In furtherance of the continuing collateral assignment and
security interest in the Collateral, the Company shall deliver to CITBC no
later than three (3) Business Days after the end of each week (in such form
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and manner as CITBC may reasonably require) such written statements and
schedules as CITBC may reasonably require designating, identifying or
describing the Collateral, including but not limited to an inventory
confirmation statement stating the aggregate amount of Eligible Inventory
of the Company provided, however, that (x) in the event that at any time
and from time to time there are no Revolving Loans or Letters of Credit
outstanding hereunder such reports may be delivered every two (2) weeks,
and (y) after the occurrence of an Event of Default CITBC may, upon notice
to the Company, require more frequent reporting then set forth above. With
respect to all such reports, the Company will provide to CITBC such
additional information and material as CITBC may reasonably request to
effectively evaluate the Collateral, including but not limited to the mix
of the Inventory and such other information as CITBC may reasonably require
to evaluate the Company's Accounts and Inventory, such as returns, claims,
credits and allowances. Failure to provide CITBC with any of the foregoing
shall in no way affect, diminish, modify or otherwise limit the security
interests granted herein.
3. The Company hereby represents and warrants that: each Trade
Account Receivable is based on an actual and bona fide sale and delivery of
goods or rendition of services to customers, made by the Company in the
ordinary course of its business; the goods and Inventory being sold and the
Trade Accounts Receivable created are the exclusive property of the Company
and are not and shall not be subject to any lien, consignment arrangement,
encumbrance, security interest or financing statement whatsoever, other
than the Permitted Encumbrances; the invoices and/or other documentation
evidencing such Trade Accounts Receivable are in the name of the Company;
and the customers of the Company have accepted the goods or services, owe
and are obligated to pay the full amounts stated in the invoices according
to their terms, without dispute, offset, defense, counterclaim or contra,
except for disputes and other matters arising in the ordinary course of
business and with respect to which the Company has complied with the
notification requirements of Paragraph 5 of this Section 3 relating to
material disputes and other matters. Subject to paragraph 5 of Section 6
hereof, the Company confirms to CITBC that any and all taxes or fees
relating to its business, its sales, the Accounts or goods relating
thereto, are its sole responsibility and that same will be paid by the
Company when due and that none of said taxes or fees represent a lien on or
claim against the Accounts. The Company also warrants and represents that
it is a duly and validly existing corporation and is qualified in all
states where the failure to so qualify would have a material adverse effect
on the business of the Company or the ability of the Company to enforce
collection of Accounts or other amounts representing the proceeds of the
sale of Inventory due from customers residing in that state. The Company
agrees to maintain such books and records regarding Accounts as CITBC may
reasonably require.. All of the books and records of the Company will be
available to CITBC at normal business hours, including any records handled
or maintained for the Company by any other company or entity, provided that
prior to the occurrence of a Default and/or Event of Default (other than a
Default and/or Event of Default which is waived in writing by CITBC or
cured to CITBC's reasonable satisfaction) hereunder CITBC shall give the
Company reasonable prior notice thereof.
4. Until CITBC has advised the Company to the contrary after the
occurrence of an Event of Default (other than an Event of Default which is
waived in writing by CITBC or cured to CITBC's reasonable satisfaction),
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the Company may and will enforce, collect and receive all amounts due and
owing on the Accounts for CITBC's benefit and on CITBC's behalf, but at the
Company's expense; such privilege shall terminate automatically upon the
institution by or against the Company of any proceeding under any
bankruptcy or insolvency law or, at the election of CITBC, upon the
occurrence of any other Event of Default (other than an Event of Default
which is waived in writing by CITBC or cured to CITBC's reasonable
satisfaction) and until such Event of Default is waived in writing by CITBC
or cured to CITBC's reasonable satisfaction. Except for Retained Cash, any
checks, cash, notes or other instruments or property received by the
Company with respect to any Accounts and/or representing the proceeds of
the sale of Inventory shall be held by the Company in trust for CITBC,
separate from the Company's own property and funds, and immediately turned
over to CITBC with proper assignments or endorsements by deposit to the
special depository accounts designated by CITBC for such purposes (the
"Depository Accounts"). Pursuant to separate arrangements between CITBC and
each institution at which a Depository Account is located, each such
institution has agreed, or will agree, to remit the amount of such deposit
to a concentration account owned by CITBC (the "Concentration Account").
In addition, the Company shall cause all amounts due it under credit card
sales to be promptly remitted by the credit card companies to the
Concentration Account. Until such time as it receives notice from CITBC
hereunder to the contrary, the institution holding such Concentration
Account will be instructed that when it is satisfied that such funds on
deposit are "good funds" such institution will remit "good funds" to the
Company's operating account which shall be an account (other than a pay-
roll account) with a financial institution in the United States.
Notwithstanding the foregoing or anything to the contrary contained herein
or in any agreement with any institution holding the Concentration Account,
immediately upon the occurrence of either of the following events: (x) the
occurrence of a Default and/or Event of Default hereunder (other than an
Event of Default which is waived in writing by CITBC or cured to CITBC's
reasonable satisfaction) or (y) the Company's Availability (computed on the
basis of all of the Company's debts, obligations and payables being current
in accordance with the Company's usual business practices) hereunder being
less than $5,000,000 for more than five (5) consecutive Business Days,
CITBC may notify the institution holding the Concentration Account to remit
all amounts then or thereafter on deposit in such account to CITBC to be
applied by CITBC to the reduction of the Obligations in such order as CITBC
may determine, all as more fully set forth in Paragraph 6 of this Section
3. All amounts received by CITBC in payment of Accounts and/or
representing the proceeds of the sale of Inventory will be credited to the
Company's account upon CITBC's receipt of "collected funds" at CITBC's bank
account in New York, New York on the Business Day of receipt if received no
later than 2:00 pm or on the next succeeding Business Day if received after
2:00 pm. No checks, drafts or other instrument received by CITBC shall
constitute final payment to CITBC unless and until such instruments have
actually been collected.
5. The Company agrees to notify CITBC promptly of any matters
materially affecting the value, enforceability or collectibility of any
material Account and of all material customer disputes, offsets, defenses,
counterclaims, returns, rejections and all reclaimed or repossessed
merchandise or goods. The Company agrees to issue credit memoranda
promptly (with duplicates to CITBC upon request after the occurrence of an
Event of Default other than an Event of Default which is waived in writing
by CITBC or cured to CITBC's reasonable satisfaction) upon accepting
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returns or granting allowances, and may continue to do so until CITBC has
notified the Company that an Event of Default has occurred. Upon the
occurrence of an Event of Default and until such time as such Event of
Default is waived in writing by CITBC or cured to CITBC's reasonable
satisfaction and on notice from CITBC, the Company agrees that all
returned, reclaimed or repossessed merchandise or goods shall be set aside
by the Company, marked with CITBC's name and held by the Company for
CITBC's account as owner and assignee.
6. CITBC shall maintain a separate account on its books in the
Company's name (the "Revolving Loan Account") in which the Company will be
charged with loans and advances made by CITBC to it or for its account, and
with any other Obligations, including any and all reasonable costs,
expenses and reasonable attorney's fees which CITBC may incur in connection
with the exercise by or for CITBC of any of the rights or powers herein
conferred upon CITBC, or in the prosecution or defense of any action or
proceeding to enforce or protect any rights of CITBC in connection with
this Financing Agreement or the Collateral assigned hereunder, or any
Obligations owing to CITBC by the Company. Subject to the provisions of
Paragraph 4 above, the Company will be credited with all amounts received
by CITBC from the Company or from others for the Company's account,
including, as above set forth, all amounts received by CITBC in payment of
assigned Accounts and such amounts will be applied to payment of the
Obligations. In no event shall prior recourse to any Accounts or other
security granted to or by the Company be a prerequisite to CITBC's right to
demand payment of any Obligation. Further, it is understood that CITBC
shall have no obligation whatsoever to perform in any respect any of the
Company's contracts or obligations relating to the Accounts.
7. After the end of each month, CITBC shall promptly send the Company
a statement showing the accounting for the charges, loans, advances and
other transactions occurring between CITBC and the Company during that
month. The monthly statements shall be deemed correct and binding upon the
Company and shall constitute an account stated between the Company and
CITBC unless CITBC receives a written statement of the exceptions within
forty-five (45) days of the date of the monthly statement.
8. In the event that the sum of (i) the outstanding balance of
Revolving Loans and (ii) outstanding balance of Letters of Credit exceeds
(x) the maximum amount thereof available under Sections 3 and 4 hereof or
(y) the Line of Credit (herein the amount of any such excess shall be
referred to as the "Excess") such Excess shall be due and payable to CITBC
immediately upon CITBC's demand therefor.
SECTION 4. Letters of Credit
In order to assist the Company in establishing or opening Letters of
Credit with an Issuing Bank to cover the importation of inventory, or other
general corporate business purposes acceptable to CITBC in its reasonable
business judgment, the Company has requested CITBC to join in the
applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts or acceptances
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thereunder through the issuance of the Letters of Credit Guaranty, thereby
lending CITBC's credit to the Company and CITBC has agreed to do so. These
arrangements shall be handled by CITBC subject to the terms and conditions
set forth below.
1. Within the Line of Credit and Availability, CITBC shall assist the
Company in obtaining Letter(s) of Credit in an amount not to exceed the
Letter of Credit Sub-Line in the aggregate outstanding at any one time.
CITBC's assistance for amounts in excess of the limitation set forth herein
shall at all times and in all respects be in CITBC's sole discretion. It
is understood that the form and purpose of each Letter of Credit must be
acceptable to CITBC in its reasonable business judgment. Any and all
outstanding Letters of Credit shall be treated as a Revolving Loan for
Availability purposes. Notwithstanding anything herein to the contrary,
upon the occurrence of a Default and/or Event of Default (other than a
Default and/or Event of Default which has been waived in writing by CITBC
or cured to CITBC's reasonable satisfaction), CITBC's assistance in
connection with the Letter of Credit Guaranty shall be in CITBC's sole
discretion unless such Default and/or Event of Default is cured to CITBC's
satisfaction or waived by CITBC in writing.
2. CITBC shall have the right, without notice to the Company, to
charge the Company's Revolving Loan Account on CITBC's books with the
amount of any and all indebtedness, liability or obligation of any kind
incurred by CITBC under the Letters of Credit Guaranty at the earlier of a)
payment by CITBC under the Letters of Credit Guaranty, or b) the occurrence
of an Event of Default. Any amount charged to Company's Revolving Loan
Account shall be deemed a Revolving Loan hereunder and shall incur interest
at the rate provided in Section 7, Paragraph 1 of this Financing Agreement.
3. The Company unconditionally indemnifies CITBC and holds CITBC
harmless from any and all loss, claim or liability incurred by CITBC
arising from any transactions or occurrences relating to Letters of Credit
established or opened for the Company's account, the collateral relating
thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claim due to any action taken by any
Issuing Bank, other than for any such loss, claim or liability arising out
of the gross negligence or willful misconduct by CITBC under the Letters of
Credit Guaranty. The Company further agrees to hold CITBC harmless from
any errors or omission, negligence or misconduct by the Issuing Bank. The
Company's unconditional obligation to CITBC hereunder shall not be modified
or diminished for any reason or in any manner whatsoever, other than as a
result of CITBC's gross negligence or willful misconduct. The Company
agrees that any charges incurred by CITBC for the Company account by the
Issuing Bank shall be conclusive on CITBC and may be charged to the
Company's account.
4. CITBC shall not be responsible for: the existence, character,
quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; any difference or variation
in the character, quality, quantity, condition, packing, value or delivery
of the goods from that expressed in the documents; the validity,
sufficiency or genuineness of any documents or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged; the time, place, manner or
order in which shipment is made; partial or incomplete shipment, or failure
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or omission to ship any or all of the goods referred to in the Letters of
Credit or documents; any deviation from instructions; delay, default, or
fraud by the shipper and/or anyone else in connection with the Collateral
or the shipping thereof; or any breach of contract between the shipper or
vendors and the Company. Furthermore, without being limited by the
foregoing, CITBC shall not be responsible for any act or omission with
respect to or in connection with any Collateral covered by a Letter of
Credit opened with CITBC's assistance hereunder.
5. The Company agrees that any action taken by CITBC, if taken in
good faith, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the guarantees, the drafts or acceptances, or
the Collateral, shall be binding on the Company and shall not put CITBC in
any resulting liability to the Company unless such liability arises
directly out of the gross negligence or willful misconduct of CITBC. In
furtherance thereof, upon the occurrence of an Event of Default, CITBC
shall have the full right and authority to clear and resolve any questions
of non-compliance of documents; to give any instructions as to acceptance
or rejection of any documents or goods; to execute any and all steamship or
airways guaranties (and applications therefore), indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or documents; and to
agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, drafts or acceptances; all in CITBC's sole name, and the
Issuing Bank shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from CITBC, all
without any notice to or any consent from the Company. The Company
confirms and agrees that CITBC shall have no obligation to act upon any
request by the Company hereunder with respect to: (x) amending any Letter
of Credit, (y) waiving or resolving any questions of non-compliance of
documents thereunder, or (z) accepting or rejecting any documents or goods
thereunder, unless such requests are in writing.
6. Without CITBC's express consent and endorsement in writing, the
Company agrees: a) not to execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances or documents; or to agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances; and b) after the occurrence of an Event of Default which is
not cured within any applicable grace period, if any, or waived by CITBC,
not to i) clear and resolve any questions of non-compliance of documents,
or ii) give any instructions as to acceptances or rejection of any
documents or goods.
7. The Company agrees that any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all applicable foreign and domestic
governmental laws and regulations in regard to the shipment and importation
of the Collateral, or the financing thereof will have been promptly and
fully complied with in all material respects; and any certificates in that
regard that CITBC may at any time reasonably request will be promptly
furnished. In this connection, the Company warrants and represents that
all shipments made under any such Letters of Credit are in accordance with
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the laws and regulations of the countries in which the shipments originate
and terminate, and are not prohibited by any such laws and regulations.
The Company assumes all risk, liability and responsibility for, and agrees
to pay and discharge, all present and future local, state, federal or, if
applicable, foreign taxes, duties, or levies with respect to such Letters
of Credit or the goods subject thereto. Any embargo, restriction, laws,
customs or regulations of any country, state, city, or other political
subdivision, where the Collateral is or may be located, or wherein payments
are to be made, or wherein drafts may be drawn, negotiated, accepted, or
paid, shall be solely the Company's risk, liability and responsibility.
8. Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Company to the Issuing
Bank in any application for Letters of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to
have been granted to CITBC and apply in all respects to CITBC and shall be
in addition to any rights, remedies, duties or obligations contained
herein.
9. Nothing contained herein shall affect, modify, release or diminish
any right with the Company may have against the Issuing Bank with respect
to any Letter of Credit opened with CITBC's assistance hereunder.
SECTION 5. Collateral
1. As security for the prompt payment in full of all Revolving
Loans made and to be made to the Company from time to time by CITBC
pursuant hereto, as well as to secure the payment in full of the other
Obligations, the Company hereby pledges and grants to CITBC a continuing
general lien upon and security interest in all of its right, title and
interest in, to and under, all of its:
(a) present and hereafter acquired Inventory;
(b) present and future Accounts;
(c) present and future Documents of Title; and
(d) present and future Other Collateral.
2. The security interests granted hereunder shall extend and attach
to:
(a) All Collateral which is presently in existence and which is owned
by the Company or in which the Company has any ownership interest, whether
held by the Company or others for its account; and
(b) All Inventory and any portion thereof which may be (i) returned
and/or rejected by the Company's customers, or (ii) reclaimed and/or
repossessed by either CITBC or the Company from the Company's customers, as
well as to all supplies, goods, incidentals, packaging materials, labels
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and any other items which contribute to the finished goods or products
manufactured or processed by the Company, or to the sale, promotion or
shipment thereof.
3. Subject to the terms hereof, the Company agrees to safeguard,
protect and hold all Inventory for CITBC's account and make no disposition
thereof except in the regular course of the business of the Company. Until
CITBC has given the Company notice to the contrary, as provided for below,
any Inventory may be sold and shipped by the Company to its customers in
the ordinary course of the Company's business, on open account and on terms
consistent with the terms heretofore extended by the Company to its
customers, provided that all proceeds of all sales (including cash,
accounts receivable, checks, notes, instruments for the payment of money
and similar proceeds) are forthwith transferred, endorsed, and turned over
and delivered to CITBC in accordance with Section 3, Paragraph 4 of this
Financing Agreement. CITBC shall have the right to withdraw this
permission at any time upon the occurrence of an Event of Default and until
such time as such Event of Default is waived in writing by CITBC or cured
to CITBC's satisfaction, in which event no further disposition shall be
made of the Inventory by the Company without CITBC's prior written
approval. Sales of Inventory in which a lien upon, or security interest
in, such Inventory is retained by the Company shall be made by the Company
only with the approval of CITBC, and the proceeds of such sales or sales of
Inventory for cash shall not be commingled with the Company's other
property, but shall be segregated, held by the Company in trust for CITBC
as CITBC's exclusive property, and shall be delivered immediately by the
Company to CITBC in the identical form received by the Company by deposit
to the Depository Accounts. Upon the sale, exchange, or other disposition
of Inventory, as herein provided, the security interest in the Company's
Inventory provided for herein shall, without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and
all other cash and non-cash proceeds of such sale, exchange or disposition.
As to any such sale, exchange or other disposition, CITBC shall have all
of the rights of an unpaid seller, including stoppage in transit, replevin,
rescission and reclamation.
4. The rights and security interests granted to CITBC hereunder are
to continue in full force and effect, notwithstanding the termination of
this Financing Agreement or the fact that the account maintained in the
Company's name on the books of CITBC may from time to time be temporarily
in a credit position, until the final payment in full to CITBC of all
Obligations and the termination of this Financing Agreement. Any delay, or
omission by CITBC to exercise any right hereunder, shall not be deemed a
waiver thereof, or be deemed a waiver of any other right, unless such
waiver be in writing and signed by CITBC. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion.
5. To the extent that the Obligations are now or hereafter secured by
any assets or property other than the Collateral or by the guarantee,
endorsement, assets or property of any other person, then CITBC shall have
the right in its sole discretion to determine which rights, security,
liens, security interests or remedies CITBC shall at any time pursue,
foreclose upon, relinquish, subordinate, modify or take any other action
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with respect to, without in any way modifying or affecting any of them, or
any of CITBC's rights hereunder.
6. Any reserves or balances to the credit of the Company and any
other property or assets of the Company in the possession of CITBC may be
held by CITBC as security for any Obligations and applied in whole or
partial satisfaction of such Obligations when due. The liens and security
interests granted herein and any other lien or security interest CITBC may
have in any other assets of the Company, shall secure payment and
performance of all now existing and future Obligations of the Company
hereunder. CITBC may in its discretion charge any or all of the
Obligations to the Revolving Loan Account of the Company when due.
7. The Company acknowledges and agrees that portions of the
Inventory bear Trademarks and/or tradenames owned or used by the Company
in its business and that the Company owns and/or uses certain other
tradenames and trademarks (herein collectively the "Intellectual
Property"). Therefore, it is hereby agreed that, the Company hereby grants
to CITBC a limited royalty free license to use the Intellectual Property to
sell or otherwise realize upon the Inventory after the occurrence of an
Event of Default (other than an Event of Default which is waived in writing
by CITBC or cured to CITBC's reasonable satisfaction). Such license shall
be at no cost to CITBC, shall not be subject to any restrictions or
limitation whatsoever and shall continue until terminated in accordance
with the provisions hereof. In addition, such license shall be unaffected
by any transfer of title to, or grant of a lien upon or security interest
in, such Intellectual Property. The Company agrees that (x) it shall not
sell, assign, transfer or encumber (herein "Transfer") such Intellectual
Property without the prior written consent of CITBC (other than with
respect to licensing arrangements entered into by the Company in the
ordinary course of its business, provided that such licensing arrangements
do not adversely affect CITBC's license and/or rights hereunder), (y) in
the event that CITBC consents to any such Transfer, the Company shall make
such Transfer explicitly subject to the license in favor of CITBC hereunder
and (z) upon CITBC's reasonable request, it will execute any documents
necessary to evidence, preserve and maintain such license on any applicable
public records. Said license shall expire automatically upon termination
of this Financing Agreement and the full, final and indefeasible payment of
all Obligations of the Company to CITBC.
SECTION 6. Representations, Warranties and Covenants
1. The Company hereby warrants and represents and/or covenants that:
i) the fair value of the Company's assets exceeds the book value of the
Company's liabilities; ii) the Company is generally able to pay its debts
as they become due and payable; and iii) the Company does not have
unreasonably small capital to carry on its business as it is currently
conducted absent extraordinary and unforeseen circumstances. The Company
further warrants and represents that Schedule 2 hereto correctly and
completely sets forth the Company's chief executive office and all of the
Company's Collateral locations; and except for the Permitted Encumbrances,
the security interests granted herein constitute and shall at all times
constitute the first and only liens on the Collateral; that, except for the
Permitted Encumbrances, the Company is or will be at the time additional
Collateral is acquired by it, the absolute owner of the Collateral with
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full right to pledge, sell, consign, transfer and create a security
interest therein, free and clear of any and all claims or liens in favor of
others; that the Company will at its expense forever warrant and, at
CITBC's reasonable request, defend the same from any and all claims and
demands of any other person other than the holders of Permitted
Encumbrances; that the Company will not grant, create or permit to exist,
any lien upon or security interest in the Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the
Permitted Encumbrances.
2. The Company agrees to maintain books and records pertaining to the
Collateral in such detail, form and scope as CITBC shall reasonably
require. The Company agrees that CITBC or its agents may enter upon the
Company's premises at any time during normal business hours, and from time
to time, for the purpose of inspecting the Collateral, and any and all
records pertaining thereto, provided that prior to the occurrence of a
Default and/or Event of Default (other than a Default and/or Event of
Default which has been waived in writing by CITBC or cured to CITBC's
reasonable satisfaction) CITBC shall give the Company reasonable prior
notice thereof. The Company agrees to afford CITBC prior written notice of
any change in the location of any Collateral, other than to locations, that
as of the date hereof, are known to CITBC and at which CITBC has filed
financing statements and otherwise fully perfected its liens thereon. The
Company is also to advise CITBC promptly, in sufficient detail, of any
material adverse change relating to the type, quantity or quality of the
Collateral or on the security interests granted to CITBC therein.
3. The Company agrees to comply with the requirements of all
applicable state and federal laws in order to grant to CITBC valid and
perfected first security interests in the Collateral, subject only to the
Permitted Encumbrances. CITBC is hereby authorized by the Company to file
any financing statements covering the Collateral whether or not the
Company's signature appears thereon. The Company agrees to do whatever
CITBC may reasonably request, from time to time, by way of: filing notices
of liens, financing statements, amendments, renewals and continuations
thereof; cooperating with CITBC's custodians; keeping stock records in
accordance with the Company's usual policy with respect thereto and
consistent with its past practices; transferring proceeds of Collateral to
CITBC's possession in accordance with the terms and provisions of this
Financing Agreement; and performing such further acts as CITBC may
reasonably require in order to effect the purposes of this Financing
Agreement.
4. The Company agrees to maintain insurance on the Inventory under
such policies of insurance, with such insurance companies, in such
reasonable amounts and covering such insurable risks as are at all times
reasonably satisfactory to CITBC and consistent with industry practice for
companies similarly situated. All policies covering the Inventory are in
case of loss, under a standard non-contributory "mortgagee", "lender" or
"secured party" clause and are to contain such other provisions as CITBC
may reasonably require to fully protect CITBC's interest in the Inventory
and to any payments to be made under such policies. Certificates of
insurance together with true copies of such policies are to be delivered to
CITBC, premium prepaid, with the loss payable endorsement in CITBC's favor,
and shall provide for not less than thirty (30) days prior written notice
to CITBC of the exercise of any right of cancellation. At the Company's
request, or if the Company fails to maintain such insurance, CITBC may
arrange for such insurance, but at the Company's expense and without any
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responsibility on CITBC's part for: obtaining the insurance, the solvency
of the insurance companies, the adequacy of the coverage, or the collection
of claims. Upon the occurrence of an Event of Default which is not waived
or cured to CITBC's satisfaction, CITBC shall have the sole right, in the
name of CITBC or the Company, to file claims under any insurance policies,
to receive, receipt and give acquittance for any payments that may be
payable thereunder, and to execute any and all endorsements, receipts,
releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims
under any such insurance policies. In the event of any loss or damage to
any Inventory by fire or other casualty, insurance proceeds relating to
such Inventory shall be applied to the Company's Revolving Loan Account.
5. The Company agrees to pay, when due, all taxes, assessments,
claims and other charges (herein "taxes") lawfully levied or assessed upon
the Company or the Collateral and if such taxes remain unpaid after the
date fixed for the payment thereof (unless such taxes constitute Permitted
Encumbrances hereunder), which taxes in CITBC's reasonable opinion might
create a valid obligation having priority over the rights granted to CITBC
herein, CITBC may upon concurrent notice to the Company, on the Company's
behalf, pay such taxes, and the amount thereof shall be an Obligation
secured hereby and due to CITBC on demand.
6. The Company: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body
or official applicable to the Company or to ownership or use of its
property or business, which the failure to comply with would have a
material and adverse impact on the Collateral, or any material part
thereof, or on the operation of the Company's business; provided that the
Company may contest any acts, rules, regulations, orders and directions of
such bodies or officials in any reasonable manner which will not, in
CITBC's reasonable opinion, materially and adversely effect CITBC's rights
or priority in the Collateral; (b) agrees to comply with all environmental
statutes, acts, rules, regulations or orders as presently existing or as
adopted or amended in the future, applicable to the ownership and/or use of
its real property and operation of its business, which the failure to
comply with would have a material and adverse impact on the Collateral, or
any material part thereof, or on the operation of the business of the
Company; and (c) shall not be deemed to have breached any provision of this
Paragraph 6 if (i) the failure to comply with the requirements of this
Paragraph 6 resulted from good faith error or innocent omission, (ii) the
Company promptly commences and diligently pursues a cure of such breach;
(iii) such failure is cured within thirty (30) days following the Company's
receipt of written notice of such failure or such longer period so long as
the Company is diligently pursuing such cure and is in compliance with all
governmental orders with respect thereto. The Company hereby indemnifies
CITBC and agrees to defend and hold CITBC harmless from and against any and
all loss, damage, claim, liability, injury or expense which CITBC sustains
or incurs (other than as a result of actions of CITBC) in connection with:
any claim or expense asserted against CITBC as a result of any
environmental pollution, hazardous material or environmental clean-up of
the Company's real property resulting from the Company's ownership and/or
use of such property or its operations; or any claim or expense which
results from the Company's operations (including, but not limited to, the
Company's off-site disposal practices) and the Company further agrees that
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this indemnification shall survive termination of this Financing Agreement
as well as the payment of all Obligations or amounts payable hereunder.
7. Until termination of the Financing Agreement and payment and
satisfaction of all
Obligations due hereunder, the Company agrees that, unless CITBC shall have
otherwise consented in writing, the Company will furnish to CITBC, within
ninety (90) days after the end of each fiscal year of the Company, an
audited Consolidated Balance Sheet and an audited Consolidating Balance
Sheet as at the close of such year, and statements of profit and loss, cash
flow and reconciliation of surplus of the Company and its subsidiaries (if
any) for such year, audited by independent public accountants selected by
the Company and reasonably satisfactory to CITBC; within sixty (60) days
after the end of each fiscal quarter a Consolidated Balance Sheet and
Consolidating Balance Sheet as at the end of such period and statements of
profit and loss, cash flow and surplus the Company and its subsidiaries (if
any) certified by an authorized financial or accounting officer of the
Company; and within thirty (30) days after the end of each month a
Consolidated Balance Sheet as at the end of such period and statements of
profit and loss, cash flow and surplus of the Company and its subsidiaries
(if any) period, certified by an authorized financial or accounting officer
of the Company; and from time to time, such further information regarding
the business affairs and financial condition of the Company and/or its
subsidiaries if any as CITBC may reasonably request, including without
limitation (a) the accountant's management practice letter, (b) annual cash
flow projections in form reasonably satisfactory to CITBC and (c) copies of
all (i) annual and/or quarterly filings (if any) which the Company is
required to make with the Securities Exchange Commission and (ii) financial
or other reports distributed by the Company to its stockholders. Each
financial statement which the Company is required to submit hereunder must
be accompanied by an officer's certificate, signed by the President, Vice
President, Controller, or Treasurer, pursuant to which any one such officer
must certify that: (i) the financial statement(s) fairly and accurately
represent(s) the Company's financial condition at the end of the particular
accounting period, as well as the Company's operating results during such
accounting period, subject to year-end audit adjustments; and (ii) during
the particular accounting period: (x) there has been no Default or Event of
Default under this Financing Agreement, provided, however, that if any such
officer has knowledge that any such Default or Event of Default (other than
a Default and/or Event of Default which has been waived in writing by CITBC
or cured to CITBC's reasonable satisfaction), has occurred during such
period, the existence of and a detailed description of same shall be set
forth in such officer's certificate; and (y) the Company has not received
any notice of cancellation with respect to its property insurance policies.
8. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that,
without the prior written consent of CITBC, except as otherwise herein
provided, the Company will not:
A. Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a result of
a purchase money or title retention transaction, or other security
interest, or otherwise) to exist on any of its assets or goods, whether
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real, personal or mixed, whether now owned or hereafter acquired, except
for the Permitted Encumbrances;
B. Incur or create any Indebtedness other than the Permitted
Indebtedness;
C. Borrow any money on the security of the Company's Collateral from
sources other than CITBC;
D. Sell, lease, assign, transfer or otherwise dispose of i)
Collateral, except as otherwise specifically permitted by this Financing
Agreement, or ii) either all or substantially all of the Company's assets,
which do not constitute Collateral;
E. Merge, consolidate or otherwise alter or modify its corporate
name, principal place of business, structure, status or existence, or enter
into or engage in any operation or activity materially different from that
presently being conducted by the Company, except that the Company may
change its corporate name or address; provided that (x) the Company shall
give CITBC thirty (30) days prior written notice thereof and (y) the
Company shall execute and deliver prior to or simultaneously with any such
action any and all documents and agreements reasonably requested by CITBC
(including, without limitation, any and all U.C.C. financing statements) to
confirm the continuation and preservation of all security interests and
liens granted to CITBC hereunder;
F. Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except (i) by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and (ii) guaranty
obligations of the Company with respect to lease obligations existing on
the date hereof and arising under or in connection with the Company's lease
arrangements with respect to the premises located at 2183 Ralph Avenue,
Brooklyn, NY;
G. Declare or pay any dividend of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding, except that (a) the
Company may to redeem the capital stock owned by its retired, deceased or
terminated officers or shareholders which it is contractually obligated to
redeem, provided that in no event shall the amount of such redemptions
exceed $250,000.00 in the aggregate in any fiscal year and (b) the Company
may pay dividends with respect to any fiscal year provided that after
giving effect to the payment of any such dividends there shall be no
outstanding balance of Revolving Loans; and further provided that with
respect to any such payment or redemption under this Paragraph G, after
giving effect to such payment or redemption, no Default and/or Event of
Default has occurred or would occur hereunder; or
H. Make any advance or loan to, or any investment in, any firm,
entity, person or corporation, except (x) loans and/or advances to
employees not to exceed $750,000 in the aggregate outstanding at any time
and (y) loans and/or advances made in connection with the opening of new
stores, provided that such loans and advances do not exceed $500,000 for
any new store or $2,500,000 in the aggregate at any time for all such new
stores.
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9. The Company agrees to advise CITBC in writing of: a) all
expenditures (actual or anticipated) in excess of $300,000.00 for x)
environmental clean-up, y) environmental compliance or z) environmental
testing and the anticipated impact of said expenses on the Company's
working capital; and b) any written notices the Company receives from any
local, state or federal authority advising the Company of any environmental
liability (actual or potential) stemming from the Company's operations, its
premises, its waste disposal practices, or waste disposal sites used by the
Company and to provide CITBC with copies of all such written notices if so
required.
10. Without the prior written consent of CITBC, the Company agrees
that it will not enter into any transaction, including, without limitation,
any purchase, sale, lease, loan or exchange of property with any subsidiary
or affiliate of the Company other than transactions arising in the ordinary
course of the Company's business which are on terms no less favorable to
the Company than it would obtain in an arms length transaction with an
unrelated third party, provided that such transactions are not otherwise
prohibited by Paragraph 8 of this Section 6 of this Financing Agreement.
11. The Company shall conduct or cause to be conducted, not less than
once in any fiscal year, an actual physical count of their Inventory and
upon the occurrence of a Default or an Event of Default, more frequently
upon the request of CITBC.
12. The Company shall advise CITBC of any decision to open or close
any of its stores not less than thirty (30) calendar days prior to actual
closing and/or opening of any store.
13. The Company shall remit any and all sales taxes when due to the
appropriate sales tax authorities when any such remittances are due and
payable, provided, however, that such remittances need not be made on or
before such due date if: i) such sales taxes are being diligently contested
by the Company in good faith and by appropriate proceedings; ii) the
Company establishes such reserves as may be required by GAAP and iii) the
failure to remit such sales taxes does not create a lien in favor of such
sales tax authorities, or impose upon CITBC any obligation to segregate
proceeds.
SECTION 7. Interest, Fees and Expenses
1. Interest on the Revolving Loans shall be payable monthly as of the
end of each month and shall be an amount equal to (a) the Chase Bank Rate
per annum on the average of the net balances owing by the Company to CITBC
in the Company's Revolving Loan Account at the close of each day during
such month on balances other than Libor Loans and (b) (i) in the event the
average daily loan balance for any such month is less than $7,500,000, two
and one quarter percent (2 1/4%) and (ii) in the event the average daily
loan balance for such month is $7,500,000 or more two and one-half percent
(2 1/2%), plus in each case the applicable Libor on any Libor Loan, on a per
annum basis, on the average of the net balances of Libor Loans owing by the
Company to CITBC in the Company's Revolving Loan Account at the close of
each day during such month. In the event of any change in said Chase Bank
Rate, the rate under clause (a) above shall change, as of the first of the
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<PAGE>
month following any change, so as to remain equal to the Chase Bank Rate.
The rate hereunder shall be calculated based on a 365-day year. CITBC
shall be entitled to charge the Company's Revolving Loan Account at the
rate provided for herein when due until all Obligations have been paid in
full.
2. The Company may elect to use Libor as to any other outstanding
Revolving Loans provided A) there is then no Default or Event of Default,
B) the Company has so advised CITBC of its election to use Libor and the
Libor Period selected no later than three (3) Business Days preceding the
first day of a Libor Period and C) the election and Libor shall be
effective, provided, there is then no Default or Event of Default, on the
fourth Business Day following said notice. The Libor elections must be for
$1,000,000 or whole multiples thereof and there shall be no more than three
(3) Libor Loans outstanding at one time. If no such election is timely
made or can be made, or if the Libor rate cannot be determined, then CITBC
shall use the Chase Bank Rate to compute interest. In addition, the Company
shall pay to CITBC, upon the request of CITBC such amount or amounts as
shall compensate CITBC for any loss, costs or expenses incurred by CITBC
(as reasonably determined by CITBC) as a result of: (i) any payment or
prepayment on a date other than the last day of a Libor Period for such
Libor Loan, or (ii) any failure of the Company to borrow a Libor Loan on
the date for such borrowing specified in the relevant notice; such
compensation to include, without limitation, an amount equal to any loss or
expense suffered by CITBC during the period from the date of receipt of
such payment or prepayment or the date of such failure to borrow to the
last day of such Libor Period if the rate of interest obtained by CITBC
upon the reemployment of an amount of funds equal to the amount of such
payment, prepayment or failure to borrow is less than the rate of interest
applicable to such Libor Loan for such Libor Period, unless such loss or
expenses arises solely from CITBC's gross negligence or willful misconduct.
The determination by CITBC of the amount of any such loss or expense, when
set forth in a written notice to the Company, containing CITBC calculations
thereof in reasonable detail, shall be conclusive on the Company, in the
absence of manifest error. Calculation of all amounts payable to CITBC
under this paragraph 2 with regard to Libor Loans shall be made as though
CITBC had actually funded the Libor Loans through the purchase of deposits
in the relevant market and currency, as the case may be, bearing interest
at the rate applicable to such Libor Loans in an amount equal to the amount
of the Libor Loans and having a maturity comparable to the relevant
interest period provided, however, that CITBC may fund each of the Libor
Loans in any manner CITBC sees fit and the foregoing assumption shall be
used only for calculation of amounts payable under this paragraph 2. In
addition, notwithstanding anything to the contrary contained herein, CITBC
shall apply all proceeds of Collateral, including the Accounts, and all
other amounts received by it from or on behalf of the Company (i) initially
to the Chase Bank Rate loans and (ii) subsequently to Libor Loans;
provided, however, x) upon the occurrence of an Event of Default (other
than an Event of Default which is waived in writing by CITBC or cured to
CITBC's reasonable satisfaction) or y) in the event the aggregate amount of
outstanding Libor Rate Loans exceeds Availability or the applicable maximum
levels set forth therefor, CITBC may apply all such amounts received by it
to the payment of Obligations in such manner and in such order as CITBC may
elect in its reasonable business judgment. In the event that any such
amounts are applied to Revolving Loans which are Libor Loans, such
application shall be treated as a prepayment of such Libor Loans and CITBC
shall be entitled to indemnification hereunder.
-26-
<PAGE>
3. In consideration of the Letter of Credit Guaranty of CITBC, the
Company shall pay CITBC the Letter of Credit Guaranty Fee which shall be an
amount equal to one percent (1%) per annum, payable monthly, on the face
amount of each Letter of Credit less the amount of any and all amounts
previously drawn under the Letter of Credit.
4. Any charges, fees, commissions, costs and expenses charged to
CITBC for the Company's account by any Issuing Bank in connection with or
arising out of Letters of Credit issued pursuant to this Financing
Agreement or out of transactions relating thereto will be charged to the
Company's account in full when charged to or paid by CITBC and when made by
any such Issuing Bank shall be conclusive on CITBC.
5. The Company shall reimburse or pay CITBC, as the case may be, for:
i) all Out-of-Pocket Expenses of CITBC and ii) any applicable
Documentation Fee.
6. Upon the last Business Day of each month, commencing with the last
day of the month in which this Financing Agreement is executed the Company
shall pay CITBC the Line of Credit Fee, provided that in the event that
this Financing Agreement is signed on a day other than the first day of a
month, such Line of Credit Fee shall be pro-rated for the initial month
based upon the actual number of days that this Financing Agreement is in
effect in such initial month.
7. Upon the date hereof and on such annual anniversary hereof the
Company shall pay to CITBC the Collateral Management Fee, which shall be
fully earned and not refundable or rebateable when due. Such fee shall be
equal to (i) $35,000 with respect to the fee due on the date hereof and
(ii) $15,000 with respect to the amount due on each annual anniversary of
the date hereof.
8. The Company shall pay CITBC's standard charges for, and the
reasonable fees and expenses of, the CITBC personnel used by CITBC for
reviewing the books and records of the Company and for verifying, testing
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral provided, however, that the foregoing shall not be payable until
the occurrence of an Event of Default (other than an Event of Default which
has been waived in writing by CITBC or cured to CITBC's reasonable
satisfaction) if the Company is paying a Collateral Management Fee.
9. The Company hereby authorizes CITBC to charge the Company's
Revolving Loan Account with CITBC with the amount of all payments due under
this Section 7 as such payments become due. The Company confirms that any
charges which CITBC may so make to the Company's account under this Section
7 will be made as an accommodation to the Company and solely at CITBC's
reasonable discretion.
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<PAGE>
SECTION 8. Powers
Subject to the following paragraph of this Section 8, the Company
hereby constitutes CITBC or any person or agent CITBC may designate as its
attorney-in-fact, at the Company's cost and expense, to exercise all of the
following powers, which being coupled with an interest, shall be
irrevocable until all of the Company's Obligations to CITBC have been paid
in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the
name of CITBC or the Company, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Company
and to notify postal authorities to change the address for delivery thereof
to such address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time, in
the name of CITBC or the Company or that of CITBC's designee, information
concerning the amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of CITBC's
interest therein and to notify customers indebted on Accounts to make
payment directly to CITBC for the Company's account; and
(e) To take or bring, in the name of CITBC or the Company, all steps,
actions, suits or proceedings deemed by CITBC necessary or desirable to
enforce or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the
powers set forth in (b), (d) and (e) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of
Default is waived in writing by CITBC or cured to CITBC's satisfaction. In
addition, the powers set forth in (c) above will only be exercised in the
name of the Company or a certified public accountant designated by CITBC
prior to the occurrence of such Event of Default.
SECTION 9. Events of Default and Remedies
1. Notwithstanding anything hereinabove to the contrary, CITBC may
terminate this Financing Agreement immediately upon the occurrence of any
of the following (herein "Events of Default"):
a) cessation of the business of the Company or the calling of a
meeting of the creditors of the Company for purposes of compromising the
debts and obligations of the Company;
b) the failure of the Company to generally meet debts as they
mature;
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<PAGE>
c) the commencement by or against the Company of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, provided that in the event of
any involuntary proceeding commenced against the Company such proceeding is
not dismissed or discharged within forty-five (45) days after commencement
thereof;
d) breach by the Company of any warranty, representation or covenant
contained herein (other than those referred to in sub-paragraph e below) or
in any other written agreement between the Company or CITBC, provided that
such breach by the Company of any of the warranties, representations or
covenants referred in this clause d shall not be deemed to be an Event of
Default unless and until such breach shall remain unremedied to CITBC's
satisfaction for a period of twenty (20) days from the date of such breach;
e) breach by the Company of any warranty, representation or covenant
of Section 3, Paragraphs 3 (other than the third sentence of paragraph 3)
and 4; Section 5, Paragraph 3; Section 6, Paragraphs 1,4,5, and 7 through
13;
f) failure of the Company to pay any of the Obligations
within five (5) Business Days of the due date thereof, provided
that nothing contained herein shall prohibit CITBC from charging
such amounts to the Company's Revolving Loan Account on the due
date thereof;
g) the Company shall i) engage in any "prohibited transaction" as
defined in ERISA, ii) have any "accumulated funding deficiency" as defined
in ERISA, iii) have any Reportable Event as defined in ERISA, iv) terminate
any Plan, as defined in ERISA or v) be engaged in any proceeding in which
the Pension Benefit Guaranty Corporation shall seek appointment, or is
appointed, as trustee or administrator of any Plan, as defined in ERISA,
and with respect to this sub-paragraph (g) such event or condition x)
remains uncured for a period of forty-five (45) days from date of
occurrence and y) could, in the reasonable opinion of CITBC, subject the
Company to any tax, penalty or other liability materially adverse to the
business, operations or financial condition of the Company;
h) without the prior written consent of CITBC, the Company shall x)
amend or modify the Subordinated Debt, or y) make any payment on account of
the Subordinated Debt, in each case except as permitted in the
Subordination Agreement; or
i) the occurrence of any default (after giving effect to any
applicable grace or cure periods) or event of default (after giving effect
to any applicable grace or cure periods) under any instrument or agreement
evidencing (x) Subordinated Debt or (y) any other Indebtedness of the
Company having a principal amount in excess of $500,000.
2. Upon the occurrence of a Default and/or an Event of Default (other
than a Default and/or Event of Default which has been waived in writing by
CITBC or cured to CITBC's reasonable satisfaction), at the option of CITBC,
all loans, advances and extensions of credit provided for in Sections 3 and
4 of this Financing Agreement shall be thereafter in CITBC's sole
discretion and the obligation of CITBC to make Revolving Loans and/or open
Letters of Credit shall cease unless such Default or Event of Default is
waived in writing by CITBC or cured to CITBC's satisfaction, and at the
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<PAGE>
option of CITBC upon the occurrence of an Event of Default (other than a
Default and/or Event of Default which has been waived in writing by CITBC
or cured to CITBC's reasonable satisfaction): i) all Obligations shall
become immediately due and payable; ii) CITBC may charge the Company the
Default Rate of Interest on all then outstanding or thereafter incurred
Obligations in lieu of the interest provided for in Section 7 of this
Financing Agreement provided that with respect to this clause "ii)" a)
CITBC has given the Company written notice of the Event of Default,
provided, however, that no notice is required if the Event of Default is
the Event listed in paragraph 1(c) of this Section 9 and b) the Company has
failed to cure the Event of Default within ten (10) days after x) in the
case of all Events of Default other than the Event of Default listed in
Paragraph 1(c) of this Section 9, CITBC deposited such notice in the United
States mail or y) the occurrence of the Event of Default listed in
paragraph 1(c) of this Section 9; and iii) CITBC may immediately terminate
this Financing Agreement upon notice to the Company, provided, however,
that no notice of termination is required if the Event of Default is the
Event listed in paragraph 1(c) of this Section 9. The exercise of any
option is not exclusive of any other option which may be exercised at any
time by CITBC.
3. Immediately upon the occurrence of any Event of Default, CITBC may
to the extent permitted by law: (a) remove from any premises where same
may be located any and all documents, instruments, files and records, and
any receptacles or cabinets containing same, relating to the Accounts, or
CITBC may use, at the Company's expense, such of the Company's personnel,
supplies or space at the Company's places of business or otherwise, as may
be reasonably necessary to properly administer and control the Accounts or
the handling of collections and realizations thereon; (b) bring suit, in
the name of the Company or CITBC, and generally shall have all other rights
respecting said Accounts, including without limitation the right to:
accelerate or extend the time of payment, settle, compromise, release in
whole or in part any amounts owing on any Accounts and issue credits in the
name of the Company or CITBC; (c) sell, assign and deliver the Collateral
and any returned, reclaimed or repossessed merchandise, with or without
advertisement, at public or private sale, for cash, on credit or otherwise,
at CITBC's sole option and discretion, and CITBC may bid or become a
purchaser at any such sale, free from any right of redemption, which right
is hereby expressly waived by the Company; (d) foreclose the security
interests in the Collateral created herein by any available judicial
procedure, or to take possession of any or all of the Collateral without
judicial process, and to enter any premises where any Collateral may be
located for the purpose of taking possession of or removing the same and
(e) exercise any other rights and remedies provided in law, in equity, by
contract or otherwise. CITBC shall have the right, without notice or
advertisement, to sell, lease, or otherwise dispose of all or any part of
the Collateral whether in its then condition or after further preparation
or processing, in the name of the Company or CITBC, or in the name of such
other party as CITBC may designate, either at public or private sale or at
any broker's board, in lots or in bulk, for cash or for credit, with or
without warranties or representations, and upon such other terms and
conditions as CITBC in its sole discretion may deem advisable, and CITBC
shall have the right to purchase at any such sale. If any Collateral shall
require rebuilding, repairing, maintenance or preparation, CITBC shall have
the right, at its option, to do such of the aforesaid as is necessary, for
the purpose of putting the collateral in such saleable form as CITBC shall
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<PAGE>
deem appropriate. The Company agrees, at the request of CITBC, to assemble
the Collateral in the best way possible and to make it available to CITBC
at premises of the Company where such Collateral is located and to make
available to CITBC the premises and facilities of the Company for the
purpose of CITBC's taking possession of, removing or putting the Collateral
in saleable form. However, if notice of intended disposition of any
Collateral is required by law, it is agreed that ten (10) days notice shall
constitute reasonable notification and full compliance with the law. The
net cash proceeds resulting from CITBC's exercise of any of the foregoing
rights, (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by CITBC to the payment of the
Company's Obligations, whether due or to become due, in such order as CITBC
may elect, and the Company shall remain liable to CITBC for any
deficiencies, and CITBC in turn agrees to remit to the Company or its
successors or assigns, any surplus resulting therefrom. The enumeration of
the foregoing rights is not intended to be exhaustive and the exercise of
any right shall not preclude the exercise of any other rights, all of which
shall be cumulative.
SECTION 10. Termination
Except as otherwise permitted herein, the Company or CITBC may
terminate this Financing Agreement and the Line of Credit only as of the
initial or any subsequent Anniversary Date and then only by giving the
other at least sixty (60) days prior written notice of termination.
Notwithstanding the foregoing CITBC may terminate the Financing Agreement
immediately upon the occurrence of an Event of Default (other than an Event
of Default which has been waived in writing by CITBC or cured to CITBC's
reasonable satisfaction), provided, however, that if the Event of Default
is an event listed in paragraph 1(c) of Section 9 of this Financing
Agreement, CITBC may regard the Financing Agreement as terminated and
notice to that effect is not required. This Financing Agreement, unless
terminated as herein provided, shall automatically continue from
Anniversary Date to Anniversary Date. Notwithstanding the foregoing, the
Company may terminate this Financing Agreement and the Line of Credit prior
to any applicable Anniversary Date upon sixty (60) days' prior written
notice to CITBC, provided that the Company pays to CITBC immediately on
demand, an Early Termination Fee, if applicable. All Obligations shall
become due and payable as of any termination hereunder or under Section 9
hereof and, pending a final accounting, CITBC may withhold such balances in
the Company's account as CITBC in its reasonable business judgment deems
necessary (unless supplied with an indemnity satisfactory to CITBC) to
cover all of the Company's Obligations, whether absolute or contingent.
All of CITBC's rights, liens and security interests shall continue after
any termination until all Obligations have been paid and satisfied in full.
SECTION 11. Miscellaneous
1. The Company hereby waives diligence, demand, presentment and
protest and any notices thereof as well as notice of nonpayment. No delay
or omission of CITBC or the Company to exercise any right or remedy
hereunder, whether before or after the happening of any Event of Default,
shall impair any such right or shall operate as a waiver thereof or as a
waiver of any such Event of Default. No single or partial exercise by
CITBC of any right or remedy precludes any other or further exercise
thereof, or precludes any other right or remedy.
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<PAGE>
2. This Financing Agreement and the documents executed and delivered
in connection therewith constitute the entire agreement between the Company
and CITBC; supersede any prior agreements; can be changed only by a
writing signed by both the Company and CITBC; and shall bind and benefit
the Company and CITBC and their respective successors and assigns.
3. In no event shall the Company, upon demand by CITBC for payment of
any indebtedness relating hereto, by acceleration of the maturity thereof,
or otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement
made in connection herewith, CITBC shall never be entitled to receive,
charge or apply, as interest on any indebtedness relating hereto, any
amount in excess of the maximum amount of interest permissible under
applicable law. If CITBC ever receives, collects or applies any such
excess, it shall be deemed a partial repayment of principal and treated as
any other payment under Section 3, Paragraph 4 hereof; and if principal is
paid in full, any remaining excess shall be refunded to the Company. This
paragraph shall control every other provision hereof and of any other
agreement made in connection herewith.
4. If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision
shall be fully severable, and the remaining provisions of the applicable
agreement shall remain in full force and effect and shall not be affected
by such provision's severance. Furthermore, in lieu of any such provision,
there shall be added automatically as a part of the applicable agreement a
legal and enforceable provision as similar in terms to the severed
provision as may be possible.
5. THE COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT.
THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED.
6. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed
to have been validly served, given or delivered when hand delivered or sent
by telegram or telex, or three days after deposit in the United States
mails, with proper first class postage prepaid and addressed to the party
to be notified as follows:
(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, NY 10036
Attn: Robert Smith, Senior Vice President and Regional Manager
Fax No.: (212) 536-1295
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<PAGE>
(B) if to the Company at:
Noodle Kidoodle, Inc.
6801 Jericho Turnpike
Syosset, NY 11791
Attn: Kenneth S. Betuker, Chief Financial Officer
Fax No.: (516) 677-0514
or to such other address as any party may designate for itself by like
notice.
7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above. This Financing Agreement shall
take effect as of the date set forth above after being accepted below by an
officer of CITBC after which, CITBC shall forward to the Company a fully
executed original for its files.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC.
By/s/ Eric Miller
Vice President
Read and Agreed to:
NOODLE KIDOODLE, INC.
By/s/ Kenneth S. Betuker
Title:Vice President,Chief financila Officer
Executed and Accepted at
New York, New York
THE CIT GROUP/BUSINESS
CREDIT, INC.
By /s/Eric Miller
Vice President
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<PAGE>
EXHIBIT A - FORM OF CREDIT CARD LETTER
, 199
[Bank Name
and Address]
Attn:
Dear Sirs:
Per this letter, please be advised that
(the "Company") is entering into a new financing arrangement with The CIT
Group/Business Credit, Inc. ("CITBC"), on or about the date hereof. We
have advised CITBC that you are our remitter for all MasterCard, Visa,
Discover and American Express credit card receipts. The Company and CITBC
wish to confirm the remittance bank for all credit card remittances going
forward after the date hereof.
We request that you transfer, in Federal Funds or ACH, all credit card
remittances to:
Bank:
ABA No.:
Reference: For the account of
Account:
Unless otherwise notified in writing by both an officer of the Company and
of CITBC, you cannot redirect the credit card remittance to any bank
account other than the account listed above.
Please acknowledge receipt of this letter and your confirmation and
agreement with its provisions by signing and returning the enclosed copy to
my attention for further transmittal to CITBC.
Sincerely,
[COMPANY]
By:
Title: Chief Financial Officer
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<PAGE>
Acknowledged and Agreed to as of
this day of , 199
[BANK NAME]
By:
Title:
Acknowledged this day
of , 199
THE CIT GROUP/BUSINESS
CREDIT, INC.
By:
Title:
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<PAGE>
<TABLE>
Schedule 1 - Existing Liens
Secured Filing Filing
Location Debtor Party Num. Date Collateral
<CAPTION>
<S> <C> <C> <C> <C> <C>
105 Price Pkwy. Noodle Kidoodle, Monroe Systems 94-17512 11/8/94 Copier
Farmingdale, NY Inc. (f/k/a Processing
11735 Greenman
Bros, Inc.)
35 Engel St. Noodle Kidoodle, General Electric orig #0044370 5/14/73 Lamps
Hicksville, NY Inc. (f/k/a Co. cont #164575
11801 Greenman amend #065423
Bros, Inc., cont. #060617
(f/k/a Hudson- cont. #010041
Berlind Corp.)) amend. #248897
cont. #600348
105 Price Pkwy. Noodle Kidoodle, Crown Credit 062764 3/31/94 Truck,
Farmingdale, NY Inc. (f/k/a Company Batter-
11735 Greenman ies &
Bros, Inc.) Chargers
105 Price Pkwy. Noodle Kidoodle, Monroe Systems 227167 11/7/94 Copier
Farmingdale, NY Inc. (f/k/a Processing
11735 Greenman
Bros, Inc.)
</TABLE>
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<PAGE>
Schedule 2 - Collateral Locations and Chief Executive Office
Chief Executive Office
6801 Jericho Turnpike
Syosset, New York 11791
Collateral Locations
Connecticut
Store #513
432 Buckland Hills Drive
Manchester, CT 06040
Store #521
595 Connecticut Avenue
Norwalk, CT 06854
Illinois
Store #520
Northpoint Shopping Center
330 East Rand Road
Arlington Heights, IL 60004
Store #523
1276 Fox Valley Center Drive
Aurora, IL 60504
Store #522
620 Stratford Square Mall
2nd Level
Bloomingdale, IL 60108
Store #512
2163 North Clybourn
Chicago, IL 60614
Store #519
Rivertree Court Shopping Center
701 N. Milwaukee Avenue
Vernon Hills, IL 60061
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<PAGE.
Store #515
Edens Plaza
3232 Lake Avenue
Wilmette, IL 60091
Store #511
1001 West 75th Street
Woodbridge, IL 60517
Massachusetts
Store #534
250 Granite Street
Braintree, MA 02184
Store #529
Burlington Gateway
51 Middlesex Turnpike
Burlington, MA 01803
Store #535
Sherwood Plaza
1324 Worcester Street
(Route 9)
Natick, MA 01760
Michigan
Store #525
17704 West 13 Mile
& Southfield Road
Beverly Hills, MI 48025
Store #530
31385 Orchard Lake Road
Farmington Hills, MI 48334
Store #533
1336 South Rochester Road
Rochester Hills, MI 48307
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<PAGE>
New Jersey
Store #516
Freehold Raceway Mall
3710 Route 9
Freehold, NJ 07728
Store #505
Circle Plaza Mall
464 Route 10
Livingston, NJ 07039
Store #504
The Fashion Center
Route 17N at Ridgewood Avenue
Paramus, NJ 07652
Store #527
332 East Route 4
Paramus, NJ 07652
Store #503
Brentwood Plaza Shopping Center
1655 Route 23 South
Wayne, NJ 07470
Distribution Center
224 Stockton Street
Phillipsburg, NJ 08865
New York
Sore #517
Crossgates Mall
One Crossgates Mall Road
Albany, NY 12203
Store #507
4097 East Jericho Turnpike
East Northport, NY 11731
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<PAGE>
Store #518
Roosevelt Field Mall
Old Country Road
Garden City, NY 11530
(Lower Level)
Store #501
90-6 Northern Boulevard
Greenvale, NY 11548
Store #531
112 East 86th Street
New York, NY 10028
Store #510
479 Sunrise Mall
Massapequa, NY 11758
Store #532
2335 New Hyde Park Road
New Hyde Park, NY 11040
Store #502
Caldor Shopping Center
3644 Longbeach Road
Oceanside, NY 11572
Store #509
The Plainview Centre
343 South Oyster Bay Road
Plainview, NY 11803
Store #514
Hylan Commons
2530 Hylan Boulevard
Staten Island, NY 10306
Store #524
Carousel Center
9506 Csrousel Center Drive
Syracuse, NY 13290-9501
Store #526
172 Eastview Mall
7979 Victor-Pittsford Road
Victor, NY 14564
-41-
AMENDED & RESTATED
CERTIFICATE OF INCORPORATION
OF
NOODLE KIDOODLE, INC.
AS OF JULY 11, 1997
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and
promoting the purposes hereinafter stated, under the provisions
and subject to the requirements of the laws of the State of
Delaware (particularly Title 8, Chapter 1, of the Delaware Code
and the acts amendatory thereof and supplemental thereto, and
known, identified, and referred to as the "Delaware General
Corporation Law"), hereby certifies that:
FIRST: The name of the Corporation is Noodle
Kidoodle, Inc.
SECOND: The address of the registered office of the
Corporation in Delaware is 1013 Centre Road, City of Wilmington,
County of New Castle, and the name of the registered agent of the
Corporation at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be
organized under the Delaware General Corporation Law.
FOURTH: The total number of shares which the
Corporation is to be authorized to issue is 15,000,000 shares of
common stock, par value $.001 (the "Common Stock") and 1,000,000
shares of preferred stock, par value $.001 ("the Preferred
Stock").
A statement of the designations of the authorized
classes of stock or of any series thereof, and the powers,
preferences and relative, participating, optional or other
special rights, and qualifications, limitations or
restrictions thereof, or of the authority of the Board of
Directors to fix by resolution or resolutions such
designations and other terms not fixed by the Certificate of
Incorporation, is as follows:
(a) The Preferred Stock may be issued in one or
more series, from time to time, with each such
series to have such designation, powers,
preferences and relative, participating, optional
or other special rights, and qualifications,
limitations or restrictions thereof, as shall be
stated and expressed in the resolution or
resolutions providing for the issue of such series
adopted by the Board of Directors of the
Corporation, subject to the limitations prescribed
by law and in accordance with the provisions
hereof, the Board of Directors being hereby
expressly vested with authority to adopt any such
resolution or resolutions. The authority of the
Board of Directors with respect to each such
series shall include, but not be limited to, the
determination or fixing of the following:
(i) The distinctive designation and number
of shares comprising such series, which number may
(except where otherwise provided by the Board of
Directors in creating such series) be increased or
decreased (but not below the number of shares then
outstanding) from time to time by like action of
the Board of Directors;
(ii) The dividend rate of such series, the
conditions and times upon which such dividends
shall be payable, the relation which such
dividends shall bear to the dividends payable on
any other class or classes of stock or series
thereof, or any other series of the same class,
and whether such dividends shall be cumulative or
non-cumulative;
(iii) The conditions upon which the
shares of such series shall be subject to
redemption by the Corporation and the times,
prices and other terms and provisions upon which
the shares of the series may be redeemed;
(iv) Whether or not the shares of the series
shall be subject to the operation of a retirement
or sinking fund to be applied to the purchase or
redemption of such shares and, if such retirement
or sinking fund be established, the annual amount
thereof and the terms and provisions relative to
the operation thereof;
(v) Whether or not the shares of the series
shall be convertible into or exchangeable for
shares of any other class or classes, with or
without par value, or of any other series of the
same class, and, if provision is made for
conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of
such conversion or exchange;
(vi) Whether or not the shares of the series
shall have voting rights, in addition to the
voting rights provided by law, and, if so, the
terms of such voting rights;
(vii) The rights of the shares of the series
in the event of voluntary or involuntary
liquidation, dissolution, or upon the distribution
of assets of the Corporation;
(viii) Any other powers, preferences and
relative, participating, optional or other special
rights, and qualifications, limitations or
restrictions thereof, of the shares of such
series, as the Board of Directors may deem
advisable and as shall not be inconsistent with
the provisions of this Certificate of
Incorporation.
(b) The holders of shares of the Preferred
Stock of each series shall be entitled to receive,
when and as declared by the Board of Directors,
out of funds legally available for the payment of
dividends, dividends at the rates fixed by the
Board of Directors for such series, and no more,
before any dividends, other than dividends payable
in Common Stock, shall be declared and paid, or
set apart for payment, on the Common Stock with
respect to the same dividend period.
(c) Whenever, at any time, dividends on the
then outstanding Preferred Stock, as may be
required with respect to any series outstanding,
shall have been paid or declared and set apart for
payment on the applicable series of the then
outstanding Preferred Stock, and after complying
with respect to any retirement or sinking fund or
funds for any series of Preferred Stock, the Board
of Directors may, subject to the provisions of the
resolution or resolutions creating any series of
Preferred Stock, declare and pay dividends on the
Common Stock, and the holders of shares of the
Preferred Stock shall not be entitled to share
therein.
(d) The holders of shares of the Preferred
Stock of each series shall be entitled upon
liquidation or dissolution or upon the
distribution of the assets of the Corporation to
such preferences as provided in the resolution or
resolutions creating such series of Preferred
Stock, and no more, before any distribution of the
assets of the Corporation shall be made to the
holders of shares of the Common Stock. Whenever
the holders of shares of the Preferred Stock shall
have been paid the full amounts to which they
shall be entitled, the holders of shares of the
Common Stock shall be entitled to share ratably in
all assets of the Corporation remaining.
(e) At all meetings of the stockholders of
the Corporation, the holders of shares of the
Common Stock shall be entitled to one vote for
each share of Common Stock held by them. Except
as otherwise provided by a resolution or
resolutions of the Board of Directors creating any
series of Preferred Stock or by the Delaware
General Corporation Law, the holders of shares of
the Common Stock issued and outstanding shall have
and possess the exclusive right to notice of
stockholders' meetings and the exclusive power to
vote.
(f) The designation, powers preferences and
rights of the Series A Junior Participating
Preferred Stock are as follows:
Section 1. Designation and Amount. The Corporation is
authorized to issue shares of a series of Preferred Stock which
shall be designated as "Series A Junior Participating Preferred
Stock," $.001 per share, and the number of shares constituting
such series shall be 440,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of
Series A Junior Participating Preferred Stock to a number less
than that of the shares then outstanding plus the number of shares
issuable upon exercise of outstanding rights, options or warrants
or upon conversion of outstanding securities issued by the
Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking
prior and superior to the shares of Series A Junior Participating
Preferred Stock with respect to dividends, the holders of shares
of Series A Junior Participating Preferred Stock in preference to
the holders of shares of Common Stock, of the Corporation and any
other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on the first
day of January, April, July, and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock in an amount per
share (rounded to the nearest cent) equal to the greater of (a)
$1.00, or (b) subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision
of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series A Junior Participating
Preferred Stock. In the event the Corporation shall at any time
after the date of the filing of this Certificate of Incorporation
(the "Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after
such event (in the case of the declaration of a dividend payable
in shares of Common Stock, assuming the payment of such dividend)
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Junior Participating Preferred Stock
as provided in paragraph (A) above immediately after it declares a
dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, that in the
event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1.00 per share on the Series A Junior
Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Junior Participating Preferred
Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of Series A Junior Participating
Preferred Stock unless the date of issue of such shares is prior
to the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive
a quarterly dividend for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue
is a Quarterly Dividend Payment Date or is a date after the record
date for such Quarterly Dividend Payment Date and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series A
Junior Participating Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Series A Junior Participating Preferred Stock shall have the
following voting rights:
(A) Subject to the provisions for adjustment
hereinafter set forth, each share of Series A Junior Participating
Preferred Stock shall entitle the holder thereof to one vote on
all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
number of votes per share to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number
by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event (in the case
of the declaration of a dividend payable in shares of Common
Stock, assuming the payment of such dividend) and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Junior Participating Preferred Stock
and holders of shares of Common Stock shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
(C) (i) If at any time dividends on any Series A
Junior Participating Preferred Stock shall be in arrears in an
amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a
period (herein called a "Default Period") which shall extend until
such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend
period on all shares of Series A Junior Participating Preferred
Stock then outstanding shall have been declared and paid or set
apart for payment. During each Default Period, all holders of
Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an
amount equal to six (6) quarterly dividends thereon, voting as a
class, irrespective of series, shall have the right to elect two
(2) directors who shall serve in addition to such number of
directors already serving and whose terms shall not be staggered
or classified.
(ii) During any Default Period, such voting right of
the holders of Series A Junior Participating Preferred Stock may
be exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting
of stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right nor the
right of the holders of any other series of Preferred Stock, if
any, to increase, in certain cases, the authorized number of
Directors shall be exercised unless the holders of ten percent
(10%) in number of shares of Preferred Stock outstanding shall be
present in person or by proxy. The absence of a quorum of the
holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. At any meeting
at which the holders of Preferred Stock shall exercise such voting
right initially during an existing Default Period, they shall have
the right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist, up
to two (2) Directors, or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be
so elected at any meeting because of vacancies in the Board of
Directors or otherwise does not amount to the required number, the
number of Directors shall automatically be increased to such
number of Directors as shall be necessary to permit the election
by the holders of Preferred Stock of the required number. After
the holders of the Preferred Stock shall have exercised their
right to elect Directors in any Default Period and during the
continuance of such period, the number of Directors shall not be
increased or decreased except by vote of the holders of Preferred
Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing Default Period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
shareholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling of a
special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman of the Board, the
President, a Vice-President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this paragraph
(C)(iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him at his last address
as the same appears on the books of the Corporation. Such meeting
shall be called for a time not earlier than 10 days and not later
than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called during the
period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any Default Period, the holders of Common
Stock, and other classes of stock of the Corporation if
applicable, shall continue to be entitled to elect the whole
number of Directors until the holders of Preferred Stock shall
have exercised their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in office
until their successors shall have been elected by such holders or
until the expiration of the Default Period, and (y) any vacancy in
the Board of Directors may (except as provided in paragraph
(C)(ii) of this Section 3) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have
become vacant. References in this paragraph (C) to Directors
elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a Default
Period, (x) the right of the holders of Preferred Stock as a class
to elect Directors shall cease, (y) the term of any Directors
elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of Directors shall be such number as
may be provided for in, or pursuant to, the Certificate of
Incorporation or By-Laws irrespective of any increase made
pursuant to the provisions of paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any
manner provided by law or in the Certificate of Incorporation or
By-Laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors, even though less
than a quorum.
(D) Except as set forth herein, holders of Series A
Junior Participating Preferred Stock shall have no voting rights
and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating
Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A
Junior Participating Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
(i) declare or pay dividends on, make
any other distributions on, or otherwise
acquire for consideration any shares of stock
ranking junior (either as to dividends or
upon liquidation, dissolution or winding up)
to the Series A Junior Participating
Preferred Stock;
(ii) declare or pay dividends on or make
any other distributions on any shares of
stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or
winding up) with the Series A Junior
Participating Preferred Stock except
dividends paid ratably on the Series A Junior
Participating Preferred Stock and all such
parity stock on which dividends are payable
or in arrears in proportion to the total
amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock
ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding
up) with the Series A Junior Participating
Preferred Stock provided that the Corporation
may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in
exchange for shares of any stock of the
Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or
winding up) to the Series A Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Junior
Participating Preferred Stock or any shares
of stock ranking on a parity with the Series
A Junior Participating Preferred Stock except
in accordance with a purchase offer made in
writing or by publication (as determined by
the Board of Directors) to all holders of
such shares upon such terms as the Board of
Directors, after consideration of the
respective annual dividend rates and other
relative rights and preferences of the
respective series and classes, shall
determine in good faith will result in fair
and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Junior Participating Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A)
Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to
the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received per share, the greater of
$25.00 or 100 times the payment to be made per share of Common
Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the
holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall
have received an amount per share (the "Common Adjustment") equal
to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii), the "Adjustment Number"). Following
the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Common
Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment Number to
1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
Preferred Stock, if any, which rank on a parity with the Series A
Junior Participating Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of Series A Junior
Participating Preferred Stock and such parity shares in proportion
to their respective liquidation preferences. In the event there
are not sufficient assets available to permit payment in full of
the Common Adjustment following payment in full of the Series A
Liquidation Preference and the liquidation preference of all other
series of Preferred Stock, if any, which rank of a parity with the
Series A Junior Participating Preference Stock, then such
remaining assets shall be distributed ratably to the holders of
Common Stock;
(C) In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall
be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event (in the case of the
declaration of a dividend payable in shares of Common Stock,
assuming the payment of such dividend) and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common
Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares
of Series A Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be,
into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the
amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event (in the case of the
declaration of a dividend payable in shares of Common Stock,
assuming the payment of such dividend) and the denominator of
which is the number of shares of Common Stock that are outstanding
immediately prior to such event.
Section 8. Redemption. The shares of Series A
Junior Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating
Preferred Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends and
the distribution of assets, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment. This Certificate of
Incorporation shall not be further amended in any manner which
would materially alter or change the powers, preferences or
special rights of the Series A Junior Participating Preferred
Stock so as to affect them adversely without the affirmative vote
of the holders of a majority or more of the outstanding shares of
Series A Junior Participating Preferred Stock voting separately as
a class.
Section 11. Fractional Shares. Series A Junior
Participating Preferred Stock may be issued in fractions of a
share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of
all other rights of holders of Series A Junior Participating
Preferred Stock.
FIFTH: (a) The number of Directors shall be eight,
plus such number as shall be added to the Board of Directors
pursuant to Article FOURTH Section 3 hereof. The Directors shall
not be required to be stockholders.
(b) With the exception of Directors added
to the Board of Directors pursuant to Article FOURTH Section
3(C)(i) hereof, the Board of Directors shall be divided into three
equal classes which henceforth shall be constituted as follows:
two Class 3 Directors with terms expiring at the Annual Meeting of
Stockholders in 2000, and triennially thereafter; three Class 1
Directors with terms expiring at the Annual Meeting of
Stockholders in 1998; and triennially thereafter; and three Class
2 Directors with terms expiring at the Annual Meeting of
Stockholders in 1999, and triennially thereafter.
At each annual meeting of stockholders, Directors chosen to
succeed those whose terms then expired shall be elected for a term
of office expiring at the third succeeding Annual Meeting of
Stockholders after their election.
(c) Except as required in the By-Laws no
election of directors need be by written ballot.
SIXTH: The Board of Directors shall have the power to
make, alter, or repeal By-Laws subject to the power of the
stockholders to alter or repeal the By-Laws made or altered by the
Board of Directors.
SEVENTH: The personal liability of the Directors of the
Corporation is hereby eliminated to the fullest extent permitted
by the provisions of paragraph (7) of subsection (b) of sec. 102 of
the Delaware General Corporation Law. If the Delaware General
Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a Director, then the
liability of a Director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
EIGHTH: The Corporation, to the fullest extent permitted
by the provisions of sec. 145 of the Delaware General Corporation
Law, as the same may be amended and supplemented, shall indemnify
each person who is or was an officer or Director of the
Corporation and may indemnify any and all other persons whom it
shall have power to indemnify under said section from and against
any and all of the expenses, liabilities, or other matters
referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-
law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a Director or officer
and shall inure to the benefit of the heirs, executors, and
administrators successors, assigns and legal representatives of
such a person.
NINTH: No contract or other transaction between the
Corporation and any other corporation shall be affected or
invalidated by the fact that any one or more of the Directors of
the Corporation is or are interested in, or is a director or
officer, or are directors or officers of such other corporation,
and any Director or Directors, individually or jointly, may be a
party or parties to or may be interested in any contract or
transaction of the Corporation or in which the Corporation is
interested; and no contract, act or transaction of the Corporation
with any persons, firms or corporations, shall be affected or
invalidated by the fact that any Director or Directors of the
Corporation is a party, or are parties, to or interested in such
contract, act or transaction, or in any way connected with such
persons, firms or corporations, and each and every person who may
become a Director of the Corporation is hereby relieved from any
liability that might otherwise exist from contracting with the
Corporation for the benefit of himself or any firm or corporation
in which he may be in any way interested.
TENTH: (a) Except as set forth below, the affirmative vote
of the holders of not less than 80% of the total outstanding
shares of the shares entitled to vote thereon shall be required to
authorize:
(i) any merger, reorganization or consolidation of the
Corporation or of any subsidiary with or into any other
corporation, person or other entity;
(ii) any sale, lease, hypothecation, exchange or other
disposition (in one transaction or in a series of
related transactions) of all or any substantial part of
the assets of the Corporation or of any subsidiary to or
with any other corporation, person or other entity; or
(iii) any issuance or transfer by the Corporation or by any
subsidiary of any of its securities to any other
corporation, person or other entity in exchange for
assets or securities or a combination thereof, having
an aggregate fair market value of 20% or more of the
consolidated assets of the Corporation and its
subsidiaries as of the end of the fiscal year of the
Corporation immediately preceding the record date for
determination of stockholders entitled to notice
thereof and to vote thereon;
(the foregoing described transactions are referred to herein as
"Special Actions") if in any such case, as of the record date for
the determination of stockholders entitled to notice thereof and
to vote thereon, the other corporation, person or other entity
which is a party to a Special Action beneficially owns, directly
or indirectly, 20% or ore of the outstanding shares of capital
stock of the Corporation (any such other corporation, person or
other entity being referred to in this Article TENTH as a "Major
Stockholder").
(b) For purposes of this Article TENTH, any
corporation, person or other entity shall be
deemed to be beneficial owner of any shares of
Common Stock of the Corporation:
(i) which it owns directly, whether or not of record; or
(ii) which it has the right to acquire pursuant to any
agreement or understanding or upon the exercise to any
agreement or understanding or upon the exercise of
conversion rights, warrants or options or otherwise,
whether or not presently exercisable; or
(iii) which are beneficially owned, directly or indirectly
(including shares deemed to be owned through application
of clause (ii) above) by an "affiliate" or "associate" as
those terms are defined herein; or
(iv) which are beneficially owned, directly or indirectly by
any other corporation, person or other entity (including
any shares which such other corporation, person or other
entity has the right to acquire pursuant to any agreement
or understanding or upon the exercise of conversion
rights, warrants or options or otherwise, whether or not
presently exercisable) with which it or its "affiliates"
or "associates" has any agreement or arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of Common Stock of the Corporation.
For the purposes of this Article TENTH, the outstanding shares of
Common Stock of the Corporation shall include shares deemed owned
through the application of clauses (b)(ii), (iii) and (iv) above,
but shall not include any other shares which may be issuable
pursuant to any agreement or upon exercise of conversion rights,
warrants, options or otherwise.
(c) The provisions of this Article TENTH shall not
apply to a Special Action if:
(i) the Board of Directors has voted to approve the Special
Action; and
(ii) a majority of those directors voting to approve the
Special Action were duly elected and acting members of the
Board of Directors prior to the time when the Major
Stockholder involved in the Special Action in question
first became a Major Stockholder.
(d) For purposes of this Article TENTH:
(i) the term "person" shall be read to include where
appropriate: corporations, natural individuals and other
entities;
(ii) an "affiliate" of any specified person includes any
person who directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, such specified person;
(iii) an "associate" of any specified person includes (1) any
person of which the specified person is an officer or
partner or is, directly or indirectly, the beneficial
owner of 10% or ore of any class of equity securities, (2)
any trust or other estate in which the specified person
has a substantial beneficial interest or as to which the
specified person serves as trustee or in a similar
capacity, or (3) any relative or spouse of the specified
person or any relative of such spouse, who has the same
home as the specified person or any corporation which
controls or is controlled by the specified person;
(iv) a "subsidiary" means a corporation of which a majority
of the outstanding shares of capital stock is owned by the
Corporation directly, and/or indirectly through one or
more other subsidiaries.
(e) The Board of Directors shall have the power and
duty to determine for the purpose of this
Article TENTH on the basis of information known
to the Board whether any person is a Major
Stockholder, affiliate or associate. Any such
determination shall be conclusive and binding
for all purposes of this Article TENTH.
(f) The provisions of this Article TENTH ma only be
amended or repeated by the vote of 80% of the
outstanding Common Stock of the Corporation."
ELEVENTH: The name and mailing address of the Sole
Incorporator is as follows:
Name Mailing Address
Fran LaVecchia c/o Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel
919 Third Avenue
New York, NY 10022
I, the undersigned, being the incorporator, for the purpose
of forming a corporation under the laws of Delaware, do make, file
and record this Certificate of Incorporation, to certify that the
facts herein stated are true, accordingly have set my hand this
18th day of January, 1996.
/S/ Fran LaVecchia
Fran LaVecchia
Incorporator
