<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 1997
----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to _________________
Commission file number 0-21406
-------
Brookstone, Inc.
----------------
(Exact name of registrant as specified in its charter)
Delaware 06-1182895
-------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
17 Riverside Street, Nashua, NH 03062
--------------------------------------
(address of principal executive offices, zip code)
603-880-9500
------------
(Registrant's telephone number, including area code)
------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
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 [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed, by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 7,867,634 shares of Common
-----------
Stock as of December 11, 1997
-------------------
<PAGE>
BROOKSTONE, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I: Financial Information
---------------------
Item 1:
Consolidated Balance Sheet
as of November 1, 1997, February 1, 1997, and November 2, 1996 3
Consolidated Statement of Operations for the thirteen and thirty-nine weeks
ending November 1, 1997 and November 2, 1996 4
Consolidated Statement of Cash Flows for the thirteen and thirty-nine
weeks ending November 1, 1997 and November 2, 1996 5
Notes to Consolidated Financial Statements 6
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
Part II: Other Information
-----------------
Item 1:
Legal Proceedings 9
Item 2:
Change in Securities 9
Item 3:
Defaults by the Company upon its Senior Securities 9
Item 4:
Submission of matters to a vote of Security Holders 9
Item 5:
Other Information 9
Item 6:
Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
2
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
November 1, 1997 February 1, 1997 November 2, 1996
---------------- ---------------- ----------------
Assets
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,409 $ 10,576 $ 1,694
Receivables, net 4,556 5,448 5,250
Merchandise inventories 47,950 31,266 50,245
Deferred income taxes 6,675 1,026 5,675
Other current assets 5,929 2,953 5,850
-------- -------- --------
Total current assets 67,519 51,269 68,714
-------- -------- --------
Deferred income taxes 2,493 1,845 1,864
Property and equipment, net 34,728 33,413 31,817
Other assets 1,688 734 2,470
-------- -------- --------
$106,428 $ 87,261 $104,865
======== ======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current Portion of obligation under capital
lease $ 87 $ 79 $ 84
Short term borrowings 20,000 -- 22,985
Accounts payable 19,738 8,616 22,407
Other current liabilities 9,350 12,902 7,561
-------- -------- --------
Total current liabilities 49,175 21,597 53,037
-------- -------- --------
Other long term liabilities 8,405 8,923 8,547
Long term obligation under capital lease 2,720 2,784 2,805
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.001 par value:
Authorized - 2,000,000 shares; issued and
outstanding - 0 shares at November 1, 1997,
February 1, 1997 and November 2, 1996
Common stock, $0.001 par value
Authorized 50,000,000 shares; issued and
outstanding - 7,821,384 at November 1,
1997, 7,793,613 shares at February 1, 1997
and 7,768,613 shares at November 2, 1996 8 8 8
Additional paid-in capital 46,799 46,663 46,529
Retained earnings / (Accumulated deficit) (632) 7,333 (6,014)
Treasury stock, at cost - 3,616 shares at
November 1, 1997, February 1, 1997 and
November 2, 1996 (47) (47) (47)
-------- -------- --------
Total Shareholders' Equity 46,128 53,957 40,476
-------- -------- --------
$106,428 $87,261 $104,865
======== ======== ========
</TABLE>
3
<PAGE>
BROOKSTONE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------------------------------------------------------------
November 1, 1997 November 2, 1996 November 1, 1997 November 2, 1996
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $ 38,922 $ 35,022 $116,907 $105,704
Cost of Sales 28,647 25,473 83,892 75,025
-------- -------- -------- --------
Gross profit 10,275 9,549 33,015 30,679
Selling, general and administrative
expenses 16,102 14,639 45,518 42,447
-------- -------- -------- --------
Loss from operations (5,827) (5,090) (12,503) (11,768)
Interest expense, net 333 325 639 565
Loss before taxes (6,160) (5,415) (13,142) (12,333)
-------- -------- -------- --------
Income tax benefit (2,427) (2,134) (5,178) (4,859)
-------- -------- -------- --------
Net loss $ (3,733) $ (3,281) $ (7,964) $ (7,474)
======== ======== ======== ========
Net loss per share $ (0.48) $ (0.42) $ (1.02) $ (0.97)
======== ======== ======== ========
Weighted average shares
outstanding 7,802 7,761 7,794 7,734
</TABLE>
BROOKSTONE, INC.
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
----------------------------------------
November 1, 1997 November 2, 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,964) $ (7,474)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 4,619 4,236
Deferred income taxes (6,297) (5,525)
(Increase) Decrease in other assets (954) (1,272)
Increase (Decrease) in other long term liabilities (518) (25)
Changes in working capital:
Accounts receivable, net 892 (938)
Merchandise Inventories (16,684) (24,501)
Other current assets (2,976) (2,851)
Accounts Payable 11,122 12,943
Other current liabilities (3,552) (1,508)
-------- --------
Net cash used by operating activities (22,312) (26,915)
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (5,934) (5,896)
-------- --------
Net cash used for investing activities (5,934) (5,896)
-------- --------
Cash flows from financing activities:
Borrowings from revolving credit 20,000 22,985
Payments for capitalized lease (56) (49)
Proceeds from exercise of stock options
and related tax benefits 135 236
Net cash provided by financing activities 20,079 23,172
-------- --------
Net decrease in cash and cash equivalents (8,167) (9,639)
-------- --------
Cash and cash equivalents at beginning of period 10,576 11,333
-------- --------
Cash and cash equivalents at end of period $ 2,409 $ 1,694
======== ========
</TABLE>
BROOKSTONE, INC.
5
<PAGE>
Notes to Consolidated Financial Statements
1. The results of the thirteen and thirty-nine week periods ending November 1,
1997, are not necessarily indicative of the results for the full fiscal
year. The Company's business, like the business of retailers in general, is
subject to seasonal influences. Historically, the Company's fourth fiscal
quarter, which includes the Christmas selling season, has produced a
disproportionate amount of the Company's net sales and generally all of its
income from operations. The Company expects that its business will continue
to be subject to such seasonal influences.
2. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
practices consistently applied, and in the opinion of the Company, contain
all adjustments (consisting of only normal recurring adjustments) necessary
to present fairly the financial position and the results of operations for
the periods reported. Certain information and footnote disclosures normally
included in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that the accompanying consolidated financial statements be read
in conjunction with the annual financial statements and notes thereto which
may be found in the Company's 1996 annual report.
3. The exercise of stock options which have been granted under the Company's
stock option plans gives rise to compensation which is includable in the
taxable income of the optionees and deductible by the Company for tax
purposes upon exercise. Such compensation reflects an increase in the fair
market value of the Company's Common Stock subsequent to the date of grant.
For financial reporting purposes, the tax effect of this deduction is
accounted for as a credit to additional paid-in capital rather than as a
reduction of income tax expense. Such exercises resulted in a tax benefit
to the Company of approximately $300 for the thirteen week period November
1, 1997 and $ 66,800 for the thirty-nine week period ended November 1,
1997.
4. In February, 1997 the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 128, Earnings per Share"
("FAS 128"). This pronouncement will be effective for the Company's
financial statements for the year-ended January 31, 1998. FAS 128 will
supersede the pronouncement of the Accounting Principles Board ("APB") No.
15. FAS 128 eliminates the calculation of primary earnings per share and
requires the disclosure of Basic Earnings per Share and Diluted Earnings
per Share (formerly referred to as fully diluted earnings per share), if
applicable. As the Company has recorded net losses for the three and nine
month periods ended November 1, 1997 and November 2, 1996, any common stock
equivalents would be anti-dilutive; therefore primary earnings per common
share, as presented on the consolidated statement of operations is
equivalent to Basic Earnings per Share and Diluted Earnings per Share, as
prescribed by FAS 128.
5. On September 22, 1997 the Company entered into a new revolving credit
agreement. The agreement provides for borrowings of up to $75 million for
letters of credit and working capital, as long as the Company meets a
borrowing base test equal to 50% of the amount of eligible inventory and
outstanding documentary letters of credit (increasing to 65% June through
July and to 75% August through November). Letters of credit under the
agreement may not exceed $40 million. The revolving credit agreement
requires the Company to have no more than $10 million in borrowings
(excluding letters of credit) outstanding for one 30 consecutive day period
during the December 15 to April 30 period. Borrowings outstanding under
this facility bear interest, based on election by the Company, equal to the
agent bank's base lending rate or the Eurodollar rate for the applicable
period plus an additional 1.0%, 1.25% or 1.5% depending on the applicable
cash flow coverage ratio. In addition, the Company is obligated to pay a
fee of 0.25% or 0.30% on the unused portion of the commitment and 0.50%,
0.625% or 0.75% on documentary letters of credit (depending of the
applicable cash flow coverage ratio). The facility expires July 31, 2002.
At the Lender's option, all positive cash balances held by the Lender's
banks may be applied to the outstanding balance of the revolving line of
credit. The revolving credit agreement contains a number of restrictive
covenants, including limitations on incurring additional indebtedness,
granting liens, selling assets, engaging in mergers and other similar
transactions, engaging in new business lines and making capital
expenditures. In addition, the agreement prohibits the paying of cash
dividends on common stock and requires that the Company maintain certain
financial ratios, including tests pertaining to net worth, ratio of
liabilities to net worth and cash flow coverage.
6
<PAGE>
BROOKSTONE, INC.
Management's Discussion and Analysis of
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
THE THIRTEEN WEEK AND THIRTY-NINE WEEK PERIODS ENDED NOVEMBER 1, 1997
Results of Operations
- ---------------------
For the thirteen week and thirty-nine week periods ended November 1, 1997,
net sales increased 11.1% and 10.6% respectively over the comparable periods
last year. Comparable store sales for the thirteen week and thirty-nine week
periods increased 4.5% and 3.3% respectively. The sales increase reflects the
results of opening six new stores during the fourth quarter of Fiscal 1996 and
12 new stores during Fiscal 1997 offset by the closing of one store in Fiscal
1997. The total Brookstone stores open at the end of the thirty-nine week
period ended November 1, 1997 was 170 versus 153 at the end of the comparable
period in Fiscal 1996. Mail order sales decreased 14.7% and 16.6% for the same
thirteen and thirty-nine week periods. This decrease was primarily the result
of decreased catalog circulation.
Gross Profit as a percentage of net sales was 26.4% and 28.2% for the
thirteen and thirty-nine week periods ended November 1, 1997, versus 27.3% and
29.0% for the comparable periods last year. The decrease in the percentage is
primarily the result of an increase in occupancy costs as a result of the new
stores opened and the renewal of certain leases after the expiration of their
original term subsequent to the third Fiscal quarter of 1996.
Selling, general and administrative expenses as a percentage of net sales
were 41.4% and 38.9% for the thirteen and thirty-nine week periods ended
November 1, 1997 versus 41.8% and 40.2% for the comparable periods last year.
The decrease in the percentage is primarily the result of reduced costs related
to catalog production/distribution and a reduction in costs of shipping to
customers.
Net interest expense for the thirteen week and thirty-nine week periods
ended November 1, 1997, was $333,000 and $639,000, compared to $325,000 and
$565,000 during the comparable periods last year. The increase for these
thirteen and thirty-nine week periods is related to increased borrowings under
the revolving credit agreement during comparable periods for Fiscal 1997
compared with Fiscal 1996.
As a result of the foregoing, the Company reported a net loss of $3,733,000
or $0.48 per share, for the thirteen week period ended November 1, 1997, as
compared to a net loss of $3,281,000 or $0.42 per share, for the comparable
period last year. For the thirty-nine week period ended November 1, 1997 the
Company reported a net loss of $7,964,000 or $1.02 per share, compared to a net
loss of $7,474,000 or $0.97 per share, for the comparable period last year.
Liquidity and Capital Resources
- -------------------------------
For the thirty-nine week, ended November 1, 1997, net cash used by operating
activities totaled $22.3 million, reflecting primarily the net loss, purchase of
merchandise inventories, and payment of income taxes. Cash used for investment
activities during the thirty-nine weeks of Fiscal 1997 amounted to $5.9 million
associated with the purchase of property and equipment. Cash provided by
financing activities during the thirty-nine weeks of Fiscal 1997 amounted to
$20.1 million, primarily derived from borrowings under the Company's revolving
credit agreement.
For the thirty-nine week period ended November 2, 1996, net cash used by
operating activities totaled $26.9 million, primarily reflecting the net loss,
purchase of merchandise inventories and payment of income taxes. Cash used for
investment activities during the thirty-nine week period of Fiscal 1996 amounted
to $5.9 million, associated with the purchase of property and equipment. Cash
provided by financing activities during the thirty-nine week period of Fiscal
1996 amounted to $23.2 million, derived primarily from borrowings under the
Company's revolving credit agreement.
7
<PAGE>
Merchandise inventories were $48.0 million at November 1, 1997 compared to
inventories of $31.3 million at February 1, 1997, advance of the 1997 winter
holiday selling season. Accounts payable were $19.7 million at November 1, 1997
compared to $8.6 million at February 1, 1997 as a result of increased product
purchases in advance of the 1997 winter holiday selling season.
Cash used for property and equipment investments principally related to the
remodeling of 5 retail stores and the opening of 12 new stores during the 39
weeks ended November 1, 1997. The Company anticipates opening approximately 18
new stores and remodeling approximately 7 stores during Fiscal 1997.
The Company maintains a revolving credit agreement to finance inventory
purchases, which historically peak in the third quarter in anticipation of the
holiday selling season. At November 1, 1997, the Company had $20.0 million in
outstanding borrowings under its revolving credit agreement, and at November 2,
1996, it had $23.0 million outstanding. In addition, the Company had $14.2
million in outstanding documentary Letters of Credit at November 1, 1997 and
$10.3 million at November 2, 1996. On September 22, 1997 the Company entered
into a Revolving Credit Agreement that increases borrowings available to the
Company to a maximum of $75 million over the next five years (the "New Credit
Agreement" [see note number 5 to `Notes to Consolidated Financial Statements']).
The Company believes that available borrowings under the New Credit Agreement,
cash on hand and anticipated cash generated from operations will be sufficient
to finance planned retail store openings / remodelings and other capital
requirements through Fiscal 1997.
8
<PAGE>
PART II
OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
-----------------
The Company is involved in various legal proceedings arising in the
normal course of business. The Company believes that the resolution
of these matters will not have a material effect on the Company's
financial condition or results of operations.
Item 2: CHANGES IN SECURITIES
---------------------
None
Item 3: DEFAULT UPON SENIOR SECURITIES
------------------------------
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
Item 5: OTHER INFORMATION
-----------------
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A) Exhibits
10.25 - Revolving Credit Agreement dated as of September 22, 1997,
among the Company, Brookstone Company, Inc. ("BCI") and
Brookstone Stores, Inc. and BankBoston N.A. as agent for the
lenders (filed herewith).
11 - Computation of Net Loss Per Share
B) Reports on Form 8-K
No reports on Form 8-K were filed during the period for which this
report is filed.
9
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Brookstone, Inc.
----------------
(Registrant)
/s/ Philip W. Roizin
---------------------------------
December 15, 1997 (Signature)
---
Philip W. Roizin
Executive Vice President Finance and Administration,
Treasurer and Secretary
(Principal Financial Officer
and duly authorized to sign on behalf of registrant)
10
<PAGE>
================================================================================
CREDIT AGREEMENT
Among
BROOKSTONE, INC.,
BROOKSTONE COMPANY, INC.
BROOKSTONE STORES, INC.
THE LENDERS PARTY HERETO
and
BANKBOSTON, N.A.
as Agent for the Lenders
Dated as of September 22, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<C> <S> <C>
SECTION I
DEFINITIONS............................................................... 1
1.1. Definitions....................................................... 1
1.2. Accounting Terms..................................................11
SECTION II
DESCRIPTION OF CREDIT.....................................................12
2.1. The Loans.........................................................12
2.2. Notice and Manner of Borrowing or Conversion of Loans.............12
2.3. Commitment Fee....................................................13
2.4. Reduction of Commitment Amount....................................14
2.5. The Notes.........................................................14
2.6. Duration of Interest Periods......................................14
2.7. Interest Rates and Payment of Interest............................15
2.8. Changed Circumstances.............................................15
2.9. Capital Requirements..............................................17
2.10. Payments and Prepayments of the Loans.............................17
2.11. Method of Payment.................................................17
2.12. Default Interest..................................................18
2.13. Payments Not at End of Interest Period............................18
2.14. Computation of Interest and Fees..................................19
2.15. Sharing of Payments...............................................19
2.16. Letter of Credit Facility.........................................19
2.17. Swing Line Commitment.............................................23
2.18. Procedure for Swing Line Borrowing; Interest on Swing Line Loans..24
2.19. Refunded Swing Line Loans; Swing Line Loan Participations.........24
2.20. Use of Proceeds...................................................26
2.21. Guaranty of Parent................................................26
2.22. Replacement of Lenders............................................27
SECTION III
CONDITIONS OF LOANS AND LETTERS OF CREDIT.................................28
3.1. Conditions Precedent to Initial Loan..............................28
3.2. Conditions Precedent to All Loans and Letters of Credit...........29
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<C> <S> <C>
SECTION IV
REPRESENTATIONS AND WARRANTIES............................................30
4.1. Organization and Qualification....................................30
4.2. Corporate Authority...............................................30
4.3. Valid Obligations.................................................30
4.4. Consents or Approvals.............................................30
4.5. Title to Properties; Absence of Encumbrances......................31
4.6. Financial Statements..............................................31
4.7. Defaults..........................................................31
4.8. Taxes.............................................................31
4.9. Litigation........................................................31
4.10. Use of Proceeds...................................................32
4.11. Subsidiaries......................................................32
4.12. Investment Company Act............................................32
4.13. Compliance with ERISA.............................................32
4.14. Environmental Matters.............................................32
4.15. Liabilities of Stores.............................................34
4.16. Subleased Properties..............................................34
SECTION V
AFFIRMATIVE COVENANTS.....................................................34
5.1. Financial Statements and other Reporting Requirements.............34
5.2. Conduct of Business...............................................36
5.3. Maintenance and Insurance.........................................36
5.4. Taxes.............................................................36
5.5. Inspection........................................................37
5.6. Maintenance of Books and Records..................................37
5.7. Consolidated Net Worth............................................37
5.8. Consolidated Total Liabilities to Consolidated Tangible Net
Worth Ratio.......................................................37
5.9. Cash Flow Coverage................................................38
5.10. Further Assurances................................................38
SECTION VI NEGATIVE
COVENANTS.................................................................38
6.1. Indebtedness......................................................38
6.2. Contingent Liabilities............................................39
6.3. Sale and Leaseback................................................39
6.4. Encumbrances......................................................39
6.5. Merger; Acquisitions Consolidation; Sale or Lease of Assets.......41
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<C> <S> <C>
6.6. Additional Stock Issuance.........................................41
6.7. Equity Distributions..............................................41
6.8. Investments.......................................................41
6.9. ERISA.............................................................42
6.10. Capital Expenditures..............................................42
6.11. Subsidiary Indebtedness...........................................42
6.12. Transactions with Affiliates......................................42
SECTION VII
DEFAULTS..................................................................42
7.1. Events of Default.................................................42
7.2. Remedies..........................................................44
7.3. Distribution of Proceeds..........................................45
SECTION VIII
CONSENTS; AMENDMENTS; WAIVERS; REMEDIES...................................46
8.1. Actions by Lenders................................................46
8.2. Actions by Parent or Borrowers....................................46
SECTION IX
SUCCESSORS AND ASSIGNS....................................................47
9.1. General...........................................................47
9.2. Assignments.......................................................47
9.3. Participations....................................................48
SECTION X
THE AGENT.................................................................49
10.1. Authorization and Action..........................................49
10.2. Agent's Reliance, Etc.............................................50
10.3. BankBoston, N.A. as Lender........................................50
10.4. Lender Credit Decision............................................51
10.5. Indemnification of Agent..........................................51
10.6. Successor Agent...................................................51
10.7. Amendment of Section X............................................52
SECTION XI
MISCELLANEOUS.............................................................52
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<C> <S> <C>
11.1. Notices...........................................................52
11.2. Expenses..........................................................53
11.3. Set-Off...........................................................53
11.4. Term of Agreement.................................................53
11.5. No Waivers........................................................53
11.6. Governing Law.....................................................53
11.7. Counterparts......................................................54
11.8. Partial Invalidity................................................54
11.9. Captions..........................................................54
11.10. WAIVER OF JURY TRIAL..............................................54
11.11. Entire Agreement..................................................54
</TABLE>
(iv)
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
<TABLE>
<S> <C>
EXHIBIT A-1 - Form of Promissory Note
EXHIBIT A-2 - Form of Swing Line Note
EXHIBIT B - Form of Notice of Borrowing or Conversion
EXHIBIT C - Indebtedness; Encumbrances
EXHIBIT D - Litigation
EXHIBIT E - Subsidiaries
EXHIBIT F - Form of Report of Chief Financial Officer
EXHIBIT G - Form of Borrowing Base Report
EXHIBIT H - Form of Opinion of Counsel
EXHIBIT I - Form of Subordination Agreement
EXHIBIT J - Form of Subsidiary Guaranty
EXHIBIT K - Form of Assignment and Acceptance Agreement
SCHEDULE 1.1 Commitment Percentages
SCHEDULE 1.2 Pricing Schedule
SCHEDULE 2.16.9 Outstanding Letters of Credit
SCHEDULE 4.13 Certain ERISA Matters
SCHEDULE 4.16A List of Subleased Properties
SCHEDULE 4.16B List of Outstanding Consents
SCHEDULE 6.8 List of Investments in Subsidiaries
</TABLE>
(v)
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is made as of September 22, 1997, by and among
BROOKSTONE, INC., a Delaware corporation (the "Parent"), BROOKSTONE COMPANY,
------
INC. (the "Company"), a New Hampshire corporation, BROOKSTONE STORES, INC., a
-------
New Hampshire corporation ("Stores;" the Parent, the Company and Stores are
referred to herein collectively as the "Companies;" and the Company and Stores
are referred to herein individually as a "Borrower" and collectively as the
"Borrowers") each having its chief executive office at 17 Riverside Street,
Nashua NH 03062, the lenders from time to time parties hereto and BANKBOSTON,
N.A. ("BKB" or the "Agent"), a national banking association having its head
-----
office at 100 Federal Street, Boston, MA 02110, as agent for the lenders from
time to time parties hereto.
Recitals
--------
The Companies desire to establish credit facilities for working capital and
other corporate needs of the Borrowers, and the Lenders are willing to provide
credit facilities to the Borrowers on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
SECTION I
---------
DEFINITIONS
-----------
1.1. Definitions.
-----------
All capitalized terms used in this Agreement or in the Notes or in any
certificate, report or other document made or delivered pursuant to this
Agreement (unless otherwise defined therein) shall have the meanings assigned to
them below:
Adjusted Eurodollar Rate. Applicable to any Interest Period, shall mean a
------------------------
rate per annum determined pursuant to the following formula:
AER = [ IOR ]
-----------
[ 1.00 - RP ]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
* The amount in brackets shall be rounded upwards, if necessary, to the
next higher 1/100 of 1%.
<PAGE>
Where:
"Interbank Offered Rate" applicable to any Eurodollar Loan for any
Interest Period means the rate of interest determined by the Agent to
be the prevailing rate per annum at which deposits in U.S. dollars are
offered to the Agent by first-class banks in the Interbank Eurodollar
market in which it regularly participates on or about 10:00 a.m.
(Boston time) two Business Days before the first day of such Interest
Period in an amount approximately equal to the principal amount of the
Eurodollar Loan to which such Interest Period is to apply for a period
of time approximately equal to such Interest Period.
"Reserve Percentage" applicable to any Interest Period means the rate
(expressed as a decimal) applicable to the Agent during such Interest
Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the maximum
reserve requirement (including, without limitation, any basic,
supplemental, emergency or marginal reserve requirement) of the Agent
with respect to "Eurocurrency liabilities" as that term is defined
under such regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.
Affected Loans. See Section 2.8(a).
--------------
Affiliate. Shall mean (a) any director or officer of either Borrower or
---------
the Parent and (b) any Person that controls, is controlled by or is under common
control with the Borrower. For purposes of this definition, "control" of a
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
Agent. BankBoston, N.A., in its capacity as agent for the Lenders, and its
-----
successors in that capacity.
Agreement. This Agreement, as the same may be supplemented or amended from
---------
time to time.
Applicable Eurodollar Margin. The applicable Eurodollar Margin described
----------------------------
on the Pricing Schedule.
Assignment and Acceptance. See Section 9.2(a).
-------------------------
2
<PAGE>
Base Rate. The greater of (a) the rate of interest announced from time to
---------
time by the Agent at its head office as its Base Rate, and (b) the Federal Funds
Effective Rate plus 1/2 of 1% per annum (rounded upwards, if necessary, to the
next l/8 of l%).
Base Rate Loan. Any Loan or Swing Line Loan bearing interest determined
--------------
with reference to the Base Rate.
Borrowers. See Preamble.
---------
Borrowing Base. At any date during the periods described below for any
--------------
year, the applicable advance percentage of Eligible Inventory and stated amount
of outstanding documentary Letters of Credit issued in connection with the
purchase of goods which would otherwise constitute Eligible Inventory:
Period Advance Percentage
December 1 through May 31 50%
June 1 through July 31 65%
August 1 through November 30 75%
Brookstone Subsidiaries. Brookstone By Mail, Inc., Brookstone Purchasing,
-----------------------
Inc., Brookstone Holdings, Inc. and Brookstone Properties, Inc.
Business Day. (a) For all purposes other than as covered by clause (b)
------------
below, any day other than a Saturday, Sunday or legal holiday on which banks in
Boston, Massachusetts or New York, New York are open for the conduct of a
substantial part of their commercial banking business; and (b) with respect to
all notices and determinations in connection with, and payments of principal and
interest on, Eurodollar Loans, any day that is a Business Day described in
clause (a) and that is also a day for trading by and between banks in U.S.
Dollar deposits in the Interbank Eurodollar market.
Capital Expenditures. Amounts paid or Indebtedness incurred by the Parent
--------------------
or any of its Subsidiaries in connection with the purchase or lease of capital
assets that would be required to be capitalized, all as shown on the
consolidated statement of cash flow of the Parent and its Subsidiaries in
accordance with generally accepted accounting principles.
Cash Flow Coverage. At any date as of which the amount thereof shall be
------------------
determined and for the period specified, the quotient obtained by dividing the
--------
total of (a) Consolidated EBITDA plus (b) consolidated rent expense for such
period, by the total of (c) Consolidated Interest Expense and consolidated rent
--
expense for such period plus (d) current maturities of long-term Indebtedness
----
outstanding on the last day of such period.
Change of Control. Either (i) any Person or "group" (within the meaning of
-----------------
Section 13(d) or 14(d) of the Exchange Act) and its affiliates shall have
acquired beneficial ownership
3
<PAGE>
of capital stock having 35% or more of the ordinary voting power in the election
of directors of the Parent and which Person, group or affiliate shall have had
no beneficial ownership of any such capital stock on or before the date of this
Agreement, or (ii) any Person or group and its affiliates shall have acquired
beneficial ownership of capital stock having 40% or more of the ordinary voting
power in the election of directors of the Parent and which Person, group or
affiliate had some beneficial ownership of such stock on or before the date of
this Agreement.
Code. The Internal Revenue Code of 1986 and the rules and regulations
----
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
Commitment Amount. $75,000,000 or any lesser amount, including zero,
-----------------
resulting from a termination or reduction of such amount in accordance with
Section 2.4 or Section 7.2.
Commitment Percentage. As to each lender, its percentage interest in the
---------------------
Commitment Amount as set forth on Schedule 1.1 hereto.
Companies. See Preamble.
---------
Company. See Preamble.
-------
Consolidated EBITDA. At any date as of which the amount thereof shall be
-------------------
determined and for the period specified, the sum of (a) Consolidated Net Income
(minus extraordinary gains and plus extraordinary losses) for such period, plus
----
(b) consolidated depreciation and amortization expenses for such period, plus
----
(c) Consolidated Interest Expense, plus (d) income tax expense for such period.
----
Consolidated Interest Expense. For any period for which the amount thereof
-----------------------------
shall be determined, consolidated net interest expense (including imputed
interest on capital lease obligations) and amortized debt discount.
Consolidated Net Income. At any date as of which the amount thereof shall
-----------------------
be determined and for the period specified, the net income (or deficit) of the
Parent and its Subsidiaries, after taxes, determined in accordance with
generally accepted accounting principles consistently applied.
Consolidated Net Worth. At any date as of which the amount thereof shall
----------------------
be determined, (a) the consolidated total assets of the Parent and its
Subsidiaries minus (b) Consolidated Total Liabilities.
-----
Consolidated Tangible Net Worth. At any date as of which the amount
-------------------------------
thereof shall be determined, Consolidated Net Worth minus the sum of any amounts
-----
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights and
research and development expenses except
4
<PAGE>
prepaid expenses, (c) all reserves not already deducted from assets, (d) any
write-up in the book value of assets resulting from any revaluation thereof
subsequent to the date of the financial statements referred to in Section 4.6
and (e) the value of any minority interests in Subsidiaries.
Consolidated Total Liabilities. At any date as of which the amount thereof
------------------------------
shall be determined, all obligations that should, in accordance with generally
accepted accounting principles, be classified as liabilities on the consolidated
balance sheet of the Parent and its Subsidiaries, including in any event all
Loans.
Controlled Group. All trades or businesses (whether or not incorporated)
----------------
under common control that, together with the Company, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.
Credit Participants. See Section 9.3 hereof.
-------------------
Default. An Event of Default or event or condition that, but for the
-------
requirement that time elapse or notice be given, or both, would constitute an
Event of Default.
Defaulting Lender. A Lender which has defaulted in its obligation to make
-----------------
Loans to the Borrowers hereunder for so long as it remains in default.
Eligible Inventory. The Company's inventory of goods, wherever located,
------------------
and Stores' inventory of goods located at the Company's Mexico, Missouri
distribution facility or at Subleased Properties or in transit between any such
locations and in each case subject to the Subsidiary Inventory Security
Agreement, in each case held for retail sale in the ordinary course of business
valued at the lower of cost or market and less any reserves (including any
reserves for slow-moving, obsolete and clearance items) as determined in
accordance with generally accepted accounting principles; provided that no such
inventory shall be deemed eligible if:
(a) it is under consignment to or from any Person;
(b) it is not owned by either the Company or Stores free and clear of
all liens other than the lien created under the Subsidiary Inventory
Security Agreement.
Encumbrances. See Section 6.4.
------------
Environmental Laws. Any and all applicable foreign, federal, state and
------------------
local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated), of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over the Parent or any of its
Subsidiaries and all applicable judicial and administrative and regulatory
decrees, judgments and orders, including common law rulings and determinations,
5
<PAGE>
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants whether solid, liquid
or gaseous in nature, into the environment or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of such Hazardous Materials, chemical substances, pollutants or
contaminants.
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
-----
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
Eurodollar Loan. Any Loan bearing interest at a rate determined with
---------------
reference to the Adjusted Eurodollar Rate.
Event of Default. Any event described in Section 7.1.
----------------
Federal Funds Effective Rate. For any day, a fluctuating interest rate per
----------------------------
annum 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, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from three federal funds brokers of recognized standing selected by the
Agent.
Generally accepted accounting principles. Generally accepted accounting
----------------------------------------
principles as defined by controlling pronouncements of the Financial Accounting
Standards Board, as from time to time supplemented and amended.
Guarantees. As applied to the Parent and its Subsidiaries, all guarantees,
----------
endorsements or other contingent or surety obligations with respect to
obligations of others whether or not reflected on the consolidated balance sheet
of the Parent and its Subsidiaries, including any obligation to furnish funds,
directly or indirectly (whether by virtue of partnership arrangements, by
agreement to keep-well or otherwise), through the purchase of goods, supplies or
services, or by way of stock purchase, capital contribution, advance or loan, or
to enter into a contract for any of the foregoing, for the purpose of payment of
obligations of any other person or entity.
Hazardous Material. Any substance (a) the presence of which requires or
------------------
may hereafter require notification, investigation or remediation under any
Environmental Law; (b) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "controlled industrial waste"
or "pollutant" or "contaminant" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section
6
<PAGE>
9601 et seq.) and any applicable local statutes and the regulations promulgated
-- ---
thereunder; (c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or had jurisdiction over the Company; or (d) without
limitation, which contains gasoline, diesel fuel or other petroleum products,
asbestos or polychlorinated biphenyls ("PCB's").
Indebtedness. As applied to the Parent and its Subsidiaries, (a) all
------------
obligations for borrowed money or other extensions of credit whether or not
secured or unsecured, absolute or contingent, including, without limitation,
unmatured reimbursement obligations with respect to letters of credit or
guarantees issued for the account of or on behalf of the Parent and its
Subsidiaries and all obligations representing the deferred purchase price of
property, other than accounts payable arising in the ordinary course of
business, (b) all obligations evidenced by bonds, notes, debentures or other
similar instruments, (c) all obligations secured by any mortgage, pledge,
security interest or other lien on property owned or acquired by the Parent or
any of its Subsidiaries whether or not the obligations secured thereby shall
have been assumed, (d) that portion of all obligations arising under capital
leases that is required to be capitalized on the consolidated balance sheet of
the Parent and its Subsidiaries, (e) all Guarantees, and (f) all obligations
that are immediately due and payable out of the proceeds of or production from
property now or hereafter owned or acquired by the Parent or any of its
Subsidiaries.
Interest Period. With respect to each Eurodollar Loan, the period
---------------
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending one, two, three or six months thereafter, as the
Company may elect in the applicable Notice of Borrowing or Conversion; provided
--------
that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (c) below) that would otherwise end on a day that is not
a Business Day shall be extended to the next succeeding Business Day
unless, in the case of Eurodollar Loans, such Business Day falls in the
next calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day;
(b) any Interest Period applicable to a Eurodollar Loan that 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, subject to clause (c) below, end on the last
Business Day of a calendar month;
(c) any Interest Period during the Revolving Credit Period that would
otherwise end after the Revolving Credit Termination Date shall end on the
Revolving Credit Termination Date; and
7
<PAGE>
(d) notwithstanding clause (c) above, no Interest Period applicable to
a Eurodollar Loan shall have a duration of less than one month; and if any
Interest Period applicable to such Loans would be for a shorter period,
such Interest Period shall not be available hereunder.
Investment. As applied to the Parent and its Subsidiaries, the purchase or
----------
acquisition of any share of capital stock, partnership interest, evidence of
indebtedness or other equity security of any other person or entity, any loan,
advance or extension of credit to, or contribution to the capital of, any other
person or entity, any real estate held for sale or investment, any commodities
futures contracts held other than in connection with bona fide hedging
transactions, any other investment in any other person or entity, and the making
of any commitment or acquisition of any option to make an Investment.
Lender Agreements. This Agreement, the Notes, the Swing Line Note, the
-----------------
Subsidiary Guaranty, the Subordination Agreement, and any other present or
future agreement from time to time entered into between the Parent or any of its
Subsidiaries and the Agent or the Lenders, each as from time to time amended or
supplemented, and all statements, reports and certificates delivered by the
Parent or any of its Subsidiaries to the Agent or the Lenders in connection
therewith.
Lenders. (a) Initially, the banks described on Schedule 1.1 hereto and (b)
-------
any other Person who becomes a Successor Lender hereunder in accordance with the
terms of Section 9.2(a) hereof.
Letters of Credit. Letters of Credit of the Agent issued for the account
-----------------
of the Company in accordance with the provisions of Section 2.16.
Letter of Credit Fee Rate. For standby letters of credit, the Letter of
-------------------------
Credit Fee Rate shall be a per annum fee equal to the Eurodollar Rate Margin
determined in accordance with the Pricing Schedule, and for documentary letters
of credit, the Letter of Credit Fee Rate shall be a per annum fee equal to the
Documentary Letter of Credit Fee Rate determined in accordance with the Pricing
Schedule.
Loan or Revolving Credit Advance. A loan made to the Company by the
--------------------------------
Lenders pursuant to Section II of this Agreement, and "Loans" and "Revolving
Credit Advances" means all of such loans, collectively.
Majority Lenders. At any time, the Lenders having made not less than the
----------------
Required Percentage of the outstanding principal amount of the Loans hereunder,
or, if no Loans are outstanding, the Lenders having aggregate Commitment
Percentages of not less than the Required Percentage.
Master Assignment. The Master Assignment and Assumption of Lease dated as
-----------------
of August 28, 1995 from the Company to Brookstone Properties, Inc.
8
<PAGE>
Master Sublease Agreement. The Master Sublease Agreement dated as of
-------------------------
August 28, 1995 by and between Brookstone Properties, Inc., as sublessor, and
Brookstone Stores, Inc., as sublessee.
Maximum Letter of Credit Amount. $40,000,000.
-------------------------------
1996 Credit Agreement. The Revolving Credit Agreement dated as of January
---------------------
11, 1996 by and among the Parent, the Companies, the Agent and BKB.
Notes. Promissory notes of the Borrowers, substantially in the form of
-----
Exhibit A-1 hereto, evidencing the obligation of the Borrowers to each Lender to
- -----------
repay the Loans.
Notice of Borrowing or Conversion. See Section 2.2.
---------------------------------
Obligations. Any and all obligations of the Company and the Parent to the
-----------
Agent or the Lenders of every kind and description, direct or indirect, absolute
or contingent, primary or secondary, due or to become due, now existing or
hereafter arising, regardless of how they arise or by what agreement or
instrument, if any, and including, the Loans, the Swing Line Loans, obligations
with respect to the Letters of Credit and obligations to perform acts and
refrain from taking action as well as obligations to pay money.
Parent. See Preamble.
------
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to
----
any or all of its functions under ERISA.
Permitted Encumbrances. See Section 6.4.
----------------------
Permitted Subsidiary Liabilities. Liabilities of Stores and the Brookstone
--------------------------------
Subsidiaries for (a) state franchise, income and unemployment tax liabilities,
employee withholding, accrued liabilities for employee salaries, wages, and
accrued vacation, personal property taxes, and sales and use taxes incurred in
the ordinary course of business, (b) accounts payable and accrued liabilities
(other than for inventory purchases), incurred in the ordinary course of
business, in an aggregate amount not to exceed $10,000,000 at any time
outstanding, (c) Indebtedness of Stores to the Company for inventory purchased
in the ordinary course of business from the Company, which Indebtedness is
subordinated to the payment and performance of all Obligations pursuant to the
Subordination Agreement, (d) liabilities under the Master Sublease Agreement,
which liabilities are subordinated to the payment and performance of all
Obligations pursuant to the Subsidiary Guaranty, (e) liabilities of Brookstone
Properties, Inc. under leases for store locations subleased to Stores, and (f)
liabilities of Stores for the 1997 Temporary Store Locations.
9
<PAGE>
Person. An individual, corporation, partnership, joint venture,
------
association, estate, joint stock company, trust, organization, business, or a
government or agency or political subdivision thereof.
Plan. At any time, an employee pension or other benefit Plan that is
----
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Company or any
member of the Controlled Group for employees of the Company or any member of the
Controlled Group or (ii) if such Plan is established, maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Company or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five Plan years made contributions.
Pricing Schedule. The Pricing Schedule attached hereto as Schedule 1.2.
----------------
Qualified Investments. As applied to the Parent and its Subsidiaries,
---------------------
investments in (a) notes, bonds or other obligations of the United States of
America or any agency thereof that as to principal and interest constitute
direct obligations of or are guaranteed by the United States of America, (b)
certificates of deposit or other deposit instruments or accounts of banks or
trust companies organized under the laws of the United States or any state
thereof that have capital and surplus of at least $100,000,000, (c) commercial
paper that is rated not less than prime-one or A-1 or their equivalents by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or their successors, (d) any repurchase agreement secured by any one or more of
the foregoing and (e) investments in shares of any so-called "Money Market fund"
provided that such fund is registered under the Investment Company Act of 1940,
has net assets of at least $100,000,000, has an investment portfolio with an
average maturity of 365 days or less and is not considered to be a "high-yield"
fund.
Required Percentage. 66 2/3%.
-------------------
Revolving Credit Period. The period beginning on the date of this
-----------------------
Agreement and extending through and including the Revolving Credit Termination
Date or such earlier date on which the commitment to make Loans is terminated or
the Commitment Amount is reduced to zero in accordance with the terms hereof.
Revolving Credit Termination Date. July 31, 2002.
---------------------------------
Stores. See Preamble.
------
Subleased Properties. The locations of Brookstone Stores identified on
--------------------
Schedule 4.16A hereto, together with any additional locations which may be added
by notice in writing to the Agent, as to which the representations and
warranties set forth in Section 4.16 are true and correct in all respects.
10
<PAGE>
Subordination Agreement. The Subordination Agreement of even date herewith
-----------------------
among the Agent, for itself and on behalf of the Lenders, Stores, the Company
and Brookstone Properties, Inc., in the form of Exhibit I hereto, by which all
Indebtedness, liabilities and other obligations of Stores to Company is
subordinated to the payment and performance of the Obligations.
Subsidiary. Any corporation, association, joint stock company, business
----------
trust or other similar organization of which 50% or more of the ordinary voting
power for the election of a majority of the members of the board of directors or
other governing body of such entity is held or controlled by the Parent or a
Subsidiary of the Parent; or any other such organization the management of which
is directly or indirectly controlled by the Parent or a Subsidiary of the Parent
through the exercise of voting power or otherwise; or any joint venture, whether
incorporated or not, in which the Parent has a 50% or greater ownership
interest.
Subsidiary Guaranty. The Guaranty Agreement of even date herewith from the
-------------------
Brookstone Subsidiaries to the Agent in the form of Exhibit J hereto, by which
the Brookstone Subsidiaries have guaranteed to the Agent, for itself and the
benefit of the Lenders, the payment and performance of all Obligations.
Subsidiary Inventory Security Agreement. The Security Agreement dated as
---------------------------------------
of January 11, 1996 herewith between Stores and the Company pursuant to which
Stores has granted to the Company a first, perfected security interest in all
inventory of Stores.
Swing Line Commitment. $2,500,000.
---------------------
Swing Line Lender. BankBoston, N.A.
-----------------
Swing Line Loans. See Section 2.17 hereof.
----------------
Swing Line Note. The Swing Line Note substantially in the form of Exhibit
--------------- -------
A-2 hereto executed by the Borrowers, jointly and severally, in favor of the
- ---
Swing Line Lender to evidence the Swing Line Loans.
Swing Line Participation Amount. See Section 2.19(c) hereof.
-------------------------------
1.2. Accounting Terms . All terms of an accounting character shall have
----------------
the meanings assigned thereto by generally accepted accounting principles
applied on a basis consistent with the financial statements referred to in
Section 4.6 of this Agreement, modified to the extent, but only to the extent,
that such meanings are specifically modified herein.
11
<PAGE>
SECTION II
----------
DESCRIPTION OF CREDIT
---------------------
2.1. The Loans.
---------
(a) Subject to the terms and conditions hereof, each Lender, severally and
not jointly will make Loans to the Borrowers, jointly and severally, from time
to time until the close of business on the Revolving Credit Termination Date, in
such sums as the Company may request, provided that the aggregate principal
--------
amount of all Loans and stated amount of all Letters of Credit at any one time
outstanding hereunder shall not, (a) as to each Lender, exceed such Lender's
Commitment Percentage of the Commitment Amount, and (b) as to all Lenders,
exceed the lesser of (i) the Borrowing Base in effect at such time and (ii) the
Commitment Amount. The Borrowers may borrow, prepay pursuant to Section 2.10
and reborrow, from the date of this Agreement until the Revolving Credit
Termination Date, the full amount available hereunder or any lesser sum that is
at least $100,000 and an integral multiple of $50,000; provided that each
Eurodollar Loan shall be in a minimum of $1,000,000 and multiples of $500,000.
Any Loan not repaid by the Revolving Credit Termination Date shall be due and
payable on the Revolving Credit Termination Date.
(b) Provided that no Default shall have occurred and be continuing, the
Borrowers may convert all or any part (in a minimum amount of $500,000 and
multiples of $100,000 for Eurodollar Loans) of any outstanding Loan into a Loan
of any other type provided for in this Agreement in the same aggregate principal
amount, on any Business Day (which, in the case of a conversion of a Eurodollar
Loan, shall be the last day of the Interest Period applicable to such Eurodollar
Loan). The Company shall give the Agent prior notice of each such conversion
(which notice shall be effective upon receipt) in accordance with Section 2.2.
(c) The Borrowers covenant that there will be a period of thirty (30)
consecutive days during each period commencing December 15 and ending the
following April 30, starting with the period commencing December 15, 1997,
during which the principal amount of the Loans outstanding shall not exceed
$10,000,000.
2.2. Notice and Manner of Borrowing or Conversion of Loans .
-----------------------------------------------------
(a) Whenever the Borrowers desire to obtain or continue a Loan hereunder
or convert an outstanding Loan into a Loan of another type provided for in this
Agreement, the Company shall notify the Agent (which notice shall be
irrevocable) by telefax or telephone received no later than 10:00 a.m. Boston
time on the Business Day on which the requested Loan is to be made or continued
as or converted to a Base Rate Loan and received no later than 10:00 a.m. Boston
time on the date three Business Days before the day on which the requested Loan
is to be made or continued as or converted to a Eurodollar Loan. Such notice
shall specify (i) the effective date and amount of each Loan or portion thereof
to be continued or converted, subject to the limitations set forth in Section
2.1, (ii) the interest rate option to be
12
<PAGE>
applicable thereto, and (iii) the duration of the applicable Interest Period, if
any (subject to the provisions of the definition of Interest Period and Section
2.6). Each such notification (a "Notice of Borrowing or Conversion") shall be
immediately followed by a written confirmation thereof by the Company in
substantially the form of Exhibit B hereto, provided that if such written
--------- --------
confirmation differs in any material respect from the action taken by the Agent,
the records of the Agent shall control absent manifest error. The Agent shall
give the Lenders notice of each Notice of Borrowing or Conversion in accordance
with the Agent's customary practice.
(b) Subject to the terms and conditions of this Agreement, each Lender
shall make available on or before 2:00 p.m. Boston time on the date of each
proposed Loan, to the Agent at the Agent's address and in immediately available
funds, such Lender's Commitment Percentage of such Loan. After the Agent's
receipt of such funds and upon fulfillment of the applicable conditions set
forth in Section III, the Agent will credit such funds to the Company's demand
deposit account on the date of the proposed Loan.
(c) Unless the Agent shall have received notice from a Lender prior to the
date of any Loan that such Lender will not make available to the Agent such
Lender's Commitment Percentage of such Loan, the Agent may assume that such
Lender has made such amount available to the Agent on the date of such Loan in
accordance with and as provided in this Section 2.2 and the Agent may, in
reliance upon such assumption, make available on such date a corresponding
amount to the Borrowers. If and to the extent such Lender shall not have so made
its Commitment Percentage of such Loan available to the Agent and the Agent
shall have made available such corresponding amount to the Borrowers, such
Lender agrees to pay to the Agent forthwith on demand, and the Borrowers agree,
jointly and severally, to repay to the Agent within two Business Days after
demand (but only after demand for payment has first been made to such Lender and
such Lender has failed to make such payment), an amount equal to such
corresponding amount together with interest thereon for each day from the date
the Agent shall make such amount available to the Borrowers until the date such
amount is paid or repaid to the Agent, at an interest rate equal to (i) in the
case of such Lender the Federal Funds Effective Rate and (ii) in all other
respects at the interest rate applicable at the time to such Loans. If such
Lender shall pay to the Agent such corresponding amount, such amount so paid
shall constitute such Lender's Loan for purposes of this Agreement. If the
Borrowers make a repayment required by the foregoing provisions of this Section
2.2(c) and thereafter the applicable Lender or Lenders make the payments to the
Agent required by this Section 2.2(c), the Agent shall promptly refund the
amount of such payment.
(d) The failure of any Lender to make the Loan to be made by it on any
date shall not relieve any other Lender of its obligation, if any, hereunder to
make its Loan on such date, but no Lender shall be responsible for the failure
of any other Lender to make the Loan to be made by such other Lender.
2.3. Commitment Fee. The Borrowers, jointly and severally, shall pay to
--------------
the Agent, for the accounts of the Lenders in accordance with their respective
Commitment Percentages, a
13
<PAGE>
commitment fee on the average daily amount of the unborrowed portion of the
Commitment Amount during each quarter or portion thereof computed at the
Commitment Fee Rate determined in accordance with the Pricing Schedule.
Commitment Fees shall be payable quarterly in arrears on the last day of March,
June, September and December of each year, beginning September 30, 1997 and on
the Revolving Credit Termination Date; provided, however, that the Borrowers
shall not be liable to pay any such commitment fees for the account of a
Defaulting Lender.
2.4. Reduction of Commitment Amount. The Company may from time to time
------------------------------
by written notice delivered to the Agent at least seven days prior to the date
of the requested reduction, reduce by a minimum amount of $5,000,000 and by
integral multiples of $1,000,000 any unborrowed portion of the Commitment
Amount. No reduction of the Commitment Amount shall be subject to
reinstatement.
2.5. The Notes.
---------
(a) The Loans shall be evidenced by the Notes executed by the Borrowers,
jointly and severally, in favor of each Lender and having a final maturity of
the Revolving Credit Termination Date. The Notes shall be dated on or before
the date of the first Loan and shall have the blanks therein appropriately
completed.
(b) The Agent shall, and is hereby irrevocably authorized by the Borrowers
to, enter in its records appropriate notations evidencing the date and the
amount of each Loan, the interest rate applicable thereto and the date and
amount of each payment of principal made by the Borrowers with respect thereto;
and in the absence of manifest error, such notations shall constitute conclusive
evidence thereof. No failure on the part of the Agent to make any notation as
provided in this subsection (b) shall in any way affect any Loan or the rights
or obligations of the Agent, the Lenders or the Borrowers with respect thereto.
2.6. Duration of Interest Periods.
----------------------------
(a) Subject to the provisions of the definition of Interest Period, the
duration of each Interest Period applicable to a Loan shall be as specified in
the applicable Notice of Borrowing or Conversion. The Borrowers shall have the
option to elect a subsequent Interest Period to be applicable to such Loan by
the Company's giving notice of such election to the Agent received no later than
10:00 a.m. Boston time on the Business Day on which the then applicable Interest
Period ends if such Loan is to be continued as or converted to a Base Rate Loan
and three Business Days before the end of the then applicable Interest Period if
such Loan is to be continued as or converted to a Eurodollar Loan.
(b) If the Agent does not receive a notice of election of duration of an
Interest Period for a Eurodollar Loan pursuant to subsection (a) above within
the applicable time limits specified therein, or if, when such notice must be
given, a Default exists, the Borrowers shall
14
<PAGE>
be deemed to have elected to convert such Loan in whole into a Base Rate Loan on
the last day of the then current Interest Period with respect thereto.
(c) Notwithstanding the foregoing, the Borrowers may not select an
Interest Period that would end, but for the provisions of the definition of
Interest Period, after the Revolving Credit Termination Date.
2.7. Interest Rates and Payment of Interest.
--------------------------------------
(a) Each Base Rate Loan shall bear interest on the outstanding principal
amount thereof at a rate per annum equal to the Base Rate. Such interest shall
be payable on the last day of each month, in arrears, commencing, September 30,
1997, and when such Loans are due (whether at maturity, by reason of
acceleration or otherwise).
(b) Each Eurodollar Loan shall bear interest on the outstanding principal
amount thereof, for each Interest Period applicable thereto, at a rate per annum
equal to the Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin.
Such interest shall be payable for such Interest Period on the last day thereof
and when such Eurodollar Loan is due (whether at maturity, by reason of
acceleration or otherwise) and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. The Borrowers
shall not have more than ten Eurodollar Loans outstanding at any time.
2.8. Changed Circumstances.
---------------------
(a) In the event that:
(i) on any date on which the Adjusted Eurodollar Rate would otherwise
be set, the Agent shall have determined in good faith (which determination
shall be final and conclusive) that adequate and fair means do not exist
for ascertaining the Interbank Offered Rate, or
(ii) at any time the Agent shall have determined in good faith (which
determination shall be final and conclusive) that:
(A) the making or continuation of or conversion of any Loan to a
Eurodollar Loan has been made impracticable or unlawful by (1) the
occurrence of a contingency that materially and adversely affects the
Interbank Eurodollar market or (2) compliance by any Lender in good
faith with any applicable law or governmental regulation, guideline or
order or interpretation or change thereof by any governmental
authority charged with the interpretation or administration thereof or
with any request or directive of any such governmental authority
(whether or not having the force of law); or
15
<PAGE>
(B) the Adjusted Eurodollar Rate shall no longer represent the
effective cost to the Lenders for U.S. dollar deposits in the
Interbank Eurodollar market for deposits in which it regularly
participates;
then, and in any such event, the Agent shall forthwith so notify the Company
thereof. Until the Agent notifies the Company that the circumstances giving
rise to such notice no longer apply, the obligation of the Lenders and the Agent
to allow selection by the Borrowers of a Eurodollar Loan affected by the
contingencies described in this Section 2.8(a) (herein called "Affected Loans")
--------------
shall be suspended. If at the time the Agent so notifies the Company, the
Company has previously given the Agent a Notice of Borrowing or Conversion with
respect to one or more Affected Loans but such Loans have not yet gone into
effect, such notification shall be deemed to be void and the Borrowers may
borrow Loans of a non-affected type by giving a substitute Notice of Borrowing
or Conversion Pursuant to Section 2.2 hereof.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given) the Company shall, with respect to
the outstanding Affected Loans, prepay the same, together with interest thereon
and any amounts required to be paid pursuant to Section 2.13, and may borrow a
Loan of another type in accordance with Section 2.1 hereof by giving a Notice of
Borrowing or Conversion pursuant to Section 2.2 hereof.
(b) In case any law, regulation, treaty or official directive or the
interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):
(i) subjects any Lender to any tax not in effect on the date hereof
with respect to payments of principal or interest or any other amounts
payable hereunder by the Company or otherwise with respect to the
transactions contemplated hereby (except for taxes on the overall net
income of such Lender imposed by the United States of America or any
political subdivision thereof), or
(ii) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, any Lender (other than such
requirements as are already included in the determination of the Adjusted
Eurodollar Rate), or
(iii) imposes upon any Lender any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to such Lender,
reduce the income receivable by such Lender or impose any expense upon such
Lender with respect to any outstanding Eurodollar Loans, such Lender shall
notify the Company thereof. The Borrowers, jointly and severally, agrees to pay
to such Lender the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is
16
<PAGE>
incurred or determined, upon presentation by such Lender of a statement in the
amount and setting forth such Lender's calculation thereof, which statement
shall be deemed true and correct absent manifest error.
2.9. Capital Requirements. If after the date hereof any Lender
--------------------
determines that (a) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for banks or bank holding companies, or
any change in the interpretation or application thereof by any governmental
authority charged with the administration thereof, or (b) compliance by such
Lender or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Lender or such
holding company's capital as a consequence of such Lender's commitment to make
Loans hereunder to a level below that which such Lender or such holding company
could have achieved but for such adoption, change or compliance (taking into
consideration such Lender's or such holding company's then existing policies
with respect to capital adequacy and assuming the full utilization of such
entity's capital) by any material amount, then such Lender shall notify the
Company thereof. The Borrowers, jointly and severally, agree to pay to such
Lender the amount of such reduction in the return on capital as and when such
reduction is determined, upon presentation by such Lender of a statement in the
amount and setting forth such Lender's calculation thereof, which statement
shall be deemed true and correct absent manifest error. In determining such
amount, such Lender may use any reasonable averaging and attribution methods.
2.10. Payments and Prepayments of the Loans.
-------------------------------------
(a) The Borrowers may make prepayments to the Agent, for the ratable
accounts of the Lenders, of outstanding Eurodollar Loans in amounts not less
than $1,000,000 and in multiples of $500,000, without premium or penalty, on the
last day of any Interest Period applicable thereto, upon three (3) Business
Days' notice to the Agent. The Borrowers may make prepayments to the Agent, for
the ratable accounts of the Lenders, of Base Rate Loans at any time in amounts
not less than $100,000 and in multiples of $50,000, without premium or penalty,
upon one Business Day's notice to the Agent. Any interest accrued on the
amounts so prepaid to the date of such payment must be paid at the time of any
such payment. No prepayment of the Revolving Loans during the Revolving Credit
Period shall affect the Commitment Amount or impair the Borrowers' right to
borrow as set forth in Section 2.1.
(b) If at any time the sum of (i) the aggregate principal amount of
outstanding Loans and (ii) the stated amount of the outstanding Letters of
Credit exceeds the lesser of (A) the Borrowing Base in effect at such time or
(B) the Commitment Amount, the Borrowers, jointly and severally, shall
immediately repay to the Agent for the ratable accounts of the Lenders a
principal amount of Loans equal to such excess.
2.11. Method of Payment. All payments and prepayments of principal and
-----------------
all payments of interest shall be made by the Company, on behalf of itself and
Stores, or by any
17
<PAGE>
of the Borrowers, to the Agent at 100 Federal Street, Boston, Massachusetts in
immediately available funds, on or before 11:00 a.m. (Boston time) on the due
date thereof, free and clear of, and without any deduction or withholding for,
any taxes or other payments. The Agent and the Lenders may, and the Borrowers
hereby authorize the Agent and the Lenders to, debit the amount of any payment
not made by such time to the demand deposit account of any Borrower with the
Agent or such Lender. The Agent will, after its receipt thereof, distribute like
funds relating to the payment of principal, interest or any other amounts
payable hereunder ratably to the Lenders in accordance with their respective
Commitment Percentages. Any payment made by the Borrowers to the Agent under
this Agreement or under the Notes in the manner provided in this Agreement shall
be deemed to be a payment to each of the respective Lenders, unless the
provisions of this Agreement expressly provide that any such payment shall be
solely for the account of the Agent or any specific Lender.
2.12. Default Interest. Upon the concurrence and during the continuance
----------------
of any Default, the Borrowers, jointly and severally, on demand, shall pay to
the Agent for the account of the Lenders interest on the unpaid principal
balance of the Loans and the Swing Line Loans, and, to the extent permitted by
applicable law, on any overdue interest and fees or any other amounts payable
hereunder or under the Notes and the Swing Line Notes, at a rate per annum equal
to two percent (2%) above the rate then applicable to Base Rate Loans, which
interest shall be compounded monthly and payable on demand.
2.13. Payments Not at End of Interest Period. If the Borrowers for any
--------------------------------------
reason make any payment of principal with respect to any Eurodollar Loan on any
day other than the last day of an Interest Period applicable to such Eurodollar
Loan, or fail to borrow or continue or convert to a Eurodollar Loan after giving
a Notice of Borrowing or Conversion Pursuant to Section 2.2, or if any
Eurodollar Loan is accelerated pursuant to Section 7.2(b), the Borrowers,
jointly and severally, shall pay to the Agent, for the ratable accounts of the
Lenders, an amount computed pursuant to the following formula.
L = (R - T) x P x D
---------------
360
L = amount payable to the Agent for the ratable accounts of the Lenders
R = interest rate on such Loan
T = effective interest rate per annum at which any readily marketable
bond or other obligation of the United States, selected at the
Agent's sole discretion, maturing on or near the last day of the then
applicable Interest Period of such Loan and in approximately the same
amount as such Loan can be purchased by the Agent on the day of such
payment of principal or failure to borrow or continue or convert
P = the amount of principal prepaid or the amount of the requested Loan
D = the number of days remaining in the Interest Period as of the date of
such payment or the number of days of the requested Interest Period
18
<PAGE>
The Borrowers, jointly and severally, shall pay such amount upon presentation by
the Agent of a statement setting forth the amount and the Agent's calculation
thereof pursuant hereto.
2.14. Computation of Interest and Fees. Interest and all fees payable
--------------------------------
hereunder shall be computed daily on the basis of a year of 360 days and paid
for the actual number of days for which due, except for interest on Base Rate
Loans which shall be computed daily on a basis of a year of 365 days and paid
for the actual number of days for which due. If the due date for any payment of
principal is extended by operation of law, interest shall be payable for such
extended time. If any payment required by this Agreement becomes due on a day
that is not a Business Day such payment may be made on the next succeeding
Business Day (subject to clause (a) of the definition of Interest Period), and
such extension shall be included in computing interest in connection with such
payment.
2.15. Sharing of Payments. If any Lender shall obtain any payment (whether
-------------------
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Loans made by it in excess of its ratable share
(according to the then outstanding principal amount of the Loans) of payments on
account of the Loans obtained by all the Lenders, such Lender shall purchase
from the other Lenders such participations in the Loans held by such other
Lenders as shall cause such purchasing Lender to share such payment ratably
according to the then outstanding principal amount of the Loans with each of
such other Lenders; provided, however, that if all or any portion of such
-------- -------
payment is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
with interest at an interest rate per annum equal to the Base Rate. The
Borrowers, jointly and severally, agree that any Lender so purchasing a
participation in the Loans from another Lender pursuant to this Section 2.15
may, to the fullest extent permitted by law, exercise all its rights of payment
with respect to such participation as fully as if such Lender were the direct
creditor of each Borrower in the amount of such participation.
2.16. Letter of Credit Facility.
-------------------------
2.16.1. The Letters of Credit. Subject to the terms and conditions
---------------------
hereof, including satisfaction of the conditions set forth in Section 3.2
hereof, and provided no Default has occurred and that the Agent is generally
issuing letters of credit for the account of customers in its ordinary banking
business, the Agent agrees upon the request of the Company pursuant to Section
2.16.2 hereof, to issue Letters of Credit, provided that: (a) the outstanding
stated amount of the Letters of Credit shall not exceed the Maximum Letter of
Credit Amount; (b) the sum of (i) the outstanding stated amount of all Letters
of Credit and (ii) the aggregate principal amount of an outstanding Loans shall
not exceed the lesser of (A) the Borrowing Base and (B) the Commitment Amount;
and (c) each Letter of Credit shall expire on or before the earlier of ten (10)
days prior to the Revolving Credit Termination Date or 360 days after issuance
thereof.
2.16.2. Issuing a Letter of Credit. The Company may request that the
--------------------------
Agent issue a Letter of Credit by written notice (the "L/C Notice") given to the
Agent not less than
19
<PAGE>
two (2) Business Days prior to the proposed date of issuance of such Letter of
Credit. The L/C Notice shall specify the proposed date of issuance and the
beneficiary and amount of such Letter of Credit, and shall be accompanied by a
letter of credit application completed to the satisfaction of, and with such
amendments and modifications as may be deemed necessary by, the Agent.
2.16.3. Letter of Credit Participations.
-------------------------------
(a) The Agent shall notify the Lenders on a monthly basis, reporting
the issuance or any amendment or extension of any Letter of Credit. Immediately
upon the issuance by the Agent of any Letter of Credit, the Agent shall be
deemed to have sold to each Lender (each such Lender, in its capacity under this
Section 2.16.3, an "L/C Participant"), and each such L/C Participant shall be
deemed irrevocably and unconditionally to have purchased and received from the
Agent, without recourse or warranty, an undivided interest and participation
(each an "L/C Participation") to the extent of such L/C Participant's Commitment
Percentage, in such Letter of Credit, any substitute Letter of Credit, each draw
made thereunder and the obligations of the Borrowers under the Lender Agreements
with respect thereto, and any security therefor or guaranty pertaining thereto.
(b) In determining whether to pay under any Letter of Credit, the
Agent shall have no obligation relative to the L/C Participants other than to
confirm that any documents required to be delivered under such Letter of Credit
have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by the Agent under or in connection with any Letter of Credit, if taken or
omitted to be taken in the absence of gross negligence or willful misconduct,
shall not create for the Agent any resulting liability.
2.16.4. Reimbursement and Other Payments.
--------------------------------
(a) The Borrowers, jointly and severally, hereby agree to pay to
the Agent, for the ratable accounts of the Lenders, on the date on which the
Agent shall be required to pay any draft presented under any Letter of Credit, a
sum (the "Reimbursement Amount") equal to: (i) the amount so paid under such
Letter of Credit, plus (ii) interest on any amount remaining unpaid by the
Borrowers to the Lenders under clause (i) from and including the date on which
such amount becomes payable pursuant to clause (i) until payment in full,
payable on demand, at a per annum rate of interest equal to the rate applicable
to Loans under Section 2.7 (a) plus any additional interest under Section 2.12.
If the Borrowers shall fail to pay to the Agent the Reimbursement Amount on the
date on which the Agent shall be required to pay any draft presented under any
Letter of Credit, the Agent shall, to the extent the Borrowers have availability
to request a Loan, consider such failure to be a request for a Loan in the
amount of the Reimbursement Amount. In the event any such Loan is made pursuant
to this Section 2.16.4(a), the Agent shall notify each Lender of such Lender's
Commitment Percentage of such Loan, and such Lender shall make available
promptly to the Agent the corresponding amount of such Loan, all in accordance
with Section 2.2 hereof. The Borrowers, jointly and
20
<PAGE>
severally, agree that the Agent may make any such Loan, and each Lender agrees
to deliver such Lender's Commitment Percentage of such Loan, even if the making
of such Loan causes the outstanding balance of all Loans to exceed the limits
set forth in Section 2.1 hereof, and the Borrowers further agree that the making
of such Loan by the Agent in excess of the limits set forth in Section 2.1
hereof shall constitute an automatic Default under Section VII, entitling the
Agent and the Lenders to exercise all rights and remedies available to them
under the Lender Agreements and applicable law.
(b) The Borrowers shall, jointly and severally, quarterly in
arrears on the last day of each calendar quarter for the calendar quarter ending
on such date, pay a fee (in each case, a "Letter of Credit Fee") to the Agent in
respect of each Letter of Credit issued, extended or renewed at the request of
Borrowers equal to the face amount of each Letter of Credit multiplied by the
Letter of Credit Fee Rate per annum. The Agent shall, in turn, remit to each
Lender its pro rata portion of such Letter of Credit Fee. In addition, the
--- ----
Borrowers shall, jointly and severally, pay to the Agent, for its own account,
(a) on standby Letters of Credit, a fronting fee equal to 1/8% per annum of the
stated amount, payable quarterly in arrears, and (b) on the date of issuance, or
any extension or renewal of any Letter of Credit and at such other time or times
as such charges are customarily made by the Agent, the Agent's standard
issuance, processing, negotiation, amendment and administrative fees, determined
in accordance with customary fees and charges for similar facilities.
(c) If prior to the time a Loan would have otherwise been made
pursuant to Section 2.16.4(a) one of the events described in Section 7.1(g) or
(h) shall have occurred and be continuing, each Lender shall, on the date such
Loan was to have been made pursuant to the provisions of paragraph (a) above
(the "Reimbursement Date"), purchase an undivided participating interest in an
amount equal to (i) its Commitment Percentage times (ii) the aggregate principal
amount of the Reimbursement Amount then outstanding which was to have been
repaid with such Loan (the "Letter of Credit Participation Amount"). On the
Reimbursement Date, each Lender shall transfer to the Agent, in immediately
available funds, such Lender's Letter of Credit Participation Amount and upon
receipt thereof the Agent shall deliver to such Lender a Letter of Credit Loan
Participation Certificate dated the date of the Lender's receipt of such funds
and in such Letter of Credit Participation Amount.
2.16.5. Obligations Absolute. The obligations of the Borrowers with
--------------------
respect to the Letters of Credit shall be unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following circumstances:
(a) any lack of validity or enforceability of the Letters of
Credit or this Agreement;
(b) any amendment or waiver of or any consent to or actual
departure from this Agreement;
21
<PAGE>
(c) the existence of any claim, set-off, defense or other right
which the Borrowers may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any persons or entities for which any such
beneficiary or any such transferee may be acting), the Agent, the Lenders or any
other person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in any other agreements or any unrelated
transaction;
(d) any statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(e) payment by the Agent under a Letter of Credit against
presentation by the beneficiary thereof of a draft or certificate which does not
comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
The obligations of the Borrower under this Section 2.16.5 shall not
limit any rights or claims of the Borrowers under Section 2.16.6 or 2.16.8
hereof.
2.16.6. The Uniform Customs and Practice. The Uniform Customs and
--------------------------------
Practice for Documentary Credits (ICC Publication No. 500) shall be binding on
the Borrowers and the Agent. The Borrowers assume all risks of the acts or
omissions of the beneficiary of each Letter of Credit with respect to such
Letter of Credit. In furtherance of, and not in limitation of the Agent's
rights and powers under the Uniform Customs and Practice, but subject to all
other provisions of this Section 2.16.6, it is understood and agreed that the
Agent shall not have any liability for, and that the Borrowers assume all
responsibility for: (a) the genuineness of any signature; (b) the form,
correctness, validity, sufficiency, genuineness, falsification and legal effect
of any draft, certification or other document required by a Letter of Credit or
the authority of the person signing the same; (c) the failure of any instrument
to bear any reference or adequate reference to a Letter of Credit or the failure
of any persons to note the amount of any instrument on the reverse of a Letter
of Credit or to surrender a Letter of Credit or otherwise to comply with the
terms and conditions of a Letter of Credit; (d) the good faith or acts of any
person other than the Agent and its agents and employees; (e) the existence,
form, sufficiency or breach of or default under any agreement or instrument of
any nature whatsoever; (f) any delay in giving or failure to give any notice,
demand or protest; and (g) any error, omission, delay in or nondelivery of any
notice or other communication, however sent. The determination as to whether
the required documents are presented prior to the expiration of a Letter of
Credit and whether such other documents are in proper and sufficient form for
compliance with a Letter of Credit shall be made by the Agent in its sole
discretion, which determination shall be conclusive and binding upon the
Borrowers. It is agreed that the Agent may honor, as complying with the terms
of the Letters of Credit and this Agreement, any documents otherwise in order
and signed or issued by the beneficiary
22
<PAGE>
thereof. Any action, inaction or omission on the part of the Agent under or in
connection with the Letters of Credit or any related instruments or documents,
if in good faith and in conformity with such laws, regulations or commercial or
banking customs as the Agent may reasonably deem to be applicable, shall be
binding upon the Borrowers, shall not place the Agent or the Lenders under any
liability to the Borrowers, and shall not affect, impair or prevent the vesting
of any of the Agent's or the Lenders' rights or powers hereunder or the
Borrowers' obligation to make full reimbursement.
2.16.7. Modification, Consent, etc. If the Borrowers, either in
--------------------------
writing or orally, request or consent to any modification or extension of a
Letter of Credit or waives failure of any draft, certificate or other documents
to comply with the terms of a Letter of Credit, the Agent shall be entitled to
rely and shall be deemed to have relied on such request, consent or waiver with
respect to any action taken or omitted by the Agent pursuant to any such
request, consent or waiver, and such extension, modification or waiver shall be
binding upon the Borrowers.
2.16.8. Liability of the Agent and the Lenders. Neither the Agent,
--------------------------------------
the Lenders nor any of their officers or directors shall be liable or
responsible for: (a) the use which may be made of the Letters of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by the Agent against
presentation of documents which do not comply with the terms of a Letter of
Credit, including failure of any documents to bear any reference or adequate
reference to a Letter of Credit; or (d) any other circumstances whatsoever in
making or failure to make payment under a Letter of Credit, except that
notwithstanding anything in this Section 2.16.8 to the contrary, the Borrowers
shall have a claim against the Agent, and the Agent shall be liable to the
Borrowers, to the extent but only to the extent, of any direct, as opposed to
consequential, damages suffered by the Borrowers which were caused by the
Agent's failure to conform to the standards of the Uniform Customs and Practice.
In furtherance and not in limitation of the foregoing, the Agent may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
Nothing contained in this Section 2.16.8 shall affect the Agent's
responsibilities under Section 2.16.6.
2.16.9. Outstanding Letters of Credit. As of the date of this
-----------------------------
Agreement, certain letters of credit are outstanding from BKB for the account of
the Company under the 1996 Credit Agreement, which letters of credit are
described on Schedule 2.16.9. hereto. The parties hereto acknowledge and agree
that upon execution of this Agreement, all letters of credit described on
Schedule 2.16.9. hereto shall automatically be deemed to be Letters of Credit
hereunder without the necessity of any further action on the part of the
Company, the Lenders or the Agent.
2.17 Swing Line Commitment. Subject to the terms and conditions hereof,
---------------------
BankBoston, N.A. (in such capacity, the "Swing Line Lender") agrees to make
available to the
23
<PAGE>
Borrowers a portion of the credit otherwise available to the Borrowers hereunder
from time to time prior to the Revolving Credit Termination Date by making swing
line loans ("Swing Line Loans") to the Borrowers, jointly and severally, in an
aggregate principal amount not to exceed at any one time outstanding the Swing
Line Commitment; provided that (a) the aggregate principal amount of Swing Line
Loans outstanding at any time shall not exceed the Swing Line Commitment then in
effect (notwithstanding that the Swing Line Loans outstanding at any time, when
aggregated with the Swing Line Lender's other outstanding Loans hereunder, may
exceed the Swing Line Commitment then in effect) and (b) the Borrowers shall not
request, and the Swing Line Lender shall not be obligated to make, any Swing
Line Loan if, after giving effect to the making of such Swing Line Loan, the
aggregate amount of the Loans, the Swing Line Loans and the stated amount of all
Letters of Credit exceed the lesser of the Borrowing Base in effect at such time
and the Commitment Amount. Prior to the Revolving Credit Termination Date, the
Borrowers may use the Swing Line Commitment by borrowing, repaying and
reborrowing, all in accordance with the terms and conditions hereof. Swing Line
Loans shall be Base Rate Loans only. The Borrowers may use the proceeds of
Revolving Credit Advances from time to time to repay any outstanding Swing Line
Loans. The Borrowers, jointly and severally, shall repay all outstanding Swing
Line Loans on the Revolving Credit Termination Date. On the Closing Date, the
Borrowers shall deliver to the Swing Line Lender a Swing Line Note to evidence
the Swing Line Loans from time to time made by the Swing Line Lender to the
Borrowers hereunder.
2.18 Procedure for Swing Line Borrowing; Interest on Swing Line Loans.
----------------------------------------------------------------
Whenever the Borrowers desire that the Swing Line Lender make Swing Line Loans
under Section 2.18, the Company shall give the Swing Line Lender irrevocable
telephonic notice confirmed promptly in writing (which telephonic notice must be
received by the Swing Line Lender not later than 1:00 P.M., Boston time, on the
proposed borrowing date), specifying (a) the amount to be borrowed and, (b) the
requested borrowing date (which shall be a Business Day prior to the Revolving
Credit Termination Date); and not later than 3:00 P.M., Boston time, on the
borrowing date specified in the notice in respect of Swing Line Loans, the Swing
Line Lender shall make the proceeds of such Swing Line Loan available to the
Company, as agent for the Borrowers on such borrowing date in accordance with
the instructions of the Company. The Borrowers, jointly and severally, shall
pay interest on the unpaid balance of the Swing Line Loans from time to time
outstanding at a per annum rate equal to the Base Rate. Interest on the Swing
Line Loans shall be payable monthly in arrears on the last day of each month,
commencing September 30, 1997 and continuing until all of the Indebtedness of
the Borrowers to the Swing Line Lender hereunder shall have been paid in full.
2.19 Refunded Swing Line Loans; Swing Line Loan Participations. (a) The
---------------------------------------------------------
Swing Line Lender, at any time and from time to time in its sole and absolute
discretion, but in any event at least once every fourteen days, may, on behalf
of the Borrowers (which hereby irrevocably direct the Swing Line Lender to act
on their behalf) on one Business Day's notice given by the Swing Line Lender no
later than 12:00 noon, Boston time, request each Lender to make, and each Lender
hereby agrees to make, a Revolving Credit Advance in an amount equal to such
Lender's Commitment Percentage of the aggregate amount of the Swing Line
24
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Loans (the "Refunded Swing Line Loans") outstanding on the date of such notice,
to repay the Swing Line Lender. Unless any of the events described in Section
7.1(g) or (h) shall have occurred and be continuing (in which case the
procedures of Section 2.19(c) shall apply), each Lender shall make the amount of
such Revolving Credit Advance available to the Agent at its office in
immediately available funds, not later than 10:00 A.M., Boston time, one
Business Day after the date of such notice. The proceeds of such Revolving
Credit Advances shall be immediately applied by the Swing Line Lender to repay
the Refunded Swing Line Loans. Effective on the day such Revolving Credit
Advances are made, the portion of the Swing Line Loans so paid shall no longer
be outstanding as Swing Line Loans and shall be outstanding as Revolving Credit
Advances and owed to the Lenders in accordance with their respective Commitment
Percentages. The Borrowers irrevocably authorize the Swing Line Lender to charge
the Borrowers' accounts with the Agent (up to the amount available in each such
account) to immediately pay the amount of such Refunded Swing Line Loans to the
extent amounts received from the Lenders are not sufficient to repay in full
such Refunded Swing Line Loans.
(b) The making of any Swing Line Loan hereunder shall be subject
to the satisfaction of the applicable conditions precedent thereto set forth in
Section 3.2. The Swing Line Lender shall notify the Company of its election not
to make Swing Line Loans hereunder as a result of the failure to satisfy such
conditions precedent, unless an Event of Default of the type specified in
Section 7.1(g) or (h) shall have occurred and be continuing.
(c) If prior to the time a Revolving Credit Advance would have
otherwise been made pursuant to Section 2.2(a) one of the events described in
Section 7.1(g) or (h) shall have occurred and be continuing, each Lender shall,
on the date such Revolving Credit Advance was to have been made pursuant to the
notice referred to in Section 2.19(a) (the "Refunding Date"), purchase an
undivided participating interest in an amount equal to (i) its Commitment
Percentage times (ii) the aggregate principal amount of Swing Line Loans then
outstanding which were to have been repaid with such Revolving Credit Advances
(the "Swing Line Participation Amount"). On the Refunding Date, each Lender
shall transfer to the Swing Line Lender, in immediately available funds, such
Lender's Swing Line Participation Amount and upon receipt thereof the Swing Line
Lender shall deliver to such Lender a Swing Line Loan Participation Certificate
dated the date of the Swing Line Lender's receipt of such funds and in such
Swing Line Participation Amount.
(d) Whenever, at any time after the Swing Line Lender has received
from any Lender such Lender's Swing Line Participation Amount, the Swing Line
Lender receives any payment on account of the Swing Line Loans, the Swing Line
Lender will distribute to such Lender its Swing Line Participation Amount
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participating interest was outstanding and
funded and, in the case of principal and interest payments, to reflect such
Lender's pro rata portion of such payment if such payment is not sufficient to
pay the principal of and interest on all Swing Line Loans then due); provided
however, that in the event that such payment received by the Swing Line Lender
is required to be returned, such
25
<PAGE>
Lender will return to the Swing Line Lender any portion thereof previously
distributed to it by the Swing Line Lender.
(e) Each Lender's obligation to make the Loans referred to in
Section 2.19(a) and to purchase participating interest pursuant to Section
2.19(c) shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense or other right which such Lender or the Borrowers may have
against the Swing Line Lender, the Borrowers or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default or an Event of
Default or the failure to satisfy any of the other conditions specified in
Section 3.2; (iii) any adverse change in the condition (financial or otherwise)
of the Borrowers; (iv) any breach of this Agreement or any other Lender
Agreement by the Borrowers or any other Lender; or (v) any other circumstances,
happening or event whatsoever, whether or not similar to any of the foregoing.
2.20. Use of Proceeds. The proceeds of all Loans and Swing Line Loans
---------------
shall be used by the Borrowers as follows: (a) the initial Revolving Credit
Loans shall be used to repay in full all amounts outstanding under the 1996
Credit Agreement, and (b) all future Revolving Credit Advances and all Swing
Line Loans shall be used for general working capital and other general corporate
purposes, including repurchases of stock of the Parent permitted hereunder.
2.21. Guaranty of Parent. The Parent hereby unconditionally guaranties
------------------
to the Agent and the Lenders the prompt payment and performance of (a) all
liabilities and obligations and Indebtedness, direct or indirect, matured or
unmatured, primary or secondary, certain or contingent, of the Borrowers and the
Brookstone Subsidiaries (including without limitation, costs and expenses
incurred by the Agent and the Lenders in attempting to collect or enforce any of
the foregoing), accrued in each case to the date of payment, and (b) the
performance of all other agreements, covenants and conditions of the Borrowers
and the Brookstone Subsidiaries with respect thereto set forth in this Agreement
and all other Lender Agreements. The responsibilities and obligations of the
Borrowers and the Brookstone Subsidiaries to the Agent and the Lenders described
in the preceding sentence are hereinafter referred to collectively as the
"Guaranteed Obligations." The guaranty pursuant to this Section 2.21 is an
absolute, unconditional and continuing guaranty of the full and punctual payment
and performance by the Borrowers and the Brookstone Subsidiaries of the
Guaranteed Obligations and not of collectability of the Guaranteed Obligations,
and is in no way conditioned upon any requirement that the Agent or the Lenders
first attempt to collect any of the Guaranteed Obligations from the Borrowers
and the Brookstone Subsidiaries or resort to any security or other means of
obtaining payment of any of the Guaranteed Obligations which the Agent or the
Lenders now has or may acquire after the date hereof, or upon any other
contingency whatsoever. Upon any default by the Borrowers or the Brookstone
Subsidiaries in the full and punctual payment and performance of the Guaranteed
Obligations, the liabilities and obligations of the Parent hereunder shall, at
the option of the Agent, become forthwith due and payable to the Agent and the
Lenders without demand or notice of any nature, all of which are expressly
waived by the Parent. Payments by the Parent under this Section 2.21 may be
26
<PAGE>
required by the Agent or the Lenders on any number of occasions. The Parent
waives presentment, demand, protest, notice of acceptance, notice of Guaranteed
Obligations incurred and all other notices of any kind, all defenses which may
be available by virtue of any valuation, stay, moratorium law or other similar
law now or hereafter in effect, any right to require the marshalling of assets
of the Borrowers and the Brookstone Subsidiaries, and all suretyship defenses
generally. Without limiting the generality of the foregoing, the Parent agrees
to the provisions of any instrument evidencing, securing or otherwise executed
in connection with any Guaranteed Obligations and agrees that the obligations of
the Parent hereunder shall not be released or discharged, in whole or in part,
or otherwise affected by any rescissions, waivers, amendments or modifications
of any of the terms or provisions of any agreement evidencing securing or
otherwise executed in connection with any Guaranteed Obligation. Until the
payment and performance in full of all Guaranteed Obligations and any and all
obligations of the Borrowers and the Brookstone Subsidiaries to any affiliate of
the Agent or the Lenders, the Parent shall not exercise any rights against the
Borrowers and the Brookstone Subsidiaries arising as a result of payment by the
Parent hereunder, by way of subrogation or otherwise. The payment of any
amounts due with respect to any indebtedness of the Borrowers and the Brookstone
Subsidiaries now or hereafter held by the Parent is hereby subordinated to the
prior payment in full of the Guaranteed Obligations.
2.22 Replacement of Lenders. If any Lender (an "Affected Lender")
----------------------
defaults in its obligation to make Loans, in accordance with the terms of this
Agreement, the Borrowers may, within ninety (90) days of receipt of notice of
such default, by notice (a "Replacement Notice") in writing to the Agent and
such Affected Lender (a) request the Affected Lender to cooperate with such
Borrowers in obtaining a replacement bank satisfactory to the Agent and such
Borrowers (the "Replacement Lender"); (b) request the non-Affected Lenders to
acquire and assume all of the Affected Lender's Loans and Commitment Percentage,
as provided herein, but none of such Lenders shall be under an obligation to do
so; or (c) designate a Replacement Lender reasonably satisfactory to the Agent
(which shall be deemed to be satisfactory if a Successor Lender). If any
satisfactory Replacement Lender shall be obtained, and/or if any one or more of
the non-Affected Lenders shall agree to acquire and assume all of the Affected
Lender's Loans and Commitment Percentage, then such Affected Lender shall
assign, in accordance with Section 9.2, all of its Commitment Percentage, Loans,
Notes and other rights and obligations under this Agreement and all other Loan
Agreements to such Replacement Lender or non-Affected Lenders, as the case may
be, in exchange for payment of the principal amount so assigned and all interest
and fees accrued on the amount so assigned, plus all other Obligations then due
and payable to the Affected Lender; provided, however, that prior to any such
-------- -------
assignment, such Borrower shall have paid to such Affected Lender all amounts
properly demanded and unreimbursed under this Agreement. Upon the effective
date of such assignment, such Borrower shall issue replacement Notes to such
Replacement Lender and/or non-Affected Lenders, as the case may be, and such
institution shall become a "Lender" for all purposes under this Agreement and
the other Loan Agreements.
27
<PAGE>
SECTION III
-----------
CONDITIONS OF LOANS AND LETTERS OF CREDIT
-----------------------------------------
3.1. Conditions Precedent to Initial Loan. The obligation of the Lenders
------------------------------------
to make the initial Loan is subject to the condition precedent that the Agent
shall have received, in form and substance satisfactory to the Agent and its
counsel, the following:
(a) this Agreement and the Notes, duly executed by the Borrowers;
(b) the Subsidiary Guaranty duly executed by the Brookstone Subsidiaries;
(c) the Subordination Agreement, duly executed by Stores and the Company;
(d) certificates of the Secretary or an Assistant Secretary of the
Parent, each Borrower and each of the Brookstone Subsidiaries with respect to
resolutions of the Boards of Directors authorizing the execution and delivery of
this Agreement, the Notes, the Subsidiary Guaranty and the Subordination
Agreement and identifying the officer(s) authorized to execute, deliver and take
all other actions required under this Agreement, and providing specimen
signatures of such officers;
(e) certificates of incorporation of the Parent, each Borrower and each
of the Brookstone Subsidiaries and all amendments and supplements thereto, filed
in the office of the Secretaries of State of Delaware and New Hampshire,
respectively, each certified by said Secretaries of State as being a true and
correct copy thereof;
(f) the Bylaws of the Parent, each Borrower, and each of the Brookstone
Subsidiaries and all amendments and supplements thereto, certified by the
Secretary or an Assistant Secretary of the Parent, each Borrower, and each of
the Brookstone Subsidiaries respectively as being a true and correct copy
thereof;
(g) certificates of the Secretaries of State of those jurisdictions where
each Borrower, and each of the Brookstone Subsidiaries owns or leases real
property, as to legal existence and good standing of each Borrower, and each of
the Brookstone Subsidiaries in such states;
(h) an opinion addressed to it from Cook, Little, Rosenblatt & Manson,
p.l.l.c., counsel to the Parent, each Borrower, and each of the Brookstone
Subsidiaries, substantially in the form of Exhibit H hereto;
---------
(i) certified copies of the Master Assignment, the Master Sublease
Agreement and the Subsidiary Inventory Security Agreement, and evidence of the
perfection of the first security interest created thereunder in favor of the
Company in all locations in which any inventory of Stores is located;
28
<PAGE>
(j) payment to the Agent of all amounts due the Agent pursuant to the
letter agreement between the Borrowers and the Agent dated July 29, 1997;
(k) payment to BankBoston, N.A. of all accrued commitment fees under the
1996 Credit Agreement; and
(l) such other documents, and completion of such other matters, as
counsel for the Agent may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to All Loans and Letters of Credit. The
-------------------------------------------------------
Lenders' obligation to make each Loan, including the initial Loan, or continue
or convert Loans to Loans of another type, or issue or extend any Letter of
Credit, are further subject to the following conditions:
(a) timely receipt by the Agent of the Notice of Borrowing or Conversion
as provided in Section 2.2 or an L/C Notice as provided in Section 2.16.2;
(b) (i) the representations and warranties contained in Section IV shall
be true and accurate in all material respects on and as of the date of such
Notice of Borrowing or Conversion or L/C Notice and on the effective date of the
making, continuation or conversion of each Loan or issuance or extension of each
Letter of Credit as though made at and as of each such date (except to the
extent that such representations and warranties expressly relate to an earlier
date), (ii) the sum of (A) the aggregate principal amount of outstanding Loans
and (B) the stated amount of the outstanding Letters of Credit, after the
making, continuation or conversion of such Loan or issuance or extension of such
Letter of Credit, will not exceed the lesser of (x) the Borrowing Base in effect
as of the end of the Borrowers' previous fiscal month or (y) the Commitment
Amount, and (iii) no Default shall have occurred and be continuing, or would
result from such Loan or Letter of Credit;
(c) the resolutions referred to in Section 3.1(d) shall remain in full
force and effect; and
(d) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for any Lender, would
make it illegal or against the policy of any governmental agency or authority
for any Lender to make Loans or issue Letters of Credit hereunder.
The making of each Loan and issuance or extension of each Letter of Credit
shall be deemed to be a representation and warranty by the Company on the date
of the making, continuation or conversion of such Loan or issuance or extension
of such Letter of Credit as to the accuracy of the facts referred to in
subsection (b) of this Section 3.2.
29
<PAGE>
SECTION IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Agent and the Lenders to enter into this Agreement
and to induce the Lenders to make Loans hereunder, the Parent and the Borrowers
represent and warrant to the Agent and the Lenders that:
4.1. Organization and Qualification. Each of the Parent and its
------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (c) is duly qualified and in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification, except to the extent any such failure to be duly qualified or in
good standing does not have a material adverse effect on the business or
financial condition of the Parent and its Subsidiaries considered as a whole.
4.2. Corporate Authority. The execution, delivery and performance of
-------------------
this Agreement and the Notes and the transactions contemplated hereby are within
the corporate power and authority of the Parent and the Borrowers and have been
authorized by all necessary corporate proceedings, and do not and will not (a)
require any consent or approval of the stockholders of the Parent and the
Borrowers, (b) contravene any provision of the charter documents or by-laws of
the Parent and the Borrowers or any law, rule or regulation applicable to the
Parent and the Borrowers, (c) contravene any provision of, or constitute an
event of default or event that, but for the requirement that time elapse or
notice be given, or both, would constitute an event of default under, any other
agreement, instrument, order or undertaking binding on the Parent and the
Borrowers, or (d) result in or require the imposition of any Encumbrance on any
of the properties, assets or rights of the Parent and the Borrowers.
4.3. Valid Obligations. This Agreement and the Notes and all of their
-----------------
respective terms and provisions are the legal, valid and binding obligations of
the Parent and the Borrowers, with respect to this Agreement, and the Borrowers,
with respect to the Notes, enforceable in accordance with their respective terms
except as limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the enforcement of creditors rights generally, and except as the
remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
4.4. Consents or Approvals. The execution, delivery and performance of
---------------------
this Agreement and the Notes and the transactions contemplated herein do not
require any approval or consent of, or filing or registration with, any
governmental or other agency or authority, or any other party.
30
<PAGE>
4.5. Title to Properties; Absence of Encumbrances. Each of the Parent
--------------------------------------------
and its Subsidiaries has good and marketable title to all of the properties,
assets and rights of every name and nature now used in the conduct of its
business, including, without limitation, such properties, assets and rights as
are reflected in the financial statements referred to in Section 4.6 (except
such properties, assets or rights as have been disposed of in the ordinary
course of business since the date thereof), free from all Encumbrances except
Permitted Encumbrances or those Encumbrances disclosed in Exhibit C hereto, and,
---------
except as so disclosed, free from all defects of title that might materially
adversely affect such properties, assets or rights, taken as a whole.
4.6. Financial Statements. The Parent has furnished to the Lenders its
--------------------
consolidated balance sheet as of February 1, 1997 and its consolidated
statements of income, changes in stockholders' equity and cash flow for the
fiscal year then ended, and related footnotes, audited and certified by Price
Waterhouse. The Parent has also furnished to the Lenders its consolidated
balance sheet as of May 3, 1997 and its consolidated statements of income,
changes in stockholders' equity and cash flow for the fiscal quarter then ended,
certified by the principal financial officer of the Parent but subject, however,
to normal, recurring year-end adjustments that shall not in the aggregate be
material in amount. All such financial statements were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods specified and present fairly the financial position of
the Parent and its Subsidiaries as of such dates and the results of the
operations of the Parent and its Subsidiaries for such periods. There are no
liabilities, contingent or otherwise, not disclosed in such financial statements
or in Exhibit C hereto that involve a material amount. There has been no
---------
material adverse change in the properties, assets or condition, financial or
otherwise, of the Parent and its Subsidiaries since May 3, 1997.
4.7. Defaults. No Default exists.
--------
4.8. Taxes. The Parent and each Subsidiary have filed all federal, state
-----
and other tax returns or appropriate extensions required to be filed, and all
taxes, assessments and other governmental charges due from the Parent and each
Subsidiary have been fully paid, except for immaterial amounts which are being
contested by appropriate proceedings. The Parent and each Subsidiary have
established on their books reserves adequate for the payment of all federal,
state and other tax liabilities.
4.9. Litigation. Except as set forth on Exhibit D hereto, there is no
---------- ---------
litigation, arbitration, proceeding or investigation pending, or, to the
knowledge of the Parent's or any Subsidiary's officers, threatened, against the
Parent or any Subsidiary that, if adversely determined, could result in a
material judgment not fully covered by insurance, could result in a forfeiture
of all or any substantial part of the property of the Parent or its
Subsidiaries, or could otherwise have a material adverse effect on the assets,
business or prospects of the Parent or any Subsidiary.
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4.10. Use of Proceeds. Following the application of the proceeds of
---------------
each Loan, the value of all "margin stock" as such term is used in Regulations U
and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. 221 and
224, as amended, of the Parent will not exceed 25% of the value of the total
assets of the Parent that are subject to the restrictions set forth in Section
6.5 and 6.6.
4.11. Subsidiaries. All the Subsidiaries of the Parent are listed on
------------
Exhibit E hereto. The Parent or a Subsidiary of the Parent is the owner, free
- ---------
and clear of all liens and encumbrances, of all of the issued and outstanding
stock of each Subsidiary, except with respect to Properties which has issued
stock to other shareholders as described on Exhibit E hereto. All shares of
---------
such stock have been validly issued and are fully paid and nonassessable, and no
rights to subscribe to any additional shares have been granted, and no options,
warrants or similar rights are outstanding. Brookstone Realty, Inc. conducts no
business and owns no property, assets or rights of any name or nature.
4.12. Investment Company Act. Neither the Parent nor any of its
----------------------
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
4.13. Compliance with ERISA. Except as disclosed on Schedule 4.13, the
---------------------
Parent and each member of the Controlled Group have fulfilled their obligations
under the minimum funding standards of ERISA and the Code with respect to each
Plan and are in compliance in all material respects with the applicable
provisions of ERISA and the Code, and have not incurred any liability to the
PBGC or a Plan under Title IV of ERISA; and no "prohibited transaction" or
"reportable event" (as such terms are defined in ERISA) has occurred with
respect to any Plan.
4.14. Environmental Matters.
---------------------
(a) The Parent and each of its Subsidiaries have obtained all permits,
licenses and other authorizations which are required under all Environmental
Laws, except to the extent failure to have any such permit, license or
authorization would not have a material adverse effect on the business,
financial condition or operations of the Parent and its Subsidiaries. The
Parent and each of its Subsidiaries are in compliance with the terms and
conditions of all such permits, licenses and authorizations, and are also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply would
not have a material adverse effect on the business, financial condition or
operations of the Parent and its Subsidiaries.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or, to the knowledge of
the Parent or any Subsidiary, threatened by any governmental or other entity
with respect to any alleged failure by the Parent
32
<PAGE>
or any of its Subsidiaries to have any permit, license or authorization required
in connection with the conduct of its business or with respect to any
Environmental Laws, including, without limitation, Environmental Laws relating
to the generation, treatment, storage, recycling, transportation, disposal or
release of any Hazardous Materials, except to the extent that such notice,
complaint, penalty or investigation did not or could not result in the
remediation of any property owned or used by the Parent or any of its
Subsidiaries costing in excess of $100,000 per occurrence or $500,000 in the
aggregate.
(c) To the best of the knowledge of the Parent or any Subsidiary, no
material oral or written notification of a release of a Hazardous Material has
been filed by or on behalf of the Parent or any of its Subsidiaries and no
property now or previously owned, leased or used by the Parent or any of its
Subsidiaries is listed or proposed for listing on The National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, or on any similar state list of sites requiring
investigation or clean-up.
(d) There are no liens or encumbrances arising under or pursuant to any
Environmental Laws on any of the real property or properties owned, or to the
best knowledge of the Parent and their Subsidiaries, any real property leased or
used, by the Parent or any of its Subsidiaries and no governmental actions have
been taken or are in process which could subject any of such properties to such
liens or encumbrances or, as a result of which the Parent or any of its
Subsidiaries would be required to place any notice or restriction relating to
the presence of Hazardous Materials at any property owned by it in any deed to
such property.
(e) Neither Parent nor any of its Subsidiaries nor, to the best knowledge
of the Parent or any Subsidiary but without conducting any special
investigation, any previous owner, tenant, occupant or user of any property
owned, leased or used by the Parent or any of its Subsidiaries has (i) engaged
in or permitted any operations or activities upon or any use or occupancy of
such property, or any portion thereof, for the purpose of or in any way
involving the handling, manufacture, treatment, storage, use, generation,
release, discharge, refining, dumping or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials on, under, in or about
such property, except to the extent commonly used in day-to-day operations of
such property and in such case only in compliance with all Environmental Laws,
or (ii) transported any Hazardous Materials to, from or across such property
except to the extent commonly used in day-to-day operations of such property
and, in such case, in compliance with, all Environmental Laws; nor to the best
knowledge of the Parent, but without conducting any special investigation, have
any Hazardous Materials migrated from other properties upon, about or beneath
such property, nor, to the best knowledge of the Parent or any Subsidiary, are
any Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except to the extent commonly used
in day-to-day operations of such property and, in such case, in compliance with,
all Environmental Laws.
33
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4.15. Liabilities of Stores. Stores has no indebtedness, liabilities or
---------------------
other obligations of any kind, direct or contingent, whether required to be
reflected on a balance sheet or not, other than Permitted Subsidiary
Liabilities. Stores is not a party to any contract, agreement or other
undertaking with any party other than the Company, except for the Master
Sublease Agreement, the Master Assignment and the Lender Agreements.
4.16. Subleased Properties. A list of the Subleased Properties is
--------------------
attached hereto as Schedule 4.16A. The lease for each of such Subleased
Properties was entered into by Brookstone Properties, Inc., the Company, or
Stores as tenant; if entered into by the Company, the Company has assigned its
rights, but not its obligations, under each such lease to Brookstone Properties,
Inc. pursuant to the Master Assignment; the landlord of each such Subleased
Property has consented, if consent is required, to the Master Assignment and
Master Sublease; the execution and delivery of the Master Sublease and the
Subordination Agreements do not constitute a default, or require consent from a
landlord (except for consents which have been received and any other consents
described on Schedule 4.16B) under any lease for any Subleased Property; if
entered into by Stores the Subleased Property subject thereto is a temporary
location for 1997 the term of which does not exceed one (1) year (a "1997
Temporary Store Location") and no landlord of any Subleased Property, other than
a 1997 Temporary Store Location, has any claims against Stores for any rent or
other amounts due under any lease for the Subleased Properties.
SECTION V
---------
AFFIRMATIVE COVENANTS
---------------------
So long as the Lenders have any commitment to make Loans or issue Letters
of Credit hereunder or any Loan or other Obligation remains outstanding, the
Parent and the Borrowers covenant, jointly and severally, as follows:
5.1. Financial Statements and other Reporting Requirements. The Parent
-----------------------------------------------------
shall furnish to the Agent and to each Lender:
(a) as soon as available to the Parent, but in any event within 90 days
after the end of each of its fiscal years, a consolidated and consolidating
balance sheet as of the end of, and a related consolidated and consolidating
statement of income, changes in stockholders' equity and cash flow for, such
year, audited and certified by Price Waterhouse LLP (or other independent
certified public accountants acceptable to the Agent and the Lenders) in the
case of such consolidated statements, and certified by the chief financial
officer in the case of such consolidating statements; and, concurrently with
such financial statements, a copy of said certified public accountants'
management report and a written statement by such accountants that, in the
making of the audit necessary for their report and opinion upon such financial
statements they have obtained no knowledge of any Default set out in Sections
5.7, 5.8, 5.9,
34
<PAGE>
6.1 and 6.10 or, if in the opinion of such accountants any such Default exists,
they shall disclose in such written statement the nature and status thereof;
(b) as soon as available to the Parent, but in any event within 45 days
after the end of each of its fiscal quarters, a consolidated balance sheet as of
the end of, and a related consolidated statement of income and cash flow for,
the period then ended, certified by the principal financial officer of the
Parent but subject, however, to normal, recurring year-end adjustments that
shall not in the aggregate be material in amount;
(c) concurrently with the delivery of each financial statement pursuant to
subsections (a) and (b) of this Section 5.1, a report in substantially the form
of Exhibit F hereto signed on behalf of the Parent by its chief financial
---------
officer;
(d) within 10 business days after the end of each fiscal month, a report in
substantially the form of Exhibit G hereto signed on behalf of the Borrowers by
---------
their chief financial officers;
(e) promptly after the receipt thereof by the Parent, copies of any reports
submitted to the Parent by independent public accountants in connection with any
interim review of the accounts of the Parent made by such accountants;
(f) promptly after the same are available, copies of all proxy statements,
financial statements and reports as the Parent shall send to its stockholders or
as the Parent may file with the Securities and Exchange Commission or any
governmental authority (excluding tax returns, except on request) at any time
having jurisdiction over the Parent or its Subsidiaries;
(g) if and when the Parent, or any Borrower gives or is required to give
notice to the PBGC of any "Reportable Event" (as defined in Section 4043 of
ERISA) with respect to any Plan that might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that any member of the Controlled
Group or the Plan administrator of any Plan has given or is required to give
notice of any such Reportable Event, a copy of the notice of such Reportable
Event given or required to be given to the PBGC;
(h) immediately upon becoming aware of the existence of any condition or
event that constitutes a Default, written notice thereof specifying the nature
and duration thereof and the action being or proposed to be taken with respect
thereto;
(i) promptly upon becoming aware of any litigation or of any investigative
proceedings by a governmental agency or authority commenced or threatened
against the Parent or any of its Subsidiaries of which it has notice, the
outcome of which would or might have a materially adverse effect on the assets,
business or prospects of the Parent and its Subsidiaries on a consolidated
basis, written notice thereof and the action being or proposed to be taken with
respect thereto;
35
<PAGE>
(j) promptly upon becoming aware of any investigative proceedings by a
governmental agency or authority commenced or threatened against the Parent or
any of its Subsidiaries regarding any potential violation of Environmental Laws
or any spill, release, discharge or disposal of any Hazardous Material, written
notice thereof and the action being or proposed to be taken with respect
thereto;
(k) within 45 days after the beginning of each fiscal year, budgets for the
Parent and its Subsidiaries for such fiscal year, on a quarter-by-quarter basis
and in such detail as the Agent may reasonably request; and
(l) from time to time, such other financial data and information about the
Parent or its Subsidiaries as the Agent or the Lenders may reasonably request.
5.2. Conduct of Business. Each of the Parent and its Subsidiaries shall:
-------------------
(a) duly observe and comply in all material respects with all applicable
laws and valid requirements of any governmental authorities relative to its
corporate existence, rights and franchises, to the conduct of its business and
to its property and assets (including without limitation all Environmental Laws
and ERISA), and shall maintain and keep in full force and effect all licenses
and permits necessary in any material respect to the proper conduct of its
business;
(b) maintain its corporate existence; and
(c) remain engaged substantially in its existing business -- the Parent
will continue to be a holding company, conducting no business, incurring no
Indebtedness (other than as permitted under Section 6.1(d) and 6.2(f)) and
holding no assets other than 100% of the stock of the Company; the Company and
Stores will conduct business as specialty and mail order retailers; and the
other Subsidiaries will continue their current operations as in effect at
closing (including, in the case of Brookstone Realty, Inc., conducting no
business and owning no assets).
5.3. Maintenance and Insurance. Each of the Parent and its Subsidiaries
-------------------------
shall maintain its properties in good repair, working order and condition as
required for the normal conduct of its business. Each of the Parent and its
Subsidiaries shall at all times maintain liability and casualty insurance with
financially sound and reputable insurers in such amounts as the officers of the
Parent in the exercise of their reasonable judgment deem to be adequate. On
request of the Agent from time to time, the Parent shall furnish to the Agent
and the Lenders certificates or other evidence satisfactory to the Agent and the
Lenders of compliance with the foregoing insurance provisions.
5.4. Taxes. The Parent shall pay or cause to be paid all taxes,
-----
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due;
provided that this covenant shall not apply to any tax,
- --------
36
<PAGE>
assessment or charge that is being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been established
and are being maintained in accordance with generally accepted accounting
principles if no proceedings shall have been commenced to foreclose any lien
securing such tax, assessment or charge.
5.5. Inspection. The Parent shall permit the Agent and the Lenders or
----------
their designees, at any reasonable time, and upon reasonable notice (or if a
Default shall have occurred and is continuing, at any time and without prior
notice), to (a) visit and inspect the properties of the Parent and its
Subsidiaries, (b) examine and make copies of and take abstracts from the books
and records of the Parent and its Subsidiaries, and (c) discuss the affairs,
finances and accounts of the Parent and its Subsidiaries with their appropriate
officers, employees and accountants. In handling such information the Agent and
the Lenders shall exercise the same degree of care that they exercise with
respect to their own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to subsections 5.l(a), (b), or (c) except that disclosure of such
information may be made (i) to the subsidiaries, affiliates, employees,
officers, directors, or advisors of the Agent and the Lenders in connection with
their present or prospective business relations with the Parent, (ii) to
prospective transferees or purchasers of an interest in the Loans (so long as
any such transferee is regularly engaged in the business of making loans similar
to the Loans and agrees to be subject to the confidentiality requirements set
forth herein), (iii) as required by law, regulation, rule or order, subpoena,
judicial order or similar order and (iv) as may be required in connection with
the examination, audit or similar investigation of the Agent and the Lenders.
5.6. Maintenance of Books and Records. Each of the Parent and its
--------------------------------
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be made reflecting all of its business and financial
transactions, and such entries will be made in accordance with generally
accepted accounting principles consistently applied and applicable law.
5.7. Consolidated Net Worth. The Parent shall maintain Consolidated Net
----------------------
Worth as of the end of each fiscal quarter, commencing with the quarter ending
July 31, 1997, of not less than the sum of (a) $40,000,000 plus (b) 75% of
Consolidated Net Income for the period from February 2, 1997 through the end of
the most recent fiscal year (but without deduction for losses during any fiscal
year during such period), less (c) repurchases by the Parent of its capital
stock from September 30, 1997 through the end of the most recent fiscal quarter
up to a maximum amount of $10,000,000.
5.8. Consolidated Total Liabilities to Consolidated Tangible Net Worth
-----------------------------------------------------------------
Ratio. The Parent shall maintain a ratio of Consolidated Total Liabilities to
- -----
Consolidated Tangible Net Worth of not greater than (a) 2.50-to-1 as of the end
of the Parent's third fiscal quarter of 1997, (b) 2.25-to-1 as of the end of the
Parent's third fiscal quarter of 1998, (c) 2.00-to-1 as of the end of the
Parent's third fiscal quarter of 1999 and each year thereafter, and (d) 1.0-to-1
at the end of each fiscal year and at the end of each other fiscal quarter.
37
<PAGE>
5.9. Cash Flow Coverage. The Parent shall, for each period of four
------------------
consecutive fiscal quarters, commencing with the four quarters ending July 31,
1997, maintain consolidated Cash Flow Coverage of not less than (a) 1.40-to-1
through the second quarter of fiscal year 2000 and (b) 1.45-to-1 as of the end
of each fiscal quarter thereafter.
5.10. Further Assurances. At any time and from time to time the Parent
------------------
shall, and shall cause each of its Subsidiaries to, execute and deliver such
further instruments and take such further action as may reasonably be requested
by the Agent and the Lenders to effect the purposes of this Agreement and the
Notes.
SECTION VI
----------
NEGATIVE COVENANTS
------------------
So long as the Lenders have any commitment to lend or issue Letters of
Credit hereunder or any Loan or other Obligation remains outstanding, the Parent
and the Borrowers covenant as follows:
6.1. Indebtedness. Neither the Parent nor any of its Subsidiaries shall
------------
create, incur, assume, guarantee or be or remain liable with respect to any
Indebtedness, including inter-company Indebtedness, other than the following:
(a) Indebtedness of the Parent or any of its Subsidiaries to the Lenders
created under this Agreement and the Notes;
(b) Indebtedness of the Subsidiaries existing as of the date of this
Agreement and disclosed on Exhibit C hereto or in the financial statements
---------
referred to in Section 4.6;
(c) Indebtedness of the Subsidiaries secured by Permitted Encumbrances;
(d) Indebtedness from the Company to the Parent not to exceed $500,000 at
any time and Indebtedness from the Parent to Company not to exceed $500,000 at
any time;
(e) Indebtedness of the Company to the City of Mexico, Missouri evidenced
by a capitalized lease of the Company's facility in the City of Mexico, Missouri
in an aggregate amount not to exceed $3,500,000;
(f) Indebtedness of Stores to the Company for inventory purchased in the
ordinary course of business, which is subordinated to the Obligations pursuant
to the Subordination Agreements;
(g) other unsecured Indebtedness of the Company in an aggregate
outstanding principal amount not exceeding $500,000;
38
<PAGE>
(h) the Guaranties permitted pursuant to Section 6.2; and
(i) Permitted Subsidiary Liabilities.
6.2. Contingent Liabilities. Neither the Parent nor any of its
----------------------
Subsidiaries shall create, incur, assume, guarantee or remain liable with
respect to any Guarantees other than the following:
(a) Guaranties in favor of the Lenders;
(b) Guarantees by the Subsidiaries existing on the date of this Agreement
and disclosed on Exhibit C hereto and in the financial statements referred to in
---------
Section 4.6;
(c) Guarantees resulting from the endorsement of negotiable instruments
for collection in the ordinary course of business;
(d) Guarantees by the Subsidiaries with respect to surety, appeal,
performance and return-of-money and other similar obligations incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money) not exceeding in the aggregate at any time $200,000;
(e) Guarantees by the Subsidiaries of normal trade debt relating to the
acquisition of goods and supplies; and
(f) Guaranties by the Parent and the Company of obligations of Properties
for lease obligations with respect to retail stores used by the Company and
Stores.
6.3. Sale and Leaseback. Neither the Parent nor any of its Subsidiaries
------------------
shall enter into any arrangements, directly or indirectly, whereby it shall sell
or transfer any property owned by it in order to lease such property or lease
other property that the Parent or any such Subsidiary intends to use for
substantially the same purpose as the property being sold or transferred, if the
aggregate principal amount of all such outstanding leases under all such
arrangements would exceed $500,000.
6.4. Encumbrances. Neither the Parent nor any of its Subsidiaries shall
------------
create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with respect to any of its
property or assets ("Encumbrances"), or assign or otherwise convey any right to
------------
receive income, including the sale or discount of accounts receivable with or
without recourse, except the following ("Permitted Encumbrances"):
----------------------
(a) Encumbrances in favor of the Lenders;
39
<PAGE>
(b) Encumbrances against assets of the Subsidiaries existing as of the
date of this Agreement and disclosed in Exhibit C hereto;
---------
(c) liens for taxes, fees, assessments and other governmental charges to
the extent that payment of the same may be postponed or is not required in
accordance with the provisions of Section 5.4;
(d) landlords' and lessors' liens in respect of rent not in default or in
default and being contested in good faith or liens in respect of pledges or
deposits under workmen's compensation, unemployment insurance, social security
laws, or similar legislation (other than ERISA) or in connection with appeal and
similar bonds incidental to litigation; mechanics', laborers' and materialmen's
and similar liens, if the obligations secured by such liens are not then
delinquent; liens securing the performance of bids, tenders, contracts (other
than for the payment of money); and statutory obligations incidental to the
conduct of its business and that do not in the aggregate materially detract from
the value of its property or materially impair the use thereof in the operation
of its business;
(e) judgment liens that shall not have been in existence for a period
longer than 30 days after the creation thereof or, if a stay of execution shall
have been obtained, for a period longer than 30 days after the expiration of
such stay;
(f) rights of lessors under capital leases with Subsidiaries in an
aggregate principal amount not to exceed $4,000,000;
(g) Encumbrances in respect of any purchase money obligations of any
Subsidiary for tangible property used in its business that at any time shall not
exceed $200,000 in the aggregate for all Subsidiaries, provided that any such
--------
Encumbrances shall not extend to property and assets of any such Subsidiary not
financed by such a purchase money obligation;
(h) easements, rights of way, restrictions and other similar charges or
Encumbrances relating to real property and not interfering in a material way
with the ordinary conduct of its business;
(i) Encumbrances on its property or assets created in connection with the
refinancing of Indebtedness secured by Permitted Encumbrances on such property,
provided that the amount of Indebtedness secured by any such Encumbrance shall
- --------
not be increased as a result of such refinancing and no such Encumbrance shall
extend to property and assets of any such Subsidiary not encumbered prior to any
such refinancing;
(j) Encumbrances in the nature of a security interest in checks created or
to be created in connection with a certain Welcome Check Warranty Agreement
dated September 1, 1994 between the Company and Equifax Check Services, Inc.
(the "Equifax Agreement") or similar agreements relating to the discounting of
customer checks; and
40
<PAGE>
(k) the grant by Stores of security interests in inventory to the Company
pursuant to the Subsidiary Inventory Security Agreement.
6.5. Merger; Acquisitions Consolidation; Sale or Lease of Assets.
-----------------------------------------------------------
Neither the Parent nor any of its Subsidiaries shall sell, lease or otherwise
dispose of assets or properties (valued at the lower of cost or market) in any
fiscal year, other than (a) sales of inventory by the Subsidiaries in the
ordinary course of business and (b) sales, leases or other dispositions of
assets by the Subsidiaries to third parties for fair market value in the
aggregate not in excess of 5% of Consolidated Tangible Net Worth as of the end
of its most recently completed fiscal year; or acquire all or substantially all
of the assets of any Person, except that the Borrowers may acquire all or
substantially all of the assets of any Person so long as (a) the aggregate
consideration for such acquisition or series of related acquisitions and
Investments, does not exceed $2,000,000, (b) no Default shall have occurred and
be continuing and (c) the acquired Person is a specialty retailer or direct
marketing company; or liquidate, merge or consolidate into or with any other
Person, provided that (a) any Subsidiary of the Parent other than the Company
--------
may merge or consolidate into or with (i) the Company if no Default has occurred
and is continuing or would result from such merger and if the Company is the
surviving entity, or (ii) any other wholly-owned Subsidiary of the Parent if no
Default has occurred and is continuing or would result from such merger (b) the
Company may sell property as provided in Section 6.3 and (c) the Company may
assign all of its rights, title and interest in certain checks pursuant to the
provisions of the Equifax Agreement.
6.6. Additional Stock Issuance. The Parent shall not permit any of its
-------------------------
Subsidiaries to issue any additional shares of its capital stock or other equity
securities, any options therefor or any securities convertible thereto other
than to the Parent, except for issuance by Properties of non-voting preferred
shares to employees of the Company in New Hampshire. Neither the Parent nor any
of its Subsidiaries shall sell, transfer or otherwise dispose of any of the
capital stock or other equity securities of a Subsidiary, except to the Parent
or any of its wholly-owned Subsidiaries.
6.7. Equity Distributions. Neither the Parent nor the Company shall pay
--------------------
any dividends on any class of its capital stock or make any other distribution
or payment on account of or in redemption, retirement or purchase of such
capital stock; provided that this Section shall not apply to (a) the issuance,
--------
delivery or distribution by the Parent of shares of its common stock pro rata to
its existing shareholders, (b) the purchase or redemption by the Parent of its
capital stock with the proceeds of the issuance of additional shares of capital
stock and (c) repurchases by the Parent of up to $10,000,000 of its capital
stock after the date hereof, and dividends from the Company to the Parent in an
amount equal to and used by the Parent for such repurchases.
6.8. Investments. Neither the Parent nor any of its Subsidiaries shall
-----------
make or maintain any Investments other than (a) Investments in the Borrowers and
the Brookstone Subsidiaries described on Schedule 6.8, (b) advances by the
Company to the Parent to enable
41
<PAGE>
the Parent to pay Delaware franchise taxes and other routine operating expenses,
and (c) Qualified Investments.
6.9. ERISA. Neither the Parent nor any member of the Controlled Group
-----
shall permit any Plan maintained by it to (a) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (b) incur any "accumulated
funding deficiency" (as defined in Section 302 of ERISA) whether or not waived,
or (c) terminate any Plan in a manner that could result in the imposition of a
lien or encumbrance on the assets of the Parent or any of its Subsidiaries
pursuant to Section 4068 of ERISA.
6.10. Capital Expenditures. The Parent and its Subsidiaries shall not
--------------------
make Capital Expenditures in an aggregate amount in any fiscal year exceeding
the sum of (a) $15,000,000; plus (b) 60% of the positive difference, if any,
----
between Consolidated EBITDA for the prior fiscal year and $17,039,000.
6.11. Subsidiary Indebtedness. Stores and the Brookstone Subsidiaries
-----------------------
will not (a) create, incur or suffer to exist any indebtedness, liabilities or
other obligations of any kind, direct or contingent, whether required to be
reflected on a balance sheet or not, other than Permitted Subsidiary
Liabilities, or (b) enter into any contract, agreement or undertaking with any
Party other than the Company, except for the Master Sublease Agreement, the
Master Assignment, the Lender Agreements, contracts, agreements or undertakings
with respect to Permitted Subsidiary Liabilities and, as to Brookstone
Properties, Inc., leases for store locations subleased to Stores.
6.12. Transactions with Affiliates. The Parent and the Borrowers will
----------------------------
not enter into any transaction, including without limitation, the purchase, sale
or exchange of property or the rendering of any service, with each other or with
any other Affiliate, except that (a) the Parent and the Borrowers may pay
salaries, fees and bonuses to their directors, officers and employees as are
usual and customary in their business, (b) the Parent and the Borrowers may
enter into transactions among themselves as provided under the Master
Assignment, the Master Sublease Agreement and the Subsidiary Inventory Security
Agreement and (c) the Parent and the Borrowers may enter into transactions with
the Brookstone Subsidiaries so long as all payments for such transactions (other
than payments to Brookstone Properties, Inc. under the Master Sublease) are made
solely by offsetting intercompany accounts receivables and payables.
SECTION VII
-----------
DEFAULTS
--------
7.1. Events of Default. There shall be an Event of Default hereunder if
-----------------
any of the following events occurs:
42
<PAGE>
(a) the Borrowers shall fail to pay (a) any amount of principal of any
Loans , including Swingline Loans, or any Reimbursement Obligation when due, or
(b) any amount of interest thereon or any fees or expenses payable hereunder or
under the Notes within five days of the due date therefor; or
(b) The Parent, or the Borrowers shall fail to perform any term, covenant
or agreement contained in Sections 5.1(h), 5.2(b), 5.2(c) 5.5, 5.7 through 5.9
or 6.1 through 6.12, provided however, that if a failure to perform the
-------- -------
covenants contained in Sections 5.7, 5.9, 6.1, 6.5 and 6.10 are solely a result
of a change in one or more accounting principles used in the preparation of
financial statements, because of a change mandated by the Financial Accounting
Standards Board, then an Event of Default relating to such Sections shall not be
an Event of Default if the covenants contained in such Sections would have been
complied with had the Parent, or the Borrowers continued to employ those
generally accepted accounting principles employed in the preparation of their
audited financial statements dated February 1, 1997.
(c) the Parent or the Borrowers shall fail to perform any covenant
contained in Sections 5.1(g), 5.1(i) or 5.2(a), and such failure shall continue
for 15 days; or
(d) the Parent or the Borrowers shall fail to perform any term, covenant or
agreement (other than in respect of subsections 7.1(a) through (c) hereof)
contained in this Agreement and such default shall continue for 30 days after
notice thereof has been sent to the Parent by the Agent; or
(e) any representation or warranty of the Borrowers or the Parent made in
this Agreement or in the Notes or any other documents or agreements executed in
connection with the transactions contemplated by this Agreement or in any
certificate delivered hereunder shall prove to have been false in any material
respect upon the date when made or deemed to have been made; or
(f) the Parent or any of its Subsidiaries shall fail to pay at maturity, or
within any applicable period of grace, any obligations in excess of $500,000 in
the aggregate for Indebtedness, or for the use of real or personal property, or
fail to observe or perform any term, covenant or agreement evidencing or
securing such obligations for Indebtedness, or relating to such use of real or
personal property, the result of which failure is to permit the holder or
holders of such Indebtedness to cause such Indebtedness to become due prior to
its stated maturity upon delivery of required notice, if any; or
(g) the Parent or any of its Subsidiaries shall (i) apply for or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar official of itself or of all or a substantial
part of its property, (ii) be generally not paying its debts as such debts
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (v) take any action or commence any case or proceeding
under any law
43
<PAGE>
relating to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, or any other law providing for the relief of debtors, (vi)
fail to contest in a timely or appropriate manner, or acquiesce in writing to,
any petition filed against it in an involuntary case under the Federal
Bankruptcy Code or other law, (vii) take any action under the laws of its
jurisdiction of incorporation or organization similar to any of the foregoing,
or (viii) take any corporate action for the purpose of effecting any of the
foregoing; or
(h) a proceeding or case shall be commenced, without the application or
consent of the Parent or any of its Subsidiaries in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it, under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts or any other law providing for the relief of
debtors, and such proceeding or case shall continue undismissed, or unstayed and
in effect, for a period of 90 days; or an order for relief shall be entered in
an involuntary case under the Federal Bankruptcy Code, against the Parent or
such Subsidiary; or action under the laws of the jurisdiction of incorporation
or organization of the Parent or any of its Subsidiaries similar to any of the
foregoing shall be taken with respect to the Parent or such Subsidiary and shall
continue unstayed and in effect for any period of 90 days; or
(i) a judgment or order for the payment of money shall be entered against
the Parent or any of its Subsidiaries by any court, or a warrant of attachment
or execution or similar process shall be issued or levied against property of
the Parent or such Subsidiary, that in the aggregate exceeds $1,500,000 and such
judgment, order, warrant or process shall continue undischarged or unstayed for
30 days; or
(j) the Parent or any member of the Controlled Group shall fail to pay when
due an amount or amounts aggregating in excess of $500,000 that it shall have
become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice
of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by
the Parent, any member of the Controlled Group, any Plan administrator or any
combination of the foregoing, or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any such Plan or Plans or a proceeding shall be instituted by a
fiduciary of any such Plan or Plans against the Parent and such proceedings
shall not have been dismissed within 30 days thereafter; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any such Plan or Plans must be terminated; or
(k) the occurrence of a Change of Control.
7.2. Remedies. Upon the occurrence of an Event of Default described in
--------
subsections 7.1(g) and (h), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter while such
Event of Default is continuing, at the Majority Lenders' option and declaration:
44
<PAGE>
(a) the Lenders' commitment to make any further Loans hereunder shall
terminate;
(b) the unpaid principal amount of the Loans together with accrued
interest and all other Obligations shall become immediately due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived;
(c) the Borrowers, jointly and severally, shall immediately provide the
Agent, for the ratable accounts of the Lenders, with cash in an amount of 105%
of the stated amount of outstanding Letters of Credit to be held by the Agent,
for the ratable accounts of the Lenders, as collateral for the Obligations; and
(d) the Agent may, and upon the request of the Majority Lenders, shall
exercise any and all rights the Agent and the Lenders have under this Agreement,
the Notes or any other documents or agreements executed in connection herewith,
or at law or in equity, and proceed to protect and enforce the Agent's and the
Lenders' rights by any action at law, in equity or other appropriate proceeding.
7.3. Distribution of Proceeds. Notwithstanding anything to the contrary
------------------------
contained herein, in the event that following the occurrence or during the
continuance of any Event of Default, the Agent or any Lender receives any monies
on account of the Obligations from the Borrowers or otherwise, such monies shall
be distributed for application as follows:
(a) First, to the payment of or the reimbursement of the Agent for or in
respect of all costs, expenses, disbursements and losses which shall have been
incurred or sustained by the Agent in connection with the collection of such
monies by the Agent, or in connection with the exercise, protection or
enforcement by the Agent of all or any of the rights, remedies, powers and
privileges of the Agent or the Lenders under this Agreement or any other Lender
Agreement;
(b) Second, to the payment of all interest, including interest on overdue
amounts and late charges, then due and payable with respect to the Loans,
allocated among the Lenders in proportion to their respective Commitment
Percentages;
(c) Third, to the payment of the outstanding principal balance of the
Loans, allocated among the Lenders in proportion to their respective Commitment
Percentages;
(d) Fourth, to any other outstanding Lender Obligations, allocated among
the Lenders in proportion to their respective Commitment Percentages; and
(e) Fifth, the excess, if any, shall be returned to the Borrowers or to
such other persons as are entitled thereto.
45
<PAGE>
SECTION VIII
------------
CONSENTS; AMENDMENTS; WAIVERS; REMEDIES
---------------------------------------
8.1. Actions by Lenders. Except as otherwise expressly set forth in any
------------------
particular provision of this Agreement, any consent or approval required or
permitted by this Agreement to be given by the Lenders, including without
limitation under Section 8.2, may be given, and any term of this Agreement or of
any other instrument related hereto or mentioned herein, including the Master
Assignment, the Master Sublease, and the Subsidiary Inventory Security
Agreement, may be amended, and the performance or observance by the Parent or
the Borrowers of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) with, but
only with, the written consent of the Parent, the Borrowers and the Majority
Lenders; provided, however, that without the written consent of all Lenders:
(a) no reduction in the interest rates on or any fees relating to the Loans
shall be made;
(b) no extension or postponement shall be made of the stated time of
payment of the principal amount of, interest on, or fees payable to the Lenders
relating to the Loans;
(c) no increase in the Commitment Amount, or extension of the Revolving
Credit Termination Date shall be made;
(d) no release of any guarantor of the Obligations shall be made;
(e) no change in the definition of the term "Majority Lenders" shall be
made;
(f) no change in the provisions of this Section 8.1 shall be made; and
(g) no increase in the Commitment Percentage shall be made.
8.2. Actions by Parent or Borrowers. No delay or omission on the Agent's
------------------------------
or the Lenders' part in exercising their rights and remedies against the Parent,
the Borrowers or any other interested party shall constitute a waiver. A breach
by the Parent or the Borrowers of their respective obligations under this
Agreement may be waived only by a written waiver executed by the Agent and the
Lenders in accordance with Section 8.1. The Agent's and the Lenders' waiver of
the Parent's or the Borrowers' breach in one or more instances shall not
constitute or otherwise be an implicit waiver of subsequent breaches. To the
extent permitted by applicable law, the Parent and the Borrowers each hereby
agrees to waive, and does hereby absolutely and irrevocably waive (a) all
presentments, demands for performance, notices of protest and notices of
dishonor in connection with any of the Indebtedness evidenced by the Notes, (b)
any requirement of diligence or promptness on the Agent's or the Lenders' part
in the enforcement of its rights under the provisions of this Agreement or any
Lender Agreement,
46
<PAGE>
and (c) any and all notices of every kind and description which may be required
to be given by any statute or rule of law with respect to its liability (i)
under this Agreement or in respect of the Indebtedness evidenced by the Notes or
any other Obligation or (ii) under any other Lender Agreement. No course of
dealing between the Parent, the Borrowers and the Agent or the Lenders shall
operate as a waiver of any of the Agent's or the Lenders' rights under this
Agreement or any Lender Agreement or with respect to any of the Obligations.
This Agreement shall be amended only by a written instrument executed by the
Agent and the Lenders in accordance with Section 8.1 making explicit reference
to this Agreement. The Agent's and the Lenders' rights and remedies under this
Agreement and under all subsequent agreements between the Agent, the Lenders,
the Parent and the Borrowers shall be cumulative and any rights and remedies
expressly set forth herein shall be in addition to, and not in limitation of,
any other rights and remedies which may be applicable to the Agent and the
Lenders in law or at equity.
SECTION IX
----------
SUCCESSORS AND ASSIGNS
----------------------
9.1. General. This Agreement shall be binding upon and shall inure to
-------
the benefit of the parties hereto and their respective successors (which shall
include in the case of the Agent or any Lender any entity resulting from a
merger or consolidation) and assigns, except that (a) none of the Parent, or the
Borrowers may assign its rights or obligations under this Agreement, and (b)
each Lender may assign its rights in this Agreement only as set forth below in
this Section IX.
9.2. Assignments.
-----------
(a) Assignments. In compliance with applicable laws with respect to such
-----------
assignment and with the consent of the Company (provided that if there shall
--------
exist an Event of Default, the Company's consent shall not be required for any
such assignment) and the Agent (which consents in all cases shall not be
unreasonably withheld), a Lender may assign to one or more financial
institutions, including commercial finance institutions, organized or existing
under the laws of the United States of America, any state thereof or Canada and
having capital and surplus, net worth or the equivalent of not less than
$100,000,000 (each a "Successor Lender") a proportionate part of its rights and
obligations in connection with this Agreement, its Notes and the related Lender
Agreements and each such Successor Lender shall assume such rights and
obligations pursuant to an Assignment and Acceptance Agreement ("Assignment and
Acceptance Agreement") duly executed by such Successor Lender and such assigning
Lender and acknowledged and consented to by the Company and the Agent,
substantially in the form of Exhibit K attached hereto. Any assignment under
---------
this Section 9.2(a) shall be in a minimum amount of $5,000,000. In connection
with any assignment under
47
<PAGE>
this Section 9.2(a) there shall be paid to the Agent by the assigning Lender or
the Successor Lender an administrative processing fee in the amount of $3,500.
(b) Assignment Procedures. In the event of an assignment in accordance
---------------------
with Section 9.2(a), upon execution and delivery of such an assignment at least
five (5) Business Days prior to the proposed assignment date, and payment by
such Successor Lender to the assigning Lender an amount equal to the purchase
price agreed between such assigning Lender and such Successor Lender, such
Successor Lender shall become party to this Agreement as a signatory hereto and
shall have all the rights and obligations of a Lender under this Agreement and
the other Lender Agreements with an interest therein as set forth in such
assignment, and such assignor making such assignment shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any such
assignment, the assigning Lender, the Successor Lender, the Parent and the
Borrowers shall make appropriate arrangements so that, if required, new Notes
are issued to the Successor Lender and replacement Notes are issued to the
assigning Lender in principal amounts reflecting their respective revised
interests.
(c) Register. The Agent shall maintain a register (the "Register") for the
--------
recordation of (i) the names and addresses of all Successor Lenders that enter
into Assignment and Acceptance Agreements, (ii) the interests of each Lender,
and (iii) the amounts of the Loans owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Parent, the Borrowers, the Agent and the Lenders may treat each person
whose name is registered therein for all purposes as a party to this Agreement.
The Register shall be available for inspection by the Parent, the Borrowers or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Further Assurances. The Parent and the Borrowers shall sign such
------------------
documents and take such other actions from time to time reasonably requested by
the Agent or a Lender to enable any Successor Lender to share in the benefits
and rights created by the Lender Agreements.
(e) Assignments to Federal Reserve Bank. Any Lender at any time may assign
-----------------------------------
all or any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank. No such assignment shall release the transferor Lender from its
obligations hereunder.
9.3. Participations. Any Lender may, without the consent of the Parent,
--------------
the Borrowers or the Agent, at any time grant or offer to grant to one or more
financial institutions ("Credit Participants") participating interests in such
Lender's rights and obligations in this Agreement, its Notes and the related
Lender Agreements, and each such Credit Participant shall acquire such
participation subject to the terms set forth below.
(a) Amount. Each such participation shall be in a minimum amount of at
------
least $5,000,000; provided that a Lender may grant a participation to an
affiliate without any limitation on the amount thereof.
48
<PAGE>
(b) Procedure. Each Lender granting such participation shall comply with
---------
all applicable laws with respect to such transfer and shall remain responsible
for the performance of its obligations hereunder and under the other Lender
Agreements and shall retain the sole right and responsibility to exercise its
rights and to enforce the obligations of the Parent, and the Borrowers hereunder
and under the other Lender Agreements, including the right to consent to any
amendment, modification or waiver of any provision of any Lender Agreement,
except for those matters referred to in Section 8.1 which require the consent of
all Lenders and which may also require the consent of each Credit Participant.
(c) Dealing with Lenders. The Parent and the Borrowers shall continue to
--------------------
deal solely and directly with the Lenders in connection with their rights and
obligations under this Agreement and the other Lender Agreements.
(d) Rights of Credit Participants. The Parent and the Borrowers each agree
-----------------------------
that each Credit Participant shall, to the extent provided in its participation
instrument, be entitled to the benefits of Sections 2.8, 2.9, 2.13, 7.3 and 11.3
with respect to its participating interest; provided, however, that no Credit
-------- -------
Participant shall be entitled to receive any greater payment under such Sections
than the Lender granting such participation would have been entitled to receive
with respect to the interests transferred.
(e) Notice. At the time of granting any participation, the Lender granting
------
such participation shall notify the Agent, the Borrowers and the Parent.
SECTION X
---------
THE AGENT
---------
10.1. Authorization and Action. Each Lender hereby appoints and
------------------------
authorizes the Agent to take such action on its behalf and to exercise such
powers under this Agreement and the other Lender Agreements as are delegated to
the Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement and the other Lender Agreements (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Lenders, and such instructions shall
be binding upon all Lenders; provided, however, that the Agent shall not be
-------- -------
required to take any action which exposes the Agent to liability or which is
contrary to this Agreement or the other Lender Agreements or applicable law.
Subject to the foregoing provisions and to the other provisions of this Section
X, the Agent shall, on behalf of the Lenders: (a) execute any documents on
behalf of the Lenders providing collateral for or guarantees of the Obligations;
(b) hold and apply any collateral for the Obligations, and the proceeds thereof,
at any time received by it, in accordance with the provisions of this Agreement
and the other Lender Agreements; (c) exercise any and all rights, powers and
49
<PAGE>
remedies of the Lenders under this Agreement or any of the other Lender
Agreements, including the giving of any consent or waiver or the entering into
of any amendment, subject to the provisions of Section 8.1; (d) at the direction
of the Lenders, execute, deliver and file UCC financing statements, mortgages,
deeds of trust, lease assignments and such other agreements in respect of any
collateral for the Obligations, and possess instruments included in the
collateral on behalf of the Lenders; and (e) in the event of acceleration of the
Indebtedness of the Borrowers hereunder, act at the direction of the Lenders to
exercise the rights of the Lenders hereunder and under the other Lender
Agreements.
10.2. Agent's Reliance, Etc. Neither the Agent nor any of its
----------------------
directors, officers, agents or employees shall be liable to the Lenders for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or the other Lender Agreements, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Agent: (a) may treat the payee of any Note as the holder thereof
until the Agent receives written notice of the assignment or transfer thereof
signed by such payee and in form required under Section IX hereof; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representations to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Lender
Agreements; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Lender Agreements on the part of the Parent, the
Borrowers or any other entity or to inspect the property (including the books
and records) of the Parent, the Borrowers or any other entity; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or the other
Lender Agreements or any other instrument or document furnished pursuant hereto
or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Lender Agreements by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telecopy or
telegram) believed by the Agent to be genuine and signed or sent by the proper
party or parties.
10.3. BankBoston, N.A. as Lender. With respect to its Commitment
--------------------------
Percentage of the Loans hereunder, BankBoston, N.A. shall have the same rights
and powers under this Agreement and the other Lender Agreements as any other
Lender and may exercise the same as though it were not the Agent; and the term
"Lender" or "Lender(s)" shall, unless otherwise expressly indicated, include
BankBoston, N.A. in its individual capacity. BankBoston, N.A. and its
affiliates may lend money to, and generally engage in any kind of business with,
the Parent, the Borrowers, any of the Parent's or the Borrowers' Affiliates and
any entity that may do business with or own securities of the Parent, the
Borrowers or any of their Affiliates, all as if BankBoston, N.A. were not the
Agent and without any duty to account therefor to the Lenders.
50
<PAGE>
10.4. Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Agent or any other Lender and based
on the financial statements referred to in Section 5.1 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges 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 decisions in taking or not taking action
under this Agreement.
10.5. Indemnification of Agent. Each Lender agrees to indemnify the
------------------------
Agent (to the extent that the Agent is not reimbursed by the Borrowers), ratably
according to each Lender's Commitment Percentage, 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 be
imposed on, incurred by, or asserted against the Agent in any way relating to or
arising out of this Agreement or any other Lender Agreement or any action taken
or omitted by the Agent in such capacity under this Agreement; provided that no
--------
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or wilful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement and each
other Lender Agreement, to the extent that the Agent is not reimbursed for such
expenses by the Borrowers.
10.6. Successor Agent. Except as provided below, the Agent may resign
---------------
at any time that it ceases to hold at least 34% of the aggregate Commitment
Percentages by giving not less than 15 days' written notice thereof to the
Lenders, the Parent and the Company. Upon any such resignation, the Lenders
shall have the right to appoint a successor Agent which shall be reasonably
acceptable to the Parent and the Company. If no successor Agent shall have been
so appointed by the Lenders (other than the resigning Agent), and shall have
accepted such appointment, within thirty (30) days after the retiring Agent's
giving notice of resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank or
financial institution organized under the laws of the United States of America
or of any state thereof and having a combined capital and surplus of at least
$50,000,000 and which shall be reasonably acceptable to the Parent and the
Company. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement and the other Lender Agreements. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Section X shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Lender Agreements.
51
<PAGE>
10.7. Amendment of Section X. The Parent and the Borrowers each hereby
----------------------
agree that the foregoing provisions of this Section X constitute an agreement
among the Agent and the Lenders (and the Agent and the Lenders acknowledge that
except for the provisions of Section 10.6, the Parent and the Borrowers are not
parties to or bound by such foregoing provisions) and that any and all of the
provisions of this Section X may be amended at any time by the Lenders without
the consent or approval of, or notice to, the Parent or the Borrowers (other
than the requirement of notice to the Parent and the Company of the resignation
of the Agent and the appointment of a successor Agent).
SECTION XI
----------
MISCELLANEOUS
-------------
11.1. Notices. Unless otherwise specified herein, all notices hereunder
-------
to any party hereto shall be in writing and shall be deemed to have been given
when delivered by hand, when properly deposited in the mails postage prepaid,
when sent by telex, answerback received, or electronic facsimile transmission,
or when delivered to the telegraph company or overnight courier, addressed to
such party at its address indicated below:
(a) If to the Parent or the Borrowers, at
Brookstone, Inc.
17 Riverside Street
Nashua, NH 03062
Attention: Mr. Philip Roizin
Executive Vice President and
Chief Financial Officer
(b) If to the Agent, at
BankBoston, N.A., as Agent
100 Federal Street
Boston, MA 02110
Attention: Ms. Virginia W. Dennett
Director
(c) If to any Lender, at the address(es) and to the attention of the
person(s) specified below such Lender's name on the execution page of this
Agreement (or in the case of a Successor Lender, at the address(es) and to the
attention of the person(s) specified in the Assignment and Acceptance Agreement
executed by such Successor Lender); or
(d) at any other address specified by such party in writing.
52
<PAGE>
11.2. Expenses. The Parent and the Borrowers, jointly and severally,
--------
will pay on demand all expenses of the Agent and the Lenders in connection with
the preparation, waiver or amendment of this Agreement, the Notes or other
documents executed in connection therewith, or the administration, default or
collection of the Loans or other Obligations or administration, default,
collection in connection with the Agent's and the Lenders' exercise,
preservation or enforcement of any of their rights, remedies or options
thereunder, including, without limitation, reasonable fees of outside legal
counsel or the allocated costs of in-house legal counsel, reasonable accounting,
consulting, brokerage or other similar professional fees or expenses, and any
fees or expenses associated with any travel or other costs relating to any
appraisals or examinations conducted in connection with the Obligations or any
collateral therefore and the amount of all such expenses shall, until paid, bear
interest at the rate applicable to principal hereunder (including any default
rate). Prior to any Default, the Agent shall notify the Company prior to
incurring any expenses for its or any Lender's in-house legal counsel or for any
accountants.
11.3. Set-Off. Regardless of the adequacy of any collateral or other
-------
means of obtaining repayment of the Obligations, any deposits, balances or other
sums credited by or due from the head office of the Lenders or any of their
branch offices to the Parent or any of the Borrowers may, at any time and from
time to time after the occurrence of an Event of Default hereunder, without
notice to the Parent or the Borrowers or compliance with any other condition
precedent now or hereafter imposed by statute, rule of law, or otherwise (all of
which are hereby expressly waived) be set off, appropriated, and applied by the
Lenders against any and all obligations of the Parent and the Borrowers to the
Lenders or any of their affiliates in such manner as the head office of the
Lenders or any of their branch offices in their sole discretion may determine,
and the Parent and each of the Borrowers hereby grant the Lenders a continuing
security interest in such deposits, balances or other sums for the payment and
performance of all such obligations.
11.4. Term of Agreement. This Agreement shall continue in force and
-----------------
effect so long as the Lenders have any commitment to make Loans or issue Letters
of Credit hereunder or any Loan, any Letter of Credit or any other Obligation
shall be outstanding.
11.5. No Waivers. No failure or delay by the Agent or the Lenders in
----------
exercising any right, power or privilege hereunder or under the Notes or under
any other documents or agreements executed in connection herewith shall operate
as a waiver thereof; nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein and in the Notes provided are
cumulative and not exclusive of any rights or remedies otherwise provided by
agreement or law.
11.6. Governing Law. This Agreement and the Notes shall be deemed to be
-------------
contracts made under seal and shall be construed in accordance with and governed
by the laws of The Commonwealth of Massachusetts (without giving effect to any
conflicts of laws provisions contained therein).
53
<PAGE>
11.7. Counterparts. This Agreement may be signed in any number of
------------
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
11.8. Partial Invalidity. The invalidity or unenforceability of any one
------------------
or more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
11.9. Captions. The captions and headings of the various sections and
--------
subsections of this Agreement are provided for convenience only and shall not be
construed to modify the meaning of such sections or subsections.
11.10. WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS, THE PARENT AND
--------------------
THE BORROWERS AGREE THAT NONE OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION
BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, THE NOTES, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE AGENT, THE LENDERS, THE PARENT AND
THE BORROWERS, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NONE OF
THE AGENT, THE LENDERS, THE PARENT OR THE BORROWERS HAS AGREED WITH OR
REPRESENTED TO ANY OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
11.11. Entire Agreement. This Agreement, the Notes, the Lender
----------------
Agreements and the documents and agreements executed in connection herewith
constitute the final agreement of the parties hereto and supersede any prior
agreement or understanding, written or oral, with respect to the matters
contained herein and therein.
54
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
BROOKSTONE, INC.
By: /s/ Philip Roizin
----------------------------------------------
Name: Philip Roizin
Title: Executive Vice President and Chief
Financial Officer
BROOKSTONE COMPANY, INC.
By: /s/ Philip Roizin
----------------------------------------------
Name: Philip Roizin
Title: Executive Vice President and Chief
Financial Officer
BROOKSTONE STORES, INC.
By: /s/ Philip Roizin
----------------------------------------------
Name: Philip Roizin
Title: Executive Vice President and Chief
Financial Officer
BANKBOSTON, N.A.,
as Agent for the Lenders
By: /s/ Virginia W. Dennett
----------------------------------------------
Name: Virginia W. Dennett
Title: Director
55
<PAGE>
BANKBOSTON, N.A.
By: /s/ Virginia W. Dennett
----------------------------------------------
Name: Virginia W. Dennett
Title: Director
BANK ONE, INDIANA, N.A.
By: /s/ Christopher M. Caniff
-----------------------------------------------
Name: Christopher M. Caniff
Title: Vice President
USTRUST
By: /s/ P. Jeffrey Huth
-----------------------------------------------
Name: P. Jeffrey Huth
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Dana C. Fenwick
-----------------------------------------------
Name: Dana C. Fenwick
Title: Vice President
56
<PAGE>
EXHIBIT A-1
-----------
BROOKSTONE COMPANY, INC.
BROOKSTONE STORES, INC.
PROMISSORY NOTE
September __, 1997
$_______________ Boston, Massachusetts
For value received, the undersigned, jointly and severally, hereby
promise to pay to _____________________ (the "Lender"), or order, at the head
office of BankBoston, N.A., as Agent, at 100 Federal Street, Boston,
Massachusetts, the principal amount of ______________ Dollars ($_______________)
or such lesser amount as shall equal the principal amount outstanding hereunder
on July 31, 2002 (the "Revolving Credit Termination Date"), in lawful money of
the United States of America and in immediately available funds, and to pay
interest on the unpaid principal balance hereof from time to time outstanding,
at said office and in like money and funds, for the period commencing on the
date hereof until paid in full, at the rates per annum and on the dates provided
in the Credit Agreement referred to below. All principal remaining unpaid and
any accrued but unpaid interest shall be due and payable on July 31, 2002.
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of a certain Credit Agreement dated as of
September __, 1997 by and among Brookstone, Inc., the undersigned, the Lender,
the other lenders party thereto and BankBoston, N.A., as Agent (herein, as the
same may from time to time be amended or extended, referred to as the "Credit
Agreement"), but neither this reference to the Credit Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the undersigned makers of this Note to pay the principal of and
interest on this Note as herein provided.
In case an Event of Default (as defined in the Credit Agreement) shall
occur, the aggregate unpaid principal of and accrued interest on this Note shall
become or may be declared to be due and payable in the manner and with the
effect provided in the Credit Agreement.
The undersigned may at their option prepay all or any part of the
principal of this Note before maturity upon the terms provided in the Credit
Agreement.
Each undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
<PAGE>
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
BROOKSTONE COMPANY, INC.
By:
-------------------------------------
Name:
Title:
BROOKSTONE STORES, INC.
By:
-------------------------------------
Name:
Title:
Witness (as to both):
---------------------
2
<PAGE>
SCHEDULE I TO PROMISSORY NOTE
-----------------------------
<TABLE>
<CAPTION>
AMOUNT TYPE OF LOAN
OF (EURODOLLAR OR INTEREST INTEREST AMOUNT NOTATION
DATE LOAN BASE RATE) RATE* PERIOD** PAID MADE BY
- ---- ---- ---------- ----- -------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- ---------------------------
* For Base Rate Loans, insert "Base Rate".
** For Eurodollar Loans.
3
<PAGE>
EXHIBIT A-2
-----------
BROOKSTONE COMPANY, INC.
BROOKSTONE STORES, INC.
PROMISSORY NOTE
September __, 1997
$_______________ Boston, Massachusetts
For value received, the undersigned, jointly and severally, hereby
promise to pay to _____________________ (the "Lender"), or order, at the head
office of BankBoston, N.A., as Agent, at 100 Federal Street, Boston,
Massachusetts, the principal amount of ______________ Dollars ($_______________)
or such lesser amount as shall equal the principal amount outstanding hereunder
on July 31, 2002 (the "Revolving Credit Termination Date"), in lawful money of
the United States of America and in immediately available funds, and to pay
interest on the unpaid principal balance hereof from time to time outstanding,
at said office and in like money and funds, for the period commencing on the
date hereof until paid in full, at the rates per annum and on the dates provided
in the Credit Agreement referred to below. All principal remaining unpaid and
any accrued but unpaid interest shall be due and payable on July 31, 2002.
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of a certain Credit Agreement dated as of
September __, 1997 by and among Brookstone, Inc., the undersigned, the Lender,
the other lenders party thereto and BankBoston, N.A., as Agent (herein, as the
same may from time to time be amended or extended, referred to as the "Credit
Agreement"), but neither this reference to the Credit Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of the undersigned makers of this Note to pay the principal of and
interest on this Note as herein provided.
In case an Event of Default (as defined in the Credit Agreement) shall
occur, the aggregate unpaid principal of and accrued interest on this Note shall
become or may be declared to be due and payable in the manner and with the
effect provided in the Credit Agreement.
The undersigned may at their option prepay all or any part of the
principal of this Note before maturity upon the terms provided in the Credit
Agreement.
4
<PAGE>
Each undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
BROOKSTONE COMPANY, INC.
By:
-----------------------------------
Name:
Title:
BROOKSTONE STORES, INC.
By:
-----------------------------------
Name:
Title:
Witness (as to both):
----------------------
5
<PAGE>
SCHEDULE I TO PROMISSORY NOTE
-----------------------------
<TABLE>
<CAPTION>
AMOUNT
OF INTEREST AMOUNT NOTATION
DATE LOAN RATE PAID MADE BY
- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C>
</TABLE>
6
<PAGE>
EXHIBIT B
---------
BROOKSTONE COMPANY, INC.
BROOKSTONE STORES, INC.
NOTICE OF BORROWING OR CONVERSION
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Re: Credit Agreement Dated as of September, 1997 (the "Agreement")
--------------------------------------------------------------
Ladies and Gentlemen:
Pursuant to Section 2.2 of the Agreement the undersigned hereby
confirms its request made on _____________, 19___ for a [Base Rate] [Eurodollar]
Loan in the amount of $____________* on ____________, 199_. After the making of
such Loan, the aggregate amount of Loans and Letters of Credit outstanding will
not exceed the Borrowing Base in effect as of the end of the Company's last
fiscal month end.
[The Interest Period applicable to said Loan will [be (one) (two) (three)
(six) months].**
[Said Loan represents a conversion of the [Base Rate] [Eurodollar] Loan in
the same amount made on ______________.]***
The representations and warranties contained or referred to in Section
IV of the Agreement are true and accurate on and as of the effective date of the
Loan as though made at and as of such date (except to the extent that such
representations and warranties expressly relate to an earlier date); and no
Default has occurred and is continuing or will result from the Loan.
BROOKSTONE COMPANY, INC.
By:
-----------------------------------
Name:
Title:
7
<PAGE>
- ------------------------------ BROOKSTONE STORES, INC.
Date
- ------------------------------ By:
------------------------------------
Name:
Title:
- ----------------
* Eurodollar Loans must be in a minimum amount of $1,000,000 and in integral
multiplies of $500,000.
** To be inserted in any request for a Eurodollar Loan.
*** To be inserted in any request for a conversion.
8
<PAGE>
EXHIBIT C
---------
INDEBTEDNESS; ENCUMBRANCES
--------------------------
[to be provided by the Parent]
9
<PAGE>
EXHIBIT D
---------
LITIGATION
----------
[to be provided by the Parent]
10
<PAGE>
EXHIBIT E
---------
SUBSIDIARIES
------------
[to be provided by the Parent]
11
<PAGE>
EXHIBIT F
---------
BROOKSTONE, INC.
REPORT OF CHIEF FINANCIAL OFFICER
BROOKSTONE, INC. (the "Parent") HEREBY CERTIFIES that:
This Report is furnished pursuant to Section 5.1(c) of the Credit
Agreement dated as of September __, 1997 by and among the Parent, Brookstone
Company, Inc., Brookstone Stores, Inc., the lenders party thereto and
BankBoston, N.A., as Agent (the "Agreement"). Unless otherwise defined herein,
the terms used in this Report have the meanings given to them in the Agreement.
As required by Section 5.1(a) of the Agreement, consolidated financial
statements of the Parent and its Subsidiaries for the [year/quarter] ended
____________, 199___ (the "Financial Statements") prepared in accordance with
generally accepted accounting principles consistently applied accompany this
Report. The Financial Statements present fairly the consolidated financial
position of the Parent and its Subsidiaries as at the date thereof and the
consolidated results of operations of the Parent and its Subsidiaries for the
period covered thereby (subject only to normal recurring year-end adjustments).
The figures set forth in Schedule A for determining compliance by the
Parent with the financial and certain other covenants contained in the Agreement
present fairly the information set forth therein as of the date or for the
period to which this certificate relates.
The activities of the Parent and its Subsidiaries during the period
covered by the Financial Statements have been reviewed by the Chief Financial
Officer or by employees or agents under his immediate supervision. Based on such
review, to the best knowledge and belief of the Chief Financial Officer, and as
of the date of this Report, no Default has occurred.*
WITNESS my hand this __________ day of _____________, 19___.
BROOKSTONE, INC.
By:
----------------------------------------
Name:
Title:
- --------------------
* If a Default has occurred, this paragraph is to be modified with an
appropriate statement as to the nature thereof, the period of existence
thereof and what action the Parent has taken, is taking, or proposes to
take with respect thereto.
12
<PAGE>
SCHEDULE A
to
EXHIBIT F
---------
COVENANT COMPLIANCE WORKSHEET
-----------------------------
Consolidated Net Worth (Section 5.7)
- ------------------------------------
<TABLE>
<S> <C>
REQUIRED:
(i) Base Net Worth $40,000,000
(ii) 75% of Consolidated Net Income from
February 2, 1997 through the
most recent year end
(without deduction for any annual losses) $_________
(iii) Repurchases of capital stock by
the Parent since September ___, 1997 $_________
(iv) (i) plus (ii) less (iii) $_________
---- ----
ACTUAL:
$_________
Ratio of Consolidated Total Liabilities to
Consolidated Tangible Net Worth (Section 5.8)
REQUIRED: Not greater than /1/: 1.00
==================== =========
ACTUAL:
(i) Consolidated Total Liabilities $____
(ii) Consolidated Total Assets $____
(iii) The sum of goodwill ($_______), intangible assets
($________), reserves ($________), write-up in book
value of assets ($_________), minority interests
($__________), and Consolidated Total Liabilities $____
</TABLE>
13
<PAGE>
(iv) Consolidated Tangible Net Worth
(line (ii) less line (iii)) $____
(v) Line (i) divided by line (iv) : 1.00
========= =========
- -----------------------
/1/ 2.50 as of the end of the third fiscal quarter of 1997, 2.25 as of the
end of the third fiscal quarter of 1998, and 2.00 as of the end of the
third fiscal quarter of 1999 and each year thereafter; 1.0 at fiscal
year end and at other fiscal quarter ends.
14
<PAGE>
Ratio of Cash Flow to Debt Service (Section 5.9)
- -----------------------------------------------
REQUIRED: Not less than 1.40:1 through the second quarter of fiscal year 2000
and 1.45:1 thereafter
<TABLE>
<CAPTION>
ACTUAL: Cash Flow Convenant
(Section 5.9)
Q1 Q2 Q3 Q4 12 MONTHS
ROLLING
========================================================================
<S> <C> <C> <C> <C> <C>
Consolidated Net Income
(After taxes)
Less: Extraordinary Gains
Plus: Extraordinary Losses
Plus: Depreciation/
Amortization
Plus: Rent
Plus: Interest Expense
Plus: Taxes
(A) Subtotal
Rent
Plus: Interest Expense
Plus: Current Maturities of
Indebtedness
(B) Subtotal
Cash Flow Coverage:
Line (A) divided by line (B)
</TABLE>
15
<PAGE>
Indebtedness (Section 6.1)
- -------------------------
(i) Indebtedness of the Company to
the Parent (not to exceed
$500,000) $_________
(ii) Indebtedness of the Parent to
the Company (not to exceed
$500,000) $_________
(iii) Indebtedness of the Company to
the Town of Mexico, Missouri
(not to exceed $3,500,000) $_________
(iv) Indebtedness of Stores to the Company
$_________
(v) other unsecured Indebtedness of
the Parent and the Company
(not to exceed $500,000 in
the aggregate) $_________
Encumbrances (Section 6.4(g))
- -----------------------------
Encumbrances in respect of purchase
money obligations for tangible property
(not to exceed $200,000) $_________
Sale or Lease of Assets (Section 6.5)
- -------------------------------------
Sales, leases and other dispositions
of assets or properties (valued at
the lower of cost or market), other than
as permitted under Section 6.5., since the
beginning of the current fiscal year (not
to exceed 5% of Consolidated Tangible Net Worth) $_________
16
<PAGE>
Capital Expenditures (Section 6.10)
- ----------------------------------
(i) Capital Expenditures since the
beginning of the current fiscal
year (not to exceed $15,000,000
plus $________, 60% of the positive
----
difference between Consolidated
EBITDA for the prior fiscal year
($_______) and $17,039,000 $________________
WITNESS by hand this ______ day of __________, 19___.
BROOKSTONE, INC.
By:
---------------------------------
Name:
Title:
17
<PAGE>
EXHIBIT G
---------
BROOKSTONE COMPANY, INC.
BROOKSTONE STORES, INC.
BORROWING BASE REPORT
---------------------
BROOKSTONE COMPANY, INC. (the "Company") and BROOKSTONE STORES, INC.
("Stores") hereby jointly and severally certify that:
This Report is furnished pursuant to Section 5.1(d) of the Amended and
Restated Revolving Credit Agreement dated as of September __, 1997 by and among
Brookstone, Inc., the Company, Stores, the lenders party thereto and BankBoston,
N.A., as Agent (the "Agreement"). Unless otherwise defined herein, the terms
used in this Report have the meanings given to them in the Agreement.
As of ______________, 199___, the end of the last fiscal month of the
Company and Stores, the Company and Stores jointly and severally certify as
follows:
A. Eligible Inventory was $_______, determined as follows:
1. Gross Inventory $______
2. Less reserves and other exclusions $______
3. Eligible Inventory (Line 1 less Line 2) $______
----
B. The Borrowing Base was $_________, determined as follows:
1. 50% of Eligible Inventory* $______
2. 50% of Outstanding Documentary
Letters of Credit* $______
3. Borrowing Base (Line 1 plus line 2) $______
----
C. The amount available for Loans and Letters of Credit
under the Agreement was $______, determined as follows:
1. The Lesser of $75,000,000 or the Borrowing Base $______
2. Outstanding Loans $______
- -----------------
* 65% during the period commencing 6/1 up to and including 7/31, and 75%
during the period commencing 8/1 up to and including 11/30.
18
<PAGE>
3. Outstanding Letters of Credit $__________
4. Availability for Loans and Letters of Credit
(Line 1 less the sum of line 2
and line 3 $__________
WITNESS my hand this ________ day of ______, 199__.
BROOKSTONE COMPANY, INC.
BROOKSTONE STORES, INC.
By:
------------------------------
Name:
Title: Chief Financial Officer
19
<PAGE>
EXHIBIT H
---------
FORM OF OPINION OF COUNSEL
--------------------------
[to be provided by counsel to Parent]
20
<PAGE>
EXHIBIT I
---------
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated as of September ___, 1997, by and among
BROOKSTONE STORES, INC., a New Hampshire corporation ("Stores"), BROOKSTONE
COMPANY, INC., a New Hampshire corporation ("the Company") and BANKBOSTON, N.A.,
as Agent (the "Agent") under the Credit Agreement referred to below.
Recitals
--------
Stores is and from time to time may be indebted to the Company for
inventory purchased from the Company and for other advances from time to time.
The Company and Stores have requested that the Lenders under and as defined in a
certain Credit Agreement of even date herewith (herein, as the same may from
time to time be amended or extended, referred to as the "Credit Agreement") by
and among the Lenders, BankBoston, N.A., as Agent, Stores, Company and
Brookstone, Inc., a Delaware corporation grant financial accommodations to the
Company and Stores, and the Lenders have indicated that they are unwilling to do
so unless the Company and Stores shall join in this Agreement and the Company
shall subordinate, to the extent and in the manner hereinafter set forth, the
indebtedness hereinbefore referred to and also all other indebtedness of Stores
to the Company, direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising (herein called the "Subordinated Debt")
to all indebtedness of Stores to the Lenders, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising (herein
called the "Lender Debt"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Credit Agreement (provided,
however, that the term "Lenders" as used herein shall mean the Lenders and the
Swing Line Lender under the Credit Agreement).
NOW, THEREFORE, in consideration of the premises and as an inducement
to the Lenders to grant financial accommodations to the Company and Stores,
whether by loan or advance or extension of time for the payment of Lender Debt
or otherwise, and in consideration of the granting thereof, the Company and
Stores warrant to and covenant with the Agent and the Lenders as follows:
1. (a) The Subordinated Debt and any and all documents evidencing
such Subordinated Debt shall be and hereby are subordinated and until all Lender
Debt shall have been paid in full, Stores shall not, directly or indirectly,
make any payment of principal or interest on account of or transfer any
collateral for any part of the Subordinated Debt, the Company shall not demand
or accept from Stores or any other person any such payment or collateral nor
cancel, set off or otherwise discharge any part of the Subordinated Debt and
neither Stores nor the Company shall otherwise take or permit any action
prejudicial to or inconsistent with the Bank's priority position over the
Company created by this Agreement; provided, however that (i) Stores may grant
to the Company a security interest in all of its
<PAGE>
assets to secure the payment and performance of the Subordinated Debt and (ii)
until written notice from the Agent of the occurrence of a Default under the
documents pursuant to which the Lender Debt has been issued and a written
direction to cease such payments, Stores may make payments of amounts due the
Company in respect of inventory purchased from the Company.
(b) The Company will not take or omit to take any action or
assert any claim with respect to the Subordinated Debt or otherwise which is
inconsistent with the provisions of this Agreement. Without limiting the
foregoing, the Company will not assert, collect or enforce the Subordinated Debt
or any part thereof or take any action to foreclose or realize upon the
Subordinated Debt or any part thereof or enforce any documents evidencing the
Subordinated Debt except (i) in each such case as necessary, so long as no
Default or Event of Default has occurred and is then continuing under the Credit
Agreement or would occur after giving effect thereto, to collect any sums
expressly permitted to be paid by Stores pursuant to Section 1(a), or (ii) to
the extent (but only to such extent) that the commencement of a legal action may
be required to toll the running of any applicable statute of limitation.
(c) If the Company, in contravention of the terms of this Agreement,
shall commence, prosecute or participate in any suit, action or proceeding
against Stores, then Stores may interpose as a defense or plea the making of
this Agreement, and the Agent may intervene and interpose such defense or plea
in its name or in the name of Stores. If the Company, in contravention of the
terms of this Agreement, shall attempt to collect any of the Subordinated Debt
or enforce any documents evidencing such debt, then the Agent or Stores may, by
virtue of this Agreement, restrain the enforcement thereof in the name of the
Agent or in the name of Stores.
2. As security for the Lender Debt, the Company hereby assigns, transfers
and sets over to the Agent the Subordinated Debt, whether evidenced by
negotiable or non negotiable instruments, securities or other writings, book
entries or otherwise. In the event any endorsement or assignment of any
instrument evidencing the Subordinated Debt is omitted, the Agent is hereby
irrevocably authorized to make the same. Stores and the Company shall make
appropriate notations in their books to show the subordinate character of all
Subordinated Debt which may now or hereafter be carried on open account.
3. The Company will not commence or join with any other creditor or
creditors of Stores in commencing any bankruptcy, reorganization or insolvency
proceedings against Stores. At any meeting of creditors of Stores or in the
event of any proceeding, voluntary or involuntary, for the distribution,
division or application of all or part of the assets of Stores or the proceeds
thereof, whether such proceeding be for the liquidation, dissolution or winding
up of Stores or its business, a receivership, insolvency or bankruptcy
proceeding, an assignment for the benefit of creditors or a proceeding by or
against Stores for relief under any bankruptcy, reorganization or insolvency law
or any law relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangement, composition or extension or
2
<PAGE>
otherwise, if all Lender Debt has not been paid in full at the time, the Agent
is hereby irrevocably authorized at any such meeting or in any such proceeding:
(a) To enforce claims comprising Subordinated Debt either in its own
name or the name or name of the Company, by proof of debt, proof of claim, suit
or otherwise;
(b) To collect any assets of Stores distributed, divided or applied by
way of dividend or payment, or any such securities issued, on account of
Subordinated Debt and apply the same, or the proceeds of any realization upon
the same that the Agent in its discretion elects to effect, to Lender Debt until
all Lender Debt shall have been paid in full, rendering any surplus to the
Company;
(c) To vote claims comprising Subordinated Debt to accept or reject
any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; and
(d) To take generally any action in connection with any such meeting
or proceeding which the Company might otherwise take.
4. Except as permitted under Section 1, should any payment on account of
or any collateral for any part of the Subordinated Debt be received by the
Company, such payment or collateral shall be delivered forthwith to the Agent by
the Company for application to Lender Debt, in the form received except for the
addition of any endorsement or assignment necessary to effect transfer of all
rights therein to the Agent. The Agent is irrevocably authorized to supply any
required endorsement or assignment which may have been omitted. Until so
delivered any such payment or collateral shall be held by the recipient in trust
for the Agent and shall not be commingled with other funds or property of the
recipient.
5. The Company is the lawful owner of the Subordinated Debt and no part
thereof has been assigned to or subordinated or subjected to any other security
interest in favor of anyone other than the Agent. Until all Lender Debt has been
paid in full, Stores shall not issue any instrument, security or other writing
evidencing any part of the Subordinated Debt except at the request of and in the
manner requested by the Agent; and the Company shall not assign or subordinate
any part of the Subordinated Debt except to or in favor of the Agent.
6. The Agent is hereby authorized to demand specific performance of this
Agreement, whether or not Stores shall have complied with the provisions hereof
applicable to it, at any time when the Company shall have failed to comply with
any provision hereof applicable to it. The Company hereby irrevocably waives any
defense based on the adequacy of a remedy at law which might be asserted as a
bar to the remedy of specific performance hereof in any action brought therefor
by the Agent. The Company further waives presentment, notice and protest in
connection with all negotiable instruments evidencing Lender Debt or
Subordinated Debt to which it may be a party, notice of the acceptance of this
Agreement by the Agent and the Lenders, notice of any loan made, extension
granted or other action taken in
3
<PAGE>
reliance hereon and all demands and notices of every kind in connection with
this Agreement, Lender Debt or Subordinated Debt; assent to any renewal,
extension or postponement of the time of payment of Lender Debt or any other
indulgence with respect thereto, to any substitution, exchange or release of
collateral therefor and to the addition or release of any person primarily or
secondarily liable thereon; and agree to the provisions of any instrument,
security or other writing evidencing Lender Debt.
7. (a) Stores and the Company shall execute and deliver to the Agent and
the Lenders such further instruments and shall take such further action as the
Agent or the Lenders may at any time or times reasonably request in order to
carry out the provisions and intent of this Agreement.
(b) The Company will not, at any time while this Agreement is in
effect, modify any of the terms of any of the Subordinated Debt or any of the
documents evidencing the Subordinated Debt.
8. If all indebtedness of Stores to the Agent and the Lenders is at any
time or times hereafter paid in full and thereafter Stores again becomes
indebted to the Agent and the Lenders, the provisions of this Agreement shall
apply to such new indebtedness unless before the same is incurred the Company
notifies the Agent and the Lenders in writing to the contrary. If, in reliance
upon this Agreement, the Agent and the Lenders grant loans and extensions or
takes other action, after the termination of this Agreement by the Company, but
prior to the receipt by the Agent and the Lenders of written notice of such
termination, the rights of the Agent and the Lenders shall be the same as they
would have been had such termination not occurred, and Stores and the Company,
jointly and severally, shall indemnify the Agent and the Lenders and save them
harmless from and against any loss, cost, liability or expense which it may have
incurred or suffered by reason of any action so taken by it.
9. If any warranty herein contained shall prove to have been materially
false when made or in the event of a breach by Stores or the Company in the
performance of any of the terms hereof, the Agent may, at its option, declare
all Lender Debt to be forthwith due and payable, without presentment, demand,
protest, or notice of any kind, notwithstanding any time or credit otherwise
allowed.
10. The rights granted to the Agent and the Lenders hereunder are solely
for their protection and nothing herein contained shall impose on the Agent and
the Lenders any duties with respect to any property of Stores or the Company
received hereunder beyond reasonable care in its custody and preservation while
in possession of the Agent or the Lenders. The Agent shall have no duty to
preserve rights against prior parties in any instrument or chattel paper
received hereunder.
11. This Agreement is intended to take effect as a sealed instrument, shall
be binding upon Stores, the Company, and their respective successors and
assigns, shall inure to
4
<PAGE>
the benefit of the Agent and the Lenders and their successors and assigns and
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of September __, 1997.
BROOKSTONE STORES, INC.
By:
-------------------------------------
BROOKSTONE COMPANY, INC.
By:
-------------------------------------
Accepted
BANKBOSTON, N.A.
By:
-------------------------------------
5
<PAGE>
EXHIBIT J
---------
UNLIMITED GUARANTY
GUARANTY dated as of September __, 1997, by BROOKSTONE PROPERTIES, INC.,
BROOKSTONE HOLDINGS, INC., BROOKSTONE PURCHASING, INC. and BROOKSTONE BY MAIL,
INC. (each a "Guarantor" and collectively the "Guarantors"), in favor of
BANKBOSTON, N.A, a national banking association with its head office at 100
Federal Street, Boston, Massachusetts, as Agent (the "Agent") for the Lenders
parties to the Credit Agreement referred to below.
Recitals
--------
In consideration of the Lenders' giving time, credit or banking facilities
or accommodations to Brookstone Company, Inc. and Brookstone Stores, Inc. and
their successors (the "Borrowers") under a Credit Agreement of even date
herewith (the "Credit Agreement") by and among the Agent, the Borrowers,
Brookstone, Inc. and the Lenders parties thereto, the Notes and Swing Line Note
issued thereunder and otherwise, the Guarantors agree, jointly and severally, as
follows. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Credit Agreement (provided, however, that the term
"Lenders" as used herein shall mean all the Lenders and the Swing Line Lender
under the Credit Agreement).
1. GUARANTY OF PAYMENT AND PERFORMANCE. The Guarantors hereby guarantee
to the Agent and the Lenders, jointly and severally, the full and punctual
payment when due (whether at maturity, by acceleration or otherwise), and the
performance, of all liabilities, agreements and other obligations of the
Borrowers to the Agent and the Lenders, whether direct or indirect, absolute or
contingent, due or to become due, secured or unsecured, now existing or
hereafter arising or acquired (whether by way of discount, letter of credit,
lease, loan, overdraft or otherwise) (the "Obligations"). This Guaranty is an
absolute, unconditional and continuing guaranty of the full and punctual payment
and performance of the Obligations and not of their collectibility only and is
in no way conditioned upon any requirement that the Agent and the Lenders first
attempt to collect any of the Obligations from the Borrowers or resort to any
security or other means of obtaining their payment. Should the Borrowers default
in the payment or performance of any of the Obligations, the obligations of the
Guarantors hereunder shall become immediately due and payable to the Agent and
the Lenders, without demand or notice of any nature, all of which are expressly
waived by the Guarantors. Payments by the Guarantors hereunder may be required
by the Agent on any number of occasions.
2. GUARANTORS' AGREEMENT TO PAY. The Guarantors further agree, jointly
and severally, as principal obligors and not as guarantors only, to pay to the
Agent and the Lenders, on demand, all costs and expenses (including court costs
and legal expenses)
<PAGE>
incurred or expended by the Agent and the Lenders in connection with the
Obligations, this Guaranty and the enforcement thereof, together with interest
on amounts recoverable under this Guaranty from the time such amounts become due
until payment, at the rate per annum equal to the rate of interest announced by
the Agent from time to time at its head office as its Base Rate, plus 2%;
provided that if such interest exceeds the maximum amount permitted to be paid
under applicable law, then such interest shall be reduced to such maximum
permitted amount.
3. UNLIMITED GUARANTY. The liability of the Guarantors hereunder shall be
unlimited.
4. WAIVERS BY GUARANTORS; AGENT'S FREEDOM TO ACT. The Guarantors agree
that the Obligations will be paid and performed strictly in accordance with
their respective terms regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Agent and the Lenders with respect thereto. The Guarantors waive
presentment, demand, protest, notice of acceptance, notice of Obligations
incurred and all other notices of any kind, all defenses which may be available
by virtue of any valuation, stay, moratorium law or other similar law now or
hereafter in effect, any right to require the marshalling of assets of the
Borrowers, and all suretyship defenses generally. Without limiting the
generality of the foregoing, the Guarantors agree to the provisions of any
instrument evidencing, securing or otherwise executed in connection with any
Obligation and agree that the obligations of the Guarantors hereunder shall not
be released or discharged, in whole or in part, or otherwise affected by (i) the
failure of the Agent and the Lenders to assert any claim or demand or to enforce
any right or remedy against the Borrowers; (ii) any extensions or renewals of
any Obligation; (iii) any rescissions, waivers, amendments or modifications of
any of the terms or provisions of any agreement evidencing securing or otherwise
executed in connection with any Obligation; (iv) the substitution or release of
any entity primarily or secondarily liable for any Obligation; (v) the adequacy
of any rights the Agent and the Lenders may have against any collateral or other
means of obtaining repayment of the Obligations; (vi) the impairment of any
collateral securing the Obligations, including without limitation the failure to
perfect or preserve any rights the Agent and the Lenders might have in such
collateral or the substitution, exchange, surrender, release, loss or
destruction of any such collateral; or (vii) any other act or omission which
might in any manner or to any extent vary the risk of the Guarantors or
otherwise operate as a release or discharge of the Guarantors, all of which may
be done without notice to the Guarantors.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST BORROWERS. If for any reason
the Borrowers have no legal existence or are under no legal obligation to
discharge any of the Obligations, or if any of the Obligations have become
irrecoverable from the Borrowers by operation of law or for any other reason,
this Guaranty shall nevertheless be binding on the Guarantors to the same extent
as if the Guarantors at all times had been the principal obligor on all such
Obligations. In the event that acceleration of the time for payment of the
Obligations is stayed upon the insolvency, bankruptcy or reorganization of a
Borrower, or for any other reason, all such amounts otherwise subject to
acceleration under the terms of
2
<PAGE>
any agreement evidencing, securing or otherwise executed in connection with any
Obligation shall be immediately due and payable by the Guarantors.
6. SUBROGATION; SUBORDINATION. Until the payment and performance in full
of all Obligations and any and all obligations of the Borrowers to any affiliate
of the Agent and the Lenders, the Guarantors shall not exercise any rights
against the Borrowers arising as a result of payment by the Guarantors
hereunder, by way of subrogation or otherwise, and will not prove any claim in
competition with the Agent and the Lenders or their affiliates in respect of any
payment hereunder in bankruptcy or insolvency proceedings of any nature; the
Guarantors will not claim any set-off or counterclaim against the Borrowers in
respect of any liability of the Guarantors to the Borrowers; and the Guarantors
waive any benefit of and any right to participate in any collateral which may be
held by the Agent or any such affiliate. The payment of any amounts due with
respect to any indebtedness of the Borrowers now or hereafter held by the
Guarantors is hereby subordinated to the prior payment in full of the
Obligations. The Guarantors agree that after the occurrence of any default in
the payment or performance of the Obligations, the Guarantors will not demand,
sue for or otherwise attempt to collect any such indebtedness of the Borrowers
to the Guarantors until the Obligations shall have been paid in full. If,
notwithstanding the foregoing sentence, the Guarantors shall collect, enforce or
receive any amounts in respect of such indebtedness, such amounts shall be
collected, enforced and received by the Guarantors as trustee for the Agent and
the Lenders and be paid over to the Agent on account of the Obligations without
affecting in any manner the liability of the Guarantors under the other
provisions of this Guaranty.
7. SECURITY; SET-OFF. The Guarantors grant to the Agent and the Lenders,
as security for the full and punctual payment and performance of the Guarantors'
obligations hereunder, a continuing lien on and security interest in all
securities or other property belonging to the Guarantors now or hereafter held
by the Agent or the Lenders and in all deposits (general or special, time or
demand, provisional or final) and other sums credited by or due from the Agent
or the Lenders to the Guarantors or subject to withdrawal by the Guarantors; and
regardless of the adequacy of any collateral or other means of obtaining
repayment of the Obligations, the Agent or the Lenders are hereby authorized at
any time and from time to time, without notice to the Guarantors (any such
notice being expressly waived by the Guarantors) and to the fullest extent
permitted by law, to set off and apply such deposits and other sums against the
obligations of the Guarantors under this Guaranty, whether or not the Agent or
the Lenders shall have made any demand under this Guaranty and although such
obligations may be contingent or unmatured.
8. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full force
and effect until the Agent is given written notice of the Guarantors' intention
to discontinue this Guaranty, notwithstanding any intermediate or temporary
payment or settlement of the whole or any part of the Obligations. No such
notice shall be effective unless received and acknowledged by an officer of the
Agent at its head office. No such notice shall affect any rights of the Agent or
the Lenders or of any affiliate hereunder including, without limitation, the
rights set forth in Sections 4 and 6, with respect to Obligations incurred prior
to
3
<PAGE>
the receipt of such notice or Obligations incurred pursuant to any contract or
commitment in existence prior to such receipt, and all checks drafts, notes,
instruments (negotiable or otherwise) and writings made by or for the account of
the Borrowers and drawn on the Agent or any Lender or any of their agents
purporting to be dated on or before the date of receipt of such notice, although
presented to and paid or accepted by the Agent or any Lender after that date,
shall form part of the Obligations. This Guaranty shall continue to be effective
or be reinstated, notwithstanding any such notice, if at any time any payment
made or value received with respect to an Obligation is rescinded or must
otherwise be returned by the Agent or any Lender upon the insolvency, bankruptcy
or reorganization of the Borrowers, or otherwise, all as though such payment had
not been made or value received.
9. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
Guarantors, jointly and severally, their successors and assigns, and shall inure
to the benefit of and be enforceable by the Agent, the Lenders and their
successors, transferees and assigns. Without limiting the generality of the
foregoing sentence, the Agent and the Lenders may assign or otherwise transfer
any agreement or any note held by it evidencing, securing or otherwise executed
in connection with the Obligations, or sell participations in any interest
therein, to any other person or entity, in accordance with the provisions of the
Credit Agreement, and such other person or entity shall thereupon become vested,
to the extent set forth in the agreement evidencing such assignment, transfer or
participation, with all the rights in respect thereof granted to the Agent and
the Lenders herein.
10. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantors therefrom shall be
effective unless the same shall be in writing and signed by the Agent. No
failure on the part of the Agent and the Lenders to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right.
11. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class mail postage prepaid or, in the case of telegraphic or telexed
notice, when transmitted, answer back received, addressed as follows: if to the
Guarantors, at the address set forth beneath its signature hereto, and if to the
Agent and the Lenders, c/o BankBoston, N.A., as Agent, 100 Federal Street,
Boston, Massachusetts 02110, Telex: 4996527 BOSTONBK BSN, Attention: Ms.
Virginia W. Dennett, Director, or at such other address as either party may
designate in writing.
12. GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty is intended to
take effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts. The Guarantors
agree that any suit for the enforcement of this Guaranty may be brought in the
courts of The Commonwealth of Massachusetts or any Federal Court sitting therein
and consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made
4
<PAGE>
upon the Guarantors by mail at the address specified in Section 12 hereof. The
Guarantors hereby waive any objection that they may now or hereafter have to the
venue of any such suit or any such court or that such suit was brought in an
inconvenient court.
13. WAIVER OF JURY TRIAL. THE AGENT AND THE GUARANTORS AGREE THAT NONE OF
THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS
GUARANTY, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH
ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE AGENT
AND THE GUARANTORS, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER THE AGENT NOR THE GUARANTORS HAVE AGREED WITH OR REPRESENTED TO THE
OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
14. MISCELLANEOUS. This Guaranty constitutes the entire agreement of the
Guarantors with respect to the matters set forth herein. The rights and remedies
herein provided are cumulative and not exclusive of any remedies provided by law
or any other agreement, and this Guaranty shall be in addition to any other
guaranty of the Obligations. The invalidity or unenforceability of any one or
more sections of this Guaranty shall not affect the validity or enforceability
of its remaining provisions. Captions are for the ease of reference only and
shall not affect the meaning of the relevant provisions. The meanings of all
defined terms used in this Guaranty shall be equally applicable to the singular
and plural forms of the terms defined.
5
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
and delivered by its duly authorized officer as of the date appearing on page
one.
BROOKSTONE PROPERTIES, INC.,
BROOKSTONE HOLDINGS, INC.,
BROOKSTONE PURCHASING, INC.
BROOKSTONE BY MAIL, INC.
By:
-----------------------------------
Executive Vice President and
Chief Financial Officer
Address:
17 Riverside Street
Nashua, NH 03062
Attention: Mr. Philip Roizin
Telex:
--------------------------------
6
<PAGE>
EXHIBIT K
---------
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
-------------------------------------------
Assignment and Acceptance Agreement dated as of _______, 199__, by and
between __________ (the "Assignor") and __________ (the "Successor Lender").
WHEREAS, the Assignor is one of the Lenders party to the Credit Agreement
referred to below; and
WHEREAS, the Assignor desires to sell and the Successor Lender desires to
purchase, all or a portion of the outstanding loans, advances of credit and
commitments of Assignor under the Credit Agreement and the other documents,
instruments and agreements related thereto.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties agree as follows:
Reference is made to the Credit Agreement dated as of September __, 1997
(as amended or supplemented and as from time to time in effect, the "Credit
Agreement"), among Brookstone Company, Inc., Brookstone Stores, Inc. (the
"Borrowers"), Brookstone, Inc., the lenders party thereto (the "Lenders"), and
BankBoston, N.A., as agent for the Lenders (the "Agent"). Terms defined in the
Credit Agreement and not otherwise defined herein are used herein with the
meanings so defined.
1. Assignment and Acceptance. Pursuant to Section 9.2 of the Agreement,
-------------------------
as of the close of business on __________________ (the "Assignment Date"), the
Assignor hereby assigns to the Successor Lender, $________ of its $____________
current interest in the outstanding Revolving Credit Advances and Letters of
Credit and a ____% interest in its Commitment Percentage.
The foregoing assignment which constitutes a ___% Commitment Percentage
under the Credit Agreement, is made together with the concomitant proportionate
amount of the undersigned's other rights and obligations under the Credit
Agreement and the other Lender Agreements, and the Successor Lender hereby
accepts and assumes such rights and obligations completely. After giving effect
to this assignment, the Assignor and the Successor Lender shall have the
interests in the Notes, the Letters of Credit and the Commitment Percentages set
forth on Schedule 1 attached hereto. By its acknowledgment hereof, the Agent
----------
hereby confirms that after giving effect to this assignment, the Commitment
Percentages of all of the Lenders under the Credit Agreement shall be as set
forth on Schedule 2 attached hereto.
----------
2. Representations and Warranties.
------------------------------
(a) Other than the representation and warranty that it is the legal and
<PAGE>
beneficial owner of the interest being assigned hereby free and clear of any
adverse claim, the Assignor makes no representation or warranty and assumes no
responsibility with respect to (i) the execution, delivery, effectiveness,
enforceability, genuineness, validity or adequacy of the Credit Agreement, the
Notes, the Letters of Credit or any other Lender Agreement, (ii) any recital,
representation, warranty, document, certificate, report or statement in,
provided for in, received under or in connection with, the Credit Agreement or
any other Lender Agreement, or (iii) the existence, validity, enforceability,
perfection, recordation, priority, adequacy or value, now or hereafter, of any
lien or other direct or indirect security afforded or purported to be afforded
by any of the Lender Agreements or otherwise from time to time.
(b) The Assignor makes no representation or warranty and assumes no
responsibility with respect to (i) the performance or observance of any of the
terms or conditions of the Credit Agreement or any other Lender Agreement on the
part of the Borrower, (ii) the business, operations, condition (financial or
otherwise) or prospects of the Borrower or any other Person, or (iii) the
existence of any Default.
(c) The Successor Lender confirms that it has received a copy of the
Credit Agreement and each of the other Lender Agreements, together with copies
of the most recent financial statements delivered pursuant to Sections 5.1(a)
and (b) of the Credit Agreement, and such other documents and information as it
has deemed appropriate to make its own credit and legal analysis and decision to
enter into this Assignment and Acceptance Agreement. The Successor Lender
confirms that it has made such analysis and decision independently and without
reliance upon the Agent, the Assignor or any other Lender.
(d) The Successor Lender, independently and without reliance upon the
Agent, the Assignor or any other Lender, and based on such documents and
information as it shall be deem appropriate at the time, will make its own
decisions to take or not take action under or in connection with the Credit
Agreement or any other Lender Agreement.
(e) The Successor Lender irrevocably appoints the Agent to act as Agent
for the Successor Lender under the Credit Agreement and the other Lender
Agreements, all in accordance with Section X of the Agreement and the other
provisions of the Credit Agreement and each other Lender Agreement.
(f) The Successor Lender agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the Credit Agreement
and the other Lender Agreements are required to be performed by it as a Lender.
(g) Except as to paragraph (a) above, the foregoing assignment is made
without any representation, warranty or recourse of any kind by the Assignor.
3. Party to the Agreement, Etc. Upon (a) the execution and delivery hereof
---------------------------
by the parties hereto at least five (5) Business Days prior to the Assignment
Date, and (b) the payment
2
<PAGE>
by the Successor Lender to Assignor of an amount equal to the purchase price
agreed between the Successor Lender and the Assignor, and (c) payment to the
Agent of the fee required to be paid pursuant to Section 9.2(a) of the
Agreement, the Successor Lender shall automatically become party to the Credit
Agreement as a signatory thereto. As of the Assignment Date, the Successor
Lender shall have all the rights and obligations of a Lender under the Credit
Agreement and the other Lender Agreements as and to the extent set forth on
Schedule 1 and Schedule 2 attached hereto. Copies of all notices and other
- ---------- ----------
information required to be delivered to the Lenders under the Credit Agreement
shall be delivered to the Successor Lender at the address(es) and to attention
of the Person(s) specified below the Successor Lender's name on the execution
page of this Assignment and Acceptance Agreement. As of the Assignment Date, the
Assignor shall be released from its obligations under the Credit Agreement to a
corresponding extent, and no further consent or action by any party shall be
required.
4. Miscellaneous. This Assignment and Acceptance Agreement may be
-------------
executed in any number of counterparts, which together shall constitute one
instrument, shall be governed by and construed in accordance with the laws of
The Commonwealth of Massachusetts (without giving effect to the conflict of laws
rules of any jurisdiction) and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
3
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Successor Lender have executed
this Assignment and Acceptance Agreement as of the date first above written.
[ASSIGNOR]
By:
Name:
Title:
[SUCCESSOR LENDER]
By:
Name:
Title:
[Address for Notices]
Telecopier No.:
Attention:
The foregoing is hereby
acknowledged and approved:
BROOKSTONE COMPANY, INC.
BROOKSTONE STORES, INC.
By:
Name:
Title:
BANKBOSTON, N.A., as Agent
By:
Name:
Title:
4
<PAGE>
Schedule 1
----------
Successor Lender's and Assignor's Interest
------------------------------------------
The Successor Lender's interest under the Credit Agreement on and after the
Assignment Date shall be as follows:
Commitment Percentage %
-----
Principal Amount of Note $
-----------
Principal Amount of Letters of Credit $
-----------
The Assignor's interest under the Credit Agreement on and after the Assignment
Date shall be as follows:
Commitment Percentage %
-----
Principal Amount of Note $
-----------
Principal Amount of Letters of Credit $
-----------
5
<PAGE>
Schedule 2
----------
Lenders' Commitment Percentages
-------------------------------
After giving effect to the assignment on the Assignment Date, the Lenders'
respective Commitment Percentages under the Credit Agreement shall be as
follows:
<TABLE>
<CAPTION>
Maximum Amount
Commitment of Loans and Letters of
Lender Percentage -----------------------
------ ----------- Credit
------
<S> <C> <C>
. % $ .
- ---------------- ---- -- ------- --
. % $ .
- ---------------- ---- -- ------- --
. % $ .
- ---------------- ---- -- ------- --
. % $ .
- ---------------- ---- -- ------- --
TOTALS 100.00% $ .00
--------
</TABLE>
6
<PAGE>
SCHEDULE 1.1
Commitment Percentages
----------------------
<TABLE>
<CAPTION>
Maximum Amount of
Commitment Revolving Loans and
Lender Percentage Letter of Credit
------ ---------- ----------------
<S> <C> <C>
BankBoston, N.A. 40.00% $ 30,000,000.00
100 Federal Street
Boston, MA 02110
Bank One, Indiana, N.A. 20.00% $ 15,000,000.00
111 Monument Circle
Suite 1911
Indianapolis, IN 46277-0119
USTrust 20.00% $ 15,000,000.00
40 Court Street
Boston, MA 02108
Union Bank of California, N.A. 20.00% $ 15,000,000.00
350 California Street, 6th Floor
San Francisco, CA 94104-1408
TOTALS 100.00% $ 75,000,000.00
</TABLE>
<PAGE>
SCHEDULE 1.2
Pricing Schedule
----------------
The Eurodollar Margin, Letter of Credit Fee Rate and the Commitment Fee
Rate for any day are the respective percentages set forth below in the
applicable row under the column corresponding to the Status that exists on such
day:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Status Level I Level II Level III
-------------------------------------------------------------------
<S> <C> <C> <C>
Eurodollar Rate Margin 1.00 1.25 1.50
-------------------------------------------------------------------
Documentary Letter of Credit 0.50 0.625 0.75
Fee Rate
-------------------------------------------------------------------
Commitment Fee Rate 0.25 0.25 0.30
-------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Status" exists at any date if, at such date, the Applicable
Cash Flow coverage Ratio is greater than or equal to 1.70-to-1.00 and no
Default exits.
"Level II Status" exists at any date if, at such date, the Applicable
Cash Flow Coverage Ratio is less than 1.70-to-1.00 and greater than or
equal to 1.55-to-1.00 and no Default exits.
"Level III Status" exists at any date if, at such date, no other
Status exists.
"Status" refers to the determination of which of Level I Status, Level
II Status or Level III Status exists at any date.
For the period from the Closing through a date selected by the Agent within
ten days of the Agent's receipt of the financial statements for the Parent's
fiscal quarter ended October 31, 1997, the Applicable Cash Flow Coverage Ratio
shall be deemed to be 1.65-to-1.00. Thereafter, the Applicable Cash Flow
Coverage Ratio (a) shall be determined on a date (each a "Determination Date")
selected by the Agent within ten days of the Agent's receipt of the final,
signed financial statements for the Parent's previous fiscal quarter, commencing
with receipt of the financial statements for the fiscal quarter ending October
31, 1997, (b) shall be equal to the Cash Flow Coverage Ratio in effect as of the
end of such fiscal quarter as reflected on the final, signed financial
statements and certified by the Parent's chief financial officer and (c) shall
remain in effect until the next Determination Date. If the Parent fails to
deliver such financial statements in the time period required, the Level III
Status for each of the Eurodollar Rate Margin, the Documentary Letter of Credit
Fee Rate and the Commitment Fee Rate will apply.
<PAGE>
BROOKSTONE, INC.
Computation of Primary and Fully Diluted Earnings (Loss)
PER COMMON SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
----------------------------------- -----------------------------------
November 1, 1997 November 2, 1996 November 1, 1997 November 2, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss $ (3,733) $(3,281) $ (7,964) $ (7,474)
======== ======== ======== ========
Weighted average number of common
shares outstanding 7,775 7,681 7,775 7,681
Adjustments to weighted average common
shares outstanding:
Common stock issued upon exercise of
options 27 80 19 53
-------- -------- -------- --------
Weighted average number of common
shares as adjusted 7,802 7,761 7,794 7,734
======== ======== ======== ========
Net loss primary and fully diluted
earnings per share $ (0.48) $ (0.42) $ (1.02) $ (0.97)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> NOV-01-1997
<CASH> 2,409
<SECURITIES> 0
<RECEIVABLES> 4,842
<ALLOWANCES> 286
<INVENTORY> 47,950
<CURRENT-ASSETS> 67,519
<PP&E> 67,358
<DEPRECIATION> 32,630
<TOTAL-ASSETS> 106,428
<CURRENT-LIABILITIES> 49,175
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 46,120
<TOTAL-LIABILITY-AND-EQUITY> 106,428
<SALES> 38,922
<TOTAL-REVENUES> 38,922
<CGS> 28,647
<TOTAL-COSTS> 44,749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333
<INCOME-PRETAX> (6,160)
<INCOME-TAX> (2,427)
<INCOME-CONTINUING> (3,733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,733)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
