<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 26, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------ ------------
Commission File No. 0-11271
WALL STREET DELI, INC.
(Exact name of registrant as specified in its Charter)
Delaware 63-0514240
(State of Incorporation) (IRS Employer I.D. No.)
One Independence Plaza, Suite 100
Birmingham, Alabama 35209
(Address of principal executive offices)
(205) 870-0020
(Registrant's telephone number)
------------------------------------
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of the registrant's class of
common stock, as of the latest practicable date.
Class Outstanding at February 3, 1999
- ----------------------------- -------------------------------
Common Stock, $.05 Par Value 2,896,077
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I: FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1: Financial Statements.........................................1
Consolidated Balance Sheets................................2
Consolidated Statements of Operations......................4
Consolidated Statements of Stockholders' Equity............5
Consolidated Statements of Cash Flows......................6
Notes to Consolidated Financial Statements.................7
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................10
PART II: OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders.........18
ITEM 6: Exhibits and Reports on Form 8-K ...........................18
SIGNATURES..........................................................19
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
The financial statements listed below are included on the following
pages of this Report on Form 10-Q:
Consolidated Balance Sheets at December 26, 1998 (unaudited)
and June 27, 1998.
Consolidated Statements of Operations (unaudited) for the
three and six month periods ended December 26, 1998 and
December 27, 1997.
Consolidated Statements of Stockholders' Equity (unaudited)
for the three and six month periods ended December 26, 1998
and December 27, 1997.
Consolidated Statements of Cash Flows (unaudited) for the six
month periods ended December 26, 1998 and December 27, 1997.
Notes to Consolidated Financial Statements (unaudited).
-----------------------------------
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1
<PAGE> 4
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 26, 1998 JUNE 27, 1998
----------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 326,870 $ 409,044
Accounts and notes receivable (Note 3) 1,070,709 1,319,436
Inventories (Note 4) 597,714 583,405
Refundable income taxes 333,411 333,411
Deferred tax assets 570,000 570,000
Prepaid income tax 192,000 --
Prepaid expenses and other 371,407 242,659
------------ ------------
TOTAL CURRENT ASSETS 3,462,111 3,457,955
------------ ------------
EQUIPMENT AND IMPROVEMENTS
Equipment and fixtures 19,600,013 19,674,714
Leasehold improvements 16,328,792 16,319,331
------------ ------------
35,928,805 35,994,045
Less accumulated depreciation and amortization (24,333,508) (22,973,956)
------------ ------------
NET EQUIPMENT AND IMPROVEMENTS 11,595,297 13,020,089
------------ ------------
OTHER
Cash surrender value of insurance on officers' lives 315,738 781,362
Long-term portion of notes receivable (Note 3) 377,882 211,402
Deferred tax assets 2,446,160 2,392,000
------------ ------------
TOTAL OTHER ASSETS 3,139,780 3,384,764
------------ ------------
$ 18,197,188 $ 19,862,808
============ ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
2
<PAGE> 5
WALL STREET DELI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 26, 1998 JUNE 27, 1998
----------------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,308,037 $ 2,004,810
Accounts payable 1,743,989 1,582,901
Accruals:
Taxes other than income 488,531 572,800
Compensation 531,348 818,765
Rent 815,398 1,018,824
Workers' compensation 862,689 781,145
Miscellaneous 292,256 366,839
------------ ------------
TOTAL CURRENT LIABILITIES 6,042,248 7,146,084
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.05 par - shares authorized
20,000,000; issued 3,414,802 170,740 170,740
Additional paid-in capital 10,787,369 10,787,369
Retained earnings 3,443,922 3,523,082
------------ ------------
14,402,031 14,481,191
Treasury stock, at cost, 518,325 and 368,325 shares (2,247,091) (1,764,467)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,154,940 12,716,724
------------ ------------
$ 18,197,188 $ 19,862,808
============ ============
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE> 6
WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Six Month
Period Ended Period Ended
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1998 1997 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 14,437,285 $ 15,805,254 $ 29,690,699 $ 31,974,688
Costs and expenses (income):
Costs of sales 13,109,316 14,407,353 26,751,837 29,127,120
Administrative and general expense 1,505,632 1,583,727 3,057,011 3,351,415
Interest expense - net 15,136 78,949 52,992 99,887
(Gain)/loss on sale of equipment and
improvements (86) 21,298 (37,822) (35,398)
---------------------------------------------------------------------
TOTAL COSTS AND EXPENSES: 14,629,998 16,091,327 29,824,018 32,543,024
---------------------------------------------------------------------
Loss before tax benefit on loss (192,713) (286,073) (133,319) (568,336)
Tax benefit on loss 77,085 114,429 54,159 227,334
---------------------------------------------------------------------
Net loss $ (115,628) $ (171,644) $ (79,160) $ (341,002)
=====================================================================
Basic and diluted loss per common share
(Note 5) $ (.04) $ (.06) $ (.03) $ (.11)
=====================================================================
Weighted average number of common
shares outstanding (Note 5) 2,941,488 3,108,379 2,978,830 3,120,951
=====================================================================
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 7
WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------------- ---------------------
Additional
Number paid-in Retained Number
of shares Amount capital earnings of shares Amount
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 28, 1997 3,413,777 $170,689 $10,782,448 $7,365,512 263,825 $1,382,141
Net loss for the quarter (169,358)
Exercise of stock options 625 31 3,156
Purchase of treasury stock 35,000 132,138
-----------------------------------------------------------------------------
Balance, September 27, 1997 3,414,402 170,720 10,785,604 7,196,154 298,825 1,514,279
Net loss for the quarter (171,644)
Purchase of treasury stock 35,000 124,688
-----------------------------------------------------------------------------
Balance, December 27, 1997 3,414,402 $170,720 $10,785,604 $7,024,510 333,825 $1,638,967
=============================================================================
Balance, June 27, 1998 3,414,802 $ 170,740 $10,787,369 $3,523,082 368,325 $1,764,467
Net income for the quarter 36,468
Purchase of treasury stock 80,000 253,124
-----------------------------------------------------------------------------
Balance, September 26, 1998 3,414,802 170,740 10,787,369 3,559,550 448,325 2,017,591
Net loss for the quarter (115,628)
Purchase of treasury stock 70,000 229,500
-----------------------------------------------------------------------------
Balance, December 26, 1998 3,414,802 $170,740 $10,787,369 $3,443,922 518,325 $2,247,091
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 8
WALL STREET DELI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Month
Period Ended
---------------------------------
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (79,160) $ (341,002)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,536,967 1,751,737
Gain on sale of property and equipment (37,822) (35,398)
Deferred income taxes (54,159) --
Changes in operating assets and liabilities:
Receivables - net (Note 3) 82,246 (453,180)
Inventories (14,309) 3,000
Prepaid expenses and other (320,748) (84,397)
Accounts payable 161,088 (409,395)
Accruals (568,118) (569,534)
----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 705,985 (138,169)
----------- -----------
INVESTING ACTIVITIES
Payments for purchase of equipment and improvements (119,111) (1,823,259)
Proceeds from sale of equipment and improvements 19,199 71,250
Net collections on notes receivable 25,526 83,457
Decrease (increase) in cash surrender value of insurance on
officers' lives 465,624 28,377
----------- -----------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES 391,238 (1,640,175)
----------- -----------
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit (696,773) 2,206,108
Proceeds from exercise of stock options -- 3,187
Acquisition of treasury stock (482,624) (256,826)
----------- -----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,179,397) 1,952,469
----------- -----------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD (82,174) 174,125
Cash and cash equivalents, beginning of period 409,044 490,058
----------- -----------
Cash and cash equivalents, end of period $ 326,870 $ 664,183
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 52,972 $ 74,949
Income taxes $ 192,000 $ 307,145
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 9
WALL STREET DELI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of December 26, 1998 and the results of
operations and changes in stockholders' equity for the three and six
month periods ended December 26, 1998 and December 27, 1997, and cash
flows for the six month periods ended December 26, 1998 and December
27, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. The results of operations for the six month periods ended December 26,
1998 and December 27, 1997 are not necessarily indicative of the
results to be expected for the full year.
3. Accounts and notes receivable consists of:
<TABLE>
<CAPTION>
December 26, June 27,
1998 1998
----------- -----------
<S> <C> <C>
Accounts receivable $ 1,026,967 $ 1,262,505
Notes receivable 502,710 333,530
Other receivables 473,620 420,001
----------- -----------
2,003,297 2,016,036
Less allowance for doubtful accounts (554,706) (485,198)
----------- -----------
1,448,591 1,530,838
Less long-term portion of notes receivable (377,882) (211,402)
----------- -----------
$ 1,070,709 $ 1,319,436
=========== ===========
</TABLE>
The Company has recorded a $65,000 note receivable related to the sale
of the Minneapolis store.
4. Inventories are valued at the lower of cost (first-in, first-out) or
market.
7
<PAGE> 10
5. Basic and diluted earnings (loss) per common share ("EPS") and common
share equivalent have been computed in accordance with the provisions
of SFAS 128. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number
of shares outstanding during the respective periods. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock are exercised or converted into common
stock or result in the issuance of common stock that then shares in the
earnings of the Company.
Earnings per share has been calculated using the following:
<TABLE>
<CAPTION>
For the Three For the Six
Month Period Ended Month Period Ended
--------------------------- --------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1998 1997 1998 1997
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Weighted average number of common
shares used for basic EPS 2,941,488 3,108,379 2,978,830 3,120,951
Effect of dilutive stock options -- -- -- --
--------- --------- --------- ---------
Weighted average number of common
shares and dilutive potential common
stock used in diluted EPS 2,941,488 3,108,379 2,978,830 3,120,951
========= ========= ========= =========
</TABLE>
6. In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements.
SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997, but not for interim periods in the initial
year of adoption, and requires comparative information for earlier
years to be restated. Management believes that adoption of this
statement will not have a significant impact on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information," ("SFAS 131") which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes
standards for the way that public companies report information about
operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim
financial statements issued to
8
<PAGE> 11
the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131
defines operating segments as components of a company about which
separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997, but not for interim periods in the initial
year of adoption, and requires comparative information for earlier
years to be restated. Because of the recent issuance of this standard,
management has been unable to fully evaluate the impact, if any, it may
have on future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation
of this standard.
In June 1998, the Financial Accounting Standards Board Issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to
match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized
in income in the period of change. SFAS 133 amends the guidance in SFAS
No. 52, "Foreign Currency Translation," to permit special accounting
for a hedge of a foreign currency forecasted transaction with a
derivative. It also supersedes SFAS No. 80, "Accounting for Futures
Contracts," SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and SFAS No. 119, "Disclosure about
Derivative Financial Instruments." In addition, it amends SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," to include in
SFAS No. 107 the disclosure provisions about concentrations of credit
risk from SFAS No. 105.
SFAS 133 is effective for financial statements for periods beginning
after June 15, 1999. Historically, the Company has not entered into
derivatives contracts either to hedge existing risk or for speculative
purposes. Accordingly, the Company does not expect adoption of the new
standard on July 2, 2000 to materially affect its financial statements.
--------------------------------
9
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected the Company's financial condition and
earnings during the periods included in the accompanying consolidated balance
sheets and statements of operations.
Forward Looking Statements. The statements in this Form 10-Q that are not
historical fact are forward looking statements. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected, including, among others, competition for
customers, labor force and store sites, the effects of changes in the economy
such as inflation and unemployment rates, weather conditions and seasonal
effects, the uncertainties of new products and programs, and recent changes in
management. Readers are cautioned not to place undue reliance on these forward
looking statements which speak only as of the date hereof and reflect only
management's belief and expectations based upon presently available information.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
which affect the Company's business, including the disclosures made in other
periodic reports on Forms 10-K, 10- Q and 8-K filed with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages of net sales represented by certain items in the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
For the Three Month Period Ended For the Six Month Period Ended
December 26, December 27, December 26, December 27,
1998 1997 1998 1997
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 90.8 91.2 90.1 91.1
-------------------------------- ------------------------------
Gross profit 9.2 8.8 9.9 8.9
Administrative and general 10.4 10.0 10.3 10.5
-------------------------------- ------------------------------
Operating loss (1.2) (1.2) (0.4) (1.6)
Other income (expense), net (0.1) (0.6) -- (0.2)
-------------------------------- ------------------------------
Loss before tax benefit on loss (1.3) (1.8) (0.4) (1.8)
Tax benefit on loss 0.5 0.7 0.2 0.7
-------------------------------- ------------------------------
Net loss (0.8)% (1.1)% (0.2)% (1.1)%
================================ ==============================
</TABLE>
10
<PAGE> 13
NET SALES
For the second quarter of fiscal 1999, net sales decreased by
$1,367,969 or 9 percent from the corresponding three-month period last year,
primarily due to the 6.5 percent decline in same store sales. The balance of the
decline came from stores that were closed or sold this year but open last year.
Average sales per store for all stores were approximately $128,863 and $133,785
in the second quarter of fiscal years 1999 and 1998, respectively.
Net sales for the six month period ended December 26, 1998 totaled
$29,690,699 as compared to net sales of $31,974,688 for the corresponding six
month period ended December 27, 1997, for a decrease in net sales of $2,283,389,
or 7.1 percent. Same store sales for the first six months of fiscal 1999
declined 5.2 percent, and five stores closed or were sold during the six month
period this year. Average sales per store for all stores were approximately
$262,653 and $270,742 for the six month periods ending December 26, 1998 and
December 27, 1997, respectively.
During the second quarter of fiscal 1999, the Company did not open or
close any stores; one store was closed during the sixth month period ended
December 26, 1998. At December 26, 1998, there were 111 Wall Street Deli stores
in operation, as compared to 116 stores on December 27, 1997.
Management continues to seek effective ways of combating the adverse
effect on same store sales. In addition to competitive pressures in the quick
service food industry generally and in certain of its markets, the Company's
second quarter is also negatively affected by the number of holidays around the
Thanksgiving and Christmas periods. This impact has increased in recent years as
more workers take extra time off around the holidays, which is directly
reflected in the Company's sales because of the location of most of its stores
in or near office buildings. One recent initiative undertaken in an effort to
address this trend was a new gift certificate program introduced in the second
quarter. The initial response to this program was modestly favorable; gift
certificates aggregating approximately $16,000 were sold during the quarter, and
management expects to work on improved ways of marketing gift certificates in
the future.
New product and promotional offerings also continue to be refined and
tested. The Company tries to introduce at least one new promotional product each
quarter. This is a way to add ongoing menu variety for customers, as well as
affording the Company the opportunity to test new products. Promotions that have
the most successful reception are added to the permanent menu. During the second
quarter this year the promotional offering was the "Soho Spud" program, which is
a one pound baked potato offered with a variety of toppings. While the Company
cannot precisely measure the sales attributable to its various menu items,
management's assessment is that the initial results of this promotional program
were moderately favorable.
The Company also introduced during the quarter a new combo program and
phased out the two-size sandwich option. During fiscal 1997, the Company began
offering its sandwiches
11
<PAGE> 14
in either regular or large size. Employee training proved to be difficult for
the two size sandwich program and management also believes that customers did
not perceive the larger size as better value. Now all stores have a single size
sandwich that is slightly smaller than the previous large version and, when
packaged with chips and a drink into a combo offering, is produced at a lower
food and paper cost than the Company's overall average.
During the three month period ended December 26, 1998, the Company also
continued to market its franchise program. There were no additional franchised
stores opened in the second quarter. The Company continues to look at
franchising as its growth vehicle, and presently expects four units to be opened
in the third quarter. There were eleven franchised units open as of December 26,
1998. Revenues from franchise fees and royalties were $47,774 for the three
month period, and $94,044 for the sixth month period ended December 26, 1998.
The Company's franchise director resigned in September 1998; management expects
to fill this position as soon as possible.
COST OF SALES
Cost of sales as a percentage of net sales decreased to 90.8 percent
during the three month period ended December 26, 1998 from 91.2 percent in the
corresponding three month period in the previous year. For the six month period
ended December 26, 1998, cost of sales decreased to 90.1 percent from 91.1
percent for the prior year's corresponding six month period.
The major components of the cost of sales for the three month and six
month periods ended December 26, 1998 and December 27, 1997, are shown in the
following tables:
<TABLE>
<CAPTION>
For the Three Month Period Ended
DECEMBER 26, 1998 DECEMBER 27, 1997
--------------------------- --------------------------
Amount % of Sales Amount % of Sales
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Food/Paper 5,165,568 35.8% $ 5,723,952 36.2%
Labor 3,300,602 22.9% 3,668,009 23.2%
Store Expenses 4,643,146 32.2% 5,015,392 31.7%
--------------------------- --------------------------
$13,109,316 90.8% $14,407,353 91.2%
=========================== ==========================
</TABLE>
<TABLE>
<CAPTION>
For the Six Month Period Ended
DECEMBER 26, 1998 DECEMBER 27, 1997
--------------------------- --------------------------
Amount % of Sales Amount % of Sales
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Food/Paper 10,725,272 36.1% $11,510,903 36.0%
Labor 6,706,788 22.6% 7,418,528 23.2%
Store Expenses 9,319,777 31.4% 10,197,689 31.9%
--------------------------- --------------------------
$26,751,837 90.1% $29,127,120 91.1%
=========================== ==========================
</TABLE>
12
<PAGE> 15
Food costs as a percentage of sales decreased 0.4 percent in the second
quarter of fiscal 1999 as compared to the same quarter of fiscal 1998. The
decrease was primarily due to the introduction of the sandwich combo program
with a single size sandwich and an overall lower food cost than the two size
sandwich option it replaced, and an overall price increase in the salad bar and
other menu items.
Food costs as a percentage of sales increased 0.1 percent for the six
months ending December 26, 1998 as a percentage of sales as compared to the same
six months of fiscal 1998. The 0.4 percent decrease in food cost from the second
quarter of fiscal 1999 was offset by an increase in food cost of 0.7 percent
from the first quarter of fiscal 1999, leading to a overall increase of 0.1
percent for the six month period.
Labor costs as a percentage of net sales decreased 0.3 percent compared
to the second quarter of fiscal 1998, and decreased 0.6 percent for the six
month period this year compared to fiscal 1998. The decrease was primarily due
to the implementation of new products that require less production time, and to
other management efforts at cost containment. Labor costs continue to be
adversely affected by decreases in same store sales, as lower sales are spread
over a relatively fixed level of labor cost. There were no significant wage
increases during the first two quarters of fiscal 1999 as compared to fiscal
1998.
Store expenses as a percentage of net sales increased 0.5 percent for
the second quarter as compared to the same quarter last year. Occupancy costs
increased 1.1 percent primarily due to lower sales over the same fixed rent
costs. That increase was offset by 0.3 percent lower depreciation, primarily as
a result of the FAS 121 write down in the fourth quarter of fiscal 1998. Other
decreases in the second quarter were a 0.2 percent decrease in payroll taxes and
fringe benefits as a result of lower labor costs, a 0.1 percent decrease in
taxes and licenses and a 0.1 decrease in computer lease payments.
During the six month period ended December 26, 1998, store expenses as
a percentage of sales decreased 0.5 percent from the six month period the
previous year. The decrease came from 0.3 percent reduction in depreciation
mainly from FAS 121 write downs in 1998 and 0.3 reduction in payroll taxes and
fringe benefits as a result of lower labor costs.
ADMINISTRATIVE AND GENERAL EXPENSES
Administrative and general expenses for the three month period ended
December 26, 1998 decreased $78,095, or 4.9 percent, as compared to the three
month period ended December 27, 1997. In the second quarter of last year,
management changes undertaken in certain cities with operating difficulties,
principally Denver and Dallas, accounted for approximately $40,000 in additional
costs that were not incurred in this year's second quarter. The decline this
year also includes the effect of the sale in fiscal 1998 of two of the Company's
three metropolitan New York stores and elimination of approximately $50,000 in
related division overhead.
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<PAGE> 16
Administrative and general expenses for the six month period ended
December 26, 1998 decreased by $294,404, or 8.8 percent to $3,057,011 from
$3,351,415, as compared to the six months period ended December 27, 1997. A
significant portion of the fiscal 1999 decrease is from the effect of the fiscal
1998 costs incurred at the division level, including approximately $125,000 in
severance and other termination costs booked in connection with the Dallas and
Denver management changes, approximately $41,000 from the closing of the
division office in New York, approximately $77,000 associated with the
elimination of a catering sales position and other changes in Los Angeles.
TAXES ON INCOME
The effective tax rate for the second quarter and for the first six
months ended December 26, 1998 was 40 percent and 40 percent, which corresponds
with the effective tax rates for each of the second quarter and first six months
ended December 27, 1997 of 40 percent and 40 percent, respectively.
INTEREST EXPENSE, NET
In the three month period ended December 26, 1998, the Company had net
interest expense of $15,136 compared to net interest expense of $78,949 for the
three month period ended December 27, 1997. Interest expense is primarily
related to the Company's $7,500,000 unsecured line of credit which bears
interest at the lower of the 30-day LIBOR rate plus 175 basis points (6.868) or
the bank's quoted cost of funds plus 175 basis points (8.1875). The Company had
$1,308,037 at December 25, 1998 outstanding against this line compared to
$3,211,508 at December 26, 1997. The interest expense for the three month period
December 26, 1998 of $23,439 was offset by $8,303 of interest earned by the
Company on notes receivable from prior sales of fixtures and equipment in
various stores.
In the six month period ended December 26, 1998, net interest expense
declined $46,895 to $52,992, or 46.9 percent, from $99,887. The lower net
interest expense was primarily the result of lower average monthly borrowings
during the current year of $1,211,000 versus $2,690,000 for the same period last
year. Net interest for the six months includes interest earned of $14,744 and
$11,005 in fiscal 1999 and 1998, respectively, from notes held by the Company.
IMPACT OF INFLATION
Many of the Company's employees are paid hourly rates related to the
federal minimum wage. The two minimum wage increases, effective October 1, 1996
and September 1, 1997, the latter of which took effect during the last half of
the Company's fiscal 1998 year, have not had a direct effect on the Company's
labor cost except to the extent that it has required ongoing efforts to improve
labor efficiency. The Company continues to look for ways of doing business
with fewer employees, as continued wage increases together with a generally
tight labor market put
14
<PAGE> 17
increasing pressures on costs. These and other inflationary effects also are
reflected over time in increased prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to obtain the cash required for the conduct of
its business depends upon cash from operations and, to a lesser extent, bank
borrowings. Historically, cash flow from operations and periodic bank borrowings
generally have been sufficient to finance the expansion of the Company's
business. As the Company's franchise operations begin to move out of the
development stage, revenues from franchise operations as well as
franchisee-provided capital expenditures may contribute to expansion and growth
financing. The Company does not maintain significant receivables or inventory
and it receives trade credit in purchasing food and supplies. Stores not meeting
the Company's performance criteria may be closed or sold. The terms of some such
sales require the Company to take back notes, which are contained in the
Company's notes receivable balance, for all or a portion of the sale price.
At December 26, 1998 the ratio of the Company's current assets to
current liabilities was .57 to 1.00, as compared to a current ratio of .48 to
1.00 at June 27, 1998. This reflects the Company's continued use of available
cash in the second quarter of 1999 for the acquisition of treasury stock as well
as for continued investment in store facilities. The Company has no long-term
debt.
The Company's principal capital requirement is for new equipment and
leasehold improvements for new and existing stores. Capital expenditures for
these purposes were $119,111 and $1,823,259 for the six month periods ended
December 26, 1998 and December 27, 1997, respectively. It is presently
anticipated that the Company's capital expenditures for fiscal 1999 will be
approximately $1,500,000. During the second quarter of 1999, the Company's Board
of Directors approved the repurchase of up to 250,000 shares of the Company's
common stock. During the six month period ended December 26, 1998, a total of
150,000 shares were purchased at an acquisition cost of $482,624.
The Company has historically met its capital needs from short-term bank
borrowings and internally generated funds. Cash generated from operations
totaled $705,985 for the six month period ended December 26, 1998. As of the end
of the fiscal quarter, the Company had in place a line of credit, which provides
for borrowings up to $7,500,000 from AmSouth Bank pursuant to the terms of a
Credit Agreement dated June 19, 1996 (the "Credit Agreement"). The Credit
Agreement contains certain covenants that require, among other things, the
Company to maintain a certain tangible net worth and to limit the annual capital
expenditures of the Company. The Company is presently in compliance with these
covenants. As of the end of the second quarter of fiscal 1998, the Company's
debt service coverage ratio was 1.21, which was less than the 1.30 then required
by the Credit Agreement. The lender waived compliance with the debt service
coverage ratio covenant for the 1998 second fiscal quarter and reduced the debt
service coverage ratio requirement from 1.30 to 1.15 for the fiscal quarters
ended March 28, 1998 and June 27,
15
<PAGE> 18
1998. At June 27, 1998, and December 26, 1998, the Company's debt service
coverage ratio was 1.29 and 1.38, respectively.
After the end of the fiscal quarter ended December 26, 1998, the
Company entered into an Amended and Restated Credit Agreement, effective as of
February 1, 1999 (the "Amended Credit Agreement"). The Amended Credit Agreement
reduces the amount of the maximum borrowings to $4,000,000, and changed the
interest rate from a LIBOR-based floating rate to prime. The financial covenants
were also modified to decrease the tangible net worth requirement and capital
expenditure limitations. The 1.3 debt service coverage ratio requirement
continues as under the prior Credit Agreement.
The Company expects its future capital needs will be met primarily by
internally generated funds and supplemented, as needed, by additional bank
borrowings.
SUBSEQUENT EVENT--SALE OF LOS ANGELES DIVISION
Effective December 31, 1998, shortly after the end of the fiscal
quarter, the Company sold five stores in the Los Angeles area, and entered into
a management agreement for its remaining Los Angeles store, to California Fresh
Deli, Inc. ("CFD"). CFD has signed a franchise agreement with the Company for
the five purchased stores, and will manage the sixth store for the remainder of
the current lease term.
The sale price of the five stores was $800,000, paid by CFD in the form
of an installment note without interest. The note is payable in eighteen monthly
installments of $12,000 each beginning June 1, 1999 and ending November 1, 2000,
and thereafter in monthly installments equal to the greater of $13,333 or eight
percent of the Net Revenues (defined as gross sales less sales tax) from the
five stores for the preceding month. The book value of the assets sold was
approximately $725,000. CFD will manage and operate, as an independent
contractor, the Company's remaining Los Angeles store until December 31, 1999 or
such earlier date as the Company closes the store in connection with the
termination or assumption by a third party of the current lease. CFD will
receive no payment for managing the store.
CFD has entered into a franchise agreement for the five stores
purchased from the Company. After the $800,000 note has been paid in full, CFD
will begin paying the Company a franchise fee equal to five percent of CFD's
weekly Net Revenues for the preceding week, plus a weekly Production Fund
Contribution equal to one percent of weekly Net Revenues for the preceding week.
YEAR 2000 ISSUES
The Company is in the process of conducting a comprehensive review of
its computer systems to identify the systems that could be affected by the Year
2000 issue. The problem is complex as virtually every computer operation will be
affected is some way by the rollover of the
16
<PAGE> 19
two digit year value 00. Systems that do not properly recognize date sensitive
information could generate erroneous data or cause a system to fail. The Company
is utilizing internal and external resources in an attempt to identify and
correct, or reprogram, all systems for the 2000 compliance. It is presently
anticipated that all reprogramming projects will be completed by June 1999,
allowing adequate time for testing. The Company's sales reporting and inventory
system was developed internally, and will need modifications which are underway
and currently scheduled for completion in March 1999. Management considers these
modifications to involve a moderate effort and expects to use internal resources
for completion. All computer hardware and other electronic equipment are
currently undergoing compliance testing. The Company has budgeted $40,000 for
installation and training of the upgraded systems. Due to the fact that most of
the Company's computer and telecommunications equipment are relatively new, the
cost to bring it into compliance are not expected to result in material
expenditures. The Company believes its Year 2000 plans are sufficient, but will
continue to develop contingency plans as needed in the future.
--------------------------
17
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Registrant's regular Annual Meeting of Shareholders was
held on November 5, 1998. Proxies for the Annual Meeting were
solicited pursuant to Regulation 14 under the Act.
(b) There was no solicitation in opposition to management's
nominees for directors as listed in the proxy statement, and
all of such nominees were elected.
(c) At the Annual Meeting the matters considered and voted upon
(other than procedural matters and ratification of auditors)
and the number of votes cast are as follows:
Election of directors:
<TABLE>
<CAPTION>
VOTES VOTES
NAME FOR WITHHELD*
<S> <C> <C>
Alan V. Kaufman 2,567,655 92,611
Robert G. Barrow 2,567,655 92,611
Jeffrey V. Kaufman 2,567,255 93,011
William S. Atherton 2,567,655 92,611
Aaron Beam, Jr. 2,567,655 92,611
William M. Byrne 2,567,655 92,611
Jake L. Netterville 2,567,655 92,611
</TABLE>
* Includes votes withheld and broker non-votes
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) Exhibits
Exhibit 4.5 Amended and Restated Credit Agreement dated
February 2, 1999, between Wall Street Deli, Inc.
and AmSouth Bank..........................................page 20
Exhibit 27 Financial Data Schedule, submitted to the Securities and Exchange
Commission in electronic format
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter
ended December 26, 1998.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: WALL STREET DELI, INC.
February 8, 1999 /s/ Jeffrey V. Kaufman
-------------------------------------
JEFFREY V. KAUFMAN
President and Chief Executive Officer
February 8, 1999 /s/ Robert G. Barrow
-------------------------------------
ROBERT G. BARROW
Chief Financial Officer and
Principal Accounting Officer
19
<PAGE> 1
EXHIBIT 4.5
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED FEBRUARY 1, 1999
BETWEEN
WALL STREET DELI, INC.
AND
AMSOUTH BANK
20
<PAGE> 2
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT ("this Agreement") dated
February 2, 1999, but effective February 1, 1999, is between WALL STREET DELI,
INC., a Delaware corporation (the "Borrower"), and AMSOUTH BANK, an Alabama
banking corporation (the "Lender").
RECITALS
A. The Borrower and the Lender have heretofore entered into a
Credit Agreement dated as of June 19, 1996 (the "Original Credit Agreement")
pursuant to which the Lender agreed to make available to the Borrower a credit
facility in the maximum principal amount of $7,500,000.
B. The Borrower and the Lender wish to amend and restate the
Original Credit Agreement in its entirety, as hereinafter set forth, for the
purposes, among others, of decreasing the maximum principal amount of the
Revolving Facility from $7,500,000 to $4,000,000.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, and of the
mutual agreement of the parties hereto, the Original Credit Agreement is hereby
amended and restated in its entirety as follows:
ARTICLE 1
RULES OF CONSTRUCTION AND DEFINITIONS
SECTION 1.1 GENERAL RULES OF CONSTRUCTION. For the purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) Words of masculine, feminine or neuter gender include the
correlative words of other genders. Singular terms include the plural as well as
the singular, and vice versa.
(b) All references herein to designated "Articles," "Sections" and
other subdivisions or to lettered Exhibits are to the designated Articles,
Sections and subdivisions hereof and the Exhibits annexed hereto unless
expressly otherwise designated in context. All Article, Section, other
subdivision and Exhibit captions herein are used for reference only and do not
limit or describe the scope or intent of, or in any way affect, this Agreement.
(c) The terms "include," "including," and similar terms shall be
construed as if followed by the phrase "without being limited to."
(d) The terms "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section, other subdivision or Exhibit.
(e) All Recitals set forth in, and all Exhibits to, this Agreement
are hereby incorporated in this Agreement by reference.
(f) No inference in favor of or against any party shall be drawn
from the fact that such party or such party's counsel has drafted any portion
hereof.
(g) All references in this Agreement to a separate instrument are
to such separate instrument as the same may be amended or supplemented from time
to time pursuant to the applicable provisions thereof.
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<PAGE> 3
(h) If the Borrower now or hereafter has any Subsidiaries, all
computations required in connection with the covenants contained in Article 5
shall be made for the Borrower and its Subsidiaries on a combined or
consolidated basis, after elimination of intercompany items, and all financial
statements, reports and certificates required hereunder shall be prepared on the
same basis.
(i) All accounting terms not otherwise defined herein have the
meanings assigned to them, and all computations herein provided for shall be
made, in accordance with generally accepted accounting principles applied on a
consistent basis. All references herein to "generally accepted accounting
principles" refer to such principles as they exist at the date of application
thereof; provided, however, that if any change in generally accepted accounting
principles after the Closing Date could, in the reasonable judgment of the
Lender, affect adversely the interests of the Lender or the Borrower in the
interpretation or calculation of the financial covenants or other provisions of
this Agreement or the other Credit Documents, such change shall not be effective
for purposes of this Agreement (other than as set forth in Section 5.15(n)(3)
and (6)) or the other Credit Documents unless and until the provisions of this
Agreement and the other Credit Documents that could be adversely affected by
such change have been amended by the mutual agreement of the Borrower and the
Lender so as to assure that the interests of the Lender and the Borrower will
not be adversely affected by such change.
SECTION 1.2 DEFINITIONS. As used in this Agreement, the following terms
are defined as follows:
(a) ACTUAL/360 DAY BASIS means a method of computing interest and
other charges on the basis of an assumed year of 360 days for the actual number
of days elapsed, meaning that the interest accrued for each day will be computed
by multiplying the interest rate applicable on that day by the unpaid principal
balance on that day and dividing the result by 360.
(b) ADVANCE is defined in Section 2.1.
(c) AFFILIATE of any specified person means any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
(d) AGREEMENT means, on any date, this Credit Agreement, as
originally in effect on the Closing Date and as thereafter from time to time
amended, supplemented, restated or otherwise modified and in effect on such
date.
(e) APPLICATION is defined in Section 2.8.
(f) AUTHORIZED REPRESENTATIVE means the officer or officers of the
Borrower that are duly authorized to act for the Borrower in the specified
capacity under the Governing Documents of the Borrower or applicable law.
(g) BUSINESS DAY means any day on which commercial banks located
in Birmingham, Alabama are generally open for business.
(h) CLOSING DATE means February 1, 1999.
(i) CREDIT means, individually and collectively, all loans,
forbearances, renewals, extensions, advances, disbursements and other extensions
of credit now or hereafter made by the Lender to or for the account of the
Borrower under this Agreement and the other Credit Documents, including the
Loans.
(j) CREDIT DOCUMENTS means this Agreement and the documents
described in Exhibit A and all other documents now or hereafter executed or
delivered in connection with the transactions contemplated thereby.
22
<PAGE> 4
(k) DEBT of any person means(1) all indebtedness, whether or not
represented by bonds, debentures, notes or other securities, for the repayment
of borrowed money, (2) all deferred indebtedness for the payment of the purchase
price of property or assets purchased, (3) all capitalized lease obligations,
(4) all indebtedness secured by any Lien on any property of such person, whether
or not indebtedness secured thereby has been assumed, (5) all obligations with
respect to any conditional sale contract or title retention agreement, (6) all
indebtedness and obligations arising under acceptance facilities or in
connection with surety or similar bonds, and the outstanding amount of all
letters of credit issued for the account of such person, and (7) all obligations
with respect to interest rate swap agreements.
(l) DEFAULT RATE means a rate of interest equal to two percentage
points (200 basis points) in excess of the Prime Rate, or the maximum rate
permitted by law, whichever is less.
(m) DOLLAR and the symbol $ means dollars constituting legal
tender for the payment of public and private debts in the United States of
America.
(n) ERISA means the Employee Retirement Income Security Act of
1974, as amended.
(o) EVENTS OF DEFAULT is defined in Section 6.1. An Event of
Default "exists" if an Event of Default has occurred and is continuing.
(p) GOVERNING DOCUMENTS means the Certificate of Incorporation and
Bylaws of the Borrower and all amendments and supplements thereto.
(q) GOVERNMENTAL AUTHORITY means any national, state, county,
municipal or other government, domestic or foreign, and any agency, authority,
department, commission, bureau, board, court or other instrumentality thereof.
(r) GOVERNMENTAL REQUIREMENTS means all laws, rules, regulations,
ordinances, judgments, decrees, codes, orders, injunctions, notices and demand
letters of any Governmental Authority.
(s) HAZARDOUS SUBSTANCES means all pollutants, effluents,
contaminants, emissions, toxic or hazardous wastes and other substances, the
removal of which is required or the manufacture, use, maintenance, handling,
discharge or release of which is regulated, restricted, prohibited or penalized
by any Governmental Requirement, or even if not so regulated, restricted,
prohibited or penalized, might pose a hazard to the health and safety of the
public or the occupants of the property on which it is located or the occupants
of the property adjacent thereto, including (1) asbestos or asbestos-containing
materials, (2) urea formaldehyde foam insulation, (3) polychlorinated biphenyls
(PCBs), (4) flammable explosives, (5) radon gas, (6) laboratory wastes, (7)
experimental products, including genetically engineered microbes and other
recombinant DNA products, (8) petroleum, crude oil, natural gas, natural gas
liquid, liquefied natural gas, other petroleum products and synthetic gas usable
as fuel, (9) radioactive materials and (10) any substance or mixture listed,
defined or otherwise determined by any Governmental Authority to be hazardous,
toxic or dangerous, or otherwise regulated, affected, controlled or giving rise
to liability under any Governmental Requirement.
(t) LETTER OF CREDIT BORROWINGS means as of any date the maximum
aggregate amount that the Lender could be required to pay under drafts that
could properly be drawn in compliance with the terms of all Letters of Credit
outstanding on such date, other than drafts that have been drawn and paid.
(u) LETTER OF CREDIT OBLIGATIONS means (a) the Letter of Credit
Borrowings and (b) the Reimbursement Obligations and the Borrower's other
obligations under this Agreement and the Applications with respect to drawings
23
<PAGE> 5
made on Letters of Credit, including obligations with respect to all principal,
interest, fees and other charges related thereto.
(v) LETTERS OF CREDIT means the existing letters of credit
described on Exhibit C and all letters of credit hereafter issued by the Lender
for the account of the Borrower.
(w) LIEN means any mortgage, pledge, assignment, charge,
encumbrance, lien, security title, security interest or other preferential
arrangement.
(x) LOANS means the Revolving Loan, Letter of Credit Borrowings
and Reimbursement Obligations, and all extensions and renewals thereof.
(y) MARGIN STOCK is defined in Regulation U of the Federal Reserve
Board, as amended.
(z) MAXIMUM AVAILABLE AMOUNT means $4,000,000.
(aa) NOTE is defined in Section 2.2.
(ab) OBLIGATIONS means (1) the Revolving Loan, the Letter of Credit
Obligations and all other obligations and debts owing to the Lender and arising
under the terms of this Agreement, the Note, the Applications and the other
Credit Documents, whether now or hereafter incurred, existing or arising,
including the Revolving Loan, all Letter of Credit Borrowings and Reimbursement
Obligations with respect thereto; (2) any sums expended by the Lender in
exercising the rights and remedies described in Section 6.2; (3) all accrued
interest on the Revolving Loan and Reimbursement Obligations, and all costs,
fees, charges and expenses incurred and payable in connection therewith,
including fees payable under the terms of, or in connection with, this
Agreement; (4) all other obligations and debts owing to the Lender arising in
connection with, ancillary to, or in support of the Revolving Loan and Letter of
Credit Borrowings; (5) the payment and performance of all other indebtedness,
obligations and liabilities of the Borrower to the Lender (including obligations
of performance) of every kind whatsoever, arising directly between the Borrower
and the Lender or acquired outright, as a participation or as collateral
security from another person by the Lender, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter incurred, contracted
or arising, joint or several, liquidated or unliquidated, regardless of how they
arise or by what agreement or instrument they may be evidenced or whether they
are evidenced by agreement or instrument, and whether incurred as maker,
endorser, surety, guarantor, general partner, drawer, tort-feasor, account party
with respect to a letter of credit, indemnitor or otherwise; and (6) all
renewals, extensions, modifications and amendments of any of the foregoing,
whether or not any renewal, extension, modification or amendment agreement is
executed in connection therewith.
(ac) PERMITTED CONTEST means any appropriate proceeding conducted
in good faith by the Borrower to contest any tax, assessment, charge, Lien or
similar claim, during the pendency of which proceeding the enforcement of such
tax, assessment, charge, Lien or claim is stayed; provided that the Borrower has
set aside on its books or, if required by the Lender, deposited as cash
collateral with the Lender, adequate cash reserves to assure the payment of any
such tax, assessment, charge, Lien or claim.
(ad) PERSON (whether or not capitalized) includes natural persons,
sole proprietorships, corporations, trusts, unincorporated organizations,
associations, companies, institutions, entities, joint ventures, partnerships,
limited liability companies and Governmental Authorities.
(ae) PRIME RATE means that rate of interest designated by the
Lender from time to time as its "prime rate," it being expressly understood and
agreed that the "prime rate" is merely an index rate used by the Lender to
establish lending rates and is not necessarily the Lender's most favorable
lending rate, and that changes in the "prime rate" are discretionary with the
Lender.
24
<PAGE> 6
(af) REIMBURSEMENT OBLIGATION means at any time the obligation of
the Borrower with respect to any Letter of Credit to reimburse the Lender for
amounts theretofore paid by the Lender pursuant to a drawing under such Letter
of Credit.
(ag) REVOLVING LOAN is defined in Section 2.1.
(ah) SOLVENT means, with respect to any person on a particular
date, that as of such date (1) the fair value of the property of such person
(both at fair valuation and at present fair saleable value on an orderly basis)
is greater than the total amount of liabilities (including contingent
liabilities) of such person, (2) such person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such person's property would constitute an unreasonably small capital, and (3)
such person does not intend to, or believe or reasonably should have believed
that it will, incur debts beyond its ability to repay as they become due.
(ai) SUBSIDIARY means(1) any corporation more than 50% of whose
shares of stock having general voting power under ordinary circumstances to
elect a majority of the board of directors, managers or trustees of such
corporation (irrespective of whether or not at the time stock of any other class
or classes has or might have voting power by reason of the happening of any
contingency), are owned or controlled directly or indirectly by the Borrower, or
(2) any partnership or limited liability company, 50% or more of the partnership
or membership interests in which are owned or controlled, directly or
indirectly, by the Borrower, and includes entities currently or hereafter
falling within the categories described above.
(aj) TERMINATION DATE means the maturity date of the Obligations (which
is initially October 31, 1999), as such date may be extended from time to time
pursuant to Section 2.5 or accelerated pursuant to Section 6.2.
ARTICLE 2
CREDIT TO BE EXTENDED
UNDER THIS AGREEMENT
SECTION 2.1 REVOLVING LOAN.
(a) From the Closing Date to (but not including) the Termination
Date, the Lender agrees, upon the terms and subject to the conditions of this
Agreement, to make a revolving loan (the "Revolving Loan") available to the
Borrower, pursuant to which the Borrower may from time to time borrow from the
Lender and repay and reborrow, such sums as may be needed by the Borrower for
the purposes expressed in this Agreement, up to an amount at any one time
outstanding not exceeding the Maximum Available Amount in effect from time to
time, less the sum of (i) then outstanding Letter of Credit Borrowings, (ii)
then outstanding Reimbursement Obligations and (iii) then outstanding overdrafts
that the Borrower may have with respect to any and all operating accounts
established by the Borrower with the Lender.
(b) Each advance to the Borrower under the Revolving Loan (an
"Advance") shall be made not more frequently than once each Business Day and
shall be made either on telephone request by the Borrower to the Lender not
later than noon (Birmingham, Alabama time) on the day on which the Advance is to
be made or in accordance with the provisions of the automated Control
Account-Credit Line Service Agreement executed by the Borrower in favor of the
Lender (the "Disbursement Agreement"). Not later than 2:00 p.m. Birmingham,
Alabama time on the date specified for the Advances, the Lender shall make
available the amount of the Advances to be made by it on such date to the
Borrower by depositing the proceeds thereof into an account with the Lender or
with an Affiliate of the Lender in the name of the Borrower. The Advances shall
bear interest as provided in Section 2.3. The Lender's obligation to make
Advances shall terminate, if not sooner terminated pursuant to the provisions of
this Agreement, on the Termination Date. The Lender shall have no obligation to
make Advances if an Event of Default exists. The Lender may, at its option,
without any request by the Borrower, make Advances to itself for the purpose of
paying overdrafts that the Borrower may have from time to time with respect to
any operating accounts established by the Borrower with the Lender.
25
<PAGE> 7
SECTION 2.2 NOTE. All Advances shall be evidenced by a certain amended
and restated master note (the "Note"), payable to the order of the Lender, duly
executed on behalf of the Borrower, dated the Closing Date, in the principal
amount of $4,000,000 and satisfactory in form and substance to the Lender. The
Note shall be valid and enforceable as to the aggregate amount of the Revolving
Loan outstanding from time to time, whether or not the full amount of the
Revolving Loan is actually advanced by the Lender to the Borrower. The principal
amount of the Advances, together with accrued interest thereon, shall be due and
payable on the Termination Date.
SECTION 2.3 INTEREST.
(a) The Note shall bear interest on the unpaid principal balance
of the amount advanced thereunder from the date advanced until payment in full
at the rate per annum equal to the Prime Rate. Such interest shall be payable
monthly on the first day of each month in each year, commencing March 1, 1999,
and upon payment in full. Interest will be computed on an Actual/360 Day Basis.
Any change in the interest rate on the Note because of a change in the Prime
Rate shall take effect on the effective date of such change in the Prime Rate as
announced by the Lender without notice to the Borrower and without any further
action by the Lender.
(b) Notwithstanding anything to the contrary set forth above or in
the Note, for the purpose of enabling the Lender to send periodic billing
statements in advance of each interest payment date reflecting the amount of
interest payable on such interest payment date, at the option of the Lender, the
Prime Rate in effect 15 days prior to each interest payment date shall be deemed
to be the Prime Rate as continuing in effect until the date prior to such
interest payment date for purposes of computing the amount of interest payable
on such interest payment date. If the Lender elects to use the Prime Rate 15
days prior to the interest payment date for billing purposes, and if the Prime
Rate changes during such 15-day period, the difference between the amount of
interest that in fact accrues during such period and the amount of interest
actually paid will be added to or subtracted from, as the case may be, the
interest otherwise payable in preparing the periodic billing statement for the
next succeeding interest payment date. In determining the amount of interest
payable at the final maturity or upon full prepayment of the Note, all changes
in the Prime Rate occurring on or prior to the day before the final maturity
date or the date of such full prepayment shall be taken into account.
(c) If an Event of Default exists, the Note shall bear interest at
the Default Rate, until the earlier of (1) such time as all amounts due
hereunder are paid in full or (2) no such Event of Default exists.
(d) The Borrower agrees to pay to the Lender, on demand, a late
charge computed as follows to cover the extra expense involved in handling late
payments: The late charge will be equal to five percent (5.0%) of any payment
that is not paid within twelve (12) days after it is due. The late charge shall
never be less than $10.00 nor more than $250 on each payment. This provision
shall not be deemed to excuse a late payment or be deemed a waiver of any other
right the Lender may have, including the right to declare the entire unpaid
principal and interest immediately due and payable and the right to collect
interest on any late payment at the Default Rate.
SECTION 2.4 PREPAYMENTS.
(a) The Borrower may at any time prepay all or any part of the
Advances, without premium or penalty. Any partial prepayment shall be in the
amount of $100,000 or more unless prepayments are made pursuant to the terms of
the Disbursement Agreement. The Borrower shall pay, on the date of prepayment,
all interest accrued to the date of prepayment on any amount prepaid in
connection with the prepayment in full of the Obligations and the concurrent
termination of this Agreement. The Borrower shall pay all interest accrued to
the date of prepayment on the amount prepaid.
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(b) If at any time the principal amount of the Advances, together
with the sum of the then outstanding Letter of Credit Borrowings and
Reimbursement Obligations, is greater than the Maximum Available Amount, the
Borrower shall immediately make a prepayment on the Advances equal to the
difference between (i) said aggregate principal amount of the Advances plus the
sum of the then outstanding Letter of Credit Borrowings and Reimbursement
Obligations and (ii) the Maximum Available Amount.
SECTION 2.5 EXTENSION OF TERMINATION DATE. The Borrower and the Lender
may from time to time extend the then-current Termination Date to any subsequent
termination date upon which the Borrower and the Lender may agree by executing a
written extension agreement. Upon the execution of such an extension agreement
by the Borrower and the Lender, the maturity date of the Revolving Loan shall be
extended to the agreed-upon termination date, and the agreed-upon termination
date shall become the new "Termination Date" for purposes of this Agreement.
SECTION 2.6 PLACE AND TIME OF PAYMENTS.
(a) All payments by the Borrower to the Lender under this
Agreement and the other Credit Documents shall be made in lawful currency of the
United States and in immediately available funds to the Lender at its Main
Office in Birmingham, Alabama at the hand delivery address set forth in Section
7.1 or at such other address within the continental United States as shall be
specified by the Lender by notice to the Borrower. Any payment received by the
Lender after 2:00 p.m. (Birmingham, Alabama time) on a Business Day (or at any
time on a day that is not a Business Day) shall be deemed made by the Borrower
and received by the Lender on the following Business Day.
(b) All amounts payable by the Borrower to the Lender under this
Agreement or any of the other Credit Documents for which a payment date is
expressly set forth herein or therein shall be payable on the specified due date
without notice or demand by the Lender. All amounts payable by the Borrower to
the Lender under this Agreement or the other Credit Documents for which no
payment date is expressly set forth herein or therein shall be payable ten days
after written demand by the Lender to the Borrower. The Lender may, at its
option, send written notice or demand to the Borrower of amounts payable on a
specified due date pursuant to this Agreement or the other Credit Documents, but
the failure to send such notice shall not affect or excuse the Borrower's
obligation to make payment of the amounts due on the specified due date.
(c) Payments that are due on a day that is not a Business Day
shall be payable on the next succeeding Business Day, and any interest payable
thereon shall be payable for such extended time at the specified rate.
(d) Except as otherwise required by law, payments received by the
Lender shall be applied first to expenses, fees and charges, then to interest
and finally to principal.
SECTION 2.7 REDUCTION OR CANCELLATION OF REVOLVING LOAN. The Borrower
shall have the right at any time to reduce the unused portion of the Maximum
Available Amount, provided that: (a) the Borrower shall give the Lender at least
fifteen days' prior notice in writing of each such reduction, (b) the amount of
such reduction shall not be less than $500,000, and (c) no such reduction may be
reinstated. The Borrower shall also have the right at any time to terminate this
Agreement by prepayment in full of the Obligations with at least ten days' prior
written notice of such termination.
SECTION 2.8 LETTER OF CREDIT BORROWINGS.
(a) From and after the Closing Date to (but not including) the
Termination Date, the Lender may, at its sole discretion, upon the terms and
subject to the conditions of this Agreement, issue Letters of Credit from time
to time for the account of the Borrower in such amounts as may be requested by
the Borrower and as shall be approved by the Lender, up to a maximum aggregate
amount of Letter of Credit Borrowings at any one time outstanding that, when
added to (i) the then outstanding Reimbursement Obligations plus (ii) the then
outstanding Advances, would not exceed the Maximum Available Amount then in
effect; provided, however, that no Letter of
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Credit shall be issued if the issuance thereof would cause the aggregate
outstanding amount of Letter of Credit Borrowings and Reimbursement Obligations
to exceed $1,000,000.
(b) Each request by the Borrower for the issuance of a Letter of
Credit (an "Application") shall, if required by the Lender, be submitted to the
Lender, at least three Business Days prior to the date the Letter of Credit is
to be issued, shall be on the Lender's then standard application form for
letters of credit, shall obligate the Borrower to reimburse the Lender on demand
for any amounts drawn under a Letter of Credit and such other sums as may be
provided for therein, and shall be executed by a duly authorized officer of the
Borrower. In the event of any conflict between the provisions of any Application
and the provisions of this Agreement, the provisions of this Agreement shall
govern.
(c) Each Letter of Credit shall (i) be a letter of credit issued
in the ordinary course of the business of the Borrower; (ii) expire by its terms
on a date not later than eleven months after the Termination Date; (iii) be in
an amount that complies with paragraph (a) of this Section 2.8; and (iv) contain
such further provisions and conditions as may be requested by the Borrower,
provided that such further provisions and conditions are standard and reasonable
for ordinary irrevocable letters of credit and are reasonably satisfactory to
the Lender.
(d) For each Letter of Credit the Lender issues and all renewals
thereof, the Lender shall receive from the Borrower, a letter of credit fee
equal to the greater of (i) $500 or (ii) the rate of one and three-quarters
percent (1.75%) per annum of the stated amount of the Letter of Credit being
issued or renewed. Such fee shall be payable in advance on the date of issuance
or renewal, as the case may be, and shall not be refundable under any
circumstances.
(e) The Borrower acknowledges that the Lender as issuer of the
Letters of Credit will be required by applicable rules and regulations of the
Federal Reserve Board to maintain reserves for its liability to honor draws made
pursuant to a Letter of Credit. The Borrower agrees to reimburse the Lender
promptly for all additional costs that it may hereafter incur solely by reason
of its acting as issuer of the Letters of Credit and its being required to
reserve for such liability, it being understood by the Borrower that other
interest and fees payable under this Agreement do not include compensation of
the Lender for such reserves. The Lender shall furnish to the Borrower, at the
time of its demand for payment of such additional costs, the computation of such
additional cost, which shall be conclusive absent manifest error, provided that
such computations are made on a reasonable basis.
(f) The Borrower shall pay to the Lender administrative and other
fees, if any, in connection with the Letters of Credit in such amounts and at
such times as the Lender and the Borrower shall agree from time to time.
(g) If a draft drawn under a Letter of Credit is presented to the
Lender and the Lender honors such draft, the Borrower shall, immediately upon
demand of the Lender therefor, reimburse the Lender for the amount of such
draft, with interest thereon from the date such draft is honored by the Lender
to and including the date of reimbursement by the Borrower to the Lender
therefor, at the Prime Rate. If the Borrower fails so to reimburse the Lender,
immediately upon demand therefor, for any amount due to the Lender on account of
a draft drawn under the Letter of Credit and honored by the Lender, together
with accrued interest thereon, by the close of business on the next Business Day
after such amount becomes due, the Lender may, at its sole discretion, without
exceeding the Maximum Available Amount, and without further notice to or demand
upon the Borrower, make an Advance to itself for the purpose of paying such
amount due to the Lender and interest thereon. Any such Advance shall be treated
as any other Advance hereunder for all purposes, except for the requirement for
a request from the Borrower for such Advance. Interest on any such Advance will
be at the Prime Rate.
(h) This Agreement shall not terminate so long as any Letter of
Credit is in effect; provided, however, no Letters of Credit shall be issued
under this Agreement after the Termination Date.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
SECTION 3.1 ORGANIZATION, POWERS, ETC.
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization.
(b) It has the corporate power and authority to own its properties
and to carry on its business as now being conducted and is duly qualified or
registered to do business in every jurisdiction where the character of its
properties or the nature of its activities makes such qualification or
registration necessary.
(c) It has the corporate power to execute, deliver and perform the
Credit Documents to which it is a party.
(d) Except as set forth on Exhibit E, it has not done business
under any other name, trade name or otherwise, within the five years immediately
preceding the Closing Date.
SECTION 3.2 AUTHORIZATION OF BORROWING, ETC. The execution, delivery
and performance of the Credit Documents to which it is a party (a) have been
duly authorized by all requisite corporate action (including any necessary
shareholder action), and (b) will not violate any Governmental Requirement, its
Governing Documents or any indenture, agreement or other instrument in any
material respect to which it is a party, or by which it or any of its properties
are bound, or be in conflict with, result in a breach of or constitute a default
under, any such indenture, agreement or other instrument, or result in the
creation or imposition of any Lien, upon any of its properties except as
contemplated by the Credit Documents.
SECTION 3.3 LITIGATION. There are no actions, suits or proceedings
(whether or not purportedly on its behalf) pending or, to the best of its
knowledge, threatened against or affecting it, by or before any Governmental
Authority, that involve any of the transactions provided for in the Credit
Documents or the possibility of any judgment or liability that might reasonably
be expected to result in any material adverse change in its business,
operations, properties or condition, financial or otherwise; and it is not, to
the best of its knowledge, in default with respect to any Governmental
Requirement.
SECTION 3.4 AGREEMENTS. It is not a party to any agreement or
instrument, or subject to any restriction in its Governing Documents that
materially and adversely affects its business, operations, properties or
condition, financial or otherwise, and it is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
might reasonably be expected to have a material adverse effect upon its
business, operations, properties or condition, financial or otherwise.
SECTION 3.5 FEDERAL RESERVE BOARD REGULATIONS. It does not intend to
use any part of the proceeds of the Credit, and has not incurred any
indebtedness to be reduced, retired or purchased by it out of such proceeds, for
the purpose of purchasing or carrying any Margin Stock, and it does not own and
has no intention of acquiring any such Margin Stock.
SECTION 3.6 INVESTMENT COMPANY ACT. It is not an "investment company,"
or a company "controlled" by an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended.
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SECTION 3.7 ERISA.
(a) The execution and delivery of this Agreement and the issuance
and delivery of the Note as contemplated hereby will not involve any prohibited
transaction within the meaning of ERISA or Section 4975 of the Internal Revenue
Code, as amended.
(b) Based on ERISA and the regulations and published
interpretations thereunder, it is in compliance in all material respects with
the applicable provisions of ERISA.
(c) No "Reportable Event," as defined in Section 4043(b) of Title
IV of ERISA, has occurred with respect to any plan maintained by it.
SECTION 3.8 ENFORCEABILITY. All Credit Documents to which it is a party
constitute its legal, valid and binding obligations, enforceable in accordance
with their terms.
SECTION 3.9 CONSENTS, REGISTRATIONS, APPROVALS, ETC. No registration
with or consent or approval of, or other action by, any Governmental Authority
is required for the execution, delivery and performance of any Credit Documents
to which it is a party.
SECTION 3.10 FINANCIAL CONDITION.
(a) Its financial statements that have been furnished to the
Lender were prepared in conformity with generally accepted accounting principles
consistently applied throughout the periods involved, are in accordance with its
books and records, are correct and complete and present fairly its financial
condition as of the date or dates indicated and for the periods involved in
accordance with generally accepted accounting principles applied on a consistent
basis.
(b) Since the date of the financial statements no material adverse
change in its financial condition, business or operations has occurred.
(c) It has no liability, direct or, to its best knowledge,
contingent, that is material in amount and that is not reflected in the
financial statements.
(d) It has good and marketable title to all its properties and
assets reflected on the financial statements except for properties and assets
disposed of since the date thereof as no longer used or useful in the conduct of
its business or disposed of in the ordinary course of its business.
(e) All such properties and assets are free and clear of all
Liens, except as otherwise permitted or required by the provisions of this
Agreement and the other Credit Documents.
SECTION 3.11 NO MISLEADING INFORMATION. To the best knowledge of the
Borrower, neither this Agreement nor any of the other Credit Documents, nor any
certificate, written statement or other document furnished to the Lender by or
on behalf of the Borrower in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading; and there is no fact known to the Borrower that the
Borrower has not disclosed to the Lender that materially adversely affects or,
so far as the Borrower can now reasonably foresee, will materially adversely
affect the properties, or financial or other condition of the Borrower or the
ability of the Borrower to perform its obligations hereunder and under the other
Credit Documents.
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SECTION 3.12 TAXES.
(a) It has filed or caused to be filed all tax returns that, to
the knowledge of its officers, are required to be filed with any Governmental
Authority, and it has paid or has caused to be paid all taxes as shown as due on
said returns or on any assessment received by it.
(b) It has reserves that are believed by its officers to be
adequate for the payment of additional taxes for years that have not been
audited by the respective tax authorities.
SECTION 3.13 PATENTS, TRADEMARKS. It owns, or possesses the right to
use, all the patents, trademarks, service marks, trade names, copyrights,
franchises, consents, authorizations and licenses and rights with respect to the
foregoing, necessary for the conduct of its business as now conducted and
proposed to be conducted, without any known conflict with the rights of others.
SECTION 3.14 HAZARDOUS SUBSTANCES. To the best of its knowledge:
(a) it has never caused or permitted any Hazardous Substance to be
placed, held, located, released or disposed of in violation of any Governmental
Requirement on, under or at any real property legally or beneficially owned,
leased or operated by it, and such property has never been used by it or, by any
other person as a dump site or permanent or temporary storage site for any
Hazardous Substance, in violation of any Governmental Requirement.
(b) it has no liabilities with respect to Hazardous Substances
that materially adversely affects the business of the Borrower taken as a whole,
and no facts or circumstances exist that could give rise to liabilities with
respect to Hazardous Substances.
SECTION 3.15 SOLVENCY. The Borrower is and will remain Solvent, taking
into account the transactions contemplated by the Credit Documents.
SECTION 3.16 SUBSIDIARIES. The Subsidiaries of the Borrower are listed
on Exhibit F. Each of the representations and warranties set forth in this
Article 3 (except those set forth in Section 3.5 and 3.16) with respect to the
Borrower is also true with respect to each Subsidiary.
ARTICLE 4
CONDITIONS OF LENDING
The obligation of the Lender to lend hereunder and to issue Letters of
Credit is subject to the following conditions precedent:
SECTION 4.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing
Date and any later date on which Credit is to be extended hereunder, and on the
date the Borrower requests Advances, the representations and warranties set
forth in Article 3 must be true and correct in all material respects with the
same effect as though they had been made on and as of such date, except to the
extent that they expressly relate to an earlier date.
SECTION 4.2 NO DEFAULT. On and as of the Closing Date hereof and any
later date on which Credit is to be extended hereunder, no Event of Default, nor
any event that upon notice or lapse of time or both would constitute an Event of
Default, may exist. The presentation by the Borrower of each Request for
Advances and Interest Rate Election form shall constitute a representation and
warranty by the Borrower to the Lender that no Event of Default exists.
SECTION 4.3 AUTOMATIC REPRESENTATIONS AND WARRANTIES. The making of any
request for an Advance (or permitting any Advance to be made under the
Disbursement Agreement without a prior written disclosure to the
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Lender to the contrary) shall constitute an automatic representation and
warranty by the Borrower that the representations and warranties contained in
Article 3 are true and correct on and as of the date of such Advance and that no
Event of Default, nor any event that upon notice or lapse of time or both would
constitute an Event of Default, exists.
SECTION 4.4 REQUIRED ITEMS. On and as of the Closing Date and on and as
of the date of each Advance, the Lender must have received all financial
statements (if any), reports and other items required as of that date under
Article 2 and Article 5 of this Agreement.
SECTION 4.5 AUTHORIZED REPRESENTATIVE CERTIFICATES. On and as of the
Closing Date, the Borrower must have delivered to the Lender the following
certificates executed by the appropriate Authorized Representatives of the
Borrower, each of which certificates must be of a current date and must be
satisfactory in form and substance to the Lender: (a) a certificate confirming
compliance by the Borrower with the conditions precedent set forth in Sections
4.1 and 4.2; (b) a certificate certifying as in full force and effect
resolutions of its directors authorizing the transactions contemplated by the
Credit Documents and authorizing certain Authorized Representatives of the
Borrower to execute the Credit Documents on behalf of the Borrower and to act on
behalf of the Borrower with respect to the Credit Documents, including the
authority to request disbursements of the proceeds of the Credit and to direct
the disposition of such proceeds; and (c) a certificate certifying as true and
correct, as amended, attached copies of the Governing Documents of the Borrower
and the incumbency and signature of each Authorized Representative of the
Borrower specified in said resolutions. The Lender may conclusively rely on the
certified resolutions described in Section 4.5(b) as to all actions on behalf of
the Borrower by the Authorized Representatives specified therein until the
Lender receives further duly adopted resolutions cancelling or amending the
prior resolutions.
SECTION 4.6 OTHER SUPPORTING DOCUMENTS. The Lender must receive on or
before the Closing Date the following, each of which must be satisfactory to the
Lender in form and content, (a) such legal opinions, certificates, proceedings,
instruments and other documents as the Lender or its counsel may reasonably
request to evidence (1) compliance by the Borrower and all other parties to the
Credit Documents with legal requirements, (2) the truth and accuracy as of the
Closing Date of the respective representations thereof contained in the Credit
Documents, and (3) the due performance or satisfaction by such parties at or
prior to the Closing Date of all agreements then required to be performed and
all conditions then required to be satisfied by them pursuant to the Credit
Documents, and (b) such additional supporting documents as the Lender or its
counsel may reasonably request.
ARTICLE 5
COVENANTS
The Borrower covenants and agrees that the Borrower shall:
SECTION 5.1 EXISTENCE. Do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises and comply with all applicable Governmental Requirements.
SECTION 5.2 CONTINUATION OF CURRENT BUSINESS, OFFICES, NAME, ETC. Not
(a) engage in any business other than the business now being conducted by it and
other businesses directly related thereto; (b) remove its principal place of
business or business records from Jefferson County, Alabama, unless the removal
is pursuant to a merger, consolidation or transfer of assets approved by the
Lender; (c) without providing the Lender with prior written notice, change its
name or conduct its business in any name other than its current names; or (d)
enter into (1) any agreement whereby the management, supervision or control of
its business is delegated to or placed in any person other than its governing
body and officers or (2) any contract or agreement whereby any of its principal
functions are delegated to or placed in any agent or independent contractor.
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SECTION 5.3 SALE OF ASSETS, CONSOLIDATION, MERGER. Not (a) sell, lease,
transfer or otherwise dispose of all or a substantial part of its properties or
assets to any person (other than sales in the ordinary course of business); or
(b) consolidate with, merge into or participate in a statutory share exchange
with any other person, or permit another person to merge into it, acquire all or
substantially all the properties or assets of any other person, or acquire all
or substantially all the properties or assets relating to a line of business or
a division of any other person.
SECTION 5.4 ACCOUNTING RECORDS. Keep proper books of record and account
in which full, true and correct entries are made in accordance with generally
accepted accounting principles applied on a consistent basis.
SECTION 5.5 REPORTS TO THE LENDER. Furnish to the Lender:
(a) within 120 days after the end of each fiscal year of the
Borrower, a copy of the Borrower's 10-K as filed with the Securities and
Exchange Commission or if such filing is no longer required, financial
statements (including a balance sheet and the related statements of income, cash
flows and retained earnings) of the Borrower for such fiscal year, together with
statements in comparative form for the preceding fiscal year, all in reasonable
detail (including all computations necessary to show the Borrower's compliance
with Section 5.15), prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, and audited and
certified by independent certified public accountants of recognized standing
selected by the Borrower and satisfactory to the Lender (the form of such
certification also to be satisfactory to the Lender);
(b) within 60 days after the end of each first, second and third
fiscal quarter, a copy of the Borrower's 10-Q as filed with the Securities and
Exchange Commission or if such filing is no longer required, financial
statements similar to those referred to in Section 5.5(a) for such fiscal
quarter and for the period beginning on the first day of the fiscal year and
ending on the last day of such fiscal quarter, unaudited but certified by an
Authorized Representative of the Borrower;
(c) with the financial statements submitted under Section 5.5(a)
and 5.5(b), a certificate signed by the party certifying said statement to the
effect that no Event of Default, nor any event that, upon notice or lapse of
time or both, would constitute an Event of Default, exists or, if any such Event
of Default or event exists, specifying the nature and extent thereof;
(d) not later than 30 days after the end of each fiscal quarter
(commencing on March 27, 1999), a compliance certificate duly executed by an
Authorized Representative of the Borrower substantially in the form of Exhibit D
attached hereto evidencing compliance with the covenants set forth in Section
5.15 (a "Compliance Certificate");
(e) contemporaneously with the distributions thereof to the
Borrower's stockholders or the filing thereof with the Securities and Exchange
Commission, as the case may be, copies of all statements, reports, notices and
filings distributed by the Borrower to its stockholders or filed with the
Securities and Exchange Commission;
(f) promptly upon receipt thereof, copies of all other reports,
management letters and other documents submitted to it by independent
accountants in connection with any annual or interim audit of its books made by
such accountants; and
(g) as soon as practical, from time to time, such other
information regarding its operations, business affairs and financial condition
as the Lender may reasonably request including annual budgets and, within 30
days after the end of each fiscal quarter, projections for the next succeeding
eight fiscal quarters.
SECTION 5.6 MAINTENANCE. Maintain, preserve and protect all franchises
and trade names and preserve all the remainder of its property used or useful in
the conduct of its business and keep the same in good repair,
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working order and condition, and from time to time make, or cause to be made,
all needful and proper repairs, renewals, replacements, betterments and
improvements thereto, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
SECTION 5.7 INSURANCE. Maintain (a) adequate insurance on its
properties to such extent and against such risks, including fire, as is
customary with companies in the same or a similar business, (b) necessary
worker's compensation insurance and (c) such other insurance as may be required
by law or as may reasonably be required in writing by the Lender.
SECTION 5.8 PAYMENT OF INDEBTEDNESS, TAXES, ETC. (a) Pay its
indebtedness and obligations in accordance with normal terms; (b) pay all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income and profits or upon any of its properties before they become in default,
except any such tax, assessment or governmental charge that is subject to a
Permitted Contest; and (c) pay all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might become a Lien upon any of its
properties, except any such claim that is subject to a Permitted Contest.
SECTION 5.9 LITIGATION NOTICE. Promptly notify the Lender of any
action, suit or proceeding at law or in equity or by or before any Governmental
Authority that, if adversely determined, might reasonably be expected to impair
its ability to perform its obligations under any of the Credit Documents to
which it is a party, might reasonably be expected to impair its right to carry
on its business substantially as now conducted, or might reasonably be expected
to materially and adversely affect its business, operations, properties or
condition, financial or otherwise.
SECTION 5.10 VISITATION. Permit representatives of the Lender from time
to time to visit and inspect any of its offices and properties and to examine
its assets and books of account and to discuss its affairs, finances and
accounts with and be advised as to the same by its officers, all at such
reasonable times and intervals as the Lender may desire.
SECTION 5.11 NOTICE OF DEFAULT. Promptly notify the Lender of the
existence of any Event of Default, or any event that upon notice or lapse of
time or both would constitute an Event of Default.
SECTION 5.12 FURTHER ASSURANCES. At its cost and expense, upon request
of the Lender, duly execute and deliver, or cause to be duly executed and
delivered, to the Lender such further instruments and do and cause to be done
such further acts as may be reasonably necessary or proper in the opinion of the
Lender or its counsel to carry out more effectively the provisions and purposes
of the Credit Documents.
SECTION 5.13 TRANSACTIONS WITH RELATED PERSONS. Except as previously
disclosed in the Borrower's financial statements provided to the Lender, not
enter into any transaction with any Obligor (as hereinafter defined) or any
officer, director, partner, member or Affiliate unless the terms of that
transaction are no less favorable to it than those that would be obtained on an
arms-length basis.
SECTION 5.14 USE OF REVOLVING LOAN PROCEEDS. Not, directly or
indirectly use any part of the proceeds of the Obligations (a) for any purpose
other than providing working capital for the Borrower and financing capital
expenditures or (b) without limiting the generality of the foregoing, for the
purpose of purchasing or carrying any Margin Stock, or of reducing, retiring or
purchasing any indebtedness incurred for such purpose; or take any other action
that would involve a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued thereunder, including Regulation U or
Regulation X of the Federal Reserve Board, in connection with the transactions
contemplated hereby; provided, however, that nothing set forth in this Section
5.14 or elsewhere in this Agreement shall be construed as imposing any duty on
the Lender to supervise the use or application of the Revolving Loan proceeds or
any liability on the Lender to any person if the Revolving Loan proceeds are not
used for the purposes set forth in this Agreement.
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SECTION 5.15 FINANCIAL COVENANTS.
(a) TANGIBLE NET WORTH. Not permit its Tangible Net Worth to be at
any time less than the sum of (i) $12,000,000 plus (ii) 75% of cumulative net
income, if positive, after taxes for the period from December 31, 1998 through
the date of determination, determined on a quarterly basis.
(b) CAPITAL EXPENDITURES. Not make in the aggregate in any
consecutive four fiscal quarters Capital Expenditures that exceed $3,000,000.
(c) DEBT SERVICE COVERAGE RATIO. Not permit its ratio of Net
Income Available for Debt Service for any four consecutive fiscal quarters to
(i) Interest Expense and Operating Lease Payments for such period plus (ii)
Principal Maturities for the next succeeding four fiscal quarters following the
date of determination plus (iii) 20% of the outstanding Obligations as of the
date of determination to be less than 1.3 to 1.0 at any time.
(d) DIVIDENDS. Not declare or pay any dividends or make any
distributions upon any of its stock (including dividends and distributions
payable only in shares of its stock, other than stock splits effected in the
form of stock dividends that do not affect retained earnings other than to the
extent occasioned by legal requirements) or, except for purposes of the
Borrower's employee and director stock plans, directly or indirectly apply any
of its assets to the redemption, retirement, purchase or other acquisition of
its stock.
(e) INDEBTEDNESS. Not incur, create, assume or permit to exist any
Debt in excess of $2,500,000, except the indebtedness evidenced by the Note,
other indebtedness to the Lender and purchase money obligations secured by Liens
permitted under Section 5.15(f)(6).
(f) LIENS. Not incur, create, assume or permit to exist any Lien
on any of its properties, now or hereafter owned, other than:
7. Liens securing the payment of obligations permitted
under Section 5.8(b);
(2) deposits under workmen's compensation, unemployment
insurance and Social Security laws, or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed
money) or leases or to secure statutory obligations or surety or appeal
bonds, or to secure indemnity, performance or other similar bonds in
the ordinary course of business;
(3) Liens imposed by law, such as carriers',
warehousemen's or mechanics' liens, incurred in good faith in the
ordinary course of business and that are not delinquent or that are
subject to Permitted Contests, and any Lien arising out of a judgment
or award not exceeding $50,000 with respect to which an appeal is being
prosecuted, a stay of execution pending such appeal having been
secured;
(4) Liens in favor of the Lender;
(5) Liens for taxes, assessments or other governmental
charges or levies that are not delinquent or that are subject to
Permitted Contests; and
(6) purchase money Liens on equipment (arising
substantially contemporaneously with the purchase of such equipment)
acquired in the ordinary course of business to secure the purchase
price of such equipment or to secure indebtedness incurred solely for
the purpose of financing the acquisition of such equipment, or any Lien
existing on the equipment at the time of its acquisition, provided that
(A) the indebtedness secured by such Lien does not exceed the purchase
price or fair market value, whichever is less, of the equipment so
acquired at the time of its acquisition, (B) the equipment is used or
useful in the ordinary course of business of the Borrower and (C) the
Lien does not cover any property other than the equipment so acquired.
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(g) GUARANTIES. Except for guaranties of lease obligations arising
from those unexpired leases in which the premises have been vacated by the
Borrower, not guarantee, endorse, become surety for or otherwise in any way
become or be responsible for the indebtedness, liabilities or obligations of any
other person, whether by agreement to purchase the indebtedness or obligations
of any other person, or agreement for the furnishing of funds to any other
person (directly or indirectly, through the purchase of goods, supplies or
services or by way of stock purchase, capital contribution, working capital
maintenance agreement, advance or loan) or for the purpose of paying or
discharging the indebtedness or obligations of any other person, or otherwise,
except for the endorsement of negotiable instruments in the ordinary course of
business for collection.
(h) TAKE OR PAY CONTRACTS. Not enter into or be a party to any
contract for the purchase of merchandise, materials, supplies or other property
if such contract provides that payment for such merchandise, materials, supplies
or other property shall be made regardless of whether delivery of such
merchandise, materials, supplies or other property is ever made or tendered.
(i) SALE-LEASEBACK. Not enter into any arrangement, directly or
indirectly, with any person whereby it sells or transfers any property, real,
personal or mixed, and used or useful in its business, whether now owned or
hereafter acquired, and thereafter rents or leases such property or other
property that it intends to use for substantially the same purpose or purposes
as the property sold or transferred.
(j) INVESTMENTS, ETC. Except as disclosed in Exhibit B, not
purchase or hold beneficially any stock, other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other person; provided,
however, that it may invest in (1) direct obligations of, or obligations
unconditionally guaranteed by, the United States of America or any agency
thereof maturing in less than one year from the date of purchase; (2) commercial
paper issued by any person organized and doing business under the laws of the
United States of America or any state thereof rated in the highest category by
Moody's Investors Services, Inc. or by Standard & Poor's Ratings Group and
maturing in less than one year from the date of purchase; and (3) certificates
of deposit maturing within one year of the date of acquisition thereof issued by
any commercial bank, organized and doing business under the laws of the United
States of America or any state thereof whose deposits are insured by the Federal
Deposit Insurance Corporation, if the face amount of said certificate of
deposit, when added to all other deposits of the Borrower at such commercial
bank, does not exceed the then-applicable limitation on the amount of federally
insured deposits; and further provided that it may hold the stock of any
Subsidiary to which the Lender has consented in writing.
(k) SALE OF RECEIVABLES. Not sell, assign or discount, or grant or
permit any Lien on, any of its accounts receivable or any promissory note held
by it, with or without recourse, other than the discount of such notes in the
ordinary course of business for collection.
(l) LEASE OBLIGATIONS. Not incur, create, permit to exist or
assume any commitment to make any direct or indirect payment, as rent, under any
lease, rental or other arrangement for the use of property of any other person,
if immediately thereafter the aggregate of such payments to be made by it would
exceed $10,500,000 in any consecutive four fiscal quarters.
(m) SOLVENCY. Continue to be Solvent.
(n) CERTAIN DEFINED TERMS. For purposes of this Section 5.15 the
following terms are defined as follows:
(1) CAPITAL EXPENDITURES means any expenditure for fixed
assets or that is properly chargeable to capital account in accordance
with generally accepted accounting principles.
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(2) INTEREST EXPENSE means interest payable on Debt
during the period in question.
(3) NET INCOME AVAILABLE FOR DEBT SERVICE for any period
means net income, after taxes, before any extraordinary gains or
charges including those caused as a result of accounting changes (or
the net deficit, if expenses and charges exceed revenues and other
proper income credits) for such period, plus amounts that have been
deducted for (A) amortization, (B) depreciation, (C) income and profit
taxes, (D) Interest Expense and (E) Operating Lease Payments in
determining net income for such period.
(4) OPERATING LEASE PAYMENTS means all rent payable under
any lease or rental agreement (other than obligations under capital
leases) during the period in question.
(5) PRINCIPAL MATURITIES means principal maturing or
coming due on Debt during the period in question.
(6) TANGIBLE NET WORTH means the sum of the amounts set
forth on the balance sheet as shareholders' equity (including the par
or stated value of all outstanding capital stock, retained earnings,
additional paid-in capital, capital surplus and earned surplus), less
the sum of (A) any amount of any write-up of assets not adjusted for
purchase accounting, (B) goodwill, (C) patents, trademarks, copyrights,
leasehold improvements not recovered at the expiration of a lease, and
deferred charges (including unamortized debt, discount and expense,
organization expenses, experimental and developmental expenses, but
excluding prepaid expenses) and (D) any amounts at which shares of
capital stock of such person appear on the asset side of the balance
sheet.
SECTION 5.16 CHANGE IN MANAGEMENT. Promptly notify the Lender of any
change with respect to the members of the Board of Directors of the Borrower or
any change in the senior executive officers of the Borrower.
SECTION 5.17 SUBSIDIARIES. Cause each of its Subsidiaries to comply
with all of the covenants set forth in this Article 5 other than those set forth
in Sections 5.5, 5.14, 5.15, 5.16 and 5.17 (except to the extent that the
excluded sections may be indirectly applicable to the Subsidiaries by virtue of
their application to the Borrower).
ARTICLE 6
EVENTS OF DEFAULT
SECTION 6.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an event of default (an "Event of Default") under this
Agreement (whatever the reason for such event and whether or not it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree, order, rule or regulation of any Governmental Authority):
(a) any representation or warranty made in this Agreement or in
any of the other Credit Documents shall prove to be false or misleading in any
material respect as of the time made; or
(b) any report, certificate, financial statement or other
instrument furnished in connection with the Obligations, this Agreement or any
of the other Credit Documents, shall prove to be false or misleading in any
material respect as of the time furnished; or
(c) default shall be made in the payment when due of any of the
Obligations; or
(d) default shall be made in the due observance or performance of
any covenant, condition or agreement on the part of the Borrower to be observed
or performed pursuant to the terms of Sections 5.2, 5.3 and 5.15 hereof; or
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(e) default shall be made in the due observance or performance of
any covenant, condition or agreement on the part of the Borrower to be observed
or performed pursuant to the terms of this Agreement (other than any covenant,
condition or agreement, default in the observance or performance of which is
elsewhere in this Section 6.1 specifically dealt with) and such default shall
continue unremedied until the first to occur of (1) the date that is thirty days
after written notice by the Lender to the Borrower or (2) the date that is
thirty days after the Borrower first obtains knowledge thereof; or
(f) (1) default shall be made with respect to any Debt (other than
the Obligations) of the Borrower or any Subsidiary (each of the Borrower and any
Subsidiary being referred to as an "Obligor"), if the effect of such default is
to accelerate the maturity of such Debt or to permit the holder thereof to cause
such Debt to become due prior to its stated maturity, or (2) any such Debt shall
not be paid when due (after giving effect to any applicable notice, grace or
cure periods); or
(g) any Obligor shall (1) apply for or consent to the appointment
of a receiver, trustee, liquidator or other custodian of such Obligor or any of
such Obligor's properties or assets, (2) fail or admit in writing such Obligor's
inability to pay such Obligor's debts generally as they become due, (3) make a
general assignment for the benefit of creditors, (4) suffer or permit an order
for relief to be entered against such Obligor in any proceeding under the
federal Bankruptcy Code, or (5) file a voluntary petition in bankruptcy, or a
petition or an answer seeking an arrangement with creditors or to take advantage
of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute, or an answer admitting the material allegations
of a petition filed against such Obligor in any proceeding under any such law or
statute, or if corporate action shall be taken by any Obligor for the purpose of
effecting any of the foregoing; or
(h) a petition shall be filed, without the application, approval
or consent of any Obligor in any court of competent jurisdiction, seeking
bankruptcy, reorganization, rearrangement, dissolution or liquidation of such
Obligor or of all or a substantial part of the properties or assets of such
Obligor, or seeking any other relief under any law or statute of the type
referred to in Section 6.1(g)(5) against such Obligor, or the appointment of a
receiver, trustee, liquidator or other custodian of such Obligor or of all or a
substantial part of the properties or assets of such Obligor, and such petition
shall not have been stayed or dismissed within 30 days after the filing thereof;
or
(i) any Obligor shall become insolvent, suspend its business or be
dissolved or liquidated or any writ of execution, attachment or garnishment
shall be issued against the assets of the Borrower and such writ of execution,
attachment or garnishment shall not be dismissed, discharged or quashed within
30 days of issuance; or
(j) any final judgment for the payment of money shall be rendered
against any Obligor that materially adversely affects the business of such
Obligor taken as a whole and the same shall remain undischarged for a period of
30 days during which execution shall not be effectively stayed unless such
judgment is adequately covered by valid and collectible insurance, which
coverage is approved by the Lender; or
(k) any guarantor of any of the Obligations shall default in the
due observance or performance of any covenant, condition or agreement on such
guarantor's part to be observed or performed under such guarantor's guaranty
agreement (after giving effect to any applicable notice, grace or cure period
specified therein) or shall terminate or attempt to terminate such guarantor's
guaranty agreement; or
(l) any event of default, as therein defined, shall occur under
any of the other Credit Documents (after giving effect to any applicable notice,
grace or cure period specified therein).
SECTION 6.2 LENDER'S REMEDIES ON DEFAULT.
(a) If an Event of Default exists, or any event exists that upon
notice or lapse of time or both would constitute an Event of Default, the Lender
shall have no obligation to extend any further Credit hereunder. If an Event of
Default exists under Section 6.1(g) or 6.1(h), all of the Obligations shall
automatically become immediately due and payable. If any other Event of Default
exists, the Lender may, by written notice to the Borrower, declare any or all of
the Obligations to be immediately due and
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payable, whereupon they shall become immediately due and payable. Any such
acceleration (whether automatic or upon notice) shall be effective without
presentment, demand, protest or other action of any kind, all of which are
hereby expressly waived, anything contained herein or in any of the other Credit
Documents to the contrary notwithstanding. If an Event of Default exists, the
Lender may exercise any of its rights and remedies on default under the Credit
Documents or applicable law.
(b) If an Event of Default exists, the Lender may treat all then
outstanding Letters of Credit as if drafts in the full amount available to be
drawn thereunder had been properly drawn thereunder and paid by the Lender and
the Borrower had failed or refused to reimburse the Lender for the amount so
paid within the time required for the Borrower to do so.
(c) If an Event of Default exists, the Borrower shall, promptly
upon demand of the Lender, deposit in cash with the Lender an amount equal to
the amount of all Letter of Credit Obligations then outstanding, as collateral
security for the repayment thereof, which deposit shall be held by the Lender
under the provisions of Section 7.16.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 NOTICES.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other document provided or permitted by this Agreement or the
other Credit Documents to be made upon, given or furnished to, or filed with,
the Borrower or the Lender must (except as otherwise provided in this Agreement
or the other Credit Documents) be in writing and be delivered by one of the
following means: (1) by personal delivery at the hand delivery address specified
below, (2) by first-class, registered or certified mail, postage prepaid and
addressed as specified below, or (3) if facsimile transmission facilities for
such party are identified below or pursuant to a separate notice from such
party, sent by facsimile transmission to the number specified below or in such
notice.
(b) The hand delivery address, mailing address and (if applicable)
facsimile transmission number for receipt of notice or other documents by such
parties are as follows:
Borrower
By hand and by mail:
One Independence Plaza
Suite 100
Birmingham, Alabama 35209
Attention: President
By facsimile:
(205) 868-0860
Lender
By hand:
Upper Lobby, AmSouth-Sonat Tower
1900 Fifth Avenue North
Birmingham, Alabama 35203
Attention: Metropolitan Commercial Banking Department
By mail:
Post Office Box 11007
Birmingham, Alabama 35288
Attention: Metropolitan Commercial Banking Department
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By facsimile:
(205) 326-5170
With a copy to:
J. Kris Lowry
Maynard, Cooper & Gale, P.C.
1901 Sixth Avenue North
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203-2618
Any of such parties may change the address or facsimile transmission notice for
receiving any such notice or other document by giving notice of the change to
the other parties named in this Section 7.1.
(c) Any such notice or other document shall be deemed delivered
when actually received by the party to whom directed (or, if such party is not a
natural person, to an officer, director, partner, member or other legal
representative of the party) at the address or number specified pursuant to this
Section 7.1, or, if sent by mail, three Business Days after such notice or
document is deposited in the United States mail, addressed as provided above.
(d) Five Business Days' written notice to the Borrower as provided
above shall constitute reasonable notification to the Borrower when notification
is required by law; provided, however, that nothing contained in the foregoing
shall be construed as requiring five Business Days' notice if, under applicable
law and the circumstances then existing, a shorter period of time would
constitute reasonable notice.
SECTION 7.2 EXPENSES. The Borrower shall promptly on demand pay all
costs and expenses, including the fees and disbursements of counsel to the
Lender, incurred by the Lender in connection with (a) the extension of the
Revolving Loan and the administration or collection of the Obligations, (b) the
negotiation, preparation and review of the Credit Documents, including documents
relating to participations granted by the Lender, whether executed before, on or
after the Closing Date (whether or not the transactions contemplated by this
Agreement shall be consummated), (c) the enforcement of any of the Credit
Documents, (d) the exercise by or on behalf of the Lender of any of its rights,
powers or remedies under the Credit Documents, (e) the compliance by the Lender
with any Governmental Requirements with respect to any of the Credit Documents
or any of the Obligations, and (f) the prosecution or defense of any action or
proceeding by or against the Lender, the Borrower, any Obligor, or any one or
more of them, concerning any matter related to this Agreement or any of the
other Credit Documents, any documents relating to participations granted by the
Lender or any of the Obligations. All such amounts shall bear interest from the
date demand is made at the Default Rate and shall be included in the
Obligations. The Borrower's obligations under this Section 7.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.
SECTION 7.3 INDEPENDENT OBLIGATIONS. The Borrower agrees that each of
the obligations of the Borrower to the Lender under this Agreement may be
enforced against the Borrower without the necessity of joining any other Obligor
or any other person, as a party.
SECTION 7.4 SUCCESSORS AND ASSIGNS. Whenever in this Agreement any
party hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party, except that the Borrower may not assign or
transfer this Agreement without the prior written consent of the Lender; and all
covenants and agreements of the Borrower contained in this Agreement shall bind
the Borrower's successors and assigns and shall inure to the benefit of the
successors and assigns of the Lender.
SECTION 7.5 GOVERNING LAW. This Agreement and the other Credit
Documents shall be construed in accordance with and governed by Title 9 of the
U.S. Code and the internal laws of the State of Alabama (without regard to
conflict of law principles) except as required by mandatory provisions of law.
SECTION 7.6 DATE OF AGREEMENT. The date of this Agreement is intended
as a date for the convenient identification of this Agreement and is not
intended to indicate that this Agreement was executed and delivered on that
date.
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SECTION 7.7 SEPARABILITY CLAUSE. If any provision of the Credit
Documents shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 7.8 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed an original, but all
such counterparts shall together constitute but one and the same agreement.
SECTION 7.9 NO ORAL AGREEMENTS. This Agreement is the final expression
of the agreement between the parties hereto, and this Agreement may not be
contradicted by evidence of any prior oral agreement between such parties. All
previous oral agreements between the parties hereto have been incorporated into
this Agreement and the other Credit Documents, and there is no unwritten oral
agreement between the parties hereto in existence.
SECTION 7.10 WAIVER AND ELECTION. The exercise by the Lender of any
option given under this Agreement shall not constitute a waiver of the right to
exercise any other option. No failure or delay on the part of the Lender in
exercising any right, power or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any further exercise thereof or the exercise of any
other right, power or remedy. No modification, termination or waiver of any
provisions of the Credit Documents, nor consent to any departure by the Borrower
therefrom, shall be effective unless in writing and signed by an authorized
representative of the Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances.
SECTION 7.11 NO OBLIGATIONS OF LENDER; INDEMNIFICATION. The Lender does
not by virtue of this Agreement or any of the transactions contemplated by the
Credit Documents assume any duties, liabilities or obligations with respect to
any property now or hereafter granted to it as collateral for any of the
Obligations unless expressly assumed by the Lender under a separate agreement in
writing, and the Credit Documents shall not be deemed to confer on the Lender
any duties or obligations that would make the Lender directly or derivatively
liable for any person's negligent, reckless or wilful conduct. The Borrower
agrees to indemnify and hold the Lender harmless against and with respect to any
damage, claim, action, loss, cost, expense, liability, penalty or interest
(including attorney's fees) and all costs and expenses of all actions, suits,
proceedings, demands, assessments, claims and judgments directly or indirectly
resulting from, occurring in connection with, or arising out of: (a) any
inaccurate representation made by the Borrower or any Obligor in this Agreement
or any other Credit Document; and (b) any breach of any of the warranties or
obligations of the Borrower or any Obligor under this Agreement or any other
Credit Document. The provisions of this Section 7.11 shall survive the payment
of the Obligations in full and the termination of this Agreement and the other
Credit Documents.
SECTION 7.12 SET-OFF. While any Event of Default exists, the Lender is
authorized at any time and from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by the Lender to or
for the credit or the account of the Borrower against any and all of the
Obligations, irrespective of whether or not the Lender shall have made any
demand under this Agreement and although such Obligations may be unmatured. The
rights of the Lender under this Section 7.12 are in addition to all other rights
and remedies (including other rights of set-off or pursuant to any banker's
lien) that the Lender may have.
SECTION 7.13 PARTICIPATION. The Lender may from time to time enter into
a participation agreement or agreements with one or more participants pursuant
to which each such participant shall be given a participation in the Obligations
and that any such participant may from time to time similarly grant to one or
more subparticipants subparticipations in the Obligations, and all
communications with the Lender and the Borrower shall be solely with the Lender
and not with any participant. The Borrower agrees that any participant or
subparticipant may exercise any and all rights of banker's lien or set-off with
respect to the Borrower, as fully as if such participant or subparticipant had
made a loan directly to the Borrower in the amount of the participation or
subparticipation given to such participant or subparticipant in the Obligations.
For the purposes of this Section 7.13 only, the Borrower
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shall be deemed to be directly obligated to each participant or subparticipant
in the amount of its participating interest in the amount of the Obligations.
Nothing contained in this Section 7.13 shall affect the Lender's right of
set-off (under Section 7.12 or applicable law) with respect to the entire amount
of the Obligations, notwithstanding any such participation or subparticipation.
The Lender may divulge to any participant or subparticipant all information,
reports, financial statements, certificates and documents obtained by it from
the Borrower or any other person under any provision of this Agreement or
otherwise.
SECTION 7.14 SUBMISSION TO JURISDICTION. The Borrower irrevocably (a)
acknowledges that this Agreement will be accepted by the Lender and performed by
the Borrower in the State of Alabama;(b) submits to the jurisdiction of each
state or federal court sitting in Jefferson County, Alabama (collectively, the
"Courts") over any suit, action or proceeding arising out of or relating to this
Agreement or any of the other Credit Documents (individually, an "Agreement
Action");(c) waives, to the fullest extent permitted by law, any objection or
defense that the Borrower may now or hereafter have based on improper venue,
lack of personal jurisdiction, inconvenience of forum or any similar matter in
any Agreement Action brought in any of the Courts; (d) agrees that final
judgment in any Agreement Action brought in any of the Courts shall be
conclusive and binding upon the Borrower and may be enforced in any other court
to the jurisdiction of which the Borrower is subject, by a suit upon such
judgment; (e) consents to the service of process on the Borrower in any
Agreement Action by the mailing of a copy thereof by registered or certified
mail, postage prepaid, to the Borrower at the Borrower's address designated in
or pursuant to Section 7.1; (f) agrees that service in accordance with Section
7.14(e) shall in every respect be effective and binding on the Borrower to the
same extent as though served on the Borrower in person by a person duly
authorized to serve such process; and (g) AGREES THAT THE PROVISIONS OF THIS
SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY ANY COURT, SHALL
CONSTITUTE "FAIR WARNING" TO THE BORROWER THAT THE EXECUTION OF THIS AGREEMENT
MAY SUBJECT THE BORROWER TO THE JURISDICTION OF EACH STATE OR FEDERAL COURT
SITTING IN JEFFERSON COUNTY, ALABAMA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND
THAT IT IS FORESEEABLE BY THE BORROWER THAT THE BORROWER MAY BE SUBJECTED TO THE
JURISDICTION OF SUCH COURTS AND MAY BE SUED IN THE STATE OF ALABAMA IN ANY
AGREEMENT ACTIONS. Nothing in this Section 7.14 shall limit or restrict the
Lender's right to serve process or bring Agreement Actions in manners and in
courts otherwise than as herein provided.
SECTION 7.15 USURY LAWS. Any provision of this Agreement or any of the
other Credit Documents to the contrary notwithstanding, the Borrower and the
Lender agree that they do not intend for the interest or other consideration
provided for in this Agreement and the other Credit Documents to be greater than
the maximum amount permitted by applicable law. Regardless of any provision in
this Agreement or any of the other Credit Documents, the Lender shall not be
entitled to receive, collect or apply, as interest on the Obligations, any
amount in excess of the maximum rate of interest permitted to be charged under
applicable law until such time, if any, as that interest, together with all
other interest then payable, falls within the then applicable maximum lawful
rate of interest. If the Lender shall receive, collect or apply any amount in
excess of the then maximum rate of interest, the amount that would be excessive
interest shall be applied first to the reduction of the principal amount of the
Obligations then outstanding in the inverse order of maturity, and second, if
such principal amount is paid in full, any excess shall forthwith be returned to
the Borrower. In determining whether the interest paid or payable under any
specific contingency exceeds the highest lawful rate, the Borrower and the
Lender shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof,(c)
consider all the Obligations as one general obligation of the Borrower, and (d)
"spread" the total amount of the interest throughout the entire term of the Note
so that the interest rate is uniform throughout the entire term of the Note.
SECTION 7.16 TERMINATION. This Agreement shall continue until the
Obligations shall have been paid in full and the Lender shall have no obligation
to make any further Advances, issue any Letters of Credit or extend any other
credit hereunder. If on any date on which the Borrower wishes to pay the
Obligations in full and terminate this Agreement, there are any outstanding
Letter of Credit Borrowings, the Borrower shall, unless otherwise agreed by the
Lender in its sole discretion, make a cash prepayment to the Lender on such date
in an amount equal to the then-outstanding Letter of Credit Borrowings, and the
Lender shall hold such prepayment in an interest-bearing cash collateral account
in the name and under the sole control of the Lender (which account shall bear
interest at the
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<PAGE> 24
Lender's then-current rate for such accounts) as security for the Reimbursement
Obligations and other Letter of Credit Obligations. Such account shall not
constitute an asset of the Borrower but shall be subject to the Borrower's
rights under this Section 7.16. The Lender shall from time to time debit such
account for the payment of the Letter of Credit Obligations as the same become
due and payable and shall promptly refund any excess funds (including interest)
held in said account to the Borrower if and when no Letter of Credit Borrowings
remain outstanding hereunder and all of the Obligations have been paid in full.
The Borrower shall remain liable for any Obligations in excess of the amounts
paid from such account. This Agreement, and the obligations of the Borrower
hereunder, shall continue to be effective, or be automatically reinstated, as
the case may be, if at any time payment in whole or in part of any payment made
with respect to the Obligations is rescinded or must otherwise be restored or
returned to the person making such payment upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of such person, or upon or as a
result of the appointment of a custodian, receiver, trustee or other officer
with similar powers with respect to such person or with respect to any part of
the property thereof, or otherwise, all as though such payment had not been
made.
SECTION 7.17 AGREEMENT AMENDS AND RESTATES ORIGINAL CREDIT AGREEMENT.
The Original Credit Agreement is amended and restated in its entirety by this
Agreement. All amounts owing on the Closing Date, including principal and
interest, fees and other charges, shall be treated for all purposes as if the
same had been incurred under this Agreement and shall be payable in accordance
with and otherwise governed by the terms of this Agreement. The Note dated as of
June 19, 1996, held by the Lender to evidence the indebtedness owing by the
Borrower to the Lender under the Original Credit Agreement shall be marked
"Replaced by Amended and Restated Master Note dated as of February 1, 1999" and
retained by the Lender in its files until this Agreement is terminated.
SECTION 7.18 ARBITRATION; PRESERVATION AND LIMITATION OF REMEDIES.
(a) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, and dispute, claim or controversy
arising out of, connected with or relating to this Agreement or any other Credit
Documents ("Disputes") between or among the Borrower and the Lender shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include tort claims, counterclaims, claims
brought as class actions, claims arising from documents executed in the future,
or claims arising out of or connected with the transactions provided for in this
Agreement and the other Credit Documents. Arbitration shall be conducted under
and governed by the Commercial Financial Disputes arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA"), as in
effect from time to time, and Title 9 of the U.S. Code, as amended. All
arbitration hearings shall be conducted in Birmingham, Alabama. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000. All applicable statutes of
limitation shall apply to any Dispute. A judgment upon the award may be entered
in any court having jurisdiction. The panel from which all arbitrators are
selected shall be comprised of licensed attorneys. The single arbitrator
selected for expedited procedure shall be a retired judge from the highest court
of general jurisdiction, state or federal, of the state where the hearing will
be conducted.
(b) Notwithstanding the preceding binding arbitration provisions,
the parties hereto agree to preserve, without diminution, certain remedies that
any party hereto may employ or exercise freely, either alone, in conjunction
with or during a Dispute. Any party hereto shall have the right to proceed in
any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) obtaining provisional or ancillary
remedies, including injunctive relief, sequestration, garnishment, attachment,
appointment of a receiver and filing an involuntary bankruptcy proceeding; and
(ii) when applicable, a judgment by confession of judgment. Preservation of
these remedies does not limited the power of an arbitrator to grant similar
remedies that may be requested by a party in a Dispute. The parties hereto agree
that no party shall have a remedy of punitive or exemplary damages against any
other party in any Dispute, and each party hereby waives any right or claim to
punitive or exemplary damages that it has now or that may arise in the future in
connection with any Dispute, whether such Dispute is resolved by arbitration or
judicially.
43
<PAGE> 25
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be dated February 2, 1999, but effective February 1, 1999, and to
be duly executed and delivered.
WALL STREET DELI, INC.
By /s/ Jeffrey V. Kaufman
----------------------
Its: President - CEO
---------------
AMSOUTH BANK
By /s/ John M. Kettig
------------------
Its Senior Vice President
44
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WALL STREET DELI, INC. FOR THE SIX MONTH PERIOD ENDED
DECEMBER 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> DEC-26-1998
<CASH> 326,870
<SECURITIES> 0
<RECEIVABLES> 1,625,415
<ALLOWANCES> 554,706
<INVENTORY> 597,714
<CURRENT-ASSETS> 3,462,111
<PP&E> 35,928,805
<DEPRECIATION> 24,333,508
<TOTAL-ASSETS> 18,197,188
<CURRENT-LIABILITIES> 6,042,248
<BONDS> 0
0
0
<COMMON> 170,740
<OTHER-SE> 11,984,200
<TOTAL-LIABILITY-AND-EQUITY> 18,197,188
<SALES> 29,690,699
<TOTAL-REVENUES> 29,690,699
<CGS> 29,824,018
<TOTAL-COSTS> 29,824,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 554,706
<INTEREST-EXPENSE> 52,992
<INCOME-PRETAX> (133,319)
<INCOME-TAX> (54,159)
<INCOME-CONTINUING> (79,160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79,160)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
