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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9482
____________
HANCOCK FABRICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0740905
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3406 WEST MAIN ST., TUPELO, MS 38801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(601) 842-2834
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
---------------------
Title of each class on which registered
------------------- ---------------------
Common Stock ($.01 par value) New York Stock Exchange
Rights New York Stock Exchange
Securities Registered Pursuant To Section 12(g) of the Act:
None
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
--- ---
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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 the 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 15, 1994 there were 21,186,997 shares of Hancock Fabrics, Inc. $.01
par value common stock held by non-affiliates with an aggregate market value of
$190,682,973.00. As of April 15, 1994, there were 21,482,529 shares of
Hancock Fabrics, Inc. $.01 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held on June 9, 1994, to be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year, are incorporated by reference
in Part III of this Annual Report on Form 10-K.
Portions of the Hancock Fabrics, Inc. 1993 Annual Report to Shareholders
(Exhibit 13 hereto) are incorporated by reference in Parts I and II of this
Annual Report on Form 10-K. With the exception of those portions that are
specifically incorporated by reference in this Annual Report on Form 10-K, the
Hancock Fabrics, Inc. 1993 Annual Report to Shareholders is not to be deemed
filed as part of this Annual Report on Form 10-K.
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HANCOCK FABRICS, INC.
1993 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Item 1. Business.......................................... 4
Item 2. Properties........................................ 6
Item 3. Legal Proceedings................................. 7
Item 4. Submission of Matters to a Vote
of Security Holders.............................. 7
Executive Officers of Registrant........................... 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters...................... 9
Item 6. Selected Financial Data........................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 10
Item 8. Financial Statements and Supplementary Data....... 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... 10
PART III
Item 10. Directors and Executive Officers of Registrant.... 11
Item 11. Executive Compensation............................ 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................... 11
Item 13. Certain Relationships and Related Transactions.... 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................. 12
Undertaking in Connection with Registration Statements
on Form S-8............................................... 16
Signatures................................................. 17
</TABLE>
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PART I
ITEM 1: BUSINESS
Hancock Fabrics, Inc., a Delaware corporation ("Hancock"), was incorporated in
1987 and succeeded to the retail and wholesale fabric business of Hancock
Textile Co., Inc., a Mississippi corporation and a wholly owned subsidiary of
Lucky Stores, Inc., a Delaware corporation ("Lucky").
Founded in 1957, Hancock operated as a private Company until 1972 when it was
acquired by Lucky. Hancock became a publicly owned company as a result of the
distribution of the shares of its common stock to the shareholders of Lucky on
May 4, 1987 pursuant to a restructuring plan announced by Lucky in 1986.
Hancock and its subsidiary are engaged in the retail and wholesale fabric
business, selling fabrics, crafts and related accessories to the home sewing
and home decorating market and at wholesale to independent retailers. Hancock
is one of the largest fabric retailers in the United States. At January 30,
1994, Hancock operated 500 fabric stores in 33 states under the names "Hancock
Fabrics," "Minnesota Fabrics," "Fabric Warehouse" and "Fabric Market." As a
wholesaler of fabrics and related items, Hancock sells to independent retail
fabric stores through its wholesale distribution facility in Tupelo,
Mississippi.
OPERATIONS
Hancock offers a wide selection of apparel fabrics, notions (which include
sewing aids and accessories such as zippers, buttons, threads and
ornamentation), patterns, quilting materials and supplies, home decorating
products (which include drapery and upholstery fabrics), craft items and
related supplies. Each of Hancock's retail stores maintains an inventory that
includes cotton, woolen and synthetic staple fabrics such as broadcloth,
poplin, gaberdine, unbleached muslin and corduroy, as well as seasonal and
current fashion fabrics.
Hancock's stores are primarily located in neighborhood shopping centers.
Hancock opened 22, 23 and 18 net stores in 1991, 1992 and 1993, respectively,
and plans a net increase of 15 stores during 1994.
As a wholesaler, Hancock sells to almost 200 independent retailers in locations
in which Hancock has elected not to open its own stores. These wholesale
customers accounted for less than 5% of Hancock's total sales for the fiscal
year ended January 30, 1994.
MARKETING
Hancock principally serves the home sewing and home decorating markets, which
largely consists of value conscious women who make clothing for their families
and decorations for their homes or who hire professional home seamstresses to
sew for them. Quilters,
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crafters and hobbyists also comprise a growing base of customers, as do
consumers of bridal, party, prom and special occasion merchandise.
Hancock offers its customers a wide selection of products at prices that it
believes are generally lower than the prices charged by its competitors. In
addition to staple fabrics and notions for clothing and home decoration,
Hancock provides a variety of seasonal and current fashion apparel merchandise.
Hancock uses aggressive promotional advertising, primarily through newspapers,
direct mail and television, to reach its target customers. Hancock mails eight
to ten direct mail promotions each year to approximately two million
households, including the "Directions" magazine which contains discount
coupons, sewing instructions and fashion ideas as well as product
advertisements.
DISTRIBUTION AND SUPPLY
Hancock's retail stores and its wholesale customers are served by Hancock's
525,000 square foot warehouse, distribution and office facility in Tupelo,
Mississippi. Hancock believes this facility is adequate for the near term and
has no expansion plans for 1994.
Contract trucking firms, common carriers and parcel delivery are used to
deliver merchandise to Hancock's retail stores and to its wholesale customers.
A substantial portion of the deliveries to Hancock's stores and wholesale
customers are made directly by vendors.
Bulk quantities of fabric are purchased from mills, fabric jobbers and
importers. Hancock has no long-term contracts for the purchase of merchandise
and did not purchase more than 5% of its merchandise from any one supplier
during the fiscal year ended January 30, 1994. Hancock has experienced no
difficulty in maintaining satisfactory sources of supply.
COMPETITION
Hancock is among the largest fabric retailers in the United States. The retail
fabric business has become increasingly competitive due to excess capacity in
many geographical markets resulting from the entry and expansion of other major
fabric retailers. Hancock principally competes with other national and
regional fabric store chains on the basis of price, selection, quality, service
and location.
While fabric departments of discount, variety and department stores have been
notable competitors in the past, these stores have steadily withdrawn from the
piece goods business because of the difficulty in effectively competing with
the selection offered by larger stores that specialize in fabrics and related
products. Additionally, Hancock believes that further contraction in the
numbers of full-size fabric stores in over saturated markets will be necessary
to reverse the expansion trend of the last few years
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when rapid unit and square footage growth exceeded the more moderate growth in
demand for fabrics and related merchandise.
SEASONALITY
Hancock's business is slightly seasonal. Peak sales periods occur during the
fall and pre-Easter weeks, while the lowest sales periods occur during
pre-Christmas and mid-summer.
EMPLOYEES
At January 30, 1994, Hancock employed approximately 7,100 people on a full-time
and part-time basis, approximately 6,750 of whom work in the Company's retail
stores. The remainder work in the Tupelo warehouse, distribution and office
facility. Currently, thirty-three (33) of Hancock's employees are covered by a
collective bargaining agreement.
GOVERNMENT REGULATION
Hancock is subject to the Fair Labor Standards Act, which governs such matters
as minimum wages, overtime and other working conditions. A significant number
of Hancock's employees are paid at rates related to federal and state minimum
wages and, accordingly, increases in minimum wages affect Hancock's labor cost.
Recently enacted legislation under the Americans With Disabilities Act
requiring, among other things, that "reasonable accommodation" to the
Company's facilities be afforded to employees and to the general public could
also result in added costs to Hancock under the revised guidelines.
Additionally, legislation providing for family leave to employees could result
in higher costs to the Company in labor, unemployment and health insurance and
in reduced productivity due to replacement hiring constraints while employees
are on family leave.
ITEM 2: PROPERTIES
Hancock's 500 retail stores are located principally in neighborhood shopping
centers. Most of Hancock's retail stores range in size from 9,000 to 12,000
square feet. Hancock's sixty (60) "Fabric Warehouse" stores range in size from
10,300 to 30,000 square feet. Hancock's six (6) "Fabric Market" stores average
12,600 square feet.
With the exception of four (4) locations, Hancock's retail stores are leased.
The original lease terms generally range from 10 to 20 years and most leases
contain one or more renewal options, usually of five years in length. At
January 30, 1994, the remaining terms of the leases for stores in operation,
including renewal options, averaged approximately 13 years. During 1994, 43
store leases will expire. Hancock is currently negotiating renewals on certain
of these leases.
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Hancock's 525,000 square foot warehouse, distribution and office facility in
Tupelo, Mississippi is owned by Hancock and is not subject to any mortgage or
similar encumbrance. Hancock also owns approximately 40 acres of land adjacent
to its Tupelo facility, providing room for future expansion.
Reference is made to the information contained in the "Long-Term Leases"
section contained in the "Notes to Consolidated Financial Statements" included
in the accompanying Hancock Fabrics, Inc. 1993 Annual Report to Shareholders
(Exhibit 13 hereto) for information concerning Hancock's long-term obligations
under leases.
ITEM 3: LEGAL PROCEEDINGS
Hancock is not a party to, nor is any of its properties the subject of, any
material pending legal proceedings, other than ordinary and routine litigation
incidental to its business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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Executive Officers of Registrant
<TABLE>
<CAPTION>
Office Presently Held and Business
Name Age Experience During Past Five Years
- ---- --- ---------------------------------
<S> <C> <C>
Morris O. Jarvis 53 Chairman of the Board, President and Chief
Executive Officer.
Jack W. Busby, Jr. 51 Executive Vice President and Director of Retail
Operations, from October 1990; Vice President,
Operations Manager, prior thereto.
Larry G. Kirk 47 Senior Vice President, from September 1992; Director,
from December 1990; Vice President, Chief Financial
Officer, Treasurer and Secretary, from December 1989;
Vice President, Controller, Assistant Treasurer and
Assistant Secretary, prior thereto.
</TABLE>
The term of each of the officers expires June 9, 1994.
There are no family relationships among the executive officers.
There are no arrangements or understandings pursuant to which any person was
selected as an officer.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Hancock's common stock and the associated common stock purchase rights are
listed on the New York Stock Exchange and trade under the symbol HKF. The
following table sets forth the high and low sales price for Hancock's common
stock as reported in "New York Stock Exchange - Composite Transactions" and the
dividends paid per share for Hancock's common stock:
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low Dividend
-------------------- ---- --- --------
<S> <C> <C> <C>
May 3, 1992....................$18.00 $12.25 $.08
August 2, 1992................. 13.75 10.00 .08
November 1, 1992............... 11.88 9.13 .08
January 31, 1993................14.38 10.13 .08
May 2, 1993....................$14.00 $10.38 $.08
August 1, 1993................. 11.00 8.00 .08
October 31, 1993............... 9.88 8.13 .08
January 30, 1994................10.00 9.00 .08
</TABLE>
As of April 15, 1994, there were 12,890 holders of record of Hancock's common
stock. Holders of shares of common stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor (subject to the prior payment of cumulative dividends on any
outstanding shares of preferred stock, of which none are outstanding).
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data for the five years ended January 30, 1994, which
appears on page 9 of the Hancock Fabrics, Inc. 1993 Annual Report to
Shareholders, is incorporated by reference in this Annual Report on Form 10-K.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The management's discussion and analysis of financial condition and results of
operations appearing on pages 10 to 11 of the Hancock Fabrics, Inc. 1993 Annual
Report to Shareholders is incorporated by reference in this Annual Report on
Form 10-K.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Price Waterhouse
dated March 4, 1994, appearing on pages 12 to 21 of the Hancock Fabrics, Inc.
1993 Annual Report to Shareholders are incorporated by reference in this Annual
Report on Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11: EXECUTIVE COMPENSATION
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as noted below, for information with respect to Items 10, 11, 12 and 13,
see the Proxy Statement for the Annual Meeting of Shareholders to be held June
9, 1994, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year, which is incorporated herein by
reference.
The information concerning "Executive Officers of the Registrant" is included
in Part I of this Form 10-K in accordance with Instruction 3 of paragraph (b)
of Item 401 of Regulation S-K.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
<TABLE>
<CAPTION>
Page
----
Number #
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<S> <C>
(a) The following documents are filed as part
of this report:
(1) Consolidated Financial Statements:
Report of Independent Accountants............. 21
Consolidated Statement of Earnings for the
three years ended January 30, 1994.......... 12
Consolidated Balance Sheet at January 30, 1994
and January 31, 1993........................ 13
Consolidated Statement of Cash Flows
for the three years ended January 30, 1994.. 14
Consolidated Statement of Shareholders' Equity
for the three years ended January 30, 1994.. 15
Notes to Consolidated Financial Statements.... 16-21
(2) Consolidated Financial Statement Schedules:
All schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
Supplementary data:
Selected Quarterly Financial Data ............ 8
# Incorporated by reference from the indicated pages of
the Hancock Fabrics, Inc. 1993 Annual Report to Shareholders.
(3) Those exhibits required to be filed as Exhibits to this
Annual Report on Form 10-K pursuant to Item 601 of
Regulation S-K are as follows:
</TABLE>
Exhibit No.
3.1**** Certificate of Incorporation of Registrant.
3.2*** By-laws of Registrant.
4.1**** Certificate of Incorporation of Registrant.
4.2*** By-laws of Registrant.
4.3*** Rights Agreement between Registrant and
C & S/Sovran Trust Company (Georgia), N.A.,
as amended March 14, 1991 and restated as of
April 2, 1991.
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<TABLE>
<S> <C> <C>
4.4****** Amendment to Rights Agreement between
Registrant and NationsBank of Georgia, N.A.
(formerly C & S/Sovran Trust Company
(Georgia), N.A.) dated June 25, 1992.
4.5****** Agreement between Registrant and
Continental Stock Transfer & Trust
Company (as Rights Agent) dated as of July 16,
1992.
4.6**** Note Purchase Agreement between Registrant and Nationwide
Life Insurance Company, West Coast Life Insurance
Company, Financial Horizons Insurance Company, Farmland
Life Insurance Company and Wisconsin Health Care Liability
Insurance Plan ("Note Purchase Agreement") dated as of
January 15, 1992.
4.7****** Amendment to Note Purchase Agreement dated as of
November 4, 1992.
4.8 Credit Agreement among Registrant and Nations Bank of
Georgia, National Association, as Agent and Lenders as
Signatories Hereto ("Credit Agreement") dated as of
September 20, 1993.
10.1**** Swap Transaction between Registrant and Continental Bank N.
A. dated November 1, 1991.
10.2**** Note Purchase Agreement dated as of January 15, 1992.
10.3****** Amendment to Note Purchase Agreement dated as of
November 4, 1992.
10.4 Credit Agreement dated as of September 20, 1993. See Exhibit 4.8.
10.5****** +Form of Indemnification Agreements dated March 23, 1987
between Registrant and each of Don L.Fruge, Morris O.
Jarvis, Ivan Owen and Donna L. Weaver.
10.6****** +Form ofIndemnification Agreements dated March 23, 1987
between Registrant and each of Dean W. Abraham, Jack W.
Busby, Jr., David H. Jensen, Larry G. Kirk, Billy M.
Morgan, William D. Smothers, Charles R. Warren and Carl W.
Zander.
10.7** Indemnification Agreement between Registrant and James A.
Gilmore dated as of March 2, 1989.
10.8**** Indemnification Agreement between Registrant and James A.
Nolting dated as of December 12, 1991.
10.9****** Indemnification Agreement between Registrant and David A.
Lancaster dated as of March 10, 1993.
10.10 Indemnification Agreement between Registrant and Bradley
A. Berg dated as of March 10, 1994.
10.11****** +Agreement between Registrant and Morris O.
Jarvis dated as of May 3, 1987.
</TABLE>
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<TABLE>
<S> <C> <C>
10.12* +Amendment to Severance Agreement and to Deferred
Compensation Agreement between Registrant and Morris O.
Jarvis dated as of June 9, 1988.
10.13* +Agreement to Secure Certain Contingent Paments between
Registrant and Morris O. Jarvis dated as of June 9, 1988.
10.14** +Amendment and Renewal of Severance Agreement and Amendment
of Other Related Agreements between Registrant and Morris
O. Jarvis dated as of March 8, 1990.
10.15*** +Agreement between Registrant and Jack W. Busby, Jr. dated
as of June 9, 1988.
10.16*** +Agreement to Secure Certain Contingent Payments between
Registrant and Jack W. Busby, Jr. dated as of June 9, 1988.
10.17** +Agreement between Registrant and Larry G. Kirk dated as of
June 9, 1988.
10.18** +Agreement to Secure Certain Contingent Payments between
Registrant and Larry G. Kirk dated as of June 9, 1988.
10.19*** +Form of Amendments and Renewals of Severance Agreement and
Amendments of Other Related Agreements between Registrant
and each of Jack W. Busby, Jr. and Larry G. Kirk dated as of
March 8, 1990.
10.20****** +Amendment, Extension and Restatement of Severance Agreement
between Registrant and Morris O. Jarvis dated as of
March 10, 1993.
10.21****** +Form of Amendment, Extension and Restatement
of Severance Agreements dated as of March
10, 1993 between Registrant and each of
Jack W. Busby, Jr. and Larry G. Kirk.
10.22**** +Supplemental Retirement Plan, as amended.
10.23***** +1987 Stock Option Plan, as amended.
10.24**** +Extra Compensation Plan.
10.25** +1989 Restricted Stock Plan.
10.26***** +1991 Stock Compensation Plan for Nonemployee Directors.
11 Computation of Earnings Per Share.
13 Portions of the Hancock Fabrics, Inc. 1993
Annual Report to Shareholders (for the fiscal
year ended January 30, 1994) incorporated by
reference in this filing.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse.
</TABLE>
_____________
* Incorporated by reference from Registrant's Form 10-K
dated April 26, 1989 as filed with the Securities and
Exchange Commission.
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** Incorporated by reference from Registrant's Form 10-K
dated April 26, 1990 as filed with the Securities and
Exchange Commission.
*** Incorporated by reference from Registrant's Form 10-K
dated April 26, 1991 as filed with the Securities and
Exchange Commission.
**** Incorporated by reference from Registrant's Form 10-K
dated April 27, 1992 as filed with the Securities and
Exchange Commission.
***** Incorporated by reference from Registrant's Form 10-Q
dated June 12, 1992 as filed with the Securities and
Exchange Commission.
****** Incorporated by reference from Registrant's Form 10-K
dated April 26, 1993 as filed with the Securities and
Exchange Commission.
+ Denotes management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the last quarter of
the period covered by this report.
Shareholders may obtain copies of any of these exhibits by writing to the
Secretary at the executive offices of the Company. Please include payment in
the amount of $1.00 for each document, plus $.25 for each page ordered, to
cover copying, handling and mailing charges.
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UNDERTAKING IN CONNECTION WITH
REGISTRATION STATEMENTS ON FORM S-8
For purposes of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933 (the "Act"), the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-17215 (filed September 15, 1987) and 33-29138 (filed June 12, 1989):
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 512(h) of Regulation S-K, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 27TH DAY OF
APRIL, 1994.
HANCOCK FABRICS, INC.
BY /s/ Morris O. Jarvis
---------------------
Morris O. Jarvis
Chairman of the Board,
President and Chief Executive Officer
BY /s/ Larry G. Kirk
---------------------
Larry G. Kirk
Senior Vice President,
Chief Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED ON THIS 27 TH DAY OF APRIL, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Morris O. Jarvis Chairman of the Board, President,
- ------------------------- Chief Executive Officer and
(Morris O. Jarvis) Director
/s/ Larry G. Kirk Senior Vice President, Chief
- ------------------------- Financial Officer, Secretary and
(Larry G. Kirk) Director
/s/ Don L. Fruge Director
- -------------------------
(Don L. Fruge)
/s/ Ivan Owen Director
- -------------------------
(Ivan Owen)
/s/ Donna L. Weaver Director
- -------------------------
(Donna L. Weaver)
</TABLE>
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Exhibit 4.8 & 10.4
_________________________________________________________________
CREDIT AGREEMENT
among
HANCOCK FABRICS, INC.
and
NATIONSBANK OF GEORGIA, NATIONAL ASSOCIATION,
as Agent
and
LENDERS AS SIGNATORIES HERETO
________
$60,000,000 Revolving Credit Facility
Dated as of September 20, 1993
_________________________________________________________________
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
SECTION 1.1 Definitions . . . . . . . . . . . . . . . 1
SECTION 1.2 Classes and Types of Loans . . . . . . . . 14
ARTICLE II
REVOLVING FACILITY TERMS
SECTION 2.1 Syndicated Loans . . . . . . . . . . . . . 15
SECTION 2.2 Advances of Syndicated Loans . . . . . . . 15
SECTION 2.3 Competitive Bid Loans . . . . . . . . . . 16
SECTION 2.4 Payments . . . . . . . . . . . . . . . . . 20
SECTION 2.5 Prepayment . . . . . . . . . . . . . . . . 20
SECTION 2.6 Notes . . . . . . . . . . . . . . . . . . 21
SECTION 2.7 Lending Offices . . . . . . . . . . . . . 21
SECTION 2.8 Pro Rata Payments . . . . . . . . . . . . 22
SECTION 2.9 Deficiency Advances . . . . . . . . . . . 22
SECTION 2.10 Adjustments by Agent . . . . . . . . . . . 22
SECTION 2.11 Extension of Termination Date . . . . . . 23
SECTION 2.12 Commitment Fees . . . . . . . . . . . . . 23
ARTICLE III
INTEREST ON SYNDICATED LOANS
SECTION 3.1 Applicable Interest Rates . . . . . . . . 24
SECTION 3.2 Procedure for Exercising Interest Rate
Options . . . . . . . . . . . . . . . . 24
SECTION 3.3 Floating Rate . . . . . . . . . . . . . . 25
SECTION 3.4 Fixed Rate . . . . . . . . . . . . . . . . 25
ARTICLE IV
TERMINATION OF LIBOR-BASED RATE AND YIELD PROTECTION
SECTION 4.1 Suspension of Loans . . . . . . . . . . . 26
SECTION 4.2 Compensation . . . . . . . . . . . . . . . 27
SECTION 4.3 Taxes . . . . . . . . . . . . . . . . . . 28
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Organization, Powers, Existence, etc. 30
SECTION 5.2 Authorization of Borrowing, etc. . . . . . 30
SECTION 5.3 Liabilities . . . . . . . . . . . . . . . 30
SECTION 5.4 Taxes. . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 5.5 Litigation . . . . . . . . . . . . . . . . 31
SECTION 5.6 Agreements. . . . . . . . . . . . . . . . 31
SECTION 5.7 Use of Proceeds. . . . . . . . . . . . . . 31
SECTION 5.8 ERISA . . . . . . . . . . . . . . . . . . 31
SECTION 5.9 Subsidiaries . . . . . . . . . . . . . . . 31
SECTION 5.10 Principal Place of Business . . . . . . . 32
SECTION 5.11 Compliance with Laws . . . . . . . . . . . 32
SECTION 5.12 Disclosure . . . . . . . . . . . . . . . . 32
SECTION 5.13 Title to Properties . . . . . . . . . . . 32
ARTICLE VI
GENERAL CONDITIONS OF LENDING
SECTION 6.1 Representations and Warranties . . . . . . 33
SECTION 6.2 No Default . . . . . . . . . . . . . . . . 33
SECTION 6.3 Supporting Documents . . . . . . . . . . . 33
ARTICLE VII
GENERAL COVENANTS OF THE BORROWER
SECTION 7.1 Existence, Properties, etc. . . . . . . . 35
SECTION 7.2 Payment of Indebtedness, Taxes, etc. . . . 35
SECTION 7.3 Financial Statements, Reports, etc. . . . 35
SECTION 7.4 Litigation Notice . . . . . . . . . . . . 37
SECTION 7.5 Default Notice . . . . . . . . . . . . . . 37
SECTION 7.6 Further Assurances . . . . . . . . . . . . 37
SECTION 7.7 Insurance . . . . . . . . . . . . . . . . 37
SECTION 7.8 Covenants Regarding Financial Condition. . 38
SECTION 7.9 Continuation of Current Business . . . . . 40
SECTION 7.10 Cooperation; Inspection of Properties . . 40
SECTION 7.11 Use of Proceeds . . . . . . . . . . . . . 40
SECTION 7.12 Fiscal Year . . . . . . . . . . . . . . . 40
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1 Events of Default . . . . . . . . . . . . 41
SECTION 8.2 Agent to Act . . . . . . . . . . . . . . . 42
SECTION 8.3 Cumulative Rights . . . . . . . . . . . . 42
SECTION 8.4 No Waiver . . . . . . . . . . . . . . . . 43
SECTION 8.5 Default . . . . . . . . . . . . . . . . . 43
SECTION 8.6 Allocation of Proceeds . . . . . . . . . . 43
ARTICLE IX
THE AGENT
SECTION 9.1 Appointment . . . . . . . . . . . . . . . 44
SECTION 9.2 Attorneys-in-fact . . . . . . . . . . . . 44
SECTION 9.3 Limitation on Liability . . . . . . . . . 44
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 9.4 Reliance . . . . . . . . . . . . . . . . . 44
SECTION 9.5 Notice of Default . . . . . . . . . . . . 45
SECTION 9.6 No Representations . . . . . . . . . . . . 45
SECTION 9.7 Indemnification . . . . . . . . . . . . . 46
SECTION 9.8 Lender . . . . . . . . . . . . . . . . . . 46
SECTION 9.9 Resignation or Removal of Agent . . . . . 46
SECTION 9.10 Sharing of Payments# etc. . . . . . . . . 47
SECTION 9.11 Fees . . . . . . . . . . . . . . . . . . . 47
SECTION 9.12 Independent Agreements . . . . . . . . . . 48
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . 49
SECTION 10.1 Assignments and Participations . . . . . . 49
SECTION 10.2 Notices. . . . . . . . . . . . . . . . . . 51
SECTION 10.3 Setoff . . . . . . . . . . . . . . . . . . 52
SECTION 10.4 Survival . . . . . . . . . . . . . . . . . 52
SECTION 10.5 Expenses . . . . . . . . . . . . . . . . . 52
SECTION 10.6 Amendments . . . . . . . . . . . . . . . . 53
SECTION 10.7 Counterparts . . . . . . . . . . . . . . . 54
SECTION 10.8 Waivers by Borrower. . . . . . . . . . . . 54
SECTION 10.9 Termination . . . . . . . . . . . . . . . 54
SECTION 10.10 Governing Law . . . . . . . . . . . . . . 55
SECTION 10.11 Indemnification . . . . . . . . . . . . . 55
SECTION 10.12 Agreement Controls . . . . . . . . . . . . 56
SECTION 10.13 Successors and Assigns . . . . . . . . . . 56
Exhibit A - Lenders and Applicable Commitment Percentages
Exhibit B - Form of Assignment and Acceptance
Exhibit C - Form of Authorized Officer Certificate
Exhibit D - Request for Advance or Interest Rate Election
Exhibit E - Form of Competitive Bid Quote Confirmation
Exhibit F - Form of Notice of Acceptance of Competitive Bid Quotes
Exhibit G-1 - Form of Syndicated Note
Exhibit G-2 - Form of Competitive Bid Note
Exhibit H - Form of Compliance Certificate
Exhibit I - Summary of Insurance
Exhibit J - Subsidiaries
Exhibit K - Liens
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of September 20, 1993 (this "Agreement")
is entered into by and among HANCOCK FABRICS, INC., a Delaware corporation (the
"Borrower"), the Lenders as signatories hereto (the "Lenders") and NATIONSBANK
OF GEORGIA, NATIONAL ASSOCIATION, a national banking association (the "Agent").
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For the purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
All accounting terms not otherwise defined herein have the
meanings assigned to them, and all computations herein provided for
shall be made, in accordance with GAAP applied on a Consistent Basis.
All references in this Agreement to designated "Articles",
"Sections" and other subdivisions are to the designated Articles,
Sections and subdivisions of this Agreement as originally executed.
The terms "herein", "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
The terms "include," "including" and similar terms shall be
construed as if followed by the phrase "without being limited to."
All Article and Section captions herein are used for reference
only and in no way limit or describe the scope or intent of, or in any
way affect, this Agreement.
Words importing the singular number shall mean and include the
plural number and visa versa.
All recitals set forth in this Agreement are hereby
incorporated in the operative provisions of this Agreement.
No inference in favor of or against either party shall be
drawn from the fact that such party or its counsel has drafted any
portion hereof.
Absolute Rate has the meaning assigned to such term in Section
2.3(c) (ii) (D) hereof.
Absolute Rate Auction means a solicitation of Competitive Bid
Quotes setting forth Absolute Rates pursuant to Section 2.3 hereof.
<PAGE> 6
Absolute Rate Loans means the Competitive Bid Loans the interest rates
on which are determined on the basis of Absolute Rates set at Absolute Rate
Auctions.
Actua1/360 Basis means a method of computing interest or other charges
hereunder on the basis of an assumed year of 360 days for actual number
of days elapsed, meaning that interest or other charges accrued for each day
will be computed by multiplying the rate applicable on that day by the unpaid
principal balance (or other relevant sum) on that day and dividing the result
by 360.
Advance means a borrowing under the Revolving Facility consisting of
the aggregate principal amount of a Syndicated Loan or a Competitive Bid Loan.
Affiliate of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition "control"
when used with respect to any specified person means the power to direct the
management and policies of such person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
Applicable Base Rate means:
(i) for any CD Loan, in respect of the Interest Period
specified by the Authorized Officer in the Request for Advance or
Interest Election for such CD Loan, the per annum rate of interest
(expressed as a percentage and rounded upwards if necessary to the
nearest 1/100 of 1%) (which shall be the same for each day of such
Interest Period) determined in good faith by the Agent in accordance
with the usual procedures for its customers generally to be the average
of the secondary market bid rates at approximately 10:00 A.M., Atlanta,
Georgia time on the first day of such Interest Period of at least two
dealers of recognized standing in negotiable certificates of deposit
for the purchase at face value of negotiable certificates of deposit of
major money center banks for delivery on such day in an amount
approximately equal to the principal amount of, and for a period
comparable to the Interest Period for, such CD Loan and maturing at
the end of such Interest Period, and
(ii) for any LIBOR Loan, in respect of the Interest Period
specified by the Authorized Officer in the Request for Advance or
Interest Election for such LIBOR Loan, the rate (expressed as a
percentage and rounded upward if necessary to the nearest 1/100 of 1%)
(which shall be the
2
<PAGE> 7
same for each day of such Interest Period) determined by the Agent in
good faith in accordance with its usual procedures for its customers
generally to be the average of the rates per annum for deposits in
Dollars offered to major money center banks in the London interbank
market at approximately 11:00 A.M. London time two (2) LIBOR Business
Days prior to the commencement of the applicable Interest Period in an
amount approximately equal to the principal amount of, and for a period
applicable to the Interest Period for, such LIBOR Loan.
Applicable Commitment Percentage means, for each Lender, a fraction, the
numerator of which shall be the then amount of such Lender's Commitment and the
denominator of which shall be the Revolving Facility, which Applicable
Commitment Percentage for each Lender as of the Closing Date is as set forth in
Exhibit A attached hereto and incorporated herein by reference; provided that
the Applicable Commitment Percentage of each Lender shall be increased or
decreased to reflect any assignments to or by such Lender effected in
accordance with Section 10.1 hereof.
Applicable Lending Office means, for each Lender and for each Type of
Loan, the "Lending Office" of such Lender (or of an Affiliate of such Lender)
designated for such Type of Loan on the signature pages hereof or such other
office of such Lender (or of an Affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Borrower as the office by which
its Loans of such Type are to be made and maintained.
Applicable Reserve Requirement means, for any CD Loan or LIBOR Loan with
respect thereto, the maximum aggregate rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained with respect thereto under Regulation D by the member
banks of the Federal Reserve System against nonpersonal Dollar time deposits in
an amount of $100,000 or more in the case of any CD Loan. Without limiting the
effect of the foregoing, the Applicable Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which includes
deposits by reference to which the Applicable Base Rate is to be determined or
(ii) any category of extensions of credit or other amounts which include CD
Loans or LIBOR Loans.
Assessment Rate means the rate per annum (rounded upward to the nearest
1/100 of 1%) determined in good faith by the Agent in accordance with its usual
procedures for its customers generally (which determination shall be conclusive
absent manifest error) to be the maximum effective assessment rate per annum
payable by a bank insured by the Federal
3
<PAGE> 8
Deposit Insurance Corporation (or any successor) on such day of determination
for insurance on Dollar time deposits, exclusive of any credit allowed against
such annual assessment on account of assessment payments made or to be made by
such bank and exclusive of any adjustments not applicable to banks generally.
The CD Rate shall be adjusted automatically as of the effective date of each
change in the Assessment Rate.
Assignment and Acceptance means an Assignment and Acceptance in the form
of Exhibit B (with blanks appropriately filled in) delivered in connection with
an assignment of a portion of the Lender's interest under this Agreement
pursuant to Section 10.1.
Authorized Officer means any of the Chairman, President, Senior Vice
Presidents or Vice Presidents of the Borrower or, with respect to financial
matters, the Treasurer or Chief Financial Officer of the Borrower or any other
person expressly designated by the Board of Directors (or the appropriate
committee thereof) of the Borrower as an Authorized Officer for purposes of
this Agreement, as set forth from time to time in a certificate in the form
attached hereto as Exhibit C.
Average Inventory means, for any Fiscal Quarter, the average of the costs
of consolidated inventories of the Borrower and its Subsidiaries at the
beginning of such Fiscal Quarter and their costs of consolidated inventories at
the end of such Fiscal Quarter.
Business Day means (a) any day on which commercial banks are not
authorized or required to close in Atlanta, Georgia and (b) if such day relates
to the giving of notices or quotes in connection with a LIBOR Auction or to a
borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a LIBOR Loan or a LIBOR
Market Loan or a notice by the Borrower with respect to any such borrowing,
payment, prepayment, Conversion or Interest Period, any day on which dealings
in Dollar deposits are carried out in the London interbank market.
Capital Expenditure means any expenditure or liability that is properly
charged to a capital account or otherwise capitalized on the consolidated
balance sheet in accordance with generally accepted accounting principles.
Capitalized Leases means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time including
Statement No. 13 of the Financial Accounting Standards Board and any successor
thereof.
4
<PAGE> 9
Cash Flow means for the periods indicated, the sum of Net Income, plus
amounts that have been deducted for (i) depreciation and amortization and (ii)
LIFO Charges.
CD Loan means all of the Loans for which the rate of interest is
determined by reference to the CD Rate.
CD Rate means, for any CD Loan, the rate of interest per annum determined
pursuant to the following formula:
Applicable Base Rate
--------------------
CD Rate = 1 - Applicable + Assessment Rate + .50%
Reserve Requirement
Class shall have the meaning assigned to such term in Section 1.2 hereof.
Closing Date means the date of this Agreement.
Commitment means, as to each Lender, the obligation of such Lender to make
Syndicated Loans pursuant to Section 2.1 hereof in an aggregate amount at any
one time outstanding up to but not exceeding the amount set opposite such
Lender's name on the signature pages hereof under the caption "Commitment";
provided that the Commitment of each Lender shall be increased or decreased to
reflect any assignments to or by such Lender effected in accordance with
Section 10.1 hereof.
Competitive Bid Borrowing shall have the meaning assigned to such term in
Section 2.3(b) hereof.
Competitive Bid Commitment means the amount which a Lender has offered to
loan to the Borrower pursuant to a Competitive Bid Quote by such Lender not to
exceed in the aggregate the amount of the Revolving Facility.
Competitive Bid Loans means the Loans provided for by Section 2.3 hereof.
Competitive Bid Notes means the promissory notes provided for by Section
2.8(b) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
Competitive Bid Quote means an offer in accordance with Section 2.3(c)
hereof by a Lender to make a Competitive Bid Loan with one single specified
interest rate.
Competitive Bid Quote Request has the meaning assigned to such term in
Section 2.3(b) hereof.
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<PAGE> 10
Compliance Certificate has the meaning attributed to that term in Section
7.3(3) below.
Consistent Basis in reference to the application of GAAP means the
accounting principles observed in the period referred to are comparable in all
material respects to those applied in the preparation of the audited financial
statements of the Borrower referred to in Section 5.3 hereof.
Convert, Conversion and Converted shall refer to a conversion pursuant to
Section 3.2 hereof of one Type of Syndicated Loan into another Type of
Syndicated Loan, which may be accompanied by the transfer by a Lender (at its
sole discretion) of a Loan from one Applicable Lending Office to another.
Cost of Goods Sold means, for any Fiscal Quarter, the consolidated cost of
goods sold of the Borrower and its Subsidiaries for such Fiscal Quarter.
Credit Obligations means the Revolving Facility Obligations and all other
obligations and debts owing to the Lenders, and arising under the terms of this
Agreement, the Notes and the other Loan Documents, whether now or hereafter
incurred, existing or arising, including the principal amount of all Advances,
any sums expended by the Agent or the Lenders in exercising the rights and
remedies described in Section 8.1 and all accrued interest on Advances and all
costs, fees, charges and expenses incurred and payable in connection therewith,
including fees payable under the terms of, or in connection with, this
Agreement, and all other obligations and debts owing to the Agent or the
Lenders arising in connection with, ancillary to, or in support of Advances and
all extensions, alterations, modifications, revisions and renewals of any of
the foregoing.
Debt of any Person means, without duplication, (i) all indebtedness,
whether or not represented by bonds, debentures, notes or other securities, for
the repayment of borrowed money or for reimbursement of drafts drawn under
letters of credit, (ii) all obligations to pay the deferred purchase price of
property or assets except trade accounts payable in the ordinary course of
business, (iii) all obligations of such Person as lessee under Capitalized
Leases, (iv) all indebtedness secured by any Lien on, property of such Person,
whether or not the indebtedness secured thereby shall have been assumed and (v)
all Guaranteed Obligations.
Default means an Event of Default or an event that with notice or lapse of
time or both would become an Event of Default, unless cured or waived pursuant
to the terms of this Agreement.
6
<PAGE> 11
Dollars and the symbol $ mean dollars constituting legal tender for the
payment of public and private debts in the United States of America.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder.
Event of Default has the meaning assigned to such term in Article VIII
hereof.
Excess Common Stock Repurchase means any amounts paid for the repurchase
by the Borrower of its common stock as consented to by the Required Lenders in
their sole discretion.
Federal Funds Effective Rate means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Effective Rate for
such day shall be such rate on such transactions on the next preceding Business
Day as so published for any Business Day, and (b) if such rate is not so
published for any Business Day, the Federal Funds Effective Rate for such
Business Day shall be the average rate charged to the Agent on such Business
Day on such transactions as determined by the Agent.
Fiscal Quarter means any fiscal quarter of the Borrower.
Fiscal Year means any fiscal year of the Borrower.
Fiscal Year End means the last day of the Borrower's Fiscal Year.
Fixed Rate means the Absolute Rate, the CD Rate or the LIBOR-Based Rate.
Fixed Rate Loans means Loans that bear interest at a Fixed Rate.
Fixed Rate Segment means a Segment to which a Fixed Rate is (or is
proposed to be) applicable.
Floating Rate means the higher of the (i) Prime Rate or (ii) the Federal
Funds Effective Rate plus 1/2% per annum.
Floating Rate Loans means Syndicated Loans that bear interest at rates
based upon the Floating Rate.
7
<PAGE> 12
GAAP means generally accepted accounting principles as set forth in
pronouncements of the Financial Accounting Standards Board, the American
Institute of Certified Public Accountants or which have other substantial
authoritative support and are applicable in the circumstances as of the date of
a report, as such principles are from time to time supplemented and amended.
Governmental Authority means any federal, state, county or municipal
agency, authority, department, commission, bureau, board or court.
Governmental Requirements means all laws, rules, regulations,
requirements, ordinances, judgments, decrees, codes and orders of any
Governmental Authority applicable to the Borrower or its Subsidiaries.
Guaranteed Obligations of any Person means all guaranties, endorsements,
assumptions and other contingent obligations with respect to, or to purchase or
to otherwise pay or acquire, Debt of others; provided, however, that such term
shall not include endorsements for collection or deposit in the ordinary course
of business; and provided further, obligations under leases and other contracts
initially incurred directly by another Person and subsequently directly assumed
by the Person in question, but such term shall include obligations that, if the
same had been initially incurred directly by the Person in question, would have
constituted Guaranteed Obligations.
Income Available for Debt Service for any period means Net Income for such
period plus amounts that have been deducted in determining Net Income for such
period for (i) depreciation, (ii) amortization, (iii) Interest Expense, (iv)
Lease Payments and (v) taxes on income.
Interest Expense means interest payable on Debt (including the component
of amounts payable under capitalized leases attributable to interest) during
the period in question.
Interest Period means: (1) with respect to each LIBOR Loan, the period
commencing on the date of such Advance or Conversion and ending one, two or
three months thereafter, as the Borrower may elect in the applicable Request
for Advance or Interest Election; provided that:
(a) any Interest Period which would otherwise end on a day which is not
a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding Business Day; and
8
<PAGE> 13
(b) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(c) no Interest Period shall end after the Termination Date.
(2) with respect to each CD Loan, the period commencing on the date of such
Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may
elect in the applicable Notice of Advance/Interest Election Borrowing; provided
that any Interest Period which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day; provided
further that no Interest Period shall end after the Termination Date.
(3) with respect to each Floating Rate Loan, the period commencing on the date
of such Borrowing and ending 30 days thereafter; provided that any Interest
Period which would otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day.
(4) with respect to each Competitive Bid Loan, the period commencing on the
date of such Borrowing and ending on such date as may be mutually agreed upon
by the Borrower and the Lender or Lenders making the Competitive Bid Loan or
Loans, as the case may be, comprising such Competitive Bid Loan; provided that
no Interest Period for a Competitive Bid Loan shall end after the Termination
Date.
Lease Payments means all amounts payable under any lease agreement,
including, but not limited to, rents, taxes, insurance, percentage rental,
repairs and operating costs, other than obligations under Capitalized Leases
that constitute Debt.
Liabilities of any person means obligations that are properly classified
as liabilities under GAAP.
LIBOR Auction means a solicitation of Competitive Bid Quotes setting forth
LIBOR Margins based on the LIBOR-Based Rate pursuant to Section 2.3 hereof.
LIBOR-Based Rate means, for any LIBOR Loan for which the rate of interest
is determined pursuant to the following formula:
Applicable Base Rate
LIBOR-Based Rate = --------------------------------- + .40%
1 - Applicable Reserve Requirement
LIBOR Loans means Syndicated Loans for which interest rates are determined
on the basis of LIBOR Based Rates.
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<PAGE> 14
LIBOR Margin has the meaning assigned to such term in Section 2.3 (c)(ii)
(C) hereof.
LIBOR Market Loans means Competitive Bid Loans interest rates on which are
determined on the basis of LIBOR-Based Rates pursuant to a LIBOR Auction.
LIFO Charges means deductions from income because of LIFO accounting
methods.
Lien means any mortgage, pledge, assignment, charge, encumbrance, lien,
security interest or financing lease.
Loan Documents means this Agreement, the Notes and all other agreements,
instruments and documents executed or delivered at any time in connection with
the Credit Obligations, or to evidence or secure any of the Credit Obligations.
Loans means the aggregate outstanding principal amount of all Syndicated
Loans and Competitive Bid Loans.
Margin Stock has the meaning attributed to that term in Regulation U of
the Federal Reserve Board, as amended.
NationsBank means NationsBank of Georgia, National Association, as a
Lender and any successor thereof.
Net Income means the gross revenues less all operating and non-operating
expenses, including taxes on income, all determined in accordance with GAAP
applied on a Consistent Basis.
Notes means the Syndicated Notes and the Competitive Bid Notes.
Opinion of Counsel means a favorable written opinion of an attorney or
firm of attorneys, satisfactory to the Agent, and who is not an employee of the
Borrower or of an Affiliate of the Borrower.
PBGC means the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA and any successor to all or any of the
Pension Benefit Guaranty Corporation,s functions under ERISA.
Permitted Encumbrances means:
(1) taxes, assessments and other governmental charges that are not
delinquent or that are being contested in good faith by appropriate
proceedings duly pursued;
10
<PAGE> 15
(2) mechanics', materialmen's, contractor's liens or liens arising in
the ordinary course of business, securing obligations that are not
delinquent or that are being contested in good faith by appropriate
proceedings duly pursued;
(3) restrictions, exceptions, reservations, easements, conditions,
limitations and other matters of record other than Liens that do
not have a materially adverse effect on the value or utility of
the property;
(4) Liens in favor of the Agent, if any, for the benefit of the Lenders
under this Agreement;
(5) Liens and other matters approved in writing by the Required
Lenders; and
(6) Liens in favor of landlords, the amount secured by which landlords,
Liens, in the aggregate, would not materially adversely affect the
Borrower.
Permitted Investments means:
(1) direct obligations of, or obligations the payment of which is
guaranteed by, the United States of America or an interest in any
trust or fund that invests solely in such obligations or repurchase
agreements, properly secured, with respect to such obligations;
(2) direct obligations of agencies or instrumentalities of the United
States of America having a rating of A or higher by Standard & Poor's
Corporation or A2 or higher by Moody's Investors Service, Inc.;
(3) a certificate of deposit or eligible banker's acceptances issued
by, or other interest-bearing deposits with, a bank having its
principal place of business in the United States of America and
having equity capital of not less than $250,000,000;
(4) a certificate of deposit by, or other interest-bearing deposits
with, any other bank organized under the laws of the United States of
America or any state thereof, provided that such deposit is either (i)
insured by the Federal Deposit Insurance Corporation or (ii) properly
secured by such bank by pledging direct obligations of the United
States of America having a market value not less than the face amount
of such deposits;
(5) the capital stock of and partnership interests in, and loans made
by the Borrower to Subsidiaries;
11
<PAGE> 16
(6) prime commercial paper maturing within 270 days of the
acquisition thereof and, at the time of acquisition, having a rating
of A-1 or higher by Standard & Poor's Corporation, or P-1 or higher
by Moody's Investors Service, Inc.;
(7) repurchase agreements and tax-exempt municipal bonds having a
maturity of less than one year, in each case having a rating, or that
is the full recourse obligation of a person whose senior debt is
rated, A or higher by Standard & Poor's Corporation or A2 or higher
by Moody's Investors Service, Inc.; and
(8) any other investment having a rating of A or higher or A-1 or
higher by Standard & Poor's Corporation or A2 or higher or P-1 or
higher by Moody's Investors Service, Inc.
Person or person means an individual, partnership, corporation,
trust, unincorporated organization, association, joint venture or a government
or agency or political subdivision thereof.
Prime Rate means that rate of interest designated by the Agent from
time to time as its "prime rate", it being expressly understood and agreed that
its prime rate is merely an index rate used by the Agent to establish lending
rates and is not necessarily the Agent's most favorable lending rate, and that
changes in the Agent's prime rate are discretionary with the Agent. Any change
in the Prime Rate shall be effective as of the date of such change.
Principal Office means the principal office of the Agent located at
600 Peachtree Street, N.E., 21st Floor, Atlanta, Georgia 30308-2213.
Regulatory Change means any change effective after the Closing Date
in United States federal or state laws or regulations (including Regulation D
and capital adequacy regulations) or foreign laws or regulations or the
adoption or making after such date of any interpretations, directives or
requests applying to a class of banks, which includes any of the Lenders, under
any United States federal or state or foreign laws or regulations (whether or
not having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof or compliance by any
Lender with any request or directive regarding capital adequacy, including with
respect to "highly leveraged transactions," whether or not having the force of
law, whether or not failure to comply therewith would be unlawful and whether
or not published or proposed prior to the date hereof.
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Request for Advance or Interest Election shall have the meaning
attributed to that term in Section 2.2.
Required Lenders means at any time during which an Event of Default
does not exist, the Lenders having at least 66-2/3% of the aggregate amount of
the Commitments or, if the Commitments shall have terminated or an Event of
Default has occurred, Lenders holding at least 66-2/3% of the aggregate unpaid
principal amount of the Loans. If any Lender shall have failed to fund its
portion of any Syndicated Loan pursuant to Section 2.1 and the Agent has made
such Loan on such Lender's behalf, the Agent shall be deemed the holder of such
portion of such Lender's Commitment for purposes of this definition.
Revolving Facility means the credit facility made available to the
Borrower by the Lenders under the terms of Article II in an aggregate amount of
up to $60,000,000 as reduced by Borrower pursuant to Section 2.5 hereof.
Revolving Facility Obligations means the outstanding principal amount
of all Advances, all interest accrued thereon, all costs, charges, fees and
expenses payable in connection therewith, and all extensions and renewals
thereof.
Segment means a portion of the Advances (or all thereof) with respect
to which a particular interest rate is (or is proposed to be) applicable.
Subsidiary means any corporation, more than 50% of the shares of
stock of which having general voting power under ordinary circumstances to
elect the board of directors, managers or trustees of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, which is owned or controlled directly or indirectly by the
Borrower.
Syndicated Loans means the loans provided for by Section 2.1 hereof,
which may be Floating Rate Loans, CD Loans or LIBOR Loans.
Syndicated Notes means the promissory notes provided for by Section
2.6 hereof and all promissory notes delivered in substitution or exchange
thereof, in each case as the same shall be modified and supplemented and in
effect from time to time.
Tangible Net Worth means the sum of the amounts set forth on the
balance sheet as stockholders' equity (including the par or stated value of all
outstanding capital stock, retained earnings, additional paid-in capital,
capital surplus and earned surplus), less the sum of (a) any surplus resulting
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from any write-up of assets not made in accordance with GAAP, (b)
goodwill, (c) patents, trademarks, copyrights and deferred charges
(including unamortized debt, discount and expense, organization
expenses, experimental and developmental expenses, but excluding
prepaid expenses), (d) any amounts at which shares of capital stock
of such person appear on the asset side of the balance sheet, (e)
any amounts due from or owed by any stockholder or Affiliate, (f)
treasury stock and (g) any and all other intangibles.
Termination Date means September 20, 1996, as the same may be
extended from time to time in accordance with Section 2.11 hereof,
but in all events not later than September 20, 1998.
Type shall have the meaning assigned to such term in Section 1.2
hereof.
SECTION 1.2 Classes and Types of Loans. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan refers to
whether such Loan is a Competitive Bid Loan or a Syndicated Loan, each of
which constitutes a Class. The "Type" of a Loan refers to whether such Loan is
a Floating Rate Loan, a CD Loan, a LIBOR Loan, an Absolute Loan or a LIBOR
Market Loan, each of which constitutes a Type. Loans may be identified by
both Class and Type.
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ARTICLE II
REVOLVING FACILITY TERMS
SECTION 2.1 Syndicated Loans. From and after the Closing Date to
and including the Termination Date, on the terms and subject to the conditions
set forth in this Agreement, each Lender severally agrees to lend to the
Borrower and the Borrower may borrow, repay and reborrow, an amount not
exceeding the amount of the Commitment of such Lender in effect from time to
time, less the amount of such Lender's Syndicated Loans applicable to such
Lender; provided, however, that no more than eight (8) different Interest
Periods for both Syndicated Loans and Competitive Bid Loans may be outstanding
at the same time (for which purpose Interest Periods described in different
lettered clauses of the definition of the term "Interest Period" shall be
deemed to be different Interest Periods even if they are coterminous). All
Advances made by the Lenders to the Borrower under this Agreement with respect
to the Revolving Facility shall be evidenced by a promissory note for each
Lender each dated the date of this Agreement payable to the order of each
Lender, duly executed by the Borrower, and in the aggregate maximum principal
amount of $60,000,000 all as provided in Section 2.8 hereof. The Advances
shall bear interest as provided in Article III below. The unpaid principal
amount of all Loans hereunder shall not exceed the Revolving Facility and each
Syndicated Loan made hereunder shall be allocated pro rata among Lenders based
upon their Applicable Commitment Percentage regardless of amounts outstanding
under Competitive Bid Loans.
SECTION 2.2 Advances of Syndicated Loans. Advances of Syndicated
Loans shall be made no more frequently than three (3) times in each week. Each
Advance shall be in an amount no less than $5,000,000 and multiples of
$1,000,000 thereafter. Each request for an Advance must be in writing (which
may be by facsimile transmission) and must be received by the Agent not later
than 10:00 a.m., Atlanta, Georgia, time, (x) at least three Business Days prior
to the date of any LIBOR Loan or CD Loan and (y) on the day which the Advance
is to be made in the case of a Floating Rate Loan; provided, however, that no
CD Loan shall be made less than thirty (30) days before the Termination Date
and no LIBOR Loan shall be made less than one month before the Termination
Date. Each request for an Advance shall be in the form attached hereto as
Exhibit D ("Request for Advance or Interest Rate Election") and shall specify
the amount of the Advance requested, the day as of which the Advance is to be
made and shall provide the interest rate information called for in Section 3.2.
The Agent shall promptly furnish each Lender by telecopy transmission a copy of
each Request for Advance or Interest Rate Election. Not later than 2:00 P.M.
Atlanta, Georgia time on the date specified for each Advance hereunder, each
Lender shall make available the amount of the Syndicated Loan or Loans to be
made by it on such date to the Agent at the Principal Office, in Dollars and in
immediately available funds, and the amount received by the Agent shall be made
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available to the Borrower by depositing the proceeds thereof into an account
with the Agent in the name of the Borrower. The Lenders' obligation to make
Advances shall terminate, if not sooner terminated pursuant to the provisions
of this Agreement, on the Termination Date. Each Request for Advance or
Interest Rate Election, whether submitted under this Section 2.2 in connection
with a requested Advance or under Section 3.2 in connection with an interest
rate election, shall be signed by an Authorized Officer. The Borrower may,
from time to time, by written notice to the Agent, terminate the authority of
any person to submit Request for Advance or Interest Rate Election forms and
designate new or additional persons to so act by delivering to the Agent a
certificate of the Secretary of the Borrower certifying the incumbency and
specimen signature of each such person. The Agent shall be entitled to rely
conclusively upon the authority of any person so designated by the Borrower.
SECTION 2.3 Competitive Bid Loans.
(a) In addition to borrowings of Syndicated Loans, at any time prior
to the Termination Date the Borrower may, as set forth in this Section 2.3,
request the Lenders to make offers to make Competitive Bid Loans to the
Borrower in Dollars. The Lenders may, but shall have no obligation to, make
such offers and the Borrower may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section 2.3. Competitive Bid Loans
may be LIBOR Market Loans or Absolute Rate Loans (each a "Type" of Competitive
Bid Loan), provided that:
(i) there may be no more than eight (8) different Interest
Periods for both Syndicated Loans and Competitive Bid Loans
outstanding at the same time (for which purpose Interest Periods
described in different lettered clauses of the definition of the
term "Interest Period" shall be deemed to be different Interest
Periods even if they are coterminous); and
(ii) the aggregate principal amount of all Competitive Bid Loans,
together with the sum of the aggregate principal amount of all
outstanding Syndicated Loans shall not exceed the aggregate amount
of the Revolving Facility at such time.
(b) When the Borrower wishes to request offers to make Competitive
Bid Loans, it shall give each of the Lenders verbal notice (a "Competitive Bid
Quote Request") to be received no later than 11:00 a.m. Atlanta, Georgia time
on (x) the third Business Day prior to the date of borrowing proposed therein,
in the case of a LIBOR Auction or (y) the Business Day next preceding the date
of borrowing proposed therein, in the case of an Absolute Rate Auction (or, in
any such case, such other time and date as the Borrower and the Agent, with the
consent of the Required Lenders, may agree). The Borrower may request offers
to make Competitive Bid Loans for
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up to two (2) different Interest Periods in a single notice (for which purpose
Interest Periods in different lettered clauses of the definition of the term
"Interest Period" shall be deemed to be different Interest Periods even if
they are coterminous); provided that the request for each separate Interest
Period shall be deemed to be a separate Competitive Bid Quote Request for a
separate borrowing (a "Competitive Bid Borrowing") and there shall not be
outstanding at any one time more than four (4) Competitive Bid Borrowings.
In connection with any Competitive Bid Quote Request the Borrower shall
furnish each Lender with the following as to each Competitive Bid Borrowing:
(i) the proposed date of such borrowing, which shall
be a Business Day;
(ii) the aggregate amount of such Competitive Bid
Borrowing, which shall be at least $2,000,000 (or a larger
multiple of $1,000,000) but shall not cause the limits
specified in Section 2.3(a) hereof to be violated;
(iii) the duration of the Interest Period applicable
thereto;
(iv) whether the Competitive Bid Quotes requested for a
particular Interest Period are seeking quotes for LIBOR
Market Loans or Absolute Rate Loans; and
(v) if the Competitive Bid Quotes requested are
seeking quotes for Absolute Rate Loans, the date on which the
Competitive Bid Quotes are to be submitted if it is before
the proposed date of borrowing (the date on which such
Competitive Bid Quotes are to be submitted is called the
"Quotation Date").
Except as otherwise provided in this Section 2.3(b), no Competitive Quote
Request will be made by the Borrower within five (5) Business Days (or such
other number of days as the Borrower and the Agent, with the consent of the
Required Lenders, may agree) of any other Competitive Quote Request.
(c) (i) Each Lender may submit one or more Competitive Bid
Quotes, each containing an offer to make a Competitive Bid Loan in response to
any Competitive Bid Quote Request; provided that, if the Borrower's request
under Section 2.3(b) hereof specified more than one Interest Period, such
Lender may make a single submission containing one or more Competitive Bid
Quotes for each such Interest Period. Each Competitive Bid Quote must be
submitted to the Borrower not later than (x) 2:00 p.m. Atlanta, Georgia time on
the third Business Day prior to the proposed date of borrowing, in the case of
a LIBOR Auction or (y) 10:00 a.m. Atlanta, Georgia time on the Quotation Date,
in the case of an Absolute Rate Auction (or, in any such case, such other time
and date as the Borrower and the Agent, with the consent of the Required
Lenders, may agree).
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Subject to Sections 4.2, 4.3 and Article VI and IX hereof, any Competitive Bid
Quote so made shall be irrevocable except with the consent of the Agent given
on the instructions of the Borrower.
(ii) Each Competitive Bid Quote may be given to the
Borrower by telephone and shall be confirmed in writing via facsimile. Such
confirmation shall be substantially in the form of EXHIBIT E hereto and shall
specify:
(A) the proposed date of borrowing and the
Interest Period therefor;
(B) the principal amount of the Competitive
Bid Loan for which each such order is being made, which
principal amount shall be at least $2,000,000 (or a larger
multiple of $1,000,000); provided that (1) the aggregate
principal amount of all Competitive Bid Loans for which a
Lender submits Competitive Bid Quotes may not exceed the
maximum aggregate principal amount of the Revolving Facility
and (2) the Borrower may not accept Competitive Bid Quotes
that would result in an aggregate principal amount
outstanding greater than the Revolving Facility;
(C) in the case of a LIBOR Auction, the margin
above or below the applicable LIBOR-Based Rate (the "LIBOR
Margin") offered for each such Competitive Bid Loan,
expressed as a percentage (rounded upwards, if necessary,
to the nearest 1/1O,OOOth of 1%) to be added to or
subtracted from the applicable LIBOR-Floating Rate;
(D) in the case of an Absolute Rate Auction, the
rate of interest per annum (rounded upwards, if necessary,
to the nearest 1/1O,OOOth of 1%) offered for each such
Competitive Bid Loan (the "Absolute Rate"); and
(E) the identity of the quoting Lender.
Unless otherwise agreed by the Agent and the Borrower, no Competitive Bid Quote
shall contain qualifying, conditional or similar language or propose terms
other than or in addition to those set forth in the applicable Competitive Bid
Quote Request and, in particular, no Competitive Bid Quote may be conditioned
upon acceptance by the Borrower of all (or some specified minimum) of the
principal amount of the Competitive Bid Loan for which such Competitive Bid
Quote is being made.
(d) The Borrower shall (x) in the case of a LIBOR Auction,
by 4:00 p.m. Atlanta, Georgia time on the day a Competitive Bid Quote is
submitted or (y) in the case of an
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Absolute Rate Auction, as promptly as practicable after the Competitive Bid
Quote is submitted (but in any event not later than 10:30 a.m. Atlanta, Georgia
time on the Quotation Date), notify the Agent and the Lenders of the terms (i)
of any Competitive Bid Quote submitted by a Lender that is in accordance with
Section 2.3(c) hereof and (ii) of any Competitive Bid Quote that amends,
modifies or is otherwise inconsistent with a previous Competitive Bid Quote
submitted by such Lender with respect to the same Competitive Bid Quote
Request. Any such subsequent Competitive Bid Quote shall be disregarded by the
Borrower unless such subsequent Competitive Bid Quote is submitted solely to
correct a manifest error in such former Competitive Bid Quote. The Borrower's
notice to the Agent and the Lenders shall specify (A) the aggregate principal
amount of the Competitive Bid Borrowing for which orders have been received and
(B) the respective principal amounts and LIBOR Margins or Absolute Rates, as
the case may be, so offered by each Lender (identifying the Lender that made
each Competitive Bid Quote).
(e) In the case of acceptance of Competitive Bid Quotes,
such notice shall be substantially in the form of EXHIBIT F and shall specify
the aggregate principal amount of offers for each Interest Period that are
accepted. The Borrower may accept any Competitive Bid Quote in whole or in
part (provided that any Competitive Bid Quote accepted in part shall be at
least $2,000,000 or a larger multiple of $1,000,000); provided that:
(i) the aggregate principal amount of each
Competitive Bid Borrowing may not exceed the applicable
amount set forth in the related Competitive Bid Quote
Request;
(ii) the aggregate principal amount of each
Competitive Bid Borrowing shall be at least $2,000,000 (or a
larger multiple of $1,000,000) but shall not cause the
limits specified in Section 2.3(a) hereof to be violated;
(iii) acceptance of offers may be made only in
ascending order of LIBOR Margins or Absolute Rates, as the
case may be, in each case beginning with the lowest rate so
offered; provided, however, that the Borrower, in its sole
discretion, may accept other than the lowest rate where
acceptance of the lowest rate will result in the outstanding
Loans of a Lender or Lenders offering the lowest rate
exceeding such Lender's Competitive Bid Commitment; and
(iv) the Borrower may not accept any offer where such
offer fails to comply with Section 2.3(c)(ii) hereof or
otherwise fails to comply with the requirements of this
Agreement (including, without limitation, Section 2.3(a)
hereof).
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If offers are made by two or more Lenders with the same LIBOR Margins or
Absolute Rates, as the case may be, for a greater aggregate principal amount
than the amount in respect of which offers are accepted for the related
Interest Period after the acceptance of all offers, if any, of all lower LIBOR
Margins or Absolute Rates, as the case may be, offered by any Lender for such
related Interest Period, the principal amount of Competitive Bid Loans in
respect of which such offers are accepted shall be allocated by the Borrower
among such Lenders as nearly as possible (in amounts of at least $2,000,000 or
larger multiples of $1,000,000) in proportion to the aggregate principal amount
of such offers. Determinations by the Borrower of the amounts of Competitive
Bid Loans and the lowest bid after adjustment as provided in Section
2.3(e)(iii) shall be conclusive in the absence of manifest error.
(f) Any Lender whose offer to make any Competitive Bid Loan has
been accepted shall, not later than 1:00 p.m. Atlanta, Georgia time on the date
specified for the making of such Loan, make the amount of such Loan available
to the Borrower on such date by depositing the same, in Dollars and in
immediately available funds, in an account designated by the Borrower for the
deposit of such funds.
SECTION 2.4 Payments. All interest accrued on Loans subject to the
Floating Rate shall be payable on the first day of each successive December,
March, June and September, commencing on December 1, 1993 and upon payment in
full of such Loans, and all interest accrued on each Fixed Rate Loan, shall be
payable at the earlier of (i) the end of the applicable Interest Period then in
effect or (ii) the end of each ninety (90) day period in the case of an
Absolute Rate Loan and a CD Loan and each three (3) month period in the case of
a LIBOR Market Loan. The principal amount of the Advances shall be due on the
Termination Date. All payments of Credit Obligations in connection with
Syndicated Loans shall be payable to the Agent and all payments of Credit
Obligations in connection with Competitive Bid Loans shall be payable to the
respective Lenders, on or before 11:00 A.M. Atlanta, Georgia time on the date
when due, at the Principal Office in Dollars and in immediately available funds
free and clear of all rights of set-off or counterclaim.
If any amount shall not be paid when due (including any applicable
grace periods), such amount shall bear interest thereafter until paid at a rate
of interest per annum which shall be two percent (2%) above the rate at which
interest was payable on such Loan on the day immediately preceding the due date
of such Loan or the maximum rate permitted by applicable law, whichever is
lower, from the date such amount was due and payable until the date such amount
is paid in full.
SECTION 2.5 Prepayment. The Borrower may at any time prepay all or
any part of the Advances, without premium or penalty
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(except as set forth below); provided, however, that no Fixed Rate Segment may
be prepaid during an Interest Period unless the Borrower shall pay to the Agent
or in the case of Competitive Bid Loan, to the Lender, the amounts required by
Section 4.2 hereof. The Borrower shall pay all interest accrued to the date of
prepayment on any amount prepaid as permitted under the terms of the next
preceding sentence on or prior.to the Termination Date in connection with the
prepayment in full of the Credit Obligations and the concurrent termination of
this Agreement. The Borrower shall give the Agent notice of its intent to pay
any Floating Rate Loan not later than 11:00 a.m. on the date of payment.
Failure to give such notice shall result in payment of interest through the
next succeeding Business Day on the amount so paid.
SECTION 2.6 Notes.
(a) The Syndicated Loans made by each Lender shall be evidenced by a
single promissory note of the Borrower substantially in the form of EXHIBIT G-1
hereto, dated the date hereof, payable to such Lender in a principal amount
equal to the amount of its Commitment as originally in effect and otherwise
duly completed.
(b) The Competitive Bid Loans made by any Lender shall be evidenced
by a single promissory note of the Borrower substantially in the form of
EXHIBIT G-2 hereto, dated the date hereof, payable to such Lender and otherwise
duly completed.
(c) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by such Lender on its books and, prior to any transfer of the Note
evidencing the Loans of such Class held by it, endorsed by such Lender on the
schedule attached to such Note or any continuation thereof; provided that the
failure of such Lender to make, or any error by the Lender in making any such
recordation or endorsement, shall not affect the obligations of the Borrower to
make a payment when due of any amount owing hereunder or under such Note in
respect of the Loans to be evidenced by such Note.
(d) No Lender shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Lender's
Commitment, Loans and Notes pursuant to Section 10.1 hereof.
SECTION 2.7 Lending Offices. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Lending Office.
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SECTION 2.8 Pro Rata Payments. Except as otherwise provided herein,
(a) so long as no Event of Default has occurred each payment on account of the
principal of and interest on the Syndicated Loans and fees (other than the
Agent's fees payable under Section 9.11 hereof, which shall be retained by the
Agent) described in this Agreement shall be made to the Agent for the account
of the Lenders pro rata based on their Applicable Commitment Percentages, (b)
so long as no Event of Default has occurred each payment on account of
principal of and interest on a Competitive Bid Loan shall be made to the
respective Lender making such Competitive Bid Loan, and the principal amount of
Competitive Bid Loans shall be paid on the last day of the Interest Period for
such Competitive Bid Loan, (c) after the occurrence of an Event of Default,
each payment on account of principal and interest on the Loans shall be made to
the Agent for the account of the Lenders pro rata based on the principal
amounts of the outstanding Loans, (d) all payments to be made by the Borrower
for the account of each of the Lenders on account of principal, interest and
fees, shall be made without set-off or counterclaim, and (e) the Agent will
promptly distribute payments received to the Lenders.
SECTION 2.9 Deficiency Advances. No Lender shall be responsible for
any default of any other Lender in respect to such other Lender's obligation to
make any Loan hereunder nor shall the Commitment of any Lender hereunder be
increased as a result of such default of any other Lender. Without limiting
the generality of the foregoing, in the event any Lender (a "failing Lender")
shall fail to advance funds to the Borrower as herein provided, the Agent may
in its discretion, but shall not be obligated to, advance under the Note or
Notes in its favor as a Lender all or any portion of such amount (the
"deficiency advance") and shall thereafter be entitled to payments of principal
of and interest on such deficiency advance in the same manner and at the same
interest rate or rates to which such failing Lender would have been entitled
had such failing Lender made such Advance under its Note or Notes; provided
that, upon payment to the Agent from such failing Lender of the entire
outstanding amount of such deficiency advance, together with interest thereon,
from the most recent date or dates interest was paid to the Agent by the
Borrower on each Loan comprising the deficiency advance at the interest rate
per annum for overnight borrowing by the Agent from the Federal Reserve Bank,
then such payment shall be credited against the Note or Notes of the Agent in
full payment of such deficiency advance and the Borrower shall be deemed to
have borrowed the amount of such deficiency advance from such failing Lender as
of the most recent date or dates, as the case may be, upon which any payments
of interest were made by the Borrower thereon. Acceptance by the Borrower of a
deficiency advance from the Agent shall in no way limit the rights of the
Borrower against a failing Lender.
SECTION 2.10 Adjustments by Agent. Notwithstanding the construction
of "pro rata" to mean based on the Applicable Commitment Percentage and any
provisions contained herein for the
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advancement of funds or distribution of payments on a pro rata basis, the Agent
may, in its discretion, but shall not be obligated to, adjust downward or
upward (but not in excess of any applicable Commitment) the principal amount of
any Loan to be made by any Lender to the nearest amount which is evenly
divisible by $100, and make appropriate related adjustment in the distribution
of payments of principal and interest on the Loans.
SECTION 2.11 Extension of Termination Date. Provided Borrower shall
have furnished to the Agent and the Lenders the financial statements referred
to in Section 7.3 within the time set forth therein, the Borrower may request
not sooner than thirty days preceding the first and second annual anniversary
of the Closing Date, that the Termination Date be extended for an additional
period of one year, provided that the Termination Date may not extend beyond
September 20, 1998. The Agent shall notify the Borrower in writing, within
sixty (60) days of receipt of such request of the decision of the Lenders of
whether to extend the Termination Date. Failure by the Agent to give such
notice shall constitute refusal by the Lenders to extend the Termination Date.
The Termination Date shall be extended only upon written consent of all
Lenders.
SECTION 2.12 Commitment Fees. The Borrower will pay to the Agent for
the account of the Lenders a commitment fee equal to one eighth of one percent
(1/8%) per annum (or 1/32% per quarter) of the Revolving Facility. Payments of
this commitment fee will be payable quarterly in advance beginning on the
Closing Date and on the first day of each Fiscal Quarter thereafter. Such fee
shall be calculated on an Actua1/360 Basis.
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ARTICLE III
INTEREST ON SYNDICATED LOANS
SECTION 3.1 Applicable Interest Rates. The Borrower shall have the
option to elect to have any Syndicated Loan Segment bear interest at the
Floating Rate, the LIBOR-Based Rate or the CD Rate. For any period of time and
for any Segment with respect to which the Borrower does not elect another
interest rate, such Segment shall bear interest at the Floating Rate. The
Borrower's right to elect a LIBOR-Based Rate or CD Rate shall be subject to the
following requirements: (a) each Syndicated Loan Segment shall be in the
amount of $3,000,000 or more and in an integral multiple of $1,000,000 (b) each
LIBOR-Based Rate Segment shall have a maturity selected by the Borrower of one,
two or three months and (c) each CD Rate Segment shall have a maturity selected
by the Borrower of 30, 60, 90 or 180 days; provided, however, that no
LIBOR-Based Rate Segment or CD Rate shall have a maturity date later than the
Termination Date.
SECTION 3.2 Procedure for Exercising Interest Rate Options. The
Borrower may elect to have a particular interest rate apply to a Segment of a
Syndicated Loan by notifying the Agent in writing (which may be by facsimile
transmission) not later than 10:00 a.m., Atlanta, Georgia time, three (3)
Business Days prior to the effective date any LIBOR-Based Rate or CD Rate is to
become applicable or on the same day on which a requested Floating Rate is to
become applicable. Any notice of interest rate election hereunder shall be
irrevocable and shall be in the form attached hereto as EXHIBIT D and shall set
forth the following: (a) the amount of the Segment to which the requested
interest rate will apply, (b) the date on which the selected interest rate will
become applicable, (c) whether the interest rate selected is the Floating Rate,
CD Rate or a LIBOR-Based Rate, and (d) if the interest rate selected is a
LIBOR-Based Rate or a CD Rate, the maturity selected for the Interest Period.
On the second Business Day preceding the Business Day that a requested
LIBOR-Based Rate is to become applicable, the Agent shall use its best efforts
to notify the Borrower by telephone of the Agent's estimate of the applicable
LIBOR-Based Rate by 10:00 a.m., Atlanta, Georgia time, or as early on that day
as may be practical in the circumstances. The Agent shall not be required to
provide an estimate of the LIBOR-Based Rate on any day on which dealings in
deposits in Dollars are not transacted in the London interbank market. If the
Borrower does not immediately accept a LIBOR-Based Rate or CD Rate quoted by
the Agent, the Agent may, in view of changing market conditions, revise the
quoted LIBOR-Based Rate or CD Rate at any time. No LIBOR-Based Rate or CD Rate
shall be effective until mutually agreed upon by the Borrower and the Agent.
If the Agent and the Borrower attempt to agree on a LIBOR-Based Rate or CD Rate
but fail so to agree, or if there is any uncertainty as to whether or not the
Agent and the Borrower have agreed upon a LIBOR-Based Rate or CD Rate, interest
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shall accrue on the Segment for which a LIBOR-Based Rate or CD Rate has been
selected at the then applicable Floating Rate.
SECTION 3.3 Floating Rate. Each Segment subject to the Floating Rate
shall bear interest from the date the Floating Rate becomes applicable thereto
until payment in full, or until a LIBOR-Based Rate or CD Based Rate is selected
by the Borrower and becomes applicable thereto, on the unpaid principal balance
of such Segment on an Actua1/360 Basis. Any change in the Floating Rate shall
take effect on the effective date of such change in the Floating Rate
designated by the Agent, without notice to the Borrower and without any further
action by the Agent.
SECTION 3.4 Fixed Rate. Each LIBOR-Based Rate Segment and CD Rate
Segment shall bear interest from the date the LIBOR-Based Rate or the CD Rate
becomes applicable thereto until the end of the applicable Interest Period on
the unpaid principal balance of such LIBOR-Based Rate Segment or CD Rate
Segment at the LIBOR-Based Rate or the CD Rate on an Actua1/360 Basis.
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<PAGE> 30
ARTICLE IV
TERMINATION OF LIBOR-BASED RATE AND YIELD PROTECTION
SECTION 4.1 Suspension of Loans.
(a) If at any time the Agent.shall reasonably determine (which
determination, if reasonable, shall be final, conclusive and binding upon all
parties) that:
(i) by reason of any changes arising after the Closing Date
affecting the London interbank market or affecting the position of
any Lender or the Agent in such markets, adequate and fair means do
not exist for ascertaining the LIBOR-Based Rate with respect to a
LIBOR Loan or LIBOR Market Loan or the CD Rate with respect to a CD
Loan; or
(ii) the continuation by any Lender of any LIBOR Loans, LIBOR
Market Loans or CD Loans or the funding thereof would be unlawful by
reason of any law, governmental rule, regulation, guidelines or
order; or
(iii) the continuation by any Lender of any LIBOR Loans, LIBOR
Market Loans or CD Loans or the funding thereof would be
impracticable as a result of a contingency occurring after the date
of this Agreement that materially and adversely affects the London
interbank market;
then, and in any such event, the Agent shall on such date give notice (by
telephone and confirmed in writing) to the Borrower of such determination. The
obligation of any Lender to make or maintain Fixed Rate Segments so affected or
to permit interest to be computed thereon at the LIBOR-Based Rate or the CD
Rate shall be terminated, and interest shall thereafter be computed on the
affected Segment or Segments at the then applicable Floating Rate.
(b) It is the intention of the parties that the Fixed Rates shall
accurately reflect the cost to the Lender of maintaining any Fixed Rate Segment
during any period in which interest accrues thereon at a Fixed Rate.
Accordingly:
(i) if by reason of any change after the date hereof in any
applicable law or governmental rule, regulation or order (or any
interpretation thereof and including the introduction of any new law
or governmental rule, regulation or order), including any change in
the LIBOR Reserve Requirement, the cost to the Lender of maintaining
any Fixed Rate Segment or funding the same by means of a London
interbank market time deposit shall increase, the Fixed Rate
applicable to such Fixed Rate Segment shall be adjusted as necessary
to reflect such
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<PAGE> 31
change in cost to the Lender, effective as of the date on which such
change in any applicable law, governmental rule, regulation or order
becomes effective.
(ii) If any Lender shall have determined in good faith that the
adoption after the date of this Agreement of any law, rule,
regulation or guideline regarding capital adequacy, or any change in
any of the foregoing or in the interpretation or administration of
any of the foregoing by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any lending office of any
Lender) or such Lender's holding company with any request or
directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company,
as a consequence of the Lender's obligations under this Agreement or
the Advances made by such Lender pursuant hereto to a level below
that which such Lender or any such Lender's holding company could
have achieved but for such adoption, change or compliance (taking
into consideration the Lender's guidelines with respect to capital
adequacy) by an amount deemed by such Lender to be material, then
from time to time the Borrower shall pay to the Lender such
additional amount or amounts as will compensate the Lender or the
Lender's holding company for any such reduction suffered.
SECTION 4.2 Compensation. The Borrower shall compensate any Lender
for all reasonable losses, expenses and liabilities (including any interest by
such Lender to lenders on funds borrowed by such Lender to make or carry any
Fixed Rate Segment and any loss sustained by the Lender in connection with the
re-employment of such funds), that such Lender may sustain: (a) if for any
reason (other than a default by such Lender) following agreement between the
Borrower and such Lender as to the Fixed Rate applicable to a Fixed Rate
Segment the Borrower fails to accept such Fixed Rate Segment, (b) as a
consequence of any unauthorized action taken or default by the Borrower in the
repayment of any Fixed Rate Segment when required by the terms of this
Agreement or (c) with respect to any loss of income incurred by the Lenders (as
determined in a reasonable manner by the Agent) associated with the payment of
principal other than the last day of an Interest Period with respect to any
Fixed Rate Loan. A certificate as to the amount of any additional amounts
payable pursuant to Section 4.2 (setting forth in reasonable detail the basis
for requesting such amounts) submitted by such Lender to the Borrower shall be
conclusive, in the absence of manifest error. The Borrower shall pay to such
Lender the amount shown as due on any such certificate delivered by such Lender
within 30 days after the Borrower's receipt of the same.
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<PAGE> 32
SECTION 4.3 Taxes. All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future excise, stamp
or franchise taxes or other taxes, whatsoever imposed by any taxing authority,
but excluding franchise taxes and taxes imposed on or measured by any Lender's
net income or receipts (such non-excluded items being called "Taxes"). In the
event that any withholding or deduction from any payment to be made by the
Borrower hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Borrower will
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to
such authority; and
(c) pay to the Agent for the account of the Lender such additional
amount or amounts as is necessary to ensure that the net amount
actually received by each Lender will equal the full amount such
Lender would have received had no such withholding or deduction been
required.
Moreover, if any Taxes are directly asserted against the Agent or any Lender
with respect to any payment received by the Agent or such Lender hereunder, the
Agent or such Lender may pay such Taxes and the Borrower will promptly pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by the Agent or such Lender
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount the Agent or such Lender would have received had no such
Taxes been asserted. Upon the request of the Borrower or the Agent, each
Lender and each participant that is organized under the laws of a jurisdiction
other than the United States shall, prior to the due date or any payments under
the Notes, execute and deliver to the Borrower and the Agent, on or about the
first scheduled payment date in each Fiscal Year, one or more (as the Borrower
or the Agent may reasonably request) United States Internal Revenue Service
Forms 4224 or Forms 1001 or such other forms or documents (or successor forms
or documents), appropriately completed, as may be applicable (if any are) to
establish the extent, if any, to which a payment to such Lender or participant
is exempt from withholding or deduction of Taxes.
If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Lender, the required amounts, receipts or other required documentary evidence,
the Borrower shall indemnify the Lenders for any incremental Taxes, interest
or penalties that may become payable by the Lender as a result of any
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<PAGE> 33
such failure. For purposes of this Section 4.3, a distribution hereunder by
the Agent or any Lender to or for the account of any Lenders shall be deemed a
payment by the Borrower.
If Taxes are incorrectly or illegally paid or assessed, and if any
Lender or the Agent contests the assessment of such Taxes, such Lender or the
Agent shall refund, to the extent of any refund made to such Lender or the
Agent, any amounts paid by the Borrower under this Section in respect of such
Taxes.
Without prejudice to the survival of any other agreements of the
Borrower hereunder or any other Loan Document, the agreements of the Borrower
contained in this Section shall survive the payment in full of all its Credit
Obligations and the termination of all Commitments.
To the extent any Lender shall become liable for the payment of any
Taxes hereunder and shall seek reimbursement therefor pursuant to this Section
4.3, the Borrower shall be entitled, upon the giving of five Business Days
notice to the Agent, (i) to replace such Lender with a substitute lender, and
(ii) in connection with such substitution, prepay in full the outstanding
Commitment of the Lender requesting reimbursement without penalty or payment
under Section 4.2 hereof.
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<PAGE> 34
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and the Lenders as
follows:
SECTION 5.1 Organization, Powers, Existence, etc. Each of the
Borrower and its Subsidiary (a) is duly organized or formed, validly existing
and in good standing under the laws of the state in which it is incorporated or
formed, (b) has the power and authority to own its properties and assets and to
carry on its business as now being conducted, (c) has the power to execute,
deliver and perform the Loan Documents to which it is a party, and (d) is duly
qualified to do business in each state in which it is required to be so
qualified.
SECTION 5.2 Authorization of Borrowing, etc. The execution,
delivery and performance of the Loan Documents (a) have been duly authorized
by all requisite action and (b) will not violate any Governmental Requirement,
the certificate of incorporation or bylaws of the Borrower or any indenture,
agreement or other instrument to which the Borrower is a party, or by which the
Borrower or any of their properties are bound, or be in conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any Lien upon any of the properties or assets of
the Borrower, except as required by the terms of this Agreement.
SECTION 5.3 Liabilities. The Borrower has furnished to the Agent
and the Lenders a copy of the audited consolidated balance sheet of the Borrower
and its Subsidiaries dated as of January 31, 1993 and a statement of changes in
shareholders' equity and the related statements of income and cash flow as of
the end of fiscal year 1992 and the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries dated as of August 1, 1993, and the related
statements of income and cash flow for the fiscal period then ended. Such
financial statements were prepared in conformity with GAAP on a Consistent
Basis, are in accordance with the books and records of the Borrower and its
Subsidiaries, are correct and complete and present fairly the financial
condition of the Borrower and its Subsidiaries as of the date of such financial
statements, and, since the date of such financial statements no material
adverse change in the financial condition, business or operations of the
Borrower or any of its Subsidiaries on a consolidated basis has occurred.
Neither the Borrower nor any of its Subsidiaries has any Liabilities,
Guaranteed Obligations or other obligations or liabilities, direct or
contingent, other than (a) the Liabilities reflected in such balance sheet and
the notes thereto or (b) Liabilities incurred in the ordinary course of
business.
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<PAGE> 35
SECTION 5.4 Taxes. The Borrower and each of its Subsidiaries has
filed or caused to be filed all federal, state and local tax returns that are
required to be filed, and has paid all taxes as shown on said returns or on any
assessment received by the Borrower to the extent that such taxes have become
due and before delinquency except for any such taxes the amount, applicability
or validity of which is contested in good faith by appropriate proceedings and
for which adequate reserves have been established.
SECTION 5.5 Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Borrower, threatened against or
affecting the Borrower or any Subsidiary, by or before any Governmental
Authority that involve any of the transactions contemplated in this Agreement
or the reasonable possibility of any judgment or liability that may result in a
material adverse change in the operations or financial condition of the
Borrower and its Subsidiary; and neither the Borrower nor any Subsidiary is in
default with respect to any material Governmental Requirement.
SECTION 5.6 Agreements. Neither the Borrower nor any Subsidiary is
in default in the performance, observance or fulfillment of any of the
obligations contained in any agreement or instrument to which it is a party,
which default could have a material adverse effect upon the operations or
financial condition of the Borrower and its Subsidiaries.
SECTION 5.7 Use of Proceeds. The Borrower does not intend to use
any part of the proceeds of Advances for the purpose of purchasing or carrying
any Margin Stock or retiring any debt incurred to purchase or carry any Margin
Stock or for any other purpose that is not expressly authorized by this
Agreement.
SECTION 5.8 ERISA. (i) The execution and delivery of the Loan
Documents will not involve any prohibited transaction within the meaning of
ERISA, (ii) with respect to each "employee pension benefit plan," as defined in
Section 3(2) of ERISA, of which Borrower or a Subsidiary is a plan sponsor
(herein "Pension Plan"), the Borrower and each Subsidiary is in compliance in
all material respects with the applicable provisions of ERISA, (iii) no
"Reportable Event," as defined in Section 4043(b) of Title IV of ERISA, has
occurred with respect to any plan during any of the five most recent full plan
years for any such Pension Plan (except to the extent that the merger,
effective January 1, 1988, of the Hancock Fabrics, Inc. Retirement Plan and the
Minnesota Fabrics, Inc. Revised Employees, Pension Plan into the Hancock
Fabrics, Inc. Consolidated Retirement Plan may be a reportable event occurring
during such period), and (iv) each Pension Plan has satisfied the minimum
funding standard, as provided in Section 302 of ERISA, for each of the five
most recent full plan years for such Pension Plan.
SECTION 5.9 Subsidiaries. The Borrower has no Subsidiaries other
than those listed on EXHIBIT J.
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SECTION 5.10 Principal Place of Business. The principal place of
business and chief executive office of the Borrower is at its address shown in
Section 10.2 and will not be changed from such address unless, prior to such
change, the Borrower shall have notified the Agent of the proposed change, and
in no event will the Borrower,s principal place of business or chief executive
office be located outside the State of Mississippi.
SECTION 5.11 Compliance with Laws. The Borrower and its
Subsidiaries are in material compliance with all materially applicable laws and
other valid requirements of any regulatory authority with respect to the
conduct of its business.
SECTION 5.12 Disclosure. No financial statement, document,
certificate or other written communication furnished to the Lender by or on
behalf of the Borrower or any Subsidiary in connection with any Loan Document
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading. There is no fact known to the Borrower that materially adversely
affects the business or condition of the Borrower that has not been disclosed
herein or in such financial statements.
SECTION 5.13 Title to Properties. The Borrower and each of its
Subsidiaries has good title to all its properties and assets reflected on the
balance sheet referred to in Section 5.3 except for those matters shown on such
balance sheet and except for such properties and assets as have been disposed
of since the date of said balance sheet as no longer used or useful in the
conduct of its business or as have been disposed of in the ordinary course of
the business. All such properties and assets are free and clear of all Liens,
except Permitted Liens and as otherwise permitted or required by the provisions
of the Loan Documents.
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ARTICLE VI
GENERAL CONDITIONS OF LENDING
The Lenders' obligation to make each Advance hereunder is subject to
the following conditions precedent:
SECTION 6.1 Representations and Warranties. On the date of each
Advance hereunder and on the date the Borrower presents to the Agent a Request
for Advance or Interest Rate Election form or to the Lenders a Competitive Bid
Quote Request, the representations and warranties set forth in this Agreement
and in all other Loan Documents shall be true and correct on and as of such
date with the same effect as though such representations and warranties had
been made on the date of the Advance or on the date the Borrower presents to
the Agent or the Lenders, as the case may be, a Request for Advance or Interest
Rate Election form or Competitive Bid Quote Request, as the case may be. Each
such warranty and representation shall be deemed to be continuing in effect so
long as this Agreement remains in effect. The presentation by the Borrower of
each Request for Advance or Interest Rate Election or Competitive Bid Quote
Request shall constitute a representation and warranty by the Borrower to the
Agent and the Lenders that, to the best of Borrower's knowledge, no material
adverse change in the financial condition of the Borrower and its Subsidiaries,
on a consolidated basis, as reflected in the financial statements delivered to
the Agent and Lenders pursuant to Section 5.3 has occurred since the date of
such financial statements and that the representations and warranties of
Borrower contained in this Agreement continue to be true and correct (except
the financial statements referred to in Section 5.3 shall be deemed those most
recently delivered to the Agent pursuant to Section 7.3).
SECTION 6.2 No Default. On the date of each Advance hereunder, the
Borrower and its Subsidiaries shall be in compliance with all the terms and
conditions set forth in this Agreement on its or their part to be observed or
performed, and no Event of Default, nor event that upon notice or lapse of time
or both would constitute an Event of Default, shall have occurred and be
continuing.
SECTION 6.3 Supporting Documents. The Agent, on behalf of the
Lenders, shall have also received on the date of execution of this Agreement
(i) a copy of resolutions of the Board of Directors of the Borrower, certified
as in full force and effect on such date by the Secretary of the Borrower,
authorizing the execution, delivery and performance of the Loan Documents and
authorizing designated officers of the Borrower to execute and deliver the Loan
Documents on behalf of the Borrower and to execute and deliver to the Agent or
the Lenders a Request for Advance or Interest Rate Election or Competitive Bid
Quote Request, as the case may be; (ii) a certificate of the Secretary of the
Borrower, dated such date, certifying that (A) an attached copy of the
Certificate of
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Incorporation and bylaws of the Borrower as true and correct as of such date,
(B) that the Certificate of Incorporation and Bylaws of the Borrower have not
been amended since the date of the last amendment attached thereto and (C) the
incumbency and specimen signatures of the designated officers referred to in
clause (i) above; (iii) an Opinion of Counsel to the Borrower in the form
required by the Agent; (iv) this Agreement and the notes; and (v) such
additional supporting documents as the Agent may reasonably request.
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ARTICLE VII
GENERAL COVENANTS OF THE BORROWER
From the date on which this Agreement is delivered until payment in
full of the Credit Obligations and the termination in writing of the Lenders'
obligation to extend credit under this Agreement, the Borrower covenants and
agrees that:
SECTION 7.1 Existence, Properties, etc. The Borrower shall, and
shall cause each Subsidiary to, (a) do or cause to be done all things necessary
to preserve and keep in full force and effect its existence, rights and
franchises and materially comply with all Governmental Requirements applicable
to it and (b) at all times maintain, preserve and protect all franchises and
trade names and preserve all material property used or useful in the conduct of
its business and keep the same in good repair, working order and condition, and
from time to time make, or cause to be made, all needful and proper repairs and
improvements thereto (normal wear and tear excepted).
SECTION 7.2 Payment of Indebtedness, Taxes, etc. The Borrower
shall, and shall cause each Subsidiary to, (a) pay its indebtedness and
obligations in accordance with normal terms at or before maturity and (b) pay
and discharge or cause to be paid and discharged promptly all taxes,
assessments and other charges or levies of Governmental Authorities imposed
upon it or upon its income and profits or upon any of its properties before
the same shall become in default; provided, however, that the Borrower and its
Subsidiaries shall not be required to pay and discharge or cause to be paid
and discharged any such indebtedness, obligation, tax, assessment, charge,
levy or claim so long as the validity thereof shall be duly pursued and
contested in good faith by appropriate proceedings and the Borrower and its
Subsidiaries shall maintain adequate reserves for such taxes, indebtedness,
obligations, assessments, charges, levies or claims during such proceedings.
SECTION 7.3 Financial Statements, Reports, etc. It shall deliver or
cause to be delivered to the Agent and each Lender:
(1) Not later than 45 days after the end of each of the
first three Fiscal Quarters, a consolidated balance sheet and a
consolidated statement of income and expenses of the Borrower and its
Subsidiaries and a consolidated statement of cash flow of the
Borrower and its Subsidiaries for such Fiscal Quarters and for the
period beginning on the first day of the fiscal year and ending on
the last day of such calendar quarter (in sufficient detail to
indicate the Borrower's and each Subsidiary's compliance with the
financial covenants set. forth in this Article VII), together with
statements in comparative form for the corresponding periods in the
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<PAGE> 40
preceding fiscal year, and certified by the president or chief
financial officer of the Borrower.
(2) Not later than 90 days after the end of each fiscal
year, financial statements (including a consolidated balance sheet
and related consolidated statements of income, a statement of changes
in shareholders' equity and a statement of cash flow) of the Borrower
and its Subsidiaries for such fiscal year (in sufficient detail to
indicate the Borrower's and each Subsidiary's compliance with the
financial covenants set forth in this Article VII), together with
statements in comparative form for the preceding fiscal year, and
accompanied by an opinion of Price Waterhouse or other firm of
certified public accountants of nationally recognized standing, which
opinion shall state in effect that such financial statements (A) were
audited using generally accepted auditing standards, (B) were
prepared in accordance with GAAP applied on a Consistent Basis, and
(C) present fairly the financial condition and results of operations
of the Borrower and its Subsidiaries for the periods covered.
(3) Together with the financial statements required by
paragraphs (1) and (2) above a compliance certificate duly executed
by the chief executive officer or the president or chief financial
officer of the Borrower in the form of EXHIBIT H attached hereto
("Compliance Certificate").
(4) Promptly upon receipt thereof, copies of all material
reports, management letters and other documents affecting the
information in any of the reports delivered in connection with
paragraphs (1), (2) and (3) above submitted to the Borrower or any
Subsidiary by independent accountants in connection with any annual
or interim audit of the books of the Borrower or any Subsidiary made
by such accountants.
(5) Contemporaneously with the distribution thereof to the
Borrower's or any Subsidiary's stockholders or the filing thereof
with the Securities and Exchange Commission, as the case may be,
copies of all statements, reports, notices and filings distributed by
the Borrower or any Subsidiary to its stockholders or filed with the
Securities and Exchange Commission (including reports on SEC Forms
1O-K, 1O-Q and 8-K).
(6) With reasonable promptness after the Borrower knows or has
reason to know of the occurrence of any "reportable event" under
Section 4043 of ERISA with respect to any Pension Plan as defined in
Section 5.8 hereof, a certificate of the president or chief financial
officer of the Borrower setting forth the details as to such
"reportable event" and the action that the Borrower or the Subsidiary
has taken or will take with respect thereto, and promptly after the
filing thereof, copies of all reports and notices that the Borrower
or any
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Subsidiary files under ERISA with the Internal Revenue Service or the
PBGC or the United States Department of Labor.
(7) With reasonable promptness after the Borrower or any
Subsidiary receives written notice thereof, notice of any
investigation, action, suit or proceeding before any Governmental
Authority involving the condemnation or taking under the power of
eminent domain of any of its property or the revocation or suspension
of any permit, license, other Governmental Requirement applicable to
the Borrower.
(8) Such other information regarding the financial
condition or operations of the Borrower and its Subsidiaries as the
Agent shall reasonably request from time to time or at any time.
SECTION 7.4 Litigation Notice. The Borrower shall, and shall cause
each Subsidiary to, with reasonable promptness after receiving written notice
thereof, notify the Agent in writing of any action, suit or proceeding at law
or in equity or by or before any Governmental Authority that, if adversely
determined, might impair the ability of the Borrower to perform its obligations
under this Agreement or any other Loan Document or might materially and
adversely affect the business or condition, financial or other, of the
Borrower.
SECTION 7.5 Default Notice. The Borrower shall promptly give notice
in writing to the Agent of the occurrence of any Default or Event of Default.
SECTION 7.6 Further Assurances. The Borrower shall at its cost and
expense, upon the request of the Agent, duly execute and deliver, or cause to
be duly executed and delivered, to the Agent such further instruments and do
and cause to be done such further acts as may be reasonably necessary in the
opinion of the Agent or its counsel to carry out more effectively the
provisions and purposes of the Loan Documents.
SECTION 7.7 Insurance. The Borrower shall at all times maintain in
force, and pay all premiums and costs related to, insurance coverages
comparable to the coverages reviewed by the Agent prior to the Closing Date a
summary of which coverage is set forth in EXHIBIT I hereto. The Borrower shall
deliver to the Agent annually on or before the anniversary date of this
Agreement, and at such other time or times as the Agent may request (but not
more often than monthly), a certificate of the president or chief financial
officer of the Borrower setting out in such detail as the Agent may reasonably
require a description of all insurance coverages maintained by the Borrower.
The Agent shall have no obligation to give the Borrower notice of any
notification received by the Agent with respect to any insurance policies or
take any steps to protect the Borrower's or any Subsidiary's interests under
such policies.
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SECTION 7.8 Covenants Regarding Financial Condition.
The Borrower covenants and agrees that:
(1) Minimum Tangible Net Worth. The Tangible Net Worth of the
Borrower and its Subsidiaries shall not be less than $85,000,000 plus (A) 25%
of its Net Income (if positive), after taxes, on an ongoing basis for each
Fiscal Quarter beginning with the fiscal quarter ending August 1, 1993, plus
(B) the aggregate amount of all increases, if any, in its capital accounts
resulting from the issuance of capital stock or conversion of debt into capital
stock or other securities properly classified as equity in accordance with
GAAP, or from the sale or other disposition of treasury shares, from the date
of this Agreement through the date of determination minus Excess Common Stock
Repurchases.
(2) Debt to Cash Flow. The ratio of Debt to Cash Flow of the
Borrower and its Subsidiaries shall not be greater than the ratios set forth
for the respective time periods as set forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
3rd Fiscal Quarter 1993 through 3.50 to 1.00
the end of 2nd Fiscal Quarter 1994
3rd Fiscal Quarter 1994 and 3.00 to 1.00
all times thereafter
</TABLE>
(3) Fixed Charge Coverage Ratio. The ratio of Income
Available for Debt Service to the sum of Lease Payments and Interest Expense of
the Borrower and its Subsidiaries shall not be less than the amounts as set
forth for the respective periods below:
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<PAGE> 43
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
3rd Fiscal Quarter 1993 through 1.25 to 1.00
end of 1st Fiscal Quarter 1994
Beginning through end of 1.00 to 1.00
2nd Fiscal Quarter 1994
Beginning of 3rd Fiscal Quarter 1.50 to 1.00
1994 through end of
1st Fiscal Quarter 1995
Thereafter during each of the 1.50 to 1.00
1st, 3rd and 4th Fiscal Quarters
Thereafter during the 1.25 to 1.00
2nd Fiscal Quarter
</TABLE>
(4) Guarantees. It and its Subsidiaries on a consolidated basis
will not incur any Guaranteed Obligations (whether by directly guaranteeing
obligations of another person or by agreement to purchase the indebtedness
of any other person, or entering into an agreement for the furnishing of
funds to any other person through the purchase of goods, supplies or
services or by way of stock purchase, contribution, advance or loan for the
purpose of paying or discharging the indebtedness of any other person or
otherwise), in an aggregate amount in excess of $500,000, except for (A) the
endorsement of negotiable instruments in the ordinary course of business for
collection; and (B) guarantees of Debt incurred to pay the principal amount
of the Credit Obligations, provided that, concurrently with the incurrence
of such Guaranteed Obligation, the Borrower and the Agent agree in writing
to reduce permanently the credit available to the Borrower under this
Agreement by an amount equal to the amount of such Guaranteed Obligations
and the Borrower pays any fee required to be paid in connection with such
reduction.
(5) Investment and Loans. It and its Subsidiaries on a
consolidated basis will not, directly or indirectly, purchase or otherwise
acquire any stock, security, obligation or evidence of indebtedness of, make
any capital contribution to, own any equity interest in, or make any loan or
advance to, any other person; provided, however, that it may continue to
hold (A) Permitted Investments; and (B) other investments in an aggregate
amount not exceeding $500,000.
(6) Disposition of Assets. It will not without the consent of the
Required Lenders (which consent shall not be unreasonably withheld), sell,
lease, transfer or otherwise
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dispose of any substantial part of its properties and assets, except in the
ordinary course of business.
(7) Consolidation or Merger. It will not consolidate with or merge
with or into another person or permit any other person to merge into it,
except where the Borrower is the surviving entity and immediately following
such merger no Default or Event
of Default will exist.
(8) Liens. It will not incur, create, assume or permit to exist
any Lien upon any of its accounts receivable, contract rights, chattel paper,
inventory, equipment, instruments, general intangibles or other personal or
real property of any character, whether now owned or hereafter acquired,
other than Liens that constitute Permitted Encumbrances or Liens existing as
of the date hereof and described on EXHIBIT K hereof.
(9) Dividends and Distributions. It will not become subject to any
restrictions on the ability of such Subsidiary to pay dividends.
(10) Inventory. 25% of Average Inventory will not exceed Cost of
Goods Sold for any Fiscal Quarter.
SECTION 7.9 Continuation of Current Business. Neither the
Borrower nor any Subsidiary will engage in any business other than the
business now being conducted by it.
SECTION 7.10 Cooperation; Inspection of Properties. The Borrower
shall permit the Lenders and their representatives to inspect the Borrower's
properties and assets, and to inspect, review and audit the Borrower's books
and records from time to time and at any reasonable time upon reasonable
notice.
SECTION 7.11 Use of Proceeds. The Borrower shall use the proceeds
of Advances to provide working capital to the Borrower and for general corporate
purposes.
SECTION 7.12 Fiscal Year. The Borrower shall not change the
manner, as set forth in the resolutions of the Borrower's Board of Directors
dated February 26, 1987, in which it determines its Fiscal Year End from the
manner in existence on the Closing Date.
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ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1 Events of Default. The following shall constitute Events
of Default under this Agreement:
(a) the Borrower shall fail to pay within three days of
the date when due any principal or any interest payable under the terms of any
Note or any amount payable under this Agreement or any other of the Credit
Obligations or any other amount owed to the Agent or Lenders under or in
connection with the Loan Documents; or
(b) the Borrower shall default in the observance or
performance of any provision in Article VII hereof; or
(c) The Borrower shall default in the performance or
observance of any other provision of this Agreement (other than the provisions
of Article VII hereof), except as covered by clause (a) or (b) above, and shall
not cure such default within thirty days after the first to occur of (i) the
date the Agent or Lenders gives written or telephonic notice of the default to
the Borrower or (ii) the date the Borrower otherwise has notice thereof; or
(d) the Agent shall determine in good faith that any
statement, certification, representation or warranty contained herein, or in
any of the other Loan Documents or in any report, financial statement,
certificate or other instrument delivered to the Agent or any Lender by or on
behalf of the Borrower was misleading or untrue in any material respect at the
time it was made; or
(e) default shall be made in the payment of any
indebtedness (other than the Credit Obligations) of the Borrower when due if
the effect of such default is to accelerate the maturity of such indebtedness
or to permit the holder thereof to cause such indebtedness to become due prior
to its stated maturity; or
(f) the Borrower shall fail to pay its debts generally as
they come due, or a receiver, trustee, liquidator or other custodian shall be
appointed for the Borrower or for any of the property of the Borrower or a
petition in bankruptcy, or under any insolvency law, shall be filed by or
against the Borrower or the Borrower shall apply for the benefit of, or take
advantage of, any law for relief of debtors, or enter into an arrangement or
composition with, or make an assignment for the benefit of, creditors; or
(g) final judgment for the payment of money in excess of
any aggregate of $500,000 shall be rendered against the Borrower and the same
shall remain undischarged for a period of 30 days during which execution shall
not be effectively stayed; or
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(h) (i) any Person or two or more Persons acting in
concert shall have acquired beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 20% or more of the outstanding shares of the voting stock of
the Borrower; or (ii) as of any date a majority of the Board of Directors of
the Borrower consists of individuals who were not either (A) directors of the
Borrower as of the corresponding date of the previous year, (B) selected or
nominated to become directors by the Board of Directors of the Borrower of
which a majority consisted of individuals described in clause (A), or (C)
selected or nominated to become directors by the Board of Directors of the
Borrower of which a majority consisted of individuals described in clause (A)
and individuals described in clause (B); or
(i) an event of default, as therein defined, shall occur
under any other Loan Document;
then, and in any such event and at any time thereafter, if such Event of
Default shall then be continuing, (A) either or both of the following actions
may be taken: (i) the Agent may, and at the direction of the Required Lenders
shall, declare any obligation of the Lenders to make further Loans terminated,
whereupon the obligation of each Lender to make further Loans hereunder shall
terminate immediately, and (ii) the Agent shall at the direction of the
Required Lenders, at their option, declare by notice to the Borrower any or
all of the Credit Obligations to be immediately due and payable, and the same,
including all interest accrued thereon and all other obligations of the
Borrower to the Lenders, shall forthwith become immediately due and payable
without presentment, demand, protest, notice or other formality of any kind,
all of which are hereby expressly waived, anything contained herein or in any
instrument evidencing the Credit Obligations to the contrary notwithstanding;
provided, however, that notwithstanding the above, if there shall occur an
Event of Default under clause (f) above, then the obligation of the Lenders
to lend hereunder shall automatically terminate and any and all of the Credit
Obligations shall be immediately due and payable without the necessity of any
action by the Agent or the Required Lenders or notice to the Agent or the
Lenders.
SECTION 8.2 Agent to Act. In case any one or more Events of Default
shall occur and be continuing, the Agent may, and at the direction of the
Required Lenders shall, proceed to protect and enforce their rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein or
in any other Loan Document, or to enforce the payment of the Obligations or any
other legal or equitable right or remedy.
SECTION 8.3 Cumulative Rights. No right or remedy herein conferred
upon the Lenders, the Agent and the Borrower is intended to be exclusive of any
other rights or remedies contained herein or
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in any other Loan Document, and every such right or remedy shall be cumulative
and shall be in addition to every other such right or remedy contained herein
and therein or now or hereafter existing at law or in equity or by statute, or
otherwise.
SECTION 8.4 No Waiver. No course of dealing between the Borrower and
any Lender or the Agent or any failure or delay on the part of any Lender, the
Agent or the Borrower in exercising any rights or remedies hereunder shall
operate as a waiver of any rights or remedies hereunder and no single or
partial exercise of any rights or remedies hereunder shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.
SECTION 8.5 Default. The Agent and the Lenders shall have no right to
accelerate any of the Loans upon, or to institute any action or proceeding
before any court as a result of, the occurrence of any Default which shall not
also constitute an Event of Default; provided, however, nothing contained in
this sentence shall in any respect impair or adversely affect the right, power
and authority of the Agent and the Lenders (i) to take any action expressly
required or permitted to be taken under the Loan Documents upon the occurrence
of any Default (and including any action or proceeding which the Agent may
determine to be necessary or appropriate in furtherance of any such expressly
authorized action) and (ii) to take any action provided under the Loan
Documents or otherwise available by statute, at law or in equity upon the
occurrence of any Default.
SECTION 8.6 Allocation of Proceeds. If an Event of Default has
occurred and is continuing, and the maturity of the Notes has been accelerated
pursuant to this Article VIII, all payments received by the Agent hereunder in
respect of any principal of or interest on the Credit Obligations or any other
amounts payable by the Borrower hereunder shall be applied by the Agent in the
following order:
(i) amounts due to the Agent for the account of the
Lenders pursuant to Section 2.12;
(ii) amounts due to the Agent pursuant to Section 9.11;
(iii) payments of interest, to be applied in accordance
with Section 2.8 hereof;
(iv) payments of principal, to be applied in accordance
with Section 2.8 hereof; and
(v) payments of all other amounts due under this
Agreement, if any, to be applied in accordance with each Lender's pro
rata share of all principal due to the Lenders.
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ARTICLE IX
THE AGENT
SECTION 9.1 Appointment. Each Lender hereby irrevocably designates
and appoints NationsBank as the Agent of the Lenders under this Agreement, and
each of the Lenders hereby irrevocably authorizes NationsBank as the Agent for
such Lender, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers as are
expressly delegated to the Agent by the terms of this Agreement, together with
such other powers as are reasonably incidental thereto. The Agent shall not
have any duties or responsibilities, except those expressly set forth herein,
or any fiduciary relationship with any of the Lenders, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise exist against the Agent.
SECTION 9.2 Attorneys-in-fact. The Agent may execute any of its
duties under this Agreement by or through agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the gross negligence or willful
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.
SECTION 9.3 Limitation on Liability. Neither the Agent nor any of
its officers, directors, employees, agents or attorneys-in-fact shall be liable
to the Lenders for any action lawfully taken or omitted to be taken by it or
them under or in connection with this Agreement except for its or their own
gross negligence or willful misconduct. Neither the Agent nor any of its
affiliates shall be responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower or any
officer or partner thereof contained in this Agreement or in any of the other
Loan Documents, or in any certificate, report, statement or other document
referred to or provided for in or received by the Agent under or in connection
with this Agreement or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any of the other Loan
Documents, or for any failure of the Borrower to perform its obligations
thereunder. The Agent shall not be under any obligation to any of the Lenders
to ascertain or to inquire as to the observance or performance of any of the
terms, covenants or conditions of this Agreement or any of the other Loan
Documents on the part of the Borrower or to inspect the properties, books or
records of the Borrower.
SECTION 9.4 Reliance. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent certificate, affidavit, letter, cablegram, telegram, telecopy or telex
message, statement, order or other document or conversation believed by it to
be genuine and
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correct and to have been signed, sent or made by the proper person or Persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Borrower), independent accountants and other experts selected by
the Agent. The Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless an Assignment and Acceptance shall have been
filed with and accepted by the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement unless it shall
first receive advice or concurrence of the Lenders or the Required Lenders as
provided in this Agreement or it shall first be indemnified to its satisfaction
by the Lenders against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action. The Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement in accordance with a request of the Required Lenders, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all present and future holders of the Notes.
SECTION 9.5 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender, or the Borrower
or any of the Subsidiaries referring to this Agreement, describing such Default
or Event of Default and stating that such notice is a "notice of default". In
the event that the Agent receives such a notice, the Agent shall promptly give
notice thereof to the Lenders. The Agent shall take such action with respect
to such Default or Event of Default as shall be reasonably directed by the
Required Lenders; provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Event of
Default as it shall deem advisable in the best interests of the Lenders.
SECTION 9.6 No Representations. Each Lender expressly acknowledges
that neither the Agent nor any of its affiliates has made any representations
or warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the financial
condition, creditworthiness, affairs, status and nature of the Borrower and
made its own decision to enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and to make
such investigation as it deems necessary to inform itself as to the status and
affairs, financial
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or otherwise, of the Borrower. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the affairs, financial condition or
business of the Borrower which may come into the possession of the Agent or any
of its affiliates.
SECTION 9.7 Indemnification. The Lenders agree to indemnify the
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting any obligations of the Borrower so to do), ratably according
to the respective principal amount of the Notes held by them (or, if no Notes
are outstanding, ratably in accordance with their respective Applicable
Commitment Percentages as then in effect) from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may at any time (including without limitation at any time following the payment
of the Note) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement or any other document
contemplated by or referred to herein or the transactions contemplated hereby
or any action taken or omitted by the Agent under or in connection with any of
the foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. The agreements in this subsection
shall survive the payment of the Obligations and the termination of this
Agreement.
SECTION 9.8 Lender. The Agent and its affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Borrower as though it were not the Agent hereunder. With respect to its Loans
made or renewed by it and any Note issued to it, the Agent shall have the same
rights and powers under this Agreement as any Lender and may exercise the same
as though it were not the Agent, and the terms "Lender" and "Lenders" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity.
SECTION 9.9 Resignation or Removal of Agent. If the Agent shall
resign as Agent under this Agreement, then the Required Lenders may appoint a
successor Agent for the Lenders, which successor shall be approved by the
Lenders, which approval shall not be unreasonably withheld, which shall be a
commercial bank organized under the laws of the United States or any state
thereof, having a combined surplus and capital of not less than $500,000,000,
whereupon such successor Agent shall succeed to the rights, powers and duties
of the former Agent and the obligations of the former Agent shall be terminated
and canceled, without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement; provided, however, that
the
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former Agent's resignation shall not become effective until such successor
Agent has been appointed and has succeeded of record to all right, title and
interest of the former Agent; provided, further, if the Required Lenders
cannot agree as to a successor Agent within ninety (90) days after such
resignation, the Agent shall appoint a successor Agent and the parties hereto
agree to execute whatever documents are necessary to effect such action under
this Agreement or any other document executed pursuant to this Agreement;
provided, however in such event all provisions of this Agreement and the Loan
Documents, shall remain in full force and effect. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article IX
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement. The Agent may be removed at any time
with or without cause by the Required Lenders.
SECTION 9.10 Sharing of Payments, etc. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, set-off,
counterclaim or otherwise, obtain payment with respect to its Credit
Obligations (other than any payment pursuant to Article IV) which results in
its receiving more than its pro rata share of the aggregate payments with
respect to all of the Credit Obligations (other than any payment pursuant to
Article IV or as otherwise permitted under Section 2.4 hereof), then (A) such
Lender shall be deemed to have simultaneously purchased from the other Lenders
a share in their Credit Obligations so that the amount of the Credit
Obligations held by each of the Lenders shall be pro rata and (B) such other
adjustments shall be made from time to time as shall be equitable to insure
that the Lenders share such payments ratably; provided, however, that for
purposes of this Section 9.10 the term "pro rata" shall be determined with
respect to both the Commitment of each Lender and to the Revolving Facility
after subtraction in each case of amounts, if any, by which any such Lender
has not funded its share of the outstanding Loans; provided, further that so
long as no Event of Default has occurred, payments of Competitive Bid Loans
shall be disregarded for purposes of this Section 9.10. If all or any portion
of any such excess payment is thereafter recovered from the Lender which
received the same, the purchase provided in this Section 9.10 shall be
rescinded to the extent of such recovery, without interest. The Borrower
expressly consents to the foregoing arrangements and agrees that each Lender
so purchasing a portion of the other Lenders' Obligations may exercise all
rights of payment (including, without limitation, all rights of set-off,
banker's lien or counterclaim) with respect to such portion as fully as if
such Lender were the direct holder of such portion.
SECTION 9.11 Fees. The Borrower agrees to pay to the Agent, for its
individual account, an annual Agent's fee in such amount as previously agreed
and as may be modified as the Borrower and the Agent may agree from time to
time.
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SECTION 9.12 Independent Agreements. The provisions contained in
Sections 9.1 through 9.8 and 9.10 of this Article IX constitute independent
obligations and agreements of the Agent and the Lenders and the Borrower shall
not be deemed a party thereto nor bound thereby. Borrower does acknowledge the
rights of Lenders and Agent under Sections 9.9 and 9.11 hereof.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1 Assignments and Participations.
(a) At any time after the Closing Date each Lender may, with the
prior written consent of the Agent and the Borrower, assign to one or more
banks or financial institutions all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of the
Notes payable to its order); provided, that (i) each such assignment shall be
of a constant, and not a varying, percentage of all of the assigning Lender's
rights and obligations (including Loans and Participations) under this
Agreement, (ii) for each assignment involving the issuance and transfer of
Notes, the assigning Lender shall execute an Assignment and Acceptance and the
Borrower hereby consents to execute replacement Notes to give effect to the
assignment, (iii) the minimum Commitment which shall be assigned is $3,000,000
(together with which the assigning Lender's applicable portion of
Participations shall also be assigned) and (iv) such assignee shall have an
office located in the United States. Upon such execution, delivery, approval
and acceptance, from and after the effective date specified in each Assignment
and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder or under such Notes have been
assigned or negotiated to it pursuant to such Assignment and Acceptance have
the rights and obligations of a Lender hereunder (including, in respect of the
Collateral, all the rights and obligations of a Lender, as fully as if such
assignee had been named as a Lender in this Agreement) and a holder of such
Notes and (y) the assignor thereunder shall, to the extent that rights and
obligations hereunder or under such Notes have been assigned or negotiated by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its future obligations under this Agreement. No assignee shall
have the right to further assign its rights and obligations pursuant to this
Section 10.1. Any Lender who makes an assignment shall pay to the Agent a
onetime administrative fee of $2,500.00 which fee shall not be reimbursed by
Borrower.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) the assignment
made under such Assignment and Acceptance is made under such Assignment and
Acceptance without recourse; (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Subsidiary or the performance or observance by
the Borrower or any Subsidiary of any of its obligations under any Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement,
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together with copies of the financial statements delivered pursuant to Section
7.3 and such other Loan Documents and other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently, and
without reliance upon the Agent, such assigning Lender, or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement, the Note and the other Loan Documents as are delegated to the Agent
by the terms hereof and thereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender and a holder of such
Note.
(c) The Agent shall maintain at its address referred to herein a copy
of each Assignment and Acceptance delivered to and accepted by it.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, the Agent shall give prompt notice thereof to Borrower.
(e) Each Lender may sell participations to one or more banks or other
entities as to all or a portion of its rights and obligations under this
Agreement; provided, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) such Lender
shall remain the holder of any Notes issued to it for the purpose of this
Agreement, (iv) such participations shall be in a minimum amount of $1,000,000
and shall include an allocable portion of such Lender's Participation, and (v)
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and with regard to any and all payments to be
made under this Agreement; provided, that the participation agreement between a
Lender and its participants may provide that such Lender will obtain the
approval of such participant prior to such Lender's agreeing to any amendment
or waiver of any provisions of this Agreement which would (A) extend the
maturity of the Notes, (B) reduce the interest rate hereunder, or (C) increase
the Commitment of the Lender granting the participation other than in
accordance with the terms of the Loan Documents, and (vi) the sale of any such
participations which require Borrower to file a registration statement with the
United States Securities and Exchange Commission or under the securities
regulations or laws of any state shall not be permitted.
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(f) Notwithstanding the provisions of this Section 10.1 to the
contrary, any Lender may assign all or any portion of its interest in Loans to
its Affiliates without approval of the Agent or Borrower upon payment of the
administrative fee described in Section l0.1(a) above, and all or any portion
of its interest in Loans to the Federal Reserve Bank without approval of the
Agent or Borrower and without payment of any fees.
SECTION 10.2 Notices. Any notice shall be conclusively deemed to have
been received by any party hereto and be effective on the day on which
delivered to such party (against receipt therefor) at the address set forth
below or such other address as such party shall specify to the other parties in
writing (or, in the case of telephonic notice or notice by telecopy, telegram
or telex (where the receipt of such message is verified by return) expressly
provided for hereunder, when received at such telephone, telecopy or telex
number as may from time to time be specified in written or verbal notice to the
other parties hereto or otherwise received), or if sent prepaid by certified or
registered mail return receipt requested on the third Business Day after the
day on which mailed, addressed to such party at said address:
(a) if to the Borrower at:
Hancock Fabrics, Inc.
3406 W. Main St.
Tupelo, Mississippi 38803
Attention: Chief Financial Officer
Telephone: (601) 842-2834
with a copy to:
Donahue, Gallagher, Woods & Wood
1900 Kaiser Center
300 Lakeside Drive
Oakland, California 94612-3570
Attention: Gail P. Clark
(b) if to the Agent at:
600 Peachtree Street, N.E.
21st Floor
Atlanta, Georgia 30308-2212
Attention: Shawn Welch, Corporate Banking
Telephone: (404) 607-5530
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(c) if to the Lenders:
At the addresses and at the respective telephone numbers set
forth on the signature pages hereof or on the signature page
of each Assignment and Acceptance and at the respective
telephone numbers listed below.
SECTION 10.3 Setoff. The Borrower agrees that the Agent and each
Lender shall have a lien for all the Credit Obligations of the Borrower upon
all deposits or deposit accounts, of any kind, or any interest in any deposits
or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred
or assigned to the Agent or such Lender or otherwise in the possession or
control of the Agent or such Lender (other than for safekeeping) for any
purpose for the account or benefit of the Borrower and including any balance of
any deposit account or of any credit of the Borrower with the Agent or such
Lender, whether now existing or hereafter established, hereby authorizing the
Agent and each Lender at any time or times from and after the occurrence of a
Default or Event of Default with or without prior notice to apply such balances
or any part thereof to such of the Credit Obligations of the Borrower to the
Lenders then past due and in such amounts as they may elect, and whether or not
the collateral or the responsibility of other persons primarily, secondarily or
otherwise liable may be deemed adequate. For the purposes of this paragraph,
all remittances and property shall be deemed to be in the possession of the
Agent or such Lender as soon as the same may be put in transit to it by mail or
carrier or by other bailee.
SECTION 10.4 Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the execution and delivery to the Lenders of this Agreement and the Notes and
shall continue in full force and effect so long as any of the Credit
Obligations remain outstanding or any Lender has any Commitment hereunder.
Whenever in this Agreement, any of the parties hereto is referred to, such
reference shall be deemed to include the successors and permitted assigns of
such party and all covenants, provisions and agreements by or on behalf of the
Borrower which are contained in this Agreement and the Notes shall inure to the
benefit of the successors and permitted assigns of the Lenders or any of them
and any rights of the Borrower hereunder shall inure to the benefit of
successors and assigns of Borrower to the extent Lenders may consent to
succession or assignment.
SECTION 10.5 Expenses. The Borrower agrees (a) to pay or reimburse the
Agent for all its reasonable and customary out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of, and
any amendment, supplement or modification to, this Agreement or any of the
other Loan Documents, and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, the
52
<PAGE> 57
reasonable and customary fees and disbursements of counsel to the Agent, (b) to
pay or reimburse the Agent and the Lenders for all their reasonable costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, including without limitation, the reasonable fees
and disbursements of its counsel, (c) to pay, indemnify and hold the Agent and
the Lenders harmless from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any failure of Borrower to pay
or delay of Borrower in paying, documentary, stamp, excise, withholding and
other similar taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation of any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Agreement, and (d) from and after the occurrence of any Event
of Default to pay, indemnify, and hold the Agent and Lenders harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement or in any respect relating to
the transactions contemplated hereby or thereby, (all the foregoing,
collectively, the "indemnified liabilities"); provided, however, that the
Borrower shall have no obligation hereunder with respect to indemnified
liabilities arising from (i) the willful misconduct or gross negligence of the
party seeking indemnification, (ii) legal proceedings commenced against the
Agent or any Lender by any security holder or creditor thereof arising out of
and based upon rights afforded any such security holder or creditor solely in
its capacity as such, (iii) any taxes imposed upon the Agent or any Lender
other than the documentary, stamp, excise, withholding and similar taxes
described in clause (c) above or any tax resulting from any change described in
Section 4.1, which tax would be payable to Lenders by Borrower pursuant to
Article IV hereof, (iv) taxes imposed as a result of a transfer or assignment
of any Note, participation or assignment of a portion of its rights, (v) any
taxes imposed upon any transferee of any Note, or (vi) or by reason of the
failure of the Agent or any Lender to perform its or their obligations under
this Agreement. The agreements in this subsection shall survive repayment of
the Notes and all other Credit Obligations hereunder.
SECTION 10.6 Amendments. No amendment, modification or waiver of any
provision of this Agreement or any of the Loan Documents and no consent by the
Lenders to any departure therefrom by the Borrower shall be effective unless
such amendment, modification or waiver shall be in writing and signed by the
Agent and the Borrower, but only upon having received the written consent of
the Required Lenders, and the same shall then be effective only for the period
and on the conditions and for the specific instances and purposes specified in
such writing; provided, however, that, no such amendment, modification or
waiver
53
<PAGE> 58
(i) which changes, extends or waives any provision of Section
2.10, Section 9.10 or this Section 10.7, the amount of or the due date
of any scheduled installment of or the rate of interest payable on any
Credit Obligation, changes the definition of Required Lenders, which
increases or extends the Commitment of any Lender or which increase or
extends the Termination Date other than as provided in Section 2.11 or
which waives any condition to the making of any Loan shall be effective
unless in writing and signed by each of the Lenders; provided,
however, the Required Lenders may in their sole discretion waive any
Default or Event of Default (other than any Event of Default under
Section 8.1(a) as to which only the Lender which is the payee of a Note
may waive the failure to make a payment of principal or interest due on
such Note);
(ii) which affects the rights, privileges, immunities or
indemnities of the Agent, shall be effective unless in writing and
signed by the Agent.
Notwithstanding any provision of the other Loan Documents to the contrary, as
between the Agent and the Lenders, execution by the Agent shall not be deemed
conclusive evidence that the Agent has obtained the written consent of the
Required Lenders; however, the Borrower shall be entitled to rely on the
signature of the Agent as evidence of consent. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances, except as provided by law or as
otherwise expressly provided herein. No delay or omission on any Lender's, the
Agent's or the Borrower's part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or of any
Default or Event of Default.
SECTION 10.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such fully-executed
counterpart.
SECTION 10.8 Waivers by Borrower. In any litigation in any court with
respect to, in connection with, or arising out of this Agreement, the Loans,
any of the Notes, any of the other Loan Documents, the Credit Obligations, or
any instrument or document delivered pursuant to this Agreement, or the
validity, protection, interpretation, collection or enforcement thereof, or any
other claim or dispute howsoever arising between the Borrower and the Lenders
or the Agent, the Borrower and each Lender and the Agent hereby waive trial by
jury in connection with any such litigation.
SECTION 10.9 Termination. The termination of this Agreement shall not
affect any rights of the Borrower, the Lenders or the Agent or any obligation
of the Borrower, the Lenders or the Agent, arising prior to the effective date
of such termination, and the
54
<PAGE> 59
provisions hereof shall continue to be fully operative until all transactions
entered into or rights created or obligations incurred prior to such
termination have been fully disposed of, concluded or liquidated and the Credit
Obligations arising prior to or after such termination have been irrevocably
paid in full. The security interests, liens and rights granted to the Agent
for the benefit of the Lenders hereunder and under the other Loan Documents
shall continue in full force and effect, notwithstanding the termination of
this Agreement, until all of the Credit Obligations have been paid in full
after the termination hereof or the Borrower has furnished the Lenders and the
Agent with an indemnification satisfactory to the Agent and each Lender with
respect thereto. All representations, warranties, covenants, waivers and
agreements contained herein shall survive termination hereof until payment in
full of the Credit Obligations unless otherwise provided herein.
Notwithstanding the foregoing, if after receipt of any payment of all or any
part of the Credit Obligations, any Lender is for any reason compelled to
surrender such payment to any Person because such payment is determined to be
void or voidable as a preference, impermissible setoff, a diversion of trust
funds or for any other reason, this Agreement shall continue in full force and
the Borrower shall be liable to, and shall indemnify and hold such Lender
harmless for, the amount of such payment surrendered until such Lender shall
have been finally and irrevocably paid in full. The provisions of the
foregoing sentence shall be and remain effective notwithstanding any contrary
action which may have been taken by the Lenders in reliance upon such payment,
and any such contrary action so taken shall be without prejudice to the
Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment having become final and irrevocable.
SECTION 10.10 Governing Law. All documents executed pursuant to the
transactions contemplated herein, including, without limitation, this Agreement
and each of the Loan Documents shall be deemed to be contracts made under, and
for all purposes shall be construed in accordance with, the internal laws and
judicial decisions of the State of Georgia. The Borrower hereby submits to the
jurisdiction and venue of the state and federal courts of Georgia for the
purposes of resolving disputes hereunder or for the purposes of collection.
SECTION 10.11 Indemnification. In consideration of the execution and
delivery of this Agreement by the Agent and each Lender and the extension of
the Commitments, and so long as the Agent and Lenders have fulfilled their
obligations hereunder, the Borrower hereby indemnifies, exonerates and holds
the Agent and each Lender and each of their respective officers, directors,
employees and agents (collectively, the "Indemnified Parties") free and
harmless from and against any and all actions, causes of action, claims, suits,
losses, costs, liabilities and damages, and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including reasonable
55
<PAGE> 60
attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to any of the following:
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan;
(b) the entering into and performance of this Agreement and any
other Loan Document by any of the Indemnified Parties;
(c) provided Lenders have no ownership interest in real property
of Borrower, any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to
the protection of the environment or the release by the Borrower of any
hazardous waste material; or
(d) provided Lenders have no ownership interest in real property
of Borrower, the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower of any hazardous waste
material (including any losses, liabilities, damages, injuries, costs,
expenses or claims asserted or arising under any environmental laws),
regardless of whether caused by, or within the control of, the
Borrower,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or willful misconduct, and if and to the extent that the
foregoing undertaking may be unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
SECTION 10.12 Agreement Controls. In the event that any term of any of
the Loan Documents other than this Agreement conflicts with any term of this
Agreement, the terms and provisions of this Agreement shall control.
SECTION 10.13 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Agent and all Lenders. The Agent and the Lenders may assign or transfer
their interest hereunder but only as provided herein.
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<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made,
executed and delivered by their duly authorized officers as of the day and year
first above written.
WITNESS: HANCOCK FABRICS, INC.
/s/ John R. Bryson
- -----------------------
/s/ William D. Smothers
- ----------------------- By:/s/ Larry G. Kirk
--------------------------------------------------
Title: Senior Vice President
Chief Financial Officer
Wire Instructions:
Bank of Mississippi
--------------------------------------------------
ABA 065300486
--------------------------------------------------
Acct #01-21051-3
--------------------------------------------------
57
<PAGE> 62
NATIONSBANK OF GEORGIA,
NATIONAL ASSOCIATION, as Agent
for the Lenders
By:/s/ Shawn B. Welch
---------------------
Shawn B. Welch
Title: Vice President
COMMITMENT: NATIONSBANK OF GEORGIA,
$25,000,000 NATIONAL ASSOCIATION
By:/s/ Shawn B. Welch
---------------------
Shawn B. Welch
Title: Vice President
Lending Office:
600 Peachtree Street, N.E.
21st Floor
Corporate Bank
Atlanta, Georgia 30308
Wire Transfer Instructions:
NationsBank of Georgia,
National Association
Atlanta, Georgia
ABA #061000052
Reference: HANCOCK FABRICS, INC.
Attention: Charlotte Whitaker
1-800-645-2939
Phone:(404)607-5526
Fax:(404)607-6176
58
<PAGE> 63
COMMITMENT: WACHOVIA BANK OF GEORGIA, N.A.
$15,000,000
By:/s/ Thomas T. Ponder
--------------------
Thomas T. Ponder
Title: Assistant Vice President
Lending Office:
Wachovia Bank of GA, N.A.
191 Peachtree St., N.E.
Atlanta, Georgia 30308
Wire Transfer Instructions:
Wachovia Bank of Georgia
Atlanta, Georgia 30308
Credit Money Transfer
Account #18-800-621
ABA #061000010
Reference: Hancock Fabrics
Attention: Brutene Linder
Phone: (404) 332-5882
Fax: (404) 332-5016
59
<PAGE> 64
COMMITMENT: TRUST COMPANY BANK
$15,000,000
By:/s/ Gregory L. Cannon
----------------------
Gregory L. Cannon
Title: Assistant Vice President
and
By:/s/ Michael D. Bluestein
-------------------------
Title: Corp. Banking Officer
Lending Office:
25 Park Place, Center 120
Atlanta, Georgia 30303
Wire Transfer Instructions:
Trust Company Bank
Credit Wire Clearing General
Acct. No.: 8892170730
ABA #061000104
Reference: Hancock Fabrics
Attention: Tanya Van Hoozer
Phone: (404) 581-1612
Fax: (404) 588-8833
60
<PAGE> 65
COMMITMENT: BANK OF MISSISSIPPI
$5,000,000
By:/s/ Coy R. Livingston
---------------------------------
Coy R. Livingston
Title: Executive Vice President
Lending.Office:
One Mississippi Plaza
Tupelo, Mississippi 38801
Wire Transfer Instructions:
-------------------------------
-------------------------------
ABA #0653-00486
Reference: Hancock Fabrics
Attention: Corporate Banking Division
Phone: (601) 680-2310
Fax: (601) 680-2261
61
<PAGE> 66
EXHIBIT A
Applicable
Lender Commitment Percentage
------ ---------------------
NationsBank of Georgia, National Association 41.67%
Wachovia Bank of Georgia, N.A. 25%
Trust Company Bank 25%
Bank of Mississippi 8.33%
62
<PAGE> 67
EXHIBIT B
FORM OF ASSIGNMENT AND ACCEPTANCE
DATED _______________' 19____
Reference is made to the Credit Agreement dated as of September 20,
1992 (the "Agreement") among HANCOCK FABRICS, INC., a Delaware corporation
("Borrower"), the Lenders (as defined in the Agreement) and NATIONSBANK OF
GEORGIA, NATIONAL ASSOCIATION, as Agent for the Lenders ("Agent"). Unless
otherwise defined herein, terms defined in the Agreement are used herein with
the same meanings.
________________________ (the "Assignor") and ______________
_______________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE, a
________%1 interest in and to all of the Assignor's rights and obligations
under the Agreement as of the Effective Date (as defined below), including,
without limitation, such percentage interest in the Loan owing to, and
Participations held by, the Assignor on the Effective Date, and the Notes held
by the Assignor.
2. The Assignor (i) represents and warrants that, as of the date
hereof, the aggregate outstanding principal amount of the Loans owing to it
(without giving effect to assignments thereof which have not yet become
effective) is $________; (ii) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (iii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement or
any of the Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement or any of the Loan Documents
or any other instrument or document furnished pursuant thereto; (iv) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower or the performance or observance by Borrower of
any of its obligations under the Agreement or any of the Loan Documents or any
other instrument or document furnished pursuant thereto and (v) attaches the
Notes referred to in paragraph 1 above and requests that the Agent exchange
such Note for new Note(s) as follows: A Syndicated Note, dated _____________,
19__ in the principal amount of $ _________, and Competitive Bid Note, dated
_________, 19__ in the principal amount of $__________ payable to the order of
the Assignor, and a Syndicated Note, dated __________________________
____________________
(1) Specify percentage in no more than 4 decimal points.
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<PAGE> 68
19_, in the principal amount of $________________ and Competitive Bid Note,
dated ___________, 19__ in the principal amount of $__________ payable to the
order of the Assignee.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Section 7.3 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor, or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the
Agreement; (iii) appoints and authorizes the Agent to take such actions on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Agreement are required
to be performed by the Lender; and (v) specifies as its address for notices the
office set forth beneath its name on the signature pages hereof.
4. The effective date for this Assignment and Acceptance shall be
____________________________ (the "Effective Date"). Following the execution
of this Assignment and Acceptance, it will be delivered to the Agent for
acceptance and recording by the Agent in its records.
5. Upon such acceptance and recording, as of the Effective Date,
(i) the Assignee shall be a party to the Agreement and, to the extent provided
in this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the Loan Documents and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Agreement.
6. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Agreement and Notes in
respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest, commitment fees and letter of credit fees with
respect thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Agreement and the Notes for
periods prior to the Effective Date directly between themselves.
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<PAGE> 69
7. This Assignment and Acceptance shall be governed by and
construed in accordance with, the laws of the State of Georgia.
(NAME OF ASSIGNOR)
By:
-----------------------------------
Name:
Title:
Notice Address:
-----------------------
-----------------------
-----------------------
After the Effective Date
Outstanding Revolving Loans:$
---------
(NAME OF ASSIGNEE)
By:
-----------------------------------
Name:
Title:
Notice Address:
-----------------------
-----------------------
-----------------------
After the Effective Date
Outstanding Revolving Loans:$
---------
Accepted this day of , 19
------- ------- ------
NATIONSBANK OF GEORGIA, NATIONAL
ASSOCIATION, as Agent
By:
--------------------------------------------
Name:
Title:
Consented to:
Hancock Fabrics, Inc.
By:
-----------------------------------
Name:
Title:
65
<PAGE> 70
EXHIBIT C
AUTHORIZED OFFICER CERTIFICATE
Authorized Officer Certificate
Reference is hereby made to the Credit Agreement, dated as of
September 20, 1993 (the "Agreement") among NATIONSBANK OF GEORGIA, NATIONAL
ASSOCIATION, as Agent for certain Lenders signatory thereto, such Lenders, and
HANCOCK FABRICS, INC. (the "Borrower"). Capitalized terms used but not defined
herein shall have the respective meanings therefor set forth in Agreement.
The Borrower hereby nominates, constitutes and appoints each
individual named below as an Authorized Officer under the Agreement, and hereby
represents and warrants that (i) set forth opposite each such individual's
corporate office (to which such individual has been duly elected or appointed),
a genuine specimen signature of such individual and an address for the giving
of notice, and (ii) each such individual has been duly authorized by the
Borrower to act as Authorized Officer thereunder:
<TABLE>
<S> <C> <C>
Name and Address Office Held Specimen Signature
Morris 0. Jarvis Chairman of the Board,
3406 West Main Chief Executive Officer
Tupelo, MS 38801 and President /s/ Morris O. Jarvis
---------------------
Jack W. Busby, Jr. Executive Vice President /s/ Jack W. Busby
3406 West Main ---------------------
Tupelo, MS 38801
Larry G. Kirk Senior Vice President,
3406 West Main Chief Financial Officer
Tupelo, MS 38801 and Secretary /s/ Larry G. Kirk
---------------------
This the 20 day of September, 1993.
---- --------- --
</TABLE>
<TABLE>
<S> <C>
WITNESS: HANCOCK FABRICS, INC.
/s/ John R. Bryson By /s/ Larry D. Fair
- ----------------------- ------------------
/s/ William D. Smothers Title: Asst. Secretary
- -----------------------
</TABLE>
<PAGE> 71
EXHIBIT D
Hancock Fabrics, Inc.
REQUEST FOR ADVANCE OR INTEREST RATE
ELECTION FOR SYNDICATED LOANS
Under the Credit Agreement dated as of ___________, 1993 (the
"Credit Agreement") entered into by HANCOCK FABRICS, INC., a Delaware
corporation (the "Borrower"), and NATIONSBANK OF GEORGIA, NATIONAL ASSOCIATION,
a national banking association (the "Agent"), and the Lenders party thereto:
Request for Advance
Pursuant to Section 2.2 of the Credit Agreement, the Borrower hereby
requests an Advance as follows:
(a) Amount of Advance - $__________.
(b) Date as of which the Advance is to be made __________.
(c) The following interest rate information is provided by
respect to the Segment represented by the Advance:
(i) the interest rate shall be [the Floating Rate] [the
LIBOR-Based Rate] [the CD Rate] (circle one).
(ii) If a LIBOR-Based Rate is selected, the maturity
selected for the Interest Period is [one month] [two
months] [three months] for a LIBOR-Based Rate (circle
one, if applicable).
(iii) If a CD Rate is selected, the maturity selected
for the Interest Period is [30 days] [60 days] [90 days]
[180 days].
Interest Rate Election
Pursuant to Section 3.2 of the Credit Agreement, the Borrower makes
the following interest rate election with respect to the Segment in the
principal amount of $____________ that matures on __________.
(a) The amount of the Segment to which the requested
interest rate will apply - $__________.
(b) The date on which the selected interest rate will
become applicable - ____________.
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<PAGE> 72
(c) The interest rate selected is [the Floating Rate] [the
CD Rate] [the LIBOR-Based Rate] (circle one).
(d) If a LIBOR-Based Rate is selected, the maturity
selected for the Interest Period is [one month] [two
months] [three months] for a LIBOR-Based Rate (circle
one, if applicable).
(e) If a CD Rate is selected, the maturity selected for the
Interest Period is [30 days] [60 days] [90 days] [180
days].
In accordance with Section 6.1 of the Credit Agreement, the presentation by the
Borrower of this Request for Advance or Interest Rate Election constitutes a
representation and warranty by the Borrower to the Agent and the Lenders that,
to the best of our knowledge, no material adverse change in the financial
condition of the Borrower and its Subsidiaries, on a consolidated basis, as
reflected in the financial statements referred to in Section 5.3 of the Credit
Agreement, has occurred since the date of such financial statements and that
the representations and warranties of Borrower contained in the Credit
Agreement continue to be true and correct (except the financial statements
referred to in Section 5.3 shall be deemed those most recently delivered to the
Agent pursuant to Section 7.3).
Dated .
----------
HANCOCK FABRICS, INC.
By:
------------------------------
Its
--------------------------
68
<PAGE> 73
EXHIBIT E
FORM OF COMPETITIVE BID QUOTE CONFIRMATION
To: Hancock Fabrics, Inc.
Attention:
Re: Competitive Bid Quote to Hancock Fabrics, Inc.
(the "Borrower")
The Competitive Bid Quote is given in accordance with Section 2.3(c)
of the Credit Agreement dated as of September 20, 1993 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") among
Hancock Fabrics, Inc., the lenders named therein and NationsBank of Georgia,
National Association, as agent. Terms defined in the Credit Agreement are used
herein as defined therein.
In response to the Borrower's invitation dated _____________, 199_,
we hereby make the following Competitive Bid Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Competitive Bid Loan(s) in
the following principal amount[s], for the following Interest
Period(s) and at the following rate(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date (1) Amount (2) Type(3) Period (4) Rate(5)
- --------- --------- ------ ---- -------- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
_________________
(1) As specified in the related Competitive Bid Quote Request.
(2) The principal amount bid for each Interest Period may not
exceed the principal amount requested. Bids must be made for at least
$2,000,000 or a larger multiple of $1,000,000.
(3) Indicate "LIBOR Margin" (in the case or LIBOR Market Loans) or
"Absolute Rage" (in the case of Absolute Rate Loans).
(4) One, two, three or six monts, in the case of a LIBOR Market
Loan or, in the case of an Absolute Rate Loan, a period of up to 180 days
after the making of such Absolute Rate Loan, as specified in the related
Competitive Bid Market Quote Request.
69
<PAGE> 74
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate[s] us to make the Competitive Bid Loan(s) for which any
offer(s) (is/are) accepted, in whole or in part (subject to the third sentence
of Section 2.3(e) of the Credit Agreement).
Very truly yours,
[NAME OF BANK]
By:
-------------------------------
Authorized Officer
Dated: ,
---------- ----
________________________
(5) (....continued)
(5) For a LIBOR Market Loan, specify margin over or under the
London interbank offered rate determined for the applicable
Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS". For an
Absolute Rate Loan, specify rate of interest per annum (rounded
to the nearest 1/10,000 of 1%).
70
<PAGE> 75
EXHIBIT F
(Form of Acceptance of Competitive Bid Quotes)
Hancock Fabrics, Inc.
Name of Bank Rate Quote Amount Allocated
- ------------ ---------- ----------------
71
<PAGE> 76
EXHIBIT G-1
[Form of Syndicated Note]
PROMISSORY NOTE
$_____________1 September__, 1993
FOR VALUE RECEIVED, Hancock Fabrics, Inc., a Delaware corporation
(the "Borrower"), hereby promises to pay to ____________ _______________2 (the
"Lender"), for account of its Applicable Lending Office provided for by the
Credit Agreement referred to below, at the principal office of NationsBank of
Georgia, National Association, at NationsBank Plaza, Atlanta, Georgia
30308-2213, the principal sum of ______________________3 Dollars (or such
lesser amount as shall equal the aggregate unpaid principal under the Credit
Agreement), in lawful money of the United States of America and in immediately
available funds, on the dates and in the principal amounts provided in the
Credit Agreement, and to pay interest on the unpaid principal amount of each
such Syndicated Loan, at such office, in like money and funds, for the period
commencing on the date of such Syndicated Loan until such Syndicated Loan shall
be paid in full, at the rates per annum and on the dates provided in the Credit
Agreement.
The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Syndicated Loan made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof, provided that the failure of the Lender to make any such recordation
or endorsement shall not affect the obligations of the Borrower to make a
payment when due of any amount owing under the Credit Agreement or hereunder in
respect of the Syndicated Loans made by the Lender.
This Note is one of the Syndicated Notes referred to in the Credit
Agreement dated as of September __, 1993 (as modified and supplemented and in
effect from time to time, the "Credit Agreement") among the Borrower, the
lenders named therein and NationsBank of Georgia, National Association, as
Agent, and evidences Syndicated Loans made by the Lender thereunder. Terms
used but not defined in this Note have the respective meanings assigned to them
in the Credit Agreement.
____________________
(1) Insert the amount of Lender's Commitment.
(2) Insert name of Lender in capital letters
(3) Insert Lender's Commitment in words.
72
<PAGE> 77
The Credit Agreement provides for the acceleration of the maturity
of this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein. In the event this Note is not
paid when due at any stated or accelerated maturity, the Borrower agrees to
pay, in addition to the principal and interest, all costs of collection,
including reasonable attorney,s fees.
As permitted by Section 10.1(a) of the Credit Agreement, this Note
may be assigned by the Lender to any other Person with the consent of the Agent
and the Borrower.
This Note shall be governed by, and construed in accordance with,
the law of the State of Georgia.
HANCOCK FABRICS, INC.
ATTEST:
By:
---------------------------
President
By:
---------------------
Secretary
[CORPORATE SEAL]
73
<PAGE> 78
SCHEDULE OF SYNDICATED LOANS
This Note evidences Syndicated Loans made, continued or converted
under the within-described Credit Agreement to the Borrower, on the dates, in
the principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the continuations, conversions and
prepayments of principal set forth below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ---- --------- ---- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
74
<PAGE> 79
EXHIBIT G-2
[Form of Competitive Bid Note]
PROMISSORY NOTE
$_____________1 ____________, 1993
FOR VALUE RECEIVED, Hancock Fabrics, Inc., a Delaware corporation
(the "Borrower"), hereby promises to pay to ____________ _______________2 (the
"Lender"), for account of its Applicable Lending Office provided for by the
Credit Agreement referred to below, at the Applicable Lending Office the
aggregate unpaid principal amount of the Competitive Bid Loans made by the
Lender to the Borrower under the Credit Agreement, in lawful money of the
United States of America and in immediately available funds, on the dates and
in the principal amounts provided in the Credit Agreement, and to pay interest
on the unpaid principal amount of each such Competitive Bid Loan, at such
office, in like money and funds, for the period commencing on the date of such
Competitive Bid Loan until such Competitive Bid Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and maturity date of each
Competitive Loan made by the Lender to the Borrower, and each payment made on
account of the principal thereof, shall be recorded by the Borrower on its
books and, prior to any transfer of this Note, endorsed by the Lender on the
schedule attached hereto or any continuation thereof, provided that the failure
of the Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
under the Credit Agreement or hereunder in respect of the Competitive Bid Loans
made by the Lender.
This Note is one of the Competitive Bid Note referred to in the
Credit Agreement dated as of September __, 1993 (as modified and supplemented
and in effect from time to time, the "Credit Agreement") among the Borrower,
the lenders named therein and NationsBank of Georgia, National Association, as
Agent, and evidences Competitive Bid Loans made by the Lender thereunder.
Terms used but not defined in this Note have the respective meanings assigned
to them in the Credit Agreement.
____________________
(1) Insert the amount of Lender's Commitment.
(2) Insert name of Lender in capital letters.
75
<PAGE> 80
The Credit Agreement provides for the acceleration of the maturity
of this Note upon the occurrence of certain events and for prepayments of
Competitive Bid Loans upon the terms and conditions specified therein. In the
event this Note is not paid when due at any stated or accelerated maturity, the
Borrower agrees to pay, in addition to the principal and interest, all costs of
collection, including reasonable attorney,s fees.
As permitted by Section 10.1(a) of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person with the consent of the
Borrower and the Lenders.
This Note shall be governed by, and construed in accordance with,
the law of the State of Georgia.
HANCOCK FABRICS, INC.
ATTEST:
By:
---------------------------
President
By:
---------------------
Secretary
[CORPORATE SEAL]
76
<PAGE> 81
SCHEDULE OF COMPETITIVE BID LOANS
This Note evidences Loans made under the within-described Credit
Agreement to the Borrower, on the dates, in the principal amounts, of the
Types, bearing interest at the rates and maturing on the dates set forth below,
subject to the payments and prepayments of principal set forth below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ---- --------- ---- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
77
<PAGE> 82
EXHIBIT H
FORM OF
COMPLIANCE CERTIFICATE
Reference is made to that certain Credit Agreement between Hancock
Fabrics, Inc., a Delaware corporation (the "Borrower"), NationsBank of Georgia,
National Association, a National banking association (the "Agent"), and the
Lenders party thereto, dated as of September 20, 1993 (the "Credit Agreement").
Capitalized terms used in this certificate and the Schedule attached hereto,
unless otherwise defined herein, have the meanings assigned to them in the
Credit Agreement.
The undersigned does hereby certify to the Agent as follows:
1. He is the duly elected and serving chief financial officer of
the Borrower.
2. He has reviewed the terms of the Credit Agreement and the other
Loan Documents and has made, or has caused to be made under his supervision, a
review of the transactions and conditions of the Borrower and its Consolidated
Entities through the date on which this certificate is delivered to the Agent.
No Event of Default or event that upon notice or lapse of time or both would
constitute an Event of Default under the Credit Agreement has occurred and is
continuing as of the date this certificate is delivered to the Lender, except
as follows: __________________________________________________________________
_______________________________________________________________________________
___________________________ [Give detailed description or insert "none" if
appropriate].
3. The computations relating to the Borrower's financial conditions
set forth on Schedule I attached hereto were true and correct as of __________,
19__ (such date being the last day of the most recently ended fiscal calendar
quarter) and there has been no material adverse change in such amounts upon
which such computations are based through the date on which this certificate is
delivered to the Lender.
_______________________________________________
Chief Financial Officer of HANCOCK FABRICS, INC.
, 19
__________ ___
78
<PAGE> 83
SCHEDULE I
Financial Covenant Compliance
The following financial covenant calculations are made as of
_______________ (the "Determination Date"):
Quarterly Calculations:
1. The Net Worth as at the Determination Date was
$________________. The minimum net worth required was $
calculated as follows: ----------,
(a) Minimum $
----------
(b) Net income for successive
quarters x .25%
----------
(c) Net proceeds of sale of
capital stock, if any
----------
(d) sum of (a) + (b) + (c)
----------
2. The ratio of Debt to Cash Flow as at the
Determination Date for the four most recent fiscal quarters
was _______ to 1.00, calculated as follows:
(a) Debt $
----------
(b) Net Income
----------
(c) Depreciation and amortization
----------
(d) LIFO Charge
----------
(e) Sum of (b) through (d)
----------
(f) (a) / (e)
----------
Required: Not greater than 3.50 to 1.00.
3. Average Inventory covenant in Section 7.8(10) was
calculated as follows:
(a) Cost of consolidated inventories $
at beginning of quarter ----------
(b) Cost of consolidated inventories
at end of quarter ----------
(c) (a + b) X .25
------- ----------
2
(d) Cost of Goods Sold
----------
Required: Amount in (c) cannot exceed amount in (d).
79
<PAGE> 84
4. The Fixed Charge Coverage Ratio as of the Determination Date for
the most recent fiscal quarter was _____ to 1.00, calculated as follows:
(a) Income Available for Debt $
Service -----------
(b) Lease Payments
-----------
(c) Interest Expense
-----------
(d) Sum of (b) + (c)
-----------
(e) (a) / (d)
-----------
Required: See Section 7.8(3) for ratios required for
particular quarters.
_____________, 19 __ ____________________________________
___________ of HANCOCK FABRICS, INC.
80
<PAGE> 85
EXHIBIT I
SUMMARY OF INSURANCE
CURRENT
COVERAGE CARRIER LIMITS
- -------- ------- ------
81
<PAGE> 86
EXHIBIT J
Hancock Fabrics, Inc.
SUBSIDIARIES
Minnesota Fabrics, Inc.
82
<PAGE> 87
EXHIBIT K
LIENS
NONE
83
<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
This Agreement is made as of March 10, 1994, by and between Hancock Fabrics,
Inc., a Delaware corporation (the "Company") and Bradley A. Berg ("Officer").
W I T N E S S E T H :
WHEREAS, corporations are experiencing increasing difficulty in obtaining
directors' and officers' liability insurance, significantly higher premiums for
such insurance than has historically been charged, and reductions in the
coverage of such insurance below what has historically been afforded; and
WHEREAS, the Company understands that there can be no assurance that such
insurance will continue to be available to the Company and Officer, and
believes that it is possible that the cost of such insurance, if obtainable,
may not be acceptable to the Company; and
WHEREAS, Officer is unwilling to serve, or continue to serve, the Company as
an officer without assurances that adequate liability insurance,
indemnification or a combination thereof will be provided; and
WHEREAS, the Company, in order to induce Officer to continue to serve the
Company, has agreed to provide Officer with the benefits contemplated by this
Agreement, which benefits are intended to supplement or, if necessary, replace
directors' and officers' liability insurance; and
WHEREAS, as a result of the provision of such benefits Officer has agreed to
serve or to continue to serve as an officer of the Company;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including the Officer's
service to the Company, the Company and Officer hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Covered Amount" means Loss and Expenses which, in type or amount, are
not insured under directors' and officers' liability insurance maintained by
the Company from time to time.
"Covered Act" means any breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted by
Officer or any of the foregoing alleged by any claimant or any claim against
Officer by reason of Officer's serving as or being a director, officer,
employee, or
-1-
<PAGE> 2
agent of the Company, or by reason of Officer's serving at the request of the
Company as a director, officer, partner, member, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
"D&O Insurance" means a policy or policies of the directors' and
officers' liability insurance issued to the Company and its directors and
officers.
"Determination" means a determination, based on the facts known
at the time,
made by:
(i) A majority vote of a quorum of disinterested directors; or
(ii) Independent legal counsel in a written opinion if a
quorum of disinterested directors is not obtainable, or even if obtainable, if
a quorum of disinterested directors so directs; or
(iii) A majority of the stockholders of the Company; or
(iv) A final adjudication by a court of competent jurisdiction.
"Determined" shall have a correlative meaning.
"Excluded Claim" means any payment for Losses or Expenses in
connection with any claim:
(i) Based upon or attributable to Officer gaining in fact any
personal profit or advantage to which Officer is not entitled; or
(ii) For the return by Officer of any remuneration, for which
prior approval of the stockholders of the Company was required but not
obtained; or
(iii) For an accounting of profits in fact made from the
purchase or sale by Officer of securities of the Company within the meaning of
Section 16 of the Securities Exchange Act of 1934 as amended, or similar
provisions of any state law; or
(iv) Resulting from Officer's knowingly fraudulent, dishonest
or willful misconduct; or
(v) The payment of which by the Company under this Agreement
is not permitted by applicable law; or
(vi) Which are not within the Covered Amount.
"Expenses" means any reasonable expenses incurred by Officer as
a result of a claim or claims made against Officer for
-2-
<PAGE> 3
Covered Acts including, without limitation, counsel fees and costs of
investigative, judicial or administrative proceedings or appeals, but shall not
include fines.
"Loss" means any amount which Officer is legally obligated to pay as a
result of a claim or claims made against Officer for Covered Acts including,
without limitation, damages and judgments and sums paid in settlement of a
claim or claims, but shall not include fines.
2. Maintenance of D&O Insurance.
(a) The Company represents that it presently has in force and effect
policies of D&O Insurance. The Company hereby covenants that it will use its
best efforts to maintain a policy or policies no less beneficial to the Company
and Officer than the policies in effect on the date hereof. The Company shall
not be required, however, to maintain such policy or policies if such insurance
is not reasonably available or if, in the reasonable business judgment of the
then directors of the Company, either (i) the premium cost for such insurance
is disproportionate to the amount of coverage, or (ii) the coverage provided by
such insurance is so limited by exclusions that there is insufficient benefit
from such insurance.
(b) In all policies of D&O Insurance, Officer shall be named as an
insured in such a manner as to provide Officer the same rights and benefits,
subject to the same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
3. Indemnification. The Company shall indemnify Officer against, and hold
Officer harmless from, the Covered Amount of any and all Losses and Expenses
subject, in each case, to the further provisions of this Agreement.
4. Excluded Coverage.
(a) The Company shall have no obligation to indemnify Officer against,
and hold Officer harmless from, any Loss or Expense which has been Determined to
constitute an Excluded Claim.
(b) The Company shall have no obligation to indemnify Officer against,
and hold Officer harmless from, any Loss or Expenses to the extent that
Officer is indemnified by the Company pursuant to the provisions of the
Company's Restated Certificate of Incorporation or is otherwise in fact
indemnified.
5. Indemnification Procedures.
(a) Promptly after receipt by Officer of notice of the commencement or
the threat of commencement of any action, suit or proceeding, Officer shall
notify the Company of the commencement
-3-
<PAGE> 4
thereof if indemnification with respect thereto may be sought from the Company
under this Agreement; but the omission so to notify the Company shall not
relieve it from any liability that it may have to Officer otherwise than under
this Agreement. Such notice may be given by mailing the same by United States
mail, registered or certified, return receipt requested, postage prepaid,
addressed to the Company at: P.O. Box 2400, Tupelo, Mississippi 38803-2400,
Attention: Secretary (or to such other address as the Company may from time to
time designate by written notice to Officer).
(b) If, at the time of the receipt of such notice, the Company has D&O
Insurance in effect, the Company shall give prompt notice of the commencement
of such action, suit or proceeding to the insurers in accordance with the
procedures set forth in the respective policies in favor of Officer. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of Officer, all Losses and Expenses payable as a
result of such action, suit or proceeding in accordance with the terms of such
policies.
(c) To the extent the Company does not, at the time of the commencement
or the threat of commencement of such action, suit or proceeding, have
applicable D&O Insurance, or if a Determination is made that any Expenses
arising out of such action, suit or proceeding will not be payable under the
D&O Insurance then in effect, or if for any reason a D&O insurer does not
timely pay such Expenses, the Company shall be obligated to pay the Expenses
of any such action, suit or proceeding in advance of the final disposition
thereof and the Company, if appropriate, shall be entitled to assume the
defense of such action, suit or proceeding, with counsel satisfactory to
Officer, upon the delivery to Officer of written notice of its election so to
do. After delivery of such notice, the Company will not be liable to Officer
under this Agreement for any legal or other Expenses subsequently incurred by
Officer in connection with such defense other than reasonable Expenses
incurred at the request of the Company provided that Officer shall have the
right to employ its counsel in any such action, suit or proceeding but the
fees and expenses of such counsel incurred after delivery of notice from the
Company of its assumption of such defense shall be at the Officer's expense,
provided further that if (i) the employment of counsel by Officer has been
previously authorized by the Company, (ii) Officer shall have reasonably
concluded that there may be a conflict of interest between the Company and
Officer in the conduct of any such defense or (iii) the Company shall not, in
fact, have employed counsel to assume the defense of such action, the fees and
expenses of counsel shall be at the expense of the Company.
(d) All payments on account of the Company's indemnification obligations
under this Agreement shall be made within thirty (30) days of Officer's written
request therefor unless a Determination is made that the claims giving rise to
Officer's
-4-
<PAGE> 5
request are Excluded Claims or otherwise not payable under this Agreement,
provided that all payments on account of the Company's obligations under
Paragraph 5(c) of this Agreement prior to the final disposition of any action,
suit or proceeding shall be made within twenty (20) days of Officer's written
request therefor and such obligation shall not be subject to any such
Determination but shall be subject to Paragraph 5(e) of this Agreement.
(e) Officer agrees to reimburse the Company for all Losses and Expenses
paid by the Company in connection with any action, suit or proceeding against
Officer in the event and only to the extent that a Determination shall have
been made that Officer is not entitled to be indemnified by the Company because
the claim is an Excluded Claim or because Officer is otherwise not entitled to
payment under this Agreement.
6. Settlement. The Company shall have no obligation to indemnify Officer
under this Agreement for any amounts paid in settlement of any action, suit or
proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in any manner which would impose any fine or any
obligation on Officer without Officer's written consent. Neither the Company
nor Officer shall unreasonably withhold consent to any proposed settlement.
7. Subrogation. To the extent of any payment under this Agreement, the
Company shall be subrogated to all of the rights of recovery of Officer.
Officer shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents as
are necessary to enable the Company effectively to bring suit to enforce such
rights.
8. Rights Not Exclusive. The rights provided hereunder shall not be deemed
exclusive of any other rights to which Officer may be entitled under any
provision of the Delaware General Corporation Law or any other provisions of
law, the Company's Restated Certificate of Incorporation, its by-laws, or any
agreement, vote of stockholders or of disinterested directors or otherwise,
both as to action in an official capacity and as to action in any other
capacity by holding such office, and shall continue after Officer ceases to
serve the Company as an officer.
9. Enforcement.
(a) An adverse Determination shall not foreclose an action to enforce
Officer's rights under this Agreement to the extent allowed by law. If a prior
adverse Determination has been made, the burden of proving that indemnification
is required under this Agreement shall be on Officer. The Company shall have
the burden of proving that indemnification is not required under this Agreement
if no prior adverse Determination shall have been made.
-5-
<PAGE> 6
(b) In the event that any action is instituted by Officer under this
Agreement, or to enforce or interpret any of the terms of this Agreement,
Officer shall be entitled to be paid all court costs and expenses, including
reasonable counsel fees, incurred by Officer with respect to such action,
unless the court determines that each of the material assertions made by
Officer as a basis for such action was not made in good faith or was frivolous.
10. Continuation of Agreement. All agreements and obligations of the Company
contained herein shall continue during the period Officer is a director,
officer, employee or agent of the Company (or serving at the request of the
Company as a director, officer, partner, member, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise) and
shall continue thereafter so long as Officer shall be subject to any possible
demand, claim or threatened, pending or completed proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that Officer
was an officer of the Company or serving in any other capacity referred to in
this paragraph.
11. Severability. In the event that any provision of this Agreement is
determined by a court to require the Company to do or to fail to do an act
which is in violation of applicable law, such provision shall be limited or
modified in its application to the minimum extent necessary to avoid a
violation of law, and such provision, as so limited or modified, and the
balance of this Agreement shall be enforceable in accordance with their terms.
12. Choice of Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
13. Consent to Jurisdiction. The Company and Officer each hereby irrevocably
consents to the jurisdiction of the courts of the State of Delaware for all
purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agrees that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
14. Successor and Assigns. This Agreement shall be (i) binding upon all
successors and assigns of the Company (including any transferee of all or
substantially all of its assets and any successor by, merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Officer.
-6-
<PAGE> 7
15. Amendment. No amendment, modification, termination or cancellation of
this Agreement shall be effective unless made in a writing signed by each of
the parties hereto.
IN WITNESS WHEREOF, the Company and Officer have executed this agreement as
of the day and year first above written.
Hancock Fabrics, Inc.,
a Delaware corporation
By:
---------------------------------
Its
---------------------------------
"Company"
-----------------------------------
Bradley A. Berg
----------------------------
"Officer"
-7-
<PAGE> 1
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
(unaudited)
------------------------------------------------------------------------------
(dollars in thousands, except for Years Ended
per share amounts) ----------------------------
January 30, January 31,
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Primary earnings per share
Net earnings.................................. $ 5,438 $ 12,118
=========== ===========
Weighted average number of
common shares outstanding
during period................................ 21,382,160 21,567,135
Additional shares attributable
to common stock equivalents.................. 111,056 154,226
Shares attributable to tax
effect of restricted stock and
related deferred compensation................ (332,066) (307,744)
----------- -----------
21,161,150 21,413,617
=========== ===========
Earnings per share............................ $ 0.26 $ 0.57
=========== ===========
-----------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings.................................. $ 5,438 $ 12,118
=========== ===========
Weighted average number of
common shares outstanding
during period................................ 21,382,160 21,567,135
Additional shares attributable
to common stock equivalents.................. 108,554 167,507
Shares attributable to tax
effect of restricted stock and
related deferred compensation................ (332,067) (295,319)
----------- -----------
21,158,647 21,439,323
============ ===========
Earnings per share............................ $ 0.26 $ 0.57
============ ===========
</TABLE>
<PAGE> 1
HANCOCK FABRICS, INC.
1993 ANNUAL REPORT EXHIBIT 13
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------------
YEARS ENDED JANUARY 30, 1994 AND JANUARY 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER COMMON SHARE
------------------------
GROSS NET NET CASH
SALES MARGIN EARNINGS EARNINGS (1) DIVIDEND
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
First Quarter $ 92,814 $ 39,978 $ 809 $0.04 $0.08
Second Quarter 83,577 37,487 104 0.00 0.08
Third Quarter 99,038 44,214 3,291 0.16 0.08
Fourth Quarter 92,316 39,812 1,234 0.06 0.08
- -------------------------------------------------------------------------------------
$367,745 $161,491 $ 5,438 $0.26 $0.32
=====================================================================================
1992
First Quarter $ 95,793 $ 44,375 $ 3,396 $0.15 $0.08
Second Quarter 87,198 41,106 2,149 0.10 0.08
Third Quarter 101,232 45,560 4,030 0.19 0.08
Fourth Quarter 96,152 42,034 2,543 0.12 0.08
- -------------------------------------------------------------------------------------
$380,375 $173,075 $12,118 $0.57 $0.32
=====================================================================================
(1) Per share amounts are based on average shares outstanding during each quarter and
may not add to the total for the year.
</TABLE>
8
<PAGE> 2
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SIGNIFICANT FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS AND NUMBER OF STORES) 1993 1992 1991 1990 (3) 1989
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $367,745 $380,375 $388,001 $386,882 $345,819
Earnings before income taxes and
cumulative effect of changes in
accounting methods (1) 8,665 19,105 36,590 44,520 41,349
Earnings before cumulative effect of
changes in accounting methods 5,438 12,118 22,964 28,105 25,957
Net earnings 5,438 12,118 17,307 28,105 25,957
Earnings per common share (2)
Before cumulative effect of
changes in accounting methods 0.26 0.57 1.03 1.23 1.05
Net earnings 0.26 0.57 0.78 1.23 1.05
Total assets 208,548 214,227 215,225 196,183 175,585
Capital expenditures 2,786 4,240 6,260 4,930 5,029
Long- and short-term indebtedness 45,000 58,000 50,000 35,000 35,000
Common shareholders' equity 93,542 94,501 97,229 93,459 85,676
- ------------------------------------------------------------------------------------------------------
Common shares outstanding, net (2) 21,397 21,306 22,038 22,347 23,116
Stores in operation 500 482 459 437 402
(1) Including decrease from effect of LIFO as follows (in thousands): 1993, $(6,600); 1992, $(6,998); 1991, $(4,280); 1990,
$(5,598); and 1989, $(3,820).
(2) Retroactively restated for a two-for-one stock split effected in the form of a 100% stock dividend on April 1, 1991.
(3) Results for 1990 include 53 weeks.
</TABLE>
9
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the percentage of sales for the periods indicated
and percentage changes from period to period of certain items included in the
Consolidated Statement of Earnings:
<TABLE>
<CAPTION>
PERCENT CHANGE
PERCENT OF NET SALES FROM PRIOR YEAR
------------------------------- -------------------
1993 1992 1991 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% (3.3%) (2.0%)
Comparable store sales (5.6%) (4.9%)
Gross margin 43.9% 45.5% 47.4%
Selling, general and
administrative expenses 39.8% 38.7% 36.5%
Earnings before cumulative
effect of changes in
accounting methods 1.5% 3.2% 5.9% (55.1%) (47.2%)
</TABLE>
Hancock's sales growth slowed in the second half of 1991 and declined during
1992 and 1993. Sales for 1993 decreased by $12.6 million from 1992 after a
decline of $7.6 million in 1992 from 1991. A decline in comparable store sales
was responsible for the reduction in sales for the 1993 and 1992 fiscal years.
Sales have benefitted from the addition of 18, 23 and 22 net new stores in
1993, 1992 and 1991, respectively.
Several factors had an adverse effect on sales results in 1993. Excess store
capacity in the retail fabric industry was the primary cause of Hancock's
results for the last three years. The struggle for market share put pressure on
sales, as well as gross margins, and the piece goods industry was forced to
begin the process of reducing excess capacity. Weakening demand for apparel
fabrics also contributed to the decline in same store sales as growth in
alternate product lines was insufficient to offset the apparel category which
constituted the largest segment of the sales mix.
Hancock's gross margin in 1993, before the effect of LIFO, declined from 1992
levels due to the promotional environment which existed during the year.
Reported gross margins were reduced by LIFO charges of $6.6 million, $7.0
million and $4.3 million for 1993, 1992 and 1991, respectively. Hancock's
ability to maintain gross margins by adjusting prices for inflationary
increases in merchandise cost was hindered in 1993 by the deep discounting
within the industry. Management believes such discounting will continue to
hinder gross margin recovery in the near term.
Selling, general and administrative expenses increased as a percentage of sales
in 1993 due to lower sales volume. However, actual expense dollars were less
than the prior year despite an increase in stores. The accounting change in
1991 reflecting Hancock's adoption of SFAS No. 106 (Post-retirement Benefits
Other than Pensions) resulted in additional pretax expense of $1.9 million,
$1.8 million and $1.6 million in 1993, 1992 and 1991, respectively. This change
is expected to continue to adversely impact expenses in subsequent years.
Earnings before the cumulative effect of changes in accounting methods
decreased $6.7 million in 1993 from 1992 following a $10.8 million decrease in
1992 from 1991. Decreases in same store sales and gross margins were the
primary factors affecting net earnings in 1993 and 1992.
In the first quarter of 1991, Hancock adopted SFASNo. 109 (Accounting for
Income Taxes). Other than the cumulative effect (which increased earnings
$869,000), the change did not impact 1991 net earnings. The realization of
Hancock's deferred tax asset of $6.5 million is dependent primarily upon
generation of future taxable income sufficient to offset these deductions.
Management believes based upon historical earnings and anticipated future
earnings that normal operations will continue to generate future taxable income
sufficient to offset these deductions. As a result of the increase in Federal
income tax rates in 1993, Hancock's future earnings could be negatively
impacted.
Hancock plans a net increase of approximately 15 retail fabric stores in 1994.
Hancock's management believes that opportunities exist for infilling in
selected markets as well as for expansion into new markets, and that sales and
earnings in the longer term will be favorably affected by the addition of new
stores. Management also believes that the maturation of stores opened in prior
years will benefit future earnings.
10
<PAGE> 4
FINANCIAL POSITION
Hancock traditionally maintains a strong financial position as evidenced by the
following information as of the end of fiscal years 1993, 1992 and 1991
(dollars in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents $ 4,327 $ 8,971 $ 4,110
Net cash flows provided by
operating activities $ 18,275 $ 16,542 $ 860
Working capital $127,054 $137,520 $130,731
Long-term indebtedness to
total capitalization 32.5% 38.0% 34.0%
</TABLE>
During 1993, cash provided by operations was adversely affected by reduced
earnings while the inventory growth was offset by the increase in accounts
payable. The other major sources of operating funds were expenses not requiring
cash and the increase in postretirement benefit liability, which was comparable
with the prior year. These funds were used to retire debt, pay dividends and
finance the addition of 18 net stores. Historically, Hancock has financed the
expansion of its operations with internally generated cash flow. In 1992, cash
provided by operations was affected by a decrease in earnings and accounts
payable. These funds, which were supplemented with borrowings, were used to
repurchase treasury stock, pay dividends and expand the store base.
Hancock purchased treasury stock of $800 thousand, $9.1 million and $8.7
million in 1993, 1992 and 1991, respectively. Hancock plans to use future
excess cash for the retirement of debt and the purchase of treasury stock as
market and financial conditions dictate.
Current assets decreased primarily due to a reduction in cash and cash
equivalents. In 1993, inventory levels increased slightly after a $6.6 million
LIFO charge offset the inventory growth associated with the 18 net new stores.
Current liabilities increased due to an increase in accounts payable from the
prior year. The prior year accounts payable balance was uncharacteristically
low due to a reduction in purchases during the latter part of the year.
CAPITAL REQUIREMENTS
Hancock's principal capital requirements are for the financing of inventories
and, to a lesser extent, for capital expenditures relating to store locations
and its distribution facility. Funds for such purposes are generated from
Hancock's operations and, if necessary, supplemented by borrowings from
commercial lenders.
Capital expenditures amounted to $2.8 million in 1993, $4.2 million in 1992 and
$6.3 million in 1991. Inventories at current cost increased by $7.6 million in
1993, $700 thousand in 1992 and $26.2 million in 1991. These expenditures
reflect, in part, the capital requirements relating to a net increase of 18, 23
and 22 retail fabric stores in 1993, 1992 and 1991, respectively.
Hancock estimates that the capital requirements for financing inventories and
capital expenditures relating to the planned net increase of approximately 15
retail fabric stores in 1994 will approximate $10.0 million and that internally
generated funds will be sufficient to finance these activities.
EFFECT OF INFLATION
The impact of inflation on labor and occupancy costs can significantly affect
Hancock's operations. Many of Hancock's employees are paid hourly rates related
to the Federal minimum wage; accordingly, any increases will affect Hancock. In
addition, payroll taxes, employee benefits and other employee related costs
continue to increase. Costs of leases for new store locations remained stable,
but the renewal costs of older leases continue to increase. Taxes, maintenance
and insurance costs have also risen. Hancock believes the practice of
maintaining adequate operating margins through a combination of price
adjustments and cost controls, careful evaluation of occupancy needs and
efficient purchasing practices is the most effective tool for coping with
increasing costs and expenses.
SEASONALITY
Hancock's business is slightly seasonal. Peak sales periods occur during the
fall and pre-Easter weeks, while the lowest sales periods occur during
pre-Christmas and mid-summer.
11
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
- ----------------------------------------------------------------------------------
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1993 1992 1991
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $367,745 $380,375 $388,001
Cost of goods sold 206,254 207,300 203,897
- ----------------------------------------------------------------------------------
Gross margin 161,491 173,075 184,104
- ----------------------------------------------------------------------------------
Expenses (income)
Selling, general and administrative 146,509 147,323 141,488
Depreciation and amortization 4,241 4,280 3,948
Interest expense 2,314 2,644 2,793
Interest income (238) (277) (715)
- -----------------------------------------------------------------------------------
Total operating and interest expenses 152,826 153,970 147,514
- ----------------------------------------------------------------------------------
Earnings before taxes and cumulative
effect of changes in accounting methods 8,665 19,105 36,590
Income taxes 3,227 6,987 13,626
- ----------------------------------------------------------------------------------
Earnings before cumulative effect of
changes in accounting methods 5,438 12,118 22,964
- ----------------------------------------------------------------------------------
Cumulative effect on prior years of
changes in accounting methods
Postretirement benefits other than
pensions, net of income tax of $3,360 (6,526)
Income taxes 869
- ----------------------------------------------------------------------------------
Net earnings $ 5,438 $ 12,118 $ 17,307
==================================================================================
Earnings per share:
Before cumulative effect of
changes in accounting methods $ 0.26 $ 0.57 $ 1.03
Cumulative effect of changes in
accounting methods
Postretirement benefits
other than pensions (0.29)
Income taxes 0.04
- ----------------------------------------------------------------------------------
Net $ 0.26 $ 0.57 $ 0.78
==================================================================================
Weighted average number of common shares and
common equivalent shares outstanding 21,161 21,414 22,308
==================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
12
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------
AT JANUARY 30, 1994 AND JANUARY 31, 1993
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,327 $ 8,971
Receivables, less allowance for doubtful
accounts of $145 in 1993 and 1992 1,309 1,683
Inventories 173,297 172,302
Deferred tax asset 330
Prepaid expenses 1,068 1,973
- ---------------------------------------------------------------------------------
Total current assets 180,331 184,929
Property and equipment, at depreciated cost 21,911 23,636
Deferred tax asset 6,190 5,400
Other assets 116 262
- ---------------------------------------------------------------------------------
Total assets $208,548 $214,227
=================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,032 $ 30,080
Accrued liabilities 14,100 14,951
Income taxes 2,145 1,665
Deferred income taxes 713
- ---------------------------------------------------------------------------------
Total current liabilities 53,277 47,409
Long-term debt obligations 45,000 58,000
Postretirement benefit liability other than pensions 15,267 13,328
Other deferred liabilities 1,462 989
- ---------------------------------------------------------------------------------
Total liabilities 115,006 119,726
- ---------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value; 80,000,000
shares authorized; 26,684,410 issued and
outstanding (26,507,087 in 1992) 267 265
Paid-in capital 15,524 13,586
Retained earnings 160,063 161,471
Less - Treasury stock, at cost, 5,287,026
shares held (5,201,151 in 1992) (77,930) (77,089)
Less - Deferred compensation on
restricted stock incentive plan (4,382) (3,732)
- ---------------------------------------------------------------------------------
Total shareholders' equity 93,542 94,501
- ---------------------------------------------------------------------------------
Total liabilities and shareholders' equity $208,548 $214,227
=================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
13
<PAGE> 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
(IN THOUSANDS) 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,438 $12,118 $17,307
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 4,241 4,280 3,948
LIFO charge 6,600 6,998 4,280
Deferred income taxes (1,833) (728) (8,202)
Amortization of deferred compensation on
restricted stock incentive plan 876 799 738
(Increase) decrease in assets
Receivables and prepaid expenses 1,279 (52) 1,551
Inventory growth at current cost (7,595) (723) (26,171)
Other noncurrent assets 146 102 482
Increase (decrease) in liabilities
Accounts payable 6,952 (8,359) (3,295)
Accrued liabilities (851) 540 (535)
Current income tax obligations 610 (314) (738)
Postretirement benefit liability
other than pensions 1,939 1,839 11,489
Other deferred liabilities 473 42 6
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,275 16,542 860
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (2,786) (4,240) (6,260)
Disposition of property and equipment 270 408 244
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (2,516) (3,832) (6,016)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings (repayments) (13,000) 8,000 15,000
Purchase of treasury stock (841) (9,124) (8,679)
Proceeds from exercise of stock options 209 159 1,219
Issuance of shares under directors' stock plan 75
Cash dividends paid (6,846) (6,884) (7,117)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (20,403) (7,849) 423
- ----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,644) 4,861 (4,733)
Beginning of year cash and cash equivalents 8,971 4,110 8,843
- ----------------------------------------------------------------------------------------------
End of year cash and cash equivalents $ 4,327 $ 8,971 $ 4,110
==============================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,283 $ 2,291 $ 2,773
Income taxes $ 4,721 $ 8,004 $16,412
==============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
14
<PAGE> 8
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ADDITIONAL TOTAL
PAID-IN RETAINED DEFERRED SHAREHOLDERS'
COMMON STOCK CAPITAL EARNINGS TREASURY STOCK COMPENSATION EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance February 3, 1991 26,290,422 $263 $ 9,657 $146,047 (3,943,260) $(59,286) $(3,222) $93,459
Net earnings 17,307 17,307
Cash dividends (7,117) (7,117)
Exercise of stock options 79,965 1 1,218 1,219
Issuance of restricted stock 38,000 869 (869)
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 302 738 1,040
Purchase of treasury stock (427,126) (8,679) (8,679)
- ---------------------------------------------------------------------------------------------------------------------------
Balance February 2, 1992 26,408,387 264 12,046 156,237 (4,370,386) (67,965) (3,353) 97,229
Net earnings 12,118 12,118
Cash dividends (6,884) (6,884)
Exercise of stock options 22,700 221 221
Issuance of restricted stock 76,000 1 1,177 (1,178)
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 142 799 941
Purchase of treasury stock (830,765) (9,124) (9,124)
- ---------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1993 26,507,087 265 13,586 161,471 (5,201,151) (77,089) (3,732) 94,501
Net earnings 5,438 5,438
Cash dividends (6,846) (6,846)
Exercise of stock options 32,275 249 249
Issuance of restricted stock 146,100 2 1,620 (1,622)
Cancellation of restricted stock (7,800) (96) 96
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 90 876 966
Issuance of shares under directors'
stock plan 6,748 75 75
Purchase of treasury stock (85,875) (841) (841)
- ---------------------------------------------------------------------------------------------------------------------------
Balance January 30, 1994 26,684,410 $267 $15,524 $160,063 (5,287,026) $(77,930) $(4,382) $93,542
===========================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
15
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Description of Business
Hancock Fabrics, Inc. ("Hancock") is a retail and wholesale merchant of
fabrics, crafts and related home sewing accessories. Hancock operates 500
stores in 33 states under the tradenames "Hancock Fabrics," "Minnesota
Fabrics," "Fabric Warehouse" and "Fabric Market" and supplies almost 200
independent wholesale customers.
SUMMARY OF ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Hancock and its
wholly-owned subsidiary. All significant intercompany accounts and transactions
are eliminated. Hancock maintains its financial records on a 52-53 week fiscal
year ending on the Sunday closest to January 31.
CASH AND CASH EQUIVALENTS include cash on hand, amounts due from banks and
repurchase agreements having maturities of three months or less and are
reflected as such for purposes of reporting cash flows.
INVENTORIES consist of fabrics, sewing notions and crafts held for resale and
are valued at the lower-of-cost or market; cost is determined by the last-in,
first-out (LIFO) method. The current cost of inventories exceeded the LIFO cost
by $38.6 million, $32.0 million and $25.0 million at January 30, 1994, January
31, 1993 and February 2, 1992, respectively.
DEPRECIATION is computed by use of the straight-line method over the estimated
useful lives of buildings, fixtures and equipment. Leasehold costs and
improvements are amortized over the lesser of their estimated useful lives or
the remaining lease term. Average depreciable lives are: building and
improvements 15-20 years; fixtures and equipment 3-10 years; and transportation
equipment 3-5 years.
MAINTENANCE AND REPAIRS are charged to expense as incurred and major
improvements are capitalized.
ADVERTISING, including production costs, is charged to expense on the first
date of the advertising period.
PREOPENING COSTS of new stores are charged to expense in the year that the
store opens. These costs primarily include labor to stock the store, preopening
advertising, store supplies and other expendable items.
EARNINGS PER SHARE are based on the weighted average number of common shares
and common equivalent shares outstanding. Common equivalent shares represent
dilutive stock options and restricted stock shares, reduced by the number of
shares which could be repurchased at the average fair market value during the
year with the proceeds of the options and the income tax savings available from
recognizing compensation expense as a tax deduction.
CHANGES IN ACCOUNTING METHODS
In 1991, Hancock adopted Statement of Financial Accounting Standards ("SFAS")
No. 106 - "Employers' Accounting for Postretirement Benefits Other than
Pensions" which requires the accrual method of accounting for postemployment
benefits offered to employees. The cumulative effect on prior years, net of
income tax effect, decreased net earnings by $6.5 million.
In 1991, Hancock also adopted SFAS No. 109 - "Accounting for Income Taxes."
This standard requires the use of the liability method of computing deferred
taxes using current enacted rates. This standard also simplifies certain
deferred tax calculations while providing less restrictive guidelines for
recognition of deferred tax benefits. Other than the cumulative effect on prior
years (which increased net earnings $869,000), this change did not impact 1991
net earnings.
<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT
1993 1992
------- (IN THOUSANDS) -------
<S> <C> <C>
Buildings and improvements $10,636 $10,604
Leasehold improvements 9,032 10,803
Fixtures and equipment 34,065 32,641
Transportation equipment 1,312 1,286
Assets under capital leases 428 1,071
------- -------
55,473 56,405
Less accumulated depreciation
and amortization 34,648 33,855
------- -------
20,825 22,550
Land 1,086 1,086
------- -------
$21,911 $23,636
======= =======
</TABLE>
16
<PAGE> 10
<TABLE>
<CAPTION>
ACCRUED LIABILITIES
1993 1992
------- (IN THOUSANDS) -------
<S> <C> <C>
Payroll and benefits $ 5,459 $ 6,061
Property taxes 3,099 2,882
Sales taxes 1,476 1,532
Other 4,066 4,476
------- -------
$14,100 $14,951
======= =======
LONG-TERM DEBT OBLIGATIONS
1993 1992
------- (IN THOUSANDS) -------
Revolving credit agreement $20,000
Notes payable to banks $33,000
Note payable to insurance company 25,000 25,000
------- -------
$45,000 $58,000
======= =======
</TABLE>
In 1993, Hancock entered into a $60 million revolving credit agreement with
NationsBank of Georgia as agent. This agreement replaced a previous $50 million
revolving credit agreement with Morgan Guaranty Trust Co. as agent. The 1993
agreement provides for a maturity date of September 20, 1996 on any outstanding
borrowings and an annual commitment fee of 1/8 of 1%. The agreement has two
one-year extension options. Borrowings under the revolving credit agreement
bear interest at a negotiated rate, a floating rate (the higher of federal
funds rate plus 1/2% or the prime rate), a rate derived from the Certificate of
Deposit Rate or a rate derived from the London Interbank Offered Rate.
Additionally, Hancock has other credit arrangements with various lending
institutions aggregating $55 million. A total of $25 million with an insurance
company was outstanding at January 30, 1994 and January 31, 1993 and provides
for repayment on November 5, 1995. At January 31, 1993, an additional $33
million was outstanding under certain of the remaining facilities. These notes
payable are classified as long-term obligations due to Hancock's ability and
intent to refinance these arrangements under the revolving credit agreement.
During 1992, a lending institution repurchased an interest rate swap agreement
with Hancock for $1.6 million. This gain was deferred and is being amortized
over the three-year life of the related debt.
At January 30, 1994, the effective interest rates on all outstanding borrowings
ranged from 3.28% to 5.04% with a weighted average of 4.26%. Under the most
restrictive covenants of these agreements, Hancock is required to maintain a
specified consolidated tangible net worth and an interest coverage ratio.
Based on the current borrowing rates available to Hancock for bank loans with
similar terms and average maturities, the fair value of long-term debt
obligations is $45 million and $57.5 million at January 30, 1994 and January
31, 1993, respectively.
LONG-TERM LEASES
Hancock leases its retail fabric store locations under noncancelable operating
leases expiring at various dates through 2014. Certain of the leases for store
locations provide for additional rent based on sales volume.
Rent expense consists of (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Minimum rent under operating leases $27,070 $25,804 $23,893
Additional rent based on sales under all leases 164 280 362
------- ------- -------
$27,234 $26,084 $24,255
======= ======= =======
</TABLE>
Minimum rental payments under all operating leases as of January 30, 1994 are
as follows (in thousands):
<TABLE>
<S> <C>
1994 $ 24,509
1995 22,834
1996 20,941
1997 18,065
1998 15,854
Thereafter 69,937
--------
Total minimum lease payments $172,140
========
</TABLE>
17
<PAGE> 11
INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ -------
<S> <C> <C> <C>
Currently payable
Federal $4,475 $6,782 $15,879
State 585 933 1,720
------ ------ -------
5,060 7,715 17,599
------ ------ -------
Deferred
Current (1,043) 186 (1,321)
Noncurrent (790) (914) (6,881)
------ ------ ------
(1,833) (728) (8,202)
Adjustment for cumulative effect of
changes in accounting methods 4,229
------ ------ -------
(1,833) (728) (3,973)
------ ------ -------
$3,227 $6,987 $13,626
====== ====== =======
</TABLE>
Deferred income taxes are provided in recognition of temporary differences in
reporting certain revenues and expenses for financial statement and income tax
purposes.
The net current deferred tax asset (liability) is comprised of the following:
<TABLE>
<CAPTION>
1993 1992
-------- (IN THOUSANDS) --------
<S> <C> <C>
Current deferred tax liabilities
Inventory valuation methods $ (256) $(1,201)
Other items (55) (54)
-------- -------
Gross current deferred tax liabilities (311) (1,255)
-------- -------
Current deferred tax assets
Accrual for medical insurance 281 289
Other items 360 253
-------- -------
Gross current deferred tax assets 641 542
-------- -------
$ 330 $ (713)
======== =======
</TABLE>
The net noncurrent deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
1993 1992
------ (IN THOUSANDS) -------
<S> <C> <C>
Noncurrent deferred tax liabilities
Depreciation $(1,720) $(1,569)
------- -------
Noncurrent deferred tax assets
Postretirement benefits other than pensions 5,452 4,584
Accrual for pension liability 1,047 978
Deferred gain on swap repurchase 358 549
Difference in recognition of restricted stock expense 216 308
Deferred compensation liability 362 297
Other deferred deduction items 475 253
------- -------
Gross deferred tax assets 7,910 6,969
------- -------
$ 6,190 $ 5,400
======= =======
</TABLE>
The ultimate realization of a significant portion of this asset is dependent
upon the generation of future taxable income sufficient to offset the related
deductions on future tax periods in which they reverse. A reconciliation of the
statutory Federal income tax rate to the effective tax rate is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 34.0% 34.0%
State income taxes, net of
Federal income tax effect 2.9 2.9 3.2
Other (0.7) (0.3)
---- ----
Effective tax rate 37.2% 36.6% 37.2%
==== ==== ====
</TABLE>
18
<PAGE> 12
SHAREHOLDERS' INTEREST
AUTHORIZED CAPITAL
Hancock's authorized capital includes five million shares of $0.01 par value
preferred stock, none of which have been issued.
On April 1, 1991, Hancock effected, in the form of a 100% stock dividend, a
two-for-one stock split. All share and per share information has been
retroactively restated to reflect this stock split.
COMMON STOCK PURCHASE RIGHTS
Hancock has entered into a Common Stock Purchase Rights Agreement, as amended
(the "Rights Agreement"), with Continental Stock Transfer & Trust Company as
Rights Agent. The Rights Agreement in certain circumstances would permit
shareholders to purchase common stock at prices which would be substantially
below market value.
STOCK REPURCHASE PLAN
On March 2, 1989, Hancock's Board of Directors approved the repurchase from
time to time of up to two million shares of common stock through open market
purchases or privately negotiated transactions. Through February 3, 1991, the
Company had repurchased 1,971,630 shares (before restatement for the effect of
the two-for-one stock split on April 1, 1991) of the authorized amount. On
December 6, 1990 and on June 11, 1992, Hancock's Board of Directors approved
additional repurchases aggregating in total up to two million shares of common
stock. During 1993, 1992 and 1991, 85,875, 830,765 and 427,126 shares,
respectively, have been repurchased under these authorizations which were not
adjusted by the Board for the stock split.
EMPLOYEE BENEFIT PLANS
STOCK OPTIONS
In 1987, Hancock adopted a stock option plan which, as amended, authorized the
granting of options to employees for up to two million shares of common stock,
at an exercise price of no less than 50% of fair market value on the date the
options are granted. On March 19, 1992, Hancock's Board of Directors increased
the authorized option shares by one million.
At January 30, 1994, options for a total of 2,462,000 shares of common stock
had been granted under the plan, including 449,170 shares for which options
have been subsequently exercised and 305,160 shares for which options have
terminated unexercised. Options outstanding at January 30, 1994 expire in 1997
through 2003.
A summary of activity in the plan for the years ended January 30, 1994, January
31, 1993 and February 2, 1992 follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year 1,264,245 1,093,505 900,470
--------- --------- ---------
Options granted
$10.00 share 567,800
$10.75 share 254,000
$22.88 share 311,200
--------- --------- ---------
Total granted 567,800 254,000 311,200
--------- --------- ---------
Options exercised
$19.57 share (2,000)
$13.63 share (400) (36,325)
$ 8.44 share (3,200) (6,800) (15,290)
$ 6.25 share (6,075) (7,700) (21,350)
$ 5.00 share (23,000) (7,800) (5,000)
--------- --------- ---------
Total exercised (32,275) (22,700) (79,965)
--------- --------- ---------
Options canceled (92,100) (60,560) (38,200)
--------- --------- ---------
Outstanding at end of year 1,707,670 1,264,245 1,093,505
--------- --------- ---------
Exercisable at end of year 1,059,670 886,845 708,405
========= ========= =========
</TABLE>
The options exercisable at January 30, 1994 are exercisable at prices ranging
from $3.13 to $22.88 per share.
RESTRICTED STOCK
Hancock adopted the 1989 Restricted Stock Plan under which as many as one
million shares of common stock, as adjusted, may be issued to key employees at
no cost to the employees. During 1993, 1992 and 1991, 146,100, 76,000 and
38,000 restricted shares, respectively, were issued under the plan to officers
and key employees. Compensation expense related to the shares issued is
recognized over the period for which restrictions apply.
19
<PAGE> 13
RETIREMENT PLANS
Substantially all full-time employees are covered by a trusteed,
noncontributory retirement plan maintained by Hancock. The retirement benefits
provided by this plan are primarily based on years of service and employee
compensation. Pension costs are funded by quarterly contributions to the trust.
Net periodic pension costs for the years ended January 30, 1994, January 31,
1993 and February 2, 1992, included the following benefit and cost components
based on an actuarial valuation for the years ended December 31, 1993, 1992 and
1991, respectively (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
Service costs $1,374 $1,345 $1,241
Interest costs 1,540 1,401 1,244
Return of plan assets (2,422) (1,605) (3,509)
Amortization of unrecognized net transition asset (254) (254) (254)
Deferral of investment gains (losses) in
excess of (less than) expected returns 588 (165) 2,091
Amortization of unrecognized prior service costs 56 56 56
------- ------- -------
Net periodic pension costs $ 882 $ 778 $ 869
======= ======== =======
</TABLE>
The funded status and the amounts recognized in Hancock's consolidated balance
sheet for defined benefit plans based on an actuarial valuation as of the
measurement dates of December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
------- (IN THOUSANDS) -------
<S> <C> <C>
Accumulated benefit obligation
Vested $20,266 $15,958
Nonvested 2,337 1,779
------- -------
$22,603 $17,737
======= =======
Plan assets at market value $22,619 $20,739
Actuarial present value of projected benefit obligation (24,022) (19,365)
------- -------
Funded status (1,403) 1,374
Unrecognized net transition asset (1,780) (2,034)
Unrecognized net (gain) (1,024) (2,662)
Unrecognized prior service costs 1,443 540
-------- --------
Accrued pension costs $ (2,764) $ (2,782)
======== ========
</TABLE>
Plan assets include commingled funds, corporate and government debt securities,
common stock and real estate. The unrecognized net transition asset is being
amortized over 15 years beginning in 1986.
Actuarial assumptions used in the period end valuations were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.50% 8.25% 8.25%
Rate of increase in compensation levels 4.50% 5.50% 5.50%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
</TABLE>
INCENTIVE COMPENSATION PLANS
Hancock's store management and key management personnel participate in
incentive compensation plans. Approximately 600 employees are covered under the
plans. Provision for payments to be made under the plans is based primarily on
pretax earnings in excess of a specified return on capital employed in the
operations. The amounts expensed under the plans were $2.0 million, $2.3
million and $3.9 million in 1993, 1992 and 1991, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain health care benefits are provided by Hancock to substantially all
retired employees with more than 15 years of credited service. As discussed
previously, in 1991, Hancock changed its method of accounting for such
benefits. At December 31, 1993 and 1992, Hancock's accumulated postretirement
benefit obligation is as follows:
<TABLE>
<CAPTION>
1993 1992
------- (IN THOUSANDS) ------
<S> <C> <C>
Retiree benefit obligation $ 2,737 $ 2,889
Fully eligible active benefit obligation 840 592
Other active benefit obligation 9,321 8,897
------- -------
12,898 12,378
Unrecognized net gain 2,369 950
------- -------
$15,267 $13,328
======= =======
</TABLE>
20
<PAGE> 14
The medical care cost trend rates used in determining this obligation for
employees before age 65 is 12% decreasing by .75% annually before leveling at
5.5%. For individuals 65 and over, the rate is 9.5% decreasing by .75% annually
before leveling at 5%. This trend rate assumption has a significant effect on
the amounts reported. To illustrate, increasing the combined health care cost
trend by 1% would increase the accumulated postretirement benefit obligation by
$2.6 million.
The discount and the salary scale rates used in calculating the obligations
were 7.5% and 4.5%, respectively at December 31, 1993 and 8.25% and 5.5%,
respectively at December 31, 1992.
Net periodic postretirement benefit costs included the following (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ --------
<S> <C> <C> <C>
Service cost (benefit attributable to current year service) $1,148 $1,072 $ 966
Interest cost 975 871 806
Amortization of unrecognized gain (11)
------ ------ ------
$2,112 $1,943 $1,772
====== ====== ======
</TABLE>
Hancock's policy is to fund claims as incurred. Claims paid in 1993, 1992 and
1991 totaled $173,000, $132,000 and $169,000, respectively.
COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF RISK
Financial instruments which potentially subject the Company to concentrations
of risk are primarily cash and cash equivalents. The Company places its cash
and cash equivalents in insured depository institutions and limits the amount
of exposure to any one institution.
LITIGATION
Hancock is a party to several pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
Hancock's management is of the opinion that it is unlikely that these
proceedings and claims will have a material effect on the financial condition
or operating results of Hancock.
OTHER FINANCIAL INFORMATION
The following items were charged to cost and expenses (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs $ 1,362 $ 1,259 $ 1,371
Advertising costs 15,250 16,911 16,072
Taxes, other than payroll and income taxes:
Real estate and personal property 5,326 5,072 3,995
Other 432 722 553
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Hancock Fabrics, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Hancock
Fabrics, Inc. and its subsidiary at January 30, 1994 and January 31, 1993, and
the results of their operations and their cash flows for each of the three
years in the period ended January 30, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in the Summary of Accounting Policies to the consolidated
financial statements, the Company adopted two new accounting standards that
changed its method of accounting for certain postretirement benefits and income
taxes in 1991.
/s/ PRICE WATERHOUSE
- --------------------
Memphis, Tennessee
March 4, 1994
21
<PAGE> 1
EXHIBIT 21
Subsidiaries of Hancock Fabrics, Inc.
Name Under Which
State of Subsidiary
Name Incorporation Does Business
---- ------------- -----------------
Minnesota Fabrics, Inc. Minnesota Minnesota Fabrics
Fabric Market
<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-17215 and 33-29138) of Hancock Fabrics, Inc. of
our report dated March 4, 1994 appearing on page 21 of the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE
- --------------------
PRICE WATERHOUSE
Memphis, Tennessee
April 26, 1994
