SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended January 29, 1994.
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission file number
Brendle's Incorporated
(Exact Name of Registrant as Specified in Charter)
North Carolina 56-497852
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1919 North Bridge Street, Elkin, North Carolina 28621
(Address of Principal Executive Offices) (Zip Code)
(910) 526-5600
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. (X)
<PAGE>
State the aggregate market value of
the voting stock held by non-affiliates of the Registrant.
The aggregate market value shall be computed by reference to
the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a
specified date within 60 days prior to the
date of filing: $2,512,711 based on the average of the high
and low sales prices as of March 26,
1994, of the Registrant's Common Stock (which is the
Registrant's only outstanding class of voting
equity security) on the National Association of Securities
Dealers Automated Quotation System for
National Market Issues which amount does not account for the
4,469,701 shares issued by the
Company on April 29, 1994, as part of the Company's Plan of
Reorganization. See "Item 1 -
Business - Chapter 11 Proceedings." The foregoing market
value excludes the dollar amount
attributable to shares of the Registrant's Common Stock held
by certain executive officers and
directors of the Registrant. A determination of "affiliate"
status for a particular individual for the
purpose of providing information in response to the
foregoing inquiry shall not be deemed a
determination of "affiliate" status for any other purpose.
Indicate by check mark whether the registrant has filed
all documents and reports to be filed
by Section 12, 13, or 15(d) of the Securities Exchange Act
of 1934 subject to the distribution of
securities under a plan confirmed by a court.
Yes X No
Indicate the number of shares outstanding of each of
the registrant's classes of common stock,
as of the latest practicable date.
Number outstanding at
Class April 30, 1994
Common Stock, $1.00 Par Value
Per Share. . . . . . . . . . . . . . . . 12,769,145
Documents Incorporated by Reference: None.
2
<PAGE>
Part I
Item 1. Business
Description and Development of Business
General
Brendle's Incorporated (the "Company") and its
subsidiaries originated in 1919 as a rural
supply company and the parent company was incorporated in
1947 in North Carolina. As of January
29, 1994, the Company operated 30 retail stores in North
Carolina, South Carolina, Virginia, and
Tennessee offering, for the most part, nationally
advertised, brand-name merchandise at prices
typically less than the manufacturers' suggested retail
prices for such merchandise. The operation of
these stores constitutes the sole industry segment in which
the Registrant operates and the above-
named southeastern states encompass its sole geographic area
of operation. The Registrant's stores,
operating under the name "Brendle's," are merchandised as if
they were a group of specialty stores
under one roof, and offer in-depth lines of jewelry,
consumer electronics, small appliances,
photographic equipment, sporting goods, toys, gifts, house-
wares, juvenile items, silver, crystal,
lamps, clocks, and other miscellaneous products. All sales
operations are the Registrant's and there
are no leased department sales. On April 29, 1994,
Brendle's Stores, Inc., the Company's
wholly-owned operating subsidiary, was merged into the
Company. See "Holding Company Status."
Brendle's stores average approximately 50,000 square
feet in size, approximately 55% of
which is selling space. The stores generally are among the
principal or so-called "anchor" tenants in
strip shopping centers, as opposed to shopping malls. While
many of the Registrant's stores are
located in cities of less than 100,000 people, the
Registrant also competes in larger markets including
Greensboro, Raleigh, and Winston-Salem, North Carolina.
During Fiscal 1994, the Company
introduced its mail order business.
The Registrant monitors its inventory and sales, both
by store and by item, at cost, on a daily
basis through its computerized management information system
consisting of a central computer,
point-of-sale terminals, and administrative terminals.
Specific item data captured at point-of-sale
using bar code and price look-up technology allows the
Registrant's merchandising staff to monitor
sales and inventory levels by reference to each inventory
item's own stock-keeping number, thus
enabling prompt response to rapidly selling or out-of-stock
items. A typical store carries
approximately 15,000 different types of inventory and is
designed to direct customer attention and
traffic to higher profit margin products such as jewelry and
gifts.
The Registrant sells few apparel or soft goods items.
The Registrant believes that it offers
broader assortments of jewelry and other hard goods than are
normally carried by other retailers of
similar size. In addition, the Registrant maintains a
program of direct
3
<PAGE>
import purchases of jewelry
which assists in a more timely delivery and improved profit
margins for jewelry products.
Chapter 11 Proceedings
Near the end of the fiscal year ended February 1, 1992
("Fiscal 1992"), significant steps were
taken to develop and implement a strategic turnaround plan
for the Company. The plan included
restructuring bank debt, organizational and administrative
changes, and strategic adjustments
necessary, in management's opinion, to meet the competition
in the market place and to manage in
the current economic environment in retailing in the
Company's market area. The stated objective
of the Company's turnaround plan for the fiscal year ended
January 30, 1993 ("Fiscal 1993"), was to
reverse the trend of declining earnings from recent years
while developing an improved merchandising
strategy to become a more focused specialty retailer.
The Company achieved moderate success during the first
two quarters of Fiscal 1993 in the
implementation of its strategic turnaround plan. As the
Company previously reported, pre-tax
earnings for the second quarter and first six months of
Fiscal 1993 were improved over the results
for the corresponding periods in the previous year. The
Company was also encouraged by the fact
that the results for the second quarter and first six months
of Fiscal 1993 were $1.5 million better than
the Company's plan for the second quarter and $1.9 million
better than the Company's planned six
months results.
In September and October 1992, however, the Company
began experiencing increased
pressure from its vendors and a diminution in the credit
terms that were available from its vendors.
This tightening of available credit terms from vendors,
coupled with unexpected significant decreases
in sales during the third quarter of Fiscal 1993, created
substantial cash management difficulties. The
Company's inability to obtain inventory on historical terms
and the decrease in sales prevented the
Company from being able to maintain required inventory
levels and to purchase at planned levels the
inventory it required for the 1992 Christmas season. As the
restriction in credit terms from vendors
persisted, the resulting decrease in inventory levels
compounded the Company's sales decrease due
to lack of sufficient inventory.
Management of the Company explored various alternatives
to the cash management crisis it
faced, including discussions with its primary lenders
regarding modification to its then existing Loan
Agreements. After careful consideration of these
alternatives, management of the Company and its
Board of Directors determined that in order to give the
Company the time that it needed to implement
its strategic turnaround plan, it was in the best interest
of its shareholders, employees, and customers
to seek protection under Chapter 11 of the United States
Bankruptcy Code.
On November 22, 1992, the Company and its then wholly-
owned principal operating
subsidiary, Brendle's Stores, Inc. ("BSI"), initiated
Chapter 11 reorganization proceedings
4
<PAGE>
by filing petitions with the United States Bankruptcy Court (the
"Bankruptcy Court") for the Middle District
of North Carolina (the "Chapter 11 Proceeding").
Significant Post-Petition Events
Subsequent to the filing of the voluntary petitions,
the Company and BSI sought and obtained
numerous orders from the Bankruptcy Court which were
intended to stabilize its business. These
orders included, among others, orders (i) authorizing the
Company and BSI to operate its cash
management system substantially as it was operated prior to
the filing; (ii) approving a Vendor
Assurance Facility giving post-petition trade vendors a
super priority lien on inventory; (iii) approving
the assumption of certain credit card arrangements for the
processing of credit card purchases,
including Discover, Mastercard, Visa, and Brendle's credit
cards; (iv) authorizing certain pre-petition
customer claims including layaway and special order
purchases; (v) authorizing the Company and BSI
to honor certain pre-petition wages and benefits owing to
its active employees; (vi) approving a plan
to pay the Company and BSI's qualifying vendors reclamation
claims; (vii) authorizing Brendle's to
return defective merchandise to its vendors for pre-petition
credit; (viii) approving a $25 million
post-petition line of credit from The CIT Group/Business
Credit, Inc. See also "Item 3 - Legal
Proceedings" for additional information regarding the
Chapter 11 Proceedings.
Following the date the Chapter 11 proceeding was filed,
the Company worked diligently to
develop a Joint Plan of Reorganization (the "Plan") which
would set forth the payment terms to
creditors and provide for other organizational and
operational changes of the reorganized Company.
A Plan and Disclosure Statement were submitted to the
Bankruptcy Court, and on November 10,
1993, a hearing was held resulting in the approval of the
Disclosure Statement. The Plan was then
voted on and accepted by the creditors and stockholders. An
Order confirming the Plan was entered
on December 20, 1993, for the Company and on December 23,
1993, for BSI. A Notice of Appeal
of the Order confirming the Plan was filed on December 28,
1993 by three individual creditors and
certain retiree claimants. The appeal will be dismissed
pursuant to agreements reached with the
appellants.
The Plan developed by the Company and confirmed by the
Bankruptcy Court generally
provides for the full payment of all claims of The CIT
Group/Business Credit, Inc., the Company's
debtor-in-possession lender, and all allowed secured claims,
priority claims and administrative claims
(as those claims are defined in the Plan). The Plan further
provides that general unsecured creditors
could elect to receive either (i) a cash payment equal in
amount to fifty-two percent (52%) of the
amount of their allowed unsecured claim, or (ii) a Reorganization
Note equal to eighty percent (80%) of their
allowed unsecured claims. The Reorganization Notes, which
are dated as of April 30, 1994, will bear
interest at the rate of eight percent (8%) per annum and
will be payable over a ten (10)-year term.
For the first two (2) years, the Reorganization Notes will
accrue interest only, and no payments will
be made to Reorganization Note holders. At the end of two
(2) years, the principal amount of the
Reorganization Note, plus accrued but unpaid interest, shall
be capitalized, and
5
<PAGE>
during the third year, interest on the capitalized principal
balance shall be paid semi-annually. Thereafter, interest on the
unpaid principal balance shall be due and payable semi-
annually. Annual principal payments will be
made at the end of years four (4) through ten (10) in their
respective amounts as follows: 11%, 12%,
13%, 14.1%, 15.3%, 16.6%, and 18%. The Reorganization Notes
also include standard default
provisions. The creditors were solicited to make their
election in November, 1993, and over 99%
of the creditors, representing approximately $85 million in
unsecured obligations, elected to receive
the cash payment, with less than 1% of the creditors,
representing approximately $160,000 in
unsecured obligations electing to receive the Reorganization
Notes.
In addition to the items set forth above, all general
unsecured creditors will receive, with
respect to their allowed claims, a pro rata distribution of
stock in the Company, which, in the
aggregate, constitutes thirty-five percent (35%) of the
outstanding stock of the Company at April 29,
1994, the date the Plan of Reorganization was substantially
consummated. As of the date of this
report, the Company has outstanding 12,769,145 shares of
common stock, which includes 4,469,201
shares of common stock that was issued for the benefit of
the unsecured creditors pursuant to the
Plan of Reorganization. The stock has been issued to Arnold
Zahn of Zahn & Associates, Inc., as
Escrow Agent for the unsecured creditors, pending the
resolution of certain disputed claims. After
a substantial portion of these disputed claims have been
resolved, which is expected to take
approximately four (4) to six (6) months, the Escrow Agent
will make an initial distribution
to individual unsecured creditors of their pro rata portion
of these shares. A final distribution will be
made once all claims have been resolved.
The Plan further provides that certain of the Company's
creditors will have a right to appoint
two (2) directors to serve on the Company's Board of
Directors for a period of one (1) year following
substantial consummation. The creditors have appointed
Robert D. Dunn and John A. Northen to
serve as members of the Company's Board of Directors.
Information regarding these directors is set
forth under Item 10 hereof entitled "Directors and Executive
Officers of the Registrant."
The Plan also contained certain default provisions,
which, among other things, provided that
if the cash distributions contemplated by the Plan were not
made on or before April 30, 1994, an
entity described in the Plan as the Creditor Management
Committee would take over management
of the Company and would be vested with the powers and
authorities of a Chapter 11 Trustee and
the Board of Directors. The Company achieved substantial
consummation of this Plan of
Reorganization on April 29, 1994, and has made its required
payments to creditors under the terms
of the Plan. See "Item 3. Legal Proceedings."
6
<PAGE>
Store Changes
During the fiscal year ended January 29, 1994 ("Fiscal
1994"), the Company closed twenty-
one (21) low performing stores as part of the Company's
restructuring. Closed stores were located
in Durham, Wilkesboro, Gastonia, Rocky Mount, Statesville,
and Charlotte [two (2)], North
Carolina; Newport News, Virginia Beach, Charlottesville,
Colonial Heights, Chesapeake, Lynchburg,
and Roanoke, Virginia; Columbia [two (2)], Hilton Head
Island, Charleston, Greenville, and Aiken,
South Carolina; and Augusta, Georgia.
Distribution Center
The Company's distribution and warehousing activities
have been conducted principally
through a distribution center which it previously owned.
The distribution center contains in excess
of 388,000 square feet and is located in Elkin, North
Carolina. Due primarily to the reduction of the
number of stores that the Company will operate, management
of the Company determined that it no
longer required 388,000 square feet of distribution space.
Consequently, the Company sold the
distribution center on January 31, 1994, for a purchase
price of $5,250,000. Under the terms of the
sale, the Company was permitted to lease back from the
purchaser approximately 224,000 square feet
of the distribution facility. The terms of the lease
provide that the Company will pay initial annual
rent in the amount of $504,000 with increases annually fixed
in accordance with the lease terms. The
initial term of this lease will expire on January 31, 2003.
The net sale proceeds of the distribution
center were used to pay the Company's secured lenders who
had perfected security interests in the
distribution center securing pre-petition debt.
Holding Company Status
From January 31, 1987, through April 29, 1994,
substantially all of the activities of the
Company were performed through subsidiaries wholly owned,
directly or indirectly, by the Company,
thus making the corporate structure of the Company and its
subsidiaries as follows: Brendle's
Incorporated, a North Carolina holding company owning the
active wholly owned subsidiaries;
Brendle's Stores, Inc., which owned more than ninety-one
percent (91%) of the Company's operating
assets; Brendle Transport, Inc., which owned or leased the
transportation equipment utilized in the
Company's operations; The Electronic Sports Collection USA,
Inc., an import buying subsidiary of
the Company; Brendle's Acceptance Corporation, which was
formed to manage the Company's credit
finance operations; and BFS, Inc., an investment management
and holding subsidiary organized under
the laws of the State of Delaware.
As a component of the Company's substantial
consummation of its Plan of Reorganization,
Brendle's Stores, Inc. was merged into the Company effective
as of April 29, 1994. Management of
the Company believes that this merger will help to
7
<PAGE>
streamline its operations and that the benefits once
available to the Company through the holding company
structure no longer provided the Company
with sufficient operational efficiencies to justify the
expense of remaining separate. The Company
also intends to merge its remaining and resulting
subsidiaries into the Company and anticipates that
these mergers will occur prior to June 30, 1994.
Seasonality
The Company's retail business (its sole industry
segment) is seasonal in nature, being strongest
in the Company's fourth fiscal quarter. The Company
typically has made, and anticipates to make in
the future, in excess of one-third of its revenues for the
fiscal year during the fourth fiscal quarter of
operations.
Revenues, Profits, Assets, Working Capital and Other
Financial Items
For information relating to changes in revenues,
profits, assets, working capital and its
components and other financial information, reference is
made to Management's Discussion and
Analysis appearing under Item 7 of this Annual Report on
Form 10-K and incorporated herein by
reference and to the Company's financial statements and the
related notes and schedules thereto which
appear, or are incorporated by reference, under appropriate
captions elsewhere in this Annual Report
on Form 10-K.
Customers
No material part of the business of the Company is
dependent on a single customer or a
limited number of customers or a group of commonly
controlled or affiliated customers. No
purchases by any such customer or group comprised ten
percent or more of the total revenues of the
Company for the fiscal year ended January 29, 1994.
Research and Development Activities
The Company is not engaged in manufacturing operations.
During the last three fiscal years,
the Company has not expended substantial dollar amounts in
research and development activities
relating to its products or services. However, the
executive officers of the Company, as well as its
merchandising managers and staff, are continually engaged,
individually and through focus groups,
in evaluating the sales performance of various products and
in the development of operating
efficiencies by the use of marketing focus groups, normal
market visits, and discussions with key
suppliers.
8
<PAGE>
Inventory and Supplies: Products and Services
The Company has no long-term contracts with its
suppliers for inventory or supplies, but
believes that there are adequate sources of supply available
for the products which it sells or
anticipates selling. The Company believes that it is among
the largest customers of many of its
suppliers in dollar volume of purchases and therefore
believes that it can purchase from these
suppliers on terms at least as favorable as those available
to most of its competitors from such
suppliers. No single supplier accounts for a material
amount of the total inventory purchased by the
Company. During the last three fiscal years of the Company,
no class of similar products or services
accounted for ten percent or more of the Company's
consolidated revenue for such periods.
Competition
The Company has numerous and significant competitors in
the general merchandise retail and
discount retail areas, including large discount retailers,
department stores, catalog showrooms, mail
order houses, and other related operations. Many of these
have substantially greater assets, outlets,
and facilities than the Company. However, the Company
believes that its price structure generally
allows it to compete with traditional retailers, such as
department stores, and specialty retailers, while
the environment, merchandise selection, and services
available in its stores generally allow it to
compete with most other discount retailers, and catalog
showrooms.
Employees
As of January 29, 1994, the Company had approximately
1,600 employees. The Company
considers its relations with its employees to be
satisfactory.
Environmental Regulation
The Company's business activities are not significantly
affected by federal, state, or local
environmental regulation.
Foreign and Domestic Operations and Export Sales
During each of the Company's last three fiscal years,
the Company's operations and assets in
foreign areas and sales by domestic operations to foreign
customers, if any, were not material to the
Company's business as a whole. All of the Company's
domestic operations are conducted in a single
four-state geographic area of the southeastern United
States.
9
<PAGE>
Patents and Trademarks
The Company believes that the name "Brendle's," used
both alone and with the distinctive
diamond apostrophe, has acquired commercial value and has
helped to promote the Company's
reputation in its business. The Company has obtained
federal registered trademark protection for the
name used in these ways.
Item (unnumbered). Executive Officers of the Company
Pursuant to Item 401 (b) of Regulation S-K and General
Instruction G to Form 10-K, the
following information is furnished concerning the executive
officers of the Company. All officers are
elected by the Board of Directors to serve at the pleasure
of the Board of Directors for a period of
one year or until the next annual meeting of the Board of
Directors, and until their respective
successors are duly elected. For information regarding the
share ownership of the executives named
in the Summary Compensation Table included in Item 11, see
"Item 12 - Security Ownership of
Certain Beneficial Owners and Management."
Registrant All Positions and Offices with Periods
of Service, and business experience
for last five years (1)
<TABLE>
<CAPTION>
Name Age
<S> <C> <C>
Douglas D. Brendle 65 Chairman of the Board of Directors of the Company
since February, 1986; Chief Executive Officer and
President of the Company since April 13, 1993;
Member of Office of Chief Executive, January 15,
1992, to June 2, 1992; Chief Executive Officer of the
Registrant from November, 1984, to January 15,
1992; and from November, 1984, to July, 1989, he
served as President of the Registrant.
W. Steven Day 47 Vice President of Stores for the Registrant since
January, 1992. Divisional Vice President of Hard
Lines Merchandise for the Registrant from February,
1990, to January, 1992; Divisional Merchandise
Manager for the Registrant from September, 1988, to
February, 1989; Prior to 1988 he was a buyer for the
Registrant.
10
<PAGE>
William V. Grady 47 Senior Vice President of Marketing and Advertising of
the Registrant since December, 1992. National
Director of Field Marketing for General Electric
Capital Corporation from February, 1988, to
December, 1992. Previously Mr. Grady was
Operating Vice President of Marketing and Sales
Promotion for Service Merchandise. Prior to Service
Merchandise, Mr. Grady retired from Lowe's
Companies, holding a variety of positions over 19
years.
Steven W. Luka 40 Vice President and General Merchandise Manager of
the Registrant since January, 1991; Divisional Vice
President of Hard Lines Merchandise for the
Registrant from February, 1990, to January 1991;
Divisional Merchandise Manager of the Registrant
from September 1988 to February, 1989; Prior to
1988 he was a buyer for the Registrant.
Aubrey L. Miller, Jr. 45 Vice President of Operations of the Registrant since January,
1992; Divisional Vice President of Management Information
Systems for the Registrant from January, 1990, to January,
1992. Prior to 1990, he was Director of Management
Information Systems for the Registrant.
David R. Renegar 42 Vice President and Chief Financial Officer of the
Registrant since February, 1992. Treasurer of the
Registrant since April, 1990; Secretary and Controller
of the Registrant since February, 1986.
</TABLE>
(1) Each executive officer of the Company held the
identical offices with Brendle's Stores Inc.,
previously a wholly owned subsidiary of the Company which
was merged into the Company effective
April 29, 1994. Brendle's Stores, Inc. previously owned the
substantial part of the operating assets
of the Company.
11
<PAGE>
Item 2. Properties
The corporate headquarters and principal executive
offices of the Company are located at
1919 North Bridge Street, Elkin, North Carolina 28621 in
leased premises of approximately 135,000
square feet (a substantial portion of which is contiguous
warehouse space) under a lease, with an
affiliate of the Company, scheduled to expire on October 1,
1995, with options to renew for up to
20 additional years.
The Company's distribution center, opened in December,
1986 in Elkin, North Carolina,
previously encompassed over 388,000 square feet of space.
On February 1, 1994, the Company sold
the distribution center for a purchase price of $5,250,000.
Pursuant to the terms of the sales contract,
the Company was permitted to lease back 244,000 square feet
of distribution center space. The terms
of this lease are summarily described under "Item 1. -
Description of Business - Distribution Center."
Set forth below is a list of all the Company's stores
open on January 29, 1994, the cities in
which the stores are located, the year in which the stores
were first opened in that city, and their
present approximate square footage, separately indicating
both selling space and warehouse (storage)
space at each store. Certain stores have changed or may
change locations within a given city.
Year of Approximate Approximate
Store Open- Selling Area Warehouse Total
ing in Square Square Square
City Location Footage Footage Footage
1967 ( 1) Elkin, NC 26,260 15,463 41,723
1968 ( 2) Winston-Salem, NC 25,000 35,000 60,000
1971 ( 3) Hickory, NC 24,000 38,000 62,000
1972 ( 4) Greensboro, NC 28,500 21,852 50,352
1974 ( 5) Chapel Hill, NC 32,067 27,933 60,000
1976 ( 6) Asheville, NC 33,000 37,000 70,000
1977 ( 7) Kingsport, TN 23,100 14,700 37,800
1978 ( 8) Concord, NC 30,277 7,881 38,158
1978 ( 9) Raleigh, NC 32,067 27,933 60,000
1978 (10) Winston-Salem, NC 20,000 7,000 27,000
1980 (11) Burlington, NC 35,000 25,000 60,000
1982 (12) Wilson, NC 30,993 29,007 60,000
1982 (13) Myrtle Beach, SC 30,993 29,007 60,000
1982 (14) Raleigh, NC 28,700 35,300 64,000
1982 (15) Greensboro, NC 32,000 31,747 63,747
1983 (16) Jacksonville, NC 23,000 29,471 52,471
1983 (17) Roanoke, VA 31,971 11,657 43,628
1985 (18) Boone, NC 30,000 27,000 57,000
12
<PAGE>
1985 (19) Kinston, NC 28,516 33,024 61,540
1985 (20) Roanoke Rapids, NC 30,000 21,000 51,000
1985 (21) Salisbury, NC 28,779 15,221 44,000
1985 (22) Anderson, SC 20,000 20,000 40,000
1985 (23) Spartanburg, SC 20,000 25,000 45,000
1985 (24) Florence, SC 28,084 11,916 40,000
1986 (25) Enka/Candler, NC 27,263 32,612 59,875
1987 (26) Wilmington, NC 28,993 21,007 50,000
1988 (27) Greenville, NC 28,993 21,007 50,000
1989 (28) Christiansburg, VA 28,912 11,088 40,000
1989 (29) New Bern, NC 24,241 5,759 30,000
1990 (30) Fayetteville, NC 23,843 10,469 34,312
TOTAL FOR 30 OPEN STORES 834,552 679,054 1,513,606
The Company owned in fee two of these stores, one each
in Salisbury and Enka, North
Carolina. These stores are not pledged and encumbered under
the terms of the Company's Exit
Financing Facility with Foothills Capital Corporation;
however, they may at some future date become
additional collateral for the loan. See "Management's
Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity." Thirteen (13) of
these stores are leased from affiliates of the
Registrant, and the remaining fifteen (15) stores are leased
from third parties.
For a discussion of capital and operating lease
commitments for the Company's store,
equipment and corporate headquarters facility, reference is
made in Notes to Consolidated Financial
Statements, which discussion is incorporated herein by
reference.
Leases on stores closed during Fiscal 1994 have been
rejected or assumed and assigned to
third parties pursuant to Bankruptcy Court orders.
The Company closed twenty-one (21) low or marginal
performing stores in fiscal 1994. The
closed stores were located in Durham, Wilkesboro, Gastonia,
Rocky Mount, Statesville, and
Charlotte [two (2)], North Carolina; Newport News, Virginia
Beach, Charlottesville, Colonial
Heights, Chesapeake, Lynchburg, and Roanoke, Virginia;
Columbia [two (2)], Hilton Head Island,
Charleston, Greenville, and Aiken, South Carolina; and
Augusta, Georgia.
Item 3. Legal Proceedings.
On November 22, 1992, the Company and BSI, its then
wholly-owned subsidiary of the
Company which owned the primary operating assets of the
Company, filed for protection under
Chapter 11 of the United States Bankruptcy Code. The
following discussion provides
13
<PAGE>
general background information regarding the Chapter 11 Proceeding,
but it is not intended to be an
exhaustive summary. For additional information regarding
the effect of these cases on the Company,
reference should be made to the Bankruptcy Code and to the
Bankruptcy Court proceedings
themselves.
Chapter 11 Reorganization Under the Bankruptcy Code
Although the Company and BSI were authorized to
operate the Company's business
as a debtor-in-possession, they were not permitted to
engage in transactions outside the
ordinary course of business without first complying
with the notice and hearing provisions of
the Bankruptcy Code and obtaining Bankruptcy Court
approval when necessary. The
requirement to comply with the notice and hearing
provisions in the Bankruptcy Code
terminates once a Plan of Reorganization, having been
confirmed by the Bankruptcy Court,
is substantially consummated. The Company achieved
substantial consummation of its Plan
of Reorganization on or about April 30, 1994. By
virtue of the provisions of the Bankruptcy
Code and the Plan, substantial consummation of the Plan
effected a discharge of all
indebtedness of the Company not otherwise provided for
in the Plan.
Plan of Reorganization - Procedures
For 120 days after the date of the filing of the
voluntary Chapter 11 petition (or such
larger period as the Bankruptcy Court may allow), the
debtor-in-possession has the exclusive
right to propose and file a plan of reorganization with
the Bankruptcy Court. If the debtor-in-
possession files a plan of reorganization during the
120-day exclusivity period (or such longer
period as the Bankruptcy Court may allow), no other
party may file a plan of reorganization
until 180 days after the date of filing of the Chapter
11 petition, during which period the
debtor-in-possession has the exclusive right to solicit
acceptances of the plan. If a Chapter
11 debtor fails to file its plan during the 120-day
exclusivity period, or such additional time
period ordered by the Bankruptcy Court or after such
plan has been filed, fails to obtain
acceptance of such plan from impaired classes of
creditors and equity security holders during
the exclusive solicitation period, any party in
interest, including the debtor, a creditor, an
equity security holder, or a committee of creditors or
equity security holders may file a plan
of reorganization for such Chapter 11 debtor.
Given the magnitude of the Company's operations
and the number of interested parties
possessing claims that have to be resolved in the
Chapter 11 Proceeding, the plan formulation
process was very complex. Accordingly, the Company and
BSI were granted an extension
of the exclusivity period to September 21, 1993. A
plan of reorganization was filed by the
Company on that date and was subsequently amended on
November 10, 1993. A hearing on
the confirmation of the Company's Plan of
Reorganization was held on December 14,
14
<PAGE>
1993, and an Order approving the Plan was entered on December
20, 1993, for the Company, and
on December 23, 1993, for BSI. The Plan that was
developed by the Company and was
confirmed by the Bankruptcy Court provides for the full
payment of all claims of The CIT
Group/Business Credit, Inc., the Company's debtor-in-
possession lender, and all allowed
secured claims, priority claims, and administrative
claims (as those claims are defined in the
Plan). The Plan further provides that general
unsecured creditors could elect to receive either
(i) a cash payment equal in amount to fifty-two percent
(52%) of the amount of their
unsecured claim, or (ii) a Reorganization Note equal to
eighty percent (80%) of their allowed
unsecured claims. The Reorganization Notes, which were
dated as of April 30, 1994, will
bear interest at the rate of eight percent (8%) per
annum and will be payable over a ten
(10)-year term. For the first two (2) years, the
Reorganization Notes will accrue interest
only, and no payments will be made to Reorganization
Note holders. At the end of two (2)
years, the principal amount of the Reorganization Note,
plus accrued but unpaid interest, shall
be capitalized, and during the third year, interest on
the capitalized principal balance shall be
semi-annually. Thereafter, interest on the unpaid
principal balance shall be due and payable
semi-annually. Annual principal payments will be made
at the end of years four (4) through
ten (10) in their respective amounts as follows: 11%,
12%, 13%, 14.1%, 15.3%, 16.6%, and
18%. The Reorganization Notes also include standard
default provisions. The creditors were
solicited to make their election in November, 1994, and
over 99% of the creditors,
representing approximately $85 million in unsecured
obligations, elected to receive the cash
payment, with less than 1% of the creditors,
representing approximately $160,000 in
unsecured obligations electing to receive the
Reorganization Notes.
In addition to the items set forth above, all
general unsecured creditors will receive,
with respect to their allowed claims, a pro rata
distribution of stock in the Company, which,
in the aggregate, will constitute thirty-five percent
(35%) of the outstanding stock of the
Company as of substantial consummation. As of the date
of this report, the Company has
outstanding 12,769,145 shares of common stock, which
includes 4,469,201 shares of
common stock that were issued for the benefit of the
unsecured creditors. The stock has been
issued to Arnold Zahn of Zahn & Associates, Inc., as
Escrow Agent for the unsecured
creditors, pending the resolution of certain disputed
claims. After a substantial portion of
these disputed claims have been resolved, which is
expected to take approximately four (4)
to six (6) months, the Escrow Agent will make an
interim distribution to unsecured creditors
of their pro rata portion of these shares. A final
distribution will be made once all claims have
been resolved.
The Plan further provides that certain of the
Company's creditors have a right to
appoint two (2) directors to serve on the Company's
Board of Directors for a period of one
year following substantial consummation. The creditors
have appointed Robert D. Dunn and
John A. Northen to serve as directors on the
15
<PAGE>
Company's Board of Directors. Information
regarding these directors is set forth under Item 10
hereof entitled "Directors and Executive
Officers of the Registrant."
The Plan also contained certain default
provisions, which, among other things,
provided that if the cash distributions contemplated by
the Plan were not made on or before
April 29, 1994, an entity described in the Plan as the
Creditor Management Committee would
take over management of the Company and would be vested
with the powers and authorities
of a Chapter 11 Trustee and the Board of Directors.
The Company achieved substantial
consummation of this Plan of Reorganization on April
30, 1994 and has made its required
payments to creditors under the terms of the Plan.
The Company has filed numerous objections to
claims which have been filed in the
Chapter 11 proceeding. It is anticipated that a
substantial majority in number of those
objections will be resolved within four (4) to six (6)
months. As to any claim which is only
partially in dispute, the undisputed portion was paid
at substantial consummation of the Plan.
The Company is involved in various other
litigation matters in the ordinary course of
business. In the opinion of management, settlement of
these matters will not have a material
effect on the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security
Holders.
No matter was submitted to a vote of security holders
of the Company during the fourth
quarter of the Company's fiscal year covered by this report.
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock is traded on the NASDAQ
National Market system under the
symbol BRDLQ. At January 29, 1994, there were approximately
1130 shareholders of record. The
Company has not declared any cash dividends since January
31, 1983. The current policy of the
Board of Directors is to retain earnings in order to help
finance the Company's business.
16
<PAGE>
The following table shows quarterly high and low
prices for the common stock from
February 2, 1992 to January 29, 1994.
Fiscal Year Fiscal Year
1993 1994
High Low High Low
First Quarter 3 1/2 2 1 3/8 7/8
Second Quarter 3 1/2 2 1 1/8 7/8
Third Quarter 2 1/2 1 3/4 1 1/4 3/8
Fourth Quarter 2 1/4 7/16 2 1/8 1
17
<PAGE>
ITEM 6. Selected Financial Data.
The following selected financial data of Brendle's at
and for each year on the five (5)-year
period ended January 29, 1994, have been extracted from
audited financial statements filed with the
Securities and Exchange Commission. The selected financial
data should be read in conjunction with
Management's Discussion and Analysis and Brendle's
consolidated financial statements and the notes
thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues $171,073 $235,090 $301,359 $311,001 $277,416
Income (loss) before interest, depreciation,
amortization, restructuring and taxes
(OPEARN) 2,487 (3,216) 6,457 14,325 15,555
Net income (loss) (19,619)(a) (19,899)(a) (26,374)(a) 1,242 3,431
Net income (loss) per share (2.36) (2.45) (3.28) 0.15 0.43
Ratios & Rates
Gross margin to total revenues 26.92% 28.16% 26.63% 27.21% 27.10%
Selling, operating and administrative
expenses to total revenues 25.47% 29.53% 24.49% 22.61% 21.50%
OPEARN to total revenues 1.45% (1.37)% 2.14% 4.61% 5.61%
Effective tax rate - - (7)% 38% 40%
Net income (loss) to total revenues (11.47)% (8.46)% (8.75%) 0.40% 1.24%
Financial Position:
Inventories 54,133 57,893 78,757 103,553 81,363
Working capital (b) (b) 21,216 24,972 39,265
Total assets 107,563 147,487 136,591 166,628 129,565
Long-term obligations (c) (b) (b) 14,973 9,557 10,634
Shareholders' equity 5,460 24,766 44,172 69,606 65,532
Book value per share 0.66 3.05 5.49 8.68 8.53
Weighted average shares outstanding 8,297 8,120 8,041 8,021 8,035
Ratios
Current ratio 0.93 0.91 1.32 1.30 1.84
Sales per square foot of selling space 187 160 185 212 229
OTHER INFORMATION
Number of shareholders 1,130 1,138 1,163 1,115 1,089
Number of stores 30 43 52 57 45
</TABLE>
18
<PAGE>
(a) Net loss has been increased by $16,090,000,
$4,572,000, and $20,350,000 as a result of the
provision for restructuring for the year ended
January 29, 1994, January 30, 1993, and February 1,
1992, respectively.
(b) Not applicable. The majority of the amounts
comprising this item have been reclassed to liabilities
subject to compromise.
(c) Includes both long-term debt and capitalized lease
obligations.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview.
On November 22, 1992, the Company and its wholly-owned
principal operating subsidiary,
Brendle's Stores, Inc. (BSI) (collectively sometimes
referred to as the "Company"), filed for protection
under Chapter 11 of the Bankruptcy Code. Under Chapter 11,
the Company and BSI, Debtors In
Possession, continued to conduct business in the ordinary
course under the protection of the Bankruptcy
Code while a Plan of Reorganization was developed to
restructure and reorganize the debt structure and
allow the Company to strengthen its financial position.
At the time of the filing of the Petitions, the
Company was operating 51 retail stores in North
Carolina, South Carolina, Virginia, Tennessee, and Georgia.
The Company reviewed the operations of
each of its stores and closed twenty-one stores during
Fiscal 1994 whose profitability was not considered
by management to be adequate. The stores that remained open
include older locations including 13
stores leased by the Company from Brenco, a North Carolina
general partnership composed of certain
principal shareholders of the Company. Eight store
locations were closed in the winter of 1993 and
thirteen store locations were closed in the spring/summer of
1993. The inventory, fixtures, and real
estate (at two of the company-owned stores) that became
available for sale as a result of these closings
were sold to generate cash to help fund the Plan of
Reorganization. The Company also sold its
distribution center located in Elkin, NC and leased back
approximately 244,000 sq. ft. of the 388,000
square feet facility. Proceeds from this sale were also
used to help fund the Plan of Reorganization.
The overhead structure of the Company has been
significantly curtailed, and employment
levels at the corporate offices have been reduced
commensurate with the downsizing of the Company's
operations. The merchandising strategy has been reviewed,
the number of SKUs offered has been
reduced, and the merchandise mix has been reformulated based
on Brendle's strengths in gift
merchandise. The advertising strategy of the Company has
been revised to include more targeted
mailings and a renewed annual catalog to be distributed to
Brendle's customers. The Company
previously owned its fleet of trucks which it used to ship
merchandise from its distribution center to the
stores. Some of the equipment has been sold, and the
transportation needs of the Company have been
outsourced.
19
<PAGE>
During the Chapter 11 proceeding, the Company has
maintained substantial cash deposits
primarily due to the liquidation of the 21 locations.
Because of its substantial amounts of unencumbered
cash, the Company did not have an immediate need for a
debtor in possession revolving credit facility.
To provide assurance of payment to its trade vendors, the
Company established a vendor assurance
facility, giving vendors a super-priority Administrative
Expense Claim and lien on inventory up to $10
million (the "Vendor Assurance Facility"). The Vendor
Assurance Facility was prospectively terminated
by order of the Bankruptcy Court entered on September 9,
1993. Further, all inventory vendor payables
under the Vendor Assurance Facility outstanding as of
September 9, 1993, were paid in full by October
14, 1993. On November 2, 1993, the Bankruptcy Court agreed
to enter an order terminating all vendors'
liens under the Vendor Assurance Facility.
Also on September 9, 1993, the Bankruptcy Court
approved a debtor-in-possession revolving
credit facility with The CIT Group/Business Credit, Inc.
This facility provided for a revolving line of
credit of up to $25 million. The facility was created to
enhance the credit terms offered by vendors
shipping for the Christmas season.
On November 10, 1993, the Company filed a modified
Plan of Reorganization with the United
States Bankruptcy Court for the Middle District of North
Carolina. The modified Plan of
Reorganization was approved by the Company's Creditors and
shareholders in December, 1993, and was
confirmed by the Bankruptcy Court by order entered on
December 20, 1993. See "Item 3 - Legal
Proceedings."
On April 20, 1994, the Company received Bankruptcy
Court approval for a $45 million
revolving line of credit to be used to partially fund the
Plan of Reorganization and to provide working
capital funds to the Company. See "Liquidity and Capital
Resources." On April 29, 1994, the Company
substantially consummated its Plan of Reorganization by
making payments to creditors in accordance
with the Plan and distributing stock for the benefit of
certain unsecured and secured creditors.
Comparison of Operations.
Net sales for Fiscal 1994 were $170,345,000 compared
to net sales of $233,889,000 for the
fiscal year ended January 30, 1993 ("Fiscal 1993"), a
decrease of $63,544,000 or 27.2%. This sales
decrease resulted from operating fewer stores. The Company
operated forty-three stores during the first
quarter and part of the second quarter of Fiscal 1994. Net
sales for Fiscal 1993 were $233,889,000
compared to $300,198,000 for Fiscal 1992, a decrease of
$66,309,000 or 22.1% This decrease in sales
resulted primarily from operating a net seven fewer stores
and a 17.1% decrease in comparable store
sales.
The Company's business is a seasonal one with a
significant portion of its sales occurring in
the fourth quarter of the fiscal year. Fourth quarter
revenues accounted for 42.5% of total revenues in
Fiscal 1994, compared to 41.3% in Fiscal 1993 and 43.8% in
Fiscal 1992.
20
<PAGE>
The Company's sales for the first quarter of Fiscal
1994 were adversely impacted by the
disruption in the normal receipt of merchandise in the
period surrounding the filing of Chapter 11
Proceeding. Comparable store sales decreased 9.2% in the
first quarter of Fiscal 1994. The Company
closed thirteen stores at the end of May 1993 and the
remaining 30 comparable store sales increased
1.2% for the second quarter of Fiscal 1994. Comparable
store sales continued to increase in the third
and fourth quarters at 3.2% and 16%, respectively resulting in a 6%
comparable stores sales increase for the year. Sales in
the fourth quarter reflected a better in-stock
position and a more aggressive, targeted marketing approach.
Other income for Fiscal 1994, 1993, and 1992 was
$728,000, $1,201,000 and $1,161,000,
respectively. Fiscal 1994 other income includes non-
recurring items such as rental income from the
distribution center and prior year bad debt recovery. Prior
year other income included shelf allowance
and other non-recurring items such as proceeds from
insurance recoveries. Interest on short-term
investments which was classified as other income in Fiscal
1993 has been offset against reorganization
expense in Fiscal 1994 in accordance with AICPA Statement
of Position 90-7 (Financial Reporting by
Entities Reorganizing Under the Bankruptcy Code).
The cost of merchandise sold in Fiscal 1994 was
$125,015,000 or $43,864,000 less than
Fiscal 1993 due to the sales decline as discussed above.
The gross margin as a percentage of revenues
for Fiscal 1994 was 26.9% compared to 28.2% for Fiscal 1993.
The decrease in gross margin
percentage was primarily the result of increased promotional
activity and the continued competitive retail
environment.
Selling, operating and administrative expenses ("SO &
A") for Fiscal 1994 were $43,571,000
compared to $69,427,000 for Fiscal 1993. This $25,856,000
decrease in SO & A is primarily the result
of operating fewer stores, reduction of corporate overhead,
and aggressive cost management. SO & A
expenses, as a percentage of revenues, decreased to 25.5% in
Fiscal 1994 compared to 29.5% for the
same period last year.
Depreciation and amortization for Fiscal 1994, Fiscal
1993, and Fiscal 1992 were $4,877,000,
$7,184,000, and $8,219,000, respectively. Expense for fixed
asset depreciation and amortization is less
because the Company is operating fewer stores.
Interest on capital leases for Fiscal 1994, Fiscal
1993, and Fiscal 1992 was $756,000,
$1,199,000, and $1,667,000, respectively. No additional
capital leases have been signed during the
three-year period discussed, and all remaining capital
leases are in the second half of their term, resulting
in a book expense reduction.
Interest expense on debt other than capital leases was
$383,000, $3,728,000, and $4,567,000
for Fiscal 1994, 1993, and 1992, respectively. The decrease
in interest expense for Fiscal 1994 is
because the Company discontinued accruing interest on its
interest-bearing, pre-petition debt obligations
on the petition date in accordance with the Bankruptcy Code and
21
<PAGE>
AICPA Statement of Position 90-7
(Financial Reporting by Entities Reorganizing Under the
Bankruptcy Code).
Reorganization costs for Fiscal 1994 of $16,090,000
primarily relate to the costs associated
with the closing of certain stores including the write-off
of the remaining book value of assets, the loss
on the sale of real property, lease liabilities, employee
severance costs, inventory liquidation, and
professional fees for the Company and Creditor Committees.
Interest on short-term investment is also
included in reorganization costs as required by AICPA
Statement of Position 90-7 (Financial Reporting
by Entities Reorganizing Under the Bankruptcy Code).
Net loss for Fiscal 1994, Fiscal 1993, and Fiscal 1992
was $19,619,000, $19,899,000, and
$26,374,000, respectively. The loss in Fiscal 1994 reflects
reorganization costs of $16,090,000, the
impact of Chapter 11 proceedings and store closings. The
Fiscal 1993 loss reflects a restructuring
charge of $4,570,000, resulting primarily from the impact of
the Chapter 11 Proceedings on operations.
The Fiscal 1992 loss includes a restructuring charge of
$20,350,000 related to the restructuring plan of
January, 1992, which included closing certain stores,
modifying product mix, and reorganizing the
executive management of the Company.
Liquidity and Capital Resources
As a result of the Chapter 11 Proceeding, the
Company's liquidity position has been positively
affected because the cash requirements for the payment of
scheduled principal payments, accrued
interest, accounts payable, and other liabilities that were
incurred prior to the filing of Chapter 11
Proceeding were, in most cases, deferred and subsequently
settled at a reduced amount under the Plan
of Reorganization.
The Company's cash balance at January 29, 1994, was
$34.8 million which included
approximately $19.8 million of cash generated from the
closing of twenty-one stores which had been
escrowed for distribution to creditors under the Plan of
Reorganization.
Merchandise inventories were $54.1 million at January
29, 1994, compared to $57.9 million
at January 30, 1993. The decline in inventories was
primarily the result of closing thirteen stores since
January 30, 1993, offset by a better in-stock position at
the remaining 30 stores.
Post-petition liabilities were $6.4 million at January
29, 1994, compared with $11.6 million
at January 30, 1993. This decrease in post-petition
liabilities is the result of a reduction in the
restructuring expense liability offset by an increase in
accounts payable-trade. The increase in accounts
payable-trade is due to more favorable credit terms from the
Company's vendors.
22
<PAGE>
Pre-petition debt of the Company and BSI, classified
as "Liabilities Subject to Compromise,"
on the January 29, 1994, Consolidated Balance Sheet was
$95.7 million and included $42.7 million of
pre-petition debt borrowings under credit agreements with
lender banks, $1.6 million of debt borrowings
from related parties, and $51.4 million of pre-petition
liabilities for accounts payable and other liabilities.
In accordance with the terms of the Plan of Reorganization,
substantially all of these liabilities have been
reconciled and paid. The total cost required to settle
these liabilities is approximately $48.0 million,
resulting in debt forgiveness to the Company of
approximately $39.0 million.
The $48.0 million required to fund the payment to
creditors was funded from $30.0
million of the cash on hand at January 29, 1994, and the balance
from borrowings of approximately $18
million from the Company's $45 million Revolving Credit
Facility with Foothill Capital Corporation
("Exit Financing Facility") which was closed on April 29,
1994.
On April 20, 1994, the Company received Bankruptcy
Court Approval for a five year $45
million Exit Financing Facility which will be used to fund
payments to creditors described above while
the balance of the facility may be used to fund working
capital, inventory purchases, capital expenditures,
and other general corporate purposes. The Exit Financing
Facility includes restrictions on capital
expenditures as well as standard covenants found in similar
agreements. These include two financial
ratio covenants: (1) current ratio, and (2) total
liabilities to tangible net worth ratio.
Under the Exit Financing Facility, the lender agrees
to make revolving loans and issue or
guarantee letters of credit for the Company in an amount not
exceeding the lesser of the Borrowing Base
(as defined in the Loan Agreement) or $45.0 million. The
Exit Financing Facility includes a sublimit of
$10 million for documentary and stand-by letters of credit.
The Exit Financing Facility provides that each loan
shall bear interest at a rate of prime plus
one and forty-four one hundredths (1.44) percentage points.
Interest on these loans shall be payable
monthly in arrears on the first day of each month. Also
under the Exit Financing Facility, the Company
pays an unused line fee for an amount equal to one-half of
one percent (.50%) per annum on the unused
portion of the Exit Financing Facility and a letter of
credit fee equal to 2.5% per annum on the average
daily balance of the aggregate undrawn letters of credit and
letter of credit guarantees outstanding during
the immediately preceding month and certain other fees. The
Exit Financing Facility also requires an
annual facility fee equal to one-half of one percent (.50%)
of the maximum amount of the facility payable
on each anniversary of the Facility closing date and a
monthly servicing fee of $3,500 per month. The
Company also paid an initial, one-time fee of $450,000 in
order to establish the Exit Financing Facility.
The Company's ability to continue as a going concern
is dependent, in part, on the Company's
ability to obtain merchandise on a timely basis from vendors
on acceptable credit terms. Since the filing
of the Chapter 11 Proceeding, the Company's ability to
obtain credit through arrangements such as the
Exit Financing Facility terms and credit lines have improved
23
<PAGE>
and are approaching historical levels
experienced by the Company. Management of the Company
believes that its ability to obtain credit
should continue to improve based on the acceptable
performance of the Company. Management further
believes the Exit Financing Facility, together with the cash
from operations and vendor credit, should
be adequate to cover working capital requirements and
capital expenditures.
In addition to cash used in operations, approximately
$823,000 was also used for capital
expenditures during Fiscal 1994. The Company anticipates
capital expenditures for Fiscal 1995 primarily
for normal facility maintenance and various projects to
improve management information systems.
Item 8. Financial Statements and Supplementary Data.
The following financial statements are filed with this Form 10-K Annual
Report:
Report of Independent Accountants
Consolidated Balance Sheets at January 29, 1994, and
January 30, 1993
Consolidated Statements of Operations for the three years
ended January 29, 1994
Consolidated Statements of Shareholders' Equity for the
three years ended January 29, 1994
Consolidated Statements of Cash Flows for the three years
ended January 29, 1994
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure.
No such changes in accountants or disagreements on
accounting or financial disclosure
occurred in fiscal 1994 or 1993.
24
<PAGE>
Part III
Item 10. Directors and Executive Officers of the
Registrant.
The information as to executive officers is set forth
in Part I hereof under the caption
"Executive Officers of the Registrant." The additional
information required by this item is set forth
below:
Set forth below are the names of the members of the
Board of Directors, their principal
occupation or employment during the past five years, all
their positions with the Company, the Common
Stock of the Company beneficially owned by each of them as
well as that beneficially owned by all
directors and executive officers as a group, in each case as
of April 15, 1994, and certain other informa-
tion with respect to such directors
<TABLE>
<CAPTION>
Director of Common Stock
Principal Occupation for Past 5 Company Beneficially % of
Name Age Years and other Information(1) Since Owned(2) Class*
<S> <C> <C> <C> <C> <C>
Douglas D. Brendle 65 Chairman of the Board of 1954 2,102,816(6) 16.5%
Directors of the Company
since February, 1986; Chief
Executive Officer of the
Company from November,
1984, to June 2, 1982, and
from January 13, 1993, to
present; President of the
Company from November,
1984, to June, 1989, and
from April 13, 1993, to
present.(3)(4)(5)
S. Floyd Brendle 63 Vice Chairman of the Board 1954 1,723,515(7) 13.5%
of Directors of the Company
since April, 1989; Executive
Vice President of the
Company from November,
1984, to February, 1989,
and from January 13, 1993,
to April 13, 1993.(3)(5)
25
<PAGE>
William F. Cosby 54 President and Chief 1973 470,797(8) 3.7%
Operating Officer of the
Corporation from January
13, 1993, to April 13, 1993;
Senior Vice President of the
Company from February,
1986, to June, 1989; for in
excess of one year prior
thereto he was Vice
President of the Company.
Thomas H. Davis 76 Retired; Director Emeritus, 1987 5,000 **
USAir, Inc. since August,
1989; Chairman of the
Executive Committee of
Piedmont Aviation, Inc. for
in excess of five years prior
thereto(9)
James B. Edwards 65 President of the Medical 1986 1,000 **
University of South Carolina
in Charleston, SC since
November, 1982; prior
thereto he was the Secretary
of Energy of the United
States.(10)
John D. Gray 87 Chairman Emeritus of the 1984 2,000 **
Board and Retired Chief
Executive Officer of
Hartmarx Corporation, a
diversified men's clothing
manufacturer.
John A. Northen 44 Partner in the law firm of -0-
Northen, Blue, Rooks,
Thibaut, Anderson &
Woods, located in Chapel
Hill, North Carolina.(11)
26
<PAGE>
Robert R. Dunn 47 President of The Finley -0-
Group, Inc., a turn-around
management firm located in
Charlotte, North Carolina,
since October, 1993; Vice
President of The Finley
Group, Inc., since 1986.(11)
Patty Brendle Redway 66 Director of the Company 1984 1,912,667(13) 15.0%
since 1984. (5)(12)
All directors and officers ___ ___ ___ 6,261,435(14) 49.0%
as a group (12 persons,
including the above)(1)
</TABLE>
*Does not include shares of Douglas D. Brendle, S.
Floyd Brendle, William F. Cosby, or Patty Brendle
Redway that will be received as a distribution from the
Escrow Agent in accordance with the Plan of Reorganization.
The number of shares to be received is indeterminate at the
date of this Annual Report, pending resolution of all
disputed claims.
** less than 1%.
(1) Each director and officer of the Company previously
held the identical directorships and offices with
Brendle's Stores, Inc., a wholly-owned subsidiary of
the Company. Brendle's Stores, Inc. was merged into
the Company effective April 29, 1994.
(2) As reported to the Company by the directors.
Includes, where appropriate, shares held by spouses, minor
children, family companies, partnerships and trusts.
(3) Douglas D. Brendle and S. Floyd Brendle are brothers.
(4) Douglas D. Brendle serves on Advisory Boards of
Appalachian State University and Campbell University
and for the Business School of the University of South
Carolina.
(5) By virtue of their stockholdings in the Company,
positions with the Company and family relationships,
including relationships by marriage, each of Douglas
D. Brendle, S. Floyd Brendle, and Patty Brendle
Redway may be deemed to be a controlling person of the
Company within the meaning of the rules of the
Securities and Exchange Commission.
(6) The information as to beneficial ownership set forth
in footnote (3) under Item 12 is incorporated herein
by reference.
(7) The information as to beneficial ownership set forth
in footnote (5) under Item 12 is incorporated herein
by reference.
27
<PAGE>
(8) The information as to beneficial ownership set forth
in footnote (7) under Item 12 is incorporated herein
by reference.
(9) Thomas H. Davis is a director emeritus of USAir Group,
Inc., ALLTEL Corp., and Duke Power Company.
(10) James B. Edwards was the Governor of the State
of South Carolina from 1975 until 1979. He is a director
of Chemical Waste Management, Inc., Encyclopedia
Britannica, Inc., Imo Industries, Inc., National Data
Corporation, Phillips Petroleum Company, SCANA
Corporation, and South Carolina National Bank.
(11) Mr. Northen and Mr. Dunn became members of the
Board of Directors upon substantial consummation
of the Company's Plan of Reorganization on April
29, 1994. The Plan of Reorganization provided that
certain of the Company's creditors had the right
to appoint two individuals to the Company's Board of
Directors for a period of one (1) year following
substantial consummation. Mr. Northen and Mr. Dunn
have filled these positions.
(12) Patty Brendle Redway is the widow of J. Harold
Brendle, who was the brother of Douglas D. Brendle and
S. Floyd Brendle.
(13) The information as to beneficial ownership set
forth in footnote (8) under Item 12 is incorporated herein
by reference.
(14) Includes 44,240 shares which may be acquired
upon the exercise of options exercisable April 30, 1994,
or within 60 days thereafter. Also includes
certain shares as to which beneficial ownership is
disclaimed
by certain directors and officers as referred to
in these footnotes. Does not include stock appreciation
rights held by the unaffiliated Directors.
Committees
The Board of Directors has an Audit Committee
consisting of Douglas D. Brendle, Thomas H. Davis,
James B. Edwards, John D. Gray, and Patty Brendle Redway.
The Audit Committee recommends matters involving
the engagement and discharge of independent auditors,
directs and supervises special investigations, reviews the
plans for and results of the Company's procedures for
internal auditing, and reviews the adequacy of the Company's
system of internal accounting controls.
Other standing committees of the Board of Directors
include the Stock Option Committee, which
administers the Company's stock option plans; the Stock
Appreciation Rights Committee, which administers the
Company's Unaffiliated Director Stock Appreciation Rights
Plan; the Unaffiliated Directors Committee, which
reviews and approves or disapproves certain transactions
between the Company and any of its affiliates; and the
Compensation Committee, which reviews and approves or
disapproves certain compensation and employee benefit
matters and makes recommendations to the full Board of
Directors regarding compensation in general. The Stock
Option Committee consists of Douglas D. Brendle, S. Floyd
Brendle and William F. Cosby; the Stock Appreciation
Rights Committee consists of Douglas D. Brendle and S. Floyd
Brendle; the Unaffiliated Directors Committee
consists of Thomas H. Davis, James B. Edwards, and John D.
Gray; and the Compensation Committee consists
28
<PAGE>
of Douglas D. Brendle, Thomas H. Davis, James B. Edwards, and
John D. Gray. There is no nominating committee
of the Board of Directors.
During the fiscal year ended January 29, 1994, the
Board of Directors held a total of four (4) meetings.
The Compensation Committee met once and there were no other
meetings of formal committees. Also during such
fiscal year, no director attended fewer than a total of 75%
of the aggregate of all meetings of the Board of Directors
and all meetings held by all committees of the Board of
Directors on which he served.
Each of the non-employee or non-officer directors,
William F. Cosby, Thomas H. Davis, James B. Edwards,
John D. Gray, and Patty Brendle Redway, traditionally
received a standard fee of $10,000 annually for service as
a director plus $500 for each Board of Directors' meeting
attended. Non-employee members of the Audit Committee
and the Compensation Committee receive $250 for each meeting
attended. As a cost-saving measure, the Board
members agreed to reduce their compensation during Fiscal
1994, and no non-employee director received in excess
of $3,000 for serving on the Board. Directors who are also
officers of the Company receive no additional
compensation for attending Board of Director or committee
meetings. No compensation or fee (other than
transportation costs) was paid for membership or
participation in any other committee.
29
<PAGE>
Item 11. Executive Compensation.
The following table presents information relating to
total compensation during the fiscal year ended January
29, 1994, of the Chief Executive Officer, Douglas D. Brendle
and the Company's Senior Vice President (as of
January 29, 1994), William V. Grady and two of the Company's
Vice Presidents, Aubrey L. Miller and Steven W.
Luka (the "Named Executives"). All remaining Executive
Officers of the Company, who served in such capacities
on January 29, 1994, were paid less than $100,000 in total
compensation for the fiscal year ending January 29, 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
Name and Other Annual Options/SARs All Other
Principal Position Year Salary Bonus Compensation(1) (Shares) Compensation(2)
<S> <C> <C> <C> <C> <C> <C>
Douglas D. Brendle(6) 1993-94 $199,992 -0- -0- -0- $20,596
Chairman and 1992-93 $200,000 -0- -0- -0- $56,259
Chief Executive 1991-92 $249,990 -0- -0- -0- -0-
Officer
William V. Grady(3)(6) 1993-94 $110,006 -0- -0- -0- $ 6,186
Senior Vice President 1992-93 $ 8,462 -0- -0- -0- $27,600
1991-92 -0- -0- -0- --
Aubrey L. Miller(3)(5) 1993-94 $104,994 -0- -0- -0- $ 886
Vice President 1992-93 $ 88,840 -0- -0- -0- $ 489
of Operations 1991-92 $ 79,872 -0- -0- -0- $ 278
Steven W. Luka(4)(5) 1993-94 $104,994 -0- -0- -0- $ 611
Vice President and 1992-93 $ 88,840 -0- -0- -0- $ 356
General Merchandise 1991-92 $ 79,192 -0- -0- -0- $ 287
Manager
</TABLE>
(1)None of the Named Executives received perquisites or other personal
benefits in excess of the lesser of $50,000 or 10% of the total
of his salary and bonus for any of the reported years.
(2)Includes value of premium payments on life insurance policies for the
Named Executives maintained by the Company and moving
expenses for William V. Grady.
(3)Mr. Grady joined the Company in November, 1992.
(4)Mr. Miller also has options to acquire 11,770 shares of the Company's
common stock, 11,416 of which are currently exercisable.
The option prices range from $5.50 per share to $14.50 per share and currently
have no value.
(5)Mr. Luka also has options to acquire 9,570 shares of the Company's
common stock, 9,356 of which are currently exercisable. The
option prices range from $5.50 per share to $14.50 per share and currently have
no value.
(6)For a further discussion of the offices held by the Named Executives,
see the textual discussion included in Item 12.
30
<PAGE>
Employee Benefit Plans
The Company maintains a variety of employee benefit
plans, including a Non-Contributory
Profit Sharing Plan, the Brendle's Incorporated 1990 Stock
Plan, and the Brendle's Incorporated 1986
Non-Qualified Stock Option Plan. A description of these
plans is included in Note 9 to the Consolidated
Financial Statements of the Company included in this Annual
Report on Form 10-K and is incorporated
herein by reference. Only the named Executives indicated in
the footnotes to the above tables participate
in the Company's Stock Option Plans (with no executive
having currently exercisable options which are
in-the-money), and none of the Named Executives receive
perquisites or other forms of employment
benefits that exceeds $50,000.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The following table sets forth certain information with
respect to the beneficial ownership of
the Company's Common Stock, the Company's only class of
equity voting security, as of April 15, 1994,
by each person, including any "group" as that term is used
in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), known by the
Company to be the beneficial owner of
more than five percent of the Company's outstanding Common
Stock, or that may be a member of a
control group owning more than five percent (5%) of the
Company's outstanding stock:
<TABLE>
<CAPTION>
Common Stock Beneficially Owned(1)
Amount and nature of Percentage
Name and Address of Beneficial Owner(2) Beneficial Ownership of Class
<S> <C> <C>
Douglas D. Brendle . . . . . . . . . . . . . . . 2,102,816(3) 16.5%
D & L Brendle Associates . . . . . . . . . . . . 1,035,000(4) 8.1%
S. Floyd Brendle . . . . . . . . . . . . . . . . 1,723,515(5) 13.5%
K & F Brendle Associates . . . . . . . . . . . . . 500,000(6) 3.9%
William F. Cosby . . . . . . . . . . . . . . . . . 470,797(7) 3.7%
Patty Brendle Redway (Trusts under Agreement
with J. Harold Brendle). . . . . . . . . . . . . .1,912,667(8) 15.0%
</TABLE>
(1) None of the persons or entities indicated own any
shares subject to options exercisable on April 15, 1994 or
within 60 days thereafter.
(2) The address of these beneficial owners, except Patty
Brendle Redway, is c/o Brendle's Incorporated, 1919 North
Bridge Street Extension, Elkin, North Carolina 28621.
The address of Patty Brendle Redway is c/o Wachovia
Bank and Trust Company, N.A., Trust Department, Post
Office Box 3099, Winston-Salem, North
Carolina 27102.
31
<PAGE>
(3) Of such 2,102,816 shares, Douglas D. Brendle may be
deemed to have sole voting power as to 924,330 shares,
shared voting power as to 1,178,486 shares, sole
investment power as to 924,330 shares and shared investment
power as to 1,178,486 shares.
The above shares include (i) 1,035,000 shares held by D &
L Brendle Associates, a North Carolina limited
partnership in which the general partners are Lydia U.
Brendle, wife of Douglas D. Brendle, and a corporation
controlled by Douglas D. Brendle and members of his
family, (ii) 133,036 shares held by Lydia U. Brendle as
trustee for their daughter, as to which shares Lydia U.
Brendle has sole voting and investment power, (iii) 5,450
shares held individually by Lydia U. Brendle, (iv) 5,000
shares held jointly by Douglas D. Brendle and Lydia U.
Brendle, (v) 869,629 shares held of record by Lydia U.
Brendle under a trust agreement with Douglas D.
Brendle which is revocable by him and as to which shares
he retains all voting and dispositive powers, and
(vi) 54,701 shares of which Mr. Brendle is the sole record
and beneficial owner.
Mr. Brendle disclaims beneficial ownership of the shares
described in items (i), (ii) and (iii) above and any other
shares held by D & L Brendle Associates and also disclaims
membership in any "group," within the meaning
of the Exchange Act.
(4) D & L Brendle Associates may be deemed to have sole
voting and investment power as to all of such 1,035,000
shares and shared voting and investment power as to
none of such shares. D & L Brendle Associates disclaims
beneficial ownership of any additional shares in excess
of the 1,035,000 shares over which it has sole voting
and dispositive power and also disclaims membership in
any "group," within the meaning of the Exchange Act.
(5) Of such 1,723,515 shares, S. Floyd Brendle may be
deemed to have sole voting power as to 1,223,515 shares,
shared voting power as to 500,000 shares, sole
investment power as to 1,223,515 shares, and shared
investment power as to 500,000 shares.
The above shares include 500,000 shares held by K & F
Brendle Associates, a North Carolina limited
partnership in which the general partners are Kathryn C.
Brendle, wife of S. Floyd Brendle, and a corporation
controlled by S. Floyd Brendle and members of his family.
Excluded are an aggregate of 1,600 shares
represented by presently exercisable options held by Mr.
Brendle's two sons, respectively, each of whom is an
adult not living in his home.
Mr. Brendle disclaims beneficial ownership of any shares
held by K & F Brendle Associates as well as the
shares excluded above and also disclaims membership in any
"group," within the meaning of the Exchange Act.
(6) K & F Brendle Associates may be deemed to have sole
voting and investment power as to all of such 500,000
shares and shared voting and investment power as to
none of such shares. K & F Brendle Associates disclaims
beneficial ownership of any additional shares in excess
of the 500,000 shares over which it has sole voting and
investment power and also disclaims membership in any
"group," within the meaning of the Exchange Act.
(7) Of such 470,797 shares, William F. Cosby may be deemed
to have sole voting power as to 140,797 shares,
shared voting power as to 330,000 shares, sole
investment power as to 140,797 shares,
and shared investment
power as to 330,000 shares.
32
<PAGE>
The above shares include 330,000 shares held by C & W
Cosby Associates, a North Carolina limited
partnership in which the general partners are Patricia R.
Cosby, wife of William F. Cosby, and a corporation
controlled by William F. Cosby and members of his family.
Mr. Cosby disclaims beneficial ownership of any shares
held by C & W Cosby Associates and also disclaims
membership in any "group," within the meaning of the
Exchange Act.
(8) Of such 1,912,667 shares, Patty Brendle Redway may be
deemed to have sole voting and investment power as
to all of such shares, and shared voting and investment
power as to none of such shares.
All of the above 1,912,667 shares are held in two trusts
created under an agreement dated October 20, 1982,
with J. Harold Brendle. Patty Brendle Redway, widow of J.
Harold Brendle, has sole voting and investment
power over all such shares. Wachovia Bank and Trust
Company, N.A., a subsidiary of The First Wachovia
Corporation, is trustee of such trusts.
Excluded are an aggregate of 8,448 shares represented by
presently exercisable options held by Ms. Redway's
son who is an adult not living in her home.
Ms. Redway disclaims beneficial ownership of the 1,912,667
shares as well as the other shares excluded above
and also disclaims membership in any "group," within the
meaning of the Exchange Act.
The Common Stock holdings of Douglas D. Brendle, S. Floyd
Brendle, Patty Brendle Redway (her
holdings being with respect to shares forming a part of the
Trusts created under an Agreement with
J. Harold Brendle), certain members of their immediate
families and the family partnerships described
above (collectively, the "Brendle Family") aggregate in
excess of two-thirds of the Company's
outstanding Common Stock. If all or certain members of the
Brendle Family were to vote in the same
manner concerning certain matters subject to a vote of
shareholders of the Company, the Brendle Family
or such members could determine the outcome of any such
vote. Accordingly, under proper
circumstances the Brendle Family may be said to be in
"control" of the Company within the meaning of
that term under the Exchange Act. However, the Brendle
Family has not agreed to act in concert or as
a group in connection with voting any of the Company's
Common Stock.
Item 13. Certain Relationships and Related Transactions.
Shareholders' Agreement
In April of 1986, prior to the initial public offering of
the Company's Common Stock, all of the then
shareholders of the Company (including Douglas D. Brendle,
S. Floyd Brendle, Patty Brendle Redway,
and William F. Cosby) entered into a Shareholders' Agreement
with the Company. Therein, the
shareholders agreed, among other things, to restrict the
transfer of their Common Stock to any unrelated
party (as defined) without the written consent of all
remaining shareholders who are parties to the
Agreement unless the transferring shareholder
33
<PAGE>
gives a right of first refusal to related parties (as defined)
of the transferring shareholder and to the remaining
shareholders who are parties to the Agreement, and
such right of first refusal is not exercised. In addition,
the Shareholders' Agreement gives the right,
exercisable within nine months of death, to the personal
representative of certain deceased shareholders
who were parties to the Agreement, to cause the Company to
redeem from the deceased shareholder's
estate up to that number of shares of Common Stock of the
Company owned by the deceased
shareholder at his death valued at the average of the
closing prices for the 20 trading days prior to the
date of death, not to exceed the life insurance proceeds
received by the Company as a result of such
death. The Company has purchased life insurance in the face
amounts set forth below at a net aggregate
cost (premiums less dividends and increase in cash surrender
value) for the fiscal year ended January 29,
1994 of approximately $257,747: Douglas D. Brendle,
$5,000,000; S. Floyd Brendle, $5,250,000;
William F. Cosby, $3,070,000; and Patty Brendle Redway
$3,000,000. The Company has borrowed
$1,840,000, in the aggregate, against these policies.
One effect of the Shareholders' Agreement may be to make
it more difficult for a third party to
acquire a significant equity position in the Company.
Conversely, the Shareholders' Agreement may
make it easier for a party to the Shareholders' Agreement,
including incumbent management of the
Company, to retain significant equity positions in the
Company or to retain their management positions
with the Company. In addition, implementation of certain of
the aforesaid rights may, under proper
circumstances, cause a change in control of the Company.
Split Dollar Insurance Agreements
The Company has entered into split dollar life insurance
agreements for the benefit of six of its
executive officers and/or directors or their spouses and
families. Upon the death of any such officer or
director, the Company will receive not less than the net
premiums paid, and the insured's beneficiary will
receive the balance of the insurance proceeds. Pursuant to
the agreements, life insurance coverage, the
premiums for which are paid by the Company, has been
purchased on the following persons in the
following aggregate policy amounts: Douglas D. Brendle,
$3,000,000; S. Floyd Brendle, $2,000,000;
Aubrey L. Miller, $153,097; W. Steven Day, $132,785; Steven
W. Luka $123,758 and David R.
Renegar, $113,220. The Company's net aggregate cost
(premiums less dividends and increase in cash
surrender value) for such insurance for the fiscal year
ended January 29, 1994 was approximately
$48,712.
Leases
Brenco, a partnership consisting of Douglas D. Brendle, S.
Floyd Brendle, William F. Cosby, and
two Trusts under an Agreement with J. Harold Brendle, dated
October 20, 1982, ("Brenco"), leases 13
stores and the Company's corporate office building and
contiguous warehouse to the Company. During
the fiscal year ended January 29, 1994, the Company paid
34
<PAGE>
or accrued to Brenco an aggregate of
approximately $2,458,132 with respect to these leases. All
of the leases are for a 10-year period from
their respective dates of origin, except for one lease which
is for a 7-year period, with remaining lease
terms ranging from one (1) year to five (5) years, and the
leases have certain extension options. All of
the leases grant to Brenco the right to require the Company
to purchase any or all of the premises under
any or all of the leases at a purchase price equal to the
fair market value of the respective premises
purchased, as such fair market value is determined by a
third party appraiser acceptable to both the
Company and Brenco, provided, however, that, in each event,
the purchase of the premises is first
approved by the Committee of Unaffiliated Directors of the
Company in their sole discretion. The total
amount owing under the Brenco leases for their remaining
terms is approximately $5,569,000. The
Bankruptcy Court is expected to approve amendments to the
Brenco leases which will provide for
incentive rent based on the performance of the Company and
which will extend certain of the leases by
one (1) to two (2) years.
On November 1, 1991, the Company and Brenco entered into
an agreement wherein Brenco agreed
to reduce rents payable by the Company by an annual amount
of $500,000. This agreement was required
by the Company's lenders as part of the loan agreement
reached between the Company and its lenders
in October, 1991.
Brenco is the owner and franchisee of the Holiday Inn
located in Jonesville, North Carolina, in which
the Company held various meetings and corporate functions
during the fiscal year ended January 29,
1994. The Company was charged the standard corporate rates
for these services and paid an aggregate
of $30,305 therefore.
Management of the Company believes that the terms of all
these leases are no less favorable to the
Company than would have been available from unaffiliated
third parties.
Transportation Activities
During the fiscal year ended January 29, 1994, a
subsidiary of the Company occasionally used an
airplane owned by Sky-Lease, Inc., the voting securities of
which are owned by Douglas D. Brendle,
S. Floyd Brendle, William F. Cosby, and a Trust under an
Agreement dated October 20, 1982 with
J. Harold Brendle, and Sky-Lease, Inc. was paid an aggregate
of $43,340 in rent charges for such
airplanes. The Company previously leased two airplanes from
Sky-Lease, Inc., however, such leases
were terminated effective December 31, 1991, by mutual
agreement of the parties and as a condition to
the loan agreement entered into between the Company and its
lenders in October 1991.
Loan Agreements
As a condition to the loan agreement entered into between
the Company and its lenders in October,
1991, Douglas D. Brendle and Brenco each loaned $1,000,000
to the Company,
35
<PAGE>
which loans were repaid
in full by the Company in April, 1994, pursuant to the
provisions of the Plan of Reorganization. Under
the terms of the Plan, Mr. Brendle and Brenco received
payment of the principal balance of their secured
claims and 52% of their unsecured claims, without any
allowances for post-petition interest accruals.
Hold Harmless and Other Agreements
The Company is party to agreements with Thomas H. Davis,
James B. Edwards, and John D. Gray,
non-employee directors of the Company, to hold each
harmless, subject to certain limitations under
applicable law, from liabilities arising from service as a
director of the Company. The agreements
contain certain assurances that the provisions of the
Company's by-laws relating to indemnification of
directors will not be changed.
36
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
Page in
10-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The Financial Statements listed in Item 8 of Part II
are filed as part of this Form 10-K Annual Report. F-1 to F-21
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial
Statement Schedules F-22
For the three years ended January 29, 1994
IV - Indebtedness of and to Related Parties - Not Current F-23
V - Property and Equipment F-24
VI - Accumulated Depreciation and Amortization of
Property and Equipment F-25
IX - Short-Term Borrowings F-26
X - Supplementary Income Statement Information F-27
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(b) The Company filed a Form 8-K on December 20,
1993, reporting under Item 3 the confirmation
of its Plan of Reorganization.
(c) See the Exhibit Index attached hereto.
(d) All required financial statements and schedules
are filed herewith.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
BRENDLE'S INCORPORATED
(Registrant)
Date: May 12, 1994 By: Douglas D. Brendle /s/
Douglas D. Brendle,*
Chief Executive Officer and
Chairman of the Board of Directors
*Executed pursuant to Power of Attorney included with this report as an Exhibit.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Date: May 12, 1994 Douglas D. Brendle /s/
Douglas D. Brendle,*
Chief Executive Officer and Chairman
of the Board of Directors
Date: May 12, 1994 S. Floyd Brendle /s/
S. Floyd Brendle,
Vice Chairman of the Board of Directors
Date: May 12, 1994
William F. Cosby,
Director
Date: May 12, 1994 Thomas H. Davis /s/
Thomas H. Davis,
Director
Date: May 12, 1994 James B. Edwards /s/
James B. Edwards,*
Director
Date: May 12, 1994 John D. Gray /s/
John D. Gray,*
Director
Date: May 12, 1994 Patty Brendle Redway /s/
Patty Brendle Redway,*
Director
Date: May 12, 1994 David R. Renegar /s/
David R. Renegar,
Chief Financial Officer
(principal accounting officer)
* Executed pursuant to Power of Attorney included with this report
as an Exhibit.
<PAGE>
Brendle's Incorporated
Financial Statements
January 29, 1994 and January 30, 1993
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Brendle's Incorporated
In our opinion, the accompanying consolidated balance
sheet and the related consolidated
statements of operations, of changes in shareholders'
equity and of cash flows present
fairly, in all material respects, the financial
position of Brendle's Incorporated and its
subsidiaries (the Company) at January 29, 1994 and
January 30, 1993, and the results
of their operations and their cash flows for each of
the three fiscal years in the period
ended January 29, 1994, in conformity with generally
accepted accounting principles.
These financial statements are the responsibility of
the Company's management; our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits of these statements in
accordance with generally accepted
auditing standards which require that we plan and
perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and
significant estimates made by management, and
evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for the opinion
expressed above.
The accompanying financial statements have been
prepared assuming that the Company
will continue as a going concern. As discussed in Note
1 to the financial statements, on
November 22, 1992, Brendle's Incorporated and its
primary operating subsidiary,
Brendle's Stores, Inc., filed a voluntary petition for
relief under Chapter 11, Title 11, of
the United States Code (the Bankruptcy Code) in the
U.S. Bankruptcy Court for the
Middle District of North Carolina. The filing and
issues surrounding it raise substantial
doubt about the entity's ability to continue as a going
concern. The continued viability
of the Company in its present form is dependent upon,
among other factors, the
Company's ability to generate sufficient cash from
operations or other sources that will
meet ongoing obligations over a sustained period.
Management's plans in regard to these
matters are also described in Note 1. The accompanying
financial statements do not
include any adjustments relating to the recoverability
and classification of reported asset
amounts or the amounts and classification of
liabilities that might be necessary should the
Company be unable to continue as a going concern, nor
do these financial statements
F-1
<PAGE>
include adjustments relating to the recoverability and
classification of reported asset
amounts or adjustments relating to the establishment,
settlement and classification of
liabilities that may be required in connection with
restructuring the Company under the
Bankruptcy Code.
(Signature of Price Waterhouse)
PRICE WATERHOUSE
Winston-Salem, North Carolina
March 30, 1994, except for Notes 1 and 13,
which is as of April 29, 1994
F-2
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Consolidated Balance Sheet
(In thousands, except share data)
<TABLE>
<CAPTION>
January 29, January 30,
1994 1993
<S> <C> <C>
Assets
Current assets:
Cash and temporary cash investments (Note 2) $ 34,774 $ 36,594
Receivables (Note 3) 1,480 6,336
Merchandise inventories (Note 2) 54,133 57,893
Other current assets 970 5,634
Total current assets 91,357 106,457
Property and equipment, less accumulated depreciation
and amortization (Notes 2 and 4) 15,767 40,364
Other assets 439 666
$107,563 $147,487
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of restructuring expenses $ 509 $ 6,603
Accounts payable - trade 3,002 1,184
Accrued compensation 508 1,108
Other accrued liabilities 2,335 2,713
Total current liabilities 6,354 11,608
Liabilities subject to compromise (Note 6) 95,749 111,113
Total liabilities 102,103 122,721
Shareholders' equity
Common stock, $1 par value, 20,000,000 shares
authorized, 8,299,454 shares issued at January 29,
1994 and 8,289,276 shares issued at January 30, 1993 8,299 8,289
Capital in excess of par value 18,112 18,111
Retained deficit (20,951) (1,634)
Total shareholders' equity 5,460 24,766
Commitments and contingencies (Notes 7, 8, 10, and 11) -- --
$107,563 $147,487
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Consolidated Statement of Operations
(In thousands, except share data)
<TABLE>
<CAPTION>
Fiscal year ended
January 29, January 30, February 1,
1994 1993 1992
<S> <C> <C> <C>
Net sales $170,345 $233,889 $300,198
Other income 728 1,201 1,161
Total revenues 171,073 235,090 301,359
Costs and expenses:
Cost of merchandise sold 125,015 168,879 221,099
Selling, operating and
administrative expenses 43,571 69,427 73,803
Depreciation and amortization 4,877 7,184 8,219
Interest expense:
Capitalized leases 756 1,199 1,667
Other 383 3,728 4,567
Provision for restructuring (Note 5) 16,090 4,572 20,350
190,692 254,989 329,705
Loss before income taxes (19,619) (19,899) (28,346)
Provision for income taxes (Note 9) - - (1,972)
Net loss $(19,619) $(19,899) $(26,374)
Net loss per share $ (2.36) $ (2.45) $ (3.28)
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Consolidated Statement of Changes in Shareholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Common Capital in Retained Total
Stock Stock Excess of Earnings Shareholders'
Shares Amount Par Value (Deficit) Equity
<S> <C> <C> <C> <C> <C>
Balance, February 2, 1991 8,037,421 $8,037 $17,776 $ 43,793 $ 69,606
Net loss - - - (26,374) (26,374)
Reclassification from other
deferred credit (Note 8) - - - 883 883
Issuance of stock 16,281 17 40 - 57
Balance, February 1, 1992 8,053,702 8,054 17,816 18,302 44,172
Net loss - - - (19,899) (19,899)
Reclassification to other
deferred credit (Note 8) - - - (37) (37)
Issuance of stock 235,574 235 295 - 530
Balance, January 30, 1993 8,289,276 8,289 18,111 (1,634) 24,766
Net loss - - - (19,619) (19,619)
Reclassification from other
deferred credit (Note 8) - - - 302 302
Issuance of stock 10,178 10 1 - 11
Balance, January 29, 1994 8,299,454 $8,299 $18,112 $ (20,951) $ 5,460
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Fiscal year ended
January 29, January 30, February 1,
1994 1993 1992
<S> <C> <C> <C>
Operations:
Net loss $(19,619) $(19,899) $(26,374)
Items not requiring (providing) cash:
Depreciation and amortization 4,877 7,184 8,219
Loss on sale of property and equipment 11,839 712 1,261
Deferred income taxes - - 879
Deferred store credit card costs - - 971
Restructuring reserve (4,109) (6,239) 14,976
Other - (1,040) (414)
Changes in assets and liabilities:
Accounts receivable 4,856 (2,246) (1,481)
Income taxes refundable - 2,851 (2,851)
Merchandise inventories 3,760 20,864 24,796
Other current assets 4,664 (4,237) 155
Accounts payable and other liabilities (4,278) 19,745 (1,715)
Cash provided (used) by operations 1,990 17,695 18,422
Investing activities:
Additions to property and equipment (823) (1,630) (2,690)
Proceeds from sale of property and equipment 8,704 880 12
Cash provided (used) for property and equipment 7,881 (750) (2,678)
Other 529 49 1,057
Cash provided (used) by investing activities 8,410 (701) (1,621)
Financing activities:
Decrease in capitalized lease obligations (1,356) (2,028) (2,942)
Increase (decrease) in short term borrowings (10,875) 28,239 (22,000)
Increase (decrease) in long term borrowings - (8,375) 8,375
Issuance of common stock 11 530 57
Cash provided (used) by financing activities (12,220) 18,366 (16,510)
Net increase (decrease) in cash and temporary
cash investments (1,820) 35,360 291
Cash and temporary cash investments
- - - beginning of year 36,594 1,234 943
Cash and temporary cash investments
- - - end of year $ 34,774 $ 36,594 $ 1,234
Interest paid during the year $ 383 $ 3,746 $ 4,586
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
NOTE 1 - PROCEEDINGS UNDER CHAPTER 11
On November 22, 1992 (the Petition Date), Brendle's
Incorporated and its primary operating
subsidiary, Brendle's Stores, Inc., filed a voluntary
petition for relief under Chapter 11 of the
Federal Bankruptcy Code in the U.S. Bankruptcy Court for the
Middle District of North Carolina
(the Bankruptcy Court), and is currently operating as a
Debtor-in-Possession. As a Debtor-in-
Possession, the Company is authorized to operate its
business, but may not engage in transactions
outside of the normal course of business without approval,
after notice and hearing, of the
Bankruptcy Court. A creditors' committee was formed, which
has the right to review and object to
business transactions outside the ordinary course and
participate in any plan or plans of
reorganization.
The accompanying financial statements have been prepared
assuming that the Company will
continue as a going concern. The continued viability of the
Company subsequent to Chapter 11 is
dependent upon, among other factors, the ability to generate
sufficient cash from operations and
financing sources to meet obligations.
As of the Petition Date, actions to collect prepetition
indebtedness were stayed and other contractual
obligations could not be enforced against the Company.
Certain prepetition liabilities were approved
by the Bankruptcy Court for payment in the ordinary course
of business.
The Bankruptcy Code allows the debtor to either assume or
reject certain executory contracts,
subject to approval of the Bankruptcy Court. Parties to
contracts which are rejected are entitled to
file claims for losses or damages sustained as a result of
the rejection. Management's estimate of
allowable claims that will result from contracts that
management has rejected or intends to reject
has been included within liabilities subject to compromise.
Liabilities subject to compromise
represent those liabilities and obligations whose
disposition is dependent upon the outcome of the
Chapter 11 proceedings. Management may reject other
executory contracts, or the Bankruptcy Court
may allow claims for contingencies and other disputes, and
if so, the allowable claims will constitute
additional liabilities subject to compromise. These
potential allowable claims have not been
reflected in the accompanying financial statements.
The Company discontinued accruing interest on its interest-
bearing prepetition debt obligations as
of the Petition Date. In accordance with the American
Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy
Code," (SOP 90-7), interest on secured prepetition
obligations after the Petition Date ceased
accruing as the outstanding debt and accrued interest
exceeded the estimated fair value of the
collateral.
The final plan of reorganization may require additional
material adjustments to asset values and
liabilities which could result from asset disposals or
liquidation of liabilities at amounts different
than presently reflected in the accompanying financial
statements.
F-7
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
On December 23, 1993, the Bankruptcy Court
confirmed the Company's plan of reorganization
contingent upon the Company's obtaining exit financing in
order to fund payments to creditors under
the plan of reorganization.
The Company obtained this reorganization credit facility
(the "Credit Facility") for $45,000,000 from
Foothill Capital Corporation on April 21, 1994. The Credit
Facility is for a term of five years and
bears interest at a per annum rate of prime plus 1.44% or
7%, whichever is greater. Interest will
be paid monthly with the facility expiring on April 29,
1999. As further discussed in Note 2, cash
of $31,032,000 has been provided by the Company to fund a
portion of the payments of secured and
general unsecured, undisputed claims. On April 29, 1994,
the Company disbursed $45,382,000 in
payment of secured and general unsecured claims. This
payment was funded through cash on hand
and borrowings against the Credit Facility.
In addition on April 29, 1994, Brendle's Incorporated issued
4,469,201 shares of Brendle's
Incorporated common stock to Arnold Zahn (the "Escrow
Agent"). These shares will be issued to
creditors when all remaining claim amounts are reconciled.
See discussion of specific provisions
related to claim payments under "General Unsecured Claims"
below.
Any gain on the forgiveness of pre-petition debt will be
recorded during the first quarter of fiscal
1995. The Company will not account for the reorganization
using fresh-start reporting due to the
fact that a significant change in ownership will not have
occurred.
The confirmed plan provides for the following:
Secured Claims
The Bank Group will receive the sum of $16,000,000 less all
amounts paid to the Bank Group by
the Company subsequent to July 8, 1993 in cash in full and
complete satisfaction of the allowed
secured portion of their claim. The Brenco and Douglas D.
Brendle Secured Claims will be treated
similarly, receiving a recovery in the same proportion as
the Bank Group's recovery. The balance
of the Bank Group claim, approximately $35,000,000 will be
treated as a general unsecured claim.
General Unsecured Claims
Holders of unsecured claims will receive the following for
their claims in accordance with the
proposed plan of reorganization: (a) the claim-holder's pro
rata share of a total distribution to all
general unsecured claim holders of 35% of the issued and
outstanding common stock of the
reorganized Company; and (b) the opportunity to elect one of
the following options: (i) a cash
payment equal to 52% of the amount of the general unsecured
claim ("the cash option"); or (ii) a
reorganization note in a principal amount equal to 80% of
the general unsecured claim, bearing
interest at the rate of 8% per annum and payable over ten
years ("the note option").
F-8
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
During the balloting, all of the holders of unsecured claims
elected the cash option with the
exception of holders of approximately $161,000 in unsecured
claims.
Common Stock
The holders of the outstanding shares of the Company's
existing common stock will retain their stock
and will be entitled to all the rights and privileges of
shareholders.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Company's consolidated financial statements have been
prepared on a going concern basis,
which contemplates the realization of assets and the payment
of liabilities in the ordinary course
of business, in accordance with SOP 90-7. Substantially all
current and long-term liabilities existing
at the time the petition for reorganization under Chapter 11
was filed have been reclassified as
liabilities subject to compromise. The consolidated
financial statements do not include any
adjustments or reclassifications that might be necessary
should the Company be unable to continue
in existence.
Basis of consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries.
All significant intercompany balances and transactions are
eliminated in consolidation.
Cash and temporary cash investments
Temporary cash investments are defined as short-term
investments having an original maturity of
three months or less. Cash at January 29, 1994 and January
30, 1993 includes $31,032,000 and
$3,329,000, respectively, of restricted cash related to the
bankruptcy proceedings.
Merchandise inventories
Merchandise inventories are stated at the lower of cost or
market, with cost being determined by the
last-in, first-out (LIFO) method. The stated LIFO value of
merchandise inventories approximates
replacement cost.
Property and equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs which do not
improve or extend the life of an asset are charged to
expense as incurred. Major renewals and
betterments are capitalized. Upon retirement or sale of an
asset, its cost and related accumulated
F-9
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
depreciation or amortization are removed from the property
accounts and any gain or loss is
recorded as income or expense.
Depreciation and amortization of property and equipment
owned or leased under capital leases are
provided on the straight-line method over their estimated
useful lives.
Net income per share
Net income or loss per share is computed using the weighted
average number of common shares
outstanding during each period which were 8,297,000,
8,120,000 and 8,041,000, for the years ended
January 29, 1994, January 30, 1993 and February 1, 1992,
respectively.
Postemployment benefits
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112).
SFAS 112 applies to benefits provided by an employer to
former or inactive employees after
employment but before retirement and will require that,
effective for years beginning after December
15, 1993, the costs of providing such benefits be charged to
the period in which certain specific
conditions are met. Adoption of this statement is not
expected to materially impact the Company's
financial condition or results of operations.
Income taxes
Income taxes are provided based upon income reported for
financial statement purposes. See
discussion of deferred income taxes in Note 9.
Issuance of stock
During fiscal 1994 and 1993, 12,378 and 124,241 shares,
respectively, were issued to the 401(k)
plan and during fiscal 1993, 111,333 shares were issued to
lessors as consideration for rent
concessions.
Reclassifications
Certain amounts previously reported have been reclassified
to conform with classifications used
during fiscal 1994.
F-10
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
NOTE 3 - RECEIVABLES
Receivables consist of the following:
January 29, January 30,
1994 1993
Trade $1,480 $1,226
Receivable from liquidators - 5,110
$1,480 $6,336
The receivable from liquidators as of fiscal 1993 year
end relates to January 1993 store closings.
NOTE 4 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated January 29, January 30,
(In thousands) useful life 1994 1993
<S> <C> <C> <C>
Land and improvements $1,666 $3,372
Buildings:
Capitalized leases 10 to 25 years 10,703 12,704
Owned 19 to 25 years 5,379 15,418
16,082 28,122
Property and equipment:
Furniture, fixtures and equipment 5 to 10 years 23,570 38,173
Leasehold improvements 10 years 9,380 12,216
Transportation equipment 3 to 7 years 691 953
Construction in progress - 141 334
33,782 51,676
51,530 83,170
Less accumulated depreciation
and amortization 35,763 42,806
$15,767 $40,364
</TABLE>
Accumulated depreciation and amortization includes
$9,562,000 at January 29, 1994 and
$10,109,000 at January 30, 1993 relating to capital leases.
The charge to operations resulting from
amortization of capital leases is included in depreciation
and amortization expense in the
consolidated statement of operations.
F-11
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
NOTE 5 - RESTRUCTURING CHARGES
During the fourth quarter of fiscal 1992, the Company
recorded the impact of a restructuring plan
designed to increase the overall profitability of the
Company by closing certain stores, modifying the
product mix offered to the consumer, streamlining the
product selection process and reorganizing
the management of the Company. Restructuring costs of
$20,350,000 represented provisions for
store closings, lease termination costs, severance pay and
write-down of related assets. The
restructuring charge also included a provision for the
estimated loss on disposal of discontinued
product lines.
Continued financial difficulties necessitated a more
extensive restructuring which required an
additional provision of $4,572,000 in the fourth quarter of
fiscal 1993. Management made even
further structural changes during fiscal 1994, resulting in
the closing of thirteen Company stores,
the reduction of overhead costs at the Company's corporate
headquarters and distribution center and
the downsizing of certain of the Company's product lines.
The total cost of this additional
restructuring is estimated to be $16,090,000, which includes
professional fees related to the Chapter
11 proceedings.
Unpaid restructuring costs at the end of fiscal 1994 and
fiscal 1993 were $4,628,000 and
$8,737,000, respectively. Of these costs $4,119,000 and
$2,134,000 related to leases for closed
stores and have been classified as liabilities subject to
compromise at January 29, 1994 and January
30, 1993, respectively.
NOTE 6 - LIABILITIES SUBJECT TO COMPROMISE AND CONTINGENCIES
Liabilities subject to compromise include substantially all
of the current and noncurrent liabilities
of the Company as of the Petition Date. As discussed
further in Note 1, prepetition liabilities,
including the maturity of debt obligations, have been stayed
while the Company continues to
operate. Certain prepetition obligations are secured by
both real and personal prepetition property
of the Company; however, these obligations are recorded as
liabilities subject to compromise as the
ultimate adequacy of security for any secured prepetition
debt cannot be determined until a plan
of reorganization is confirmed. Additional bankruptcy
claims and prepetition liabilities could arise
by reason of termination of various contractual obligations
and as certain contingent and/or disputed
bankruptcy claims are settled. Those claims and liabilities
could materially exceed the amounts
recorded.
F-12
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
Liabilities subject to compromise are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
January 29, January 30,
1994 1993
<S> <C> <C>
Revolving credit facility from banks $32,722 $ 43,201
Term loan from banks 10,029 10,029
Notes payable to affiliated parties 1,613 2,009
Capitalized lease obligations 4,657 6,013
Restructuring expenses 4,119 2,134
Accounts payable and other liabilities 42,609 47,727
Total $95,749 $111,113
</TABLE>
In accordance with SOP 90-7, interest on secured prepetition
obligations after the Petition Date
ceased accruing as the outstanding debt and accrued interest
exceeded the estimated fair value of
the collateral. Interest on the unsecured debt also ceased
accruing on the Petition Date. Interest
accrued on prepetition secured debt through the Petition
Date was $257,000. While future debt
service and related interest expense cannot be determined
before conclusion of the reorganization
period, had interest been accrued on all debt under
prefiling terms and conditions, interest expense
would have increased by approximately $4,225,000 and
$855,000 in fiscal 1994 and fiscal 1993,
respectively.
Although only payments authorized by the Bankruptcy Court
can be made, the following is a
description of the terms and conditions of the Company's
debt agreements prior to the filing of the
Bankruptcy petition.
Loans payable to banks
In October 1991, the Company obtained a revolving credit
facility for up to $49,000,000 from its
primary lenders. In February 1992, the facility was amended
and extended through April 1993.
Under the amended agreement the facility is seasonally
adjusted with a maximum amount of
$44,000,000. The revolving credit facility was to bear
interest at the lender banks' prime rate plus
two percent with step-downs to prime plus one percent based
on debt reduction. Borrowings
outstanding at January 29, 1994 and January 30, 1993 were
$32,722,000 and $43,000,000,
respectively, while accrued interest was $0 and $201,000 at
January 29, 1994 and January 30,
1993, respectively.
In October 1991 the Company obtained a $20,000,000 term loan
from its primary lenders. In
February 1992 the term loan was amended, resulting in a
reduction to $13,000,000 and an
extension to December 31, 1993. The payment schedule for
the term loan required a $3,000,000
payment on September 30, 1992, a $4,000,000 payment on July
31, 1993 and a final payment of
$2,982,000 on December 31, 1993. The term note was to bear
interest at the lenders' prime rate
F-13
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
plus two percent with step-downs to prime plus one percent
based on debt reduction. Borrowings
outstanding at January 29, 1994 and January 30, 1993 were
$10,029,000 and $9,982,000,
respectively, while accrued interest was $0 and $47,000 at
January 29, 1994 and January 30, 1993,
respectively.
The revolving credit facility and term loan were secured by
substantially all the assets of the
Company, excluding inventory, prior to the Chapter 11 filing
with the Bankruptcy Court. The
amended agreements contained covenants which stipulate
minimum net worth levels and financial
ratios of which the Company is in violation.
Notes payable to affiliate parties
In October 1991, the Company entered into two $1,000,000
note payable agreements with an
affiliate entity owned by executive officers of the Company
and with an executive officer of the
Company. The notes had a stated interest rate of prime plus
two percent payable monthly and a
maturity date of December 31, 1993. Borrowings outstanding
at January 29, 1994 and January 30,
1993 were $1,613,000 and $2,000,000, respectively, while
accrued interest was $0 and $9,000 at
January 29, 1994 and January 30, 1993, respectively. These
notes were secured by substantially
all assets of the Company, excluding inventory, prior to the
Chapter 11 filing with the Bankruptcy
Court.
Capital lease obligations
The Company has capital and operating lease commitments for
stores, equipment and its corporate
headquarters facility expiring on varying dates from fiscal
1995 to 2007. The leases generally
include renewal options and rental escalation clauses.
Future minimum lease commitments,
including leases with affiliates (Note 11) and closed stores
(Note 6), at January 29, 1994 are as
follows:
(in thousands) Capitalized Operating
Fiscal year leases leases
1995 $2,045,000 $1,681,000
1996 1,410,000 1,547,000
1997 235,000 1,376,000
1998 226,000 1,336,000
1999 99,000 1,115,000
Thereafter 2,060,000 2,418,000
Total minimum lease payments 6,075,000 $9,473,000
Less amount representing interest 1,418,000
Present value of capitalized lease obligations 4,657,000
Less current maturities 1,744,000
Capitalized lease obligations $2,913,000
F-14
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
NOTE 7 - SHORT TERM BORROWINGS
On September 9, 1993, the Bankruptcy Court signed an order
approving the debtor-in-possession
financing agreement (the "DIP Facility") dated September 9,
1993 with The CIT Group/Business
Credit, Inc., (the "DIP lenders") that established a
revolving credit facility in the maximum amount
of $25,000,000. The DIP Facility has a super-priority
status against all assets of the Company with
the exception of inventory. Borrowings under the DIP
Facility may be used to fund working capital,
inventory purchases, capital expenditures and for other
general corporate purposes. The DIP
Facility also contains certain provisions regarding the
maintenance of various financial ratios. At
January 29, 1994, the Company was in compliance or had
obtained waivers for any violations of the
covenants.
Under the DIP Facility, the DIP lenders agree to make
revolving loans to and issue letters of credit
for the Company in an amount not exceeding at any time the
lesser of the borrowing base (as
defined in the DIP Facility) or $25,000,000. The DIP
Facility also includes a sublimit of
$6,000,000 for documentary and standby letters of credit.
At January 29, 1994, the Company had
no revolving loans outstanding against the DIP Facility and
$293,329 in undrawn letters of credit.
The DIP Facility provides that each loan shall bear interest
at a rate of prime plus one percent.
Interest on these loans shall be payable monthly in arrears
on the first business day of each month.
Under the DIP Facility, the Company pays an unused line fee
of one-half of one percent on the
unused portion, a letter of credit fee equal to 1.5% per
annum on the average daily balance of the
aggregate undrawn letter of credit availability and certain
other fees. The DIP Facility expires on
the earlier of substantial consummation of a plan of
reorganization or twelve months from the
effective date of the order or upon the release of certain
funds escrowed for unsecured creditors.
NOTE 8 - SHAREHOLDERS' EQUITY
In April 1986, four shareholders of the Company entered into
an agreement whereby they cannot
transfer or sell their common stock to any unrelated party
(as defined) without the written consent
of the other parties to the agreement. In addition, in the
event of the death of one of the four
shareholders, the Company can be required to purchase their
common stock at fair value up to the
life insurance proceeds, consisting of policies with a face
value of $5,250,000, $5,000,000,
$3,070,000 and $3,000,000, respectively. Outstanding
borrowings against the cash surrender value
of these policies were approximately $1,828,000 and
$1,387,000 at the end of fiscal 1994 and 1993,
respectively. An amount equal to the cash surrender value
of these policies not borrowed against
at January 29, 1994 and January 30, 1993 of $219,000 and
$516,000, respectively, has been shown
as a liability subject to compromise and as an other
deferred credit on the balance sheet with a
corresponding reduction in retained earnings.
F-15
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
NOTE 9 - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Currently payable (refundable):
Federal $ - $ - $(2,851)
State and local - - -
- - (2,851)
Deferred taxes - - 879
Total income taxes $ - $ - $(1,972)
The components of the deferred provision for income taxes are as follows:
Deferred income taxes:
Depreciation $(1,728) $493 $ 249
Capital lease book charges over
rental charges for tax purposes (37) (222) (163)
Additional inventory costs capitalized
for tax purposes 30 (157) (242)
Deferred compensation 4 (7) (9)
Provision for store closings - (59) (113)
Restructuring reserve 1,561 (2,064) 5,092
Other 89 203 (36)
Interaction of net operating loss carryforward 81 1,813 (3,899)
$ - $ - $ 879
</TABLE>
F-16
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and the amounts used for income
tax purposes. Significant components of the deferred tax
liabilities and assets are as follows:
Fiscal
(In thousands) 1994
Deferred tax liabilities:
Book-tax basis difference in property and equipment $ 228
Other 127
Gross deferred tax liabilities 355
Deferred tax assets:
Net operating loss carryforward 20,967
Reorganization cost 1,418
Capital leases for books 1,346
Additional inventory costs capitalized for tax purposes 555
Other 914
Gross deferred tax assets 25,200
Valuation allowance for deferred tax assets 24,845
Net deferred tax assets 355
Net deferred tax liabilities $ -
The following is a reconciliation of the effective income
tax rate with the statutory rate:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1994 1993 1992
<S> <C> <C> <C>
Statutory federal income tax rate (34)% (34)% (34)%
Premium on officers' life insurance policies - - 1
Limitation of tax loss carrybacks 34 34 27
Other, net - - (1)
- - (7)%
</TABLE>
F-17
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
In February 1992, the Financial Accounting Standards Board
issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). SFAS 109 mandates
the use of the liability method in accounting for deferred
income taxes. SFAS 109 is effective for
fiscal year 1994 and permits restatement of earlier years or
presentation of the cumulative effect of
the change in the year of adoption. The Company has adopted
SFAS 109 prospectively in fiscal
1994 and the adoption has not materially impacted the
Company's financial condition or results of
operations and has not resulted in a material cumulative
effect of a change in accounting principles.
The Company made income tax payments of $269,000 in fiscal
1992. No income tax payments were
made in fiscal 1994 and 1993. The Company has net operating
loss carryforwards of approximately
$55,000,000 for financial reporting purposes and
approximately $49,000,000 for tax purposes at
January 29, 1994. These loss carryforwards expire beginning
in fiscal 2007.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution profit-sharing plan
covering substantially all employees
who have met certain age and length of service requirements.
Contributions to the profit-sharing
plan are determined by the Board of Directors. No
contribution was made for fiscal year 1994, 1993
or 1992.
The Company has a defined contribution retirement savings
plan (the "Plan"), a voluntary
compensation deferral plan under Section 401(k) of the
Internal Revenue Code. The Plan allows
participants to contribute up to 6% of their annual
compensation to the Plan. As of January 15,
1993, the Board of Directors of the Company adopted an
amendment to the Plan whereby the
employer matching contribution was discontinued with respect
to salary reduction contributions
made for compensation earned after January 15, 1993. The
Company has contributed the minimum
contribution of $40,000, $169,000 and $112,000 for fiscal
years 1994, 1993 and 1992, respectively.
Effective September 17, 1993, all assets of the defined
contribution profit sharing plan were merged
with the defined contribution retirement savings plan.
The Brendle's Incorporated 1990 Stock Option Plan approved
by the shareholders on May 31, 1990,
authorizes the grant of stock options for the purchase of up
to 300,000 shares of the Company's
common stock to be made to unaffiliated directors, officers
and other key employees of the Company
in order to provide incentives to remain in the employ of
the Company. The plan permits the
issuance of incentive stock options, nonqualified stock
options and stock appreciation rights
("Right") in tandem with stock options. Incentive stock
options may be granted at not less than
100%, and nonqualified stock options may be granted at not
less than 95%, of market value.
Options granted are exercisable only after one year of
continuous employment with the Company
immediately following the date of grant. The Stock Option
Committee may prescribe longer time
periods and additional requirements with respect to the
exercise of a stock option or Right.
F-18
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
The Brendle's Incorporated 1986 Incentive Stock Option
Plan, as adopted by the shareholders of
the Company on January 31, 1986, authorizes the grant of
both incentive stock options and
nonqualified options to purchase up to 400,000 shares of the
Company's common stock to officers
and other key employees of the Company. Incentive stock
options may be granted at not less than
100%, and nonqualified options at not less that 95%, of
market value. Options granted to date
become exercisable at the rate of 20% annually, subject to
continuous employment with the
Company, beginning one year and expiring six years from the
date of grant.
On April 10, 1986, the shareholders of the Company adopted
the Brendle's Incorporated 1986
Nonqualified Stock Option Plan, which authorizes the grant
of stock options to non-employee
directors of the Company for the purchase of up to 10,000
shares of the Company's common stock.
All of these options have been granted as of January 29,
1994.
The following table summarizes the changes in stock options
for the plans for the three years ended
January 29, 1994.
Shares subject to option:
Number Per share
of shares option price
Balance February 2, 1991 271,760 $5.50-$14.50
Granted - -
Exercised - -
Cancelled 49,970 $7.00-$14.50
Balance February 1, 1992 221,790 $5.50-$14.50
Granted - -
Exercised - -
Cancelled 25,790 $7.00-$14.50
Balance January 30, 1993 196,000 $5.50-$14.50
Granted - -
Exercised - -
Cancelled 25,680 $7.00-$14.50
Balance January 29, 1994 170,320 $5.50-$14.50
Exercisable at end of year 153,276
Shares reserved for future grant:
Beginning of year 214,000
End of year 239,680
F-19
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
Effective February 1, 1988, the Company entered into
deferred compensation agreements with three
former employees. The agreements provide monthly payments
for a period of fifteen years
commencing on the respective retirement dates. The present
value of the obligations totalling
$436,000 and $447,000 for fiscal years ended January 29,
1994 and January 30, 1993, respectively,
are included in liabilities subject to compromise on the
accompanying balance sheets.
Effective August 18, 1989, the Board of Directors of the
Company adopted the Brendle's Key
Employee Stock Appreciation Rights Plan and the Brendle's
Incorporated Unaffiliated Directors
Stock Appreciation Rights Plan. The Key Employee SAR Plan
and the Unaffiliated Directors' SAR
Plan provide for the issuance of up to a maximum of 75,000
and 15,000 stock appreciation rights,
respectively. The Company, at the end of fiscal 1994 and
1993, had 40,000 outstanding stock
appreciation rights under the plans, at prices from $7.00 to
$8.25. Compensation expense for stock
appreciation rights, measured by the difference between the
market value and the option price, was
zero for each of the fiscal years ending January 29, 1994,
January 30, 1993 and February 1, 1992.
NOTE 11 - RELATED PARTIES
The Company has capital and operating lease commitments with
affiliates of certain executive
officers for stores, equipment and its corporate
headquarters facility. Real estate leases, as
amended, generally provide for renewal options and
escalation of rent to reflect 60% of any increase
in the Consumer Price Index at the lease extension dates.
Additionally, certain of these leases
provide for contingent rental payments in that annual rental
payments are the greater of a base
rental amount or a defined percentage of the sales of a
particular location. Also, the Company can
be required to purchase the properties at appraised market
value, subject to approval by the outside
directors.
Effective January 14, 1992, the Company negotiated a final
settlement for the lease agreement of
a location closed due to relocation. As a result of this
settlement, the rental commitments for real
estate were reduced by $260,000. The capitalized lease
asset and related obligation were also
reduced to reflect the effect of the settlement.
F-20
<PAGE>
Brendle's Incorporated
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
Future minimum lease commitments to affiliates at January
29, 1994 are as follows:
(in thousands) Capitalized Operating
Fiscal year leases leases
1995 $1,518,000 $933,000
1996 945,000 850,000
1997 - 684,000
1998 - 488,000
1999 - 151,000
Thereafter - -
Total minimum lease payments 2,463,000 $3,106,000
Less amount representing interest 332,000
Present value of capitalized lease obligations $2,131,000
Lease payments to affiliates of the Company were $2,501,000, $2,724,000
and $3,481,000 for the years ended January 29, 1994,
January 30, 1993 and February 1, 1992, respectively.
NOTE 12 - LITIGATION
The Company is involved in various litigation matters in the
ordinary course of business. In the opinion of management,
settlement of these matters will not have a material effect on the Company's
financial position. In the event of a judgment adverse to the
Company, any liability would be subject to the bankruptcy proceedings.
NOTE 13 - MERGER
On April 29, 1994, Brendle's Stores, Inc., was merged
with Brendle's Incorporated. As all intercompany balances
and transactions are eliminated on a consolidated basis, this
merger had no impact on the consolidated financial statements as
of and for the year then ended January 29, 1994.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders
of Brendle's Incorporated
Our audits of the consolidated financial statements referred to in our
report dated March 30, 1994, except for Notes 1 and 13, which is as of
April 29, 1994, appearing on pages F-1 and F-2 of this Form 10-K also
included an audit of the Financial Statement Schedules listed in Item 14(a)
of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
(Signature of Price Waterhouse)
PRICE WATERHOUSE
Winston-Salem, North Carolina
March 30, 1994, except for Notes 1 and 13,
which is as of April 29, 1994
F-22
<PAGE>
Brendle's Incorporated and Consolidated Subsidiaries
Indebtedness of and to Related Parties - Not Current (a) SCHEDULE IV
<TABLE>
<CAPTION>
Balance at Indebtedness to Balance at
Name of Debtor Beginning of year Additions Deductions End of Year
<S> <C> <C> <C> <C>
Fiscal year ended
February 1, 1992:
Brenco (b) $7,023,000 - $2,562,000 $4,461,000
Fiscal year ended
January 30, 1993
Brenco (b) $4,461,000 - $1,059,000 $3,402,000
Fiscal year ended
January 29, 1994
Brenco (b) $3,402,000 - $1,271,000 $2,131,000
</TABLE>
(a) All amounts represent the present value of capitalized lease obligations.
(b) A partnership consisting of principal shareholders.
F-23
<PAGE>
Brendle's Incorporated and Consolidated Subsidiaries
Property and Equipment SCHEDULE V
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
Classification of Year Additions Retirements Transfers Year
<S> <C> <C> <C> <C> <C>
Fiscal year ended
February 1, 1992:
Land $ 3,372,000 $ - $ - $ - $ 3,372,000
Buildings:
Capitalized leases 14,989,000 - 2,216,000 - 12,773,000
Owned 15,145,000 110,000 - 137,000 15,392,000
Furniture, fixtures
and equipment 35,580,000 1,898,000 253,000 398,000 37,623,000
Leasehold improvements 13,182,000 433,000 335,000 - 13,280,000
Transportation equipment 1,000,000 13,000 20,000 - 993,000
Construction in progress 1,123,000 236,000 - (535,000) 824,000
$84,391,000 $2,690,000 $ 2,824,000 $ - $ 84,257,000
Fiscal year ended
January 30, 1993:
Land $ 3,372,000 $ - $ - $ - $ 3,372,000
Buildings:
Capitalized leases 12,773,000 - 69,000 - 12,704,000
Owned 15,392,000 26,000 - - 15,418,000
Furniture, fixtures
and equipment 37,623,000 1,140,000 657,000 67,000 38,173,000
Leasehold improvements 13,280,000 380,000 1,467,000 23,000 12,216,000
Transportation equipment 993,000 - 40,000 - 953,000
Construction in progress 824,000 84,000 484,000 (90,000) 334,000
$84,257,000 $1,630,000 $ 2,717,000 $ - $ 83,170,000
Fiscal year ended
January 29, 1994:
Land $ 3,372,000 $ - $ 1,706,000 $ - $ 1,666,000
Buildings:
Capitalized leases 12,704,000 - 2,001,000 - 10,703,000
Owned 15,418,000 - 10,039,000 - 5,379,000
Furniture, fixtures
and equipment 38,173,000 590,000 15,487,000 294,000 23,570,000
Leasehold improvements 12,216,000 132,000 2,968,000 - 9,380,000
Transportation equipment 953,000 - 262,000 - 691,000
Construction in progress 334,000 101,000 - (294,000) 141,000
$83,170,000 $ 823,000 $ 32,463,000 $ - $ 51,530,000
</TABLE>
F-24
<PAGE>
Brendle's Incorporated and Consolidated Subsidiaries
Accumulated Depreciation and Amortization of Property and Equipment SCHEDULE VI
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to End of
of Year Expense Retirements Year
<S> <C> <C> <C> <C>
Fiscal year ended
February 1, 1992:
Land
Buildings:
Capitalized leases $ 9,167,000 $ 1,187,000 $ 951,000 $ 9,403,000
Owned 1,693,000 621,000 - 2,314,000
Furniture, fixtures
and equipment 14,166,000 4,879,000 247,000 18,798,000
Leasehold improvements 4,690,000 1,299,000 335,000 5,654,000
Transportation equipment 364,000 233,000 18,000 579,000
$ 30,080,000 $ 8,219,000 $ 1,551,000 $ 36,748,000
Fiscal year ended
January 30, 1993:
Land
Buildings:
Capitalized leases $ 9,403,000 $ 706,000 $ - $ 10,109,000
Owned 2,314,000 626,000 - 2,940,000
Furniture, fixtures
and equipment 18,798,000 4,496,000 462,000 22,832,000
Leasehold improvements 5,654,000 1,170,000 627,000 6,197,000
Transportation equipment 579,000 186,000 37,000 728,000
$36,748,000 $7,184,000 $ 1,126,000 $ 42,806,000
Fiscal year ended
January 29, 1994:
Land
Buildings:
Capitalized leases $ 10,109,000 $ 593,000 $ 1,140,000 $ 9,562,000
Owned 2,940,000 408,000 1,979,000 1,369,000
Furniture, fixtures
and equipment 22,832,000 2,832,000 7,377,000 18,287,000
Leasehold improvements 6,197,000 922,000 1,171,000 5,948,000
Transportation equipment 728,000 122,000 253,000 597,000
$42,806,000 $4,877,000 $ 11,920,000 $ 35,763,000
</TABLE>
F-25
<PAGE>
Brendle's Incorporated and Consolidated Subsidiaries
Short Term Borrowings SCHEDULE IX
<TABLE>
<CAPTION>
Weighted
Average Maximum Average Weighted
Category of Interest Amount Amount Average
Aggregate Balance Rate at Outstanding Outstanding Interest Rate
Term at End of End of During During During the
Borrowings Period Period Period Period (a) Period (b)
<S> <C> <C> <C> <C> <C>
1992
Amounts
Payable to Banks
on Borrowings $ 15,375,000 7.50% $ 57,000,000 $ 53,728,000 8.50%
Amounts
Payable to Banks
on Borrowings $ 18,000,000 6.75% $ 46,100,000 $ 33,331,000 7.76%
Amounts
Payable to
Affiliated Parties $ 2,000,000 6.75% $ 2,000,000 $ 1,769,000 7.50%
1993 (c)
Amounts
Payable to Banks
on Borrowings $ 43,000,000 8.00% $ 43,000,000 $ 34,791,000 6.34%
Amounts
Payable to Banks
on Borrowings $ 10,000,000 8.00% $ 15,375,000 $ 12,255,000 6.49%
Amounts
Payable to
Affiliated Parties $ 2,000,000 8.00% $ 2,000,000 $ 2,000,000 6.32%
1994
Amounts
Payable to Banks
on Borrowings $ 32,722,000 - $ 43,000,000 $ 40,856,000 -
Amounts
Payable to Banks
on Borrowings $ 10,029,000 - $ 10,029,000 $ 10,029,000 -
Amounts
Payable to Banks
on Borrowings - - $ 4,200,000 $ 398,000 7.08%
Amounts
Payable to
Affiliated Parties $ 1,613,000 - $ 2,000,000 $ 1,922,000 -
</TABLE>
(a) Computed using daily total borrowings during the year.
(b) Computed by dividing interest expense on the borrowings
by the average amount outstanding during the year.
(c) 1993 figures are as of November 21, 1992.
F-26
<PAGE>
Brendle's Incorporated and Consolidated Subsidiaries
Supplementary Income Statement Information SCHEDULE X
<TABLE>
<CAPTION>
Fiscal Year Ended
January 29, January 30, February 1,
Item 1994 1993 1992
<S> <C> <C> <C>
The following amounts were charged
to costs and expenses:
Advertising $ 5,464,000 $ 9,977,000 $ 6,005,000
</TABLE>
Other items required by rule 12-11 are not presented because
each item does not exceed one percent of total revenues as
reported in the consolidated statement of income.
F-27
<PAGE>
EXHIBIT INDEX
Any document referred to below as being incorporated by
reference is so incorporated to the files of the Securities
and Exchange Commission, Washington, DC 20549. The term
"Company" herein refers to Brendle's Incorporated or its
wholly-owned subsidiary, Brendle's Stores, Inc.
<TABLE>
<CAPTION>
Number in
Exhibit Number per Sequential
Item 601 of Numbering
Regulation S-K Description of Exhibit* System
<S> <C> <C>
3 Articles of Incorporation and By-Laws
(incorporated by reference to Exhibit 3 of the
Company's Annual Report on Form 10-K for the
fiscal year ended February 2, 1991)
3.1 The Company's Restated charter, as amended by:
(1) Articles of Amendment dated May 13, 1986,
and (2) Articles of Amendment dated June 3, 1988
(incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1988)
3.2 The Company's By-Laws, as amended on April 20,
1994.
3.3 Articles of Amendment amending the Company's
Articles of Incorporation effective April 27, 1994.
3.4 Articles and Plan of Merger providing for the
merger of Brendle's Stores, Inc. into the Company
effective April 29, 1994.
4 Instruments defining the rights of security holders,
including indentures: Not Applicable. (See the
Company's Restated Charter, as amended,
incorporated by reference to Exhibit 3.1 above, and
the Company's By-Laws, as amended, incorporated
by reference to Exhibit 3.2 above)
9 Voting Trust Agreement: Not Applicable. (See the
Shareholders' Agreement dated April 10, 1986,
incorporated by reference to Exhibit 10.15 to the
Company's report on Form 10-K for the fiscal year
ended January 31, 1988
10 Material Contracts:
<PAGE>
10.1 Brendle's Incorporated Amended and Restated
Employee's Profit-Sharing Plan and Trust
Agreement effective February 1, 1989 (incorporated
by reference to the company's report on Form 10-K
for the fiscal year ended January 31, 1989; as
amended by the First Amendment dated December
29, 1989) as further amended by the Second
Amendment dated December 1, 1990 (incorporated
by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended February 2,
1991).
10.2 Brendle's Incorporated 1986 Incentive Stock Option
Plan, as amended (incorporated by reference to
Exhibit 4(a) to the Company's Registration
Statement on Form S-8 dated April 24, 1987; Reg.
No. 33-13622)
10.3 Brendle's Incorporated 1986 Nonqualified Stock
Option Plan, as amended (incorporated by reference
to Exhibit 4(b) to the Company's Registration
Statement on Form S-8 dated April 24, 1987; Reg.
No. 33-13622)
10.4 Brendle's Incorporated 1990 Stock Option Plan
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
February 2, 1991).
10.5 Aircraft Lease between Brendle Transport, Inc. and
Sky-Lease, Inc. dated February 4, 1990
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
February 2, 1991).
10.6 Hold Harmless Agreement between the Company
and John D. Gray (incorporated by reference to
Exhibit 10.9 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.7 Hold Harmless Agreement between the Company
and James B. Edwards (incorporated by reference to
Exhibit 10.10 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)]
2
<PAGE>
10.8 Hold Harmless Agreement between the Company
and Thomas H. Davis (incorporated by reference to
Exhibit 10.14 to the Company's report on form 10-
K for the fiscal year ended January 31, 1988)
10.9 Shareholders' Agreement dated April 10, 1986,
among the then shareholders of the Company
(incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1
dated April 11, 1986)
10.10 Last Will and Testament of James Harold Brendle
(incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1
dated April 11, 1986)
10.11 Split-Dollar Life Insurance Agreement dated
January 8, 1982, between the Company and the
Trustee of the Douglas D. Brendle Irrevocable Life
Insurance Trust (incorporated by reference Exhibit
10.13 to the Company's Registration Statement on
Form S-1 dated April 11, 1986)
10.12 Split-Dollar Life Insurance Agreement dated
January 8, 1982, between the Company and the
Trustee of the Sidney Floyd Brendle Irrevocable
Life Insurance Trust (incorporated by reference
Exhibit 10.14 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.13 Form of Split-Dollar Life Insurance Trust
Agreement adopted April 7, 1986 (incorporated by
reference Exhibit 10.16 to the Company's
Registration Statement on Form S-1 dated April 11,
1986)
10.14 Schedule Identifying Omitted Split-Dollar Life
Insurance Agreements dated April 7 and April 8,
1986, which are substantially identical to the form
of Split-Dollar Life Insurance Agreement
(incorporated by reference Exhibit 10.21 to the
Company's report on form 10-K for the fiscal year
ended January 31, 1988) and to the Company's
Registration Statement on form S-1 dated April 11,
1986 (incorporated by
3
<PAGE>
reference Exhibit 10.17 to
the Company's Registration Statement on Form S-1
dated April 11, 1986)
10.15 Split-Dollar Life Insurance Agreement dated June 1,
1988, between the Company and Douglas D.
Brendle (incorporated by reference to the
Company's report on Form 10-K for the fiscal year
ended January 31, 1989)
10.16 Split-Dollar Life Insurance Agreement dated
September 13, 1988, between the Company and
Jeffrey D. Mick (incorporated by referenced to the
Company's report on Form 10-K for the fiscal year
ended January 31, 1989)
10.17 Split-Dollar Life Insurance Agreement dated
September 13, 1989, between the Company and
Johanna L. Johnson (wife of Dennis B. Johnson)
10.18 Triple Net Lease between Edna A. Brendle and the
Company dated October 1, 1985 re: a portion of
former Store #1, (now service center location) Elkin,
NC (incorporated by reference to Exhibit 10.18 to
the Company's Registration Statement on Form S-1
dated April 11, 1986)
10.19 Triple Net Lease between Brendle Brothers and the
Company dated October 1, 1985 re: former Store
#1, Elkin, NC (now service center location)
(incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement on Form S-1
dated April 11, 1986)
10.20 First Amendment to Triple Net Lease (re: former
Store #1, Elkin, NC) among Brendle Brothers, the
Company and a subsidiary, dated August 2, 1987
(incorporated by reference to Exhibit 10.25 to the
Company's report on Form 10-K for the fiscal year
ended January 31, 1988)
4
<PAGE>
10.21 Triple Net Lease between Brenco and the Company
effective November 18, 1988 re: Store #1, Elkin,
NC (incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year
ended February 2, 1991).
10.22 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store #2, Winston-
Salem, NC (incorporated by reference to Exhibit
10.20 to the Company's Registration Statement on
Form S-1 dated April 11, 1986)
10.23 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store #3, Hickory, NC
(incorporated by referenced to Exhibit 10.21 to the
Company's Registration Statement on Form S-1
dated April 11, 1986)
10.24 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store #5, Chapel Hill,
NC (incorporated by reference to Exhibit 10.22 to
the Company's Registration Statement on Form S-1
dated April 11, 1986)
10.25 Shopping Center Store-Space Lease between Brenco
and the Company dated October 1, 1985 re: Store
#6, Asheville, NC (incorporated by reference to
Exhibit 10.23 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.26 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store #7, Kingsport, TN
(incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement on Form S-1
dated April 11, 1986)
10.27 Shopping Center Store-Space Lease between Brenco
and the Company dated October 1, 1985 re: Store
#12, Salem, VA (incorporated by reference to
Exhibit 10.25 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.28 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store
5
<PAGE>
#13, Burlington,
NC (incorporated by reference to Exhibit 10.26 to
the Company's Registration Statement on Form S-1
dated April 11, 1986)
10.29 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store #14, Wilson, NC
(incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement on Form S-1
dated April 11, 1986)
10.30 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store #15, Myrtle
Beach, SC (incorporated by reference to Exhibit
10.28 to the Company's Registration Statement on
Form S-1 dated April 11, 1986)
10.31 Shopping Center Store-Space Lease between Brenco
and the Company dated October 1, 1985 re: Store
#16, Raleigh, NC (incorporated by reference to
Exhibit 10.29 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.32 Shopping Center Store-Space Lease between Brenco
and the Company dated October 1, 1985 re: Store
#17, Greensboro, NC (incorporated by reference to
Exhibit 10.30 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.33 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Store #23, Boone, NC
(incorporated by reference to Exhibit 10.31 to the
Company's Registration Statement on Form S-1
dated April 11, 1986)
10.34 Triple Net Lease between Brenco and the Company
dated October 1, 1985 re: Elkin, NC Corporate
Headquarters and Warehouse Facility (incorporated
by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-1 dated April 11,
1986)
10.35 Master First Amendment to Leases (re: Leases
between the Company and Brenco in
6
<PAGE>
effect on
August 2, 1987) among Brenco, the Company and
a subsidiary, dated August 2, 1987 (incorporated by
reference to Exhibit 10.39 to the Company's report
on Form 10-K for the fiscal year ended January 31,
1988)
10.36 Triple Net Lease between Brenco and the Company
dated as of September 14, 1987, re: Store #38,
Wilmington, NC (incorporated by reference to the
Company's report on Form 10-K for the fiscal year
ended January 31, 1989)
10.37 Triple Net Lease between Brenco and the Company
dated April 29, 1988, re: Store #42, Greenville, NC
(incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended January 31,
1989)
10.38 Consulting Agreement with S. Floyd Brendle, dated
February 17, 1989 (incorporated by reference to the
Company's report on Form 10-K for the fiscal year
ended February 3, 1990)
10.39 Brendle's Incorporated Stock Savings Plan and
Trust Agreement dated August 1, 1989
(incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended February 3,
1990)
10.40 Brendle's Key Employee Stock Appreciation Rights
Plan, dated effective August 18, 1989 (incorporated
by reference to the Company's report on Form 10-K
for the fiscal year ended February 3, 1990)
10.41 Brendle's Unaffiliated Directors' Stock Appreciation
Rights Plan, dated effective August 18, 1989
(incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended February 3,
1990)
7
<PAGE>
10.42 Bill of Sale and Lease Termination dated September
29, 1989 (incorporated by reference to the
Company's report on Form 10-K for the fiscal year
ended February 3, 1990)
10.43 Employment Agreement dated May 12, 1990
between the Company and Dennis B. Johnson
(incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
February 2, 1991).
10.44 Loan Agreement between the Company and its
Lender banks dated October 18, 1991 in connection
with its $49,000,000 Revolving Line of Credit and
$20,000,000 Term Loan. (Incorporated by
reference to the Company's report on Form 10-K for
the fiscal year ended February 1, 1992.)
10.45 Agency Agreement between the Company and
Schottenstein Stores Corporation with amendments.
(Incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended February 1,
1992.)
10.46 Master amendment to leases and amended and
restated master amendment to leases entered into
between the Company and Brenco. (Incorporated
by reference to the Company's report on Form 10-K
for the fiscal year ended February 1, 1992.)
10.47 AirCraft Lease Termination Agreement.
(Incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended February 1,
1992.)
10.48 Letter Agreement between the Company and The
GDL Group, Inc. for consulting services.
(Incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended February 1,
1992.)
8
<PAGE>
10.49 First amendment to Brendle's Incorporated Stock
Savings Plan and Trust Agreement. (Incorporated
by reference to the Company's report on Form 10-K
for the fiscal year ended February 1, 1992.)
10.50 Employment Agreement dated December 9, 1992
between the Company and William V. Grady.
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 30, 1993.)
10.51 Employment Agreement dated November 17, 1992
between the Company and Steve W. Luka.
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 30, 1993.)
10.52 Employment Agreement dated November 17, 1992
between the Company and A.L. Miller, Jr.
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 30, 1993.)
10.53 Employment Agreement dated November 17, 1992
between the Company and David R. Renegar.
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 30, 1993.)
10.54 Employment Agreement dated November 17, 1992
between the Company and W. Steven Day.
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 30, 1993.)
10.55 Employment Agreement dated November 17, 1992
between the Company and Gregory S. Stegall.
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 30, 1993.)
9
<PAGE>
10.56 Letter Amendment Agreement dated June 2, 1992
between the Company and The GDL Group, Inc. for
consulting services. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1993.)
10.57 Management and Consulting Contract dated
November 17, 1992 between The GDL Group, Inc.
and Brendle's Stores, Inc. for consulting services.
(Incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
January 30, 1993.)
10.58 First Amendment to Loan Agreement dated May 14,
1992 between the Company (and Brendle's Stores,
Inc.) and its primary lender banks. (Incorporated by
reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1993.)
10.59 Lease Agreement effective February 1, 1994
between the Company and P.B. Realty, Inc. for the
lease of distribution center space.
10.60 Loan and Security Agreement between the Company
and Foothill Capital Corporation dated April 21,
1994.
11 Statement regarding computation of per share
earnings: no statement setting forth the
computation of per share earnings has been made
since the computation can be clearly determined
from material contained in this report, including the
consolidated financial statements and related notes,
with particular reference to Note 1 thereto.
12 Statement regarding computation of ratios: Not
Applicable
16 Letter regarding change in certifying accountants:
Not Applicable
10
<PAGE>
18 Letter regarding change in accounting principles:
Not Applicable
19 Previously unfiled documents: Not Applicable
22 Subsidiaries of the Company
23 Published report regarding matters submitted to
vote of security holders: Not Applicable
24 Consent of Price Waterhouse
25 Powers of Attorney
28 Additional Exhibits: Not Applicable
29 Information from reports furnished to state
insurance regulatory authorities: Not Applicable
</TABLE>
*The Company's Registration Statement on Form S-1 dated April 11,
1986 to which certain documents are incorporated by reference herein
is Registration No. 33-4774.
11
**********************************************************************
APPENDIX
Price Waterhouse signatures appear where indicated.
State of North Carolina logos appear where indicated in the Article of
Amendment page. State seals appear where indicated in the Article of
Amendment page.
Douglas D. Brendles signatures appear where indicated.
John D. Gray signature appears where indicated.
Thomas H. Davis signature appears where indicated.
James B. Edwards signature appears where indicated.
***********************************************************************
<PAGE>
BY-LAWS AS AMENDED THROUGH 4/20/94
OF
BRENDLE'S INCORPORATED
ARTICLE I.
OFFICES
Section 1. Principal Office: The principal office of the
Corporation shall be located at 1919 N. Bridge Street Ext., Elkin,
North Carolina.
Section 2. Registered Office: The registered office of the
Corporation required by law to be maintained in the State of North
Carolina may be, but need not be, identical with the principal
office.
Section 3. Other Offices: The Corporation may have offices
at such other places, either within or without the State of North
Carolina, as the Board of Directors may designate or as the affairs
of the Corporation may require from time to time.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings: All meetings of Shareholders
shall be held at the principal office of the Corporation, or at
such other place, either within or without the State of North
Carolina, as shall be designated in the notice of the meeting or
agreed upon by a majority of the Shareholders entitled to vote
thereat.
Section 2. Annual Meetings: The annual meeting of
Shareholders shall be held at a time designated by the Board of
Directors on a business day in the months of May or June in each
year for the purpose of electing Directors of the Corporation and
for the transaction of such other business as may be properly
brought before the meeting.
Section 3. Substitute Annual Meeting: If the annual meeting
shall not be held on the day designated by these By-Laws, a
substitute annual meeting may be called in accordance with the
provisions of Section 4 of this Article II. A meeting so called
shall be designated and treated for all purposes as the annual
meeting.
Section 4. Special Meetings: Special meetings of the
Shareholders may be called at any time by the President, Secretary
or Board of Directors of the Corporation, or by any Shareholder
pursuant to the written request of the holders of not less than
<PAGE>
one-tenth (1/10th) of all the shares entitled to vote at the
meeting.
Section 5. Notice of Meeting: Written or printed notice
stating the time and place of the meeting shall be delivered not
less than ten (10) nor more than fifty (50) days before the date of
any Shareholders' meeting, either personally or by mail, by or at
the direction of the President, the Secretary or other person
calling the meeting, to each Shareholder of record entitled to vote
at such meeting; provided that such notice must be given not less
than twenty (20) days before the date of any meeting at which a
merger or consolidation is to be considered. If mailed, such
notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the Shareholder at his address as it
appears on the record of Shareholders of the Corporation, with
postage thereon paid.
In the case of a special meeting, the notice of meeting
shall specifically state the purpose or purposes for which the
meeting is called; but, in the case of an annual or substitute
annual meeting, the notice of meeting need not specifically state
the business to be transacted thereat unless such a statement is
required by the provisions of the North Carolina Business
Corporation Act.
When a meeting is adjourned for thirty (30) days or more,
notice of the adjourned meeting shall be given as in the case of an
original meeting. When a meeting is adjourned for less than thirty
(30) days in any one adjournment, it is not necessary to give any
notice of the adjourned meeting other than by announcement at the
meeting at which the adjournment is taken.
Section 6. Voting Lists: At least ten (10) days before each
meeting of Shareholders, the Secretary of the Corporation shall
prepare an alphabetical list of the Shareholders entitled to vote
at such meeting or any adjournment thereof, with the address of and
number of shares held by each, which list shall be kept on file at
the registered office of the Corporation for a period of ten (10)
days prior to such meeting, and shall be subject to inspection by
any Shareholder at any time during the usual business hours. This
list shall also be produced and kept open at the time and place of
the meeting and shall be subject to inspection by any Shareholder
during the whole time of the meeting.
Section 7. Quorum: A majority of the outstanding shares of
the Corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of Shareholders,
except that at a substitute annual meeting of Shareholders the
number of shares there represented either in person or by proxy,
even though less than a majority, shall constitute a quorum for the
purpose of such meeting.
<PAGE>
The Shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding
the withdrawal of enough Shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any meeting
of Shareholders, such meeting may be adjourned from time to time by
a vote of the majority of the shares voting on the motion to
adjourn; and at any adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at
the original meeting.
Section 8. Proxies: Shares may be voted either in person or
by one or more agents authorized by a written proxy executed by the
Shareholder or by his duly authorized attorney-in-fact. A proxy is
not valid after the expiration of eleven (11) months from the date
of its execution, unless the person executing it specified therein
the length of time for which it is it continue in force, or limits
its use to a particular meeting, but no proxy shall be valid after
ten (10) years from the date of its execution.
Section 9. Voting of Shares: Subject to the provisions of
Section 4 of Article III, each outstanding share entitled to vote
shall be entitled to one vote on each matter submitted to a vote at
a meeting of Shareholders.
Except in the election of Directors as governed by the
provisions of Section 3 of Article III, the vote of a majority of
the shares voted on any matter at a meeting of Shareholders at
which a quorum is present shall be the act of the Shareholders on
that matter, unless the vote of a greater number is required by law
or by the Charter or By-Laws of this Corporation.
Shares of its own stock owned by the Corporation,
directly or indirectly, through a subsidiary corporation or
otherwise, shall not be voted at any meeting and shall not be
counted in determining the total number of shares entitled to vote,
except that shares held in a fiduciary capacity may be voted and
shall be counted to the extent provided by law.
Section 10. Informal action by Shareholders: Any action
which may be taken at a meeting of the Shareholders may be taken
without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the persons who would be
entitled to vote upon such action at a meeting, and filed with the
Secretary of the Corporation to be kept as part of the corporate
records.
<PAGE>
ARTICLE III.
BOARD OF DIRECTORS
Section 1. General Powers: The business and affairs of the
Corporation shall be managed by its Board of Directors.
Section 2. Number, Term and Qualifications: The number of
Directors constituting the Board of Directors shall be not less
than seven (7) nor more than eleven (11), as may be fixed or
changed from time to time, within the minimum and maximum, by the
Shareholders or by the Board of Directors. Directors need not be
residents of the State of North Carolina or Shareholders of the
Corporation.
Section 3. Election of Directors: Except as provided in
Section 5 of this Article III, the Directors shall be elected at
the annual meeting of Shareholders; and those persons who receive
the highest number of votes shall be deemed to have been elected.
If any Shareholder so demands, the election of Directors shall be
by ballot.
Section 4. Removal: Any Director may be removed at any time
with or without cause by a vote of the Shareholders holding a
majority of the outstanding shares entitled to vote at an election
of Directors. However, unless the entire Board is removed, an
individual Director shall not be removed when the number of shares
voting against the proposal for removal would be sufficient to
elect a Director if such shares could be voted cumulatively at an
annual election. If any Directors are so removed, new Directors
may be elected at the same meeting.
Section 5. Vacancies: Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of
the remaining Directors even though less than a quorum, or by the
sole remaining Director. A Director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in
office.
Section 6. Chairman of the Board: There may be a Chairman of
the Board of Directors elected by the Directors from their number
at any meeting of the Board. The Chairman shall preside at all
meetings of the Board of Directors and perform such other duties as
may be directed by the Board.
Section 7. Compensation: The Board of Directors may
compensate Directors for their services as such and may provide for
the payment of any or all expenses incurred by Directors in
attending regular and special meetings of the Board.
<PAGE>
ARTICLE IV.
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. A regular meeting of the Board
of Directors shall be held immediately after, and at the same place
as, the annual meeting of Shareholders. In addition, the Board of
Directors may provide, by resolution, the time and placed, either
within or without the State of North Carolina, for holding of
additional regular meetings.
Section 2. Special Meetings: Special meetings of the Board
of Directors may be called by or at the request of the President or
any two (2) Directors. Such a meeting may be held either within or
without the State of North Carolina, as fixed by the person or
persons calling the meeting.
Section 3. Notice of Meetings: Regular meetings of the Board
of Directors may be held without notice.
The person or persons calling a special meeting of the
Board of Directors shall, at least two (2) days before the meeting
give notice thereby by any usual means of communication. Such
notice need not specify the purpose for which the meeting is
called.
Section 4. Waiver of Notice: Any Director may waive notice
of any meeting. The attendance by a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Quorum: A majority of the number of Directors
fixed by these By-Laws shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors.
Section 6. Manner of Acting: Except as otherwise provided in
these By-Laws, the act of the majority of the Directors present at
a meeting at which a quorum is present shall be the act of the
Board of Directors.
Section 7. Presumption of Assent: A Director of the
Corporation who is present at a meeting of the Board of Directors
at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his contrary vote is
recorded or his dissent is otherwise entered in the minutes of the
meeting or unless he shall file his written dissent to such action
with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered
mail to the Secretary of the Corporation immediately after the
<PAGE>
adjournment of the meeting. Such right to dissent shall not apply
to a Director who voted in favor of such action.
Section 8. Informal Action by Directors: Action taken by a
majority of the Directors without a meeting is nevertheless Board
action if written consent to the action in question is signed by
all the Directors and filed with the minutes of the proceedings of
the Board, whether done before or after the action so taken.
ARTICLE V.
EXECUTIVE AND OTHER COMMITTEES
Section 1. Creation: The Board of Directors, by resolution
adopted by a majority of the number of Directors fixed by these
By-Laws may designate two (2) or more Directors to constitute an
Executive Committee, which committee, to the extent provided in
such resolution, shall have and may exercise all of the authority
of the Board of Directors in the management of the Corporation.
Section 2. Vacancy: Any vacancy occurring in an Executive
Committee shall be filled by a majority of the number of Directors
fixed by these By-Laws at a regular of special meeting of the Board
of Directors.
Section 3. Removal: Any member of an Executive Committee may
be removed at any time with or without cause by a majority of the
number of Directors fixed by these By-Laws.
Section 4. Minutes: The Executive Committee shall keep
regular minutes of its proceedings and report the same to the Board
when required.
Section 5. Responsibility of Directors: The designation of
an Executive Committee and the delegation thereto of authority
shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility or liability imposed upon it or him
by law.
If action taken by the Executive Committee is not
thereafter formally considered by the Board, a Director may dissent
from such action by filing his written objection with the Secretary
with reasonable promptness after learning of such action.
Section 6. Other Committees: The Board of Directors, by
resolution adopted by a majority of the entire Board, may appoint
from among its members one or more other committees, each to
consist of at least three members and to be authorized, by the
resolution appointing the members thereof, to have and exercise the
<PAGE>
powers and authority specified in such resolution, except that no
such committee shall be authorized to exercise any power or
authority which the Executive Committee of the Board of Directors
may not exercise. A majority of any such committee shall
constitute a quorum. Actions taken at a meeting of any such
committee shall be reported to the next succeeding meeting of the
Board of Directors unless otherwise directed by the Board of
Directors. The Board of Directors may appoint other committees,
whose members may but need not be Directors, to perform the
administrative and ministerial functions, not requiring action by
the Board of Directors, with respect to the business and affairs of
the Corporation and to recommend action to the Board of Directors.
Any such other committees shall not be deemed committees of the
Board of Directors and shall perform such duties as the Board of
Directors may from time to time direct.
ARTICLE VI.
OFFICERS
Section 1. Officers of the Corporation: The officers of
the Corporation may consist of a Chairman of the Board, a Vice
Chairman of the Board, a President, a Chief Executive Officer or an
Office of the Chief Executive composed of three (3) persons
appointed by the Board of Directors, a Chief Operating Officer, a
Chief Financial Officer, one (1) or more Executive Vice Presidents,
Senior Vice Presidents and Vice Presidents, a Secretary, a
Treasurer and such Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers as the Board
of Directors may from time to time appoint. Any two (2) or more
offices may be held by the same person, but no officer may act in
more than one (1) capacity where action of two (2) or more officers
is required. The title of any officer may include any additional
designation descriptive of such officer's duties as the Board of
Directors may prescribe.
Section 2. Appointment and Term: The officers of the
Corporation shall be appointed from time to time by the Board of
Directors; provided, that the Board of Directors may authorize a
duly appointed officer to appoint one or more other officers or
assistant officers, other than appointment of the Chief Executive
Officer, the Chairman of the Board, the President, the Chief
Operating Officer or the Chief Financial Officer. Each officer
shall serve as such at the pleasure of the Board of Directors.
Section 3. Removal: Any officer may be removed by the
Board of Directors at any time with or without cause; but such
removal shall not itself affect the contract rights, if any, of the
person so removed.
<PAGE>
Section 4. Bonds: The Board of Directors may by
resolution require any officer, agent or employee of the
Corporation to give bond to the Corporation, with sufficient
sureties, conditioned on the faithful performance of the duties of
his respective office or position, and to comply with such other
conditions as may from time to time be required by the Board of
Directors.
Section 5. Compensation: The compensation of all officers
of the Corporation shall be fixed by, or in the manner prescribed
by, the Board of Directors.
Section 6. Chief Executive Officer: If there is a
Chairman of the Board and the Board of Directors designates the
Chairman of the Board as the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer of the
Corporation. Subject to the direction and control of the Board of
Directors, the Chief Executive Officer shall supervise and control
the management of the Corporation and shall have such duties and
authority as are normally incident to the position of chief
executive officer of a corporation and such other duties and
authority as may be prescribed from time to time by the Board of
Directors or as are provided for elsewhere in these Bylaws. The
title of the Chairman of the Board or President, as the case may
be, serving as the Chief Executive Officer may, but need not, also
refer to his or her position as Chief Executive Officer.
Section 7. Office of the Chief Executive: The Board of
Directors may, but need not, appoint an Office of the Chief
Executive composed of three (3) persons appointed by them. When
there has been appointed and is functioning an Office of the Chief
Executive, any member of the Office of the Chief Executive may act
with the authority of a Chief Executive Officer, as set forth in
Section 6 above, so long as said action has been consented to by a
majority of the members of the Office of the Chief Executive. The
Office of the Chief Executive, if appointed, shall supervise and
control the management of the Corporation and shall have such
duties and authority as may be prescribed from time to time by the
Board of Directors. The Office of the Chief Executive shall
operate through a majority vote of its members.
Section 8. Chairman of the Board: The Board of Directors
may, but need not, appoint from among its members an officer
designated as the Chairman of the Board. If there is appointed a
Chairman of the Board and such Chairman of the Board is also
designated by the Board of Directors to be the Chief Executive
Officer, then the Chairman of the Board shall have all of the
duties and authority of the Chief Executive Officer and shall also,
when present, preside over meetings of the Board of Directors. If
there is a Chairman of the Board but such Chairman of the Board is
not also designated as the Chief Executive Officer, then the
Chairman of the Board shall, when present, preside over meetings of
<PAGE>
the Board of Directors and shall have such other duties and
authority as may be prescribed from time to time by the Board of
Directors or as are provided for elsewhere in these Bylaws.
Section 9. Chief Operating Officer: If there is appointed
a Chairman of the Board who is also the Chief Executive Officer,
then the President shall be the Chief Operating Officer. Subject
to the direction and control of the Chief Executive Officer and the
Board of Directors, the Chief Operating Officer shall supervise and
control the operations of the Corporation, shall have such duties
and authority as are normally incident to the position of chief
operating officer of a corporation and such other duties as may be
prescribed from time to time by the Chief Executive Officer or the
Board of Directors, and, in the absence or disability of the Chief
Executive Officer, shall have the authority and perform the duties
of the Chief Executive Officer. The title of the President or
other officer serving as the Chief Operating Officer may, but need
not, also refer to his or her position as Chief Operating Officer.
Section 10. President: Unless there is appointed a
Chairman of the Board who is also designated the Chief Executive
Officer, the President shall be the Chief Executive Officer of the
Corporation and shall have all of the duties and authority of that
office. If the President is not the Chief Executive Officer, then
the President shall be the Chief Operating Officer and shall have
all of the duties and authority of that office. If the president
shall be the Chief Executive Officer and no other officer shall
have been designated by the Board of Directors as the Chief
Operating Officer, then the President shall also have all of the
duties and authority of the Chief Operating Officer. The President
shall also have such other duties and authority as may be
prescribed from time to time by the Board of Directors.
Section 11. Vice President: The Board of Directors may
appoint such Executive Vice Presidents, Senior Vice Presidents or
other Vice Presidents as they shall desire, with such authority and
duties as they see fit. In the absence of clear resolutions of the
Board to the contrary, in the absence of the President, an
Executive Vice President, without specific designation of areas of
responsibility, shall act in place of the President. For example,
an Executive Vice President would act before an Executive Vice
President - Store Operations.
In addition, each Executive Vice President, with specific
area of responsibility designated, Senior Vice President or Vice
President shall perform such other duties and have such other
powers as are normally incident to their offices or as shall be
prescribed by the Chief Executive Officer, the Chief Operating
Officer or the Board of Directors.
Section 12. Secretary: The Secretary shall have the
responsibility and authority to maintain and authenticate the
<PAGE>
records of the Corporation; shall keep, or cause to be kept,
accurate records of the acts and proceedings of all meetings of
Shareholders, Directors and Committees; shall give, or cause to be
given, all notices required by law and by these Bylaws; shall have
general charge of the corporate books and records and of the
corporate seal, and shall affix the corporate seal to any lawfully
executed instrument requiring it; shall have general charge of the
stock transfer books of the Corporation and shall keep, or cause to
be kept, all records of Shareholders as are required by applicable
law or these Bylaws; shall sign such instruments as may require the
signature of the Secretary; and, in general, shall perform all
duties incident to the office of Secretary and such other duties as
may be assigned to him or her from time to time by the Chief
Executive Officer, the Chief Operating Officer, or the Board of
Directors.
Section 13. Chief Financial Officer: The Chief Financial
Officer shall have responsibility for all funds and securities
belonging to the Corporation and shall receive, deposit or disburse
the same under the direction of the Board of Directors; shall keep,
or cause to be kept, full and accurate accounts of the finances of
the Corporation in books especially provided for that purpose, and
shall generally have charge over the Corporation's accounting and
financial records; shall cause a true statement of its assets and
liabilities as of the close of each fiscal year, and of the results
of its operations and of cash flows for such fiscal year, all in
reasonable detail, including particulars as to convertible
securities then outstanding, to be made as soon as practicable
after the end of such fiscal year. The Chief Financial Officer
shall also prepare and file, or cause to be prepared and filed, all
reports and returns required by Federal, State or local law and
shall generally perform all other duties incident to the office of
Chief Financial Officer and such other duties as may be assigned to
him or her from time to time by the Chief Executive Officer, the
Chief Operating Officer or the Board of Directors.
Section 14. Treasurer: The Treasurer shall be appointed by
the Board of Directors and shall act to assist the Chief Financial
Officer in carrying out the duties of the office of Chief Financial
Officer. In the absence or in the event of the disability of the
Chief Financial Officer, the Treasurer shall have the authority and
shall perform the duties of the office of the Chief Financial
Officer. The Treasurer shall also perform such other duties as may
be assigned to him or her from time to time by the Chief Executive
Officer, the Chief Financial Officer, the Chief Operating Officer
or the Board of Directors.
Section 15. Assistant Secretaries and Assistant Treasurers:
The Assistant Secretaries and Assistant Treasurers, if any, shall,
in the absence or disability of the Secretary or the Treasurer,
respectively, have all the powers and perform all of the duties of
those offices, and they shall in general perform such other duties
<PAGE>
as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer or the Board of
Directors.
ARTICLE VII.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts: The Board of Directors may authorize
any officer or officers, agent or agents, to enter into any
contract or execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 2. Loans: No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in
its name unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks and Drafts: All checks, drafts or other
orders for the payment of money, issued in the name of the
Corporation, shall be signed by such officer or officers, agent or
agents, of the Corporation and in such manner as shall from time to
time be determined by resolution of the Board of Directors.
Section 4. Deposits: All funds of the Corporation not
otherwise employed shall be deposited from time to time to the
credit of the Corporation in such depositories as the Board of
Directors may select.
ARTICLE VIII.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares: Certificates
representing shares of the Corporation shall be in such form as
shall be determined by the Board of Directors. The Corporation
shall issue and deliver to each Shareholder certificates
representing all fully paid shares owned by him. Certificates
shall be signed by the President or a Vice President and by the
Secretary or Treasurer or an Assistant Secretary or an Assistant
Treasurer. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the
number and class of shares and the date of issue, shall be entered
on the stock transfer books of the Corporation.
<PAGE>
Section 2. Transfer of Shares: Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to
transfer, or by his attorney, thereunto authorized by power of
attorney duly executed and filed with the Secretary, and on
surrender for cancellation of the certificate for such shares.
Section 3. Lost Certificate: The Board of Directors may
direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation claimed to have been lost or
destroyed, upon receipt of an Affidavit of such fact from the
person claiming the certificate of stock to have been lost or
destroyed. When authorizing such issue of a new certificate, the
Board of Directors shall require that the owner of such lost or
destroyed certificate, or his legal representative, give the
Corporation a bond in such sum as the Board may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate claimed to have been lost or destroyed,
except where the Board of Directors by resolution finds that in the
judgment of the Directors the circumstances justify omission of a
bond.
Section 4. Closing Transfer Books and Fixing Record Date:
For the purpose of determining Shareholders entitled to notice of
or to vote at any meeting of Shareholders or any adjournment
thereof, or entitled to receive payment of any dividend, or in
order to make a determination of Shareholders for any other proper
purpose, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period but not to exceed, in any
case, fifty (50) days. If the stock transfer books shall be closed
for the purpose of determining Shareholders entitled to notice of
or to vote at a meeting of Shareholders, such books shall be closed
for at least ten (10) days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of Shareholders, such record date in any case to be
not more than fifty (50) days and, in the case of a meeting of
Shareholders, not less than ten (10) days immediately preceding the
date on which the particular action, requiring such determination
of Shareholders, is to be taken.
If the stock transfer books are not closed and no record
date is fixed for the determination of Shareholders entitled to
notice of or to vote at a meeting of Shareholders, or Shareholders
entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the
Board of Directors declaring such dividend is adopted, as the case
may be, shall be the record date for such determination of
Shareholders.
<PAGE>
When a determination of Shareholders entitled to vote at
any meeting of Shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof,
except where the determination has been made through the closing of
the stock transfer books and the stated period of closing has
expired.
Section 5. Holder of Record: The Corporation may treat as
absolute owner of shares the person in whose name the shares stand
of record on its books just as if that person had full competency,
capacity and authority to exercise all rights of ownership
irrespective of any knowledge or notice to the contrary or any
description indicating a representative, pledge or other fiduciary
relation or any reference to any other instrument or to the rights
of any other person appearing upon its record or upon the share
certificates, except that any person furnishing to the Corporation
proof of his appointment as a fiduciary shall be treated as if he
were a holder of record of its shares.
Section 6. Treasury Shares: Treasury shares of the
Corporation shall consist of such shares as have been issued and
thereafter acquired but not cancelled by the Corporation. Treasury
shares shall not carry voting or dividend rights.
ARTICLE IX.
GENERAL PROVISIONS
Section 1. Dividends: The Board of Directors may from time
to time declare, and the Corporation may pay, dividends on its
outstanding shares in cash, property or its own shares pursuant to
law and subject to the provisions of its Charter.
Section 2. Seal: The corporate seal of the Corporation shall
consist of two concentric circles between which is the name of the
Corporation and in the center of which is inscribed "SEAL"; and
such seal, as impressed on the margin hereof, is hereby adopted as
the corporate seal of the Corporation.
Section 3. Waiver of Notice: Whenever any notice is required
to be given to any Shareholder or Director by law, by the Charter
or by these By-Laws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after
the time stated therein, shall be equivalent to the giving of such
notice.
<PAGE> Section 4. Indemnification:
(a) The Corporation hereby agrees to indemnify, to the
fullest extent permitted by law at the time of indemnity, any
person who at any time serves or has served as a Director or
Officer of the Corporation, or in any such capacity at the request
of the Corporation for any other corporation, partnership, joint
venture, trust or other enterprise, or as a trustee or an
administrator under an employee benefit plan for the Corporation or
any of its subsidiaries, against liability and litigation expense,
including reasonable attorneys' fees, arising out of their status
as such or their activities in any of the foregoing capacities;
provided, however, that the Corporation does not agree to indemnify
any such person against liability or litigation expense he may
incur on account of his activities which were at the time taken
known or believed by him to be clearly in conflict with the best
interests of the Corporation.
(b) It is specifically provided further, however, that
nothing stated heretofore in this Section shall be construed to
limit the allowable indemnification by the Corporation of Directors
or Officers or of employees or agents of the Corporation to the
fullest extent permitted by law at the time of any such
indemnification, against: (i) reasonable costs and expenses,
including attorneys' fees, actually and necessarily incurred by him
in connection with any threatened, pending or completed action,
suit or proceedings, whether civil, criminal, administrative or
investigative, and whether or not brought by or on behalf of the
Corporation, seeking to hold him liable by reason of the fact that
he is or was acting in such capacity, and (ii) liability for any
judgment, money decree, fine, penalty or settlement for which he
may have become liable in any such action, suit or proceeding.
(c) In addition to the foregoing, any such Director of
Officer may recover from the Corporation reasonable costs, expenses
and attorneys' fees in connection with the enforcement of his
rights to indemnification granted herein. Expenses incurred by a
Director or Officer in defending an administrative, civil or
criminal action, suit or proceeding may be paid by the Corporation
in advance of the final disposition of such action, suit or
proceeding, as authorized by the Board of Directors in the specific
case, or as authorized or required under any Charter or By-Law
provision or by any applicable resolution or contract, upon receipt
of an undertaking by or on behalf of the Director or Officer to
repay such amount unless it ultimately be determined that such
person is entitled to be indemnified by the Corporation against
such expenses. Expenses incurred by other employees and agents may
be so paid upon such terms and conditions (if any) as the Board of
Directors deems appropriate.
(d) The Board of Directors of the Corporation shall take all
such action as may be necessary and appropriate to authorize the
<PAGE>
Corporation to pay the indemnification required by this By-Law,
including, without limitation, to the extent needed, making a good
faith evaluation of the manner in which the claimant for indemnity
acted and of the reasonable amount of indemnity due him and giving
notice to, and obtaining approval by, the Shareholders of the
Corporation.
(e) Any person who at any time after the adoption of this
By-Law serves, or has served in any of the aforesaid capacities for
or on behalf of the Corporation shall be deemed to be doing or to
have done so in reliance upon, and as consideration for, the rights
of indemnification provided herein. Such rights shall inure to the
benefit of the legal representatives of any such person and shall
not be exclusive of any other rights to which such person may be
entitled apart from the provisions of this By-Law.
(f) The indemnification provided by this Section shall not be
deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any By-Law, agreement, vote
of Shareholders of the Corporation or disinterested Directors or
otherwise, both as to action in such person's official capacity and
as to action in any other capacity while holding such office, and
shall continue as to a person who has ceased to be a Director,
Officer, employee or agent, and shall inure to the benefit of the
estate, heirs, executors and administrators of such a person.
(g) The Corporation shall have the power to provide such
other, further or additional indemnities of Directors, Officers,
employees or agents as shall be permitted by the laws of the State
of North Carolina, as amended from time to time.
(h) Anything in this Section to the contrary notwithstanding,
the Corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a Director, Officer, employee
or agent of the Corporation, or is or was serving at the request of
the Corporation as a Director, Officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee
benefit plan governed either by State law or by an act of congress
entitled "The Employee Retirement Income Security Act of 1974"
("ERISA"), as amended, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power
to indemnify him against such liability.
Section 5. Fiscal Year: The fiscal year of the corporation
shall be fixed by the Board of Directors.
Section 6. Amendments: Except as otherwise provided herein,
these By-Laws may be amended or repealed and new By-Laws may be
adopted by the affirmative votes of a majority of the Directors
<PAGE>
then holding office at any regular or special meeting of the Board
of Directors.
The Board of Directors shall have no power to adopt a
by-law: (1) requiring more than a majority of the voting shares
for a quorum at a meeting of Shareholders or more than a majority
of the votes cast to constitute action by the Shareholders, except
where higher percentages are required by law; (2) providing for the
management of the Corporation otherwise than by the Board of
Directors or its Executive Committees; (3) increasing or decreasing
the number of Directors; (4) classifying and staggering the
election of Directors.
No by-law adopted or amended by the Shareholders shall be
altered or repealed by the Board of Directors, except to the extent
that such by-law expressly authorizes its amendment or repeal by
the Board of Directors. The fact that the Shareholders have
adopted these By-Laws shall not limit the authority of the Board of
Directors to amend them.
Section 7. Statutes Not Applicable: The provisions of
Article 9 known as "The North Carolina Shareholder Protection Act"
(North Carolina General Statutes (Section Mark) 55-9-01, et seq.) shall not be
applicable to the Corporation. The provisions of Article 9A known
as "The North Carolina Control Share Acquisition Act" (North
Carolina General Statutes (Section Mark) 55-9A-01, et seq.) shall not be
applicable to the Corporation.
<PAGE>
STATE OF NORTH CAROLINA (NC SEAL) Department of The Secretary of State
To all whom these presents shall come, Greetings:
I, Rufus L. Edmisten, Secretary of State of the State of
North Carolina, do hereby certify the following and hereto
attached to be a true copy of
ARTICLES OF AMENDMENT
OF
BRENDLE'S INCORPORATED
the original of which was filed in this office on the 27th day of
April, 1994.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal at the City of
Raleigh, this 27th day of April, 1994.
(Seal)
(signature of Rufus L. Edmisten)
Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
TO
THE ARTICLES OF INCORPORATION
OF
BRENDLE'S INCORPORATED
The undersigned corporation hereby executes these Articles of
Amendment for the purpose of amending its articles of incorporation.
1. The name of the corporation is Brendle's Incorporated.
2. The following amendment to the articles of incorporation of the
corporation was adopted by its Board of Directors on the 20th day of April,
1994, pursuant to Section 55-14A-01 of the North Carolina General Statutes,
and as required by Section 12.3 of the Corporation's First Amended Joint Plan
of Reorganization dated November 10, 1993 and modified December 13, 1993, as
filed with the United States Bankruptcy Court for the Middle District of North
Carolina:
That the Articles of Incorporation of the Corporation be amended by adding
the following new paragraph 11:
11. At all times prior to May 2, 1995, the Corporation shall be
prohibited from issuance of non-voting equity securities.
3. These Articles of Amendment will become effective upon filing.
THIS the 26 day of April, 1994.
BRENDLE'S INCORPORATED
BY: (signature of Douglas D. Brendle)
President
<PAGE>
STATE OF NORTH CAROLINA (NC SEAL) Department of The Secretary of State
To whom these presents shall come, Greetings:
I, Rufus L. Edmisten, Secretary of State of the State of North
Carolina, do hereby certify the following and hereto attached to be
a true copy of
ARTICLES OF MERGER
OF
BRENDLE'S STORES, INC.
INTO
BRENDLE'S INCORPORATED
the original of which was filed in this office on the 26th day of April, 1994.
(Seal) IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal at the City of
Raleigh, this 26th day of April, 1994.
(signature of Rufus L. Edmisten)
Secretary of State
<PAGE>
ARTICLES OF MERGER
OF
BRENDLE'S STORES, INC.,
a North Carolina corporation
into
BRENDLE'S INCORPORATED
a North Carolina corporation
BRENDLE'S INCORPORATED, a corporation organized under the laws
of North Carolina ("Surviving Corporation"), submits these
Articles of Merger for the purpose of merging BRENDLE'S STORES,
INC., a corporation organized under the laws of North Carolina (the
"Merging Corporation") into the Surviving Corporation.
I. The Plan of Merger attached as Exhibit A was duly approved by
the Board of Directors of the Surviving Corporation in the manner
prescribed by Sections 55-11-04 and 55-14A-01 of the North Carolina
General Statutes. The Merging Corporation is at least ninety percent
(90%) owned by the Surviving Corporation, and therefor, this merger
is pursuant to the authorization of Section 55-11-04 of the North
Carolina General Statutes. In addition, this merger is made under the
authority of Section 55-14A-01 of the North Carolina General Statutes as
it is pursuant to the Plan of Reorganization approval by the United States
Bankruptcy Court for the Middle District of North Carolina in Case Nos.
B-9214519C-11W and B-9214520C-11W.
II. Shareholder approval of the Plan of Merger was not required because
the Surviving Corporation was the owner of at least ninety percent (90%)
of the outstanding shares of each class of the Merging Corporation and the
Plan of Merger does not provide for any changes in the Articles of Incorporation
of the Surviving Corporation that requires shareholder action.
III. These Articles of Merger shall become effective on April 29, 1994, at
2:00 p.m., E.D.T., and the merger herein provided shall become effective for
all purposes as set forth in the attached Plan of Merger.
[SEE SEPARATE SIGNATURE PAGE ATTACHED HERETO]
<PAGE>
THIS, the 25th day of April, 1994.
BRENDLE'S INCORPORATED
a North Carolina corporation
By: (signature of Douglas D. Brendle)
Douglas D. Brendle, President
<PAGE>
EXHIBIT A
PLAN OF MERGER
FOR THE MERGER OF
BRENDLE'S STORES, INC.
into
BRENDLE'S INCORPORATED
THIS PLAN OF MERGER is adopted for the purpose of merging BRENDLE'S
STORES, INC., a North Carolina corporation and wholly owned subsidiary of
Brendle's Incorporated (the "Merging Corporation"), and BRENDLE'S INCORPORATED,
a North Carolina corporation (the "Surviving Corporation"). Such corporations
are hereinafter referred to collectively as the "Constituent Corporations."
The Constituent Corporations intend that, pursuant to the applicable
statutes of the State of North Carolina, and subject to the terms and
conditions herein set forth, the Merging Corporation shall be merged
into the Surviving Corporation and the plan, terms and conditions of such
merger shall be as follows:
1. Name. The name of the surviving corporation shall be Brendle's
Incorporated.
2. Merger. Upon the effectiveness of this merger, the corporate
existence of the Merging Corporation will cease, and the corporate existence
of the Surviving Corporation will continue, and the Surviving Corporation
shall be deemed to have assumed all of the obligations of the Merging
Corporation. The time when this merger becomes effective is hereinafter
referred to as the "Effective Time."
3. Shareholder Approval Not Required. No shareholder approval of either
of the Constituent Corporations is required because the Merging Corporation
is at least ninety percent (90%) owned by the Surviving Corporation.
4. Conversion of Shares. The manner and basis of converting and exchanging
the shares of the Constituent Corporations shall be as follows:
(a) Surviving Corporation. The issued and outstanding shares of the
Surviving Corporation shall not be converted or altered in any manner as a
result of the merger and shall remain outstanding as shares of the
Surviving Corporation.
(b) Merging Corporation. Each share of the common stock of the Merging
Corporation issued and outstanding as of the Effective Time was owned
by the Surviving Corporation, with the exception of five hundred (500)
shares of the Merging Corporation which was owned by the stockholder
listed on Schedule 4(b) attached hereto and made a part hereof ("Store's
Stockholder"). The Store's Stockholder will be exchanged one (1) share of
the stock of the Surviving Corporation for each share of the stock of the
Merging Corporation owned by said Store's Stockholder at the Effective
Time. All remaining shares of the Merging Corporation owned by the
Surviving Corporation shall be cancelled.
(c) Fractional Shares. In no event shall fractional shares of the
Surviving Corporation be issued. Any shareholder of the Merging Corporation
who would otherwise be entitled to receive five-tenths (.5) or more of a
share of stock of the Surviving Corporation will instead receive an
additional whole share, and any shareholder who would otherwise be entitled
to less than five-tenths (.5) of a share will not receive any consideration
for such fractional interest.
(d) Surrender of Certificates of Merging Corporation. Each holder of a
certificate representing shares of the Merging Corporation shall surrender
such certificate to the Merging Corporation on or before the Effective
Time, and the Merging Corporation shall thereupon deliver such certificate
to the Surviving Corporation for cancellation and, where permitted by this
Plan of Merger, issuance of shares of the Surviving Corporation.
4. Qualification of Merger. This merger is intended to qualify and be
recognized as a "reorganization," as such term is defined in Section
368(a)(1)(G) of the Internal Revenue Code of 1986, as amended.
5. Changes to Charter. No changes in the Articles of Incorporation of the
Surviving Corporation shall be effected by this merger.
6. Conditions; Abandonment. This merger is conditioned upon approval of the
Board of Directors of the Surviving Corporation, pursuant to, and as prescribed
by, Sections 55-11-04 and 55-14A-01 of the North Carolina General Statutes,
and at any time prior to the Effective Time, the Board of Directors of the
Surviving Corporation may, in its sole discretion, abandon this merger.
7. Effective Time. This merger shall become effective on Friday, April
29, 1994, at 2:00 p.m., E.D.T.
LEASE AGREEMENT
THIS LEASE Agreement (the "Lease"), made and entered
into this day of
January, 1994, by and between P. B. Realty, Inc.,
hereinafter called "LANDLORD," and
Brendle's Stores, Inc., a North Carolina corporation,
hereinafter called "TENANT."
W I T N E S S E T H:
In consideration of the mutual covenants, promises
and agreements herein contained,
the parties hereto do hereby covenant, promise and agree,
each with the other, as follows:
1. GRANT: The LANDLORD does hereby lease and
demise unto TENANT,
to have and to hold, 224,000 square feet of the east section
of the approximately 390,000
square foot building currently known as the Brendle's
Distribution Center ("Distribution
Center"), located in Elkin, Surry County, North Carolina.
for the term hereinafter specified.
Said 224,000 square foot portion of the Distribution Center
is more particularly described
in the diagram attached as Exhibit 1 and incorporated herein
by reference (the "Premises").
The real property on which the Distribution Center is
located is more particularly described
on Exhibit 1(a) attached hereto and incorporated by
reference. TENANT hereby agrees to
take and lease from the LANDLORD said premises for the term
hereafter specified.
Also granted to TENANT, its employees, agents and
invitees is a non-exclusive right
to use the common area and common facilities of the
Distribution Center during the term
of the Lease. TENANT'S intended use of the Premises is for
a distribution operation for
TENANT'S stores. Accordingly, LANDLORD acknowledges that
TENANT'S non-exclusive
right to use the common areas includes, without limitation,
the right for trucks and other
delivery vehicles to enter upon and exit the Premises 24
hours a day.
2. TERM: The term of the Lease shall begin upon
execution of the Lease by
both parties and shall end at the end of the ninth lease
year following the "Rent
Commencement Date" as hereinafter defined. For purposes of
the Lease, a "lease year"
shall mean February 1 through January 31. TENANT shall have
the option to extend the
term of the lease for three consecutive, independent option
periods of three years each (the
Renewal Term(s)) with the rental rate during each option
period to be based on a
Consumer Price Index ("CPI") increase at the end of the
preceding period. Such option
shall be exercised by written notice to LANDLORD of TENANT'S
election to exercise such
an option 365 days prior to the end of the then current
term of the Lease.
3. RENT COMMENCEMENT DATE AND DELIVERY OF
PREMISES: The
"Rent Commencement Date" of this lease shall be February 1,
1994. LANDLORD
acknowledges that LANDLORD's ownership interest in the
Distribution Center was
acquired from TENANT pursuant to that certain Purchase and
Sale Agreement between
Brendle's Stores, Inc. and P.B. Realty, Inc. dated January
____, 1994 (hereinafter the "Sale
Agreement"). Therefore, notwithstanding the fact that the
Rent Commencement Date does
not begin until February, 1994, LANDLORD acknowledges
TENANT'S right to be in possession of the
Premises during the period between from
the closing of the Sale
Agreement to the Rent Commencement Date.
4. RENTAL: The TENANT hereby agrees to pay to
the LANDLORD as Rent
for the Premises during the term of the Lease, including
renewals, the following amounts:
(a) Five Hundred Four Thousand Dollars
($504,000.00) per annum, payable in
equal monthly installments of Forty-Two
Thousand Dollars ($42,000.00) each,
beginning on the Rent Commencement Date and
continuing during years one
through three of the initial term of the
Lease;
(b) Five Hundred Sixty Thousand Dollars
($560,000.00) per annum, payable in
equal monthly installments of Forty-Six
Thousand Six Hundred Sixty-Six and
67/100 Dollars ($46,666.67) each, during years
four through six of the initial
term of the Lease;
(c) Six Hundred Sixteen Thousand Dollars
($616,000.00) per annum, payable in
equal monthly installments of Fifty-One
Thousand Three Hundred Thirty-
Three and 33/100 Dollars ($51,333.33) each, during years
seven through nine of the initial term of the Lease;
(d) During each of the Renewal Terms, the Rent
during each renewal period shall
be determined by the percentage increase of
the Consumer Price Index
("CPI") published by the U.S. Department of
Commerce for the Southeastern
United States for urban areas, from the first
day of the preceding term of the
Lease to the first day of the renewal term.
However, in no event shall the
Rent for any given year be less than for the
immediately preceding year.
Each monthly installment of Rent shall be due and
payable on the first day of each
calendar month following the Rent Commencement Date and
shall be past due if not paid
on or before the tenth day of each month. If a monthly
installment of Rent becomes past
due, LANDLORD may provide written notice, via facsimile, to
the TENANT of such past
due Rent. If, after five business days from the date of the
written notice, LANDLORD has
not received the past due monthly Rent installment, then, in
that event, a penalty of 1% of
the past due monthly Rent installment shall become due and
payable in addition to the past
due monthly Rent installment.
5. OTHER CHARGES:
(a) TENANT: The TENANT hereby agrees to pay for
the following items as
they are incurred, beginning on the Rent
Commencement Date, by direct
payment, with proof of such payment being
provided to LANDLORD if requested:
2
(i) All routine maintenance of the
leased Premises, as well as utilities
attributable to the Premises and such
other charges as are set forth in
Paragraph 7.
(b) LANDLORD: The LANDLORD hereby agrees to pay
for the following items as they are incurred, by
direct payment, with proof of such payment
being provided to TENANT if requested by TENANT:
(i) All city and county taxes and
assessments, insurance and structural
maintenance on the Premises and such
other charges are set forth in
Paragraph 7.
6. TENANT'S RESPONSIBILITIES: TENANT shall:
(a) Keep the interior of the Premises in good
condition and repair, reasonable
wear and tear excepted;
(b) Keep the Premises, entryways and delivery
areas, if any, reasonably clean and
free from rubbish and dirt;
(c) Not make or suffer any waste on the Premises
or permit anything to be done
in or upon the Premises creating a nuisance
thereon;
(d) Permit the LANDLORD or its agents, at
reasonable agreed upon times, to
enter upon the Premises for purpose of
examining or showing the same to
prospective purchasers; and
(e) Comply with all lawful requirements of local,
state or Federal authorities
having jurisdiction respecting the manner in
which the Premises are used.
(f) Be responsible for the following common area
maintenance services needed at the building:
(1) Snow removal;
(2) Repairs for parking lot lighting;
(3) Landscaping replacement needs; and
(4) Grass cutting.
TENANT shall have the right to contract, in the name of the
LANDLORD, for the above
common area maintenance services to be provided by a
qualified contractor. LANDLORD
shall have the right to approve any such contract, but
LANDLORD's approval shall not be
unreasonably withheld. Contracts for common area maintenance
services shall be in the
name of the LANDLORD, however, bills for common area
maintenance services shall be sent by the
3
contractor directly to the TENANT, based pro-rata on the portion of the square
footage of the Distribution Center leased to TENANT. Should
TENANT fail to contract for said services, LANDLORD shall have the right to
contract for the above common area maintenance services with a qualified
contractor and TENANT shall be billed for its pro-rata
portion, based on square footage leased, of the common area
maintenance costs.
7. LANDLORD'S RESPONSIBILITIES: LANDLORD shall,
at its cost and expense, keep and maintain the structure and parking lot of
the Distribution Center, including without limitation, the roof, gutters,
elevators, downspouts, exterior and structural
walls, and foundation and shall make structural repairs as
necessary for both the exterior and interior of the Distribution Center.
If any portion of the common area (including any
portion of the building which is the responsibility of the
LANDLORD) shall at any time be in need of repair, LANDLORD will repair the
same promptly upon receipt of written notice
from TENANT to do so. Included without limitation, within
the repair responsibilities of LANDLORD shall be the replacement of the
heating, ventilation and air conditioning
system ("HVAC") for the Premises or any of its major
components. LANDLORD stipulates and agrees, that notwithstanding any of the
provisions of this Lease agreement, if TENANT
notifies LANDLORD that the HVAC maintenance contractor has
advised that the HVAC or one of its major components must be replaced, LANDLORD
shall have five (5) business days from the date of such notice to commence
replacement of the HVAC or its major
components, and if LANDLORD has not commenced this
replacement within five (5) business days after notice, TENANT may undertake
to make the replacement to the HVAC
or its major components and charge the reasonable cost to
LANDLORD, including at TENANT'S option as an offset of future rent due under
the Lease. TENANT agrees to provide a quarterly maintenance contract in the
name of the LANDLORD, on the HVAC system currently installed at the
Distribution Center, for services to be provided by a
qualified HVAC contractor. This contract shall be subject
to approval by the LANDLORD but LANDLORD's approval shall not be unreasonably
withheld. Should TENANT fail to contract for said quarterly HVAC maintenance
services, LANDLORD shall have the right to enter into a contract with a
qualified HVAC contractor and send the bill for said
quarterly maintenance services to TENANT for payment. This
quarterly maintenance contract shall cover routine maintenance and service of
the HVAC system but shall not include the replacement of major components such
as motors and compressors. TENANT shall provide this maintenance contract
only for so long as TENANT is the only occupant
of the Distribution Center. If at any time another tenant
occupies any portion of the Distribution Center, TENANT shall transfer the
quarterly maintenance contract to the
LANDLORD and TENANT shall only be responsible for a pro rata
share of the quarterly maintenance contract costs based on square footage
leased by TENANT.
If, in order to protect the TENANT'S property in the
building, it shall be necessary that TENANT make emergency repairs to any
portion thereof which is the responsibility of
the LANDLORD to repair, or if the LANDLORD within sixty (60)
days after notice from TENANT to do so, fails or neglects to make with all due
diligence such other repairs to the building or
4
common areas (including parking areas) which are the responsibility of
LANDLORD, TENANT shall have the right to make such repairs
and to deduct from the rental installments then due or thereafter to become
due, such sums as may be necessary to reimburse the TENANT for the money
expended or expense incurred by it in making
such repairs. PROVIDED, HOWEVER, if TENANT notifies
LANDLORD that the roof of the Premises is leaking, it shall be TENANT's
responsibility to contact the appropriate
warranty party to commence repairs to the roof, and such
repairs shall be undertaken at LANDLORD'S cost and expense. Notwithstanding
anything to the contrary contained herein, TENANT does not waive any right or
remedy available to TENANT at law or equity should TENANT suffer any damage
to its property.
In the event that LANDLORD fails to repair items
which are LANDLORD'S responsibility within thirty (30) days after notice from
TENANT to do so, TENANT shall have the right to make such repairs at a
reasonable cost, and if LANDLORD does not reimburse TENANT for the reasonable
cost of those repairs within thirty (30) days after
presentation of an invoice therefor, to deduct from the
rental installments then or thereafter due, such sums as may be necessary to
reimburse the TENANT for monies expended by it in making such repairs.
LANDLORD covenants and agrees that during the term
of the Lease, TENANT and its employees, agents, officers, customers, licensees
and invitees shall have a license for the non-exclusive use for pedestrian and
vehicular traffic, as the case may be, of the common
areas and facilities of the Distribution Center, including,
but not limited to parking areas, streets, sidewalks, roadways, public
washrooms, public shelters, landscape areas and all other areas and
facilities located in and about the Distribution Center, such use to be in
common with the LANDLORD and all other to whom LANDLORD has or may hereafter
grant rights to use the same. The common areas, shall, at all times, be
subject to reasonable control and management of LANDLORD and such use by TENANT
shall be subject to such reasonable rules and regulations as LANDLORD may, from
time to time, adopt after consultation with TENANT, provided, however, that
any such rules and regulations do not interfere with the distribution
operations of the TENANT in the Premises.
8. SIGNS: TENANT may, at its own expense, place,
erect and maintain exterior signs on the wall or any other place on or about
the Premises, and on any "center pylon" or "center monument" with the prior
written consent of the LANDLORD, which consent shall not be unreasonably
withheld or delayed, and which signs shall remain the property of the
TENANT and may be removed at any time during the term of the Lease, or any
extension thereof, provided TENANT shall repair or reimburse LANDLORD
for the costs of any damage to the Premises resulting from the installation or
removal of such signs. In the event the LANDLORD shall fail to respond to a
written request of TENANT to consent to a sign within thirty days of said
written request, LANDLORD shall be deemed to have consented to such sign.
9. INTERIOR ALTERATIONS: The TENANT, at its own expense, may from
time to time during the term of the Lease make any interior alterations,
5
additions and improvements in and to the Premises which it may deem
necessary or desirable, and which do not adversely affect the structural
integrity thereof, but it shall make them in a good,
workmanlike manner and in accordance with all express
requirements of governmental authorities. If TENANT desires to make material
structural or material exterior changes
to the Premises, the prior written consent of the LANDLORD
is required and such written consent shall not be unreasonably withheld.
All permanent structural improvements shall
belong to the LANDLORD and become a part of the Premises
upon termination of this lease. Any temporary improvements shall belong to the
TENANT and may be removed by the TENANT at any time during the term of the
Lease, or at the expiration of the lease, but
TENANT shall be required, at its own expense, to repair any
damage to the Premises resulting from the installation or removal of such
items.
10. FIRE, OTHER CASUALTIES AND INSURANCE: If the Premises, the
appurtenances thereto, the common facilities or areas, or
any other portion of the Distribution Center shall, during the term of the
Lease, or any extensions thereof, be damaged or destroyed by fire or other
casualty, or any cause whatsoever, either in whole or
in part, LANDLORD shall forthwith remove any resulting
debris and repair and/or rebuild the damaged or destroyed structures or other
improvements, including any improvements made by LANDLORD or any of LANDLORD'S
Tenant's, in accordance with the plan
pursuant to which such property was most recently
constructed. In the event LANDLORD
fails or refuses to make the necessary repairs or
reconstruction with reasonable expedition
in order to minimize TENANT'S inconvenience and loss, TENANT
shall have the option to make such necessary repairs to protect its interest
and to restore the Premises to its former condition, and TENANT shall claim
and be entitled to a credit against rentals now
due or to become due hereafter for the monies expended to
make such necessary repairs. In any event, until such time as the Premises,
the appurtenances thereto, the common
facilities or areas or any other portions of the
Distribution Center are repaired, rebuilt and
put in good and tenantable order, the TENANT shall be
allowed a proportionate abatement in rent for the area rendered untenantable,
and if the damage is to the Premises, there shall
be an abatement of rent for an additional sixty (60) days
from the date the repairs are completed for TENANT to refixture and restock.
It is expressly provided, however, that if the
LANDLORD for any reason whatsoever
fails to commence the repair and restoration work within
thirty (30) days from the date that
such damage or destruction occurred, or fails thereafter to
proceed diligently to complete such repair or restoration, and should the
TENANT not elect to undertake the repair or restoration itself, then and in
that event, the TENANT in addition to such other rights and
remedies as may be accorded the TENANT by law, shall have
the right and option to terminate the Lease by giving LANDLORD written notice
of the TENANT'S election so to do at any time prior to the completion of such
repairs or rebuilding, provided the
LANDLORD shall not be actively undertaking such restoration
and upon such notice being given, the term of the Lease shall automatically
terminate and end retroactive to the date when the damage or destruction
occurred.
Anything herein to the contrary notwithstanding, it
is agreed that: (i) if the Premises
6
should be damaged or destroyed by fire or other cause to
such an extent that the cost of
restoration would exceed fifty percent (50%) of the amount
it would cost to replace the Premises in its entirety at the time such
damage or destruction took place; and (ii) if at
the time of such damage or destruction the term or any
renewal of the Lease is scheduled to expire within a period of two (2) years,
then and in that event either the LANDLORD
or TENANT shall have the right and option to terminate the
term of the Lease by giving the other party to the Lease notice of such
election within thirty (30) days after such damage
or destruction shall have taken place, provided, however,
that the TENANT shall have the right to nullify any such notice of termination
given by the LANDLORD if at any time such
notice is given an option herein granted the TENANT to
extend the term of this lease for
an additional period remains unexercised and the TENANT
exercises such option within thirty (30) days after the receipt of such notice
from the LANDLORD, in which event the
LANDLORD'S notice of such termination shall be of no force
or effect and the parties shall be remitted to their various rights under the
Lease.
LANDLORD agrees to keep the Distribution Center of
which the Premises is part of the whole insured against loss or damage by
replacement cost property and casualty
insurance with extended overage to the extent of at least
eighty percent (80%) of the full insurable value thereof, including all
improvements, alterations, additions and LANDLORD
further agrees that all monies collected from such insurance
shall be used toward the full compliance and obligations of the LANDLORD under
this paragraph 10 and under the Lease. The LANDLORD, in furtherance of this
obligation, agrees to furnish the TENANT
a satisfactory certificate of insurance evidencing
replacement costs property and casualty
insurance with extended coverage in force and applicable to
the Distribution Center and agrees to notify the TENANT immediately upon the
lapse of any of the agreed upon
insurance coverage during the term of the Lease. In
addition thereto, LANDLORD will
provide the TENANT, upon request, with an exact copy of the
applicable insurance policy or policies in order to permit the TENANT to
procure such other and further or
supplemental coverage as the TENANT may deem desirable.
11. EMINENT DOMAIN:
(a) CONDEMNATION AWARD: In the event the
Distribution Center or any
part thereof or the Premises or any part
thereof shall be taken or condemned
either permanently or temporarily for any
public or quasi-public use or
purpose by any authority in appropriate
proceedings or by any right of
eminent domain, the entire compensation award
thereof, including but not
limited to, all damages as compensation for
diminution in value of the
leasehold, reversion and fees shall belong to
the LANDLORD without any
deduction thereof for any present or future
estate of TENANT, and TENANT
acknowledges that it has no right, title or
interest to such award. However,
TENANT shall have the right to recover from
the condemning authority but
not from LANDLORD, such compensation as may be
separately awarded to
TENANT on account of interruption of TENANT'S
7
business and for moving
and relocation expenses, including, but not
limited to, recovery of TENANT'S
cost to cure damages caused to its leasehold
interests or estate. LANDLORD
shall promptly, following any partial
condemnation that does not result in a
termination of the Lease, restore the demised
Premises as nearly as possible
to the condition as existed immediately prior
to such taking but only to such
extent of the net award received by LANDLORD
and fixed minimum rent
shall equitably abate during such restoration.
(b) TERMINATION BY TENANT:
(i) If thirty-five percent (35%) or
more of the Premises shall be taken or
condemned by any competent authority for
any public or quasi-public
use or purpose, then, and in that event,
the TENANT shall have thirty
(30) days in which to elect to terminate
the Lease and if TENANT
does elect to terminate the lease, the
rent shall be apportioned from
the date of such taking.
(ii) If any material portion of the
common area or the Premises shall be
taken or condemned by any competent
authority for any public or
quasi-public use or purpose and in a
reasonably determination of
TENANT, such taking will materially and
detrimentally affect
TENANT'S use of the Premises, then
TENANT shall have the right to
cancel and terminate the Lease by
delivery of written notice of
termination within thirty (30) days
after such taking or conveyance of
physical possession.
(c) TERMINATION BY LANDLORD: In the case of any
taking or condemnation, then upon actual taking or
conveyance of physical possession
of any material part of the Premises, LANDLORD
may cancel and terminate
the Lease by giving notice to TENANT within
forty-five (45) days after such
taking or conveyance of physical possession.
For the purpose of this
paragraph a "material part" of the
Distribution Center shall mean at least
twenty-five percent (25%) of the Premises.
This lease shall terminate on the
date specified in such termination notice,
provided that such date shall not be
less than one hundred eighty (180) days after
the date of such notice. If the
Lease is not terminated following any actual
takings or conveyances of any
part of the Premises, the LANDLORD shall, at
LANDLORD'S own expense,
make such repairs to the Premises as are
necessary to make the Premises
complete and tenantable space, and a
proportional allowance shall be made
in the rent and additional charges based on
the ration of the square footage
of the new Premises to the square footage of
the original Premises.
12. INDEMNIFICATION: TENANT'S INSURANCE. TENANT
shall indemnify LANDLORD and save it harmless from any default by TENANT in
8
the performance of any of the terms of the Lease agreement on TENANT'S part
to be performed and all claims,
suits, demands, actions, damages, liability and expense
(including reasonable attorney's fees)
in connection with the loss of life, bodily or personal
injury or property damage (and each
and all of them) arising from or out of any occurrence in,
upon, at or from the Premises or
occupancy or use by TENANT of said Premises or common area
of the Distribution Center, or any part thereof, which is occasioned wholly
or in part by any act or omission by
TENANT, its agents, contractors, employees, servants,
licensees, or concessionaires, and
which are not a result of any act or omission of LANDLORD,
its agents, contractors, employees, servants, licensees, or concessionaires.
If any action or proceeding shall be
brought against LANDLORD or LANDLORD'S agents, or its
mortgagee based upon any such claim and if TENANT, upon notice from LANDLORD
shall cause such action or proceeding to be defended at TENANT'S expense by
counsel reasonably satisfactory to both
parties, without any disclaimer of liability by TENANT in
connection with such claim, TENANT shall not be required to indemnify
LANDLORD for attorney fees and
disbursements in connection with such action or proceeding.
TENANT shall, at all times during the term of the
Lease agreement, maintain in full
force and effect comprehensive general liability insurance
on an occurrence basis with a
minimum liability and a combined single limit of not less
than $1,000,000 with an additional
umbrella liability policy with combined single limit
coverage of at least $5,000,000 which
insurance shall contain contractual liability endorsement
covering the matters set forth
herein, and a personal injury endorsement including claims
brought by employees, agents or
contractors of an insured.
All insurance policies required by this section
shall be written as primary policies not
contributing with, nor in excess of any coverage that
LANDLORD may carry, and all
insurance procured hereunder by TENANT shall name LANDLORD
and at LANDLORD'S request, its mortgagee, as additional insureds, as their
interests may appear, for the full
amount of the insurance herein required with respect to the
operations and activities of
TENANT on or in connection with the Distribution Center.
Each such policy shall contain
an endorsement that the LANDLORD, although named as an
insured, nevertheless shall be
entitled to recovery under said policies for any loss or
damage occasioned to it, its servants,
agents, employees and contractors by reason of the
negligence of the TENANT, its servants,
agents, employees or contractors.
13. INDEMNIFICATION: LANDLORD'S
INSURANCE. LANDLORD shall
indemnify TENANT and save it harmless from any default by
LANDLORD in the
performance of any of the terms of the Lease on LANDLORD'S
part to be performed and
all claims, suits, demands, actions, damages, liability and
expense (including reasonable
attorney fees) in connection with the loss of life, bodily
or personal injury, or personal
damage (and each and all of them) arising from or out of any
occurrence in, upon, at or
from the Premises, the common areas, the Distribution Center
or any part of the
Distribution Center, which is occasioned wholly or in part
9
by any act or omission by
LANDLORD, its agents, contractors, employees or servants,
and which are not a result of
any act or omission of TENANT, its agents, contractors,
employees, servants, licensees, or
concessionaires. If any action or proceeding shall be
brought against TENANT or
TENANT'S agents, or its mortgagee based upon any such claim
and if LANDLORD, upon
notice from TENANT shall cause such action or proceeding to
be defended at LANDLORD'S expense by counsel reasonably satisfactory to
both parties, without any
disclaimer of liability by LANDLORD in connection with such
sale, LANDLORD shall not
be required to indemnify TENANT for attorney fees and
disbursements in connection with such action or proceeding.
LANDLORD shall, at all times during the term of this
lease agreement maintain in
full force and effect comprehensive general liability
insurance on an occurrence basis with
a minimum liability and a combined single limit of not less
than 5,000,000, which insurance
shall contain a contractual liability endorsement covering
the matters set forth herein, and
a personal injury endorsement including claims brought by
employees, agents or contractors of an insured.
All insurance policies required by this section
shall be written as primary policies not
contributing with, not in excess of any coverage that TENANT
may carry, and all insurance
procured hereunder by LANDLORD shall name its mortgagee, as
additional insured, as its
interest may appear, for the full amount of the insurance
herein required with respect to the
operations and activities of LANDLORD on or in connection
with the Distribution Center.
14. QUIET ENJOYMENT: The LANDLORD covenants,
warrants and represents that LANDLORD has full right and power to execute
the Lease, that LANDLORD has fee simple, marketable title to the Premises
and the Distribution Center, and that the TENANT, on paying the rent and other
charges herein reserved, and
performing the covenants and agreements hereof, shall
peaceably and quietly have, hold and
enjoy the Premises and all rights, easements, appurtenances
and privileges belonging or
appertaining thereto, during the full term of the Lease and
any extension hereof.
LANDLORD further covenants, warrants and represents
that upon the Rent Commencement Date, the Distribution Center, including the
Premises, will be free and clear
of all liens and encumbrances superior to the leasehold
hereby created, with the sole
exception of certain permanent or long-term financing from
LANDLORD'S lender (hereinafter "mortgagee"); that LANDLORD has provided
TENANT with a non-disturbance agreement executed by said mortgagee which will
allow TENANT to continue its quiet enjoyment of the Premises in the event of a
foreclosure of said long-term financing.
Should zoning or restrictions be in effect or adopted at any
time during the term of this lease, unreasonably preventing or restricting
TENANT from conducting its business or using
the common areas (including the parking areas) in
conjunction therewith, the TENANT at
its option may terminate the Lease and be released of and
from all further liability hereunder.
15. TENANT'S DEFAULTS: If two consecutive monthlyrent payments specified
10
in this Lease shall remain unpaid for a period of twenty
(20) days after written notice to
TENANT of said unpaid rent, LANDLORD shall have the right to
terminate this Lease
Agreement with respect to the unexpired term, and accelerate
the balance of the rent
payments remaining under the then current term of the Lease,
except in no event shall this
acceleration provision be for an amount in excess of thirty-
six (36) months of rent payments.
This limitation on the right of acceleration, however, shall
not limit the LANDLORD's right
of recovery for TENANT's default under any other provision
hereof, or as provided by law
or equity. On termination, LANDLORD may recover from TENANT
all damages resulting from TENANT's breach, including, but not limited to
the cost of recovery of the Premises
and placing them in satisfactory condition, and attorneys'
fees, all of which sums shall be
immediately payable to LANDLORD from TENANT. Any receipt of
past due rent by LANDLORD will not constitute a waiver of the provisions of
this paragraph with respect to subsequent past due rentals. TENANT shall be
entitled to mitigation of the amount paid
to LANDLORD as a result of the acceleration of rent payments
due to default in an amount
equal to rent payments received by LANDLORD from any
subsequent tenant occupying the
Premises during the unexpired term of TENANT, less all costs
of reletting the Premises to
such subsequent tenant. LANDLORD shall have a duty to make
reasonable efforts to relet
the Premises after default by the TENANT and shall
reasonably consider any subsequent
tenant offered by TENANT in mitigation of damages to
LANDLORD.
16. LANDLORD'S DEFAULT: If the LANDLORD shall
fail to perform any of
the terms, provisions, covenants or conditions to be
performed or complied with by the
LANDLORD pursuant to the Lease, or if the LANDLORD should
fail to make any payment which the LANDLORD agrees to make, and if any such
failure shall, if it relates
to a matter which is not of an emergency nature, remain
uncured for a period of thirty (30)
days after the TENANT shall have served upon the LANDLORD
notice of such failure (or such shorter period as may be specified hereinabove
in this lease), or for a period of forty-
eight (48) hours after service of such notice if in the
TENANT'S judgment reasonably
exercised such failure relates to a matter which is of an
emergency nature, then TENANT
may, at TENANT'S option, perform any such terms, provisions,
covenants or conditions and
make any such payment, as LANDLORD'S agent, and in TENANT'S
sole reasonable discretion as to the necessity therefor, and the full amount
of the cost and expense entailed,
for the payment so made, shall immediately be owing by the
LANDLORD to TENANT and
TENANT shall have the right to deduct the amount thereof,
together with interest at twelve
percent (12%) per annum from the date of payment, without
liability or forfeiture, from
rents then due or thereafter coming due hereunder and
irrespective of who may own or have
an interest in the Premises at the time such deductions are
made. Any such deduction
made in good faith shall not constitute a default in the
payment of rent unless the TENANT
shall fail to pay the amount of such deduction to the
LANDLORD within thirty (30) days
after the final adjudication that such amount is owing to
the LANDLORD. The option
given in this paragraph is for the sole protection of the
TENANT and its existence shall not
release the LANDLORD from the obligation to perform the
terms, provisions and covenants
and conditions herein provided to be performed by the
LANDLORD, nor shall it deprive
the TENANT of any legal rights which it may have by reason of any such
11
default by LANDLORD.
17. NOTICES: All notices required to be given to
TENANT shall be in writing
and shall be deemed given three (3) days after being placed
in the United States mail,
postage prepaid, by either registered or certified mail,
return receipt requested, addressed to the TENANT, as follows:
Brendle's Stores, Inc.
1919 North Bridge Street
Elkin, North Carolina 28621
ATTN: Manager of Property Lease Management
with a copy to :
M. Joseph Allman, Esquire
Allman Spry Humphreys & Leggett, P.A.
PO Drawer 5129
Winston-Salem, North Carolina 27103-5129
or to such other address as TENANT may give to LANDLORD by
the notice required herein.
All notices required to be given to LANDLORD shall
be in writing and be deemed
given three days after being placed in the United States
mail, postage prepaid, by either
registered or certified mail, return receipt requested,
addressed to LANDLORD as follows:
12
P.B. Realty, Inc.
PO Box 500
Golfview Park
Lenoir, North Carolina 28645
with a copy to:
T. Paul Hendrick, Esquire
Hendrick, Zotian, Bennett & Blancato
PO Box 5276
Winston-Salem, North Carolina 27113
or to such other address as LANDLORD may give to TENANT by
the notice required herein. Unless otherwise requested, TENANT may make all
rental payments to LANDLORD at this address and the same shall be deemed made
upon the date of mailing.
18. END OF TENANCY: The TENANT will yield up the
Premises, and all additions thereto (except sign, equipment and trade fixtures
installed by TENANT at its
expense, which shall remain the property of TENANT), at the
termination of the tenancy,
in as good and tenantable condition as the same were at the
beginning of TENANT'S occupancy, reasonable wear and tear, damage by fire and
other casualties, and condemnation, appropriation by eminent domain excepted,
and also excepting any damage,
disrepair and other conditions that the LANDLORD is
obligated hereunder to repair or
correct. In the event the TENANT fails to yield up the
Premises at the end of the term,
with the acquiescence of LANDLORD but without the execution
of a new lease, the tenancy
shall be deemed to be month-to-month, and shall continue
under the same terms and conditions as herein stated.
19. ASSIGNMENT AND SUBLETTING: The TENANT may not
assign or sublet all or any portion of the Premises without the prior
written consent of the Landlord
which consent shall not be unreasonably withheld. Provided,
no part of the Premises shall
be assigned or sublet for a purpose which is unlawful,
dangerous, noxious or offensive. No
assignment or subletting by the TENANT shall affect the
obligation of the TENANT to
perform all of the covenants required to be performed by the
TENANT under the terms of
the Lease, unless and except LANDLORD shall expressly
relieve TENANT of such
obligation. Nothing in this Lease shall be construed to
require continuous business operation
by TENANT in the Premises. In the event TENANT should cease
to operate the business
in the Premises and "go dark" for a period in excess of
ninety (90) days, then and in that
event, LANDLORD shall have the option to terminate this
Lease Agreement provided, upon such termination Tenant shall be relieved of all
further obligations and liabilities under
this Lease Agreement from and after the date of said
termination. For the purpose of this
paragraph "go dark" shall mean a cessation of business other
than for the performance of repairs, maintenance, remodeling, or any closing
caused by the negligence or at the request
of LANDLORD. The ninety (90) day period shall begin to run
from the first business day
that TENANT is not open to the public, and no notice by
LANDLORD is required to
commence this ninety (90) day period. TENANT covenants and
13
agrees to give LANDLORD a notice of its intent to "go dark" before it
ceases business. Upon notice to
LANDLORD by TENANT of its intentions to "go dark", LANDLORD
shall have the option: (1) to require that the TENANT continue to make
timely rent payments under the
Lease until completion of the term; or (2) to terminate the
Lease immediately, however,
LANDLORD shall grant TENANT another 120 days to vacate the
premises and following the vacation of the premises by Tenant, Tenant shall be
relived of all further obligations and
liabilities under this Lease Agreement.
20. HAZARDOUS MATERIALS: LANDLORD covenants and
agrees to indemnify, protect, defend and hold TENANT harmless (except
from hazardous materials placed upon the Center by TENANT) from and against
any and all claims, demands, losses,
liabilities and penalties (including, without limitation,
reasonable attorney's fees at all trial
and appellate levels, whether or not suit is brought)
arising directly or indirectly from or out of or in any way connected with:
(a) The presence of any hazardous materials on the
real property or within the
leased Premises or within the Distribution
Center placed there by
LANDLORD, its agents and employees; or
(b) Any violation or alleged violation of any
local, state or federal environmental
law, regulation, ordinance or administrative
or judicial order relating to any
hazardous materials placed there by LANDLORD,
its agents or employees.
Likewise, TENANT covenants and agrees to indemnify,
protect, defend and hold LANDLORD harmless (except from hazardous materials
placed upon the Premises, Distribution Center, or real property, by LANDLORD)
from and against all claims,
demands, losses, liabilities and penalties, including
without limitation, reasonable attorney
fees at all trial and appellate levels, whether or not suit
is brought) arising from:
(a) The presence of any hazardous materials within
the leased Premises or the
Center brought upon the leased Premises by
TENANT, its agents and employees; or
(b) Any violation or alleged violation of any
local, state or federal environmental
law, regulation, ordinance or administrative
or judicial order relating to any
hazardous materials attributable to events
occurring before or during the
TENANT'S occupancy of the leased Premises
caused by the acts of the
TENANT, its agent or employees.
21. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE:
TENANT does stipulate and agree that within a reasonable
period of time after request, but
in no event more than twenty (20) days after receipt of the
request, TENANT will execute,
acknowledge and deliver to LANDLORD, at any time and from
time to time, upon demand by LANDLORD, such documents as may be
requested by LANDLORD to subordinate the Lease to any ground
14
lease, underlying lease, mortgage, deed
of trust or other lien,
encumbrance or indenture held by any institution or
mortgagee, together with any renewals,
extensions, modifications, consolidations and replacements
thereof to effect such
subordination. Provided, however, such instrument of
subordination must provide that any
successor in interest to the LANDLORD will not disturb
TENANT in its use, possession and
occupancy of the leased Premises in accordance with the
Lease. If any holder of any
instrument described in the preceding paragraph succeeds to
LANDLORD'S interest in the
Premises, TENANT will pay to it all sums subsequently due
and payable under the provisions of the Lease. TENANT will, upon request
of any one so succeeding to the
interest of LANDLORD, automatically become the TENANT of and
attorn to such successor in interest without changing the Lease. Upon
request by such successor in interest
and without cost to LANDLORD or such successor in interest,
TENANT will execute,
acknowledge and deliver any instrument or instruments
confirming this attornment;
provided, however, that such instruments must provide that
such successor in interest will
not disturb TENANT in its use, possession and occupancy of
the Premises in accordance with the Lease.
22. ESTOPPEL INSTRUMENTS: At LANDLORD'S request,
from time to time, the TENANT agrees, within a reasonable period of time after
request, but in no event more
than twenty (20) days after receipt of the request, to
execute, acknowledge and deliver to
LANDLORD a certificate which acknowledges tenancy and
possession of the Premises and
recites such other facts concerning any provision of the
Lease or payment made under the
Lease which the mortgagee or prospective mortgagee or a
purchaser or prospective
purchaser of LANDLORD under an underlying lease or
prospective lessor of any premises
which includes the Premises may reasonably request. Such
certification shall include but
shall not be limited to acknowledgments that the TENANT has
accepted possession of the
Premises in the condition that it exists as of the date of
such certificate, statements that
there are no defaults by LANDLORD or TENANT existing under
the Lease as of the date of such certificate, statements that neither the
Lease, nor the validity, obligation or
construction thereof is in arbitration or litigation as of
the date of such certificate, and that
TENANT, as of the date of such certificate has no charge,
lien or claim of offset under this
lease or otherwise against rent or other charges due or to
become due under the Lease.
23. BENEFIT: The Lease and all of the covenants
and provisions thereof shall
inure to the benefit of and be binding upon the heirs, legal
representatives, successors and
assigns of the parties hereto. Each provision hereby shall
be deemed both a covenant and a condition and shall run with the land.
24. HEADINGS: The paragraph headings appearing in
the Lease are for reference only and shall not be considered a part of the
lease or in any way to modify, amend or affect the provisions thereof.
25. COMPLETE AGREEMENT: This written Lease contains the complete
agreement of the parties with reference to the leasing of the Premises. No
15
waiver of any breach of covenant herein shall be construed as a waiver of
the covenant itself or any subsequent breach thereof.
28. RIGHT TO TERMINATE LEASE FOR STRUCTURAL DEFECTS:
Notwithstanding any provisions of the Lease to the contrary,
in the event that any governmental or other authorized agency or any structural
engineer licensed in the state
where the Premises are located declares the Premises as
structurally unfit for occupancy, and
such condition is not the fault of TENANT arising on or
after February 1, 1994, TENANT
shall have the unconditional right to immediately declare
the Lease null and void. Provided,
however, that TENANT stipulates and agrees to give LANDLORD
notice of any such structural defects within five (5) days after discovery by
TENANT or notice to TENANT from any governmental agency or structural engineer
and LANDLORD shall have twenty (20) business days to commence repairs.
29. TRANSFER OF LANDLORD'S INTEREST: In the event
of the sale, assignment or transfer by LANDLORD of its interest in the
Distribution Center or in the
Lease (other than a collateral assignment to secure a debt
to LANDLORD) to a successor in interest who expressly assumes the obligations
of LANDLORD under this lease,
LANDLORD shall thereupon be released and discharged from all
of its covenants and obligations under this lease, except those obligations
that have accrued prior to such sale,
assignment or transfer; and TENANT agrees to look solely to
the successor in interest of
LANDLORD for the performance of those obligations.
LANDLORD'S assignment of the Lease, or any or all of its rights in the Lease,
shall not affect TENANT'S obligations hereunder, and TENANT shall attorn and
look to the assignee as LANDLORD, provided
TENANT has first received written notice of the assignment
of LANDLORD'S interest.
31. RECORDATION OF LEASE: This lease shall not be recorded.
However, after the Rent Commencement Date, the parties agree upon
request to execute a short form "Memorandum of Lease" in statutory form,
which shall include the Rent Commencement
Date and the expiration dates of this lease. Either party
may record the Memorandum of Lease at it own expense.
32. GOVERNING LAW: This lease and the rights of
the parties thereto shall be governed by and construed in accordance with the
laws of the State of North Carolina.
33. SEVERABILITY: If any provision of the Lease
shall be invalid or unenforceable, the rest and remainder of this lease shall
not be effected thereby and each
term and provision of this lease shall be valid and be
enforced to the full extent permitted by law.
34. TIME IS OF THE ESSENCE: The time
and performance of all the covenants, conditions and agreements of this lease
is of the essence of this agreement; it
being agreed that this provision shall in no event be
construed as vitiating any of the cure.
For compliance set forth by virtue of the terms and
provisions of this lease.
17
35. RELATIONSHIP OF PARTIES: Nothing herein shall
be construed so as to constitute a joint venture or partnership between
LANDLORD and TENANT.
36. SUBMISSION OF LEASE: Submission of this Lease
for examination does
not constitute an offer to lease or a reservation of or
option for the Premises, and this lease
shall be effected only upon execution and delivery thereof
by LANDLORD and TENANT. IN WITNESS WHEREOF, the parties hereby have caused this
lease to be executed the day and year first above written or on the date given
below.
This the ________ day of __________________, 19__.
.
LANDLORD:
P.B. Realty, Inc.
By: __________________________
Its: _______________________________
TENANT:
Brendle's Stores, Inc.
By: ___________________________
Its: Chief Executive Officer and President
17
LOAN AND SECURITY AGREEMENT
by and between
BRENDLE'S INCORPORATED
and
FOOTHILL CAPITAL CORPORATION
Dated as of April 21, 1994
TABLE OF CONTENTS
Page
1.DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 10
1.3 Code 10
1.4 Construction 10
1.5 Schedules and Exhibits. 10
2.LOAN AND TERMS OF PAYMENT 10
2.1 Revolving Advances. 10
2.2 Letters of Credit and Letter of Credit Guarantees. 11
2.3 Intentionally omitted. 12
2.4 Overadvances 13
2.5 Interest: Rates, Payments, and Calculations 13
2.6 Crediting Payments; Application of Collections 14
2.7 Statements of Obligations 14
2.8 Fees 15
3.CONDITIONS; TERM OF AGREEMENT 15
3.1 Conditions Precedent to Initial Advance, L/C,
or L/C Guaranty 15
3.2 Conditions Precedent to All Advances, L/Cs,
or L/C Guarantees. 17
3.3 Term 18
3.4 Effect of Termination 18
3.5 Early Termination by Borrower 18
3.6 Termination Upon Event of Default 18
4.CREATION OF SECURITY INTEREST 19
4.1 Grant of Security Interest 19
4.2 Negotiable Collateral 19
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral 19
4.4 Delivery of Additional Documentation Required 19
4.5 Power of Attorney 20
4.6 Right to Inspect 20
5.REPRESENTATIONS AND WARRANTIES. 20
5.1 No Prior Encumbrances 21
5.2 Plan of Reorganization 21
5.3 Eligible Inventory 21
5.4 Location of Inventory and Equipment 21
5.5 Inventory Records 21
i
5.6 Location of Chief Executive Office; FEIN 21
5.7 Due Organization and Qualification,
and Subsidiaries 21
5.8 Due Authorization; No Conflict 21
5.9 Litigation 22
5.10 No Material Adverse Change in Financial Condition 22
5.11 Solvency 22
5.12 Employee Benefits 22
5.13 Environmental Condition 23
5.14 Reliance by Foothill; Cumulative 23
6.AFFIRMATIVE COVENANTS. 23
6.1 Accounting System 24
6.2 Collateral Reports 24
6.3 Financial Statements, Reports, Certificates 24
6.4 Tax Returns 25
6.5 Designation of Inventory 25
6.6 Returns. 25
6.7 Title to Equipment 25
6.8 Maintenance of Equipment 26
6.9 Taxes 26
6.10 Insurance 26
6.11 Financial Covenants 26
6.12 No Setoffs or Counterclaims 27
6.13 Location of Inventory and Equipment 27
6.14 Compliance with Laws 27
6.15 Employee Benefits 27
6.16 Store Openings and Closings 28
6.17 Inventory Audits 28
6.18 Real Property Leases 28
6.19 Landlord Waivers. 28
7.NEGATIVE COVENANTS 28
7.1 Indebtedness 29
7.2 Liens 29
7.3 Restrictions on Fundamental Changes 29
7.4 Extraordinary Transactions and Disposal of Assets 29
7.5 Change Name 30
7.6 Guarantee 30
7.7 Restructure 30
7.8 Prepayments 30
7.9 Change of Control 30
7.10 Capital Expenditures 30
7.11 Distributions 30
7.12 Accounting Methods 30
ii
7.13 Investments 30
7.14 Transactions with Affiliates 31
7.15 Suspension 31
7.16 Compensation 31
7.17 Use of Proceeds. 31
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. 31
8.EVENTS OF DEFAULT. 31
9.FOOTHILL'S RIGHTS AND REMEDIES. 33
9.1 Rights and Remedies 33
9.2 Remedies Cumulative 35
10.TAXES AND EXPENSES REGARDING THE COLLATERAL 36
11.WAIVERS; INDEMNIFICATION 36
11.1 Demand; Protest; etc. 36
11.2 Foothill's Liability for Collateral 36
11.3 Indemnification 36
12.NOTICES 37
13.CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 37
14.DESTRUCTION OF BORROWER'S DOCUMENTS 38
15.GENERAL PROVISIONS 38
15.1 Effectiveness 38
15.2 Successors and Assigns 38
15.3 Section Headings 39
15.4 Interpretation 39
15.5 Severability of Provisions 39
15.6 Amendments in Writing 39
15.7 Counterparts; Telefacsimile Execution 39
15.8 Revival and Reinstatement of Obligations 39
15.9 Integration 40
iii
SCHEDULES
Schedule E-1 Eligible Inventory
Schedule P-1 Permitted Liens
Schedule 5.9 Litigation
Schedule 5.12 Employee Benefits
Schedule 6.13 Location of Inventory and Equipment
Schedule 7.14 Transactions with Affiliates
iv
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of April 21, 1994,
between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, and BRENDLE'S INCORPORATED, a North
Carolina corporation ("Borrower"), with its chief executive office located at
1919 North Bridge Street, Elkin, North Carolina 28621.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the
following terms shall have the following definitions:
"Account Debtor" means any Person who is or who may
become obligated under, with respect to, or on account of an Account.
"Accounts" means all currently
existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to
Borrower arising out of the sale
or lease of goods or the rendition of services by Borrower,
irrespective of whether earned
by performance, and any and all guaranties, or security
therefor, together with monies due
from Monogram pursuant to that certain Credit Card Program
Agreement between Borrower
and Monogram dated as of March 20, 1989, as the same may be
amended from time to
time.
"Affiliate" means, as applied to any
Person, any other Person directly or indirectly controlling, controlled by,
or under common control with, that Person. For
purposes of this definition, "control" as applied to any
Person means the possession, directly
or indirectly, of the power to direct or cause the direction
of the management and policies
of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Loan and
Security Agreement and any extensions,
riders supplements, notes, amendments, or modifications to
or in connection with this Loan and Security Agreement.
"Authorized Officer" means the Chief
Executive Officer or Chief Financial Officer of Borrower.
1
"Average Unused Portion of Maximum
Amount" means (a) the Maximum Amount; less (b) the sum of: (i) the average
Daily Balance of advances made by Foothill
under Section 2.1 that were outstanding during the
immediately preceding month; plus (ii)
the average Daily Balance of the undrawn L/Cs and L/C
Guarantees issued by Foothill
under Section 2.2 that were outstanding during the
immediately preceding month.
"Bankruptcy Case" means Borrower's
bankruptcy case number B-92-14519C-
11W filed by Borrower under Chapter 11 of the Bankruptcy
Code on November 22, 1992.
"Bankruptcy Code" means the United
States Bankruptcy Code (11 U.S.C.
(section mark) 101 et seq.), as amended, and any successor statute.
"Bankruptcy Court" has the meaning set
forth in Section 5.2.
"Borrower" has the meaning set forth
in the preamble to this Agreement.
"Borrower's Books" means all of
Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets
(including the Collateral) or liabilities; all information
relating to Borrower's business
operations or financial condition; and all computer
programs, disc or tape files, printouts,
runs, or other computer prepared information, and the
equipment containing such information.
"Borrowing Base" has the meaning set
forth in Section 2.1.
"Business Day" means any day which is
not a Saturday, Sunday, or other day
on which national banks are authorized or required to close.
"Change of Control" shall be deemed to
have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of
more than 10% of the total
voting power of all classes of stock then outstanding of
Borrower normally entitled to vote
in the election of directors.
"Closing Date" means the date of the
initial advance or the date of the initial
issuance of an L/C or an L/C Guaranty, whichever occurs
first.
"Code" means the California Uniform
Commercial Code.
"Collateral" means each of the
following: the Accounts; Borrower's Books;
the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; any
money, or other assets of Borrower which now or hereafter
come into the possession,
custody, or control of Foothill; and the proceeds and
products, whether tangible or
2
intangible, of any of the foregoing including proceeds of
insurance covering any or all of
the Collateral, and any and all Accounts, Borrower's Books,
Equipment, General
Intangibles, Inventory, Negotiable Collateral, money,
deposit accounts, or other tangible or
intangible property resulting from the sale, exchange,
collection, or other disposition of any
of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Consolidated Current Assets" means,
as of any date of determination, the
aggregate amount of all current assets of Borrower and its
subsidiaries calculated on a
consolidated basis that would, in accordance with GAAP, be
classified on a balance sheet as current assets.
"Consolidated Current Liabilities"
means, as of any date of determination,
the aggregate amount of all current liabilities of Borrower
and its subsidiaries, calculated
on a consolidated basis that would, in accordance with GAAP,
be classified on a balance
sheet as current liabilities. For purposes of this
definition, all advances outstanding under
this Agreement shall be deemed to be current liabilities
without regard to whether they
would be deemed to be so under GAAP.
"Daily Balance" means the amount of an
Obligation owed at the end of a
given day.
"Early Termination Premium" has the
meaning set forth in Section 3.5.
"Eligible Inventory" means Inventory
consisting of first quality finished goods
held for sale in the ordinary course of Borrower's business,
that are located at Borrower's
premises identified on Schedule E-1, are acceptable to
Foothill in all respects, and strictly
comply with all of Borrower's representations and warranties
to Foothill. Eligible Inventory
shall not include any of the following categories of
Inventory: (a) health and beauty
(Department No. 90), domestics (Department No. 91), (c) in-
out promotions (Department
No. 92), (d) food items/sauce cookies (Department No. 97),
(e) cigarettes/lighters
(Department 98), (f) miscellaneous clearing (Department 99),
(g) slow moving or obsolete
items which have been discontinued from Borrower's current
inventory selection for more
than one (1) year and are categorized by Borrower as C or D
Inventory, (h) restrictive or
custom items, (i) packaging and shipping materials, (j)
supplies used or consumed in
Borrower's business, (k) Inventory subject to a security
interest or lien in favor of any third
Person, (l) bill and hold goods, (m) Inventory that is not
subject to Foothill's perfected
security interests, (n) returned or defective goods, (o)
"seconds," and (p) Inventory acquired
on consignment. Eligible Inventory shall be valued at the
lower of Borrower's cost or
market value.
"Equipment" means all of Borrower's
present and hereafter acquired
machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles
(including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer
goods, farm products, or Inventory), wherever located, and
any interest of Borrower in any
3
of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions,
additions, and improvements to any of the foregoing,
wherever located.
"ERISA" means the Employee Retirement
Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or
superseding laws of the
United States of America, together with all regulations
promulgated thereunder.
"ERISA Affiliate" means any trade or
business (whether or not incorporated)
which, within the meaning of Section 414 of the IRC, is:
(i) under common control with
Borrower; (ii) treated, together with Borrower, as a single
employer; (iii) treated as a
member of an affiliated service group of which Borrower is
also treated as a member; or
(iv) is otherwise aggregated with the Borrower for purposes
of the employee benefits
requirements listed in IRC Section 414(m)(4).
"ERISA Event" means any one or more of
the following: (i) a Reportable
Event with respect to a Qualified Plan or a Multiemployer
Plan; (ii) a Prohibited
Transaction with respect to any Plan; (iii) a complete or
partial withdrawal by Borrower or
any ERISA Affiliate from a Multiemployer Plan; (iv) the
complete or partial withdrawal of
Borrower or an ERISA Affiliate from a Qualified Plan during
a plan year in which it was,
or was treated as, a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (v) a
failure to make full payment when due of all amounts which,
under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is
required to make; (vi) the filing
of a notice of intent to terminate, or the treatment of a
plan amendment as a termination,
under Sections 4041 or 4041A of ERISA; (vii) an event or
condition which might
reasonably be expected to constitute grounds under Section
4042 of ERISA for the
termination of, or the appointment of a trustee to
administer, any Qualified Plan or
Multiemployer Plan; (viii) the imposition of any liability
under Title IV of ERISA, other
than PBGC premiums due but not delinquent under Section 4007
of ERISA, upon Borrower
or any ERISA Affiliate; and (ix) a violation of the
applicable requirements of Sections 404
or 405 of ERISA, or the exclusive benefit rule under Section
403(c) of ERISA, by any
fiduciary or disqualified person with respect to any Plan
for which Borrower or any ERISA
Affiliate may be directly or indirectly liable.
"Event of Default" has the meaning set
forth in Section 8.
"FEIN" means Federal Employer
Identification Number.
"Financing Order" means a final, non-
appealable order of the Bankruptcy
Court approving financing pursuant to this Agreement.
"Foothill" has the meaning set forth
in the preamble to this Agreement.
"Foothill Expenses" means all: costs
or expenses (including taxes,
photocopying, notarization, telecommunication and insurance
premiums) required to be paid
4
by Borrower under any of the Loan Documents that are paid or
advanced by Foothill;
documentation, filing, recording, publication, appraisal
(including periodic Collateral
appraisals), real estate survey, environmental audit, and
search fees assessed, paid, or
incurred by Foothill in connection with Foothill's
transactions with Borrower; costs and
expenses incurred by Foothill in the disbursement of funds
to Borrower (by wire transfer
or otherwise); charges paid or incurred by Foothill
resulting from the dishonor of checks;
costs and expenses paid or incurred by Foothill to correct
any default or enforce any
provision of the Loan Documents, or in gaining possession
of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale,
or advertising to sell the
Collateral, or any portion thereof, irrespective of whether
a sale is consummated; costs and
expenses paid or incurred by Foothill in examining
Borrower's Books; costs and expenses
of third party claims or any other suit paid or incurred by
Foothill in enforcing or defending
the Loan Documents; and Foothill's reasonable attorneys fees
and expenses incurred in
advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing
(including attorneys fees and expenses incurred in
connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning
Borrower or any guarantor of the
Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit
is brought.
"GAAP" means generally accepted
accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of
Borrower's present and future general
intangibles and other personal property (including contract
rights, rights arising under
common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade
names, trademarks, servicemarks, copyrights, blueprints,
drawings, purchase orders,
customer lists, monies due or recoverable from pension
funds, route lists, rights to payment
and other rights under any royalty or licensing agreements,
infringements, claims, computer
programs, computer discs, computer tapes, literature,
reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund
claims), other than goods and
Accounts.
"Hazardous Materials" means all or any
of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant
to, any applicable laws or
regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define,
list, or classify substances by
reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity"; (b) oil, petroleum,
or petroleum derived substances,
natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other
wastes associated with the exploration, development, or
production of crude oil, natural gas,
or geothermal resources; (c) any flammable substances or
explosives or any radioactive
materials; and (d) asbestos in any form or electrical
equipment which contains any oil or
dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty (50) parts
per million.
5
"Indebtedness" means: (a) all obligations of Borrower
for borrowed money; (b) all obligations of Borrower evidenced by bonds,
debentures, notes, or other similar
instruments and all reimbursement or other obligations of
Borrower in respect of letters of
credit, letter of credit guaranties, bankers acceptances,
interest rate swaps, controlled
disbursement accounts, or other financial products; (c) all
obligations under capitalized
leases; (d) all obligations or liabilities of others secured
by a lien or security interest on any
property or asset of Borrower, irrespective of whether such
obligation or liability is
assumed; and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any
indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person.
"Insolvency Proceeding" means any
proceeding commenced by or against any
Person under any provision of the Bankruptcy Code, except
for the Bankruptcy Case, or
under any other bankruptcy or insolvency law, including
assignments for the benefit of
creditors, formal or informal moratoria, compositions,
extensions generally with its
creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
"Inventory" means all present and
future inventory in which Borrower has
any interest, including, but not limited to, jewelry,
housewares, toys, consumer electronics,
hardgoods and gifts, and packing and shipping materials,
wherever located, and any
documents of title representing any of the above.
"IRC" means the Internal Revenue Code
of 1986, as amended, and the
regulations thereunder.
"L/C" has the meaning set forth in
Section 2.2(a).
"L/C Guaranty" has the meaning set
forth in Section 2.2(a).
"Loan Documents" means this Agreement,
the Lock Box Agreement, any
note or notes executed by Borrower and payable to Foothill,
and any other agreement
entered into in connection with this Agreement.
"Lock Box" means the Foothill Account,
as defined in the Lock Box
Agreement.
"Lock Box Agreement" means that
certain Depository Account Agreement,
in form and substance satisfactory to Foothill, which is
among Borrower, Foothill, and the
Lock Box Bank.
"Lock Box Bank" means First Union
National Bank of North Carolina.
"Maximum Amount" has the meaning set
forth in Section 2.1.
6
"Maximum Foothill Amount" means that portion of the
Maximum Amount for which Foothill shall be responsible, exclusive of any
participations with Participants,
which amount is Thirty Five Million Dollars ($35,000,000).
"Monogram" means Monogram Credit Card
Bank of Georgia, a Georgia banking corporation.
"Multiemployer Plan" means a
multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in
which employees of Borrower
or an ERISA Affiliate participate or to which Borrower or
any ERISA Affiliate contribute
or are required to contribute.
"Negotiable Collateral" means all of
Borrower's present and future letters of
credit, notes, drafts, instruments, certificated and
uncertificated securities (including the
shares of stock of subsidiaries of Borrower), documents,
personal property leases (wherein
Borrower is the lessor), chattel paper, and Borrower's Books
relating to any of the
foregoing.
"Obligations" means all loans,
advances, debts, principal, interest (including
any interest that, but for the provisions of the Bankruptcy
Code, would have accrued),
contingent reimbursement obligations owing to Foothill under
any outstanding L/Cs or L/C
Guarantees, premiums, liabilities (including all amounts
charged to Borrower's loan account
pursuant to any agreement authorizing Foothill to charge
Borrower's loan account),
obligations, fees (including Early Termination Premiums),
lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any
kind and description (whether
pursuant to or evidenced by the Loan Documents, by any note
or other instrument, or
pursuant to any other agreement between Foothill and
Borrower, and irrespective of whether
for the payment of money), whether direct or indirect,
absolute or contingent, due or to
become due, now existing or hereafter arising, and including
any debt, liability, or
obligation owing from Borrower to others that Foothill may
have obtained by assignment
or otherwise, and further including all interest not paid
when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan
Documents, by law, or
otherwise.
"Old Lender" means CIT Group/Business
Credit, Inc.
"Overadvance" has the meaning set
forth in Section 2.4.
"Participant" means any Person, other
than Foothill, that has committed to
provide a portion of the financing contemplated herein.
"Pay-Off Letter" means a letter, in
form and substance reasonably satisfactory
to Foothill, from Old Lender respecting the amount necessary
to repay in full all of the
obligations of Borrower owing to Old Lender and obtain a
termination or release of all of
7
the security interests or liens existing in favor of Old
Lender in and to the properties or
assets of Borrower.
"PBGC" means the Pension Benefit
Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto.
"Permitted Liens" means: (a) liens and
security interests held by Foothill; (b)
liens for unpaid taxes that are not yet due and payable; (c)
liens and security interests set
forth on Schedule P-1 attached hereto; (d) purchase money
security interests and liens of
lessors under capitalized leases to the extent that the
acquisition or lease of the underlying
asset was permitted under Section 7.10, and so long as the
security interest or lien only
secures the purchase price of the asset; (e) easements,
rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and
other similar encumbrances that
do not materially interfere with the use or value of the
property subject thereto; (f)
obligations and duties as lessee under any lease existing on
the date of this Agreement; and
(g) mechanics', materialmen's, warehousemen's, or similar
liens.
"Person" means and includes natural
persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts,
land trusts, business trusts, or other
organizations, irrespective of whether they are legal
entities, and governments and agencies
and political subdivisions thereof.
"Plan" means an employee benefit plan
(as defined in Section 3(3) of ERISA)
which Borrower or any ERISA Affiliate sponsors or maintains
or to which Borrower or any
ERISA Affiliate makes, is making, or is obligated to make
contributions, including any
Multiemployer Plan or Qualified Plan.
"Plan of Reorganization" means that
certain First Amended Joint Plan of
Reorganization filed on November 10, 1993 by Borrower and
Brendle's Stores, Inc., as
modified and confirmed on December 20, 1993.
"Prohibited Transaction" means any
transaction described in Section 406 of
ERISA which is not exempt by reason of Section 408 of ERISA,
and any transaction
described in Section 4975(c) of the IRC which is not exempt
by reason of Section 4975(c)
of the IRC.
"Qualified Plan" means a pension plan
(as defined in Section 3(2) of ERISA)
intended to be tax-qualified under Section 401(a) of the IRC
which Borrower or any ERISA
Affiliate sponsors, maintains, or to which any such person
makes, is making, or is obligated
to make, contributions, or, in the case of a multiple-
employer plan (as described in Section
4064(a) of ERISA), has made contributions at any time during
the immediately preceding
period covering at least five (5) plan years, but excluding
any Multiemployer Plan.
8
"Reference Rate" means the highest
of the variable rates of interest, per
annum, most recently announced by (a) Bank of America, N.T.
& S.A., (b) Mellon Bank,
N.A., and (c) Citibank, N.A., or any successor to any of the
foregoing institutions, as its
"prime rate" or "reference rate," as the case may be,
irrespective of whether such
announced rate is the best rate available from such
financial institution.
"Reportable Event" means any event
described in Section 4043 (other than
Subsections (b)(7) and (b)(9)) of ERISA.
"Solvent" means, with respect to any
Person on a particular date, that on such
date (a) at fair valuations, all of the properties and
assets of such Person are greater than
the sum of the debts, including contingent liabilities, of
such Person, (b) the present fair
salable value of the properties and assets of such Person is
not less than the amount that will
be required to pay the probable liability of such Person on
its debts as they become absolute
and matured, (c) such Person is able to realize upon its
properties and assets and pay its
debts and other liabilities, contingent obligations and
other commitments as they mature in
the normal course of business, (d) such Person does not
intend to, and does not believe that
it will, incur debts beyond such Person's ability to pay as
such debts mature, and (e) such
Person is not engaged in business or a transaction, and is
not about to engage in business
or a transaction, for which such Person's properties and
assets would constitute
unreasonably small capital after giving due consideration to
the prevailing practices in the
industry in which such Person is engaged. In computing the
amount of contingent liabilities
at any time, it is intended that such liabilities will be
computed at the amount that, in light
of all the facts and circumstances existing at such time,
represents the amount that
reasonably can be expected to become an actual or matured
liability.
"Syndicated Amount" means that portion
of the Maximum Amount, if any,
equal to the aggregate financing commitments (to the extent
not breached or terminated) of
all Participants.
"Tangible Net Worth" means, as of the
date any determination thereof is to
be made, the difference of: (a) Borrower's total
stockholder's equity; minus (b) the sum of:
(i) all intangible assets of Borrower; (ii) all of
Borrower's prepaid expenses except for
prepaid Inventory; and (iii) all amounts due to Borrower
from Affiliates, calculated on a
consolidated basis.
"Unfunded Benefit Liability" means the
excess of a Plan's benefit liabilities
(as defined in Section 4001(a)(16) of ERISA) over the
current value of such Plan's assets,
determined in accordance with the assumptions used by the
Plan's actuaries for funding the
Plan pursuant to Section 412 of the IRC for the applicable
plan year.
"Voidable Transfer" has the meaning
set forth in Section 15.8.
9
1.2 Accounting Terms. All accounting terms
not specifically defined
herein shall be construed in accordance with GAAP. When
used herein, the term "financial
statements" shall include the notes and schedules thereto.
Whenever the term "Borrower"
is used in respect of a financial covenant or a related
definition, it shall be understood to
mean Borrower on a consolidated basis unless the context
clearly requires otherwise.
1.3 Code. Any terms used in this
Agreement which are defined in the
Code shall be construed and defined as set forth in the Code
unless otherwise defined
herein.
1.4 Construction. Unless the context
of this Agreement clearly requires
otherwise, references to the plural include the singular,
references to the singular include
the plural, the term "including" is not limiting, and the
term "or" has, except where
otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms
in this Agreement refer to this
Agreement as a whole and not to any particular provision of
this Agreement. Section,
subsection, clause, schedule, and exhibit references are to
this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan
Documents to this Agreement
or any of the Loan Documents shall include all alterations,
amendments, changes,
extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto
and thereof, as applicable.
1.5 Schedules and Exhibits. All of the
schedules and exhibits attached
to this Agreement shall be deemed incorporated herein by
reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances. (a) Subject to
the terms and conditions of this
Agreement, Foothill agrees to make revolving advances to
Borrower in an amount not to
exceed the Borrowing Base. For purposes of this Agreement,
"Borrowing Base" shall mean
an amount equal to fifty-five percent (55%) of the amount of
Eligible Inventory net of
reserves during the period of December 15th through July
31st of each year and sixty-five
(65%) of the amount of Eligible Inventory net of reserves
during the period of August 1st
through December 14th of each year. Foothill shall
establish reasonable reserves against
Eligible Inventory for price protection, volume rebates and
for Inventory, if any, that is
subject to landlord liens that are not subordinate to
Foothill's security interests in Inventory.
(b) Anything to the
contrary in Section 2.1(a) above
notwithstanding, Foothill may reduce its advance rates based
upon Eligible Inventory
without declaring an Event of Default if it determines, in
its reasonable discretion, that there
is a material impairment of the prospect of repayment of all
or any portion of the
Obligations or a material impairment of the value or
priority of Foothill's security interests
in the Collateral.
10
(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations
to exceed the lesser of: (i) Forty
Five Million Dollars ($45,000,000) ("Maximum Amount"), or
(ii) the Maximum Foothill
Amount plus the Syndicated Amount.
(d) Foothill is
authorized to make advances under this Agreement
based upon telephonic or other instructions received from
anyone purporting to be an
Authorized Officer of Borrower, or without instructions if
pursuant to Section 2.5(d).
Borrower agrees to establish and maintain a single
designated deposit account for the
purpose of receiving the proceeds of the advances requested
by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and
Borrower, any advance
requested by Borrower and made by Foothill hereunder shall
be made to such designated
deposit account. Amounts borrowed pursuant to this Section
2.1 may be repaid and, subject
to the terms and conditions of this Agreement, reborrowed at
any time during the term of
this Agreement.
2.2 Letters of Credit and Letter of
Credit Guarantees.
(a) Subject to the
terms and conditions of this Agreement, Foothill
agrees to issue commercial or standby letters of credit for
the account of Borrower (each,
an "L/C") or to issue standby letters of credit or
guarantees of payment (each such letter
of credit or guaranty, an "L/C Guaranty") with respect to
commercial or standby letters of
credit issued by another Person for the account of Borrower
in an aggregate face amount
not to exceed the lesser of: (i) the Borrowing Base less the
amount of advances outstanding
pursuant to Section 2.1, and (ii) Ten Million Dollars
($10,000,000). Borrower expressly
understands and agrees that Foothill shall have no
obligation to arrange for the issuance by
other financial institutions of letters of credit that are
to be the subject of L/C Guarantees.
Borrower and Foothill acknowledge and agree that certain of
the letters of credit that are
to be the subject of L/C Guarantees may be outstanding on
the Closing Date. Each such
L/C (including those that are the subject of L/C Guarantees)
shall have an expiry date no
later than sixty (60) days prior to the date on which this
Agreement is scheduled to
terminate under Section 3.3 (without regard to any potential
renewal term) and all such L/Cs
and L/C Guarantees shall be in form and substance acceptable
to Foothill in its sole
discretion. Foothill shall not have any obligation to issue
L/Cs or L/C Guarantees to the
extent that the face amount of all outstanding L/Cs and L/C
Guarantees, plus the amount
of advances outstanding pursuant to Section 2.1, would
exceed the lesser of: (y) the
Maximum Amount, or (z) the Maximum Foothill Amount plus the
Syndicated Amount. The
L/Cs and the L/C Guarantees issued under this Section 2.2
shall be used by Borrower,
consistent with this Agreement, for its general working
capital purposes or to support its
obligations with respect to workers' compensation premiums
or other similar obligations.
If Foothill is obligated to advance funds under an L/C or
L/C Guaranty, the amount so
advanced immediately shall be deemed to be an advance made
by Foothill to Borrower
pursuant to Section 2.1 and, thereafter, shall bear interest
at the rates then applicable under
Section 2.5.
11
(b) Borrower hereby agrees to indemnify, save,
defend, and hold
Foothill harmless from any loss, cost, expense, or
liability, including payments made by
Foothill, expenses, and reasonable attorneys fees incurred
by Foothill arising out of or in
connection with any L/Cs or L/C Guarantees. Borrower agrees
to be bound by the issuing
bank's regulations and interpretations of any letters of
credit guarantied by Foothill and
opened to or for Borrower's account or by Foothill's
interpretations of any L/C issued by
Foothill to or for Borrower's account, even though this
interpretation may be different from
Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for
any error, negligence, or mistakes, whether of omission or
commission, in following
Borrower's instructions or those contained in the L/Cs or
any modifications, amendments,
or supplements thereto. Borrower understands that the L/C
Guarantees may require Foothill
to indemnify the issuing bank for certain costs or
liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees
to indemnify, save, defend,
and hold Foothill harmless with respect to any loss, cost,
expense (including attorneys fees),
or liability incurred by Foothill under any L/C Guaranty as
a result of Foothill's
indemnification of any such issuing bank.
(c) Borrower hereby
authorizes and directs any bank that issues
a letter of credit guaranteed by Foothill to deliver to
Foothill all instruments, documents,
and other writings and property received by the issuing bank
pursuant to the letter of credit,
and to accept and rely upon Foothill's instructions and
agreements with respect to all matters
arising in connection with the letter of credit and the
related application. Borrower may or
may not be the "applicant" or "account party" with respect
to such letter of credit.
(d) Any and all
service charges, commissions, fees, and costs
incurred by Foothill relating to the L/Cs guaranteed by
Foothill shall be considered Foothill
Expenses for purposes of this Agreement and immediately
shall be reimbursable by
Borrower to Foothill. On the first day of each month,
Borrower will pay Foothill a fee
equal to two and one-half percent (2.50%) per annum times
the average Daily Balance of
the undrawn L/Cs and L/C Guarantees that were outstanding
during the immediately
preceding month. Service charges, commissions, fees, and
costs may be charged to
Borrower's loan account at the time the service is rendered
or the cost is incurred.
(e) Immediately
upon the termination of this Agreement, Borrower
agrees to either: (i) provide cash collateral to be held by
Foothill in an amount equal to the
maximum amount of Foothill's obligations under L/Cs plus the
maximum amount of
Foothill's obligations to any Person under outstanding L/C
Guarantees, or (ii) cause to be
delivered to Foothill releases of all of Foothill's
obligations under its outstanding L/Cs and
L/C Guarantees. At Foothill's discretion, any proceeds of
Collateral received by Foothill
after the occurrence and during the continuation of an Event
of Default may be held as the
cash collateral required by this Section 2.2(e).
2.3 Intentionally omitted.
12
2.4 Overadvances. If, at any time or for any
reason, the amount of
Obligations owed by Borrower to Foothill pursuant to
Sections 2.1 and 2.2 is greater than
either the dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an
"Overadvance"), Borrower immediately shall pay to Foothill,
in cash, the amount of such
excess to be used by Foothill first, to repay non-contingent
Obligations and, thereafter, to
be held by Foothill as cash collateral to secure Borrower's
obligation to repay Foothill for
all amounts paid pursuant to L/Cs or L/C Guarantees.
2.5 Interest: Rates, Payments, and
Calculations.
(a) Interest Rate.
All Obligations, except for undrawn L/Cs and
L/C Guarantees, shall bear interest, on the average Daily
Balance, at a per annum rate of
one and forty-four one hundredths (1.44) percentage points
above the Reference Rate.
(b) Default Rate.
All Obligations, except for undrawn L/Cs and
L/C Guarantees, shall bear interest, from and after the
occurrence and during the
continuance of an Event of Default, at a per annum rate
equal to four and forty-four one
hundredths (4.44) percentage points above the Reference
Rate. From and after the
occurrence and during the continuance of an Event of
Default, the fee provided in Section
2.2(d) shall be increased to a fee equal to five and one
half percent (5.50%) per annum
times the average Daily Balance of the undrawn L/Cs and L/C
Guarantees that were
outstanding during the immediately preceding month.
(c) Minimum
Interest. In no event shall the rate of interest
chargeable hereunder be less than seven percent (7%) per
annum.
(d) Payments.
Interest hereunder shall be due and payable on the
first day of each month during the term hereof. Borrower
hereby authorizes Foothill, at its
option, without prior notice to Borrower, to charge such
interest, all Foothill Expenses (as
and when incurred), and all installments or other payments
due under the Term Note or any
other note or other Loan Document to Borrower's loan
account, which amounts shall
thereafter accrue interest at the rate then applicable
hereunder. Any interest not paid when
due shall be compounded by becoming a part of the
Obligations, and such interest shall
thereafter accrue interest at the rate then applicable
hereunder.
(e) Computation.
The Reference Rate as of this date is six and
three quarters percent (6.75%) per annum. In the event the
Reference Rate is changed from
time to time hereafter, the applicable rate of interest
hereunder automatically and
immediately shall be increased or decreased by an amount
equal to such change in the
Reference Rate. The rates of interest charged hereunder
shall be based upon the average
Reference Rate in effect during the month. All interest and
fees chargeable under the Loan
Documents shall be computed on the basis of a three hundred
sixty (360) day year for the
actual number of days elapsed.
13
(f) Intent to Limit Charges to
Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this
Agreement or the Term Note, plus any
other amounts paid in connection herewith, exceed the
highest rate permissible under any
law that a court of competent jurisdiction shall, in a final
determination, deem applicable.
Borrower and Foothill, in executing this Agreement and the
Term Note, intend to legally
agree upon the rate or Rates of interest and manner of
payment stated within it; provided,
however, that, anything contained herein or in the Term Note
to the contrary
notwithstanding, if said rate or rates of interest or manner
of payment exceeds the maximum
allowable under applicable law, then, ipso facto as of the
date of this Agreement and the
Term Note, Borrower is and shall be liable only for the
payment of such maximum as
allowed by law, and payment received from Borrower in excess
of such legal maximum,
whenever received, shall be applied to reduce the principal
balance of the Obligations to the
extent of such excess.
2.6 Crediting Payments; Application of
Collections. The receipt of any
wire transfer of funds, check, or other item of payment by
Foothill (whether from transfers
to Foothill by the Lock Box Banks pursuant to the Lock Box
Agreements or otherwise)
immediately shall be applied to provisionally reduce the
Obligations, but shall not be
considered a payment on account unless such wire transfer is
of immediately available
federal funds and is made to the appropriate deposit account
of Foothill or unless and until
such check or other item of payment is honored when
presented for payment. From and
after the Closing Date, Foothill shall be entitled to charge
Borrower for three (3) Business
Days of `clearance' at the applicable rates set forth in
Sections 2.5(a) and 2.5(b) (applicable
to advances under Section 2.1) on all collections, checks,
wire transfers, or other items of
payment that are received by Foothill (regardless of whether
forwarded by the Lock Box
Banks to Foothill, whether provisionally applied to reduce
the Obligations, or otherwise).
This across-the-board three (3) Business Day clearance
charge on all receipts is
acknowledged by the parties to constitute an integral aspect
of the pricing of Foothill's
facility to Borrower, and shall apply irrespective of the
characterization of whether receipts
are owned by Borrower or Foothill, and irrespective of the
level of Borrower's Obligations
to Foothill. Should any check or item of payment not be
honored when presented for
payment, then Borrower shall be deemed not to have made such
payment, and interest shall
be recalculated accordingly. Anything to the contrary
contained herein notwithstanding, any
wire transfer, check, or other item of payment shall be
deemed received by Foothill only
if it is received into Foothill's Operating Account (as such
account is identified in the Lock
Box Agreements) on or before 11:00 a.m. Los Angeles time.
If any wire transfer, check,
or other item of payment is received into Foothill's
Operating Account (as such account is
identified in the Lock Box Agreements) after 11:00 a.m. Los
Angeles time it shall be
deemed to have been received by Foothill as of the opening
of business on the immediately
following Business Day.
2.7 Statements of Obligations.
Foothill shall render statements to
Borrower of the Obligations, including principal, interest,
fees, and including an itemization
of all charges and expenses constituting Foothill Expenses
owing, and such statements shall
14
be conclusively presumed to be correct and accurate and
constitute an account stated
between Borrower and Foothill unless, within thirty (30)
days after receipt thereof by
Borrower, Borrower shall deliver to Foothill by registered
or certified mail at its address
specified in Section 12, written objection thereto
describing the error or errors contained in
any such statements.
2.8 Fees. Borrower shall pay to
Foothill the following fees:
(a) Commitment Fee.
A one time commitment fee of Four
Hundred Fifty Thousand Dollars ($450,000) which is earned,
in full, upon approval of the
financing contemplated by this Agreement by the Bankruptcy
Court and is due and payable
by Borrower to Foothill in connection with this Agreement
concurrently with such approval;
(b) Unused Line
Fee. On the first day of each month during the
term of this Agreement, a fee in an amount equal to one half
of one percent (.50%) per
annum times the Average Unused Portion of the Maximum
Amount;
(c) Annual Facility
Fee. On the Closing Date and on each
anniversary of the Closing Date, a fee in an amount equal to
one half of one percent (.50%)
of the Maximum Amount, such fee to be fully earned on each
such date;
(d) Financial
Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of Six Hundred Dollars ($600) per
day per examiner, plus out-of-
pocket expenses for each financial analysis and examination
of Borrower performed by
Foothill or its agents; Foothill's customary appraisal fee
of One Thousand Dollars ($1,000)
per day per appraiser, plus out-of-pocket expenses for each
appraisal of the Collateral
performed by Foothill or its agents; and, on each
anniversary of the Closing Date, Foothill's
customary fee of One Thousand Dollars ($1,000) per year for
its loan documentation
review; and
(e) Servicing Fee.
On the first day of each month during the term
of this Agreement, and thereafter so long as any Obligations
are outstanding, a servicing
fee in an amount equal to Three Thousand Five Hundred
Dollars ($3,500) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Initial
Advance, L/C, or L/C Guaranty.
The obligation of Foothill to make the initial advance or to
provide the initial L/C or L/C
Guaranty is subject to the fulfillment, to the satisfaction
of Foothill and its counsel, of each
of the following conditions on or before the Closing Date:
(a) the Closing
Date shall occur on or before April 30, 1994;
15
(b) Foothill shall have received a certificate
from an Authorized Officer, and such other evidence as Foothill shall
reasonably require, to the effect that all
conditions to the substantial consummation of the Plan of
Reorganization and the satisfaction
or release of all liens and security interests in the
Collateral (other than Permitted Liens)
shall have been satisfied (other than the funding of the
obligations under the Plan of
Reorganization from the initial advances hereunder);
(c) The Financing
Order shall have been entered and shall remain
in full force and effect;
(d) Foothill shall
have received searches reflecting the filing of its
financing statements;
(e) Foothill shall
have received each of the following documents,
duly executed, and each such document shall be in full force
and effect:
i) the Lock Box Agreement; and
ii) a security agreement from
BFS, Inc. on the trademarks owned by such corporation;
(f) Foothill shall
have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its
execution and delivery of this Agreement and the other Loan
Documents to which Borrower
is a party and authorizing specific officers of Borrower to
execute same;
(g) Foothill shall
have received copies of Borrower's By-laws and
Articles of Incorporation, as amended, modified, or
supplemented to the Closing Date,
certified by the Secretary of Borrower;
(h) Foothill shall
have received a certificate of corporate status
with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary
of State of the state of incorporation of Borrower, which
certificate shall indicate that
Borrower is in good standing in such state;
(i) Foothill shall
have received certificates of corporate status with
respect to Borrower, each dated within fifteen (15) days of
the Closing Date, such
certificates to be issued by the Secretary of State of the
states in which its failure to be duly
qualified or licensed would have a material adverse effect
on the financial condition or
properties and assets of Borrower, which certificates shall
indicate that Borrower is in good
standing;
16
(j) Foothill shall have received the certified
copies of the policies
of insurance, together with the endorsements thereto, as are
required by Section 6.10
hereof, the form and substance of which shall be
satisfactory to Foothill and its counsel;
(k) Foothill shall
have received duly executed certificates of title
with respect to that portion of the Collateral that is
subject to certificates of title and is not
subject to Permitted Liens;
(l) Foothill shall
have received landlord waivers from Brenco, as
to all properties leased by Brenco to Borrower, and from the
lessor of Borrower's
distribution center;
(m) Foothill shall
have completed its appraisal of Borrower's
Inventory and the results of such appraisal shall be
reasonably satisfactory to Foothill;
(n) Foothill shall
have received an opinion of Borrower's counsel
in form and substance satisfactory to Foothill in its sole
discretion;
(o) Foothill shall
have received evidence that Brendle's Stores, Inc.
has merged into Borrower;
(p) Borrower and
Brenco shall have agreed to renewals and
modifications of the real property leases between them on
terms and conditions satisfactory
to Foothill; and
(q) all other
documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been
delivered or executed or
recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 Conditions Precedent to All
Advances, L/Cs, or L/C Guarantees.
The following shall be conditions precedent to all advances,
L/Cs, or L/C Guarantees hereunder:
(a) the
representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct in
all respects on and as of the date
of such advance, L/C, or L/C Guaranty, as though made on and
as of such date (except to
the extent that such representations and warranties relate
solely to an earlier date);
(b) no Event of
Default or event which with the giving of notice
or passage of time would constitute an Event of Default
shall have occurred and be
continuing on the date of such advance, L/C, or L/C
Guaranty, nor shall either result from
the making of the advance; and
17
(c) no injunction, writ, restraining
order, or other order of any
nature prohibiting, directly or indirectly, the making of
such advance or the issuance of such
L/C or L/C Guaranty shall have been issued and remain in
force by any governmental
authority against Borrower, Foothill, or any of their
Affiliates.
3.3 Term. This Agreement shall become
effective upon the execution and
delivery hereof by Borrower and Foothill and shall continue
in full force and effect for a
term ending on the date (the "Maturity Date") that is five
(5) years from the Closing Date,
unless sooner terminated pursuant to the terms hereof. The
foregoing notwithstanding,
Foothill shall have the right to terminate its obligations
under this Agreement immediately
and without notice upon the occurrence and during the
continuation of an Event of Default.
3.4 Effect of Termination. On the date
of termination, all Obligations
(including contingent reimbursement obligations under any
outstanding L/Cs or L/C
Guarantees) immediately shall become due and payable without
notice or demand. No
termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's
duties, Obligations, or covenants hereunder, and Foothill's
continuing security interests in
the Collateral shall remain in effect until all Obligations
have been fully and finally
discharged and Foothill's obligation to provide advances
hereunder is terminated. If
Borrower has sent a notice of termination pursuant to the
provisions of Section 3.3, but fails
to pay all Obligations on the date set forth in said notice,
then Foothill may, but shall not
be required to, renew this Agreement for an additional term
of one (1) year.
3.5 Early Termination by Borrower. The
provisions of Section 3.3 that
allow termination of this Agreement only on the Maturity
Date notwithstanding, Borrower
has the option, at any time upon ninety (90) days prior
written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the
Obligations (including an
amount equal to the full amount of the L/Cs or L/C
Guarantees), together with a premium
(the "Early Termination Premium") equal to the greater of:
(a) an amount equal to one-half
of the total interest and L/C and L/C Guaranty fees for the
immediately preceding twelve
(12) months; and (b) Three Hundred Thousand Dollars
($300,000).
3.6 Termination Upon Event of Default.
If Foothill terminates this
Agreement upon the occurrence of an Event of Default, in
view of the impracticability and
extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as
to a reasonable calculation of Foothill's lost profits as a
result thereof, Borrower shall pay
to Foothill upon the effective date of such termination, a
premium in an amount equal to
the Early Termination Premium. The Early Termination
Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of
the early termination and
Borrower agrees that it is reasonable under the
circumstances currently existing. The Early
Termination Premium provided for in this Section 3.6 shall
be deemed included in the
Obligations.
18
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest.
Borrower hereby grants to Foothill a
continuing security interest in all currently existing and
hereafter acquired or arising
Collateral in order to secure prompt repayment of any and
all Obligations and in order to
secure prompt performance by Borrower of each of its
covenants and duties under the Loan
Documents. Foothill's security interests in the Collateral
shall attach to all Collateral
without further act on the part of Foothill or Borrower.
Anything contained in this
Agreement or any other Loan Document to the contrary
notwithstanding, and other than
sales of Inventory to buyers in the ordinary course of
business and sales of surplus
Equipment in individual transactions not exceeding Twenty
Thousand Dollars ($20,000)
each and in aggregate transactions not exceeding Two Hundred
Thousand Dollars
($200,000) in any fiscal year, Borrower has no authority,
express or implied, to dispose of
any item or portion of the Collateral. The security
interest of Foothill in monies due from
Monogram to Borrower will be subordinate only to the
Permitted Lien on monies due from
Monogram to Borrower, as described in Schedule P-1, to
secure any claims that Monogram
might have against the Borrower directly related to its
processing of Borrower's credit card
sales and arising under the Monogram Credit Card Bank of
Georgia Program Agreement
dated as of March 20, 1989, as subsequently amended.
4.2 Negotiable Collateral. In the
event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable
Collateral, Borrower shall, immediately
upon the request of Foothill, endorse and assign such
Negotiable Collateral to Foothill and
deliver physical possession of such Negotiable Collateral to
Foothill.
4.3 Collection of Accounts, General
Intangibles, Negotiable Collateral.
Foothill, Borrower, and the Lock Box Banks shall enter into
the Lock Box Agreements, in
form and substance satisfactory to Foothill in its sole
discretion, pursuant to which all of
Borrower's cash receipts, checks, and other items of payment
(including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds) will be forwarded to
Foothill on a daily basis. At any time, Foothill or
Foothill's designee may: (a) notify
customers or Account Debtors of Borrower that the Accounts,
General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest
therein; and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly
and charge the collection costs and expenses to Borrower's
loan account. Borrower agrees
that it will hold in trust for Foothill, as Foothill's
trustee, any cash receipts, checks, and
other items of payment (including, insurance proceeds,
proceeds of cash sales, rental
proceeds, and tax refunds) that it receives and immediately
will deliver said cash receipts,
checks, and other items of payment to Foothill in their
original form as received by
Borrower.
4.4 Delivery of Additional
Documentation Required. At any time upon
the request of Foothill, Borrower shall execute and deliver
to Foothill all financing
statements, continuation financing statements, fixture
filings, security agreements, chattel
19
mortgages, pledges, assignments, endorsements of
certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters
of authority, and all other
documents that Foothill may reasonably request, in form
satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the
Collateral and in order to fully
consummate all of the transactions contemplated hereby and
under the other the Loan
Documents.
4.5 Power of Attorney. Borrower hereby
irrevocably makes, constitutes,
and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by
Foothill) as Borrower's true and lawful attorney, with power
to: (a) if Borrower refuses
to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign
the name of Borrower on any of the documents described in
Section 4.4; (b) at any time that
an Event of Default has occurred and is continuing or
Foothill deems itself insecure (in
accordance with Section 1208 of the Code), sign Borrower's
name on any invoice or bill
of lading relating to any Account, drafts against Account
Debtors, schedules and
assignments of Accounts, verifications of Accounts, and
notices to Account Debtors; (c)
send requests for verification of Accounts; (d) endorse
Borrower's name on any checks,
notices, acceptances, money orders, drafts, or other item of
payment or security that may
come into Foothill's possession; (e) at any time that an
Event of Default has occurred and
is continuing or Foothill deems itself insecure (in
accordance with Section 1208 of the
Code), notify the post office authorities to change the
address for delivery of Borrower's
mail to an address designated by Foothill, to receive and
open all mail addressed to
Borrower, and to retain all mail relating to the Collateral
and forward all other mail to
Borrower; (f) at any time that an Event of Default has
occurred and is continuing or Foothill
deems itself insecure (in accordance with Section 1208 of
the Code), make, settle, and
adjust all claims under Borrower's policies of insurance and
make all determinations and
decisions with respect to such policies of insurance; and
(g) at any time that an Event of
Default has occurred and is continuing or Foothill deems
itself insecure (in accordance with
Section 1208 of the Code), settle and adjust disputes and
claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms
which Foothill determines to
be reasonable, and Foothill may cause to be executed and
delivered any documents and
releases which Foothill determines to be necessary. The
appointment of Foothill as
Borrower's attorney, and each and every one of Foothill's
rights and powers, being coupled
with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid
and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 Right to Inspect. Foothill
(through any of its officers, employees,
or agents) shall have the right, from time to time hereafter
to inspect Borrower's Books and
to check, test, and appraise the Collateral in order to
verify Borrower's financial condition
or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to
Foothill as follows:
20
5.1 No Prior
Encumbrances. Upon consummation of the Plan of
Reorganization, Borrower shall have good and indefeasible
title to the Collateral, free and
clear of liens, claims, security interests, or encumbrances,
except for Permitted Liens.
5.2 Plan of Reorganization. An order
confirming Borrower's Plan of
Reorganization was entered by the United States Bankruptcy
Court for the Middle District
of North Carolina (the "Bankruptcy Court") on December 20,
1993.
5.3 Eligible Inventory. All Eligible
Inventory is now and at all times
hereafter shall be of good and merchantable quality, free
from defects.
5.4 Location of Inventory and
Equipment. The Inventory and
Equipment are not stored with a bailee, warehouseman, or
similar party (without Foothill's
prior written consent) and are located only at the locations
identified on Schedule 6.13 or
otherwise permitted by Section 6.13.
5.5 Inventory Records. Borrower now
keeps, and hereafter at all times
shall keep, correct and accurate records itemizing and
describing the kind, type, quality, and
quantity of the Inventory, and Borrower's cost therefor. In
the ordinary course of
Borrower's business, Borrower regularly and timely marks
down the cost and retail value
of its Inventory so as to accurately reflect current values
at all times.
5.6 Location of Chief Executive Office;
FEIN. The chief executive
office of Borrower is located at the address indicated in
the preamble to this Agreement and
Borrower's FEIN is 56-0497852.
5.7 Due Organization and Qualification,
and Subsidiaries. Borrower
is duly organized and existing and in good standing under
the laws of the state of its
incorporation and qualified and licensed to do business in,
and in good standing in, any state
where the failure to be so licensed or qualified could
reasonably be expected to have a
material adverse effect on the business, operations,
condition (financial or otherwise),
finances, or prospects of Borrower or on the value of the
Collateral to Foothill. Borrower
has the following wholly-owned subsidiaries: Brendle's
Acceptance Corporation, a
Delaware corporation, The Electronic Sports Collection USA,
Inc., a New York
corporation, Brendle Transport, Inc., a North Carolina
corporation, BFS, Inc., a Delaware
corporation, BIC, Inc., a North Carolina corporation and
Alexander's/Brendle's, Inc., a
South Carolina corporation. BFS, Inc. merely owns certain
trademarks that are used by
Borrower. Brendle Transport, Inc. contracts with third
parties to provide transportation for
Borrower; Borrower pays for such transportation without
Brendle Transport, Inc. receiving
any markup or profit. None of the other subsidiaries is
engaged in business, and none of
such corporations has any assets.
5.8 Due Authorization; No Conflict.
The execution, delivery, and
performance of the Loan Documents are within Borrower's
corporate powers, have been
21
duly authorized, and are not in conflict with nor constitute
a breach of any provision
contained in Borrower's Articles of Incorporation, or By-
laws, nor will they constitute an
event of default under any material agreement to which
Borrower is a party or by which its
properties or assets may be bound.
5.9 Litigation. There are no actions
or proceedings pending by or against
Borrower before any court or administrative agency and
Borrower does not have knowledge
or belief of any pending, threatened, or imminent
litigation, governmental investigations,
or claims, complaints, actions, or prosecutions involving
Borrower or any guarantor of the
Obligations, except for: (a) ongoing collection matters in
which Borrower is the plaintiff;
(b) matters disclosed on Schedule 5.9; (c) the Bankruptcy
Case; and (d) matters arising after
the date hereof that, if decided adversely to Borrower,
would not materially impair the
prospect of repayment of the Obligations or materially
impair the value or priority of
Foothill's security interests in the Collateral. Except for
the appeal disclosed on
Schedule 5.9, there are no appeals, stays, injunctions or
other legal proceedings or other
legal, equitable, or administrative actions in respect of
the Bankruptcy Case, the Plan of
Reorganization, the Financing Order, or otherwise, that
would materially and adversely
affect the consummation of the financing contemplated hereby
on the terms set forth herein.
5.10 No Material Adverse Change in
Financial Condition. All financial
statements relating to Borrower that have been delivered by
Borrower to Foothill have been
prepared in accordance with GAAP and fairly present
Borrower's financial condition as of
the date thereof and Borrower's results of operations for
the period then ended. There has
not been a material adverse change in the financial
condition of Borrower since the date of
the latest financial statements submitted to Foothill on or
before the Closing Date.
5.11 Solvency. Upon consummation of
the Plan of Reorganization,
Borrower shall be Solvent. No transfer of property is being
made by Borrower and no
obligation is being incurred by Borrower in connection with
the transactions contemplated
by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud
either present or future creditors of Borrower.
5.12 Employee Benefits. Except as set
forth on Schedule 5.12, each Plan
is in compliance in all material respects with the
applicable provisions of ERISA and the
IRC. Each Qualified Plan and Multiemployer Plan has been
determined by the Internal
Revenue Service to qualify under Section 401 of the IRC, and
the trusts created thereunder
have been determined to be exempt from tax under Section 501
of the IRC, and, to the best
knowledge of Borrower, nothing has occurred that would cause
the loss of such qualification
or tax-exempt status. There are no outstanding liabilities
under Title IV of ERISA with
respect to any Plan maintained or sponsored by Borrower or
any ERISA Affiliate, nor with
respect to any Plan to which Borrower or any ERISA Affiliate
contributes or is obligated
to contribute which could reasonably be expected to have a
material adverse effect on the
financial condition of Borrower. No Plan subject to Title
IV of ERISA has any Unfunded
Benefit Liability which could reasonably be expected to have
a material adverse effect on
22
the financial condition of Borrower. Neither Borrower nor
any ERISA Affiliate has
transferred any Unfunded Benefit Liability to a person other
than Borrower or an ERISA
Affiliate or has otherwise engaged in a transaction that
could be subject to Sections 4069
or 4212(c) of ERISA which could reasonably be expected to
have a material adverse effect
on the financial condition of Borrower. Neither Borrower
nor any ERISA Affiliate has
incurred nor reasonably expects to incur (x) any liability
(and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would
result in such liability) under
Sections 4201 or 4243 of ERISA with respect to a
Multiemployer Plan, or (y) any liability
under Title IV of ERISA (other than premiums due but not
delinquent under Section 4007
of ERISA) with respect to a Plan, which could, in either
event, reasonably be expected to
have a material adverse effect on the financial condition of
Borrower. No application for
a funding waiver or an extension of any amortization period
pursuant to Section 412 of the
IRC has been made with respect to any Plan. Except as set
forth on Schedule 5.12, no
ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan
which could reasonably be expected to have a material
adverse effect on the financial
condition of Borrower. Borrower and each ERISA Affiliate
have complied in all material
respects with the notice and continuation coverage
requirements of Section 4980B of the
IRC.
5.13 Environmental Condition. None of
Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's
knowledge, by previous
owners or operators in the disposal of, or to produce,
store, handle, treat, release, or
transport, any Hazardous Materials. None of Borrower's
properties or assets has ever been
designated or identified in any manner pursuant to any
environmental protection statute as
a Hazardous Materials disposal site, or a candidate for
closure pursuant to any
environmental protection statute. No lien arising under any
environmental protection statute
has attached to any revenues or to any real or personal
property owned or operated by
Borrower. Borrower has not received a summons, citation,
notice, or directive from the
Environmental Protection Agency or any other federal or
state governmental agency
concerning any action or omission by Borrower resulting in
the releasing or disposing of
Hazardous Materials into the environment.
5.14 Reliance by Foothill; Cumulative.
Each warranty and representation
contained in this Agreement automatically shall be deemed
repeated with each advance or
issuance of an L/C or L/C Guaranty and shall be conclusively
presumed to have been relied
on by Foothill regardless of any investigation made or
information possessed by Foothill.
The warranties and representations set forth herein shall be
cumulative and in addition to
any and all other warranties and representations that
Borrower now or hereafter shall give,
or cause to be given, to Foothill.
23
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so
long as any credit hereunder shall be
available and until full and final payment of the
Obligations, and unless Foothill shall
otherwise consent in writing, Borrower shall do all of the
following:
6.1 Accounting System. Borrower shall
maintain a standard and modern
system of accounting in accordance with GAAP with ledger and
account cards or computer
tapes, discs, printouts, and records pertaining to the
Collateral which contain information
as from time to time may be requested by Foothill. Borrower
also shall keep proper books
of account showing all sales, claims, and allowances on its
Inventory.
6.2 Collateral Reports. Borrower shall
deliver to Foothill, no later than
the tenth (10th) Business Day after the end of each of
Borrower's monthly accounting
periods during the term of this Agreement, a detailed aging,
by total, of the Accounts, a
reconciliation statement, and a summary aging, by vendor, of
all accounts payable and any
book overdraft. Borrower shall deliver to Foothill, as
Foothill may from time to time
require, collection reports and sales journals. Absent such
a request by Foothill, copies of
all such documentation shall be held by Borrower as
custodian for Foothill.
6.3 Financial Statements, Reports,
Certificates. Borrower agrees to
deliver to Foothill: (a) as soon as available, but in any
event within thirty (30) days after
the end of each month during each of Borrower's fiscal
years, a company prepared balance
sheet, income statement, and cash flow statement covering
Borrower's operations during
such period; and (b) as soon as available, but in any event
within ninety (90) days after the
end of each of Borrower's fiscal years, financial statements
of Borrower for each such fiscal
year, audited by independent certified public accountants
reasonably acceptable to Foothill
and certified, without any qualifications, by such
accountants to have been prepared in
accordance with GAAP, together with a certificate of such
accountants addressed to Foothill
stating that such accountants do not have knowledge of the
existence of any event or
condition constituting an Event of Default, or that would,
with the passage of time or the
giving of notice, constitute an Event of Default. Such
audited financial statements shall
include a balance sheet, profit and loss statement, and cash
flow statement, and, if prepared,
such accountants' letter to management. Borrower agrees to
deliver financial statements
prepared on a consolidating basis so as to present Borrower
and Parent on a consolidated
basis.
Together with the
above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with
the Securities and Exchange
Commission, if any, as soon as the same are filed, or any
other information that is provided
by Borrower to its shareholders.
24
Each month, together with the financial
statements provided pursuant
to Section 6.3(a), Borrower shall deliver to Foothill a
certificate signed by its chief financial
officer to the effect that: (i) all reports, statements, or
computer prepared information of
any kind or nature delivered or caused to be delivered to
Foothill hereunder have been
prepared in accordance with GAAP and fairly present the
financial condition of Borrower;
(ii) Borrower is in timely compliance with all of its
covenants and agreements hereunder;
(iii) the representations and warranties of Borrower
contained in this Agreement and the
other Loan Documents are true and correct in all material
respects on and as of the date of
such certificate, as though made on and as of such date
(except to the extent that such
representations and warranties relate solely to an earlier
date); and (iv) on the date of
delivery of such certificate to Foothill there does not
exist any condition or event that
constitutes an Event of Default (or, in each case, to the
extent of any non-compliance,
describing such non-compliance as to which he or she may
have knowledge and what action
Borrower has taken, is taking, or proposes to take with
respect thereto).
Borrower shall
have issued written instructions to its independent
certified public accountants authorizing them to communicate
with Foothill and to release
to Foothill whatever financial information concerning
Borrower that Foothill may request.
Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third
parties to deliver to Foothill, at Borrower's expense,
copies of Borrower's financial
statements, papers related thereto, and other accounting
records of any nature in their
possession, and to disclose to Foothill any information they
may have regarding Borrower's
business affairs and financial conditions.
6.4 Tax Returns. Borrower agrees to
deliver to Foothill copies of each
of Borrower's future federal income tax returns, and any
amendments thereto, within thirty
(30) days of the filing thereof with the Internal Revenue
Service.
6.5 Designation of Inventory. Borrower
shall now and from time to time
hereafter, but not less frequently than weekly, execute and
deliver to Foothill a designation
of Inventory specifying Borrower's cost and the retail value
of Borrower's Inventory, and
further specifying such other information as Foothill may
reasonably request.
6.6 Returns. Returns and allowances,
if any, as between Borrower and
its Account Debtors shall be on the same basis and in
accordance with the usual customary
practices of Borrower, as they exist at the time of the
execution and delivery of this
Agreement. If, at a time, any customer returns any
Inventory to Borrower, Borrower
promptly shall determine the reason for such return and, if
Borrower accepts such return,
issue a credit memorandum in the appropriate amount to such
Account Debtor.
6.7 Title to Equipment. Upon
Foothill's request, Borrower immediately
shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of,
certificates of title, or applications for title to any
items of Equipment.
25
6.8 Maintenance
of Equipment. Borrower shall keep and maintain the
Equipment in good operating condition and repair (ordinary
wear and tear excepted), and
make all necessary replacements thereto so that the value
and operating efficiency thereof
shall at all times be maintained and preserved. Borrower
shall not permit any item of
Equipment to become a fixture to real estate or an accession
to other property, and the
Equipment is now and shall at all times remain personal
property.
6.9 Taxes. All assessments and taxes,
whether real, personal, or
otherwise, due or payable by, or imposed, levied, or
assessed against Borrower or any of
its property have been paid, and shall hereafter be paid in
full, before delinquency or before
the expiration of any extension period or in a manner
consistent with the Plan of
Reorganization. Borrower shall make due and timely payment
or deposit of all federal,
state, and local taxes, assessments, or contributions
required of it by law, and will execute
and deliver to Foothill, on demand, appropriate certificates
attesting to the payment thereof
or deposit with respect thereto. Borrower will make timely
payment or deposit of all tax
payments and withholding taxes required of it by applicable
laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes,
and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that
Borrower has made such payments or deposits.
6.10 Insurance.
(a) Borrower, at
its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks,
and in such amounts, as are ordinarily insured against by
other owners in similar businesses.
Borrower also shall maintain business interruption, public
liability, product liability, and
property damage insurance relating to Borrower's ownership
and use of the Collateral, as
well as insurance against larceny, embezzlement, and
criminal misappropriation.
(b) All such
policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably
satisfactory to Foothill. All such
policies of insurance (except those of public liability and
property damage) shall contain a
438BFU lender's loss payable endorsement, or an equivalent
endorsement in a form
satisfactory to Foothill, showing Foothill as sole loss
payee thereof, and shall contain a
waiver of warranties, and shall specify that the insurer
must give at least ten (10) days prior
written notice to Foothill before canceling its policy for
any reason. Borrower shall deliver
to Foothill certified copies of such policies of insurance
and evidence of the payment of all
premiums therefor. All proceeds payable under any such
policy shall be payable to Foothill
to be applied on account of the Obligations.
6.11 Financial Covenants. Borrower
shall maintain:
26
(a) Current Ratio. A ratio of Consolidated Current
Assets divided by Consolidated Current Liabilities of at least one and
forty-five one hundredths to one
(1.45:1.0), measured on a fiscal quarter-end basis; and
(b) Total
Liabilities to Tangible Net Worth Ratio. A ratio of
Borrower's total liabilities divided by Tangible Net Worth
of not more than two and one
tenth to one (2.1:1.0), measured on a fiscal quarter-end
basis.
6.12 No Setoffs or Counterclaims. All
payments hereunder and under the
other Loan Documents made by or on behalf of Borrower shall
be made without setoff or
counterclaim and free and clear of, and without deduction or
withholding for or on account
of, any federal, state, or local taxes.
6.13 Location of Inventory and
Equipment. Borrower shall keep the
Inventory and Equipment only at the locations identified on
Schedule 6.13; provided,
however, that Borrower may amend Schedule 6.13 so long as
such amendment occurs by
written notice to Foothill not less than thirty (30) days
prior to the date on which the
Inventory or Equipment is moved to such new location, so
long as such new location is
within the continental United States, and so long as, at the
time of such written notification,
Borrower provides any financing statements or fixture
filings necessary to perfect and
continue perfected Foothill's security interests in such
assets and also provides to Foothill
a landlord's waiver in form and substance satisfactory to
Foothill.
6.14 Compliance with Laws. Borrower
shall comply with the
requirements of all applicable laws, rules, regulations, and
orders of any governmental
authority, including the Fair Labor Standards Act and the
Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-
compliance with which, individually
or in the aggregate, would not have and could not reasonably
be expected to have a material
adverse effect on the business, operations, condition
(financial or otherwise), finances, or
prospects of Borrower or on the value of the Collateral to
Foothill.
6.15 Employee Benefits.
(a) Unless already
disclosed on Schedule 5.12, Borrower shall
deliver to Foothill a written statement by the chief
financial officer of Borrower specifying
the nature of any of the following events and the actions
which Borrower proposes to take
with respect thereto promptly, and in any event within ten
(10) days of becoming aware of
any of them, and when known, any action taken or threatened
by the Internal Revenue
Service, PBGC, Department of Labor, or other party with
respect thereto: (i) an ERISA
Event with respect to any Plan; (ii) the incurrence of an
obligation to pay additional
premium to the PBGC under Section 4006(a)(3)(E) of ERISA
with respect to any Plan; and
(iii) any lien on the assets of Borrower arising in
connection with any Plan.
27
(b) Borrower shall also promptly furnish to
Foothill copies prepared or received by Borrower or an ERISA Affiliate
of: (i) at the request of Foothill,
each annual report (Internal Revenue Service Form 5500
series) and all accompanying
schedules, actuarial reports, financial information
concerning the financial status of each
Plan, and schedules showing the amounts contributed to each
Plan by or on behalf of
Borrower or its ERISA Affiliates for the most recent three
(3) plan years; (ii) all notices of
intent to terminate or to have a trustee appointed to
administer any Plan; (iii) all written
demands by the PBGC under Subtitle D of Title IV of ERISA;
(iv) all notices required to
be sent to employees or to the PBGC under Section 302 of
ERISA or Section 412 of the
IRC; (v) all written notices received with respect to a
Multiemployer Plan concerning
(x) the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA,
(y) a termination described in Section 4041A of ERISA, or
(z) a reorganization or
insolvency described in Subtitle E of Title IV of ERISA;
(vi) the adoption of any new Plan
that is subject to Title IV of ERISA or Section 412 of the
IRC by Borrower or any ERISA
Affiliate; (vii) the adoption of any amendment to any Plan
that is subject to Title IV of
ERISA or Section 412 of the IRC, if such amendment results
in a material increase in
benefits or Unfunded Benefit Liability; or (viii) the
commencement of contributions by
Borrower or any ERISA Affiliate to any Plan that is subject
to Title IV of ERISA or Section
412 of the IRC.
6.16 Store Openings and Closings.
Borrower shall give Foothill
reasonable prior notice of new store openings and closing of
its stores.
6.17 Inventory Audits. Borrower shall
continue to take physical counts
of its Inventory at least once in each fiscal year. Such
physical inventory taking will be
observed by Borrower's independent certified public
accountants.
6.18 Real Property Leases. Borrower
shall make timely payment of all
rents and other monies payable on real property leases where
Borrower is lessee unless such
payments are contested in good faith by Borrower and the
failure to pay such monies could
not reasonably be expected to materially and adversely
affect Borrower or the Collateral.
Borrower shall also make timely payments to consignors of
Inventory, if any, and in the
event that Borrower does not make the such payments,
Foothill may, in its discretion
establish reasonable reserves for delinquent payments.
6.19 Landlord Waivers. Borrower shall
use its best efforts to obtain
landlord waivers from the lessors of its stores to the
extent that such waivers are not
otherwise required on or before the Closing Date.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so
long as any credit hereunder shall be
available and until full and final payment of the
Obligations, Borrower will not do any of
the following without Foothill's prior written consent:
28
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with
respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) and (c) of this Section 7.1 (and
continuance or renewal of any Permitted
Liens associated therewith) so long as: (i) the terms and
conditions of such refinancings,
renewals, or extensions do not materially impair the
prospects of repayment of the
Obligations by Borrower, (ii) the net cash proceeds of such
refinancings, renewals, or
extensions do not result in an increase in the aggregate
principal amount of the Indebtedness
so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or
extensions do not result in a shortening of the average
weighted maturity of the Indebtedness
so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is
refinanced was subordinated in right of payment to the
Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be
at least as favorable to Foothill
as those applicable to the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or
permit to exist, directly or
indirectly, any lien on or with respect to any of its
property or assets, of any kind, whether
now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted
Liens (including liens that are replacements of Permitted
Liens to the extent that the original
Indebtedness is refinanced under Section 7.1(d) and so long
as the replacement liens secure
only those assets or property that secured the original
Indebtedness).
7.3 Restrictions on Fundamental
Changes. Enter into any acquisition,
merger, consolidation, reorganization, or recapitalization,
or reclassify its capital stock, or
liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey,
sell, assign, lease, transfer, or otherwise dispose of, in
one transaction or a series of
transactions, all or any substantial part of its business,
property, or assets, whether now
owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all of
the properties, assets, stock, or other evidence of
beneficial ownership of any Person.
7.4 Extraordinary Transactions and
Disposal of Assets. Enter into any
transaction not in the ordinary and usual course of
Borrower's business, including the sale,
lease, or other disposition of, moving, relocation, or
transfer, whether by sale or otherwise,
of any of Borrower's properties or assets (other than sales
of Inventory to buyers in the
ordinary course of Borrower's business as currently
conducted).
29
7.5 Change Name. Change Borrower's name, FEIN, business structure,
or identity, or add any new fictitious name.
7.6 Guarantee. Guarantee or otherwise
become in any way liable with
respect to the obligations of any third Person except by
endorsement or instruments or items
of payment for deposit to the account of Borrower or which
are transmitted or turned over
to Foothill.
7.7 Restructure. Make any change in
Borrower's financial structure, the
principal nature of Borrower's business operations, or the
date of its fiscal year.
7.8 Prepayments. Except in connection with a refinancing permitted by
Section 7.1(d), prepay any Indebtedness owing to any third Person.
7.9 Change of Control. Except for the
issuance of shares by Borrower
pursuant to the Plan of Reorganization, cause, permit, or
suffer, directly or indirectly, any
Change of Control.
7.10 Capital Expenditures. Make any
capital expenditure in excess of
Two Hundred Fifty Thousand Dollars ($250,000) for any
individual transaction or where
the aggregate amount of such capital expenditures, made or
in the fiscal year ending
January 31, 1995 is in excess of One Million Dollars
($1,000,000) or in excess of Three
Million Dollars ($3,000,000) in any subsequent fiscal year.
7.11 Distributions. Make any
distribution or declare or pay any dividends
(in cash or in stock) on, or purchase, acquire, redeem, or
retire any of Borrower's capital
stock, of any class, whether now or hereafter outstanding.
7.12 Accounting Methods. Modify or
change its method of accounting
or enter into, modify, or terminate any agreement currently
existing, or at any time
hereafter entered into with any third party accounting firm
or service bureau for the
preparation or storage of Borrower's accounting records
without said accounting firm or
service bureau agreeing to provide Foothill information
regarding the Collateral or
Borrower's financial condition. Borrower waives the right
to assert a confidential
relationship, if any, it may have with any accounting firm
or service bureau in connection
with any information requested by Foothill pursuant to or in
accordance with this
Agreement, and agrees that Foothill may contact directly any
such accounting firm or
service bureau in order to obtain such information.
7.13 Investments. Directly or
indirectly make or acquire any beneficial
interest in (including stock, partnership interest, or other
securities of), or make any loan,
advance, or capital contribution to, any Person.
30
7.14 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate
of Borrower except for transactions set forth on Schedule 7.14.
7.15 Suspension. Suspend or go out of
a substantial portion of its business.
7.16 Compensation. Increase the annual
fee or per-meeting fees paid to
directors during any year by more than fifteen percent (15%)
over the prior year; pay or
accrue total cash compensation, during any year, to officers
and senior management
employees in an aggregate amount in excess of one hundred
fifteen percent (115%) of that
paid or accrued in the prior year. In addition, Borrower
may pay performance bonuses to
officers and senior management employees with the approval
of Foothill, which approval
will not be unreasonably withheld.
7.17 Use of Proceeds. Use the proceeds
of the advances made hereunder
for any purpose other than: (a) to pay that portion of
Borrower's obligations under the Plan
that is not funded with other monies held by Borrower; (b)
to pay transactional fees, costs
and expenses incurred in connection with this Agreement; and
(c) thereafter, consistent with
the terms and conditions hereof, for its lawful and
permitted corporate purposes.
7.18 Change in Location of Chief
Executive Office; Inventory and
Equipment with Bailees. Borrower covenants and agrees that
it will not, without thirty
(30) days prior written notification to Foothill, relocate
its chief executive office to a new
location and so long as, at the time of such written
notification, Borrower provides any
financing statements or fixture filings necessary to perfect
and continue perfected Foothill's
security interests and also provides to Foothill a
landlord's waiver in form and substance
satisfactory to Foothill. The Inventory and Equipment shall
not at any time now or
hereafter be stored with a bailee, warehouseman, or similar
party without Foothill's prior
written consent.
8. EVENTS OF DEFAULT.
Any one or more of the following
events shall constitute an event of default
(each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due
and payable or when declared due
and payable, any portion of the Obligations (whether of
principal, interest (including any
interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such
amounts), fees and charges due Foothill, reimbursement of
Foothill Expenses, or other
amounts constituting Obligations);
8.2 If Borrower fails or neglects to
perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in
this Agreement, in any of the
31
Loan Documents, or in any other present or future agreement
between Borrower and
Foothill;
8.3 If there is a material impairment
of the prospect of repayment of any
portion of the Obligations owing to Foothill or a material
impairment of the value or
priority of Foothill's security interests in the Collateral;
8.4 If any material portion of
Borrower's properties or assets is attached,
seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the
possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is
commenced against Borrower and any
of the following events occur: (a) Borrower consents to the
institution of the Insolvency
Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely
controverted; (c) the petition commencing the Insolvency
Proceeding is not dismissed within
forty-five (45) calendar days of the date of the filing
thereof; provided, however, that,
during the pendency of such period, Foothill shall be
relieved of its obligation to make
additional advances or issue additional L/Cs or L/C
Guarantees hereunder; (d) an interim
trustee is appointed to take possession of all or a
substantial portion of the properties or
assets of, or to operate all or any substantial portion of
the business of, Borrower; or (e) an
order for relief shall have been issued or entered therein;
8.7 If Borrower is enjoined,
restrained, or in any way prevented by court
order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notice of lien, levy, or
assessment is filed of record with respect
to any of Borrower's properties or assets by the United
States Government, or any
department, agency, or instrumentality thereof, or by any
state, county, municipal, or
governmental agency, or if any taxes or debts owing at any
time hereafter to any one or
more of such entities becomes a lien, whether choate or
otherwise, upon any of Borrower's
properties or assets and the same is not paid on the payment
date thereof;
8.9 If a judgment or other claim
becomes a lien or encumbrance upon any
material portion of Borrower's properties or assets;
8.10 If there is a default in any
material agreement to which Borrower is
a party with one or more third Persons resulting in a right
by such third Persons,
irrespective of whether exercised, to accelerate the
maturity of Borrower's obligations
thereunder;
8.11 If Borrower makes any payment on
account of Indebtedness that has
been contractually subordinated in right of payment to the
payment of the Obligations,
32
except to the extent such payment is permitted by the terms
of the subordination provisions
applicable to such Indebtedness;
8.12 If any misstatement or
misrepresentation exists now or hereafter in any
warranty, representation, statement, or report made to
Foothill by Borrower or any officer,
employee, agent, or director of Borrower, or if any such
warranty or representation is
withdrawn;
8.13 If the obligation of any third
Person under any Loan Document is
limited or terminated by operation of law or by such third
Person thereunder, or any such
third Person becomes the subject of an Insolvency
Proceeding;
8.14 If (a) with respect to any Plan,
there shall occur any of the following
which could reasonably be expected to have a material
adverse effect on the financial
condition of Borrower: (i) the violation of any of the
provisions of ERISA; (ii) the loss by
a Plan intended to be a Qualified Plan of its qualification
under Section 401(a) of the IRC;
(iii) the incurrence of liability under Title IV of ERISA;
(iv) a failure to make full payment
when due of all amounts which, under the provisions of any
Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (v) the
filing of a notice of intent to
terminate a Plan under Sections 4041 or 4041A of ERISA; (vi)
a complete or partial
withdrawal of Borrower or an ERISA Affiliate from any Plan;
(vii) the receipt of a notice
by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate
such Plan or appoint a trustee to administer such Plan;
(viii) a commencement or increase
of contributions to, or the adoption of or the amendment of,
a Plan; and (ix) the assessment
against Borrower or any ERISA Affiliate of a tax under
Section 4980B of the IRC; or
(b) the Unfunded Benefit Liability of all of the Plans of
Borrower and its ERISA Affiliates
shall, in the aggregate, exceed Eight Hundred Thousand
Dollars ($800,000); or
8.15 If there shall occur an "Event of
Default" as defined in Section 3.1
of the Financing Order.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the
occurrence of an Event of Default
Foothill may, at its election, without notice of its
election and without demand, do any one
or more of the following, all of which are authorized by
Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, under any of the Loan
Documents, or under any other agreement between Borrower and Foothill;
33
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of
Foothill, but without affecting
Foothill's rights and security interests in the Collateral
and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers
advisable, and in such cases,
Foothill will credit Borrower's loan account with only the
net amounts received by Foothill
in payment of such disputed Accounts after deducting all
Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other
property of Borrower or in
Borrower's possession and conspicuously label said returned
Inventory as the property of
Foothill;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Foothill considers
necessary or reasonable to
protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral
if Foothill so requires, and to make the Collateral
available to Foothill as Foothill may
designate. Borrower authorizes Foothill to enter the
premises where the Collateral is
located, to take and maintain possession of the Collateral,
or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or
lien that in Foothill's
determination appears to conflict with its security
interests and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's
owned premises, Borrower
hereby grants Foothill a license to enter into possession of
such premises and to occupy the
same, without charge, for up to one hundred twenty (120)
days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in
equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any
collateral in satisfaction of an obligation
(within the meaning of Section 9505 of the Code), set off
and apply to the Obligations any
and all (i) balances and deposits of Borrower held by
Foothill (including any amounts
received in the Lock Boxes), or (ii) indebtedness at any
time owing to or for the credit or
the account of Borrower held by Foothill;
(h) Hold, as cash
collateral, any and all balances and deposits of
Borrower held by Foothill, and any amounts received in the
Lock Box, to secure the full
and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral.
Foothill is hereby granted a license or other right to use,
without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a
similar nature, as it pertains to
34
the Collateral, in completing production of, advertising for
sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise
agreements shall inure to
Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or
on terms, in such manner and
at such places (including Borrower's premises) as Foothill
determines is commercially
reasonable. It is not necessary that the Collateral be
present at any such sale;
(k) Foothill shall give notice of the disposition of the Collateral as
follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with
Foothill a written request for notice,
a notice in writing of the time and place of public sale,
or, if the sale is a private sale or
some other disposition other than a public sale is to be
made of the Collateral, then the time
on or after which the private sale or other disposition is
to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at
least five (5) days before the date
fixed for the sale, or at least five (5) days before the
date on or after which the private sale
or other disposition is to be made; no notice needs to be
given prior to the disposition of
any portion of the Collateral that is perishable or
threatens to decline speedily in value or
that is of a type customarily sold on a recognized market.
Notice to Persons other than
Borrower claiming an interest in the Collateral shall be
sent to such addresses as they have
furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time
at least five (5) days before the
date of the sale in a newspaper of general circulation in
the county in which the sale is to
be held;
(l) Foothill may
credit bid and purchase at any public sale; and
(m) Any deficiency
that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any
excess will be returned,
without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's
rights and remedies under this
Agreement, the Loan Documents, and all other agreements
shall be cumulative. Foothill
shall have all other rights and remedies not inconsistent
herewith as provided under the
Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed
an election, and no waiver by Foothill of any Event of
Default shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver,
election, or acquiescence by it.
35
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Borrower fails to pay any monies
(whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or
fails to make any deposits or
furnish any required proof of payment or deposit, all as
required under the terms of this
Agreement, then, to the extent that Foothill determines that
such failure by Borrower could
have a material adverse effect on Foothill's interests in
the Collateral, in its discretion and
without prior notice to Borrower, Foothill may do any or all
of the following: (a) make
payment of the same or any part thereof; (b) set up such
reserves in Borrower's loan
account as Foothill deems necessary to protect Foothill from
the exposure created by such
failure; or (c) obtain and maintain insurance policies of
the type described in Section 6.10,
and take any action with respect to such policies as
Foothill deems prudent. Any such
amounts paid by Foothill shall constitute Foothill Expenses.
Any such payments made by
Foothill shall not constitute an agreement by Foothill to
make similar payments in the future
or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not
inquire as to, or contest the validity of, any such expense,
tax, security interest,
encumbrance, or lien and the receipt of the usual official
notice for the payment thereof
shall be conclusive evidence that the same was validly due
and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower
waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment
and nonpayment, notice of any
default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill
on which Borrower may in any way be liable.
11.2 Foothill's Liability for
Collateral. So long as Foothill complies with
its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or
manner be liable or responsible for: (a) the safekeeping of
the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion
from any cause; (c) any
diminution in the value thereof; or (d) any act or default
of any carrier, warehouseman,
bailee, forwarding agency, or other Person. All risk of
loss, damage, or destruction of the
Collateral shall be borne by Borrower.
11.3 Indemnification. Borrower agrees
to defend, indemnify, save, and
hold Foothill and its officers, employees, and agents
harmless against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any
other Person arising out of or
relating to the transactions contemplated by this Agreement
or any other Loan Document,
and (b) all losses (including attorneys fees and
disbursements) in any way suffered,
incurred, or paid by Foothill as a result of or in any way
arising out of, following, or
consequential to the transactions contemplated by this
Agreement or any other Loan
Document. This provision shall survive the termination of
this Agreement.
36
12. NOTICES.
Unless otherwise provided in this
Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document
shall be in writing and (except
for financial statements and other informational documents
which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent
by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid
telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Borrower or
to Foothill, as the case may
be, at its address set forth below:
If to Borrower: BRENDLE'S INCORPORATED
1919 North Bridge Street
Elkin, North Carolina 28621
Attn.: David E. Renegar,
Chief Financial Officer
Telefacsimile No. (910) 526-6632
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division Manager
Telefacsimile No. (310) 479-2690
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 12,
other than notices by Foothill
in connection with Sections 9504 or 9505 of the Code, shall
be deemed received on the
earlier of the date of actual receipt or three (3) days
after the deposit thereof in the mail.
Borrower acknowledges and agrees that notices sent by
Foothill in connection with Sections
9504 or 9505 of the Code shall be deemed sent when deposited
in the mail or transmitted
by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, 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
CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS
PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
37
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF
BORROWER AND FOOTHILL 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 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND
FOOTHILL 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.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices,
agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by
Foothill four (4) months after they
are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of
said documents, schedules, or other papers and makes
arrangements, at Borrower's expense,
for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement
shall be binding and deemed effective
when executed by Borrower and Foothill.
15.2 Successors and Assigns. This
Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of
the parties; provided, however,
that Borrower may not assign this Agreement or any rights or
duties hereunder without
Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No
consent to an assignment by Foothill shall release Borrower
from its Obligations. Foothill
may assign this Agreement and its rights and duties
hereunder and no consent or approval
by Borrower is required in connection with any such
assignment. Foothill reserves the right
to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any
interest in Foothill's rights and benefits hereunder. In
connection with any such assignment
or participation, Foothill may disclose all documents and
information which Foothill now
38
or hereafter may have relating to Borrower or Borrower's
business. To the extent that
Foothill assigns its rights and obligations hereunder to a
third Person, Foothill shall
thereafter be released from such assigned obligations to
Borrower and such assignment shall
effect a novation between Borrower and such third Person.
15.3 Section Headings. Headings and
numbers have been set forth herein
for convenience only. Unless the contrary is compelled by
the context, everything contained
in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this
Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against
Foothill or Borrower, whether under
any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed
by all parties 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 all parties hereto.
15.5 Severability of Provisions. Each
provision of this Agreement shall
be severable from every other provision of this Agreement
for the purpose of determining
the legal enforceability of any specific provision.
15.6 Amendments in Writing. This
Agreement can only be amended by
a writing signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile
Execution. This Agreement 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 Agreement. Delivery of
an executed counterpart of this Agreement by telefacsimile
shall be equally as effective as
delivery of a manually executed counterpart of this
Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also
shall deliver a manually
executed counterpart of this Agreement but the failure to
deliver a manually executed
counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.
15.8 Revival and Reinstatement of
Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of
the Obligations or the transfer
by either or both of such parties to Foothill of any
property of either or both of such parties
should for any reason subsequently be declared to be void or
voidable under any state or
federal law relating to creditors' rights, including
provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable
Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to
any such Voidable Transfer, or
the amount thereof that Foothill is required or elects to
repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill
related thereto, the liability of
39
Borrower or such guarantor automatically shall be revived,
reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 Integration. This Agreement,
together with the other Loan
Documents, reflect the entire understanding of the parties
with respect to the transactions
contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral
or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to
be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By_________________________________
Title:______________________________
BRENDLE'S INCORPORATED,
a North Carolina corporation
By_________________________________
Title:______________________________
<PAGE>
SCHEDULE 5.9
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
LITIGATION
1. Objections to claims filed or to be filed in the Bankruptcy
Case consistent with the terms of the Plan of Reorganization.
2. Claims resulting from an investigation by the United States
Department of Labor. An agreement between the Borrower and
the United States Department of Labor has been reached whereby
the Borrower will pay certain employees an aggregate of
18,007.20 as cost of administration claims and an aggregate of
$31,903.20 as priority wage claims. Additionally, an
aggregate total of $216,367.00 will be treated as allowed
general unsecured claims, subject to treatment under Class 9
of the Plan of Reorganization. A motion seeking approval
of this compromise will be filed in the Bankruptcy Case.
3. The issue of whether the Class 8 claimants identified in the
Plan of Reorganization are entitled to any adequate assurance
of future performance is subject to Bankruptcy Court
determination.
4. RODNEY ROCKETT V. BRENDLE'S STORES, INC., Case Number 2:93-CV-
339 (E.D.Tenn.) involves a post-petition action brought by a
terminated employee seeking reinstatement, back pay, and
attorneys' fees. This action is being actively defended by
the Borrower.
<PAGE>
SCHEDULE 6.13
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
LOCATION OF INVENTORY AND EQUIPMENT
No. Location Address
1 Elkin 1925 North Bridge Street
Elkin, NC 28621
2 Winston-Salem 2610 Peters Creek Parkway
Winston-Salem, NC 27107
3 Hickory Route 3, Box 1502
Hwy 64-70
Newton, NC 28658
4 Greensboro 3726 Battleground Avenue
Greensboro, NC 27404
5 Chapel Hill 1801 Chapel/Durham Blvd.
Chapel Hill, NC 27514
6 Asheville Innsbrook Mall
Asheville, NC 28805
7 Kingsport, TN 1505 East Stone Drive
Kingsport, TN 37660
9 Concord 210 Cloverleaf Plaza
Concord, NC 287025
10 Raleigh 4440 Creedmoor Road
Raleigh, NC 27612
11 Winston-Salem 2890 Reynolda Manor Shp Ctr
Winston-Salem, NC 27106
13 Burlington Edgewood Village Shp Ctr
3010 S. Church
Burlington, NC 27215
14 Wilson 2101 South Tarboro Street
Wilson, NC 27893
15 Myrtle Beach 3454 Hwy 501 West
Myrtle Beach, SC 29577
16 Raleigh 3219 South Wilmington St.
Raleigh, NC 27603
17 Greensboro 3020 High Point Road
Greensboro, NC 27403
<PAGE>
18 Jacksonville 1291 Hargett Street
Jacksonville, NC 28540
19 Roanoke, VA 4208 Electric Rd
Roanoke, VA 24014
23 Boone 300 Greenway Road
Boone 28607
24 Kinston 601 Plaza Blvd.
Kinston, NC 28501
25 Roanoke-Rapids Hwy 158 & T Ave.
Roanoke Rapids, NC 27870
26 Salisbury 1811 East Innes Street
Salisbury, NC 28144
29 Anderson, SC 3719 Clemson Blvd.
Anderson, SC 29621
30 Spartanburg 1185 Ashville Highway
Spartanburg, SC 29303
31 Florence 2853 David J. McLeod Blvd.
Florence, SC 29501
34 Enka 901 Smoky Pk Hwy
West Ridge Market Place
Enka, NC 2828
38 Wilmington 127 S. College Road, Suite 50
Wilmington, NC 28403
42 Greenville, NC 3700 S. Memorial Drive
Greenville, NC 27834
46 Christiansburg 2505 Market Street
Christiansburg, VA 24073
50 New Bern 3003 Clarendon Blvd. Ste 13
New Bern, NC 28562
52 Fayetteville 505 Cross Creek Mall
Morganton Road
Fayetteville, NC 28303
Distribution
Center Highway 21, Poplar Springs Road
Elkin, NC 28621
95 Corporate
Headquarters 1919 North Bridge Street
Elkin, NC 28621
<PAGE>
SCHEDULE E-1
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
LOCATION OF ELIGIBLE INVENTORY
See Schedule 6.13
<PAGE>
SCHEDULE P-1
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
PERMITTED LIENS
1. The first priority lien and security interest of Monogram
Credit Card Bank (Monogram) arising from monies due from
Monogram to Borrower with respect to any claims of Monogram
against Borrower directly related to its processing of
Borrower's credit card sales arising under the Monogram Credit
Card Bank of Georgia Program Agreement dated as of March 20,
1989, as subsequently amended.
2. The lien of Hyster Credit Company, 222 S.W. Columbia, Suite
800, Portland, Oregon 97201 on 8 Hyster Lift Trucks.
3. The lien of Litton Systems, Inc., Airtron Division, Diamonair
Products Group, 200 East Hanover Avenue, Morris Plains, NJ
07950 on all 14-carat gold jewelry, rings, pendants, earrings,
all cubic zirconia or other related items with the "Li" symbol
stamped in gold jewelry.
4. The Borrower from time to time enters into consignment
relationships, primarily with reference to jewelry. The
only consignment relationship currently existing is with
Diamonair Products Group and there is currently in
consigned inventory items of a cost of $266.25.
Consigned inventory is specially coded and is itemized
separately from the Borrower's general inventory.
<PAGE>
SCHEDULE 7.14
TO THE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
BRENDLE'S INCORPORATED AND FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 21, 1994
TRANSACTIONS WITH AFFILIATES
1. SHAREHOLDERS' AGREEMENTS:
In April of 1986, prior to the initial public offering of the Company's
Common Stock, all of the then shareholders of the Company (including Douglas
D. Brendle, S. Floyd Brendle, Patty Brendle Redway, and William F. Cosby)
entered into a Shareholders'
Agreement with the Company. Therein, the shareholders agreed, among other
things, to
restrict the transfer of their Common Stock to any unrelated party
(as defined) without the
written consent of all remaining shareholders who are parties to the Agreement
unless the
transferring shareholder gives a right of first refusal to related parties
(as defined) of the
transferring shareholder and to the remaining shareholders who are parties to
the Agreement, and such right of first refusal is not exercised. In addition,
the Shareholders'
Agreement gives the right, exercisable within nine months of death, to the
personal
representative of certain deceased shareholders who were parties to the
Agreement, to cause
the Company to redeem from the deceased shareholder's estate up to that number
of shares
of Common Stock of the Company owned by the deceased shareholder at his death
valued
at the average of the closing prices for the 20 trading days prior to the date
of death, not
to exceed the life insurance proceeds received the Company as a result of such
death. The
Company has purchased life insurance in the face amounts set forth at a net
aggregate cost
(premiums less dividends and increase in cash surrender value) for the fiscal
year ended
January 30, 1993 of approximately $294,926: Douglas D. Brendle, $5,000,000;
S. Floyd
Brendle, $5,250,000; William F. Crosby, $3,070,000; and Patty Brendle Redway,
$3,000,000.
The Company has borrowed $1,983,000, in the aggregate, against these policies.
2. SPLIT DOLLAR INSURANCE AGREEMENTS:
The Company has entered into split dollar life insurance agreements for
the benefit
of six of its executive officers and/or directors or their spouses and
families. Upon the death
of any such officer or director, the Company will receive not less than the
net premiums
paid, and the insured's beneficiary will receive the balance of the insurance
proceeds.
Pursuant to the agreements, life insurance coverage, the premiums for which
are paid by the
Company, has been purchased on the following persons in the following
aggregate policy
amounts: Douglas D. Brendle, $3,000,000; S, Floyd Brendle, $2,000,000;
Aubrey L. Miller,
$153,097; W. Steven Day, $132,785; Steven W. Luka, $123,758 and David R.
Renegar,
$113,220. The Company's net aggregate cost (premiums less dividends and
increase in cash
surrender value) for such insurance for the fiscal year ended January 30,
1993 was
approximately $103,994.00. Borrower may allow the insureds to buy the
respective policies
for an amount equal to the cash surrender value of the respective policy;
however, if the
Borrower retains an interest in the policies, Foothill shall be designated
as a beneficiary of
the policies in place of the Borrower and these policies will be deemed
additional Collateral.
<PAGE> SCHEDULE 7.14
Page 2
3. LEASES:
Brenco, a partnership consisting of Douglas D. Brendle, S. Floyd
Brendle, William
F. Cosby, and two Trusts under an Agreement with J. Harold Brendle, dated
October 20,
1982 ("Brenco"), leases 13 stores and the Borrower's corporate office building
and
contiguous warehouse to the Borrower. These leases will be the subject of a
motion made
in the Borrower's Bankruptcy Case to assume the leases with modifications as
are more
particularly set forth in a document entitled "Terms of Proposed Master
Amendment to
Brenco Leases" which was furnished to Foothill on April 29, 1994.
Brenco is the owner and franchisee of the Holiday Inn located in Elkin,
North
Carolina in which the Borrower holds various meetings and corporate
functions. The
Borrower is charged standard corporate rates for these services.
4. TRANSPORTATION ACTIVITIES:
The Borrower occasionally uses an airplane owned by Sky-Lease, Inc., the
voting
securities of which are owned by Douglas D. Brendle, S. Floyd Brendle, William
F. Cosby,
and a Trust under an Agreement dated October 20, 1982 with J. Harold Brendle.
In fiscal
year ending January 30, 1993 Sky-Lease, Inc. was paid an aggregate of $35,820
in rent
charges for such airplanes. For so long as Foothill remains obligated to make
advances
under the loan, its transactions with Sky-Lease shall be on fair and
reasonable terms no less
favorable to Borrower than would obtain in a comparable arm's length
transaction with an
unaffiliated third party and, in any event, the amount paid to Sky-Lease,
Inc. in any fiscal
year shall not exceed Fifty Thousand Dollars ($50,000).
5. BRENDLE'S TRANSPORT, INC.
Brendle's Transport, Inc. (BTI) is a wholly owned subsidiary of the
Borrower which
will be merged into the Borrower on or before June 30, 1994. BTI arranges
for the
transportation of the Borrower's inventory from the Borrower's distribution
center to the
Borrower's stores. BTI owns trailers and hires contract haulers. The
Borrower pays BTI
on the average of $50,000 per month for these services.
6. BFS, INC.:
BFS, Inc., is a wholly owned subsidiary of the Borrower which will be
merged into the
Borrower on or before June 30, 1994. BFS, Inc. owns certain trademarks
used by the
Borrower in the operation of its business. The Borrower is charged a
royalty for the use of
the trademarks based on .0075% of sales. This royalty is reflected by
journal entries made
on the Borrowers books; however, no payments are actually made by the
Borrower to BFS,
Inc. and no payments will be made by the Borrower to BFS, Inc. at any time
prior to the
merger of BFS, Inc. into the Borrower.
7. CONTRACTS WITH OFFICERS AND/OR DIRECTORS:
(a) S. Floyd Brendle has a retirement agreement with the
Borrower, which provides,
inter alia, for a salary continuation through June 16, 1995 at an annual rate
of $125,000.
(b) The Borrower has employment agreements dated November 17, 1992
with
Messers Renegar, Luka, Miller, Stegall and Day which provide for a one year
term of
<PAGE>
SCHEDULE 7.14
Page 3
employment, automatically renewable on January 1 of each year, and
automatically extended
by one additional quarter successively on the first day of each calendar
quarter.
(c) The Borrower has a Tandem Stock Option Grant and Agreement with
William
V. Grady dated December 21, 1992. Mr. Grady also has an employment contract
with the
Borrower dated December 9, 1992.
(d) In addition to the standard provisions in the by-laws of the
Borrower relating to
indemnity for individuals serving on the board of directors, the Borrower
is a party to
agreements with Thomas H. Davis, James B. Edwards and John D. Gray,
non-employee
directors of the Borrower, to hold each harmless, subject to certain
limitations under
applicable law, from liabilities arising from service as a director of the
Borrower. The
agreements contain certain assurances that the provisions of the Borrower's
by-laws relating
to indemnification of directors will not be changed. It is anticipated that
any non-employee
director who may be elected or designated to serve on the board in the future
will require the same contractual protection.
SUBSIDIARIES
OF
BRENDLE'S INCORPORATED
Alexander's/Brendle's, Inc.
BFS, Inc.
BIC, Inc.
Brendle Transport, Inc.
Brendle's Acceptance Corporation
The Electronic Sports Collection USA, Inc.
EXHIBIT 24
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (#33-13622) of Brendle's Incorporated of our report
dated March 30, 1994, except for Notes 1 and 13, which is as of April 29, 1994,
appearing on pages F-1 and F-2 of this Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedules,
which appears on page F-22 on this Form 10-K.
Signature appears here for Price Waterhouse
Price Waterhouse
Winston-Salem, North Carolina
May 12, 1994
<PAGE>
EXHIBIT 25
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signatures appears
below constitutes and appoints David R. Renegar his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and all capacities, to sign
the Annual Report on Form 10-K of Brendle's Incorporated and any or all
amendments to such Annual Report on Form 10-K, and to file the same, with
all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and with the National
Association of Securities Dealers, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises,
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent,
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.[qp]
Date: May 10, 1994 Signature:
Signature of John D. Gray appears here
John D. Gray
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints David R. Renegar his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and all capacities, to sign
the Annual Report on Form 10-K of Brendle's Incorporated and any or all
amendments to such Annual Report on For, 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and with the National
Association of Securities Dealers, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about
the premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Date: May 10, 1994 Signature:
Signature of Thomas H. Davis appears here
Thomas H. Davis
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Renegar his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Brendle's
Incorporated and any or all amendments to such Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission
and with the National Association of Securities Dealers, granting undo said
attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Date: May 11, 1994 Signature:
Signature of James B. Edwards goes here
James B. Edwards
<PAGE>
