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 : March 31, 1997
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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)
(937) 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 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
As of May 8, 1997:
7,789,973 - Voting Common, 0 - Non - Voting Common
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
March December
31, 31,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash $ 528,585 $ 1,398,944
Accounts receivable, less allowances of $1,218,000 in
1997 and 1996 5,010,333 5,518,380
Notes receivable, less allowances of $133,000 in 1997
and 1996 294,669 292,419
Inventory 2,143,847 1,794,335
Deferred tax assets 316,000 316,000
Prepaid expenses 53,514 47,176
Total current assets 8,346,948 9,367,254
Property and equipment 2,822,202 2,828,830
Other assets:
Notes receivable, less allowances of $860,000 in 1997
and 1996 1,857,452 1,876,444
Cost of franchises and contracts acquired 202,794 214,479
Goodwill
4,379,354 4,407,058
Deferred tax assets
766,000 766,000
Other assets
1,017,842 1,025,147
Total assets $19,392,592 $20,485,212
</TABLE>
<TABLE>
MOTO PHOTO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
March December
31, 31,
1997 1996
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Line of credit $ 923,852 $ 0
Note payable 0 250,000
Accounts payable 3,739,868 6,245,879
Accrued payroll and benefits 927,382 1,167,112
Accrued expenses 672,153 1,213,765
Current portion of long-term obligations 946,000 587,859
Other 567,170 153,250
Total current liabilities 7,776,425 9,617,865
Long-term debt 8,781,001 7,752,070
Capitalized leases 444,753 455,692
Deferred revenue 121,387 121,387
Stockholders' equity
Preferred stock $.01 par value:
Authorized shares - 2,000,000:
Series G cumulative nonvoting preferred shares,
1,000,000 shares issued and outstanding with
preferences aggregating $10,000,000 10,000 10,000
Common shares $.01 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 7,789,973 in 1997
and 7,785,973 in 1996 77,900 77,860
Paid-in capital 6,788,090 6,858,900
(Deficit)retained earnings subsequent to June 30,
1991 (4,606,964) (4,408,562)
Total stockholders' equity 2,269,026 2,538,198
Total liabilities and stockholders' equity $19,392,592 $20,485,212
</TABLE>
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Revenues
Company store sales $ 3,541,587 $ 3,836,931
Merchandise sales 3,500,139 3,401,608
Royalties 1,069,792 941,852
Franchise fees 45,770 78,918
Investment income 89,586 39,999
Telemarketing Revenue 214,874 121,997
8,461,748 8,421,305
Expenses
Company store cost of sales and operating
expenses 3,294,709 3,641,488
Merchandise cost of sales and operating
expenses 3,086,387 2,984,583
Selling, general, and administrative costs 1,700,227 1,701,460
Advertising 284,942 359,618
Depreciation and amortization 199,195 181,999
Interest expense 80,221 107,680
8,645,681 8,976,828
Income (Loss) Before Income Taxes (183,933) (555,523)
Income tax benefit (expense) 57,000 261,000
Net Income (Loss) (126,933) (294,523)
Preferred Stock Dividend Requirements (71,470) (72,830)
Net Income (loss) Applicable to Common Stock $ (198,403) $ (367,353)
Net Income (loss) Per Common Share $ (0.03) $ (0.05)
Average Shares Outstanding 7,787,884 7,785,973
</TABLE>
<TABLE>
MOTO PHOTO INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
<S> <C> <C>
Operating Activities
Net (loss) income $ (126,933) $ ( 294,523)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for income taxes (57,000) (261,000)
Depreciation and amortization 199,195 181,999
Provision for losses on inventory and
receivables 179,646 178,912
Notes receivable increase from sale
of franchise 0 (15,000)
Provision for (gain) loss on
disposition of assets 7,937 0
Increase (decrease) resulting from
changes in:
Accounts receivable 177,150 (73,333)
Inventory and prepaid expenses (386,850) 504,688
Other assets (62,032) 247
Accounts payable and accrued expenses (3,287,352)
(835,407)
Deferred revenues and other
liabilities 545,310 65,291
Net cash provided by (used in)operating
activities (2,810,929) (548,126)
Investing Activities
Purchases of equipment and leaseholds (29,542) (20,486)
Proceeds from sale of assets 0 0
Payments received on notes receivable 186,635 57,015
Net cash provided by (used in) investing
activities 157,093 36,529
Financing Activities
Proceeds from revolving line of credit and
borrowings 4,887,098 1,700,000
Principal payments on revolving line of
credit, long-term debt and capital lease
obligations (2,961,381) (2,146,037)
Payments of preferred dividends (150,000) (125,000)
Common shares issued 7,760 0
Net cash provided by (used in) financing
activities 1,783,477 (571,037)
Increase (decrease) in cash and
equivalents (870,359) (1,082,634)
Cash and cash equivalents at beginning of
year 1,398,944 1,539,688
Cash and cash equivalents at end of period $ 528,585 $ 457,054
</TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
``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 period 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, 1997.
2.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. March 29 vs. March 31 for the first quarter 1997), except for the
fourth quarter which ends on December 31. The differences in interim periods
are immaterial.
3.The first three months of the year are seasonally slower and do not represent
25% of the year.
4.In the first quarter 1997, $150,000 of dividends were paid on the Series G
preferred shares. Of this amount $78,530 was for previously reported and
accreted dividends.
5.In February 1997, the Company obtained a new line of credit which expires
April 30, 1998. This line of credit provides for borrowings up to $3.0
million at prime plus .75%. The Company pays a commitment fee of .25% per
annum on the unused portion of the line of credit.
In conjunction with the new line of credit, the Company entered into a term
loan agreement with a bank to obtain $3.3 million. The term loan provides
for varying principal installments plus interest at 9.29% per annum with a
maturity date of January 25, 2002.
6.The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect
amounts reported in the financial statements. Actual results could differ
from those estimates.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FIRST QUARTER 1997 VS FIRST QUARTER 1996
The Company reported a net loss of $126,933 and a loss per common share of
$.03 for the first quarter 1997 compared to a net loss of $294,523, and loss
per common share of $.05 for the first quarter 1996. Per share calculations
are made after provision for Series G preferred dividend requirements.
Sales from Company stores were down 8% for the first quarter 1997 compared to
the same period a year ago primarily due to fewer stores in operation. Even
though sales from comparable stores were up approximately 1%.
Company store cost of sales and operating expenses fell $347,000, or 10%,
primarily due to fewer stores in operation with the stores still in operation
having lower cost and expense rates than the stores operated in 1996.
Merchandise sales increased $99,000, or 3%, for the first quarter 1997
compared to the first quarter 1996, as a result of increasing franchisee
comparable store sales offset by lowered paper prices.
Royalty revenues increased $128,000, or 14%, for the first quarter 1997
compared to the first quarter 1996, primarily due to increased franchisee
store sales and more stores contributing royalties.
Franchise fees were down $33,000, or 42%. The company had two more franchise
store openings in the first quarter 1996 than in the first quarter 1997.
Investment income increased $50,000, or 124%, compared to the same period a
year ago primarily due to interest income on increased notes receivable.
Telemarketing revenues were up $93,000, or 76%, compared to the same period a
year ago, primarily due to the Company obtaining additional accounts other
than franchise portrait marketing.
Advertising costs were down $75,000, due to reduced levels of Company store
advertising.
Interest expense is down $27,000, or 26%, due to lower levels of interest
bearing debt.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities increased by $2.3 million primarily due to
payment of $1.5 million of additional accounts payable and $960,000 accrued
income taxes and accrued bonuses. Inventories increased due to special buy-
ins of film which will be sold during the year. The increase in other
liabilities is primarily due to an increase in deferred revenues
substantially all of which will be recognized as revenue during the year.
Cash provided by financing activities increased $2.4 million due to increased
proceeds from bank borrowings. The proceeds were used to prepay $2.3 million
of existing debt and to fund cash used in operating activities.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Canadian Industrial Services Limited v. Hidome Investments Ltd. and Herbert Lam
(Ontario [Canada] Court (General Division, Case No. 97-CU-118907). Canadian
Industrial Services (`CIS''), the Company's Canadian master franchisor, filed
this lawsuit February 14, 1997, against one of its former franchisees, Hidome
Investments Ltd. (`Hidome'') and its owner, Herbert Lam. Hidome had abandoned
the franchise which it had purchased from Northvale Industrial Co. Ltd.
(`Northvale''). CIS seeks damages of $418,740.33, including lost royalty and
advertising fees and rent due under the sublease Hidome had from CIS. On April
3, 1997, Hidome filed a counterclaim against CIS, Northvale, and the Company,
alleging fraudulent and negligent misrepresentation and breach of contract.
Hidome seeks damages of $600,000,. as well as rescission of the franchise
agreement and restitution of amounts paid. The Company denies all of the
allegations and will defend vigorously against this lawsuit.
The Company has pending against it a small number of claims which it believes
are routine and incidental to the business. These actions are being contested
and defended. Management of the Company is of the opinion that such actions are
not likely to result in any liability which would have a material adverse effect
on the consolidated financial position of the Company.
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 March 31, 1997.
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
------------------------
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: May 9, 1997
EXHIBITS TO
FORM 10-Q
for the quarter ended
March 31, 1997
Copies of the following documents are filed as exhibits to this report:
No. Description
10.1 Employment Agreement dated as of April 1, 1997, with Michael F. Adler
10.2 Loan and Security Agreement dated February 19, 1997 between Moto
Photo,Inc. and The Provident Bank
11.0 Computation of Per Share Earnings
27.0 Financial Data Schedule
EMPLOYMENT AGREEMENT April 1, 1997
This agreement is made this 1st day of April, 1997, by and between MOTO PHOTO,
INC. a Delaware Corporation ("Employer"), and Michael F. Adler ("Employee")
under the following circumstances:
A. The parties desire to enter into an Employment Agreement upon the terms and
conditions set forth herein.
B. During the term of his employment, Employee will receive access to
proprietary information and/or trade secret relating to Employer's business, its
franchisees and its business contacts which are of a highly confidential,
unique, and valuable nature. In addition, Employee may be adding to
confidential information of Employer.
C. The parties acknowledge that the Employer would suffer great loss and
damage in the event that any Confidential Information (as hereinafter defined in
Section 4) is divulged at any time other than for the benefit of the Employer.
D. The parties further acknowledge that Employee may establish close working
relationships with valued employees of Employer and its franchisees and that
Employer's business may suffer substantial harm if, upon the termination of
Employee's employment with Employer, Employee should thereafter employ or
attempt to employ, directly or indirectly, certain personnel of Employer, its
franchisees or their employees.
NOW, THEREFORE, in consideration of the foregoing promises contained
herein, the parties agree as follows:
1. Duties. Employer hereby employs Employee as Chairman of the Board and
Chief Executive Officer, and the Employee hereby accepts such employment upon
the terms and conditions specified in this Agreement. During the term of his
employment, Employee shall work for Employer as the Chief Executive Officer and
he will report to the Board of Directors and he shall have the following duties:
1.1 He will be responsible for establishing the strategic direction
of the Company, establishing operating goals, corporate policies, and overseeing
operations of the company and hiring and discharging senior management.
1.2 He will perform such other reasonable duties consistent with
those of a senior corporate executive as directed from time to time by the Board
of Directors.
2. Compensation. As base compensation for Employee's services to
Employer during the term of this Agreement, Employer shall pay Employee a
regular salary at the rate of One Hundred Sixty One Thousand Five Hundred
Dollars ($161,500) per year payable in such a manner as the Employer pays its
other executives. In addition Employee shall be entitled to an annual bonus
program to be negotiated with the Compensation Committee.
Prior to December 31st of each year of this agreement, the Employer
will review the compensation of the Employee for the subsequent year. The base
salary may be increased and the bonus may be adjusted either higher or lower.
The Board of Directors may increase the amount of this bonus in the event of
exemplary performance by the Employee.
3. Term. The term of Employee's employment with Employer shall be
from January 1, 1997 until December 1999, unless sooner terminated in accordance
with Section 10 of this Agreement and shall automatically renew at the end of
each fiscal year for an additional three year term unless the Board takes other
action.
4. Restrictive Covenants.
4.1 Duties. During the term of this Agreement, Employee shall devote
his best efforts and full time, subject to Section 5, to advance the business
and welfare of Employer. Employee shall not take any action against the best
interest of Employer and he shall pursue no other business interests during the
term of this Agreement that conflict with his employment with the Employer.
4.2 Covenant Not to Compete. Employee acknowledges that Employer's
activities are international in scope. During the term of this Agreement and
for a period of two years after the termination of Employee's employment with
Employer its successors or assigns, or cessation of payment, whichever is later,
Employee shall not, directly or indirectly, engage or be interested (as
principal, agent, manager, employee, consultant, owner, partner, officer,
director, stockholder, trustee or otherwise) in any entity engaged in a business
which competes in a material manner with Employer within a three mile radius of
any business location of Employer or any of its subsidiaries, affiliates, or
franchisees. Employee's ownership of less than two percent (2%) of the
outstanding voting stock of any publicly held corporation, or any other entity
specifically authorized by the Board of Directors of Employer, shall not
constitute a violation of this Section 4. The Employer specifically
acknowledges that Employee's association with Progressive Industries
Corporation, National Photo Labs, Inc. and National Photo Labs II, Inc. does not
constitute a violation of this Section 4, but Employee shall not perform any
acts on behalf of these companies that would violate this Section 4 of this
contract.
4.3 Confidentiality. During the term of this Agreement and
thereafter, Employee shall not at any time other than for the benefit of the
Employer: (i) divulge, furnish, disclose, or make accessible to any person,
firm, or corporation, or use for his own purposes, any Confidential Information
(ii) make or cause to be made any copies, facsimiles, or other reproductions of
any Confidential Information without Employer's express written consent; or
(iii) remove any Confidential Information from Employer's premises or fail or
refuse to surrender (notwithstanding the failure of Employer to make demands for
such materials) the same to Employer immediately upon termination of Employee's
employment with Employer or at any time prior thereto upon Employer's request.
For purposes of this Agreement, the term "Confidential Information"
shall mean and include (a) any information with respect to Employer's accounts,
plans, business policies, software, know-how, trade secrets, customers,
franchisees, prospects, mailing lists, suppliers, pricing policies or rates,
marketing techniques, or any other information which may now or in the future be
considered confidential or proprietary information of Employer and (b)
unpublished manuals, files, records, software, memoranda, correspondence,
drawings, designs, or other writings belonging to or in the possession of
Employer or which may be produced by or come into Employer's possession in the
course of Employee's employment with Employer.
4.4 Solicitation of Employer's Employees. For a period of two years
year after the termination of Employee's employment with Employer its successors
or assigns, or cessation of payment, whichever is later, Employee shall not (i)
employ or attempt to employ directly or indirectly, personally or through any
entity in which Employee may be associated (as principal, agent, manager,
employee, consultant, owner, partner, officer, director, stockholder, trustee,
or otherwise) any employee of Employer, its subsidiaries or affiliates, or (ii)
induce any employee of any franchisee of Employer to leave the employment of any
franchisee.
4.5 Equitable Relief. The parties acknowledge and agree that a
breach of this Section 4 cannot be compensated for by monetary damages and that
any remedy at law is inadequate and Employee agrees that, in the event of a
breach of any restrictive covenant set forth herein, Employer may seek and
obtain a temporary restraining order, preliminary injunction, and permanent
injunction restraining Employee from violating Section 4 of this Agreement in
addition to any other legal relief available to Employer. For the purposes of
this provision, the parties confer jurisdiction upon the courts located in
Montgomery County, Ohio, and agree on venue in Montgomery County, Ohio.
4.6 Reformation. In the event that any provision of this Section 4
should be determined by a court of competent jurisdiction to be unenforceable by
reason of its being extended for too great a period of time, for too large a
geographic area, or for too great a range of activities, it shall be reformed to
extend only over the maximum period of time, geographic area, or range of
activities as to which it may be enforceable.
5. Vacation. Employee shall be entitled to vacation as is reasonable for
the executives in a comparable position.
6. Health and Insurance Plans; Fringe Benefits. Employee shall be
entitled to participate in all plans or agreements maintained by Employer
relating to health insurance for the Employee, his wife and children, subject to
the terms and conditions of such plans in effect from time to time. Employee
shall also be entitled to all other fringe benefits provided senior officers of
the Employer. Employee shall have his tax filings prepared by the company's
auditor and paid for by Employer during the term of the employment agreement.
7. Reimbursement for Expenses. Employer shall reimburse Employee for all
reasonable expenses incurred on behalf of Employer in line with Employer
policies.
8. Automobile. Employer shall furnish Employee with the use of an
automobile or an automobile allowance of $900.00 per month during the term of
this contract, subject to company policy.
9. Notice. Any notice required to be given pursuant to the provisions of
the Agreement shall be in writing and shall be delivered by certified mail or in
person to the parties at the following addresses:
Employer:
Moto Photo, Inc.
4444 Lake Center Drive
Dayton, Ohio 45426
Attn: David A. Mason, E.V.P.
Employee:
Michael F. Adler
5464 Sherfield Drive
Dayton, Ohio 45426
or at such other place as either party may designate in writing to the other.
10. Termination. Employer may terminate Employee's employment under this
Agreement only for cause upon written notice to Employee. For purposes of this
Agreement, the term "cause" means those situations or occurrences described
below:
10.1 Dishonesty, embezzlement, fraud, breach of fiduciary duty,
actions involving moral turpitude, or conviction of a felony by Employee; or
10.2 Gross neglect of duty or gross insubordination by Employee,
including the failure to abide by any reasonable and material instructions of
Employer; provided, however, that it will not be reasonable if such instructions
request or demand actions which would be inconsistent with the duties of a
senior corporate executive; or
10.3 Material breach of the provisions of Section 4 of this
Agreement.
10.4 Should Employee dispute that his discharge was for cause,
Employee must submit his claim to arbitration in accordance with Section 12
within sixty (60) days after his termination of employment. If a discharge of
Employee is eventually determined under arbitration to have been for cause, or
if no arbitration is requested by Employee within (60) days after the
termination of Employee's employment, Employer shall have no liability
whatsoever under this Agreement from and after the date of termination.
If the termination of Employee is without cause, Employer shall be
responsible for payment of thirty-six (36) month's salary as subject to Section
12, Mitigation, plus all fringe benefits which Employee receives prior to
termination including health insurance, use of suitable office and secretarial
support, but it would not include the auto lease payments.
Should termination by Employer be voluntary or involuntary, with or
without cause, Employee shall be entitled to a prorata bonus, to the extent
described in Section 2, but only to the end of the month prior to the end of
termination of Employee's employment.
Should Employee terminate his employment with Employer for any reason,
all obligations of Employer, except for the prorated bonus described in the
immediately preceding paragraph under this Agreement shall be extinguished as of
the date of termination of employment, but Employee shall remain subject to all
of his covenants in Section 4.
11. Death or Disability. In the event off the death of the Employee,
employment will terminate but Employee's spouse or estate shall receive
Employee's then current salary and the benefits contemplated by paragraph 6 and
8 for 90 days after the death of the Employee.
If Employee is disabled and cannot perform the duties of his
assignment, he will receive full compensation for the first six months of
continuous disability and then 70% of the compensation he was receiving at the
time he was disabled until the earlier of death, the Employee is no longer
disabled or three years from the commencement of the employment contract. Any
amount owed under this provision will be reduced by amounts paid to the Employee
under the Employer's long term disability insurance program.
Termination or expiration of this Agreement for any reason shall not
affect any obligations of Employee under Section 4 of this agreement.
12. Mitigation. In the event of the termination of this Agreement,
payments will be reduced by any compensation from employment the Employee may
receive after taking suitable permanent employment for which he is qualified.
13. Arbitration. Except as provided for in Section 4.6 of this Agreement,
any controversy or claim arising out of or relating to this Agreement, shall be
settled by arbitration in Dayton, Ohio in accordance with the Commercial Rules
of Arbitration of the American Arbitration Association. Such Arbitration may be
commenced by either party notifying the other and also the American Arbitration
Association that it or he intends to seek arbitration. The decision of the
American Arbitration Association shall be final and binding upon all parties
hereto. Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. The expenses of Arbitration shall be
borne equally by the parties.
14. Governing Law. The Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
15. Assignability. This Agreement is personal and shall not be assignable
by Employee; provided, however, that the terms of this Agreement shall be
binding upon, shall inure to the benefit of, and shall be enforceable by
Employer, its successor and assigns.
16. Waiver. The waiver of either party of any breach of any provision of
this Agreement shall not be construed as or constitute a continuing waiver or a
waiver of any other breach of any provision of this Agreement.
17. Partial Invalidity. In the event that any word, phrase, clause,
sentence, or other provision herein violates any applicable statute, ordinance,
or rule of law in any jurisdiction in which it is used, such provision shall be
ineffective to the extent of such violation, without violating any other
provision herein.
18. Complete Agreement; Modification. This Agreement supersedes all prior
agreements, written or oral, is intended as a complete and exclusive statement
of the terms of the Agreement between parties, and may be amended, modified, or
rescinded only by a written instrument executed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
WITNESSES: EMPLOYER:
EMPLOYEE:
Michael F. Adler, President & CEO
BY
MOTO PHOTO, INC.
BY
Frank Benson, Chairman of the Compensation
Committee of the Board of Directors, Moto
LOAN AND SECURITY AGREEMENT
AGREEMENT, DATED February 19, 1997, between MOTO PHOTO, INC., a Delaware
corporation, (`Borrower''), whose mailing address is 4444 Lake Center Drive,
Dayton, Ohio 45426, and THE PROVIDENT BANK (`Bank''), an Ohio banking
corporation whose mailing address is One East Fourth Street, Cincinnati, Ohio
45202.
1. Definitions. As used herein, the following terms, when initial
capital letters are used, shall have the respective meanings set forth below.
In addition, all terms defined in the Uniform Commercial Code as adopted in Ohio
shall have the meanings given therein unless otherwise defined herein.
1.1 Accounts shall mean all of Borrower's accounts (as that term is
defined in the Uniform Commercial Code), accounts receivable, chattel paper,
contract rights, documents and instruments; all other obligations or
indebtedness owed to Borrower from whatever source arising, including, but not
limited to, Notes Receivable (as defined herein); all guarantees of any of the
foregoing and all security therefor; all of the right, title and interest of
Borrower in and with respect to the goods, services or other property which gave
rise to or which secure any of the foregoing and all insurance policies and
proceeds relating thereto; all of the foregoing whether now owned by Borrower or
hereafter acquired or in existence.
1.2 Affiliate shall mean any person, company or business entity
controlling, controlled by or under common control with, Borrower, whether such
common control is direct or indirect, and all of the partners, officers,
directors and shareholders of Borrower and such entities.
1.3 Borrowing Base shall mean the sum of (a) an amount equal to thirty-
five percent (35%) of the cost or market value, whichever is lower, of Eligible
Inventory, (b) an amount equal to seventy (70%) of the outstanding amount of
Eligible Accounts, excluding notes receivable, and (c) an amount equal to fifty-
five (55%) of the Eligible Notes Receivable.
1.4 Collateral shall mean (a) all of the Borrower's Accounts, Equipment,
General Intangibles, Inventory and all other items of personal property now
owned or hereafter acquired by the Borrower or in which the Borrower has granted
or may in the future grant a security interest to the Bank hereunder or in any
supplement hereto or otherwise; (b) all of the Borrower's right, title and
interest in and to all goods or other property represented by or securing any of
the Accounts, including all goods that may be reclaimed or repossessed from or
returned by Debtors; (c) all of the Borrower's rights as an unpaid seller,
including stoppage in transit, detinue and reclamation; (d) all additional
amounts due to the Borrower from any Debtor, irrespective of whether such
additional amounts have been specifically assigned to the Bank; (e) all
guaranties, or other agreements or property securing or relating to any of the
items referred to in (a) above, or acquired for the purpose of securing and
enforcing any of such items; (f) all instruments, documents, securities, cash,
property, deposit accounts, and the proceeds of any of the foregoing, owned by
the Borrower or in which it has an interest, which are now or may hereafter be
in the possession or control of the Bank or in transit by mail or carrier to or
from the Bank, or in possession of any third party acting on behalf of Bank,
without regard to whether Bank received same in pledge, for safekeeping, as
agent for collection or transmission or otherwise or whether Bank had
conditionally released the same; (g) all ledger sheets, files, records,
documents, blueprints, drawings and instruments (including, without limitation,
computer programs, tapes and related electronic data processing software)
evidencing an interest in or relating to the foregoing; and (h) all proceeds and
products of the collateral described above, 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.
1.5 Debtor shall mean the account debtor with respect to any of the
Borrower's Accounts and/or the prospective purchaser with respect to any
contract right, and/or any party who enters into or proposes to enter into any
contract or other arrangement with the Borrower pursuant to which the Borrower
is to deliver any personal property or perform any service.
1.6 Debt Service Coverage shall mean, as of the end of any Borrower fiscal
quarter, the ratio of (a) net income for the period of the four (4) most recent
fiscal quarters ending on such date, after deducting taxes and dividends paid in
cash and after adding back depreciation, amortization, and interest expense, to
(b) interest expense for such period, plus current maturities of long term debt
as of such date.
1.7 Eligible Inventory shall mean such of Borrower's Inventory which is
and at all times shall continue to be acceptable to Bank in all respects and in
which Bank shall have a perfected first priority security interest. In general,
Eligible Inventory shall be as set forth on the Borrowing Base Certificate
attached hereto as Exhibit A,
1.8 Eligible Accounts shall mean such Accounts which are and at all times
shall continue to be acceptable to the Bank in all respects and in which Bank
shall have a perfected first priority security interest. Criteria for
eligibility shall be fixed and revised from time to time solely by the Bank in
its reasonable judgment. In general, an Account shall in no event be deemed to
be eligible unless (a) delivery of the merchandise or the rendition of services
has been completed; (b) no return, rejection or repossession has occurred; (c)
such merchandise or services have been finally accepted by the customer without
dispute, offset, defense or counterclaims (d) such Account continues to be in
full conformity with the representations and warranties made by the Borrower to
the Bank with respect thereto; and (e) no more than 90 days have elapsed from
the invoice date. In general, Eligible Accounts shall be as set forth on the
Borrowing Base Certificate attached hereto as Exhibit A, and Accounts due from
any single Debtor or affiliated group of Debtors shall in no event be deemed to
be eligible to the extent that such Accounts, in the aggregate, exceed an amount
equal to twenty-five percent (25%) of the aggregate of all Accounts at any time.
1.9 Eligible Notes Receivable shall mean such Notes Receivable which are
and at all times shall continue to be acceptable to the Bank in all respects and
in which Bank shall have a perfected first priority security interest. In
general, Eligible Notes Receivable shall be as set forth on the Borrowing Base
Certificate attached hereto as Exhibit A.
1.10 Equipment shall mean all of Borrower's equipment (as that term is
defined in the Uniform Commercial Code), including, without limitation, all
furniture, fixtures, machinery and other equipment of any kind and all
substitutions and replacements thereof and accessories and parts therefor, all
whether now owned or hereafter acquired by Borrower but excluding any leasehold
improvements that constitute equipment or fixtures and in which a security
interest has been or will be granted to Fuji Photo Film U.S.A., Inc.;
1.11 Event of Default shall mean any event described in Section 9.1.
1.12 General Intangibles shall mean all of Borrower's general intangibles
(as that term is defined in the Uniform Commercial Code), including, without
limitation, all goodwill, patents, formulas, blueprints, proprietary
manufacturing processes, trademarks, trade names, licenses, franchises,
beneficial interests in trusts, joint venture interests, partnership interests,
rights to tax refunds, rights to insurance proceeds, causes of action, pension
plan overfundings, literary rights and other contractual rights of Borrower, all
whether now owned or hereafter acquired by Borrower.
1.13 Inventory shall mean all of Borrower's inventory (as that term is
defined in the Uniform Commercial Code), including, without limitation, all
goods, merchandise and other personal property which are held for sale or lease,
or are furnished or to be furnished under any contract of service by Borrower,
or are raw materials, work-in-progress, supplies or materials used or consumed
in Borrower's business, and all products thereof, and all substitutions,
replacements, additions and accessories thereto, all whether now owned or
hereafter acquired by Borrower; and all of Borrower's right, title and interest
in and to any leases or rental agreements for such inventory.
1.14 Loans shall have the meaning set forth in Section 2.1.
1.15 Maximum Loan Amount shall have the meaning set forth in Section 2.1.
1.16 Notes shall mean one or more promissory notes evidencing the Loans
pursuant to Section 2.2.
1.17 Notes Receivable shall mean all of Borrower's accounts, accounts
receivable or similar obligations evidenced by a promissory note or other form
of negotiable instrument.
1.18 Obligations shall mean, without limitation, all Loans (as defined in
Section 2) and all other debts, obligations, or liabilities of every kind and
description of Borrower to Bank, 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,
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 Bank for Borrower and the
applications relating thereto, all indebtedness of Borrower to Bank, all
undertakings to take or refrain from taking any action and all indebtedness,
liabilities and obligations owing from Borrower to others which Bank may obtain
by purchase, negotiation, discount, assignment or otherwise. Obligations shall
also include all interest and other charges chargeable to the Borrower or due
from the Borrower to the Bank from time to time and all costs and expenses
referred to in Section 10.
1.19 Permitted Liens shall mean the liens and interests in favor of Bank
granted in connection herewith and, to the extent reflected on Borrower's books
and records and not impairing the operations of Borrower or any performance
hereunder or contemplated hereby:
(i) liens arising by operation of law for taxes not yet due and
payable;
(ii) statutory liens of mechanics, materialmen, shippers and
warehousemen for services or materials for which payment is not
yet due;
(iii)liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security;
(iv) liens, if any, specifically permitted by Bank from time to time
in writing;
(v) the following if the validity or amount thereof is being
contested in good faith and by appropriate and lawful proceedings
promptly initiated and diligently conducted of which Borrower has
given prior notice to Bank and for which appropriate reserves (in
Bank's reasonable judgment) have been established and so long as
levy and execution have been and continue to be stayed: claims
and liens for taxes due and payable and claims of mechanics,
materialmen, shippers, warehousemen, carriers and landlords; and
(vi) liens reflecting a purchase money security interest in inventory
or equipment as defined under the Uniform Commercial Code.
(vii)those liens set out on Exhibit B attached hereto.
2. Loans and Interest.
2.1 Loans. The Bank shall make a total of four (4) loans to the Borrower,
on the terms and conditions contained herein, consisting of an Automated Line of
Credit Loan (`Line of Credit Loan''), a Fixed Rate Term Loan and a Variable
Rate Term Loan (collectively "Term Loans"), and an Overline Facility (`Overline
Loan'). All loans shall be herein collectively called the "Loans".
(i) Line of Credit Loan. Subject to the terms and conditions of this
Agreement, the Bank agrees to lend and re-lend to the Borrower at any time and
from time to time on and after the date hereof and prior to April 25, 1998, an
aggregate principal amount not to exceed at any one time outstanding, the lesser
of (i) $2,500,000 or (ii) the then-current Borrowing Base, as defined herein,
(the lesser of (i) or (ii) being referred to hereinafter as the "Maximum Line of
Credit Loan Amount").
On or before the 30th day of each month during the term of the
Line of Credit Loan, Borrower shall provide Bank with a true and correct
Borrowing Base Certificate, in form attached hereto as Exhibit A, stating the
Borrowing Base for the preceding month. If the outstanding amount of the Line
of Credit Loan at any time exceeds the Maximum Line of Credit Loan Amount, based
on the then-current Borrowing Base, then all such excess amounts (up to a
maximum aggregate amount at any time outstanding of $500,000), shall be drawn by
Bank against the Overline Loan described herein. Borrower shall on demand
immediately repay any amounts outstanding that are in excess of the aggregate of
the Maximum Line of Credit Loan Amount and the Maximum Overline Loan Amount.
All such loans will be made from time to time, and neither this Agreement nor
any loans or other action by the Bank shall obligate the Bank to make further
loans to the Borrower. Such loans may be made in excess of the Maximum Line of
Credit Loan Amount in the sole discretion of the Bank.
(ii) Fixed Rate Term Loan. Subject to the terms and conditions of
this Agreement, Borrower agrees to borrow from the Bank and the Bank agrees to
loan to Borrower the sum of Three Million Three Hundred Thousand Dollars
($3,300,000) (hereinafter the "Fixed Rate Term Loan").
The obligation to repay the Fixed Rate Term Loan hereunder shall
be evidenced by a promissory note (the "Fixed Rate Term Loan Note") of Borrower
in the principal amount of Three Million Three Hundred Thousand Dollars
($3,300,000), and on the terms set forth therein. The unpaid principal balance
under the Fixed Rate Term Loan shall bear interest at a rate set forth in the
Fixed Rate Term Loan Note.
(iii) Variable Rate Term Loan. Subject to the terms and
conditions of this Agreement, Borrower agrees to borrow from the Bank and the
Bank agrees to loan to Borrower the sum of One Million Five Hundred Thousand
Dollars ($1,500,000) (hereinafter the "Variable Rate Term Loan").
The obligation to repay the Variable Rate Term Loan hereunder
shall be evidenced by a promissory note (the "Variable Rate Term Loan Note") of
Borrower in the principal amount of One Million Five Hundred Thousand Dollars
($1,500,000), and on the terms set forth therein. The unpaid principal balance
under the Variable Rate Term Loan shall bear interest at a rate set forth in the
Variable Rate Term Loan Note.
(iv) Overline Loan. Subject to the terms and conditions of this
Agreement, the Bank agrees to lend and re-lend to the Borrower at any time and
from time to time on and after the date hereof and prior to April 25, 1998, an
aggregate principal amount not to exceed at any one time outstanding, $500,000
("Maximum Overline Loan Amount").
Funds advanced under the Overline Loan shall be used to repay to
the Bank any amounts by which the Borrowing Base exceeds the Maximum Line of
Credit Loan Amount permitted under the Line of Credit Loan. All such loans will
be made from time to time in the reasonable discretion of the Bank, and neither
this Agreement nor any loans or other action by the Bank shall obligate the Bank
to make further loans to the Borrower. Such loans may be made in excess of the
Maximum Overline Loan Amount in the sole discretion of the Bank.
2.2 Evidence of Loans. Each of the Loans shall be evidenced by one or
more promissory notes (the "Notes") in form satisfactory to Bank and shall bear
interest on the daily outstanding balance thereof at the rate set forth in such
Notes. In case of any change in law or governmental rules, regulations,
guidelines or orders (or any interpretations thereof) or the introduction of new
laws, regulations or guidelines, which require Bank to reserve for unfunded
credit commitments, Bank may charge Borrower an additional fee which will
compensate Bank for such requirements.
2.3 Loan Payments. All payments of interest, principal and all other
amounts owing hereunder or under the Notes shall be made by the Borrower to the
Bank in immediately available funds at its principal office in Cincinnati, Ohio
or at such other place as the Bank may designate in writing, at such times as
shall be set forth herein or in the Notes or if not so set forth, such amounts
shall be payable on demand. Upon the occurrence of an Event of Default for non-
payment of the obligations, Borrower hereby authorizes Bank, at Bank's option,
to charge any account or charge or increase any Loan balance of Borrower at Bank
for the payment or repayment of any interest or principal of the Loans or any
fees, charges or other amounts due to Bank hereunder. Bank shall provide
Borrower with written notice of any such charge within twenty-four (24) hours of
such charge.
(i) Excess Cash Flow Recapture. In addition to the payments of
principal and interest due under the Variable Rate Term Loan
Note, Borrower shall pay to Bank an amount equal to twenty-
five percent (25%) of the amount by which Borrower's Debt
Service Coverage, as defined in Section 1.6 hereof, and as
set out on the annual financial statements delivered to Bank
pursuant to Section 5.4 hereof, exceeds the ratio of 1.5 to
1.0 (`Excess Cash Flow Payment''), which Excess Cash Flow
Payment shall be applied to payment of principal due under
the Variable Rate Term Loan Note;
(ii)Cash Proceeds for Store Sales. In addition to the payments
of principal and interest due under the Variable Rate Term
Loan Note, Borrower shall pay to Bank an amount equal to
fifty percent (50%) of the net cash proceeds received by
Borrower from the sale of any of its retail stores and
related assets.
(iii)Unused Commitment Fee. In addition to the monthly payments
of interest and principal due under the Line of Credit Note,
on the first day of each quarter following a quarter in which
this Agreement is in effect, Borrower shall pay to Bank an
unused availability fee equal to the average daily Unused
Availability during the preceding quarter multiplied by the
rate of one quarter of one percent (1/4%) per annum
(calculated on the basis of a year of 360 days for the actual
number of days in the preceding month).
3. Grant of Security Interest. To secure the payment and performance of
all of the Obligations, as herein defined, the Borrower hereby grants to the
Bank a continuing first priority security interest in and assigns to the Bank
all of the Collateral; provided, however, with respect to any Accounts, Notes
Receivable or Inventory in which a security interest has been or is required to
be granted to Fuji Photo Film U.S.A., Inc., Borrower hereby grants a security
interest in such Collateral to the Bank which is subordinate to the interest of
Fuji Photo Film U.S.A., Inc.
4. Representations and Warranties. The Borrower hereby represents and
warrants to the Bank that:
4.1 (a) Organization and Authority. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation and has the corporate power and authority to conduct its
business as now conducted and as proposed to be conducted while this Agreement
is in effect; (b) the execution and delivery of this Agreement and the Notes and
the performance of the transactions contemplated hereby and thereby are within
the corporate authority of the Borrower and have been duly authorized by all
proper and necessary corporate action; (c) the execution and delivery of this
Agreement and the Notes and the performance of the transactions contemplated
hereby and thereby will not violate or contravene any provisions of law or the
certificate of incorporation or bylaws of the Borrower, or, to the best of
Borrower's knowledge, result in a breach or default in respect of the terms of
any other agreement to which the Borrower is a party or by which it is bound,
which breach or default would result in the creation, imposition or enforcement
of any lien against any of the Collateral, or would have a material adverse
affect on the conduct of the Borrower's business as it is now being conducted
and proposed to be conducted while this Agreement is in effect, or would
otherwise impair the value of the security interest granted to the Bank
hereunder; and (d) the Borrower is duly qualified as a foreign corporation and
is in good standing and duly authorized to do business in every jurisdiction
where the nature of its properties or the conduct of its business requires such
qualification and authorization unless it would have no material adverse effect
on Borrower.
4.2 Binding Effect of Documents. This Agreement and the Notes are legal
and binding obligations of the Borrower enforceable in accordance with their
terms, subject to applicable laws relating to bankruptcy, insolvency, moratorium
or creditor's rights.
4.3 Government Consent. To the best of Borrower's knowledge, the
execution and delivery of this Agreement and the Notes and the performance of
the transactions contemplated hereby and thereby do not require any approval or
consent of any governmental agency or authority, or of any other party.
4.4 Financial Statements. The Borrower has delivered to the Bank copies
of its consolidated financial statements as of and for the year or other period
ending in November, 1996, prepared by Borrower. Except to the extent that the
amounts indicated for taxes only reflect Borrower's best estimate of the amount
of taxes due, all of these financial statements are true and correct, are in
accordance with the respective books of account and records of the Borrower and
its subsidiaries and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods, and
accurately present the financial condition of the Borrower and its subsidiaries
and their assets and liabilities and the results of its operations as at such
date.
4.5 No Change in Financial Conditions. Since the ending date of the
financial statement described in Section 4.4, there has been no change in the
assets, liabilities, financial condition or operation of the Borrower, other
than changes in the ordinary course of business, the effect of which have not,
individually or in the aggregate, been materially adverse.
4.6 No Other Liabilities. Except to the extent reflected in the financial
statements described in Section 4.4, the Borrower, as of the date of this
Agreement, does not know or have reasonable grounds to know of any basis for the
assertion against it of any material liabilities or obligations of any nature,
direct or indirect, accrued, absolute or contingent, including, without
limitation, liabilities for taxes then due or to become due whether incurred in
respect of or measured by the income of the Borrower for any period prior to the
date of this Agreement, or arising out of transactions entered into, or any
state of facts existing prior thereto.
4.7 Taxes. The Borrower has filed all material federal, state, local and
other tax returns and reports required to be filed by it and such returns and
reports are true and correct in all material respects. The Borrower has paid
all taxes, assessments and other governmental charges lawfully levied or imposed
on or against it or its properties, other than those presently payable without
penalty or interest, unless the failure to pay such taxes and charges would not
have a material adverse effect on Borrower.
4.8 No Litigation. There is no litigation or proceeding or governmental
investigation pending or, to the knowledge of the Borrower, threatened against
or relating to the Borrower, it properties or business which could have a
material adverse effect on the business, properties or condition, financial or
otherwise, of the Borrower, and which is not reflected in the financial
statements described in Section 4.4.
4.9 Compliance with Laws. The Borrower is not, to its knowledge, in
violation of or 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 the Borrower.
4.10 No Default. The Borrower is not, to its knowledge, in default under a
material 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 the
Borrower, or in the performance of any covenants or conditions respecting any of
its indebtedness, and no holder of any indebtedness of the Borrower has given
notice of any asserted default thereunder, and no liquidation or dissolution of
the Borrower and no receivership, insolvency, bankruptcy, reorganization or
other similar proceedings relative to the Borrower or its properties is pending
or, to the knowledge of the Borrower, is threatened against Borrower.
4.11 Location of Collateral. The Borrower maintains places of business and
owns collateral only at the locations listed on Exhibit C attached hereto, and
maintains its books of account and records, including all records concerning
Collateral, only at 4444 Lake Center Drive, Dayton, Ohio. The Borrower
maintains its chief executive office at 4444 Lake Center Drive, Dayton, Ohio.
4.12 Title to Collateral. With respect to the Collateral, at the time the
Collateral becomes subject to the Bank's security interest, the Borrower is and
at all times will be the sole owner of and have good and marketable title to the
Collateral, free from all liens, encumbrances and security interests in favor of
any person other than the Bank except Permitted Liens, and has full right and
power to grant the Bank a security interest therein. All information furnished
to Bank concerning the Collateral is and will be complete, accurate and correct
in all material respects when furnished.
4.13 Rights of Borrower to Accounts. As to each and every Account (a) it
is a bona fide existing obligation, valid and enforceable against the Debtor for
a sum certain for sales of goods shipped or delivered, or goods leased, or
services rendered in the ordinary course of business; (b) all supporting
documents, instruments, chattel paper and other evidence of indebtedness, if
any, delivered to the Bank are complete and correct and valid and enforceable in
accordance with their terms, subject to applicable laws relating to bankruptcy,
insolvency, moratorium, or creditor's rights, and, to the best of Borrower's
knowledge, all signatures and endorsements that appear thereon are genuine, and
all signatories and endorsers have full capacity to contract; (c) the Debtor is
liable for and obligated to make payment of the amount expressed in such Account
according to its terms; (d) it is subject to no material dispute, defense or
offset, real or claimed; (e) it is not subject to any prohibition or limitation
upon assignment; (f) the Borrower has full right and power to grant the Bank a
security interest therein and the security interest granted in such Account to
the Bank in Section 3 hereof, when perfected, will be a valid first security
interest which will inure to the benefit of the Bank without further action.
The warranties set out herein shall be deemed to have been made with respect to
each and every Account now owned or hereafter acquired by the Borrower.
4.14 Rights of Borrower in Inventory. The Inventory (a) is and will be of
good and merchantable quality, free from defects and (b) none of the inventory
is or will be stored with a bailee without the prior written consent of Bank,
which consent will not be unreasonably withheld or delayed.
4.15 Employee Benefit Plans. Other than as set forth on Schedule 4.15
hereto, Borrower has no Plans which are subject to regulation under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Borrower
has not received any notice to the effect that it is not in full compliance with
any of the requirements of ERISA, and no fact or situation, including but not
limited to any "Reportable Event," or "Prohibited Transaction," as such terms
are defined in ERISA, exists which is or could in any way be construed as a
violation of ERISA in connection with any Plan. Borrower has complied with all
applicable provisions of ERISA, including minimum funding requirements, has made
all filings required to be made by Borrower or any of its Plans (now or at any
time in the past maintained) under ERISA, has not applied for any extensions of
time in which to make contributions to any Plan maintained (now or at any time
in the past) by it or to which it is, or has been, required to contribute, has
timely made all contributions and paid all premiums required to be paid to the
Pension Benefit Guaranty Corporation, and no matters are presently pending
before the United States Labor Department or the Internal Revenue Service
concerning any Plan maintained (now or at any time in the past) by Borrower to
which it is or was required to contribute. Each employee pension benefit plan
(as defined in Section 3 (2) of ERISA) maintained by Borrower is qualified and
tax exempt under the Internal Revenue Code. Borrower has never had any
obligation or liability with respect to a multi-employer plan as defined in
Section 3(37) of ERISA.
4.16 Accuracy of Representations. No representation or warranty by or with
respect to the Borrower contained herein or in any certificate or other document
furnished by the Borrower pursuant hereto contains any untrue statement of a
material fact or omits to state a material fact necessary to make such
representation or warranty not misleading in light of the circumstances under
which it was made.
4.17 Representations as Inducement to Bank. The foregoing representations
and warranties are made by the Borrower with the knowledge and intention that
the Bank will rely thereon, and shall survive the execution and delivery of this
Agreement and the making of all Loans hereunder. The receipt of Borrower of
each Loan advance shall constitute a representation and warranty by Borrower
that the representations and warranties of Borrower contained in this Section 4
are true and correct as of the date of such Loan advance, except to the extent
such representations and warranties expressly relate to an earlier date.
5. Affirmative Covenants. The Borrower covenants and agrees that until
all of the Obligations have been paid in full, unless the Bank shall otherwise
consent in writing, it shall and shall cause each of its subsidiaries to:
5.1 Books and Records. Maintain complete and accurate books of account
and records pertaining to the Collateral and the operations of the Borrower, and
all such books of account and records shall be kept and maintained at the
location specified in Section 4.11. The Borrower shall not move such books of
account and records or change its chief executive office without giving the Bank
at least 30 days prior written notice. Prior to moving any of such books of
account and records or changing the location of its chief executive office, the
Borrower shall execute and deliver to the Bank financing statements satisfactory
to the Bank. All such books of account and records and all financial statements
and reports furnished to the Bank shall be maintained and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods.
5.2 Access to Information. Grant the Bank, or its representatives, full
and complete access to the Collateral and to all books of account, records,
correspondence and other papers relating to the Collateral during normal
business hours and the right to inspect, examine, verify and make abstracts from
the copies of such books of account, records, correspondence and other papers,
and to investigate such other records, activities and business of the Borrower
as they may deem necessary or appropriate at the time.
5.3 Evidence of Accounts. Upon the creation of Accounts, or from time to
time as the Bank may require, deliver to the Bank schedules of all outstanding
Accounts. Such schedules shall be in form satisfactory to the Bank and shall
show the age of such Accounts in intervals of not more than 30 days, and contain
such other information and be accompanied by such supporting documents as the
Bank may from time to time prescribe. The Borrower shall also deliver to the
Bank copies of Debtor's invoices, evidences of shipment or delivery and such
other schedules and information as the Bank may reasonably request. The items
to be provided under this Section are to be prepared and delivered to the Bank
from time to time solely for its convenience in maintaining records of the
Collateral and the Borrower's failure to give any of such items to the Bank
shall not affect, terminate, modify or otherwise limit the Bank's security
interest granted herein.
5.4 Financial Information. Deliver to the Bank not more than 90 days
after the close of each fiscal year of the Borrower, or within such further time
as the Bank may permit, consolidated audited financial statements for Borrower
and its subsidiaries, including a balance sheet and related profit and loss
statement, prepared in accordance with generally accepted accounting principles
by the Borrower and accompanied by an unqualified opinion with respect thereto
issued by an independent certified public accountant acceptable to the Bank.
5.5 Other Information. Furnish to the Bank such other financial and
business information and reports in form and substance satisfactory to the Bank
as and when the Bank may from time to time reasonably request.
5.6 Maintenance of Existence and Licenses. While this Agreement remains
in effect and until the Obligations have been paid in full, (a) maintain its
corporate existence in good standing; (b) make no material change in the nature
or character of its business or engage in any business materially different from
that in which it was engaged on the date of this Agreement; (c) maintain and
keep in full force and effect all licenses and permits materially necessary to
the proper conduct of its business and (d) at the request of the Bank, qualify
as a foreign corporation and obtain all requisite material licenses and permits
in each state (other than the state of its incorporation) where the Borrower
does business.
5.7 Maintenance and Insurance of Properties. Maintain and keep all of its
properties, real and personal, in good working order, condition and repair and
insure and keep insured all such properties at all times against loss of damage
by fire, theft, and such other risks and hazards as are customarily insured
against by corporations in similar circumstances, or as the Bank may specify
from time to time, with insurers and in amounts acceptable to the Bank. If the
Borrower fails to do so, the Bank may obtain such insurance and charge the cost
thereof to the Borrower's account and add it to the Obligations. If any loss in
an amount equal to or greater than $250,000 should occur, the Borrower shall
apply the proceeds of all such insurance policies to repair, replacement or
restoration of the damaged property or shall deliver such proceeds to the Bank
for application by the Bank to the payment of the obligations due under either
or both of the Term Loan Notes. In the event of loss in an amount under
$250,000, the Borrower may, at its option, direct that the insurance proceeds be
applied to the payment of all or any part of the Obligations or to the repair,
replacement or restoration of the damaged property. Bank shall be named loss
payee on such insurance policies to the extent that such policies insure the
Collateral. All policies shall provide for at least 10 days prior written
notice of cancellation to the Bank. Borrower shall deliver at least annually to
Bank, or sooner if requested by Bank, certificates of insurance evidencing
Borrower's compliance herewith.
5.8 Liability Insurance. At all times, maintain in full force and effect
such liability insurance with respect to its activities and business
interruption and other insurance as may be reasonably required by Bank, such
insurance to be provided by insurer(s) acceptable to Bank, and if requested by
Bank, such insurance shall name Bank as an additional insured. Borrower shall
deliver at least annually to Bank, or sooner if requested by Bank, certificates
of insurance evidencing Borrower's compliance herewith.
5.9 Notice of Certain Events. Give prompt notice in writing to the Bank
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 its business, properties or affairs or the ability of the Borrower to
perform its obligations under this Agreement or the Notes.
5.10 Payment of Taxes. Pay all taxes, assessments or governmental charges
lawfully levied or imposed on or against it and its properties prior to the date
when such taxes, assessments or charges shall become delinquent, unless the
Borrower shall contest the validity thereof in good faith and shall post any
bond or other security required by applicable law or by the Bank against the
payment thereof.
5.11 Dealings in Inventory. With respect to the Inventory (a) sell or
dispose of the Inventory only to buyers in the ordinary course of business, (b)
immediately notify the Bank of any change in location of any of the Inventory to
a location not previously disclosed to the Bank and, prior to any such change,
execute and deliver to the Bank such financing statements satisfactory to the
Bank as the Bank may request and (c) report, in form satisfactory to the Bank
and with such frequency as determined by the Bank, such information as the Bank
may request regarding the Inventory.
5.12 Claims Against Borrower. Immediately upon learning thereof, report to
the Bank any reclamation, return or repossession of goods, any claim or dispute
asserted by any Debtor or other obligor which would have a material adverse
effect on the business, properties or condition, financial or otherwise, of the
Borrower, and any other matters materially affecting the value and
enforceability or collectibility of any of the Collateral. In addition, the
Borrower shall, at its sole cost and expense (including attorney's fees), settle
any and all such claims and disputes and indemnify and protect the Bank against
any liability, loss or expense arising therefrom or out of any such reclamation,
return or repossession of goods, provided, however, if the Bank shall so elect,
and provided that an Event of Default has occurred and has continued beyond all
applicable cure periods, the Bank shall have the right at all times to settle,
compromise, adjust or litigate all claims or disputes directly with the Debtor
or other obligor upon such terms and conditions as it deems advisable and charge
all costs and expenses thereof (including attorneys' fees) to the Borrower's
account and add them to the Obligations.
5.13 Defense of Collateral. Defend the Collateral against all claims and
demands of all persons at any time claiming the same or any interest therein and
pay all reasonable costs and expenses (including reasonable attorneys' fees)
incurred in connection with such defense.
5.14 Financing Statements. At the request of the Bank, execute and deliver
such financing statements, documents and instruments, and perform all other acts
as the Bank deems necessary or desirable, to carry out and perform the intent
and purpose of this Agreement, and pay, upon demand, all expenses (including
attorneys' fees) incurred by the Bank in connection therewith. A photocopy of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof.
5.15 Financial Covenants. Maintain the following financial covenants:
(a) A ratio of Consolidated Liabilities to Consolidated Net Worth of
not more than:
(i) to 1.0 at the end of each fiscal quarter of Borrower ending
on the last day of March, 1997, June, 1997 and September,
1997; and
(ii)to 1.0 at the end of the fiscal quarter of Borrower ending on
the last day of December, 1997 and at the end of each fiscal
quarter thereafter.
(b) A ratio of net income after taxes, plus interest, plus
depreciation, plus amortization, plus other non-cash charges, less
cash dividends, all as reflected on the most recent financial
statements of Borrower to current year maturities of long term debt
plus interest, all calculated for the most recent four (4) fiscal
quarters, of not less than:
(i) 1.0 to 1.0 at the end of each the fiscal quarter of Borrower
ending on the last day of March, 1997, June, 1997 and
September, 1997; and
(ii) 1.1 to 1.0 at the end of the fiscal quarter of Borrower
ending on the last day of December, 1997 and at the end of
each fiscal quarter thereafter.
(c) A capital expenditure limit of $1,200,000 in the aggregate during
the term of this Agreement; provided, however, that it is agreed
by the parties hereto, that the approximately $235,000.00 of capital
expenditures made by Borrower in January and February of 1997
and financed by Bankers Leasing Association, Inc. is not included
in the calculation of the aggregate capital expenditure limit.
The following terms shall have the following meaning when used herein:
"Consolidated Liabilities" shall mean all indebtedness, obligations and
other liabilities of Borrower, whether matured or unmatured, liquidated or
unliquidated, direct or contingent or joint or several, that should, in
accordance with generally accepted accounting principles (`GAAP''), be
classified as liabilities on a consolidated balance sheet of Borrower and
its subsidiaries (if any).
"Consolidated Net Worth" shall mean, at any time, Stockholder's Equity.
`Stockholder's Equity'' shall mean, at any time, the aggregate of the
following amounts set forth on a consolidated balance sheet of the Borrower
and its subsidiaries prepared in accordance with GAAP; (i) the par or
stated value of all outstanding capital stock, (ii) capital surplus, (iii)
retained earnings, and (iv) all indebtedness which is subordinated to the
Loans in a manner satisfactory to the Bank.
5.16 Maintenance of Bank Accounts. At Bank's option, maintain all of its
depository accounts with Bank, including without limitation, all demand deposit,
lock box, time deposit, concentration and zero balance accounts.
6. Negative Covenants. The Borrower covenants and agrees that until the
Obligations have been paid in full, unless the Bank shall consent in advance in
writing, it shall not and shall not permit any subsidiary to:
6.1 Sale of Assets or Merger. Discontinue its business or liquidate,
sell, transfer, assign or otherwise dispose of a material part of its assets or
of the Collateral, by sale, merger, consolidation or otherwise, provided,
however, that it may sell in the ordinary course of business and for a full
consideration in money or money's worth, any product, merchandise or service
produced, marketed or furnished by it. The Bank consents to the sale by
Borrower of those stores and related assets identified on Exhibit D attached
hereto.
6.2 Encumbrances. Sell, assign, pledge, grant or suffer to exist a
security interest, lien, mortgage or other encumbrance on any of the Collateral
to any person other than the Bank, or permit any lien, encumbrance or security
interest to attach to any of the Collateral, except in favor of the Bank and
except Permitted Liens.
6.3 Contingent Liabilities. Endorse, guarantee or become surety for the
obligations of any person, firm or corporation, except that the Borrower may (i)
endorse checks and negotiable instruments for collection or deposit in the
ordinary course of business, (ii) guarantee or become a surety for the leases or
other obligations of any franchisees in connection with the operation by such
franchisees of a franchise (`Franchisee Obligations''), provided, however, that
the total aggregate amount of all such Franchisee Obligations (other than
obligations on leases existing as of the date of this Agreement) shall not
exceed $250,000 during the term of this Agreement; and (iii) become obligated
under the leases or other obligations in connection with the lease of a store
site for which the Borrower did not have a franchisee at the time the lease was
executed ("Store Lease Obligations"), provided, however, that the total
aggregate annual amount of all such Store Lease Obligations shall not exceed
$75,000 in 1997, $150,000 in 1998 and $225,000 in 1999 and thereafter.
6.4 Loans. Make any loans to or repay any existing loans made to it by
its Affiliates.
6.5 Dealings with Accounts. Compromise or discount any Account except for
ordinary trade discounts or allowances for prompt payment.
6.6 Investments. Without the prior written consent of Bank, which consent
shall not be unreasonably withheld or delayed, change its name or consolidate or
merge with any other corporation or acquire or purchase any equity interest in
any other entity, including shares of stock of other corporations, or acquire or
purchase any assets or assume any obligations of any other entity, in amounts in
excess of $500,000 per year, except that the Borrower is permitted to own notes
and other receivables and other assets acquired in the ordinary course of
business. Notwithstanding anything to the contrary herein, Borrower shall be
permitted to acquire an equity interest in or acquire the assets and obligations
of any franchisee when such acquisition is deemed necessary by Borrower to
protect its interests in such franchisee's operation or satisfy such
franchisee's obligations, in whole or in part, to Borrower; provided, however,
that the aggregate cost of all such acquisitions, including all assumed
liabilities, shall not exceed $300,000 during any calendar year during the term
of this Agreement.
6.7 Change in Management or Business. Change its management or make any
material change in any of its business purposes and operations which might in
any way materially and adversely affect the repayment of the Loans. For the
purposes of this Section 6.7, the termination of the employment by the Borrower
of Michael F. Adler, Frank M. Montano and David A. Mason, (the "Principles") or
any two of them, shall constitute a change in management as provided herein, and
may, at the Bank's discretion, constitute an Event of Default hereunder. If one
of the three Principles resigns or is terminated, then a successor or
successors reasonably acceptable to the Bank shall be named within six (6)
months of such termination or resignation. Notwithstanding anything to the
contrary herein, if the termination of employment of two of the Principles is
due to the death of such Principle, Bank shall provide Borrower with forty-five
(45) days prior written notice of its intent to declare an Event of Default
under this Section 6.7.
6.8 Change in Ownership. Permit to occur a change in record or beneficial
ownership of voting stock of Borrower which Bank, in its sole discretion, deems
material with respect to the control over Borrower. For purposes of this
Section 6.8, a cumulative change of beneficial ownership of more than twenty-
five percent (25%) of the outstanding voting stock of Borrower held by any
single person or entity, together with all affiliated entities or other entities
under common control, may, in the Bank's discretion, constitute a change in
ownership as described herein and shall constitute an Event of Default
hereunder. Bank agrees to provide Borrower with written notice of Default in
the event a change in ownership is deemed by the Bank to have occurred under
this Section 6.8.
6.9 Transaction with Affiliates. Enter into, or be a party to, any
transaction with any of Borrower's Affiliates, except in the ordinary course of
business, pursuant to the reasonable requirements of Borrower's business, and
upon fair and reasonable terms which are fully disclosed to Bank and are no less
favorable to Borrower than Borrower could obtain in a comparable arm's length
transaction with a person not an Affiliate of Borrower.
6.10 Indebtedness. Directly or indirectly create, incur, assume, guaranty
or be or remain liable with respect to any indebtedness, except for (a) the
Obligations, (b) any existing indebtedness disclosed in the financial statements
referenced in Section 4.4 hereof, (c) any purchase money indebtedness not to
exceed $750,000 per year, (d) any Franchisee Obligations (other than obligations
on leases existing as of the date of this Agreement) not to exceed $250,000
during the term of this Agreement, as provided in Section 6.3 hereof, (e) any
Store Lease Obligations not to exceed $75,000 in 1997, $150,000 in 1998, and
$225,000 in 1999 and thereafter as provided in Section 6.3 hereof, and (f) any
other indebtedness to which Bank has consented in writing.
7. Collateral and Notice of Assignment.
7.1 Collections on Collateral. So long as the Bank does not request that
the Debtors on the Collateral be notified of the consignment thereof to Bank or
that all collections be directed to a lock box at Bank, Borrower may make
collections on the Collateral. In the Event of Default, all collections on the
Collateral shall be the property of the Bank, shall be held in trust for the
Bank by the Borrower and shall not be commingled with the Borrower's other funds
or be deposited in any bank account of the Borrower , or used in any manner
except to pay the Obligations. Upon an Event of Default, at Bank's discretion,
the Bank may cause Borrower to immediately deposit all collections on the
Collateral in a cash collateral account of Borrower maintained at Bank for that
purpose, over which the Bank alone shall have the sole power of withdrawal. On
a daily basis, Bank will apply all or part of the collected balance of the cash
collateral account against the Obligations, the amount, order and method of such
application to be in the sole discretion of Bank. In no event shall Bank be
obligated to apply any funds deposited in the cash collateral account before the
next business day after the day of deposit. Any part of the collected balance
in the cash collateral account which the Bank elects not to apply to Borrower's
obligations may be paid over and deposited by Bank to the Borrower's commercial
account. The crediting of items deposited in the cash collateral account to the
reduction of the Obligations shall be conditioned upon final payment of the item
and if any item is not so paid, the amount of any credit given for it may be
charged to the Obligations or to any other deposit account of the Borrower,
whether or not the item is returned.
7.2 Notice of Assignment. In the Event of Default for non-payment of the
Obligations, the Bank shall have the right to notify Debtors of its security
interest in the Accounts and to require payments to be made directly to the
Bank. Thereafter, upon request of the Bank, Borrower will so notify the account
debtors and will indicate on all billings to the account debtors that the
Accounts are payable to the Bank. To facilitate direct collection, the Borrower
hereby appoints the Bank and any officer or employee of the Bank, as the Bank
may from time to time designate, as attorney-in-fact for the Borrower to (a)
receive, open and dispose of all mail addressed to the Borrower and take
therefrom any payments on or proceeds of Accounts; (b) take over the Borrower's
post office boxes or make other arrangements, in which the Borrower shall
cooperate, to receive the Borrower's mail, including notifying the post office
authorities to change the address for delivery of mail addressed to the Borrower
to such address as the Bank shall designate; (c) endorse the name of the
Borrower in favor of the Bank upon any and all checks, drafts, money orders,
notes, acceptances or other evidences or payment or Collateral that may come
into the Bank's possession; (d) sign and endorse the name of the Borrower on any
invoice or bill of lading relating to any of the Accounts, on verifications of
Accounts sent to any Debtor, to drafts against Debtors, to assignments of
Accounts and to notices to Debtors; and (e) do all acts and things necessary to
carry out this Agreement, including signing the name of the Borrower on any
instruments required by law in connection with the transactions contemplated
hereby and on financing statements as permitted by the Uniform Commercial Code.
The Borrower hereby ratifies and approves all acts of such attorneys-in-fact,
and neither the Bank nor any other such attorney-in-fact shall be liable for any
acts of commission or omission, or for any error of judgment. This power, being
coupled with an interest, is irrevocable so long as any of the obligations
remain unsatisfied and the Event of Default remains uncured.
7.3 Enforcement of Accounts. The Bank shall not, under any circumstances,
be liable for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any Accounts or any instruments received in
payment thereof or for any damage resulting therefrom. In the Event of Default
for the non-payment of the Obligations, the Bank may, without notice to or
consent from the Borrower, sue upon or otherwise collect, extend the time of
payment of, or compromise or settle for cash, credit or otherwise upon any
terms, any of the Accounts or any securities, instruments or insurance
applicable thereto and/or release the obligor thereon. Upon Default, the Bank
is authorized to accept the return of the goods represented by any of the
Accounts, without notice to or consent by the Borrower, or without discharging
or any way affecting the Obligations hereunder.
7.4 Limitation of Bank's Liability. The Bank shall not be liable for or
prejudiced by any loss, depreciation or other damage to Accounts or other
Collateral unless caused by the Bank's gross negligence, recklessness, or
willful and malicious act, and the Bank shall have no duty to take any action to
preserve or collect any Account or other Collateral.
7.5 Verification of Accounts. After giving Borrower at least five (5)
business days prior written notice, the Bank may confirm and verify all Accounts
in any reasonable manner at any time. Bank shall have no obligation to disclose
or discuss with Borrower the names or identities of any customers from whom the
Bank obtains or requests information as to Accounts. Borrower agrees to
cooperate with Bank in the confirmation and verification of any Accounts, or
reconciling any discrepancy between those amounts verified by the Bank and
information provided to the Bank by the Borrower.
8. One General Obligation: Cross Collateral. All loans and advances by
Bank to Borrower under this Agreement and under all other agreements constitute
one loan, and all indebtedness and obligations of Borrower to Bank under this
and under all other agreements, present and future, constitute one general
obligation secured by the Collateral and security held and to be held by Bank
hereunder and by virtue of all other assignments and security agreements between
Borrower and Bank now and hereafter existing. It is expressly understood and
agreed that all of the rights of Bank contained in this Agreement shall likewise
apply insofar as applicable to any modification of or supplement to this
Agreement and to any other agreements, present and future, between Bank and
Borrower.
9. Events of Default and Remedies.
9.1 Event of Default. If the Loans are due on a specific date (e.g., not
due on demand), the following shall constitute Events of Default under this
Agreement, it being agreed that time is of the essence hereof: (a) failure of
the Borrower to pay when due any of the Obligations within five (5) days after
delivery of written notice of such delinquency by Bank; (b) failure of the
Borrower to observe or perform any covenant contained in this Agreement or in
any other agreement between the Borrower and the Bank, which failure is not
cured within twenty (20) days after delivery of written notice of such default
by Bank; (c) any representation or warranty at any time made by the Borrower to
the Bank or in this Agreement or in any other agreement between the Borrower and
the Bank, or in any document or instrument delivered to the Bank pursuant to
this Agreement or any such other agreement is, or becomes, untrue or misleading
in any material adverse respect; (d) acceleration of the maturity of any of the
Obligations; (e) Borrower shall be in default or breach under any material
obligation for the payment of borrowed money other than trade payables; (f)
Borrower shall be in default under any obligation for the payment of rent under
any lease agreement covering real or personal property which default has a
material adverse affect on Borrower or its business; (g) failure of the Borrower
or any guarantor within a reasonable period of time under the circumstances,
after written request by the Bank, to furnish reasonable financial information
or to permit the inspection of its books of account and records; (h) suspension
by the Borrower or any guarantor of the operation of its present business, or
the insolvency of the Borrower or any guarantor, or the inability of the
Borrower or any guarantor to meet its debts as they mature, or its admission in
writing to such effect, or its calling any meeting of all or any of its
creditors, or the filing by or against the Borrower or any guarantor of any
petition under any provision of the Bankruptcy Code, as amended, and relief is
ordered against the Borrower or the petition is controverted but is not
dismissed within thirty (30) days after the commencement of the case, or a
custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge
of, all or substantially all of the property of the Borrower; or the Borrower
commences any other proceeding under any reorganization, arrangement,
readjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction whether now or hereafter in effect relating
to the Borrower or there is commenced against the Borrower any such proceeding
which remains undismissed for a period of thirty (30) days after it is commenced
or the Borrower is adjudicated insolvent a debtor under the Bankruptcy Code; or
the Borrower 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 the Borrower 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 a 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 thirty (30) days; or the Borrower makes
a general assignment for the benefit of creditors or any action is taken by
Borrower for the purpose of effecting any of the foregoing, or the entry of any
judgment or filing of any lien against the Borrower or any guarantor which has a
material adverse effect on Borrower; (i) there shall occur any material adverse
change in the Borrower's condition or affairs (financial or otherwise) as
reasonably determined by Bank; and (j) loss, theft, damage, destruction in an
amount not in excess of $500,000 which is not covered by insurance, or
encumbrance of any of the Collateral or any levy, seizure or attachment thereof
in an amount in excess of $500,000.
9.2 Rights of Bank upon Default. Upon the occurrence of an Event of
Default described in Section 9.1, the Bank at its option may: (a) after delivery
of at least five (5) days prior written notice of the Bank's intent to
accelerate, declare the Obligations of the Borrower immediately due and payable,
without presentment, protest or demand of any kind for the payment of all or any
part of the Obligations (all of which are expressly waived by Borrower) and
exercise all of its rights and remedies against the Borrower and any Collateral
provided herein, in any other agreement between Borrower and Bank, at law or in
equity and (b) exercise all rights granted to a secured party under the Ohio
Uniform Commercial Code or otherwise. Upon the occurrence of an Event of
Default, Bank may take possession of the Collateral, or any part thereof, and
Borrower hereby grants Bank 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
Borrower, to maintain possession and/or the condition of the Collateral and to
prepare the Collateral for sale. Borrower shall, upon demand by Bank, assemble
the Collateral and make it available at a place designated by Bank 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, Bank will give Borrower 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
the Borrower shown at the beginning of this Agreement at least ten (10) days
prior to the time of such sale or disposition.
9.3 Application of Proceeds. The Bank shall have the right to apply the
proceeds of any disposition of the Collateral to the payment of the Obligations
in such order of application as the Bank may, in its sole discretion, elect.
The Bank shall have no obligation to marshall any assets in favor of the
Borrower or any other party.
9.4 Remedies Cumulative. The rights, options and remedies of the Bank
shall be cumulative and no failure or delay by the Bank 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. Bank shall not be deemed to have waived any of the Bank's rights
hereunder or under any other agreement, instrument or paper signed by Borrower
unless such waiver be in writing and signed BY the Bank.
10. Miscellaneous.
10.1 Governing Law; Jurisdiction and Venue. The provisions of this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Ohio. The Bank and Borrower hereby designate all courts of record
sitting in Montgomery County, Ohio, both state and federal, as forums where any
action, suit or proceeding in respect of or arising out of this Agreement or the
transactions contemplated by this Agreement may be prosecuted as to all parties,
their successors and assigns, and by he foregoing designation the Bank and
Borrower consent to the jurisdiction and venue of such courts.
10.2 Other Waivers. The Borrower waives notice of nonpayment, demand,
notice of demand, presentment, protest and notice of protest with respect to the
Obligations, or notice of acceptance hereof, notice of Loans made, credit
extended, Collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein.
10.3 Collection Costs. All reasonable costs and expenses incurred by the
Bank to obtain, enforce or preserve the security interests granted by this
Agreement and to collect the Obligations, including, without limitation,
stationery and postage, telephone and telegraph, secretarial and clerical
expenses, the fees or salaries of any collection agents utilized, all costs to
maintain and preserve the Collateral and all reasonable attorneys' fees and
legal expenses incurred in obtaining or enforcing payment of any of the
Obligations or foreclosing the Bank's security interest in any of the
Collateral, whether through judicial proceedings or otherwise, or in enforcing
or protecting its rights and interests under this Agreement or under any other
instrument or document delivered pursuant hereto, or in protecting the rights of
any holder or holders with respect thereto, or in defending or prosecuting any
actions or proceedings arising out of or relating to the Bank's transactions
with the Borrower, shall be paid by the Borrower to the Bank, upon demand, or,
at the Bank's election, charged to the Borrower's account and added to the
Obligations, and the Bank may take judgment against the Borrower for all such
costs, expense and fees in addition to all other amounts due from the Borrower
hereunder.
10.4 Expenses. The Borrower shall reimburse the Bank for all reasonable
out-of-pocket costs and expenses incurred by the Bank in connection with the
preparation of this Agreement and the making of the Loans hereunder, including
the reasonable fees and expenses of the Bank's counsel, and for all UCC search,
filing, recording and other costs connected with the perfection of the Bank's
security interest in the Collateral.
10.5 Notices. All notices, requests, directions, demands, waivers and
other communications provided for herein shall be in writing and shall be deemed
to have been given or made when delivered personally, or sent by registered or
certified mail, postage prepaid and return receipt requested, addressed to the
Borrower (to the attention of David Mason with a copy to Myers and Frayne Co.,
L.P.A.) or the Bank, as the case may be, at their respective addresses set forth
at the beginning of this Agreement. Notices of changes of address shall be
given in the same manner.
10.7 Severability. Any provision of this Agreement which is prohibited and
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
10.8 Entire Agreement, Modification, Benefit. This Agreement shall
constitute the entire agreement of the parties and no provision of this
Agreement, including the provisions of this Section, may be modified, deleted or
amended in any manner except by agreement in writing executed by the parties.
All terms of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
assigns, provided, however, that the Borrower shall not assign or transfer its
rights hereunder.
10.9 Construction. All references in this Agreement to the single number
and neuter gender shall be deemed to mean and include the plural number and all
genders, and vice versa, unless the context shall otherwise require.
10.10 Headings. The underlined headings contained herein are for
convenience only and shall not affect the interpretation of this Agreement.
10.11 Counterparts. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original.
10.12 Nonliability of Bank. The relationship between the Borrower and
the Bank shall be solely that of borrower and lender. The Bank shall not have
any fiduciary responsibilities to the Borrower. The Bank undertakes no
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers.
MOTO PHOTO, INC. THE PROVIDENT BANK
BY BY
NAME NAME
TITLE TITLE
EXHIBIT A
BORROWING BASE CERTIFICATE
EXHIBIT B
PERMITTED LIENS
A) Liens existing as of December 31, 1996.
B) Liens to secure indebtedness permitted by Section 6.10.
C) Liens to Fuji Photo Film USA, Inc. contemplated by this Agreement.
D) Liens to Bankers Leasing Association, Inc. to secure a lease dated January
13, 1997, in the approximate amount of $350,000.
EXHIBIT C
LIST OF PROPERTY LOCATION
EXHIBIT D
LIST OF STORES TO BE SOLD OR TRANSFERRED
SCHEDULE 4.15
PLANS SUBJECT TO ERISA
Moto Photo, Inc. Group Benefit Plan
Moto Photo, Inc. Flexible Spending Plan
Salary Savings Plan
EXHIBIT A
COLLATERAL
THE SECURED PARTY HEREBY SUBORDINATES ITS LIEN TO THE LIEN OF THE PROVIDENT
BANK, WHOSE ADDRESS IS 10 WEST SECOND STREET, COURTHOUSE PLAZA, SUITE 1100,
DAYTON, OH 45402, WITH RESPECT TO THE COLLATERAL DESCRIBED HEREIN, WHICH
COLLATERAL SECURES THE REPAYMENT OF LOANS FROM THE PROVIDENT BANK TO THE
DEBTOR.
The Collateral secured by this financing statement shall include (a) all of the
Debtor's Accounts, Equipment, General Intangibles, Inventory (each as more fully
defined below) and all other items of personal property now owned or hereafter
acquired by the Debtor or in which the Debtor has granted or may in the future
grant a security interest to the Bank hereunder or in any supplement hereto or
otherwise; (b) all of the Debtor's right, title and interest in and to all goods
or other property represented by or securing any of the Accounts, including all
goods that may be reclaimed or repossessed from or returned by debtors; (c) all
of the Debtor's rights as an unpaid seller, including stoppage in transit,
detinue and reclamation; (d) all additional amounts due to the Debtor from any
debtor, irrespective of whether such additional amounts have been specifically
assigned to the Bank; (e) all guaranties, or other agreements or property
securing or relating to any of the items referred to in (a) above, or acquired
for the purpose of securing and enforcing any of such items; (f) all
instruments, documents, securities, cash, property, deposit accounts, and the
proceeds of any of the foregoing, owned by the Debtor or in which it has an
interest, which are now or may hereafter be in the possession or control of the
Bank or in transit by mail or carrier to or from the Bank, or in possession of
any third party acting on behalf of Bank, without regard to whether Bank
received same in pledge, for safekeeping, as agent for collection or
transmission or otherwise or whether Bank had conditionally released the same;
(g) all ledger sheets, files, records, documents, blueprints, drawings and
instruments (including, without limitation, computer programs, tapes and related
electronic data processing software) evidencing an interest in or relating to
the foregoing; and (h) all proceeds and products of the collateral described
above, 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.
Accounts shall mean all of Debtor's accounts (as that term is defined in
the Uniform Commercial Code), accounts receivable, chattel paper, contract
rights, documents and instruments; all other obligations or indebtedness owed to
Debtor from whatever source arising, including, but not limited to, Notes
Receivable (as defined herein); all guarantees of any of the foregoing and all
security therefor; all of the right, title and interest of Debtor in and with
respect to the goods, services or other property which gave rise to or which
secure any of the foregoing and all insurance policies and proceeds relating
thereto; all of the foregoing whether now owned by Debtor or hereafter acquired
or in existence; provided, however, that Accounts shall not include any accounts
originating with Fuji Photo Film U.S.A., Inc. (`Fuji'')and in which a Security
Interest has been specifically pledged to Fuji.
Equipment. shall mean all of Debtor's equipment (as that term is defined in
the Uniform Commercial Code), including, without limitation, all furniture,
fixtures, machinery and other equipment of any kind and all substitutions and
replacements thereof and accessories and parts therefor, all whether now owned
or hereafter acquired by Debtor; provided, however, that Equipment shall not
include any leasehold improvements, including leasehold improvements that
constitute equipment or fixtures, in any premises leased by Debtor as tenant.
General Intangibles shall mean all of Debtor's general intangibles (as that
term is defined in the Uniform Commercial Code), including, without limitation,
all goodwill, patents, formulas, blueprints, proprietary manufacturing
processes, trademarks, trade names, licenses, franchises, beneficial interests
in trusts, joint venture interests, partnership interests, rights to tax
refunds, rights to insurance proceeds, causes of action, pension plan
overfundings, literary rights and other contractual rights of Debtor, all
whether now owned or hereafter acquired by Debtor.
Inventory shall mean all of Debtor's inventory (as that term is defined in
the Uniform Commercial Code), including, without limitation, all goods,
merchandise and other personal property which are held for sale or lease, or are
furnished or to be furnished under any contract of service by Debtor, or are raw
materials, work-in-progress, supplies or materials used or consumed in Debtor's
business, and all products thereof, and all substitutions, replacements,
additions and accessories thereto, all whether now owned or hereafter acquired
by Debtor; and all of Debtor's right, title and interest in and to any leases or
rental agreements for such inventory; provided, however, that Inventory shall
not include inventory originating with Fuji and in which a security interest has
been specifically granted to Fuji.
Notes Receivable shall mean all of Debtor's accounts, accounts receivable
or similar obligations evidenced by a promissory note or other form of
negotiable instrument.
LINE OF CREDIT PROMISSORY NOTE
DATE OF NOTE: FEBRUARY 19, 1997
MAXIMUM CREDIT: TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000)
MATURITY DATE: APRIL 30, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower"), does hereby promise to
pay to the order of THE PROVIDENT BANK, an Ohio banking corporation, or its
successors or assigns, at its principal office located at 10 West Second Street,
Courthouse Plaza, Suite 1100, Dayton, Ohio 45402 ("Lender"), or at such other
place as the Lender may designate to Borrower in writing from time to time, in
legal tender of the United States, the Maximum Credit, as set forth above, or
such portion thereof which has been advanced to Borrower and remains unpaid on
the Maturity Date, together with interest at the Interest Rate, as set forth in
Section 2 below, on the outstanding principal balance until this Note is paid in
full. Except as otherwise defined herein, all capitalized terms shall have the
meanings ascribed to them in the Loan Agreement (as herein defined).
1. REVOLVING CREDIT
The loan evidenced by this Note is an automated revolving line of credit
subject to the terms of this Note and the Loan Agreement of even date
between the Lender and the Borrower ("Loan Agreement") and until maturity
or occurrence of an Event of Default as defined in the Loan Agreement, the
Borrower may borrow and reborrow from the Lender and the Lender shall lend
and re-lend to the Borrower such amounts not to exceed the Maximum Credit
as either of the undersigned may, at any time and from time to time,
request upon satisfactory notice to the Lender.
2. INTEREST RATE
The "Interest Rate" is a variable rate which shall be three quarters
percent (3/4%) in excess of the Prime Rate, as defined herein, charged by
the Lender computed daily for the actual number of days elapsed over a year
of 360 days.
Prime Rate is that percentage rate of interest calculated on the basis of a
360-day year which is established by Lender from time to time as its Prime
Rate, which is in effect until the new rate is established and which
provides a base to which loan rates may be referenced; it is not
necessarily the Lender's lowest loan rate. In the event of a change in
such Prime Rate, the interest rate hereunder shall be adjusted accordingly,
and such adjustment shall become effective on the date such Prime Rate
changes.
3. PRINCIPAL AND INTEREST PAYMENTS
All accrued interest on the outstanding principal balance under this Note
shall be due and payable monthly commencing on March, 1997, and continuing
on the 30th day of each and every calendar month thereafter until this Note
is paid in full. Principal payments shall not be required at regular
intervals, provided, however, that on or before the 30th day of each month
during the term of this Note, Borrower shall pay, or cause to be paid from
the Overline Loan, as defined in the Loan Agreement, to Lender, any amounts
by which the then-current principal amount outstanding under the Note
exceeds the Borrowing Base, as defined in the Loan Agreement. Unless
sooner paid, the entire outstanding principal balance and all accrued,
unpaid interest hereunder shall be due and payable on the Maturity Date.
Borrower shall pay a late payment premium of five percent (5%) of any
principal or interest payment made more than five (5) days after the
Borrower receives notice of nonpayment, which shall be due with any such
late payment.
All payments made by Borrower shall be applied monthly, first to reimburse
Lender, if required, for any reasonable costs incurred by the Lender under
any document executed as collateral security for the Note; second, to
interest which is then due and payable; third, to the payment of late
charges provided herein; and the balance to principal, until the full
amount of principal and interest has been paid in full.
4. PREPAYMENT
The Borrower shall have the right to prepay all or any part of the Amount
of Note outstanding and all accrued interest thereon at any time without
penalty.
5. EXTENSION OF NOTE
Any extension or renewal of this Note at the end of the original one-year
term and any renewal term will be entirely within the Lender's discretion.
6. LOAN AGREEMENT; COLLATERAL
This Note is issued under and entitled to the benefits of the Loan and
Security Agreement, dated of even date herewith, (the `Loan Agreement'')
between Lender and Borrower, to which Loan Agreement reference is hereby
made for a statement of the rights in respect thereto of the holder of this
Note.
This Note will be secured by the collateral identified and described in
Section 2 of the Loan Agreement (the "Collateral"), to which section
reference is hereby made for a statement of the rights in respect thereto
of the holder of this Note.
7. DEFAULT
Upon the occurrence of any event constituting an Event of Default under the
terms of the Loan Agreement, and upon delivery of five (5) days prior
written notice of the Bank's intent to accelerate, the entire balance of
the principal and interest upon this Note then owing and unpaid, at the
option of the holder hereof, immediately shall become due and payable.
Delay on the part of the holder of this Note in execution of the right to
declare this obligation due shall not be a waiver thereof.
After an Event of Default, the Amount of Note outstanding shall bear
interest at three percent (3%) per annum in excess of the Interest Rate in
effect from time to time, each change in such rate to be effective as of
the date of such changes.
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other
court proceedings (whether at the trial or appellate level), or should this
Note be placed in the hands of attorneys for collection upon the occurrence
of an Event of Default, the Borrower agrees to pay, in addition to the
principal, premium and interest due and payable hereon, all reasonable
costs of collection, including reasonable attorneys' fees and expenses.
The Borrower, principal, surety, guarantor or endorser, hereby jointly and
severally waive presentment for payment, protest, notice of protest, notice
of dishonor in connection with the delivery, acceptance, performance,
default or enforcement of this Note .
8. MODIFICATION
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any change or modification
is sought.
9. LIMITATION ON INTEREST
Anything herein to the contrary notwithstanding, the obligations of the
Borrower under this Note shall be subject to the limitation that payments
of interest shall not be required to the extent that receipt of any such
payment by the Lender would be contrary to provisions of law applicable to
the Lender limiting the maximum rate of interest that may be charged or
collected by the Lender.
10. GOVERNING LAW
This Note shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note on
the day and year first above written.
Borrower:
MOTO PHOTO, INC., a Delaware corporation
By
-------------------------------
Its
-------------------------------
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 19th day of
February, 1997, by Dave Mason the Executive Vice President of Moto Photo, Inc.,
a Delaware corporation, on behalf of said corporation.
Notary Public
TERM LOAN PROMISSORY NOTE
DATE OF NOTE: FEBRUARY 19, 1997
AMOUNT OF NOTE: ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000)
MATURITY DATE: January 30, 2002
FOR VALUE RECEIVED, MOTO PHOTO, INC., a Delaware corporation,
("Borrower"), does hereby promise to pay to the order of THE PROVIDENT BANK, an
Ohio banking corporation, or its successors or assigns, at its office located at
10 West Second Street, Courthouse Plaza, Suite 1100, Dayton, Ohio 45402
("Lender"), or at such other place as the Lender may designate to the Borrower
in writing from time to time, in legal tender of the United States, the Amount
of Note, as set forth above, together with interest at the Interest Rate, as set
forth in Section 1 below, on the Amount of Note until this Note is paid in full.
Except as otherwise defined herein, all capitalized terms shall have the
meanings ascribed to them in the Loan Agreement (as herein defined).
1. INTEREST RATE
The "Interest Rate" is a variable rate which shall be one percent (1.00%)
in excess of the Prime Rate, as defined herein, charged by the Lender,
computed daily for the actual number of days elapsed over a year of 360
days.
Prime Rate is that percentage rate of interest calculated on the basis of a
360-day year which is established by Lender from time to time as its Prime
Rate, which is in effect until the new rate is established and which
provides a base to which loan rates may be referenced; it is not
necessarily the Lender's lowest loan rate. In the event of a change in
such Prime Rate, the interest rate hereunder shall be adjusted accordingly,
and such adjustment shall become effective on the date such Prime Rate
changes.
2. AMORTIZATION PERIOD
The "Amortization Period" shall be five (5) years from December 31, 1997.
3. PRINCIPAL AND INTEREST PAYMENTS
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, 1997, shall be repaid in 24 equal payments of principal in the amount
of $62,500 each, payable on the thirtieth day of each January, August,
September, October, November and December, commencing on January 30, 1998,
and continuing until this Note is paid in full. Accrued interest on this
Note, calculated as provided above, shall be paid monthly, on the twenty-
fifth day of each calendar month, commencing on March 1997 and continuing
thereafter until this Note is paid in full. Unless sooner paid, the entire
outstanding principal balance and all accrued, unpaid interest hereunder
shall be due and payable on the Maturity Date.
Borrower shall pay a late payment premium of five percent (5%) of any
principal or interest payment made more than five (5) days after the
Borrower receives written notice of nonpayment, which shall be due with any
such late payment.
All payments made by the Borrower shall be applied monthly, first to
reimburse Lender, if required, for any reasonable costs incurred by the
Lender under any other document executed as collateral security for this
Note; second, to interest which is then due and payable; third, to the
payment of late charges provided herein; and the balance to principal,
until the principal and interest has been paid in full.
4. DISBURSEMENTS
Upon request by Borrower (an `Advance Request'') from time to time from
the date of this Note through December 31, 1997, (but not more frequently
than once each calendar month), Lender shall make advances hereunder to
Borrower up to a maximum aggregate amount of $500,000, for the purpose of
funding capital expenditures. In addition, and upon Advance Request from
Borrower from time to time through December 31, 1997, or until the full
Amount of Note has been disbursed to Borrower, whichever occurs first, (but
not more frequently than once each calendar month), Lender shall make
advances hereunder to Borrower for the purpose of funding payments made to
Fuji Photo Film U.S.A., Inc. (`Fuji'') by Borrower.
5. PREPAYMENT
Except as provided herein, the Borrower shall have the right to prepay all
or any part of the Amount of Note outstanding and all accrued interest
thereon at any time without penalty. If Borrower refinances this Note
(other than with Lender) or incurs any additional indebtedness in
connection with the prepayment of this Note (other than to the Lender),
Borrower shall pay a refinancing penalty of three percent (3%) of any
amount prepaid during the first two years of the term of this Note, two
percent (2%) of any amount prepaid during the second two years of the term
of this Note and one percent (1%) of any amount prepaid during the fifth
year of the term of this Note.
6. LOAN AGREEMENT; COLLATERAL
This Note is issued under and entitled to the benefits of a Loan and
Security Agreement of even date herewith ("Loan Agreement") among Lender
and the Borrower, to which Loan Agreement reference is hereby made for a
statement of the rights in respect thereto of the holder of this Note.
This Note will be secured by the collateral identified and described in
Section 2 of the Loan Agreement (the "Collateral"), to which section
reference is hereby made for a statement of the rights in respect thereto
of the holder of this Note.
7. DEFAULT
Upon the occurrence of any event constituting an Event of Default under the
terms of the Loan Agreement, and upon delivery of five (5) days prior
written notice of the Bank's intent to accelerate, the entire balance of
the principal and interest upon this Note then owing and unpaid, at the
option of the holder hereof, immediately shall become due and payable.
Delay on the part of the holder of this Note in execution of the right to
declare this obligation due shall not be a waiver thereof.
After an Event of Default, the Amount of Note outstanding shall bear
interest at three percent (3%) per annum in excess of the Interest Rate in
effect from time to time, each change in such rate to be effective as of
the date of such changes.
Should the indebtedness represented by this Note or any part thereof by
collected at law or in equity, or in bankruptcy, receivership or any other
court proceedings (whether at the trial or appellate level), or should this
Note be placed in the hands of attorneys for collection upon the occurrence
of an Event of Default, the Borrower agrees to pay, in addition to the
principal, premium and interest due and payable hereon, all reasonable
costs of collection, including reasonable attorneys' fees and expenses.
The Borrower waives presentment for payment, demand, protest, notice of
protest, 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.
8. MODIFICATION
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any change or modification
is sought.
9. LIMITATION ON INTEREST
Anything herein to the contrary notwithstanding, the obligations of the
Borrower under this Note shall be subject to the limitation that payments
of interest shall not be required to the extent that receipt of any such
payment by the Lender would be contrary to provisions of law applicable to
the Lender limiting the maximum rate of interest that may be charged or
collected by the Lender.
10. GOVERNING LAW
This Note shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note on the day
and year first above written.
Borrower:
MOTO PHOTO, INC., a Delaware corporation
By
--------------------------
Its
--------------------------
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 19th day of February,
1997, by Dave Mason, the Executive Vice President of Moto Photo, Inc., a
Delaware corporation, on behalf of said corporation.
Notary Public
TERM LOAN PROMISSORY NOTE
DATE OF NOTE: FEBRUARY 19, 1997
AMOUNT OF NOTE: THREE MILLION THREE HUNDRED THOUSAND DOLLARS
($3,300,000)
MATURITY DATE: January 25, 2002
FOR VALUE RECEIVED, MOTO PHOTO, INC., a Delaware corporation,
("Borrower"), does hereby promise to pay to the order of THE PROVIDENT BANK, an
Ohio banking corporation, or its successors or assigns, at its office located at
10 West Second Street, Courthouse Plaza, Suite 1100, Dayton, Ohio 45402
("Lender"), or at such other place as the Lender may designate to the Borrower
in writing from time to time, in legal tender of the United States, the Amount
of Note, as set forth above, together with interest at the Interest Rate, as set
forth in Section 1 below, on the Amount of Note until this Note is paid in full.
Except as otherwise defined herein, all capitalized terms shall have the
meanings ascribed to them in the Loan Agreement (as herein defined).
1. INTEREST RATE
The "Interest Rate" shall be a fixed rate of interest at 325 basis points
above the interest rate on U.S. Treasury obligations with a maturity equal
to five (5) years computed daily for the actual number of days elapsed over
a year of 360 days.
2. AMORTIZATION PERIOD
The "Amortization Period" shall be five (5) years from the date of this
Note.
3. PRINCIPAL AND INTEREST PAYMENTS
The aggregate principal amount of this Note which has been advanced
hereunder shall be repaid in 30 equal payments of principal and interest in
the amount of $123,691.10 each, due and payable commencing on August 25,
1997, and continuing on the twenty-fifth day of each September, October,
November, December, January and August thereafter until this Note is paid
in full. Payments of interest only, calculated as provided above, shall be
due and payable commencing on February 25, 1997, and continuing on the
twenty-fifth day of each March, April, May, June, July and February
thereafter until this Note is paid in full. Unless sooner paid, the entire
outstanding principal balance and all accrued, unpaid interest hereunder
shall be due and payable on the Maturity Date.
Borrower shall pay a late payment premium of five percent (5%) of any
principal or interest payment made more than five (5) days after the
Borrower receives written notice of nonpayment, which shall be due with any
such late payment.
All payments made by the Borrower shall be applied monthly, first to
reimburse Lender, if required, for any reasonable costs incurred by the
Lender under any other document executed as collateral security for this
Note; second, to interest which is then due and payable; third, to the
payment of late charges provided herein; and the balance to principal,
until the principal and interest has been paid in full.
4. PREPAYMENT
Except as set forth in this paragraph, the Borrower shall have the right to
prepay all or any part of the Amount of Note outstanding and all accrued
interest thereon at any time without penalty. Any partial prepayments of
principal shall be applied against installments of principal due hereunder
in inverse order of maturity. If the Borrower prepays all or any portion
of the principal, or, if Borrower shall elect to refinance the loan
evidenced by this Note (other than with the Lender) or incurs any
additional indebtedness in connection with the prepayment of this Note
(other than to the Lender), then Borrower shall pay to Lender, in addition
to the prepaid principal, a prepayment charge in an amount which when added
to the prepaid principal will be sufficient to allow Lender to invest in
the U.S. Treasury obligation maturing at the end of the period of the fixed
Interest Rate and achieve the same effective yield to Lender during such
period as would have resulted if the prepayment had not been made.
5. LOAN AGREEMENT; COLLATERAL
This Note is issued under and entitled to the benefits of a Loan and
Security Agreement of even date herewith ("Loan Agreement") among Lender
and the Borrower, to which Loan Agreement reference is hereby made for a
statement of the rights in respect thereto of the holder of this Note.
This Note will be secured by the collateral identified and described in
Section 2 of the Loan Agreement (the "Collateral"), to which section
reference is hereby made for a statement of the rights in respect thereto
of the holder of this Note.
6. DEFAULT
Upon the occurrence of any event constituting an Event of Default under the
terms of the Loan Agreement, and upon delivery of five (5) days prior
written notice of the Bank's intent to accelerate, the entire balance of
the principal and interest upon this Note then owing and unpaid, at the
option of the holder hereof, immediately shall become due and payable.
Delay on the part of the holder of this Note in execution of the right to
declare this obligation due shall not be a waiver thereof.
After an Event of Default, the Amount of Note outstanding shall bear
interest at three percent (3%) per annum in excess of the Interest Rate in
effect from time to time, each change in such rate to be effective as of
the date of such changes.
Should the indebtedness represented by this Note or any part thereof by
collected at law or in equity, or in bankruptcy, receivership or any other
court proceedings (whether at the trial or appellate level), or should this
Note be placed in the hands of attorneys for collection upon the occurrence
of an Event of Default, the Borrower agrees to pay, in addition to the
principal, premium and interest due and payable hereon, all reasonable
costs of collection, including reasonable attorneys' fees and expenses.
The Borrower waives presentment for payment, protest, notice of protest,
notice of dishonor in connection with the delivery, acceptance,
performance, default or enforcement of this Note.
7. MODIFICATION
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any change or modification
is sought.
8. LIMITATION ON INTEREST
Anything herein to the contrary notwithstanding, the obligations of the
Borrower under this Note shall be subject to the limitation that payments
of interest shall not be required to the extent that receipt of any such
payment by the Lender would be contrary to provisions of law applicable to
the Lender limiting the maximum rate of interest that may be charged or
collected by the Lender.
9. GOVERNING LAW
This Note shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note on
the day and year first above written.
Borrower:
MOTO PHOTO, INC., a Delaware corporation
By
--------------------------
Its
--------------------------
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 19th day of February
1997, by Dave Mason, the Executive Vice President of Moto Photo, Inc., a
Delaware corporation, on behalf of said corporation.
Notary Public
OVERLINE PROMISSORY NOTE
DATE OF NOTE: FEBRUARY 19, 1997
MAXIMUM CREDIT: FIVE HUNDRED THOUSAND DOLLARS ($500,000)
MATURITY DATE: APRIL 30, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower"), does hereby promise to
pay to the order of THE PROVIDENT BANK, an Ohio banking corporation, or its
successors or assigns, at its principal office located at 10 West Second Street,
Courthouse Plaza, Suite 1100, Dayton, Ohio 45402 ("Lender"), or at such other
place as the Lender may designate to Borrower in writing from time to time, in
legal tender of the United States, the Maximum Credit, as set forth above, or
such portion thereof which has been advanced to Borrower and remains unpaid on
the Maturity Date, together with interest at the Interest Rate, as set forth in
Section 2 below, on the outstanding principal balance until this Note is paid in
full. Except as otherwise defined herein, all capitalized terms shall have the
meanings ascribed to them in the Loan Agreement (as herein defined).
1. REVOLVING CREDIT
The loan evidenced by this Note is an automated revolving line of credit
subject to the terms of this Note and the Loan Agreement of even date
between the Lender and the Borrower ("Loan Agreement") and until maturity
or occurrence of an Event of Default as defined in the Loan Agreement, the
Borrower may borrow and reborrow from the Lender and the Lender shall lend
and re-lend to the Borrower such amounts not to exceed the Maximum Credit
as either of the undersigned may, at any time and from time to time,
request upon satisfactory notice to the Lender.
2. INTEREST RATE
The "Interest Rate" is a variable rate which shall be one percent (1%) in
excess of the Prime Rate, as defined herein, charged by the Lender computed
daily for the actual number of days elapsed over a year of 360 days.
Prime Rate is that percentage rate of interest calculated on the basis of a
360-day year which is established by Lender from time to time as its Prime
Rate, which is in effect until the new rate is established and which
provides a base to which loan rates may be referenced; it is not
necessarily the Lender's lowest loan rate. In the event of a change in
such Prime Rate, the interest rate hereunder shall be adjusted accordingly,
and such adjustment shall become effective on the date such Prime Rate
changes.
3. PRINCIPAL AND INTEREST PAYMENTS
All accrued interest on the outstanding principal balance under this Note
shall be due and payable monthly commencing on March, 1997, and
continuing on the 30th day of each and every calendar month thereafter
until this Note is paid in full. Principal payments shall not be required
at regular intervals.
Borrower shall pay a late payment premium of five percent (5%) of any
principal or interest payment made more than five (5) days after the
Borrower receives notice of nonpayment, which shall be due with any such
late payment.
All payments made by Borrower shall be applied monthly, first to reimburse
Lender, if required, for any reasonable costs incurred by the Lender under
any document executed as collateral security for the Note; second, to
interest which is then due and payable; third, to the payment of late
charges provided herein; and the balance to principal, until the full
amount of principal and interest has been paid in full.
4. PREPAYMENT
The Borrower shall have the right to prepay all or any part of the Amount
of Note outstanding and all accrued interest thereon at any time without
penalty.
5. EXTENSION OF NOTE
Any extension or renewal of this Note at the end of the original one-year
term and any renewal term will be entirely within the Lender's discretion.
6. LOAN AGREEMENT; COLLATERAL
This Note is issued under and entitled to the benefits of the Loan and
Security Agreement, dated of even date herewith, (the `Loan Agreement'')
between Lender and Borrower, to which Loan Agreement reference is hereby
made for a statement of the rights in respect thereto of the holder of this
Note. Pursuant to the Loan Agreement, the funds advanced under the
Overline Loan shall be used to repay to the Bank any amounts by which the
Borrowing Base exceeds the Maximum Line of Credit Loan Amount permitted
under the Line of Credit Loan, as those terms are defined in the Loan
Agreement.
This Note will be secured by the collateral identified and described in
Section 2 of the Loan Agreement (the "Collateral"), to which section
reference is hereby made for a statement of the rights in respect thereto
of the holder of this Note.
7. DEFAULT
Upon the occurrence of any event constituting an Event of Default under the
terms of the Loan Agreement, and upon delivery of five (5) days prior
written notice of the Bank's intent to accelerate, the entire balance of
the principal and interest upon this Note then owing and unpaid, at the
option of the holder hereof, immediately shall become due and payable.
Delay on the part of the holder of this Note in execution of the right to
declare this obligation due shall not be a waiver thereof.
After an Event of Default, the Amount of Note outstanding shall bear
interest at three percent (3%) per annum in excess of the Interest Rate in
effect from time to time, each change in such rate to be effective as of
the date of such changes.
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other
court proceedings (whether at the trial or appellate level), or should this
Note be placed in the hands of attorneys for collection upon the occurrence
of an Event of Default, the Borrower agrees to pay, in addition to the
principal, premium and interest due and payable hereon, all reasonable
costs of collection, including reasonable attorneys' fees and expenses.
The Borrower, principal, surety, guarantor or endorser, hereby jointly and
severally waive presentment for payment, demand, protest, notice of
protest, 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.
8. MODIFICATION
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any change or modification
is sought.
9. LIMITATION ON INTEREST
Anything herein to the contrary notwithstanding, the obligations of the
Borrower under this Note shall be subject to the limitation that payments
of interest shall not be required to the extent that receipt of any such
payment by the Lender would be contrary to provisions of law applicable to
the Lender limiting the maximum rate of interest that may be charged or
collected by the Lender.
10. GOVERNING LAW
This Note shall be governed by, and shall be construed and enforced in
accordance with, the laws of the State of Ohio.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note on
the day and year first above written.
Borrower:
MOTO PHOTO, INC., a Delaware corporation
By
-------------------------------
Its
-------------------------------
STATE OF OHIO, COUNTY OF MONTGOMERY, SS:
The foregoing instrument was acknowledged before me this 19th day of
February, 1997, by Dave Mason, the Executive Vice President of Moto Photo, Inc.,
a Delaware corporation, on behalf of said corporation.
MOTO PHOTO, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
31-Mar-97 31-Mar-96
<S> <C> <C>
PRIMARY
Average shares outstanding 7,787,884 7,785,973
Net effect of dilutive common equivalents --
based on the tresaury stock method using
average market price (A) (A)
TOTAL 7,787,884 7,785,973
Net Income (Loss) $ (126,933) $ (294,523)
Less Preferred Stock dividend requirements (71,470) $ (72,830)
Net Loss applicable to Common Stock (198,403) (367,353)
Per share amount $ (0.03) $ (0.05)
FULLY DILUTED
Average shares outstanding 7,787,884 7,785,973
Net effect of dilutive common stock
equivalents -- based on the treasury
stock method using the quarter-end market
price, if higher than average market (B) (B)
price
Assumed conversion of Series G
convertible preferred shares 7,111,111 8,465,608
TOTAL 14,898,995 16,251,581
Net Income(Loss) (126,933) (294,523)
Pref Series G Previously Accreted
Dividends 1,077,498 1,288,207
Fully Diluted Net Income(Loss) 950,565 993,684
Per share amount $ 0.06 $ 0.06
</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%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Moto Photo
Inc's 1997 First Quarter 10-Q and is qualified in its entirety by
reference to such 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 528,585
<SECURITIES> 0
<RECEIVABLES> 7,162,454
<ALLOWANCES> 2,211,000
<INVENTORY> 2,143,847
<CURRENT-ASSETS> 8,346,948
<PP&E> 2,822,202
<DEPRECIATION> 8,610,404
<TOTAL-ASSETS> 19,392,592
<CURRENT-LIABILITIES> 7,776,425
<BONDS> 0
0
10,000
<COMMON> 77,900
<OTHER-SE> 2,181,126
<TOTAL-LIABILITY-AND-EQUITY> 19,392,592
<SALES> 7,041,726
<TOTAL-REVENUES> 8,461,748
<CGS> 3,762,048
<TOTAL-COSTS> 6,381,096
<OTHER-EXPENSES> 484,137
<LOSS-PROVISION> 179,646
<INTEREST-EXPENSE> 80,221
<INCOME-PRETAX> (183,933)
<INCOME-TAX> (57,000)
<INCOME-CONTINUING> (126,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (126,933)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0.06
</TABLE>
