AMENDMENT #1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11927
Moto Photo Inc.
(Exact name of registrant as specified in its charter)
Delaware 31-1080650
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
4444 Lake Center Dr. Dayton, OH 45426
(Address of principal executive offices with Zip Code)
(513) 854-6686
(Registrant's telephone number, including area code)
No Change
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 133 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
As of August 4, 1995: 7,785,973 - Voting Common, 0 - Non-Voting Common
<TABLE>
Moto Photo, Inc. And Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
<CAPTION>
<S> <C> <C> <C> <C>
REVENUES
Company store sales $ 5,197,738 $ 5,134,422 $ 9,309,941 $ 9,215,656
Merchandise sales 4,015,935 3,465,642 6,957,637 6,067,198
Royalties 1,066,311 861,867 1,957,574 1,633,420
Franchise fees 345,946 362,155 658,159 461,664
Investment income 50,380 25,083 69,331 62,394
Other income 88,388 25,079 157,508 121,469
10,764,698 9,874,248 19,110,150 17,561,801
EXPENSES
Company store cost of 4,238,162 4,046,232 8,115,583 7,646,465
sales and operating
expenses
Merchandise cost of sales 3,423,658 2,955,478 5,860,335 5,201,325
and operating expenses
Selling, general, and 2,092,791 1,807,192 3,994,865 3,428,335
administrative expenses
Advertising 391,730 434,113 793,289 796,125
Depreciation and
amortization 365,046 349,665 728,918 686,730
Interest expense 96,652 83,850 174,469 133,061
10,608,039 9,676,530 19,667,459 17,892,041
INCOME (LOSS) BEFORE INCOME 156,659 197,718 (557,309) (330,240)
TAXES
Income tax (expense)
benefit (98,000) (83,000) 223,000 135,000
NET INCOME (LOSS) 58,659 114,718 (334,309) (195,240)
Adjustment to Income App.
to Common Stock (Note 3) 0 0 673,219 0
Preferred Stock Dividend
Requirements (73,349) (279,082) (161,173) (556,026)
NET INCOME (LOSS) APPLIED TO
COMMON STOCK $ (14,690) $ (164,364) $ 177,737 $ (751,266)
NET INCOME (LOSS) PER COMMON
SHARE $ (.00) $ (0.03) $ .02 $ (0.13)
AVERAGE SHARES OUTSTANDING 7,783,263 5,663,340 7,586,890 5,649,933
</TABLE>
<TABLE>
Moto Photo, Inc. And Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1995 1994
<CAPTION>
<S> <C> <C>
ASSETS
Current Assets
Cash $ 99,913 $ 2,269,722
Accounts receivable,
less allowances of
$583,000 in 1995 and 1994 5,601,055 4,597,575
Notes receivable, less
allowances of $60,000
in 1995 and 1994 390,359 189,540
Inventory 1,537,472 1,985,002
Deferred tax assets 663,000 663,000
Prepaid expenses 768,826 295,773
TOTAL CURRENT ASSETS 9,060,625 10,000,612
PROPERTY AND EQUIPMENT 3,307,715 3,268,659
OTHER ASSETS
Notes receivable,
less allowances of $509,000
in 1995 and 1994 1,061,695 1,061,695
Cost of franchises and
contracts acquired 320,985 351,814
Goodwill 10,329,385 10,491,925
Deferred tax assets 419,000 419,000
Other assets 966,575 974,821
TOTAL ASSETS $25,465,980 $26,568,526
</TABLE>
<TABLE>
Moto Photo, Inc. And Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(Continued)
June 30, December 31,
1995 1994
<CAPTION>
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit $ 600,000 $ 0
Accounts payable 7,476,146 7,718,736
Accrued payroll and 665,881 800,934
benefits
Accrued expenses 344,681 639,304
Current portion of 1,041,933 788,681
long-term obligations
Other 480,788 304,878
TOTAL CURRENT LIABILITIES 10,609,429 10,252,533
LONG-TERM OBLIGATIONS
Long-term debt 6,725,758 6,629,834
Capitalized leases 545,304 659,008
DEFERRED REVENUE 117,556 117,556
STOCKHOLDERS' EQUITY
Preferred Stock $.01
par value, 2,000,000
shares authorized:
$1.20 cumulative
non-voting convertible
shares, 417,500
shares issued and
outstanding with
preferences aggregating
$3,548,750 0 4,175
Series E cumulative
non-voting preferred
shares, 370,000
shares issued and
outstanding with
preferences aggregating
$3,700,000 0 3,700
Series F cumulative
non-voting preferred
shares, 630,000
shares issued and
outstanding with
preferences aggregating
$6,300,000 0 6,300
Series G Cumulative non-
voting preferred
shares 1,000,000
shares issued and
outstanding with
preferences aggregating
$10,000,000 10,000 0
Voting Common Stock $.01
par value:
30,000,000 shares
authorized; issued and
outstanding --
7,785,973 in 1995 and
5,695,140 in 1994 77,860 56,951
Paid-in capital 7,087,700 8,050,613
Retained earnings
subsequent to June 30,
1991 after elimination of 292,373 787,856
a deficit of $12,823,266
TOTAL STOCKHOLDERS' EQUITY 7,467,933 8,909,595
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 25,465,980 $ 26,568,526
</TABLE>
<TABLE>
Moto Photo, Inc. And Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
Six Six
Months Months
Ended Ended
June 30, June 30,
1995 1994
<CAPTION>
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (334,309) $ (195,240)
Adjustments to reconcile net
(loss) to net cash provided
by operating activities:
Provision for Income Tax (223,000) (135,000)
Depreciation and amortization 728,918 686,730
Provision for losses on
inventory and receivables 147,316 123,754
Provision for (gain) or loss
on disposition of stores
and assets 29,980 (67,900)
Notes Receivable increase as
result of refranchising and
franchise sales 0 (40,248)
Increase (Decrease) resulting from
changes in:
Accounts receivable (1,384,668) (745,551)
Inventory and prepaid expenses 120,022 (88,405)
Other assets (10,494) 1,260
Accounts payable and accrued
expenses (742,266) (912,254)
Deferred revenues and other
liabilities 175,910 142,219
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,492,591) (1,230,635)
INVESTING ACTIVITIES
Purchase of equipment and
leaseholds (541,715) (461,196)
Proceeds from sale of stores
and assets 4,220 64,500
Payments received on notes
receivable 74,094 90,483
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (463,401) (306,213)
FINANCING ACTIVITIES
Proceeds from revolving line of
credit and borrowings 2,282,592 2,348,230
Principal payments on revolving
line of credit, long-term debt
and capital lease obligations (1,447,120) (1,826,699)
Proceeds from stock option
exercise 4,375 53,375
Payments of preferred dividends (200,000) 0
Payments related to redemption
of preferred stock (853,664) 0
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (213,817) 574,906
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,169,809) (961,942)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,269,722 1,321,779
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 99,913 $ 359,837
</TABLE>
MOTO PHOTO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
``UNAUDITED''
1.In the opinion of management, the accompanying financial statements contain
all adjustments necessary to present fairly the financial position and
results of operations for the periods covered in this report. These
statements should be read in conjunction with the Notes to the Consolidated
Financial Statements for the year ended December 31, 1994.
The internal accounting for the Company is on a fiscal calendar quarter
basis. The fiscal quarter dates may vary from the calendar quarter dates,
(i.e., July 1 vs. June 30 for the second quarter 1995), except for the fourth
quarter which ends on December 31. The differences in interim periods are
immaterial.
2.The first six months of the year are seasonally slower and do not represent
50% of the year.
3.In January 1995, the Company redeemed the $1.20 Cumulative Convertible
Preferred shares in exchange for $2 and five Common shares per share of
Preferred. This redemption resulted in the issuance of 2,087,500 shares of
Common stock and a one time positive adjustment to Income Applicable to
Common Stock of $673,219. The one time positive adjustment reflects the
difference between the market value of the Common stock and cash issued
versus the aggregate liquidation value and dividend arrearage of the $1.20
Preferred shares.
4.In January 1995, the Company redeemed the Series E and Series F Cumulative
Preferred shares in exchange for Series G Cumulative Preferred shares.
5.During the first half of 1995, $200,000 of dividends were paid on the Series
G Preferred shares. Of this amount $38,827 was for previously reported and
accreted dividends.
6.Certain amounts have been reclassified in the 1994 financial statements to
conform with the 1995 presentation.
Management Discussion and Analysis
of Financial Condition
and Results of Operations
Results of Operation 1995 Vs 1994
For the quarter ended June 30, 1995, the Company recorded net income of $58,659,
or $.00 per common share compared to net income of $114,718 and a loss per
common of $.03 for the same period a year ago. For the six months ended June
30, 1995 the Company recorded a loss of $334,309, and earnings per common share
of $.02 compared to a loss of $195,240 and a loss per common share of $.13 for
the same period a year ago. Per share calculations are made after provision for
dividends on the Series G Preferred shares for 1995, and on the $1.20 Cumulative
Convertible Preferred shares, the Series E and the Series F Preferred shares for
1994.
Sales from Company stores were up 1% for the quarter and on a year-to-date basis
as of June 30, 1995 compared to the same period a year ago. Sales from new
Company stores have exceeded the sales lost from closed stores which operated as
Company stores in 1994. Company store sales on a comparable store basis were
down 2% for the first six months of 1995 compared to the same period a year ago.
Merchandise sales increased $550,000, or 16% for the quarter ended June 30, 1995
compared to the same period a year ago. On a year-to-date basis Merchandise
sales are up $890,000, or 15%. This increase is primarily due to an increased
number of franchise stores in operation to 366 as of June 30, 1995 compared to
343 at June 30, 1994 in addition to increases in comparable franchise store
sales of approximately 9%.
Royalty revenue increased $204,000, or 24% for the quarter and $324,000, or 20%,
for the first six months of 1995 compared to the same period a year ago.
Royalty revenue increases are the result of additional franchise stores in
operation and increases in comparable franchise store sales.
Franchise fees were down $16,000 for the quarter, but, increased $196,000, or
43%, for the six months ended June 30, 1995 compared to the same period a year
ago. New franchise store openings increased to 13 for the first six months of
1995 compared to 5 in the first six months of 1994.
Other income increased $63,000, or 252% for the quarter and $36,000, or 30% for
the six months ended June 30, 1995. Other income includes sales to franchisees
for telemarketing services which are steadily expanding as a marketing method
for portrait appointments. I994 other income includes $67,901 from a first
quarter sale of the Company's investment in a joint venture .
Company store cost of sales and operating expenses rose $192,000, or 5% for the
quarter and $469,000, or 6%, for the first six months ended June 30, 1995
compared to the same period a year ago. This increase was primarily due to
increased paper costs and increasing labor and fixed costs from additional
stores.
Merchandise cost of sales and operating expenses were up $468,000, or 16% for
the quarter and $659,000, or 13%, for the first six months of 1995 compared to
the same period a year ago. Margins on merchandise sales have been adversely
impacted by increased paper costs which the Company has not been able to fully
pass on to its franchisees. The Company anticipates this problem to be
corrected in early 1996 when a new production facility from its strategic
supplier is operational.
Selling, general, and administrative costs rose $286,000, or 16% for the quarter
and $567,000, or 17%, for the first six months of 1995 compared to the same
period a year ago. The Company incurred one time costs in the second quarter
1995 associated with the physical move and conversion of its telemarketing
center to an automated operation. In addition, the Company continues to
increase development efforts for sales and openings of new franchise stores.
The Company expects to increase new franchise store openings for the remainder
of 1995. As new franchise stores open, the Company will recognize additional
franchise fees, royalties, and merchandise sales.
Interest expense is up $41,000 as of June 30, 1995 compared to the same period a
year ago primarily due to increased interest rates and increased borrowings.
The tax rate for the year has been adjusted to 40% due to a tax recovery of
previously amortized goodwill. This had the impact of increasing the expense
rate for the quarter to adjust for the higher first quarter recoverable rate.
Management Discussion and Analysis
of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The seasonal nature of the business results in less cash being generated from
operations in the first half of the year.
Increasing receivables from a greater number of franchisees and larger
franchisee purchases of merchandise, somewhat offset by extended terms from
major suppliers and reduced inventory levels, primarily accounted for the
increase in cash used in operating activities.
Cash used in financing activities increased $789,000 primarily as a result of
payments related to the redemption of the Preferred stock and payment of
Preferred dividends.
On June 7, 1995, the Company obtained a $1,450,000 term loan to finance
equipment additions. As of June 30, 1995, the Company had borrowed $383,000 of
the $1,450,000 available.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
a) On June 28, 1995, the Company held its annual meeting of shareholders.
c) At the meeting, shareholders voted on the proposed amendment to the
Company's 1992 Performance and Equity Incentive Plan (the "Plan") to increase
the total number of shares authorized for issuance pursuant to the Plan from
500,000 shares to 1,250,000 shares. The vote on the proposed amendment was as
follows:
Shares For 4,456,422
Shares Against 238,592
Shares Abstained 65,360
Total 4,760,374
In addition, the shareholders voted on the election of the following
directors. The voting tabulation for each director is set next to his name.
Votes For Votes Withheld
Michael F. Adler 6,778,151 52,724
Frank W. Benson 6,781,496 49,379
Leslie Charm 6,780,146 50,729
Dexter B. Dawes 6,780,896 49,979
Harry D. Loyle 6,782,396 48,479
David A. Mason 6,780,821 50,054
Jacob A. Myers 6,779,371 51,504
Douglas M. Thomsen 6,782,796 48,079
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See Exhibit Index immediately preceding exhibits.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during
the quarter ended June 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MOTO PHOTO, INC.
By: /S/ David A. Mason
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: August 14, 1995
Copies of the following documents are filed as exhibits to this report:
No. Description
10.1 Third Amendment to Term Loan Agreement,
dated April 25, 1995, by and between
Moto Photo, Inc. and Bank One, Dayton, N.A.
10.2 Term Promissory Note dated June 7, 1995
by and between Moto Photo, Inc. and
The Provident Bank
10.3 1992 Moto Photo Performance and Equity Incentive
Plan, as Amended (Incorporated by Reference to Exhibit 4.1 to
Form S-8 Registration Statement, Registration No.
33-59673)
11 Statement Re: Computation of Per Share
Amounts
<TABLE>
Moto Photo, Inc. and Subsidiaries
Exhibit 11 - Computation of Per Share Earnings
Three Three Six Months Six Months
Months Months
Ended Ended Ended Ended
30-Jun-95 30-Jun-94 30-Jun-95 30-Jun-94
<CAPTION>
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 7,783,263 5,663,340 7,586,890 5,649,933
Net effect of dilutive
common equivalents --
based on the tresaury
stock method using
average market price (A) (A) (B) (A)
TOTAL 7,783,263 5,663,340 7,586,890 5,649,933
Net Income (Loss) $ 58,659 $ 114,718 $ (334,309) $ (195,240)
Adjustment to Income
Applicable to Common 0 0 673,219 0
Less Preferred Stock (73,349) (279,082) (161,173) (556,026)
dividend requirements
Net Loss applicable to (14,690) (164,364) 177,737 (751,266)
Common Stock
Per share amount $ (0.00) $ (0.03) $ 0.02 $ (0.13)
FULLY DILUTED
Average shares outstanding 7,783,263 5,663,340 7,586,890 5,649,933
Net effect of dilutive
common stock
equivalents -- based on
the treasury
stock method using the quarter-end
market price, if higher than (B) (B) (B) (B)
average market price
Assumed conversion of $1.20 cumulative
convertible preferred shares (C) 835,000 (C) 835,000
Assumed conversion of
Series E F and G convertible
preferred shares 5,178,547 4,374,737 5,412,580 4,260,829
TOTAL 12,961,810 10,873,077 12,999,470 10,745,762
Net Income(Loss) 58,659 114,718 (334,309) (195,240)
Pref Series E, F & G 1,368,677 912,821 1,368,677 912,821
Previously Accreted Dividends
Pref $1.20 Previously 0 0 673,219 0
Accreted Dividends
Fully Diluted Net 1,427,336 1,027,539 1,707,587 717,581
Income(Loss)
Per share amount $ 0.11 $ 0.09 $ 0.13 $ 0.07
</TABLE>
(A) The effects of conversion of common stock
equivalents to common stock are antidilutive to the
earnings per share calculations.
(B) Less than 3%
(C) Converted to common
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Moto Photo
Inc.'s 1995 Second Quarter 10-Q and is qualified in its entirety by reference to
such 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 99,913
<SECURITIES> 0
<RECEIVABLES> 7,053,109
<ALLOWANCES> 1,152,000
<INVENTORY> 1,537,472
<CURRENT-ASSETS> 9,060,625
<PP&E> 3,307,715
<DEPRECIATION> 8,898,167
<TOTAL-ASSETS> 25,465,980
<CURRENT-LIABILITIES> 10,609,429
<BONDS> 0
<COMMON> 77,860
0
10,000
<OTHER-SE> 7,380,073
<TOTAL-LIABILITY-AND-EQUITY> 25,465,980
<SALES> 16,267,578
<TOTAL-REVENUES> 19,110,150
<CGS> 8,180,950
<TOTAL-COSTS> 13,975,918
<OTHER-EXPENSES> 1,522,207
<LOSS-PROVISION> 147,316
<INTEREST-EXPENSE> 174,469
<INCOME-PRETAX> (557,309)
<INCOME-TAX> (223,000)
<INCOME-CONTINUING> (334,309)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (334,309)
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.13
</TABLE>
AMENDMENT TO AMENDED AND RESTATED SECURED REVOLVING CREDIT AGREEMENT
This Amendment to Amended and Restated Secured Credit Agreement (`Amendment'')
is made this 25th day of April , 1995, by and between Moto Photo, Inc.,
a Delaware corporation ("Borrower''), and Bank One, Dayton, NA (``Bank One'').
WITNESSETH:
WHEREAS, Borrower and Bank One entered into an Amended and Restated Secured
Credit Agreement dated March 28, 1994 (the "Agreement''); and WHEREAS, Borrower
desires and Bank One has agreed to amend certain definitions set forth in the
Agreement.
1.On page 21, delete the definitions of ``Revolving Credit Commitment'' and
``Revolving Credit Maturity Date'' and insert the following in their place:
``Revolving Credit Commitment'' means: (i) at all times prior to August 15,
1994, $1,500,000, (ii) at all times from August 15, 1994, through April 30,
1995, $1,000,000, and (iii) at all times from May 1, 1995 to the Revolving
Credit Maturity Date, $1,500,000.00.
``Revolving Credit Maturity Date'' means April 30, 1996.
2.This Amendment is a modification only and not a novation. Except for the
above-quoted modification(s), the Agreement, any agreement or security
document, and all the terms and conditions thereof, shall be and remain in
full force and effect with the changes herein deemed to be incorporated
therein. This Amendment is to be considered attached to the Agreement and
made a part thereof. This Amendment shall not release or affect the
liability of any guarantor, surety or endorser of the Agreement or release
any owner of collateral securing the Agreement. The validity, priority and
enforceability of the Agreement shall not be impaired hereby. To the extent
that any provision of this Amendment conflicts with any term or condition set
forth in the Agreement, or any agreement or security document executed in
conjunction therewith, the provisions of this Amendment shall supersede and
control.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the
day and year first written above.
MOTO PHOTO, INC., a Delaware corporation
By:/S/ David A. Mason
Its: Executive Vice President
BANK ONE, DAYTON, NA
By:/S/ Terrri Meadows
Its: Assistant Vice President
060695
SECURITY AGREEMENT
This SECURITY AGREEMENT is made this 7th day of June, 1995 between THE
PROVIDENT BANK ("SECURED PARTY") and MOTO PHOTO, INC., a Delaware corporation
("DEBTOR"), under the following circumstances:
A. Secured Party has executed and delivered to Secured Party its
Promissory Note of even date herewith in the maximum principal amount
of $1,450,000 (the "NOTE").
C. Debtor has agreed to grant to Secured Party a security interest in
certain assets of Debtor now owned or hereafter acquired by Debtor to
secure Debtor's obligations under the Note and this Agreement.
NOW, THEREFORE, the undersigned agree as follows:
1. SECURITY INTEREST.
Debtor hereby assigns, pledges and transfers to Secured Party and
grants Secured Party a continuing security interest in all of the following
property (all of which hereinafter collectively is referred to as the
"COLLATERAL"): (i) all equipment (as that term is defined in the UCC),
including, without limitation, all furniture, fixtures, machinery and other
equipment of any kind, and all substitutions and replacements thereof and
accessories and parts therefor) acquired from time to time by Debtor with loans
made by Secured Party pursuant to the Note, together with all files, records,
documents, blueprints, drawings and instruments (including, without limitation,
computer programs, tapes and related electronic data software and rights under
licenses with respect thereto) evidencing an interest in or relating to any of
the such equipment, and (ii) all proceeds of the foregoing including, without
limitation, all claims against third parties for damage to or loss or
destruction of any of the foregoing, including insurance proceeds, and accounts,
contract rights, chattel paper and general intangibles arising out of any sale,
lease or other disposition of any of the foregoing. From time to time, if
requested by Secured Party, Debtor shall execute, upon reasonable request of
Secured Party, supplemental schedules hereto and/or Uniform Commercial Code
financing statements (or financing statement amendments) specifically describing
the Collateral ("SUPPLEMENTAL DESCRIPTIONS"), all of which shall be incorporated
herein by reference without further action.
2. INDEBTEDNESS SECURED.
The security interest granted hereby is granted to secure all of
Debtor's debts, liabilities and obligations of every kind and description to
Secured Party, now due or to become due, direct or indirect, absolute or
contingent, presently existing or hereafter arising, joint or several, secured
or unsecured, whether for payment or performance, regardless of how the same
arise or by what instrument, agreement or book account they may be evidenced, or
whether evidenced by any instrument, agreement or book account, and including,
without limitation, all loans (including any loan by renewal or extension), all
overdrafts, all guarantees, all bankers acceptances, all agreements, all letters
of credit issued by Secured Party for Debtor and the applications relating
thereto, all indebtedness of Debtor to Secured Party, all undertakings to take
or refrain from taking any action, and all indebtedness, liabilities and
obligations owing from Debtor to others which Secured Party may obtain by
purchase, negotiation, discount, assignment or otherwise (all of which are
referred to collectively hereinafter as the "INDEBTEDNESS"). The Indebtedness
includes, without limitation: (i) the obligations of Debtor under the Note and
all renewals, extensions and modifications thereof, and (ii) all reasonable
costs incurred by Secured Party to obtain, preserve, and/or enforce the security
interest granted by this Agreement; to collect the obligations secured hereby;
and to maintain and preserve the Collateral, with such costs including, without
limitation, expenditures made by Secured Party for taxes, assessments,
reasonable insurance premiums, reasonable repairs, reasonable attorneys' fees
and other legal expenses, reasonable storage costs, reasonable rents, and
reasonable expenses of sale, together with interest on the above amount at the
highest rate being paid by Debtor on any of its obligations to Secured Party,
all of which Debtor shall pay to Secured Party.
3. DEBTOR'S WARRANTIES.
3.1 Debtor hereby represents and warrants to Secured Party that it is, and
as to the Collateral to be acquired after the date hereof, will be, the owner of
the Collateral free from any lien, security interest or encumbrance other than
the security interest granted herein and the security interest granted to Bank
One, Dayton, NA pursuant to a Security Agreement dated as of May 15, 1994 (the
"Bank One Lien"), and Debtor shall defend the Collateral and the proceeds
thereof against all claims and demands of all persons at any time claiming the
same or any interest therein adverse to Secured Party other than pursuant to the
Bank One Lien, and shall preserve the Collateral free from any subsequent liens,
encumbrances or security interests.
3.2 Debtor hereby represents and warrants to Secured Party that (i) Debtor
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) the execution and delivery of the Note, this
Security Agreement and the other documents and instruments executed in
connection therewith and herewith and the performance by Debtor of the
transactions contemplated hereby and thereby have been authorized by all
necessary corporate action on the part of Debtor and do not violate or
contravene Borrower's certificate of incorporation or by-laws or any agreement,
mortgage, instrument, indenture or the like to which Borrower is a party or by
which Borrower or any of its property is bound, and (iii) the Note, this
Security Agreement and the other documents and instruments executed in
connection therewith and herewith constitute valid and binding obligations of
Debtor, enforceable against Debtor in accordance with their terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium and
other such laws affecting creditors' rights generally and whether enforcement is
sought in a court of equity or law.
3.3 Debtor has filed all federal, state, local and other tax returns and
reports required to be filed by it (except for such returns and reports which in
any one case or in the aggregate would not have a material adverse effect on the
business, operation, properties, prospects, condition (financial or other) or
results of operations of Borrower and its subsidiaries taken as a whole), all of
which are true and correct, and has paid all taxes, assessments and other
governmental charges lawfully levied or imposed on or against it or its
properties, except for such taxes, assessments and governmental changes and
levies the nonpayment of which, in any one case or in the aggregate, would not
have a material adverse effect on the business, operation, properties,
prospects, condition (financial or other) or results of operation of Borrower
and its subsidiaries taken as a whole.
3.4 There is no litigation, or proceeding or governmental investigation
pending or, to the knowledge of Debtor, threatened against or relating to
Debtor, its properties or business which has not been disclosed to Secured Party
in writing.
3.5 Debtor is not, to its knowledge, in violation of or in default under
any statute, regulation, license, permit, order, writ, injunction or decree of
any government, governmental department, commission, board, bureau, agency,
instrumentality or court, which violation or default would have a material
adverse effect on the business, properties or condition, financial or otherwise,
of Debtor.
3.6 Debtor is not, to its knowledge, in default under any order, writ,
judgment, injunction, decree, indenture, agreement, lease or other instrument or
contract, which default would have a material adverse effect on the business,
properties or condition, financial or otherwise, of Debtor, or in the
performance of any covenants or conditions respecting any of its indebtedness,
and no holder of any indebtedness of Debtor has given notice of any asserted
default thereunder, and no liquidation or dissolution of Debtor and no
receivership, insolvency, bankruptcy, reorganization or other similar
proceedings relative to Debtor or its properties is pending or, to the knowledge
of Debtor, is threatened.
3.7 Debtor maintains places of business, owns Collateral and maintains its
books of account and records, including all records concerning the Collateral,
only at 4444 Lake Center Drive, Dayton, Ohio 45421, which is Debtor's chief
executive office, and at the locations listed on Schedule A hereto; and at such
other locations as may be set forth on any Supplemental Description signed by
Bank and Borrower.
4. DEBTOR'S OBLIGATIONS.
4.1 Debtor shall keep accurate and complete records and accounts in
accordance with sound accounting practices of all of the Collateral, and shall
at all reasonable times allow Secured Party to inspect the Collateral, to
examine, audit or make extracts from Debtor's books and records, and to arrange
for verification of the Collateral under reasonable procedures directly with
account debtors and other persons or by other procedures.
4.2 Debtor shall keep the Collateral insured against such casualties, and
in such amounts and on such terms as Secured Party reasonably shall require, and
the policies shall provide for at least 30 days written notice of cancellation
to Secured Party. Debtor shall furnish Secured Party with satisfactory evidence
of such insurance and Secured Party shall be added to any such insurance as loss
payee. Debtor shall promptly pay when due all taxes and assessments imposed on,
or with respect to the Collateral (other than taxes and assessments being
contested diligently and in good faith by appropriate proceedings and as to
which reserves are being maintained in accordance with generally accepted
accounting principles), and shall maintain the Collateral in good condition and
repair. If Debtor fails to pay the premiums on any such insurance or such taxes
when due, or to maintain the Collateral in good condition and repair, the
Secured Party may do so for Debtor's account and add the amount of its
expenditures with respect thereto to Debtor's outstanding obligations, which
amount shall be payable on demand with interest at the highest rate being paid
by Debtor on any of its obligations to Secured Party. After the occurrence of
an Event of Default, Secured Party shall have the right to settle and compromise
any and all claims under any of the insurance policies required to be maintained
by Debtor hereunder and Debtor hereby irrevocably appoints Secured Party as its
attorney-in-fact, with power to demand, receive and receipt for all monies
payable thereunder, to execute in the name of the Debtor any proof of loss,
notice, draft, and other instruments in connection with such policies or loss
thereunder and generally to do and perform any and all acts as Debtor could
perform in connection with such policies.
4.3 Debtor shall execute such financing statements and other documentation
as Secured Party reasonably may request in order to perfect the security
interests granted Secured Party hereunder and to carry out the terms of this
Agreement. A photocopy of this Security Agreement and any applicable
Supplemental Description shall be sufficient as a financing statement and may be
filed in any appropriate office in lieu thereof.
4.4 Debtor shall furnish to Secured Party:
a. within 90 days after the end of Debtor's fiscal year, financial
statements of Debtor, including a balance sheet and statement of
income, retained earnings and changes in financial position and
cash flow, each prepared on a consolidated basis in accordance
with generally accepted accounting principles consistently
applied and accompanied by an audit report thereon by a certified
public accounting firm;
b. within 45 days after the close of each fiscal quarter (other than
the fourth quarter of the fiscal year), financial statements of
Debtor similar to those referred to in paragraph (a) above, but
which may be subject to normal year-end audit adjustments and
shall be certified as true and correct by Debtor's chief
financial officer;
c. within 30 days after the close of each month, financial
statements similar to those referred to in paragraph (b) above,
which shall be certified as true and correct by Debtor's chief
financial officer;
d. copies of all reports, proxy statements and the like provided by
Debtor to its stockholders, at the time they are so provided to
its stockholders.
e. copies of all notices, reports, certificates and the like from
time to time provided by Debtor to Bank One, Dayton, N.A. (or any
successor(s) thereto as senior lender to Debtor); and
f. promptly, such other information as Secured Party reasonably may
request from time to time.
4.5 From time to time as Secured Party may require, Debtor shall deliver
to Secured Party schedules of all of the Collateral. Such schedules shall be in
form reasonably satisfactory to Secured Party and shall contain such other
information and be accompanied by such supporting documents as Secured Party
from time to time reasonably may require. The items to be provided under this
section are to be prepared and delivered to Secured Party from time to time
solely for its convenience in maintaining records of the Collateral, and
Debtor's failure to provide any such items to Secured Party shall not affect,
terminate, modify or otherwise limit Secured Party's security interest in the
Collateral.
4.6 Debtor shall (a) maintain its corporate existence in good
standing; (b) make no change in the nature or character of its business; (c)
maintain and keep in full force and effect all licenses and permits necessary to
the proper conduct of its business and (d) at the request of Secured Party,
qualify as a foreign corporation and obtain all requisite licenses and permits
in each state (other than the state of its incorporation) where Debtor does
business.
4.7 Debtor shall give prompt notice in writing to Secured Party of the
occurrence of any Event of Default hereunder or of any condition which with the
passage of time or the giving of notice or both would give rise to an Event of
Default, and of any development, financial or otherwise, which would materially
adversely affect is business, properties or affairs or its ability to perform
its obligations under this Agreement or the Note.
4.8 Debtor shall pay all taxes, assessments or governmental charges
lawfully levied or imposed on or against it or its properties prior to the date
when such taxes, assessments or charges become delinquent, unless Debtor is
contesting the validity thereof in good faith and posts any bond or other
security required by applicable law or by Secured Party against the payment
thereof.
4.9 Debtor shall not discontinue its business or liquidate, sell,
transfer, assign or otherwise dispose of all or substantially all of its assets
or any of the Collateral, by sale, merger, consolidation or otherwise. Debtor
shall not change the location of its chief executive office or move any of the
Collateral from the place at which it is located, as indicated on Schedule A or
any Supplemental Description, without providing at least 30 days prior written
notice to Secured Party.
4.10 Debtor shall not grant or suffer to exist any security interest,
lien, mortgage or other encumbrance on any of the Collateral to any person other
than Secured Party nor shall Debtor permit any lien, encumbrance of security
interest to attach to any of the Collateral, except in favor of Secured Party
(other than, in either such case, pursuant to the Bank One Lien or the Fuji
Lien, both of which shall have been subordinated to Bank's security interest in
the Collateral). Debtor shall not permit any of the Collateral to become a
fixture or to become an accession to any property which is not part of the
Collateral.
5. DEFAULT.
5.1 The occurrence of any Event of Default (as defined in the Note) shall
constitute an "Event of Default" under this Agreement.
5.2 Upon the occurrence of an Event of Default, Secured Party, at its
option, may: (a) by written notice to Borrower, declare all of the
Indebtedness immediately due and payable, without presentment, notice, protest
or demand of any kind for the payment of all or any part of the Indebtedness
(all of which are expressly waived by Debtor) and exercise all of its rights and
remedies against Debtor and any Collateral provided herein or in any other
agreement between Debtor and Secured Party, and (b) exercise all rights granted
to a secured party under the Universal Commercial Code or otherwise. Upon the
occurrence of an Event of Default, Secured Party may take possession of the
Collateral, or any part thereof, and Debtor hereby grants Secured Party
authority to enter upon any premises on which the Collateral may be situated,
and remove the Collateral from such premises or use such premises, together with
the materials, supplies, books and records of Debtor, to maintain possession
and/or the condition of the Collateral and to prepare the Collateral for sale.
Debtor shall, upon demand by Secured Party, assemble the Collateral and make it
available at a place designated by Secured Party which is reasonably convenient
to both parties. Unless the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Secured Party shall give Debtor reasonable notice of the time and place of any
public sale thereof or of the time after which any private sales or other
intended disposition thereof is to be made. The requirement of reasonable
notice shall be met if such notice is mailed, postage prepaid, to the address of
Debtor shown at the end of this Agreement at least five days prior to the time
of such sale or disposition.
5.3 Secured Party shall apply the proceeds of any disposition of the
Collateral to the payment of the Indebtedness in the order of application
provided in the Uniform Commercial Code as in effect in the State of Ohio.
5.4 The rights, options, and remedies of Secured Party shall be
cumulative, and no failure or delay by Secured Party in exercising any right,
option or remedy shall be deemed a waiver thereof or of any other right, option
or remedy, or waiver of any Event of Default hereunder, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. Secured Party shall not be deemed to have waived any of Secured
Party's rights hereunder or under any other agreement, instrument or paper
signed by Debtor unless such waiver is in a writing signed by Secured Party.
6. POWER OF ATTORNEY.
Debtor hereby irrevocably appoints Secured Party and its agents as
Debtor's true and lawful attorney in fact, with full power of substitution, for
Debtor, and in Debtor's name, place and stead, which power may be exercised by
Secured Party and its agents, in their discretion, only after the occurrence of
an Event of Default. As attorney in fact, Secured Party and its agents may act
for Debtor with respect to the Collateral as if Secured Party or its agents were
the owner thereof, and may endorse and cash promissory notes, checks and other
instruments, institute legal proceedings, make, adjust, and settle claims, and
do all other acts necessary and incidental to the exercise of its rights
provided hereunder, or otherwise available to it in the event of default.
Neither Secured Party nor its agents shall be liable for any acts or omissions
or for any error of judgment or mistake of fact or law in their capacity as such
attorney in fact.
7. EXPENSES.
Debtor shall reimburse Secured Party promptly for all reasonable costs
and expenses incurred by Secured Party in connection with the preparation of the
Note, this Security Agreement and the other documents and instruments executed
in connection therewith and herewith including, without limitation, Secured
Party's reasonable attorneys' fees.
8. MISCELLANEOUS.
8.1 Any required notices to Debtor shall be mailed to Debtor at the
address shown below, or such other address furnished Secured Party in writing.
No waiver by Secured Party of any default shall be effective unless given in
writing, and shall not operate as a waiver of any other default. The rights of
Secured Party shall inure to the benefits of its successors and assigns, and the
obligations of Debtor shall bind Debtor's heirs, executors, administrators,
successors and assigns.
8.2 This Agreement contains the entire understanding between the parties
hereto with respect to the transactions contemplated herein and such
understanding shall not be modified except in a writing signed by or on behalf
of the parties hereto. This Agreement shall be deemed to be a contract entered
into and made pursuant to the laws of the State of Ohio and shall in all
respects be governed, construed, applied and enforced in accordance with the
laws of such state.
8.3 AS A SPECIFICALLY BARGAINED INDUCEMENT FOR SECURED PARTY TO EXTEND
CREDIT TO DEBTOR: (I) DEBTOR HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY
IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS SECURITY AGREEMENT OR ARISING IN
ANY WAY FROM THE INDEBTEDNESS OR TRANSACTIONS INVOLVING SECURED PARTY AND THE
DEBTOR AND (II) DEBTOR HEREBY DESIGNATE(S) ALL COURTS OF RECORD SITTING IN
MONTGOMERY COUNTY, OHIO AND HAVING JURISDICTION OVER THE SUBJECT MATTER, STATE
AND FEDERAL, AS FORUMS WHERE ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING FROM OR OUT OF THIS SECURITY AGREEMENT, ITS MAKING, VALIDITY OR
PERFORMANCE, MAY BE PROSECUTED AS TO ALL PARTIES, THEIR SUCCESSORS AND ASSIGNS,
AND BY THE FOREGOING DESIGNATION THE DEBTOR CONSENT(S) TO THE JURISDICTION AND
VENUE OF SUCH COURTS.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
"Secured Party" "Debtor"
THE PROVIDENT BANK MOTO PHOTO, INC.
By/S/ Jerome J. Brunswick By/S/ David A. Mason
Name: Jerome J. Brunswick Name: David A. Mason
Title: Regional Vice President Title: Executive Vice President
Address: Address:
10 West Second Street 4444 Lake Center Drive
Dayton, Ohio 45402 Dayton, Ohio 45421
With a copy to:
Legal Department
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
SCHEDULE A
Locations of Collateral
060695
TERM PROMISSORY NOTE
$1,450,000 Dayton, Ohio June 7, 1995
MOTO PHOTO, INC., a Delaware corporation ("Borrower"), for value
received, promises to pay to the order of THE PROVIDENT BANK ("Bank"), at any of
its offices, the principal sum of ONE MILLION FOUR HUNDRED AND FIFTY THOUSAND
DOLLARS ($1,450,000) (the "Maximum Credit"), or so much thereof as is loaned by
Bank to Borrower pursuant to the provisions hereof, together with interest as
hereinafter provided.
The aggregate principal amount of this Note which has been advanced
as hereafter provided and is outstanding at the close of business on December
31, 1995 shall be repaid in 60 equal payments of principal, payable on the
twentieth day of each calendar month, commencing on January 20, 1996, with the
60th principal payment due on December 20, 2000. Accrued interest on this Note,
calculated as provided below, shall be paid monthly, on the twentieth day of
each calendar month, commencing on July 20, 1995, until this Note is paid in
full.
The principal amount of this Note outstanding from time to time
shall bear interest at the Prime Rate (as hereinafter defined) plus 1% per annum
for the period from the date hereof through December 31, 1995 and thereafter
until maturity, unless Borrower notifies Bank in writing (which notification
shall be irrevocable) not later than December 27, 1995 that it desires to
convert the interest rate borne by this Note to a fixed rate. If Borrower so
elects to convert the interest rate to a fixed rate and if no Event of Default
exists at such time, then, commencing on January 20, 1996, all amounts
outstanding under this Note shall bear interest until maturity at a fixed rate
equal to the Treasury Rate (as hereinafter defined), determined as of December
31, 1995, plus 3% per annum (the "Fixed Rate"). Amounts not paid at maturity
(whether at the stated maturity or by acceleration) thereafter shall bear
interest at a rate (the "Default Rate") equal to 4% per annum above the rate
otherwise being borne by the Note. Interest shall be computed on the basis of a
year of 360 days for the actual number of days elapsed.
Upon request by Borrower (an "Advance Request") from time to time
through December 31, 1995 (but not more frequently than once each calendar
month), Bank shall make advances hereunder to Borrower for the purpose of
purchasing capital equipment to be used by Borrower in its business but only if
all conditions set forth herein have been satisfied and if no Event of Default
(as hereinafter defined) has occurred and is continuing. Each Advance Request
shall be in writing, shall be submitted not less than five business days prior
to the date that the requested advance is to be made and shall include or be
accompanied by all of the following:
(a) a detailed description of the capital equipment being acquired
the with the proceeds of the requested advance ("Acquired
Equipment"), including serial numbers, if applicable;
(b) the date on which the requested advance is to be made and the
amount of the advance being requested, which shall not exceed
100% of the purchase price of the Acquired Equipment and,
together with all other advances made by Bank pursuant to this
Note, shall not exceed the Maximum Credit:
(c) the complete address of the place at which the Acquired
Equipment will be located;
(d) the date on which Borrower received possession of the Acquired
Equipment;
(e) a copy of the invoice and/or bill of sale with respect to each
piece of the Acquired Equipment;
(f) a certification by an officer of Borrower that no Event of
Default has occurred and is continuing and that all of the
representations and warranties set forth in the Security
Agreement of even date herewith between Borrower and Bank, as
the same may be amended from time to time (the "Security
Agreement"), are true and correct as of the date of
certification;
(g) such executed Uniform Commercial Code financing statements
and/or amendments as reasonably may be requested by Bank; and
(h) such other information concerning the Acquired Equipment as
Bank reasonably may request to permit Bank to identify, to
evaluate and to perfect its security interest in the Acquired
Equipment.
Borrower shall use the proceeds of the loans evidenced by this Note solely for
the purpose of paying the purchase price of the Acquired Equipment.
In addition to the foregoing, prior to the initial advance
hereunder, Borrower shall deliver to Bank: (i) agreements of Bank One, Dayton,
NA and Fuji Photo Film U.S.A., Inc. ("Fuji") to subordinate their respective
liens in the Acquired Equipment to the priority of Bank's lien under the
Security Agreement (or to release such liens), in form and substance
satisfactory to Bank, and (ii) a proposed list of all of the equipment
(including prices) that Borrower intends to acquire with advances to be made
under this Note.
Upon the occurrence of any one or more of the following events
(each, an "Event of Default"), at the option of Bank, upon written notice to
Borrower, the principal amount of this Note and all accrued interest shall
become immediately due and payable, without presentment demand, protest or other
notice:
(i) default shall be made in the due and punctual payment of any
principal of, or interest on, this Note and such default continues
unremedied for more than five business days after written notice from
Bank;
(ii) default occurs in the due observance or performance of any
other covenant or condition contained in this Note or the Security
Agreement required to be observed or performed by Borrower, which default
is not remedied within 20 days after written notice from Bank;
(iii) any representation or warranty made by Borrower in this Note
or the Security Agreement or in any writing delivered pursuant thereto
shall prove to have been false or incorrect in any material respect when
made (or deemed made);
(iv) any default or event of default occurs under either the Term
Loan Agreement or the Credit Agreement, each dated as of May 15, 1994
between Borrower and Bank One, Dayton, NA (as the same may be amended,
extended or modified), or any replacement thereof, and such default or
event of default is not cured within any applicable cure period;
(v) any indebtedness for borrowed money of Borrower or any
subsidiary or any rent or other payment required to be made by Borrower or
any subsidiary under any capitalized lease or any payment required to be
made by Borrower or any subsidiary under any purchase money indebtedness
in excess of $100,000 shall be declared to be due and payable, or required
to be repaid (other than by a regularly scheduled required repayment),
prior to the stated maturity thereof;
(vi) one or more judgments, decrees or orders for the payment of
money in excess of $250,000 in the aggregate shall be rendered against
Borrower or any of its subsidiaries and such judgments, decrees or orders
shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded
pending appeal;
(vii) any "person" or "group" (within the meaning of Section 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended),
excluding a director or executive officer of Borrower holding office as of
May 1, 1994, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended), including by
reason of the exercise of warrants or the like, the conversion of
convertible securities or the receipt of securities upon the redemption of
other securities, of capital stock of Borrower which is entitled at the
time to voting power of 40% or more in the election of directors of
Borrower (for purposes of this paragraph, Fuji (or any affiliate thereof)
shall not be deemed the beneficial owner of any securities of Borrower
which may be acquired (i) upon the exercise of warrants or the like until
such time as such warrants or the like are exercised or (ii) upon the
redemption of other securities until such time as such other securities
are redeemed);
(viii) this Note or the Security Agreement or any material
provision thereof shall cease to be in full force and effect, or shall
cease for any reason whatsoever to give Bank the liens or the material
rights, powers and privileges purported to be created thereby, or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by Borrower (or any person acting on behalf of Borrower) or
Borrower (or any person acting on behalf of Borrower shall deny or
disaffirm any of its material obligations under this Note or the Security
Agreement; or
(ix) Borrower or any subsidiary commences a voluntary case
concerning Borrower or such subsidiary under Title 11 of the United States
Code entitled "Bankruptcy" as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against Borrower or any subsidiary under the Bankruptcy Code and relief is
ordered against Borrower or such subsidiary or the petition is
controverted but is not dismissed within 30 days after the commencement of
the case; or Borrower or any subsidiary admits in writing its inability to
pay its debts generally as such debts become due; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all
or substantially all of the property of Borrower or any subsidiary; or
Borrower or any subsidiary commences any other proceeding under any
reorganization, arrangement, readjustments of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to Borrower or any subsidiary
or there is commenced against Borrower or any subsidiary any such
proceeding which remains undismissed for a period of 30 days or Borrower
or any subsidiary is adjudicated insolvent or bankrupt; or Borrower or any
subsidiary fails to controvert in a timely manner any such case under the
Bankruptcy Code or any such proceeding, or any order of relief or other
order approving any such case or proceeding is entered; or Borrower or any
subsidiary by any act or failure to act indicates its consent to, approval
of or acquiescence in any case or proceeding or in the appointment of any
custodian or the like of or for it or any substantial part of its property
or suffers any such appointment to continue undischarged or unstayed for a
period of 30 days; or Borrower or any subsidiary makes a general
assignment for the benefit of creditors; or any action is taken by
Borrower or any subsidiary for the purposes of effecting any of the
foregoing.
Borrower promptly shall provide to Bank such financial information concerning
Borrower as Bank reasonably may request from time to time.
This Note may be prepaid in whole or in part at any time provided
that: (i) Borrower gives Bank at least ten days prior written notice of the
prepayment, (ii) the amount prepaid is not less than $50,000, (iii) Borrower
pays all accrued interest on the amount being prepaid through the date of the
prepayment, and (iv) if this Note is then bearing interest at the Fixed Rate,
Borrower pays Bank a prepayment charge equal to the amount, if any, by which the
present value of the interest payments on the amount of principal being prepaid
from the date of prepayment to maturity (with the amount being prepaid applied
to installments of principal in the inverse order of when due), calculated at
the then current interest rate being borne by the Note, exceeds the present
value of the interest payments on the amount of principal being prepaid from the
date of prepayment to the date of maturity, calculated at the Treasury Rate as
in effect at the time the prepayment is made. A prepayment charge so calculated
also shall be due in the event that Bank accelerates this Note upon the
occurrence of an Event of Default at any time while this Note is bearing
interest at the Fixed Rate. The obligation of Borrower to make monthly payments
of principal and interest on the principal amount which remains outstanding
under this Note after any partial prepayment shall not be affected by such
partial prepayment; such partial prepayment operating instead to pay the
principal of the Note at dates earlier than the originally scheduled principal
amortization dates, in inverse chronological order. No amounts so prepaid may
be reborrowed hereunder.
Borrower shall pay a minimum finance charge of $50.00 for each
billing period. If any payment of principal or interest is not paid when due,
Bank, at its option, may charge and collect, or add to the unpaid balance
hereof, a late charge of up to the greater of $250 or .1% of the unpaid balance
of this Note at the time of such delinquency for each such delinquency to cover
the extra expense incident to handling delinquent accounts, and/or may increase
the interest rate on the unpaid balance to the Default Rate. Bank may charge
interest at the rate provided herein on all interest and other amounts owing
hereunder which are not paid when due.
For purposes hereof: (i) "Prime Rate" is that annual percentage
rate of interest which is established by Bank from time to time as its prime
rate, whether or not such rate is publicly announced, and is not necessarily the
lowest lending rate of Bank (a rate based on the Prime Rate changes each time
and as of the date that the Prime Rate changes); and (ii) "Treasury Rate" means
the bond equivalent rate determining the yield to maturity of United States
Treasury bonds in approximately the same amount as the principal amount of this
Note, bearing a fixed rate of interest (or bearing no interest) and maturing as
close as possible to December 1, 2000, as published on the date of determination
by the Federal Reserve Board or, if there is no such rate so published on such
date, as determined by such other means selected by Bank in good faith as Bank,
in its sole discretion, determines will permit an acceptable approximation of
such rate.
Borrower and all indorsers hereby grant to Bank a security interest
in the accounts, securities and properties in which Borrower or any indorsers
have any interest, now or hereafter in the possession of Bank, to secure the
payment of any and every liability of Borrower to Bank, however created, direct
or contingent, due or to become due, whether now or hereafter existing and
whether the same may have been or shall be participated in whole or part by
other by trust agreement or otherwise, or in any manner acquired by or accruing
to Bank, whether by agreement with Borrower or by assignment or by indorsement
to it by anyone whomsoever. If this Note is not fully paid and satisfied when
it becomes due (whether by acceleration or otherwise), the total amount then due
hereunder may, at any time and from time to time, be charged against any account
or accounts maintained with Bank by Borrower or any indorser, without further
consent from any of them, and Borrower and all indorsers agree to be and remain
jointly and severally liable for all remaining indebtedness represented by this
Note in excess of the amount or amounts so applied; provided, however, that Bank
shall notify Borrower when it charges any such account.
Borrower, all indorsers hereof, and any guarantor hereof
(collectively, "Obligors"), and each of them: (i) waive(s) presentment, demand,
notice of demand, protest, notice of protest and notice of dishonor and any
other notice required to be given by law in connection with the delivery,
acceptance, performance, default or enforcement of this Note, of any indorsement
or guaranty of this Note or of any document or instrument evidencing any
security for payment of this Note; and (ii) consent(s) to any and all delays,
extensions, renewals or other modifications of this Note or waivers of any term
hereof or release or discharge by Bank of any of Obligors or release,
substitution or exchange of any security for the payment hereof or the failure
to act on the part of Bank or any indulgence shown by Bank, from time to time
and in one or more instances, (without notice to or further assent from any of
Obligors) and agree(s) that no such action, failure to act or failure to
exercise any right or remedy on the part of Bank shall in any way affect or
impair the obligation of any Obligors or be construed as a waiver by Bank of, or
otherwise affect, any of Bank's rights under this Note, under any indorsement or
guaranty of this Note or under any document or instrument evidencing any
security for payment of this Note. Obligors further agree to reimburse Bank for
all reasonable advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid in exercising any right, power or remedy
conferred by this Note, or in the enforcement thereof.
Borrower and all indorsers authorize any attorney at law to appear
in any court of record in the State of Ohio or any other State or Territory of
the United States, after the indebtedness evidenced hereby, or any part thereof,
becomes due and waive the issuance and service of process and confess judgment
against any one or more than one of the undersigned and all indorsers in favor
of Borrower, for the amount then appearing due, together with costs of suit and,
thereupon, to release all errors and waive all rights of appeal and stays of
execution, but no such judgment or judgments against Borrower or any endorser
shall be a bar to a subsequent judgment or judgments against any one or more
than one of such persons against whom judgment has not been obtained hereon.
The foregoing warranty of attorney to confess judgment is a joint and several
warrant of attorney. The foregoing warrant of attorney shall survive a
judgment; and if any judgment be vacated for any reason, Bank nevertheless may
thereafter use the foregoing warrant of attorney to obtain an additional
judgment or judgments against Borrower and all indorsers or any one or more of
them.
THE PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF OHIO. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE HOLDER TO
EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL,
THE UNDERSIGNED AND ALL INDORSERS HEREBY EXPRESSLY WAIVE THE RIGHT TO TRIAL BY
JURY IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY
FROM ANY INDEBTEDNESS OR OTHER TRANSACTIONS INVOLVING THE HOLDER THE
UNDERSIGNED. THE UNDERSIGNED HEREBY DESIGNATE(S) ALL COURT OF RECORD SITTING IN
MONTGOMERY COUNTY, OHIO AND HAVING JURISDICTION OVER THE SUBJECT MATTER, STATE
AND FEDERAL, AS FORUMS ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING
FROM OR OUT OF THIS NOTE, ITS MAKING, VALIDITY OR PERFORMANCE, MAY BE PROSECUTED
AS TO ALL PARTIES, THEIR SUCCESSOR AND ASSIGNS, AND THE FOREGOING DESIGNATION
THE UNDERSIGN CONSENT(S) TO JURISDICTION AND VENUE OF SUCH COURTS.
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE, AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY
OTHER CAUSE.
MOTO PHOTO, INC.
By:/S/ David A. Mason
Name: David A. Mason
Title: Executive Vice President
Address:
4444 Lake Center Drive
Dayton, Ohio 45421
LIEN SUBORDINATION
AGREEMENT
THIS AGREEMENT is made this 7th day of June, 1995 between THE
PROVIDENT BANK ("Provident Bank"), MOTO PHOTO, INC., a Delaware corporation
("Moto Photo"), and FUJI PHOTO FILM U.S.A., INC., a New York corporation
("Fuji"), under the following circumstances:
A. Provident from time to time may advance to Moto Photo up to
$1,450,000 in aggregate principal amount of loans (the "Equipment
Loans") to finance all or a portion of the purchase price of certain
capital equipment previously acquired or to be acquired by Moto Photo.
B. As a condition to making any such advances, Provident has
required that Moto Photo grant to Provident a first priority security
interest in all of the equipment for which such financing is provided
by Provident (including certain related items, as described in
Schedule I attached hereto) and all proceeds of the foregoing
(collectively, the "Purchased Equipment Collateral").
C. Moto Photo previously granted to Fuji a security interest in
certain personal property of Moto Photo, including the Purchased
Equipment Collateral; provided, however, that Fuji is willing to
subordinate its security interest in the Purchased Equipment
Collateral to the security interest of Provident Bank in order to
induce Provident Bank to make such advances.
NOW, THEREFORE, the parties hereto agree as follows:
1. Relative Rights in Purchased Equipment Collateral. As among
themselves, regardless of (a) the relative times of attachment or perfection
thereof, (b) the order of filing of financing statements mortgages or other
security documents, or (c) anything in any other agreements to the contrary, the
relative priorities of liens and security interests granted or to be granted by
Moto Photo from time to time in the Purchased Equipment Collateral shall be as
follows:
1.1 Provident Bank will have a first priority lien and security
interest in all of the Purchased Equipment Collateral. Fuji shall have a second
priority security interest in the Purchased Equipment Collateral (subject,
however, to any rights of, and in accordance with any agreement of Fuji with,
Bank One, Dayton, N.A.).
2. Foreclosure. Fuji, for itself and its successors and assigns,
shall not take any action to foreclose or otherwise realize on any of the
Purchased Equipment prior to the earlier of (i) a Reorganization (as hereinafter
defined) or (ii) payment in full of all amounts outstanding with respect to the
Equipment Loans; provided, however, that Fuji may take action to foreclose or
otherwise realize on the Purchased Equipment Collateral in accordance with the
Uniform Commercial Code after Provident Bank has taken action to foreclose or
otherwise realize on its security interest in the Purchased Equipment
Collateral. The foregoing is solely for the purpose of defining the relative
rights of Fuji and Provident Bank and shall not limit or otherwise affect any
rights which either might have against Moto Photo. For purposes hereof,
"Reorganization" means any distribution of the assets of Moto Photo upon any
voluntary or involuntary dissolution, winding up, total or partial liquidation
or reorganization, or bankruptcy, insolvency, receivership or other statutory or
common law proceedings or arrangements involving Moto Photo or the readjustment
of Moto Photo's debts or any assignment for the benefit of creditors or any
marshalling of the assets or liabilities of Moto Photo.
3. Agreement to Hold in Trust. If Fuji receives any of the
Purchased Equipment Collateral or the proceeds thereof in violation of this
Agreement, it shall hold such collateral in trust for the benefit of Provident
Bank and promptly provide it to Provident Bank upon request.
4. Further Assurances. Moto Photo and Fuji, for itself (and, in
Fuji's case, for the other members of the Fuji Group) and its successors and
assigns, shall execute and deliver, in each case at Moto Photo's expense, such
further instruments and shall take such further action as Provident Bank at any
time or times reasonably may request in order to carry out the provisions and
intent of this Agreement.
5. Successors; Continuing Effect, etc.. This Agreement is being
entered into for the benefit of, and shall be binding upon, the parties hereto
and their respective successors and assigns. This Agreement shall be a
continuing agreement and shall be irrevocable and shall remain in full force and
effect so long as any portion of the Equipment Loans are outstanding.
6. Amendment and Modification. This Agreement may be amended,
modified and supplemented by mutual consent of the parties with respect to any
of the terms contained herein, in such manner as may be agreed upon in writing
by the parties.
7. Waiver. Any failure of any party to comply with any obligation,
covenant, agreement or condition herein may be expressly waived in writing by
the other parties. Such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
8. Entire Agreement. This Agreement represents the entire
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. Nothing in this
Agreement is intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
9. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that the
parties need not to sign the same counterpart.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
FUJI PHOTO FILM U.S.A., INC.
By:/S/ Osamu Inoue
Name: Osamu Inoue
Title: President
MOTO PHOTO, INC.
By:/S/ David A. Mason
Name: David A. Mason
Title: Executive Vice President
THE PROVIDENT BANK
By:/S/ Jerome Brunswick
Name: Jerome Brunswick
Title: Regional Vice President
Schedule I
All equipment (as that term is defined in the Uniform Commercial
Code), including, without limitation, all furniture, machinery and other
equipment of any kind, and all substitutions and replacements thereof and
accessories and parts therefor) acquired from time to time by Debtor with loans
made by Secured Party, together with all files, records, documents, blueprints,
drawings and instruments (including, without limitation, computer programs,
tapes and related electronic data software and rights under licenses with
respect thereto) evidencing an interest in or relating to any of the such
equipment, and all proceeds of the foregoing including, without limitation, all
claims against third parties for damage to or loss or destruction of any of the
foregoing, including insurance proceeds, and accounts, contract rights, chattel
paper and general intangibles arising out of any sale, lease or other
disposition of any of the foregoing.
