SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended July 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from To
Commission File No. 0-17870
LECHTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY No. 13-2821526
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION) NO.)
1 Cape May Street, Harrison, NEW JERSEY 07029-2404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (973) 481-1100
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, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares of the Registrant's common stock, without par value,
outstanding at September 8, 1999: 17,072,286:
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED JULY 31, 1999
INDEX
<TABLE>
<S> <C>
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
July 31, 1999 and January 30, 1999 1
Consolidated Statements of Operations for the Thirteen and
Twenty-Six Weeks Ended July 31, 1999 and August 1, 1998 2
Consolidated Statements of Cash Flows
for the Twenty-Six Weeks Ended
July 31, 1999 and August 1, 1998 3
Consolidated Statement of Shareholders'
Equity for the Twenty-Six Weeks Ended
July 31, 1999 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12-13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE>
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company in this quarterly report on Form 10-Q, in
presentations, in response to questions or otherwise. Any statements that
express, or involve discussions as to expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always, through the
use of words or phrases such as "anticipates", "believes", "estimates",
"expects", "intends", "plans", "predicts", "projects", "will likely result",
"will continue", or similar expressions) are not statements of historical facts
and may be forward-looking.
Forward-looking statements involve estimates, assumptions, and uncertainties and
are qualified in their entirety by reference to, and are accompanied by, the
following important factors, which are difficult to predict, contain
uncertainties, are beyond the control of the Company and may cause actual
results to differ materially from those contained in forward-looking statements:
- economic and geographic factors including political and economic risks;
- changes in and compliance with environmental and safety laws and policies;
- weather conditions;
- population growth rates and demographic patterns;
- competition for retail customers;
- Year 2000 issues;
- market demand, including structural market changes;
- changes in tax rates or policies or in rates of inflation;
- changes in project costs;
- unanticipated changes in operating expenses and capital expenditures;
- capital market conditions;
- legal and administrative proceedings (whether civil or criminal) and
settlements that influence the business and profitability of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of any such factor on
the business or the extent to which any factor, or combination of factors, may
cause results to differ materially from those contained in any forward-looking
statement.
<PAGE>
Part I . Financial Information
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<TABLE>
July 31, January 30,
1999 1999
---------- ----------
A S S E T S (unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $10,741 $ 35,503
Marketable Securities 46,671 62,750
Accounts Receivable 10,760 4,185
Merchandise Inventories 113,502 89,224
Prepaid Expenses 6,130 1,734
---------- ----------
Total Current Assets 187,804 193,396
Property and Equipment:
Fixtures and Equipment 59,218 57,678
Leasehold Improvements 97,229 96,452
---------- ----------
156,447 154,130
Less Accumulated Depreciation & Amortization 93,744 88,401
---------- ----------
Net Property and Equipment 62,703 65,729
Other Assets 10,562 8,519
---------- ----------
Total Assets $261,069 $267,644
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $13,215 $ 8,982
Dividends Payable - Preferred Stock -- 1,010
Salaries, Wages and Other Accrued Expenses 16,848 17,156
Taxes, Other Than Income Taxes 1,844 1,774
---------- -----------
Total Current Liabilities 31,907 28,922
Long-Term Debt
5% Convertible Subordinated Debentures due
September 27, 2001 (Net of Unamortized
Discount of $3,115 and $3,768 respectively) 61,885 61,232
---------- -----------
Total Long-Term Debt 61,885 61,232
Deferred Income Taxes and Other Deferred Credits 18,698 18,356
Shareholders' Equity:
Convertible Preferred Stock, $100 Par Value
Authorized 1,000,000 Shares,
Issued and Outstanding - Series A - 149,999
Shares; Series B - 50,001 Shares 20,000 20,000
Common Stock, No Par Value,
Authorized 50,000,000 Shares,
Issued and Outstanding
17,176,286 and 17,176,286, respectively 58 58
Accumulated Other Comprehensive (Loss) Income (66) 109
Additional Paid-in Capital 62,380 62,380
Retained Earnings 66,425 76,587
---------- -----------
148,797 159,134
Less: Treasury Stock
Common Stock - 101,500 Shares at Cost (218) --
---------- -----------
Total Shareholders' Equity 148,579 159,134
---------- -----------
Total Liabilities and Shareholders' Equity $261,069 $267,644
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales $90,913 $91,422 $174,320 $177,616
Cost of Goods Sold (including
occupancy and indirect costs) 70,629 69,862 132,466 134,398
------------ ------------ ------------ ------------
Gross Profit 20,284 21,560 41,854 43,218
Selling, General and
Administrative Expenses 29,858 27,942 58,592 56,228
------------ ------------ ------------ ------------
Operating Loss (9,574) (6,382) (16,738) (13,010)
Other Expenses (Income):
Interest Expense 1,139 1,125 2,272 2,222
Interest Income (645) (918) (1,452) (2,339)
Net Investment
Gain/Income (94) (80) (334) (221)
------------ ------------ ------------ ------------
Total Other Expenses (Income) 400 127 486 (338)
------------ ------------ ------------ ------------
Loss Before Income Taxes (9,974) (6,509) (17,224) (12,672)
Income Tax Benefit (4,089) (2,673) (7,062) (5,196)
------------ ------------ ------------ ------------
Net Loss (5,885) (3,836) (10,162) (7,476)
Preferred Stock Dividend
Requirement 253 253 505 505
------------ ------------ ------------ ------------
Net Loss Applicable to Common
Shareholders ($6,138) ($4,089) ($10,667) ($7,981)
============ ============ ============ ============
Net Loss Per Common Share - Basic ($0.36) ($0.24) ($0.62) ($0.46)
============ ============ ============ ============
Net Loss Per Common Share - Diluted ($0.36) ($0.24) ($0.62) ($0.46)
============ ============ ============ ============
Weighted Average Common Shares
Outstanding - Basic 17,098,000 17,176,000 17,137,000 17,175,000
============ ============ ============ ============
Weighted Average Common Shares
Outstanding - Diluted 17,098,000 17,176,000 17,137,000 17,175,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
Twenty-Six Weeks Ended
----------------------
July 31, August 1,
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss ($10,162) ($7,476)
Adjustments to Reconcile Net Loss to Net
Cash Used In Operating Activities:
Depreciation and Amortization 7,904 8,258
Other 911 553
Changes in Assets and Liabilities:
Increase in Accounts Receivable (6,575) (4,447)
Increase in Merchandise Inventories (24,278) (9,420)
Increase in Prepaid Expenses (4,396) (4,425)
Increase in Accounts Payable,
Accrued Expenses and Taxes Other
Than Income Taxes 3,995 8,922
Decrease in Income Taxes Payable -- (1,909)
Increase in Other Assets (2,769) (2,502)
---------- ----------
Net Cash Used In Operating Activities (35,370) (12,446)
Cash Flows From Investing Activities:
Capital Expenditures (3,946) (2,892)
Decrease in Available for Sale Securities 15,782 12,933
---------- ----------
Net Cash Provided by Investing Activities 11,836 10,041
Cash Flows From Financing Activities:
Payment of Preferred Stock Dividend (1,010) (1,010)
Exercise of Stock Options -- 10
Purchase of Treasury Stock (218) --
---------- ----------
Net Cash Used In Financing Activities (1,228) (1,000)
---------- ----------
Net Decrease in Cash and Cash Equivalents (24,762) (3,405)
Cash and Cash Equivalents, Beginning of Period 35,503 16,395
---------- ----------
Cash and Cash Equivalents, End of Period $10,741 $12,990
========== ==========
Supplemental Disclosure of Cash Flows
Information:
Cash Paid During the Period for:
Interest $ -- $ --
========== ==========
Income Taxes $ 77 $ 2,183
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
Accumulated
Other
Common Preferred Additional Comprehensive
Stock Stock Paid-In Retained Income Treasury Comprehensive
Issued Issued Capital Earnings (Loss) Stock Total Loss
--------- --------- --------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 30, 1999 $58 $20,000 $62,380 $76,587 $109 $-- $159,134 $--
Net Loss-Twenty-Six
Weeks Ended
July 31, 1999 -- -- -- (10,162) -- -- (10,162) (10,162)
Other Comprehensive Loss,
Net of tax:
Unrealized Loss on
Available-For-Sale
Securities -- -- -- -- (175) -- (175) (175)
Purchase of Treasury Stock -- -- -- -- -- (218) (218) --
--------- --------- --------- --------- ---------- --------- ---------- ----------
Balance,
July 31, 1999 (unaudited) $58 $20,000 $62,380 $66,425 ($66) ($218) $148,579 ($10,337)
========= ========= ========= ========= ========== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(UNAUDITED)
1. GENERAL
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions for Form 10-Q and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation for interim periods have
been included.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
January 30, 1999.
The Company's results of operations for the thirteen and twenty-six
weeks ended July 31, 1999 are not necessarily indicative of the
operating results for the full year.
Certain reclassifications have been made to the financial statements of
the prior year to conform with the classifications used for Fiscal 1999.
2. NET LOSS PER SHARE
"Basic" net loss per share data were computed by dividing net loss,
reduced by the Convertible Preferred Stock Dividend requirement, by the
weighted average number of common shares outstanding during the thirteen
and twenty-six weeks ended July 31, 1999 and August 1, 1998. With
respect to "diluted" net loss per share, stock options which are
potential common shares, were excluded from the weighted average of
outstanding shares because inclusion would reduce the loss per share.
With respect to the Company's 5% Convertible Subordinated Debentures and
the Company's Convertible Preferred Stock, for the purpose of computing
diluted net loss per share, the assumed conversion of such debentures
and such preferred stock would each have an anti-dilutive effect on
diluted loss per share for the thirteen and twenty-six weeks ended July
31, 1999 and August 1, 1998.
5
<PAGE>
3. SEGMENT INFORMATION
The Company defines its principal business segments as follows: the
Specialty Housewares segment which operates as Lechters Housewares(R)
and Lechters Kitchen Place(R), and the Off-Price Home Business segment
which operates as Famous Brands Housewares Outlet(R) and Cost Less
Home Store(SM). The contribution of these segments, as well as
"corporate and other" for the thirteen and twenty-six weeks ended
July 31, 1999 and August 1, 1998 are summarized below. The caption
"corporate and other" includes general corporate expenses,
principally expenses of service office and distribution centers as well
as interest income and expense.
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES
Specialty Housewares $68,954 $69,915 $133,600 $137,328
Off-Price Home Business 21,959 21,507 40,720 40,288
---------- ---------- ---------- ----------
Total Sales $90,913 $91,422 $174,320 $177,616
========== ========== ========== ==========
(LOSS) INCOME BEFORE TAX PROVISION
Specialty Housewares ($2,400) ($230) ($2,785) ($15)
Off-Price Home Business 401 82 779 233
Corporate and Other (7,575) (6,234) (14,732) (13,228)
---------- ---------- ---------- ----------
Operating (Loss)/Income (9,574) (6,382) (16,738) (13,010)
Other Expenses (Income) 400 127 486 (338)
---------- ---------- ---------- ----------
Total (Loss) Income Before Income Tax
Provision ($9,974) ($6,509) ($17,224) ($12,672)
========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION
EXPENSE
Specialty Housewares $2,203 $2,428 $4,453 $4,827
Off-Price Home Business 372 400 741 801
Corporate and Other 1,369 1,268 2,710 2,630
---------- ---------- ---------- ----------
Total Depreciation and Amortization
Expense $3,944 $4,096 $7,904 $8,258
========== ========== ========== ==========
CAPITAL EXPENDITURES
Specialty Housewares $1,486 $1,421 $2,510 $1,946
Off-Price Home Business 100 92 467 302
Corporate and Other 688 253 969 644
---------- ---------- ---------- ----------
Total Capital Expenditures $2,274 $1,766 $3,946 $2,892
========== ========== ========== ==========
July 31, August 1,
1999 1998
---------- ----------
TOTAL ASSETS
Specialty Housewares $104,464 $104,431
Off-Price Home Business 24,345 26,760
Corporate and Other 132,260 145,768
---------- ----------
Total Assets $261,069 $276,959
========== ==========
</TABLE>
6
<PAGE>
4. COMPREHENSIVE LOSS
The following is a summary of the Company's comprehensive loss:
<TABLE>
Twenty-Six Weeks Ended
----------------------
July 31, August 1,
1999 1998
---------- ----------
<S> <C> <C>
Net Loss ($10,162) ($7,476)
Components of Comprehensive (Loss) Income:
Unrealized Loss on Available-For-Sale Securities,
Net of Applicable Income Tax Benefit (175) (54)
---------- ----------
Comprehensive Loss ($10,337) ($7,530)
========== ==========
</TABLE>
5. STOCK REPURCHASE PLAN
On May 3, 1999, the Company announced the approval by the Board of
Directors of a program to repurchase from time to time of up to
1,000,000 shares of the Company's Common Stock. Share purchases
commenced on May 17, 1999 and as of September 8, 1999, totaled
approximately 104,000 shares at a cost of $223. Under the Company's
Credit Agreement, the Company may repurchase up to 1,000,000 shares
provided the aggregate cost does not exceed $2,500. The Company's
intention is to hold these shares as treasury stock.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
THIRTEEN WEEKS ENDED JULY 31, 1999 IN COMPARISON WITH THIRTEEN WEEKS ENDED
AUGUST 1, 1998.
Sales for the thirteen weeks ended July 31, 1999 ("Second Quarter 1999"),
decreased $509 to $90,913, a decrease of 0.6% compared to the comparable period
of Fiscal 1998 ("Second Quarter 1998"). The decrease was attributable to a
reduction of stores in operation which averaged 41 fewer locations from Fiscal
1998. The reduction in the number of stores reflects the Company's strategy to
improve the quality of its store locations by upgrading to better performing
sites. With respect to sales by segment, sales for the Specialty Housewares
segment, which is comprised of Lechters Housewares(R) and Lechters Kitchen
Place(R), decreased 1.4% to $68,954, and sales for the Off-Price Home Business
segment comprised of Famous Brands Housewares Outlet(R) and Cost Less Home
Store(SM), increased 2.1% to $21,959. The Company's total chain comparable store
sales increased 1.3% compared to the same period last year. By segment,
comparable store sales for Specialty Housewares were flat, while the Off-Price
Home Business segment increased 6.0%. During Second Quarter 1999, the Company
opened 3 stores and closed 8, reducing the stores in operation at July 31, 1999
to 571 from the 576 in operation at the beginning of the second quarter,
compared to 612 stores in operation at August 1, 1998.
Gross Profit for Second Quarter 1999, was $20,284, 22.3% of sales and was $1,276
and 1.3% as a percent of sales lower than gross profit for Second Quarter 1998.
The sales decrease was the primary reason for the reduction in the amount of
gross profit. Additional price reductions, partially offset by the lower
occupancy costs related to fewer stores in operation, were a significant factor
in the gross profit rate decrease.
Selling, General and Administrative Expenses increased $1,916, to $29,858, which
constituted 32.8% of sales, an increase of 2.2% from Second Quarter 1998. With
respect to store operating expenses, payroll, advertising and credit card fees
showed increases over the comparable period of Fiscal 1998. Service Office
expenses were higher during Second Quarter 1999, due to expenditures for
consultants engaged in Information Technology and logistic projects, and outside
warehousing costs increased as additional facilities were required for Cost Less
Home Store(SM).
Other (Income)/Expense for the quarter was expense of $400, 0.4% of net sales
and was $273, and 0.3% above Second Quarter 1998. Interest expense was virtually
equivalent to last year's amount while interest and investment income and gains
were $259 lower for the second quarter compared to last year. The decreased
interest and investment income was the result of lower balances of Marketable
Securities. As of July 31, 1999, Marketable Securities classified as
available-for-sale were $46,671, which was $15,051 lower than at August 1, 1998.
The Net Loss for the Second Quarter 1999, was $5,885, ($0.36) per share compared
to a Net Loss of $3,836, ($0.24) per share for Second Quarter 1998.
8
<PAGE>
TWENTY-SIX WEEKS ENDED JULY 31, 1999 IN COMPARISON WITH TWENTY-SIX WEEKS ENDED
AUGUST 1, 1998.
Sales for the twenty-six weeks ended July 31, 1999, decreased $3,296 to
$174,320, a decrease of 1.9% from the comparable twenty-six week period of
Fiscal 1998. The sales decrease was due to the reduced number of stores in
operation during Fiscal 1999, which averaged 42 fewer store locations than
Fiscal 1998. The Specialty Housewares segment which is comprised of Lechters
Housewares(R) and Lechters Kitchen Place(R), decreased 2.7% to $133,600 and
sales for the Off-Price Home Business segment comprised of Famous Brands
Housewares Outlet(R) and Cost Less Home Store(SM), increased 1.1% to $40,720. On
a comparable store basis, sales for the Company decreased 0.2% with the
Specialty Housewares segment decreasing 1.3% and sales for Off-Price Home
Business segment increasing 3.8%. Year-to-date, the Company has opened 7
stores and closed 14, reducing the stores in operation from 578 at January 30,
1999 to 571 as of July 31, 1999, compared to 612 stores in operation at August
1, 1998.
Gross Profit for the twenty-six week period ended July 31, 1999 decreased $1,364
to $41,854. At 24.0% of sales, the gross margin rate decreased 0.3 percentage
points from the rate for the comparable period of Fiscal 1998. The reduced gross
profit rate was due to increased price reductions which were only partially
offset by lower occupancy costs due to fewer stores in operation.
Selling, General and Administrative Expenses increased $2,364 to $58,592 and at
33.6% of sales, were 1.9 percentage points higher as a rate compared to the
comparable period of Fiscal 1998. As mentioned for the second quarter, the
expense trends are similar with store payroll, advertising and credit card fees
increasing over last year. Service Office expenses increased due to additional
payroll primarily in merchandising and information technology to support the
Company's new business initiatives. Consulting fees for special studies and
outside warehousing costs for Cost Less Home Stores(SM) were other
expense categories showing increases for the year-to-date period.
Other (Income)/Expense for the twenty-six weeks ended July 31, 1999, decreased
$824 to an expense of $486, 0.3% of sales, compared to income of $338, 0.2% of
sales, for the comparable period of the prior fiscal year. The decrease was due
to the reduction in the interest income, which resulted from reduced invested
balances. Additionally, interest income for the first quarter of Fiscal 1998,
included approximately $450 of interest income related to federal income tax
refunds for prior fiscal years.
The year-to-date net loss for Fiscal 1999 was $10,162 or ($0.62) per share
compared to a loss of $7,476 or ($0.46) per share for the comparable period of
Fiscal 1998.
YEAR 2000 COMPLIANCE
The Company repeats its disclosure made in its Annual Report to Shareholders on
Form 10-K revised for information which has changed from the Form 10-K filing
date of April 28,1999.
The Year 2000 ("Y2K") issue is primarily the result of computer programs
using two digits instead of four digits to indicate the year. From the Company's
perspective, the major risks associated with the Y2K involve areas in which the
Company is dependent on others to take appropriate and timely actions before
January 1, 2000. Specifically, as a retailer, the Company is dependent upon an
uninterrupted supply of merchandise to its stores, upon landlords to provide
normal operating conditions at the properties leased by the Company in which to
transact business and upon service providers who supply such items as phone
service and utilities which allow the Company to operate its stores located in
42 states and the District of Columbia from its headquarters in New Jersey.
These key factors must be resolved by outside parties. Without a successful
resolution of these factors, the Company will not be able to operate in its
normal manner and severe adverse economic consequences will result. With respect
to the products sold by the Company, for the most part, they do not contain
embedded electronic devices which would make them subject to Y2K issues.
9
<PAGE>
To monitor these outside parties in their Y2K process and to ensure that all
factors over which it had control from a Y2K perspective were resolved before
the start of the Y2K, the Company initiated its Y2K compliance project during
Fiscal Year 1997 with a review of all existing information technology ("IT")
software systems.
In Fiscal Year 1996, prior to the recognition of Y2K as a significant business
risk and in the normal course of business, the Company identified key core
systems, which needed to be replaced. A new financial suite including modules
for general ledger, accounts payable and fixed assets was installed at the
beginning of Fiscal 1998. A new merchandise inventory analysis and control
system has been acquired. The core software package was installed during Fiscal
Year 1998. The new merchandise analysis systems have become operational in
stages during the first half of Fiscal Year 1999. Finally, the Company has also
contracted to install a new warehouse management system, which has been
installed and should be fully operational by October 1999. All three major
systems acquisitions have been certified Y2K compliant by the vendor. All new
software to be acquired by the Company will be required to be certified as Y2K
compliant by the vendor. The Company is in the process of remediating certain
merchandise and financial software systems, which remediation the Company
expects to be completed by December 1, 1999. These systems were to have been
replaced in Fiscal 1999 by Y2K compliant systems, which the Company expects will
be installed early in Fiscal 2000.
The Company established a Y2K Compliance Task Force in the third quarter of
Fiscal 1998 whose charter is to review all of the Company's efforts to ensure
that the Company will be Y2K compliant prior to December 31, 1999. Comprised of
representatives from Information Technology, Operations, Finance, Loss
Prevention, Merchandising and Human Resources, the task force has reviewed all
known potential Y2K issues and has established a Master Schedule of items ready
to be resolved to ensure that the Y2K will have no adverse impact on the
Company. The Y2K Task Force's initial focus was to review steps taken to date
primarily in the IT area.
The Y2K Task Force also commenced its review of non-IT related issues involving
equipment with embedded technology which may not be Y2K compliant. This phase of
the project has been completed, and it has identified limited amounts of
equipment with embedded technology subject to Y2K exposure. Early in Fiscal
1999, the Company mailed a Y2K readiness questionnaire to all of its vendors. A
second mailing was also made to key vendors who did not respond to the initial
mailing.
With the receipt of questionnaire responses, which was completed at the end
of May 1999, the third phase of the Y2K compliance project has focused on
evaluating the results of the questionnaire, reviewing the results of the non-IT
equipment survey and verifying IT software surveys previously conducted. Based
on the completion of the above process, the Y2K Task Force will issue its final
Y2K Master Schedule and remediation plan, which will be completed by the third
quarter of Calendar Year 1999 except for the additional remediation plan which
will be completed by December 1, 1999. Third party consultants have been engaged
to evaluate and assist in the completion of the plan.
The final two phases of the Y2K remediation plan involves the establishment
of contingency plans which are currently being developed and the development of
"worst case" scenarios. The development of "worst case" scenarios will be based
on the assessment of the Company's readiness and the readiness of its key
vendors, major suppliers, landlords and key service suppliers. Given the fact
that the Company operates a large number of stores which are geographically
dispersed and has a large supplier base, the Company's initial evaluations to
date indicate that these two conditions will tend to mitigate potential adverse
impacts of the Y2K issues. This evaluation, however, is based on certain
expectations and assumptions, which may ultimately prove to be inaccurate. As
part of their oversight responsibilities, the Audit Committee of the Board of
Directors has requested, has been and will continue to be provided with periodic
status reports, on at least a monthly basis, on the progress the Company has
made with respect to Y2K readiness and compliance.
10
<PAGE>
The cost of the software purchased for the major systems as described above
approximates $5,950. Future costs of new software for major systems are
estimated to be $700 for the completion of the merchandise inventory analysis
and control system and $500 for a warehouse management system. Costs of
compliance such as hardware upgrades, equipment replacement and miscellaneous
software, which are "capitalized" as other assets, are estimated to be $300.
Costs of re-training or modifications to existing programs will be expensed as
incurred and are estimated to be $650. It is anticipated that funds for Y2K
compliance costs will be generated by internal sources.
LIQUIDITY AND CAPITAL RESOURCES.
Cash flow during the twenty-six weeks ended July 31, 1999 as reflected on
the Statements of Cash Flows, was a net decrease of cash and cash equivalents of
$24,762. Operating activities, comprised of the operating Net Loss of $10,162
adjusted for non-cash expenses such as depreciation and amortization and by
changes in operating assets, utilized $35,370 of cash during Fiscal 1999 to
date. Significant components of operating activities for the twenty-six weeks
ended July 31, 1999, included depreciation and amortization which is non-cash
expense of $7,904, merchandise inventories which increased using $24,278 of cash
and accounts payable, accrued expenses and taxes other than income taxes which
increased and provided cash of $3,995. Investing activities, capital
expenditures and reductions in marketable (available-for-sale) securities
provided $11,836 of cash with the reduction in marketable securities providing
$15,782 and capital expenditures utilizing $3,946.
Capital expenditures were primarily for construction and fixtures for new
stores, renovations and remodels of existing stores. Financing activities
utilized $1,228 of cash as the Company paid the dividend on the convertible
preferred stock and purchased 101,500 shares of its Common Stock at an aggregate
cost of $218.
During the first quarter of Fiscal 1998, the Company entered into a new
$40,000,000 Credit Agreement with a syndicate of banks led by Chase Manhattan
Bank to replace the existing credit facility which was to expire in May 1998.
The credit facility includes a restrictive covenant which prohibits the payment
of dividends on the Company's common stock. The facility, which was amended for
the first time on March 23, 1999, consists of a $20,000,000 revolving credit
facility for direct borrowings and a $20,000,000 letter of credit facility. The
term of the facility is three years, with the letter of credit component
renewable annually during that period. On September 14, 1999, the facility was
further amended (as amended, the "Credit Agreement"). The second amendment
provided for the modification of covenants and securing of the facility with
collateral consisting of cash or securities in an amount equal to the greater of
$15 million or amounts outstanding.
11
<PAGE>
STOCK REPURCHASE PLAN
On May 3, 1999, the Company announced the approval by the Board of Directors of
a program to repurchase from time to time of up to 1,000,000 shares of the
Company's Common Stock. Share purchases commenced on May 17, 1999 and as of
September 8, 1999 totaled approximately 104,000 shares at a cost of $223. Under
the Company's Credit Agreement, the Company may repurchase up to 1,000,000
shares provided the aggregate cost does not exceed $2,500. The Company's
intention is to hold these shares as treasury stock.
PART II. Other Information
Item 4-Submission of Matters to a Vote of Security Holders
(a) Regular annual meeting of the Company's stockholders, held June 22,
1999 in New York, NY.
(b) Directors elected at the meeting for a three-year term:
Charles A. Davis
Bernard D. Fischman
Anthony E. Malkin
Norman Matthews
Continuing Directors:
Martin S. Begun Donald Jonas
Roberta S. Maneker Stephen T. Westerfield
Robert Knox John Wolff
(c)(1) a. To elect four Director Nominees; and
b. To consider and act upon a proposal to ratify the appointment
of Deloitte & Touche LLP as the independent auditors of the
Company for the fiscal year ending January 29, 2000; and
(2) Director Nominees
<TABLE>
Class of Stock For Withhold Total Voted
-------------- ---------- ----------- ------------
<S> <C> <C> <C>
Common 14,543,746 1,182,599 15,726,345
Series A Preferred 2,399,984 - 2,399,984
---------- ----------- -------------
Total 16,943,730 1,182,599 18,126,329
</TABLE>
Proposal to ratify Deloitte & Touche LLP as Independent Auditors
<TABLE>
Class of Stock For Against Abstain Total Voted
-------------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Common 15,698,285 20,568 7,492 15,726,345
Series A Preferred 2,399,984 - - 2,399,984
----------- ---------- ---------- -------------
Total 18,098,269 20,568 7,492 18,126,329
</TABLE>
12
<PAGE>
(3) Election of Directors
Name Votes For Votes Withheld
---- --------- --------------
Charles A. Davis 16,943,740 1,182,589
Bernard D. Fischman 16,943,730 1,182,599
Anthony E. Malkin 16,943,740 1,182,589
Norman Matthews 16,943,740 1,182,589
Item 6-Exhibits and Reports on Form 8-K
a. Exhibits.
3.1 Restated Certificate of Incorporation of the Company
(Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 File No. 33-29465 (the
"Registration Statement")).
3.2 By-laws of the Company (Incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 File No.
33-40372).
4.1 Preferred Stock Purchase Agreement dated April 5, 1996. (Incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended February 1, 1997).
4.2 Indenture, dated as of September 27, 1991, between the Company
and Chemical Bank, as Trustee. (Incorporated herein by reference
to the Company's Annual Report on Form 10-K for the year ended
January 25, 1992).
10.1 Amendment No. 2 dated as of September 14, 1999 to the Credit
Agreement dated as of March 26, 1998 among the Company, The Chase
Manhattan Bank, as Agent, and certain listed Banks.*
27 Financial Data Schedule*
b. Reports on Form 8-K.
1. A Current Report on Form 8-K reporting one matter under Item 3,
Other Events, was filed on May 4, 1999.
*Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LECHTERS, INC.
By: /s/ James J. Sheppard
James J. Sheppard
Senior Vice President and
Chief Financial Officer
Date: September 14, 1999
13
SECOND AMENDMENT AND WAIVER TO CREDIT AGREEMENT
This is the second amendment and waiver (the "Amendment") dated as of
September 14, 1999, to the Credit Agreement dated as of March 26, 1998 as
amended by the First Amendment and Waiver to Credit Agreement dated as of March
23, 1999 (the "Credit Agreement") between Lechters, Inc., (the "Borrower"), The
Chase Manhattan Bank as agent and issuing bank (the "Agent"), and the Banks
listed on the signature pages thereof (individually, each a "Bank", and
collectively, the "Banks").
RECITALS
A. The Borrower and the Corporate Guarantors have (i) asked the Banks to
waive certain defaults that have arisen under the Credit Agreement, and (ii)
requested certain amendments to the Credit Agreement.
B. The Banks are willing to waive such defaults and make such amendments
subject to the terms and conditions set forth herein.
C. The Borrower, the Agent and The Chase Manhattan Bank as custodian (the
"Custodian") have entered into a Collateral and Account Control Agreement, as
defined herein, whereby the Custodian will hold and have control over certain
assets of the Borrower.
NOW, THEREFORE, in consideration of the agreement of the parties
contained herein, and intending to be legally bound, the parties hereto agree as
follows:
1. Definitions.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the Credit Agreement.
2. Amendments to Article 1 of the Credit Agreement.
Subsection 1.02(a) is replaced with the following:
The Borrower shall give the Agent notice (which shall be
irrevocable) no later than 10:00 a.m. (New York time) on, in the case of
Prime Rate Loans, the Business Day, and, in the case of LIBO Rate Loans,
the third Eurodollar Business Day, before the requested date for the
making of such Loans. Each such notice shall be in the form of Schedule
1.02 and shall specify (i) the requested date for the making of the
requested Loans, which shall be, in the case of Prime Rate Loans, a
Business Day and, in the case of LIBO Rate Loans, a Eurodollar Business
Day, (ii) the Type or Types of Loans requested, (iii) the amount of each
such Type of Loan, the aggregate of which amounts for (A) all Prime Rate
Loans requested shall be $500,000 or a greater integral multiple of
$100,000 or the aggregate amount of the unused Loan Commitments and (B) all
Types of LIBO Rate Loans shall be $2,000,000 or a greater integral multiple
of $500,000, and (iv) the difference between (A) the aggregate Margined
Value of all Collateral as of the Business Day before such notice, and (B)
the sum of the aggregate of the (1) Loan Exposures of all of the Banks, and
(2) LC Exposures of all of the Banks (in each case after giving effect to
any outstanding requests for Loans, Letters of Credit or Steamship
Indemnities). Upon receipt of any such notice, the Agent shall promptly
notify each Bank of the contents thereof and of the amount and Type of each
Loan to be made by such Bank on the requested date specified therein.
<PAGE>
3. Amendments to Article 2 of the Credit Agreement.
The last sentence of Section 2.02 is deleted and replaced with the
following:
(e) Collateral Coverage
The Margined Value of the Collateral is at least equal to the
greater of (i) $15,000,000 or (ii) the sum of the aggregate of the (A)
Loan Exposures of all of the Banks, and (B) the LC Exposures of all of
the Banks (in each case after giving effect to the requested Credit
Extension and any other outstanding requests for Loans, Letters of
Credit or Steamship Indemnities). If the aggregate of the Loan Exposure
and LC Exposure of all of the Banks is reduced at any time to less than
$15,000,000, the Agent shall release upon the request of the Borrower
the amount of Collateral in excess of a Margined Value of $15,000,000.
The Borrower shall be deemed to have made a representation and
warranty as of the time of the requested Credit Extension that the
conditions specified in clauses (b), (c) and (e) above have been
fulfilled as of such time.
4. Amendments to Article 5 of the Credit Agreement.
a. Section 5.04 is deleted and replaced with the following:
(i) Declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of common stock of the Borrower);
or (ii) directly or indirectly, purchase, redeem or retire any shares of
its capital stock of any class or any warrants, rights or options to
purchase or acquire any shares of its capital stock; or (iii) make any
other payment or distribution, either directly or indirectly, in respect of
capital stock of the Borrower; or (iv) make, directly or indirectly, any
Restricted Investment; it being specifically understood that the Borrower
and any Subsidiary will enter into a joint venture only with the prior
written consent of all the Banks; except the Borrower may (x) declare and
pay preferred dividends not to exceed 6% per annum in respect of the
Perpetual Convertible Preferred Stock, and (y) during such time as no
Default or Event of Default has occurred and is continuing and provided
that no Default or Event of Default shall be caused thereby, purchase,
redeem or retire after March 26, 1998 up to 1,000,000 shares in the
aggregate of the Borrower's common stock subsequent to the Closing Date,
provided that the aggregate price for all such shares purchased, redeemed
or retired after March 26, 1998 shall not exceed $2,500,000.
2
<PAGE>
b. Section 5.11 is deleted and replaced with the following:
(i) Prepay, redeem, purchase, defease, retire or otherwise satisfy
in any manner prior to the scheduled maturity thereof any of its
Indebtedness, other than the Indebtedness under this Agreement or (ii)
amend, modify or change in any manner any term or condition of its
Indebtedness other than to prepay any Indebtedness payable by any
Subsidiary to the Borrower.
5. Amendments to Article 6 of the Credit Agreement.
a. Section 6.02 is deleted and replaced with the following:
Permit the ratio of (i) Consolidated EBITDAR minus Consolidated
Capital Expenditures to (ii) Consolidated Fixed Charges as determined as of
the last day of each fiscal quarter for the period of the four consecutive
preceding fiscal quarters ending on such day, to be less than 1.00 to
1.00; provided, however, for the period ending on the last day of the
third quarter of fiscal year 1999, such ratio may be less than 1.00 to
1.00, but shall not be less than 0.95 to 1.00.
b. Section 6.03 is deleted and replaced with the following:
Permit the ratio of (i) Consolidated Funded Debt to (ii)
Consolidated EBITDA as determined as of the last day of each fiscal
quarter for the period of the four consecutive preceding fiscal quarters
ending on such day to be greater than or equal to 3.00 to 1.00 as of the
end of the first quarter of fiscal year 2000 and as of the end of each
fiscal quarter thereafter.
c. Section 6.05 is deleted in its entirety.
d. Section 6.06 is deleted and replaced with the following:
6.06 Minimum Tangible Net Worth.
Have a Tangible Net Worth of less than (i) $140,000,000 as of the
end of the third quarter of fiscal year 1999, and (ii) $145,000,000 as of
the end of the fourth quarter of fiscal year 1999 and quarterly thereafter.
e. A new Section 6.07 is added to the Credit Agreement as follows:
3
<PAGE>
6.07 Quick Ratio
Have, at any time after the second quarter of fiscal year
1999, a Quick Ratio of less than 1.0 to 1.0.
A new Section 6.08 is added to the Credit Agreement as follows:
6.08 Collateral Coverage
Permit the Collateral Account to have a Margined Value of
less than the greater of (i) $15,000,000 or (ii) the sum of the
aggregate of the (A) Loan Exposures of all of the Banks, and (B) the LC
Exposures of all of the Banks (in each case after giving effect to the
requested Credit Extension and any other outstanding requests for Loans,
Letters of Credit or Steamship Indemnities).
6. Amendments to Article 7 of the Credit Agreement.
a. Subsection 7.01(b)(iii) is amended to delete from the last line
"6.01, 6.02, 6.03, 6.04 and 6.05" and replace it with "6.01, 6.02, 6.03,
6.04, 6.06, 6.07 and 6.08".
b. Subsection 7.01(e) is deleted and replaced with the following:
(e) Projections.
(i) No later than 30 days following the start of each fiscal
year an annual budget or forecast including a projected profit and
loss statement, balance sheet and cash flow statements along with
a calculation of all covenants on a quarterly basis.
(ii) No later than 30 days following the end of each fiscal
month of the Borrower beginning at the end of August of 1999, a
forecast of cash flows for the period beginning at the end of such
month and ending March 1, 2001.
7. Amendment to Article 8 of the Credit Agreement.
a. A new Subsection 8.01(k) is added to the Credit Agreement as
follows:
(k) Material Adverse Change.
From and after the effectiveness hereof, there shall be a
material adverse change in the business, assets, liabilities,
financial condition, results of operation or business prospects
of the Borrower and its Subsidiaries taken as a whole.
b. A new Subsection 8.01(l) is added to the Credit Agreement as
follows:
(l) Delivery of Resolutions
The Borrower shall fail to deliver by the dates provided in
Section 17 of this Second Amendment and Waiver to Credit
Agreement resolutions of the Board of Directors of each of the
Borrower and Corporate Guarantors authorizing the due execution
and delivery of this Agreement.
4
<PAGE>
8. Amendments to Article 12 of the Credit Agreement.
a. A new defined term "Collateral" is added as follows:
"Collateral" has the meaning assigned to that term in the Collateral
and Account Control Agreement.
b. A new defined term "Collateral Account" is added as follows:
"Collateral Account" has the meaning assigned to that term in the
Collateral and Account Control Agreement.
c. A new defined term "Collateral and Account Control Agreement"
is added as follows:
"Collateral and Account Control Agreement" means the Collateral and
Account Control Agreement between the Borrower, the Agent and the Custodian
dated as of September 14, 1999.
d. A new defined term "Custody Account Agreement" is added as
follows:
"Custody Account Agreement" has the meaning assigned to that term in
the Collateral and Account Control Agreement.
e. A new defined term "Fair Market Value" is added as follows:
"Fair Market Value" means the value of the Permitted Collateral
based on the price per share or unit of any of the securities, debt
instruments, mutual funds, financial assets or other investment property
which is a part of the Permitted Collateral as set forth on the New York
Stock Exchange, other exchanges, markets, or asset value listings where
such securities, debt instruments, mutual funds, financial assets, or other
investment property may be traded or the value quoted as stated in The
Wall Street Journal, or other customary publication of such information
if not available in The Wall Street Journal, at the close of the business
day, plus the face value (including accrued interest) of any certificates
of deposit, cash, or other financial assets comprising the Permitted
Collateral.
f. The term "Loan Documents" is deleted in its entirety and
replaced with the following:
"Loan Documents" means (a) this Agreement, the Notes, the
Subsidiary Guaranty, any Subsidiary Guaranty Supplement, the Collateral and
Account Control Agreement, the Letters of Credit, the Steamship Indemnities
and the Applications and (b)all other agreements, documents and instruments
relating to, arising out of, or in any way connected with (i) any
agreement, document or instrument referred to in clause (a), (ii) any
other agreement, document or instrument referred to in this clause (b)
or (iii) any of the transactions contemplated by any agreement, document
or instrument referred to in clause (a) or in this clause (b).
5
<PAGE>
g A new defined term "Margined Value" is added as follows:
"Margined Value" means for each item of Permitted Collateral on any
date, the fair market value of such item of Permitted Collateral on
such date multiplied by a margin factor for such Permitted Collateral of
0.90, provided, however, that if any item of Permitted Collateral is (i)
cash, or (ii) time deposits and certificates of deposit having maturities
of not more than 90 days (from the date such deposits or certificates of
deposit are acquired) of any domestic commercial bank, the long-term debt
of which is rated at least A-2 or the equivalent thereof by Standard &
Poor's Corporation or a-2 or the equivalent thereof by Moody's Investors
Service, Inc. and having capital and surplus in excess of $500,000,000,
then the face value (including accrued interest) of such item of Permitted
Collateral on such date shall be multiplied by a margin factor of 1.00.
h. A new defined term "Permitted Collateral" is added as follows:
"Permitted Collateral": means (i) securities issued or directly and
fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than two
years from the date of acquisition, (ii) time deposits and certificates
of deposit having maturities of not more than 90 days (from the date such
deposits or certificates of deposit are acquired) of any domestic
commercial bank the long-term debt of which is rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or a-2 or the
equivalent thereof by Moody's Investors Service, Inc. and having capital
and surplus in excess of $500,000,000, and (iii) repurchase obligations
with a term of not more than seven days for underlying securities of the
types described in clauses (i) and (ii) entered into with any bank meeting
the qualifications specified in clause (ii) above.
i. A new defined term "Quick Ratio" is added as follows:
"Quick Ratio" means the ratio of (i) the sum of the value of
cash, marketable securities and accounts receivable of the Borrower, to (ii)
the current liabilities of the Borrower, all as determined on a consolidated
basis pursuant to GAAP.
9. Amendment to Schedules to the Credit Agreement.
Schedule 1.02 is deleted and replaced with Exhibit A to this Amendment.
10. Waiver.
Provided that the Borrower is in compliance with the covenants as amended
herein on the effective date of this Amendment, the Banks hereby waive any
Default or Event of Default arising out of a breach of Section 6.03 prior to
such section being amended herein.
6
<PAGE>
11. General.
This Amendment is made pursuant to Section 11.06 of the Credit Agreement,
and the parties hereto acknowledge that all provisions of the Credit Agreement,
except as amended hereby, shall remain in full force and effect.
12. Definitions.
Whenever appearing in the Loan Agreement or any other Loan Document, the
term "Credit Agreement" shall be deemed to mean the Credit Agreement as amended
hereby.
13. Representations and Warranties.
The Borrower hereby represents and warrants to the Banks that, as of the
effectiveness of this Amendment: (a) each of the representations and warranties
contained in the Credit Agreement are accurate, (b) such representations and
warranties would continue to be accurate if, in each representation or warranty
where the term "Loan Documents" appears, the term "Amendment" was to be
substituted therefor, (c) no Event of Default has occurred and is continuing or
will result from the execution by the Borrower of this Amendment, and (d) that
the Loan Documents as amended herein are enforceable in accordance with their
terms without any offsets, counterclaims or defenses.
14. Amendment Fee.
The Borrower shall pay to the Agent for the benefit of the Banks an
amendment fee of $50,000 (the "Amendment Fee") in connection with this Amendment
which fee shall be due and payable upon the signing of this Amendment.
15. Arrangement Fee.
The Borrower shall pay an arrangement fee to the Agent for the Agent's own
account, as agreed between the Borrower and the Agent.
16. Fees of Bank's Counsel.
The Borrower shall pay the fees and expenses of McCarter & English in
connection with the preparation and negotiation of this Amendment and all
related documents.
17. Conditions to Effectiveness.
It shall be a condition to the effectiveness of this Amendment that the
Bank have received the following:
a. This Amendment, duly executed on behalf of the Borrower and the
Banks;
b. The Collateral and Account Control Agreement attached hereto as
Exhibit 17(b);
7
<PAGE>
c. Collateral comprised of Permitted Collateral to be held in
the Collateral Account and having an aggregate Margined Value of at least
$15,000,000;
d Payment of the Amendment Fee;
e. Payment of the Arrangement Fee;
f. An opinion of counsel to the Borrower and Guarantors
satisfactory to the Agent;
g. On or before September 14, 1999, a certificate from the
Secretary of the Borrower (i) stating that there have been no amendments to
the Certificate of Incorporation or By-laws of such Borrower since the date
of the Credit Agreement, (ii) to which is attached a resolution of the
Board of Directors authorizing the execution, delivery and performance
of this Amendment, and (iii) setting forth the name and sample signature
of the officers of the Borrower authorized to execute and deliver this
Amendment; and
h. By no later than September 17, 1999, a certificate or
certificates from the Secretary of each of the Corporate Guarantors
(excluding Harrison Investment, Inc., which shall deliver a certificate
from its Secretary by no later than September 24, 1999) to which is
attached a resolution of its Board of Directors authorizing the execution,
delivery and performance of such Corporate Guarantor's consent to this
Amendment.
18. Integration.
This Amendment together with the Credit Agreement and other Loan
Documents constitute the entire agreement and understanding among the parties
relating to the subject matter hereof and thereof and supersedes all prior
proposals, negotiations, agreements and understandings relating to such subject
matter. In the event of any conflict or inconsistency between this Agreement and
the Custody Account Agreement, the provisions of this Agreement shall supersede
such inconsistent or conflicting provision of the Custody Account Agreement.
19. Severability.
If any provision of this Amendment shall be held invalid or unenforceable
in whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or enforceability
without in any manner affecting the validity or enforceability of such provision
in any other jurisdiction or the remaining provisions of this Amendment in any
other jurisdiction.
8
<PAGE>
20. No Defenses, Off-Sets or Counterclaims.
By executing this Amendment, Borrower confirms and acknowledges that as of
the date of execution hereof, Borrower has no defenses, off-sets or
counterclaims against any of Borrower's obligations to the Banks under the Loan
Documents, including the Credit Agreement (as amended hereby). Borrower hereby
acknowledges and agrees that the actual amounts outstanding on the date of
execution hereof are owing the Banks without defense, offset or counterclaim.
21. Incorporation by Reference.
This Amendment is incorporated by reference into the Credit Agreement and
the other Loan Documents. Except as otherwise provided herein, all of the other
provisions of the Credit Agreement and the other Loan Documents are hereby
confirmed and ratified and shall remain in full force and effect as of the date
of this Amendment.
22. Governing Law.
This Amendment is governed by the laws of the State of New York and is
binding upon the Borrower, the Agent and Issuing Bank and the Banks and their
respective successors and/or assigns and/or heirs and executors, as the case may
be.
23. Counterparts.
This Amendment may be executed by one or more of the parties in any number
of separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, on the date
first above written.
LECHTERS, INC.
By: ____________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Agent, Issuing Bank and as a Bank
By: ____________________________________
Andrea Johnson
Vice President
FLEET BANK, NATIONAL ASSOCIATION
as Bank
By: ____________________________________
Craig W. Trautwein
Vice President
FIRST UNION NATIONAL BANK
as Bank
By: ____________________________________
Donald D. Mishler
Senior Vice President and Director
9
<PAGE>
The undersigned, as guarantors, consent to the foregoing amendment:
LECHTERS ALABAMA, INC.
LECHTERS ARIZONA, INC.
LECTHERS ARKANSAS, INC.
LECHTERS CALIFORNIA, INC.
LECHTERS COLORADO, INC.
LECHTERS CONNECTICUT, INC.
LECHTERS DELAWARE, INC.
LECHTERS FLORIDA, INC.
LECHTERS GEORGIA, INC.
LECHTERS IDAHO, INC.
LECHTERS ILLINOIS, INC.
LECHTERS INDIANA, INC.
LECHTERS IOWA, INC.
LECHTERS KANSAS, INC.
LECHTERS KENTUCKY, INC.
LECHTERS LOUISIANA, INC.
LECHTERS MAINE, INC.
LECHTERS BALTIMORE, INC.
LECHTERS HOLYOKE, INC.
LECHTERS MICHIGAN, INC.
LECHTERS MINNESOTA, INC.
LECHTERS MISSISSIPPI, INC.
LECHTERS MISSOURI, INC.
LECHTERS NEBRASKA, INC.
LECHTERS NEVADA, INC.
LECHTERS NEW HAMPSHIRE, INC.
LECHTERS NEW JERSEY, INC.
LECHTERS NEW MEXICO, INC.
LECHTERS NEW YORK, INC.
LECHTERS N.Y.C., INC.
LECHTERS NORTH CAROLINA, INC.
LECHTERS OHIO, INC.
LECHTERS OKLAHOMA, INC.
LECHTERS OREGON, INC.
LECHTERS PENNSYLVANIA, INC.
LECHTERS RHODE ISLAND, INC.
LECHTERS SOUTH CAROLINA, INC.
LECHTERS TENNESSEE, INC.
LECHTERS TEXAS, INC.
LECHTERS UTAH, INC.
LECHTERS VERMONT, INC.
LECHTERS SPRINGFIELD, INC.
LECHTERS WASHINGTON, INC.
LECHTERS WEST VIRGINIA, INC.
LECHTERS WISCONSIN, INC.
COOKS CLUB, INC.
REGENT GALLERY, INC.
SIMPLE SOLUTIONS OF NJ, INC.
HARRISON INVESTMENT, INC.
By: _____________________________
10
<PAGE>
Exhibit A
to Second Amendment
and Waiver to Credit Agreement
Schedule 1.02
NOTICE OF BORROWING
The Chase Manhattan Bank
East 36 Midland Avenue
Paramus, NJ 07657
Date: [insert]
Gentlemen:
Reference is made to the Credit Agreement, dated as of March 26, 1998 as amended
among Lechters, Inc., the Banks listed on the signature pages thereof and The
Chase Manhattan Bank, as Agent (the "Credit Agreement"). The undersigned hereby
gives notice pursuant to Section 1.02 of the Credit Agreement of its request to
have the following Loans made to it on [insert requested date of borrowing]:
Type of Loan (1) Amount
____ ____
____ ____
____ ____
[Please disburse the proceeds of the Loans by [insert requested method of
disbursement] .](2)
The undersigned represents and warrants that (a) the borrowing requested hereby
complies with the requirements of Section 1.02 of the Credit Agreement, (b) each
Representation and Warranty is true and correct at and as of the date hereof and
will be true and correct at and as of the time the Loans are made, in each case
both with and without giving effect to the Loans and the application of the
proceeds thereof, (c) no Default has occurred and is continuing as of the date
hereof or would result from the making of the Loans or from the application of
the proceeds thereof if the Loans were made on the date hereof, and no Default
will have occurred and be continuing at the time the Loans are to be made or
would result from the making of the Loans or from the application of the
proceeds thereof, and (d) (i) the Margined Value of the Collateral, (ii) the
aggregate Loan Exposures, and the (iii) the aggregate LC Exposures are as
follows:
-------------------------------- -------------------------------
Margined Value of Collateral:
(1) Be sure to specify the duration of the Interest Period in the case of
Eurodollar Rate Loans (e.g., one-month Eurodollar Rate).
(2) Include and complete this sentence if the proceeds of the requested
Loans are to be disbursed in a manner other than by credit to an account of the
Borrower at the Agent's Office.
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Aggregate Loan Exposures:
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Aggregate LC Exposures:
-------------------------------- -------------------------------
LECHTERS, INC.
By __________________________
Name:
Title:
11
<PAGE>
Exhibit 17(b)
to Second Amendment
and Waiver to Credit Agreement
COLLATERAL AND ACCOUNT CONTROL AGREEMENT
This is a COLLATERAL AND ACCOUNT CONTROL AGREEMENT, dated as of September
14, 1999 between Lechters, Inc. (the "Pledgor") with an address at 1 Cape May
Street, Harrison, New Jersey 07029, The Chase Manhattan Bank, individually,
having an address at One Chase Manhattan Plaza, New York, New York 10081
("Chase"), and Chase, as agent under that certain Credit Agreement dated March
26, 1998 (the "Credit Agreement") between the Pledgor, Chase and the financial
institutions listed on the signature pages thereof (Chase or any successor, in
its capacity as agent under such agreement, is referred to herein as the
"Agent"), with an address at East 36 Midland Avenue, Paramus, New Jersey 07652.
W I T N E S S E T H:
WHEREAS, the Pledgor has requested that the Agent and the Banks which are
party to the Credit Agreement enter into a Second Amendment and Waiver to the
Credit Agreement;
WHEREAS, it is a condition to the effectiveness of the Second Amendment and
Waiver to the Credit Agreement that the Pledgor execute and deliver this
Collateral and Account Control Agreement; and
WHEREAS, the Pledgor has established Account No. 8106980 with Chase
pursuant to a Custody Account Agreement dated September 3, 1999 between the
Pledgor and Chase (the "Custody Account Agreement");
NOW, THEREFORE, in consideration of the premises, the Pledgor hereby agrees
with the Agent as follows:
1 Defined Terms.
a. Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them therein.
b. The following terms shall have the following meanings:
"Agreement": this Collateral and Account Control Agreement, as the same may
be amended, supplemented or otherwise modified from time to time.
"Collateral": the collective reference to: (i) the Collateral Account; (ii)
all cash, instruments, securities, security entitlements, financial assets
(including certificates of deposit) and funds deposited from time to time in the
Collateral Account; (iii) all investments of funds in the Collateral Account and
all instruments and securities evidencing such investments; and (iv) all
interest, dividends, cash, instruments, securities, security entitlements,
financial assets (including certificates of deposit) and other property received
in respect of, or as proceeds of, or in substitution or exchange for, any of the
foregoing.
<PAGE>
"Collateral Account": Account No. 8106980 established with Chase and
designated "Lechters, Inc. - Collateral Account".
"Collateral Account Agreement": that certain Custody Account Agreement
dated September 3, 1999 between the Pledgor and Chase pursuant to which the
Collateral Account has been established, and any successor agreement thereto.
"Code": the Uniform Commercial Code from time to time in effect in the
State of New York.
"Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"Governmental Authority": any nation or government, any state of other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Obligations": the obligations and liabilities of the Pledgor to (i) the
Banks, the Agent, the Issuing Bank under the Credit Agreement including the
Agent in such capacities, and (ii) the Agent under this Agreement (including,
without limitation, any interest payable in respect thereof, including interest
accruing after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Pledgor,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred.
"Person": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
c. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement, and
section and paragraph references are to this Agreement unless otherwise
specified.
2
<PAGE>
d. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Grant of Security Interest; Collateral Assignment. As collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Obligations, the
Pledgor hereby grants to the Agent for the benefit of the Banks, the Agent and
the Issuing Bank, a collateral assignment of and security interest in the
Collateral.
3. Control; Maintenance of Collateral Account.
a. The Collateral Account shall be maintained until the Obligations
have been paid and performed in full.
b. The Agent shall have such rights with respect to the Collateral
as are set forth in this Agreement, and shall hold and administer the
Collateral subject to the terms and conditions of this Agreement. Chase
agrees with the Agent and the Pledgor that it will comply with entitlement
orders originated by the Agent concerning the Collateral Account without
further consent of the Pledgor. The Pledgor shall have no right of
withdrawal from the Collateral Account nor any other right or power with
respect to the Collateral, except as expressly provided herein.
Subject to paragraphs 6 and 7, Chase shall make trades of financial
assets held in the Collateral Account at the direction of the Pledgor,
or its authorized representative, and comply with entitlement orders
concerning the Collateral Account from the Pledgor, or its authorized
representative, until such time as the Agent delivers a written notice
to Chase that the Agent is thereby exercising exclusive control over the
Collateral Account. Such notice may be referred to herein as the "Notice
of Exclusive Control." After Chase receives the Notice of Exclusive
Control, it will immediately cease complying with entitlement orders or
other directions concerning the Account originated by the Pledgor or its
representatives, until such time as the Agent withdraws such notice.
c. In the event the Fair Market Value of the Collateral shall be
less than the Margined Value of the Collateral required under the Credit
Agreement, then the Pledgor shall, within one business day following
notice from the Agent, provide or cause additional property to be
transferred to the Collateral Accounts such that the Fair Market Value of
the Collateral shall be equal to or greater than the Margined Value of
the Collateral required under the Credit Agreement. If any of the
Collateral is not subject to determination of a verifiable Fair Market
Value, then such Collateral shall have at all times a value as reasonably
determined by the Agent. If the aggregate of the Loan Exposure and the
LC Exposure of all the Banks is reduced at any time to less than
$15,000,000, the Agent shall release upon the request of the Pledgor the
amount of Collateral in excess of a Margined Value of $15,000,000.
4. Representations and Warranties. The Pledgor represents and warrants
to the Agent and Chase that:
a. The Pledgor has the corporate power and authority and the legal
right to execute and deliver, to perform its obligations under, and to
grant the security interest in the Collateral pursuant to, this Agreement
and has taken all necessary corporate action to authorize its
execution, delivery and performance of, and grant of the security interest
in the Collateral pursuant to, this Agreement.
b. This Agreement constitutes a legal, valid and binding obligation
of the Pledgor enforceable in accordance with its terms and creates in
favor of the Agent a perfected, first priority security interest in
the Collateral, enforceable in accordance with its terms.
c. The execution, delivery and performance of this Agreement by the
Pledgor will not violate any provision of any Requirement of Law or
Contractual Obligation of the Pledgor and will not result in the creation
or imposition of any Lien on any of the properties or revenues of the
Pledgor pursuant to any Requirement of Law or Contractual Obligation
of the Pledgor, except as contemplated hereby.
d . No consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any
stockholder or creditor of the Pledgor), is required in connection with
the execution, delivery or performance of this Agreement by the Pledgor,
or the validity or enforceability of this Agreement against the Pledgor.
e. No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge
of the Pledgor, threatened by or against the Pledgor or against any
of its properties or revenues with respect to this Agreement or any of the
transactions contemplated hereby.
5. Covenants. The Pledgor covenants and agrees with the Agent that:
a. The Pledgor will not (1) sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option with respect to, the Collateral,
or (2) create, incur or permit to exist any Lien or option in favor of,
or any claim of any Person with respect to, any of the Collateral, or any
interest therein, except for the security interest created by this
Agreement and the security interest created in favor of Chase pursuant
to Section 12 of the Custody Account Agreement.
b. The Pledgor will maintain the security interest created
by this Agreement as a first priority, perfected security interest and
will defend the right, title and interest of the Agent in and to the
Collateral against the claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Agent, and at
the sole expense of the Pledgor, the Pledgor will promptly and duly execute
and deliver such further instruments and documents and take such further
actions as the Agent reasonably may request for the purposes of obtaining
or preserving the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, of financing
statements under the Code.
3
<PAGE>
6. Management of Collateral; Fees.
a. Upon the occurrence and during the continuation of any Event of
Default, (i) the Agent shall have the right to deliver a Notice of
Exclusive Control to Chase, with the effect set forth in paragraph 3.b.,
and (ii) until the Agent withdraws such Notice of Exclusive Control,
Pledgor shall have no authority to, directly or indirectly, provide
investment direction with respect to the Collateral.
b. Chase hereby subordinates any lien with respect to the
Collateral which it may have as securities intermediary or bank by law or
pursuant to the Custody Account Agreement to the security interest granted
in this Agreement to the Agent for the benefit of the Agent and the Banks.
c. The Agent shall have no responsibility to the Pledgor for any
loss or liability arising in respect of any investments of the Collateral
(including, without limitation, as a result of the liquidation of any
thereof before maturity), except to the extent that such loss or liability
arises from the Agent's gross negligence or willful misconduct.
d. The Pledgor will pay or reimburse the Agent for any and all
costs, expenses and liabilities of the Agent incurred in connection with
this Agreement (including enforcement hereof), the maintenance and
operation of the Collateral Account and the investment of the Collateral,
including, without limitation, any investment, brokerage or placement
commissions and fees incurred by the Agent in connection with the
investment or reinvestment of Collateral, and any investment charges or
other fees of the Agent in connection with maintenance of the Collateral
Account.
7. Remedies.
a. Upon the occurrence of an Event of Default, and while such
Event of Default continues: Agent may, without notice of any kind,
except for notices required by law which may not be waived, deal with any
and all of the Collateral as it deems fit, and/or may liquidate all or
a portion of the Collateral, applying the proceeds in any manner it deems
appropriate. Such rights include, but are not limited to, the right, at the
Agent's option, to:(i) deduct all costs and expenses of every kind incurred
in respect thereof or incidental to the care or safekeeping of any of
the Collateral or in any way relating to the Collateral or the rights of
the Agent hereunder,(including, without limitation, reasonable attorneys'
fees and disbursements of counsel to the Agent), (ii) apply such Collateral
or the proceeds thereof to the payment of such Obligations in such order as
the Agent in its sole discretion may elect, (iii) notify any third party
to terminate immediately any trading, other rights or entitlements with
respect to the Collateral and any distributions from the Collateral; (iv)
transfer into Agent's name or the name of its nominee, all or any part of
the Collateral or proceeds thereof; (v) receive all interest, dividends,
and other proceeds of the Collateral; (vi) notify any person obligated on
any Collateral of the security interest of Agent therein and require
such person to make payment directly to Agent; (vii) demand, sue for,
collect or receive the Collateral and any proceeds thereof, and/or make
any settlement or compromise as Agent deems desirable with respect to any
Collateral; and (viii) exercise any voting, conversion, registration,
purchase or other rights of an owner, holder or entitlement holder of the
Collateral. Pledgor agrees that Agent may exercise its rights under this
Agreement without regard for the actual or potential tax consequences to
Pledgor under federal or state law and without regard to any instructions
or directives given Agent by Pledgor.
4
<PAGE>
b. Pledgor acknowledges that some of the Collateral may be subject
to rapid decline in value and is customarily sold in recognized markets,
and upon the occurrence of an Event of Default, Agent may dispose of such
Collateral in its recognized market without providing notice of sale.
c. Upon the occurrence of an Event of Default, at Agent's request,
Pledgor will, at its own expense do or cause to be done all other acts and
things as may be necessary to make the sale of the Collateral valid,
binding and in compliance with applicable law.
d. Any Collateral remaining after application of Collateral by
Agent in accordance with the provisions hereof shall continue to be held
as Collateral pursuant to this Agreement for such of the Obligations as are
not then due and payable. Only after the termination or expiration of all
Letters of Credit, the payment in full of all Obligations and after the
payment by the Agent of any other amount required by any provision of law,
inducing, without limitation, Section 9-504(1)(c) of the Code, must the
Agent account for the surplus, if any, to the Pledgor. In addition to the
rights, powers and remedies granted to it under this Agreement and in any
other agreement securing, evidencing or relating to the Obligations, the
Agent shall have all the rights, powers and remedies available at law,
including, without limitation, the rights and remedies of a secured party
under the Code. To the extent permitted by law, the Pledgor waives
presentment, demand, protest and all notices of any kind and all claims,
damages and demands it may acquire against the Agent arising out of the
exercise by them of any rights hereunder.
e. The Pledgor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are
insufficient to pay the Obligations and any costs and expenses of Agent
in connection therewith (including, without limitation, any fees and
disbursements of any attorneys employed by the Agent to collect such
deficiency).
8. Agent's Appointment as Attorney-in Fact.
a. The Pledgor hereby irrevocably constitutes and appoints the
Agent and any officer or agent of the Agent, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Pledgor and
in the name of the Pledgor or in the Agent's own name, from time to time
in the Agent's discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement, including, without limitation,
any financing statements, endorsements, assignments or other instruments
of transfer.
b. The Pledgor hereby ratifies all that said attorneys shall
lawfully do or cause to be done pursuant to the power of attorney granted
in paragraph 8(a). All powers, authorizations and agencies contained in
this Agreement are coupled with an interest and are irrevocable until this
Agreement is terminated and the security interests created hereby are
released.
9. Duty of Agent. The Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to comply with the specific
duties and responsibilities set forth herein. The powers conferred on the Agent
in this Agreement are solely for the protection of the Agent's interests in the
Collateral and shall not impose any duty upon the Agent to exercise any such
powers. Neither the Agent nor any of its directors, officers, employees or
agents shall be liable for any action lawfully taken or omitted to be taken by
any of them under or in connection with the Collateral or this Agreement, except
for its or their gross negligence or willful misconduct.
5
<PAGE>
10. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, the Pledgor authorizes the Agent to file financing statements with respect
to the Collateral without the signature of the Pledgor in such form and in such
filing offices as the Agent reasonably determines appropriate to perfect the
security interests of the Agent under this Agreement. A carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
11. Notices. All notices, requests and demands to or upon the Agent
or the Pledgor to be effective shall be in writing (including fax or similar
electronic transfer) and shall be deemed to have been duly given or made (a)
when delivered by hand or (b) if given by mail, when deposited in the mails by
certified mail, return receipt requested, or (c) if by fax or similar electronic
transfer, when sent and receipt has been confirmed, to the Pledgor or the Agent,
as the case may be, at its address or transmission number for notices set forth
under its signature below. The Pledgor and the Agent may change their
addresses and transmission numbers for notices by notice in the manner
provided in this paragraph.
12. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. Integration; Interpretation. This Agreement represents the agreement
of the Pledgor with respect to the subject matter hereof and there are no
promises or representations by the Agent relative to the subject matter
hereof not reflected herein. If any provision of this Collateral and Account
Control Agreement shall conflict with, or be inconsistent with, any provision
of the Custody Account Agreement, then such provision of this Collateral and
Account Control Agreement shall supersede such inconsistent or conflicting
provision of the Custody Account Agreement.
14. Amendments in Writing; No Waiver; Cumulative Remedies.
a. None of the terms or provisions of this Agreement may be
waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Pledgor, the Agent and Chase.
b. The Agent shall not by any act (except by a written instrument
pursuant to paragraph 14(a) hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the Agent,
any right, power or privilege hereunder shall operate as a waiver thereof.
No single or partial exercise of any right, power or privilege hereunder
shall preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. A waiver by the Agent of any right
or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Agent would otherwise have on any
future occasion.
c. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
15. Section Headings. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
16. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Pledgor, the Agent and Chase and shall inure to
the benefit of their respective successors and assigns.
17. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the Pledgor, Chase and the Agent have caused this
Collateral and Account Control Agreement to be duly executed and delivered as of
the date first above written.
Lechters, Inc.
By:____________________
Name:
Title:
Fax:
The Chase Manhattan Bank, as agent
By:_____________________
Andrea Johnson
Vice President
Fax: 201-599-6755
The Chase Manhattan Bank
By:______________________
Robert Lockwood
Vice President
Fax: 212-552-6400
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 10,741
<SECURITIES> 46,671
<RECEIVABLES> 10,760
<ALLOWANCES> 0
<INVENTORY> 113,502
<CURRENT-ASSETS> 187,804
<PP&E> 156,447
<DEPRECIATION> 93,744
<TOTAL-ASSETS> 261,069
<CURRENT-LIABILITIES> 31,907
<BONDS> 61,885
0
20,000
<COMMON> 58
<OTHER-SE> 128,739
<TOTAL-LIABILITY-AND-EQUITY> 261,069
<SALES> 174,320
<TOTAL-REVENUES> 174,320
<CGS> 132,466
<TOTAL-COSTS> 132,466
<OTHER-EXPENSES> 58,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,272
<INCOME-PRETAX> (17,224)
<INCOME-TAX> (7,062)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,162)
<EPS-BASIC> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
