<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED August 3, 1996
--------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
----------
----------
Commission file number 0-11457
-------
CROWN BOOKS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 52-1227415
--------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
</TABLE>
3300 75th Avenue, Landover, Maryland, 20785
-------------------------------------------
(Address of principal executive offices)
(Zip Code)
(301) 731-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
At September 13, 1996, the registrant had 5,288,973 shares of Common Stock,
$.01 par value per share, outstanding.
Page 1 of 16 pages
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Certain consolidated financial statements included herein have been
prepared by Crown Books Corporation ("Crown Books"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although Crown
Books believes that the disclosures are adequate to make the information
presented not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Crown Books' annual report on Form 10-K for the fiscal year ended
February 3, 1996.
2
<PAGE> 3
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
------------------ -----------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Sales $ 66,533 $ 63,873 $129,025 $124,911
Interest and other income 415 648 845 1,427
-------- -------- -------- ---------
66,948 64,521 129,870 126,338
-------- -------- -------- --------
Expenses:
Cost of sales, store occupancy
and warehousing 54,641 53,884 105,746 103,876
Selling and administrative 13,181 12,209 26,091 22,993
Depreciation and amortization 1,485 1,420 2,843 2,767
Interest expense 334 302 691 585
Closed store reversal - (3,108) - (3,108)
Restructuring reversal - (566) - (566)
-------- -------- -------- --------
69,641 64,141 135,371 126,547
-------- -------- -------- --------
Income (loss) before income taxes (2,693) 380 (5,501) (209)
Income taxes (benefit) (1,157) 130 (2,174) (75)
-------- -------- -------- --------
Net (loss) income $ (1,536) $ 250 $ (3,327) $ (134)
======== ======== ======== ========
Weighted average common shares
and common share equivalents
outstanding 5,402 5,389 5,389 5,389
======== ======== ======== ========
Net income (loss) per share $ (.28) $ .05 $ (.62) $ (.02)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS (Unaudited)
August 3, February 3,
1996 1996
-------- --------
<S> <C> <C>
Current Assets:
Cash $ 5,617 $ 5,691
Short-term instruments 20,852 25,074
Marketable debt securities 3,515 4,215
Accounts receivable 3,901 3,941
Income taxes refundable 3,050 -
Merchandise inventories 111,270 102,192
Prepaid income taxes 158 1,471
Deferred income tax benefit 7,225 7,349
Other current assets 2,474 641
-------- --------
Total Current Assets 158,062 150,574
-------- --------
Property and Equipment, at cost:
Furniture, fixtures and equipment 32,899 29,873
Leasehold improvements 15,959 16,561
Property under capital leases 1,187 1,187
-------- --------
50,045 47,621
Accumulated Depreciation and Amortization 26,166 23,859
-------- --------
23,879 23,762
-------- --------
Deferred Income Tax Benefit 6,932 6,353
-------- --------
Other Assets 163 163
-------- --------
Total Assets $189,036 $180,852
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
August 3, February 3,
1996 1996
-------- --------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 54,804 $ 42,308
Accrued expenses -
Salary and benefits 2,847 3,658
Taxes other than income 2,491 2,299
Robert M. Haft judgment 14,701 14,233
Other 12,050 10,957
Current portion of reserve for closed
stores and restructuring 3,726 3,726
Due to affiliate - 425
-------- --------
Total Current Liabilities 90,619 77,606
-------- --------
Obligations Under Capital Leases 1,660 1,636
-------- --------
Reserve for Closed Stores
and Restructuring 12,605 14,149
-------- --------
Total Liabilities 104 884 93,391
-------- --------
Stockholders' Equity:
Common stock, par value $.01 per share;
20,000,000 shares authorized,
5,612,611 shares issued 56 56
Note receivable, net of discount (120) (115)
Paid-in capital 43,809 43,809
Unrealized gain (loss) on short-term investments 17 (6)
Retained earnings 43,574 46,901
Treasury stock, 223,638 shares of
common stock, at cost (3,184) (3,184)
-------- --------
Total Stockholders' Equity 84,152 87,461
-------- --------
Total Liabilities and Stockholders' Equity $189,036 $180,852
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE> 6
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six
Weeks Ended
-------------------
August 3, July 29,
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (3,327) $ (134)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,843 2,767
Provision for (reversal of) closed stores
and restructuring charges - (3,676)
Change in assets and liabilities:
Accounts receivable 108 2,150
Merchandise inventories (9,078) 15,538
Prepaid income taxes (1,737) (852)
Other current assets (1,833) (576)
Accounts payable, trade 12,496 (14,558)
Accrued expenses 961 (3,922)
Due to affiliate (483) 542
Income taxes payable - (5,046)
Deferred income taxes (447) 2,199
Reserve for closed stores (1,362) (2,042)
-------- --------
Net cash used in operating
activities $ (1,859) $ (7,610)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures $ (3,103) $ (4,794)
Disposition of United States Treasury
Notes - 10,258
Sale of United States Agency Note - 150
Maturities of municipal securities 250 450
Sale of municipal securities 416 204
-------- --------
Net cash provided by (used in)
investing activities $ (2,437) $ 6,268
-------- --------
</TABLE>
6
<PAGE> 7
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six
Weeks Ended
-------------------
August 3, July 29,
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments under capital lease
obligations $ - $ (16)
-------- --------
Net cash used in financing activities $ - $ (16)
-------- --------
Net Decrease in Cash and Equivalents $ (4,296) $ (1,358)
Cash and Equivalents at Beginning of Year 30,765 29,634
-------- --------
Cash and Equivalents at End of Period $ 26,469 $ 28,276
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 209 $ 166
Income taxes - 3,748
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996 AND JULY 29, 1995
(Unaudited)
(1) General:
The accompanying consolidated financial statements reflect the accounts
of Crown Books Corporation ("Crown Books") and its wholly-owned subsidiaries.
Crown Books and its wholly-owned subsidiaries are referred to collectively as
the "Company". All significant intercompany accounts and transactions have
been eliminated. The Company is engaged in the business of operating specialty
retail bookstores. The unaudited statements as of August 3, 1996 and July 29,
1995 reflect, in the opinion of management, all adjustments (normal and
recurring in nature) necessary to present fairly the consolidated financial
position as of August 3, 1996 and July 29, 1995 and the results of operations
and cash flows for the periods indicated.
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 as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could differ
from those estimates.
The results of operations for the quarter ended August 3, 1996 are not
necessarily indicative of the results to be achieved for the full fiscal year.
Certain reclassifications have been made to prior year income statements
to conform to current presentations.
(2) Net Income Per Common Share and Common Share Equivalents:
Net income per common share has been computed using the weighted average
number of shares of common stock and common stock equivalents (certain stock
options) outstanding during the period. The difference between primary net
income per common share and fully diluted net income per common share is not
significant for the periods presented.
(3) Interim Inventory Estimates:
The Company's inventories are priced at lower of cost or market using the
first-in, first-out method or market.
8
<PAGE> 9
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996 AND JULY 29, 1995
(Unaudited)
The Company takes a physical count of its store and warehouse inventories
annually. The Company uses a gross profit method to determine inventories for
the quarters when complete physical counts are not taken. The Company took a
physical inventory at approximately 20 stores during the twenty-six weeks ended
August 3, 1996.
(4) Short-term Instruments and Marketable Debt Securities:
The Company's short-term instruments included United States Treasury
Bills and money market funds. The Company considers short-term instruments,
consisting of United States Treasury Bills, purchased with a maturity of less
than one year to be cash equivalents. The Company's United States Treasury
Bills primarily consist of instruments with a maturity of less than four
months. Marketable debt securities included municipal securities.
Management determines the appropriate classification of its investments
in debt securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as available for
sale. Securities available for sale are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. At August 3, 1996, market value was $17,000 greater than
cost (adjusted for income taxes). At August 3, 1996, the Company had no
investments that qualified as trading or held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. Realized gains
and losses are included in interest and other income. The cost of securities
sold is based on the specific identification method.
(5) Robert M. Haft Payment:
Subsequent to August 3, 1996, the Company paid approximately $16,895,000
(including interest) to Robert M. Haft for satisfaction of a judgment awarded
to him in March 1995 (the "RMH Judgment"). The Company accrued approximately
$13,342,000 of the RMH Judgment in fiscal 1995 and accrued interest monthly at
rates set forth in the RMH Judgment. Approximately $2,146,000 (plus interest)
of the RMH Judgment was paid to Robert M. Haft for 100,000 shares of common
stock of Crown Books owned by Mr. Haft. Crown Books will record these shares
9
<PAGE> 10
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996 AND JULY 29, 1995
(Unaudited)
as treasury shares.
(6) Credit Agreements:
On September 12, 1996, the Company entered into a $50 million revolving
credit facility with a finance company and borrowed approximately $6.0 million
under the credit facility. The Company intends to use proceeds from
draw-downs under the credit facility for working capital and other corporate
purposes. Loans under the credit facility bear interest at a rate equal to the
prime rate (as defined in the credit agreement) or, at the option of the
Company, at LIBOR plus 2.25%. Borrowings under the credit facility are secured
by the inventory, accounts receivable and proceeds from the sale of such assets
of the Company. The credit facility contains certain restrictive covenants,
including a limitation on the incurrence of additional indebtedness. There are
additional covenants related to tangible net worth if the Company's borrowing
exceeds $25 million under the facility. In addition, loans under the credit
facility are subject to limitations based upon inventory levels as defined in
the agreement. The Company may terminate the credit facility upon 60-days prior
written notice to the lender and the lender may terminate it as of September
12, 1999 or any time thereafter upon 60-days prior written notice to the
Company.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Outlook
Except for historical information, the statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including the results of ongoing litigation affecting the Company, the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, and the availability of capital to
fund operations. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
The Company believes that its superstore concept presents significant
growth opportunities and intends to open new Super Crown Books stores in
existing and possibly new markets. In the past, Super Crown Books stores have
generated higher sales at converted locations as well as higher gross margins
as a result of a change in product mix. The Company believes that as Super
Crown Books stores mature, operating expenses as a percentage of sales will
decrease.
The Company intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and close or relocate
under-performing stores. The Company closed 16 Classic Crown Books stores and
one Super Crown Books store during the twenty-six weeks ended August 3, 1996
and anticipates closing approximately 19 additional Classic Crown Books stores
and one Super Crown Books stores during the remainder of fiscal 1997.
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary
source of liquidity. Cash, including short-term instruments, decreased by
$4,296,000 to $26,469,000 at August 3, 1996 from $30,765,000 at February 3,
1996. The decrease was primarily due to funding loss operations and capital
expenditures.
Operating activities used $1,859,000 of the Company's cash resources
for the twenty-six weeks ended August 3, 1996, compared to $7,610,000 for the
same period one year ago. The cash was used primarily to fund loss operations
and payments on closed store lease obligations.
The Company used $2,437,000 for investing activities during the
twenty-six weeks ended August 3, 1996. Capital expenditures of $3,103,000
during the twenty-six weeks ended August 3, 1996 were partially offset by the
proceeds from the disposition of municipal securities.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Historically, the Company generally funded its requirements for
working capital and capital expenditures with net cash generated from
operations and existing cash resources. Subsequent to August 3, 1996, the
Company used approximately $17.0 million of its existing cash to pay the RMH
Judgment (see Part II Item 1 - Legal Proceedings). As a result, the Company
needed other sources of liquidity. On September 12, 1996, the Company entered
into a $50 million revolving credit facility for its working capital and other
corporate needs.
The Company's primary capital requirements relate to new store
openings, remodelings and investments in management information systems. The
Company believes that the costs incurred in opening a new store generally
approximate $1.1 million, including purchases of inventory and the costs of
store fixtures and leasehold improvements. During fiscal 1997, the Company
expects to open approximately 30 Super Crown Books stores and that capital
expenditures will approximate $8.5 million. As of August 3, 1996, the Company
had opened nine Super Crown Books stores and had entered into lease agreements
to open 17 new Super Crown Books stores and lease amendments for additional
space in three existing stores. In addition, the Company expects to have cash
expenditures related to stores that have been closed or will be closed of
approximately $4.0 million in fiscal 1997.
Results of Operations
During the twenty-six weeks ended August 3, 1996, the Company opened
nine Super Crown Books stores and closed 16 classic Crown Books stores and one
Super Crown Books store. At August 3, 1996, the Company had 164 stores,
including 92 Super Crown Books stores.
Sales of $129,025,000 for the twenty-six weeks ended August 3, 1996
increased by $4,114,000 or 3.3% compared to the twenty-six weeks ended July 29,
1995 while sales of $66,533,000 for the thirteen weeks ended August 3, 1996
increased by $2,660,000 or 4.2% compared to the thirteen weeks ended July 29,
1995. Comparable sales (sales for stores open for thirteen months) increased
0.7% and 0.5% during the twenty-six and thirteen weeks, respectively. Sales
for Super Crown Books stores represented 74.7% and 75.9% of total sales for the
twenty-six and thirteen weeks ended August 3, 1996, respectively, compared to
62.7% and 63.4% for the twenty-six and thirteen weeks ended July 29, 1995,
respectively. Super Crown Books stores' sales of $96,373,000 and $50,489,000
for the twenty-six and thirteen
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
weeks ended August 3, 1996 increased 24.1% and 25.8% over the prior year and
sales for comparable Super Crown Books stores increased 1.2% and .9%.
Comparable sales for the new superstore prototype increased 15.0% and 14.0% for
the twenty-six and thirteen weeks ended August 3, 1996. The Company's
superstores consist of the original superstores of 6,000 to 10,000 square feet
and the new superstore prototype targeted to occupy 15,000 square feet.
Interest and other income decreased by $582,000 and $233,000 during
the twenty-six and thirteen weeks ended August 3, 1996 when compared to the
same periods one year ago. The decreases were primarily due to reduced
interest income as a result of decreased funds available for short-term
investment.
Cost of sales, store occupancy and warehousing as a percentage of
sales were 82.0% and 82.1% for the twenty-six and thirteen weeks ended August
3, 1996 compared to 83.2% and 84.4% for the same periods one year ago. The
decreases were due to increased store margins as a result of continuing
improvements in shrink control and merchandising and was partially offset by
increased store occupancy costs.
Selling and administrative expenses as a percentage of sales were
20.2% and 19.8% for the twenty-six and thirteen weeks ended August 3, 1996
compared to 18.4% and 19.1% for the same periods one year ago. The increases
were due primarily to increased store and administrative payroll costs and was
partially offset by a decrease in advertising.
Depreciation and amortization expense increased $76,000 for the
twenty-six weeks ended August 3, 1996 compared to the same period one year ago
primarily due to an increase in store fixed assets as a result of new Super
Crown openings.
Interest expense was $691,000 during the twenty-six weeks ended August 3,
1996 primarily due to interest accrued for the RMH Judgment.
The Company has recorded a tax benefit on the net operating loss for
the twenty-six weeks ended August 3, 1996 of $2,174,000.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Long-Lived Assets and Long-Lived Assets to be
Disposed of. Adoption of the standard has not had a material impact on the
Company's consolidated financial statements.
The Company has adopted SFAS No. 123, Accounting for Stock Based
Compensation. The Company expects to disclose the fair value of options
granted in a footnote to its annual consolidated financial statements.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Material legal proceedings pending against Crown Books are described in
its Annual Report on Form 10-K for the year ended February 3, 1996 (the "Annual
Report") and, with respect to material developments in such earlier reported
legal proceedings, see below.
Robert M. Haft Employment Litigation
As reported in the Annual Report, in October 1995, Dart, Crown Books and
Trak Auto filed a notice of appeal with the U.S. Court of Appeals for the
Third Circuit with respect to a judgment that the U.S. District Court for the
District of Delaware had entered in a lawsuit brought by Robert M. Haft for
breach of employment contract. Among other things, the district court had
awarded Robert M. Haft damages against Dart and Crown Books in the amount of
$18,856,964 (plus interest) and $14,947,160 (plus interest), respectively.
On May 30, 1996, the U.S. Court of Appeals for the Third Circuit affirmed
the judgment of the district court.
On July 18, 1996, Robert M. Haft filed with the court a motion seeking an
order against Dart and Crown Books that would award him attorneys' fees and
expenses of $3,563,157.
On August 21, 1996, Dart and Crown Books paid $20,976,945 and
$16,895,295, respectively, to Robert M. Haft in satisfaction of the monetary
damages component of the judgment.
Item 4. Submission of Matters to a Vote of Security Holders
Dart, as a holder of over fifty percent of the outstanding voting capital
stock of Crown Books, took action on June 28, 1996, to re-elect all four
incumbent Directors to Crown Books' Board of Directors by less than unanimous
written consent in lieu of taking such action at an annual meeting of
stockholders. These directors are as follows:
Herbert H. Haft
Larry G. Schafran
Bonita A. Wilson
Douglas M. Bregman
14
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document
------ --------
<S> <C>
10.1 Financing Agreement, dated as of September 12, 1996, between Crown Books Corporation and The CIT
Group/Business Credit, Inc.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
15
<PAGE> 16
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.
CROWN BOOKS CORPORATION
Date September 16, 1996 By E. STEVE STEVENS
---------------------- --------------------------------------
E. STEVE STEVENS
President and Chief
Executive Officer
Date September 16, 1996 DONALD J. PILCH
---------------------- --------------------------------------
DONALD J. PILCH
Vice President and Chief
Financial Officer
<PAGE> 1
FINANCING AGREEMENT
BY AND BETWEEN
THE CIT GROUP/BUSINESS CREDIT, INC.
(AS LENDER)
AND
CROWN BOOKS CORPORATION
(AS BORROWER)
DATED AS OF SEPTEMBER 12, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3. Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 5. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6. Representations, Warranties and Covenants . . . . . . . . . . . . . 22
SECTION 7. Interest, Fees and Expenses . . . . . . . . . . . . . . . . . . . . 28
SECTION 8. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9. Events of Default and Remedies . . . . . . . . . . . . . . . . . . . 33
SECTION 10. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 11. Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
i
<PAGE> 3
EXHIBITS TO FINANCING AGREEMENT
Exhibit A - Form of Credit Card Receivables Agreement
Exhibit B - Form of Inventory Confirmation
Exhibit C - Form of Perfection Certificate
Exhibit D - Form of Borrowing Base Certificate
Exhibit E - Form of Landlord Waiver
Exhibit F - Form of Revolving Loan Notice of Borrowing
SCHEDULES TO FINANCING AGREEMENT
Schedule 1 - List of Leased Locations and Monthly Rental Amounts
Schedule 2 - List of Existing Liens
Schedule 3 - List of Collateral Locations and Chief Executive Office
ii
<PAGE> 4
This Financing Agreement (this "Financing Agreement") dated as of
September 12, 1996 is made by and between THE CIT GROUP/BUSINESS CREDIT, INC.
(hereinafter "CITBC"), a New York corporation, with offices located at 1211
Avenue of the Americas, New York, New York 10036, and CROWN BOOKS CORPORATION
(hereinafter the "Company"), a Delaware corporation, with a principal place of
business at 3300 75th Avenue, Landover, Maryland 20785.
SECTION 1. DEFINITIONS
ACCOUNTS shall mean all of the Company's now existing and future: (a) accounts
(as defined in the UCC) (whether or not specifically listed on schedules
furnished to CITBC) including, without limitation, all accounts created by or
arising from all of the Company's sales of Inventory and all rights to payment
under and with respect to (i) promissory notes and (ii) bank or non-bank credit
cards, and all accounts arising from sales made under any of the Company's
trade names or styles, or through any of the Company's subsidiaries, (b) unpaid
seller's or lessor's rights (including rescission, replevin, reclamation and
stoppage in transit) relating to the foregoing or arising therefrom; (c) rights
to any Inventory represented by any of the foregoing, including rights to
returned or repossessed goods; (d) reserves and credit balances arising in the
Concentration Account and hereunder; (e) guarantees or collateral for any of
the foregoing; (f) insurance policies or rights relating to any of the
foregoing; and (g) cash and non-cash proceeds of any and all the foregoing.
ADMINISTRATIVE FEE shall mean the fee payable to CITBC in accordance with and
pursuant to, the provisions of Paragraph 14 of Section 7 of this Financing
Agreement to offset the costs and expenses of CITBC in connection with record
keeping, periodic examinations and analyzing and evaluating the Collateral.
ANNIVERSARY DATE shall mean the date occurring three (3) years from the Closing
Date and the same date in every year thereafter.
AVAILABILITY shall mean, at any time of determination, the excess of the
Borrowing Base over the outstanding aggregate amount of all Obligations
(including the outstanding aggregate amount of Letters of Credit) of the
Company.
BLOCKED ACCOUNTS shall mean those accounts owned by, and in the name of the
Company which are blocked in favor of CITBC and designated by CITBC for the
deposit of proceeds of Collateral.
BORROWING BASE shall have the meaning provided in Paragraph 1 of Section 3 of
this Financing Agreement.
BUSINESS DAY shall mean (a) for all purposes other than those covered by clause
(b) below, any day that CITBC and Chase Bank are open for business excluding
Saturday, Sunday and any day that either is a legal holiday under the laws of
the State of New York or Maryland or is a day on which banking institutions
located in such State are closed and (b) with respect to all notices,
determinations, fundings and payments in connection with Libor, any date that
is a Business Day as described in clause (a) above that is also a day for
trading by and between banks in dollar deposits in the applicable interbank
Libor market.
<PAGE> 5
CAPITAL EXPENDITURES for any period shall mean the aggregate of all
expenditures of the Company during such period that, in conformity with GAAP,
are required to be included in or reflected by the property, plant or equipment
or similar fixed asset account reflected in the balance sheet of the Company.
CAPITAL LEASE shall mean any lease of property (whether real, personal or
mixed) which, in conformity with GAAP, is accounted for as a capital lease or a
Capital Expenditure on the balance sheet of the Company provided, however, that
for purposes of this definition, store leases, whether or not capitalized on
the Company's books, will not be treated as a Capital Lease.
CHASE BANK shall mean the survivor of the merger of The Chase Manhattan Bank,
N.A. into Chemical Bank with the latter having survived and changed its name to
Chase Bank.
CHASE RATE shall mean the rate of interest per annum announced by Chase Bank
from time to time as its prime rate in effect at its principal office in the
City of New York. (The prime rate is not intended to be the lowest rate of
interest charged by Chase Bank to its borrowers).
CHASE RATE LOANS shall mean all or any portion of the Revolving Loans for which
the Chase Rate is used for interest rate calculations.
CLOSING DATE shall mean the date that this Financing Agreement has been fully
executed and delivered to CITBC.
CLOSING FEE shall mean the fee payable to CITBC in accordance with, and
pursuant to, the provisions of Paragraph 19 of Section 7 of this Financing
Agreement.
COLLATERAL shall mean all present and future Accounts, Inventory, Documents of
Title, General Intangibles and Other Collateral of the Company and the proceeds
of any and all of the foregoing.
CONCENTRATION ACCOUNT shall have the meaning provided in Paragraph 4 of Section
3 of this Financing Agreement.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for the
Company and its subsidiaries, eliminating all intercompany transactions and
prepared in accordance with GAAP.
CONSOLIDATED CURRENT ASSETS shall mean, wherever used throughout this Financing
Agreement, those assets of the Company and its subsidiaries which, in
accordance with GAAP on a basis consistent with the latest audited
consolidated statements of the Company, are classified as "current".
CONSOLIDATED CURRENT LIABILITIES shall mean, wherever used throughout this
Financing Agreement, those liabilities of the Company and its subsidiaries
which, in accordance with GAAP on a basis consistent with the latest audited
consolidated statements of the Company, are classified as "current", provided
however, that notwithstanding GAAP, the Revolving Loans and the current portion
of Permitted Indebtedness shall be considered "Current Liabilities."
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<PAGE> 6
CREDIT CARD RECEIVABLES AGREEMENT shall mean a Credit Card Receivables
Agreement substantially in the form of Exhibit A hereto and delivered to CITBC
and signed by the Company and an issuer of credit cards accepted by the
Company.
CUSTOMARILY PERMITTED LIENS shall mean
(a) liens of local or state authorities for franchise or other like
taxes, provided the aggregate amounts of such liens shall not exceed
$100,000.00 in the aggregate at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP; and
(c) pledges or deposits made (and the liens thereon) in the ordinary
course of business (including, without limitation, security deposits for
leases, indemnity bonds, surety bonds and appeal bonds) in connection with
workers' compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, contracts
(other than for the repayment or guarantee of borrowed money or purchase money
obligations), statutory obligations and other similar obligations arising as a
result of progress payments under government contracts.
DEFAULT shall mean any event specified in Section 9 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, has occurred.
DEFAULT RATE OF INTEREST shall mean the Chase Rate plus two percent (2%) per
annum, which CITBC shall be entitled to charge the Company on all Obligations
due CITBC by the Company to the extent provided in Paragraph 2 of Section 9 of
this Financing Agreement.
DOCUMENTATION FEE shall mean CITBC's reasonable fees, exclusive of
Out-of-Pocket Expenses, intended to compensate CITBC for the use of CITBC's
in-house Legal Department and facilities subsequent to the Closing Date in
documenting any and all modifications, waivers, releases, amendments,
supplemental documentation or additional collateral with respect to this
Financing Agreement, the other Loan Documents, the Collateral and/or the
Obligations.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined in
the UCC) and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash and
non-cash proceeds of the foregoing.
ELIGIBLE INVENTORY shall mean Inventory which meets the following
qualifications: (i) it is lawfully owned by the Company or a Guarantor and
subject to a valid, perfected, first priority lien in favor of CITBC and not
subject to any lien, other than Permitted Encumbrances, and is not held on
consignment and may be lawfully sold; (ii) it is (A) located in one of the
Company's distribution centers, warehouses or store locations or (B) located in
other
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<PAGE> 7
locations in the continental United States as CITBC shall have approved in
writing from time to time, which approval shall be given upon the Company
providing CITBC with evidence, reasonably satisfactory to CITBC, of (1) CITBC's
perfected, first priority lien on all Inventory located in such locations and
(2) the absence of any other liens on any Inventory located in such locations,
which evidence may include the results of UCC, tax and judgment lien searches
in such locations and acknowledgment copies of UCC financing statements naming
the Company, as debtor, and CITBC, as secured party, filed in such locations;
(iii) it is determined in the reasonable judgment of CITBC to be, when taken as
a whole, substantially similar in quality and mix (having regard for seasonal
variations) to the Inventory maintained by the Company or the Guarantors in
recent historical operations prior to the Closing Date; (iv) it is Inventory
that has been valued after deducting the greater of 30% of gross Inventory or
the aggregate amount of reserves for (1) shrinkage, (2) Inventory to be
returned to suppliers (3) Inventory in-transit to third parties (other than the
Company's agents or warehouses), (4) supplies, (5) lay-a-ways, (6) consignment
Inventory, (7) rejected, defective, damaged, aged or otherwise unsalable
Inventory, (8) an amount equal to two times the monthly rent for each location
for which CITBC has not received a Landlord Waiver, (9) displays, (10) seasonal
Inventory, (11) slow moving and obsolete Inventory (12) the amount of all sales
taxes collected by the Company and not yet remitted to the authority to which
such taxes are owed, (13) the amount of unredeemed gift certificates issued by
the Company and (14) other reserves required by CITBC in the exercise of its
reasonable business judgment. The amount of such reserves shall be determined
solely by CITBC in its reasonable business judgment using standards
consistently applied. Such standards shall take into consideration amounts
representing historically, a Company's reserves, discounts, returns, claims,
credits and allowances.
EQUIPMENT shall mean all of the Company's present and hereafter acquired
equipment (as defined in the UCC) and any and all machinery, motor vehicles,
furnishings and fixtures, and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all proceeds
of whatever sort.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder
from time to time.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 9 of this
Financing Agreement.
EXECUTIVE OFFICER shall mean any of the President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Executive Vice President(s),
Senior Vice President(s), Treasurer or Secretary of the Company.
FISCAL QUARTER shall mean each three (3) month period of each Fiscal Year.
FISCAL YEAR shall mean each twelve (12) month period ending on the Saturday
closest to January 31.
GAAP shall mean generally accepted accounting principles in the United States
of America as in effect from time to time and for the period as to which such
accounting principles are to apply provided that in the event the Company
modifies its accounting procedures as applied as of the Closing Date, the
Company shall provide such statements of reconciliation as shall be in form and
substance reasonably acceptable to CITBC.
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<PAGE> 8
GENERAL INTANGIBLES shall have the meaning set forth in the UCC and shall
include, without limitation, all present and future right, title and interest
in and to all tradenames, trademarks (together with the goodwill associated
therewith), copyrights, patents, licenses, customer lists, distribution
agreements, supply agreements and tax refunds, together with all monies and
claims for monies now or hereafter due and payable in connection with any of
the foregoing or otherwise, and all cash and non-cash proceeds thereof,
including, without limitation, the proceeds of any licensing agreements between
the Company and any licensee of any of the Company's General Intangibles
provided, however, that if any of the General Intangibles existing on the date
hereof other than tax refunds are prohibited by contract from being assigned to
CITBC, CITBC agrees that it shall not require that the Company grant CITBC a
lien on such General Intangibles until the earlier of the termination of such
contract or deletion of such prohibition, except that any and all monies due or
to become due under such General Intangibles shall be subject to CITBC's lien
hereunder.
GUARANTOR COLLATERAL shall have the meaning set forth in Paragraph A (6) of
Section 2 of this Financing Agreement.
GUARANTOR SECURITY AGREEMENT shall have the meaning set forth in Paragraph A
(6) of Section 2 of this Financing Agreement.
GUARANTORS shall mean Crown Books West Corporation, Crown Books East
Corporation, Crown Books National Corporation, Crown DHC Corporation and Super
Crown Books Corporation, each a Delaware corporation and each a wholly owned
subsidiary of the Company.
GUARANTY shall mean a guaranty, in form and substance acceptable to CITBC,
guaranteeing the Obligations of the Company to CITBC.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of money
(borrowed or otherwise due or owing to third parties) or for the deferred
purchase price of property, services or assets, other than Inventory or (b)
Capital Leases.
INVENTORY shall mean all of the Company's and the Guarantors' present and
hereafter acquired inventory (as defined in the UCC) and any and all
merchandise and goods, and all additions, substitutions and replacements
thereof, wherever located, together with all goods and materials, wherever
located, used or usable in manufacturing, processing, packaging or shipping
same and in all stages of production and all cash and non-cash proceeds thereof
of whatever sort.
ISSUING BANK shall mean the bank issuing Letters of Credit for or on behalf of
the Company.
LANDLORD WAIVER shall mean a waiver executed by a landlord of a premises not
owned by the Company but otherwise leased, used, or otherwise occupied thereby,
in form and substance satisfactory to CITBC, containing provisions that, inter
alia, (i) waive any lien such party may have on any of the Inventory and (ii)
grant to CITBC access rights to the premises substantially in the form attached
hereto as Exhibit E.
- 5 -
<PAGE> 9
LETTERS OF CREDIT shall mean all letters of credit issued with the assistance
of CITBC by the Issuing Bank for or on behalf of the Company.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by CITBC to the
Issuing Bank of the Company's reimbursement obligation under the Issuing Bank's
reimbursement agreement, application for letter of credit or other like
document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge the Company
under Paragraph 12 of Section 7 of this Financing Agreement for (i) issuing the
Letter of Credit Guaranty and/or (ii) otherwise aiding the Company in obtaining
Letters of Credit pursuant to this Financing Agreement.
LETTER OF CREDIT SUBLINE shall mean the aggregate amount of Letters of Credit
the Company may establish or open pursuant to Section 4 of this Financing
Agreement, which amount (a) is equal to up to $5,000,000 and (b) shall be
deemed to be a subline within the Line of Credit.
LIBOR shall mean, at any time of determination for each applicable Libor
Period, the prevailing London Interbank Offered Rate paid in London on one (1)
month, two (2) month, three (3) month or six (6) month day dollar deposits from
other banks as quoted by Chase Bank.
LIBOR LOANS shall mean all or any portion of the Revolving Loans for which the
Libor Rate is used for interest rate calculations together with the applicable
Libor Margin.
LIBOR MARGIN shall mean the Revolving Loan Libor Margin.
LIBOR PERIOD shall mean the one (1) month, two (2) month, three (3) month or
six (6) month Libor Period with respect to Libor Loans, as selected by the
Company pursuant to Section 7 of this Financing Agreement.
LIBOR PREPAYMENT PENALTY shall mean, for any payment of principal of any Libor
Loan prior to the end of an applicable Libor Period, an amount computed
pursuant to the following formula:
(R - T) x P x D
---------------
365
R = interest rate applicable to the Libor Loan
T = effective interest rate per annum at which any readily
marketable bonds or other obligations of the United States,
selected at CITBC's sole discretion, maturing on or near the
last day of the then applicable Libor Period and in
approximately the same principal amount as such Libor Loan can
be purchased by CITBC on the day of such prepayment of
principal
P = the amount of principal prepaid
D = the number of days remaining in the Libor Period as of the
date of such prepayment
- 6 -
<PAGE> 10
The Company shall pay such amount within five (5) Business Days of presentation
by CITBC to the Company of a statement setting forth the amount and CITBC's
calculation thereof pursuant hereto, which statement shall be conclusive on the
Company absent manifest error.
LIBOR TRANCHE shall mean the whole or any portion of the Revolving Loans for
which a Libor selection, continuation, or conversion from a Chase Rate was made
by the Company.
LINE OF CREDIT shall mean the aggregate commitment of CITBC to (i) make
Revolving Loans pursuant to Section 3 of this Financing Agreement to the
Company and (ii) assist the Company in opening Letters of Credit pursuant to
Section 4 of this Financing Agreement, in the aggregate amount of $25,000,000
(inclusive of the Letter of Credit Subline) which amount may be increased at
the Company's option to $35,000,000 and then to $50,000,000, in each case upon
5 Business Days prior written notice to CITBC, provided that at the time of any
such increase the Company is in compliance with the applicable minimum Tangible
Net Worth covenant set forth in Paragraph 10 of Section 6 of this Financing
Agreement, the Company shall have paid to CITBC the fee provided for in
Paragraph 19 of Section 7 of this Financing Agreement and there is no Default
hereunder.
LINE OF CREDIT FEE shall mean the fee due CITBC at the end of each month for
the Line of Credit and shall be determined by multiplying (i) the difference
between a) the Line of Credit and b) the sum of x) the average daily balance of
Revolving Loans for said month plus y) the average daily balance of outstanding
Letters of Credit of the Company for said month by (ii) twenty-five hundredths
of one percent (.25%) per annum for the number of days in said month based on a
360 day year.
LOAN DOCUMENTS shall mean this Financing Agreement, the Guaranty, the Guarantor
Security Agreements and any other agreements and documents referenced herein or
contemplated hereby or executed from time to time in connection with this
Financing Agreement, as the same may be renewed, amended, modified, extended,
or supplemented from time to time.
MORTGAGEE WAIVER shall mean, a waiver executed by each mortgagee of a premises
owned by the Company, in form and substance satisfactory to CITBC, containing
provisions that, inter alia, (i) waive any lien such party may have on any of
the Inventory of the Company and (ii) grant to CITBC access rights to the
premises.
OBLIGATIONS shall mean all loans and advances made or to be made by CITBC to
the Company or to others for the Company's account pursuant to this Financing
Agreement or any of the Loan Documents; any and all indebtedness and
obligations which may at any time be owing by the Company to CITBC howsoever
arising, whether now in existence or incurred by the Company from time to time
hereafter; whether secured by pledge, lien upon or security interest in any of
the Company's assets or property or the assets or property of any other person,
firm, entity or corporation; whether such indebtedness is absolute or
contingent, joint or several, matured or unmatured, direct or indirect and
whether the Company is liable to CITBC for such indebtedness as principal,
surety, endorser, guarantor or otherwise. Obligations shall also include
indebtedness owing to CITBC by the Company under this Financing Agreement, any
other Loan Document, or under any other agreement or arrangement now or
hereafter entered into between the Company and CITBC; indebtedness or
obligations incurred by, or imposed on, CITBC
- 7 -
<PAGE> 11
as a result of environmental claims (other than as a result of actions of
CITBC) arising out of the Company's operations, premises or waste disposal
practices or sites; the Company's liability to CITBC as maker or endorser on
any promissory note or other instrument for the payment of money; the Company's
liability to CITBC under any instrument of guaranty or indemnity, or arising
under any guaranty, endorsement or undertaking which CITBC may make or issue to
others for the Company's account, including any accommodation extended with
respect to applications for Letters of Credit, CITBC's acceptance of drafts or
CITBC's endorsement of notes or other instruments for the Company's account and
benefit.
OTHER COLLATERAL shall mean all now owned and hereafter acquired deposit
accounts maintained with any bank or financial institutions; all cash and other
monies and property in the possession or control of CITBC; all books, records,
ledger cards, disks and related data processing software at any time evidencing
or containing information relating to any of the Collateral described herein or
otherwise necessary or helpful in the collection thereof or realization
thereon, and all cash and non-cash proceeds of the foregoing.
OUT-OF-POCKET EXPENSES shall mean, as applicable to the transactions
contemplated by this Financing Agreement, all of CITBC's present and future
reasonable expenses incurred directly relating to this Financing Agreement or
any other Loan Document, whether incurred heretofore or hereafter, but no
earlier than August 8, 1996, which expenses shall include, without being
limited to, the cost of record searches, all costs and expenses incurred by
CITBC in opening bank accounts, depositing checks, receiving and transferring
funds, and any charges imposed on CITBC due to "insufficient funds" of checks
deposited into Blocked Accounts or the Concentration Account and CITBC's
standard fee relating thereto, any amounts paid by CITBC, incurred by, or
charged to CITBC by the Issuing Bank under the Letter of Credit Guaranty or the
Company's reimbursement agreement, application for letter of credit or other
like document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, local counsel fees and disbursements, title insurance
premiums, real estate survey costs, the fees and taxes relative to the filing
of financing statements, and all expenses, costs and fees set forth in
Paragraph 3 of Section 9 of this Financing Agreement.
PERFECTION CERTIFICATE shall mean the Perfection Certificate substantially in
the form of Exhibit C attached hereto signed by the Company and delivered to
CITBC.
PERMITTED ENCUMBRANCES shall mean: (i) Customarily Permitted Liens; (ii) liens
granted to CITBC by the Company; (iii) liens of judgment creditors provided
such liens do not exceed, in the aggregate, at any time, $100,000.00 (other
than liens bonded or insured to the reasonable satisfaction of CITBC); (iv)
liens for taxes not yet due and payable or which are being diligently contested
in good faith by the Company by appropriate proceedings and for which adequate
reserves or other appropriate provisions are being maintained in accordance
with GAAP and which liens are not x) senior to the liens of CITBC or y) for
taxes due the United States of America or any state thereof having similar
priority status.
PERMITTED INDEBTEDNESS shall mean: (i) current Indebtedness maturing in less
than one year and incurred in the ordinary course of the Company's business for
raw materials, supplies, Equipment, services, taxes, rent or labor; (ii)
Indebtedness arising under the Letters of Credit and this Financing Agreement;
(iii) deferred taxes, obligations
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<PAGE> 12
under store leases incurred in the ordinary course of business and other
expenses incurred in the ordinary course of the Company's business; and (iv)
other Indebtedness existing on the Closing Date and listed in the most recent
financial statement delivered to CITBC or otherwise disclosed to CITBC in
writing prior to the Closing Date.
REAL ESTATE shall mean the Company's fee and/or leasehold interests in real
property.
REVOLVING LOAN ACCOUNT shall have the meaning set forth in Paragraph 6 of
Section 3 of this Financing Agreement.
REVOLVING LOAN NOTICE OF BORROWING shall have the meaning set forth in
Paragraph 1 of Section 3 of this Financing Agreement.
REVOLVING LOANS LIBOR MARGIN shall have the meaning set forth in Paragraph 1(y)
of Section 7 of this Financing Agreement.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to
or for the account of the Company by CITBC pursuant to Section 3 of this
Financing Agreement.
TANGIBLE NET WORTH shall mean, at any date of determination, total
stockholders' equity less intangibles as determined in accordance with GAAP on
a basis consistent with the latest audited statements of the Company.
UCC shall mean the Uniform Commercial Code as in effect in the State of New
York and as the same may be amended from time to time.
WAREHOUSE LETTER shall mean a letter executed by a public warehouse in which
Inventory (other than Inventory in such warehouses while such Inventory is
clearing customs) of the Company is stored, in form and substance satisfactory
to CITBC, containing provisions including, but not limited to (i) a
confirmation of CITBC's lien on such Inventory and (ii) instructions to the
warehouseman regarding release of the Inventory.
WORKING CAPITAL shall mean an amount equal to Consolidated Current Assets minus
Consolidated Current Liabilities.
SECTION 2. CONDITIONS PRECEDENT
1. CONDITIONS TO INITIAL EXTENSION OF CREDIT
The obligation of CITBC to make the initial loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such loans, the following conditions precedent (the "Initial
Conditions Precedent"):
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<PAGE> 13
1. LIEN SEARCHES - CITBC shall have received
tax, judgment and UCC searches satisfactory
to CITBC for all locations presently occupied
or used by the Company or any of the
Guarantors.
2. CASUALTY INSURANCE - The Company shall have
delivered to CITBC evidence reasonably
satisfactory to CITBC that all of the
requirements as set forth in Section 6,
Paragraph 5 of this Financing Agreement have
been satisfied.
3. UCC FILINGS - Any documents (including
without limitation, financing statements)
required to be filed in order to create, in
favor of CITBC, a valid, perfected first
priority lien in the Collateral and the
Guarantor Collateral with respect to which a
security interest may be perfected by a
filing under the UCC shall have been properly
filed in each office in each jurisdiction
required in order to create in favor of CITBC
a perfected lien on the Collateral and the
Guarantor Collateral. CITBC shall have
received acknowledgement copies of all such
filings (or, in lieu thereof, CITBC shall
have received other evidence satisfactory to
CITBC that all such filings have been made);
and CITBC shall have received evidence that
all necessary filing fees and all taxes or
other expenses related to such filings have
been paid in full.
4. EXAMINATION & VERIFICATION- CITBC shall have
completed to its satisfaction an examination
and verification of the Accounts, Inventory,
General Intangibles and books and records of
the Company and the Guarantors.
5. GUARANTY - Each of the Guarantors shall have
executed and delivered to CITBC a Guaranty.
6. GUARANTOR SECURITY AGREEMENTS - Each of the
Guarantors shall have executed and delivered
to CITBC a security agreement, in form and
substance acceptable to CITBC ("Guarantor
Security Agreement") granting to CITBC a
security interest in its accounts, inventory,
documents of title, general intangibles,
deposit accounts and books and records
relating to any of the foregoing and all
proceeds of the foregoing (collectively, the
"Guarantor Collateral") as security for its
Guaranty.
7. OPINIONS - Counsel for the Company and the
Guarantors shall have delivered to CITBC
opinions satisfactory to CITBC opining, inter
alia, that, subject to the (i) filing,
priority and remedies provisions of the UCC,
(ii) the provisions of the Bankruptcy Code,
insolvency statutes or other like laws, (iii)
the equity powers of a court of law: (a) each
Guaranty of the Guarantors is
- 10 -
<PAGE> 14
valid, binding and enforceable according to
its terms; (b) all of the Loan Documents,
including without limitation this Financing
Agreement, are x) valid, binding and
enforceable according to their terms, y) are
duly authorized, executed and delivered and
z) do not violate any terms, provisions,
representations or covenants in the charter
or by-laws of either the Company or the
Guarantors (as the case may be) or, to the
best knowledge of such counsel, of any loan
agreement, mortgage, deed of trust, note,
security or pledge agreement or indenture to
which the Company is a signatory or by which
any Company or its assets are bound.
8. PERFECTION CERTIFICATE - The Company and each
of the Guarantors shall have executed and
delivered to CITBC a Perfection Certificate
substantially in the form of Exhibit C
hereto.
9. INVENTORY CONFIRMATION - The Company shall
have executed and delivered to CITBC an
Inventory Confirmation substantially in the
form of Exhibit B thereto.
10. CITBC COMMITMENT LETTER - The Company shall
have fully complied, to the satisfaction of
CITBC, with all of the terms and conditions
of the commitment letter, dated August 29,
1996, issued by CITBC to, and accepted by,
the Company.
11. BOARD RESOLUTIONS - CITBC shall have received
a copy of the resolutions of the Board of
Directors of (A) the Company authorizing the
execution, delivery and performance of (i)
this Financing Agreement and (ii) any related
agreements and (B) each Guarantor authorizing
the execution and performance of the Guaranty
and any documents executed in connection
therewith, in each case certified by the
Secretary or Assistant Secretary thereof as
of the date hereof, together with a
certificate of the Secretary or Assistant
Secretary thereof as to the incumbency and
signature of the officers thereof executing
this Financing Agreement, the Guaranty and
any certificate or other documents to be
delivered by it pursuant hereto, together
with evidence of the incumbency of such
Secretary or Assistant Secretary.
12. CORPORATE ORGANIZATION - CITBC shall have
received (i) a copy of the Certificate of
Incorporation of the Company and each
Guarantor certified by the Secretary of State
of their state(s) of incorporation, and (ii)
a copy of the By-Laws (as amended through the
date hereof) of the Company and each
Guarantor, certified by the Secretary or
Assistant Secretary thereof.
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<PAGE> 15
13. GOOD STANDING CERTIFICATES - CITBC shall have
received good standing certificates from the
Secretaries of State of the Company's and
each Guarantor's state of incorporation and
in each jurisdiction where the failure to
qualify to do business would have a material
adverse effect on the business of the
Company, each certificate to be dated not
more than 30 days prior to the Closing Date.
14. OFFICER'S CERTIFICATE - CITBC shall have
received an executed Officer's Certificate of
the Company, satisfactory in form and
substance to CITBC, certifying that (i) the
representations and warranties contained
herein are true and correct in all material
respects on and as of the date hereof; (ii)
the Company is in compliance with all of the
terms and provisions set forth herein; and
(iii) no Default or Event of Default has
occurred.
15. ABSENCE OF DEFAULT - No Default, Event of
Default or material adverse change in the
financial condition, business, prospects,
profits, operations or assets of the Company
shall have occurred since February 3, 1996,
except as may result from any payments that
the Company may be obligated to make in
connection with (i) the judgment entered
against the Company in favor of Robert Haft
and (ii) any settlements entered into with
members of the Haft family, provided,
however, that such payments under (i) and
(ii) are less than $30,000,000 in the
aggregate.
16. LEGAL RESTRAINTS/LITIGATION - At the date of
execution of this Financing Agreement, except
as set forth in the Company's Form 10-K and
Form 10-Q for the fiscal year ended February
3, 1996 and the fiscal quarter ended May 4,
1996, respectively, there are no actions,
suits or arbitration proceedings (whether or
not purportedly on behalf of the Company)
pending or, to the knowledge of the Company,
threatened against the Company, or maintained
by the Company at law or in equity before any
governmental body which may reasonably be
expected to be adversely determined and, if
adversely determined, may reasonably be
expected to have a material adverse effect on
the financial condition, property or
operations of the Company.
17. DISBURSEMENT AUTHORIZATIONS - The Company
shall have delivered to CITBC all information
reasonably necessary for CITBC to issue wire
transfer instructions on behalf of the
Company for the Revolving Loans including,
but not limited to, disbursement
authorizations in form reasonably acceptable
to CITBC.
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<PAGE> 16
18. INVENTORY REPORTING - CITBC shall have
received a satisfactory inventory valuation
conducted by an independent third party
acceptable to CITBC.
19. WAREHOUSE LETTERS - Except for those premises
for which a reserve will be taken, CITBC
shall have received from each public
warehouse in which Inventory (other than
Inventory in such warehouses while such
Inventory is clearing customs) of the Company
is stored, a Warehouse Letter.
20. LANDLORD WAIVERS - Except for those premises
for which a reserve will be taken, CITBC
shall have received from each landlord of any
premises not owned by the Company but
otherwise leased, used, or occupied thereby,
a Landlord Waiver.
21. BANK ACCOUNTS - As of the Closing Date, the
Company shall have (i) entered into blocked
account agreements for each of its
depository accounts (other than its operating
accounts) in form and substance reasonably
satisfactory to CITBC; (ii) established a
Concentration Account and shall have
transferred to CITBC legal title to same;
(iii) required the credit card companies with
which it transacts business to remit balances
to a Blocked Account and/or a Concentration
Account; and (iv) delivered to CITBC executed
instruction letter(s), all in form and
substance satisfactory to CITBC, confirming
all of the foregoing items.
22. GRANT OF SECURITY INTEREST IN PATENTS,
TRADEMARKS AND LICENSES - CITBC shall have
received a collateral assignment of all of
the patents, trademarks and licenses, in form
and substance reasonably satisfactory to
CITBC, duly executed and delivered by Crown
DHC Corporation.
23. COLLECTION ACCOUNT - The Company shall have
established a system of bank accounts with
respect to the collection of Accounts and the
deposit of proceeds of Inventory as shall be
reasonably acceptable to CITBC in all
respects.
24. LOAN DOCUMENTS - The Company shall have
executed and delivered to CITBC this
Financing Agreement and all other Loan
Documents necessary to consummate the lending
arrangement contemplated between the Company
and CITBC.
25. NOTICE BY DART - The Company shall have
furnished to CITBC evidence satisfactory to
the Company that Dart Group Corporation
("Dart") has given not less than seven (7)
days prior written notice to counsel of
record to each
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<PAGE> 17
of the parties (other than Dart) to an action
filed on October 17, 1995 captioned Gloria G.
Haft, et al. v. Larry G. Schafran, et al.,
Del. Ch., Civ. A. No. 14620 and an action
filed on November 6, 1995 captioned Herbert
H. Haft v. Dart Group Corporation, et al.,
Del. Ch. Civ. A. No. 14685 that the Company
is proposing to enter into a secured $50
million revolving credit facility with CITBC
(and other lenders it may select), which will
include a $5 million letter of credit
subfacility, to be used for Working Capital
and other corporate purposes.
26. BORROWING BASE CERTIFICATE - The Company
shall have executed and delivered to CITBC a
Borrowing Base Certificate setting forth the
computation of the Borrowing Base and
Availability as of or immediately prior to
the Closing Date.
Except as otherwise set forth hereinabove, upon the execution of this Financing
Agreement and the initial disbursement of loans hereunder, all of the Initial
Conditions Precedent shall have been deemed satisfied except as the Company and
CITBC shall otherwise agree herein or in a separate writing.
2. CONDITIONS TO EACH EXTENSION OF CREDIT
Except to the extent expressly set forth in this Financing Agreement, the
agreement of CITBC to make any extension of credit requested to be made by it
to the Company on any date (including without limitation, the initial extension
of credit) is subject to the satisfaction of the following conditions
precedent:
1. REPRESENTATIONS AND WARRANTIES - Each of the
representations and warranties made by the
Company in or pursuant to this Financing
Agreement shall be true and correct in all
material respects on and as of such date as
if made on and as of such date. Each
borrowing by the Company hereunder shall
constitute a representation and warranty by
the Company as of the date of such loan or
advance that each of the representations,
warranties and covenants contained in the
Financing Agreement have been satisfied and
are true and correct, except as the Company
and CITBC shall otherwise agree herein or in
a separate writing.
2. NO DEFAULT - No Default shall have occurred
(i) that has not been cured to the
satisfaction of CITBC or waived in writing by
CITBC and/or no Event of Default shall have
occurred that has not been waived in writing
by CITBC on such date or (ii) after giving
effect to the extension of credit requested
to be made on such date.
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<PAGE> 18
3. BORROWING BASE - Except as may be otherwise
agreed to from time to time by CITBC and the
Company in writing, and subject to Paragraph
1 of Section 3 of this Financing Agreement,
after giving effect to the extension of
credit requested to be made by the Company on
such date, the aggregate outstanding amount
of the Revolving Loans and outstanding
Letters of Credit owing by the Company will
not exceed either the Line of Credit or
Availability.
4. ADDITIONAL MATTERS - All corporate and other
proceedings, and all documents, instruments
and other legal matters in connection with
the transactions contemplated by this
Financing Agreement and all other Loan
Documents, shall be reasonably satisfactory
in form and substance to CITBC and (to the
extent that such proceedings, documents,
instruments and other matters relate to the
Collateral or CITBC) CITBC shall have
received such other documents and legal
opinions in respect of any aspect or
consequence of the transactions contemplated
hereby or thereby, as CITBC shall reasonably
request.
SECTION 3. REVOLVING LOANS
1. CITBC agrees, subject to the terms and conditions of this Financing
Agreement from time to time, and within x) Availability and y) the Line of
Credit, but subject to CITBC's right to make "overadvances", to make loans and
advances to the Company pursuant to an irrevocable Revolving Loan Notice of
Borrowing substantially in the form attached hereto as Exhibit F ("Revolving
Loan Notice of Borrowing") on a revolving basis (i.e., subject to the
limitations set forth herein, the Company may borrow, repay and re-borrow
Revolving Loans). Such loans and advances shall be in amounts up to fifty
percent (50%) of the aggregate value of Eligible Inventory of the Company
determined at the lower of cost or market less reserves which CITBC from time to
time in its sole discretion, exercised reasonably, may deem appropriate (the
"Borrowing Base"). All Revolving Loan Notices of Borrowing must be received by
an officer of CITBC no later than 1:00 p.m. New York time of the day on which
such loans and advances are required. Should CITBC for any reason honor
requests for advances in excess of the limitations set forth herein, such
advances shall be considered "overadvances" and shall be made in CITBC's sole
discretion, subject to any additional terms CITBC deems necessary. No single
advance of overadvance hereunder may be outstanding more than thirty-six (36)
months from the date of such advance.
2. In furtherance of the continuing assignment and security
interest in the Company's Accounts and Inventory, the Company will, at least
weekly, execute and deliver to CITBC in such form and manner as CITBC may
reasonably require, solely for CITBC's convenience in maintaining records of
such Collateral, such confirmatory schedules of Accounts, Inventory, and sales
of Inventory and other Collateral as CITBC may reasonably require and are
available or can be reasonably made available from the Company's systems. Upon
an Event of Default, CITBC may at its sole option, but at the Company's expense,
conduct one or more complete
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<PAGE> 19
physical inventories and/or reappraisals of the Company's Inventory. Failure
to provide CITBC with any of the foregoing shall in no way affect, diminish,
modify or otherwise limit the security interests granted herein. The Company
hereby authorizes CITBC to regard the Company's printed name or rubber stamp
signature on assignment schedules or invoices as the equivalent of a manual
signature by one of the Company's authorized officers or agents.
3. The Company hereby represents and warrants that: each
Account and all sales of Inventory are based on bona fide sales and delivery of
Inventory in the ordinary course of the Company's business. The Company hereby
further represents and warrants that the Inventory being sold and the proceeds
thereof and the Accounts created thereby are the exclusive property of the
Company or the Guarantors and are not and shall not be subject to any lien,
consignment arrangement, encumbrance, security interest or financing statement
whatsoever, other than the Permitted Encumbrances. The invoices evidencing
Accounts or credit card receipts evidencing credit card sales are in the name
of the Company or the Guarantors and except for disputes, offsets, defenses,
counterclaims, returns or credits, all arising in the ordinary course of the
Company's business or except as may be promptly disclosed to CITBC, the
purchasers of such Inventory owe and are obligated to pay the amount stated in
the invoices or credit card receipts. The Company confirms to CITBC that any
and all taxes or fees relating to its business, its sales, the Accounts or
Inventory relating thereto, are its sole responsibility and that same will be
paid or cause to be paid by the Company when due unless contested in good faith
and adequate reserves have been made for the payment therefor and that none of
said taxes or fees represent a lien on or claim against the proceeds of any
sale of Inventory. The Company agrees to issue credit memoranda promptly. The
Company also warrants and represents that it is a duly and validly existing
corporation and is qualified in all jurisdictions where the failure to so
qualify would have a material adverse effect on the business of the Company.
The Company agrees to maintain such books and records regarding Accounts as
CITBC may reasonably require and agrees that the books and records of the
Company will reflect CITBC's interest in the Accounts. All of the books and
records of the Company will be available to CITBC at normal business hours,
including any records handled or maintained for the Company by any other
company or entity.
4. Until CITBC has advised the Company to the contrary after
the occurrence of an Event of Default, the Company may and will, consistent
with the Company's existing business practices, enforce, collect and receive
all amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf,
but at the Company's expense; such privilege shall terminate automatically upon
the institution by or against the Company of any proceeding under any
bankruptcy or insolvency law or, at the election of CITBC, upon the occurrence
of any other Event of Default and until such Event of Default is waived in
writing by CITBC. All checks or cash from the sale of Inventory will be
deposited promptly to the Blocked Accounts. Notwithstanding the foregoing
sentence, the Company shall be entitled to retain cash at each store operated
by the Company (or at the respective operating bank account(s) for each such
store) in such amounts as are necessary for the day to day operation of each
such store consistent with past practices in respect of each such store.
Pursuant to separate written arrangements between CITBC and each institution at
which a Blocked Account is located, each such institution has agreed, or will
agree, to remit the funds contained in the Blocked Account to a concentration
account owned by CITBC (the "Concentration Account"). The Company shall
require that all amounts due it under credit card sales be remitted by the
credit card companies to the Concentration Account. The institution holding
the Concentration Account will be instructed by CITBC that when it is satisfied
that such funds on deposit are "good funds", such institution
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<PAGE> 20
shall, until CITBC has notified it to the contrary, promptly remit such "good
funds" to an operating account of the Company. After the occurrence of a
Default and at any time when Availability is less than twenty-five percent
(25%) of the Line of Credit, CITBC shall have the right to notify the
institution holding the Concentration Account to remit such "good funds" in the
Concentration Account to CITBC's bank account in New York, New York. At such
time as such Default is cured or waived and Availability is not less than
twenty-five percent (25%) of the Line of Credit, CITBC shall promptly notify
the institution holding the Concentration Account to remit such "good funds" to
an operating account of the Company. All amounts received by CITBC will be
credited to the Obligations upon CITBC's receipt of "collected funds" at
CITBC's bank account in New York, New York on the business day of receipt if
received no later than 1:00 P.M. (New York time) or on the next succeeding
business day if received after 1:00 pm. (New York time). No checks, drafts or
other instrument received by CITBC shall constitute final payment to CITBC
unless and until such instruments have actually been collected. If the Company
has no Revolving Loans outstanding and there is then no Event of Default, then
CITBC shall remit within one (1) Business Day to the operating account of the
Company or to such other account, all in the United States of America, of the
Company (other than any payroll account) as the Company may designate, any
credit balances remaining in CITBC's bank account.
5. The Company agrees to notify CITBC promptly of any matters
materially affecting the value, enforceability or collectability of any
material Account, individually or in the aggregate, and of all material
customer disputes, offsets, defenses, counterclaims, returns, rejections and
all reclaimed or repossessed merchandise or goods. The Company agrees to issue
credit memoranda promptly (with duplicates to CITBC upon request after the
occurrence of an Event of Default) upon accepting returns or granting
allowances, and may continue to do so until CITBC has notified the Company that
an Event of Default has occurred and that all future credits or allowances are
to be made only after CITBC's prior written approval. Upon the occurrence of
an Event of Default and until such time as such Event of Default is waived in
writing by CITBC and on notice from CITBC, the Company agrees that all
returned, reclaimed or repossessed merchandise or goods shall be set aside by
the Company, marked with CITBC's name and held by the Company for CITBC's
account as owner and assignee.
6. CITBC shall maintain a separate account on its books in the
Company's name (the "Revolving Loan Account") in which the Company will be
charged with loans and advances made by CITBC to it or for its account, and
with any other Obligations, including any and all Out-of-Pocket Expenses which
CITBC may incur in connection with the exercise by or for CITBC of any of the
rights or powers herein conferred upon CITBC, or in the prosecution or defense
of any action or proceeding to enforce or protect any rights of CITBC in
connection with this Financing Agreement, the other Loan Documents or the
Collateral assigned hereunder, or any Obligations owing to CITBC by the
Company. The Company will be credited with all amounts received by CITBC from
the Company or from others for the Company's account, including, as above set
forth, all amounts received by CITBC in payment of assigned Accounts and such
amounts will be applied to payment of the Obligations. In no event shall prior
recourse to any Accounts or other security granted to or by the Company be a
prerequisite to CITBC's right to demand payment of any Obligation. Further, it
is understood that CITBC shall have no obligation whatsoever to perform in any
respect any of the Company's contracts, lease agreements, or obligations
relating to the Collateral.
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<PAGE> 21
7. After the end of each month, CITBC shall promptly send the
Company a statement showing the accounting for the charges, loans, advances and
other transactions occurring between CITBC and the Company during that month.
The monthly statements shall be deemed correct and binding upon the Company and
shall constitute an account stated between the Company and CITBC unless CITBC
receives a written statement of the exceptions within thirty (30) days of the
date of the monthly statement, absent manifest error.
8. In the event that the sum of (i) the outstanding balance of
Revolving Loans (after giving effect to all amounts which may be charged to the
Company's Revolving Loan Account hereunder) plus (ii) the outstanding Letters
of Credit exceeds Availability or the Line of Credit (herein the amount of any
such excess shall be referred to as the "Excess"), such Excess shall be due and
payable immediately upon CITBC's demand therefor.
SECTION 4. LETTERS OF CREDIT
In order to assist the Company in establishing or opening Letters of
Credit with an Issuing Bank to cover the purchase of Inventory, the Company has
requested CITBC to join in the applications for such Letters of Credit, and/or
guarantee payment or performance of such Letters of Credit and any drafts or
acceptances thereunder through the issuance of the Letters of Credit Guaranty,
thereby lending CITBC's credit to the Company and CITBC has agreed to do so.
These arrangements shall be handled by CITBC subject to the terms and
conditions set forth below.
1. The amount, purpose and extent of the Letters of Credit and changes or
modifications thereof by the Company and/or the Issuing Bank of the terms and
conditions thereof shall in all respects be subject to the prior approval of
CITBC in the exercise of its reasonable discretion provided however, that: a)
in no event may the aggregate amount of all such outstanding Letters of Credit
exceed, in the aggregate, at any one time the Letter of Credit Subline and b)
the Letter of Credit and all documentation in connection therewith shall be in
form and substance satisfactory to the Company, CITBC and the Issuing Bank, c)
the aggregate sum of all outstanding Letters of Credit plus all outstanding
Revolving Loans must be within Availability and the Line of Credit, and d) in no
event may the expiration date of a Letter of Credit be later than thirty (30)
days prior to the most immediate Anniversary Date.
2. CITBC shall have the right, without notice to the Company,
to charge the Company's Revolving Loan Account on CITBC's books with the amount
of any and all indebtedness, liability or obligation of any kind incurred by
CITBC under the Letters of Credit Guaranty at the earlier of a) payment by
CITBC under the Letters of Credit Guaranty, or b) the occurrence of an Event of
Default, any such charges to be reflected in the monthly statements sent to the
Company by CITBC. Any payment by CITBC pursuant to any Letter of Credit
Guaranty or any fees, charges or amounts charged to the Company's Revolving
Loan Account pursuant to or in connection with this Section 4 shall be deemed a
Revolving Loan hereunder and shall incur interest at the then prevailing Chase
Rate.
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<PAGE> 22
3. The Company agrees that any charges incurred by CITBC for
the Company's account by the Issuing Bank shall be conclusive on CITBC and may
be charged to the Company's Revolving Loan Account.
4. CITBC shall not be responsible for: the existence,
character, quality, quantity, condition, packing, value or delivery of the
goods purporting to be represented by any documents; any difference or
variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in the documents; the validity,
sufficiency or genuineness of any documents or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged; the time, place, manner or order
in which shipment is made; partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in the Letters of Credit
or documents; any deviation from instructions; delay, default, or fraud by the
shipper and/or anyone else in connection with the Collateral or the shipping
thereof; or any breach of contract between the shipper or vendors and the
Company.
5. The Company agrees that any action taken by CITBC, if taken
in good faith, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the guarantees, the drafts or acceptances, or the
Collateral, shall be binding on the Company and shall not put CITBC in any
resulting liability to the Company. In furtherance thereof, CITBC shall have
the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute any and all steamship or
airways guaranties (and applications therefore), indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or documents; and to agree to
any amendments, renewals, extensions, modifications, changes or cancellations
of any of the terms or conditions of any of the applications, Letters of
Credit, drafts or acceptances; all in CITBC's sole name, and the Issuing Bank
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from CITBC, all without any notice
to or any consent from the Company.
6. Without CITBC's express consent and endorsement in writing,
the Company agrees: a) not to execute any applications for steamship or airway
guaranties, indemnities or delivery orders; to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letters of Credit, drafts or acceptances; and b) after
the occurrence of an Event of Default which is not waived in writing by CITBC,
not to (i) clear and resolve any questions of non-compliance of documents, or
(ii) give any instructions as to acceptance or rejection of any documents or
goods.
7. The Company agrees that any necessary import, export or
other licenses or certificates for the import or handling of the Collateral
will have been promptly procured; all foreign and domestic governmental laws
and regulations in regard to the shipment and importation of the Collateral, or
the financing thereof will have been promptly and full complied with; and any
certificates in that regard that CITBC may at any time request will be promptly
furnished. In this connection, the Company covenants that all shipments made
under any such Letters of Credit will be in accordance with the laws and
regulations of the countries in which the shipments originate and terminate.
The Company assumes all risk, liability and responsibility for, and agrees to
pay and discharge, all present and future local, state, federal or foreign
taxes, duties, or levies. Any embargo, restriction, laws, customs
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<PAGE> 23
or regulations of any country, state, city, or other political subdivision,
where the Collateral is or may be located, or wherein payments are to be made,
or wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely
the Company's risk, liability and responsibility.
8. Upon any payments made to the Issuing Bank under the Letter
of Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Company to the Issuing Bank
in any application for Letters of Credit, any standing agreement relating to
Letters of Credit or otherwise, all of which shall be deemed to have been
granted to CITBC and apply in all respects to CITBC and shall be in addition to
any rights, remedies, duties or obligations contained herein.
SECTION 5. COLLATERAL
1. As security for the prompt payment in full of all loans and advances
made and to be made to the Company from time to time by CITBC pursuant hereto,
as well as to secure the payment in full of the other Obligations, the Company
hereby pledges and grants to CITBC a continuing general lien upon and security
interest in all of its:
(a) present and hereafter acquired Inventory;
(b) present and future Accounts;
(c) present and future Documents of Title;
(d) present and future General Intangibles;
(e) present and future Other Collateral; and
(f) the proceeds of any and all of the foregoing.
2. The security interests granted hereunder shall extend and
attach to:
(a) All Collateral which is presently in existence and which is
owned by the Company or in which the Company has any interest, whether held by
the Company or others for its account; and
(b) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or the Company from the
Company's customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products of the Company, or to the sale, promotion or shipment thereof.
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<PAGE> 24
3. The Company agrees to safeguard, protect and hold all
Inventory for CITBC's account and make no disposition thereof, except in the
regular course of its business and as further provided herein. Absent the
occurrence of an Event of Default and notice from CITBC to the Company to the
contrary, as provided for below, any Inventory may be sold and shipped to
customers in the ordinary course of the Company's business, on open account and
on terms currently being extended by the Company or the Guarantors to customers
or for cash, credit card or for the redemption of gift certificates, all
consistent with its current business practices as of the Closing Date, provided
that all proceeds of all sales (including cash, accounts receivable, checks,
notes, instruments for the payment of money and similar proceeds) are forthwith
transferred, endorsed, and turned over and delivered to CITBC by deposit to the
Blocked Accounts. CITBC shall have the right to withdraw this permission at
any time upon the occurrence of an Event of Default and until such time as such
Event of Default is waived in writing, in which event no further disposition
shall be made of the Inventory by the Company without CITBC's prior written
approval. Upon the sale, exchange, or other disposition of Inventory, as
herein provided, the security interest in the Inventory provided for herein
shall, without break in continuity and without further formality or act,
continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sale, exchange or disposition. As to any such sale, exchange or other
disposition, CITBC shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin, rescission and reclamation.
4. The rights and security interests granted to CITBC hereunder
are to continue in full force and effect, notwithstanding the termination of
this Financing Agreement or the fact that the Revolving Loan Account maintained
in the Company's name on the books of CITBC may from time to time be
temporarily in a credit position, until the final payment in full to CITBC of
all Obligations and the termination of this Financing Agreement. Any delay, or
omission by CITBC to exercise any right hereunder, shall not be deemed a waiver
thereof, or be deemed a waiver of any other right, unless such waiver shall be
in writing and signed by CITBC. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
5. To the extent that the Obligations are now or hereafter
secured by any assets or property other than the Collateral or by the
guarantee, endorsement, assets or property of any other person, then CITBC
shall have the right in its sole discretion to determine which rights,
security, liens, security interests or remedies CITBC shall at any time pursue,
foreclose upon, relinquish, subordinate, modify or take any other action with
respect to, without in any way modifying or affecting any of them, or any of
CITBC's rights hereunder.
6. Any reserves or balances to the credit of the Company and
any other property or assets of the Company in the possession of CITBC may be
held by CITBC as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due. The liens and security interests
granted herein and any other lien or security interest CITBC may have in any
other assets of the Company, shall secure payment and performance of all now
existing and future Obligations.
7. The Company shall give to CITBC, and/or shall cause the
appropriate party to give to CITBC, from time to time such pledge or security
agreements with respect to General Intangibles (now or hereafter acquired) as
CITBC shall require to obtain valid, perfected first priority liens thereon.
In furtherance of the foregoing, the
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<PAGE> 25
Company shall provide timely notice to CITBC of any additional United States
patents, trademarks, service marks, copyrights, brand names, trade names, logos
and other trade designations acquired or applied for on or subsequent to the
Closing Date and the Company shall execute such documentation as CITBC may
reasonably require to obtain and perfect its lien thereon.
8. CITBC's sole duty with respect to the custody, safekeeping
and physical preservation of any Collateral in its possession, under Section 9
of the UCC or otherwise, to the extent the same is applicable, shall be to deal
with it in the same manner as CITBC deals with similar property for its own
account. Absent gross negligence or willful misconduct, neither CITBC nor any
of its directors, officers, employees or agents shall be liable for any failure
to demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Company or otherwise.
9. The Company shall use reasonable efforts to give to CITBC,
and/or shall cause the appropriate party to give to CITBC, (i) a Warehouse
Letter for each warehouse arrangement entered into on and after the Closing
Date; (ii) a Landlord Waiver from each landlord of any premises not owned but
otherwise leased, used, or otherwise occupied by the Company on and after the
Closing Date; and (iii) a Mortgagee Waiver for each mortgage granted by the
Company on and after the Closing Date.
10. In accordance with and pursuant to the other terms and
provisions in this Financing Agreement, the failure of the Company to provide a
Mortgagee Waiver and/or Warehouse Letter as required herein shall, at CITBC's
sole election, reduce the amount of Eligible Inventory as determined by CITBC
in its reasonable business judgment.
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS
1. The Company hereby warrants and represents and/or covenants that: (i)
the fair value of the Company's assets exceeds the book value of the Company's
liabilities; (ii) the Company is generally able to pay its debts as they become
due and payable; and (iii) the Company does not have unreasonably small capital
to carry on its business as it is currently conducted absent extraordinary and
unforeseen circumstances. The Company further warrants and represents that:
(a) except for the Permitted Encumbrances, the security interests granted
herein constitute and shall at all times constitute valid, first priority and
only liens on the Collateral; (b) Schedule 3 hereto correctly and completely
sets forth the Company's chief executive office and all of the Company's
Collateral locations, and after filing of financing statements in the
applicable filing clerks' offices in the jurisdictions listed on the Perfection
Certificate, this Financing Agreement creates a valid, perfected, first
priority and only lien on the Collateral except for the Permitted Encumbrances;
(c) that, except for the Permitted Encumbrances, the Company or a Guarantor is
or will be at the time additional Collateral is acquired by it or such
Guarantor, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer and create a security interest therein, free and clear
of any and all claims or liens in favor of others; (d) that the Company will at
its expense forever warrant and, at CITBC's request, defend the same from any
and all claims and demands of any other person other than the
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<PAGE> 26
Permitted Encumbrances; (e) that the Company will not grant, create or permit
to exist, any lien upon or security interest in the Collateral; or any proceeds
thereof, in favor of any other person other than the holders of the Permitted
Encumbrances; (f) the representations and warranties in the Perfection
Certificates, as of the Closing Date, are true and correct; and (g) that
neither the Company nor any Guarantor purchases or acquires Inventory on a
consignment basis.
2. The Company agrees to maintain books and records pertaining
to the Collateral in such detail, form and scope as CITBC shall reasonably
require. The Company agrees that CITBC or its agents may enter upon the
Company's premises at any time during normal business hours, and from time to
time, for the purpose of inspecting the Collateral, and any and all records
pertaining thereto. The Company agrees to afford CITBC prior written notice of
any change in the location of any Collateral, other than to locations, that as
of the date thereof, are known to CITBC and at which CITBC has filed financing
statements and otherwise fully perfected its liens thereon. The Company is
also to advise CITBC promptly, in sufficient detail, of any adverse change that
is material to the business of the Company relating to the type, quantity or
quality of the Collateral or on the security interests granted to CITBC
therein.
3. The Company agrees to: execute and deliver to CITBC, from
time to time, solely for CITBC's convenience in maintaining a record of the
Collateral, such written statements, and schedules as CITBC may reasonably
require, designating, identifying or describing the Collateral pledged to CITBC
hereunder. The Company's failure, however, to promptly give CITBC such
statements, or schedules shall not affect, diminish, modify or otherwise limit
CITBC's security interests in the Collateral.
4. The Company agrees to comply with the requirements of all
state and federal laws in order to grant to CITBC valid, perfected first
priority lien on the Collateral, subject only to the Permitted Encumbrances.
CITBC is hereby authorized by the Company to file any financing statements
covering the Collateral whether or not the Company's signature appears
thereon. The Company agrees to do whatever CITBC may reasonably request, from
time to time, by way of: searching records, filing notices of liens, financing
statements, amendments, renewals and continuations thereof; cooperating with
CITBC's custodians; keeping Inventory records; transferring proceeds of
Collateral to CITBC's possession; and performing such further acts as CITBC may
reasonably require in order to effect the purposes of this Financing Agreement.
5.(a) The Company agrees to maintain insurance on the Inventory
(wherever located) under such policies of insurance, with such insurance
companies, in such reasonable amounts and covering such insurable risks as are
at all times reasonably satisfactory to CITBC. All policies covering the
Inventory are, to be made payable to CITBC, in case of loss, under a standard
non-contributory "lender" or "secured party" clause and are to contain such
other provisions including, but not limited to, a breach of warranty clause, as
CITBC may require to fully protect CITBC's interest in the Inventory and to any
payments to be made under such policies. All original policies or true copies
thereof are to be delivered to CITBC, premium prepaid, with the loss payable
endorsement in CITBC's favor, and shall provide for not less than thirty (30)
days prior written notice to CITBC of the exercise of any right of
cancellation, material reduction in amount of insurance, or material change in
coverage thereof. At the Company's request, or if the Company fails to
maintain such insurance, CITBC may arrange for such insurance, but at the
Company's expense and without any responsibility on CITBC's part for:
obtaining the
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<PAGE> 27
insurance, the solvency of the insurance companies, the adequacy of the
coverage, or the collection of claims. Upon the occurrence of an Event of
Default which is not waived in writing, CITBC shall have the sole right, in
the name of CITBC or the Company, to file claims under any insurance policies,
to receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.
(b) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory shall reduce the Company's Revolving
Loan accordingly.
(c) In addition to the insurance required under subparagraph (a) of this
Paragraph 5, the Company agrees to maintain insurance in such amounts and
covering such risks, including interruption of business, as are usually carried
by companies engaged in the same or similar business.
6. The Company agrees to pay, when due, all taxes, assessments,
claims and other charges (herein "taxes") lawfully levied or assessed upon the
Company or the Collateral, provided, however, that such taxes, other than taxes
due the United States of America, need not be timely paid if such taxes are (i)
being diligently contested in good faith by the Company by appropriate
proceeding and (ii) not secured by a lien on the Collateral which lien is
senior to the lien of CITBC. CITBC may, on the Company's behalf, pay all such
taxes (x) if payment of such is necessary to protect, preserve or dispose of
Collateral or (y) are due the United States of America or (z) if such is
necessary to avoid, or release, any lien on Collateral, which lien is senior to
the lien of CITBC.
7. The Company: (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a material and adverse
impact on the Collateral taken as a whole, or any material part thereof, or on
the operation of the Company's business; provided that the Company may contest
any acts, rules, regulations, orders and directions of such bodies or officials
in any reasonable manner which will not, in CITBC's reasonable opinion,
materially and adversely effect CITBC's rights or priority in the Collateral;
(b) agrees to comply with all environmental statutes, acts, rules, regulations
or orders as presently existing or as adopted or amended in the future
applicable to the ownership and/or use of its real property and operation of
its business which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
the business of the Company; and (c) shall not be deemed to have breached any
provision of this Paragraph 7 if (i) the failure to comply with the
requirements of this Paragraph 7 resulted from good faith error or innocent
omission, (ii) the Company promptly commences and diligently pursues a cure of
such breach, (iii) such failure is cured within a reasonable time based upon
the circumstances and the amount of work required, but in no event later than
the time frame prescribed by applicable law, and (iv) such failure has not
resulted in a material adverse effect on the business, financial condition or
operations of the Company or on the Collateral. Upon receipt by the Company of
any notice of non-compliance with any applicable environmental rules or
regulation, of any required expenditures for compliance, any spill or omission
or other regulated "event", or any claim resulting from the Company's business
or practices or relating to the Collateral, the Company shall establish such
reserves as may be required by GAAP or, in the alternative or in addition
thereto, CITBC may establish a reserve in such amount as CITBC may require in
its reasonable discretion.
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<PAGE> 28
8. Until termination of this Financing Agreement and payment
and satisfaction of all Obligations due hereunder, the Company will furnish to
CITBC, on Friday of each week with respect to the immediately previous week, a
Borrowing Base Certificate in the form of Exhibit D hereto.
9. Until termination of this Financing Agreement and payment
and satisfaction of all Obligations due hereunder, the Company agrees that,
unless CITBC shall have otherwise consented in writing, the Company will
furnish to CITBC, within ninety (90) days after the end of each fiscal year of
the Company an audited Consolidated Balance Sheet and statements of income,
cash flow and stockholders' equity of the Company and its subsidiaries for such
year, audited by Arthur Andersen LLP or another independent public accountants
selected by the Company and satisfactory to CITBC in the exercise of its
reasonable business judgment; within one hundred fifty (150) days after the end
of each fiscal year of the Company a management letter as at the close of such
year; within forty-five (45) days after the end of each of the first three
Fiscal Quarters of each Fiscal Year, a Consolidated Balance Sheet as at the end
of such period and statements of income, cash flow and stockholders' equity of
the Company and its subsidiaries, certified by an authorized financial or
accounting officer of the Company and within sixty (60) days after the end of
each such Fiscal Quarter comparisons of such financial information to (a) the
financial projection provided to CITBC for the corresponding fiscal period and
(b) the prior year's financial statements as herein described for the
corresponding fiscal period in such prior year (herein "Comparative Financial
Reports"); within forty-five (45) days after the end of each month a
Consolidated Balance Sheet as at the end of such period and statements of
income, cash flow and stockholders' equity of the Company and all subsidiaries
for such period, certified by an authorized financial or accounting officer of
the Company together with Comparative Financial Reports; and within thirty (30)
days after the end of each fiscal year, monthly projections for the succeeding
fiscal year including a Consolidated Balance Sheet, statements of income, cash
flow and stockholders' equity of the Company and its subsidiaries; and from
time to time, such further information regarding the business affairs and
financial condition of the Company as CITBC may reasonably request. Each
financial statement which the Company is required to submit hereunder must be
accompanied by an officer's certificate, signed by an Executive Officer,
pursuant to which any one such officer must certify that: (i) the financial
statement(s) are prepared in accordance with GAAP consistently applied in
accordance with past practices and fairly present in all material respects the
Company's financial condition at the end of the particular accounting period,
as well as the Company's operating results during such accounting period,
subject to year-end audit adjustments and with only such notes as appear
therein and (ii) during the particular accounting period: (x) there has been no
default or condition which, with the passage of time or notice, or both, would
constitute a Default or Event of Default under this Financing Agreement,
provided, however, that if any such officer has knowledge that any such Default
or Event of Default, has occurred during such period, the existence of and a
detailed description of same shall be set forth in such officer's certificate;
and (y) the Company has not received any notice of cancellation with respect to
its property insurance policies.
10. Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that, without
the prior written consent of CITBC, except as otherwise herein provided, the
Company will not:
A. Mortgage, assign, pledge, transfer or otherwise permit any
lien, charge, security interest, encumbrance or judgment,
(whether as a result of a purchase money or title retention
transaction,
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<PAGE> 29
or other security interest, or otherwise) to exist on any of
the Collateral, except for the Permitted Encumbrances;
B. Incur or create any Indebtedness in excess of $10,000,000, in
the aggregate, other than the Permitted Indebtedness;
C. Borrow any money on the security of the Company's Collateral
from sources other than CITBC;
D. Sell, lease, assign, transfer or otherwise dispose of
Collateral, except as otherwise specifically permitted by this
Financing Agreement or in the ordinary course of business, or
(ii) either all or substantially all of the Company's assets
which do not constitute Collateral;
E. Merge, consolidate or otherwise alter or modify its corporate
name, principal place of business, structure, status or
existence, or enter into or engage in any operation or
activity materially different from that presently being
conducted by the Company;
F. Assume, guarantee, endorse, or otherwise become liable upon
the obligations of any person, firm, entity or corporation,
except by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business or any guaranty of a mortgage debt in
proportion to its interest in leased property subject to the
dollar limitation set forth in Paragraph 13 of this Section 6
and except for any lease arrangement of any Guarantor or third
party assumed or guaranteed by the Company in the ordinary
course of business;
G. Make any advance or loan to, or any investment in, any firm,
entity, person or corporation other than to employees,
officers and directors in the ordinary course of business, not
to exceed $2,000,000 at any time outstanding;
H. Change the Fiscal Year of the Company or any of its
subsidiaries; and
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<PAGE> 30
I. At the Fiscal Year end immediately prior to the date the Line
of Credit is increased to an amount set forth below and at
each Fiscal Year end thereafter when such increased Line of
Credit is in effect, the Company shall have a Tangible Net
Worth amount of not less than indicated below and shall, at
all other times when such increased Line of Credit is in
effect, maintain a Tangible Net Worth amount of not less than
indicated below.
<TABLE>
<CAPTION>
==========================================================================================================================
Tangible Net Worth at Tangible Net Worth at all
Fiscal Year end immediately prior to times other than at Fiscal Year end
increased Line of Credit immediately prior to increased
and each following Line of Credit and each following
Line of Credit Fiscal Year end Fiscal Year end
- -------------- --------------- ---------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 35,000,000 $ 73,000,000 $ 70,000,000
- --------------------------------------------------------------------------------------------------------------------------
$ 50,000,000 $ 75,000,000 $ 70,000,000
==========================================================================================================================
</TABLE>
11. The Company represents and warrants that it has complied in
all material respects with and shall continue to comply in all material
respects with all provisions of the Fair Labor Standards Act as set forth in
the United States Code.
12. The Company represents and warrants that, to the best of its
knowledge, it owns or possesses or has the right to use all of the patents,
trademarks, permits, services marks, tradenames, copyrights, software, customer
lists, franchises, licenses and rights with respect thereto, necessary for the
present and presently planned future conduct of its business, free from and
without any known conflict with any title, interest, lien, restriction or
encumbrance and without any known conflict with rights of others; none of the
foregoing is subject to any outstanding order, decree, judgment or stipulation,
and no proceedings have been instituted or are pending or, to the best
knowledge of the Company, threatened charging that any of the foregoing was
misappropriated or infringes on the rights of any third party.
13. Without the prior written consent of CITBC, the Company
agrees that, other than in connection with any settlements that may be entered
into with members of the Haft family in an amount not to exceed $13.1 million,
it will not enter into any transaction, including, without limitation, any
purchase, sale, lease, loan or exchange of property with any subsidiary or
affiliate of the Company unless such transaction shall be on an arm's length
basis on terms no less favorable to the Company than a transaction with a third
party.
14. The Company agrees to advise CITBC in writing of: a) all
expenditures (actual or anticipated) in excess of $150,000.00 for x)
environmental clean-up, y) environmental compliance or z) environmental testing
and the impact of said expenses on the Company's Working Capital; and b) any
notices the Company receives from any local, state or federal authority
advising the Company of any environmental liability (real or potential)
stemming from the Company's operations, its premises, its waste disposal
practices, or waste disposal sites used by the Company and to provide CITBC
with copies of all such notices if so required or requested by CITBC.
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<PAGE> 31
15. The Company shall advise CITBC of any decision to open a new
store or close any of its existing stores. The Company shall so advise CITBC
of such decision, to the extent practicable, not less than thirty (30) days
prior to the earlier of x) an actual closing and/or opening of any store or y)
any public announcement of the Company's decision to open or close a store.
SECTION 7. INTEREST, FEES AND EXPENSES
1. The Revolving Loans made on and after the Closing Date shall bear a
variable rate of interest, as further described below, to be selected by the
Company in the Revolving Loan Notice of Borrowing effective upon receipt by
CITBC, and given no later than 1:00 p.m. (New York time) on a) in the case of
Chase Rate Loans, the date such borrowings are to be made and b) in the case of
Libor Loans, the third (3rd) Business Day prior to the date such borrowings are
to be made. In the event the Company fails to timely select a variable
interest rate, the Revolving Loans shall be deemed Chase Rate Loans until the
Company elects otherwise as herein provided. The Company may elect either a)
the Chase Rate; b) the Libor; or c) a combination of the Chase Rate and the
Libor to be applied to different tranches of the Revolving Loans.
x) In the event the Company elects the Chase Rate for all or any part of
the Revolving Loans, the Revolving Loan Notice of Borrowing shall specify
the amount of such loan. The interest rate thereon shall be an amount
equal to the Chase Rate. In the event of any change in the Chase Rate,
the interest rate with respect to a Revolving Loan that is a Chase Rate
Loan shall change, as of the first day of the month following any change.
y) In the event the Company initially elects the Libor for all or any
part of the Revolving Loans, the Revolving Loan Notice of Borrowing shall
specify (a) the amount of such loan and (b) the initial Libor Period
applicable thereto. The interest rate thereon shall be an amount equal
to (i) the applicable Libor for such Libor Period plus (ii) two and one
quarter percent (2.25%) (the "Revolving Loans Libor Margin").
2. Provided that x) there is then no Default or Event of
Default and y) the Company has given an irrevocable written or facsimile Notice
of Variable Interest Rate Conversion/Continuation in accordance with the
provisions of this Paragraph 2, the Company may I) continue an outstanding
Libor Loan for a subsequent Libor Period it selects and/or II) convert all or
any part of any outstanding variable interest rate on the Revolving Loans (i)
from a Chase Rate to a Libor and/or (ii) from a Libor to a Chase Rate.
Whenever the Company desires to either convert a variable interest rate or to
continue a Libor for a subsequent Libor Period, the Company must advise CITBC
of its irrevocable election no later than (a) three (3) Business Days preceding
the first day of the Libor Period if the conversion is from a Chase Rate to a
Libor and (b) three (3) Business Days prior to the end of the then current
Libor Period if the conversion is from a Libor to a Chase Rate. If no such
election is timely made or can be made, CITBC shall use the Chase Rate to
compute any variable interest rate hereunder. Each written or facsimile Notice
of Variable Interest Rate Conversion/Continuation shall (i) identify the loans
to be converted or continued, the aggregate outstanding principal balance
thereof and, in the case of Libor Loans to be continued, the last day of the
Libor Period therefor, (ii) specify the effective date of such conversion or
continuation provided, however,
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<PAGE> 32
if the loans to be continued or converted are Libor Loans, such continuation or
conversion shall be effective only on the last day of the then current Libor
Period applicable to such loans (subject to Subparagraph (c) below of this
Paragraph), and (iii) specify the Libor Period to be applicable to such
converted or continued Libor Loan.
a) If the Company elects under this Paragraph to either continue
an outstanding Libor Loan for a subsequent Libor Period or
convert all or any part of a Chase Rate Loan to a Libor Loan,
the interest thereon shall be an amount equal to the Revolving
Loans Libor for such succeeding Libor Period plus the
Revolving Loans Libor Margin.
b) If the Company elects under this Paragraph to convert all or
any part of a Libor Loan to a Chase Rate Loan, the interest
rate thereon shall be an amount equal to the Chase Rate.
c) If the last day of a current Libor Period with respect to a
loan that is to be continued as or converted to a Libor Loan
under this Paragraph is not a Business Day, then (i) such
continuation of conversion shall be made on the next
succeeding Business Day and (ii) during the period from such
last day of the current Libor Period to such next succeeding
Business Day, such loan shall bear interest as if it were a
Chase Rate Loan.
d) Any Libor Period pertaining to a Libor Loan that begins on the
last Business Day of a calendar month (or on a day for which
there is no numerically the end of such Libor Period) shall
end on the last Business Day of the calendar month at the end
of such Libor Period.
e) No Libor Period shall end after the next succeeding
Anniversary Date other than an Anniversary Date as to which
the right of the Company or CITBC to terminate the Line of
Credit or this Financing Agreement pursuant to Section 10
hereof has elapsed without exercise of such right by either
the Company or CITBC.
3. Notwithstanding anything to the contrary contained in this
Section 7, there shall not be more than ten (10) Libor Tranches outstanding at
any one time.
4. Calculation of all amounts payable to CITBC under this
Financing Agreement with regard to Libor Loans shall be made as though CITBC
had actually funded the Libor Loans through the purchase of deposits in the
relevant market and currency, as the case may be, bearing interest at the rate
applicable to such Libor Loans in an amount equal to the amount of the Libor
Loans and having a maturity comparable to the relevant Libor Period provided,
however. that CITBC may fund each of the Libor Loans in any manner as CITBC
sees fit and the foregoing assumption shall be used only for calculation of
amounts payable under this Financing Agreement.
5. Notwithstanding anything to the contrary contained herein,
if any Libor Loan made under this Financing Agreement is prepaid, by
acceleration or otherwise, the Company must pay to CITBC the Libor Prepayment
Penalty.
- 29 -
<PAGE> 33
6. Notwithstanding anything herein to the contrary, in the
event that a Default that has not been cured to the satisfaction of CITBC or
waived in writing by CITBC or an Event of Default that has not been waived in
writing by CITBC exists at the end of any Libor Period for which Libor Loans
are outstanding, the Company shall be deemed to have selected to convert all
such Libor Loans at the end of such Libor Period to Chase Rate Loans. Such
Libor Loans shall be so converted without any further action by the Company.
The principal amount of such loans shall bear interest at a rate equal to the
Chase Rate.
7. If all or a portion of the outstanding principal amount of
the Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a
Libor Loan, shall be automatically converted to a Chase Rate Loan at the end of
the last Libor Period therefor for which CITBC on or prior to the date such
unpaid principal amount became due, shall have determined the Libor.
8. In the event that CITBC shall have determined in the
exercise of its reasonable business judgement (which determination shall be
conclusive and binding upon the Company) that by reason of circumstances
affecting the interbank Eurodollar market, adequate and reasonable means do not
exist for ascertaining the Libor Rate applicable for any Libor Period with
respect to (a) a proposed loan that the Company has requested be made as a
Libor Loan, (b) a Libor Loan that will result from the requested conversion of
a Chase Rate Loan into a Libor Loan, or (c) the continuation of a Libor Loan
beyond the expiration of the then current Libor Period with respect thereto,
CITBC shall give written notice of such determination to the Company at least
one (1) day prior to, as the case may be, the requested borrowing date,
conversion date, or the last day of such Libor Period. If such notice is given
(i) any requested Libor Loan shall be made as a Chase Rate Loan, (ii) any Chase
Rate Loan that was to have been converted to a Libor Loan shall be continued as
a Chase Rate Loan, and (iii) any outstanding Libor Loan shall be converted, on
the last day of then current Libor Period with respect thereto, to a Chase Rate
Loan. Until such notice has been withdrawn by CITBC, no further Libor Loan
shall be made nor shall the Company have the right to convert a Chase Rate Loan
to a Libor Loan.
9. Notwithstanding any other provisions herein, if any law,
regulation, treaty or directive or any change therein or in the interpretation
or application thereof, shall make it unlawful for CITBC to make or maintain
Libor Loans as contemplated herein, the then outstanding Libor Loans, if any,
shall be converted automatically to Chase Rate Loans on the next succeeding
interest payment date or within such earlier period as required by law. The
Company hereby agrees promptly to pay CITBC, upon its demand, any additional
amounts necessary to compensate CITBC for any costs incurred by CITBC in making
any conversion in accordance with this Section 7 including, but not limited to,
any interest or fees payable by CITBC or Chase Bank to lenders of funds
obtained by either of them in order to make or maintain Libor Loans hereunder.
10. The applicable interest rate on Chase Rate Loans shall (i)
be calculated on the average of the portion of the net balances owing by the
Company to CITBC in the Revolving Loan Account at the close of each day such
loans are outstanding during each month for which the Company has elected such
Chase Rate and (ii) be prorated for the number of days of such month such loans
are outstanding.
11. All interest on the Chase Rate Loans shall be payable
monthly as of the end of each month and shall be calculated based on a 360 day
year. All interest on each Libor Loan made, converted, and/or continued under
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<PAGE> 34
this Financing Agreement shall be payable at the end of the Libor Period
therefor on the outstanding principal balance thereof. CITBC shall be entitled
to charge the Company's Revolving Loan Account with the applicable interest
rate(s) until all Obligations have been paid in full.
12. In consideration of the Letter of Credit Guaranty of CITBC,
the Company shall pay CITBC the Letter of Credit Guaranty Fee which shall be an
amount equal to one percent (1.00%) per annum, payable monthly, on the face
amount of each Letter of Credit less the amount of any and all amounts
previously drawn under the Letter of Credit.
13. The Company shall reimburse or pay CITBC, as the case may
be, for its own account for: a) all Out-of-Pocket Expenses of CITBC in excess
of the $70,000 previously paid by the Company to CITBC, provided however, that
any unused portion of such funds shall be credited to the Closing Fee and b)
any applicable Documentation Fee.
14. The Company shall pay CITBC an Administrative Fee in the
amount of $30,000 per year payable on the Closing Date and annually thereafter.
The Administrative Fee shall be fully earned when paid and shall not be
refundable or rebatable by reason of pre-payment, acceleration, upon an Event
of Default, or any other circumstances and shall survive any termination of
this Financing Agreement.
15. Any charges, fees, commissions, costs and expenses charged
to CITBC for the Company's account by any Issuing Bank in connection with or
arising out of Letters of Credit issued pursuant to this Financing Agreement or
out of transactions relating thereto will be charged to the Company's Revolving
Loan Account in full when charged to or paid by CITBC and when made by any such
Issuing Bank shall be conclusive on CITBC.
16. Upon the last Business Day of each month, commencing with
September, 1996, the Company shall pay CITBC the Line of Credit Fee.
17. The Company shall pay, for the account of CITBC, CITBC's
standard charges for, and the fees and expenses of, the CITBC personnel used
by CITBC for reviewing the books and records of the Company and for verifying,
testing protecting, safeguarding, preserving or disposing of all or any part of
the Collateral provided, however, that the foregoing shall not be payable until
the occurrence of an Event of Default if the Company is paying an
Administrative Fee.
18. To induce CITBC to enter this Financing Agreement and to
extend to the Company the Revolving Loans and the Letter of Credit Guaranties
the Company shall pay to CITBC a Closing Fee in the amount of $125,000 (.50% of
the Line of Credit on the Closing Date) payable on the Closing Date, provided
that a commitment fee of $62,500 previously paid by the Company to CITBC shall
be credited to the Closing Fee. In the event the Company elects to increase
the Line of Credit in accordance with the terms of this Financing Agreement
subsequent to the Closing Date, a fee equal to twenty-five hundredths of one
percent (.25%) will be due and payable to CITBC upon each such increase. The
Closing Fee and other fees payable pursuant to this Paragraph 18 shall be fully
earned when paid and shall not be refundable as rebatable by reason of
prepayment, acceleration,
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<PAGE> 35
upon an Event of Default, or any other circumstances and shall survive any
termination of this Financing Agreement.
SECTION 8. POWERS
The Company hereby constitutes CITBC or any person or agent CITBC may
designate as its attorney-in-fact, at the Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Company's Obligations to CITBC have been
paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in
the name of CITBC or the Company, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the
Company and to notify postal authorities to change the address for delivery
thereof to such address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time,
in the name of CITBC or the Company or that of CITBC's designee, information
concerning the amounts owing on the Accounts;
(d) To transmit to customers indebted on Accounts notice of
CITBC's interest therein and to notify customers indebted on Accounts to make
payment directly to CITBC for the Company's account; and
(e) To take or bring, in the name of CITBC or the Company, all
steps, actions, suits or proceedings deemed by CITBC necessary or desirable to
enforce or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the
powers set forth in clauses (b), (d) and (e) above in this Section 8 may only
be exercised after the occurrence of an Event of Default and until such time as
such Event of Default is waived in writing by CITBC. In addition, the powers
set forth in clause (c) above of this Section 8 shall only be exercised in the
name of the Company or a certified public accountant designated by CITBC prior
to the occurrence of a Default or an Event of Default.
SECTION 9. EVENTS OF DEFAULT AND REMEDIES
1. Notwithstanding anything hereinabove to the contrary, CITBC may
terminate this Financing Agreement immediately upon the occurrence of any of
the following (herein "Events of Default"):
(a) cessation of the business of the Company or the calling of a
meeting of the creditors of the Company for purposes of
compromising the debts and obligations of the Company;
(b) the failure of the Company to generally meet debts as they
mature;
- 32 -
<PAGE> 36
(c) the commencement by or against the Company of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law provided
that in the event of any involuntary proceeding commenced
against the Company, such proceeding is not dismissed or
discharged within forty-five (45) days after the commencement
thereof;
(d) breach by the Company of any material warranty, representation
or covenant contained herein (other than those referred to in
subparagraph (e) below), or in the other Loan Documents,
provided that such breach by the Company of any of the
warranties, representations or covenants referred in this
clause (d) shall not be deemed to be an Event of Default
unless and until such breach shall fail to be remedied to
CITBC's satisfaction for a period of fifteen (15) days from
the date of such breach;
(e) breach by the Company of any warranty, representation or
covenant of Section 3, Paragraphs 3 (other than the first and
the third sentence of Paragraph 3) and 4; Section 5,
Paragraphs 3; Section 6, Paragraphs 1, 5, 6, 10 and 11;
(f) failure of the Company to pay any Obligation within five (5)
Business Days of the due date thereof, provided that nothing
contained herein shall prohibit CITBC from charging such
amounts to the Company's Revolving Loan Account on the due
date thereof;
(g) the Company shall (i) engage in any "prohibited transaction"
as defined in ERISA, (ii) have any "accumulated funding
deficiency" as defined in ERISA, (iii) have any Reportable
Event as defined in ERISA, (iv) terminate any Plan, as defined
in ERISA or (v) be engaged in any proceeding in which the
Pension Benefit Guaranty Corporation shall seek appointment,
or is appointed, as trustee or administrator of any Plan, as
defined in ERISA, and with respect to this subparagraph (h)
such event or condition x) remains uncured for a period of
thirty (30) days from date of occurrence and y) could, in the
reasonable opinion of CITBC, subject the Company to any tax,
penalty or other liability material to the business,
operations or financial condition of the Company;
(h) the Company shall be obligated to make payments in the
aggregate amount of more than $30,000,000 or more in
connection with (i) the judgment entered against the Company
in favor of Robert Haft and (ii) any settlements entered into
with members of the Haft family;
(i) upon an event of default and acceleration pursuant to any
instrument evidencing Indebtedness of the Company (other than
that arising under this Financing Agreement) in excess of
$2,000,000; or
(j) one or more final judgments for the payment of money
aggregating in excess of $2,000,000 (to the extent not fully
covered by insurance) shall be entered against the Company and
the Company shall fail to discharge the same within thirty
(30) days from the date of notice of entry thereof or to
appeal therefrom.
- 33 -
<PAGE> 37
2. Upon the occurrence of a Default and/or an Event of Default,
at the option of CITBC, all loans, advances, and extensions of credit provided
for in this Financing Agreement shall be thereafter in CITBC's sole discretion
and the obligation of CITBC to make Revolving Loans and/or open Letters of
Credit shall cease unless such Default is waived in writing by CITBC or cured
to CITBC's satisfaction or such Event of Default is waived in writing by CITBC
and at the option of CITBC upon the occurrence of an Event of Default (i) all
Obligations shall become immediately due and payable; (ii) CITBC may charge the
Company the Default Rate of Interest on all then outstanding or thereafter
incurred Obligations in lieu of the interest provided for in Section 7 of this
Financing Agreement provided a) CITBC has given the Company written notice of
the Event of Default, provided, however, that no notice is required if one of
the Events of Default is an Event of Default listed in Paragraph 1 (a), (b),
or(c) of this Section 9 and b) the Company has failed to cure the Event of
Default within fifteen (15) days after x) CITBC provides such notice in
accordance with the provisions of paragraph 6 of Section 12 or y) the
occurrence of one of the Events of Default listed in Paragraph 1 (a), (b), or
(c) of this Section 9; and (iii) CITBC may immediately terminate this Financing
Agreement upon notice to the Company, provided, however, that no notice of
termination is required if the Event of Default is one of an Events of Default
listed in Paragraph 1 (a), (b), (c) of this Section 9. The exercise of any
option is not exclusive of any other option which may be exercised at any time
by CITBC.
3. Immediately upon the occurrence of any Event of Default,
CITBC may to the extent permitted by law: (a) remove from any premises where
same may be located any and all documents, instruments, files and records, and
any receptacles or cabinets containing same, relating to the Accounts, or CITBC
may use, at the Company's expense, such of the Company's personnel, supplies or
space at the Company's places of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Company or CITBC, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to: accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Company or CITBC; (c) sell,
assign and deliver the Collateral and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for
cash, on credit or otherwise, at CITBC's sole option and discretion, and CITBC
may bid or become a purchaser at any such sale, free from any right of
redemption, which right is hereby expressly waived by the Company; (d)
foreclose the security interests created herein by any available judicial
procedure, or to take possession of any or all of the Inventory without
judicial process, and to enter any premises where any Inventory may be located
for the purpose of taking possession of or removing the same and (e) exercise
any other rights and remedies provided in law, in equity, by contract or
otherwise. CITBC shall have the right, without notice or advertisement, to
sell, lease, or otherwise dispose of all or any part of the Collateral whether
in its then condition or after further preparation or processing, in the name
of the Company or CITBC, or in the name of such other party as CITBC may
designate, either at public or private sale or at any broker's board, in lots
or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as CITBC in its sole
discretion may deem advisable, and CITBC shall have the right to purchase at
any such sale. If any Inventory shall require repairing, maintenance or
preparation, CITBC shall have the right, at its option, to do such of the
aforesaid as is necessary, for the purpose of putting the Inventory in such
saleable form as CITBC shall deem appropriate. The Company agrees, at the
request of CITBC, to assemble the Inventory and to make it available to CITBC
at premises of the Company or elsewhere and to make available to CITBC the
premises and facilities of the Company for the purpose of
- 34 -
<PAGE> 38
CITBC's taking possession of, removing or putting the Inventory in saleable
form. However, if notice of intended disposition of any Collateral is required
by law, it is agreed that ten (10) days notice shall constitute reasonable
notification and full compliance with the law. The net cash proceeds resulting
from CITBC's exercise of any of the foregoing rights, (after deducting all
charges, costs and expenses, including reasonable attorneys' fees) shall be
applied by CITBC to the payment of the Obligations, whether due or to become
due, in such order as CITBC may elect, and the Company shall remain liable to
CITBC for any deficiencies, and CITBC in turn agrees to remit to the Company or
its successors or assigns, any surplus resulting therefrom. The enumeration of
the foregoing rights is not intended to be exhaustive and the exercise of any
right shall not preclude the exercise of any other rights, all of which shall
be cumulative.
SECTION 10. TERMINATION
This Financing Agreement shall have an initial term of three (3) years
from the Closing Date to the first Anniversary Date and shall automatically
continue from Anniversary Date to Anniversary Date unless terminated as
provided for herein. The Company may terminate this Financing Agreement at any
time by giving CITBC at least sixty (60) days prior written notice of
termination provided that the Company pays to CITBC immediately on demand the
Libor Prepayment Penalty, if applicable. CITBC may terminate this Financing
Agreement on any Anniversary Date by giving the Company at least 60 days prior
written notice of termination and CITBC may terminate the Financing Agreement
immediately upon the occurrence of an Event of Default, provided, however, that
if the Event of Default is an event listed in Paragraph 1(a) (b), or (c) of
Section 9 of this Financing Agreement, CITBC may regard the Financing Agreement
as terminated and notice to that effect is not required. All Obligations
shall become due and payable as of any termination hereunder or under Section 9
hereof and, pending a final accounting, CITBC may withhold any balances in the
Company's Revolving Loan Account (unless supplied with an indemnity
satisfactory to CITBC) to cover all of the Obligations, whether absolute or
contingent. All of CITBC's rights, liens and security interests shall continue
after any termination until all Obligations have been paid and satisfied in
full.
SECTION 11. INDEMNITIES
THE COMPANY AGREES THAT EACH OF THE FOLLOWING INDEMNITIES SHALL SURVIVE
TERMINATION OF THIS FINANCING AGREEMENT AS WELL AS THE PAYMENT OF ALL
OBLIGATIONS OR AMOUNTS PAYABLE UNDER THIS FINANCING AGREEMENT:
1. THE COMPANY HEREBY INDEMNIFIES CITBC AND AGREES TO DEFEND AND HOLD
CITBC HARMLESS FROM AND AGAINST ANY AND ALL LOSS, DAMAGE, CLAIM, LIABILITY,
INJURY OR EXPENSE WHICH CITBC MAY SUSTAIN OR INCUR (OTHER THAN AS A RESULT OF
PHYSICAL ACTIONS OF CITBC ON THE COMPANY'S PREMISES OR ARISING OUT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT BY CITBC) IN CONNECTION WITH ANY CLAIM OR
EXPENSE ASSERTED AGAINST CITBC AS A RESULT OF ANY ENVIRONMENTAL POLLUTION,
HAZARDOUS MATERIAL OR ENVIRONMENTAL CLEAN-UP OF THE COMPANY'S
- 35 -
<PAGE> 39
REAL PROPERTY OR ANY CLAIM OR EXPENSE WHICH RESULTS FROM THE COMPANY'S
OPERATIONS (INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S OFF-SITE DISPOSAL
PRACTICES) ANY CLAIM OR EXPENSE RELATING TO THE INVENTORY.
2. THE COMPANY HEREBY AGREES TO INDEMNIFY CITBC AND HOLD CITBC HARMLESS
FROM ANY LOSS, COST OR EXPENSE CITBC MAY SUSTAIN OR INCUR AS A CONSEQUENCE OF
THE FAILURE BY THE COMPANY TO COMPLETE ANY BORROWING HEREUNDER AT A LIBOR AFTER
NOTICE THEREOF HAS BEEN GIVEN BY THE COMPANY TO CITBC, INCLUDING, WITHOUT
LIMITATION, ANY LOSS, COST OR EXPENSE INCURRED BY REASON OF THE LIQUIDATION OR
RE-EMPLOYMENT OF DEPOSITS OR OTHER FUNDS ACQUIRED BY CITBC TO FUND SUCH
BORROWING WHEN THE APPLICABLE AMOUNT OF THE REVOLVING LOANS, AS RESULT OF SUCH
FAILURE, IS NOT MADE SUBJECT TO SUCH INTEREST RATES ON SUCH DATE. CITBC SHALL
CERTIFY THE AMOUNT OF ITS LOSS, COST OR EXPENSE TO THE COMPANY AND SUCH
CERTIFICATION SHALL BE FINAL AND CONCLUSIVE ABSENT MANIFEST ERROR.
3. THE COMPANY HEREBY INDEMNIFIES CITBC AND HOLDS CITBC HARMLESS FROM
ANY AND ALL LOSS, CLAIM OR LIABILITY INCURRED BY CITBC ARISING FROM ANY
TRANSACTIONS OR OCCURRENCES RELATING TO LETTERS OF CREDIT ESTABLISHED OR OPENED
FOR THE COMPANY'S ACCOUNT, THE COLLATERAL RELATING THERETO AND ANY DRAFTS OR
ACCEPTANCES THEREUNDER, AND ALL OBLIGATIONS THEREUNDER, INCLUDING ANY SUCH LOSS
OR CLAIM DUE TO ANY ACTION TAKEN BY ANY ISSUING BANK, OTHER THAN FOR ANY SUCH
LOSS, CLAIM OR LIABILITY ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT BY CITBC UNDER THE LETTERS OF CREDIT GUARANTY. THE COMPANY FURTHER
AGREES TO HOLD CITBC HARMLESS FROM ANY ERRORS OR OMISSION, NEGLIGENCE OR
MISCONDUCT BY THE ISSUING BANK. THE COMPANY'S OBLIGATION TO CITBC HEREUNDER
SHALL NOT BE MODIFIED OR DIMINISHED FOR ANY REASON OR IN ANY MANNER WHATSOEVER,
OTHER THAN AS A RESULT OF CITBC'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
SECTION 12. MISCELLANEOUS
1. The Company hereby waives diligence, demand, presentment and protest
and any notices thereof as well as notice of nonpayment, notice of dishonor,
notice of intent to accelerate and notice of acceleration. No delay or
omission of CITBC or the Company to exercise any right or remedy hereunder,
whether before or after the happening of any Default or Event of Default, shall
impair any such right or shall operate as a waiver thereof or as a waiver of
any such Default or Event of Default. No single or partial exercise by CITBC
of any right or remedy precludes any other or further exercise thereof, or
precludes any other right or remedy.
- 36 -
<PAGE> 40
2. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO, AND CAN ONLY BE MODIFIED IN WRITING SIGNED BY THE PARTIES HERETO AND
SHALL BIND THE RESPECTIVE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
3. In no event shall the Company, upon demand by CITBC for
payment of any indebtedness relating hereto, by acceleration of the maturity
thereof, or otherwise, be obligated to pay interest and fees in excess of the
amount permitted by law. Regardless of any provision herein or in any
agreement made in connection herewith, CITBC shall never be entitled to
receive, charge or apply, as interest on any indebtedness relating hereto, any
amount in excess of the maximum amount of interest permissible under applicable
law. It is the intent of the Company and CITBC to conform strictly to all
applicable state and federal usury laws. All agreements between the Company and
CITBC whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of the maturity hereof or otherwise, shall
the amount contracted for, charged or received by CITBC for the use,
forbearance, or detention of the money loaned hereunder or otherwise, or for
the payment or performance of any covenant or obligation contained herein or in
any other document evidencing, securing or pertaining to the Obligations
evidenced hereby which may be legally deemed to be for the use, forbearance or
detention of money, exceed the maximum amount which the Company is legally
entitled to contract for, charge or collect under applicable state or federal
law. If from any circumstance whatsoever fulfillment of any provision hereof
or of such other documents, at the time performance of such provision shall be
due, shall involve transcending the limit of validity prescribed by law, then
the obligation to be fulfilled shall be automatically reduced to the limit of
such validity, and if from any such circumstance CITBC shall ever receive as
interest or otherwise an amount in excess of the maximum that can be legally
collected, then such amount which would be excessive interest shall be applied
to the reduction of the principal indebtedness hereof and any other amounts due
with respect to the Obligations evidenced hereby, but not to the payment of
interest and if such amount which would be excessive interest exceeds the
Obligations and all other non interest indebtedness described above, then such
additional amount shall be refunded to the Company. In determining whether or
not all sums paid or agreed to be paid by the Company in connection with the
Obligations to CITBC, under any specific contingency, exceeds the maximum
amount permitted by applicable law, the Company and CITBC shall to the maximum
extent permitted under applicable law, (a) characterize any non-principal
payment as an expense, fee or premium rather than as sums paid or agreed to be
paid by the Company in connection with the Obligations to CITBC, (b) exclude
voluntary prepayments and the effect thereof, and (c) amortize, prorate,
allocate and spread in equal parts, the total amount of all sums paid or agreed
to be paid by the Company in connection with the Obligations to CITBC
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations. The terms and
provisions of this Paragraph shall control and supersede every other provision
hereof and all other agreements between the Company and CITBC.
4. If any provision hereof or of any Loan Document made in
connection herewith is held to be illegal, invalid or unenforceable, such
provision shall be fully severable, and the remaining provisions of the
applicable agreement shall remain in full force and effect and shall not be
affected by such provision's severance.
- 37 -
<PAGE> 41
Furthermore, in lieu of any such provision, there shall be added automatically
as a part of the applicable agreement a legal, valid and enforceable provision
as similar in terms to the severed provision as may be possible.
5. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AND
CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. THE COMPANY HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF
PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.
6. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered when hand delivered, including
overnight delivery by a courier service, or sent by telegram or facsimile, or
three (3) days after deposit in the United States mails, with proper first
class postage prepaid and addressed to the party to be notified as follows:
(A) if to CITBC, at:
The CIT Group/Business Credit, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Regional Credit Manager
Facsimile Number: (212) 536-1293
- 38 -
<PAGE> 42
(B) if to the Company at:
Crown Books Corporation
3300 75th Avenue
Landover, Maryland 20785
Attn: Mr. Donald J. Pilch
Chief Financial Officer
Facsimile Number: (301) 731-1524
with a copy to:
Jones Day, Reavis & Pogue
Metropolitan Square
1450 G Street, NW
Washington, DC 20005-2088
Attention: Kenneth J. Ayres, Esq.
Facsimile Number: (202) 737-2832
or to such other address as any party may designate for itself by like notice.
7. This Financing Agreement and the Loan Documents can be
changed only by a writing signed by both the Company and CITBC, and shall bind
and benefit the Company and CITBC and their respective successors and assigns.
8. Lender may assign its rights and delegate its obligations
under this Financing Agreement and the other Loan Documents or sell
participations in all or any part of the Revolving Loans or any other interest
herein to a bank or other financial institution in which event, the assignee or
participant shall have, to the extent of such assignment or participation, the
same rights and benefits as it would have had if it were CITBC, except as
otherwise provided by the terms of such assignment or participation. CITBC may
furnish any information concerning the Company and Guarantors in the possession
of CITBC from time to time to assignees and participants (including prospective
assignees and participants) subject to a confidentiality agreement reasonably
satisfactory to the Company.
9. THIS FINANCING AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
CONFLICTS OF LAW.
10. This Financing Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same instrument. In
making proof of such agreement, it shall not be necessary to produce or account
for any counterpart other than one signed by the party against which
enforcement is sought.
- 39 -
<PAGE> 43
11. It is agreed that with respect to this Financing Agreement
and the other Loan Documents, as each may be amended, modified, or supplemented
from time to time, signed faxed documents shall be deemed to be of the same
force and effect as an original of a manually signed copy.
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers at New York, New York as of the date set forth above.
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Jonathan A. Lucas
------------------------------
Name:
------------------------------
Title: VP
------------------------------
CROWN BOOKS CORPORATION
By: /s/ Donald J. Pilch
---------------------------
Name: Donald J. Pilch
---------------------------
Title: VP and CFO
---------------------------
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 26,469
<SECURITIES> 3,515
<RECEIVABLES> 3,901
<ALLOWANCES> 0
<INVENTORY> 111,270
<CURRENT-ASSETS> 158,062
<PP&E> 50,045
<DEPRECIATION> 26,166
<TOTAL-ASSETS> 189,036
<CURRENT-LIABILITIES> 90,619
<BONDS> 1,660
0
0
<COMMON> 56
<OTHER-SE> 84,096
<TOTAL-LIABILITY-AND-EQUITY> 189,036
<SALES> 129,025
<TOTAL-REVENUES> 129,870
<CGS> 105,746
<TOTAL-COSTS> 105,746
<OTHER-EXPENSES> 28,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 691
<INCOME-PRETAX> (5,501)
<INCOME-TAX> (2,174)
<INCOME-CONTINUING> (3,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,327)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
