As Filed with the SEC on January 7, 1998
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 23, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number: 0-14394
TOWN & COUNTRY CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2384321
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
25 Union Street, Chelsea, Massachusetts 02150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 884-8500
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
-
On December 15, 1997, the Registrant had outstanding 23,684,948 shares of Class
A Common Stock, $.01 par value and 2,664,927 shares of Class B Common Stock,
$.01 par value. The Registrant also had 1,263,741 shares of Convertible
Preferred Stock, $1 par value, outstanding on December 15, 1997. These shares
are immediately convertible into 2,527,482 shares of Class A Common Stock.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 23, February 23,
1997 1997
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 826,000 $ 10,431,911
Restricted cash 245 107,090
Accounts receivable--
Less allowances for doubtful
accounts of $1,926,000 and $1,243,000 at
November 23, 1997 and February 23, 1997,
respectively 41,466,531 22,247,826
Inventories (Note 5) 51,489,052 42,752,801
Prepaid expenses and other
current assets 2,743,541 1,956,587
------------- --------------
Total current assets 96,525,369 77,496,215
------------- --------------
PROPERTY, PLANT & EQUIPMENT, at cost 38,477,299 56,215,045
Less - Accumulated depreciation 24,378,777 33,242,256
------------- --------------
14,098,522 22,972,789
------------- --------------
INVESTMENT IN SOLOMON BROTHERS, LIMITED (Note 8) - 13,734,000
------------- --------------
OTHER ASSETS 3,245,026 7,109,012
------------- --------------
$ 113,868,917 $ 121,312,016
============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 3
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
November 23, February 23,
1997 1997
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE:
Notes payable to banks (Note 3) $ 26,035,084 $ -
Senior Secured Notes (Note 3) 10,861,000 13,254,000
Accounts payable 15,646,675 9,537,829
Accrued expenses 6,783,122 16,934,445
Accrued taxes 409,735 614,202
------------- -------------
Total liabilities not subject to compromise
(current liabilities) 59,735,616 40,340,476
------------- -------------
LONG TERM DEBT, LESS CURRENT PORTION - 78,090,054
LIABILITIES SUBJECT TO COMPROMISE (Note 1) 82,017,891 -
------------- -------------
Total liabilities 141,753,507 118,430,530
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST (Note 7) 209,819 4,996,770
------------- -------------
EXCHANGEABLE PREFERRED STOCK, $1.00
par value--$14.59 preference value-
Authorized--200,000 shares
Issued and outstanding--127,217 and 152,217
shares, respectively 2,038,546 2,373,654
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $1.00 par value-
Authorized and unissued--800,000 shares - -
Convertible preferred stock, $1.00 par
value, $6.50 preference value
Authorized--4,000,000 shares
Issued and outstanding--1,263,741 shares and
1,302,673 shares, respectively 1,263,741 1,302,673
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--23,683,647
and 23,508,096 shares, respectively 236,836 235,081
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--2,664,927 shares 26,649 26,649
Additional paid-in capital 76,204,597 75,797,457
Retained deficit (107,864,778) (81,850,798)
------------- -------------
Total stockholders' equity (deficit) (30,132,955) (4,488,938)
------------- -------------
$ 113,868,917 $ 121,312,016
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 4
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
--------------------------------- --------------------------------
November 23, November 24, November 23, November 24,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 41,745,093 $ 80,527,978 $ 97,482,703 $ 181,984,187
COST OF SALES 35,941,014 55,154,612 80,819,519 123,536,397
INVENTORY CHARGE (Note 4) - - - 35,521,000
------------- ------------- ------------- -------------
Gross profit $ 5,804,079 $ 25,373,366 $ 16,663,184 $ 22,926,790
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 6,456,293 19,419,199 21,586,196 58,892,003
------------- ------------- ------------- -------------
Income (loss) from operations $ (652,214) $ 5,954,167 $ (4,923,012) $ (35,965,213)
INTEREST EXPENSE, net (contractual
interest $3,566,941 and $9,155,654
respectively) (3,414,575) (4,023,964) (9,003,288) (11,607,065)
NET LOSS ON SALES OF REAL ESTATE (226,053) (742,330) (40,186) (742,330)
NET INVESTMENT LOSS (Note 8) (10,589,877) - (10,667,468) -
GAIN ON SALE OF GL
ASSETS (Note 8) 1,096,096 - 1,096,096 -
MINORITY INTEREST - (91,999) 59,833 49,311
------------- ------------- ------------- -------------
Income (loss) before reorganization items
and income taxes $ (13,786,623) $ 1,095,874 $ (23,478,025) $ (48,265,297)
REORGANIZATION ITEMS (Note 1) (1,884,568) - (1,884,568) -
------------- ------------- ------------- -------------
Income (loss) before income taxes $ (15,671,191) $ 1,095,874 $ (25,362,593) $ (48,265,297)
PROVISION FOR INCOME TAXES 63,000 60,000 189,000 200,025
------------- ------------- ------------- -------------
Net Income (loss) $ (15,734,191) $ 1,035,874 $ (25,551,593) $ (48,465,322)
------------- ------------- ------------- -------------
ACCRETION OF DISCOUNT AND
DIVIDENDS ON PREFERRED STOCKS 150,234 232,890 462,387 575,050
------------- ------------- ------------- -------------
Income (loss) attributable to common
stockholders $ (15,884,425) $ 802,984 $ (26,013,980) $ (49,040,372)
------------- ------------- ------------- -------------
INCOME (LOSS) PER COMMON SHARE
(Note 6): $ (0.60) $ 0.03 $ (0.99) $ (1.94)
============= ============= ============== =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Note 6): 26,346,916 25,966,119 26,319,784 25,330,088
============= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------------
November 23, November 24,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (25,551,593) $ (48,465,322)
Adjustments to reconcile net loss
to net cash used in operating activities-
Depreciation and amortization 821,607 2,428,956
Minority interest (59,833) (49,311)
Net loss on sales of assets and investments 9,611,558 742,330
Inventory charge - 35,521,000
Receivable charge - 5,471,000
Change in assets and liabilities--
Decrease (increase) in accounts
receivable (20,883,073) (23,710,061)
Decrease (increase) in inventory (9,203,181) 8,688,255
Decrease (increase) in prepaid
expenses and other current assets (840,340) (3,148,465)
Decrease (increase) in other assets 491,372 385,629
Increase (decrease) in accounts
payable 6,108,846 2,473,671
Increase (decrease) in accrued
expenses (2,499,878) (2,073,669)
Increase (decrease) in accrued taxes 24,246 (13,646)
Increase (decrease) in other
liabilities - (59,531)
-------------- --------------
Net cash used in operating
activities $ (41,980,269) $ (21,809,164)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (1,843,392) $ (2,307,208)
Proceeds from sale of certain assets of subsidiary 8,683,667 -
Proceeds from sale of investments 3,804,863 -
Investment in affiliates (3,445,993) (1,481,103)
Proceeds from sale of fixed assets 1,489,070 5,135,955
-------------- --------------
Net cash provided by investing activities $ 8,688,215 $ 1,347,644
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------------
November 23, November 24,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit facilities $ (83,411,173) $ (160,742,252)
Proceeds from borrowings under
revolving credit facilities 109,446,257 177,096,717
Payments on long-term debt (15,647,000) (211,755)
Proceeds from issuance of debt 13,254,000 -
Proceeds from issuance of common stock 3,839 40,989
Payment of dividend (66,625) (131,042)
Decrease (increase) in restricted cash 106,845 (3,293)
-------------- --------------
Net cash provided by financing activities $ 23,686,143 $ 16,049,364
-------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (9,605,911) $ (4,412,156)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 10,431,911 5,151,929
-------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 826,000 $ 739,773
============== ==============
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 6,712,136 $ 12,572,804
Income taxes 174,332 258,600
Reorganization expenses (Note 1) 1,884,568 -
NON-CASH ACTIVITIES:
Transfer of 13% Senior Subordinated Notes due May 1998,
13% Senior Subordinated Notes due December 1998, accrued
interest and other claims (Note 1) $ 82,017,891 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 7
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 23, 1997
(1) Chapter 11 Bankruptcy Filing
On November 17, 1997, Town & Country Corporation (the "Debtor") filed a
voluntary petition for relief under Chapter 11 of the federal bankruptcy laws in
the United States Bankruptcy Court for the District of Massachusetts. Under
Chapter 11, certain claims against the Debtor in existence prior to the filing
of the petition for relief under the federal bankruptcy laws are stayed while
the Debtor continues business operations as a Debtor-in-Possession. These claims
are reflected in the November 23, 1997, consolidated balance sheet as
"Liabilities Subject to Compromise." Additional claims (liabilities subject to
compromise) may arise subsequent to the filing date resulting from the rejection
of executory contracts, including leases, and from the determination by the
court (or agreed to by parties in interest) of allowed claims for contingencies
and other disputed amounts. The subsidiaries of the Debtor are not parties to
the filing and their assets and liabilities are treated as unaffected by the
filing.
The Debtor believes, after a preliminary review that there is sufficient
collateral to cover the interest portion of scheduled payments on its
pre-petition debt obligations represented by the 15% Senior Secured Notes due
February 1998. However, the Debtor has determined that there is insufficient
collateral to cover the interest portion of scheduled payments on its
pre-petition debt obligations represented by the 13% Senior Subordinated Notes
due May 1998 and the 13% Senior Subordinated Notes due December 1998.
Contractual interest on the 13% Notes due in May and December 1998 amounts to
$6.1 million in the aggregate, which is $0.2 million in excess of reported
interest expense (net of amortization) included in the three and nine month
periods ended November 23, 1997; therefore, the Debtor has discontinued accruing
interest on these obligations. Refer to Note 3 for a discussion of the
modifications to the Debtor's credit arrangements entered into as a consequence
of the Chapter 11 filing.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 8
Liabilities subject to compromise consist of the following (000's):
13% Senior Subordinated Notes due May, 1998, net $ 69,829
Accrued Interest 5,074
13% Senior Subordinated Notes due December, 1998, net 6,886
Priority tax claims 229
-----------
Total third party liabilities 82,018
Intercompany claims 14,653
-----------
$ 96,671
===========
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
November 23, 1997 (000's)
--------------------------------------------------------
Parent
Company
CONSOLIDATING STATEMENT (Debtor-in-
OF OPERATIONS Possession) Subsidiaries Eliminations Consolidated
- ----------------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ - $ 97,483 $ - $ 97,483
COST OF SALES - 80,820 - 80,820
---------- -------- ---- --------
Gross profit - 16,663 - 16,663
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 14 21,572 - 21,586
---------- -------- ---- --------
Income (loss) from operations (14) (4,909) - (4,923)
INTEREST EXPENSE, net (8,161) (842) - (9,003)
GAIN (LOSS) ON SALES OF ASSETS
AND INVESTMENTS, net (10,557) 946 - (9,611)
MINORITY INTEREST - - 60 60
---------- -------- ---- --------
Income (loss) before reorganization
items and income taxes (18,732) (4,805) 60 (23,477)
REORGANIZATION ITEMS (1,885) - - (1,885)
---------- -------- ---- --------
Income (loss) before income taxes (20,617) (4,805) 60 (25,362)
PROVISION FOR INCOME TAXES 20 169 - 189
---------- -------- ---- --------
Net income (loss) $ (20,637) $ (4,974) $ 60 $(25,551)
========== ======== ==== ========
</TABLE>
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 9
<TABLE>
<CAPTION>
November 23, 1997 (000's)
------------------------------------------------------
CONSOLIDATING BALANCE SHEET Parent
- --------------------------- Company
(Debtor-in-
ASSETS Possession) Subsidiaries Eliminations Consolidated
- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS $ (19) $ 96,544 $ - $ 96,525
PROPERTY, PLANT &
EQUIPMENT, net - 15,380 (1,281) 14,099
INTERCOMPANY RECEIVABLES 7,794 14,656 (22,450) -
INVESTMENT IN SUBSIDIARIES 74,934 - (74,934) -
OTHER ASSETS 659 2,586 - 3,245
-------- --------- --------- ---------
Total Assets $ 83,368 $ 129,166 $ (98,665) $ 113,869
======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
November 23, 1997 (000's)
---------------------------------------------------------
Parent
Company
LIABILITIES AND STOCKHOLDERS' (Debtor-in-
EQUITY (DEFICIT) Possession) Subsidiaries Eliminations Consolidated
- ---------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES NOT SUBJECT TO COMPROMISE:
Notes payable $ - $ 26,035 $ - $ 26,035
Senior Secured Notes 10,861 - - 10,861
Accounts payable - 15,647 - 15,647
Accrued expenses 160 6,623 - 6,783
Accrued income taxes - 410 - 410
---------- --------- -------- --------
Total liabilities not subject to compromise
(current liabilities) 11,021 48,715 - 59,736
---------- --------- -------- --------
LIABILITIES SUBJECT TO COMPROMISE
Intercompany payables 14,656 7,794 (22,450) -
Other liabilities 82,018 - - 82,018
---------- --------- -------- --------
Total liabilities subject to compromise 96,674 7,794 (22,450) 82,018
MINORITY INTEREST - - 210 210
EXCHANGEABLE PREFERRED STOCK 2,038 - 2,038
STOCKHOLDERS' EQUITY (DEFICIT) (26,365) 72,657 (76,425) (30,133)
---------- --------- -------- --------
(24,327) 72,657 (76,215) (27,885)
Total Liabilities and Stockholders Equity (Deficit) $ 83,368 $ 129,166 $ (98,665) $ 113,869
========== ========= ========= =========
</TABLE>
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 10
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT November 23, 1997 (000's)
OF CASH FLOWS --------------------------------------------------------------
- ------------- Parent
Company
(Debtor-in-
Possession) Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (24,629) $ (29,686) $ 12,335 $ (41,980)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 862 7,826 - 8,688
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 16,057 19,964 (12,335) 23,686
---------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (7,710) $ (1,896) $ - $ (9,606)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,715 2,717 - 10,432
---------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5 $ 821 $ - $ 826
========== ========== ========== ==========
</TABLE>
(2) Significant Accounting Policies
The unaudited consolidated financial statements presented herein have been
prepared by Town & Country Corporation (collectively with its consolidated
subsidiaries the "Company") and contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly and on a basis consistent
with the consolidated financial statements for the year ended February 23, 1997,
and those required to meet the disclosure standards for companies reporting
while in Chapter 11, the Company's financial position as of November 23, 1997,
and the results of its operations for the three and nine month periods ended
November 23, 1997, and November 24, 1996, and cash flows for the nine month
periods ended November 23, 1997, and November 24, 1996.
On December 16, 1996, the Company sold certain assets and liabilities of its
Balfour subsidiary. On April 18, 1997, the Company sold certain assets of its
Gold Lance ("GL") subsidiary. The comparability of the accompanying financial
statements is affected by these transactions as described in Note 8.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 11
The results of operations for the nine months ended November 23, 1997, are not
necessarily indicative of the results to be expected for the year due to the
seasonal nature of the Company's operations.
The significant accounting policies followed by the Company are set forth in
Note (2) of the Company's consolidated financial statements for the year ended
February 23, 1997, which have been included in the Annual Report on Form 10-K,
Commission File Number 0-14394, for the fiscal year ended February 23, 1997. The
Company has made no change in these policies during the nine months ended
November 23, 1997.
Certain reclassifications have been made to the prior period's financial
statements to conform with the presentation of the fiscal 1998 financial
statements.
(3) Loan Arrangements
To facilitate the ability of the Town & Country Corporation's (individually
"TCC") domestic operating subsidiaries to continue to utilize their credit
facility with Foothill Capital Corporation ("Foothill") without disruption while
TCC reorganizes, Foothill, TCC, and TCC's domestic operating subsidiaries, in
November 1997, entered into an amendment to the Foothill Agreement pursuant to
which TCC agreed to guaranty the obligations of its domestic operating
subsidiaries to Foothill during the pendency of TCC's bankruptcy case, and
Foothill waived the event of default otherwise occasioned by TCC's bankruptcy
case. The effect of the amendment and guaranty is to convert TCC from a
co-borrower of Foothill into a guarantor of TCC's subsidiaries' obligations to
Foothill during the bankruptcy case. Foothill's claim under the guaranty is part
of the Foothill bankruptcy claim, and is secured by a lien on property of the
estate of TCC (other than avoiding power recoveries) of the same scope and
priority as existed pre-petition. The current intent is that TCC revert to
co-borrower status upon the effective date of the plan of reorganization. TCC's
intent is that Foothill's secured status be preserved during the case, and
neither improved nor diminished.
To facilitate the ability of TCC's domestic operating subsidiaries to continue
to utilize their precious metals consignment facility with Fleet Precious
Metals, Inc. ("Fleet") without disruption while TCC reorganizes, Fleet, TCC, and
TCC's domestic operating subsidiaries, in November 1997, entered into an
amendment of the Gold Agreement pursuant to which TCC agreed to guaranty the
obligations of its domestic operating subsidiaries to Fleet during the pendency
of TCC's bankruptcy case, and Fleet waived the event of default otherwise
occasioned by TCC's bankruptcy case. The effect of the amendment and guaranty is
to convert TCC from a co-consignee of Fleet into a guarantor of TCC's
subsidiaries' obligations to Fleet during the bankruptcy case. Fleet's claim
under the guaranty is part of the Fleet bankruptcy claim, and is secured by a
lien on property of the estate of TCC (other than avoiding power recoveries) of
the same scope and priority as existed pre-petition. The current intent is that
TCC revert to co-consignee status upon the effective date of the plan of
reorganization. TCC's intent is that Fleet's secured status be preserved during
the case, and neither improved nor diminished.
At maturity on September 15, 1997, the Company repaid $13.3 million of 11-1/2%
Senior Secured Notes. This debt was repaid with the issuance of new Senior
Secured Notes
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 12
("New Notes") which bear interest at a rate of 15% per annum, pay interest
monthly and have a maturity date of February 15, 1998. The New Notes have
essentially the same terms as the 11 1/2% Senior Secured Notes. The Company's
loan agreement with Foothill and the Collateral Agency and Intercreditor
Agreement with Foothill, Fleet, Bankers Trust and the Collateral Agent were
amended on September 15, 1997, to provide for the New Notes. In October 1997,
$0.1 million of the New Notes were redeemed. In November 1997, $2.3 million in
New Notes were redeemed with proceeds realized on the sale of the Company's
investment in Solomon Brothers Limited (see Note 8).
On May 30, 1997, the Company completed an amendment (the "Amended Agreement") to
its July 3, 1996, credit agreement (the "Agreement") with Foothill to reflect
changes which have taken place in the Company. The Amended Agreement provides
senior secured financing consisting of a revolving credit facility and a letter
of credit in support of a Gold Consignment Facility provided by Fleet. The
aggregate amount of the combined facilities, which may be outstanding at any
date, is $55 million.
The revolving credit facility has a maximum amount of $40 million from February
through November and $45 million from December through January. The letter of
credit has a maximum amount of $20 million from February through November and
$15 million from December through January. The Agreement is for a period of two
years and provides Foothill with an option to renew for three additional years.
The loans bear interest at a rate per annum equal to the greater of (a) 2% above
the reference rate announced by an identified group of major banks selected by
Foothill or (b) 8%. The Amended Agreement contains standard covenants for
facilities of this type including financial covenants relating to interest
coverage ratio, minimum net worth, debt to EBITDA ratio and limitations on
dividends, distributions and capital expenditures, as defined. Advances under
the credit line are based on eligible accounts receivables and inventory.
Foothill has first priority security interest in receivables, inventory and
substantially all real estate and fixed assets owned by the Company and its
domestic subsidiaries subject to Fleet's first position as gold consignor,
supported by the letter of credit.
As of November 23, 1997, approximately $25.8 million was outstanding under the
Company's revolving credit agreement with Foothill and approximately 41,000
ounces of gold, valued at approximately $12.3 million, were on consignment under
the Company's domestic gold consignment facility.
The Company made a semiannual cash interest payment of approximately $4.5
million on May 15, 1997, on the 13% Senior Subordinated Notes, due May 31, 1998.
At November 23, 1997, a foreign subsidiary of the Company had an agreement with
a gold supplier to provide secured gold consignment availability of
approximately 4,800 troy ounces. As of November 23, 1997, approximately 3,000
ounces of gold, valued at approximately $1.0 million, were on consignment under
this gold consignment facility. Subsequent to the end of the quarter the term of
the credit facility supporting this agreement expired and the facility was not
renewed. This subsidiary has credit facilities which currently provide
approximately $2.1 million commercial financing with approximately $0.2 million
outstanding at November 23, 1997.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 13
(4) Inventory Charge
During the second quarter of fiscal 1997, the Company implemented a program to
recycle approximately $44 million of inventory to recover gold and diamonds to
meet immediate production requirements. The Company also sold, for approximately
$2 million, inventory with an original cost basis of approximately $5 million.
The Company charged second quarter operations approximately $35.5 million.
These actions were taken when access to cash and gold under the Company's
working capital facility and gold leasing agreement became constrained near the
end of the second quarter and on a more pronounced basis in the third quarter,
and also because of the Company's commitment to meet its customers' delivery
requirements.
(5) Inventories
Inventories consisted of the following:
November 23, February 23,
1997 1997
------------ ------------
Raw Materials $ 7,673,688 $ 8,547,459
Work-in-Process 8,051,795 5,643,042
Finished Goods 35,763,569 28,562,300
------------ ------------
$ 51,489,052 $ 42,752,801
============ ============
(6) Income (Loss) Per Common Share
Income (loss) per common share is computed by adjusting the Company's net income
(loss) for the accretion of discount and dividends on preferred stocks and
dividing by the weighted average number of common shares outstanding during each
period.
(7) Essex Privatization
During fiscal 1997, the Company began the process of purchasing the
approximately 1.6 million outstanding shares of its Essex subsidiary. The cost
to repurchase these shares was approximately $3.4 million and the process was
completed during the second quarter of fiscal 1998. The repurchase resulted in
the elimination of approximately $4.7 million in Minority Interest liability
creating a deferred benefit of $1.3 million. On a preliminary basis, this
deferred benefit is being accounted for as a reduction in the basis of Essex's
Property, Plant and Equipment. The Company continues to analyze the valuation of
Essex's long-term assets and will finalize the accounting of this deferred
benefit by the end of fiscal 1998.
(8) Sales of Assets
L.G. Balfour Company, Inc.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 14
On December 16, 1996, the Company sold certain assets and liabilities of its
Balfour subsidiary constituting substantially all of the operations of Balfour
to Commemorative Brands, Inc. ("CBI"), a new company formed by Castle Harlan
Partners II, L.P. (the "Balfour Sale").
On April 24, 1997, a settlement was reached in which the Company paid CBI $1.1
million to resolve certain items and finalize the purchase price (the "Purchase
Price Adjustment"). Such amount was included in accrued expenses in the
accompanying consolidated balance sheet as of February 23, 1997, and was
included as a component of the net gain of approximately $10.5 million recorded
in the fourth quarter of fiscal 1997.
The Balfour Sale did not include any real property. The prime component of real
property owned by Balfour was a facility in Attleboro, Massachusetts, which had
a net book value of approximately $2.3 million and a fair value of approximately
$1.4 million. A $1.1 million impairment of the carrying value of the facility
was recognized in association with this transaction and is included as a
component of the gain recognized on the sale in the fourth quarter of fiscal
1997 and reduced the carrying value of the facility included in property, plant
and equipment in the accompanying consolidated balance sheet as of February 23,
1997. In November 1997, this property was sold. Net proceeds of approximately
$1.2 million were used to partially repay Foothill.
The Balfour Sale did not include the assumption of a lease facility in North
Attleboro, Massachusetts. On April 24, 1997, the lease was amended, reducing the
amount of space and the period of time for which the Company is obligated. The
Company's future lease obligation for this facility is until July 31, 1999, at
an annual cost of approximately $0.2 million. The Company has been subleasing
the remaining space to CBI on a temporary basis. The Company had assumed that
the facility would remain vacant after CBI vacated for the remainder of the
lease term and accrued approximately $0.4 million which is included in accrued
expenses in the accompanying consolidated balance sheet as of February 23, 1997.
However, CBI has decided to remain in this facility and, effective January 1,
1998, the lease has been assigned to CBI and there will be no further liability.
The accompanying consolidated balance sheets as of February 23, 1997, and
November 23, 1997, include assets of Balfour consisting primarily of real estate
and their associated liabilities discussed above. The Purchase Price Adjustment
was included in accrued expenses as of February 23, 1997, and was paid in the
first quarter of fiscal 1998. Other remaining assets and liabilities are not
material to the financial position of the Company as of February 23, 1997, and
November 23, 1997.
The accompanying consolidated statement of operations includes the following
amounts associated with Balfour:
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 15
For the Three For the Nine
Months Ended Months Ended
November 24, 1996 November 24, 1996
----------------- -----------------
Net sales $ 19,534,498 $ 55,520,590
Cost of sales 8,761,742 27,021,311
------------- -------------
Gross profit $ 10,772,756 $ 28,499,279
Selling, general and
administrative expenses 10,445,695 27,594,931
------------- -------------
Income from operations $ 327,061 $ 904,348
============= =============
GL, Inc.
On April 18, 1997, the Company sold certain assets of its GL subsidiary to
Jostens, Inc. (the "GL Sale"). Prior to or at closing, on April 18, 1997, the
Company received cash equal to the purchase price of approximately $10.8
million, less $2.5 million (the "Contingent Payment"), the payment of which was
contingent on the operating performance of GL during a transition period between
April 18, 1997, and July 31, 1997 (the "Transition Period"). The Company
recorded a loss in the fourth quarter of fiscal 1997 of $5.0 million on the GL
Sale. On November 14, 1997, the Company agreed to a settlement with regard to
the Contingent Payment. Under the terms of the settlement Jostens paid the
Company $1 million which is recognized as a gain on sale of GL assets and was
used to partially repay Foothill.
The GL Sale did not include any real property. The prime component of real
property owned by GL is a facility in Houston, Texas, which had a net book value
of approximately $1.5 million and a fair value of approximately $0.7 million. A
$0.8 million impairment of the carrying value of the facility has been
recognized in association with this sale and is included as a component of the
$5.0 million loss recognized on the sale. The carrying value of the facility
included in property, plant and equipment in the accompanying consolidated
balance sheets reflects such impairment as of February 23, 1997, and November
23, 1997. The Company operated the property during the Transition Period. It is
possible that the Company will be required to hold the facility for an
unspecified amount of time before being able to complete a sale.
The accompanying consolidated balance sheet as of February 23, 1997, includes
the assets and liabilities of GL. The assets consist primarily of approximately
$2.1 million in accounts receivable, $6.9 million of property, plant and
equipment, net and $2.1 million in other assets primarily related to goodwill
and samples. The liabilities consist primarily of $0.5 million in accounts
payable and $4.5 million in accruals. Approximately $4.2 million of losses
accrued as part of the sale are included in accrued expenses of which
approximately $1.3 million relates to financial advisor, legal and other
transaction costs associated with the sale. As of November 23, 1997, significant
remaining assets and liabilities of GL consist primarily of the real estate
discussed above, extinguishment of transaction costs, accounts payable and the
accrued liabilities in the ordinary course and contingencies associated with the
Transition Period.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 16
The accompanying consolidated statements of operations include the following
amounts associated with GL:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
November 23, November 24, November 23, November 24,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ - $4,373,223 $ 5,150,217 $ 10,342,943
Cost of sales 3,877 2,789,542 3,490,451 6,856,837
--------- ---------- ------------ ------------
Gross profit (loss) $ (3,877) $1,583,681 $ 1,659,766 $ 3,486,106
Selling, general and
administrative expenses 85,709 1,601,033 2,225,556 4,176,883
--------- ---------- ------------ ------------
Loss from operations $ (89,586) $ (17,352) $ (565,790) $ (690,777)
========= ========== ============ ============
</TABLE>
Solomon Brothers Limited
In November 1997, the Company sold 327,000 shares of preferred stock in Solomon
Brothers Limited, a Bahamian retailer, for the approximate sum of $2.8 million
(the "proceeds"). Included in net investment loss in the accompanying statements
of operations is a loss of approximately $11.0 million associated with this
sale. The holders of the New Notes had a first security interest in the proceeds
and approximately $2.3 million of the net proceeds from such sales were used to
partially redeem New Notes. The holders of the New Notes released the remaining
$0.5 million of such proceeds to the Company.
Little Switzerland, Inc.
During the third quarter, the Company sold 166,745 shares of common stock of
Little Switzerland, Inc. for approximately $1.0 million. As a result of the sale
and the exchange of 25,000 shares of Exchangable Preferred Stock, the Company
recorded a gain on the sale of investments of approximately $0.4 million, which
is included in loss on sales of investments, net, in the accompanying
consolidated statements of operations for the three and nine months ended
November 23, 1997.
Sale of Real Estate
On November 14, 1996, the Company sold its building in New York City for a gross
sale price of $6.2 million, of which $5.3 million was paid at closing. The
remaining $0.9 million was paid on January 15, 1997. In the interest of
generating cash on the sale of the property as quickly as possible, management
accepted an offer for less than the net book value of the property. As a result,
the Company sustained a loss of approximately $0.8 million on the sale which is
reflected in the accompanying consolidated statements of operations.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
The Company occasionally may make statements regarding its business and markets,
such as projections of future performance, statements of management's plans and
objectives, forecasts of market trends and other matters. To the extent such
statements are not historical fact, they may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Statements containing the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "believe," "estimate,"
projected," or similar expressions are intended to identify forward-looking
statements. Such forward-looking statements may appear in this document or other
documents, reports, press releases and written or oral presentations made by
officers of the Company to shareholders, analysts, news organizations or others.
All such forward-looking statements speak only as of the date on which such
statement is made. No assurance can be given that the results in any
forward-looking statement will be achieved and actual results could be affected
by one or more factors, which could cause the results to differ materially.
Therefore, all forward-looking statements are qualified in their entirety by
such factors, including the factors listed below. Such factors may be more fully
discussed periodically in the Company's subsequent filings with the Securities
and Exchange Commission.
Any change in the following factors may impact the achievement of results in
forward-looking statements: the outcome of the Company's proceeding in Chapter
11; the price of gold; the seasonality of the Company's business; fashion and
demographic trends; the general economy, especially during peak buying seasons
for the Company's products and services; competitive pricing; the ability of the
Company to respond to customer delivery schedules and improve operating
efficiencies.
The foregoing factors are not exhaustive and new factors may emerge or changes
to the foregoing factors may occur that would impact the Company's business.
CHAPTER 11 BANKRUPTCY FILING
On November 17, 1997, Town & Country Corporation (the "Debtor") filed a
voluntary petition for relief under Chapter 11 of the federal bankruptcy laws in
the United States Bankruptcy Court for the District of Massachusetts. Under
Chapter 11, certain claims against the Debtor in existence prior to the filing
of the petition for relief under the federal bankruptcy laws are stayed while
the Debtor continues business operations as a Debtor-in-Possession. These claims
are reflected in the November 23, 1997, consolidated balance sheet as
"Liabilities Subject to Compromise." Additional claims (liabilities subject to
compromise) may arise subsequent to the filing date resulting from the rejection
of executory contracts, including leases, and from the determination by the
court (or agreed to by parties in interest) of allowed claims for contingencies
and other disputed amounts. The subsidiaries of the Debtor are not parties to
the filing and their assets and liabilities are treated as unaffected by the
filing.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 18
The Debtor believes, after a preliminary review that there is sufficient
collateral to cover the interest portion of scheduled payments on its
pre-petition debt obligations represented by the 15% Senior Secured Notes due
February 1998. However, the Debtor has determined that there is insufficient
collateral to cover the interest portion of scheduled payments on its
pre-petition debt obligations represented by the 13% Senior Subordinated Notes
due May 1998 and the 13% Senior Subordinated Notes due December 1998.
Contractual interest on the 13% Notes due in May and December 1998 amounts to
$6.1 million in the aggregate, which is $0.2 million in excess of reported
interest expense (net of amortization) included in the three and nine month
periods ended November 23, 1997; therefore, the Debtor has discontinued accruing
interest on these obligations. Refer to Note 3 for a discussion of the
modifications to the Debtor's credit arrangements entered into as a consequence
of the Chapter 11 filing.
AMERICAN STOCK EXCHANGE DELISTING
On December 8, 1997, as a result of non-compliance by the Company with the
guidelines for listing, the American Stock Exchange removed the Company's Class
A Common Stock from listing and registration on the exchange. The non-compliance
items included recurring losses, shareholders' and working capital deficits, the
Company's February 23, 1997 qualified audit opinion and TCC's recent filing
under Chapter 11 of the United States Bankruptcy Code.
FINANCIAL CONDITION
To facilitate the ability of the Town & Country Corporation's (individually
"TCC") domestic operating subsidiaries to continue to utilize their credit
facility with Foothill Capital Corporation ("Foothill") without disruption while
TCC reorganizes, Foothill, TCC, and TCC's domestic operating subsidiaries, in
November 1997, entered into an amendment to the Foothill Agreement pursuant to
which TCC agreed to guaranty the obligations of its domestic operating
subsidiaries to Foothill during the pendency of TCC's bankruptcy case, and
Foothill waived the event of default otherwise occasioned by TCC's bankruptcy
case. The effect of the amendment and guaranty is to convert TCC from a
co-borrower of Foothill into a guarantor of TCC's subsidiaries' obligations to
Foothill during the bankruptcy case. Foothill's claim under the guaranty is part
of the Foothill bankruptcy claim, and is secured by a lien on property of the
estate of TCC (other than avoiding power recoveries) of the same scope and
priority as existed pre-petition. The current intent is that TCC revert to
co-borrower status upon the effective date of the plan of reorganization. TCC's
intent is that Foothill's secured status be preserved during the case, and
neither improved nor diminished.
To facilitate the ability of TCC's domestic operating subsidiaries to continue
to utilize their precious metals consignment facility with Fleet Precious
Metals, Inc. ("Fleet") without disruption while TCC reorganizes, Fleet, TCC, and
TCC's domestic operating subsidiaries, in November 1997, entered into an
amendment of the Gold Agreement pursuant to which TCC agreed to guaranty the
obligations of its domestic operating subsidiaries to Fleet during the pendency
of TCC's bankruptcy case, and Fleet waived the event of default otherwise
occasioned by TCC's bankruptcy case. The effect of the amendment and guaranty is
to convert TCC from a co-consignee of Fleet into a guarantor of TCC's
subsidiaries' obligations to Fleet during the bankruptcy case. Fleet's
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 19
claim under the guaranty is part of the Fleet bankruptcy claim, and is secured
by a lien on property of the estate of TCC (other than avoiding power
recoveries) of the same scope and priority as existed pre-petition. The current
intent is that TCC revert to co-consignee status upon the effective date of the
plan of reorganization. TCC's intent is that Fleet's secured status be preserved
during the case, and neither improved nor diminished.
At maturity on September 15, 1997, the Company repaid $13.3 million of 11-1/2%
Senior Secured Notes. This debt was repaid with the issuance of new Senior
Secured Notes ("New Notes") which bear interest at a rate of 15% per annum, pay
interest monthly and have a maturity date of February 15, 1998. The New Notes
have essentially the same terms as the 11 1/2% Senior Secured Notes. The
Company's loan agreement with Foothill and the Collateral Agency and
Intercreditor Agreement with Foothill, Fleet, Bankers Trust and the Collateral
Agent were amended on September 15, 1997, to provide for the New Notes. In
October 1997, $0.1 million of the New Notes were redeemed. In November 1997,
$2.3 million in New Notes were redeemed with proceeds realized on the sale of
the Company's investment in Solomon Brothers Limited (see Note 8).
On May 30, 1997, the Company completed an amendment (the "Amended Agreement") to
its July 3, 1996 credit agreement (the "Agreement") with Foothill to reflect
changes which have taken place in the Company. The Amended Agreement provides
senior secured financing consisting of a revolving credit facility and a letter
of credit in support of Gold Consignment Facility provided by Fleet. The
aggregate amount of the combined facilities, which may be outstanding at any
date, is $55 million.
The revolving credit facility has a maximum amount of $40 million from February
through November and $45 million from December through January. The letter of
credit has a maximum amount of $20 million from February through November and
$15 million from December through January. The Agreement is for a period of two
years and provides Foothill with an option to renew for three additional years.
The loans bear interest at a rate per annum equal to the greater of (a) 2% above
the reference rate announced by an identified group of major banks selected by
Foothill or (b) 8%. The Amended Agreement contains standard covenants for
facilities of this type including financial covenants relating to interest
coverage ratio, minimum net worth, debt to EBITDA ratio and limitations on
dividends, distributions and capital expenditures, as defined. Advances under
the credit line are based on eligible accounts receivables and inventory.
Foothill has first priority security interest in the receivables, inventory and
substantially all real estate and fixed assets owned by the Company and its
domestic subsidiaries subject to Fleet's first position as gold consignor,
supported by the letter of credit.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 20
Results of Operations for the Nine Months Ended November 23, 1997 Compared to
the Nine Months Ended November 24, 1996
Gross profit and Selling, General and Administrative ("SG&A") expense
comparisons exclude the effect of the $35.5 million inventory charge and $5.5
million accounts receivable charge recorded in the second quarter of fiscal year
ended February 23, 1997 ("Fiscal 1997").
Consolidated net sales for the nine months ended November 23, 1997, decreased
$84.5 million or 46.4% from $182.0 million for the nine months ended November
24, 1996, to $97.5 million for the nine months ended November 23, 1997.
Consolidated gross profit for the nine months ended November 23, 1997, was $16.7
million compared with $58.4 million for the nine months ended November 24, 1996.
Consolidated gross profit margin decreased from 32.1% for the nine months ended
November 24, 1996, to 17.1% for the nine months ended November 23,1997.
Consolidated SG&A expenses decreased from $53.4 million for the nine months
ended November 24, 1996, to $21.6 million for the nine months ended November 23,
1997. As a percentage of consolidated net sales, consolidated SG&A expenses
decreased from 29.3% for the nine months ended November 24, 1996, to 22.1% for
the nine months ended November 23, 1997.
On December 16, 1996, the Company sold certain assets and liabilities of its
Balfour subsidiary. The accompanying consolidated statement of operations for
the nine months ended November 24, 1996, includes net sales of $55.5 million,
gross profit of $28.5 million and SG&A expenses of $27.6 million associated with
Balfour.
On April 18, 1997, the Company sold certain assets of its Gold Lance subsidiary.
The accompanying consolidated statement of operations for the nine months ended
November 23, 1997, includes net sales of $5.2 million, gross profit of $1.7
million and SG&A expenses of $2.2 million associated with Gold Lance. The
accompanying consolidated statement of operations for the nine months ended
November 24, 1996, includes net sales of $10.3 million, gross profit of $3.5
million and SG&A expenses of $4.2 million.
Comparison of operating results for the Company's on-going business (the "Fine
Jewelry" business) for the first nine months of fiscal 1998 to the first nine
months of fiscal 1997 follows.
Sales of Fine Jewelry decreased $23.9 million or 20.5% from $116.2 million for
the nine months ended November 24, 1996, to $92.3 million for the nine months
ended November 23, 1997. The decrease is primarily attributable to relative
softness in the wholesale jewelry marketplace and some perceived impact of the
Company's financial difficulties. The sales mix has also become more
concentrated in lower price point categories which are particularly sensitive to
decreases in the price of gold.
Gross profit on Fine Jewelry sales decreased from $26.4 million for the nine
months ended November 24, 1996, to $15.0 million for the nine months ended
November 23, 1997. Gross profit margin on Fine Jewelry sales decreased from
22.8% for the nine
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 21
months ended November 24, 1996, to 16.3% for the nine months ended November 23,
1997. These decreases are primarily the result of the underabsorption of fixed
costs due to lower sales volume.
Fine Jewelry SG&A expenses decreased from $21.6 million for the first nine
months of fiscal 1997 to $19.3 million the first nine months of fiscal 1998.
Fine Jewelry SG&A expenses as a percentage of Fine Jewelry net sales increased
from 18.6% for the nine months ended November 24, 1996, to 20.9% for the nine
months ended November 23, 1997. The percentage increase is the result of the
decrease in sales.
Net interest expense decreased $2.6 million from $11.6 for the nine months ended
November 24, 1996, to $9.0 million for the nine months ended November 23, 1997.
The Company's average borrowings for the nine months ended November 23, 1997,
decreased $20.5 million from $118.0 million for the nine months ended November
24, 1996, to $97.5 million for the nine months ended November 23, 1997. The
weighted average interest rate was approximately 11.2% for the first nine months
of fiscal 1997 and approximately 10.8% for the first nine months of fiscal 1998.
Net interest expense includes bank and gold fees of $2.4 million for the first
nine months of fiscal 1997 and $1.3 million for the first nine months of fiscal
1998.
On November 14, 1997, the Company agreed to a settlement with Jostens with
regard to the contingent purchase price related to the sale of Gold Lance
assets. Under the terms of the settlement Jostens paid the Company $1 million
which is recognized as a gain on sale of Gold Lance assets and was used to pay
Foothill.
The Company was the owner of 327,000 shares of preferred stock in Solomon
Brothers Limited, a Bahamian retailer, which shares it sold in November 1997 for
the approximate sum of $2.8 million (the "proceeds"). Included in net investment
loss in the accompanying statements of operations is a loss of approximately
$11.0 million associated with this sale. The holders of the New Notes have the
benefit of a first security interest in the proceeds and approximately $2.3
million of the net proceeds from such sales were used to redeem New Notes. The
holders of the New Notes released the other $0.5 million of such proceeds to the
Company.
The Company was the owner of 318,962 shares of common stock of Little
Switzerland, Inc. Of these shares 152,217 were held by a trust for the benefit
of the holders of the Exchangeable Preferred Stock. During the third quarter,
the Company sold all of the shares under its control. Proceeds from the sale
were approximately $1.0 million. As a result of the sale and the exchange of
25,000 shares of Exchangable Preferred Stock, the Company recorded a gain on the
sale of investments of approximately $0.4 million.
During the third quarter, the Company incurred approximately $1.9 million in
professional costs related to the Chapter 11 bankruptcy filing.
Although the Company had a taxable loss for the nine months ended November 23,
1997, the Company recorded a tax provision of approximately $189,000. The tax
provision was primarily due to the Company's inability to fully recognize the
tax benefits of operating losses in certain jurisdictions as well as due to
state and foreign income taxes.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 22
Liquidity and Working Capital
Cash used in operating activities during the nine months ended November 23,
1997, was $42.0 million compared with $21.8 million for the nine months ended
November 24, 1996. The increase is primarily a result of the relative
deterioration in operating performance from year to year and the non-recurring
cash benefit from the fiscal 1997 inventory recycling. The Company also used
approximately $1.9 million to pay various professional costs related to the
Chapter 11 filing.
Cash provided by investing activities for the nine months ended November 23,
1997, was $8.7 million compared to $1.3 million for the nine months ended
November 24, 1996. In the current year, the Company benefited from the net
proceeds related to the sale of certain assets of its Gold Lance subsidiary of
$8.7 million. During the period, the Company paid approximately $3.4 million to
acquire the shares of its Essex subsidiary which had been owned by minority
shareholders. The Company also generated approximately $3.8 million from the
sale of its investment in Little Switzerland, Inc. and Solomon Brothers,
Limited.
Cash provided by financing activities was approximately $23.7 million for the
nine months ended November 23, 1997, compared with the $16.0 million for the
nine months ended November 24, 1996. The change in cash provided by financing
activities is the result of higher net borrowings on the Company's revolving
credit facility and the pay down of approximately $2.4 million of Senior Secured
Notes..
The Company's net cash position decreased from $10.4 million at February 23,
1997, to $0.8 million at November 23, 1997.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Chapter 11 Bankruptcy Filing
See "Management Discussion and Analysis of Financial Condition and
Results of Operations", Chapter 11 Bankruptcy Filing.
Item 5. Other Events
Recently, it became apparent that Francis Correra, President of Town &
Country Fine Jewelry Group, Inc., and a member of the Company's Board
of Directors, would likely not be able to resume his responsibilities
at the Company for medical reasons.
The Board of Directors has hired Ronald Stengel of R.F. Stengel &
Company, Inc. as interim Chief Executive Office of the Town & Country
Corporation. He has been elected to the Board of Directors. Mr. Stengel
is one of the foremost turnaround managers in the Country and recently
completed a similar assignment as Chief Executive Officer of Smith
Corona.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99 Waivers of Events of Default with respect to the
Non-Compliance Items
11 Earnings Per Share Computations
27 Financial Data Schedule
10.1 Amendment Number Four to Loan Agreement between the Company
and Foothill Capital Corporation
10.2 Amendment Number Five to Loan Agreement between the Company
and Foothill Capital Corporation
10.3 General Continuing Guaranty by Town & Country Corporation in
favor of Fleet Precious Metals Inc.
10.4 Amendment Number One to Second Amended and Restated
Consignment Agreement between Town & Country Corporation,
Town & Country Fine Jewelry Group, Inc., GL, Inc., L.G.
Balfour Company, Inc. and Fleet Precious Metals Inc.
(b) Reports on Form 8-K
On November 25, 1997, the Company filed a Form 8-K reporting the
sale of the Company's investment in Solomon Brothers, Limited and
the Company's filing for Bankruptcy under Chapter 11.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 24
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.
TOWN & COUNTRY CORPORATION
(Registrant)
Date: January 12, 1998 /s/ Veronica M. Zsolcsak
---------------------------------
Veronica M. Zsolcsak
Chief Financial Officer and
Treasurer
AMENDMENT NUMBER FOUR TO LOAN AGREEMENT
---------------------------------------
(TOWN & COUNTRY CORPORATION AND SUBSIDIARIES)
THIS AMENDMENT NUMBER FOUR TO LOAN AGREEMENT (this "Amendment"), dated as of
October 8, 1997, is entered into between Town & Country Corporation, a
Massachusetts corporation, Town & Country Fine Jewelry Group, Inc., a
Massachusetts corporation, GL, Inc., a Massachusetts corporation, formerly known
as Gold Lance, Inc., a Massachusetts corporation, L.G. Balfour Company, Inc., a
Delaware corporation (which aforesaid corporations, individually and
collectively, jointly and severally, and together with their successors and
assigns, are herein referred to as "Borrower"), and Foothill Capital
Corporation, a California corporation ("Foothill"), in light of the following:
WHEREAS, Borrower and Foothill are parties to that certain Loan Agreement dated
as of July 3, 1996 (as from time to time amended, modified, supplemented,
renewed, extended, or restated, including, without limitation, by this Amendment
and by the Amendment Number One to Loan Agreement specifically referred to
below, the "Loan Agreement");
WHEREAS, Borrower and Foothill are parties to that certain Amendment Number One
to Loan Agreement dated as of October 31, 1996, amending the Loan Agreement as
therein provided;
WHEREAS, Borrower and Foothill are parties to that certain Amendment Number Two
to Loan Agreement dated as of May 30, 1997, amending the Loan Agreement as
therein provided;
WHEREAS, Borrower and Foothill are parties to that certain Amendment Number
Three to Loan Agreement dated as of September 15, 1997, amending the Loan
Agreement as therein provided; and
WHEREAS, Borrower has requested that certain provisions of the Loan Agreement be
amended, and Foothill has agreed to amend such provisions in accordance with the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
conditions, and provisions as hereinafter set forth, the parties hereto agree as
follows:
1. Initially capitalized terms used herein have the meanings defined in the Loan
Agreement unless otherwise defined herein.
1
<PAGE>
2. Clause (e) of the definition of "Eligible Accounts" in the Loan Agreement is
restated to read:
(e) Accounts with selling terms of more than ninety (90) days from the
date of the applicable invoice, with the exception of Accounts as to
which Fred Meyer is the Account Debtor in which case the Accounts will
be ineligible if they contain selling terms of more than one hundred
twenty (120) days from the date of the applicable invoice;
3. The following definitions in Section 1.1 of the Loan Agreement are restated:
"Maximum Amount" means, (a) during February through November, Forty
Million Dollars ($40,000,000), and (b) during December through January,
Forty-Five Million Dollars ($45,000,000).
"Maximum Gold Letter of Credit Amount" means, (a) during February
through November, Twenty Million Dollars ($20,000,000), and (b) during
December through January, Fifteen Million Dollars ($15,000,000).
4. Borrower hereby represents and warrants to Foothill as follows: (a) The
execution, delivery, and performance by Borrower of this Amendment have been
duly authorized by all necessary corporate and other action and do not and will
not require any registration with, consent or approval of, or notice to or
action by, any Person in order to be effective and enforceable; and (b) The Loan
Agreement, as amended by this Amendment, constitutes the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms, without defense, counterclaim, or offset.
5. Except as herein expressly amended, all terms, covenants and provisions of
the Loan Agreement are and shall remain in full force and effect and all
references therein to the Loan Agreement shall henceforth refer to the Loan
Agreement as amended by this Amendment. This Amendment shall be deemed
incorporated into, and a part of, the Loan Agreement.
6. This Amendment shall be governed by, and construed and enforced in accordance
with, the laws of the State of California.
7. This Amendment, together with the Loan Agreement and the other Loan
Documents, contains the entire and exclusive agreement of the parties hereto
with reference to the matters discussed herein and therein. This Amendment
supersedes all prior drafts and communications with respect thereto. This
Amendment may not be amended except in writing executed by both of the parties
hereto.
8. If any term or provision of this Amendment shall be deemed prohibited by or
invalid under any applicable law, such provision shall be invalidated without
affecting the remaining provisions of this Amendment or the Loan Agreement,
respectively.
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9. As a condition precedent to the effectiveness of this Amendment, Foothill
shall have received: (a) an amendment fee of Fifteen Thousand Dollars ($15,000),
which fee is earned in full by Foothill and due and payable by Borrower to
Foothill concurrently with the execution and delivery of this Amendment by
Foothill; and (b) any consents to this Amendment that Foothill may need or
require from participants of Foothill.
10. This Amendment may be executed in any number of counterparts, each of which
shall be deemed an original, and all such counterparts together shall constitute
but one and the same instrument. This Amendment shall become effective when each
party has executed and delivered a counterpart hereof. Delivery of an executed
counterpart of this Amendment by telefacsimile shall be equally as effective as
delivery of an original executed counterpart of this Amendment. Any party
delivering an executed counterpart of this Amendment by telefacsimile also shall
deliver an original executed counterpart of this Amendment but the failure to
deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Amendment.
IN WITNESS HEREOF, this Amendment has been executed and delivered as of the date
first set forth of above.
TOWN & COUNTRY CORPORATION,
a Massachusetts corporation
By /s/ Veronica M. Zsolcsak
------------------------
Name:
Title: Treasurer
TOWN & COUNTRY FINE JEWELRY GROUP, INC.,
a Massachusetts corporation
By /s/ Veronica M. Zsolcsak
------------------------
Name: Veronica M. Zsolcsak
Title: Treasurer
GL, INC., a Massachusetts corporation
By /s/ Veronica M. Zsolcsak
------------------------
Name: Veronica M. Zsolcsak
Title: Treasurer
L.G. BALFOUR COMPANY, INC.,
a Delaware corporation
By /s/ Veronica M. Zsolcsak
------------------------
Name: Veronica M. Zsolcsak
Title: Treasurer
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FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Anthony Aloi
----------------
Name: Anthony Aloi
Title: Assistant Vice President
4
AMENDMENT NUMBER FIVE TO LOAN AGREEMENT
---------------------------------------
(TOWN & COUNTRY CORPORATION AND SUBSIDIARIES)
THIS AMENDMENT NUMBER FIVE TO LOAN AGREEMENT (this "Amendment Number Five"),
dated as of November 13, 1997, is entered into between Town & Country
Corporation, a Massachusetts corporation, Town & Country Fine Jewelry Group,
Inc., a Massachusetts corporation, GL, Inc., a Massachusetts corporation, L.G.
Balfour Company, Inc., a Delaware corporation (which aforesaid four
corporations, individually and collectively, jointly and severally, and together
with their successors and assigns, are herein referred to as "Co-Obligors"), and
Foothill Capital Corporation, a California corporation ("Foothill"), in light of
the following:
WHEREAS, Co-Obligors and Foothill are parties to that certain Loan Agreement
dated as of July 3, 1996 (as from time to time amended, modified, supplemented,
renewed, extended, or restated, including, without limitation, by this Amendment
Number Five and by the prior amendments to the aforesaid loan agreement
specifically referred to below, the "Loan Agreement");
WHEREAS, Co-Obligors and Foothill are parties to that certain Amendment Number
One to Loan Agreement dated as of October 31, 1996, amending the Loan Agreement
as therein provided;
WHEREAS, Co-Obligors and Foothill are parties to that certain Amendment Number
Two to Loan Agreement dated as of May 30, 1997, amending the Loan Agreement as
therein provided;
WHEREAS, Co-Obligors and Foothill are parties to that certain Amendment Number
Three to Loan Agreement dated as of September 15, 1997, amending the Loan
Agreement as therein provided;
WHEREAS, Co-Obligors and Foothill are parties to that certain Amendment Number
Four to Loan Agreement dated as of October 8, 1997, amending the Loan Agreement
as therein provided;
WHEREAS, T&C intends to file the Chapter 11 Case (as defined below) for the
purpose of confirming and consummating the Plan of Reorganization (as defined
below); and
WHEREAS, to facilitate the continued financing of Co-Obligors during the Chapter
11 Case and thereafter, Co-Obligors have requested that certain provisions of
the Loan Agreement be amended, and Foothill has agreed to amend such provisions
in accordance with the terms hereof.
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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
conditions, and provisions as hereinafter set forth, the parties hereto agree as
follows:
1. Initially capitalized terms used herein have the meanings defined in the Loan
Agreement unless otherwise defined herein.
2. The following defined terms are hereby added alphabetically to Section 1.1 of
the Agreement:
"Amendment Number Five" means that certain Amendment
Number Five to Loan Agreement dated as of November 13, 1997, between
Foothill, T&C, Group, LGI, and Balfour, including all exhibits thereto.
"Bankruptcy Court" means the United States Bankruptcy
Court for the District of Massachusetts.
"Chapter 11 Case" means the reorganization proceeding
of T&C under Chapter 11 of the United States Bankruptcy Code commenced
by the filing of a petition with the Bankruptcy Court in November,
1997.
"Guaranty Motion" means that certain motion, in the
form attached to Amendment Number Five as Exhibit A thereto, to be
filed by T&C in the Chapter 11 Case.
"Guaranty Order" means that certain order of the
Bankruptcy Court, entered in the Chapter 11 Case, in the form attached
to Amendment Number Five as Exhibit B thereto, or in such other form as
is approved in writing by Foothill.
"Plan of Reorganization" means that certain plan of
reorganization of T&C filed in the Chapter 11 Case, in the form
attached to Amendment Number Five as Exhibit C thereto, or in such
other form as is approved in writing by Foothill.
"Post-Emergence Obligations" means all Obligations
arising or incurred after the end of the Relevant Period.
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"Pre-Petition Obligations" means all Obligations
arising or incurred prior to the commencement of the Relevant Period.
"Primary Borrower Entities" means Group, GLI, and
Balfour.
"Relevant Period" means the period commencing at the
moment of the filing of the petition initiating the Chapter 11 Case,
and ending at the moment the Plan of Reorganization becomes effective.
"Relevant Period Obligations" means all Obligations
arising or incurred at any time during the Relevant Period.
"T&C Guaranty" means a written guaranty, in the form
attached to Amendment Number Five as Exhibit D thereto, guarantying the
Relevant Period Obligations.
"Unacceptable Plan" means a plan of reorganization
for T&C that differs from the Plan of Reorganization in its treatment
of Foothill's claim and that has not been approved by Foothill.
3. Attached hereto as Exhibit A and incorporated herein by this reference is the
form of Guaranty Motion. Attached hereto as Exhibit B and incorporated herein by
this reference is the form of Guaranty Order. Attached hereto as Exhibit C and
incorporated herein by this reference is the form of Plan of Reorganization.
Attached hereto as Exhibit D and incorporated herein by this reference is the
form of T&C Guaranty.
4. Anything in the Loan Documents to the contrary notwithstanding: (a) At all
times during the Relevant Period, with respect to the Relevant Period
Obligations, the status of T&C shall be that of a guarantor, pursuant to the T&C
Guaranty, rather than that of a primary obligor and co-borrower; (b) At all
times during the Relevant Period, and thereafter, with respect to the
Pre-Petition Obligations, the status of T&C shall remain and continue to be that
of a primary obligor and co-borrower; (c) At all times after the Relevant
Period, with respect to all Obligations, including each of the Pre-Petition
Obligations, the Relevant Period Obligations, and the Post-Emergence
Obligations, T&C's status shall be that of a primary obligor and co-borrower
(i.e., without limitation, after the Relevant Period, T&C's status as a
guarantor, during the Relevant Period, of the Relevant Period Obligations, shall
revert back to the status of a primary obligor and co-borrower with respect
thereto as if there had been no Chapter 11 Case and as if this Amendment Number
Five had never existed); (d) All obligations of T&C under or with respect to the
T&C Guaranty shall be "Obligations" as defined in the Loan Agreement,
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<PAGE>
secured by any and all right, title, interest of T&C in and to any Collateral,
and the T&C Guaranty shall be a "Loan Document" as defined in the Loan
Agreement; (e) At all times prior to, during, and after the Relevant Period, the
status of each Primary Borrower Entity shall continue to be that of a primary
obligor and co-borrower; (f) During the Relevant Period, with respect to the
Relevant Period Obligations, any reference in the Loan Documents to "Borrower"
shall be deemed to refer to the Primary Borrower Entities as primary obligors
and co-borrowers, and to T&C as a guarantor pursuant to the T&C Guaranty; (g)
Except as otherwise expressly provided in this Amendment Number Five, during the
Relevant Period, and thereafter, all provisions of the Loan Documents applicable
to Borrower, including covenants, reporting requirements, and financial
calculations, shall continue to apply to T&C as well as the other Primary
Borrower Entities, except that, during the Relevant Period, T&C shall not be
entitled to borrow or obtain Letters of Credit under the Loan Documents, and,
during the Relevant Period, no property or assets of T&C shall be included in
the Borrowing Base; and (h) during the Relevant Period, any intercompany
transfers from the Primary Borrower Entities to T&C shall be made in the form of
intercompany loans (rather than dividends or distributions), and shall not,
without Foothill's consent, exceed the amounts projected in the cash forecast
and borrowing base estimate projections provided by T&C and Group to Foothill on
November 7, 1997. Nothing herein is intended to affect, diminish, or impair any
Pre-Petition Obligation of any Co-Obligor, or any lien on any Collateral
securing any such Obligation.
5. Foothill waives any Events of Default occasioned by the commencement by T&C
of the Chapter 11 Case. In addition to the Events of Default enumerated in the
Loan Agreement, an Event of Default shall occur if the Bankruptcy Court confirms
an Unacceptable Plan.
6. Co-Obligors hereby represent and warrant to Foothill as follows: (a) The
execution, delivery, and performance by Co-Obligors of this Amendment Number
Five have been duly authorized by all necessary corporate and other action and
do not and will not require any registration with, consent or approval of, or
notice to or action by, any Person in order to be effective and enforceable; and
(b) The Loan Agreement, as amended by this Amendment Number Five, constitutes
the legal, valid, and binding obligation of Co-Obligors, enforceable against
Co-Obligors in accordance with its terms, without defense, counterclaim, or
offset.
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7. Except as herein expressly amended, all terms, covenants and provisions of
the Loan Agreement are and shall remain in full force and effect and all
references therein to the Loan Agreement shall henceforth refer to the Loan
Agreement as amended by this Amendment Number Five. This Amendment Number Five
shall be deemed incorporated into, and a part of, the Loan Agreement.
8. This Amendment Number Five shall be governed by, and construed and enforced
in accordance with, the laws of the State of California.
9. This Amendment Number Five, together with the Loan Agreement and the other
Loan Documents, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein. This
Amendment Number Five supersedes all prior drafts and communications with
respect thereto. This Amendment Number Five may not be amended except in writing
executed by both of the parties hereto.
10. If any term or provision of this Amendment Number Five shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment Number
Five or the Loan Agreement, respectively.
11. This Amendment Number Five shall not be effective until the following
conditions precedent are satisfied (or waived by Foothill in its sole
discretion): (a) Each party named on the signature pages of this Amendment
Number Five has executed and delivered a counterpart of this Amendment Number
Five prior to the commencement of the Chapter 11 Case; (b) Foothill has received
an amendment fee of $25,000, which fee is earned in full by Foothill and due and
payable by Co-Obligors to Foothill concurrently with the execution and delivery
of this Amendment Number Five by Foothill; (c) Foothill shall have received any
consents to this Amendment Number Five that Foothill may need or require from
participants of Foothill; (d) The Chapter 11 Case shall have been commenced; (e)
The Plan of Reorganization shall have been filed with the Bankruptcy Court by
T&C; (f) The Guaranty Motion shall have been filed with the Bankruptcy Court by
T&C; (g) The Guaranty Order shall have been entered by the Bankruptcy Court, and
shall not have been stayed or reversed on appeal; and (h) The T&C Guaranty shall
have been executed and delivered by T&C to Foothill. If the foregoing conditions
precedent are satisfied (or waived by Foothill in its sole discretion) on or
before December 8, 1997 (or such later date agreed to in writing by Foothill),
this Amendment Number Five shall be effective retroactive to, and as of,
November 13, 1997, prior to the commencement of the Chapter 11 Case. If the
foregoing conditions precedent are not satisfied (or waived by Foothill in its
sole discretion) on or before December 8, 1997 (or such later date agreed to in
writing by Foothill), this Amendment Number Five shall be null and void and of
no force or effect.
12. This Amendment Number Five may be executed in any number of counterparts,
each of which shall be deemed an original, and all such counterparts together
shall constitute but one and the same instrument. Delivery of an executed
counterpart of this Amendment Number Five by telefacsimile shall be equally as
effective as delivery of an original executed counterpart of this Amendment
Number Five. Any party delivering an executed counterpart of this Amendment
Number Five by telefacsimile also shall deliver an original executed counterpart
of this Amendment Number Five but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment Number Five.
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[the balance of this page is intentionally left blank - signatures begin on next
page]
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IN WITNESS HEREOF, this Amendment Number Five has been executed and delivered as
of the date first set forth of above.
TOWN & COUNTRY CORPORATION,
a Massachusetts corporation
By ___________________________
Name:
Title:
TOWN & COUNTRY FINE JEWELRY GROUP, INC.,
a Massachusetts corporation
By ___________________________
Name:
Title:
GL, INC., a Massachusetts corporation
By ___________________________
Name:
Title:
L.G. BALFOUR COMPANY, INC.,
a Delaware corporation
By ___________________________
Name:
Title:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By ___________________________
Name:
Title:
GENERAL CONTINUING GUARANTY
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of November 15,
1997, is executed and delivered by Town & Country Corporation, a Massachusetts
corporation ("Guarantor"), in favor of Fleet Precious Metals Inc., a Rhode
Island corporation ("Guarantied Party"), in light of the following:
WHEREAS, Guarantor, Group, GLI, Balfour, and Guarantied Party are,
contemporaneously herewith, entering into that certain Amendment Number One; and
WHEREAS, in order to induce Guarantied Party to extend financial
accommodations to Debtor during the Relevant Period pursuant to the Consignment
Agreement, and in consideration thereof, and in consideration of any
consignments of Precious Metal or other financial accommodations heretofore or
hereafter extended by Guarantied Party to Debtor, whether pursuant to the Loan
Agreement or otherwise, Guarantor has agreed to guaranty the Guarantied
Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor hereby agrees,
in favor of Guarantied Party, as follows:
1. Definitions and Construction.
(a) Definitions. Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Consignment Agreement.
The following terms, as used in this Guaranty, shall have the following
meanings:
"Amendment Number One" shall mean that certain Amendment Number One to
Second Amended and Restated Consignment Agreement dated as of November 15,
1997, between Guarantied Party, Guarantor, Group, LGI, and Balfour,
including all exhibits thereto.
"Consignment Agreement" shall mean that certain Second Amended and
Restated Consignment Agreement, dated as of July 3, 1996, entered into
between Town & Country Corporation, a Massachusetts corporation, Town &
Country Fine Jewelry Group, Inc., a Massachusetts corporation, GL, Inc., a
Massachusetts corporation, L.G. Balfour Company, Inc., a Delaware
corporation, and Fleet Precious Metals Inc., a Rhode Island corporation, as
from time to time amended, modified, supplemented, renewed, extended, or
restated, including, without limitation, by Amendment Number One.
"Debtor" shall mean Group, GLI, and Balfour, and each of them, jointly
and severally.
"Guarantied Obligations" shall mean any and all Relevant Period
Obligations of Debtor.
<PAGE>
"Guarantied Party" shall have the meaning set forth in the preamble to
this Guaranty.
"Guarantor" shall have the meaning set forth in the preamble to this
Guaranty.
"Guaranty" shall have the meaning set forth in the preamble to this
Guaranty.
(b) Construction. Unless the context of this Guaranty clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms refer to this Guaranty as a whole
and not to any particular provision of this Guaranty. Any reference in this
Guaranty to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Consignment Agreement; this Guaranty; and
the other Consignment Documents. Neither this Guaranty nor any uncertainty or
ambiguity herein shall be construed or resolved against Guarantied Party or
Guarantor, whether under any rule of construction or otherwise. On the contrary,
this Guaranty has been reviewed by Guarantor, Guarantied Party, and their
respective counsel, and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of Guarantied Party and Guarantor.
2. Guarantied Obligations. Guarantor hereby irrevocably and unconditionally
guaranties to Guarantied Party, as and for its own debt, until final and
indefeasible payment thereof has been made, (a) the payment of the Guarantied
Obligations, in each case when and as the same shall become due and payable,
whether at maturity, pursuant to a mandatory prepayment requirement, by
acceleration, or otherwise; it being the intent of Guarantor that the guaranty
set forth herein shall be a guaranty of payment and not a guaranty of
collection; and (b) the punctual and faithful performance, keeping, observance,
and fulfillment by Debtor of all of the agreements, conditions, covenants, and
obligations of Debtor contained in the Consignment Agreement, and under each of
the other Consignment Documents.
3. Continuing Guaranty. This Guaranty includes Guarantied Obligations
arising under successive transactions continuing, compromising, extending,
increasing, modifying, releasing, or renewing the Guarantied Obligations,
changing the Daily Consignment consigned Fee, payment terms, or other terms and
conditions thereof, or creating new or additional Guarantied Obligations after
prior Guarantied Obligations have been satisfied in whole or in part. To the
maximum extent permitted by law, Guarantor hereby waives any right to revoke
this Guaranty as to future Guarantied Obligations. If such a revocation is
effective notwithstanding the foregoing waiver, Guarantor acknowledges and
agrees that (a) no such revocation shall be effective until written notice
thereof has been received by Guarantied Party, (b) no such revocation shall
apply to any Guarantied Obligations in existence on such date (including any
subsequent continuation,
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<PAGE>
extension, or renewal thereof, or change in the interest rate, payment terms, or
other terms and conditions thereof), (c) no such revocation shall apply to any
Guarantied Obligations made or created after such date to the extent made or
created pursuant to a legally binding commitment of Guarantied Party in
existence on the date of such revocation, (d) no payment by Guarantor, Debtor,
or from any other source, prior to the date of such revocation shall reduce the
maximum obligation of Guarantor hereunder, and (e) any payment by Debtor or from
any source other than Guarantor subsequent to the date of such revocation shall
first be applied to that portion of the Guarantied Obligations as to which the
revocation is effective and which are not, therefore, guarantied hereunder, and
to the extent so applied shall not reduce the maximum obligation of Guarantor
hereunder.
4. Performance Under this Guaranty. In the event that Debtor fails to make
any payment of any Guarantied Obligations, on or before the due date thereof, or
if Debtor shall fail to perform, keep, observe, or fulfill any other obligation
referred to in clause (b) of Section 2 hereof in the manner provided in the
Consignment Agreement or the other Consignment Documents, as applicable,
Guarantor immediately shall cause such payment to be made or each of such
obligations to be performed, kept, observed, or fulfilled.
5. Primary Obligations. This Guaranty is a primary and original obligation
of Guarantor, is not merely the creation of a surety relationship, and is an
absolute, unconditional, and continuing guaranty of payment and performance
which shall remain in full force and effect without respect to future changes in
conditions. Guarantor agrees that it is directly, jointly and severally with any
other guarantor of the Guarantied Obligations, liable to Guarantied Party, that
the obligations of Guarantor hereunder are independent of the obligations of
Debtor or any other guarantor, and that a separate action may be brought against
Guarantor, whether such action is brought against Debtor or any other guarantor
or whether Debtor or any other guarantor is joined in such action. Guarantor
agrees that its liability hereunder shall be immediate and shall not be
contingent upon the exercise or enforcement by Guarantied Party of whatever
remedies it may have against Debtor or any other guarantor, or the enforcement
of any lien or realization upon any security Guarantied Party may at any time
possess. Guarantor agrees that any release which may be given by Guarantied
Party to Debtor or any other guarantor shall not release Guarantor. Guarantor
consents and agrees that Guarantied Party shall be under no obligation to
marshal any property or assets of Debtor or any other guarantor in favor of
Guarantor, or against or in payment of any or all of the Guarantied Obligations.
6. Waivers.
(a) To the fullest extent permitted by applicable law, Guarantor hereby
waives: (i) notice of acceptance hereof; (ii) notice of any consignments of
Precious Metal or other financial accommodations made or extended under the
Consignment Agreement, or the creation or existence of any Guarantied
Obligations; (iii) notice of the amount of the Guarantied Obligations, subject,
however, to Guarantor's right to make inquiry of Guarantied Party to ascertain
the amount of the Guarantied Obligations at any reasonable time; (iv) notice of
any adverse change in the financial condition of Debtor or of any other fact
that might increase Guarantor's risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the
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Consignment Documents; (vi) notice of any unmatured Event of Default or Event of
Default under the Consignment Agreement; and (vii) all other notices (except if
such notice is specifically required to be given to Guarantor under this
Guaranty or any other Consignment Documents to which Guarantor is a party) and
demands to which Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law, Guarantor waives
the right by statute or otherwise to require Guarantied Party to institute suit
against Debtor or to exhaust any rights and remedies which Guarantied Party has
or may have against Debtor. In this regard, Guarantor agrees that it is bound to
the payment of each and all Guarantied Obligations, whether now existing or
hereafter arising, as fully as if such Guarantied Obligations were directly
owing to Guarantied Party by Guarantor. Guarantor further waives any defense
arising by reason of any disability or other defense (other than the defense
that the Guarantied Obligations shall have been fully and finally performed and
indefeasibly paid) of Debtor or by reason of the cessation from any cause
whatsoever of the liability of Debtor in respect thereof.
(c) To the fullest extent permitted by applicable law, Guarantor hereby
waives: (i) any rights to assert against Guarantied Party any defense (legal or
equitable), set-off, counterclaim, or claim which Guarantor may now or at any
time hereafter have against Debtor or any other party liable to Guarantied
Party; (ii) any defense, set-off, counterclaim, or claim, of any kind or nature,
arising directly or indirectly from the present or future lack of perfection,
sufficiency, validity, or enforceability of the Guarantied Obligations or any
security therefor; (iii) any defense arising by reason of any claim or defense
based upon an election of remedies by Guarantied Party; (iv) the benefit of any
statute of limitations affecting Guarantor's liability hereunder or the
enforcement thereof, and any act which shall defer or delay the operation of any
statute of limitations applicable to the Guarantied Obligations shall similarly
operate to defer or delay the operation of such statute of limitations
applicable to Guarantor's liability hereunder.
(d) Until such time as all of the Guarantied Obligations have been
fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby
waives and postpones any right of subrogation Guarantor has or may have as
against Debtor with respect to the Guarantied Obligations; (ii) in addition,
Guarantor hereby waives and postpones any right to proceed against Debtor or any
other Person, now or hereafter, for contribution, indemnity, reimbursement, or
any other suretyship rights and claims (irrespective of whether direct or
indirect, liquidated or contingent), with respect to the Guarantied Obligations;
and (iii) in addition, Guarantor also hereby waives and postpones any right to
proceed or to seek recourse against or with respect to any property or asset of
Debtor.
(e) If any of the Guarantied Obligations at any time are secured by a
mortgage or deed of trust upon real property, Guarantied Party may elect, in its
sole discretion, upon a default with respect to the Guarantied Obligations, to
foreclose such mortgage or deed of trust judicially or nonjudicially in any
manner permitted by law, before or after enforcing this Guaranty, without
diminishing or affecting the liability of Guarantor hereunder.
7. Releases. Guarantor consents and agrees that, without notice to or by
Guarantor and without affecting or impairing the obligations of Guarantor
hereunder, Guarantied Party may, by
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<PAGE>
action or inaction, compromise or settle, extend the period of duration or the
time for the payment, or discharge the performance of, or may refuse to, or
otherwise not enforce, or may, by action or inaction, release all or any one or
more parties to, any one or more of the terms and provisions of the Consigned
Agreement or any of the other Consigned Documents or may grant other indulgences
to Debtor in respect thereof, or may amend or modify in any manner and at any
time (or from time to time) any one or more of the Consigned Agreement or any of
the other Consigned Documents, or may, by action or inaction, release or
substitute any other guarantor, if any, of the Guarantied Obligations, or may
enforce, exchange, release, or waive, by action or inaction, any security for
the Guarantied Obligations or any other guaranty of the Guarantied Obligations,
or any portion thereof.
8. No Election. Guarantied Party shall have the right to seek recourse
against Guarantor to the fullest extent provided for herein and no election by
Guarantied Party to proceed in one form of action or proceeding, or against any
party, or on any obligation, shall constitute a waiver of Guarantied Party's
right to proceed in any other form of action or proceeding or against other
parties unless Guarantied Party has expressly waived such right in writing.
Specifically, but without limiting the generality of the foregoing, no action or
proceeding by Guarantied Party under any document or instrument evidencing the
Guarantied Obligations shall serve to diminish the liability of Guarantor under
this Guaranty except to the extent that Guarantied Party finally and
unconditionally shall have realized indefeasible payment by such action or
proceeding.
9. Indefeasible Payment. The Guarantied Obligations shall not be considered
indefeasibly paid for purposes of this Guaranty unless and until all payments to
Guarantied Party are no longer subject to any right on the part of any person
whomsoever, including Debtor, Debtor as a debtor in possession, or any trustee
(whether appointed under the Bankruptcy Code or otherwise) of Debtor's assets to
invalidate or set aside such payments or to seek to recoup the amount of such
payments or any portion thereof, or to declare same to be fraudulent or
preferential. In the event that, for any reason, all or any portion of such
payments to Guarantied Party is set aside or restored, whether voluntarily or
involuntarily, after the making thereof, the obligation or part thereof intended
to be satisfied thereby shall be revived and continued in full force and effect
as if said payment or payments had not been made and Guarantor shall be liable
for the full amount Guarantied Party is required to repay plus any and all costs
and expenses (including attorneys fees) paid by Guarantied Party in connection
therewith.
10. Financial Condition of Debtor. Guarantor represents and warrants to
Guarantied Party that it is currently informed of the financial condition of
Debtor and of all other circumstances which a diligent inquiry would reveal and
which bear upon the risk of nonpayment of the Guarantied Obligations. Guarantor
further represents and warrants to Guarantied Party that it has read and
understands the terms and conditions of the Loan Agreement and the other Loan
Documents. Guarantor hereby covenants that it will continue to keep itself
informed of Debtor's financial condition, the financial condition of other
guarantors, if any, and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the Guarantied Obligations.
11. Subordination. Guarantor hereby agrees that any and all present and
future indebtedness of Debtor owing to Guarantor is postponed in favor of and
subordinated to payment,
5
<PAGE>
in full, in cash, of the Guarantied Obligations. In this regard, no payment of
any kind whatsoever shall be made with respect to such indebtedness until the
Guarantied Obligations have been indefeasibly paid in full.
12. Payments; Application. All payments to be made hereunder by Guarantor
shall be made in lawful money of the United States of America at the time of
payment, shall be made in immediately available funds, and shall be made without
deduction (whether for taxes or otherwise) or offset. All payments made by
Guarantor hereunder shall be applied as follows: first, to all reasonable costs
and expenses (including attorneys fees) incurred by Guarantied Party in
enforcing this Guaranty or in collecting the Guarantied Obligations; second, to
all accrued and unpaid interest, premium, if any, and fees owing to Guarantied
Party constituting Guarantied Obligations; and third, to the balance of the
Guarantied Obligations.
13. Attorneys Fees and Costs. Guarantor agrees to pay, on demand, all
reasonable attorneys fees and all other reasonable costs and expenses which may
be incurred by Guarantied Party in the enforcement of this Guaranty or in any
way arising out of, or consequential to the protection, assertion, or
enforcement of the Guarantied Obligations (or any security therefor),
irrespective of whether suit is brought.
14. Notices. Unless otherwise specifically provided in this Guaranty, any
notice or other communication relating to this Guaranty or any other agreement
entered into in connection therewith shall be in writing and shall be personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested, or by prepaid telex, or telefacsimile, to Guarantor or to
Guarantied Party, as the case may be, at its addresses set forth in the Loan
Agreement.
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 14, shall be
deemed received on the earlier of the date of actual receipt or three (3)
calendar days after the deposit thereof in the mail.
15. Cumulative Remedies. No remedy under this Guaranty, under the
Consignment Agreement, or any other Consignment Document is intended to be
exclusive of any other remedy, but each and every remedy shall be cumulative and
in addition to any and every other remedy given under this Guaranty, under the
Consignment Agreement, or any other Consignment Document, and those provided by
law. No delay or omission by Guarantied Party to exercise any right under this
Guaranty shall impair any such right nor be construed to be a waiver thereof. No
failure on the part of Guarantied Party to exercise, and no delay in exercising,
any right under this Guaranty shall operate as a waiver thereof; nor shall any
single or partial exercise of any right under this Guaranty preclude any other
or further exercise thereof or the exercise of any other right.
16. Severability of Provisions. Any provision of this Guaranty which is
prohibited or unenforceable under applicable law shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
6
<PAGE>
17. Entire Agreement; Amendments. This Guaranty constitutes the entire
agreement between Guarantor and Guarantied Party pertaining to the subject
matter contained herein. This Guaranty may not be altered, amended, or modified,
nor may any provision hereof be waived or noncompliance therewith consented to,
except by means of a writing executed by both Guarantor and Guarantied Party.
Any such alteration, amendment, modification, waiver, or consent shall be
effective only to the extent specified therein and for the specific purpose for
which given. No course of dealing and no delay or waiver of any right or default
under this Guaranty shall be deemed a waiver of any other, similar or
dissimilar, right or default or otherwise prejudice the rights and remedies
hereunder.
18. Successors and Assigns. This Guaranty shall be binding upon Guarantor
and its successors and assigns and shall inure to the benefit of the successors
and assigns of Guarantied Party; provided, however, Guarantor shall not assign
this Guaranty or delegate any of its duties hereunder without Guarantied Party's
prior written consent and any unconsented to assignment shall be absolutely
void. In the event of any assignment or other transfer of rights by Guarantied
Party, the rights and benefits herein conferred upon Guarantied Party shall
automatically extend to and be vested in such assignee or other transferee.
19. No Third Party Beneficiary. This Guaranty is solely for the benefit of
Guarantied Party and its successors and assigns and may not be relied on by any
other Person.
20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF PROVIDENCE, STATE OF RHODE ISLAND, OR AT THE
SOLE OPTION OF GUARANTIED PARTY, IN ANY OTHER COURT IN WHICH GUARANTIED PARTY
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND GUARANTIED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
GUARANTY OR ANY OF THE
7
<PAGE>
TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. GUARANTOR AND
GUARANTIED PARTY REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
21. Period of Effectiveness. Anything to the contrary hereinabove provided
notwithstanding: (a) This Guaranty shall become effective at the same instant
that Amendment Number One becomes effective; and (b) At such time, if any, as
the Relevant Period ends and as the Obligations of Guarantor with respect to the
Guarantied Obligations revert back to primary obligations pursuant to Section
4(c) of Amendment Number One, this Guaranty shall cease to be effective, and
Guarantor's Obligations shall be primary obligations as a co-obligor pursuant to
the Consignment Documents other than this Guaranty.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as an instrument under seal of the date first written above.
TOWN & COUNTRY CORPORATION,
a Massachusetts corporation
By____________________________________
Title________________________________
8
AMENDMENT NUMBER ONE TO SECOND AMENDED AND RESTATED
CONSIGNMENT AGREEMENT
(TOWN & COUNTRY CORPORATION AND SUBSIDIARIES)
THIS AMENDMENT NUMBER ONE TO SECOND AMENDED AND RESTATED CONSIGNMENT
AGREEMENT (this "Amendment Number One"), dated as of November 15, 1997, is
entered into between Town & Country Corporation, a Massachusetts corporation
("T&C"), Town & Country Fine Jewelry Group, Inc., a Massachusetts corporation
("Group"), GL, Inc., a Massachusetts corporation ("GL"), L.G. Balfour Company,
Inc., a Delaware corporation ("Balfour") (which aforesaid four corporations,
individually and collectively, jointly and severally, and together with their
successors and assigns, are herein referred to as "Co-Obligors"), and Fleet
Precious Metals Inc., a Rhode Island corporation ("Consignor"), in light of the
following:
WHEREAS, Co-Obligors and Consignor are parties to that certain Second
Amended and Restated Consignment Agreement dated as of July 3, 1996 (as from
time to time amended, modified, supplemented, renewed, extended, or restated,
including, without limitation, by this Amendment Number One, the "Consignment
Agreement");
WHEREAS, T&C intends to file the Chapter 11 Case (as defined below) for the
purpose of confirming and consummating the Plan of Reorganization (as defined
below); and
WHEREAS, to facilitate the continued financing of Co-Obligors during the
Chapter 11 Case and thereafter, Co-Obligors have requested that certain
provisions of the Consignment Agreement be amended, and Consignor has agreed to
amend such provisions in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
conditions, and provisions as hereinafter set forth, the parties hereto agree as
follows:
1. Initially capitalized terms used herein have the meanings defined in the
Consignment Agreement unless otherwise defined herein.
2. The following defined terms are hereby added alphabetically to Section
1.1 of the Agreement:
"Amendment Number One" means that certain Amendment Number One to Second
Amended and Restated Consignment Agreement dated as of November 15, 1997,
between Consignor, T&C, Group, GL, and Balfour, including all exhibits
thereto.
"Bankruptcy Court" means the United States Bankruptcy Court for the
District of Massachusetts.
<PAGE>
"Chapter 11 Case" means the reorganization proceeding of T&C under
Chapter 11 of the United States Bankruptcy Code commenced by the filing of
a petition with the Bankruptcy Court in November, 1997.
"Guaranty Motion" means that certain motion, in the form attached to
Amendment Number One as Exhibit A thereto, to be filed by T&C in the
Chapter 11 Case.
"Guaranty Order" means that certain order of the Bankruptcy Court,
entered in the Chapter 11 Case, in the form attached to Amendment Number
One as Exhibit B thereto, or in such other form as is approved in writing
by Consignor.
"Plan of Reorganization" means that certain plan of reorganization of
T&C filed in the Chapter 11 Case, in the form attached to Amendment Number
One as Exhibit C thereto, or in such other form as is approved in writing
by Foothill.
"Post-Emergence Obligations" means all Obligations arising or incurred
after the end of the Relevant Period.
"Pre-Petition Obligations" means all Obligations arising or incurred
prior to the commencement of the Relevant Period.
"Primary Buyer Entities" means Group, GL, and Balfour.
"Relevant Period" means the period commencing at the moment of the
filing of the petition initiating the Chapter 11 Case, and ending at the
moment the Plan of Reorganization becomes effective.
"Relevant Period Obligations" means all Obligations arising or incurred
at any time during the Relevant Period.
"T&C Guaranty" means a written guaranty, in the form attached to
Amendment Number Five as Exhibit D thereto, guarantying the Relevant Period
Obligations.
"Unacceptable Plan" means a plan of reorganization for T&C that differs
materially from the Plan of Reorganization and that has not been approved
by Consignor.
3. Attached hereto as Exhibit A and incorporated herein by this
reference is the form of Guaranty Motion. Attached hereto as Exhibit B and
incorporated herein by this reference is the form of Guaranty Order. Attached
hereto as Exhibit C and incorporated herein by this reference is the form of
Plan of Reorganization. Attached hereto as Exhibit D and incorporated herein by
this reference is the form of T&C Guaranty.
2
<PAGE>
4. Anything in the Consignment Agreement and any other document evidencing
or securing the indebtedness and obligations of Obligors to Consignor (the
"Consignment Documents") to the contrary notwithstanding: (a) At all times
during the Relevant Period, with respect to the Relevant Period Obligations, the
status of T&C shall be that of a guarantor, pursuant to the T&C Guaranty, rather
than that of a primary obligor and co-buyer; (b) At all times during the
Relevant Period, and thereafter, with respect to the Pre-Petition Obligations,
the status of T&C shall remain and continue to be that of a primary obligor and
co-buyer; (c) At all times after the Relevant Period, with respect to all
Obligations, including each of the Pre-Petition Obligations, the Relevant Period
Obligations, and the Post-Emergence Obligations, T&C's status shall be that of a
primary obligor and co-buyer (i.e., without limitation, after the Relevant
Period, T&C's status as a guarantor, during the Relevant Period, of the Relevant
Period Obligations, shall revert back to the status of a primary obligor and
co-buyer with respect thereto as if there had been no Chapter 11 Case and as if
this Amendment Number One had never existed); (d) All obligations of T&C under
or with respect to the T&C Guaranty shall be "Obligations" as defined in the
Security Documents, secured by any and all right, title, interest of T&C in and
to any Collateral, and the T&C Guaranty shall be an "Underlying Transaction
Document" as defined in the Security Documents; (e) At all times prior to,
during, and after the Relevant Period, the status of each Primary Buyer Entity
shall continue to be that of a primary obligor and co-buyer; (f) During the
Relevant Period, with respect to the Relevant Period Obligations, any reference
in the Consignment Documents to "Buyer" shall be deemed to refer to the Primary
Buyer Entities as primary obligors and co-buyers, and to T&C as a guarantor
pursuant to the T&C Guaranty; and (g) Except as otherwise expressly provided in
this Amendment Number One, during the Relevant Period, and thereafter, all
provisions of the Consignment Agreement, Security Documents and all other
documents relating thereto (the "Consignment Documents") applicable to Buyer,
including covenants, reporting requirements, and financial calculations, shall
continue to apply to T&C as well as the other Primary Buyer Entities, except
that, during the Relevant Period, T&C shall not be entitled to buyer or obtain
Precious Metal under the Consignment Documents. Nothing herein is intended to
affect, diminish, or impair any Pre-Petition Obligation of any Co-Obligor, or
any lien on any Collateral securing any such Obligations.
5. Consignor waives any Event of Default occasioned solely by the
commencement by T&C of the Chapter 11 case. In addition to the Events of Default
enumerated in the Consignment Agreement, an Event of Default shall occur if the
Bankruptcy Court confirms an Unacceptable Plan.
6. Co-Obligors hereby represent and warrant to Consignor as follows: (a)
The execution, delivery, and performance by Co-Obligors of this Amendment Number
One have been duly authorized by all necessary corporate and other action and do
not and will not require any registration with, consent or approval of, or
notice to or action by, any Person in order to be effective and enforceable; and
(b) The Consignment Agreement, as amended by this Amendment Number One,
constitutes the legal, valid, and binding obligation of Co-Obligors, enforceable
against Co-Obligors in accordance with its terms, without defense, counterclaim,
or offset.
7. Except as herein expressly amended, all terms, covenants and provisions
of the Consignment Agreement are and shall remain in full force and effect and
all references therein to
3
<PAGE>
the Consignment Agreement shall henceforth refer to the Loan Agreement as
amended by this Amendment Number One. This Amendment Number One shall be deemed
incorporated into, and part of, the Consignment Agreement.
8. This Amendment Number One shall be governed by, and construed and
enforced in accordance with, the laws of the State of Rhode Island.
9. This Amendment Number One, together with the Consignment Agreement and
the other Consignment Documents, contains the entire and exclusive agreement of
the parties hereto with reference to the matters discussed herein and therein.
This Amendment Number One supersedes all prior drafts and communications with
respect thereto. This Amendment Number One may not be amended except in writing
executed by both of the parties hereto.
10. If any term or provision of this Amendment Number One shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment Number
One or the Consignment Agreement, respectively.
11. This Amendment Number One shall not be effective until the following
conditions precedent are satisfied (or waived by Consignor in its sole
discretion): (a) Each party named on the signature pages of this Amendment
Number One has executed and delivered a counterpart of this Amendment Number One
prior to the commencement of the Chapter 11 Case, (b) Consignor has received an
amendment fee of $5,000, which fee is earned in full by Consignor and due and
payable by Co-Obligors to Consignor concurrently with the execution and delivery
of this Amendment Number One by Consignor; (c) Consignor shall have received a
Letter of Credit for the account of Group in form and substance satisfactory to
Consignor in all respects in its sole discretion; provided, however, at all
times that the value of all Consigned Precious Metal outstanding on consignment
under the Consignment Agreement from time to time shall be less than or equal to
95% of the available face amount of the Letter of Credit; (d) The Chapter 11
Case shall have been commenced; (e) The Plan of Reorganization shall have been
filed with the Bankruptcy Court by T&C; (f) The Guaranty Motion shall have been
filed with the Bankruptcy Court by T&C; (g) The Guaranty Order shall have been
entered by the Bankruptcy Court, and shall not have been stayed or reversed on
appeal; and (h) The T&C Guaranty shall have been executed and delivered by T&C
to Foothill. If the foregoing conditions precedent are satisfied (or waived by
Consignor in its sole discretion) on or before November 30, 1997 (or such later
date agreed to in writing by Consignor), this Amendment Number One shall be
effective retroactive to, and as of, November 13, 1997, prior to the
commencement of the Chapter 11 Case. If the foregoing conditions precedent are
not satisfied (or waived by Foothill in its sole discretion) on or before
November 30, 1997 (or such later date agreed to in writing by Consignor), this
Amendment Number One shall be null and void and of no force or effect.
12. This Amendment Number One may be executed in any number of
counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute but one and the same instrument. Delivery
of an executed counterpart of this Amendment Number One by telefacsimile shall
be equally as effective as delivery of an original executed counterpart
4
<PAGE>
of this Amendment Number One. Any party delivering an executed counterpart of
this Amendment Number One by telefacsimile also shall deliver an original
executed counterpart of this Amendment Number One but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Amendment Number One.
IN WITNESS WHEREOF, this Amendment Number One has been executed and
delivered as an instrument under seal as of the date first set forth above.
TOWN & COUNTRY CORPORATION, a
Massachusetts corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
TOWN & COUNTRY FINE JEWELRY GROUP,
INC., a Massachusetts corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
GL, INC., a Massachusetts corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
L.G. BALFOUR COMPANY, INC., a Delaware
corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
(Signatures continued on next page)
5
<PAGE>
FLEET PRECIOUS METALS INC., a Rhode Island
corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
6
TOWN & COUNTRY CORPORATION EXHIBIT 11
Earnings Per Share Computations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
--------------------------------- ---------------------------------
November 23, November 24, November 23, November 24,
1997 1996 1997 1996
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY EPS:
Net income (loss) $(15,734,191) $ 1,035,874 $ (25,551,593) $ (48,465,322)
Accretion of discount and dividends
on preferred stocks 150,234 232,890 462,387 575,050
------------ ------------- ------------- -------------
Income (loss) attributable to common
stockholders $(15,884,425) $ 802,984 $ (26,013,980) $ (49,040,372)
============ ============= ============= =============
Weighted average common
shares outstanding 26,346,916 25,966,119 26,319,784 25,330,088
Weighted shares issued
from exercise and
assumed execise of:
warrants - - - -
options - - - -
------------ ------------- ------------- -------------
Shares for EPS
calculation 26,346,916 25,966,119 26,319,784 25,330,088
============ ============= ============= =============
REPORTED EPS:
Net income (loss) $ (0.59) $ 0.04 $ (0.97) $ (1.92)
Accretion of discount and dividends
on preferred stocks (0.01) (0.01) (0.02) (0.02)
------------ ------------- ------------- -------------
Income (loss) per common share $ (0.60) $ 0.03 $ (0.99) $ (1.94)
============ ============= ============= =============
</TABLE>
FULLY DILUTED EPS:
For the periods presented in this exhibit, there is no dilution from Primary
EPS.
This exhibit should be reviewed in conjunction with
Note 6 of Notes to Consolidated Financial Statements.
FOOTHILL CAPITAL CORPORATION
January 8, 1998
Town & Country Corporation
Town & Country Fine Jewelry Group, Inc.
GL, Inc.
L.G. Balfour Company, Inc.
25 Union Street
Chelsea, Massachusetts 02150
Re: Waiver of Event of Defaults with respect to the "Non-Compliance Items"
as defined below
Gentlemen:
Reference is made to the Loan Agreement dated as of July 3, 1996
(as the same heretofore may have been amended or modified, the "Agreement")
between Foothill Capital Corporation ("Lender") and Town & Country Corporation,
Town & Country Fine Jewelry Group, Inc., Gold Lance, Inc., and L.G. Balfour
Company, Inc. (collectively, "Borrower"). Terms used herein and not otherwise
defined herein shall have the meaning ascribed thereto in the Agreement.
Borrower has advised Lender that Borrower is not in compliance
with Sections 6.13(a), 6.13(b), and 6.13(c) of the Agreement on November 23,
1997 (the "Non-Compliance Items"). Borrower has asked Lender to waive any Event
of Default that may have been occasioned by the Non-Compliance Items. Lender
hereby waives any Event of Default that may have been occasioned solely by the
Non-Compliance Items.
The waiver of the Non-Compliance Items is limited to the specifics
hereof, shall not apply with respect to any facts or occurrences other than
those on which the Non-Compliance Item is based, shall not excuse future
non-compliance with the Agreement (as it may from time to time be amended),
including Section 6.13 thereof, and, except as expressly set forth herein, shall
not operate as a waiver or an amendment of any right, power or remedy of Lender,
nor as a consent to any further or other matter, under the Loan Documents.
This waiver may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same waiver. Delivery of an executed
counterpart of this waiver by telefacsimile shall be equally as effective as
delivery of an original executed counterpart of this waiver. Any party
delivering an executed counterpart of this waiver by telefacsimile also shall
deliver an original executed counterpart of this waiver but the failure to
deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this waiver.
1
LANLIB1\RTS\533476.01
<PAGE>
This waiver shall not be effective until: (i) Lender receives duly
executed and delivered counterpart signature of Borrower where indicated below;
and (ii) Lender advises Borrower in writing that Lender has obtained any
consents that Lender may need or require from participants of Lender.
Cordially,
Foothill Capital Corporation
By:___________________________
Name:
Title:
2
LANLIB1\RTS\533476.01
<PAGE>
Acknowledged and Agreed
as of the date first
above written:
TOWN & COUNTRY CORPORATION,
a Massachusetts corporation
By ___________________________
Name:
Title:
TOWN & COUNTRY FINE JEWELRY GROUP,
INC., a Massachusetts corporation
By ___________________________
Name:
Title:
GL, INC., a Massachusetts corporation
By ___________________________
Name:
Title:
L.G. BALFOUR COMPANY, INC., a Delaware corporation
By ___________________________
Name:
Title:
3
LANLIB1\RTS\533476.01
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-22-1998
<PERIOD-END> NOV-23-1997
<CASH> $826,000
<SECURITIES> 0
<RECEIVABLES> 43,392,531
<ALLOWANCES> 1,926,000
<INVENTORY> 51,489,052
<CURRENT-ASSETS> 96,525,369
<PP&E> 38,477,299
<DEPRECIATION> 24,378,777
<TOTAL-ASSETS> 113,868,917
<CURRENT-LIABILITIES> 59,735,616
<BONDS> 82,017,891
2,038,546
1,263,741
<COMMON> 263,485
<OTHER-SE> (31,660,181)
<TOTAL-LIABILITY-AND-EQUITY> 113,868,917
<SALES> 97,482,703
<TOTAL-REVENUES> 97,482,703
<CGS> 80,819,519
<TOTAL-COSTS> 80,819,519
<OTHER-EXPENSES> 20,861,928
<LOSS-PROVISION> 724,268
<INTEREST-EXPENSE> (9,003,288)
<INCOME-PRETAX> (25,362,593)
<INCOME-TAX> 189,000
<INCOME-CONTINUING> (25,551,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,013,980)
<EPS-PRIMARY> (0.99)
<EPS-DILUTED> (0.99)
<FN>
Bonds represents balance of liabilities subject to compromise.
</FN>
</TABLE>
