<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 27, 1996 Commission file number 0-15934
JAY JACOBS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0698077
- ---------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1530 Fifth Avenue, Seattle, Washington 98101-1677
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 622-5400
---------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock - par value $.01 per share
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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. [ ]
As of April 12, 1995, 6,057,391 shares of Common Stock of the Registrant were
outstanding, and the aggregate market value of the shares (based upon the
closing price of the shares traded on April 12, 1996 on NASDAQ) of Jay Jacobs,
Inc., held by non-affiliates was $3,240,200. For the purposes of such
calculation, all outstanding shares of Common Stock have been considered held by
non-affiliates, other than the 3,897,258 shares beneficially owned by directors
and executive officers of the Registrant. In making such calculation, the
Registrant does not determine the affiliate or non-affiliate status of any
shares for any other purpose.
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PART I
ITEM 1. BUSINESS
GENERAL
Jay Jacobs, Inc. ("Jay Jacobs" or the "Company") operates a chain of
specialty apparel stores offering fashion conscious young women and men
contemporary clothing at reasonable prices.
EMERGENCE FROM BANKRUPTCY
On May 13, 1994 (the "Petition Date"), the Company filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Western District of Washington (the
"Bankruptcy Court"). Under the protection of Chapter 11, the Company managed its
affairs and operated its business as a debtor-in-possession while a Plan of
Reorganization was developed.
PLAN OF REORGANIZATION
On October 16, 1995, the Bankruptcy Court entered an order
establishing procedures for the solicitation to approve the Company's First
Amended Plan of Reorganization (the "First Amended Plan"), scheduling a hearing
for November 16, 1995, and approving the Company's Disclosure Statement
regarding the First Amended Plan. On November 16, 1995, the Bankruptcy Court
confirmed the Company's Second Amended Plan of Reorganization (the "Second
Amended Plan" or the "Plan") subject to approval by the Bankruptcy Court of
post-confirmation financing acceptable to the Company and the Unsecured
Creditors' Committee. On November 20, 1995, the Bankruptcy court approved a
financing agreement between the Company and LaSalle National Bank (the "LaSalle
Facility") and on November 28, 1995, the Company's Second Amended Plan became
effective. The details of the First Amended Plan and the Second Amended Plan
are set forth, respectively, in the Company's Current Reports on Form 8-K dated
October 16 and November 16, 1995.
The Plan developed by the Company and confirmed by the Bankruptcy
Court provided for the full payment of all Administrative Expense Claims.
Under the Plan, Allowed Priority Tax Claims will be paid in thirteen
equal quarterly installments. In 1996, the first and second quarterly
installments, due, respectively, on January 2 and April 2, 1996, have been paid.
The third will be due on July 2, 1996, and the fourth on October 2, 1996.
Thereafter, the nine remaining quarterly installments shall be paid
consecutively on the second day of each following January, April, July, and
October, with the final quarterly installment being payable on January 2, 1999.
The Allowed Priority Tax Claims include accrued interest at the rate of 9.5% per
annum from the Petition Date through the Date of Confirmation. Thereafter,
simple interest of 9.5% per annum shall accrue. Notwithstanding the foregoing,
all Allowed Priority Tax Claims shall be paid in full within six years of the
date of the assessment of the tax upon which such claim is based.
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Under the Plan, unsecured creditors were paid in January, 1996, an
amount equal to 30% of their Allowed Class 3 Claims. These creditors must make
an election on or before July 15, 1996, to either receive a second 30% payment
in January 1997, or receive a 15% payment in January 1997 plus a note equal to
42% of the Allowed Class 3 Claim amount (the "Note"). The Note will accrue
interest at 9.5% per annum beginning February 1997 on the outstanding balance.
Note principal payments will be made as follows: 26.2% of principal due in
January 1998, and 24.6% of principal due in January 1999, January 2000, and
January 2001. Interest payments are due in January 1998, 1999, 2000 and 2001. In
addition, Note holders may receive payments (30%, 40% and 50%, respectively in
1999, 2000 and 2001) of Excess Cash Flow over targeted EBITDA, as provided in
the note. Maximum amounts payable under the Note may not exceed the difference
between 100% of the holder's Allowed Class 3 Claim, less the net present value
(using a 12% discount rate) of all cash paid or payable to such Allowed claim,
whether under the Note or the Plan.
COMMITTEES AND ADVISORS
An official committee of unsecured creditors (the "Unsecured Creditors
Committee") was appointed to represent interests of prepetition unsecured
creditors. The Unsecured Creditors' Committee retained counsel and financial
advisors in performing its statutory functions. Upon confirmation of the Plan,
the Unsecured Creditors' Committee was redesignated the "Postconfirmation
Creditors' Committee" and, as such will remain in place until January 1997
unless it disbands earlier upon the unanimous consent of its members.
STORE CLOSINGS
The Company began the fiscal year ended January 27, 1996 with 174
stores and ended the year with 136. During the year, the Company closed 48
stores and opened 10. As part of its successful reorganization, the Company
elected to close its budget division stores. This was accomplished as planned,
with all budget division stores (except for 6 clearance sites) closed at fiscal
year-end. The 6 clearance sites will be converted to Jay Jacobs fashion stores
in fiscal year 1997.
FINANCING AGREEMENT
The Company reached an agreement that was approved by the Bankruptcy
Court on November 20, 1995, with LaSalle National Bank, to provide financing in
the form of a $10,000,000 credit facility. See Note 1 to the Consolidated
Financial Statements included in this Form 10-K report and "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
RETAIL MERCHANDISING
Jay Jacobs fashion stores sell contemporary fashions consisting of
women's and men's sportswear and outerwear, including fashion denim, dress and
casual pants and tops, dresses, coats and jackets, and related accessories. The
Company developed a new merchandising strategy based on key items that will
enable it to develop related merchandise that will appeal to its customer.
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The Company works with established sources of fashion apparel, and
seeks suppliers and manufacturers that will assist the Company in implementing
its key item strategy. The Company will assist its suppliers in the design of
garments to incorporate ideas perceived by the Company's merchandising staff to
be part of its new merchandise strategy. The Company develops fashion basic
merchandise in cooperation with suppliers for sale under its private labels of
"D.D. Sloane ", "Jay Jacobs" and "American Sportswear Exchange."
Merchandise purchasing, planning and merchandising activities are
directed from the Company's headquarters in Seattle, Washington. Since January
1995, Brian McNamara, Senior Vice President Merchandise, has designed the new
key item strategy. As of January 27, 1996, the merchandising department
consisted of 26 associates who are responsible for procuring, pricing,
inventory planning and allocation.
A computerized point-of-sale merchandise system provides detailed
information regarding sales and inventory levels by department, merchandise
classification, style, color and size. Merchandise information is made
available to the merchandise staff daily, via computer terminal or printed
reports. Information regarding fast selling and slow-moving merchandise is
monitored closely in order to identify consumer buying trends, allowing the
Company to respond quickly and appropriately when making purchasing and pricing
decisions. Emphasis is placed on ensuring that each merchandise category
achieves the planned turnover level. The Company is currently reviewing
alternatives and costs for upgrading both the software and hardware components
of its computer inventory tracking and financial systems in order to increase
reporting flexibility and enhance management's decision-making capability.
During the fiscal year ended January 27, 1996, merchandise was
purchased from over 600 suppliers. There were no vendors that accounted for more
than 10% of the Company's purchases.
RETAIL STORE OPERATIONS
The Company stresses the importance of attentive, personalized
customer service. Salespeople are selected for their knowledge and interest in
fashion as well as for friendliness and eagerness to satisfy the customer. Sales
associates are compensated with an hourly wage based on experience and past
performance, and with sales contests and performance awards for meeting
established goals.
Stores are designed by the Company's in-house design staff with the
focus on enhancing the merchandise strategy. Merchandise is attractively
displayed in groups evolving around the Company's key item strategy,
coordinated by look, style and color. This enables sales associates to assist
the customer in putting together related separates and other coordinated
outfits. The location of merchandise within a store is varied from time to time
to be consistent with Company-wide promotions and the arrival of new
merchandise.
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Operating management of the Company's stores is supervised by a
Director of Store Operations, and Regional and District Sales Managers. A
District Sales Manager typically oversees eight to eleven stores, each of which
is staffed by a Store Manager and one or more Assistant Store Managers.
Operating Management are eligible to receive incentive compensation based on the
performance of the store or stores under their supervision. The Director of
Store Operations, Regional and District Sales Managers visit the Company's
stores on a regular basis to ensure adherence to corporate policies and
merchandising programs and to oversee store operations. Accounting functions for
all stores are centralized at corporate headquarters. During July 1995, the
Company hired Julie Stodolak as Director of Stores.
RETAIL ADVERTISING
The Company's advertising expenditures during the year ended January
27, 1996 were approximately 0.3% of net sales. Like many specialty retailers,
the Company relies heavily on its locations in malls and on in-store graphics
and displays to attract customers to its stores. Most advertising is in form of
mall tabloids which are distributed to customers during peak selling periods.
RETAIL STORE LOCATIONS
The Company's stores are located, principally, in major enclosed
regional shopping malls. In addition to lease terms, site selection is
influenced by mall location, store location within the mall, the demographics of
the area surrounding the mall and expected mall traffic.
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The following table shows the number of stores by type and by state
operated by the Company as of January 27, 1996:
STORE TYPE
Women Women Men
State & Men Only Only Budget Total
- ----- ----- ----- ---- ------ -----
Alaska 4 6 4 2 16
California 5 9 5 19
Colorado 2 4 6
Florida 5 5
Georgia 1 2 3
Hawaii 1 3 4
Idaho 4 1 5
Illinois 2 1 1 4
Montana 3 3 1 7
New Mexico 3 3
Nevada 1 1 1 3
North Dakota 2 2
Ohio 2 2
Oregon 8 4 12
Texas 2 7 9
Utah 1 1
Washington 14 11 1 3 29
Wisconsin 1 3 4
Wyoming 1 1 2
---- ---- ---- ---- ----
Total 50 68 12 6 136
DISTRIBUTION
The Company leases a 60,000 square foot facility in a warehousing complex
near Seattle for use as its distribution center. The facility is equipped with
sophisticated systems which allow for the efficient receiving and processing of
merchandise. The Company estimates that the distribution center has the
capacity to process merchandise for approximately 300 stores and has the
potential to process 400 stores with the installation of additional equipment
within the existing space.
All merchandise is shipped directly from vendors to the distribution center
where it is received, inspected and priced before being shipped by common
carrier to stores. Emphasis is placed on having goods in and out of the
distribution center quickly to ensure frequent shipments to the Company's
stores. The Company intends to continue to increase the percentage of receipts
that are pre-ticketed, during the current fiscal year, to bring about greater
efficiency in its distribution center.
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<PAGE>
COMPETITION
The retail sale of apparel is a highly competitive business. In the
broadest sense, the Company competes with all retailers that sell fashionable
apparel to young women and men. Many of the Company's retail competitors are
associated with large national or regional chains that have greater financial
and other resources than the Company.
TRADEMARKS
"Jay Jacobs", "American Sportswear Exchange", "D.D. Sloane", "Private
Edition" and several other trademarks of lesser importance have been registered
with the U.S. Patent and Trademark Office.
EMPLOYEES
At January 27, 1996 the Company had approximately 290 full-time and
315 part-time store employees, in addition to approximately 117 management,
distribution and clerical associates at its corporate headquarters and
distribution center. During peak seasons, the Company typically employs
additional store and distribution personnel. Each store employs approximately 3
to 20 salespeople including store management. None of the Company's employees
is covered by a collective bargaining agreement. The Company considers its
relations with its employees to be satisfactory.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
Name Age Position
---- --- --------
Jay Jacobs 83 Chairman of the Board
Rex Loren Steffey 46 President and Chief Executive
Officer
William L. Lawrence, Jr. 45 Senior Vice President, Chief
Financial Officer and Treasurer
Jay Jacobs is the founder of the Company and has been a director since
its inception. Mr. Jacobs was the Company's President until 1978, at which time
he became Chairman of the Board. Mr. Jacobs served as interim President and
Chief Executive Officer of the Company from July through September 1994.
Rex Loren Steffey was named President and Chief Executive Officer of
the Company in September 1994. From August 1993 to August 1994 he was President
and Chief operating Officer of Paul Harris Stores, Inc. From March 1993 to
August 1993, Mr. Steffey was Senior Vice President of operations at Paul Harris.
From June 1991 to March 1993, Mr. Steffey was Vice President of Merchandise
Planning at Paul Harris. Paul Harris Stores, Inc. filed a voluntary petition fro
protection under Chapter 11 of the U.S. Bankruptcy Code in February 1991 and
emerged successfully therefrom in September 1992.
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<PAGE>
William L. Lawrence, Jr. was named Senior Vice President and Chief
Financial Officer of the Company in January 1995. Prior to joining the Company,
Mr. Lawrence was Senior Vice President, Chief Financial Officer for Paul Harris
Stores, Inc. from March 1994 to January 1995. From March 1993 to March 1994 Mr.
Lawrence was Senior Vice President - Finance. Mr. Lawrence also served as Vice
President - Controller, Corporate Secretary and Assistant Treasurer from 1990
through 1993. Paul Harris Stores, Inc. file a voluntary petition for protection
under Chapter 11 of the U.S. Bankruptcy Code in February 1991 and emerged
successfully therefrom in September 1992.
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ITEM 2. PROPERTIES
LEASES
Jay Jacobs leases all of its stores. In general, store leases have an
initial term of two to fifteen years, and some have one or more renewal
options. The following table shows the years in which store leases effective at
January 27, 1996 expire:
Number of Leases
Number of Leases Expiring with
Year Ending Expiring Renewal Options
----------- ----------------- -----------------
January 1997 32 5
January 1998 17 2
January 1999 13 2
January 2000 7 1
January 2001 11 1
January 2002 7 1
January 2003 8 0
January 2004 3 2
January 2005 1 0
January 2006 2 0
The Company's leases generally provide for a base rental rate and
typically require the payment of a percentage of sales as additional rent when
sales reach specified levels. Aggregate rental expense for the period ended
January 27, 1996 was $7,471,000 and aggregate minimum rentals for the year
ending February 1, 1997 are $4,991,000. See Note 7 of Notes to Consolidated
Financial Statements for further information concerning leases in effect at
January 27, 1996. In addition, the Company is generally responsible for mall
merchant dues and common area charges in shopping center locations and, in
certain instances, for real estate taxes and other expenses.
The Company currently leases 60,000 square feet for its distribution
center in a warehousing complex near Seattle. The Company's lease for the
distribution center extends to 1999. During fiscal year 1996 the Company
downsized its distribution center facility from 84,000 square feet as a result
of the reduction in stores.
The Company leases 36,000 square feet for its corporate headquarters
in downtown Seattle. The lease extends to February 2002.
In connection with its Chapter 11 filing, the Company had rejected 68
store leases as of January 27, 1996.
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As leases expire, the Company historically has been successful in
negotiating renewals when desired. As a result of the Chapter 11 filing, the
Company negotiated a number of rent concessions for a period of six to eighteen
months. In certain cases, these concessions were extended through the life of
the lease. Subsequent to negotiating rent concessions that have expired, the
Company has been successful in extending a portion of these concessions beyond
the original term. The Company may encounter difficulties in negotiating future
renewals with certain of its landlords.
ITEM 3. LEGAL PROCEEDINGS
Except as described below and other than routine litigation arising
in the ordinary course of its business, the Company is not a party to any
material pending litigation.
On May 13, 1994, the Company filed a voluntary petition for relief
under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy
Court for the Western District of Washington (Chapter 11 Case No. 94-03993).
On October 16, 1995, the Bankruptcy Court approved the Disclosure
Statement regarding the First Amended plan pursuant to Section 1125 of the
Bankruptcy Code, and the Company solicited approval of the First amended Plan by
its creditors and shareholders.
On November 16, 1995, the Bankruptcy Court confirmed the Second
Amended Plan, which became effective on November 28, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, the only matters submitted to a
vote of security holders were those matters put forth in connection with the
approval of the First Amended Plan, including approval of the Jay Jacobs, Inc.
1995 Stock Option Plan providing for the discretionary grant of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and non-qualified, options to purchase an aggregate of 500,000
shares of the Company's common stock. See "Item 1. Business - Emergence from
Bankruptcy".
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A vote of creditors and shareholders on the First Amended Plan
resulted in the following:
SUMMARY OF REPORT OF BALLOTS
Dollar Percentage Claimant Percentage
Creditor/Class Accepting Accepting
--------------- ------------------ -------------------
Class 1: Priority Wage (Unimpaired) No Votes No Votes
Class 2: Secured Tax Claims 100.0% 100.0%
Class 3: Allowed Unsecured Claims 94.97% 92.83%
Class 4: Equity Security Interest/
Common Stock Holders
(Unimpaired) 99.95% N/A
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
MARKET PRICES OF COMMON STOCK
The Common Stock of Jay Jacobs, Inc. is listed for trading on the
NASDAQ National Market under the symbol "JAYJ".
The table below sets forth the high and low closing prices as reported
by NASDAQ for the last eight fiscal quarters.
Closing Prices
-----------------------
Quarter Ended High Low
- -------------- ---- ----
January 27, 1996 $ 3 5/16 $1 9/16
October 28, 1995 3 3/4 1 1/4
July 29, 1995 1 3/4 1
April 29, 1995 1 7/8 7/8
January 28, 1995 1 7/8 3/4
November 26, 1994 3 3/8 3/8
August 27, 1994 1 3/4 1/2
May 28, 1994 2 3/4 3/4
On April 12, 1996, the closing price for the Company's stock was
$1.50.
NUMBER OF RECORD HOLDERS
The number of record holders of the Company's common stock as of
April 12, 1996 was 534.
DIVIDEND POLICY
The Company has never paid cash dividends on its common stock. In
addition, until payment or satisfaction in full of liabilities under the LaSalle
Facility and termination of the financing agreement governing it, the Company
may not declare or pay a dividend or other distribution on any class of its
stock nor may the Company declare a dividend, under the terms of the Plan, as
long as the Post-Confirmation Creditors' Committee remains in existence.
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ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share data)
<TABLE>
<CAPTION>
Periods ended
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January January February February February
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $ 72,886 $ 90,490 $139,767 $159,250 $146,368
Operating costs and expenses:
Cost of sales, buying
and occupancy costs 55,052 71,715 107,552 115,939 108,135
Restructuring items 7,577 990 203
Selling, general and
administrative expenses 20,924 25,254 39,417 41,805 37,769
Interest and other income,
net (279) (103) (165) (336) (460)
-------- -------- -------- -------- --------
Net Operating expenses 75,697 96,866 154,381 158,398 145,647
-------- -------- -------- -------- --------
Income (loss) before
reorganization items
and income taxes (2,811) (6,376) (14,614) 852 721
Reorganization items 7,597
Income tax provision (benefit) 0 0 (300) 340 284
-------- -------- -------- -------- --------
Net income (loss) $ (2,811) $(13,973) $(14,314) $ 512 $ 437
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings (loss) per share $(0.47) $(2.37) $(2.43) $(0.09) $(0.07)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average number
of shares and equivalents
outstanding 5,981 5,901 5,891 5,899 5,944
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital $ 3,021 $ 13,786 $ 12,929 $ 19,999 $15,833
Total assets 14,247 24,142 31,423 49,096 50,068
Shareholders' equity 3,222 5,994 19,943 34,183 33,567
</TABLE>
NOTE
See Management's Discussion and Analysis ("MD&A") and Note 1 to the
consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following information should be read in conjunction with the
Company's Audited Consolidated Financial Statements and related notes included
in this Form 10-K report. References to fiscal 1996 refer to the twelve months
ended January 27, 1996. References to fiscal year 1995 refer to the eleven
months ended January 28, 1995. References to fiscal year 1994 refer to the
twelve months ended February 26, 1994. The Company uses a 4-5-4 fiscal calendar,
which allows for four weeks in the first and third month of a fiscal quarter,
and five weeks in the middle month. The Company made the decision during fiscal
year 1994 to end future fiscal years at the completion of its fiscal January, as
opposed to the end of February as it had previously done. This change was made
to align the Company's fiscal calendar to the seasonal patterns that it
experiences, as well as to enhance comparability of its fiscal quarter and year
end results with similar retail companies in its industry segment.
CHAPTER 11 REORGANIZATION
On May 13, 1994, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court.
During the reorganization, management restructured operations and capitalization
in order to strengthen the Company's position and operating performance.
On October 16, 1995, the Bankruptcy Court entered an order
establishing procedures for the solicitation to approve the First Amended Plan,
scheduling a hearing for November 16, 1995, and approving the Company's
Disclosure Statement regarding the First Amended Plan. On November 16, 1995, the
Bankruptcy Court confirmed the Company's Second Amended Plan, subject to
approval by the Bankruptcy Court of postconfirmation financing acceptable to the
Company and the Unsecured Creditors Committee. On November 20, 1995, the
Bankruptcy Court approved the LaSalle Facility described further under the
caption "Liquidity and Capital Resources" under this Item 7. On November 28,
1995, the Bankruptcy Court approved the Company's Second Amended Plan. See
"Item 1 - Business - mergence from Bankruptcy" and "- Plan of
Reorganization" for more information regarding the reorganization and
approved Second Amended Plan.
SEASONALITY
The Company's business is seasonal. During fiscal year 1994 and
earlier fiscal years, Fall and "Back to school" shopping by the Company's
customers resulted in the highest sales occurring in the second fiscal quarter
(June, July and August). Sales were also higher during the holiday season, but
the fiscal fourth quarter was reduced by the inclusion of the year's two weakest
months, January and February.
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As a result of changing the fiscal calendar, fourth quarter sales and
earnings generated the largest sales and earning in fiscal year 1995, followed
by the third fiscal quarter. This pattern is expected to continue into the
current year and all future years.
BUDGET STORE DIVISION CLOSURE
As part of the Company's reorganization, the Company decided to close
all off price stores due to poor operating performance and use its resources in
the higher margin and better performing men's and women's fashion stores. The
Company operated 35 budget stores at the end of fiscal 1995. The Company closed
29 of those budget stores during fiscal 1996. The remaining six will be
converted to fashion stores in fiscal 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of net sales:
<TABLE>
<CAPTION>
Twelve Eleven months Twelve
months ended ended months ended
January January February
------- ------- ---------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, buying and occupancy costs 75.5 79.3 77.0
Selling, general and
administrative expenses 28.7 27.9 28.2
Restructuring charge 5.4
Interest and other income, net (0.3) (0.1) (0.1)
Reorganization charge 8.4
Income taxes (0.2)
Net loss (3.9)% (15.5)% (10.3)%
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales decreased by $17.6 million or 19.5%, for the twelve months
of fiscal 1996 compared to the eleven months of fiscal 1995. This decrease was
primarily due to a reduction in store count. The Company began fiscal 1996 with
174 stores, closed 48 stores and opened 10 new stores, to end fiscal 1996 with
136 stores, a net reduction of 39 stores or 22.4%. Continuing store comparative
sales for fiscal year 1996 decreased by 2.0% from fiscal year 1995. The Company
attributes the decline to poor acceptance of merchandise during the first part
of fiscal 1996, prior to the introduction of its key item merchandise strategy,
as well as poor market conditions for women's apparel in general.
Cost of sales, buying and occupancy costs decreased as a percent of
sales in the twelve months ended January 27, 1996, by 3.8 percent when compared
with the eleven months ended January 28, 1995. This decrease was attributable to
lower markdowns and lower occupancy expense. The Company believes that lower
markdowns are an indication that the key item merchandising strategy is working.
Occupancy costs declined as a result of stringent management controls and
negotiated rent relief agreements with landlords. The decrease is also due in
part to closing poor performing stores.
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Selling, general and administrative expenses increased as a
percentage of net sales by 0.6 percent. When adjusting the prior year's results
for twelve months, SG & A expenses declined by 0.1 percent.
Interest and other income increased by 0.2% of sales as a result of
higher cash balances available for investment.
The Company incurred a loss of $2.8 million in fiscal 1996 ($0.46 per
share) or 3.9% of sales. As a percent of sales, this represents an improvement
of 11.6% over fiscal 1995, of which 5.4% was due to a reorganization charge of
$7.6 million. The other 6.2% improvement resulted from closing poor performing
stores, stringent cost controls, renegotiating occupancy agreements, and
improved merchandising strategy. This loss is significantly less than the loss
of $14.0 million in fiscal 1995. The majority of the loss for the fiscal year
was incurred in the first quarter ($1.9 million).
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales decreased by $49.3 million, or 35.2%, for the eleven months
ended fiscal 1995 compared to twelve months ended fiscal year 1994. This
decrease was a result of a 17% decline in sales for stores in operation
throughout both periods, 84 store closures during fiscal period 1995 and the
change in the Company's fiscal year which resulted in one less month in the
fiscal year. The Company operated 174 stores at the end of fiscal 1995 as
compared to 258 stores at the end of fiscal 1994. The Company attributed the
decrease in comparable store sales to a lack of customer acceptance of the
Company's merchandise and to intensified competition in many of the markets in
which the Company operates.
Cost of sales, buying and occupancy costs increases as a percentage of
net sales by 2.3% as a result of an increase in markdowns resulting from the
Company's efforts to promote sales. To a lessor extent, the increase was due to
increased occupancy costs as a percentage of sales as the Company's ability to
leverage these generally fixed costs was impaired by the decline in sales.
Selling, general and administrative expenses decreased as a
percentage of net sales by 0.3% as a result of general corporate expense
downsizing and cost constraint measures implemented as a result of the Company's
restructuring.
Interest and other income decreased from $165,000 (0.1% of net sales)
in fiscal 1994 to $103,000 (0.1% of net sales) in fiscal 1995 as a result of
lower cash balance available for investment.
The Company recorded a $7.6 million reorganization charge during
fiscal 1995. This reorganization charge related primarily to the closing of
unprofitable stores and costs associated with the Company's filing for Chapter
11 in May 1994. Property and equipment was written down by $1,978,000, inventory
reserves for closed stores were $1,200,000, $752,000 was incurred for
professional fees and $3,667,000 represents the provision related to lease
rejection claims.
-16-
<PAGE>
The Company incurred a net loss of $14.0 million in fiscal 1995,
($2.37 per share). The loss for the period was principally a result of lower
average store sales and a $7.6 million reorganization charge recorded during the
fiscal period.
EFFECTS OF INFLATION
The effect of changing prices has had minimal impact on sales and cost
of sales during the past three years. However, occupancy costs and certain
selling, general and administrative costs have been affected by inflation during
the period. In general, these increases have been modest and reflect current
trends.
LIQUIDITY AND CAPITAL RESOURCES
THE LASALLE FACILITY
On November 20, 1995, the Bankruptcy Court approved a financing
agreement on a revolving credit basis between the Company and LaSalle National
Bank. The LaSalle Facility provides for borrowings and letters of credit, the
aggregate of which cannot exceed the lower of $10 million or a computed
borrowing base. Letters of Credit are limited to a maximum of $5 million. A
first and only lien is granted to LaSalle on all Company assets (excluding
capitalized leases and excluding permitted liens up to $400,000). The Company
must maintain a scheduled minimum tangible net worth and may not declare or pay
dividends or other distributions on account of any equity interest in the
Company until payment or satisfaction in full of liabilities under the LaSalle
facility and termination of the financing agreement. Interest is charged at
LaSalle's announced prime rate. The Company is charged an annual fee of 1% of
the aggregate loan limit, normal audit fees, and a letter of credit fee of 1.25%
per annum on the aggregate undrawn face amount of letters of credit outstanding.
The agreement has a three-year term and was signed on December 4, 1995.
As of the end of the 1996 fiscal year the Company had no direct
borrowings. There were $1,177,000 of letters of credit outstanding as of
January 27, 1996.
GENERAL
The Company's principal needs for liquidity are to finance the
purchase of merchandise inventories, fund its operations and make payments as
outlined in the Plan of Reorganization. The initial payment resulting from the
Plan of Reorganization amounted to $2,460,000 for Unsecured Creditors and
$60,000 to the Priority Tax Claimants.
Net cash provided by (used for) operations for fiscal 1996, 1995 and
1994 was ($7.8 million), $4.1 million and ($7.2 million), respectively. Cash
flow in 1996 was primarily the result of payments of liabilities subject to
compromise ($5.4 million) and losses from operations ($1.7 million) (net of
depreciation). Inventory and accounts payable both decreased as a result of
lower purchases at year end resulting from the Company's reduction in stores.
-17-
<PAGE>
Cash flow in fiscal 1995 resulted from prepetition liabilities
converted to liabilities subject to compromise (as a result of the Company's
Chapter 11 filing), collection of the Company's refundable income tax and the
add back of non-cash charges representing non-cash reorganization items and
depreciation. Fiscal 1995 cash flow was partially reduced by operating losses
incurred during the year. Near normal trade payable terms were reestablished
late in fiscal 1995. Accounts payable decreased during the year as a result of
lower purchases resulting from the Company's substantial reduction of stores and
resultant reduction of year-end inventory.
Use of cash in fiscal 1994 resulted from operating losses during the
year and from faster payment for merchandise required by the Company's
creditors, in view of the Company's deteriorating financial condition.
Property and equipment expenditures were $509,000, $119,000 and $3.0
million in Fiscal 1996, 1995 and 1994, respectively. The expenditures in 1996
were primarily related to the opening of new stores and remodeling of existing
stores. The expenditures in 1995 were minor in nature. Both years were
substantially reduced as a result of the Company's Chapter 11 filing. The
Company has planned to spend $1,200,000 for Capital Expenditures in fiscal year
1997.
The expenditures in fiscal 1994 included amounts for new stores,
remodels of existing stores, new store fixtures and display equipment, point of
sale computer equipment and increasing the efficiency and capacity of the
distribution center.
The Company made cash payments of $2,460,000 to Unsecured Creditors
under the Plan in January 1996. The second payment to Unsecured Creditors is
payable in January 1997. The amount of the payment is dependent upon the
election made by each unsecured creditor on July 15, 1996. If all Unsecured
Creditors elect the Note option, the amount payable would be $1,255,000. If all
Unsecured Creditors elected the cash option, the amount payable would be
$2,510,000. During the fiscal year ending February 1, 1997, the Company will
be obligated to pay approximately $240,000 to Allowed Priority Tax Claims.
With the resolution of the Chapter 11 proceedings and the
establishment of the LaSalle Facility, the Company believes it has provided for
a stable and adequate liquidity position for the foreseeable future that will
enable it to continue to provide normal business operations and the assurances
that trade creditors need to supply merchandise to the Company and will allow
the Company to implement its long range business plans. The Company expects to
use its available cash resources to fund its needs for inventory, new store
expansion and payments required by the Plan as approved by the Bankruptcy
court. The Company ended fiscal 1996 with a cash balance of $705,000.
-18-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Jay Jacobs, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing under Item __________ on page __ present fairly, in all material
respects, the financial position of Jay Jacobs, Inc. and its subsidiaries at
January 27, 1996 and January 28, 1995, and the results of their operations and
their cash flows for the periods indicated, 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.
Price Waterhouse LLP
Seattle, Washington
April 25, 1996
-19-
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
A S S E T S
January 27 January 28
1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 705 $ 8,898
Accounts receivable 442 261
Inventories 7,323 8,579
Prepaid expenses 219 160
------- -------
Total current assets 8,689 17,898
------- -------
Property and equipment, net 5,558 6,244
------- -------
$14,247 $24,142
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,401 $ 2,233
Accrued payroll 529 601
Accrued reorganization expenses 3,188 267
Sales/B & O taxes payable 313 193
Other accrued expenses 237 818
Total current liabilities 5,668 4,112
------- -------
Deferred rental credits 995 1,318
------- -------
Accrued reorganization expenses 4,249 0
Liabilities subject to compromise 0 12,718
------- -------
Shareholders' equity:
Preferred stock: 5,000,000 shares authorized;
none issued or outstanding 0 0
Common stock: 20,000,000 shares authorized;
6,054,000 and 5,907,000 issued and outstanding 12,920 12,768
Retained deficit (9,585) (6,774)
------- -------
3,335 5,994
------- -------
Commitments and contingencies (Notes 1 and 7)
14,247 24,142
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Eleven Year
ended months ended ended
January January February
-------- -------- ---------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 72,886 $ 90,490 $139,767
Operating costs and expenses:
Cost of sales, buying and occupancy
costs 55,052 71,715 107,552
Selling, general and
administrative expenses 20,924 25,254 39,417
Restructuring charge 7,500
Loss related to closed stores 77
Interest and other income, net (279) (103) (165)
-------- -------- --------
Net operating expenses 75,697 96,866 154,381
-------- -------- --------
Loss before reorganization
items and income taxes (2,811) (6,376) (14,614)
Reorganization items 0 7,597 0
Income tax benefit 0 0 (300)
-------- -------- --------
Net loss $ (2,811) $(13,973) $(14,314)
-------- -------- --------
-------- -------- --------
Loss per share $ (0.47) $ (2.37) $ (2.43)
-------- -------- --------
-------- -------- --------
Weighted average number of
shares outstanding 5,981 5,901 5,891
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED FEBRUARY 26, 1994
FOR THE ELEVEN MONTHS ENDED JANUARY 28, 1995
FOR THE YEAR ENDED JANUARY 27, 1996
(In thousands)
<TABLE>
<CAPTION>
Retained
Common stock earnings
-------------
Shares Amount (deficit) Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, February 27, 1993 5,875 $12,670 $21,513 $34,183
Proceeds from employee
stock purchase plan 21 74 74
Net loss (14,314) (14,314)
-------- -------- -------- --------
Balance, February 26, 1994 5,896 12,744 7,199 19,943
Proceeds from employee stock
purchase plan 11 24 24
Net loss (13,973) (13,973)
-------- -------- -------- --------
Balance, January 28, 1995 5,907 $12,768 $(6,774) $ 5,994
Issuance of shares to CEO 100 113 113
Stock options exercised 47 39 39
Net loss (2,811) (2,811)
-------- -------- -------- --------
Balance, January 27, 1996 6,054 $12,920 $(9,585) $ 3,335
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Eleven Year
Year ended months ended ended
January 27 January 28 February 26
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,811) $(13,973) $(14,314)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,157 1,832 3,630
Change in deferred income taxes and other 0 0 1,610
Provision for deferred rents, net (323) (828) (132)
Write-off of fixed assets related to
closed stores 0 0 77
Non-cash restructuring charge 0 4,257 6,151
Change in assets and liabilities:
Accounts receivable (181) 707 295
Refundable income taxes 0 1,861 (1,730)
Inventories 1,256 7,611 1,651
Prepaid expenses (59) (280) (6)
Accounts payable (832) (3,027) (3,752)
Accrued payroll (72) (38) 0
Other accrued expenses (461) (797) (676)
Accrued restructuring expenses (5,435) (6,921) 0
-------- -------- --------
(7,761) 4,246 (7,196)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (509) (119) (2,957)
Net proceeds from sales of assets 38 115 0
-------- -------- --------
(471) (4) (2,957)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing from line of credit 0 2,130 0
Proceeds from options exercised or
employee stock purchase plan 39 24 74
-------- -------- --------
39 2,154 74
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (8,193) 6,396 (10,079)
Cash and cash equivalents - beginning of year 8,898 2,502 12,581
-------- -------- --------
Cash and cash equivalents - end of year $705 8,898 2,502
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes 0 0 92
-------- -------- --------
-------- -------- --------
Cash paid during the year for interest 0 0 13
-------- -------- --------
-------- -------- --------
Cash paid for reorganization items 4,032 752 0
-------- -------- --------
-------- -------- --------
Shares issued for services 113 0 0
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
JAY JACOBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - EMERGENCE FROM CHAPTER 11
On May 13, 1994 (the "Petition Date"), the Company filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Western
District of Washington (the "Bankruptcy court"). Under the protection of Chapter
11, the Company managed its affairs and operated its business as a
debtor-in-possession while a Plan of Reorganization (the "Plan") was developed.
During the reorganization, management restructured operations and
capitalization in order to strengthen the Company's financial position and
operating performance.
On October 16, 1995, the Bankruptcy Court entered an order
establishing procedure for the solicitation to approve the Company's First
Amended Plan of Reorganization (the "First Amended Plan"), scheduling a hearing
for November 16, 1995, and approving the Company's Disclosure Statement
regarding the first Amended Plan. On November 16, 1995, the Bankruptcy Court
confirmed the Company's Second Amended Plan of Reorganization (the "Second
Amended Plan"), subject to approval by the Bankruptcy Court of postconfirmation
financing acceptable to the Company and the Unsecured Creditors' Committee. On
November 20, 1995, the Bankruptcy court approved a financing agreement between
the Company and LaSalle National Bank, and on November 28, 1995, the Company's
Second Amended Plan became effective.
Unsecured creditors received a payment equal to 30% of the approved
claim amount on February 1, 1996. These creditors must then make an election,
by July 15, 1996, to either receive a second 30% payment in 1997, or receive a
15% payment in 1997 plus a note equal to 42% of the approved claim amount. The
note will accrue interest at 9.5% per annum. Note principal payments will be
made as follows: 26.2% due in 1998, and 24.6% due in 1999, 2000, and 2001. In
addition, note holders may receive payments (30%, 40% and 50%, respectively in
1999, 2000, and 2001) of Excess Cash Flow over Targeted EBITDA, as defined and
as provided in the note. Maximum amounts payable may not exceed the difference
between 100% of the holder's Allowed Class 3 Claim, less the net present value
(using a 12% discount rate) of all cash paid or payable to such Allowed claim,
whether under the Note or the Plan.
The Plan developed by the Company and confirmed by the Bankruptcy
Court provided for the full payment of all Administrative Expense Claims as
defined by the Bankruptcy Code. Allowed Priority Tax Claims, as defined in the
Bankruptcy Code, will be paid in thirteen equal quarterly installments
beginning January 2, 1996. The tax claims shall include accrued interest at the
rate of 9.5% per annum from the Petition Date through the Date of Confirmation.
Thereafter, simple interest of 9.5% per annum shall accrue. Notwithstanding the
foregoing, all Allowed Priority Tax Claims shall be paid in full within six
years of the date of the assessment of the tax upon which such claim is based.
-24-
<PAGE>
As a result of the election to be made in July 1996, contained in the
Plan, management has made certain estimates related to the upcoming election.
Management has estimated that 60% of the Unsecured Creditors will elect to
receive the second 30% payment of their Allowed Claim in January 1997. The
estimate further assumes that 40% of the Unsecured Creditors will elect the 15%
payment in January 1997 and elect to take the note representing 42% of their
Allowed Claim.
NOTE 2 - CHANGE IN FISCAL YEAR END
During fiscal 1995, the Company made the decision to change its fiscal
year to the last Saturday in January from the last Saturday in February. This
change was made to align the Company's fiscal calendar to the seasonal patterns
it experiences, as well as to enhance comparability of its fiscal quarter and
annual results with similar retail companies in its industry segment.
The following is selected financial data for the eleven month
transition period ended January 28, 1995 and the comparable prior eleven month
period, in thousands of dollars, except per share amounts.
<TABLE>
<CAPTION>
Eleven months ended
January 28, January 29,
1995 1994
(unaudited)
-------- -----------
<S> <C> <C>
Net Sales $ 90,490 $132,814
Operating costs and expenses:
Cost of sales, buying and occupancy costs 71,715 102,300
Selling, general and administrative expenses 25,254 36,606
Restructuring charge 0 7,592
Interest and other income, net (103) (157)
-------- -------
Net operating expenses 96,866 146,341
Loss before reorganization
items and income taxes (6,376) (13,527)
Reorganization items 7,597 0
Income tax (benefit) 0 (61)
-------- -------
Net loss $(13,973) $(13,466)
-------- -------
-------- -------
Loss per share $ (2.37) $ (2.29)
-------- -------
-------- -------
</TABLE>
-25-
<PAGE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting principles and practices of Jay Jacobs, Inc.
are set forth to facilitate the understanding of the consolidated financial
statements.
OPERATIONS
The Company's primary business activity is the retailing of women's
and men's apparel. The Company operates 136 stores in 19 states, primarily
Washington, California, Alaska and Oregon.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Jay
Jacobs, Inc. and its wholly-owned subsidiary J.J. Distribution Company. All
significant intercompany balances and transactions have been eliminated. Cash
Equivalents
For financial reporting purposes, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
SALES RETURNS AND EXCHANGES
The accompanying consolidated financial statements do not include a
provision for sales returns and exchanges because the Company does not believe
that such a provision is material.
INVENTORIES
Inventories are valued at the lower of cost or market using the retail
method on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Additions, improvements
and expenditures that significantly add to the utility of facilities are
capitalized and depreciated. Expenditures for maintenance and repairs are
charged to expense as incurred.
Depreciation and amortization are computed by the straight-line method
for financial reporting purposes and various methods for tax purposes. For
financial reporting purposes, furniture, fixtures and equipment are depreciated
over their useful lives of three to ten years and leasehold improvements are
amortized over the term of the related lease. It is the Company's policy to
write down assets when it is determined that it is probable that the assets'
value is impaired. Depreciation and amortization have been adjusted for
extension of the lease life which decreased depreciation expense by $125,000 for
the year ended January 27, 1996.
-26-
<PAGE>
PREOPENING AND STORE CLOSING COSTS
Costs associated with the opening of new stores are charged to expense
as incurred. The costs, net of amounts expected to be recovered, are expensed
when the decision to close the store is made.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes which is an
asset and liability approach. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is based on the weighted average number of
shares outstanding during each year as adjusted to take into account the effect
of outstanding options to purchase common stock unless the effect of including
such options is anti-dilutive. The effect of the outstanding options is computed
using the treasury stock method. The weighted average number of shares and
equivalents outstanding were 5,981,000, 5,901,000 and 5,891,000 for the periods
ended January 27, 1996, January 28, 1995 and February 26, 1994, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, including accrued
reorganization expenses, at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued payroll, accrued
reorganization expenses, and other accrued expenses. These balances, as
presented in the financial statements at January 27, 1996, approximate their
fair value.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current year presentation.
-27-
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
The composition of property and equipment is:
<TABLE>
<CAPTION>
January 27 January 28
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $ 9,144 $10,139
Furniture, fixtures and equipment 17,267 16,951
------- -------
26,411 27,090
Less accumulated depreciation
and amortization 20,853 20,846
------- -------
$ 5,558 $ 6,244
------- -------
------- -------
</TABLE>
NOTE 5 - LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise at January 28, 1995 included
substantially all of the current and noncurrent liabilities of the Company as of
the Petition Date. Prepetition liabilities were stayed while the Company
continued to operate. (See Note 13 for discussion of accrued reorganization
expenses.)
Liabilities subject to compromise as of January 28, 1995 are summarized as
follows:
Net borrowings from line of credit $ 2,130
Accounts payable and other liabilities 6,921
Obligations under rejected executory contracts 7,550
-------
$12,718
-------
-------
In accordance with SOP 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code, interest on unsecured prepetition debt
ceased accruing on the Petition Date. If interest had been accrued on all debt
under prefiling terms and conditions, interest expense would have increased by
approximately $155,000 during the period ended January 27, 1996 and $105,000
during the period ended January 28, 1995.
NOTE 6 - INCOME TAXES
The income tax provision (benefit) consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Eleven months
ended ended Fiscal
January 27 January 28 year end
1996 1995 1994
---------- ------------- --------
<S> <C> <C> <C>
Federal:
Current 0 0 $(1,815)
Deferred 0 0 1,575
State - Current: 0 0 (60)
----- ----- --------
$ 0 $ 0 $ (300)
----- ----- --------
----- ----- --------
</TABLE>
-28-
<PAGE>
The difference between the income tax provision (benefit) based upon
statutory income tax rates and the income tax provision (benefit) recorded in
the financial statements is attributable to the following (in thousands):
<TABLE>
<CAPTION>
Year Eleven months
ended ended Fiscal
January 27 January 28 year end
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Income taxes at Federal
statutory rates of 34% $ (956) $(4,751) $(4,969)
Increase in valuation
allowance 918 4,751 4,985
State income taxes, net of
Federal tax benefit 0 0 (60)
Other 38 (10) (256)
-------- ------- --------
$ 0 $ 0 $ (300)
-------- ------- --------
-------- ------- --------
</TABLE>
Deferred tax assets (liabilities) at January 27, 1996 and January 28,
1995 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
January 27 January 28
1996 1995
----------- ----------
<S> <C> <C>
Operating loss carryforward $ 9,948 $ 4,738
Accrued reorganization expenses
and liabilities subject to compromise 0 3,856
Deferred rental credits 338 448
Inventory valuation 233 412
Minimum tax credit carryforward 184 184
Other, net (39) 28
-------- ------
10,664 9,746
Less: Valuation allowance 10,664 9,746
-------- ------
Net deferred tax assets $ 0 $ 0
------- -------
-------- ------
</TABLE>
At January 27, 1996, the Company had available Federal net operating
loss (NOL) carryforwards of approximately $29,258,000 which expire in 2009
through 2011. If certain substantial changes in the Company's ownership should
occur, there would be a limitation on the amount of the NOL carryforwards which
could be utilized.
-29-
<PAGE>
NOTE 7 - LEASE COMMITMENTS
Annual store rentals are primarily fixed minimum amounts, plus a
contingent amount determined on the basis of a percentage of sales exceeding a
stipulated amount. All such leases represent operating leases as defined in
Statement of Financial Accounting Standards Number 13. Lease provisions
generally require additional payments for taxes, maintenance and other
miscellaneous expenses. For leases which have escalation clauses, an amount has
been provided so that equal monthly minimum rents are reported throughout the
term of the lease.
Net rental expense includes the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Eleven months Fiscal
year end ended year end
January 27 January 28 February 26
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Minimum rent $ 5,884 $ 9,457 $13,763
Provision for deferred rent (323) (818) (408)
Contingent rent 1,209 640 764
Property taxes and other 701 1,070 1,754
Sublease rental income 0 0 (104)
------- ------- -------
$ 7,471 $10,349 $15,769
------- ------- -------
------- ------- -------
</TABLE>
Minimum rental commitments for leases in effect at January 27, 1996
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending
-----------
<S> <C>
January 1997 $ 4,991
January 1998 4,144
January 1999 3,474
January 2000 2,718
January 2001 2,445
January 2002 and thereafter 3,185
--------
$20,957
--------
--------
</TABLE>
The Company leased a store from a limited partnership, certain
partners of which are deemed related parties of Jay Jacobs, Inc. Rental expense
for this lease was $0, $23,000 and $65,000 for the periods ended January 27,
1996, January 28, 1995 and February 26, 1994, respectively. This lease was
rejected during the Chapter 11 process.
-30-
<PAGE>
NOTE 8 - LINE OF CREDIT
On November 20, 1995, the Bankruptcy Court approved a financing
agreement, on a revolving credit basis, between the Company and LaSalle National
Bank. The LaSalle Facility provides for borrowings and letters of credit, the
aggregate of which cannot exceed the lower of $10 million or a computed
borrowing base. Letters of Credit are limited to a maximum of $5 million. A
first and only lien is granted to LaSalle on all Company assets (excluding
capitalized leases and permitted liens up to $400,000). The Company must
maintain a scheduled minimum tangible net worth and may not declare or pay
dividends or other distributions on account of any equity interest in the
Company. Interest is charged at LaSalle's announced prime rate. The Company is
charged an annual fee of 1.25% per annum on the aggregate undrawn face amount of
letters of credit outstanding. The agreement has a three year term and was
signed on December 4, 1995.
As of the end of the fiscal year, the Company had no direct
borrowings. There were $1,177,000 of letters of credit outstanding as of January
27, 1996.
NOTE 9 - STOCK OPTION PLANS
In September 1986 the Company adopted an Incentive Stock Option Plan
("ISO Plan") and a Nonqualified Stock Option Plan. Both plans expired in October
1991 pursuant to their terms, leaving 465,788 shares subject to outstanding
options. In October 1991 the Board of Directors approved and reinstated the
Nonqualified Plan, but not the ISO Plan.
In March 1987 the Company adopted a Directors' Nonqualified Stock
Option Plan. The Plan, as amended in September 1991, provides that each
eligible director upon the date of election to the Board of Directors and on
each three year anniversary thereof, is granted a ten year option to purchase
4,000 shares of common stock at a purchase price equal to the fair market value
of the common stock on the date grant. The shares become exercisable over a six
month to three year period.
In September 1994 the Board of Directors voted to approve the
repricing of the exercise price for all outstanding stock options issued to
employees to an exercise price of $1.00 per share, the fair market value of the
Company's common stock on that date.
A Stock Option Plan was authorized by shareholders at Plan
confirmation in November of 1995. The Stock Option Plan contains provisions to
grant 500,000 shares of common stock. Options granted under the expired Plan and
the reinstated plan are granted at prices equal to the fair market value of the
shares at the date of grant and generally vest over a one to four year period.
-31-
<PAGE>
In December 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (FAS 123). This pronouncement requires the Company to elect to
account for stock-based compensation on a fair value based model or an intrinsic
value based model. The intrinsic value based model is currently used by the
Company and is the accounting principle prescribed by Accounting Principles
Board No. 25, Accounting for Stock Issued to Employees (APB 25). Under this
model, compensation cost is the excess, if any, of the quoted market price of
the stock at the date of grant or other measurement date over the amount an
employee must pay to acquire the stock. The fair value based model prescribed
by FAS 123 would require the Company to value stock-based compensation using an
accepted valuation model. Compensation cost would be measured at the grant date
based upon the value of the award and would be recognized over the service
period which is usually the vesting period.
The Company has elected to continue to apply the provisions of APB 25
to their employee stock-based compensation plans. FAS 123 requires disclosure in
the footnotes of the pro forma impact on net income and earnings per share of
the difference between compensation expense using the intrinsic value method and
the fair value method. The adoption of FAS 123 is required for the fiscal year
ending January 1997, and will not have an impact on the Company's financial
position or results of operations.
Information pertaining to stock options outstanding is summarized as
follows:
<TABLE>
<CAPTION>
Number Option Price
of Options Per Share
----------- ------------
<S> <C> <C>
Balance - February 27, 1993 699,688 4.63 - 10.25
Granted 263,000 2.50 - 4.07
Exercised 0
Cancelled (117,738) 3.50 - 10.25
-------
Balance - February 26, 1994 844,950 2.50 - 10.25
Granted 781,335 .5625- 1.50
Exercised 0
Cancelled (844,950) 2.50 - 10.25
-------
Balance - January 28, 1995 781,335 .5625- 1.50
Granted 432,633 1.00 - 2.75
Exercised (47,220)
Cancelled (214,958) .5625- 1.50
-------
Balance - January 27, 1996 951,790 .5625- 2.75
-------
-------
Exercisable - January 27, 1996 318,688
-------
-------
</TABLE>
-32-
<PAGE>
NOTE 10 - STOCK PURCHASE PLAN
During the year ended February 28, 1991 the Company adopted a stock
purchase plan. Under the plan, employees are allowed to purchase common stock
of the Company at a price equal to 90 percent of the stock's market value as of
certain dates. Shares issued under the plan totaled 11,660 and 20,499 during
the periods ended January 28, 1995 and February 26, 1994. There were no shares
issued in fiscal 1996.
NOTE 11 - PROFIT SHARING PLAN
The Company maintains a discretionary profit-sharing plan for all
employees meeting certain age and length of service requirements. No
contribution was made for the fiscal years ended January 28,1995 or January 27,
1996. Contributions under the plan totaled $50,000 for the year ended February
26, 1994.
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Year ended Fourth Third Second First
January 27, 1996 quarter quarter quarter quarter
- ---------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales $18,625 $18,357 $18,799 $17,105
Gross profit, less buying
and occupancy costs 5,418 4,758 4,499 3,159
Net income (loss) 261 (495) (589) (1,988)
Net income (loss) per share 0.04 (0.08) (0.10) (0.34)
Eleven months ended
January 28, 1995
Net sales $16,265 $20,676 $25,072 $28,477
Gross profit, less buying
and occupancy costs 4,079 4,467 4,834 5,395
Reorganization charge 0 0 3,987 3,610
Net loss (214) (1,608) (6,277) (5,874)
Net loss per share (0.04) (0.27) (1.06) (0.99)
</TABLE>
NOTE 13 - REORGANIZATION AND RESTRUCTURING CHARGE
The Company recorded a $7.5 million restructuring charge in the third
quarter ended November 1993. This restructuring charge related primarily to
unprofitable stores. The Company closed 28 stores between November 1993 and
February 1994. Property and equipment was written down $5.0 million. Payments to
certain landlords which were negotiated as part of lease terminations totaled
$1.0 million. Inventory reserves for closed stores were $.6 million. The
balance of the charge included professional fees and expenses, certain payroll
costs and other expenses related to closed stores.
-33-
<PAGE>
During 1995, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code and decided to close an additional 84 stores.
The Company recorded a reorganization provision of $7,597,000 related to these
events. Property and equipment was written down by $1,978,000, inventory
reserves for closed stores were $1,200,000, $752,000 was incurred in
professional fees and expenses and $3,667,000 represents the provision related
to lease rejection claims. Unpaid costs related to this reorganization were
$7,437,000 at January 27, 1996, of which $3,188,000 are expected to be paid
within a year and thus are classified as current liabilities.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Part III (Item 10) is partially set forth
in the Company's definitive proxy statement which will be filed pursuant to
Regulation 14A within 120 days of January 27, 1996. Such information is
incorporated herein by reference and made a part hereof.
The information set forth in ITEM 1 "Executive Officers of the
Registrant" found on page -- of this Form 10-K is incorporated herein by
reference in response to the information required by this item.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Part III (Item 11) is set forth in the
Company's definitive proxy statement which will be filed pursuant to Regulation
14A within 120 days of January 27, 1996. Such information is incorporated herein
by reference and made a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Part III (Item 12) is set forth in the
Company's definitive proxy statement which will be filed pursuant to Regulation
14A within 120 days of January 27, 1996. Such information is incorporated herein
by reference and made a part hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Part III (Item 13) is set forth in the
Company's definitive proxy statement which will be filed pursuant to Regulation
14A within 120 days of January 27, 1996. Such information is incorporated herein
by reference and made a part hereof.
-34-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM 14. (a)(1) FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Shareholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
ITEM 14. (a)(2)
No schedules are included because they are not appicable or the required
information is shown in the financial statements or notes thereto.
ITEM 14. (a)(3) LIST OF EXHIBITS
2.1 Company's Second Amended Chapter 11 Plan of Reorganization
dated November 16, 1995. (Incorporated by reference to
Exhibit 2 to the Company's Form 8-K report dated November 16,
1995.)
Exhibit A Speciman 9.5% Per Annum Promissory Note of the
Company Due January 2, 2001. (Incorporated by
reference to Exhibit 2 to the Company's Form 8-K
dated October 16, 1995.)
Exhibit B Leases to be Assumed. (Incorporated by reference
to Exhibit B to Exhibit 2 to the Company's Form
8-K report dated November 16, 1995.)
Exhibit C 1995 Stock Option Plan of the Company.
(Incorporated by reference to Exhibit D to
Exhibit 2 to the Company's Form 8-K report dated
October 16, 1995.)
2.2 Bankruptcy Court Order Confirming Company's Second Amended
Chapter 11 Plan of Reorganization. (Incorporated by
reference to Exhibit 99.1 to the Company's Form 8-K report
dated November 16, 1995.)
2.3 Loan and Security Agreement between LaSalle National Bank
and the Company dated as of December 4, 1995.
2.4 $10,000,000 Note of the Company to LaSalle National Bank dated
as of December 4, 1995.
3.1* Restated Articles of Incorporation of the Company.
3.3* Bylaws of the Company.
-35-
<PAGE>
4.1 Revolving Credit Agreement as of September 26, 1994 by and
between Jay Jacobs, Inc. as borrower, and the CIT Group/Business
Credit, Inc. as lender. (Incorporated by reference to Exhibit
4.1 to the Company's 10-K report for fiscal year ended
January 28, 1995.)
10.1* Lease agreements with Edgar Freed and Bank of California, N.A.,
co-trustees with respect to downtown Seattle building dated
April 16, 1965, December 23, 1974 and December 31, 1975 and
January 25, 1980, as amended.
10.2* Distribution Center lease with Pacific Northwest Group A dated
January 28, 1981, as amended.
10.3* Lease Agreement with Cornwall Associates Limited Partnership
dated March 5, 1987 with respect to Bellingham, Washington store
lease.
10.7*# Form of Incentive Stock Option Agreement.
10.8*@ Nonqualified Stock Option Plan adopted on September 12, 1986.
10.9*# Form of Nonqualified Stock Option Agreement.
10.10*@ Directors' Nonqualified Stock Option Plan adopted on March 27,
1987.
10.15* Buy-Sell Agreement among certain shareholders of the Registrant
dated as of March 31, 1987.
10.18**@ Incentive Stock Option Plan as amended on July 31, 1987.
10.19***@ Employment Agreement with Celestina Sze dated May 8, 1989.
10.20*** 1989 Restated Profit Sharing Plan and Trust effective as of
March 1, 1989.
10.21*** Amendment to Distribution Center lease with Pacific Northwest
Group A dated August 29, 1988.
10.22****@ Employee Stock Purchase Plan adopted August 1, 1990.
10.23**** Amendment to Profit Sharing Plan and Trust dated
February 4, 1991.
10.24**** Asset Purchase Agreement between The United States Shoe
Corporation and Jay Jacobs, Inc. dated April 11, 1991.
10.25#@ Amended and Restated Directors' Nonqualified Stock Option Plan
dated September 12, 1991.
10.26# Transition Agreement and Amendment to Jay Jacobs, Inc. 1989
Restated Profit Sharing Plan and Trust dated March 16, 1992.
10.27## Business Loan Agreement with Seattle-First National Bank dated
April 20, 1993.
10.28## Business Loan Agreement with Seattle-First National Bank dated
December 22, 1993.
10.29##@ Settlement Agreement with Douglas Swerland dated January 7, 1994.
10.30## Business Loan Agreement with Seattle-First National Bank dated
February 1, 1994.
10.31## Agreement with Financo, Inc. dated May 31, 1994.
10.32### Hilco.
10.33####@ Amended and Restated Nonqualified Stock Option Plan dated as
of April 16, 1992.
10.34 Specimen 9.5% Per Annum Promissory Note of the Company Due
January 2, 2001. (Incorporated by reference to Exhibit A to
Exhibit 2 to the Company's Form 8-K report dated October 16,
1995.)
-36-
<PAGE>
10.35@ 1995 Stock option Plan of the Company. (Incorporated by
reference to Exhibit D to Exhibit 2 to the Company's Form 8-K
report dated October 16, 1995.)
10.36@ Form of 1995 Stock Option Plan Agreement.
10.37@ Employment Agreement between Rex Loren Steffey and the Company
effective as of July 1, 1995. (Incorporated by reference to
Exhibit B-1 to the Company's Form 8-K report dated October 16,
1995.)
10.38@ Employment Agreement between William L. Lawrence, Jr., and the
Company effective as of July 1, 1995. (Incorporated by
reference to Exhibit B-2 to Exhibit 99.5 to the Company's
Form 8-K report dated October 16, 1995.)
10.39@ Form of Stock Option Agreement for the 1994 Corporate Office
Key Employee Retention Plan. (Incorporated by reference to
Exhibit 4.1 to the Company's Form S-8 Registration Statement
on Form S-8 under the Securities Act of 1933 (Registration
No. 33-95244) effective August 4, 1995.)
10.40@ The Jay Jacobs Executive Stock Option Agreement dated as of
September 2, 1994, as amended. (Incorporated by reference to
Exhibit 4.2 to the Company's Form S-8 Registration Statement
on Form S-8 under the Securities Act of 1933 (Registration
No. 33-95244) effective August 4, 1995.)
10.41@ The Rex Loren Steffey Executive Stock Option Agreement dated
as of September 9, 1994, as amended. (Incorporated by reference
to Exhibit 4.4 to the Company's Form S-8 Registration Statement
on Form S-8 under the Securities Act of 1933 (Registration
No. 33-95244) effective August 4, 1995.)
10.42@ The Rex Loren Steffey Restricted Stock Agreement dated as of
September 9, 1994, as amended. (Incorporated by reference to
Exhibit 4.5 to the Company's Form S-8 Registration Statement
on Form S-8 under the Securities Act of 1933 (Registration
No. 33-95244) effective August 4, 1995.)
10.43@ The Rex Loren Steffey Executive Stock Option Agreement dated
as of October 20, 1994, as amended. (Incorporated by reference
to Exhibit 4.6 to the Company's Form S-8 Registration
Statement on Form S-8 under the Securities Act of 1933
(Registration No. 33-95244) effective August 4, 1995.)
10.44@ The William L. Lawrence, Jr. Management Option Agreement dated
as of January 30, 1995. (Incorporated by reference to Exhibit
4.11 to the Company's Form S-8 Registration Statement on Form
S-8 under the Securities Act of 1933 (Registration No. 33-95244)
effective August 4, 1995.)
10.45@ The William L. Lawrence, Jr. Management Option Agreement dated
as of January 30, 1995. (Incorporated by reference to Exhibit
4.12 to the Company's Form S-8 Registration Statement on Form
S-8 under the Securities Act of 1933 (Registration No. 33-95244)
effective August 4, 1995.)
21 Schedule of Subsidiaries.
23 Consent of Price Waterhouse.
27 Financial Data Schedule.
-37-
<PAGE>
*Incorporated by reference (utilizing the same exhibit numbers) to the
Company's Registration Statement on Form S-1 under the Securities Act of 1933
(Registration No. 33-13112) declared effective May 19, 1987.
**Incorporated by reference (utilizing the same exhibit numbers) to the
Company's Form 10-K report for the fiscal year ended February 29, 1988.
***Incorporated by reference (utilizing the same exhibit numbers) to the
Company's Form 10-K report for the fiscal year ended February 28, 1989.
****Incorporated by reference (utilizing the same exhibit numbers) to the
Company's Form 10-K report for the fiscal year ended February 28, 1991.
#Incorporated by reference (utilizing the same exhibit numbers) to the
Company's Form 10-K report for the fiscal year ended February 29, 1992.
##Incorporated by reference (utilizing the same exhibit numbers) to the
Company's Form 10-K report for the fiscal year ended February 26, 1994.
###Incorporated by reference (utilizing the same exhibit numbers) to the
Company's 10-Q for the period ended August 27, 1994.
@Represents management contract or compensatory plan or arrangement.
ITEM 14. (b)
Form 8-K dated October 16, 1995, reporting under Item 5 of the
Bankruptcy Court's approval, pursuant to Section 1125 of the Bankruptcy Code, of
the Company's Disclosure Statement regarding the First Amended Plan for
soliciation of the Company's creditors and shareholders to approve the First
Amended Plan.
Form 8-K dated November 16, 1995, reporting under item 3 the
Bankruptcy Court's confirmation of the plan and post-confirmation approval of
the LaSalle Facility. The Form 8-K incorporated by reference the consolidate
balance sheet contained in the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 29, 1995.
-38-
<PAGE>
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, on April 25, 1996.
Jay Jacobs, Inc.
By:
-------------------------------------
Rex Loren Steffey
President and Chief Executive Officer
and Director (Principal Executive
Officer)
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.
Signature Title Date
- -------------------------
Jay Jacobs Chairman of the Board April 25, 1996
and Director
- -------------------------
Rex Loren Steffey President, Chief Executive April 25, 1996
Officer and Director
- -------------------------
William L. Lawrence, Jr. Senior Vice President, Chief April 25, 1996
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
- -------------------------
Sam Rubinstein Director April 25, 1996
- -------------------------
David J. Taylor Director April 25, 1996
- -------------------------
Shelley Swerland Director April 25, 1996
- -------------------------
Gilbert Scherer Director April 25, 1996
-39-
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") made as of the 4th day
of December, 1995 by and between LASALLE NATIONAL BANK, a national banking
association ("BANK"), 120 South LaSalle Street, Chicago, Illinois 60603, and JAY
JACOBS, INC., a Washington corporation with its principal place of business and
chief executive office located at 1530 Fifth Avenue, Seattle, Washington 98101
("BORROWER").
WITNESSETH:
WHEREAS, Borrower may, from time to time, request Loans from Bank, and the
parties wish to provide for the terms and conditions upon which such Loans, if
made by Bank, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal
or extension) hereafter made to Borrower by Bank, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrower, the parties agree as follows:
1. DEFINITIONS.
"ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "DOCUMENTS," "EQUIPMENT,"
"GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," and "INVENTORY," shall have the
respective meanings assigned to such terms, as of the date of this Agreement, in
the Illinois Uniform Commercial Code.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by or under common control with Borrower.
"BANKRUPTCY COURT" shall mean the United States Bankruptcy Court for the
Western District of Washington at Seattle.
"CASE" shall mean Case No. 94-03993, the petition for relief under Title 11
of the Bankruptcy Court filed by Borrower in the Bankruptcy Court on May 13,
1994.
"COLLATERAL" shall mean all of the property of Borrower described in
paragraph 4 hereof, together with all other real or personal property of any
Obligor or any other Person now or hereafter pledged to Bank to secure, either
directly or indirectly, repayment of any of the Liabilities.
"COLLECTION ACCOUNT" shall have the meaning specified in paragraph 7
hereof.
"CONFIRMATION ORDER" shall mean an order entered by the Bankruptcy Court
confirming the Reorganization Plan.
<PAGE>
"DEPOSITARY ACCOUNT" shall have the meaning specified in paragraph 7
hereof.
"DEPOSITARY BANK" shall mean a bank set forth on Exhibit B on the date
hereof; provided, that Borrower may from time after the date hereof by written
notice to Bank amend Exhibit B by adding thereto additional Banks; provided,
further, that all Depositary Banks shall in any event be reasonably acceptable
to Bank (all Depositary Banks listed on Exhibit B on the date of this Agreement
being acceptable to Bank as of such date) and shall have executed and delivered
to Bank all acknowledgments and agreements required pursuant to the terms of
paragraph 7 hereof.
"ELIGIBLE ACCOUNT" shall mean an Account owing to Borrower which is
acceptable to Bank in its sole discretion for lending purposes. Without
limiting Bank's discretion, Bank shall, in general, consider an Account to be an
Eligible Account if it meets, and so long as it continues to meet, the following
requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it is owned by Borrower, Borrower has the right to subject it to a
security interest in favor of Bank or assign it to Bank and it is
subject to a first priority perfected security interest in favor of
Bank and to no other claim, lien, security interest or encumbrance
whatsoever, other than Permitted Liens;
(c) it arises from (A) the performance of services by Borrower and such
services have been fully performed and acknowledged and accepted by
the Account Debtor thereunder; or (B) the sale or lease of Goods by
Borrower, and such Goods have been completed in accordance with the
Account Debtor's specifications (if any) and delivered to and accepted
by the Account Debtor, such Account Debtor has not refused to accept
any of the Goods, returned or offered to return any of the Goods, or
refused to accept any of the services which are the subject of such
Account, and Borrower has possession of, or Borrower has delivered to
Bank (at Bank's request) shipping and delivery receipts evidencing
delivery of such Goods;
(d) it is evidenced by an invoice rendered to the Account Debtor
thereunder, is due and payable within - ( - ) days after the date of
the invoice and does not remain unpaid - ( - ) past the invoice date
thereof; provided, however, that if more than - percent ( - %) of
the aggregate dollar amount of invoices owing by a particular Account
Debtor remain unpaid - ( - ) after the respective invoice dates
thereof, then all Accounts owing by that Account Debtor shall be
deemed ineligible;
(e) it is a valid, legally enforceable and unconditional obligation of the
Account Debtor thereunder, and is not
-2-
<PAGE>
subject to setoff, counterclaim, credit, allowance or adjustment by
such Account Debtor, or to any claim by such Account Debtor denying
liability thereunder in whole or in part;
(f) it does not arise out of a contract or order which fails in any
material respect to comply with the requirements of applicable law;
(g) the Account Debtor thereunder is not a director, officer, employee or
agent of Borrower, or a Subsidiary, Parent or Affiliate;
(h) it is not an Account with respect to which the Account Debtor is the
United States of America or any department, agency or instrumentality
thereof, unless Borrower assigns its right to payment of such Account
to Bank pursuant to, and in full compliance with, the Assignment of
Claims Act of 1940, as amended;
(i) it is not an Account with respect to which the Account Debtor is
located in a state which requires Borrower, as a precondition to
commencing or maintaining an action in the courts of that state,
either to (A) receive a certificate of authority to do business and be
in good standing in such state, or (B) file a notice of business
activities report or similar report with such state's taxing
authority, unless (x) Borrower has taken one of the actions described
in clauses (A) or (B), (y) the failure to take one of the actions
described in either clause (A) or (B) may be cured retroactively by
Borrower at its election, or (z) Borrower has proven, to Bank's
satisfaction, that it is exempt from any such requirements under any
such state's laws;
(j) it is an Account which arises out of a sale made in the ordinary
course of Borrower's business;
(k) the Account Debtor is a resident or citizen of, and is located within,
the United States of America;
(l) it is not an Account with respect to which the Account Debtor's
obligation to pay is conditional upon the Account Debtor's approval of
the Goods or services or is otherwise subject to any repurchase
obligation or return right, as with sales made on a bill-and-hold,
guaranteed sale, sale on approval, sale or return or consignment
basis;
(m) it is not an Account (A) with respect to which any representation or
warranty contained in this Agreement is untrue or (B) which violates
any of the covenants of Borrower contained in this Agreement;
-3-
<PAGE>
(n) it is not an Account which, when added to a particular Account
Debtor's other indebtedness to Borrower, exceeds a credit limit
determined by Bank in its sole discretion for that Account Debtor
(except that Accounts excluded from Eligible Accounts solely by reason
of this subparagraph 1(d)(xiv) shall be Eligible Accounts to the
extent of such credit limit); and
(o) it is not an Account with respect to which the prospect of payment or
performance by the Account Debtor is or will be impaired, as
determined by Bank in its sole discretion.
"ELIGIBLE INVENTORY" shall mean Inventory of Borrower which is acceptable
to Bank in its sole discretion for lending purposes, as determined on a basis
consistent with the credit procedures of its Asset-Based Lending Division.
Without limiting Bank's discretion, Bank shall, in general, consider Inventory
to be Eligible Inventory if it meets, and so long as it continues to meet, the
following requirements:
(a) it is owned by Borrower, Borrower has the right to subject it to a
security interest in favor of Bank and it is subject to a first
priority perfected security interest in favor of Bank and to no other
claim, lien, security interest or encumbrance whatsoever, other than
Permitted Liens;
(b) it is located on the premises listed on Exhibit C and is not in
transit;
(c) if held for sale or lease or furnishing under contracts of service, it
is (except as Bank may otherwise consent in writing) new and unused
and free from defects which would affect its market value, as
determined by Bank in its sole discretion on a basis consistent with
the credit procedures of its Asset-Based Lending Division;
(d) it is not stored with a bailee, consignee, warehouseman, processor or
similar party unless Bank has given its prior written approval and
Borrower has caused any such bailee, consignee, warehouseman,
processor or similar party to issue and deliver to Bank, in form and
substance acceptable to Bank, such UCC financing statements, warehouse
receipts, waivers and other documents as Bank shall require;
(e) Bank has determined in accordance with Bank's customary business
practices that it is not unacceptable due to age, type, category or
quantity; and
(f) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue
or (B) which violates any of the covenants of Borrower contained in
this Agreement.
-4-
<PAGE>
"EVENT OF DEFAULT" shall have the meaning specified in paragraph 12 hereof.
"EXHIBIT A" shall mean the exhibit entitled Exhibit A - Special Provisions
which is attached hereto and made a part hereof.
"EXHIBIT B" shall mean the exhibit entitled Exhibit B - Depositary Banks
which is attached hereto and made a part hereof.
"EXHIBIT C" shall mean the exhibit entitled Exhibit C - Business and
Collateral Locations which is attached hereto and made a part hereof.
"FINANCING ORDER" shall mean an order entered by the Bankruptcy Court
authorizing and approving the execution and delivery by the "REORGANIZED DEBTOR"
(as defined in the Reorganization Plan) of this Agreement.
"INDEMNIFIED PARTY" shall have the meaning specified in paragraph 14
hereof.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" shall mean any standby or
documentary letter of credit issued by Bank on behalf of Borrower.
"LIABILITIES" shall mean any and all obligations, liabilities and
indebtedness of Borrower to Bank or to any parent, affiliate or subsidiary of
Bank of any and every kind and nature, howsoever created, arising or evidenced
and howsoever owned, held or acquired, whether now or hereafter existing,
whether now due or to become due, whether primary, secondary, direct, indirect,
absolute, contingent or otherwise (including, without limitation, obligations of
performance), whether several, joint or joint and several, and whether arising
or existing under written or oral agreement or by operation of law.
"LOAN" or "LOANS" shall mean all advances made by Bank to Borrower pursuant
to paragraph 2 hereof and all other loans, advances and financial accommodations
made by Bank to or on behalf of Borrower hereunder.
"LOAN LIMIT" shall have the meaning specified in paragraph 1 of Exhibit A.
"MINIMUM TANGIBLE NET WORTH" shall have the meaning specified in
subparagraph 11(o) hereof.
"OBLIGOR" shall mean Borrower and each Person who is or shall become
primarily or secondarily liable for any of the Liabilities.
"ORIGINAL TERM" shall have the meaning specified in paragraph 9 hereof.
"OTHER AGREEMENTS" shall mean all agreements, instruments and documents,
other than this Agreement, including, without
-5-
<PAGE>
limitation, guaranties, mortgages, trust deeds, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, leases,
financing statements and all other writings heretofore, now or from time to time
hereafter executed by or on behalf of Borrower or any other Person and delivered
to Bank or to any parent, affiliate or subsidiary of Bank in connection with the
Liabilities or the transactions contemplated hereby.
"PARENT" shall mean any Person now or at any time or times hereafter owning
or controlling (alone or with any other Person) at least a majority of the
issued and outstanding stock of Borrower.
"PERMITTED LIENS" shall mean (i) statutory liens of landlord's, carriers,
warehousemen, mechanics, materialmen, processors or suppliers incurred in the
ordinary course of business and securing amounts not yet due or declared to be
due by the claimant thereunder, (ii) liens or security interests in favor of
Bank, (iii) zoning restrictions and easements, licenses, covenants and other
restrictions affecting the use of real property that do not individually or in
the aggregate have a material adverse effect on Borrower's ability to use such
real property for its intended purpose in connection with Borrower's business,
(iv) deposits or pledges not exceeding in the aggregate at any time $300,000, to
secure utility and similar services or to secure obligations under workmen's
compensation, social security or similar laws, or under unemployment insurance;
(v) deposits or pledges not exceeding in the aggregate at any time $300,000, to
secure bids, tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety, customs and appeal bonds and other
obligations of like nature arising in the ordinary course of Borrower's
business; (vi) Purchase Money Liens; (vii) liens in favor of the respective
Persons, and securing aggregate tax liabilities of Borrower to such Persons not
exceeding the respective amounts, in each case as set forth on SCHEDULE 1; and
(viii) liens otherwise specifically permitted by Bank in writing.
"PERSON" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or foreign or United States government (whether
federal, state, county, city, municipal or otherwise), including, without
limitation, any instrumentality, division, agency, body or department thereof.
"PURCHASE MONEY LIEN" shall mean a security interest in equipment acquired
(whether by purchase or financing lease) after the date of this Agreement, so
long as (i) such security interest attaches only to the property acquired, (ii)
a description shall have been furnished to Bank of any item of equipment for
which the purchase price is greater than $50,000; and (iii) the indebtedness
which such Lien secures shall not exceed one hundred percent (100%) of the
purchase price of the item or items of equipment purchased.
"RENEWAL TERM" shall have the meaning specified in paragraph 9 hereof.
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<PAGE>
"REORGANIZATION DOCUMENTS" shall mean, collectively, this Agreement, the
Other Agreements, and all other agreements, documents and instruments executed
and/or delivered by Borrower or any other Person pursuant to or in connection
with the Reorganization Plan.
"REORGANIZATION PLAN" shall mean the Plan of Reorganization filed on
September 14, 1995, by Borrower in its capacity as debtor and debtor-in-
possession in the Case, together with any amendments and supplements thereto, or
other modifications thereof, in each case previously approved in its sole
discretion by Bank in writing.
"REORGANIZATION TRANSACTIONS" shall mean the events and transactions
required and/or contemplated by the Reorganization Plan, including, without
limitation, the execution and delivery of this Agreement, the Other Agreements,
and the respective events and transactions contemplated thereby.
"SUBSIDIARY" shall mean any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether
at the time stock of any other class of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by Borrower or by any partnership or joint venture
of which more than fifty percent (50%) of the outstanding equity interests are
at the time, directly or indirectly, owned by Borrower.
"TANGIBLE NET WORTH" shall have the meaning specified in subparagraph 11(o)
hereof.
2. LOANS. Subject to the terms and conditions of this Agreement
(including Exhibit A) and the Other Agreements, during the Original Term and any
Renewal Term, Bank shall, absent the occurrence of an Event of Default, make on
a revolving credit basis such Loans to Borrower as Borrower shall from time to
time request. The aggregate unpaid principal of all Loans outstanding at any
one time shall not exceed the Loan Limit set forth in Exhibit A and shall bear
interest at the rates set forth in Exhibit A. All Liabilities shall be repaid
upon the earlier to occur of (I) the end of the Original Term or any Renewal
Term, if either party elects to terminate this Agreement as of the end of any
such term and (II) the acceleration of the Liabilities pursuant to Paragraph 13
of this Agreement. If at any time the outstanding principal balance of the
Loans exceeds the Loan Limit, or any portion of the Loans exceeds any applicable
sublimit set forth in Exhibit A, Borrower shall immediately, and without the
necessity of a demand by Bank, pay to Bank such amount as may be necessary to
eliminate such excess and Bank shall apply such payment to the Liabilities in
such order as Bank shall determine in its sole discretion. Borrower hereby
authorizes Bank, in its sole discretion, to charge any of Borrower's accounts to
make any payments of principal, interest or fees then due and payable under this
Agreement. All Loans shall, in Bank's sole discretion, be evidenced by one or
more
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promissory notes in form and substance satisfactory to Bank. However, if such
Loans are not so evidenced, such Loans may be evidenced solely by entries upon
the books and records maintained by Bank.
3. FEES AND CHARGES. Borrower shall pay to Bank, in addition to all
other amounts payable hereunder, the fees and charges set forth in Exhibit A.
It is the intent of the parties that the rate of interest and the other charges
to Borrower under this Agreement shall be lawful; therefore, if for any reason
the interest or other charges payable under this Agreement are found by a court
of competent jurisdiction, in a final determination, to exceed the limit which
Bank may lawfully charge Borrower, then the obligation to pay interest and other
charges shall automatically be reduced to such limit and, if any amount in
excess of such limit shall have been paid, then such amount shall be refunded to
Borrower.
4. GRANT OF SECURITY INTEREST TO BANK. As security for the payment of
all Loans now or in the future made by Bank to Borrower hereunder and for the
payment or other satisfaction of all other Liabilities, Borrower hereby assigns
to Bank and grants to Bank a continuing security interest in the following
property of Borrower, whether now or hereafter owned, existing, acquired or
arising and wherever now or hereafter located: (a) all Accounts (whether or not
Eligible Accounts) and all Goods whose sale, lease or other disposition by
Borrower has given rise to Accounts and have been returned to, or repossessed or
stopped in transit by, Borrower; (b) all Chattel Paper, Instruments, Documents
and General Intangibles (including, without limitation, all patents, patent
applications, trademarks, trademark applications, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists, tax
refund claims, claims against carriers and shippers, guarantee claims, contracts
rights, security interests, security deposits and any rights to
indemnification); (c) all Inventory (whether or not Eligible Inventory); (d) all
Goods (other than Inventory), including, without limitation, Equipment, vehicles
and fixtures; (e) all deposits and cash; (f) any other property of Borrower now
or hereafter in the possession, custody or control of Bank or any agent or any
parent, affiliate or subsidiary of Bank or any participant with Bank in the
Loans for any purpose (whether for safekeeping, deposit, collection, custody,
pledge, transmission or otherwise); and (g) all additions and accessions to,
substitutions for, and replacements, products and proceeds of the foregoing
property, including, without limitation, proceeds of all insurance policies
insuring the foregoing property, and all of Borrower's books and records
relating to any of the foregoing and to Borrower's business.
5. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Borrower shall, at Bank's request, at any time and from time to time,
execute and deliver to Bank such financing statements, documents and other
agreements and instruments (and pay the cost of filing or recording the same in
all public offices deemed necessary or desirable by Bank) and do such other acts
and
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<PAGE>
things as Bank may deem necessary or desirable in order to establish and
maintain a valid, attached and perfected security interest in the Collateral in
favor of Bank (free and clear of all other liens, claims and rights of third
parties whatsoever, whether voluntarily or involuntarily created, except
Permitted Liens) to secure payment of the Liabilities, and in order to
facilitate the collection of the Collateral. Borrower irrevocably hereby makes,
constitutes and appoints Bank (and all Persons designated by Bank for that
purpose) as Borrower's true and lawful attorney and agent-in-fact to execute
such financing statements, documents and other agreements and instruments and do
such other acts and things as may be necessary to preserve and perfect Bank's
security interest in the Collateral. Borrower further agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement shall be sufficient as a financing statement.
6. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until an "Event of
Default" (as hereinafter defined) has occurred, Borrower shall have the right,
except as otherwise provided in this Agreement, in the ordinary course of
Borrower's business, to (a) sell, lease or furnish under contracts of service
any of Borrower's Inventory normally held by Borrower for any such purpose, and
(b) use and consume any raw materials, work in process or other materials
normally held by Borrower for such purpose; provided, however, that a sale in
the ordinary course of business shall not include any transfer or sale in
satisfaction, partial or complete, of a debt owed by Borrower.
7. COLLECTIONS.
(a) Borrower shall establish and maintain accounts (each a "DEPOSITARY
ACCOUNT") in Borrower's name at one or more Depositary Banks into which Borrower
shall cause to be deposited on a daily basis in the identical form such payments
were received, whether by cash or check, all payments received by Borrower for
Inventory or services. Each Depositary Bank shall acknowledge and agree, in a
manner satisfactory to Bank, that the amounts on deposit in the Depositary
Account maintained at such Depositary Bank are the sole and exclusive property
of Bank, that such Depositary Bank has no right to setoff against such
Depositary Account or any other account maintained at such Depositary Bank into
which the contents of such Depositary Account are transferred, and that such
Depositary Bank on a daily basis shall wire, or otherwise transfer in
immediately available funds in a manner satisfactory to Bank, funds deposited in
the Depositary Account maintained at such Depositary Bank, as such funds are
collected, to an account (the "COLLECTION ACCOUNT") in Borrower's name
established by Borrower with Bank. If Borrower, any Affiliate or Subsidiary, or
any shareholder, officer, director, employee or agent of Borrower or any
Affiliate or Subsidiary, or any other Person acting for or in concert with
Borrower shall receive any monies, checks, notes, drafts or other payments
relating to or as proceeds of Accounts, Inventory or other Collateral, Borrower
and each such Person shall receive all such items in trust for, and as the sole
and exclusive
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<PAGE>
property of, Bank and, immediately upon receipt thereof, shall remit the same
(or cause the same to be remitted) in kind to a Depositary Account or to the
Collection Account. Borrower agrees that all payments made to the Collection
Account or otherwise received by Bank, whether in respect of the Accounts, the
Inventory or as proceeds of other Collateral or otherwise, will be applied on
account of the Liabilities (other than contingent Liabilities) in accordance
with the terms of this Agreement. If the Collection Account is established with
Bank, Borrower agrees to pay all usual and customary fees, costs and expenses
which Bank incurs in connection with opening and maintaining the Collection
Account and depositing for collection by Bank any check or other item of payment
received by Bank on account of the Liabilities. All of such fees, costs and
expenses shall constitute Loans hereunder, shall be payable to Bank by Borrower
upon demand, and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder. All checks, drafts, instruments and other items
of payment or proceeds of Collateral shall be endorsed by Borrower to a
Depositary Bank or to Bank, and, if that endorsement of any such item shall not
be made for any reason, Bank is hereby irrevocably authorized to endorse the
same on Borrower's behalf. For the purpose of this paragraph, Borrower
irrevocably hereby makes, constitutes and appoints Bank (and all Persons
designated by Bank for that purpose) as Borrower's true and lawful attorney and
agent-in-fact (i) to endorse Borrower's name upon said items of payment and/or
proceeds of Collateral and upon any Chattel Paper, document, instrument, invoice
or similar document or agreement relating to any Account of Borrower or goods
pertaining thereto; (ii) to take control in any manner of any item of payment or
proceeds thereof; and (iii) to have access to any lock box or postal box into
which any of Borrower's mail is deposited, and open and process all mail
addressed to Borrower and deposited therein.
(b) Bank may, at any time and from time to time, whether before or after
notification to any Account Debtor and whether before or after the maturity of
any of the Liabilities, (i) enforce collection of any of Borrower's Accounts or
contract rights by suit or otherwise; (ii) exercise all of Borrower's rights and
remedies with respect to proceedings brought to collect any Accounts; (iii)
surrender, release or exchange all or any part of any Accounts, or compromise or
extend or renew for any period (whether or not longer than the original period)
any indebtedness thereunder; (iv) sell or assign any Account of Borrower upon
such terms, for such amount and at such time or times as Bank deems advisable;
(v) prepare, file and sign Borrower's name on any proof of claim in bankruptcy
or other similar document against any Account Debtor; and (vi) do all other acts
and things which are necessary, in Bank's sole discretion, to fulfill Borrower's
obligations under this Agreement and to allow Bank to collect the Accounts. In
addition to any other provision hereof, Bank may at any time, whether before or
after the occurrence of an Event of Default, at Borrower's expense, notify any
parties obligated on any of the Accounts to make payment directly to Bank of any
amounts due or to become due thereunder.
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<PAGE>
(c) For purposes of calculating interest, Bank shall, within one (1)
business day after receipt by Bank at its office in Chicago, Illinois of (i)
checks and (ii) cash or other immediately available funds from collections of
items of payment and proceeds of any Collateral, apply the whole or any part of
such collections or proceeds against the Liabilities (other than contingent
Liabilities) in such order as Bank shall determine in its sole discretion. For
purposes of determining the amount of Loans available for borrowing purposes,
(i) checks and (ii) cash or other immediately available funds from collections
of items of payment and proceeds of any Collateral shall be applied in whole or
in part against the Liabilities, in such order as Bank shall determine in its
sole discretion, on the day of receipt, subject to actual collection.
(d) Bank, in its sole discretion, without waiving or releasing any
obligation, liability or duty of Borrower under this Agreement or the Other
Agreements or any Event of Default, may at any time or times hereafter, but
shall not be obligated to, pay, acquire or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person in, upon or against
the Collateral. All sums paid by Bank in respect thereof and all costs, fees
and expenses including, without limitation, reasonable attorney fees, all court
costs and all other charges relating thereto incurred by Bank shall constitute
Loans, payable by Borrower to Bank on demand and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder.
(e) If any of the Collateral shall be or become evidenced by an
Instrument, a Document or any Chattel Paper, Borrower shall immediately (or, in
the case of any Document, upon the request of Bank) deliver the original thereof
to Bank together with an appropriate endorsement or other specific evidence of
assignment thereof to Bank (in form and substance acceptable to Bank). If an
endorsement or assignment of any such items shall not be made for any reason,
Bank is hereby irrevocably authorized, as Borrower's attorney and agent-in-fact,
to endorse or assign the same on Borrower's behalf.
8. SCHEDULES AND REPORTS.
(a) Within ten (10) days after the close of each calendar month, and at
such other times as may be requested by Bank from time to time hereafter,
Borrower shall deliver to Bank (i) a schedule identifying each Eligible Account
together with copies of the invoices when requested by Bank (with evidence of
shipment attached) pertaining to each such Eligible Account, for the month (or
other applicable period) immediately preceding; (ii) such additional schedules,
certificates, reports and information with respect to the Collateral as Bank may
from time to time require; and (iii) an assignment of any or all items of
Collateral to Bank. Bank, through its officers, employees or agents, shall have
the right, at any time and from time to time in Bank's name, in the name of a
nominee of Bank or in Borrower's name, to verify the validity, amount or any
other matter relating to any of Borrower's
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<PAGE>
Accounts, by mail, telephone, telegraph or otherwise. Borrower shall reimburse
Bank, on demand, for all costs, fees and expenses incurred by Bank in this
regard.
(b) Without limiting the generality of the foregoing, Borrower shall
deliver to Bank, at least once a month (or more frequently when requested by
Bank), a report with respect to Borrower's Inventory. Borrower shall
immediately notify Bank of any event causing loss or depreciation in value of
Borrower's Inventory (other than normal depreciation occurring in the ordinary
course of business).
(c) All schedules, certificates, reports, assignments and other items
delivered by Borrower to Bank hereunder shall be executed by an authorized
representative of Borrower and shall be in such form and contain such
information as Bank shall specify.
9. TERMINATION. This Agreement shall be in effect from the date hereof
until December 4, 1998 (the "ORIGINAL TERM") and shall automatically renew
itself from year to year thereafter (each such one-year renewal being referred
to herein as a "RENEWAL TERM") unless (a) the due date of the Liabilities is
accelerated pursuant to paragraph 13 hereof; or (b) Borrower or Bank elects to
terminate this Agreement at the end of the Original Term or at the end of any
Renewal Term by giving the other party written notice of such election at least
ninety (90) days prior to the end of the Original Term or the then current
Renewal Term in which case Borrower shall pay all of the Liabilities in full on
the last day of such term. If one or more of the events specified in clauses
(a) and (b) occurs, then (i) Borrower may not request any Loans from Bank on or
after the date identified as the date on which the Liabilities are to be repaid
and (ii) this Agreement shall terminate on the date thereafter that the
Liabilities are paid in full. At such time as Borrower has repaid all of the
Liabilities and this Agreement has terminated, Borrower shall deliver to Bank a
release, in form and substance satisfactory to Bank, of all obligations and
liabilities of Bank and its officers, directors, employees, agents, parents,
subsidiaries and affiliates to Borrower, and if Borrower is obtaining new
financing from another lender, Borrower shall deliver such lender's
indemnification of Bank, in form and substance satisfactory to Bank, for checks
which Bank has credited to Borrower's account, but which subsequently are
dishonored for any reason. If, during the term of this Agreement, Borrower
prepays all or any portion of the Liabilities from any source other than income
from the ordinary course operations of Borrower's business, Borrower agrees to
pay to Bank, as a prepayment fee, in addition to the payment of all other
Liabilities, (i) if such prepayment occurs on or prior to the first anniversary
of the date hereof, an amount equal to three percent (3%) of the maximum line of
credit in effect hereunder at such time, (ii) if such prepayment occurs at any
time after the first anniversary of the date hereof but on or prior to the
second anniversary of the date hereof, an amount equal to two percent (2%) of
the maximum line of credit in effect hereunder at such time, and (iii) if such
prepayment occurs at any time
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<PAGE>
thereafter, an amount equal to one percent (1%) of the maximum line of credit in
effect hereunder at such time.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby
represents, warrants and covenants that:
(a) the financial statements delivered or to be delivered by Borrower
to Bank at or prior to the date of this Agreement and at all times
subsequent thereto accurately reflect the financial condition of Borrower,
and there has been no adverse change in the financial condition, the
operations or any other status of Borrower since the date of the financial
statements delivered to Bank most recently prior to the date of this
Agreement;
(b) the office where Borrower keeps its books, records and accounts
(or copies thereof) concerning the Collateral, Borrower's principal place
of business and all of Borrower's other places of business, locations of
Collateral and post office boxes are as set forth in Exhibit C; Borrower
shall promptly (but in no event less than ten (10) days prior thereto)
advise Bank in writing of the proposed opening of any new place of
business, the closing of any existing place of business, any change in the
location of Borrower's books, records and accounts (or copies thereof) or
the opening or closing of any post office box of Borrower;
(c) the Collateral, including, without limitation, the Equipment
(except any part thereof which prior to the date of this Agreement Borrower
shall have advised Bank in writing consists of Collateral normally used in
more than one state) is and shall be kept, or, in the case of vehicles,
based, only at the addresses set forth on Exhibit C, and at other locations
within the continental United States of which Bank has been advised by
Borrower in writing;
(d) if any of the Collateral consists of Goods of a type normally
used in more than one state, whether or not actually so used, Borrower
shall immediately give written notice to Bank of any use of any such Goods
in any state other than a state in which Borrower has previously advised
Bank such Goods shall be used, and such Goods shall not, unless Bank shall
otherwise consent in writing, be used outside of the continental United
States;
(e) Borrower has not made, and shall not make, any loans or advances
to any Affiliate or other Person except for advances to employees, officers
and directors of Borrower for travel and other expenses arising in the
ordinary course of Borrower's business;
(f) each Account or item of Inventory which Borrower shall, expressly
or by implication, request Bank to classify as an Eligible Account or as
Eligible Inventory, respectively, shall, as of the time when such request
is made, conform in
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all respects to the requirements of such classification as set forth in the
respective definitions of "Eligible Account" and "Eligible Inventory" as
set forth herein and as otherwise established by Bank from time to time,
and Borrower shall promptly notify Bank in writing if any such Eligible
Account or Eligible Inventory shall subsequently become ineligible;
(g) Borrower is and shall at all times during the Original Term or
any Renewal Term be the lawful owner of all Collateral now purportedly
owned or hereafter purportedly acquired by Borrower, free from all liens,
claims, security interests and encumbrances whatsoever, whether voluntarily
or involuntarily created and whether or not perfected, other than the
Permitted Liens;
(h) Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder; Borrower's
execution, delivery and performance of this Agreement and the Other
Agreements does not and shall not conflict with the provisions of any
statute, regulation, ordinance or rule of law, or any agreement, contract
or other document which may now or hereafter be binding on Borrower, and
Borrower's execution, delivery and performance of this Agreement and the
Other Agreements shall not result in the imposition of any lien or other
encumbrance upon any of Borrower's property under any existing indenture,
mortgage, deed of trust, loan or credit agreement or other agreement or
instrument by which Borrower or any of its property may be bound or
affected;
(i) there are no actions or proceedings which are pending or
threatened against Borrower which might result in any material adverse
change in its financial condition or materially adversely affect the
Collateral and Borrower shall, promptly upon becoming aware of any such
pending or threatened action or proceeding, give written notice thereof to
Bank;
(j) Borrower has obtained all licenses, authorizations, approvals and
permits the lack of which would have a material adverse effect on the
operation of its business, and Borrower is and shall remain in compliance
in all material respects with all applicable federal, state, local and
foreign statutes, orders, regulations, rules and ordinances (including,
without limitation, statutes, orders, regulations, rules and ordinances
relating to taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee health and
safety or environmental matters) the failure to comply with which would
have a material adverse effect on its business, property, assets,
operations or condition, financial or otherwise;
(k) all written information now, heretofore or hereafter furnished by
Borrower to Bank is and shall be true and correct
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<PAGE>
as of the date with respect to which such information was or is furnished;
(l) Borrower is not conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities pursuant to or in connection with which any of the Collateral is
now, or will (while any Liabilities remain outstanding) be owned by any
Affiliate; provided, however, that Borrower may enter into transactions
with Affiliates for the purchase or sale of Inventory or services in the
ordinary course of business pursuant to terms that are no less favorable to
Borrower than the terms upon which such transfers or transactions would
have been made had they been made to or with a Person that is not an
Affiliate and, in connection therewith, may transfer cash or property to
Affiliates for fair value;
(m) Borrower's name has always been as set forth on the first page of
this Agreement and Borrower uses no trade names or division names in the
operation of its business, except as otherwise disclosed in writing to
Bank; Borrower shall notify Bank in writing within ten (10) days of the
change of its name or the use of any trade names or division names not
previously disclosed to Bank in writing;
(n) with respect to Borrower's Equipment: (i) Borrower has good and
indefeasible and merchantable title to and ownership of all Equipment; (ii)
Borrower shall keep and maintain the Equipment in good operating condition
and repair and shall make all necessary replacements thereof and renewals
thereto so that the value and operating efficiency thereof shall at all
times be preserved and maintained; (iii) Borrower shall not permit any such
items to become a fixture to real estate or an accession to other personal
property; and (iv) Borrower, immediately on demand by Bank, shall deliver
to Bank any and all evidence of ownership of, including, without
limitation, certificates of title and applications of title to, any of the
Equipment;
(o) this Agreement, the Other Agreements and all other Reorganization
Documents to which Borrower is a party are the legal, valid and binding
obligations of Borrower and are enforceable against Borrower in accordance
with their respective terms;
(p) Borrower is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business, now owns property
having a value both at fair valuation and at present fair saleable value
greater than the amount required to pay its debts, and will not be rendered
insolvent by the execution and delivery of this Agreement, the Other
Agreements or the other Reorganization Documents, or by consummation of the
Reorganization Transactions;
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(q) Borrower is not now obligated, nor shall it create, incur, assume
or become obligated (directly or indirectly), for any loans or other
indebtedness for borrowed money other than the Loans, except that Borrower
may (i) borrow money from a Person other than Bank on an unsecured and
subordinated basis if a subordination agreement in favor of Bank and in
form and substance satisfactory to Bank is executed and delivered to Bank
relative thereto; (ii) maintain any present indebtedness to any Person
which has been disclosed to Bank in writing and consented to in writing by
Bank; and (iii) incur unsecured indebtedness to trade creditors in the
ordinary course of Borrower's business; (iv) incur indebtedness secured by
Purchase Money Liens in an aggregate outstanding principal amount not
exceeding at any time $400,000; and (v) incur unsecured indebtedness
evidenced by the "Notes" (as defined in and, in each case, to the extent
issued pursuant to the terms of the Reorganization Plan);
(r) Borrower does not own any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of purchasing
or carrying any margin securities or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase any
margin securities or for any other purpose not permitted by Regulation G or
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time;
(s) except as otherwise disclosed in writing to Bank, Borrower has no
Parents, Subsidiaries or divisions, nor is Borrower engaged in any joint
venture or partnership with any other Person;
(t) if Borrower is a corporation or partnership, Borrower is duly
organized and in good standing in its state of organization and Borrower is
duly qualified and in good standing in all states where the nature and
extent of the business transacted by it or the ownership of its assets
makes such qualification necessary;
(u) Borrower is not in default under any material contract, lease or
commitment to which it is a party or by which it is bound, nor does
Borrower know of any dispute regarding any contract, lease or commitment
which is material to the continued financial success and well-being of
Borrower;
(v) there are no controversies pending or threatened between Borrower
and any of its employees, other than employee grievances arising in the
ordinary course of business which are not, in the aggregate, material to
the continued financial success and well-being of Borrower, and Borrower is
in compliance in all material respects with all federal and state laws
respecting employment and employment terms, conditions and practices; and
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(w) Borrower possesses, and shall continue to possess,adequate
licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, trade styles and trade names to
continue to conduct its business as heretofore conducted by it.
Borrower represents, warrants and covenants to Bank that all representations and
warranties of Borrower contained in this Agreement (whether appearing in
paragraphs 10 or 11 hereof or elsewhere) shall be true at the time of Borrower's
execution of this Agreement, shall survive the execution, delivery and
acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full of all of the Liabilities and termination of this Agreement, and shall be
remade by Borrower at the time each Loan is made pursuant to this Agreement.
11. ADDITIONAL COVENANTS OF BORROWER. Until payment or satisfaction in
full of all Liabilities and termination of this Agreement, unless Borrower
obtains Bank's prior written consent waiving or modifying any of Borrower's
covenants hereunder in any specific instance, Borrower agrees as follows:
(a) Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of Borrower's business activities,
in accordance with sound accounting practices and generally accepted
accounting principles consistently applied, and shall keep such books,
records and accounts, and any copies thereof, only at the addresses
indicated for such purpose on Exhibit C;
(b) Borrower agrees to deliver to Bank the following financial
information, all of which shall be prepared in accordance with generally
accepted accounting principles consistently applied: (i) no later than
thirty (30) days after each monthly fiscal period, copies of internally
prepared financial statements, including, without limitation, balance
sheets and statements of income, retained earnings and cash flow of
Borrower, certified by the Chief Financial Officer of Borrower; (ii) no
later than forty-five (45) days after the end of each of the first three
fiscal quarters of Borrower's fiscal year, Borrower's Form 10-Q as filed
with the Securities and Exchange Commission; and (iii) no later than ninety
(90) days after the end of each of Borrower's fiscal years, audited annual
financial statements with an unqualified certification by independent
certified public accountants selected by Borrower and reasonably
satisfactory to Bank, which financial statements shall be accompanied by a
letter from such accountants acknowledging that they are aware that a
primary intent of Borrower in obtaining such financial statements is to
influence Bank and that Bank is relying upon such financial statements in
connection with the exercise of its rights hereunder and copies of any
management letters sent to the Borrower by such accountants;
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(c) Borrower shall promptly advise Bank in writing of any material
adverse change in the business, assets or condition, financial or
otherwise, of Borrower, the occurrence of any Event of Default hereunder or
the occurrence of any event which, if uncured, will become an Event of
Default hereunder after notice or lapse of time (or both);
(d) Bank, or any Persons designated by it, shall have the right, at
any time, to call at Borrower's places of business at any reasonable times,
and, without hindrance or delay, to inspect the Collateral and to inspect,
audit, check and make extracts from Borrower's books, records, journals,
orders, receipts and any correspondence and other data relating to
Borrower's business, the Collateral or any transactions between the parties
hereto, and shall have the right to make such verification concerning
Borrower's business as Bank may consider reasonable under the
circumstances. Borrower shall furnish to Bank such information relevant to
Bank's rights under this Agreement as Bank shall at any time and from time
to time request. Borrower authorizes Bank to discuss the affairs, finances
and business of Borrower with any officers, employees or directors of
Borrower or with any Affiliate or the officers, employees or directors of
any Affiliate, and to discuss the financial condition of Borrower with
Borrower's independent public accountants. Any such discussions shall be
without liability to Bank or to Borrower's independent public accountants.
Borrower shall pay to Bank all customary fees and out-of-pocket expenses
incurred by Bank in the exercise of its rights hereunder, and all of such
fees and expenses shall constitute Loans hereunder, shall be payable on
demand and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder;
(e) Borrower shall:
(i) keep the Collateral properly housed and insured for the full
insurable value thereof against loss or damage by fire, theft,
explosion, sprinklers, collision (in the case of motor vehicles)
and such other risks as are customarily insured against by
Persons engaged in businesses similar to that of Borrower, with
such companies, in such amounts and under policies in such form
as shall be satisfactory to Bank. Original (or certified) copies
of such policies of insurance have been or shall be delivered to
Bank within fifteen (15) days after the date hereof, together
with evidence of payment of all premiums therefor, and shall
contain an endorsement, in form and substance acceptable to Bank,
showing loss under such insurance policies payable to Bank. Such
endorsement, or an independent instrument furnished to Bank,
shall provide that the insurance company shall give Bank at least
thirty (30) days written notice before any such policy of
insurance is altered or cancelled and
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that no act, whether willful or negligent, or default of Borrower
or any other Person shall affect the right of Bank to recover
under such policy of insurance in case of loss or damage. In
addition, Borrower shall cause to be executed and delivered to
Bank an assignment of proceeds of its business interruption
insurance policies. Borrower hereby directs all insurers under
all policies of insurance to pay all proceeds payable thereunder
directly to Bank. Borrower irrevocably, makes, constitutes and
appoints Bank (and all officers, employees or agents designated
by Bank) as Borrower's true and lawful attorney
(and agent-in-fact) for the purpose of making, settling and
adjusting claims under such policies of insurance, endorsing the
name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and making
all determinations and decisions with respect to such policies of
insurance; and
(ii) maintain, at its expense, such public liability and third party
property damage insurance as is customary for Persons engaged in
businesses similar to that of Borrower with such companies and in
such amounts, with such deductibles and under policies in such
form as shall be satisfactory to Bank and original (or certified)
copies of such policies have been or shall be delivered to Bank
within fifteen (15) days after the date hereof, together with
evidence of payment of all premiums therefor; each such policy
shall contain an endorsement showing Bank as additional insured
thereunder and providing that the insurance company shall give
Bank at least thirty (30) days written notice before any such
policy shall be altered or cancelled.
If Borrower at any time or times hereafter shall fail to obtain
or maintain any of the policies of insurance required above or to
pay any premium relating thereto, then Bank, without waiving or
releasing any obligation or default by Borrower hereunder, may
(but shall be under no obligation to) obtain and maintain such
policies of insurance and pay such premiums and take such other
actions with respect thereto as Bank deems advisable. All sums
disbursed by Bank in connection with any such actions, including,
without limitation, court costs, expenses, other charges relating
thereto and reasonable attorneys' fees, shall constitute Loans
hereunder, shall be payable on demand by Borrower to Bank and,
until paid, shall bear interest at the highest rate then
applicable to Loans hereunder;
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(f) Borrower shall not use the Collateral, or any part thereof, in
any unlawful business or for any unlawful purpose or use or maintain any of
the Collateral in any manner that does or could result in material damage
to the environment or a violation of any applicable environmental laws,
rules or regulations; shall keep the Collateral in good condition, repair
and order; shall permit Bank to examine any of the Collateral at any time
and wherever the Collateral may be located; shall not permit the
Collateral, or any part thereof, to be levied upon under execution,
attachment, distraint or other legal process; shall not sell, lease, grant
a security interest in or otherwise dispose of any of the Collateral except
as expressly permitted by this Agreement; shall not settle or adjust any
Account identified by Borrower as an Eligible Account or with respect to
which the Account Debtor is an Affiliate without the consent of Bank,
provided, that following the occurrence of an Event of Default, Borrower
shall not settle or adjust any Account without the consent of Bank; and
shall not secrete or abandon any of the Collateral, or remove or permit
removal of any of the Collateral from any of the locations listed on
Exhibit C or in any written notice to Bank pursuant to subparagraph 10(b)
hereof, except for the removal of Inventory sold in the ordinary course of
Borrower's business as permitted herein;
(g) all monies and other property obtained by Borrower from Bank
pursuant to this Agreement will be used solely for business purposes of
Borrower;
(h) Borrower shall, at the request of Bank, indicate on its records
concerning the Collateral a notation, in form satisfactory to Bank, of the
security interest of Bank hereunder;
(i) Borrower shall file all required tax returns and pay all of its
taxes when due, including, without limitation, taxes imposed by federal,
state or municipal agencies, and shall cause any liens for taxes to be
promptly released; provided, that Borrower shall have the right to contest
the payment of such taxes in good faith by appropriate proceedings so long
as (1) the amount so contested is shown on Borrower's financial statements,
(2) the contesting of any such payment does not give rise to a lien for
taxes, (3) Borrower keeps on deposit with Bank (such deposit to be held
without interest) an amount of money which, in the sole judgment of Bank,
is sufficient to pay such taxes and any interest or penalties that may
accrue thereon, and (4) if Borrower fails to prosecute such contest with
reasonable diligence, Bank may apply the money so deposited in payment of
such taxes. If Borrower fails to pay any such taxes and in the absence of
any such contest by Borrower, Bank may (but shall be under no obligation
to) advance and pay any sums required to pay any such taxes and/or to
secure the release of any lien therefor, and any sums so advanced by Bank
shall constitute Loans hereunder, shall be payable by Borrower to Bank on
demand,
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<PAGE>
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder;
(j) Borrower shall not assume, guarantee or endorse, or otherwise
become liable in connection with, the obligations of any Person, except by
endorsement of instruments for deposit or collection or similar
transactions in the ordinary course of business;
(k) Borrower shall not (1) enter into any merger or consolidation (2)
sell, lease or otherwise dispose of all or substantially all of its assets,
(3) purchase all or substantially all of the assets of any Person or
division of such Person, or (4) enter into any other transaction outside
the ordinary course of Borrower's business, including, without limitation,
any purchase, redemption or retirement of any shares of any class of its
stock, and any issuance of any shares of, or warrants or other rights to
receive or purchase any shares of, any class of its stock, provided, that
Borrower may issue shares of common stock of Borrower to Borrower's
employees to the extent required pursuant to the terms of the 1995 Stock
Option Plan of Borrower, a copy of which is attached as Exhibit D to the
Reorganization Plan;
(l) Borrower shall not declare or pay any dividend or other
distribution (whether in cash or in kind) on any class of its stock (if
Borrower is a corporation) or on account of any equity interest in Borrower
(if Borrower is a partnership or other type of entity);
(m) Borrower shall not purchase or otherwise acquire, or contract to
purchase or otherwise acquire, the obligations or stock of any Person,
other than direct obligations of the United States;
(n) Borrower shall not amend its organizational documents or change
its fiscal year or enter into a new line of business materially different
from Borrower's current business;
(o) Borrower's Tangible Net Worth shall not at any time be less than
Minimum Tangible Net Worth. "MINIMUM TANGIBLE NET WORTH" being defined for
purposes of this subparagraph as set forth on SCHEDULE 2. "TANGIBLE NET
WORTH" being defined for purposes of this subparagraph as Borrower's
shareholders' equity (including retained earnings), LESS the book value of
all intangible assets, including leasehold improvements and prepaid
expenses (in each case net of amortization and/or depreciation), as
determined solely by Bank on a consistent basis, PLUS the amount of any
LIFO reserve, PLUS the amount of any debt subordinated to Bank, all as
determined under generally accepted accounting principles applied on a
basis consistent with the unaudited financial statements of Borrower as at
September 30, 1995;
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(p) Borrower shall reimburse Bank for all costs and expenses,
including, without limitation, legal expenses and reasonable attorneys'
fees, incurred by Bank in connection with (I) documentation and
consummation of this transaction and any other transactions between
Borrower and Bank, including, without limitation, Uniform Commercial Code
and other public record searches, lien filings, Federal Express or similar
express or messenger delivery, appraisal costs, surveys, title insurance
and environmental audit or review costs, (II) collection, protection or
enforcement any rights in or to the Collateral, (III) collection of any
Liabilities and (IV) administration and enforcement of any of Bank's rights
under this Agreement. Borrower shall also pay all normal service charges
with respect to all accounts maintained by Borrower with Bank and any
additional services requested by Borrower from Bank. All such costs,
expenses and charges shall constitute Loans hereunder, shall be payable by
Borrower to Bank on demand, and, until paid, shall bear interest at the
highest rate then applicable to Loans hereunder; and
12. DEFAULT. The occurrence of any one or more of the following events
shall constitute an "EVENT OF DEFAULT" by Borrower hereunder:
(a) the failure of any Obligor to pay when due, declared due, or
demanded by Bank, any of the Liabilities;
(b) the failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor
under this Agreement or any of the Other Agreements;
(c) the failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor
under any other agreement with any Person if such failure may have a
material adverse effect on such Obligor's business, property, assets,
operations or condition, financial or otherwise;
(d) the making or furnishing by any Obligor to Bank of any
representation, warranty, certificate, schedule, report or other
communication within or in connection with this Agreement or the Other
Agreements or in connection with any other agreement between such Obligor
and Bank, which is untrue or misleading in any respect;
(e) the loss, theft, damage or destruction of, or (except as
permitted hereby) sale, lease or furnishing under a contract of service of,
any of the Collateral;
(f) the creation (whether voluntary or involuntary) of, or any
attempt to create, any lien or other encumbrance upon any of the
Collateral, other than the Permitted Liens, or the making or any attempt to
make any levy, seizure or attachment thereof;
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<PAGE>
(g) the commencement of any proceedings in bankruptcy by or against
any Obligor or for the liquidation or reorganization of any Obligor, or
alleging that such Obligor is insolvent or unable to pay its debts as they
mature, or for the readjustment or arrangement of any Obligor's debts,
whether under the United States Bankruptcy Code or under any other law,
whether state or federal, now or hereafter existing for the relief of
debtors, or the commencement of any analogous statutory or non-statutory
proceedings involving any Obligor; provided, however, that if such
commencement of proceedings against such Obligor is involuntary, such
action shall not constitute an Event of Default unless such proceedings are
not dismissed within sixty (60) days after the commencement of such
proceedings;
(h) the appointment of a receiver or trustee for any Obligor, for any
of the Collateral or for any substantial part of any Obligor's assets or
the institution of any proceedings for the dissolution, or the full or
partial liquidation, or the merger or consolidation, of any Obligor which
is a corporation or a partnership; provided, however, that if such
appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless
such appointment is not revoked or such proceedings are not dismissed
within sixty (60) days after the commencement of such proceedings;
(i) the entry of any judgment or order against any Obligor which
remains unsatisfied or undischarged and in effect for thirty (30) days
after such entry without a stay of enforcement or execution;
(j) the death of any Obligor who is a natural Person, or of any
partner of any Obligor which is a partnership, or the dissolution of any
Obligor which is a partnership or corporation;
(k) the occurrence of an event of default under, or the revocation or
termination of, any agreement, instrument or document executed and
delivered by any Person to Bank pursuant to which such Person has
guaranteed to Bank the payment of all or any of the Liabilities or has
granted Bank a security interest in or lien upon some or all of such
Person's real and/or personal property to secure the payment of all or any
of the Liabilities;
(l) the institution in any court of a criminal proceeding against any
Obligor, or the indictment of any Obligor for any crime; and
(m) Bank shall reasonably feel insecure for any material reason
whatsoever, including, without limitation, fear of removal or waste of the
Collateral, or any part thereof.
13. REMEDIES UPON AN EVENT OF DEFAULT.
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<PAGE>
(a) Upon the occurrence of an Event of Default described in subparagraph
12(g) hereof, all of Borrower's Liabilities shall immediately and automatically
become due and payable, without notice of any kind. Upon the occurrence of any
other Event of Default, all Liabilities may, at the option of Bank, and without
demand, notice or legal process of any kind, be declared, and immediately shall
become, due and payable.
(b) Upon the occurrence of an Event of Default, Bank may exercise from
time to time any rights and remedies available to it under the Uniform
Commercial Code and any other applicable law in addition to, and not in lieu of,
any rights and remedies expressly granted in this Agreement or in any of the
Other Agreements and all of Bank's rights and remedies shall be cumulative and
non-exclusive to the extent permitted by law. In particular, but not by way of
limitation of the foregoing, to the extent permitted by applicable law, Bank
may, without notice, demand or legal process of any kind, take possession of any
or all of the Collateral (in addition to Collateral of which it already has
possession), wherever it may be found, and for that purpose may pursue the same
wherever it may be found, and may enter into any of Borrower's premises where
any of the Collateral may be, and search for, take possession of, remove, keep
and store any of the Collateral until the same shall be sold or otherwise
disposed of, and Bank shall have the right to store the same at any of
Borrower's premises without cost to Bank. At Bank's request, Borrower shall, at
Borrower's expense, assemble the Collateral and make it available to Bank at one
or more places to be designated by Bank and reasonably convenient to Bank and
Borrower. Borrower recognizes that if Borrower fails to perform, observe or
discharge any of its Liabilities under this Agreement or the Other Agreements,
no remedy at law will provide adequate relief to Bank, and agrees that Bank
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages. Any notification of intended
disposition of any of the Collateral required by law will be deemed reasonably
and properly given if given at least five (5) calendar days before such
disposition. Any proceeds of any disposition by Bank of any of the Collateral
may be applied by Bank to the payment of expenses in connection with the
Collateral, including, without limitation, legal expenses and reasonable
attorneys' fees, and any balance of such proceeds may be applied by Bank toward
the payment of such of the Liabilities, and in such order of application, as
Bank may from time to time elect.
14. INDEMNIFICATION. Borrower agrees to defend (with counsel satisfactory
to Bank), protect, indemnify and hold harmless Bank, each affiliate or
subsidiary of Bank, and each of their respective officers, directors, employees,
attorneys and agents (each an "INDEMNIFIED PARTY") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature (including,
without limitation, the disbursements and the reasonable fees of counsel for
each Indemnified Party in connection with any investigative, administrative or
judicial proceeding, whether or not the Indemnified Party shall be designated a
party
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<PAGE>
thereto), which may be imposed on, incurred by, or asserted against, any
Indemnified Party (whether direct, indirect or consequential and whether based
on any federal, state or local laws or regulations, including, without
limitation, securities, environmental and commercial laws and regulations, under
common law or in equity, or based on contract or otherwise) in any manner
relating to or arising out of this Agreement or any Other Agreement, or any act,
event or transaction related or attendant thereto, the making or issuance and
the management of the Loans or any Letters of Credit or the use or intended use
of the proceeds of the Loans or any Letters of Credit; provided, however, that
Borrower shall not have any obligation hereunder to any Indemnified Party with
respect to matters caused by or resulting from the willful misconduct or gross
negligence of such Indemnified Party. To the extent that the undertaking to
indemnify set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall satisfy such undertaking
to the maximum extent permitted by applicable law. Any liability, obligation,
loss, damage, penalty, cost or expense covered by this indemnity shall be paid
to each Indemnified Party on demand, and, failing prompt payment, shall,
together with interest thereon at the highest rate then applicable to Loans
hereunder from the date incurred by each Indemnified Party until paid by
Borrower, be added to the Liabilities of Borrower and be secured by the
Collateral. The provisions of this paragraph 14 shall survive the satisfaction
and payment of the other Liabilities and the termination of this Agreement.
15. NOTICE. All written notices and other written communications with
respect to this Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy or delivered in person, and in the case of Bank shall be sent
to it at 120 South LaSalle Street, Chicago, Illinois 60603, Attention:
Asset-Based Lending Division, Telecopy No. 312/904-6450, and in the case of
Borrower shall be sent to it at 1530 Fifth Avenue, Seattle, Washington 98101,
Attention: William L. Lawrence, Jr., Telecopy No. 206/621-9830.
16. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This
Agreement and the Other Agreements are submitted by Borrower to Bank for Bank's
acceptance or rejection at Bank's principal place of business as an offer by
Borrower to borrow monies from Bank now and from time to time hereafter, and
shall not be binding upon Bank or become effective until accepted by Bank, in
writing, at said place of business. If so accepted by Bank, this Agreement and
the Other Agreements shall be deemed to have been made at said place of
business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND
CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION,
ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS,
INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER
CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED.
If any provision of this Agreement shall be held to be
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<PAGE>
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or remaining provisions of this
Agreement.
To induce Bank to accept this Agreement, Borrower irrevocably agrees that,
subject to Bank's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE
OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE. Borrower hereby irrevocably appoints and designates CT
Corporation System, with offices on the date hereof at 208 South LaSalle Street,
Chicago, Illinois 60604 (or any other person having and maintaining a place of
business in such state whom Borrower may from time to time hereafter designate
upon ten (10) days written notice to Bank and who Bank has agreed in its sole
discretion in writing is satisfactory and who has executed an agreement in form
and substance satisfactory to Bank agreeing to act as such attorney and agent),
as Borrower's true and lawful attorney and duly authorized agent for acceptance
of service of legal process. Borrower agrees that service of such process upon
such person shall constitute personal service of such process upon Borrower.
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
17. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the Other
Agreements may not be modified, altered or amended except by an agreement in
writing signed by Borrower and Bank. Borrower may not sell, assign or transfer
this Agreement or the Other Agreements or any portion thereof, including,
without limitation, Borrower's rights, titles, interest, remedies, powers or
duties hereunder and thereunder. Borrower hereby consents to Bank's sale,
assignment, transfer or other disposition, at any time and from time to time
hereafter, of this Agreement or the Other Agreements, or of any portion thereof,
or participations therein, including, without limitation, Bank's rights, titles,
interest, remedies, powers and/or duties and agrees that it shall execute and
deliver such documents as Bank may request in connection with any such sale,
assignment, transfer or other disposition.
18. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
19. POWER OF ATTORNEY. Borrower acknowledges and agrees that its
appointment of Bank as its attorney and agent-in-fact for the purposes specified
in this Agreement is an appointment coupled with an interest and shall be
irrevocable until all of the Liabilities are paid in full and this Agreement is
terminated.
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<PAGE>
20. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) BORROWER AND BANK EACH HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT,
ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED
TORTIOUS CONDUCT BY BORROWER OR BANK OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND
BANK. IN NO EVENT SHALL BANK BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
(b) Borrower hereby waives demand, presentment, protest and notice of
nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND
PRIOR TO THE EXERCISE BY BANK OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF
BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL.
(d) Bank's failure, at any time or times hereafter, to require strict
performance by Borrower of any provision of this Agreement or any of the Other
Agreements shall not waive, affect or diminish any right of Bank thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Bank of an Event of Default under this Agreement or any default under any of the
Other Agreements shall not suspend, waive or affect any other Event of Default
under this Agreement or any other default under any of the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. No delay on the part of Bank in the exercise of
any right or remedy under this Agreement or any Other Agreement shall preclude
other or further exercise thereof or the exercise of any right or remedy. None
of the undertakings, agreements, warranties, covenants and representations of
Borrower contained in this Agreement or any of the Other Agreements and no Event
of Default under this Agreement or default under any of the Other Agreements
shall be deemed to have been suspended or waived by Bank unless such suspension
or waiver is in writing, signed by a duly authorized officer of Bank and
directed to Borrower specifying such suspension or waiver.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the 4th day of December, 1995.
JAY JACOBS, INC.
By: /s/ William L. Lawrence, Jr.
-------------------------------------
Name: William L. Lawrence, Jr.
Title: Vice President
LASALLE NATIONAL BANK
By: /s/ Steven Fenton
---------------------------------------
Name: Steven T. Fenton
-------------------------------------
Title: Vice President - Asset-Based Lending
------------------------------------
<PAGE>
SCHEDULE 1
EXISTING LIENS
None, except as set forth on SCHEDULE 1(a) attached hereto and by this
reference made a part hereof.
<PAGE>
SCHEDULE 2
MINIMUM TANGIBLE NET WORTH DEFINITION
For purposes of subparagraph 11(o) of the Agreement, "MINIMUM TANGIBLE NET
WORTH" shall mean, (i) for the monthly fiscal period of January, 1996, $916,000
and (ii) for each monthly fiscal period of Borrower identified on SCHEDULE 2(a)
attached hereto and by this reference made a part hereof, the amount identified
below such monthly fiscal period on the "MINIMUM TANGIBLE NET WORTH COVEN" line
set forth on SCHEDULE 2(a); PROVIDED, HOWEVER, that within ninety days of
January 27, 1996:
(1) the "PROJ STOCKHOLDERS EQUITY" line set forth on SCHEDULE 2(a) shall
be adjusted to reflect the actual amount of Borrower's stockholders
equity as at January 27, 1996, which adjustment shall roll forward to
future periods; and
(2) the "PROFIT CREDIT (50%)" line set forth on SCHEDULE 2(a) shall be
adjusted (i) to zero, if the actual profit of Borrower for the fiscal
quarter of Borrower ending as at January 27, 1996, is equal to or less
than zero, or (ii) to reflect 50% of the actual profit of Borrower (if
positive) for such fiscal quarter, which adjustment shall roll forward
to future periods;
and, PROVIDED, FURTHER, that Borrower's failure to maintain a Tangible Net Worth
at any time during the monthly fiscal periods of January, February and March,
1996, respectively, which is at least equal to the applicable Minimum Tangible
Net Worth for each of such monthly fiscal periods, shall not constitute an Event
of Default if:
(1) Borrower's pre-tax profit before reorganization adjustments is no less
than $200,000 for the fiscal quarter of Borrower ending as at January
27, 1996; and
(2) in each of February and March 1996, Borrower incurs no more than 120%
of projected losses (as per Borrower's projections dated October 12,
1995) for such month, on a cumulative basis.
All amounts set forth on SCHEDULE 2(a) (other than amounts set forth on the
"MINIMUM TANGIBLE NET WORTH COVEN" line) are included for the purpose of setting
forth the method of calculating Minimum Tangible Net Worth and do not themselves
constitute covenants.
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 1
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
CREDIT TERMS
(1) LOAN LIMIT: Subject to the terms and conditions of this Agreement
(including Exhibit A) and the Other Agreements, during the Original Term or any
Renewal Term, Bank shall, absent the occurrence of an Event of Default, advance
an amount up to the sum of the following sublimits (the "LOAN LIMIT"):
(a) Up to fifty percent (50%) or such lesser sum as determined by Bank in
its sole discretion, on a basis consistent with the credit procedures
of its Asset-Based Lending Division, of the lower of the cost or
market value of Borrower's Eligible Inventory; PLUS
(b) Subject to paragraph (2) of this Exhibit A, up to fifty percent (50%)
or such lesser sum as determined by Bank in its sole discretion, on a
basis consistent with the credit procedures of its Asset-Based Lending
Division, against the face amount of Commercial Letters of Credit
issued by Bank for the purpose of purchasing Inventory, provided that
such Commercial Letters of Credit are in form and substance
satisfactory to Bank; MINUS
(c) Such reserves as Bank elects, in its sole discretion, on a basis
consistent with the credit procedures of its Asset-Based Lending
Division, to establish from time to time, including, in any event,
reserves in the aggregate then outstanding amount of all indebtedness,
liabilities and other obligations (i) described in CLAUSE (iv) of
subparagraph 10(q) of the Agreement and (ii) secured by liens
described in CLAUSES (vii) and (viii) of the definition of "PERMITTED
LIENS" set forth in the Agreement;
provided, that the aggregate Loan Limit shall in no event exceed TEN MILLION
NO/100 DOLLARS ($10,000,000.00), except as such amount may be increased or,
following the occurrence of an Event of Default, decreased by Bank, in its sole
discretion, from time to time.
(2) LETTERS OF CREDIT: Subject to the terms and conditions of this
Agreement (including Exhibit A) and the Other Agreements,
Borrower: Jay Jacobs, Inc.
Initialed for Borrower by: W.L.L.,Jr.
Date: December 4, 1995 Initialed for Bank by:____
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 2
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
during the Original Term or any Renewal Term, Bank shall, absent the occurrence
of an Event of Default, from time to time issue, upon Borrower's request,
Commercial and/or Standby Letters of Credit, provided that the aggregate undrawn
face amount of all such Letters of Credit shall at no time exceed FIVE MILLION
AND NO/100 DOLLARS ($5,000,000.00). Bank's contingent liability under the
Letters of Credit shall automatically reduce, dollar for dollar, the amount
which Borrower may borrow based upon the Loan Limit. Payments made by Bank to
any Person on account of any Letter of Credit shall constitute Loans hereunder.
At no time shall the aggregate of direct Loans by Bank to Borrower plus the
contingent liability of Bank under the outstanding Letters of Credit be in
excess of the Loan Limit. Borrower shall remit to Bank a Letter of Credit fee
equal to one and one-quarter percent (1.25%) per annum on the aggregate undrawn
face amount of all Letters of Credit outstanding, which fee shall be payable
monthly in arrears on each day that interest is payable hereunder. Borrower
shall also pay on demand Bank's normal and customary administrative charges for
issuance of any Letter of Credit.
(3) INTEREST RATE: Each Loan shall bear interest at a per annum rate
equal to the Bank's publicly announced prime rate (which is not intended to be
Bank's lowest or most favorable rate in effect at any time) (the "PRIME RATE")
in effect from time to time, payable on the last business day of each month in
arrears. Said rate of interest shall increase or decrease by an amount equal to
each increase or decrease in the Prime Rate effective on the effective date of
each such change in the Prime Rate. Upon the occurrence of an Event of Default,
each Loan shall bear interest at the rate of two percent (2%) per annum in
excess of the interest rate otherwise payable thereon, which interest shall be
payable on demand. All interest shall be calculated on the basis of a 360-day
year.
(4) FACILITIES FEE: Borrower shall pay to Bank an annual facilities fee
equal to one percent (1%) of the maximum line of credit in effect hereunder,
which fee shall be fully earned by Bank and payable on the date that Bank makes
its initial disbursement under this Agreement and on each anniversary of the
date of this Agreement during the Original Term and any Renewal Term.
ADDITIONS AND CHANGES TO COVENANTS
Borrower: Jay Jacobs, Inc.
Initialed for Borrower by: W.L.L., Jr.
Date: December 4, 1995 Initialed for Bank by:____
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 3
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
(5) CHECKING ACCOUNT PROVISIONS: Borrower shall maintain its general
checking account and the Cash Concentration Account with Bank. Normal charges
shall be assessed thereon. Although no compensating balance is required,
Borrower may keep monthly balances in order to merit earnings credits which will
cover Bank's service charges for demand deposit account activities.
(6) APPLICATION OF COLLECTIONS AT DIRECTION OF BORROWER: Notwithstanding
the provisions of subparagraphs 7(a) and (c) of the Agreement, on any date on
which cash or other immediately available funds are deposited into the
Collection Account or otherwise received by Bank in Chicago, Illinois, Bank
shall apply such deposits on such date as directed by Borrower if (i) no
Liabilities (other than contingent liabilities) are outstanding, and no Event of
Default then exists or (ii) whether or not an Event of Default exists, no
Liabilities are outstanding.
(7) SCHEDULE OF ELIGIBLE ACCOUNTS: Notwithstanding the provisions of
clause (i) of subparagraph 8(a) of the Agreement, Borrower shall not be required
to deliver to Bank any schedule identifying Eligible Accounts until Borrower is
requested to do so by Bank.
(8) CAP ON CERTAIN AUDIT AND INVENTORY EXAM COSTS: Notwithstanding the
provisions of subparagraph 11(d) of the Agreement, Borrower shall pay the normal
audit fees and out-of-pocket expenses related to the initial audit, including,
but not limited to, air fare, lodging, and meals, to Bank to cover Bank's
initial examinations of the Collateral, as well as Borrower's books and records.
Thereafter, with respect to Bank's internal auditors, Borrower shall pay the
normal audit fees to Bank, but such audit fees shall not, absent the occurrence
of an Event of Default, exceed $10,000.00 in any calendar year of the Original
Term or any Renewal Term plus out-of-pocket expenses related to any such audit,
including, but not limited to, air fare, lodging and meals.
If Bank, in its sole discretion, elects to use outside auditors, then
Borrower shall pay the normal audit fees and out-of-pocket expenses related to
any such audit, including, but not limited to, air fare, lodging, and meals, to
Bank to cover Bank's periodic examinations of the Collateral, as well as
Borrower's books and records.
Borrower: Jay Jacobs, Inc.
Initialed for Borrower by: W.L.L., Jr.
Date: December 4, 1995 Initialed for Bank by:____
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 4
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
(9) TAX DEPOSITS. Notwithstanding the provisions of subparagraph 11(i)(3)
of the Agreement, Borrower may contest the payment of taxes in an aggregate
amount not exceeding at any time $100,000, without keeping on deposit with Bank
an amount sufficient to pay such taxes and any interest or penalties that may
accrue thereon, so long as Borrower shall have established reserves with respect
thereto, to the extent required by generally accepted accounting principles
consistently applied.
(10) INSURANCE REQUIREMENTS: Notwithstanding the provisions of
subparagraph 11(e) of the Agreement, Bank hereby acknowledges that (i) Bank has
received certified copies of each of the insurance policies set forth on Exhibit
B and that the form of each of such policies is satisfactory to Bank; (ii) the
respective amounts and types of insurance set forth on Exhibit B are
satisfactory to Bank on the date hereof, including, to the extent set forth on
Exhibit B, any self-insured portion or portions thereof; and (iii) each of the
insurance companies set forth on Exhibit B is satisfactory to Bank on the date
hereof.
(11) PERMITTED INVESTMENTS: Notwithstanding the provisions of subparagraph
11(m) of the Agreement, Borrower may invest in (i) commercial paper of a
domestic issuer rated at least "A-1" by Standard & Poor or "P-1" by Moody's,
provided that such commercial paper is purchased for the account of Borrower by
LaSalle Capital Markets or LaSalle National Trust N.A.; and (ii) certificates of
deposit of one (1) year or less issued by Bank.
(12) PERMITTED AMENDMENTS TO ORGANIZATIONAL DOCUMENTS: Notwithstanding the
provisions of subparagraph 11(n) of the Agreement, Borrower may amend its
organizational documents to effect changes which could not reasonably be
expected to have an adverse effect on Bank, including, without limitation, the
perfection and priority of any of its liens on or security interests in all or
any part of the Collateral.
ADDITIONS AND CHANGES TO DEFAULTS:
(13) NO DEFAULT FOR CERTAIN LOSSES: Notwithstanding the provisions of
subparagraph 12(e) of the Agreement, loss, theft, damage or destruction (a
"LOSS") of any of the Collateral shall not
Borrower: Jay Jacobs, Inc.
Initialed for Borrower by: W.L.L., Jr.
Date: December 4, 1995 Initialed for Bank by:____
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 5
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
constitute an Event of Default hereunder:
(i) in the case of any Loss involving Collateral which is insured by a
third party insurer, to the extent such insured Loss, together with all
other such insured Losses occurring in the same fiscal year of Borrower,
involves Collateral with an aggregate value of less than Two Hundred Fifty
Thousand and No/100 Dollars ($250,000.00); provided, that with, respect to
each such insured Loss, coverage is not denied or excluded by the insurer
and Bank is in receipt of all insurance proceeds relative thereto within
one hundred eighty (180) days of the occurrence of such Loss and; provided,
further, that five (5) business days shall have elapsed from the date on
which, absent the terms of this proviso, an Event of Default would
otherwise have occurred by reason of this clause (i); or
(ii) in the case of any Loss involving Collateral which is not insured
by a third party insurer (including any Collateral which is self-insured)
or for which coverage is denied or excluded by the insurer or for which
Bank does not receive the proceeds within one hundred eighty (180) days of
the occurrence of such uninsured Loss, to the extent such uninsured Loss,
together with all other such uninsured Losses occurring in the same fiscal
year of Borrower, involves Collateral with an aggregate value of less than
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00).
With respect to determining the value of Collateral involved in any Loss, such
valuation shall be determined by Bank in its sole discretion on a basis
consistent with the credit procedures of its Asset-Based Lending Division.
(14) ADDITIONAL EVENTS OF DEFAULT: In addition to the Events of Default
specified in Paragraph 12 of the Agreement, the occurrence of any one or more of
the following events shall constitute an Event of Default hereunder:
(a) the failure of Borrower to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of Borrower
under the Reorganization Plan or any "Note" (as defined in the
Reorganization Plan); or
Borrower: Jay Jacobs, Inc.
Initialed for Borrower by: W.L.L., Jr.
Date: December 4, 1995 Initialed for Bank by:____
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 6
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
(b) the occurrence of an Event of Default under and as defined in the
Reorganization Plan.
MISCELLANEOUS
(15) GOOD FAITH DEPOSIT: Borrower has previously remitted to Bank
$50,000.00 as a good faith deposit. Such good faith deposit, less (i) Bank's
charges and expenses for its initial examination of the Collateral, as well as
Borrower's books and records and (ii) all other out-of-pocket expenses,
including, but not limited to, Uniform Commercial Code Searches, appraisals,
reasonable legal fees of outside counsel, and Federal Express charges, is
refundable at the time Bank makes the initial Loan. However if Borrower fails
to consummate the financing transaction contemplated hereby, then Borrower shall
forfeit to Bank the entire good faith deposit and reimburse Bank for all
out-of-pocket expenses.
CONDITIONS TO CLOSING
(16) Bank shall be under no obligation to consummate the transactions
contemplated by this Agreement until each of the conditions listed in this
Paragraph (16) has been satisfied. Whenever a condition contained herein
requires delivery of an agreement or other document to Bank, each such agreement
or other document shall be in form and substance satisfactory to Bank in its
sole discretion.
(a) GUARANTIES: Borrower shall cause to be executed in favor of Bank and
delivered to Bank the Continuing Unconditional Guaranty of its
wholly-owned subsidiary, J.J. Distribution Company, of any and all
indebtedness of Borrower to Bank. The Guarantor shall grant to Bank a
first perfected security interest in and to all of the Guarantor's
assets (including real property) and shall execute and deliver to Bank
such documentation as Bank, in its sole discretion, deems necessary,
including, without limitation a mortgage and security or similar
instrument, evidencing such grant.
(b) CONFIRMATION ORDER AND FINANCING ORDER: The Confirmation Order and
Financing Order shall each be in form and
Borrower: Jay Jacobs, Inc.
Initialed for Borrower by: W.L.L., Jr.
Date: December 4, 1995 Initialed for Bank by:____
<PAGE>
EXHIBIT A-SPECIAL PROVISIONS - PAGE 7
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
substance satisfactory to Bank and shall have been entered and shall
have become final and effective and shall not be subject to appeal,
review or reconsideration or stayed pursuant to an order of any
governmental authority, including, without limitation, the Bankruptcy
Court.
(C) REORGANIZATION DOCUMENTS: The respective terms and provisions of each
of the other Reorganization Documents, shall in each case be in form
and substance reasonably satisfactory to Bank.
(D) REORGANIZATION PLAN: Bank shall have received evidence reasonably
satisfactory to Bank that Borrower and all other Persons shall have
performed or caused to be performed (or concurrently with the
execution and delivery hereof shall perform or cause to be performed)
all obligations required pursuant to the Reorganization Plan to be
performed by Borrower or such other Persons on or before the
"Effective Date" (as such term is defined in the Reorganization Plan),
including, without limitation, the making by Borrower of all payments
required to be made by Borrower pursuant to the Reorganization Plan.
(E) SERVICE OF PROCESS: Borrower shall execute and deliver and shall
cause Guarantor to execute and deliver to Bank an agreement in form
and substance satisfactory to Bank wherein CT Corporation System, with
offices on the date hereof at 208 South LaSalle Street, Chicago,
Illinois 60604, shall agree to accept service of process on behalf of
each of such Persons.
(F) ATTORNEY'S OPINION LETTER: Borrower shall cause to be executed and
delivered to Bank an Attorney's Opinion Letter.
Borrower: Jay Jacobs, Inc.
Initialed for Borrower by: W.L.L., Jr.
Date: December 4, 1995 Initialed for Bank by:____
<PAGE>
EXHIBIT B
DEPOSITARY BANKS
None, except as set forth on EXHIBIT B(1) attached hereto and by this
reference made a part hereof.
<PAGE>
EXHIBIT C
BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and Security Agreement of even
date herewith between JAY JACOBS, INC., a Washington corporation ("BORROWER")
and LASALLE NATIONAL BANK ("BANK").
A. Borrower's Business Locations (please indicate which location is the
principal place of business and at which locations originals and all copies
of Borrower's books, records and accounts are kept). :
(1) BORROWER'S PRINCIPAL PLACE OF BUSINESS AND THE SOLE LOCATION OF
ORIGINALS AND ALL COPIES OF BORROWER'S BOOKS, RECORDS AND
ACCOUNTS:
1530 Fifth Avenue
Seattle, Washington 98101
(2) OTHER BUSINESS LOCATIONS:
Anchorage Shopping Center
600 E. Northern Lights Blvd.
Anchorage, AK 99503
Bentley Mall - Space 8/9
32 College Road
Fairbanks, AK 99701
Peninsula Mall
44332 Sterling Highway, #42
Soldotna, AK 99669
University Center, #3
3901 Old Seward Highway
Anchorage, AK 99503
Northway Mall
3101 Penland Parkway
Anchorage, AK 99508
Dimond Center, #210
800 E. Dimond Blvd.
Anchorage, AK 99515
Nugget Mall, #245
8745 Glacier Highway
Juneau, AK 99803
Cottonwood Creek Mall, D-06
1800 Parks Highway
Wasilla, AK 99687
Anchorage Mall
600 E. Northern Lights Blvd.
Anchorage, AK 99503
Dimond Center, #3140
800 E. Dimond Center Blvd.
Anchorage, AK 99515
Plaza Port West, UL9
2417 Tongass Street
Ketchikan, AK 99901
Anchorage Fifth Avenue, #254
320 West Fifth Avenue
Anchorage, AK 99501
Anchorage Fifth Avenue, #208
320 West Fifth Avenue
Anchorage, AK 99501
Dimond Center, #213
800 E. Dimond Center Blvd.
Anchorage, AK 99515
Valley River Center
12001 Business Boulevard
Eagle River, AK 99577
Plaza Port West, LL119A
2417 Tongass Street
Ketchikan, AK 99901
<PAGE>
Bentley Mall, Sp 12
32 College Road
Fairbanks, AK 99701
Anchorage Mall, #260
320 W. Fifth Avenue
Anchorage, AK 99501
Santa Rosa Plaza, #B-165
Santa Rosa, CA 95401
Serramonte Center, Sp D-340
Daly City, CA 94015
Bay Fair Mall
116 Bayfair Drive
San Leandro, CA 94578
Manhattan Village, C14
3200 Sepulveda Blvd.
Manhattan Beach, CA 90266
Valley Fair
2855 Stevens Creek Blvd., #245
Santa Clara, CA 95050
The Mall of Victor Valley, #837
14400 Bear Valley Road
Victorville, CA 92392
The Esplanade
185 Esplanade Drive
Oxnard, CA 93030
The Mall of Victor Valley, #613
144400 Bear Valley Road
Victorville, CA 92392
The Esplanade
267 Esplanade Drive
Oxnard, CA 93030
Fresno Fashion Fair
709 East Shaw
Fresno, CA 93710
5921 Sunrise Mall
Citrus Heights, CA 95610
Chico Mall, D-409
1950 E. 20th Street
Chico, CA 95928
Chico Mall, D-407
1950 E. 20th Street
Chicago, CA 95928
Capitola Mall, Space H-4
1855 41st Avenue
Capitola, CA 95010
Sherwood Mall, #19
5308 Pacific Avenue
Stockton, CA 95207
2055 Brea Mall
Brea, CA 92621
1689 Arden Fair Mall, #2116
Sacramento, CA 95815
Oakridge Mall
190 Oakridge Mall
San Jose, CA 95123
Vallco Fashion Park, #2112
10123 N. Wolfe Road
Cupertino, CA 95014
Vallco Fashion Park, #2027
10123 N. Wolfe Road
Cupertino, CA 95014
Westminster Mall, #115
5491 W. 88th Street
Westminster, CO 80030
Crossroads Mall
1700 28th Street, #315
Boulder, CO 80301
The Citadel, #1132
750 Citadel Drive East
CO Springs, CO 80909
Fairfield Commons
Lakewood, CO
Foothills Fashion Mall, #169
215 E. Foothills Parkway
Fort Collins, CO 80525
Westland Towne Center
Lakewood, CO
Santa Rosa Mall
300 Mary Esther Cutoff
Mary Esther, FL 32569
<PAGE>
Cordova Mall
5100 N. Ninth Avenue
Pensacola, FL 32504
Miami International
1455 N.W. 107th Ave., #350
Miami, FL 33172
Florida Mall
8001 S. Orange Blossom, #624
Miami, FL 32809
Sarasota Square Mall
8201 S. Tamiami Trail
Sarasota, FL 34238
Tyrone Square
6901 22nd Avenue North
St. Petersburg, FL 33710
University Square Mall
2255 E. Fowler Avenue
Tampa, FL 33612-5508
Lenox Square, B34
3393 Peachtree Road N.E.
Atlanta, GA 30326
Northlake Mall, #2044
1501 Northlake Mall
Atlanta, GA 30345
Southlake Mall, #213
1217 Southlake Mall Drive, #1218
Morrow, GA 30260
Gwinnett Place, #226
2100 Pleasant Hill Road
Duluth, GA 30136
Gwinnett Marketfair
Duluth, GA
Pearl Ridge Shopping Center
213 Pearl Ridge Shopping Center
Aiea, Oahu, HI 96701
Ala Moana Shopping Center, #2015
1450 Ala Moana Blvd.
Honolulu, HI 96814
520 Prince Kuhio Plaza
111 East Puainako
Hilo, HI 96720
Pearl Ridge Shopping Center
Phase II, #24-06
Aiea, Oahu, HI 96701
Kukui Grove Center, #2032
3-2600 Kaumualii Highway
Lihue, HI 96766
Grand Teton Mall
2300 East 17th Street
ID Falls, ID 83401
Palouse Empire Mall
2108 Pullman Road
Moscow, ID 83843
Towne Square Mall
504 Main Street
Lewiston, ID 83501-1869
Boise Towne Square, #1101
350 N. Milwaukee
Boise, ID 83788
Silver Lake Mall, D-409
200 W. Hanley Avenue
Coeur D'Alene, ID 83814
Lincolnwood Towne Center, D8
3333 W. Touhy
Lincolnwood, IL 60645
Lincolnwood Towne Center, H9
3333 W. Touhy Avenue
Lincolnwood, IL 60645
The Grove
1310-B West 75th Street
Downers Grove, IL 60516
Charlestowne Mall
3800 East Main Street
St. Charles, IL 60174
Rimrock Mall
300 South 24th West
Billings, MT 59102
Holiday Village Mall
1200 10th Avenue South
Great Falls, MT 59405
Kalispell Center Mall
1203 Hwy 2 West, #21
Kalispell, MT 59901
<PAGE>
Kalispell Center Mall
North 20 Main
Kalispell, MT 59901
Main Mall
2825 West Main
Bozeman, MT 59715
Butte Plaza
3100 Harrison Avenue
Butte, MT 59701
Capital Hill Mall, #240
1600 11th Avenue
Helena, MT 59601
The Meadows Mall, No. 1181
4300 Meadows Lane
Las Vegas, NV 89107
The Meadows Mall, No. 240
4300 Meadows Lane
Las Vegas, NV 89107
Park Lane Mall
144 East Plumb Lane
Reno, NV 89502
Winrock Center
147 Winrock Center
Albuquerque, NM 87110
Mesilla Valley Mall, #1174
700 S. Tellshore
Las Cruces, NM 88001
1144 Villa Linda Mall
Santa Fe, NM 87505
Dakota Square, #600
2400 10th Street S.W.
Minot, ND 58701
Columbia Mall, #42
2800 S. Columbia Road, #314
Grand Forks, ND 58201
Chapel Hill Mall, #950
2000 Brittain Road
Akron, OH 44310
Rolling Acres Mall
2400 Romig Road
Akron, OH 44322
Salem Centre
480 Center Street N.E.
Salem, OR 97301
Bend River Mall
3164 North Highway 97
Bend, OR 97701
Pony Village Shopping Center
1601 Virginia Avenue
North Bend, OR 97459
Clackamas Town Center
12000 S.E. 82nd Avenue
Suite 2193 (Space E-9)
Portland, OR 97266
Galleria
921 S.W. Morrison Street
Portland, OR 97205
Beaverton Town Square
11765 S.W. Beaverton-H Highway
Beaverton, OR 97005
480 Valley River Center
Eugene, OR 97401
Rogue Valley Mall
1600 North Riverside
Medford, OR 97501
Gresham Village
2424-26 East Burnside Drive
Gresham, OR 97080
Heritage Mall
2137 14th Avenue S.E.
Albany, OR 97321
968 Lloyd Center
Portland, OR 97232
Beaverton Mall, #8
3275 S.W. Cedar Hills Blvd.
Beaverton, OR 97005
Rogue Valley Mall #2099
1600 North Riverside
Medford, OR 97501
Roseburg Valley Mall #420
1444 N.W. Garden Valley Blvd.
Roseburg, OR 97470
<PAGE>
West Park Plaza
1431 S.W. Fourth Avenue
Ontario, OR 97914
2146 Town East Mall
Mesquite, TX 75150
Mall of Abilene, Space #1262
4310 Buffalo Gap Road
Abilene, TX 79606
Golden Triangle Mall
2201 Interstate 35 East
Denton, TX 76205
Cielo Vista Mall
8401 Gateway Boulevard West
El Paso, TX 79925
59 Central Mall
Port Arthur, TX 77642
Rivercenter Mall
849 E. Commerce Street
San Antonio, TX 78205
Midway Mall
4800 N. Texoma Parkway
Sherman, TX 75090
1182 Sunset Mall
San Angelo, TX 76904
West Oaks Mall, #340
1000 West Oaks Mall
Houston, TX 77082
50 South Main, #2A15
Salt Lake City, UT 84144
731 Northgate Mall
Seattle, WA 98125
707 Southcenter Mall
Tukwila, WA 98188
163 Bellevue Square
Bellevue, WA 980004
190 Bellevue Square
Bellevue, WA 98004
2028 Yakima Mall
Yakima, WA 98901
1927 South Sea-Tac Mall
Federal Way, WA 98003
Tacoma Mall
4502 S. Steele, #1139
Tacoma, WA 98409
Cascade Mall - Space A9
740 Cascade Mall Drive
Burlington, WA 98233
Northtown Mall
4750 N. Division, #186
Spokane, WA 99207
101 Elliott Avenue W., #330
Seattle, WA 98119
2814 Colby
Everett, WA 98201
Wenatchee Valley Mall
511 Valley Mall Parkway
E. Wenatchee, WA 98802
Lewis County Mall
151 N.E. Hampe Way
Chehalis, WA 98532
Everett Mall
1402 S.E. Everett Mall
Everett, WA 98208
134 Capital Mall
Olympia, WA 98502
Alderwood Mall
3000 184th Street S.W., #127
Lynnwood, WA 98037
12613 Totem Lake Blvd.
Kirkland, WA 98034
Southshore Mall
1017 Boone
Aberdeen, WA 98520
226 Columbia Center
Kennewick, WA 99336
1075 Yakima Mall
Yakima, WA 98901
Budget Store
1530 Fifth Avenue
Seattle, WA 98101
<PAGE>
349 University City
Spokane, WA 99206
Distribution Center
Building G
Northwest Corporate Park
19821 89th Avenue South
Kent, WA 98108
River Park Square
West 714 Main Avenue
Spokane, WA 99201
Kitsap Mall
10315 Silverdale Way N.W.
Silverdale, WA 98383
Three Rivers Mall
351 Three Rivers Drive
Kelso, WA 98626
Factoria Square
4065 128th Avenue S.E.
Bellevue, WA 98006
Bellis Fair, #350
1 Bellis Fair Parkway
Bellingham, WA 98226
South Hill Mall, #320
3500 S. Meridian
Puyallup, WA 98373
Blue Mountain Mall, #517
1631 W. Rose Street
Walla Walla, WA 99362
South Hill Mall, #330
3500 S. Meridian Avenue
Puyallup, WA 98373
Vancouver Mall, #131
5001 N.E. Thurston Way
Vancouver, WA 98662
O'Shea Building
(Stores #1 and #66)
Seattle, WA 98104
Southridge Mall
5300 South 76th Street
Greendale, WI 53129
207 West Towne Mall
Madison, WI 53719
161 East Towne Mall
Madison, WI 53704
CenterPoint Mall, #D-30
1201 Third Court
Stevens Point, WI 54481
Eastridge Mall
601 Wyoming Boulevard S.E.
Casper, WY 82609
Frontier Mall, #44
1400 Del Range Blvd.
Cheyenne, WY 82009
B. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of Borrower. Please indicate the relationship of such location to
Borrower (i.e. public warehouse, processor, etc.):
19817 89th Avenue South
Kent, Washington 98108
(Warehouse)
<PAGE>
LIST OF OMITTED SCHEDULES AND UNDERTAKING
Schedule 1(a), setting forth secured tax claims against the Registrant, and
Exhibit B(1), identifying by bank name and account number the Registrant's
depositary banks under the Agreement, have been omitted from this exhibit to the
Registrant's Form 10-K report in reliance on Item 601(b)(2) of Regulation S-K
under the Securities Act of 1933, as amended. By filing this exhibit to its
Form 10-K report, the Registrant agrees to furnish supplementally a copy of the
Schedule 1(a) and Exhibit B(1) to the Agreement to the Securities and Exchange
Commission upon request.
<PAGE>
NOTE
EXECUTED AS OF THE 4TH DAY OF NO.___________
DECEMBER, 1995 AT CHICAGO, ILLINOIS.
AMOUNT: $10,000,000
FOR VALUE RECEIVED, the Undersigned promises to pay to the order of LASALLE
NATIONAL BANK (hereinafter, together with any holder hereof, called "BANK"), at
the main office of the Bank, the principal sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00) plus the aggregate unpaid principal amount of all advances made
by Bank to the Undersigned pursuant to and in accordance with Paragraph 2 of the
Loan Agreement (as hereinafter defined) in excess of such amount, or, if less,
the aggregate unpaid principal amount of all advances made by Bank to the
Undersigned pursuant to and in accordance with Paragraph 2 of the Loan
Agreement. The Undersigned further promises to pay interest on the outstanding
principal amount hereof on the dates and at the rates provided in the Loan
Agreement from the date hereof until payment in full hereof.
This Note is referred to in and was delivered pursuant to that certain Loan
and Security Agreement, as it may be amended from time to time, together with
all exhibits thereto, dated as of December 4, 1995, between Bank and the
Undersigned (the "LOAN AGREEMENT"). All terms which are capitalized and used
herein (which are not otherwise defined herein) shall have the meaning ascribed
to such term in the Loan Agreement.
The outstanding principal balance of the Undersigned's liabilities to Bank
under this Note shall be payable pursuant to the terms of the Loan Agreement.
The Undersigned hereby authorizes the Bank to charge any account of the
Undersigned for all sums due and payable hereunder. If payment hereunder
becomes due and payable on a Saturday, Sunday or legal holiday under the laws of
the United States or the State of Illinois, the due date thereof shall be
extended to the next succeeding business day, and interest shall be payable
thereon at the rate specified during such extension. Credit shall be given for
payments made in the manner and at the times provided in the Loan Agreement. It
is the intent of the parties that the rate of interest and other charges to the
Undersigned under this Demand Note shall be lawful; therefore, if for any reason
the interest or other charges payable hereunder are found by a court of
competent jurisdiction, in a final determination, to exceed the limit which Bank
may lawfully charge the Undersigned, then the obligation to pay interest or
other charges shall automatically be reduced to such limit and, if any amount in
excess of such limit shall have been paid, then such amount shall be refunded to
the Undersigned.
<PAGE>
The principal and all accrued interest hereunder may be prepaid by the
Undersigned, in part or in full, at any time; provided, however, that if the
Undersigned prepays all of the Liabilities prior to the end of the Original Term
or any Renewal Term, the Undersigned shall pay a prepayment fee as provided in
the Loan Agreement.
The Undersigned waives the benefit of any law that would otherwise restrict
or limit Bank in the exercise of its right, which is hereby acknowledged, to
set-off against the Liabilities, without notice and at any time hereafter, any
indebtedness matured or unmatured owing from Bank to the Undersigned. The
Undersigned waives every defense, counterclaim or setoff which the Undersigned
may now have or hereafter may have to any action by Bank in enforcing this Note
and/or any of the other Liabilities, or in enforcing Bank's rights in the
Collateral and ratifies and confirms whatever Bank may do pursuant to the terms
hereof and of the Loan Agreement and with respect to the Collateral and agrees
that Bank shall not be liable for any error in judgment or mistakes of fact or
law.
The Undersigned, any other party liable with respect to the Liabilities and
any and all endorsers and accommodation parties, and each one of them, if more
than one, waive any and all presentment, demand, notice of dishonor, protest,
and all other notices and demands in connection with the enforcement of Bank's
rights hereunder.
The loan evidenced hereby has been made and this Note has been delivered at
Chicago, Illinois. THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL
LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT, VALIDITY,
CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION,
THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon
the Undersigned and the Undersigned's successors and assigns. If this Note
contains any blanks when executed by the Undersigned, the Bank is hereby
authorized, without notice to the Undersigned, to complete any such blanks
according to the terms upon which the loan or loans were granted. Wherever
possible, each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or be invalid under such law, such provision shall be
severable, and be ineffective to the extent of such prohibition or invalidity,
without invalidating the remaining provisions of this Note.
To induce Bank to make the loan evidenced by this Note, the Undersigned
irrevocably agrees that, subject to Bank's sole and absolute election, ALL
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR
RELATED TO THIS NOTE, THE LOAN AGREEMENT OR ANY OTHER AGREEMENTS OR THE
COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO,
STATE OF ILLINOIS. THE UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND
STATE. The Undersigned hereby irrevocably appoints
-2-
<PAGE>
and designates CT Corporation System, with offices on the date hereof at 208
South LaSalle Street, Chicago, Illinois 60604 (or any other person having and
maintaining a place of business in such state whom the Undersigned may from time
to time hereafter designate upon ten (10) days written notice to Bank and who
Bank has agreed in its sole discretion in writing is satisfactory and who has
executed an agreement in form and substance satisfactory to Bank agreeing to act
as such attorney and agent), as the Undersigned's true and lawful attorney and
duly authorized agent for acceptance of service of legal process. The
Undersigned agrees that service of such process upon such person shall
constitute personal service of such process upon the Undersigned. THE
UNDERSIGNED HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE
OF ANY LITIGATION BROUGHT AGAINST THE UNDERSIGNED BY BANK IN ACCORDANCE WITH
THIS PARAGRAPH.
As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require such
construction.
[SIGNATURE PAGE FOLLOWS]
-3-
<PAGE>
IN WITNESS WHEREOF, the Undersigned has executed this Note as of the date
above set forth.
JAY JACOBS, INC., a Washington corporation
By: /s/ WILLIAM L. LAWRENCE, JR.
_________________________________
Name: William L. Lawrence, Jr.
Title: Vice President
Address: 1530 Fifth Avenue
Seattle, WA 98101
==============================================================================
FOR BANK USE ONLY
Officer's Initials: __________
Approval: __________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial data extracted from the Registrant's
audited consolidated financial statements as of and for the fiscal year ended
January 27, 1996, and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JAN-27-1996
<CASH> 705
<SECURITIES> 0
<RECEIVABLES> 442
<ALLOWANCES> 0
<INVENTORY> 7323
<CURRENT-ASSETS> 8689
<PP&E> 26411
<DEPRECIATION> 20853
<TOTAL-ASSETS> 14247
<CURRENT-LIABILITIES> 5668
<BONDS> 0
0
0
<COMMON> 12920
<OTHER-SE> (9585)
<TOTAL-LIABILITY-AND-EQUITY> 14247
<SALES> 72886
<TOTAL-REVENUES> 72886
<CGS> 55052
<TOTAL-COSTS> 75697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2811)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> 0
</TABLE>
