<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended February 28, 1998
Commission File Number: 0-19269
SUN TELEVISION AND APPLIANCES, INC.
(Exact name of Registrant as specified in its charter)
OHIO NO. 31-1178151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6600 PORT ROAD
GROVEPORT, OHIO 43125
(Address of principal executive offices,
including zip code)
(614) 492-5600
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
The Registrant 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
has been subject to the filing requirements for at least the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $35,735,000 on May 15, 1998.
There were 17,439,202 shares of the Registrant's Common Stock outstanding on May
15, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference in Part III.
<PAGE> 2
<TABLE>
<CAPTION>
Item Table of Contents Page #
- ---- ----------------- ------
PART I
<S> <C>
1. Business 3
2. Properties 11
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 13
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters 14
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
7a. Quantitative and Qualitative Disclosures About Market Risks 21
8. Financial Statements and Supplementary Data 22
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 38
PART III
10. Directors and Executive Officers of the Registrant 38
11. Executive Compensation 38
12. Security Ownership of Certain Beneficial Owners and Management 38
13. Certain Relationships and Related Transactions 38
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
</TABLE>
<PAGE> 3
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this report or made by management of the Company involve risks and
uncertainties, and are subject to change based on various important factors. The
following factors, among others, in some cases have affected and in the future
could affect the Company's financial performance and actual results and could
cause actual results for fiscal 1999 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: changes in consumer
spending patterns, consumer preferences and overall economic conditions;
technological changes; operating losses; future capital needs; uncertainty of
additional financing; competition; dependence on suppliers, product demand,
quarterly fluctuations and seasonality; and volatility of stock price.
PART I
ITEM 1. BUSINESS.
GENERAL
Sun Television and Appliances, Inc. (the "Company") is a regional specialty
retailer of branded consumer electronics, appliances, and home office
equipment. The Company operates 58 stores (51 as of February 28, 1998
"fiscal 1998") in Ohio, Pennsylvania, West Virginia, Kentucky, Indiana,
Tennessee, Virginia, and New York.
The Company was founded in Columbus, Ohio in 1949 by Mr. Macy T. Block and
his late brother, Mr. Herbert Block. The business was grown locally
increasing from one to seven stores in the greater Columbus area. In 1986,
the Company was incorporated in Delaware through an acquisition by Block
Investors Partnership and ZS Sun L.P. Subsequently, management embarked
upon an expansion program into smaller Ohio communities and eventually into
major metropolitan markets including Cleveland and Cincinnati, Ohio and
Pittsburgh, Pennsylvania. The Company conducted its operations through a
wholly owned subsidiary, Sun T.V., Inc. (the "Subsidiary") until July 1994,
at which time the Company was reincorporated in Ohio and was merged with
the Subsidiary.
During fiscal 1998, the Company opened twelve new stores, one each in
Alexandria, Frankfort, and Owensboro, Kentucky; Columbus, Indiana;
Morristown, Tennessee; Staunton and Christiansburg, Virginia; Pottsville,
Pennsylvania; Canton and Findlay, Ohio; and two in Greater Cincinnati,
Ohio. The Alexandria, Columbus, and Morristown locations, as well as the
two stores in Greater Cincinnati, Ohio area, were acquired from
Steinberg's, Inc. in connection with their Chapter 11 bankruptcy
proceedings. The Canton and Findlay, Ohio locations replaced older, smaller
stores. The remaining locations represent rural market stores in line with
the Company's current expansion plan that will be discussed in detail
later. The Company plans to open up to an additional twenty stores during
the fiscal year ending February 27, 1999 ("fiscal 1999"). As of May 22,
1998, the Company has opened four additional rural stores, one each in
Marion and Hamilton, Ohio; Lebanon, Pennsylvania; and Richmond, Kentucky,
and has reopened three metro market stores in Buffalo, New York.
During the fiscal year ended March 1, 1997 ("fiscal 1997"), the Company
experienced significant declines in its operating performance. As a result,
the Company retained Price Waterhouse Business Regeneration Services
("BRS," formerly known as Business Turnaround Services or BTS) to assist
the Company with a turnaround plan. As part of this agreement, R. Carter
Pate, a Managing Partner with Price Waterhouse, LLP and principal of BRS,
joined the Company as Chairman of the Board. In May 1997, the Company
announced the resignation of James R. Copitzky as President and Chief
Executive Officer and Steven A. Martin as Executive Vice President,
Treasurer, and Chief Financial Officer. Additionally, in May 1997, the
Company announced the appointment of Mr. Pate as interim President and
Chief Executive Officer, named John J. Lynch, interim Chief Financial
Officer, and named Dennis L. May, Executive Vice President and Chief
Operating Officer. In February 1998, Beth A. Savage was appointed Chief
Financial Officer of the Company, and, in April 1998, was appointed
Treasurer.
<PAGE> 4
The Company reacted to its fiscal 1997 results by announcing the closing of
nine unproductive stores and implementing substantial reductions in its
selling, general, and administrative expenses through corporate
re-engineering, headcount reductions, and a refocusing of its workforce.
The Company also implemented a new marketing campaign entitled, "Sun
Revolves Around You." The campaign, discussed later in more detail, was
rolled out in all of the Company's existing markets and has yielded
positive responses from the Company's customer base. Positive results have
been posted, evidenced by the marked improvement in comparable store sales
decline during fiscal 1998.
As referred to above, in fiscal 1998, the Company announced an aggressive
expansion plan calling for up to thirty new stores located in rural or
secondary markets that will draw from populations of 100,000 to 150,000.
This strategy calls for smaller stores, ranging in size from 16,000 to
23,000 square feet, as compared to the Company's larger metro store
locations, ranging in size from 35,000 to 65,000 square feet. The Company
believes such rural markets, located within a 400 mile radius of the
Company's distribution facility, provide the best opportunity for success
since the locations traditionally have lower opening costs and operating
expenses. The Company has historically been successful in operating stores
in locations meeting similar rural market criteria.
BUSINESS STRATEGY
The Company offers a broad selection of branded consumer electronics,
appliances, and home office products at guaranteed lowest prices. The
Company realizes that its customers' satisfaction and loyalty are the key
determinants to its long-term success. As such, the Company strives to
serve the customers' needs during and after the sale by offering high
quality services in addition to its broad selection of merchandise.
During fiscal 1998, the Company redefined its commitment to customer
service through its "Sun Revolves Around You" campaign. It has been well
received in the Company's previous markets, and is currently being
implemented in all new store openings. The key components of "Sun Revolves
Around You" are as follows:
o AUTOMATIC PRICE PROTECTION PROGRAM
The Company's innovative program to guarantee that its customers
receive the lowest price on consumer electronics, appliances, or home
office products has been a great success with its customers. The
program has received local as well as national attention. (The July 7,
1997 issue of Fortune magazine discusses the Company's automatic price
protection program in its "Best Practices" section.)
The Company hired an outside marketing firm to do daily computerized
price checks on all of its advertised merchandise and compare such data
to its competitors advertisements. If the search finds a product
advertised by someone else at a lower price within thirty days from
date of purchase, the Company automatically sends its customers a check
in the mail. This program exceeds the customers' expectations as
compared to other price guarantee programs where the customer has the
burden of proof in order to receive a refund for a price difference.
o EXTENSIVE TRAINING OF ASSOCIATES
The Company has implemented extensive training programs to ensure that
its associates are more knowledgeable about the Company's products. In
addition, the training programs focus on customer service, including
exceeding the customers' expectations, and emphasizing that the
customers' experience is paramount. Associates now wear uniforms
consisting of navy long-sleeve shirts and khaki trousers. The uniforms
and customer service training are both a result of the Company's focus
groups with customers to identify what the customer likes and wants.
4
<PAGE> 5
o HOME DELIVERY PROGRAM
The Company brought its home delivery program in-house during fiscal
1998. Previously, the Company used a third-party service company to
deliver its products to customers' homes. The change has allowed the
Company to offer guaranteed next day deliveries, a pre-call to confirm
delivery within 30 minutes, deliveries within a four-hour time frame
with professional, trained and uniformed delivery personnel, and full
installation and testing of all products along with removal and
disposal of the old product.
o STORE RELAYS
The Company has relayed the format of many of its existing stores to
make such locations brighter and easier to navigate, with clear signs
and easy-to-find items. The goal is to make the shopping experience a
pleasant one for all of the Company's customers. This new store format
is present in all of the Company's new store openings during fiscal
1998, and will continue to be followed for the Company's additional
store openings in fiscal 1999.
During fiscal 1998, the Company announced a new business strategy to target
rural or secondary markets. The Company expects to achieve market dominance
by opening a single store in a rural market that will draw from a larger
trading area of approximately 100,000 to 150,000. This strategy calls for
smaller stores, ranging in size from 16,000 to 23,000 square feet, as
compared to the Company's other metro market stores of 35,000 to 65,000
square feet. In addition, the cost of opening and maintaining these rural
stores is significantly lower than the Company's traditional superstores.
The close geographic proximity of the Company's current markets (all within
400 miles of the distribution facility) provides the Company with
significant operating efficiencies.
The Company opened rural store locations in Pottsville, Pennsylvania,
Morristown, Tennessee, Columbus, Indiana, Owensboro, Frankfort, and
Alexandria, Kentucky and Christiansburg and Staunton, Virginia during the
end of fiscal 1998. In addition, the Company has opened rural stores in
Richmond, Kentucky, Lebanon, Pennsylvania, and Marion and Hamilton, Ohio,
and three metro market stores in Buffalo, New York during the first quarter
of fiscal 1999. In line with its previously announced plans, the Company
intends to open up to an additional 13 rural stores in the remainder of
fiscal 1999.
MERCHANDISING AND PRODUCT SELECTION
Pricing
The Company strives to be the low-price leader in all of its markets. The
Company monitors pricing at competing stores on a daily basis through
extensive pricing surveys and adjusts its prices as necessary to adhere to
this policy and to ensure competitive positioning. The Company does not
engage in promotional advertising that emphasizes "sale" pricing, but
rather emphasizes its policy of consistent everyday low price leadership.
All pricing decisions are made centrally by the Company's buyers, however,
store managers are in contact with the buyers concerning necessary price
adjustments by location.
The Company stands behind its low prices with its Automatic Price
Protection Program described above. In addition, the Company has a standing
policy whereby it will match competitor's prices, refund the difference
between prices, or give the customer a full refund if the customer elects
to return the goods.
Products
The Company offers its customers the convenience of one-stop shopping
through a comprehensive selection of high quality, brand name consumer
electronic, home appliance, and home office products. The Company offers
customers a wide range of price points within each product category, with
the greatest depth in moderately priced items. The Company believes that
its merchandising strategy, with its emphasis on products which the Company
believes represent the best value to its customers, appeals to a wide range
of customers and promotes customer loyalty and repeat business.
5
<PAGE> 6
As mentioned previously, during fiscal 1998, the Company designed a new and
improved store layout that includes better merchandise adjacencies, large
and visible signage, and floor displays that highlight each area in the
store. The Company believes the new store layout creates an environment in
which it is easy to shop and provides the customer with a more pleasant
shopping experience.
The following table, which is derived from the Company's internal sales
records, indicates the percentage of sales in each major product group for
the Company's last three fiscal years. Historical percentages may not be
indicative of the Company's future product mix.
PERCENTAGE OF NET SALES AND SERVICE REVENUES
<TABLE>
<CAPTION>
Fiscal
--------------------------------------
Product Category 1998 1997 1996
---------------- ---- ---- ----
<S> <C> <C> <C>
Television......................................... 23.5% 21.4% 22.1%
Video(1)........................................... 11.0 11.3 11.1
Appliances(2)...................................... 19.0 17.5 18.7
Audio(3)........................................... 11.8 14.4 9.1
Personal convenience(4)............................ 4.3 7.1 9.8
Home office(5)..................................... 23.8 21.7 22.6
Extended service contracts, service
revenues and other income(6).................. 6.6 6.6 6.6
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
- ---------------
(1) Includes video recorders and players, camcorders, television/video
combination recorders and associated video accessories.
(2) Includes refrigerators, ranges, freezers, dishwashers, microwave ovens,
washing machines and dryers, air-conditioners, dehumidifiers,
humidifiers and disposals.
(3) Includes rack audio systems, receivers, cassette decks, compact disc
players, turntables, amplifiers, tuners, equalizers, speakers,
headphones, car stereo components, portable radio/cassette and
micro-cassette recorders, personal headphone stereos, clock radios and
related accessories.
(4) Includes prerecorded video and audio tapes and compact discs,
electronic musical keyboards, telephones, answering devices, cellular
phones, fans, other miscellaneous portable electronics, vacuum
cleaners, gas grills, housewares and home furnishings.
(5) Includes computers, computer accessories, software, fax machines,
copiers, electronic typewriters and word processors and calculators.
(6) Includes extended service policies, service repair revenues, parts and
labor billings to manufacturers and miscellaneous income.
SUPPLIERS AND PURCHASING
The Company purchases most of its merchandise directly from the
manufacturers. The Company has a staff of six (five buyers and a merchant
manager) reporting to the Executive Vice President and Chief Operating
Officer. Each buyer has responsibility for specified product categories and
is supported by one or more assistant buyers. The Company also employs
inventory control managers to assist the buying staff. For fiscal 1998, the
Company's largest supplier accounted for less than 10% of sales. The
Company does not maintain long-term purchase contracts with suppliers and
operates principally on a purchase order basis.
6
<PAGE> 7
ADVERTISING
The Company's marketing programs are designed to create an awareness of the
Company's comprehensive selection of high quality, brand name merchandise
and its lowest price policy. The Company's primary advertising vehicle in
each of its markets is local newspaper advertising, supplemented with
radio, and cable/broadcast television spots. The Company's newspaper
advertising program consists of full-color multiple page inserts and
periodic full-page advertisements. To reinforce the Company's low-price
leader image, the Company advertises its Automatic Price Protection Program
in all of its markets. All print advertisements and media buying are
handled internally by the Company's advertising department.
CUSTOMER SERVICE
Sales Associates
The Company strives to develop the technical and interpersonal skills of
its sales associates to ensure that customers consistently receive
knowledgeable and courteous assistance. In this regard, during fiscal 1998,
the Company embarked upon a wide-spread retraining of all its sales
associates. Specific emphasis was placed on determining the customer's
wants and needs and understanding how to best meet these needs. All sales
associates now attend frequent in-house training sessions conducted by
experienced employees or manufacturers' representatives and receive sales,
product and other information in daily manager meetings. Certain sales
associates specialize in a particular product category to provide customers
with an increased level of technical assistance. These specialized
associates are an important part of the Company's "team" selling approach.
The Company's sales associates are paid on a commission basis. Commissions
are determined on the basis of profitability, inventory management and
other considerations. The Company also motivates its sales associates by
providing opportunities for advancement within the Company.
Services
The Company supports its merchandise sales by providing a number of
important customer services, including: an established service department
offering in-home and carry-in repair services at all store locations; home
delivery; optional extended warranty contracts; extensive product
instruction; and various sales financing programs.
Virtually all merchandise purchased from the Company may be returned to any
of the Company's stores for repair, whether the product is under
manufacturer's warranty, an extended service protection contract or out of
warranty. The Company's service facility, located at its distribution
center in Columbus, Ohio, is one of the largest service centers in Ohio and
has been designated as an authorized service center by most of the
Company's suppliers. The Company operates a fleet of trucks, which enables
it to provide in-home repair and service for its products. Additionally,
the Company utilizes independent contractors where necessary to provide
service to certain markets.
At the time of purchase, each customer may elect to purchase an extended
service plan contract, which provides warranty coverage beyond the duration
of the manufacturer's warranty. Generally, these plans provide one to five
years of extended warranty coverage that helps ensure post-sale customer
satisfaction.
The Company periodically conducts free in-store classes to demonstrate the
use and operation of selected merchandise. These classes are particularly
useful to customers for newly introduced products and for those products
that require some skill in operation, such as video camcorders and personal
computers.
The Company accepts most major credit cards and introduced its own private
label credit card in fall 1990. The Company has transferred the credit risk
and administration and operations on its private label credit card to third
parties. Purchases under installment sales contracts may be arranged by the
Company through independent financing companies without recourse to the
Company.
7
<PAGE> 8
STORE OPERATIONS
All of the Company's stores are located in high visibility, high traffic
commercial areas, including free-standing sites and strip shopping centers
in major regional shopping areas. Each store has large, readily
identifiable signage, easy access from major roads and adequate customer
parking. The stores range in size from approximately 16,000 to 65,000
square feet and have an average of 24,000 square feet of selling space. The
stores are open seven days and six nights per week, including most
holidays.
The following table indicates the number of stores opened and closed over
the past three fiscal years. In fiscal 1998, stores in Canton and Findlay,
Ohio were replaced by new stores, which the Company believes will be
stronger performing locations.
<TABLE>
<CAPTION>
Fiscal
---------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Number of stores open at beginning of period............ 41 46 43
Number of stores opened during period................... 12 7 5
Number of stores closed during period................... 2 12 2
-- -- --
Number of stores open at end of period 51* 41 46
== == ==
* 58 as of May 15, 1998
</TABLE>
The Company attains store operating efficiencies through comprehensive
merchandise, personnel and information controls. Changes in store operating
procedures and pricing policies are established by senior management at its
headquarters and are disseminated to each store through daily electronic
mail messages and weekly manager meetings. The Company has re-evaluated its
store level management structure during fiscal 1998. Currently, each
store's management structure is in proportion with the size/volume of the
store. Four district managers, who report to the Company's Vice President
of Field Operations, also supervise store operations.
DISTRIBUTION
The Company leases approximately 639,000 square feet of an approximately
800,000 square foot facility in Columbus, Ohio. Approximately 582,000
square feet is devoted to warehousing and distribution. All of the
Company's stores are located within a 400 mile radius of this facility. The
close proximity of the distribution center to the stores allows the Company
to make relatively frequent deliveries to each store, enabling the Company
to minimize in-store out-of-stocks. The Company believes that its
distribution center provides it with significant labor, merchandise and
freight savings by consolidating receiving and handling functions and by
enabling the Company to purchase in full truckloads from suppliers.
INFORMATION SYSTEMS
During fiscal 1997, the Company implemented an integrated retail management
information system. This system provides management with the information
necessary to manage the business more effectively and efficiently. The
system provides current inventory levels, and price and volume information
by stock keeping unit ("SKU") to allow the Company to better manage its
inventory investment. The system also provides vendor analysis, monitors
sales and store activity on a daily basis, captures marketing and customer
information, tracks productivity by sales associate and controls the
Company's accounting operations.
8
<PAGE> 9
The host computer is integrated with the Company's PC-based point-of-sale
system, which serves as the collection mechanism for all sales activity.
The Company's PC-based point of sale system and software are being replaced
to provide for efficient and controlled integration in the Company's
management information system. This will allow for same-day review of
inventory levels and sales by store including SKU, as well as enable
management to track merchandise from receipt at the distribution center
until time of sale. This capability allows the merchandise staff to confirm
delivery of products, to monitor future delivery dates and to improve
merchandise selection and product pricing. Some of the Company's existing
stores have already been converted to the new point of sale system,
however, all stores opened during fiscal 1998 and thus far in fiscal 1999
have the new point of sale system. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year 2000."
SEASONALITY
The Company's business is seasonal. As is the case with many other
retailers, the Company's net sales and service revenues and income from
operations are greater during the fall holiday selling season than during
other periods of the year. The Company's February fiscal year end, somewhat
mitigates broad revenue swings in quarterly reporting. Future quarterly
results for the Company may not necessarily follow this pattern due to the
timing and number of new store openings and general economic conditions.
COMPETITION
The Company's business is intensely competitive in all product categories.
Competition is based primarily on price, although store location, product
selection and service are also significant factors. In general, the
Company's competitors include other specialty stores, independent
electronics and appliance stores, department stores, warehouse clubs, mass
merchandisers, discount stores and catalog showrooms, many of which are
national in scope. In the future, there can be no assurance that the
Company will not face additional competition in its markets from new or
existing competitors.
EMPLOYEES
As of February 28, 1998, the Company employed approximately 2,900 persons,
2,100 of whom were full-time employees. The Company is not a party to any
collective bargaining agreement and is not aware of any efforts to unionize
its employees. The Company considers its relations with employees to be
good.
SERVICE MARKS
The Company has developed common law rights in its service marks. The
Company owns federal registrations for the marks SUN TELEVISION &
APPLIANCES, INC., SUN TELEVISION & APPLIANCES WHERE YOU KNOW YOU PAY LESS
and Design, SUN $UPER $AVINGS CENTERS and Design, QUICK WIZ and Design, and
CRUISE LINE TRAVEL THE WORLD and Design. SUN TELEVISION & APPLIANCES, INC.,
SUN SAVINGS CENTERS and SUN SUPER SAVINGS CENTER are registered in the
State of Ohio. SUN TELEVISION & APPLIANCES and SUN SUPER SAVING CENTERS and
Design are registered in the Commonwealth of Pennsylvania.
BUSINESS RISKS
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. In addition to the
other information in this report, readers should carefully consider the
following important factors, which, among others, in some cases have
affected, and in the future could affect, the Company's actual results and
could cause the Company's actual consolidated results of operations for
fiscal 1999 and beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
9
<PAGE> 10
Operating Losses. The Company has experienced operating losses of ($26.3)
million and ($46.6) million for fiscal 1998 and fiscal 1997, respectively.
While management is in the process of implementing the Company's business
turnaround plan, there can be no assurance that this plan will be
successful and that the Company will be able to avoid operating losses in
the future.
Future Capital Needs; Uncertainty of Additional Financing. The Company
anticipates that its financing resources will be sufficient to meet its
estimated working capital and capital expenditure requirements both for the
short-term and through fiscal 1999. The Company will continue to evaluate
all financing alternatives that may be available including public or
private debt or equity financings in order to respond to competitive
pressures. If additional funds are raised through the issuance of equity
securities, the percentage ownership of then current shareholders of the
Company may be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's
common stock. There can be no assurance that additional financing will be
available on terms favorable to the Company, or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Competition. The Company encounters intense competition in all product
categories and competes with national, as well as local and regional
companies. Some of the Company's competitors have greater capital and other
resources. In addition, the Company may face additional competition in its
markets from new or existing competitors. See "Business - Competition."
Dependence on Suppliers. The Company is dependent on certain suppliers for
delivery of products that contribute significantly to the Company's sales.
The Company relies on favorable terms from its suppliers to obtain
merchandise, and has no continuing contracts with its suppliers for the
purchase of merchandise. While the Company believes that alternative
suppliers are available, the loss of a key supplier or the inability to
obtain merchandise on terms favorable to the Company could have an adverse
effect on the Company's business.
Product Demand. The presence or lack of new products or product features,
as well as the expectation of new product categories that the Company sells
has an impact on the Company's business. The timing of the announcement and
the introduction of new technology and new products similar to products
offered by the Company can have a material adverse affect on the Company's
ability to market products currently available from manufacturers and
offered by the Company. Sales of merchandise such as that offered by the
Company are likely to be affected by adverse trends in the general and
regional economies, as well as the availability of consumer credit. In many
of the Company's product categories, prices for comparable units have
declined each year, a trend that the Company expects to continue.
Quarterly Fluctuations and Seasonality. Similar to most retailers, the
Company's business is seasonal, with revenues and earnings being generally
lower during the first half of each fiscal year and greater during the
second half of the fiscal year, which includes the holiday selling season.
In addition, the Company's working capital needs are seasonal, with the
Company's greatest working capital requirements occurring during the second
half of each fiscal year. Accordingly, the Company's operating results may
be affected by holiday spending patterns, as well as the timing of new
store openings and general economic conditions.
Volatility of Stock Price. The market price of the Company's common stock
is subject to significant fluctuations in response to variations in
quarterly operating results, as well as numerous other factors. In
addition, the stock market in recent years has experienced extreme price
and volume fluctuations that often have been unrelated or disproportionate
to the operating performance of companies. These broad fluctuations may
affect adversely the market price of the Company's common stock.
10
<PAGE> 11
ITEM 2. PROPERTIES.
The following table sets forth data regarding the Company's current store
locations:
<TABLE>
<CAPTION>
Gross Approximate Lease
Year Square Selling Expiration
Opened Footage Space(1) Date(2)
------ ------- -------- -------
<S> <C> <C> <C> <C>
Columbus Area Locations:
Alum Creek Drive 6/1995 50,100 39,630 6/2025
Morse Road 10/1993 65,000 53,426 Owned
West Broad Street 1973 19,393 10,808 Owned
Sawmill Road 11/1994 60,000 47,463 10/2030
Brice Road 11/1991 30,000 22,290 11/2016
Northern Ohio Locations:
Warren 9/1991 26,550 15,019 Owned
Mentor 10/1991 34,950 23,334 10/2011
North Olmsted 10/1991 40,952 27,967 10/2011
Chapel Hill 11/1991 25,000 15,393 11/2011
Parma 11/1991 26,810 14,492 9/2011
North Randall 10/1996 73,128 49,929 9/2026
Elyria 7/1992 22,282 15,344 7/2012
Mayfield Heights 10/1992 19,450 13,144 7/2007
Rosemont 11/1992 25,500 20,410 11/2012
Boardman 11/1992 30,080 20,896 Owned
Cincinnati Locations:
Colerain 11/1994 56,920 46,463 Owned
Florence, Kentucky 11/1994 56,920 46,863 10/2030
Eastgate 9/1995 48,820 37,872 Owned
Western Hills 11/1997 21,239 16,667 3/2014
Fields Ertel 11/1997 20,910 15,767 2/2014
Other Ohio Locations:
Newark/Heath 10/1996 30,400 23,707 10/2026
Zanesville 10/1986 25,600 19,132 6/2015
Mansfield/Ontario 11/1986 35,878 24,055 Owned
Chillicothe 10/1996 30,400 23,707 9/2021
Findlay 10/1987 39,902 26,533 10/2009
Canton 11/1989 42,063 31,567 11/2007
Steubenville 2/1991 25,035 13,206 2/2011
Lima 10/1994 43,100 28,590 10/2030
St. Clairsville 9/1995 43,000 27,089 Owned
Lancaster 11/1995 40,950 33,552 11/2020
Pittsburgh Area Locations:
Mars Cranberry 10/1988 23,000 12,114 10/2004
West Mifflin Century 7/1989 45,210 31,400 7/2016
Monroeville 11/1989 33,547 22,787 11/2009
McKnight Road 6/1990 26,820 16,282 6/2010
Scott Township 7/1990 20,374 11,997 6/1998
Robinson Township 12/1992 22,220 16,742 12/2012
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Other Pennsylvania Locations:
Erie 12/1992 36,960 25,388 Owned
Washington 12/1992 21,000 13,812 10/2007(3)
Johnstown 9/1993 30,281 23,384 9/2018
Pottsville 11/1997 29,937 20,653 3/2005
West Virginia Locations:
Beckley 9/1996 59,267 38,744 9/2019
Charleston 6/1996 45,000 34,929 6/2026
Parkersburg 3/1993 34,580 22,431 2/2003
Huntington 11/1996 30,403 23,937 11/2031
Indiana Location:
Columbus 11/1997 21,449 15,440 3/2015
Tennessee Location:
Morristown 11/1997 25,551 17,174 2/2011
Virginia Locations:
Staunton 12/1997 21,795 16,420 9/2004
Christiansburg 12/1997 26,063 17,519 9/2004
Kentucky Locations:
Frankfort 11/1997 21,006 16,003 11/2002
Owensboro 11/1997 23,858 17,951 5/2005
Alexandria 11/1997 16,071 11,842 10/2002
Closed Store Locations(6)
Salem Mall (Ohio) 12/1994 40,710 -- 12/2009(4)
Dayton Mall (Ohio) 12/1994 50,000 -- 12/2014(4)
Beavercreek (Ohio) 3/1996 49,776 -- 3/2011(4)
Henrietta (New York) 9/1993 40,672 -- 9/2008(4)
Greece (New York) 10/1993 50,000 -- 10/2008(4)
Walden (New York) 11/1993 40,000 -- 11/2008(5)
Amherst (New York) 12/1993 40,011 -- 12/2008(5)
McKinley (New York) 12/1993 40,000 -- 12/2008(5)
</TABLE>
- ---------------------------
(1) Selling space is total square footage less the Company's estimate of
space per store not used for selling merchandise.
(2) Includes all renewal options, unless otherwise indicated.
(3) Although this lease has a 15-year term, the lease provides for a
buyout, which can be exercised by the landlord at any time after
September 1998 if the adjacent tenant desires to acquire additional
space.
(4) Lease expiration date is for original lease term.
(5) Reopened in May 1998
(6) During fiscal 1998, the Company sold property located in Springfield,
Ohio, that represented the ninth store location closed in fiscal 1997.
12
<PAGE> 13
In addition to the properties listed above, the Company owns sites in
Cuyahoga Falls and Chillicothe, Ohio. However, the Company does not operate
retail stores out of these locations. The Company is still in the process
of negotiating with landlords on some of the closed stores during fiscal
1998. Management believes it is likely that such outstanding lease issues
will be resolved in fiscal 1999, and that any resulting liability will not
have a material adverse effect on the Company's financial position or
results of operations.
On June 30, 1997, the Company completed a sale leaseback transaction on its
warehouse, distribution center and corporate office facility. Under the
terms of the transaction, the Company sold the property to Duke Realty
Limited Partnership for proceeds of $19.9 million and signed an initial
10-year lease on the property with renewal options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. Although the ultimate resolution of pending
proceedings cannot be determined, in the opinion of management, the
resolution of such proceedings in the aggregate will not have a material
adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET PRICES
The Company's common stock is traded on the over-the-counter market. The
following table sets forth the high and low sales prices of the common
stock.
Fiscal 1998 Fiscal 1997
------------------ -------------------
High Low High Low
---- --- ---- ---
1st Quarter $2.4375 $1.0625 $5.1875 $3.3125
2nd Quarter 2.8125 1.7500 5.2500 3.1875
3rd Quarter 3.4375 2.1875 3.5000 2.3750
4th Quarter 2.5000 1.5000 4.8750 1.9688
On May 15, 1998, the last reported sale price for the Company's common
stock on the NASDAQ National Market was $2.250 per share. As of May 15
1998, there were approximately 822 holders of record of the Company's
common stock.
STOCK LISTING
Traded: NASDAQ-NM
Symbol: SNTV
DIVIDENDS
The Company has not paid a dividend since the second quarter of fiscal
1997. The Company paid a quarterly dividend of $.00875 in May and August
1996 and in each quarter of fiscal 1996.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED FEBRUARY 28, 1998, MARCH 1, 1997, MARCH 2, 1996, FEBRUARY 28, 1995,
AND 1994
(Amounts in thousands, except number of stores and per share data)
<TABLE>
<CAPTION>
1998 1997 1996(1) 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales and
service revenues................. $508,065 $683,386 $806,179 $751,883 $575,893
Gross profit........................ 117,925 149,714 200,156 191,933 151,188
(Loss) income from operations (26,331) (46,608) 14,306 30,749 27,935
Interest expense.................... 5,598 5,537 4,675 2,316 440
Net (loss) income before
extraordinary loss............. (31,894) (43,722) 6,591 17,531 16,965
Extraordinary loss.................. (1,657) (1,619) -- -- --
Net (loss) income................... (33,551) (45,341) 6,591 17,531 16,965
Net (loss) income before
extraordinary loss per share(2)
Basic.......................... (1.82) (2.51) 0.38 1.01 0.99
Diluted........................ (1.82) (2.51) 0.38 1.00 0.96
Extraordinary loss per share
Basic.......................... (.10) (.09) -- -- --
Diluted........................ (.10) (.09) -- -- --
Net (loss) income per share
Basic.......................... (1.92) (2.60) 0.38 1.01 0.99
Diluted........................ (1.92) (2.60) 0.38 1.00 0.96
Working capital..................... 65,080 58,071 95,768 97,937 90,100
Total assets........................ 222,355 257,598 285,342 280,005 218,613
Long-term debt...................... 58,971 41,007 30,000 30,000 --
Capital lease obligations 13,895 14,358 14,651 13,070 9,959
Stockholders' equity 75,141 108,083 153,516 147,232 130,264
Book value per common share(2) 4.31 6.20 8.84 8.52 7.54
Cash dividends per
common share(2)................ -- .0175 .035 .035 .035
Return on average
Stockholders' equity........... NA NA 4.4% 12.6% 14.0%
Number of common shares
outstanding at year end(2)..... 17,439 17,439 17,364 17,278 17,267
Weighted average shares(2)
Basic.......................... 17,439 17,407 17,291 17,274 17,185
Diluted........................ 17,439 17,407 17,430 17,536 17,669
Number of stores at year end 51(4) 41(3) 46 43 38
</TABLE>
(1) Beginning March 1, 1995, each fiscal year ends on the Saturday closest
to February month end. See Note 1 of "Notes to Financial Statements."
(2) Adjusted to reflect 2-for-1 stock split, effective July 22, 1993.
(3) Reflects the closing of nine stores previously announced and which
were closed the first week of March 1997.
(4) 58 as of May 15, 1998.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
A weak consumer electronics industry and increased competition in many of
its markets have adversely affected the Company's performance over the past
two years. As a result of refocused efforts and commitment to its
turnaround strategy, the Company reported significantly improved operating
results for fiscal 1998 as compared to fiscal 1997. The Company recorded a
net loss of ($33.6) million or ($1.92) per share for the fiscal year ended
February 28, 1998, as compared to a net loss of ($45.3) million or ($2.60)
per share for the fiscal year ended March 1, 1997 and net income of $6.6
million or $0.38 per share for the fiscal year ended March 2, 1996. The
following table sets forth the percentage relationship to net sales and
service revenues of certain income and expense items:
<TABLE>
<CAPTION>
Fiscal
-------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales and service
revenues.......................................... 100.0% 100.0% 100.0%
Cost of sales............................................. 76.8 78.1 75.2
------- ------- ------
Gross profit.............................................. 23.2 21.9 24.8
Selling, general and
administrative expenses........................... 28.3 26.2 23.0
Restructuring charge...................................... -- 2.4 --
Amortization of
intangibles....................................... .1 .1 .1
------- ------- ------
(Loss) income from operations............................. (5.2) (6.8) 1.7
Interest income........................................... -- .1 .1
Interest expense.......................................... (1.1) (.8) (.6)
Other .................................................... -- (.2) .1
------- ------- ------
(Loss) income before income taxes (6.3) (7.7) 1.3
Income tax (benefit) expense.............................. -- (1.3) .5
------- ------- ------
Net (loss) income before extraordinary loss (6.3) (6.4) 0.8
Extraordinary (loss)...................................... (.3) (.2) --
------- ------- ------
Net (loss) income................................. (6.6%) (6.6%) 0.8%
======= ======= ======
</TABLE>
NET SALES AND SERVICE REVENUES
Net sales and service revenues for fiscal 1998 were $508.1 million, a
decrease of $175.3 million (25.7%) from $683.4 million for fiscal 1997. The
decrease is attributable to a comparable store decrease of $92.9 million
(16.7%) and the closing of nine stores whose revenue for fiscal 1997
totaled $108.3 million. The decrease was offset by a full year's
contribution to revenues of six new stores (including three replacement
stores) opened during fiscal 1997 and twelve new stores (including two
replacement stores) opened in fiscal 1998. The Company opened five stores
in secondary or rural markets in connection with its rural market expansion
strategy in Pottsville, Pennsylvania; Frankfort, and Owensboro, Kentucky;
and Staunton and Christiansburg, Virginia. The Company also opened five
stores that were acquired from Steinberg's, Inc. Such stores are located in
Columbus, Indiana; Morristown, Tennessee; and Alexandria, Kentucky; as well
as two stores in the greater Cincinnati, Ohio area. The remaining two
openings in fiscal 1998, Canton and Findlay, Ohio, were replacement stores
for older, smaller locations.
The decline in comparable store sales is attributable to lackluster sales
in the consumer electronics industry and reduced selection of new and
innovative consumer electronics products. In addition, the Company
continued to experience increased competition in many of its markets during
fiscal 1998. The decline in sales was reflected in all of the Company's
major product categories, however, home office equipment reflected the
largest dollar declines,
16
<PAGE> 17
partially as a result of extensive price deflation during fiscal 1998 and
fiscal 1997. Television comprised 23.5% of the Company's net sales and
service revenues for fiscal 1998, while video was 11.0%, appliances 19.0%,
audio 11.8%, personal convenience 4.3%, and home office 23.8%. Television,
home office, and appliances percentage of net sales increased as compared
to fiscal 1997.
During fiscal 1995, the Company commenced selling third party extended
service policies, in addition to its own extended service policies. The
Company also entered into an agreement whereby a third party assumes
certain of the Company's extended service policies. The total amount of
service revenue recognized by the Company was 6.6% of net sales and service
revenues for fiscal 1998, fiscal 1997 and fiscal 1996. The amount of
revenues recognized during fiscal 1998 from third party service policies
was approximately 2.7% of net sales and service revenues versus 2.5% for
fiscal 1997 and 2.8% for fiscal 1996.
Net sales and service revenues for fiscal 1997 were $683.4 million, a
decrease of $122.8 million (15.2%) from $806.2 million for fiscal 1996. The
decrease was attributable to a comparable store sales decrease of $168.7
million (22.4%) offset by the opening of seven new stores in fiscal 1997
(including three replacement stores) and a full year's contribution to
revenues of the five new stores (including one replacement store) opened in
fiscal 1996. The decline in comparable store sales was attributable to
increased competition, as well as continuing soft sales in the consumer
electronics industry. In January 1997, the Company announced the closing of
nine stores in Buffalo and Rochester, New York, and Dayton and Springfield,
Ohio. Inventory at these locations was liquidated during the last two
months of fiscal 1997. Seven new stores were opened in fiscal 1997 as
follows: one each in Beavercreek Chillicothe, Newark, and North Randall,
Ohio; and Beckley, Charleston, and Huntington, West Virginia. The
Chillicothe, Newark, and North Randall stores were replacement stores for
older, smaller locations and the Beavercreek store was closed as part of
the Dayton market withdrawal.
GROSS PROFIT
Gross profit for fiscal 1998 was $117.9 million, a decrease of $31.8
million (21.2%) from the $149.7 million in fiscal 1997. As a percentage of
sales, gross profit for fiscal 1998 was 23.2% as compared to 21.9% for
fiscal 1997. The significant increase in gross profit percentage was a
result of the Company's improved inventory management and product mix in
connection with its turnaround strategy and commitment to improved
operational efficiencies. Gross profit represents total revenues less the
cost of merchandise sold, the cost of parts related to service contracts
retained by the Company, and the amounts payable to third parties related
to sales of third party service contracts and Company contracts assumed by
a third party. The gross profit rate related to service revenues is
substantially higher than the gross profit rate applicable to merchandise
sales.
Gross profit for fiscal 1997 was $149.7 million, a decrease of $50.5
million (25.2%) from the $200.2 million in fiscal 1996. As a percentage of
sales, gross profit for fiscal 1997 was 21.9%, compared to 24.8% for fiscal
1996. The decline in gross profit percentage was impacted by the
liquidation of inventory for the Company's nine closed store locations, as
well as fewer available discounts for volume rebates. These factors,
combined with the increased competitive environment, resulted in the 2.9%
decrease in gross profit percentage for fiscal 1997 versus fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses decreased by
$35.3 million (19.7%) to $143.8 million during fiscal 1998 from $179.1
million during fiscal 1997. The decrease is primarily attributable to
payroll, advertising and home delivery. The fiscal 1998 fourth quarter
selling, general, and administrative expenses included approximately $4.0
million of one-time non-cash adjustments. The charges resulted after an
exhaustive financial review and audit of the Company's accounting records.
The adjustments were necessary principally to account for uncollectible
accounts receivable. Without these charges, the Company's selling, general
and administrative expenses for fiscal 1998 would have decreased by $39.3
million from fiscal 1997.
17
<PAGE> 18
The Company's selling, general and administrative expenses during fiscal
1997 decreased by $6.3 million (3.4%) to $179.1 million from $185.4 million
during fiscal 1996. The decrease was attributable to a reduction in selling
payroll costs, partially offset by higher occupancy costs, higher third
party service repair costs and higher equipment rental costs for computer
and point of sale equipment. The decline in payroll was largely due to the
sales decrease this year as most sales associates are commission based.
Occupancy costs increased due to the opening of new stores, while the
higher third party service repair costs were more than offset by payroll
reductions in the service area.
RESTRUCTURING CHARGE
During fiscal 1997, the Company recorded for two restructuring charges
totaling $16.7 million. The Company recorded a charge for $2.0 million
during the first quarter for executive management severance pay and the
restructuring of the buying, logistics, store and field operations in an
effort to clarify accountability, streamline responsibilities and improve
operations. In the fourth quarter of fiscal 1997, the Company recorded a
$14.7 million restructuring charge primarily relating to the closing of
nine stores in the Buffalo and Rochester, New York and Dayton and
Springfield, Ohio markets.
At February 28, 1998, the Company has approximately $2.2 million remaining
in the restructuring reserve recorded during the fourth quarter of fiscal
1997. The Company believes this amount is adequate to resolve the
outstanding issues concerning closed store locations.
OTHER INCOME/EXPENSE
Interest expense increased $0.1 million in fiscal 1998 to $5.6 million from
$5.5 million in fiscal 1997. This relates to the Company's revolving credit
facility closed in November 1997, which had an interest rate of 9.0% as of
February 28, 1998, and the Company's $25 million term loan, which has a
fixed interest rate of 14.5%. Prior to November 1997, the Company's debt
structure consisted of a revolving credit facility with interest of either
prime rate +.50% or LIBOR +3.00%.
Interest expense increased $0.8 million in fiscal 1997 to $5.5 million from
$4.7 million in 1996. The increase is attributable to an increase in the
average amount borrowed during the year, as well as an increase in the
interest rate charged on the borrowings.
Other income for fiscal 1998 relates to the net gain on the sale of various
property and equipment. Other expense for fiscal 1997 included the loss on
the sale of certain property and equipment as well as the write-down of a
property to be disposed of to its estimated realizable value. Other income
for fiscal 1996 represents the net gain on the sale of property and
equipment and primarily relates to the sale of the former Sawmill Road
location.
EXTRAORDINARY LOSS
In the third quarter of fiscal 1998, the Company replaced its
collateralized revolving credit agreement with a new $100 million revolving
credit facility and a $25 million term loan. The new credit agreement
provides interest rates of the prime rate +.50% on the revolving credit
facility and a fixed rate of 14.5% on the term loan. Deferred financing
costs and prepayment costs relating to the previous collateralized
revolving credit agreement in the amount of $1,657,000 were written off as
an extraordinary item in the third quarter of fiscal 1998.
In the fourth quarter of fiscal 1997, the Company signed a three year
revolving credit agreement that provided for variable interest rate options
of LIBOR +3% and prime rate plus .50%. Proceeds from this credit agreement
were used to repay the Senior Note holders and the outstanding balance
under the Reducing Revolving Loan. In connection with the repayments, the
Company incurred certain prepayment costs on the Senior Notes as well as
legal and other fees which were reflected as an extraordinary loss in the
amount of $1,619,000.
18
<PAGE> 19
INCOME TAXES
The Company's effective income tax rate was 0% for fiscal 1998, 16.6% for
fiscal 1997 and 40.5% for fiscal 1996. The fiscal 1998 rate reflects the
fact that the Company is not currently in an income tax paying position due
to its operating losses and that it has provided a valuation allowance for
the amount of net deferred tax assets. The rate for 1997 reflects the
estimated Federal income tax receivable applicable to the loss incurred
this year less the write-off or reserve recorded against the deferred tax
assets which are estimated to not be recoverable until the Company returns
to profitability.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity for funding
expansion and growth have been net cash from operations and revolving
credit lines. During the third quarter of fiscal 1998, the Company entered
into a new credit agreement for a $100 million revolving credit facility
and a $25 million term loan which provided in excess of $30 million of
borrowing availability. In addition, the Company completed a sale/leaseback
transaction on its warehouse, distribution and corporate office facility,
located in Groveport, Ohio, that yielded cash proceeds of $19.9 million.
A continuing weak consumer electronics industry, and increased competition
in many of its markets, resulted in a net loss of $33.6 million for fiscal
1998. Cash and cash equivalents were reduced to $0 this year from $1.8
million last year and the current ratio was 2.12 as compared to 1.76 for
fiscal 1997. Net cash used in operating activities was $34.8 million in
fiscal 1998, compared to $6.9 million used in operating activities in
fiscal 1997 and $11.1 million provided in fiscal 1996. The increase in cash
used in operating activities is primarily attributable to the net loss for
the year, as well as the significant decrease in accrued liabilities.
The Company funded capital expenditures of $9.0 million during fiscal 1998
primarily through the $19.9 million proceeds from the sale/leaseback of its
warehouse, distribution and corporate office facility. The capital
expenditures included the opening of twelve new stores (two replacement
stores) during fiscal 1998. Capital expenditures of $19.7 million in fiscal
1997 were primarily for the seven new stores opened during that year and
were funded by the reduction of cash and cash equivalents and proceeds from
the disposal of property and equipment. Capital expenditures of $26.8
million in fiscal 1996 were for the completion of the new warehouse,
distribution, and corporate office facility and the five new stores (one
replacement store) opened during the year. Fiscal 1996 capital expenditures
were funded by cash provided by operating activities and proceeds from the
sale/leaseback of three stores and the disposal of property and equipment.
Total assets at February 28, 1998 were $222.4 million, a decrease of $35.2
million (13.7%) from March 1, 1997. Decreases of $5.2 million in inventory,
$1.8 million in cash and cash equivalents, $25.9 million in property and
equipment, $10.3 million in deferred taxes and $4.3 million in income taxes
refundable were partially offset by increases of $6.6 million in trade
accounts receivable and $5.1 million in other non-current assets. The
decrease in inventory reflects the closing of nine stores, as well as
better inventory management. The decrease in cash and cash equivalents
reflects the use of funds towards the Company's net loss during fiscal
1998. The decrease in property and equipment reflects the sale-leaseback of
the Company's corporate office facility and distribution center. The
decrease in income taxes refundable reflects the limit of the Company's
applicable net operating loss carry-backs. The decrease in deferred taxes
reflects the Company's reserving for deferred tax assets that are not/may
not be utilizable due to the Company's uncertainty to produce future
income. These decreases were partially offset by the trade accounts
receivable increase of $6.6 million attributable to the increased emphasis
on installment finance contracts, and the other non-current assets increase
of $5.1 million that was attributable to the deferred financing costs on
revolving credit and term loan facility.
Stockholders' equity decreased 30.5% in fiscal 1998 from 1997 reflecting
the net loss for the year. The return on average stockholders' equity was
negative in fiscal 1998 and 1997, and 4.4% in fiscal 1996.
19
<PAGE> 20
In the third quarter of fiscal 1998, the Company replaced its
collateralized revolving credit agreement with a new $100 million revolving
credit facility and a $25 million term loan, both due February 28, 2000.
The new credit facility provides a variable interest rate of prime rate
plus .50% and the term loan provides a fixed rate of 14.5%. The credit
facility and term loan are collateralized by substantially all of the
Company's personal property and owned real property. Proceeds of the new
facility and term loan were used to repay the previous collateralized
revolving credit agreement. Deferred financing costs and prepayment costs
relating to the previous collateralized credit agreement in the amount of
$1,657,000 were written off as an extraordinary item in the third quarter
of fiscal 1998.
The Company's primary capital requirements during fiscal 1998 have been for
the twelve new stores opened during the year. At the end of fiscal 1998,
the Company is continuing its rural market expansion strategy and plans to
open up to 20 stores in fiscal 1999. The Company estimates that capital
expenditures for these will be approximately $8 to $12 million, depending
on the number of stores opened. The Company anticipates funding these
expenditures, as well as funding its operating losses, through its existing
credit agreement. In addition, the Company is exploring additional
financing alternatives to continue to improve the Company's liquidity
position and provide additional capital for the opening of additional
stores in line with its business strategy.
YEAR 2000
The Company is in the process of evaluating its information technology
infrastructure for compliance with the year 2000 ("Y2K"). During fiscal
1997, the Company installed an integrated retail management system that the
Company believes is Y2K compliant. Certain peripheral support software is
still being reviewed, and may need to be modified to be compliant.
The Company does not expect that the cost to be Y2K compliant will be
material to its financial condition or results of operations. The costs are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those plans. The Company
does not anticipate any material disruption in its operations as a result
of any failure by the Company to be in compliance.
The Company is in the process of obtaining, but does not currently have,
complete information concerning the Y2K compliance status of it suppliers
and vendors. In the event that any of the Company's significant suppliers
or vendors do not successfully and timely achieve Y2K compliance, the
Company's business or operations could be adversely affected.
NEW FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income," which is required to
be adopted for fiscal years beginning after December 31, 1997. The
Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The components of comprehensive income refer to
revenue, expenses, gains and losses that previously have been recorded
directly in equity.
Also in June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is required to be
adopted for fiscal years beginning after December 15, 1997. The Statement
changes the way public companies report segment information in annual
financial statements and also requires those companies to report selected
segment information in interim financial reports to shareholders. Adoption
of this standard is not expected to have a material impact on the Company's
financial position or results of operations.
20
<PAGE> 21
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures About Pensions and Other Post-Retirement Benefits," which is
required to be adopted for fiscal years beginning after December 15, 1997.
The Statement adds additional disclosure requirements to facilitate
financial analysis and removes certain disclosures no longer considered as
useful as in the past. Adoption of this standard is not expected to have a
material impact on the Company's financial position or results of
operations.
On April 13, 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." (SOP 98-5). The SOP requires that costs incurred during
start-up activities be expensed as incurred. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998. Adoption of this statement
is not expected to have a material impact on the Company's financial
position or results of operations.
FUTURE COMPETITION
Fiscal 1998 brought competition in the Company's major markets. This was
one of many factors that impacted sales volume, gross profit margins and
expense rates during fiscal year 1998. The Company was pleased with the
results of its new marketing plan announced during fiscal 1998, "Sun
Revolves Around You," and is continuing to focus on customer service
issues, along with being the low-price leader, to ensure that it will
remain highly competitive in its existing markets.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained
in this report or made by management of the Company involve risks and
uncertainties, and are subject to change based on various important
factors. The following factors, among others, in some cases have affected
and in the future could affect the Company's financial performance and
actual results and could cause actual results for fiscal 1999 and beyond to
differ materially from those expressed or implied in any such
forward-looking statements: changes in consumer spending patterns, consumer
preferences and overall economic conditions; technological changes; future
capital needs; uncertainty of additional financing; competition; dependence
on suppliers, product demand, quarterly fluctuations and seasonality; and
volatility of stock price.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not applicable.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------------
February 28, March 1, March 2,
1998 1997 1996
------------ -------- --------
<S> <C> <C> <C>
Net sales and service revenues $508,065 $683,386 $806,179
Cost of sales...................................... 390,140 533,672 606,023
-------- -------- --------
Gross profit................................. 117,925 149,714 200,156
Selling, general and administrative expense........ 143,763 179,106 185,356
Restructuring charge (Note 10)..................... -- 16,723 --
Amortization of intangibles........................ 493 493 494
-------- -------- --------
(Loss) income from operations................ (26,331) (46,608) 14,306
-------- -------- --------
Other income (expense):
Interest income................................. 16 460 549
Interest expense................................ (5,598) (5,537) (4,675)
Other........................................... 19 (709) 895
-------- -------- --------
(5,563) (5,786) (3,231)
-------- -------- --------
(Loss) income before income taxes
and extraordinary loss................... (31,894) (52,394) 11,075
Income tax (benefit) expense (Note 6)............. -- (8,672) 4,484
-------- -------- --------
Net (loss) income before extraordinary
loss........................................ (31,894) (43,722) 6,591
Extraordinary loss related to early
extinguishment of debt, net
of income tax benefit.......................... (1,657) (1,619) --
-------- -------- --------
Net (loss) income................................. $(33,551) $(45,341) $ 6,591
======== ======== ========
Basic and diluted per share
amounts:
(Loss) income before extraordinary
loss........................................ $ (1.82) $ (2.51) $ 0.38
Extraordinary loss............................. (.10) (.09) --
-------- -------- --------
Net (loss) income.............................. $ (1.92) $ (2.60) $ 0.38
======== ======== ========
Weighted average shares outstanding:
Basic....................................... 17,439 17,407 17,291
======== ======== ========
Diluted..................................... 17,439 17,407 17,430
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 23
BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS February 28, March 1,
1998 1997
------------ --------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ -- $ 1,828
Trade accounts receivable, net of allowance
for doubtful accounts of $475................................ 18,186 11,597
Income taxes refundable......................................... 10,338 14,619
Merchandise inventory........................................... 92,053 97,253
Prepaid expenses and other...................................... 2,867 1,679
Deferred income taxes (Note 6).................................. -- 7,224
-------- --------
Total current assets.......................................... 123,444 134,200
-------- --------
Property and equipment, net (Note 2).............................. 78,782 104,719
Deferred income taxes (Note 6).................................... -- 3,114
Other non-current assets.......................................... 6,069 1,012
Intangible assets................................................. 14,060 14,553
-------- --------
Total assets.................................................. $222,355 $257,598
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................................ $ 25,221 $ 28,492
Accrued liabilities (Note 9).................................. 20,629 31,604
Current portion of deferred revenue........................... 12,514 16,033
-------- --------
Total current liabilities................................. 58,364 76,129
-------- --------
Capital lease obligations (Note 5)................................ 13,895 14,358
Deferred revenue, noncurrent...................................... 13,259 18,021
Long-term debt (Note 4)........................................... 58,971 41,007
Other liabilities................................................. 2,725 --
-------- --------
Total liabilities......................................... 147,214 149,515
-------- --------
Commitments and contingencies (Notes 5 and 11)
Stockholders' equity (Note 7):
Preferred stock, $.01 par value, 500 shares
authorized, none issued...................................... -- --
Common stock, $.01 par value, 30,000 shares
authorized, 17,439 shares issued
and outstanding.............................................. 174 174
Additional paid-in capital.................................... 89,089 88,480
Retained earnings............................................. (14,122) 19,429
-------- --------
Total stockholders' equity................................ 75,141 108,083
-------- --------
Total liabilities and stockholders' equity................ $222,355 $257,598
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 24
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 1998, MARCH 1, 1997, AND MARCH 2, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Additional Total
Number Paid-In Retained Stockholders'
of Shares Amount Capital Earnings Equity
--------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1995........... 17,278 $ 173 $87,971 $59,088 $147,232
Shares issued under stock
options and restricted stock.... 86 1 297 - 298
Net income.......................... - - - 6,591 6,591
Cash dividends
($0.035 per share)............. - - - (605) (605)
------ ---- ------- -------- --------
Balance, March 2, 1996............... 17,364 174 88,268 65,074 153,516
Shares issued under stock
options and restricted stock... 75 - 212 - 212
Net loss............................ - - - (45,341) (45,341)
Cash dividends
($0.0175 per share)............ - - - (304) (304)
------ ---- ------- -------- --------
Balance, March 1, 1997............... 17,439 174 88,480 19,429 108,083
Issuance of warrants and stock
option expense................... - - 609 - 609
Net loss............................ - - - (33,551) (33,551)
------ ---- ------- -------- --------
Balance, February 28, 1998........... 17,439 $174 $89,089 $(14,122) $ 75,141
====== ===== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 25
STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended,
-----------------------------------------------
February 28, March 1, March 2,
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income $(33,551) $(45,341) $6,591
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 10,097 9,567 8,059
Deferred income (8,281) (5,656) (1,138)
Deferred income taxes 10,338 6,188 (625)
(Gain) loss on sale of property and equipment (19) 109 (894)
Stock options expense 242 -- --
Restructuring charge -- 16,723 --
Impairment of long-lived assets -- 600 --
Changes in items affecting operations:
Trade accounts receivable (6,589) 6,992 776
Merchandise inventory 5,200 17,525 1,404
Prepaid expenses and other (1,188) 1,703 (1,639)
Other non-current assets 1,516 -- --
Trade accounts payable (5,359) 8,392 (1,203)
Accrued liabilities (11,456) (5,144) 2,347
Income taxes refundable 4,281 (18,554) (2,534)
-------- -------- -------
(13,595) 10,914 (849)
-------- -------- -------
Net cash (used in) provided by operating activities (34,769) (6,896) 11,144
-------- -------- -------
Cash flows from financing activities:
Cash overdraft 2,088 -- --
Net borrowings (repayments) under revolving
credit agreement (10,549) 39,927 23,000
Repayment of short-term bank credit line borrowing -- -- --
Issuance of long-term debt and common stock warrants 25,000 -- --
Repayment of long-term debt -- (30,000) --
Reduction of capital lease obligations (463) (293) (423)
Issuance of common stock under stock options
and restricted stock 4 212 298
Cash dividends on common stock -- (304) (605)
-------- -------- -------
Net cash provided by (used in) financing activities 16,080 9,542 (730)
-------- -------- -------
Cash flows from investing activities:
Additions to property and equipment (9,014) (19,702) (26,797)
Proceeds from sale/leaseback 19,937 -- 10,446
Proceeds from disposal of property and equipment 5,938 5,301 2,784
-------- -------- -------
Net cash provided by (used in) investing activities 16,861 (14,401) (13,567)
-------- -------- -------
Decrease in cash and cash equivalents (1,828) (11,755) (3,153)
Cash and cash equivalents, beginning of year 1,828 13,583 16,736
-------- -------- -------
Cash and cash equivalents, end of year $ -- $ 1,828 $13,583
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,624 $ 3,825 $ 2,783
Income taxes 272 3,130 9,148
Supplemental schedule on non-cash investing and
financing activities:
Capital lease obligations $ -- $ -- $ 2,004
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 26
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
Pursuant to shareholder approval in July 1994, Sun Television and
Appliances, Inc. (the "Company") was reincorporated in the state of Ohio.
Subsequently, the Board of Directors of the Company approved the merger of
the wholly owned subsidiary into the Company.
The financial statements include the accounts of Sun Television and
Appliances, Inc., and its wholly owned subsidiary through the date of the
merger and the accounts of the Company since that date. The Company is a
specialty retailer of consumer electronics and home appliances.
CHANGE IN FISCAL YEAR:
Effective with the beginning of fiscal 1996, the Company changed its fiscal
year end to the Saturday closest to February 28 from a calendar month-end
of February. The twelve months ended March 2, 1996 contained 368 days.
Fiscal years 1997 and 1998 contained 52 weeks.
REVENUE RECOGNITION:
Revenues from the sale of merchandise are recognized at the time that the
customer accepts physical possession of the merchandise.
The Company also sells service contracts that extend beyond the
manufacturers' warranty period, usually with terms of coverage (including
the manufacturers' warranty period) between 12 and 60 months. Revenues from
the sale of service contracts, net of direct selling expenses, are deferred
at the time of sale and amortized on a straight-line basis over the lives
of the contracts, in accordance with Financial Accounting Standards Board
("FASB") Technical Bulletin No. 90-1, "Accounting for Separately Priced
Extended Warranty and Product Maintenance Contracts." In fiscal 1994, the
Company entered into an agreement with a subsidiary of an insurance company
under which the insurance company subsidiary assumes, for a specified fee
(which is remitted over the term of the contract), certain extended service
contracts purchased by customers of the Company.
In addition, the Company sells extended service policies concerning
specific products that are sold by the Company on behalf of unrelated third
parties. Commission revenue is recognized at the time of sale.
ADVERTISING EXPENSE:
The advertising expenses for February 28, 1998, March 1, 1997, and March 2,
1996 were $22,467,000, $31,216,000 and $31,239,000, respectively.
Advertising expenses incurred during the year are expensed at the time the
promotion first appears in the media or in the stores.
MERCHANDISE INVENTORY:
Inventory is valued at the lower of most recent cost or market at the
balance sheet date that approximates cost using the first-in, first-out
(FIFO) method.
PRE-OPENING EXPENSES:
Costs of opening new stores are capitalized and amortized on a
straight-line basis over the twelve-month period following the store
opening.
IMPAIRMENT OF LONG-LIVED ASSETS:
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
26
<PAGE> 27
INTANGIBLE ASSETS:
In accordance with purchase accounting, the Company recorded certain
intangible assets as a result of an acquisition in 1986 including excess
purchase price over fair value of assets acquired of $19,734,000.
Management periodically considers whether there has been impairment in the
value of goodwill by evaluating various factors, including current and
projected operating results and undiscounted cash flows. The Company does
not believe there has been any material impairment in the carrying value of
its goodwill.
The excess purchase price is being amortized over 40 years on a
straight-line basis. Total accumulated amortization of intangible assets
was $5,674,000 at February 28, 1998 and $5,181,000 at March 1, 1997.
CASH EQUIVALENTS:
The Company includes all highly liquid debt instruments purchased with an
original maturity of three months or less as cash equivalents.
INCOME TAXES:
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for all temporary differences between
the financial reporting and tax basis of assets and liabilities based upon
enacted tax laws and statutory tax rates applicable to the periods in which
the temporary differences are expected to be recovered or settled.
EARNINGS PER SHARE:
For fiscal 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements.
The computation of basic earnings per common share for fiscal years 1998,
1997, and 1996 is based on the weighted average number of outstanding
common shares during the period. Diluted earnings per common share is based
on the weighted average number of outstanding common shares during the
period, plus, when their effect is dilutive, potential common shares
consisting of certain shares subject to stock options.
FINANCIAL INSTRUMENTS:
Cash and cash equivalents, trade accounts receivable, other current assets,
trade accounts payable, accrued liabilities, and other liabilities are
financial instruments for which the carrying amount approximates fair value
because of the short maturity of these instruments.
The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of the same remaining
maturities. The estimated fair value of the Company's long-term debt is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Revolving credit agreement (9.00% at February 28, 1998
and 8.75% at March 1, 1997,) due February 28, 2000
Carrying amount $34,307 $41,007
======= =======
14.5% term loan, due February 28, 2000
Carrying amount $24,664 $ --
======= =======
Fair value $58,971 $41,007
======= =======
</TABLE>
The carrying value of the term loan approximates fair value due to the
recent issuance.
27
<PAGE> 28
RISKS AND UNCERTAINTY:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Land............................................................ $ 10,975 $ 15,032
Buildings....................................................... 23,536 46,592
Leasehold improvements.......................................... 21,375 16,877
Furniture, fixtures and equipment............................... 39,501 36,529
Vehicles........................................................ 1,338 1,442
Capital lease-buildings......................................... 15,754 15,754
-------- --------
112,479 132,226
Less accumulated depreciation and
amortization............................................... 33,697 27,507
-------- --------
$ 78,782 $104,719
======== ========
</TABLE>
Depreciation and amortization, which includes the amortization of capital
leases, is recognized on the straight-line method in amounts adequate to
allocate costs over the following estimated useful lives: Buildings, 30 to
39 years; capital leases, 15 to 20 years; leasehold improvements, 5 to 20
years; furniture, fixtures and equipment, 3 to 7 years; and vehicles, 3
years. Accumulated amortization related to capital leases was $3,725 and
$2,972 at February 28, 1998 and March 1, 1997, respectively.
Expenditures for maintenance, repairs and minor renewals are charged to
operating expenses as incurred; major renewals and betterments are
capitalized. Disposals are removed from the asset and accumulated
depreciation or amortization accounts, and any profit or loss from
disposition is included in operations.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the fourth quarter of fiscal 1994, the Company entered into an
agreement with a wholly-owned subsidiary of a publicly held corporation
pursuant to which the wholly-owned subsidiary assumed certain extended
service contracts purchased by customers of the Company. A director of the
Company has a financial interest in the publicly held corporation. The
extended service contract payable included in Note 9 represents the amounts
due in connection with this agreement.
28
<PAGE> 29
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Revolving credit agreement (9.00% at February 28, 1998
and 8.75% at March 1, 1997,) due February 28, 2000
Carrying amount $34,307 $41,007
======= =======
14.5% term loan, due February 28, 2000
Carrying amount $24,664 $ --
======= =======
Fair value $58,971 $41,007
======= =======
</TABLE>
During the quarter ended November 29, 1997, the Company replaced its
collateralized revolving credit agreement with a new revolving credit
agreement due February 28, 2000, and a $25,000,000 term loan due February
28, 2000. The new revolving credit agreement and the term loan are
collateralized by substantially all of the Company's inventory, personal
property, and mortgages on owned real estate. The Company may borrow up to
a maximum of $100,000,000 on its new revolving credit facility depending on
inventory and receivable levels. The revolving credit and term loan
agreements include three primary covenants: minimum EBITDA requirements,
minimum inventory requirements, and maximum capital expenditures. In
addition, the Company is restricted from paying dividends. The Company is
in compliance with all of the covenants of its debt agreements. The daily
cash receipts of the Company will pay down the line of credit, while daily
disbursements will become draws on the line of credit. Costs relating to
obtaining the new revolving credit agreement and term loan in the amount of
$6,573,000 have been deferred and will be amortized to interest expense
over the term of the revolving credit agreement and term loan. Deferred
financing costs and prepayment costs relating to the collateralized
revolving credit agreement in the amount of $1,657,000 were written off as
an extraordinary item in the third quarter. The Company must pay a
quarterly fee of 0.375% percent on the unused portion of the revolving
credit facility.
In connection with the new financing, the Company has issued to the lenders
a warrant to purchase up to 400,000 shares of common stock at a price of
$2.50 per share. A fair value of approximately $363,000 has been allocated
to the warrant. The resulting debt discount will be amortized to interest
expense over the life of the term loan. The warrant may be exercised in
part and will expire upon full exercise or one year after the maturity of
the term loan.
In the fourth quarter of fiscal 1997, the Company retired the reducing
revolving credit notes and the senior notes, replacing both credit
facilities with one collateralized revolving credit agreement. The
revolving agreement had a term of three years, was due February 28, 2000,
and was collateralized by inventory and receivables. The Company could
borrow up to a maximum of $100,000,000, depending primarily on inventory
levels. Interest on borrowings would be prime rate +.50% or LIBOR +3.00%,
depending on how the Company chose to borrow funds. The daily cash receipts
of the Company paid down the line of credit. The most restrictive covenant
detailed the granting of liens on most of the Company's current assets. In
addition, the Company was restricted on the payment of dividends to a
maximum of $750,000 per year.
29
<PAGE> 30
NOTE 5 - LEASES
The Company leases store and distribution sites and equipment under various
capital and operating leases.
The Company's required payments for the next five years and in the
aggregate on capital lease obligations outstanding at February 28, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1999 $2,005
2000 2,082
2001 2,116
2002 2,133
2003 2,146
Thereafter 16,422
------
Net minimum lease payments under capital leases 26,904
Less amount representing interest 12,546
------
Present value of net minimum lease payments under
capital leases 14,358
Less current portion 463
-------
Total long-term capital lease obligations $13,895
=======
</TABLE>
The Company leases store and distribution sites and equipment under various
leases classified as operating leases. The store leases expire from June
1998 to November 2031. The equipment leases expire on various dates through
March 2002. Certain leases contain renewal options for periods from five to
fifteen years. Rent expense was $13,898,000, $13,217,000, and $10,485,000,
for the years ended February 28, 1998, March 1, 1997, and March 2, 1996,
respectively.
In the third quarter of fiscal 1998, the Company completed a sale-leaseback
transaction on its warehouse, distribution and corporate office facility.
Under the terms of the transaction, the Company sold the property for $20
million less transaction costs, and signed an initial 10-year lease on the
property with renewal options.
At February 28, 1998, future minimum lease payments for all non-cancelable
leases and lease commitments with terms in excess of one year are as
follows (in thousands):
Property Equipment
Year Ending Leases Leases Total
----------- ------ ------ -----
1999 $ 13,559 $1,832 $ 15,391
2000 13,543 1,489 15,032
2001 12,961 1,068 14,029
2002 12,281 460 12,741
2003 12,069 34 12,103
Thereafter 68,476 -- 68,476
-------- ------ --------
$132,889 $4,883 $137,772
======== ====== ========
30
<PAGE> 31
NOTE 6 - INCOME TAXES
The (benefit) provisions for income taxes are as follows (in thousands):
1998 1997 1996
--------- --------- -------
Current taxes:
Federal $ (10,338) $(14,860) $4,323
State and local -- -- 786
--------- --------- -------
Total (10,338) (14,860) 5,109
Deferred taxes 10,338 6,188 (625)
--------- --------- -------
$ -- $ (8,672) $4,484
========= ========= =======
The (benefit) provisions for income taxes as reported are different from
the tax provisions computed by applying the statutory federal income tax
rate. The differences are reconciled as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate -35.0% -35.0% 35.0%
Goodwill amortization not deductible for
tax purposes 0.3 0.2 1.0
State and local taxes, net of federal
income tax benefit -- -- 4.4
Deferred tax valuation allowance 34.0 14.3 --
Write-off deferred tax -- 2.7 --
Other, net 0.7 1.2 0.1
---- ---- ----
0.0% -16.6% 40.5%
==== ==== ====
</TABLE>
Deferred taxes result from temporary differences between the financial
statement and tax basis of assets and liabilities. Significant components
of the Company's deferred tax assets (liabilities) as of February 28, 1998,
and March 1, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred revenue on service contracts............. $9,020 $12,284
Restructuring accruals............................ 748 5,730
Excess of tax over book inventory valuation....... 2,475 1,953
Net operating loss and alternative minimum tax
carry forwards.............................. 6,637 1,643
Capital leases and leasehold improvements......... 1,473 1,280
Other ............................................ 1,600 --
------- -------
Subtotal............................................. 21,953 22,890
Valuation allowance.................................. (18,699) (7,865)
------- -------
Total gross deferred tax assets................... 3,254 15,025
------- -------
Deferred tax liabilities:
Accelerated depreciation.......................... (1,286) (1,374)
Other............................................. (1,968) (3,313)
------- -------
Total gross deferred tax liabilities............ (3,254) (4,687)
------- -------
Net deferred tax asset.......................... $ -- $10,338
======= =======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
has established a valuation allowance of $18,699,000 as of February 28,
1998.
31
<PAGE> 32
Net deferred tax assets of approximately $1,500,000 for New York and Ohio
were written off in 1997, since the Company had ceased operations in the
state of New York and it is considered remote that the Company will be a
net income taxpayer in Ohio in the immediate future.
NOTE 7 - STOCKHOLDERS' EQUITY
During the year ending February 28, 1995, the Board of Directors and
Shareholders approved an amendment to the 1991 Stock Option Plan ("Plan")
under which the Company may grant options to key employees for the purchase
of up to 2,500,000 shares of common stock. During the year ending February
28, 1998, the Board of Directors and Shareholders approved an amendment to
the Plan to increase the number of shares of common stock issuable upon the
exercise of stock options under the Plan from 2,500,000 shares to 3,000,000
shares. The following is a summary of stock option activity for the last
three fiscal years:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at February 28, 1995...................... 1,071,117 $7.45
Granted............................................... 848,000 4.47
Exercised............................................. (36,376) 1.60
Cancelled............................................. (132,668) 8.24
--------- -----
Outstanding at March 2, 1996.......................... 1,750,073 6.07
Granted............................................... 907,500 2.97
Exercised............................................. (75,316) 1.60
Cancelled............................................. (891,757) 6.60
--------- -----
Outstanding at March 1, 1997.......................... 1,690,500 4.32
Granted............................................... 812,500 2.32
Exercised............................................. -- --
Cancelled............................................. (753,960) 4.14
--------- -----
Outstanding at February 28, 1998...................... 1,749,040 $3.45
========= =====
</TABLE>
For the options granted at $1.60 per share, compensation expense,
representing the difference between the option price and the fair value at
the date of grant, was accrued over the three-year vesting period. All
subsequent option grants were at fair market value. Options are generally
exercisable over a period of from one to ten years from the date of grant.
As of February 28, 1998, options for 591,040 shares were exercisable and
1,749,040 shares of common stock were reserved for outstanding options. As
of March 1, 1997, options for 498,194 shares were exercisable and as of
March 2, 1996, options for 561,059 were exercisable over a period of from
one to ten years from the date of grant. The Company had 679,867 shares
available for grant at February 28, 1998 and 220,334 and 236,083, at March
1, 1997 and March 2, 1996, respectively.
32
<PAGE> 33
The following table summarizes stock options outstanding and exercisable at
February 28, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ------------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Options Contractual life Average Options Average
Exercise prices Outstanding (in yrs.) Exercise Price Exercisable Exercise Price
--------------- ----------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.60 32,584 2.8 $1.60 32,584 $1.60
$1.69 - $2.73 1,199,000 9.3 $2.41 132,167 $2.59
$3.67 - $4.94 303,292 7.2 $4.58 212,125 $4.59
$6.19 92,664 3.8 $6.19 92,664 $6.19
$8.25 - $10.25 121,500 6.4 $9.31 121,500 $9.31
-------- --- ----- ------- -----
1,749,040 8.3 $3.45 591,040 $5.20
</TABLE>
Prior to fiscal year 1997, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. In fiscal 1997, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123
permits continued use of APB Opinion No. 25 and providing pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net (loss) income - pro forma (in thousands) ($33,968) ($45,841) $6,416
Net (loss) income per common share - pro forma ($1.95) ($2.63) $0.37
Weighted average fair value of options granted $1.13 $1.36 $2.07
</TABLE>
The weighted average fair value of options granted in fiscal 1998, 1997 and
1996, indicated above, was determined using the Black-Scholes
option-pricing model using the following assumptions:
<TABLE>
<CAPTION>
Assumptions 1998 1997 1996
----------- ---- ---- ----
<S> <C> <C> <C>
Annualized dividend yield 0.0% 0.0% 0.0%
Common stock price volatility 47.6% 48.7% 48.7%
Weighted average risk-free interest rate 5.94% 6.28% 5.45%
Expected option term (in years) 5 5 5
</TABLE>
33
<PAGE> 34
In February 1997, the Company retained Business Regeneration Services, LLC
(BRS, formerly known as Business Turnaround Services), a subsidiary of
Price Waterhouse, Inc. to assist the Company in its turnaround efforts. As
part of this agreement, the Company granted to BRS a stock option for
500,000 shares of common stock at an option price of $2.1875, the fair
market value at date of grant. The options are exercisable as follows: (a)
250,000 shares whenever the price per share shall reach $4.50 and stay at
or above that level for sixty (60) or more consecutive days, (b) 500,000
shares whenever the price per share shall reach $7.00 and stay at or above
that level for sixty (60) or more consecutive days; or (c) 500,000 shares
upon Mr. Pate's termination as a member of the Board of Directors after
August 11, 1997. This grant was treated as a non-employee stock option and
the Company recognized $182,000 of expense in 1998 and $8,000 of expense in
1997. In determining the expense, the Company used the Black-Scholes option
pricing model with the following assumptions: (1) annualized dividend yield
of 0%; (2) common stock price volatility of 48.7%; (3) risk-free interest
rate of 6.14%; and (4) an expected term of 4.5 years. The fair value of the
options granted was $1.04 per option.
In addition, 150,000 stock options were approved in January 1998 for BRS at
an option price of $1.844, the fair market value at the date of grant.
These options were granted outside the Company's 1991 Stock Option Plan and
vested immediately upon their issuance to BRS. This has been treated as a
non-employee stock option and the Company recognized $60,000 of expense in
1998. In determining the expense recorded for 1998, the Company used the
Black-Scholes option pricing model with the following assumptions: (1)
annualized dividend yield of 0%; (2) common stock price volatility of
47.6%; (3) risk-free interest rate of 5.80%; and (4) an expected term of
one year. The fair value of the options granted was $0.40 per option.
Note 8 - Employee Retirement Plan
The Company has a defined contribution 401(k) plan, which covers
substantially all of the employees of the Company. Contributions and costs
are generally determined as a percentage of the covered employee's annual
salary. The Company may, at its discretion, make matching contributions to
the plan. Expense for the plan totaled $72,000, $134,000, and $150,000, for
the years ended February 28, 1998, March 1, 1997, and March 2, 1996,
respectively.
Note 9 - Accrued Liabilities
Accrued Liabilities consists of the following:
1998 1997
---- ----
Extended service contract payable
(principally to related party) $ 1,214 $ 8,763
Restructuring charge 2,173 10,580
Payroll and payroll taxes 2,195 3,490
Sales tax payable 2,215 2,459
Customer liabilities 5,819 1,079
Other 7,013 5,233
------- -------
Accrued liabilities $20,629 $31,604
======= =======
34
<PAGE> 35
NOTE 10 - RESTRUCTURING CHARGE
During fiscal 1997, the Company recorded restructuring charges totaling
$16.7 million ($10.9 million after tax or $0.62 per share) to provide for
the closing of nine stores and the restructuring of management, buying,
logistics, store and field operations. This restructuring charge includes
$12.3 million for the write-down of property and equipment, settlement of
lease obligations, legal fees and real estate commissions relating
primarily to the closing of nine stores, $2.4 million for severance and
benefit costs of approximately 1,000 full time personnel and $2.0 million
for professional and consulting fees. The closed stores were in Buffalo (3)
and Rochester (2), New York and Dayton (3) and Springfield (1), Ohio,
markets from which the Company decided to withdraw. In fiscal 1997, the
nine stores had sales of $108.3 million versus $124.1 million for fiscal
1996.
The balance of $2.2 million at February 28, 1998, which is included in
Accrued Liabilities on the balance sheet, is expected to be settled during
fiscal 1999.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. Management believes that any resulting
liability will not have a material adverse effect on the Company's
financial position or results of operations.
35
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Sun Television and Appliances, Inc.:
We have audited the accompanying balance sheet of Sun Television and
Appliances, Inc. (the Company) as of February 28, 1998, and the related
statements of operations, stockholders' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The accompanying financial statements of Sun
Television and Appliances, Inc. as of March 1, 1997 and March 2, 1996, were
audited by other auditors whose report thereon dated May 5, 1997, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Sun Television and
Appliances, Inc. as of February 28, 1998, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit for the year ended February 28, 1998, was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
supplementary information included in the Schedule II for the year ended
February 28, 1998, is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole for the year ended
February 28, 1998.
The report of the other auditors referred to above, dated May 5, 1997, stated
that the supplementary information for the years ended March 1, 1997 and
March 2, 1996, included in Schedule II, was subjected to auditing procedures
applied in their audits of the basic financial statements and, in their opinion,
was fairly stated in all material respects in relation to the basic financial
statements, taken as a whole.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Columbus, Ohio
April 29, 1998
36
<PAGE> 37
QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's business is seasonal. As is the case with many other retailers,
the Company's net sales and service revenues and income from operations are
greater during the Christmas season than during other periods of the year. The
Company's February fiscal year end, however, mitigates broad revenue swings in
quarterly reporting. Future quarterly results for the Company may not
necessarily follow this pattern due to the timing and number of new store
openings and general economic conditions. The following table sets forth
summarized quarterly financial results for fiscal 1998 and 1997 (in thousands,
except per share data):
FISCAL 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
May 31, August 30, November 29, February 28,
1997 1997 1997 1998
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales and service revenues.................. $104,995 $110,441 $127,887 $164,742
Gross profit.................................... 23,081 26,921 31,320 36,603
(Loss) before extraordinary loss................ (10,154) (6,747) (5,108) (9,885)
Extraordinary loss related to early
extinguishment of debt, net of income
tax benefit................................ -- -- (1,657) --
Net (loss)...................................... (10,154) (6,747) (6,765) (9,885)
Net (loss) per share before extraordinary loss.. $ (.58) $ (.39) $ (.29) $ (.57)
Net (loss) per share............................ $ (.58) $ (.39) $ (.39) $ (.57)
</TABLE>
The Company recorded approximately $5.1 million of one-time non-cash adjustments
during the fourth quarter of fiscal 1998 to account primarily for uncollectible
accounts receivable.
FISCAL 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
June 1, August 31, November 30, March 1,
1996 1996 1996 1998
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Net sales and service revenues.................. $153,659 $150,389 $181,949 $197,389
Gross profit.................................... 37,157 38,952 42,107 31,498
(Loss) before extraordinary loss................ (4,588) (2,561) (4,068) (32,505)
Extraordinary loss related to early
extinguishment of debt, net of income
tax benefit................................ -- -- -- (1,619)
Net (loss)...................................... (4,588) (2,561) (4,068) (34,124)
Net (loss) per share
before extraordinary loss....................... $ (.26) $ (.15) $ (.23) $ (1.87)
Net (loss) per share............................ $ (.26) $ (.15) $ (.23) $ (1.96)
</TABLE>
The Company recorded a $14.7 million restructuring charge in the fourth quarter
of fiscal 1997, primarily relating to the closing of nine stores in the Buffalo
and Rochester, New York and Dayton and Springfield , Ohio markets. Also in the
fourth quarter of fiscal 1997, the Company recorded an extraordinary loss in the
amount of $1,619,000 for prepayment costs on the Senior Notes and legal and
other fees incurred in connection with the repayment.
37
<PAGE> 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 19, 1997, the Company replaced Coopers & Lybrand LLP ("Coopers &
Lybrand") as its principal accountant. For the past two fiscal years, the
reports of Coopers & Lybrand did not contain an adverse opinion nor a disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. The decision to replace Coopers & Lybrand was approved by
the Audit Committee of the Company's Board of Directors. The Audit Committee
based its decision on the fact that Price Waterhouse LLP and Coopers & Lybrand
have announced merger plans and R. Carter Pate, the Company's Chairman of the
Board, President and Chief Executive Officer is a partner of Price Waterhouse
LLP and a principal of BRS, LLC, a subsidiary of Price Waterhouse LLP.
In connection with the audits of the Company's financial statements for each of
the fiscal years ending March 1, 1997 and March 2, 1996 and in the subsequent
interim period preceding Cooper & Lybrand's replacement, there were no
disagreements on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which if not resolved to
the satisfaction of Coopers & Lybrand would have caused Coopers & Lybrand to
make reference to the matter in their report.
On December 19, 1997, the Company engaged as its new principal accountant KPMG
Peat Marwick LLP. During the two most recent fiscal years and through the date
of their appointment, the Company has not consulted with KPMG on matters of the
type contemplated by Item 304(a)(2) of Regulation S-K.
The Company has requested that Coopers & Lybrand furnish it with a letter
addressed to the Securities and Exchange Commission stating whether it agrees
with the statements set forth above. A copy of that letter, dated December 23,
1997, is filed as Exhibit 16.1 to this Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included under the captions "Election
of Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement (the "Proxy Statement")
relating to the Company's 1998 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions
"Information Concerning the Board of Directors" and "Executive Compensation" in
the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required by this item is included under the captions "Ownership
of Common Stock by Directors and Executive Officers" and "Ownership of Common
Stock by Principal Shareholders" in the Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under the captions
"Transactions with Principal Shareholders, Directors and Executive Officers" and
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement and is incorporated herein by reference.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Form 10-K
Page
---------
<S> <C>
Schedule II -- Valuation and Qualifying Accounts....................................... 42
</TABLE>
Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
(3) Exhibits:
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
3(a) Second Amended and Restated Articles of Incorporation of the
Registrant. (Reference is made to Exhibit 4(b) to the
Registrant's Post-Effective Amendment No. 2 to Registration
Statement on Form S-8 (Registration No. 33-44932), and
incorporated herein by reference.)
3(b) Code of Regulations of the Registrant. (Reference is made to
Exhibit 4(a) to the Registrant's Post-Effective Amendment No.
2 to Registration Statement on Form S-8 (Registration No.
33-44932), and incorporated herein by reference.)
4 Article FOURTH of the Registrant's Second Amended and Restated
Articles of Incorporation (contained in the Registrant's
Second Amended and Restated Articles of Incorporation filed as
Exhibit 3(a)).
10(a) Credit Agreement, dated as of September 13, 1994, among the
Registrant, National City Bank, Columbus, The Huntington
National Bank, and National City Bank, Columbus, as Agent.
(Reference is made to Exhibit 10(b) to the Registrant's Annual
Report on Form 10-K for the year ended February 28, 1995, and
incorporated herein by reference.)
10(b) Purchase Agreement dated as of September 15, 1994, among the
Registrant and the Purchasers named in Schedule 1 thereto with
respect to $30,000,000 principal amount of 8.18% Senior Notes
due August 31, 2004. (Reference is made to Exhibit 10(c) to
the Registrant's Annual Report on Form 10-K for the year ended
February 28, 1995, and incorporated herein by reference.)
10(c) Indemnification Agreement, dated as of July 18, 1994, between
the Registrant and Thomas Epstein. (Reference is made to
Exhibit 10(d) to the Registrant's Annual Report on Form 10-K
for the year ended February 28, 1995, and incorporated herein
by reference.)
10(d) Information concerning Indemnification Agreements
substantially similar to Exhibit 10(d). (Reference is made to
Exhibit 10(e) to the Registrant's Annual Report on Form 10-K
for the year ended February 28, 1995, and incorporated herein
by reference.)
10(e) 1991 Stock Option Plan. (Reference is made to Exhibit 4(a) to
the Registrant's Post-Effective Amendment No. 2 to
Registration Statement on Form S-8 (Registration No.
33-44932), and incorporated herein by reference.)
39
<PAGE> 40
10(f) First Amendment to Purchase Agreement dated as of May 31,
1996, among the Registrant and Teachers Insurance and Annuity
Association of America with respect to $30,000,000 principal
amount of 8.18% Senior Notes due August 31, 2004. (Reference
is made to Exhibit 10(a) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 1, 1996, and
incorporated herein by reference.)
10(g) Third Modification of Credit Agreement, dated as of May 31,
1996, among the Registrant, National City Bank of Columbus,
The Huntington National Bank, and National City Bank of
Columbus, as Agent. (Reference is made to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 1, 1996, and incorporated herein by reference.)
10(h) Revolving Credit Agreement, dated as of December 19, 1996,
among the Registrant, various lenders participating thereto,
The CIT Group/Business Credit, Inc., as Agent, and National
City Commercial Finance, Inc., as Co-Agent. (Reference is made
to Exhibit 10 of the Registrant's Quarterly Report on Form
10-Q for the Quarter ended November 30, 1996, and incorporated
herein by reference.)
10(i) Letter Agreement, dated as of February 11, 1997, between the
Registrant and BTS LLC, a subsidiary of Price Waterhouse LLP.
(Reference is made to Exhibit 10(n) of the Registrant's Annual
Report on Form 10-K for the year ended March 1, 1997, and
incorporated herein by reference.)
10(j) Amendment to Letter Agreement, dated as of June 17, 1997,
between the Registrant and BTS LLC, a subsidiary of Price
Waterhouse LLP. (Reference is made to Exhibit 10 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1997, and incorporated herein by reference.)
10(k) Mortgage Deed, Security Agreement, and Assignment of Leases
and Rents, dated as of April 2, 1997, between the Registrant
and The CIT Group/Business Credit, Inc., as agent. (Reference
is made to Exhibit 10(o) of the Registrant's Annual Report on
Form 10-K for the year ended March 1, 1997, and incorporated
herein by reference.)
10(l) First Amendment Agreement, dated as of January 28, 1997,
between the Registrant and The CIT Group/Business Credit,
Inc., as Administrative Agent and National City Commercial
Finance, Inc. as Co-Agent and IBJ Schroder Bank & Trust
Company. (Reference is made to Exhibit 10(q) to the
Registrant's Annual Report on Form 10-K/A No. 1 for the year
ended March 1, 1997, and incorporated herein by reference.)
10(m) Second Amendment Agreement, dated as of March 10, 1997,
between the Registrant and The CIT Group/Business Credit,
Inc., as Administrative Agent and National City Commercial
Finance, Inc. as Co-Agent and IBJ Schroder Bank & Trust
Company. (Reference is made to Exhibit 10(r) to the
Registrant's Annual Report on Form 10-K/A No. 1 for the year
ended March 1, 1997, and incorporated herein by reference.)
40
<PAGE> 41
10(n) Third Amendment Agreement, dated as of April 3, 1997, between
the Registrant and The CIT Group/Business Credit, Inc., as
Administrative Agent and National City Commercial Finance,
Inc. as Co-Agent and IBJ Schroder Bank & Trust Company.
(Reference is made to Exhibit 10(s) to the Registrant's Annual
Report on Form 10-K/A No. 1 for the year ended March 1, 1997,
and incorporated herein by reference.)
10(o) Sale and Leaseback of 6600 Port Road, Groveport, Franklin
County, Ohio with Duke Realty, dated June 27, 1997. (Reference
is made to 8-K Filing of Registrant dated July 9, 1997).
10(p) * Revolving Credit Facility, dated as of November 19, 1997,
among the Registrant, various lenders participating thereto,
BankBoston Retail Finance, Inc., as Agent.
("Loan and Security Agreement).
10(q) * Term Loan and Security Agreement, dated as of November 19,
1997, among the Registrant and BankBoston Retail Finance,
Inc., as Agent ("Term Loan and Security Agreement")
10(r) * First Amendment to Loan and Security Agreement, dated December
31, 1997 between Registrant and BankBoston Retail Finance,
Inc., as Agent.
10(s) * Second Amendment to Loan and Agreement, dated May 26, 1998,
between Registrant and BankBoston Retail Finance, Inc., as
Agent.
10(t) * Severance Agreement, dated October 22, 1997, between
Registrant and Dennis L. May.
10(u) * Employment Agreement, dated February 12, 1998, between
Registrant and Beth A. Savage.
11 * Statement re: Computation of Net (Loss) Income Per Common
Share.
16.1 Letter dated December 23, 1997 from Coopers & Lybrand LLP,
Registrant's certifying accountant. (Reference is made to
Exhibit 16.1 to the Current Report on Form 8-K, dated December
19, 1997, and incorporated herein by reference.)
23.1 * Consent of KPMG Peat Marwick LLP.
23.2 * Consent of Coopers & Lybrand LLP.
24 * Powers of Attorney.
27 * Financial Data Schedule.
* Filed with this Report.
(b) REPORTS ON FORM 8-K
December 23, 1997 8-K Filing - Appointment of KPMG Peat Marwick
July 9, 1997 8-K Filing - Sale/Leaseback Transaction
(c) EXHIBITS
The exhibits to this report begin on page 44.
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule is included on the following
page.
41
<PAGE> 42
SCHEDULE II
SUN TELEVISION AND APPLIANCES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 28, 1998, MARCH 1, 1997, AND MARCH 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to
Description Beginning Costs and Balance at
Year Ended of Year Expenses Deductions End of Year
---------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts(1):
February 28, 1998 $ 475 $ 6,258 $6,258 $ 475
March 1, 1997...................... 400 2,363 2,288 475
March 2, 1996...................... 325 2,022 1,947 400
Deferred Income Tax Asset
Valuation Allowance(2):
February 28, 1998................. $ 7,865 $10,834 $ -- $18,699
March 1, 1997..................... -- 7,865 -- 7,865
March 2, 1996..................... -- -- -- --
</TABLE>
- ----------------
(1) Offset against trade accounts receivable. Deductions represent
write-offs, net of recoveries.
(2) Offset against current deferred income taxes $8,622 and $5,101
in 1998 and 1997, respectively and non-current deferred income
taxes $10,077 and $2,764 in 1998 and 1997, respectively.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SUN TELEVISION AND APPLIANCES, INC.
Date: May 28, 1998 By: /s/ R. Carter Pate
----------------------
R. Carter Pate, Chairman of the Board,
President, and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 28th day of May, 1998.
Signature Title
/s/ R. Carter Pate Chairman of the Board, President, and
------------------------------- Chief Executive Officer
R. Carter Pate
/s/ Beth A. Savage Chief Financial Officer and Treasurer
------------------------------- Principal Accounting Officer
Beth A. Savage and Principal Financial Officer)
Macy T. Block* Director
-------------------------------
Macy T. Block
Ned L. Sherwood* Director
-------------------------------
Ned L. Sherwood
Thomas Epstein* Director
-------------------------------
Thomas Epstein
Paul D. Bauer* Director
-------------------------------
Paul D. Bauer
Brady J. Churches* Director
-------------------------------
Brady J. Churches
Director
-------------------------------
Frank Doczi
*By: /s/ R. Carter Pate
---------------------------------
R. Carter Pate, Attorney-in-fact
43
<PAGE> 1
Exhibit 10(p)
REVOLVING CREDIT FACILITY, DATED AS OF NOVEMBER 19, 1997, AMONG THE REGISTRANT,
VARIOUS LENDERS PARTICIPATING THERETO, AND BANKBOSTON RETAIL FINANCE, INC., AS
AGENT.
Agent: BankBoston Retail Finance, Inc.
40 Broad Street
Boston, MA 02109
Lenders: BankBoston Retail Finance, Inc.
40 Broad Street
Boston, MA 02109
Congress Financial Corporation
One Post Office Square, Suite 3600
Boston, MA 02109
Finova Capital Corporation
311 S. Wacker Drive, Suite 4400
Chicago, IL 60606
Foothill Capital Corporation
60 State Street, Suite 1150
Boston, MA 02109
Fremont Financial Corporation
2020 Santa Monica Blvd., Suite 600
Santa Monica, CA 90404
National City Commercial Finance, Inc.
National City Center, PO Box 5756
Cleveland, OH 44101
<PAGE> 2
LOAN AND SECURITY AGREEMENT
~~~~~~~~~~~~~~~~~~
BANKBOSTON RETAIL FINANCE INC.
Agent for
The Lenders Referenced Herein
~~~~~~~~~~~~~~~~~~
SUN TELEVISION AND APPLIANCES, INC.
............
1
<PAGE> 3
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS.
ARTICLE 2 - THE REVOLVING CREDIT
2-1. Establishment of Revolving Credit
2-2. Advances in Excess of Maximum Loan Exposure.
2-3. Initial Reserves
2-4. Risks of Value of Collateral
2-5. Loan Requests
2-6. Making of Loans Under Revolving Credit
2-7. The Loan Account
2-8. The Revolving Credit Notes
2-9. Payment of The Loan Account
2-10. Interest.
2-11. Commitment, Agent's, and Line Fee
2-12 Early Termination Fees
2-13 Voluntary Reduction of the Loan Ceiling
2-14. Agent's and Lenders' Discretion
2-15 Procedures For Issuance of L/C's
2-16. Fees For L/C's
2-17. Concerning L/C's
2-18. Increased Costs
2-19. Lenders' Commitments
ARTICLE 3 - CONDITIONS PRECEDENT.
3-1. Corporate Due Diligence.
3-2. Opinion.
3-3. Landlord Waivers.
3-4. Term Loan; Intercreditor Agreement
3-5. Mortgages/Deeds of Trust
3-6. Additional Documents
3-7. Officers' Certificates.
3-8. Due Diligence
3-9. Representations and Warranties.
3-10. Minimum Excess Availability.
3-11. No Suspension Event.
3-12. No Adverse Change.
3-13. Perfection of Liens
3-14. Litigation
3-15. Consents
3-16. Fees and Expenses
3-17. Capital Markets
ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
4-1. Payment and Performance of Liabilities.
2
<PAGE> 4
4-2. Due Organization - Corporate Authorization - No
Conflicts.
4-3. Trade Names.
4-4. Locations.
4-5. Title to Assets.
4-6. Indebtedness
4-7. Insurance Policies.
4-8. Licenses
4-9. Leases; Real Estate.
4-10. Requirements of Law
4-11. Maintain Properties
4-12. Pay Taxes.
4-13. No Margin Stock.
4-14. ERISA
4-15. Hazardous Materials
4-16. Litigation
4-17. Dividends or Investments
4-18. Loans
4-19. Protection of Assets
4-20. Line of Business
4-21. Affiliate Transactions
4-22. Executive Pay.
4-23. Additional Assurances
4-24. Adequacy of Disclosure
4-25. Minimum Availability
4-26. Other Covenants
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL COVENANTS
5-1. Maintain Records
5-2. Access to Records
5-3. Prompt Notice to Agent
5-4. Borrowing Base Certificate
5-5. Weekly Reports
5-6. Monthly Reports
5-7. Quarterly Reports
5-8. Annual Reports
5-9. Officers' Certificates
5-10. Inventories, Appraisals, and Audits
5-11. Additional Financial Information
5-12. Financial Performance Covenants
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
6-1. Use of Inventory Collateral
6-2. Inventory Quality
6-3. Adjustments and Allowances
6-4. Validity of Accounts
6-5. Notification to Account Debtors
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ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES.
7-1. Depository Accounts
7-2. Credit Card Receipts; Collections of Accounts
7-3. The Concentration and the Funding Accounts
7-4. Proceeds and Collection of Accounts
7-5. Payment of Liabilities
7-6. The Funding Account
ARTICLE 8 - GRANT OF SECURITY INTEREST
8-1. Grant of Security Interest
8-2. Extent and Duration of Security Interest
8-3. Mortgages
ARTICLE 9 - AGENT AS BORROWER'S ATTORNEY-IN-FACT.
9-1. Appointment as Attorney-In-Fact
9-2. No Obligation to Act
ARTICLE 10 - EVENTS OF DEFAULT.
10-1. Failure to Pay Revolving Credit
10-2. Failure To Make Other Payments
10-3. Failure to Perform Covenant or Liability (No Grace
Period)
10-4. Failure to Perform Covenant or Liability (Grace
Period)
10-5. Misrepresentation
10-6. Acceleration of Other Debt. Breach of Lease
10-7. Default Under Other Agreements
10-8. Casualty Loss. Non-Ordinary Course Sales
10-9. Judgment. Restraint of Business
10-10. Business Failure
10-11. Bankruptcy
10-12. Default by Guarantor or Related Entity
10-13. Indictment - Forfeiture
10-14. Termination of Guaranty
10-15. Challenge to Loan Documents
10-16. Executive Management.
10-17. Change in Control.
10-18. Material Adverse Change
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
11-1. Rights of Enforcement
11-2. Sale of Collateral
11-3. Occupation of Business Location
11-4. Grant of Nonexclusive License.
11-5. Assembly of Collateral
11-6. Rights and Remedies
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ARTICLE 12 - NOTICES.
12-1. Notice Addresses
12-2. Notice Given
ARTICLE 13 - TERM
13-1. Termination of Revolving Credit
13-2. Effect of Termination
ARTICLE 14 - GENERAL
14-1. Protection of Collateral
14-2. Successors and Assigns.
14-3. Severability
14-4. Amendments. Course of Dealing
14-5. Power of Attorney
14-6. Application of Proceeds
14-7. Costs and Expenses of Agent and Of Lenders
14-8. Copies and Facsimiles
14-9. Massachusetts Law
14-10. Consent to Jurisdiction
14-11. Indemnification
14-12. Rules of Construction.
14-13. Intent
14-14. Right of Set-Off
14-15. Maximum Interest Rate.
14-16. Waivers.
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EXHIBITS
1-1 : Lenders and Commitments
1-2 : Real Estate
2-8 : Revolving Credit Note
4-2 : Related Entities
4-3 : Trade Names.
4-4 : Locations.
4-5 : Encumbrances.
4-6 : Indebtedness.
4-7 : Insurance Policies.
4-9 : Leases.
4-12 : Taxes
4-16 : Litigation
5-4 : Borrowing Base Certificate
5-12(a) : Financial Performance Covenants
5-12(b) : Business Plan.
7-1 : DDA's.
7-2 : Credit Card Arrangements
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- -------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
November 19, 1997
THIS AGREEMENT is made between
BankBoston Retail Finance Inc. (in such capacity, the
"AGENT"), a Delaware corporation with offices at 40 Broad Street
Boston, Massachusetts 02109, as agent for the ratable benefit of the
"LENDERS", who are, at present, those financial institutions identified
on the signature pages of the within Agreement and who in the future
are those Persons (if any) who become "Lenders" in accordance with the
provisions of Section 2-15, below,
and
Sun Television and Appliances, Inc. (hereinafter, the
"BORROWER"), an Ohio corporation with its principal executive offices
at 6600 Port Road, Groveport, Ohio 43125
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS.
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCEPTABLE ACCOUNTS": (a) Such of the Borrower's Accounts as arise in
the ordinary course of the Borrower's business, which Accounts
have been determined by the Agent to be satisfactory and have
been earned by performance, which Accounts are due to the
Borrower from Beneficial or other institutions reasonably
acceptable to the Agent, and as to which Accounts, the Agent
has a perfected security interest which is prior and superior
to all security interests, claims and Encumbrances.
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(b) The following is a partial listing of those
types of accounts or accounts receivable which are not
Acceptable Accounts:
(i) Any which is more than thirty (30) days
old as shown on the agings of the Borrower's accounts
receivable furnished the Agent from time to time.
(ii) Any which arises out of any sale made
on a basis other than upon terms usual to the
business of the Borrower.
(iii) Any as to which Beneficial or such
other institution asserts any claim, counterclaim,
set off, or chargeback.
(iv) Any which is not owed by Beneficial or
another institution acceptable to the Agent.
(v) Any which the Agent in its sole
discretion considers unacceptable for any reason.
"ACCEPTABLE INVENTORY": Such of the Borrower's Inventory, at such
locations, and of such types, character, qualities and
quantities, (net of Inventory Reserves) as the Agent in its
sole discretion from time to time determines to be acceptable
for borrowing, as to which Inventory, the Agent has a
perfected security interest which is prior and superior to all
security interests, claims, and Encumbrances.
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts,
accounts receivable, credit card receivables, notes, drafts,
acceptances, and other forms of obligations and receivables
and rights to payment for credit extended and for goods sold
or leased, or services rendered, whether or not yet earned by
performance; all "contract rights" as formerly defined in the
UCC; all Inventory which gave rise thereto, and all rights
associated with such Inventory, including the right of
stoppage in transit; all reclaimed, returned, rejected or
repossessed Inventory (if any) the sale of which gave rise to
any Account.
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"ACH": Automated clearing house.
"ACCOUNT DEBTOR": Has the meaning given that term in the UCC, and
includes, without limitation, Beneficial and other
institutions acceptable to the Agent purchasing the Borrower's
Accounts.
"AFFILIATE": With respect to any two Persons, a relationship in which
(a) one holds, directly or indirectly, not less than Twenty
Five Percent (25%) of the capital stock, beneficial interests,
partnership interests, or other equity interests of the other;
or (b) one has, directly or indirectly, Control of the other;
or (c) not less than Twenty Five Percent (25%) of their
respective ownership is directly or indirectly held by the
same third Person.
"AGENT": Is defined in the Preamble.
"AGENT'S FEE": Is defined in Section 2-11(b).
"AGENT'S RIGHTS AND REMEDIES": Is defined in Section 11-6.
"APPLICABLE ADVANCE RATE": The following percentage during the period
indicated:
-----------------------------------------------------------------
From To Rate
-----------------------------------------------------------------
Each September 15 Each December 14 65%
-----------------------------------------------------------------
Each December 15 Each September 14 60%
-----------------------------------------------------------------
"AVAILABILITY": Is defined in Section 2-1(b).
"AVAILABILITY RESERVES: Such reserves as the Agent from time to time
determines in the Agent's discretion as being appropriate to
reflect the impediments to the Agent's ability to realize upon
the Collateral. Without limiting the generality of the
foregoing, Availability Reserves may include (but are not
limited to) reserves based on the following:
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<PAGE> 11
(i) Rent (based upon past due rent
and/or whether or not Landlord's
Waiver, acceptable to the Agent,
has been received by the Agent).
(ii) In store customer credits.
(iii) Gift Certificates.
(iv) Layaways and Customer Deposits
(v) Taxes and other governmental
charges, including, ad valorem,
personal property, and other taxes
which might have priority over the
security interests of the Agent in
the Collateral.
(vi) Real Estate (including, due to the
failure of the Agent to have received
acceptable, subordination, attornment and
non-disturbance agreements from tenants of
the Borrower).
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE": The greater of the Base Rate announced from time to time by
BankBoston, N.A. (or any successor in interest to BankBoston,
N.A.), or the aggregate of one-half of one percent and the
Federal Funds Rate. Any change in "Base" shall be effective,
for purposes of the calculation of interest due hereunder,
when such change is made effective generally by the bank on
whose rate or index "Base" is being set.
"BENEFICIAL": Beneficial Credit Services., a trade style of Beneficial
Ohio, Inc., Beneficial Kentucky, Inc.,Beneficial Consumer
Discount Company, Beneficial Credit Services of New York, Inc.
and Beneficial West Virginia, Inc.
"BORROWER": Is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any
day on which banks in Boston, Massachusetts or Groveport,
Ohio,
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generally are not open to the general public for the purpose
of conducting commercial banking business; or (c) a day on
which the Agent is not open to the general public to conduct
business.
"BUSINESS PLAN": The Borrower's business plan annexed hereto as
EXHIBIT 5-12(b) and any revision, amendment, or update of such
business plan to which the Lender has provided its written
approval.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within
the meaning of the Securities Exchange Act of 1934, as
amended) or by any Person, of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange
Commission) of 20% or more of the issued and outstanding
capital stock of the Borrower having the right, under ordinary
circumstances, to vote for the election of directors of the
Borrower.
(b) More than half of the persons who were directors
of the Borrower on the first day of any period consisting of
Twelve (12) consecutive calendar months (the first of which
Twelve (12) month periods commencing with the first day of the
month during which the within Agreement was executed), cease,
for any reason other than death or disability, to be directors
of the Borrower.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 8-1 and includes the Real Estate as
provided in Section 8-3.
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"CONCENTRATION ACCOUNT": Is defined in Section 7-3.
"CONTROL": A Person or group of Persons (the "Controlling Person")
shall be deemed to Control another Person if such Controlling
Person possesses, directly or indirectly, the power to direct
or cause the direction of the management and policies of such
other Person, whether through ownership of voting securities,
by contract, or otherwise. Included among such powers, with
respect to a corporation, are power to cause any of following:
(a) the election of a majority of its Board of Directors; (b)
the issuance of additional shares of its common stock; (c) the
issuance and designation of rights and shares of its preferred
stock (if any); (d) the distribution and timing of dividends;
(e) the award of performance bonuses to its management; (f)
the termination or severance of officers or key employees; and
(g) all or any similar matters.
"COST": The calculated cost of purchases, as determined from invoices
received by the Borrower, the Borrower's purchase journal or
stock ledger, based upon the Borrower's accounting practices,
known to the Agent, which practices are in effect on the date
on which the within Agreement was executed. Cost shall at all
times be reflective of the cost value of Inventory based upon
the lowest ticketed or promoted price at which the subject
inventory is offered to the public, after all mark-downs
(whether or not such price is then reflected on the Borrower's
accounting system). "Cost" does not include inventory
capitalization costs or other non-purchase price charges (such
as freight) used in the Borrower's calculation of cost of
goods sold.
"COSTS OF COLLECTION" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred
by the Agent's and any Lender's attorneys, and all reasonable
costs incurred by the Agent or any Lender in the
administration of the
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<PAGE> 14
Liabilities and/or the Loan Documents, including, without
limitation, reasonable costs and expenses associated with
travel on behalf of the Agent or any Lender, which costs and
expenses are directly or indirectly related to or in respect
of the Agent's and any Lender's: administration and management
of the Liabilities; negotiation, documentation, and amendment
of any Loan Document; or efforts to preserve, protect,
collect, or enforce the Collateral, the Liabilities, and/or
the Agent's Rights and Remedies and/or any of the Agent's
rights and remedies against or in respect of any guarantor or
other person liable in respect of the Liabilities (whether or
not suit is instituted in connection with such efforts), but
excluding, in any event those costs and expenses for which the
Borrower is not responsible under Section 5-10 hereof. The
Costs of Collection are Liabilities, and at the Agent's option
may bear interest, if not paid within Three (3) Business Days
after demand, at the rate which the Agent is then charging the
Borrower hereunder as if such had been lent, advanced, and
credited by the Agent to, or for the benefit of, the Borrower.
"DDA": Any checking or other demand daily depository account maintained
by the Borrower.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"DOLLAR COMMITMENT": As provided in the definition of "Revolving Credit
Commitment", below.
"EBITDA": The Borrower's earnings from continuing operations, before
interest, taxes, depreciation, and amortization, each as
determined in accordance with GAAP.
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<PAGE> 15
"EARLY TERMINATION FEE": Is defined in Section 2-12.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) security interest, mortgage, pledge,
hypothecation, lien, attachment, or charge of any kind
(including any agreement to give any of the foregoing); the
interest of a lessor under a Capital Lease; conditional sale
or other title retention agreement; sale of accounts
receivable or chattel paper; or other arrangement pursuant to
which any Person is entitled to any preference or priority
with respect to the property or assets of another Person or
the income or profits of such other Person or which
constitutes an interest in property to secure an obligation;
each of the foregoing whether consensual or non-consensual and
whether arising by way of agreement, operation of law, legal
process or otherwise.
(b) The filing of any financing statement under the
UCC or comparable law of any jurisdiction.
"END DATE": The date upon which both (a) all Liabilities have been
paid in full and (b) all obligations of any Lender to make
loans and advances and to provide other financial
accommodations to the Borrower hereunder shall have been
irrevocably terminated.
"ENVIRONMENTAL LAWS": (a) Any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or requirements which regulate or
relate to, or impose any standard of conduct or liability on
account of or in respect to environmental protection matters,
including, without limitation, Hazardous Materials, as are now
or hereafter in effect; and
(b) the common law relating to damage to Persons or
property from Hazardous Materials.
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<PAGE> 16
"EQUIPMENT" includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, dies, molds, store
fixtures, furniture, and other goods, property, and assets
which are used and/or were purchased by the Borrower for use
in the operation or furtherance of the Borrower's business,
and any and all accessions or additions thereto, and
substitutions therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which would be
treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 10.
"EXECUTIVE AGREEMENT": Any agreement or understanding (whether or not
written) to which the Borrower is a party or by which the
Borrower may be bound, which agreement or understanding
relates to Executive Pay.
"EXECUTIVE OFFICER": Each of R. Carter Pate, Dennis May, and any other
Person who (without regard to title) is the successor to any
of the foregoing or who exercises a substantial portion of the
authority being exercised, at the execution of the within
Agreement, by any of the foregoing or a combination of such
authority of more than one of the foregoing or who otherwise
has Control of the Borrower.
"EXECUTIVE PAY": All salary, bonuses, and other value directly or
indirectly provided by or on behalf of the Borrower to or for
the benefit of any Executive Officer or any Affiliate, spouse,
parent, or child of any Executive Officer.
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<PAGE> 17
"FEDERAL FUNDS 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 BankBoston, N.A. from three
Federal funds brokers of recognized standing selected by
BankBoston, N.A.
"FEE LETTER": That letter, styled the "Fee Letter" between the Borrower
and the Agent, as such letter may from time to time be
amended.
"FIXTURES": Has the meaning given that term in the UCC.
"FUNDING ACCOUNT": Is defined in Section 7-3.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is
being made, provided, however, in the event of a Material
Accounting Change, then unless otherwise specifically agreed
to by the Lender, (a) the Borrower's compliance with the
financial performance covenants imposed pursuant to Section
5-12 shall be determined as if such Material Accounting Change
had not taken place and (b) the Borrower shall include, with
its monthly, quarterly, and annual financial statements a
schedule, certified by the Borrower's chief financial officer,
on which the effect of such Material Accounting Change to the
statement with which provided shall be described.
16
<PAGE> 18
"GENERAL INTANGIBLES" includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to the
Borrower; credit memoranda in favor of the Borrower; warranty
claims; tax refunds and abatements; insurance refunds and
premium rebates; all means and vehicles of investment or
hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any
settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights
of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits,
certificates of convenience and necessity, and similar rights
granted by any governmental authority; patents, patent
applications, patents pending, and other intellectual
property; internet addresses and domain names; developmental
ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts;
catalogs; manuals; technical data; computer software programs
(including the source and object codes therefor), computer
records, computer software, rights of access to computer
record service bureaus, service bureau computer contracts, and
computer data; tapes, disks, semi-conductors chips and
printouts; trade secrets rights, copyrights, mask work rights
and interests, and derivative works and interests; user,
technical reference, and other manuals and materials; trade
names, trademarks, service marks, and all goodwill relating
thereto; applications for registration of the foregoing; and
all other general intangible property of the Borrower in the
nature of intellectual property; proposals; cost estimates,
and reproductions on paper, or otherwise, of any and all
concepts or ideas, and any matter related to, or connected
with, the design, development,
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<PAGE> 19
manufacture, sale, marketing, leasing, or use of any or all
property produced, sold, or leased, by the Borrower or credit
extended or services performed, by the Borrower, whether
intended for an individual customer or the general business of
the Borrower, or used or useful in connection with research by
the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"GROSS MARGIN": With respect to the subject accounting period for which
being calculated, the following (determined in accordance with
the retail method of accounting):
Sales (Minus) Cost of Goods Sold
Sales
"GUARANTORS": All subsidiaries of the Borrower, presently existing and
hereafter organized or acquired (nothing herein being deemed a
waiver of the provisions of Section 4-17 hereof).
"HAZARDOUS MATERIALS:" Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as
to any of the foregoing) are defined or regulated as a
hazardous material in or under any Environmental Law and (b)
oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such
Person but which is secured by an Encumbrance on any asset of
such Person) whether or not evidenced by a promissory note,
bond, debenture or other written obligation to pay money.
(b) For the payment of the purchase price of goods or
services deferred for more than Thirty (30) days beyond then
current trade terms provided to such person by the supplier of
such goods or services.
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<PAGE> 20
(c) In connection with any letter of credit or
acceptance transaction (including, without limitation, the
face amount of all letters of credit and acceptances issued
for the account of such Person or reimbursement on account of
which such Person would be obligated).
(d) In connection with the sale or discount of
accounts receivable or chattel paper of such Person.
(e) On account of deposits or advances.
(f) As lessee under Capital Leases.
"INDEBTEDNESS" of any Person shall also include:
(x) Indebtedness of others secured by an
Encumbrance on any asset of such Person, whether or
not such Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or
other undertaking pursuant to which that Person may
be liable on account of any obligation of any third
party.
(z) The Indebtedness of a partnership or
joint venture in which such Person is a general
partner or joint venturer.
"INDEMNIFIED PERSON": Is defined in Section 14-11.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"INVENTORY" includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping
materials related to any of the foregoing, and all names or
marks affixed or to be affixed thereto for identifying or
selling the same; Goods held for sale or lease or furnished or
to be furnished under a contract or contracts of sale or
service by the Borrower, or used or consumed or to be used or
consumed in the Borrower's business; Goods of said description
in transit: returned, repossessed and
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<PAGE> 21
rejected Goods of said description; and all documents (whether
or not negotiable) which represent any of the foregoing.
"INVENTORY RESERVES": Such Reserves as may be established from time to
time by the Agent in the Agent's discretion with respect to
the determination of the saleability, at retail, of the
Acceptable Inventory or which reflect such other factors as
affect the market value of the Acceptable Inventory. Without
limiting the generality of the foregoing, Inventory Reserves
may include (but are not limited to) reserves based on the
following:
(i) Obsolescence (determined based upon
Inventory on hand beyond a given number
of days).
(ii) Seasonality.
(iii) Shrinkage.
(iv) Imbalance.
(v) Change in Inventory character.
(vi) Change in Inventory composition
(vii) Change in Inventory mix.
(viii) Markdowns (both permanent and point of
sale)
(ix) Retail markons and markups inconsistent
with prior period practice and
performance; industry standards;
current business plans; or advertising
calendar and planned advertising
events.
"ISSUER": The issuer of any L/C, which shall be BankBoston, N.A. or
any other bank approved by the Borrower and the Agent to issue
L/Cs.
"L/C": Any "standby" letter of credit, the issuance of which is
procured by the Agent for the account of the Borrower.
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"L/C FEE": Is defined in Section 2-16(a).
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the
use or occupancy of any space.
"LENDERS": Defined in the Preamble to the within Agreement.
"LIABILITIES" (in the singular, "LIABILITY") includes, without
limitation, all and each of the following, with respect to any
of the Loan Documents, whether now existing or hereafter
arising:
(a) Any and all direct and indirect liabilities,
debts, and obligations of the Borrower to the Agent or any
Lender, each of every kind, nature, and description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the Agent or any Lender
(including all future advances whether or not made pursuant to
a commitment by the Agent or any Lender), whether or not any
of such are liquidated, unliquidated, primary, secondary,
secured, unsecured, direct, indirect, absolute, contingent, or
of any other type, nature, or description, or by reason of any
cause of action which the Agent or any Lender may hold against
the Borrower.
(c) All notes and other obligations of the Borrower
now or hereafter assigned to or held by the Agent or any
Lender, each of every kind, nature, and description.
(d) All interest, fees, and charges and other amounts
which may be charged by the Agent or any Lender to the
Borrower and/or which may be due from the Borrower to the
Agent or any Lender from time to time.
(e) Except as otherwise provided in Section 5-10
hereof, all costs and expenses incurred or paid by the Agent
or any Lender in respect of any agreement between the Borrower
and Agent or any the Lender or instrument furnished by the
Borrower to the Agent or
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<PAGE> 23
any Lender (including, without limitation, Costs of
Collection, attorneys' reasonable fees, and all court and
litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with
the Agent or any Lender and any and all obligations of the
Borrower to act or to refrain from acting in accordance with
any agreement between the Borrower and the Agent or any Lender
or instrument furnished by the Borrower to the Agent or any
Lender.
"LINE FEE": Is defined in Section 2-11(b).
"LOAN ACCOUNT": Is defined in Section 2-7.
"LOAN CEILING": $100,000,000.00.
"LOAN DOCUMENTS": The within Agreement, each instrument and document
executed and/or delivered as contemplated by Article 3, below,
and each other instrument or document from time to time
executed and/or delivered in connection with the arrangements
contemplated hereby, and any other instruments, documents,
agreements and facilities entered into in connection with or
relating to this Agreement, including, without limitation,
cash management agreements and letter of credit reimbursement
agreements with the Issuer, as each may be amended from time
to time.
"LOCAL DDA": One or more depository accounts maintained by the
Borrower, the only contents of which may be transfers from the
Funding Account and actually used solely (i) for petty cash
purposes; or (ii) for payroll.
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year
most recently completed prior to the execution of the within
Agreement, which change has a material effect on the
Borrower's financial
22
<PAGE> 24
condition or operating results, as reflected on financial
statements and reports prepared by or for the Borrower, when
compared with such condition or results as if such change had
not taken place or where preparation of the Borrower's
statements and reports in compliance with such change results
in the breach of a financial performance covenant imposed
pursuant to Section 5-12 where such a breach would not have
occurred if such change had not taken place or visa versa.
"MATURITY DATE": February 28, 2000.
"MAXIMUM LOAN EXPOSURE": The lesser, on any day, of
(a) the amount determined in accordance with Section 2-
1(b)(i); or
(b) the amount determined in accordance with Section 2-
1(b)(ii) hereof,
in each instance ((a) or (b)) determined without deduction
from said amount of the unpaid principal balance of the Loan
Account on that day.
"NET PROCEEDS": The entire proceeds received from a sale or other
disposition of any of the assets of the Borrower, less (i) the
reasonable costs and expenses incident to realizing such
proceeds, including, without limitation, reasonable brokerage
commissions and reasonable legal fees and expenses of counsel,
and (ii) amounts required to be paid on account of the Term
Loan on account thereof (with respect to the Real Estate and
Segregated Account only).
"PERMITTED ENCUMBRANCES": Those Encumbrances permitted as provided in
Section 4-5(a) hereof.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other
enterprise or entity.
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"PROCEEDS": include, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in
Section 8-1 hereof.
"REAL ESTATE": All land and improvements thereon now owned or hereafter
acquired by the Borrower or any Guarantor (other than
interests under any Leases, as lessee).
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, contract
rights, General Intangibles, Chattel Paper, Instruments,
Documents of Title, Documents, Securities, letters of credit
for the benefit of the Borrower, and bankers' acceptances held
by the Borrower, and any rights to payment.
"RECEIVABLES RESERVES": Such Reserves as may be established from time
to time by the Agent, in the Agent's discretion, which reflect
such factors as may affect the collectibility of the
Borrower's Acceptable Accounts. Without limiting the
generality of the foregoing, Receivables Reserves may include
(but are not limited to) reserves based upon dilution.
"RELATED ENTITY": (a) Any corporation, limited liability company,
trust, partnership, joint venture, or other enterprise which:
is a parent, brother-sister, subsidiary, or affiliate, of the
Borrower; could have such enterprise's tax returns or
financial statements consolidated with the Borrower's; could
be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the
Internal Revenue Code of 1986, as
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<PAGE> 26
amended from time to time) of which the Borrower is a member;
Controls or is Controlled by the Borrower or by any Affiliate
of the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or
other requirements having the force of law and (ii) all court
orders and injunctions, arbitrator's decisions, and/or similar
rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court,
tribunal, panel, or other body which has or claims
jurisdiction over such Person, or any property of such Person,
or of any other Person for whose conduct such Person would be
responsible.
(b) That Person's charter, certificate of
incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that Person's
by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.
"RESERVES": All (if any) Availability Reserves, Receivable Reserves,
and Inventory Reserves.
"REVOLVING CREDIT": Is defined in Section 2-1.
"REVOLVING CREDIT COMMITMENT" With respect to each Lender, the
Commitment Percentage of Revolving Credit Loans set forth on
EXHIBIT 1-1 hereto (not to exceed the Dollar Commitment set
forth on said EXHIBIT 1-1 hereto) as the amount of such
Lender's Commitment to make Revolving Credit Loans to the
Borrower, as the same may be reduced from time to time in
accordance with ss.ss.2-13 and 2-19 hereof.
"REVOLVING CREDIT COMMITMENT FEE": Is defined in Section 2-11(a).
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"REVOLVING CREDIT NOTE": Is defined in Section 2-8.
"SEGREGATED ACCOUNT": The segregated cash collateral account
established by the Borrower into which a portion of the
proceeds of the Term Loan are to be deposited pending the
Borrower's usage thereof in accordance with the instruments,
documents, and agreements evidencing the Term Loan.
"STATED AMOUNT": The maximum amount for which an L/C may be honored.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) would become an Event
of Default if any requisite notice were given and/or any
requisite period of time were to run and such occurrence,
circumstance, or state of facts were not absolutely cured
within any applicable grace period.
"TERM LOAN": The Senior Secured Term Loans in the aggregate principal
amount of $25,000,000.00 to be made to the Borrower
contemporaneously herewith by the Term Loan Lender.
"TERM LOAN LENDER": The Person who agrees to make the Term Loan to the
Borrower, who initially is BankBoston Retail Finance Inc.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurence of any event described in Sections 10-10 or 10-11,
below; or (c) the Agent's notice to the Borrower setting the
Termination Date on account of the occurrence of any Event of
Default other than as described in Sections 10-10 or 10-11,
below.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
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<PAGE> 28
ARTICLE 2 - THE REVOLVING CREDIT
2-1. Establishment of Revolving Credit.
(a) The Lenders hereby establish a revolving line of credit
(the "REVOLVING CREDIT") in the Borrower's favor pursuant to which each Lender,
subject to, and in accordance with, the within Agreement, acting through the
Agent, shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrower as provided herein, in
each instance equal to that Lender's Revolving Credit Commitment Percentage of
Availability, up to the maximum amount of that Lender's Revolving Credit
Commitment. The amount of the Revolving Credit shall be determined by the Agent
by reference to Availability, as determined by the Agent from time to time
hereafter. All loans made by the Revolving Credit Lender under this Agreement
are payable as provided herein.
(b) As used herein, the term "AVAILABILITY" refers at any time
to the lesser of (i) or (ii), below, where:
(i) Is the result of:
(A) The Loan Ceiling.
Minus
(B) The then unpaid principal balance of
the Loan Account.
Minus
(C) The then aggregate of such
Availability Reserves as may have
been established by the Agent as
provided herein.
Minus
(D) The then Stated Amount of all L/Cs. (ii)
Is the result of:
(A) up to the then Applicable Advance
Rate of the Cost of Acceptable
Inventory.
Plus
(B) up to forty-five percent (45%)
(subject to adjustment as provided
in Section 2-1(d), below) of the
difference between (1) the face
amount of the Borrower's Acceptable
Accounts and (2) the then existing
Receivables Reserves.
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<PAGE> 29
Minus
(C) The then unpaid principal balance of
the Loan Account.
Minus
(D) The then aggregate of such
Availability Reserves as may have
been established by the Agent as
provided herein.
Minus
(E) The then Stated Amount of all L/Cs.
(c) Availability shall be based upon Borrowing Certificates
furnished as provided in Section 5-4 hereof.
(d) The Agent may, in its discretion, increase the advance
rate for Acceptable Accounts from up to forty-five percent (45%) to a percentage
not to exceed eighty percent (80%) upon the Agent's satisfaction that the
Borrower's systems and controls are adequate to allow the accurate and timely
reporting and monitoring of information required by the Agent with respect to
the Borrower's Accounts.
(e) The proceeds of borrowings under the Revolving Credit
shall be used solely to refinance the Borrower's existing working capital line
of credit with The CIT Group/Business Credit, Inc. and other lenders party to
such loan arrangement, and in accordance with the Business Plan for working
capital purposes of the Borrower and for its Capital Expenditures, all solely to
the extent permitted by the within Agreement.
2-2. Advances in Excess of Maximum Loan Exposure. No Lender has any
obligation to make any loan or advance, or otherwise to provide any credit for
the benefit of the Borrower such that the balance of the Loan Account exceeds
Maximum Loan Exposure. The making of loans, advances, and credits and the
providing of financial accommodations in excess of Maximum Loan Exposure is for
the benefit of the Borrower and does not affect the obligations of the Borrower
hereunder; such loans, advances, credits, and financial accommodations
constitute Liabilities. The making of any such loans, advances, and credits and
the providing of financial accommodations, on any
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<PAGE> 30
one occasion such that Maximum Loan Exposure is exceeded shall not obligate any
Lender to make any such loans, credits, or advances or to provide any financial
accommodation on any other occasion nor to permit such loans, credits, or
advances to remain outstanding.
2-3. Initial Reserves.
(a) The following are the only Reserves in effect at the
execution of this Agreement:
(i) Gift Certificates and Customer Credits (an
Availability Reserve): 50% of the outstanding amount thereof from time
to time.
(ii) Dilution (a Receivable Reserve): 12% of
outstanding Acceptable Accounts from time to time.
(iii) Shrinkage (an Inventory Reserve): 2.5% of the
Borrower's then Acceptable Inventory from time to time.
(iv) Return to Vendors (an Inventory Reserve): The
amount thereof outstanding from time to time on the Borrower's books
and records maintained in the ordinary course.
(v) Net Realizable Value/Markdowns (an Inventory
Reserve): The amount thereof outstanding from time to time on the
Borrower's books and records maintained in the ordinary course.
(vi) Sales Taxes (an Inventory Reserve): The amount
thereof outstanding from time to time on the Borrower's books and
records maintained in the ordinary course.
(vii) Damage (an Inventory Reserve): The amount
thereof outstanding from time to time on the Borrower's books and
records maintained in the ordinary course.
(viii) Real Estate (an Availability Reserve): The sum
of $968,804.00, which Reserve shall be terminated upon the Agent's
receipt of Subordination, Attornment and Non-Disturbance Agreements (in
form reasonably satisfactory to the Agent) from the tenants at the
Borrower's Chapel Hill Center property.
(ix) Rent (an Availability Reserve): The sum of
$2,295,200.00, which Reserve shall be adjusted upon the Agent's receipt of
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<PAGE> 31
Landlord's Waivers (in addition to those delivered upon the execution hereof)
and shall be terminated upon the Agent's receipt of waivers or subordinations
(each in form reasonably satisfactory to the Agent) executed by (a) each of the
owners of the Borrower's leased warehouses, (b) seventy-five percent (75%) of
the Borrower's landlords, and (c) without duplication, the landlords for any of
the Borrower's stores located in a jurisdiction in which the landlord could
obtain an Encumbrance on any of the Borrower's assets having priority over the
lien granted to the Agent.
(b) The Lender will not establish any other Reserves, or make
any material change to any of the above Reserves, except upon not less than five
(5) Business Days prior notice to the Borrower.
2-4. Risks of Value of Collateral. The Agent's reference to a
given asset in connection with the making of loans, credits, and advances under
the Revolving Credit and/or the monitoring of compliance with the provisions
hereof shall not be deemed a determination by the Agent or any Lender relative
to the actual value of the asset in question. All risks concerning the
saleability of the Borrower's Inventory are and remain upon the Borrower. All
Collateral secures the prompt, punctual, and faithful performance of the
Liabilities whether or not relied upon by the Agent or by any Lender in
connection with the making of loans, credits, and advances and the providing of
financial accommodations under the Revolving Credit.
2-5. Loan Requests.
(a) Subject to the provisions of the within Agreement, a loan
or advance under the Revolving Credit duly and timely requested by the Borrower
shall be made pursuant hereto, provided that:
(i) Maximum Loan Exposure will not be exceeded; and
(ii) The Revolving Credit has not been suspended as
provided in Section 2-5(f).
Loans under the Revolving Credit which are requested by 1:00PM on a Business Day
will be made by the end of business on that Business Day; otherwise, by the end
of the then next Business Day.
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<PAGE> 32
(b) Requests for loans and advances under the Revolving
Credit, each in an amount of not less than Ten Thousand Dollars ($10,000.00),
may be requested by the Borrower in such manner as may from time to time be
reasonably acceptable to the Agent.
(c) If, during the Fifteen (15) days immediately preceding the
day on which a loan request is made there has been no unpaid principal balance
in the Loan Account on account of loans and advances under the Revolving Credit,
the loan so requested shall be made (subject to all other provisions of the
within Agreement) no later than the Fifth Business Day after (and not counting)
the day on which the loan otherwise would have been made as provided above.
(d) The Agent may rely on any request for a loan or advance,
or other financial accommodation under the Revolving Credit which the Agent, in
good faith, believes to have been made by a person duly authorized to act on
behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Agent's being furnished with such documentation concerning that person's
authority to act as may be reasonably satisfactory to the Agent.
(e) A request by the Borrower for a loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no material adverse change in the
Borrower's financial condition from the most recent financial
information furnished Agent or any Lender pursuant to this Agreement.
(ii) The Borrower is in compliance with, and has not
breached any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or in
any of the Loan Documents (defined below) is then true and complete as
of and as if made on the date of such request, unless such
representation expressly relates to an earlier date.
(iv) No Suspension Event is then extant.
(f) Upon the occurrence from time to time of any Suspension
Event:
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(i) The Agent may suspend the Revolving Credit
immediately.
(ii) Neither the Agent nor any Lender shall be
obligated, during such suspension, to make any loans or advance, to
seek the issuance of any L/C, or to provide any financial accommodation
hereunder.
2-6. Making of Loans Under Revolving Credit.
(a) A loan or advance under the Revolving Credit shall be made
by the transfer of the proceeds of such loan or advance to the Funding Account
or as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made under
the Revolving Credit at (and the Borrower shall be indebted to the Lenders for
the amount thereof immediately upon):
(i) The Agent's transfer of the proceeds of such loan
or advance in accordance with the Borrower's instructions (if such loan
or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the
Loan Account (in all other circumstances).
(c) There shall not be any recourse to, nor liability of, the
Agent or any Lender (except for their gross negligence or willful misconduct),
on account of:
(i) Any delay in the making of any loan or advance
requested under the Revolving Credit.
(ii) Any delay in the proceeds of any such loan or
advance constituting collected funds.
(iii) Any delay in the receipt, and/or any loss, of
funds which constitute a loan or advance under the Revolving Credit,
the wire transfer of which was properly initiated by the in accordance
with wire instructions provided to the Agent by the Borrower.
2-7. The Loan Account.
(a) An account ("LOAN ACCOUNT") shall be opened on the books
of the Agent , in which Loan Account a record may be kept of all Liabilities and
of all payments thereon.
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(b) The Agent may also keep a record (either in the Loan
Account or elsewhere, as the Agent may from time to time elect) of all interest,
fees, service charges, costs, expenses, and other debits owed the Lender on
account of the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Lenders of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against Agent or any Lender for any reason or is not so paid shall be a
Liability and shall be added to the Loan Account, whether or not the item so
charged back or not so paid is returned. The Agent will use its best efforts to
furnish the Borrower with prompt notice of any item so charged back against the
Agent or any Lender.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable three (3) Business Days after demand. In the determination of
Availability, the Agent may deem fees, service charges, accrued interest, and
other payments as having been advanced under the Revolving Credit whether or not
such amounts are then due and payable.
(e) The Agent, without the request of the Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Agent or any Lender is entitled from the Borrower pursuant
hereto or, unless otherwise notified in writing by the Borrower, any interest or
commitment fees to which the Term Loan Lender is due under the Term Loan and may
charge the same to the Loan Account notwithstanding that such amount so advanced
may result in Availability's being exceeded. Such action on the part of the
Agent shall not constitute a waiver of the Lender's rights under Section 2-9(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Section shall bear interest at the interest rate applicable
from time to time to the unpaid principal balance of the Loan Account.
(f) Any statement rendered by the Agent or any Lender to the
Borrower concerning the Liabilities shall be considered correct and accepted by
the Borrower and shall, absent manifest error, be conclusively binding upon the
Borrower unless the Borrower provides the Agent with written objection
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<PAGE> 35
thereto within forty-five (45) days from the mailing of such statement, which
written objection shall indicate, with particularity, the reason for such
objection. The Loan Account and the Agent's books and records concerning the
loan arrangement contemplated herein and the Liabilities shall be prima facie
evidence and proof of the items described therein.
2-8. The Revolving Credit Notes. The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein, shall be
evidenced by Notes (each, a "REVOLVING CREDIT NOTE") in the form of EXHIBIT 2-8,
annexed hereto, executed by the Borrower, one payable to each Lender. Neither
the original nor a copy of any Revolving Credit Note shall be required, however,
to establish or prove any Liability. In the event that any Revolving Credit Note
is ever lost, mutilated, or destroyed, the Borrower shall execute a replacement
thereof and deliver such replacement to the Agent.
2-9. Payment of The Loan Account.
(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date.
(b) The Borrower, upon demand of the Agent or any Lender,
shall pay the Agent that amount, from time to time, which is necessary so that
the unpaid balance of the Loan Account does not exceed Maximum Loan Exposure.
(c) The Borrower, without notice or demand from the Agent or
any Lender, shall pay the Agent, for the ratable benefit of the Lenders, the Net
Proceeds from the sale by the Borrower of (i) any of its capital stock, whether
in a secondary offering or otherwise and (ii) its assets (other than: sales or
dispositions of Inventory in the ordinary course) immediately on receipt of such
Net Proceeds by the Borrower. As long as no Suspension Event then exists,
subject to the other limitations of this Agreement, amounts prepaid under this
Section 2-9(c) may be reborrowed. Nothing contained herein shall be deemed to
constitute the Agent's or the Lenders' consent to any such sale or disposition
or a waiver of the provisions of Section 4-11(d) hereof.
(d) The Borrower shall repay the then entire unpaid balance of
the Loan Account and all other Liabilities on the Termination Date.
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2-10. Interest.
(a) The unpaid principal balance of the Loan Account shall
bear interest, until repaid (calculated based upon a 360-day year and actual
days elapsed), at the aggregate of Base plus 0.5% per annum.
(b) Following the occurrence of any Event of Default (and
whether or not the Agent exercises any of the Agent's rights on account of such
Event of Default), all loans and advances made under the Revolving Credit shall
bear interest, at the option of the Agent at a rate which is the aggregate of
the rate provided for in Section 2-10(a), above, plus Two Percent (2%) per
annum.
(c) Accrued interest shall be payable:
(i) Monthly in arrears on the first day of the month
next following that during which such interest accrued.
(ii) On the Termination Date.
(iii) On the End Date.
2-11. Commitment, Agent's, and Line Fee.
(a) As compensation for the Lenders' respective commitments
included herein to make loans and advances to the Borrower and as compensation
for the Lenders' respective maintenance of sufficient funds available for such
purpose, the Lenders have earned a REVOLVING CREDIT COMMITMENT FEE (so referred
to herein) as set forth the Fee Letter.
(b) In addition to any other fee or expense paid by the
Borrower on account of the Revolving Credit, the Borrower shall pay the Agent an
AGENT'S FEE (so referred to herein) as set forth the Fee Letter.
(c) In addition to any other fee or expense paid by the
Borrower on account of the Revolving Credit, the Borrower shall pay the Agent a
LINE FEE (so referred to herein) in arrears, on the first day of each quarter
(and on the Termination Date). The Line Fee shall be equal to 0.375% per annum
of the difference, during the quarter just ended (or relevant period with
respect to the payment being made on the Termination Date) between the Loan
Ceiling for such period and the average unused portion of the Revolving Credit
during such period.
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(d) In addition to any other right to which the Agent is then
entitled on account thereof, the Agent may (but shall not be obligated to)
assess an additional fee payable by the Borrower on account of the
accommodation, from time to time, by the Agent to the Borrower's request that
the Agent depart or dispense with one or more of the administrative provisions
of the within Agreement and/or the Borrower's failure to comply with any of such
provisions.
(i) By way of non-exclusive example, the Agent
may assess a fee on account of any of the following:
(A) The Borrower's failure to pay that
amount which is necessary so that the principal balance of the
Loan Account does not exceed Maximum Permitted Exposure (as
required under Section 2-9(b) hereof).
(B) The providing of a loan or advance under
the Revolving Credit such that Maximum Loan Exposure would be
exceeded.
(C) The providing of a same Business Day
loan requested after the time set forth in Sections 2-5(a),
2-5(b) hereof.
(D) The Borrower's failure to provide a
financial statement or report within the applicable time frame
provided for such report under Article 5 hereof.
(ii) The inclusion of the foregoing right on the part
of the Agent to assess a fee does not constitute an obligation, on the
part of the Agent, to waive any provision of the within Agreement under
any circumstances. The assessment of any such fee in any particular
circumstance shall not constitute the Agent's waiver of any breach of
the within Agreement on account of which such fee was assessed nor a
course of action on which the Borrower may rely.
(e) The Borrower shall not be entitled to any credit, rebate
or repayment of any Revolving Credit Commitment Fee, Agent's Fee, Line Fee, or
other fee previously earned by the Agent or any Lender pursuant to this Section
notwithstanding any termination of the within Agreement or suspension or
termination of the Agent's and any Lender's respective obligation to make loans
and advances hereunder.
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2-12 Early Termination Fees.
In the event that the Revolving Credit is terminated prior to
the Maturity Date for any reason, which termination is not in concert with the
refinancing of the Revolving Credit with a credit facility provided or led by
the Agent or any Affiliate thereof, then the Borrower shall pay the Agent an
EARLY TERMINATION FEE (so referred to herein) equal to the following percentage
of the then Loan Ceiling on such Termination Date:
------------------------------------------------------
Termination Date Prior Percentage of
to November 20: Loan Ceiling
------------------------------------------------------
1998 1.0%
------------------------------------------------------
1999 0.50%
------------------------------------------------------
2-13 Voluntary Reduction of the Loan Ceiling. The Borrower may
reduce the Loan Ceiling, in whole or in part from time to time, on any interest
payment date, by furnishing three (3) Business Days' written notice to the
Agent. Upon the effective date of any such reduction, the Borrower shall pay to
the Agent a pro rata portion (as to the amount of the reduction) of the Early
Termination Fees under Section 2-12 hereof, and the accrued Line Fee as of the
date of such reduction or termination. No reduction or termination of the Loan
Ceiling may be reinstated.
2-14. Agent's and Lenders' Discretion.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Agent or any Lender shall be to that Person's
reasonable exercise of its judgment, in good faith (which shall be presumed),
based upon that Person's consideration of any such factor as the Agent or that
Lender, taking into account information of which that Person then has actual
knowledge, believes:
(i) Will or reasonably could be expected to affect the
value of the Collateral, the enforceability of the Agent's security
and collateral interests therein, or the amount which the Agent would
likely realize therefrom (taking into account delays which may possibly
be encountered in the Lender's realizing upon the Collateral and likely
Costs of Collection).
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(ii) Indicates that any report or financial
information delivered to the Agent or any Lender by or on behalf of the
Borrower is incomplete, inaccurate, or misleading in any material
manner or was not prepared in accordance with the requirements of the
within Agreement.
(iii) Suggests an increase in the likelihood that the
Borrower will become the subject of a bankruptcy or insolvency
proceeding.
(iv) Constitutes a Suspension Event.
(b) In the exercise of such judgment, the Agent and each
Lender also may take into account any of the following factors:
(i) Those included in, or tested by, the
definitions of "Acceptable Inventory and "Cost".
(ii) A material change in the current financial and
business climate of the industry in which the Borrower competes (having
regard for the Borrower's position in that industry).
(iii) General macroeconomic conditions which have a
material effect on the Borrower's cost structure.
(iv) Material changes in or to the mix of the
Borrower's Inventory.
(v) Seasonality with respect to the Borrower's
Inventory and patterns of retail sales.
(vi) Such other factors as the Agent and each Lender
determines as having a material bearing on credit risks associated with
the providing of loans and financial accommodations to the Borrower.
(c) The burden of establishing the failure of the Agent
or any Lender to have acted in a reasonable manner in such Person's exercise of
discretion shall be the Borrower's.
2-15 Procedures For Issuance of L/C's.
(a) The Borrower may request that the Agent cause the issuance
of L/Cs for the account of the Borrower. Each such request shall be in such
manner as may from time to time be acceptable to the Agent and the Issuer.
(b) The Agent will cause the issuance of any L/C so requested
by the Borrower, provided that, at the time that the request is made, the
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Revolving Credit has not been suspended as provided in Section 2-5(f) and if so
issued:
(i) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed One Million Dollars ($1,000,000.00).
(ii) The expiry of the L/C is not later than the
earlier of the Maturity Date or One (1) year from initial issuance.
(iii) Maximum Loan Exposure would not be exceeded.
(c) The Borrower shall execute such documentation to
apply for and support the issuance of an L/C as may be reasonably and
customarily required by the Issuer.
(d) There shall not be any recourse to, nor liability of,
the Agent or any Revolving Credit Lender on account of
(i) Any delay by an Issuer to issue an L/C;
(ii) Any action or inaction of an Issuer on account
of or in respect to, any L/C.
(e) Immediately upon the drawing under any L/C, the
Borrower shall reimburse the Issuer, for the amount of such drawing. In the
event the Borrower does not so reimburse the Issuer, the Agent, without the
request of the Borrower, may cause the advance under the Revolving Credit of any
amount which the Borrower is so obligated to reimburse the Issuer or for which
the Borrower, the Issuer, or the Revolving Credit Lenders become obligated on
account of, or in respect to, any L/C. Such advance shall be made whether or not
a Suspension Event is then extant or such advance would result in Maximum Loan
Exposure's being exceeded. Such action shall not constitute a waiver of the
Agent's rights under Section 2-9(b) hereof.
2-16. Fees For L/C's.
(a) The Borrower shall pay the Agent, monthly in arrears, on
the first day of the month then next following, a fee (the "L/C FEES") equal to
the greatest of (i) $500.00, or (ii) Two Percent (2%) of the Stated Amount of
any L/C, or (iii) Two Percent (2%) per annum of the Stated Amount of any L/C.
Following the occurrence of any Event of Default (and whether or not the Agent
exercises any of the Agent's rights on account of such Event of Default), all
L/C Fees shall, at the option of the Agent be increased by Two Percent (2%)
per annum.
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(b) In addition to the fee to be paid as provided in
Subsection 2-16(a), above, the Borrower shall pay to the Agent (or to the
Issuer, if so requested by Agent), on demand, all issuance, processing,
negotiation, amendment, and administrative fees and other amounts customarily
charged by the Issuer on account of, or in respect to, any L/C.
2-17. Concerning L/C's.
(a) None of the Issuer, the Issuer's correspondents, or
any advising, negotiating, or paying bank with respect to any L/C shall be
responsible (absent any gross negligence or willful misconduct of any of them)
in any way for:
(i) The performance by any beneficiary under any L/C
of that beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the legal effect of;
any documents called for under any L/C if (with respect to the
foregoing) such documents on their face appear to comply with the terms
of the L/C.
(b) The Issuer may honor, as complying with the terms of any
L/C and of any drawing thereunder, any drafts or other documents otherwise in
order, but signed or issued by an administrator, executor, conservator, trustee
in bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance,
the Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrower (absent gross negligence or
willful misconduct on the Issuer's, the Agent's or any Revolving Credit Lender's
part). The Issuer shall have discharged the Issuer's obligations under any
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L/C which, or the drawing under which, includes payment instructions, by the
initiation of the method of payment called for in, and in accordance with, such
instructions (or by any other commercially reasonable and comparable method
(absent gross negligence or willful misconduct on its part). None of the Agent,
any Revolving Credit Lender, nor the Issuer shall have any responsibility for
any inaccuracy, interruption, error, or delay in transmission or delivery by
post, telegraph or cable, or for any inaccuracy of translation (absent gross
negligence or willful misconduct on its part).
(e) The Agent's, each Revolving Credit Lender's, and the
Issuer's rights, powers, privileges and immunities specified in or arising under
this Agreement are in addition to any heretofore or at any time hereafter
otherwise created or arising, whether by statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Issuer and the Borrower, the L/C will
be governed by the Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce, Publication No. 500, and any subsequent
revisions thereof.
(g) If any change in any law, executive order or regulation,
or any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirements against letters of credit
heretofore or hereafter issued by any Issuer or with respect to which
the Agent, or any Issuer has an obligation to lend to fund drawings
under any L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Section 2-17(g)(i) or 2-17(g)(ii),
above, shall be to increase the cost to such Issuer of issuing or maintaining
any L/C (which increase in cost shall be the result of such Issuer's reasonable
allocation among that Issuer's letter of credit customers of the aggregate of
such cost increases resulting from such events), then, upon
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demand by the Agent and delivery by the Agent to the Borrower of a certificate
of an officer of the subject Issuer describing such change in law, executive
order, regulation, directive, or interpretation thereof, its effect on such
Issuer, and the basis for determining such increased costs and their allocation,
the Borrower shall pay to the Agent within seven (7) Business Days after the
date of such demand, from time to time as specified by the Agent, such amounts
as shall be sufficient to compensate such Issuer for such increased cost. Any
Issuer's determination of costs incurred under Section 2- 17(g)(i) or
2-17(g)(ii), above, and the allocation, if any, of such costs among the Borrower
and other letter of credit customers of such Issuer, if done in good faith and
made on an equitable basis and in accordance with the officer's certificate,
shall be conclusive and binding on the Borrower.
(h) The obligations of the Borrower under the within
Agreement with respect to L/C's are absolute, unconditional, and irrevocable and
shall be performed strictly in accordance with the terms hereof under all
circumstances, whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of the within
Agreement, any L/C, or any other agreement or instrument relating
thereto.
(ii) The existence of any claim, set-off, defense, or
other right which the Borrower may have at any time against the
beneficiary of any L/C.
2-18. Increased Costs. If, as a result of any change in any requirement
of law, or of the interpretation or application thereof by any court or by any
governmental or other authority or entity charged with the administration
thereof, whether or not having the force of law, which:
(a) subjects any Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments of principal,
interest or other amounts payable by the Borrower to the Agent or any
Lender under this Agreement (except for taxes on the Agent or any
Lender's overall net income or capital imposed by the jurisdiction in
which the Agent or that Lender's principal or lending offices are
located);
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(b) imposes, modifies or deems applicable any reserve, cash
margin, special deposit or similar requirements against assets held by,
or deposits in or for the account of or loans by or any other
acquisition of funds by the relevant funding office of any Lender;
(c) imposes on any Lender any other condition with respect to
any Loan Document; or
(d) imposes on any Lender a requirement to maintain or
allocate capital in relation to the Liabilities;
and the result of any of the foregoing is to increase the cost to any Lender of
making or maintaining any loan, advance or financial accommodation or to reduce
the income receivable by any Lender in respect of any loan, advance or financial
accommodation by an amount which the Agent or any Lender deems to be material,
then upon the Agent's giving written notice thereof, from time to time, to the
Borrower (such notice to set out in reasonable detail the facts giving rise to
and a summary calculation of such increased cost or reduced income), the
Borrower shall pay to the Agent, for the benefit of the subject Lender, within
seven (7) Business Days after receipt of such notice, that amount which shall
compensate the subject Lender for such additional cost or reduction in income.
2-19. Lenders' Commitments.
(a) The obligations of each Lender are several and not joint.
No Lender shall have any obligation to make any loan or advance under the
Revolving Credit in excess of the lesser of (i) that Lender's Commitment
Percentage of the subject loan or advance or of Availability or (ii) that
Lender's Revolving Credit Commitment,
(b) No Lender shall have any liability to the Borrower on
account of the failure of any other Lender to provide any loan or advance under
the Revolving Credit nor any obligation to make up any shortfall which may be
created by such failure.
(c) The Dollar Commitments, Commitment Percentages, and
identities of the Lenders (but not the overall Revolving Credit Commitment) may
be changed, from time to time by the reallocation or assignment of Dollar
Commitments and Commitment Percentages amongst the Lenders or with other
Persons who determine to become "Lenders", provided, however,
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(i) Unless an Event of Default has occurred (in which
event, no consent of the Borrower is required) any assignment to a
Person not then a Lender shall be subject to the prior consent of the
Borrower (not to be unreasonably withheld), which consent will be
deemed given unless the Borrower provides the Agent with written
objection, not more than Five (5) Business Days after the Agent shall
have given the Borrower written notice of a proposed assignment).
(ii) Any such assignment or reallocation shall be on
a pro-rata basis such that each reallocated or assigned Dollar
Commitment to any Person remains the same percentage of the Revolving
Credit Commitment (in terms of dollars) as the reallocated Commitment
Percentage is to such Person.
(iii) Any such assignment to a Person not then a
Lender shall be in an minimum amount of $10,000,000.00.
(d) Upon written notice given to the Borrower from time
to time by the Agent, of any assignment or allocation referenced in Section
2-19(c):
(i) The Borrower shall execute replacement one or
more Revolving Credit Notes to reflect such changed Dollar Commitments,
Commitment Percentages, and identities and shall deliver such
replacement Revolving Credit Notes to the Agent (which promptly
thereafter shall deliver to the Borrower the Revolving Credit Notes so
replaced) provided however, in the event that a Revolving Credit Note
is to be exchanged following its acceleration or the entry of an order
for relief under the Bankruptcy Code with respect to the Borrower, the
Agent, in lieu of causing the Borrower to execute one or more new
Revolving Credit Notes, may issue the Agent's Certificate confirming
the resulting Commitments and Commitment Percentages.
(ii) Such change shall be effective from the
effective date specified in such written notice and any Person added as
a Lender shall have all rights, privileges and obligations of a Lender
hereunder thereafter as if such Person had been a signatory to the
within Agreement and any other Loan Document to which a Lender is a
signatory and any person removed as a Lender shall be relieved of any
obligations or responsibilities of a Lender hereunder thereafter.
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(e) The Borrower recognizes that the Agent's exercise of any
discretion accorded to the Agent herein and of its rights, remedies, powers,
privileges, and discretions with respect to the Borrower is subject to a certain
Agency Agreement amongst the Agent and the Lenders and a certain Intercreditor
Agreement with the Term Loan Lender.
ARTICLE 3 - CONDITIONS PRECEDENT.
As a condition to the effectiveness of this Agreement, the
establishment of the Revolving Credit, and the making of the first loan under
the Revolving Credit, each of the documents respectively described in Sections
3-1 through and including 3-7, (each in form and substance reasonably
satisfactory to the Agent) shall have been delivered to the Agent, and the
conditions respectively described in Sections 3-8 through and including 3-17,
shall have been satisfied:
3-1. Corporate Due Diligence.
(a) A Certificate of corporate good standing issued by the
Secretary of State of Ohio.
(b) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature of the
Borrower's business conducted or assets owned requires such qualification,
except for those states in which the failure to so qualify would not have a
material adverse effect on the Borrower's business, assets, financial condition,
operations or prospects.
(c) A Certificate of the Borrower's Assistant Secretary of the
due adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
3-2. Opinion. An opinion of counsel to the Borrower in form and
substance reasonably satisfactory to the Agent.
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3-3. Landlord Waivers. The delivery to the Agent of waivers or
subordinations (each in form reasonably satisfactory to the Agent) executed by
(a) each of the owners of the Borrower's leased warehouses, (b) seventy-five
percent (75%) of the Borrower's landlords, and (c) without duplication, the
landlords for each of the Borrower's stores located in a jurisdiction in which
the landlord could obtain an Encumbrance on any of the Borrower's assets having
priority over the lien granted to the Agent, provided that, if such waivers or
subordinations are not delivered, the Agent shall waive this condition and will
establish a Reserve as set forth in Section 2-3 hereof.
3-4. Term Loan; Intercreditor Agreement. The execution and delivery of
an Intercreditor Agreement among the Agent and the Term Loan Lenders, in form
and substance reasonably satisfactory to the Agent and the Lenders. The Term
Loan shall have been consummated and be in full force and effect.
3-5. Mortgages/Deeds of Trust. Mortgages/Deeds of Trust and Assignments
of Leases and Rents with respect to the Real Estate presently owned by the
Borrower, each in form satisfactory to the Agent.
3-6. Additional Documents. Such additional instruments and documents
as the Agent or its counsel may reasonably require or reasonably request.
3-7. Officers' Certificates. Certificates executed by the President and
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower to the Agent and the Lenders in the Loan
Documents are true and complete as of the date of such Certificate, and that no
Suspension Event has occurred.
3-8. Due Diligence. The Agent and the Lenders shall have completed
their due diligence, the results of which shall be reasonably satisfactory to
the Agent and the Lenders. Without limiting, the generality of the foregoing,
the Agent shall have completed its investigation of the business, affairs,
capital structure, real estate, material agreements, transactions between
affiliates, related parties, properties and prospects of the Borrower
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including, without limitation, analysis of all material contracts, and pending
and threatened litigation, with results reasonably satisfactory to the Agent and
its counsel.
3-9. Representations and Warranties. Each of the representations made
by or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by any
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
3-10. Minimum Excess Availability. Availability, after giving effect to
the first loans and advances to be made under the Revolving Credit; all then
held checks (if any); accounts payable which are beyond credit terms then
accorded the Borrower; overdrafts; any charges to the Loan Account made in
connection with the establishment of the credit facility contemplated hereby;
and L/C's to be issued at, or immediately subsequent to, the establishment of
such credit facility, and any proceeds of the Term Loan applied in reduction of
the Revolving Credit is not less than (a) $40,000,000.00, minus (b) any Real
Estate and Rent Reserves established pursuant to Section 2-3 hereof.
3-11. No Suspension Event. No Suspension Event shall then be extant.
3-12. No Adverse Change. No event shall have occurred or failed to
occur, which occurrence or failure is or could have a materially adverse effect
upon the Borrower's business, financial condition, operations, properties or
prospects when compared with such condition at September 30, 1997.
3-13. Perfection of Liens. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the opinion of the Agent
to protect and preserve its security and mortgage interests in the Collateral
shall have been duly effected. The Agent shall have received evidence thereof in
form and substance reasonably satisfactory to the Agent.
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3-14. Litigation. No action, suit, investigation, litigation or
proceeding shall be pending or threatened in any court or before any arbitrator
or governmental instrumentality that (i) reasonably could be expected to have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Borrower other than
those which have theretofore been disclosed or (ii) would materially adversely
affect the Revolving Credit, other than those which have theretofore been
disclosed. Borrower shall represent and warrant the current status of all
pending litigation, and such status shall be reasonably satisfactory to Agent
and the Lenders.
3-15. Consents. All governmental and third party consents and
approvals, if any, necessary in connection with the Revolving Credit, shall have
been obtained (without the imposition of any conditions that are not acceptable
to the Agent or any Lender) and shall remain in effect; all applicable waiting
periods with respect to such consents and approvals shall have expired without
any action being taken by any competent authority; and, in the judgment of the
Agent, no law or regulation shall be applicable which restrains, prevents, or
imposes materially adverse conditions upon the Revolving Credit.
3-16. Fees and Expenses. The Revolving Credit Commitment Fee, the
Agent's Fee, and all accrued fees and expenses of the Agent in connection with
the establishment of the Revolving Credit (including the fees and expenses of
counsel to the Agent and each Lender) then due and payable shall have been paid.
3-17. Capital Markets. There shall not have occurred any disruption
or adverse change in the U.S. financial capital markets generally, or in the
U.S. market for loan syndications in particular, which the Agent or the Lenders
in their discretion deem to be material.
No document shall be deemed delivered to the Agent or any Lender until received
and accepted by the Agent at the Agent's head office in Boston,
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Massachusetts. Under no circumstances will the within Agreement take effect
until executed and accepted by the Agent at said head office.
ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce each Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower, in addition to all other
representations, warranties, and covenants made by the Borrower in any other
Loan Document, makes the following representations, warranties, and covenants
included in the within Agreement.
4-1. Payment and Performance of Liabilities. The Borrower shall pay
each Liability when due (or within three (3) Business Days after demand, if
payable on demand) and shall promptly, punctually, and faithfully perform each
other Liability.
4-2. Due Organization - Corporate Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in
good standing as an Ohio corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification is necessary, except for those States in which the
failure to so qualify would not have a material adverse effect on the Borrower's
business, assets, financial condition, operations or prospects.
(b) Each Related Entity is listed on EXHIBIT 4-2, annexed
hereto. Each Related Entity is and shall hereafter remain in good standing in
the State in which incorporated and is and shall hereafter remain duly qualified
in each other State in which, by reason of that entity's assets or the operation
of such entity's business, such qualification may be necessary, except for those
States in which the failure to so qualify would not have a material adverse
effect on the Borrower's business, assets, financial condition, operations or
prospects. The Borrower shall provide the Agent with prior written notice of any
entity's becoming or ceasing to be a Related Entity.
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(c) The Borrower has all requisite corporate power and
authority to execute and deliver all and singular the Loan Documents to which
the Borrower is a party and has and will hereafter retain all requisite
corporate power to perform all and singular the Liabilities.
(d) The execution and delivery by the Borrower of each
Loan Document to which it is a party; the Borrower's consummation of the
transactions contemplated by such Loan Documents (including, without limitation,
the creation of security and mortgage interests by the Borrower as contemplated
hereby); the Borrower's performance under those of the Loan Documents to which
it is a party; the borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary
corporate action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or material obligation
of the Borrower.
(iii) Will not result in the creation or imposition
of, or the obligation to create or impose, any Encumbrance upon any
assets of the Borrower pursuant to any Requirement of Law or material
obligation, except pursuant to the Loan Documents.
(e) The Loan Documents have been duly executed and delivered
by Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
4-3. Trade Names.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower has conducted its
business within the last ten (10) years.
(ii) All entities and/or persons with whom the Borrower
ever consolidated or merged, or from whom the Borrower acquired in a
single transaction or in a series of related transactions substantially
all of such entity's or person's assets, within the last ten (10)
years.
(b) Except (i) upon not less than twenty-one (21) days
prior
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written notice given the Agent , and (ii) in compliance with all other
provisions of the within Agreement, the Borrower will not undertake or commit to
undertake any action such that the results of that action, if undertaken prior
to the date of this Agreement, would have been reflected on EXHIBIT 4-3.
(c) The Borrower owns and possesses, or has the right to use
all patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) Except as set forth on EXHIBIT 4-16, the conduct by the
Borrower of the Borrower's business does not infringe on the patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
4-4. Locations.
(a) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained solely at the Borrower's
chief executive offices at 6600 Port Road, Groveport, Ohio 43125 and at those
locations which are listed on EXHIBIT 4-4, annexed hereto, which EXHIBIT
includes all service bureaus with which any such records are maintained and the
names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business, (ii) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), (iii) is otherwise permitted by
this Agreement, or (iv) to move Collateral between locations listed on said
EXHIBIT 4-4, the Borrower shall not remove any Collateral from said chief
executive offices or those locations listed on EXHIBIT 4-4.
(b) Without the prior written consent of the Agent (which
shall not be unreasonably withheld) the Borrower will not:
(i) Execute (except with respect to new stores permitted
under clause (b)(ii), below), or materially alter, modify, or amend any
Lease.
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(ii) Close any location at which the Borrower
maintains, offers for sale, or stores any of the Collateral, or
(iii) Open any location at which the Borrower
maintains, offers for sale, or stores any of the Collateral (except (A)
upon thirty (30) days prior written notice to the Agent, and (B) if the
Borrower has obtained a landlord's waiver acceptable to the Agent for
such location, and, if necessary, has executed additional financing
statements to protect the Agent's liens and security interests.
(c) Except (i) as otherwise disclosed pursuant to, or
permitted by, this Section 4-4, (ii) for goods in transit, and (iii) Inventory
in the process of being repaired, no tangible personal property of the Borrower
is in the care or custody of any third party or stored or entrusted with a
bailee or other third party and none shall hereafter be placed under such care,
custody, storage, or entrustment.
4-5. Title to Assets.
(a) The Borrower is, and shall hereafter remain, the
owner of the Collateral free and clear of all Encumbrances with the exceptions
of the following (the "PERMITTED ENCUMBRANCES"):
(i) The security interest and liens on the Collateral
created herein and by the mortgages and/or deeds of trust in favor of
the Agent on the Real Estate.
(ii) The Encumbrances in favor of the Term Loan
Lenders.
(iii) Those Encumbrances (if any) listed on
EXHIBIT 4-5, annexed hereto.
(iv) Encumbrances in favor of The CIT Group/Business
Credit, Inc., as Agent, to be released in connection with payment of
proceeds of the loans contemplated hereby.
(v) Encumbrances for payment of taxes, assessments or
governmental charges and levies that are not yet due.
(vi) Encumbrances created by operation of law such as
materialmen's liens, mechanics' liens, warehouse liens and other
similar liens, arising in the ordinary course of business, that secure
amounts not overdue for a period of more than thirty (30) days, not to
exceed $100,000.00 in the aggregate outstanding at any time.
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(vii) Encumbrances incurred or deposits or pledges
made in the ordinary course of business securing: obligations incurred
for workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits (other than liens arising under
ERISA); the performance of bids, tenders, leases, contracts (other than
contracts for the payment of money) and statutory obligations; and
obligations on surety, appeal, supersedeas and performance bonds.
(viii) Encumbrances or other restrictions on the use
of real property such as zoning restrictions, licenses, covenants, and
building restrictions and minor irregularities in the title thereto
that do not secure obligations for the payment of money or materially
impair the value of the real property or its use by the Borrower in the
ordinary conduct of the Borrower's business.
(ix) Encumbrances securing Capital Leases permitted
hereunder.
(x) Encumbrances consisting of judgment liens in
existence for less than thirty (30) days after entry thereof or with
respect to which execution has been stayed or with respect to which
payment in full above any deductible is covered by insurance or bond,
not to exceed $750,000.00 in the aggregate at any time outstanding.
(xi) Renewals and replacements of Permitted
Encumbrances, provided that the renewal or replacement is limited to
the same property or assets and the Indebtedness secured by such
Encumbrance is not increased.
(b) The Borrower does not and shall not have possession
of any property on consignment to the Borrower.
4-6. Indebtedness. The Borrower does not and shall not hereafter
have any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lenders under the Loan Documents.
(b) Indebtedness on account of the Term Loan.
(c) The Indebtedness (if any) listed on EXHIBIT 4-6, annexed
hereto.
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(d) Indebtedness for taxes, assessments, governmental charges
and claims for labor, material or supplies, to the extent that payment
thereof is not then due.
(e) Indebtedness in connection with Permitted Encumbrances.
(f) Indebtedness arising in the ordinary course of business
pursuant to endorsement of negotiable instruments for deposit or
collection.
(g) Capital Leases, the annual payments under which do not
exceed $75,000.00 in the aggregate in any fiscal year.
(h) Indebtedness for the payment of the purchase price of
goods or services deferred for more than thirty (30) days beyond then
current trade terms provided to the Borrower, which are the subject of
a dispute with the vendor or supplier.
(i) Renewals, replacements, extensions and refundings of the
Indebtedness listed in (a) through (g), provided that any renewal,
replacement, extension or refunding is in aggregate principal amount
not greater than the principal amount of, and is payable on terms no
less favorable to the Borrower of, the Indebtedness renewed, replaced,
extended or refunded.
4-7. Insurance Policies.
(a) EXHIBIT 4-7, annexed hereto, is a schedule of all
insurance policies owned by the Borrower or under which the Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
issuer of any such policy nor the Borrower is in default or violation of any
such policy.
(b) The Borrower shall have and maintain at all times
insurance covering such risks, in such amounts, containing such terms, in such
form, for such periods, and written by such companies as may be reasonably
satisfactory to the Agent. The coverage reflected on EXHIBIT 4-7 presently
satisfies the foregoing requirements, it being recognized by the Borrower,
however, that such requirements may change hereafter to reflect changing
circumstances. All insurance carried by the Borrower shall provide for a minimum
of Sixty (60) days' written notice of cancellation to the Agent and all such
insurance which
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covers the Collateral shall include an endorsement in favor of the Agent as
mortgagee, loss payee or additional insured, as applicable, which endorsement
shall also provide that the insurance, to the extent of the Agent's interest
therein, shall not be impaired or invalidated, in whole or in part, by reason of
any act or neglect of the Borrower or by the failure of the Borrower to comply
with any warranty or condition of the policy. In the event of the failure by the
Borrower to maintain insurance as required herein, the Agent, at its option, may
obtain such insurance, provided, however, the Agent's obtaining of such
insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Agent certificates or other evidence satisfactory
to the Agent regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Agent of each claim in
excess of $150,000.00 made by the Borrower under any policy of insurance which
covers the Collateral and will permit the Agent, at the Agent's option in each
instance, to the exclusion of the Borrower, to conduct the adjustment of each
such claim (and of all claims following the occurrence of any Suspension Event).
The Borrower hereby appoints the Agent as the Borrower's attorney in fact to
obtain, adjust, settle, and, after the occurrence of an Event of Default, cancel
any insurance described in this section and to endorse in favor of the Agent any
and all drafts and other instruments with respect to such insurance. The within
appointment, being coupled with an interest, is irrevocable until this Agreement
is terminated by a written instrument executed by a duly authorized officer of
the Agent. The Agent shall not be liable on account of any exercise pursuant to
said power except for any exercise in actual willful misconduct, bad faith or
with gross negligence. The Agent may apply all proceeds of insurance (other than
Real Estate, which may be so applied only after the Term Loan has been paid in
full) against the Liabilities, whether or not such have matured, in such order
of application as the Agent may determine.
4-8. Licenses. Each material license, distributorship, franchise,
and similar agreement issued to the Borrower, or to which the Borrower is a
party
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is in full force and effect. The Borrower is not in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
4-9. Leases; Real Estate. (a) EXHIBIT 4-9, annexed hereto, is a
schedule of all presently effective Leases and Capital Leases. Each of such
Leases and Capital Leases is in full force and effect. Other than as set forth
in EXHIBIT 4-16, the Borrower is not in default or violation of any such Lease
or Capital Lease and the Borrower has not received any written notice or written
threat of cancellation of any such Lease or Capital Lease. The Borrower hereby
authorizes the Agent at any time and from time to time after the occurrence of a
Suspension Event to contact any of the Borrower's landlords in order to confirm
the Borrower's continued compliance with the terms and conditions of the
Lease(s) between the Borrower and that landlord and to discuss such issues,
concerning the Borrower's occupancy under such Lease(s), as the Agent may
determine.
(b) EXHIBIT 1-2 annexed hereto, is a schedule of all Real
Estate presently owned by the Borrower.
4-10. Requirements of Law. The Borrower is in material compliance
with, and shall hereafter comply with and use its assets in material compliance
with, all Requirements of Law. The Borrower has not received any notice of any
material violation of any Requirement of Law, which violation has not been cured
or otherwise remedied.
4-11. Maintain Properties. The Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear excepted).
(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any policy
of insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
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(i) The sale of Inventory and Accounts in compliance
with the within Agreement.
(ii) The disposal of Equipment which is (A) obsolete,
worn out, or damaged beyond repair, which Equipment is replaced to the
extent necessary to preserve or improve the operating efficiency of the
Borrower or (B) no longer used or useful in the conduct of the
Borrower's business.
(iii) The turning over to the Agent of all Receipts
as provided herein.
(iv) The sale of Real Estate provided that the sales
price for any parcel is at least equal to the Allocated Loan Value
therefor (as defined in the documents evidencing the Term Loan) and the
proceeds are paid to the Term Loan Lenders and the Agent as required
herein and in the documents evidencing the Term Loan.
4-12. Pay Taxes.
(a) The Borrower has received written notice from the Internal
Revenue Service that the Internal Revenue Service has completed its examination
of the Borrower's federal income tax returns for all tax years through and
including the Borrower's taxable year referenced on EXHIBIT 4-12, annexed
hereto, and that all deficiencies, assessments, and other amounts asserted as a
result of such examinations have been fully paid or settled. No agreement is
extant which waives or extends any statute of limitations applicable to the
right of the Internal Revenue Service to assert a deficiency or make any other
claim for or in respect to federal income taxes. No issue has been raised in any
such examination which, by application of similar principles, reasonably could
be expected to result in the assertion of a deficiency for any fiscal year open
for examination, assessment, or claim by the Internal Revenue Service.
(b) To the Borrower's knowledge, no state and local income,
excise, sales and other taxes are past due. No agreement is extant which waives
or extends any statute of limitations applicable to the right of any state
taxing authority to assert a deficiency or make any other claim for or in
respect to any such state or local taxes. No issue has been raised in any
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examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 4-12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
(other than a Permitted Encumbrance) upon any asset of the Borrower or by any
governmental authority; properly exercise any trust responsibilities imposed
upon the Borrower by reason of withholding from employees' pay or by reason of
the Borrower's receipt of sales tax or other funds for the account of any third
party; timely make all contributions and other payments as may be required
pursuant to any Employee Benefit Plan now or hereafter established by the
Borrower; and timely file all tax and other returns and other reports with each
governmental authority to whom the Borrower is obligated to so file.
(e) At its option, the Agent may, but shall not be obligated
to, pay any taxes, unemployment contributions, and any and all other charges
levied or assessed upon the Borrower or the Collateral by any person or entity
or governmental authority, and make any contributions or other payments on
account of the Borrower's Employee Benefit Plan as the Agent , in the Agent's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Agent's making of
any such payment shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have made such payment.
4-13. No Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G,U,T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
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margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4-14. ERISA. Neither the Borrower nor any ERISA Affiliate ever has
or hereafter shall:
(a) Violate or fail to be in full compliance with the
Borrower's Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by
ERISA to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty
could be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the
meaning of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could
be asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation
under any Employee Benefit Plan which is a multiemployer plan within the meaning
of Section 4001(a) of ERISA.
4-15. Hazardous Materials.
(a) Except as described on EXHIBIT 4-16, the Borrower has
never:
(i) been legally responsible for any release or threat of
release of any Hazardous Material; or
(ii) received notification of any release or threat
of release of any Hazardous Material from any site or vessel occupied
or operated by the Borrower and/or of the incurrence of any expense or
loss in connection with the assessment, containment, or removal of any
release or threat of release of any Hazardous Material from any such
site or vessel.
(b) The Borrower shall:
(i) dispose of any Hazardous Material only in compliance
with all Environmental Laws; and
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(ii) not store on any site or vessel occupied or
operated by the Borrower and not transport or arrange for the transport
of any Hazardous Material, except if such storage or transport is in
the ordinary course of the Borrower's business and is in compliance
with all Environmental Laws.
(c) The Borrower shall provide the Agent with written
notice upon the Borrower's obtaining knowledge of any incurrence of any expense
or loss by any governmental authority or other Person in connection with the
assessment, containment, or removal of any Hazardous Material, for which expense
or loss the Borrower may be liable.
4-16. Litigation. Except as described in EXHIBIT 4-16, annexed
hereto, there is not presently pending or threatened by or against the Borrower
any suit, action, proceeding, or investigation which, if determined adversely to
the Borrower, would have a material adverse effect upon (a) the Borrower's
financial condition or ability to conduct its business as such business is
presently conducted or is contemplated to be conducted in the foreseeable future
or (b) the Borrower's ability to perform its obligations under the Loan
Documents.
4-17. Dividends or Investments. Without the prior written consent
of the Agent, the Borrower shall not:
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock, other than the payment of
dividends, as long as no Suspension Event exists or would arise therefrom, in an
amount not to exceed fifty percent (50%) of the Borrower's net income (as
determined in accordance with GAAP); provided that the Borrower will not pay any
such dividends until fifteen (15) days after the date the Agent receives the
financial statements required under Section 5-7 hereof.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
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(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity, other than with a Related Entity and
then only if the Borrower is the surviving corporation.
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity.
(f) Organize or create any Related Entity, unless (i) the
Related Entity executes a guaranty of the Liabilities and grants the Agent
second priority perfected liens on its assets, and (ii) the only assets owned by
the Related Entity consist of Real Estate or Leases in which the Related Entity
is the lessee.
(g) Subordinate any debts or obligations owed to the Borrower
by any third party to any other debts owed by such third party to any other
Person.
4-18. Loans. The Borrower shall not make any loans or advances to,
nor acquire the Indebtedness of, any Person, provided, however, the foregoing
does not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
4-19. Protection of Assets. The Agent, in the Agent's discretion,
and from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Agent shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Agent has had an opportunity to be heard), from which finding no further appeal
is available, that the Agent had acted in actual bad faith or
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in a grossly negligent manner. The Borrower shall pay to the Agent, within three
(3) Business Days after demand, or the Agent, in its discretion, may add to the
Loan Account, all amounts paid or incurred by the Lender pursuant to this
section. The obligation of the Borrower to pay such amounts is a Liability.
4-20. Line of Business. The Borrower shall not engage in any
business other than the business in which it is currently engaged or a business
reasonably related thereto.
4-21. Affiliate Transactions. The Borrower shall not make any
payment, nor give any value to any Related Entity except for (a) goods and
services actually purchased by the Borrower from, or sold by the Borrower to,
such Related Entity and (b) Leases of real property from any Guarantor, in each
case for a price which shall
(i) be competitive and fully deductible as an
"ordinary and necessary business expense" and/or fully depreciable
under the Internal Revenue Code of 1986 and the Treasury Regulations,
each as amended; and
(ii) not differ from that which would have been
charged in an arms length transaction.
4-22. Executive Pay.
(a) For purposes of this Agreement, the only Executive
Officers of the Borrower, at the execution of the within Agreement, are those
individuals referenced in the definition of "Executive Officers", above.
(b) Prior to the execution of the within Agreement, the
Borrower furnished the Agent with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then extant. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Agent .
(c) Without the prior written consent of the Agent, the
Borrower will not
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(i) Enter into any Executive Agreement not extant
at the execution of the within Agreement.
(ii) Alter, amend, supplement, or otherwise change
any Executive Agreement in any material respect.
(iii) Pay, provide, or facilitate any Executive Pay
in excess of the immediately preceding year's compensation by more than
fifteen percent (15%) or, if not covered by an Executive Agreement, as
permitted pursuant to Section 4-21 hereof.
4-23. Additional Assurances.
(a) The Borrower shall execute and deliver to the Agent such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Agent may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Agent's security and
mortgage interests in the Collateral; and to comply with all applicable statutes
and laws, and facilitate the collection of the Receivables Collateral. The
Borrower shall execute all such instruments as may be required by the Agent with
respect to the recordation and/or perfection of the security interests created
herein.
(b) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 4-24 shall be sufficient for filing to perfect the security
interests granted herein.
4-24. Adequacy of Disclosure.
(a) All financial statements furnished to the Agent and each
Lender by the Borrower have been prepared in accordance with GAAP consistently
applied and present fairly the condition of the Borrower at the date(s) thereof
and the results of operations and cash flows for the period(s) covered. There
has been no change in the financial condition, results of operations, or cash
flows of the Borrower since the date(s) of such financial statements, other than
changes in the ordinary course of business, which changes have not been
materially adverse, either singularly or in the aggregate.
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(b) The Borrower does not have any material contingent
obligations or obligation under any Lease or Capital Lease which is not noted in
the Borrower's financial statements furnished to the Agent prior to the
execution of the within Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the Borrower in connection with
the execution of the within Agreement by the Agent and each Lender contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements therein not
materially misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower which has not been disclosed in writing to
the Agent and each Lender.
4-25. Minimum Availability. The Borrower shall at all times have
Availability of at least $3,000,000.00.
4-26. Other Covenants. The Borrower shall not indirectly do or cause
to be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL COVENANTS.
5-1. Maintain Records. The Borrower shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.
(b) Timely provide the Agent with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
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(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Agent and instruct such
accountants to fully cooperate with, and be available to, the Agent and each
Lender to discuss the Borrower's financial performance, financial condition,
operating results, controls, and such other matters, within the scope of the
retention of such accountants, as may be raised by the Agent or that Lender.
(e) Not change the Borrower's fiscal year.
(f) Not change the Borrower's taxpayer identification number.
5-2. Access to Records.
(a) The Borrower shall accord the Agent and the Agent's
representatives with reasonable access from time to time as the Agent and such
representatives may reasonably require to all properties owned by or over which
the Borrower has control. The Agent and the Agent's representatives shall have
the right, and the Borrower will permit the Agent and such representatives from
time to time as the Agent and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Borrower's books,
records, electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.
(b) The Borrower hereby authorizes the Agent and the Agent's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced
to hard copy, run off, draw off, and otherwise use any and all computer
or electronically stored information or data which relates to the
Borrower, or any service bureau, contractor, accountant, or other
person, and directs any such service bureau, contractor, accountant, or
other person fully to cooperate with the Agent and the Agent's
representatives with respect thereto.
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(ii) After the occurrence of a Suspension Event, verify at
any time the Collateral or any portion thereof, including verification
with Account Debtors, and/or with the Borrower's computer billing
companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or
verification of the Collateral; provided that the Agent may verify the
Collateral with Beneficial or any other Person which is the obligor on
an Acceptable Account whether or not a Suspension Event exists.
5-3. Prompt Notice to Agent .
(a) The Borrower shall provide the Agent with written notice
promptly upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive Officers,
officers, directors, or key employees.
(ii) The completion of any physical count of the
Borrower's Inventory (together with a copy of the certified results
thereof and the work papers and schedules prepared by any outside
service or agent in connection therewith).
(iii) Any ceasing of the Borrower's making of
payment, in the ordinary course, to any of its creditors (including the
ceasing of the making of such payments, but not the withholding of
payments to trade creditors in the ordinary course, on account of a
dispute with the subject creditor).
(iv) Any failure by the Borrower to pay rent at any
of the Borrower's locations, which failure continues for more than Ten
(10) days following the day on which such rent first came due other
than as described on EXHIBIT 4-16.
(v) Any material change in the business, operations,
or financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any decision on the part of the Borrower to
discharge the Borrower's present independent accountants or any
withdrawal or
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resignation by such independent accountants from their acting in such
capacity.
(viii) Any litigation which, if determined adversely
to the Borrower, would have a material adverse effect on the financial
condition of the Borrower.
(b) The Borrower shall:
(i) Provide the Agent, when so distributed, with
copies of any materials distributed to the shareholders of the Borrower
(qua such shareholders).
(ii) Add the Agent as an addressee on all mailing
lists maintained by or for the Borrower.
(iii) At the request of the Agent, from time to time,
provide the Agent with copies of all advertising (including copies of
all print advertising and duplicate tapes of all video and radio
advertising).
(iv) Provide the Agent, when received by the
Borrower, with a copy of any management letter or similar
communications from any accountant of the Borrower.
5-4. Borrowing Base Certificate. The Borrower shall provide the Agent,
daily by 1:00PM, with a Borrowing Base Certificate (in the form of EXHIBIT 5-4
annexed hereto, as such form may be revised from time to time by the Agent).
Such Certificate may be sent to the Agent by facsimile transmission, provided
that the original thereof is forwarded to the Agent on the date of such
transmission.
5-5. Weekly Reports. Weekly, on Wednesday of each week (as of the then
immediately preceding Saturday) the Borrower shall provide the Agent with a
flash collateral report, a detailed inventory report by sub-department, an
accounts receivable report to include finance sale report, cash receipts
payments listing and summary account receivable aging (each in such form as may
be specified from time to time by the Agent). Such report may be sent to the
Agent by facsimile transmission, provided that the original thereof is forwarded
to the Agent on the date of such transmission.
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5-6. Monthly Reports.
(a) Fifteen days after the end of each fiscal month,
(i) Inventory Certificate signed by the Borrower's
Chief Financial Officer concering the Borrower's Inventory.
(ii) General Ledger Inventory Report.
(iii) Open to Buy Report.
(iv) Finance Kickback Report.
(v) List of Payments Report.
(vi) Return Report.
each in form satisfactory to the Agent.
(b) Thirty days after the end of each fiscal month,
(i) Store Activity Report.
(ii) Inventory Reconciliation.
(iii) Gross Margin Reconciliation.
(iv) Vendor Concentration Report.
(v) Inventory Aging Report.
(vi) Accounts Payable Aging.
(vii) Sales Tax Payment Verification.
(viii) A report detailing New Store Costs (as defined
in the documents evidencing the Term Loan).
(ix) an original counterpart of a management
prepared financial statement of the Borrower for the period
from the beginning of the Borrower's then current fiscal year
through the end of the subject month, with comparative
information for the same period of the previous fiscal year,
which statement shall include, at a minimum, a balance sheet,
income statement (on a store specific and on a "consolidated"
basis), statement of changes in shareholders' equity, and cash
flows and comparisons for the corresponding month of the then
immediately previous year, as well as to the Business Plan.
each in form satisfactory to the Agent.
5-7. Quarterly Reports. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's fiscal quarters, the Borrower
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shall provide the Agent with (a) a Real Estate Tax Payment Verification and (b)
an original counterpart of a management prepared financial statement of the
Borrower for the period from the beginning of the Borrower's then current fiscal
year through the end of the subject quarter, with comparative information for
the same period of the previous fiscal year, which statement shall include, at a
minimum, a balance sheet, income statement (on a store specific and on a
"consolidated" basis), statement of changes in shareholders' equity, and cash
flows and comparisons for the corresponding quarter of the then immediately
previous year, as well as to the Business Plan.
5-8. Annual Reports.
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Agent with an original
signed counterpart of the Borrower's annual financial statement, which statement
shall have been prepared by, and bearing the unqualified opinion of, the
Borrower's independent certified public accountants, who shall be acceptable to
the Agent in its reasonable discretion (any of the "Big 4" national accounting
firms being acceptable) (i.e. said statement shall be "certified" by such
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b) No later than the earlier of Fifteen (15) days prior to
the end of each of the Borrower's fiscal years or the date on which such
accountants commence their work on the preparation of the Borrower's annual
financial statement, the Borrower shall give written notice to such accountants
(with a copy of such notice, when sent, to the Agent) that:
(i) Such annual financial statement will be
delivered by the Borrower to the Agent (for subsequent
distribution to each Lender).
(ii) It is the primary intention of the Borrower, in
its engagement of such accountants, to satisfy the financial
reporting requirements set forth in this Article 5.
(iii) The Borrower has been advised that the Agent
(and each
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Lender) will rely thereon with respect to the administration
of, and transactions under, the credit facility contemplated
by the within Agreement.
(c) Each annual statement shall be accompanied by such
accountant's Certificate indicating that, in the preparation of such annual
statement, such accountants did not conclude that any Suspension Event had
occurred during the subject fiscal year (or if one or more had occurred, the
facts and circumstances thereof).
5-9. Officers' Certificates. The Borrower shall cause the
Borrower's President and Chief Financial Officer, as applicable, respectively to
provide such Person's Certificate with those monthly, quarterly, and annual
statements to be furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in
accordance with GAAP consistently applied and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's
operations and cash flows for, the period(s) covered, subject, however to the
following:
(i) (With the exception of the Certificate which
accompanies such annual statement) to usual year end adjustments.
(ii) Material Accounting Changes (in which event,
such Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the financial
performance covenants imposed pursuant to Section 5-12.
(b) Indicate either that (i) no Suspension Event has
occurred or (ii) if such an event has occurred, its nature (in reasonable
detail) and the steps (if any) being taken or contemplated by the Borrower to be
taken on account thereof.
(c) Include calculations concerning the Borrower's
compliance (or failure to comply) at the date of the subject statement with each
of the financial performance covenants included in Section 5-12 hereof.
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5-10. Inventories, Appraisals, and Audits.
(a) The Agent and each Lender, at the expense of the Borrower,
may participate in and/or observe each physical count and/or inventory of so
much of the Collateral as consists of Inventory which is undertaken on behalf of
the Borrower.
(b) Upon the Agent's request from time to time, the Borrower
shall obtain, or shall permit the Agent to obtain (in all events, at the
Borrower's expense) physical counts and/or inventories of the Collateral,
conducted by such inventory takers as are satisfactory to the Agent and
following such methodology as may be required by the Agent, one of which
physical counts and/or inventories shall be observed by the Borrower's
accountants in each fiscal year. The Agent contemplates requiring the Borrower
to conduct Two (2) such counts and/or inventories during any Twelve (12) month
period during which the within Agreement is in effect, but in its discretion,
may undertake additional such counts or inventories during such period. The
Borrower shall deliver to the Agent copies of the work papers for each such
count or inventory within Five (5) days after the completion of each such count
or inventory and will deliver to the Agent an inventory reconciliation within
Thirty (30) days after the completion of each such count or inventory.
(c) Upon the Agent's request from time to time, the Borrower
shall permit the Agent to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Agent. The
Agent contemplates requiring Two (2) such appraisals during any Twelve (12)
month period during which the within Agreement is in effect, but in its
discretion, may undertake additional such appraisals during such period
(provided that the Borrower shall not be responsible for the cost of such
additional appraisals unless either (i) the Availability is ever less than
$10,000,000.00, in which event the Borrower shall pay for one additional
inventory appraisal, or (ii) an Event of Default then exists).
(d) The Agent contemplates conducting Four (4) commercial
finance audits (in each event, at the Borrower's expense) of the Borrower's
books and records during any Twelve (12) month period during which the within
Agreement is in effect, but in its discretion, may undertake additional such
audits during such period (provided that the Borrower shall not be responsible
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for the cost of such additional audits unless an Event of Default then
exists).
(e) The Agent from time to time (in all events, at the
Borrower's expense) may undertake "mystery shopping" (so-called) visits to all
or any of the Borrower's business premises. The Agent shall provide the Borrower
with a copy of any non-company confidential results of such mystery shopping.
5-11. Additional Financial Information.
(a) In addition to all other information required to be
provided pursuant to this Article 5, the Borrower promptly shall provide the
Agent with such other and additional information concerning the Borrower, the
Collateral, the operation of the Borrower's business, and the Borrower's
financial condition, including original counterparts of financial reports and
statements, as the Agent may from time to time reasonably request from the
Borrower.
(b) The Borrower may provide the Agent, from time to time
hereafter, with updated projections of the Borrower's anticipated performance
and operating results.
(c) In all events, the Borrower, no sooner than Ninety (90)
nor later than Thirty (30) days prior to the end of each of the Borrower's
fiscal years, shall furnish the Agent with an updated and extended projection
which shall extend at least through the end of the then next fiscal year.
(d) Such updated and extended projections shall be prepared
pursuant to a methodology and shall include such assumptions as are satisfactory
to the Agent.
(e) The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Agent or any
Lender may obtain, develop, or receive with respect to the Borrower is
confidential to the Agent and the Lenders and that, except as otherwise provided
herein, the Borrower is not entitled to receipt of any of such appraisals,
inventories, analysis, financial information, and other materials, nor copies or
extracts thereof or therefrom.
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5-12. Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBIT 5- 12(A),
annexed hereto, certain of which covenants are based on the Business Plan set
forth on EXHIBIT 5-12(B), annexed hereto. Compliance with such financial
performance covenants shall be made as if no Material Accounting Changes had
been made (other than any Material Accounting Changes specifically taken into
account in the setting of such covenants). The Lender may determine the
Borrower's compliance with such covenants based upon financial reports and other
reports and statements provided by the Borrower to the Agent (whether or not
such financial reports and statements are required to be furnished pursuant to
the within Agreement) as well as by reference to interim financial information
provided to, or developed by, the Agent.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
6-1. Use of Inventory Collateral.
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course (including any sale programs) and shall not engage in sales
or other dispositions to creditors (other than sales in the ordinary course of
business on ordinary business terms); sales or other dispositions in bulk; and
any use of any of the Inventory in breach of any provision of this Agreement.
(b) Without the consent of the Agent, no sale of Inventory
shall be on consignment, approval, or under any other circumstances such that,
with the exception of the Borrower's customary return policy applicable to the
return of inventory purchased by the Borrower's retail customers in the ordinary
course, such Inventory may be returned to the Borrower.
6-2. Inventory Quality. All Inventory now owned or hereafter acquired
by the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances
or other adjustments to the Borrower's Account Debtors (exclusive
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of extending the time for payment of any Account or Account Receivable, which
shall not be done without first obtaining the Agent's prior written consent in
each instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-3 may be limited or terminated by the Agent at any time in the Agent's
discretion.
6-4. Validity of Accounts.
(a) The amount of each Account shown on the books, records,
and invoices of the Borrower represented as owing by each Account Debtor is and
will be the correct amount actually owing by such Account Debtor and shall have
been fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any material portion of the Accounts and shall
notify the Agent of any such fact promptly after Borrower becomes aware of any
such impairment.
(c) Except as otherwise expressly permitted by this Agreement,
the Borrower shall not post any bond to secure the Borrower's performance under
any agreement to which the Borrower is a party nor cause any surety, guarantor,
or other third party obligee to become liable to perform any obligation of the
Borrower (other than to the Agent) in the event of the Borrower's failure so to
perform.
6-5. Notification to Account Debtors. The Agent shall have the
right at any time (whether or not an Event of Default has occurred) to notify
any of the Borrower's Account Debtors, credit card processors, and other Persons
purchasing Accounts to make payment directly to the Agent and to collect all
amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES.
7-1. Depository Accounts.
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
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maintained with such depository; and (iii) a contact person at such
depository.
(b) The Borrower shall deliver to the Agent, as a
condition to the effectiveness of the within Agreement:
(i) Notifications, executed on behalf of the
Borrower, to each depository institution with which any DDA is
maintained (other than the Funding Account or any Local DDA), in form
reasonably satisfactory to the Agent, of the Agent's interest in such
DDA.
(ii) An agreement (generally referred to as a
"Blocked Account Agreement"), in form reasonably satisfactory to the
Agent, with any depository institution at which both any DDA (other
than the Funding Account) and the Funding Account is maintained.
(c) The Borrower will not establish any DDA hereafter
(other than a Local DDA) unless, contemporaneous with such establishment, the
Borrower delivers to the Agent a notification (in form reasonably satisfactory
to the Agent) of the Agent's interest in such DDA.
7-2. Credit Card Receipts; Collections of Accounts.
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which
describes all arrangements to which the Borrower is a party with respect to the
payment to the Borrower of the proceeds of all credit card charges for sales by
the Borrower.
(b) The Borrower shall deliver to the Agent, as a condition to
the effectiveness of the within Agreement, notifications, executed on behalf of
the Borrower, to each of the Borrower's credit card clearinghouses and
processors (in form reasonably satisfactory to the Agent ), which notice
provides that payment of all credit card charges submitted by the Borrower to
that clearinghouse or other processor and any other amount payable to the
Borrower by such clearinghouse or other processor shall be directed to such
account as may be designated by the Borrower in such notice. The Borrower shall
not change such direction or designation except upon and with the prior written
consent of the Agent.
(c) The Borrower shall deliver to the Agent, as a condition to
the effectiveness of the within Agreement, notifications, executed on behalf
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of the Borrower, to Beneficial and each other institution purchasing the
Borrower's Accounts (in form reasonably satisfactory to the Agent), which notice
provides that payment of all amounts payable to the Borrower by Beneficial or
such other institution shall be directed to such account as may be designated by
the Borrower in such notice. The Borrower shall not change such direction or
designation except upon and with the prior written consent of the Agent.
7-3. The Concentration and the Funding Accounts.
(a) The following checking accounts have been or will be
established (and are so referred to herein):
(i) The CONCENTRATION ACCOUNT: Established by
the Agent with BankBoston, N.A.
(ii) The FUNDING ACCOUNT: To be established by
the Borrower with BankBoston, N.A.
(b) The contents of each DDA (other than the Funding Account)
constitutes Collateral and Proceeds of Collateral. The contents of the
Concentration Account constitutes the Agent's property.
(c) The Borrower shall pay all fees and charges of, and
maintain such impressed balances as may be required by the Agent or by any bank
in which any account is opened as required hereby (even if such account is
opened by and/or is the property of the Agent).
7-4. Proceeds and Collection of Accounts.
(a) All Receipts constitute Collateral and proceeds of
Collateral and shall be held in trust by the Borrower for the Agent; shall not
be commingled with any of the Borrower's other funds; and shall be deposited
and/or transferred only to the Concentration Account.
(b) The Borrower shall cause the ACH or wire transfer to the
Concentration Account, no less frequently than daily (and whether or not there
is then an outstanding balance in the Loan Account) of
(i) the then contents of each DDA (other than (A) any
Local DDA and (B) the Funding Account), each such transfer to be net of
any minimum balance, not to exceed $750.00, as may be required to be
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maintained in the subject DDA by the bank at which such DDA is
maintained); and
(ii) the proceeds of all credit card charges not
otherwise provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Agent on
each Business Day on which any such transfer is made.
(c) In the event that, notwithstanding the provisions of
this Section 7-4, the Borrower receives or otherwise has dominion and control of
any Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by the Borrower for the Agent
and shall not be commingled with any of the Borrower's other funds or deposited
in any account of the Borrower other than as instructed by the Agent.
(d) The Agent and the Borrower recognize that the Borrower
currently utilizes The Huntington National Bank as its concentration and funding
bank. The Borrower shall cause such concentration account and the funding
account to be transferred to BankBoston, N.A. as required pursuant to Section
7-3 hereof within sixty (60) days after the date of this Agreement. Pending such
transfer, all funds received by The Huntington National Bank in its
concentration account shall be transferred daily to the Concentration Account,
the funding account shall be used solely to make disbursements in the ordinary
course, and all other accounts at such bank shall be treated as any other DDA
hereunder, except for a deposit account being held by The Huntington National
Bank as a reserve in connection with the Borrower's credit card arrangement with
The Huntington National Bank.
7-5. Payment of Liabilities.
(a) On each Business Day, the Agent shall apply, towards the
amounts due under the Revolving Credit, the then collected balance of the
Concentration Account (net of fees charged, and of such impressed balances as
may be required by the bank at which the Concentration Account is maintained).
(b) The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
(i) Funds shall be deemed to have been deposited to the
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Concentration Account on the Business Day on which deposited,
provided that notice of such deposit is available to the Agent
by 2:00PM on that Business Day.
(ii) Funds paid to the Agent, other than by deposit
to the Concentration Account, shall be deemed to have been
received on the Business Day when paid, provided that notice
of such payment is available to the Agent by 2:00PM on that
Business Day.
(iii) If notice of a deposit to the Concentration
Account (Section 7-5(b)(i)) or payment (Section 7-5(b)(ii)) is
not available to the Agent until after 2:00PM on a Business
Day, such deposit or payment shall be deemed to have been made
at 9:00AM on the then next Business Day.
(iv) All deposits to the Concentration Account and
other payments to the Agent are subject to one (1) Business
Day's clearance and collection.
(c) The Agent shall transfer to the Funding Account any
surplus in the Concentration Account remaining after the application towards the
Revolving Credit referred to in Section 7-5(a), above (less those amount which
are to be netted out, as provided therein).
7-6. The Funding Account. Except as otherwise specifically provided
in, or permitted by, the within Agreement, all checks shall be drawn by the
Borrower upon, and other disbursements made by the Borrower solely from, the
Funding Account and the Local DDAs.
ARTICLE 8 - GRANT OF SECURITY INTEREST
8-1. Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Agent, for the ratable benefit of
the Lenders, a continuing security interest in and to, and assigns to the Agent,
for the ratable benefit of the Lenders, the following, and each item thereof,
whether now owned or now due, or in which the Borrower has an interest, or
hereafter acquired, arising, or to become due, or in which the Borrower obtains
an interest, and all products, Proceeds, substitutions, and
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accessions of or to any of the following (all of which, together with any other
property in which the Agent may in the future be granted a security interest, is
referred to herein as the "COLLATERAL"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's
business, and all rights of access to such books,
records, and information, and all property in which
such books, records, and information are stored,
recorded, and maintained.
(i) All Investment Property, Instruments, Documents,
Deposit Accounts, policies and certificates of
insurance, deposits, impressed accounts, compensating
balances, money, cash, or other property (including,
without limitation, the Segregated Accounts).
(j) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and
credit insurance, whether any of such proceeds,
refunds, and premium rebates arise out of any of the
foregoing (8-1(a) through 8-1(i)) or otherwise.
(k) All liens, guaranties, rights, remedies, and
privileges pertaining to any of the foregoing (8-1(a)
through 8-1(i)), including the right of stoppage in
transit.
8-2. Extent and Duration of Security Interest. The within grant of
a security interest is in addition to, and supplemental of, any security
interest previously granted by the Borrower to the Agent and shall continue in
full force and effect applicable to all Liabilities until all Liabilities have
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been paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Agent.
8-3. Mortgages. The Liabilities are also secured by mortgages and deeds
of trust on the Real Estate and assignments of leases and rents relating thereto
(all of which for purposes of this Agreement shall be deemed "Collateral").
ARTICLE 9 - AGENT AS BORROWER'S ATTORNEY-IN-FACT.
9-1. Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
constitutes and appoints the Agent as the Borrower's true and lawful attorney,
with full power of substitution, exercisable after the occurrence and during the
continuance of any Event of Default, to convert the Collateral into cash at the
sole risk, cost, and expense of the Borrower, but for the sole benefit of the
Agent. The rights and powers granted the Agent by the within appointment include
but are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral.
(b) Sign change of address forms to change the address to
which the Borrower's mail is to be sent to such address as the Agent shall
designate; receive and open the Borrower's mail; remove any Receivables
Collateral and Proceeds of Collateral therefrom and turn over the balance of
such mail either to the Borrower or to any trustee in bankruptcy, receiver,
assignee for the benefit of creditors of the Borrower, or other legal
representative of the Borrower whom the Agent determines to be the appropriate
person to whom to so turn over such mail.
(c) Endorse the name of the Borrower in favor of the
Agent upon any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of the Borrower on, and receive as
secured party, any of the Collateral, any invoices, schedules of Collateral,
freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the
Borrower's Account Debtors or verification of the Receivables Collateral; sign
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the Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors,
and on notices of lien, claims of mechanic's liens, or assignments or releases
of mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of
the Borrower.
(h) Sign and file or record any financing or other statements
in order to perfect or protect the Agent's security and mortgage interest in the
Collateral and other assets of the Borrower.
9-2. No Obligation to Act. The Agent shall not be obligated to do
any of the acts or to exercise any of the powers authorized by Section 9-1
herein, but if the Agent elects to do any such act or to exercise any of such
powers, it shall not be accountable for more than it actually receives as a
result of such exercise of power, and shall not be responsible to the Borrower
for any act or omission to act except for any act or omission to act as to which
there is a final determination made in a judicial proceeding (in which
proceeding the Agent has had an opportunity to be heard) which determination
includes a specific finding that the subject act or omission to act had been
grossly negligent or in actual bad faith.
ARTICLE 10 - EVENTS OF DEFAULT.
The occurrence of any event described in this Article 10 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Sections 10-10 or 10-11, any and all Liabilities shall
become due and payable without any further act on the part of the Agent or any
Lender. Upon the occurrence of any other Event of Default, any and all
Liabilities shall become immediately due and payable, at the option of the Agent
and without notice or demand. The occurrence of any Event of Default
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shall also constitute, without notice or demand, a default under all other
agreements between the Agent or any Lender and the Borrower and instruments and
papers given the Agent or any Lender by the Borrower, whether such agreements,
instruments, or papers now exist or hereafter arise.
10-1. Failure to Pay Revolving Credit. The failure by the Borrower to
pay any amount when due under the Revolving Credit.
10-2. Failure To Make Other Payments. The failure by the Borrower to
pay when due (or within Three (3) Business Days after demand, if payable on
demand) any payment Liability other than under the Revolving Credit.
10-3. Failure to Perform Covenant or Liability (No Grace Period). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 10-1 or Section 10-2 hereof, and included in any of the following
provisions hereof:
Section Relates to :
------------------------------------------
4-2 Due Organization
4-4 Location of Collateral
4-5 Title to Assets
4-6 Indebtedness
4-7 Insurance Policies
4-9(b) Real Estate
4-11(d) Asset Sales
4-12 Pay taxes
4-17 Dividends, Mergers
4-18 Loans and Advances
4-20 Lines of Business
4-21 Affiliate Transactions
4-23 Additional Assurances
4-25 Minimum Availability
Article 5 Reporting Requirements and Financial
Covenants
Article 7 Cash Management
10-4. Failure to Perform Covenant or Liability (Grace Period). The
failure by the Borrower, upon Ten (10) days written notice by the Agent, to cure
the Borrower's failure to promptly, punctually and faithfully perform,
discharge, or comply with any covenant or Liability not described in any of
Sections 10-1, 10-2, or 10-3 hereof.
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10-5. Misrepresentation. Any material representation or warranty at any
time made by the Borrower to the Agent or any Lender under this Agreement, any
Loan Document, certificate, financial statement or report delivered pursuant
hereto, was not true or complete in all material respects when given.
10-6. Acceleration of Other Debt. Breach of Lease. The occurrence of
any event such that any Indebtedness of the Borrower to any creditor other than
the Agent or any Lender in excess of $200,000.00 could be accelerated
(including, without limitation, under the Term Loan) or, without the consent of
the Borrower, any Lease with annual payments in the aggregate amount exceeding
$200,000.00 could be terminated (whether or not the subject creditor or lessor
takes any action on account of such occurrence).
10-7. Default Under Other Agreements. The occurrence of any breach or
default under any agreement between the Agent or any Lender and the Borrower or
instrument or paper given the Agent or any Lender by the Borrower, whether such
agreement, instrument, or paper now exists or hereafter arises (notwithstanding
that the Agent or the subject Lender may not have exercised its rights upon
default under any such other agreement, instrument or paper).
10-8. Casualty Loss. Non-Ordinary Course Sales. The occurrence of any
(a) uninsured loss, theft, damage, or destruction of or to any material portion
of the Collateral, or (b) sale (other than sales in the ordinary course of
business or otherwise permitted under this Agreement) of any material portion of
the Collateral.
10-9. Judgment. Restraint of Business.
(a) The service of process upon the Agent or any Lender seeking
to attach, by trustee, mesne, or other process, any of the Borrower's funds on
deposit with, or assets of the Borrower in the possession of, the Agent or any
Lender, which attachment is not stayed, dissolved or otherwise satisfied within
ten (10) days of its issuance.
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(b) The entry of any judgment against the Borrower which could
reasonably be expected to have a material adverse effect on the Borrower's
business, financial condition, operations, performance, properties or prospects,
which judgment is not satisfied (if a money judgment) or appealed from (with
execution or similar process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain in any
material way the conduct by the Borrower of its business in the ordinary course.
10-10. Business Failure. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
person, pursuant to court action or otherwise, over all, or any part of the
Borrower's property; provided that the filing of such an application against the
Borrower by another Person shall not constitute an Event of Default unless the
Borrower fails to timely contest same, or if timely contested, such application
is not dismissed within sixty (60) days after its commencement; the granting of
any trust mortgage or execution of an assignment for the benefit of the
creditors of the Borrower, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower; the
offering by or entering into by the Borrower of any composition, extension, or
any other arrangement seeking relief from or extension of the debts of the
Borrower; or the initiation of any judicial or non-judicial proceeding or
agreement by, against, or including the Borrower which seeks or intends to
accomplish a reorganization or arrangement with creditors; and/or the initiation
by or on behalf of the Borrower of the liquidation or winding up of all or any
part of the Borrower's business or operations.
10-11. Bankruptcy. The failure by the Borrower to generally pay
the debts of the Borrower as they mature; adjudication of bankruptcy or
insolvency relative to the Borrower; the entry of an order for relief or
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similar order with respect to the Borrower in any proceeding pursuant to the
Bankruptcy Code or any other federal bankruptcy law; the filing of any
complaint, application, or petition by or against the Borrower initiating any
matter in which the Borrower is or may be granted any relief from the debts of
the Borrower pursuant to the Bankruptcy Code or any other insolvency statute or
procedure; provided that the filing of any such complaint, application, or
petition against the Borrower by another Person shall not constitute an Event of
Default unless the Borrower fails to timely contest same, or if timely
contested, such complaint, application or petition is not dismissed within sixty
(60) days after its commencement.
10-12. Default by Guarantor or Related Entity. The occurrence of any of
the foregoing Events of Default with respect to any guarantor of the
Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any parent, subsidiary, or Related Entity, as if such guarantor,
parent, or Related Entity were the "Borrower" described therein.
10-13. Indictment - Forfeiture. The indictment of, or institution of
any legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower and/or the imposition of any stay or other order, the effect of which
could be to restrain in any material way the conduct by the Borrower of its
business in the ordinary course.
10-14. Termination of Guaranty. The termination or attempted
termination of any guaranty by any guarantor of the Liabilities.
10-15. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any material provisions of any
Loan Document or the applicability or enforceability of any Loan Document in
accordance with the subject Loan Document's terms in all material respects or
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which seeks to void, avoid, limit, or otherwise adversely affect any security
interest created by or in any Loan Document or any payment made pursuant
thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable in accordance
with the subject Loan Document's terms in all material respects or which voids,
avoids, limits, or otherwise adversely affects any security interest created by
any Loan Document or any payment made pursuant thereto.
10-16. Executive Management. The death, disability, or failure of any
of R. Carter Pate and/or Dennis May at any time to exercise that authority and
discharge those management responsibilities with respect to the Borrower as are
exercised and discharged by such Person at the execution of the within Agreement
and a qualified successor reasonably acceptable to the Lenders has not replaced
such Person within 100 days of such death, disability, or failure.
10-17. Change in Control. Any Change in Control.
10-18. Material Adverse Change. There shall occur any material
adverse change in the assets, liabilities, financial condition, business or
prospects of the Borrower, as determined by the Agent acting in good faith.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT.
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Agent shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Agent's exercise of any of such rights and remedies.
11-1. Rights of Enforcement. The Agent shall have all of the rights
and remedies of a secured party upon default under the UCC, in addition
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to which the Agent shall have all and each of the following rights and
remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the
Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Agent deems advisable and with or without the taking of possession of any of
the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
11-2. Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Agent deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Agent's disposition of the Collateral.
(b) The Agent, in the exercise of the Agent's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Agent's own right or by one or more agents and contractors. Such sale(s) may
be conducted upon any premises owned, leased, or occupied by the Borrower. The
Agent and any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain
the sole property of the Agent or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Agent or such agent or contractor
and neither the Borrower nor any Person claiming under or in right of the
Borrower shall have any interest therein.
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(c) Unless the Collateral is perishable or threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Agent shall provide the Borrower with such notice as
may be practicable under the circumstances), the Agent shall give the Borrower
at least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Agent's rights and remedies upon default.
(d) The Agent and any Lender may purchase the Collateral, or
any portion of it at any public sale held under this Article.
(e) The Agent shall apply the proceeds of any exercise of the
Agent's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Agent determines.
11-3. Occupation of Business Location. In connection with the
Agent's exercise of the Agent's rights under this Article 11, the Agent may
enter upon, occupy, and use any premises owned or occupied by the Borrower, and
may exclude the Borrower from such premises or portion thereof as may have been
so entered upon, occupied, or used by the Agent. The Agent shall not be required
to remove any of the Collateral from any such premises upon the Agent's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Agent be liable to the Borrower for use or occupancy by the
Agent of any premises pursuant to this Article 11.
11-4. Grant of Nonexclusive License. The Borrower hereby grants to
the Agent a royalty free nonexclusive irrevocable license to use, apply, and
affix any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Agent's exercise of
the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
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11-5. Assembly of Collateral. The Agent may require the Borrower to
assemble the Collateral and make it available to the Agent at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Agent and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers, privileges,
and discretions of the Agent hereunder (herein, the "AGENT'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Agent in exercising or
enforcing any of the Agent's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Agent of any Event of Default or
of any default under any other agreement shall operate as a waiver of any other
default hereunder or under any other agreement. No single or partial exercise of
any of the Agent's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Agent and any person, at
any time, shall preclude the other or further exercise of the Agent's Rights and
Remedies. No waiver by the Agent of any of the Agent's Rights and Remedies on
any one occasion shall be deemed a waiver on any subsequent occasion, nor shall
it be deemed a continuing waiver. All of the Agent's Rights and Remedies and all
of the Agent's rights, remedies, powers, privileges, and discretions under any
other agreement or transaction are cumulative, and not alternative or exclusive,
and may be exercised by the Agent at such time or times and in such order of
preference as the Agent in its sole discretion may determine. The Agent's Rights
and Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 12 - NOTICES.
12-1. Notice Addresses. All notices, demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
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If to the Agent:
BankBoston Retail Finance Inc.
40 Broad Street
Boston, Massachusetts 02109
Attention : Mr. Robert J. DeAngelis
Senior Vice President
Fax : 617 434-4339
With a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attention : David S. Berman, Esquire
Fax : 617 723-6831
If to the Borrower:
Sun Television and Appliances, Inc.
6600 Port Road
Groveport, Ohio 43125
Attention : Mr. R. Carter Pate
Fax : 214-764-7829 and 614-492-4018
With a copy to:
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
Attention : Attorney Jennifer T. Mills
Fax: : 614 227-2100
12-2. Notice Given.
(a) Except as otherwise specifically provided herein,
notices shall be deemed made and correspondence received, as follows (all times
being local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received
or Three (3) days following deposit in the United States mail, postage
prepaid.
(ii) By recognized overnight express delivery: the
Business Day following the day when sent.
(iii) By Hand: If delivered on a Business Day after
9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, when delivered. Otherwise,
at the opening of the then next Business Day.
(iv) By Facsimile transmission (which must include a
header indicated the party sending such transmission): If sent on a
Business
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Day no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent (but in
no event earlier than 10:00 AM). Otherwise, at the opening of the then
next Business Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 13 - TERM.
13-1. Termination of Revolving Credit. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section 2-5(f) hereof)
until the Termination Date.
13-2. Effect of Termination. Upon the termination of the Revolving
Credit, the Borrower shall pay the Agent (whether or not then due), in
immediately available funds, all then Liabilities including, without limitation:
the entire balance of the Loan Account; any Early Termination Fees; any then
remaining installments of the Agent's Fee; any accrued and unpaid Line Fee; and
all unreimbursed costs and expenses of the Agent and of each Lender for which
the Borrower is responsible. Until such payment, all provisions of this
Agreement, other than those contained in Article 2 which place an obligation on
the Agent and any Lender to make any loans or advances or to provide financial
accommodations under the Revolving Credit or otherwise, shall remain in full
force and effect until all Liabilities shall have been paid in full. The release
by the Agent of the security and other collateral interests granted the Agent by
the Borrower hereunder may be upon such conditions and indemnifications as the
Agent may reasonably require.
ARTICLE 14 - GENERAL.
14-1. Protection of Collateral. The Agent has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Agent and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Agent may include reference to the Borrower
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(and may utilize any logo or other distinctive symbol associated with the
Borrower) in connection with any advertising, promotion, or marketing undertaken
by the Agent.
14-2. Successors and Assigns. This Agreement shall be binding upon
the Borrower and the Borrower's representatives, successors, and assigns and
shall enure to the benefit of the Agent and each Lender and the respective
successors and assigns of each provided, however, no trustee or other fiduciary
appointed with respect to the Borrower shall have any rights hereunder. In the
event that the Agent or any Lender assigns or transfers its rights under this
Agreement, the assignee shall thereupon succeed to and become vested with all
rights, powers, privileges, and duties of such assignor hereunder and such
assignor shall thereupon be discharged and relieved from its duties and
obligations hereunder.
14-3. Severability. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
14-4. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between the Borrower and the Agent and each
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Agent or any Lender to give notice to the Borrower of the
Borrower's having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or
covenant or the amendment of the subject Loan Document. No change made by the
Agent in the manner by which Availability is determined shall obligate the Agent
to continue to determine Availability in that manner.
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(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Agent. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Agent, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Agent shall be in reliance upon all representations and
warranties theretofore made to the Agent by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
14-5. Power of Attorney. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Agent full power
to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Agent.
14-6. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Agent
determines in its sole discretion (subject, however, to the terms of the Agency
Agreement amongst the Lenders and the Intercreditor Agreement with the Term Loan
Lender). The Borrower shall remain liable for any deficiency remaining following
such application.
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14-7. Costs and Expenses of Agent and Of Lenders. The Borrower
shall pay on demand all Costs of Collection and all reasonable expenses of the
Agent and each Lender in connection with the preparation, execution, and
delivery of this Agreement and of any other Loan Documents, whether now existing
or hereafter arising, and all other reasonable expenses which may be incurred by
the Agent and each Lender in preparing or amending this Agreement and all other
agreements, instruments, and documents related thereto, or otherwise incurred
with respect to the Liabilities, but excluding, in any event those costs and
expenses for which the Borrower is not responsible under Section 5- 10 hereof.
The Borrower specifically authorizes the Agent to pay all such fees and expenses
and in the Agent's discretion, to add such fees and expenses to the Loan
Account. The within undertaking, on the part of the Borrower, shall survive
payment of the Liabilities and/or any termination, release, or discharge
executed by the Agent in favor of the Borrower, other than a termination,
release, or discharge which makes specific reference to this Section 14-7.
14-8. Copies and Facsimiles. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Agent or any
Lender may be reproduced by that Person or by the Agent by any photographic,
microfilm, xerographic, digital imaging, or other process, and that Person may
destroy any document so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business). Any facsimile which
bears proof of transmission shall be binding on the party which or on whose
behalf such transmission was initiated and likewise shall be so admissible in
evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.
14-9. Massachusetts Law. This Agreement and all rights and
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the laws of The Commonwealth of
Massachusetts.
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14-10. Consent to Jurisdiction.
(a) The Borrower agrees that any legal action, proceeding,
case, or controversy against the Borrower with respect to any Loan Document may
be brought in the Superior Court of Suffolk County Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Agent may elect in the Agent's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all
process upon it, and irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to the Borrower at the
Borrower's address for notices as specified herein.
(c) The Borrower WAIVES any objection based on forum non
conveniens and any objection to venue of any action or proceeding instituted
under any of the Loan Documents.
(d) Nothing herein shall affect the right of the Agent to
bring legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the
Borrower asserting any claim or counterclaim arising under or in connection with
this Agreement or any other Loan Document shall be brought solely in the
Superior Court of Suffolk County Massachusetts or in the United States District
Court, District of Massachusetts, sitting in Boston, Massachusetts, and that
such Courts shall have exclusive jurisdiction with respect to any such action.
14-11. Indemnification. The Borrower shall indemnify, defend, and hold
the Agent and each Lender and any employee, officer, or agent of any of the
foregoing (each, an "INDEMNIFIED PERSON") harmless of and from any claim brought
or threatened against any Indemnified Person by the Borrower, any guarantor or
endorser of the Liabilities, or any other Person (as well as from
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attorneys' reasonable fees and expenses in connection therewith) on account of
the relationship of the Borrower or of any other guarantor or endorser of the
Liabilities with the Agent, or any Lender (each of claims which may be defended,
compromised, settled, or pursued by the Indemnified Person with counsel of the
Agent's selection, but at the expense of the Borrower) other than any claim as
to which a final determination is made in a judicial proceeding (in which the
Agent and any other Indemnified Person has had an opportunity to be heard),
which determination includes a specific finding that the Indemnified Person
seeking indemnification had acted in a grossly negligent manner or in actual bad
faith or in breach by such Indemnified Person of its contractual obligations
under the Loan Documents. If for any reason the foregoing indemnification is
unavailable to any Indemnified Person or insufficient to hold it harmless, then
the Borrower shall contribute to the amount paid or payable by such Indemnified
Person as a result of such loss, claim, damage or liability to the maximum
amount legally permissible. The within indemnification shall survive payment of
the Liabilities and/or any termination, release, or discharge executed by the
Agent in favor of the Borrower, other than a termination, release, or discharge
which makes specific reference to this Section 14-11. The Borrower also agrees
that any Indemnified Person shall not have any liability to the Borrower, any
person asserting claims on behalf or in right of the Borrower or any other
person in connection with or as a result of either this arrangement or any
matter referred to herein or in the Loan Documents except to the extent that
there is a final determination made in a judicial proceeding, which
determination includes a specific finding that the losses, claims, damages,
liabilities or expenses incurred by the Borrower resulted from the gross
negligence or bad faith of such Indemnified Person or the breach by such
Indemnified Person of its contractual obligations under the Loan Documents.
14-12. Rules of Construction. The following rules of construction
shall be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(a) Words in the singular include the plural and words in the
plural include the singular.
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(b) Headings (indicated by being underlined) and the Table of
Contents are solely for convenience of reference and do not constitute a part of
the instrument in which included and do not affect such instrument's meaning,
construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without
limitation" (or similar words) is illustrative and not limitational.
(e) Text which is underlined, shown in italics, shown in BOLD,
shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be
deemed to be conspicuous.
(f) The words "may not" are prohibitive and not permissive.
(g) The word "or" is not exclusive.
(h) Terms which are defined in one section of an instrument
are used with such definition throughout the instrument in which so defined.
(i) The symbol "$" refers to United States Dollars.
(j) References to "herein", "hereof", and "within" are to this
entire Loan Agreement and not merely the provision in which such reference is
included.
(k) Except as otherwise specifically provided, all references
to time are to Boston time.
(l) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder, unless otherwise provided (A) the day
of the act, event, or default from which the designated period of time begins to
run shall not be included and the last day of the period so computed shall be
included unless such last day is not a Business Day, in which event the last day
of the relevant period shall be the then next Business Day and (B) the period so
computed shall end at 5:00 PM on the relevant Business Day.
(m) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 14- 13
hereof, provided, however, in the event of any inconsistency between the
provisions of the within Agreement and any other Loan Document, the provisions
of the within Agreement shall govern and control.
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14-13. Intent. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this
Agreement be broadly construed in favor of the Agent.
(c) The security interests created by this Agreement
secure all Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the
Agent and each Lender in connection with such Person's relationship(s) with the
Borrower shall be borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the
Agent's consent to any action of the Borrower which is prohibited unless such
consent is given may be given or refused by the Agent in its sole discretion and
without reference to Section 2-13 hereof.
14-14. Right of Set-Off. Any and all deposits or other sums at any
time credited by or due to the undersigned from the Agent or any Lender and any
cash, securities, instruments or other property of the undersigned in the
possession of the Agent or any Lender , whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all times
constitute security for all Liabilities and for any and all obligations of the
undersigned to the Agent and each and any Lender, and may be applied or set off
against the Liabilities and against such obligations at any time, whether or not
such are then due and whether or not other collateral is then available to the
Agent or the Lenders.
14-15. Maximum Interest Rate. Regardless of any provision of any
Loan Document, none of the Agent or any Lender shall be entitled to contract
for, charge, receive, collect, or apply as interest on any Liability, any amount
in excess of the maximum rate imposed by applicable law. Any payment which is
made which, if treated as interest on a Liability would result in such
interest's exceeding such maximum rate shall be held, to the extent of such
excess, as additional collateral for the Liabilities as if such excess were
"Collateral."
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14-16. Waivers.
(a) The Borrower (and all guarantors, endorsers, and
sureties of the Liabilities) make each of the waivers included in Section
14-16(b), below, knowingly, voluntarily, and intentionally, and understands that
the Agent and each Lender, in entering into the financial arrangements
contemplated hereby and in providing loans and other financial accommodations to
or for the account of the Borrower as provided herein, whether not or in the
future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby,
notice of non-payment, demand, presentment, protest and all forms of
demand and notice, both with respect to the Liabilities and the
Collateral.
(ii) Except as otherwise specifically required
hereby, the right to notice and/or hearing prior to the Agent's
exercising of the Agent's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE AGENT OR ANY LENDER IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE AGENT
OR ANY LENDER OR IN WHICH THE AGENT OR ANY LENDER IS JOINED AS A PARTY
LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF,
ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE AGENT OR ANY LENDER (AND THE AGENT AND EACH LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR
CONTROVERSY).
(iv) The benefits or availability of any stay,
limitation, hindrance, delay, or restriction (including, without
limitation, any automatic stay which otherwise might be imposed
pursuant to Section 362 of the Bankruptcy Code) with respect to any
action which the Agent may or may become entitled to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment,
or other basis on which the amount of any Liability could be reduced or
claimed to be paid otherwise than in accordance with the tenor of and
written terms of such Liability.
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(vi) Any claim to consequential, special, or punitive damages.
SUN TELEVISION AND APPLIANCES, INC.
("BORROWER")
By /s/ R. CARTER PATE
---------------------------------
Print Name: R. Carter Pate
--------------------------------
Title: President
--------------------------------
BANKBOSTON RETAIL FINANCE INC.
("AGENT")
By /s/ ROBERT DEANGELIS
---------------------------------
Print Name: Robert DeAngelis
--------------------------------
Title: Senior Vice President
--------------------------------
The "LENDERS"
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Exhibit 5-12(a)
---------------
Financial Performance Covenants
-------------------------------
(a) Minimum Acceptable Inventory. The Borrower shall maintain minimum
Acceptable Inventory as follows:
- -------------------------------------------------------------------
Unpaid principal balance of Minimum Acceptable
Revolving Credit Inventory
- -------------------------------------------------------------------
less than $ 35 Million $ 85 Million (Year 1)
- -------------------------------------------------------------------
less than $ 35 Million $ 90 Million (Thereafter)
- -------------------------------------------------------------------
more than $ 35 Million $ 95 Million (Year 1)
- -------------------------------------------------------------------
more than $ 35 Million $100 Million (Thereafter)
- -------------------------------------------------------------------
(b) Net Liquidation Value. The appraised net liquidation value of Borrower's
Acceptable Inventory shall at all times exceed 105% of the sum of (i) the
unpaid principal balance of, and accrued interest and fees under the
Revolving Credit plus (ii) $12,000,000.00, less (iii) any Availability
based upon Acceptable Accounts.
(c) Minimum EBITDA.
On a monthly basis, the Borrower will not permit its cumulative monthly
EBITDA to be less than the following:
Cumulative
Month EBITDA
- ----- ----------
December '97 (2,553,000)
January '98 (3,412,000)
February (5,425,000)
March (6,509,000)
April (7,010,000)
May (6,918,000)
June (6,655,000)
July (6,062,000)
August (5,055,000)
September (4,533,000)
October (3,956,000)
November 412,000
December '98 12,011,000
January '99 11,772,000
February 11,801,000
March 12,037,000
April 12,040,000
May 12,547,000
June 13,303,000
July 14,111,000
August 15,346,000
September 16,377,000
October 17,180,000
November 21,870,000
December '99 31,469,000
January '00 31,000,000
February '00 31,000,000
(d) Capital Expenditures
The Borrower shall not make or incur obligations for capital expenditures
in any fiscal year in excess of the amounts shown on the Business Plan.
<PAGE> 1
Exhibit 10(q)
TERM LOAN AND SECURITY AGREEMENT, DATED AS OF NOVEMBER 19, 1997, AMONG THE
REGISTRANT, VARIOUS LENDERS PARTICIPATING THERETO, AND BANKBOSTON RETAIL
FINANCE, INC., AS AGENT.
Agent: BankBoston Retail Finance, Inc.
40 Broad Street
Boston, MA 02109
Lenders: BankBoston Retail Finance, Inc.
40 Broad Street
Boston, MA 02109
Goldman Sachs Credit Partners
85 Broad Street
New York, NY 10004
Goldman Brothers Retail Partners
40 Broad Street, 11th Floor
Boston, MA 02109
<PAGE> 2
TERM LOAN AND SECURITY AGREEMENT
~~~~~~~~~~~~~~~~~~
BANKBOSTON RETAIL FINANCE INC.
~~~~~~~~~~~~~~~~~~
SUN TELEVISION AND APPLIANCES, INC.
............
1
<PAGE> 3
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS.
ARTICLE 2 - THE TERM LOAN
2-1. Commitment to Make Term Loan
2-2. Use of Proceeds of Term Loan
2-3. The Term Note
2-4. Interest on Term Loan
2-5. Repayment of Term Loans
2-6. Optional Prepayments of Term Loans
2-7. Term Loan Commitment Fee
2-8. Indemnity
2-9. Increased Costs
ARTICLE 3 - CONDITIONS PRECEDENT.
3-1. Corporate Due Diligence.
3-2. Opinion.
3-3. Landlord Waivers.
3-4. Intercreditor Agreement
3-5. Mortgages/Deeds of Trust
3-6. Real Estate Requirements
3-7. Warrant
3-8. Additional Documents.
3-9. Officers' Certificates.
3-10. Due Diligence
3-11. Representations and Warranties.
3-12. Minimum Excess Availability.
3-13. No Suspension Event.
3-14. No Adverse Change.
3-15. Perfection of Liens
3-16. Litigation
3-17. Consents
3-18. Fees and Expenses
3-19. Capital Markets
ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
4-1. Payment and Performance of Liabilities.
4-2. Due Organization - Corporate Authorization - No
Conflicts.
4-3. Trade Names.
4-4. Locations.
4-5. Title to Assets.
4-6. Indebtedness
4-7. Insurance Policies.
4-8. Licenses
4-9. Leases; Real Estate.
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4-10. Requirements of Law
4-11. Maintain Properties
4-12. Pay Taxes.
4-13. No Margin Stock.
4-14. ERISA
4-15. Hazardous Materials
4-16. Litigation
4-17. Dividends or Investments
4-18. Loans
4-19. Protection of Assets
4-20. Line of Business
4-21. Affiliate Transactions
4-22. Executive Pay.
4-23. Additional Assurances
4-24. Adequacy of Disclosure
4-25. Other Covenants
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL COVENANTS
5-1. Maintain Records
5-2. Access to Records
5-3. Prompt Notice to The Lender
5-4 Weekly Reports
5-5. Monthly Reports
5-6. Quarterly Reports
5-7. Annual Reports
5-8. Officers' Certificates
5-9. Inventories, Appraisals, and Audits
5-10. Additional Financial Information
5-11. Financial Performance Covenants
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
6-1. Use of Inventory Collateral
6-2. Inventory Quality
6-3. Adjustments and Allowances
6-4. Validity of Accounts
6-5. Notification to Account Debtors
ARTICLE 7 - GRANT OF SECURITY INTEREST
7-1. Grant of Security Interest
7-2. Extent and Duration of Security Interest
7-3. Mortgages
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT.
8-1. Appointment as Attorney-In-Fact
8-2. No Obligation to Act
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ARTICLE 9 - EVENTS OF DEFAULT.
9-1. Failure to Pay Term Loan
9-2. Failure To Make Other Payments
9-3. Failure to Perform Covenant or Liability (No Grace
Period)
9-4. Failure to Perform Covenant or Liability (Grace
Period)
9-5. Misrepresentation
9-6. Revolving Credit Default
9-7. Default Under Other Agreements
9-8. Casualty Loss. Non-Ordinary Course Sales
9-9. Judgment. Restraint of Business
9-10. Business Failure
9-11. Bankruptcy
9-12. Default by Guarantor or Related Entity
9-13. Indictment - Forfeiture
9-14. Termination of Guaranty
9-15. Challenge to Loan Documents
9-16. Executive Management.
9-17. Change in Control.
9-18. Material Adverse Change
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT
10-1. Rights of Enforcement
10-2. Sale of Collateral
10-3. Occupation of Business Location
10-4. Grant of Nonexclusive License.
10-5. Assembly of Collateral
10-6. Rights and Remedies
ARTICLE 11 - NOTICES.
11-1. Notice Addresses
11-2. Notice Given
ARTICLE 12 - GENERAL
12-1. Protection of Collateral
12-2. Successors and Assigns; Intercreditor Agreement.
12-3. Severability
12-4. Amendments. Course of Dealing
12-5. Power of Attorney
12-6. Application of Proceeds
12-7. Costs and Expenses
12-8. Copies and Facsimiles
12-9. Massachusetts Law
12-10. Consent to Jurisdiction
12-11. Indemnification
12-12. Rules of Construction.
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12-13. Intent
12-14. Right of Set-Off
12-15. Maximum Interest Rate.
12-16. Waivers.
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EXHIBITS
1-1 : Allocated Loan Value
1-2 : Real Estate
2-3 : Term Note
4-2 : Related Entities
4-3 : Trade Names
4-4 : Locations
4-5 : Encumbrances
4-6 : Indebtedness
4-7 : Insurance Policies
4-9 : Leases
4-12 : Taxes
4-16 : Litigation
5-11 : Financial Performance Covenants
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================================================================================
TERM LOAN AND SECURITY AGREEMENT
================================================================================
November 19, 1997
THIS AGREEMENT is made between
BankBoston Retail Finance Inc. (the "LENDER"), a Delaware
corporation with offices at 40 Broad Street Boston, Massachusetts
02109, and
Sun Television and Appliances, Inc. (hereinafter, the
"BORROWER"), an Ohio corporation with its principal executive offices
at 6600 Port Road, Groveport, Ohio 43125
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS.
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts,
accounts receivable, credit card receivables, notes, drafts,
acceptances, and other forms of obligations and receivables
and rights to payment for credit extended and for goods sold
or leased, or services rendered, whether or not yet earned by
performance; all "contract rights" as formerly defined in the
UCC; all Inventory which gave rise thereto, and all rights
associated with such Inventory, including the right of
stoppage in transit; all reclaimed, returned, rejected or
repossessed Inventory (if any) the sale of which gave rise to
any Account.
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"ACCOUNT DEBTOR": Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which
(a) one holds, directly or indirectly, not less than Twenty
Five Percent (25%) of the capital stock, beneficial interests,
partnership interests, or other equity interests of the other;
or (b) one has, directly or indirectly, Control of the other;
or (c) not less than Twenty Five Percent (25%) of their
respective ownership is directly or indirectly held by the
same third Person.
"ALLOCATED LOAN VALUE": As to any parcel of Real Estate, the amount set
forth in EXHIBIT 1-1 hereto, as such EXHIBIT may be amended to
reflect the acquisition of other Real Estate by the Borrower.
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BORROWER": Is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any
day on which banks in Boston, Massachusetts or Groveport,
Ohio, generally are not open to the general public for the
purpose of conducting commercial banking business; or (c) a
day on which the Lender is not open to the general public to
conduct business.
"BUSINESS PLAN": The Borrower's business plan annexed hereto as EXHIBIT
5-11(b) and any revision, amendment or update of such business
plan.
"CAPITAL EXPENDITURES": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
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"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within
the meaning of the Securities Exchange Act of 1934, as
amended) or by any Person, of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange
Commission) of 20% or more of the issued and outstanding
capital stock of the Borrower having the right, under ordinary
circumstances, to vote for the election of directors of the
Borrower.
(b) More than half of the persons who were directors
of the Borrower on the first day of any period consisting of
Twelve (12) consecutive calendar months (the first of which
Twelve (12) month periods commencing with the first day of the
month during which the within Agreement was executed), cease,
for any reason other than death or disability, to be directors
of the Borrower.
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"COLLATERAL": Is defined in Section 7-1 and includes the Real Estate as
provided in Section 7-3.
"CONTROL": A Person or group of Persons (the "Controlling Person")
shall be deemed to Control another Person if such Controlling Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether
through ownership of voting securities, by contract, or otherwise.
Included among such powers, with respect to a corporation, are power to
cause any of following: (a) the election of a majority of its Board of
Directors; (b) the issuance of additional shares of its common stock;
(c) the issuance and designation of rights and shares of its preferred
stock (if any); (d) the distribution and timing of dividends; (e) the
award of performance bonuses to its management; (f) the termination or
severance of officers or key employees; and (g) all or any similar
matters.
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"COSTS OF COLLECTION" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred
by the Lender's and any Participant's attorneys, and all
reasonable costs incurred by the Lender and any Participant in
the administration of the Liabilities and/or the Loan
Documents, including, without limitation, reasonable costs and
expenses associated with travel on behalf of the Lender and
any Participant, which costs and expenses are directly or
indirectly related to or in respect of the Lender's or such
Participant's: administration and management of the
Liabilities; negotiation, documentation, and amendment of any
Loan Document; or efforts to preserve, protect, collect, or
enforce the Collateral, the Liabilities, and/or the Rights and
Remedies and/or any of the rights and remedies against or in
respect of any guarantor or other person liable in respect of
the Liabilities (whether or not suit is instituted in
connection with such efforts), but excluding, in any event
those costs and expenses for which the Borrower is not
responsible under Section 5-9 hereof. The Costs of Collection
are Liabilities, and at the Lenders's option may bear
interest, if not paid within Three (3) Business Days after
demand, at the rate which the Lender is then charging the
Borrower hereunder as if such had been lent, advanced, and
credited by the Lender to, or for the benefit of, the
Borrower.
"DEPOSIT ACCOUNT": Has the meaning given that term in the UCC.
"DOCUMENTS": Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EMPLOYEE BENEFIT PLAN": As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) security interest, mortgage, pledge,
hypothecation,
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lien, attachment, or charge of any kind (including any
agreement to give any of the foregoing); the interest of a
lessor under a Capital Lease; conditional sale or other title
retention agreement; sale of accounts receivable or chattel
paper; or other arrangement pursuant to which any Person is
entitled to any preference or priority with respect to the
property or assets of another Person or the income or profits
of such other Person or which constitutes an interest in
property to secure an obligation; each of the foregoing
whether consensual or non-consensual and whether arising by
way of agreement, operation of law, legal process or
otherwise.
(b) The filing of any financing statement under the
UCC or comparable law of any jurisdiction.
"ENVIRONMENTAL LAWS": (a) Any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or requirements which regulate or
relate to, or impose any standard of conduct or liability on
account of or in respect to environmental protection matters,
including, without limitation, Hazardous Materials, as are now
or hereafter in effect; and
(b) the common law relating to damage to Persons
or property from Hazardous Materials.
"EQUIPMENT" includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, dies, molds, store
fixtures, furniture, and other goods, property, and assets
which are used and/or were purchased by the Borrower for use
in the operation or furtherance of the Borrower's business,
and any and all accessions or additions thereto, and
substitutions therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
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"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which would be
treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 9.
"EXECUTIVE AGREEMENT": Any agreement or understanding (whether or not
written) to which the Borrower is a party or by which the
Borrower may be bound, which agreement or understanding
relates to Executive Pay.
"EXECUTIVE OFFICER": Each of R. Carter Pate, Dennis May, and any other
Person who (without regard to title) is the successor to any
of the foregoing or who exercises a substantial portion of the
authority being exercised, at the execution of the within
Agreement, by any of the foregoing or a combination of such
authority of more than one of the foregoing or who otherwise
has Control of the Borrower.
"EXECUTIVE PAY": All salary, bonuses, and other value directly or
indirectly provided by or on behalf of the Borrower to or for
the benefit of any Executive Officer or any Affiliate, spouse,
parent, or child of any Executive Officer.
"FIXTURES": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is
being made, provided, however, in the event of a Material
Accounting Change, then unless otherwise specifically agreed
to by the
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Lender, (a) the Borrower's compliance with the financial
performance covenants imposed pursuant to Section 5-11 shall
be determined as if such Material Accounting Change had not
taken place and (b) the Borrower shall include, with its
monthly, quarterly, and annual financial statements a
schedule, certified by the Borrower's chief financial officer,
on which the effect of such Material Accounting Change to the
statement with which provided shall be described.
"GENERAL INTANGIBLES" includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to the
Borrower; credit memoranda in favor of the Borrower; warranty
claims; tax refunds and abatements; insurance refunds and
premium rebates; all means and vehicles of investment or
hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any
settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights
of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits,
certificates of convenience and necessity, and similar rights
granted by any governmental authority; patents, patent
applications, patents pending, and other intellectual
property; internet addresses and domain names; developmental
ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts;
catalogs; manuals; technical data; computer software programs
(including the source and object codes therefor), computer
records, computer software, rights of access to computer
record service bureaus, service bureau computer contracts, and
computer data; tapes, disks, semi-conductors chips and
printouts; trade secrets rights, copyrights, mask work rights
and interests, and derivative works and interests; user,
technical reference, and
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other manuals and materials; trade names, trademarks, service
marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general
intangible property of the Borrower in the nature of
intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts
or ideas, and any matter related to, or connected with, the
design, development, manufacture, sale, marketing, leasing, or
use of any or all property produced, sold, or leased, by the
Borrower or credit extended or services performed, by the
Borrower, whether intended for an individual customer or the
general business of the Borrower, or used or useful in
connection with research by the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"GUARANTORS": All subsidiaries of the Borrower, presently existing and
hereafter organized or acquired (nothing herein being deemed a
waiver of the provisions of Section 4-17 hereof).
"HAZARDOUS MATERIALS:" Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as
to any of the foregoing) are defined or regulated as a
hazardous material in or under any Environmental Law and (b)
oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any
indebtedness which is non-recourse to the credit of such
Person but which is secured by an Encumbrance on any asset of
such Person) whether or not evidenced by a promissory note,
bond, debenture or other written obligation to pay money.
(b) For the payment of the purchase price of goods or
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services deferred for more than Thirty (30) days beyond then
current trade terms provided to such person by the supplier of
such goods or services.
(c) In connection with any letter of credit or
acceptance transaction (including, without limitation, the
face amount of all letters of credit and acceptances issued
for the account of such Person or reimbursement on account of
which such Person would be obligated).
(d) In connection with the sale or discount of
accounts receivable or chattel paper of such Person.
(e) On account of deposits or advances.
(f) As lessee under Capital Leases.
"INDEBTEDNESS" of any Person shall also include:
(x) Indebtedness of others secured by an
Encumbrance on any asset of such Person, whether or
not such Indebtedness is assumed by such Person.
(y) Any guaranty, endorsement, suretyship or
other undertaking pursuant to which that Person may
be liable on account of any obligation of any third
party.
(z) The Indebtedness of a partnership or
joint venture in which such Person is a general
partner or joint venturer.
"INDEMNIFIED PERSON": Is defined in Section 12-11.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"INVENTORY" includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping
materials related to any of the foregoing, and all names or
marks affixed or to be affixed thereto for identifying or
selling the same; Goods held for sale or lease or furnished or
to be furnished under a contract or contracts of sale or
service by the Borrower, or used
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or consumed or to be used or consumed in the Borrower's
business; Goods of said description in transit: returned,
repossessed and rejected Goods of said description; and all
documents (whether or not negotiable) which represent any of
the foregoing.
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the
use or occupancy of any space.
"LENDER": Is defined in the Preamble hereto.
"LIABILITIES" (in the singular, "LIABILITY") includes, without
limitation, all and each of the following with respect to any
of the Loan Documents, whether now existing or hereafter
arising:
(a) Any and all direct and indirect liabilities,
debts, and obligations of the Borrower to the Lender or any
Participant hereunder, each of every kind, nature, and
description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrower to the Lender or any
Participant hereunder (including all future advances whether
or not made pursuant to a commitment by the Lender), whether
or not any of such are liquidated, unliquidated, primary,
secondary, secured, unsecured, direct, indirect, absolute,
contingent, or of any other type, nature, or description, or
by reason of any cause of action which the Lender or any
Participant may hold against the Borrower.
(c) All notes and other obligations of the Borrower
now or hereafter assigned to or held by the Lender, each of
every kind, nature, and description.
(d) All interest, fees, and charges and other amounts
which may be charged by the Lender to the Borrower and/or
which may be due from the Borrower to the Lender from time to
time.
(e) Except as otherwise provided in Section 5-9
hereof,
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all costs and expenses incurred or paid by the Lender or any
Participant hereunder in respect of any agreement between the
Borrower and the Lender or instrument furnished by the
Borrower to the Lender (including, without limitation, Costs
of Collection, attorneys' reasonable fees, and all court and
litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with
the Lender and any and all obligations of the Borrower to act
or to refrain from acting in accordance with any agreement
between the Borrower and the Lender or instrument furnished by
the Borrower to the Lender.
"LOAN DOCUMENTS": The within Agreement, each instrument and document
executed and/or delivered as contemplated by Article 3, below,
and each other instrument or document from time to time
executed and/or delivered in connection with the arrangements
contemplated hereby, as each may be amended from time to time.
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to
accounting periods subsequent to the Borrower's fiscal year
most recently completed prior to the execution of the within
Agreement, which change has a material effect on the
Borrower's financial condition or operating results, as
reflected on financial statements and reports prepared by or
for the Borrower, when compared with such condition or results
as if such change had not taken place or where preparation of
the Borrower's statements and reports in compliance with such
change results in the breach of a financial performance
covenant imposed pursuant to Section 5-11 where such a breach
would not have occurred if such change had not taken place or
visa versa.
"MATURITY DATE": February 28, 2000.
"NET PROCEEDS": The entire proceeds received from a sale or other
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disposition of any of the assets of the Borrower, less the
reasonable costs and expenses incident to realizing such
proceeds, including, without limitation, reasonable brokerage
commissions and reasonable legal fees and expenses of counsel.
"NEW STORE COSTS": The initial stocking of $20,000,000.00 of
Inventory and ancillary expenses (including, without
limitation, new lease costs, store fixtures, equipment, and
leasehold improvements) associated with the opening by the
Borrower of Thirty (30) additional rural retail stores.
"PARTICIPANT": Any Person which purchase a participation in the Term
Loan and the Loan Documents from the Lender or from another
Participant; provided that there may be no more than two (2)
Participants at any time.
"PERMITTED ENCUMBRANCES": Those Encumbrances permitted as provided
in Section 4-5(a) hereof.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other
enterprise or entity.
"PROCEEDS": include, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in
Section 7-1 hereof.
"QUALIFIED TAKEOUT": A single transaction which consists of any of the
following:
(a) The sale by the Borrower of all or any
portion of its capital stock in a secondary offering
or otherwise.
(b) The sale of the Borrower (whether an
asset sale or the sale of capital stock of the
Borrower resulting in a Change in Control) or the
merger of the Borrower with
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another Person (with such other Person being the
surviving entity).
(c) The refinancing of the Term Loan by a
financial institution other than the Lender.
"REAL ESTATE": All land and improvements thereon now owned or
hereafter acquired by the Borrower or any Guarantor (other
than interests under any Leases, as lessee).
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, contract
rights, General Intangibles, Chattel Paper, Instruments,
Documents of Title, Documents, Securities, letters of credit
for the benefit of the Borrower, and bankers' acceptances held
by the Borrower, and any rights to payment.
"RELATED ENTITY": (a) Any corporation, limited liability company,
trust, partnership, joint venture, or other enterprise which:
is a parent, brother-sister, subsidiary, or affiliate, of the
Borrower; could have such enterprise's tax returns or
financial statements consolidated with the Borrower's; could
be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the
Internal Revenue Code of 1986, as amended from time to time)
of which the Borrower is a member; Controls or is Controlled
by the Borrower or by any Affiliate of the Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or
other requirements having the force of law and (ii) all court
orders and injunctions, arbitrator's decisions, and/or similar
rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court,
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tribunal, panel, or other body which has or claims
jurisdiction over such Person, or any property of such Person,
or of any other Person for whose conduct such Person would be
responsible.
(b) That Person's charter, certificate of
incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that Person's
by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.
"REVOLVING CREDIT": The revolving credit facility in the principal
amount of $100,000,000.00 entered into contemporaneously
herewith among the Borrower, the Lenders party thereto, and
BankBoston Retail Finance Inc., as Agent for the Revolving
Credit Lenders, as such facility may hereafter be modified,
amended, extended, supplemented or restated from time to time.
"REVOLVING CREDIT LENDERS": The lenders who agree to make loans to the
Borrower under the Revolving Credit.
"RIGHTS AND REMEDIES": Is defined in Section 10-6.
"SEGREGATED ACCOUNT": Is defined in Section 2-2 hereof.
"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) would become an Event
of Default if any requisite notice were given and/or any
requisite period of time were to run and such occurrence,
circumstance, or state of facts were not absolutely cured
within any applicable grace period.
"TERM LOAN": Is defined in Section 2-1.
"TERM LOAN COMMITMENT FEE": Is defined in Section 2-7(a).
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"TERM NOTE": Is defined in Section 2-3.
"TERMINATION DATE": The earliest of (a) the Maturity Date; or (b) the
occurence of any event described in Sections 9-10 or 9-11,
below; or (c) the Lender's notice to the Borrower setting the
Termination Date on account of the occurrence of any Event of
Default other than as described in Sections 9-10 or 9-11,
below.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
ARTICLE 2 - THE TERM LOAN
2-1. Commitment to Make Term Loan. Subject to the terms and conditions
set forth in this Agreement, the Borrower shall borrow, and the Lender shall
lend, on the satisfaction of the conditions precedent hereto (Article 3), the
sum of $25,000,000.00 (the "TERM LOAN").
2-2. Use of Proceeds of Term Loan. The proceeds of the Term Loan shall
be used solely for New Store Costs; provided that pending use for such purposes,
the proceeds of the Term Loan shall be utilized FIRST, to reduce the amounts due
under the Revolving Credit, and SECOND, to fund a segregated collateral account
(the "Segregated Account") which shall be pledged to the Lender as collateral
for the Liabilities. After the initial disbursement of the proceeds of the Term
Loan, as provided above, if the Borrower desires to utilize the proceeds of the
Term Loan for the payment of New Store Costs and (a) no Suspension Event then
exists, the Borrower may request an advance from the Revolving Credit Lenders
for that purpose (the Lender not hereby representing that the Revolving Credit
Lenders will in fact make such advance) or may obtain a release of funds from
the Segregated Account for the purpose, or (b) if a Suspension Event then
exists, the Borrower shall furnish the Lender with ten (10) Business Days' prior
written notice thereof, which notice shall be accompanied by a certification by
the Borrower (in form satisfactory to the Lender) of the amount of the Term Loan
proceeds to be so utilized and a breakdown of the actual proposed use thereof;
in the event a Suspension Event
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then exists, the Lender, in its discretion, may release or refuse to release,
funds held in the Segregated Account, or direct or refuse to direct, the
Revolving Credit Lenders to advance to the Borrower, the amounts so requested.
During the existence of a Suspension Event, the Borrower shall have no authority
to, and shall not, request the Revolving Credit Lenders to make an advance for
the payment of the New Store Costs without the prior written consent of the
Lender.
2-3. The Term Note. The Term Loan shall be evidenced by a promissory
note of the Borrower payable to the Lender, substantially in the form of EXHIBIT
2-3 (the "TERM NOTE"), completed with appropriate insertions.
2-4. Interest on Term Loan.
(a) The Outstanding principal balance of the Term Loan shall
bear interest at a rate equal to fourteen and one-half percent (14-1/2%) per
annum.
(b) Following the occurrence of an Event of Default (and
whether or not the Lender exercises any of the Lender's rights on account of
such Event of Default, the principal balance of the Term Loan shall bear
interest at the option of the Lender, at the rate of sixteen and one-half
percent (16-1/2%) per annum.
(c) The Borrower shall pay interest on the outstanding
principal balance of the Term Loan in arrears on the first day of each month and
on the Termination Date.
2-5. Repayment of Term Loans. (a) The Borrower, without notice or
demand from the Lender, shall pay the Lender, an amount equal to the greater of
(i) one hundred twenty-five percent (125%) of the Allocated Loan Value of any
Real Estate sold by the Borrower or (ii) ninety percent (90%) of the gross
proceeds from any Real Estate sold by the Borrower. Nothing contained herein
shall be deemed to constitute the Lender's consent to any such sale or
disposition or a waiver of the provisions of Section 4-11(d) hereof.
(b) After final and irrevocable payment in full and
termination of the Revolving Credit (other than by a refinancing of the
Revolving Credit),
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the Borrower, without notice or demand from the Lender, shall pay to the Lender,
the Net Proceeds from the sale by the Borrower of any of its capital stock or
assets other than Real Estate (other than asset sales permitted under Section
4.11(d) hereof), immediately upon receipt of such Net Proceeds by the Borrower.
Nothing contained herein shall be deemed to constitute the Lender's consent to
any such sale or disposition or a waiver of the provisions of Section 4-11(d)
hereof.
(c) On May 31, 1999, the Borrower, without notice or demand
from the Lender, shall pay the Lender, an amount equal to the net proceeds of
the Term Loan not theretofore utilized by the Borrower for New Store Costs.
(d) All payments under subparagraphs (a), (b), and (c) hereof
shall be applied to the principal balance of the Term Loan and shall not reduce
the amount, or postpone the time for payment, of any other amounts due or to
become due under the Term Loan. Any portion of the Term Loan which is prepaid
may not be reborrowed. Each such prepayment shall be accompanied by payment of
Term Loan Commitment Fees and any amounts due under Section 2-8 hereof.
(e) In all events and under all circumstances, unless sooner
paid or accelerated, the then unpaid principal balance of the Term Note and all
accrued and unpaid interest thereon shall be due and payable on the Termination
Date.
2-6. Optional Prepayments of Term Loans.
The Borrower shall have the right, at its election, to repay the
outstanding amount of the Term Loan, as a whole or in part, in multiples of
$100,000.00, at any time after the first anniversary of this Agreement, subject,
however, to the provisions of Sections 2-7(b) and 2-8 hereof. No prepayment
hereunder shall postpone the date for, or reduce the amount of, any subsequent
payment under the Term Loan. Any portion of the Term Loan which is prepaid may
not be reborrowed.
2-7. Term Loan Commitment Fee. (a) As compensation for the Lender's
commitments included herein to make the Term Loan, the Lender has earned a TERM
LOAN COMMITMENT FEE (so referred to herein) in the sum of $4,375,000.00
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payable, subject to the provisions of Subparagraphs (b) and (c) hereof, as
follows:
(i) The sum of $875,000.00 shall have been received
by the Lender as of the date of the execution of this Agreement. The
Lender acknowledges receipt of the sum of $500,000.00 from the Borrower
at the time of the execution of the commitment letter for the Term
Loan; the balance of $375,000.00 shall be paid upon from the initial
advance of the proceeds of the Term Loan.
(ii) The sum of $875,000.00 shall be due on the first
anniversary of this Agreement.
(iii) The sum of $875,000.00 shall be due on the
second anniversary of this Agreement.
(iv) The sum of $1,750,000.00 shall be due on the
earlier of the Termination Date or the date the Term Loan is paid in
full.
Subject to the provisions of Subparagraph (c) hereof, in the event of the
repayment of the Term Loan prior to the Maturity Date (whether as a result of
acceleration or otherwise), any remaining installments of the Term Loan
Commitment Fee shall become immediately due and payable.
(b) Upon any prepayment of the Term Loan pursuant to Section
2-5 or 2-6 hereof, the Borrower shall pay the Lender an allocable share of the
remaining installments of the Term Loan Commitment Fee equal to the amount of
such prepayment multiplied by the decimal equivalent of the ratio of such
prepayment to the then outstanding balance of the Term Loan. Any such prepayment
of the Term Loan Commitment Fee shall be applied to the annual installments of
the Term Loan Commitment Fee in inverse order of maturity and shall not reduce
the amount, or postpone the time for payment, of any installments thereafter
coming due.
(c) In the event that the entire unpaid balance of the Term
Loan, all accrued and unpaid interest thereon, and all fees otherwise due and
payable with respect thereto, are paid with the proceeds of a Qualified Takeout,
and if no Event of Default then exists as a result of which the Lender has
accelerated the time for payment of the Liabilities, the Lender shall waive (i)
payment of the installment of the Term Loan Commitment Fee due
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and payable under Section 2-7(a)(iii), if such full payment occurs prior to the
second anniversary of this Agreement and (ii) $750,000.00 of the installment due
under Section 2-7(a)(iv) if such full payment occurs prior to the Maturity Date.
In the event that the Term Loan is repaid with the proceeds of a Qualified
Takeout resulting in the waiver of a portion of the Term Loan Commitment Fee,
any portion of the Term Loan Commitment Fee paid hereunder and applied to the
portion of the Term Loan Commitment Fee so waived shall be credited against the
amounts required to be paid at the time of the Qualified Takeout.
(d) Except as provided in Subparagraph (c), above, the
Borrower shall not be entitled to any credit, rebate, or repayment of the Term
Loan Commitment Fee notwithstanding the termination of this Agreement.
2-8. Indemnity. The Borrower agrees to indemnify the Lender and each
Participant and to hold the Lender and each Participant harmless from and
against any loss, cost or expense (including loss of anticipated profits) that
the Lender or such Participant may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of the making of any prepayment (whether mandatory or
optional) of the Term Loan, including interest or fees payable by the Lender or
such Participant to lenders of funds obtained by it in order to maintain such
Term Loan.
2-9 Increased Costs. If, as a result of any change in any requirement
of law, or of the interpretation or application thereof by any court or by any
governmental or other authority or entity charged with the administration
thereof, whether or not having the force of law, which:
(a) subjects the Lender or any Participant to any taxes or
changes the basis of taxation, or increases any existing taxes, on
payments of principal, interest or other amounts payable by the
Borrower to the Lender or such Participant under this Agreement (except
for taxes on the Lender's or Participant's overall net income or
capital imposed by the jurisdiction in which the Lender's or
Participant's principal or lending offices are located);
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(b) imposes, modifies or deems applicable any reserve, cash
margin, special deposit or similar requirements against assets held by,
or deposits in or for the account of or loans by or any other
acquisition of funds by the relevant funding office of the Lender or
any Participant;
(c) imposes on the Lender or any Participant any other
condition with respect to any Loan Document; or
(d) imposes on the Lender or any Participant a requirement to
maintain or allocate capital in relation to the Liabilities;
and the result of any of the foregoing is to increase the cost to the Lender or
any Participant of making or maintaining any loan, advance or financial
accommodation or to reduce the income receivable by the Lender or any such
Participant in respect of any loan, advance or financial accommodation by an
amount which the Lender or any Lender or such Participant deems to be material,
then upon the Lender's giving written notice thereof, from time to time, to the
Borrower (such notice to set out in reasonable detail the facts giving rise to
and a summary calculation of such increased cost or reduced income), the
Borrower shall pay to the Lender, within seven(7) Business Days after receipt of
such notice, that amount which shall compensate the Lender or Participant for
such additional cost or reduction in income.
ARTICLE 3 - CONDITIONS PRECEDENT.
As a condition to the effectiveness of this Agreement, the
establishment of the Term Loan, and the making of the Term Loan, each of the
documents respectively described in Sections 3-1 through and including 3-9,
(each in form and substance reasonably satisfactory to the Lender) shall have
been delivered to the Lender, and the conditions respectively described in
Sections 3-11 through and including 3-19, shall have been satisfied:
3-1. Corporate Due Diligence.
(a) A Certificate of corporate good standing issued by the
Secretary of State of Ohio.
(b) Certificates of due qualification, in good standing,
issued by the Secretary(ies) of State of each State in which the nature of the
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Borrower's business conducted or assets owned requires such qualification,
except for those States in which the failure to so qualify would not have a
material adverse effect on the Borrower's business, assets, financial condition,
operations or prospects.
(c) A Certificate of the Borrower's Assistant Secretary of the
due adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
3-2. Opinion. An opinion of counsel to the Borrower in form and
substance reasonably satisfactory to the Lender.
3-3. Landlord Waivers. Either, (a) the delivery to the agent for the
Revolving Credit Lenders of waivers or subordinations (each in form reasonably
satisfactory to the Lender) executed by (i) each of the owners of the Borrower's
leased warehouses, (ii) seventy-five percent (75%) of the Borrower's landlords,
and (iii) without duplication, the landlords for each of the Borrower's stores
located in a jurisdiction in which the landlord could obtain an Encumbrance on
any of the Borrower's assets having priority over the liens granted to the
Lender, or (b) the Revolving Credit Lenders shall have established a reserve
against Availability (as defined in the documents evidencing the Revolving
Credit), pending receipt of such waivers, in an amount acceptable to the Lender.
3-4. Intercreditor Agreement. The execution and delivery of an
Intercreditor Agreement between the Lender and the Revolving Credit Lenders, in
form and substance reasonably satisfactory to the Lender. The Revolving Credit
shall have been consummated and be in full force and effect and the
documentation evidencing the Revolving Credit shall be reasonably satisfactory
to the Lender.
3-5. Mortgages/Deeds of Trust. Mortgages/Deeds of Trust and
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Assignments of Leases and Rents with respect to the Real Estate presently owned
by the Borrower (each in form satisfactory to the Lender).
3-6. Real Estate Requirements. To the extent not previously delivered
to the Lender:
(a) Appraisals. The Lender shall have been provided with
appraisals of the Borrower's Real Estate, which appraisals shall have been
prepared by one or more appraisers acceptable to the Lender, utilizing
methodology satisfactory to the Lender, and the results of which appraisals are
satisfactory to the Lender.
(b) Environmental Review. The Borrower shall provide
information, to the Lender's reasonable satisfaction, (a) that the Borrower's
operations comply in all material respects (as determined by the Lender in its
reasonable discretion) with all applicable Environmental Laws; (b) whether the
operations of the Borrower are the subject of any federal, state or provincial,
municipal or local investigation evaluating whether any remedial action,
involving a material expenditure by the Borrower, is needed to respond to a
release of any Hazardous Materials; and (c) whether the Borrower has any
contingent liability reasonably deemed material by the Lender in connection with
any past or present treatment, storage, recycling, disposal or release or
threatened release, at any location, of any Hazardous Materials or pursuant to
Environmental Laws.
(b) Title Insurance. The Lender shall have received an ALTA
standard form title insurance policy issued by a title insurance company
approved by the Lender (with such reinsurance or co-insurance as the Lender may
require, any such reinsurance to be with direct access endorsements), insuring
the Lender that Borrower holds marketable fee title to the Real Estate owned by
the Borrower and that the mortgages granted to the Lender creates valid,
enforceable and first priority liens on Borrower's title to such Real Estate,
subject only to such exceptions as the Lender may be approve in writing, and
which shall contain no exceptions for surveys, mechanic's liens or persons in
occupancy, and shall not insure over any matter except to the extent that any
such affirmative insurance is acceptable to the Lender in its sole discretion.
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(c) Other Real Estate Due Diligence. The Lender shall have
received (i) engineering reports (including code and ADA compliance), (ii) if
requested by Lender, reliance letters in form and substance satisfactory to
Lender from Borrower's environmental engineers, structural engineers and
appraisers, and (iii) to the extent required by the Lender, matters relating to
title, zoning, survey, the provisions of mortgages and debt instruments, plans,
leases, management agreements, service contracts, historical financial
information, operating and capital budgets insurance, financial information,
building plans and specifications, construction schedules, construction-related
contracts, and other customary matters, provided that the Borrower shall not be
required to deliver Subordination, Attornment and Non-Disturbance Agreements
from the Borrower's tenants as long as, pending receipt of such agreements, the
Revolving Credit Lenders shall have established a reserve against Availability
(as defined in the documents evidencing the Revolving Credit) in an amount
acceptable to the Lender.
3-7. Warrant. Warrants in favor of the Lender permitting the Lender to
purchase up to 400,000 shares of the Borrower's common stock (subject to
customary anti-dilution and other provisions) for a strike price equal to the
lesser of $2.50 per share or the bid price on the opening of the market on the
date of this Agreement.
3-8. Additional Documents. Such additional instruments and documents as
the Lender or its counsel may reasonably require or reasonably request.
3-9. Officers' Certificates. Certificates executed by the President and
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower to the Lender in the Loan Documents are true
and complete as of the date of such Certificate, and that no Suspension Event
has occurred.
3-10. Due Diligence. The Lender shall have completed its due diligence,
the results of which shall be reasonably satisfactory to the Lender. Without
limiting, the generality of the foregoing,
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(a) The Lender shall have completed its investigation of the
business, affairs, capital structure, real estate, material agreements,
transactions between affiliates, related parties, properties and prospects of
the Borrower including, without limitation, analysis of all material contracts,
and pending and threatened litigation, with results reasonably satisfactory to
the Lender and its counsel.
(b) The Lender, in connection with its conduct of due
diligence, shall have been given such access to the management, records, books
of account, contracts and properties of the Borrower and its Related Entities
and shall have received such financial, business, and other information
regarding the Borrower and its Related Entities as it shall have requested,
including, without limitation, information as to possible contingent
liabilities, transactions with affiliates, tax matters, environmental matter,
and obligations under ERISA and welfare plans, collective bargaining agreements
and other arrangements with employees.
3-11. Representations and Warranties. Each of the representations made
by or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by any
or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
3-12. Minimum Excess Availability. Availability, after giving effect to
the first loans and advances to be made under the Revolving Credit; all then
held checks (if any); accounts payable which are beyond credit terms then
accorded the Borrower; overdrafts; any charges to the Loan Account made in
connection with the establishment of the credit facility contemplated hereby;
and L/C's to be issued at, or immediately subsequent to, the establishment of
such credit facility, and any proceeds of the Term Loan applied in reduction of
the Revolving Credit is not less than (a) $40,000,000.00, minus (b) the initial
Rent Reserve and Real Estate Reserve established under the Revolving Credit.
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3-13. No Suspension Event. No Suspension Event shall then be extant.
3-14. No Adverse Change. No event shall have occurred or failed to
occur, which occurrence or failure is or could have a materially adverse effect
upon the Borrower's business, financial condition, operations, properties or
prospects when compared with such condition at September 30, 1997.
3-15. Perfection of Liens. All filings, recordings, deliveries of
instruments and other actions necessary or desirable in the opinion of the
Lender to protect and preserve its security and mortgage interests in the
Collateral shall have been duly effected. The Lender shall have received
evidence thereof in form and substance reasonably satisfactory to the Lender.
3-16 Litigation. No action, suit, investigation, litigation or
proceeding shall be pending or threatened in any court or before any arbitrator
or governmental instrumentality that (i) reasonably could be expected to have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Borrower other than
those which have theretofore been disclosed or (ii) would materially adversely
affect the Term Loan, other than those which have theretofore been disclosed.
Borrower shall represent and warrant the current status of all pending
litigation, and such status shall be reasonably satisfactory to the Lender.
3-17 Consents. All governmental and third party consents and approvals,
if any, necessary in connection with the Term Loan, shall have been obtained
(without the imposition of any conditions that are not acceptable to the Lender)
and shall remain in effect; all applicable waiting periods with respect to such
consents and approvals shall have expired without any action being taken by any
competent authority; and, in the judgment of the Lender, no law or regulation
shall be applicable which restrains, prevents, or imposes materially adverse
conditions upon the Term Loan.
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3-18 Fees and Expenses. The portion of the Term Loan Commitment Fee
payable upon execution of this Agreement and all accrued fees and expenses of
the Lender and each Participant in connection with the establishment of the Term
Loan (including the fees and expenses of counsel to the Lender and each
Participant) then due and payable shall have been paid.
3-19 Capital Markets. There shall not have occurred any disruption or
adverse change in the U.S. financial capital markets generally, or in the U.S.
market for loan syndications in particular, which the Lender in its discretion
deems to be material.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at the Lender's head office in Boston, Massachusetts. Under no
circumstances will the within Agreement take effect until executed and accepted
by the Lender at said head office.
ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Lender to establish the loan arrangement contemplated
herein and to make the Term Loan (which loan shall be deemed to have been made
in reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
the following representations, warranties, and covenants included in the within
Agreement.
4-1. Payment and Performance of Liabilities. The Borrower shall pay
each Liability when due (or within three (3) Business Days after demand, if
payable on demand) and shall promptly, punctually, and faithfully perform each
other Liability.
4-2. Due Organization - Corporate Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in good
standing as an Ohio corporation and is and shall hereafter remain duly qualified
and in good standing in every other State in which, by reason of the nature or
location of the Borrower's assets or operation of the Borrower's
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business, such qualification is necessary, except for those States in which the
failure to so qualify would not have a material adverse effect on the Borrower's
business, assets, financial condition, operations or prospects.
(b) Each Related Entity is listed on EXHIBIT 4-2, annexed
hereto. Each Related Entity is and shall hereafter remain in good standing in
the State in which incorporated and is and shall hereafter remain duly qualified
in each other State in which, by reason of that entity's assets or the operation
of such entity's business, such qualification may be necessary, except for those
States in which the failure to so qualify would not have a material adverse
effect on the Borrower's business, assets, financial condition, operations or
prospects. The Borrower shall provide the Lender with prior written notice of
any entity's becoming or ceasing to be a Related Entity.
(c) The Borrower has all requisite corporate power and
authority to execute and deliver all and singular the Loan Documents to which
the Borrower is a party and has and will hereafter retain all requisite
corporate power to perform all and singular the Liabilities.
(d) The execution and delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security and mortgage interests by the Borrower as contemplated hereby); the
Borrower's performance under those of the Loan Documents to which it is a party;
the borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary
corporate action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or material obligation
of the Borrower.
(iii) Will not result in the creation or imposition
of, or the obligation to create or impose, any Encumbrance upon any
assets of the Borrower pursuant to any Requirement of Law or material
obligation, except pursuant to the Loan Documents.
(e) The Loan Documents have been duly executed and delivered
by
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Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
4-3. Trade Names.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower has conducted its
business within the last ten (10) years.
(ii) All entities and/or persons with whom the Borrower
consolidated or merged, or from whom the Borrower acquired in a single
transaction or in a series of related transactions substantially all of
such entity's or person's assets, within the last ten (10) years.
(b) Except (i) upon not less than twenty-one (21) days prior
written notice given the Lender, and (ii) in compliance with all other
provisions of the within Agreement, the Borrower will not undertake or commit to
undertake any action such that the results of that action, if undertaken prior
to the date of this Agreement, would have been reflected on EXHIBIT 4-3.
(c) The Borrower owns and possesses, or has the right to use
all patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.
(d) Except as set forth on EXHIBIT 4-16, the conduct by the
Borrower of the Borrower's business does not infringe on the patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
4-4. Locations.
(a) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained solely at the Borrower's
chief executive offices at 6600 Port Road, Groveport, Ohio 43125 and at those
locations which are listed on EXHIBIT 4-4, annexed hereto, which EXHIBIT
includes all service bureaus with which any such records are maintained and
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the names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business, (ii) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), (iii) is otherwise permitted by
this Agreement, or (iv) to move Collateral between Locations listed on said
EXHIBIT 4-4, the Borrower shall not remove any Collateral from said chief
executive offices or those locations listed on EXHIBIT 4-4.
(b) As long as the financial performance covenants set forth
on EXHIBIT 5-11 hereto or in the documents evidencing the Revolving Credit are
not violated as a result of the following actions, the Borrower may, after
furnishing the Lender with thirty (30) days prior notice thereof:
(i) Execute a new lease for an existing location as
long as the Borrower has obtained a landlord's waiver acceptable to the
Lender therefor, and, if necessary, has executed additional financing
statements to protect the Lender's liens and security interests.
(ii) Close any location at which the Borrower
maintains, offers for sale, or stores any of the Collateral or
(iii) Open any location at which the Borrower
maintains, offers for sale or stores any of the Collateral, so long as
the Borrower has obtained a landlord's waiver acceptable to the Lender
therefor, and, if necessary, has executed additional financing
statements to protect the Lender's liens and security interests.
(c) Except (i) as otherwise disclosed pursuant to, or
permitted by, this Section 4-4, (iii) for goods in transit, and(iii) Inventory
in the process of being repaired, no tangible personal property of the Borrower
is in the care or custody of any third party or stored or entrusted with a
bailee or other third party and none shall hereafter be placed under such care,
custody, storage, or entrustment.
4-5. Title to Assets.
(a) The Borrower is, and shall hereafter remain, the owner of
the Collateral free and clear of all Encumbrances with the exceptions of the
following (the "PERMITTED ENCUMBRANCES"):
(i) The security interest and liens on the Collateral
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created herein and by the mortgages and/or deeds of trust in favor of
the Lender on the Real Estate.
(ii) The Encumbrances in favor of the Revolving
Credit Lenders.
(iii) Those Encumbrances (if any) listed on EXHIBIT
4-5, annexed hereto.
(iv) Encumbrances in favor of The CIT Group/Business
Credit, Inc., as Agent, to be released in connection with payment of
proceeds of the loans contemplated hereby.
(v) Encumbrances for payment of taxes, assessments or
governmental charges and levies that are not yet due.
(vi) Encumbrances created by operation of law such as
materialmen's liens, mechanics' liens, warehouse liens and other
similar liens, arising in the ordinary course of business, that secure
amounts not overdue for a period of more than thirty (30) days, not to
exceed $100,000.00 in the aggregate outstanding at any time.
(vii) Encumbrances incurred or deposits or pledges
made in the ordinary course of business securing: obligations incurred
for workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits (other than liens arising under
ERISA); the performance of bids, tenders, leases, contracts (other than
contracts for the payment of money) and statutory obligations; and
obligations on surety, appeal, supersedeas and performance bonds.
(viii) Encumbrances or other restrictions on the use
of real property such as zoning restrictions, licenses, covenants, and
building restrictions and minor irregularities in the title thereto
that do not secure obligations for the payment of money or materially
impair the value of the real property or its use by the Borrower in the
ordinary conduct of the Borrower's business.
(ix) Encumbrances securing Capital Leases permitted
hereunder.
(x) Judgment liens in existence for less than thirty
(30) days after entry thereof or with respect to which execution has
been stayed or with respect to which payment in full above any
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deductible is covered by insurance or bond, not to exceed $750,000.00
in the aggregate at any time outstanding.
(xi) Renewals and replacements of Permitted
Encumbrances, provided that the renewal or replacement is limited to
the same property or assets and the Indebtedness secured by such
Encumbrance is not increased.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
4-6. Indebtedness. The Borrower does not and shall not hereafter
have any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender under the Loan Documents.
(b) Indebtedness to the Revolving Credit Lenders under the
Revolving Credit.
(c) The Indebtedness (if any) listed on EXHIBIT 4-6, annexed
hereto.
(d) Indebtedness for taxes, assessments, governmental charges
and claims for labor, material or supplies, to the extent that payment
thereof is not then due.
(e) Indebtedness in connection with Permitted Encumbrances.
(f) Indebtedness arising in the ordinary course of business
pursuant to endorsement of negotiable instruments for deposit or
collection.
(g) Capital Leases, the annual payments under which do not
exceed $75,000.00 in the aggregate in any fiscal year.
(h) Indebtedness for the payment of the purchase price of
goods or services deferred for more than thirty (30) days beyond then
current trade terms provided to the Borrower, which are the subject of
a dispute with the vendor or supplier.
(g) Renewals, replacements, extensions and refundings of the
Indebtedness listed in (a) through (g), provided that any renewal,
replacement, extension or refunding is in aggregate principal amount
not greater than the principal amount of, and is payable on terms no
less favorable to the Borrower of, the Indebtedness renewed, replaced,
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extended or refunded.
4-7. Insurance Policies.
(a) EXHIBIT 4-7, annexed hereto, is a schedule of all
insurance policies owned by the Borrower or under which the Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
issuer of any such policy nor the Borrower is in default or violation of any
such policy.
(b) The Borrower shall have and maintain at all times
insurance covering such risks, in such amounts, containing such terms, in such
form, for such periods, and written by such companies as may be reasonably
satisfactory to the Lender. The coverage reflected on EXHIBIT 4-7 presently
satisfies the foregoing requirements, it being recognized by the Borrower,
however, that such requirements may change hereafter to reflect changing
circumstances. All insurance carried by the Borrower shall provide for a minimum
of Sixty (60) days' written notice of cancellation to the Lender and all such
insurance which covers the Collateral shall include an endorsement in favor of
the Lender, as mortgagee, loss payee or additional insured, as applicable, which
endorsement shall also provide that the insurance, to the extent of the Lender's
interest therein, shall not be impaired or invalidated, in whole or in part, by
reason of any act or neglect of the Borrower or by the failure of the Borrower
to comply with any warranty or condition of the policy. In the event of the
failure by the Borrower to maintain insurance as required herein, the Lender, at
its option, may obtain such insurance, provided, however, the Lender's obtaining
of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower's failure to have maintained such insurance. The
Borrower shall furnish to the Lender certificates or other evidence satisfactory
to the Lender regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Lender of each claim in
excess of $150,000.00 made by the Borrower under any policy of insurance which
covers the Collateral and will permit the Lender, at the Lender's option in each
instance, to the exclusion of the Borrower, to conduct the adjustment of each
such claim (and of all claims following the occurrence of any Suspension
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Event). The Borrower hereby appoints the Lender as the Borrower's attorney in
fact to obtain, adjust, settle, and, after the occurrence of an Event of
Default, cancel any insurance described in this section and to endorse in favor
of the Lender any and all drafts and other instruments with respect to such
insurance. The within appointment, being coupled with an interest, is
irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Lender. The Lender shall not be liable on
account of any exercise pursuant to said power except for any exercise in actual
willful misconduct, bad faith or with gross negligence. After the occurrence of
an Suspension Event, the Lender may apply all proceeds of insurance from the
Real Estate (and other assets after the Revolving Credit Lenders have been paid
in full and their obligations to make loans to the Borrower under the Revolving
Credit terminated) against the Liabilities, whether or not such have matured, in
such order of application as the Lender may determine. Prior to the occurrence
of a Suspension Event, the proceeds from any Real Estate shall be held by the
Lender as cash collateral and shall be released to the Borrower, following such
reasonable disbursement procedures as the Lender may establish, for the repair
or restoration of the Real Estate on account of which such proceeds were paid
(as long as such insurance proceeds are sufficient to pay the entire cost of
repair or restoration); if such proceeds are not sufficient to pay such costs,
the Lender may apply such proceeds against the Liabilities, whether or not such
have matured, in such order of application as the Lender may determine. All
proceeds of insurance from assets other than the Real Estate shall be paid to
the Revolving Credit Lenders, whether or not a Suspension Event exists, until
the Revolving Credit is paid in full and all obligations of the Revolving Credit
Lenders under the Revolving Credit to make loans to the Borrower have been
terminated.
4-8. Licenses. Each material license, distributorship, franchise, and
similar agreement issued to the Borrower, or to which the Borrower is a party is
in full force and effect. The Borrower is not in default or violation thereof.
The Borrower has not received any notice or threat of cancellation of any such
license or agreement.
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4-9. Leases; Real Estate. (a) EXHIBIT 4-9, annexed hereto, is a
schedule of all presently effective Leases and Capital Leases. Each of such
Leases and Capital Leases is in full force and effect. Other than as set forth
in EXHIBIT 4-16, the Borrower is not in default or violation of any such Lease
or Capital Lease and the Borrower has not received any written notice or written
threat of cancellation of any such Lease or Capital Lease. The Borrower hereby
authorizes the Lender at any time and from time to time after the occurrence of
a Suspension Event to contact any of the Borrower's landlords in order to
confirm the Borrower's continued compliance with the terms and conditions of the
Lease(s) between the Borrower and that landlord and to discuss such issues,
concerning the Borrower's occupancy under such Lease(s), as the Lender may
determine.
(b) EXHIBIT 1-2 annexed hereto, is a schedule of all Real
Estate presently owned by the Borrower.
4-10. Requirements of Law. The Borrower is in material compliance with,
and shall hereafter comply with and use its assets in material compliance with,
all Requirements of Law. The Borrower has not received any notice of any
material violation of any Requirement of Law, which violation has not been cured
or otherwise remedied.
4-11. Maintain Properties. The Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary
reasonable wear and tear excepted).
(b) Not suffer or cause the waste or destruction of any
material part of the Collateral.
(c) Not use any of the Collateral in violation of any policy
of insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
(i) The sale of Inventory and Accounts in compliance
with the within Agreement.
(ii) The disposal of Equipment which is (A) obsolete,
worn out, or damaged beyond repair, which Equipment is replaced to the
extent
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necessary to preserve or improve the operating efficiency of the
Borrower, or (B) no longer used or useful in the conduct of the
Borrower's business.
(iii) The turning over to the Lender of all Receipts
as provided herein.
(iv) Sales of Inventory and fixtures resulting from
store closures or new store openings.
(v) Sales of Inventory, Accounts, and fixtures as
long as none of the financial covenants set forth in EXHIBIT 5-11
hereof would be breached, or any event of default under the Revolving
Credit occur, as a result thereof.
(vi) Sales of Real Estate, provided that the sales
price for any parcel is at least equal to the Allocated Loan Value
therefor and the proceeds are paid to the Lender in accordance with the
terms hereof.
4-12. Pay Taxes.
(a) The Borrower has received written notice from the Internal
Revenue Service that the Internal Revenue Service has completed its examination
of the Borrower's federal income tax returns for all tax years through and
including the Borrower's taxable year referenced on EXHIBIT 4-12, annexed
hereto, and that all deficiencies, assessments, and other amounts asserted as a
result of such examinations have been fully paid or settled. No agreement is
extant which waives or extends any statute of limitations applicable to the
right of the Internal Revenue Service to assert a deficiency or make any other
claim for or in respect to federal income taxes. No issue has been raised in any
such examination which, by application of similar principles, reasonably could
be expected to result in the assertion of a deficiency for any fiscal year open
for examination, assessment, or claim by the Internal Revenue Service.
(b) To the Borrower's knowledge, no state and local income,
excise, sales and other taxes are past due. No agreement is extant which waives
or extends any statute of limitations applicable to the right of any state
taxing authority to assert a deficiency or make any other claim for or
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in respect to any such state or local taxes. No issue has been raised in any
examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(c) Except as disclosed on said EXHIBIT 4-12, there are no
examinations of or with respect to the Borrower presently being conducted by the
Internal Revenue Service or any other taxing authority.
(d) The Borrower has, and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
other than a Permitted Encumbrance) upon any asset of the Borrower or by any
governmental authority; properly exercise any trust responsibilities imposed
upon the Borrower by reason of withholding from employees' pay or by reason of
the Borrower's receipt of sales tax or other funds for the account of any third
party; timely make all contributions and other payments as may be required
pursuant to any Employee Benefit Plan now or hereafter established by the
Borrower; and timely file all tax and other returns and other reports with each
governmental authority to whom the Borrower is obligated to so file.
(e) At its option, the Lender may, but shall not be obligated
to, pay any taxes, unemployment contributions, and any and all other charges
levied or assessed upon the Borrower or the Collateral by any person or entity
or governmental authority, and make any contributions or other payments on
account of the Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
4-13. No Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G,U,T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of
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any borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4-14. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c) Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty
could be imposed upon the Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning
of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation under
any Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
4-15. Hazardous Materials.
(a) Except as described in EXHIBIT 4-16, the Borrower has never:
(i) been legally responsible for any release or threat of
release of any Hazardous Material; or
(ii) received notification of any release or threat of
release of any Hazardous Material from any site or vessel occupied or
operated by the Borrower and/or of the incurrence of any expense or
loss in connection with the assessment, containment, or removal of any
release or threat of release of any Hazardous Material from any such
site or vessel.
(b) The Borrower shall:
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(i) dispose of any Hazardous Material only in compliance with
all Environmental Laws; and
(ii) not store on any site or vessel occupied or operated by
the Borrower and not transport or arrange for the transport of any
Hazardous Material, except if such storage or transport is in the
ordinary course of the Borrower's business and is in compliance with
all Environmental Laws.
(c) The Borrower shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
4-16. Litigation. Except as described in EXHIBIT 4-16, annexed hereto,
there is not presently pending or threatened by or against the Borrower any
suit, action, proceeding, or investigation which, if determined adversely to the
Borrower, would have a material adverse effect upon (a) the Borrower's financial
condition or ability to conduct its business as such business is presently
conducted or is contemplated to be conducted in the foreseeable future, or (b)
the Borrower's ability to perform its obligations under the Loan Documents.
4-17. Dividends or Investments. Without the prior written consent of
the Lender, the Borrower shall not:
(a) Pay any cash dividend or make any other distribution in
respect of any class of the Borrower's capital stock, other than the payment of
dividends (as long as no Suspension Event then exists or would arise therefrom)
in an amount not to exceed fifty percent (50%) of such net income (as determined
in accordance with GAAP), provided that the Borrower will not pay any such
dividends until fifteen (15) days after the date the Lender receives the
financial statements required under Section 5-6 hereof.
(b) Own, redeem, retire, purchase, or acquire any of the
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
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purchase any such stock or securities, of any corporation or other entity.
(d) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity, other than with a Related Entity and
then only if the Borrower is the surviving corporation.
(e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity.
(f) Organize or create any Related Entity, unless (i) the Related
Entity executes a guaranty of the Liabilities and grants the Lender a first
perfected lien on its assets and (ii) the only assets owned by such Related
Entity consist of Real Estate or Leases of real property in which the Related
Entity is the lessee.
(g) Subordinate any debts or obligations owed to the Borrower by
any third party to any other debts owed by such third party to any other Person.
4-18. Loans. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the
ordinary course.
(b) Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
4-19. Protection of Assets. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding
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no further appeal is available, that the Lender had acted in actual bad faith or
in a grossly negligent manner. The Borrower shall pay to the Lender, within
three (3) Business Days after demand, or the Lender, in its discretion, may add
to the Loan Account, all amounts paid or incurred by the Lender pursuant to this
section. The obligation of the Borrower to pay such amounts is a Liability.
4-20. Line of Business. The Borrower shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto.
4-21. Affiliate Transactions. The Borrower shall not make any payment,
nor give any value to any Related Entity except for (a) goods and services
actually purchased by the Borrower from, or sold by the Borrower to, such
Related Entity and (b) Leases of real property from any Guarantor, in each case
for a price which shall
(i) be competitive and fully deductible as an
"ordinary and necessary business expense" and/or fully depreciable
under the Internal Revenue Code of 1986 and the Treasury Regulations,
each as amended; and
(ii) not differ from that which would have been
charged in an arms length transaction.
4-22. Executive Pay.
(a) For purposes of this Agreement, the only Executive Officers
of the Borrower, at the execution of the within Agreement, are those individuals
referenced in the definition of "Executive Officers", above.
(b) Prior to the execution of the within Agreement, the Borrower
furnished the Lender with copies of all written Executive Agreements and
outlines of the salient features of all unwritten Executive Agreements (as
amended to date) then extant. There are no unwritten agreements or
understandings between the Borrower and any Executive Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.
(c) Without the prior written consent of the Agent, the Borrower
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will not
(i) Enter into any Executive Agreement not extant at
the execution of the within Agreement.
(ii) Alter, amend, supplement, or otherwise change
any Executive Agreement in any material respect.
(iii) Pay, provide, or facilitate any Executive Pay
in excess of the immediately preceding year's compensation by more than
fifteen percent (15%) or, if not covered by an Executive Agreement, as
permitted pursuant to Section 4-21 hereof.
4-23. Additional Assurances.
(a) The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security and
mortgage interests in the Collateral; and to comply with all applicable statutes
and laws, and facilitate the collection of the Receivables Collateral. The
Borrower shall execute all such instruments as may be required by the Lender
with respect to the recordation and/or perfection of the security interests
created herein.
(b) A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section 4-23 shall be sufficient for filing to perfect the security
interests granted herein.
4-24. Adequacy of Disclosure.
(a) All financial statements furnished to the Lender by the
Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate.
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(b) The Borrower does not have any material contingent
obligations or obligation under any Lease or Capital Lease which is not noted in
the Borrower's financial statements furnished to the Lender prior to the
execution of the within Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given the Lender by or on behalf of the Borrower in connection with
the execution of the within Agreement by the Lender contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements therein not materially
misleading. There is no fact known to the Borrower which has, or which, in the
foreseeable future could have, a material adverse effect on the financial
condition of the Borrower which has not been disclosed in writing to the Lender.
4-25. Other Covenants. The Borrower shall not indirectly do or cause to
be done any act which, if done directly by the Borrower, would breach any
covenant contained in this Agreement.
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL COVENANTS.
5-1. Maintain Records. The Borrower shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current stock, cost, and
sales records of its Inventory, accurately and sufficiently itemizing and
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describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(d) At all times, retain independent certified public
accountants who are reasonably satisfactory to the Lender and instruct such
accountants to fully cooperate with, and be available to, the Lender to discuss
the Borrower's financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender.
(e) Not change the Borrower's fiscal year.
(f) Not change the Borrower's taxpayer identification number.
5-2. Access to Records.
(a) The Borrower shall accord the Lender, the Participants and
their respective representatives with reasonable access from time to time as the
Lender, such Participants and such representatives may reasonably require to all
properties owned by or over which the Borrower has control. The Lender, the
Participants and their respective representatives shall have the right, and the
Borrower will permit the Lender, the Participants and such representatives from
time to time as the Lender, such Participants and such representatives may
request, to examine, inspect, copy, and make extracts from any and all of the
Borrower's books, records, electronically stored data, papers, and files. The
Borrower shall make all of the Borrower's copying facilities available to the
Lender and the Participants.
(b) The Borrower hereby authorizes the Lender, the
Participants and their respective representatives to:
(i) Inspect, copy, duplicate, review, cause to be
reduced to hard copy, run off, draw off, and otherwise use any and all
computer or electronically stored information or data which relates to
the Borrower, or any service bureau, contractor, accountant, or other
person, and directs any such service bureau, contractor, accountant, or
other person fully to cooperate with the Lender, the Participants and
their respective representatives with respect thereto.
(ii) After the occurrence of a Suspension Event,
verify at any time the Collateral or any portion thereof, including
verification
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with Account Debtors, and/or with the Borrower's computer billing
companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or
verification of the Collateral.
5-3. Prompt Notice to The Lender.
(a) The Borrower shall provide the Lender with written notice
promptly upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i) Any change in the Borrower's Executive Officers,
officers, directors, or key employees.
(ii) The completion of any physical count of the
Borrower's Inventory (together with a copy of the certified results
thereof).
(iii) Any ceasing of the Borrower's making of
payment, in the ordinary course, to any of its creditors (including the
ceasing of the making of such payments, but not the withholding of
payments to trade creditors in the ordinary course, on account of a
dispute with the subject creditor).
(iv) Any failure by the Borrower to pay rent at any
of the Borrower's locations, which failure continues for more than Ten
(10) days following the day on which such rent first came due (other
than as described on EXHIBIT 4-16.
(v) Any material change in the business, operations,
or financial affairs of the Borrower.
(vi) The occurrence of any Suspension Event.
(vii) Any decision on the part of the Borrower to
discharge the Borrower's present independent accountants or any
withdrawal or resignation by such independent accountants from their
acting in such capacity.
(viii) Any litigation which, if determined adversely
to the Borrower, would have a material adverse effect on the financial
condition of the Borrower.
(b) The Borrower shall:
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(i) Provide the Lender, when so distributed, with
copies of any materials distributed to the shareholders of the Borrower
(qua such shareholders).
(ii) Provide the Lender, when received by the
Borrower, with a copy of any management letter or similar
communications from any accountant of the Borrower.
5-4 Weekly Reports. Weekly, on Wednesday of each week (as of the then
immediately preceding Saturday) the Borrower shall provide the Lender with a
flash collateral report (in such form as may be specified from time to time by
the Lender). Such report may be sent to the Lender by facsimile transmission,
provided that the original thereof is forwarded to the Lender on the date of
such transmission.
5-5. Monthly Reports.
(a) Fifteen days after the end of each fiscal month,
(i) Inventory Certificate signed by the Borrower's Chief
Financial Officer concerning the Borrower's Inventory.
(ii) Borrowing Base Report.
(iii) General Ledger Inventory Report.
(b) Thirty days after the end of each fiscal month,
(i) Sales Tax Payment Verification.
(ii) A report detailing New Store Costs.
(iii) an original counterpart of a management prepared
financial statement of the Borrower for the period from the
beginning of the Borrower's then current fiscal year through
the end of the subject month, with comparative information for
the same period of the previous fiscal year, which statement
shall include, at a minimum, a balance sheet, income statement
(on a store specific and on a "consolidated" basis), statement
of changes in shareholders' equity, and cash flows and
comparisons for the corresponding month of the then
immediately previous year, as well as to the Business Plan.
each in form satisfactory to the Lender.
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5-6. Quarterly Reports. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's fiscal quarters, the Borrower shall
provide the Lender with (a) a Real Estate Tax Verification Report, and (b) an
original counterpart of a management prepared financial statement of the
Borrower for the period from the beginning of the Borrower's then current fiscal
year through the end of the subject quarter, with comparative information for
the same period of the previous fiscal year, which statement shall include, at a
minimum, a balance sheet, income statement (on a store specific and on a
"consolidated" basis), statement of changes in shareholders' equity, and cash
flows and comparisons for the corresponding quarter of the then immediately
previous year, as well as to the Business Plan.
5-7. Annual Reports.
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Borrower's annual financial statement, which statement
shall have been prepared by, and bearing the unqualified opinion of, the
Borrower's independent certified public accountants, who shall be acceptable to
the Lender in its reasonable discretion (any of the "Big 4" national accounting
firms being acceptable) (i.e. said statement shall be "certified" by such
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b) No later than the earlier of Fifteen (15) days prior to
the end of each of the Borrower's fiscal years or the date on which such
accountants commence their work on the preparation of the Borrower's annual
financial statement, the Borrower shall give written notice to such accountants
(with a copy of such notice, when sent, to the Lender) that:
(i) Such annual financial statement will be delivered
by the Borrower to the Lender (for subsequent distribution to
each Participant).
(ii) It is the primary intention of the Borrower, in
its
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engagement of such accountants, to satisfy the financial
reporting requirements set forth in this Article 5.
(iii) The Borrower has been advised that the Lender
(and each Participant) will rely thereon with respect to the
administration of, and transactions under, the credit facility
contemplated by the within Agreement.
(c) Each annual statement shall be accompanied by such
accountant's Certificate indicating that, in the preparation of such annual
statement, such accountants did not conclude that any Suspension Event had
occurred during the subject fiscal year (or if one or more had occurred, the
facts and circumstances thereof).
5-8. Officers' Certificates. The Borrower shall cause the Borrower's
President and Chief Financial Officer, as applicable, respectively to provide
such Person's Certificate with those monthly, quarterly, and annual statements
to be furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the financial condition of
the Borrower at the close of, and the results of the Borrower's operations and
cash flows for, the period(s) covered, subject, however to the following:
(i) (With the exception of the Certificate which
accompanies such annual statement) to usual year end adjustments.
(ii) Material Accounting Changes (in which event,
such Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the financial
performance covenants imposed pursuant to Section 5-11.
(b) Indicate either that (i) no Suspension Event has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
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financial performance covenants included in Section 5-11 hereof.
5-9. Inventories, Appraisals, and Audits.
(a) The Lender and each Participant, at the expense of the
Borrower, may participate in and/or observe each physical count and/or inventory
of so much of the Collateral as consists of Inventory which is undertaken on
behalf of the Borrower.
(b) Upon the Lender's request from time to time, the Borrower
shall obtain, or shall permit the Lender to obtain (in all events, at the
Borrower's expense) physical counts and/or inventories of the Collateral,
conducted by such inventory takers as are satisfactory to the Lender and
following such methodology as may be required by the Lender, one of which
physical counts and/or inventories shall be observed by the Borrower's
accountants in each fiscal year.
(c) Upon the Lender's request from time to time, the Borrower
shall permit the Lender to obtain appraisals (in all events, at the Borrower's
expense) conducted by such appraisers as are satisfactory to the Lender and the
Participants. The Lender contemplates conducting one (1) inventory appraisal and
one Real Estate appraisal during any Twelve (12) month period during which the
within Agreement is in effect, but in its discretion may undertake additional
such appraisals during such period (provided that the Borrower shall not be
responsible for the cost of such additional appraisals unless either (i) the
Borrower's Availability under the Revolving Credit is ever less than
$10,000,000.00, in which event the Borrower shall pay for up to two (2)
additional inventory appraisals, or (ii) an Event of Default then exists).
(d) The Lender contemplates conducting Two (2) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which the within Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period (provided that the Borrower shall not be responsible for the cost of
such additional audits unless an Event of Default then exists).
(e) Upon the Lender's request from time to time, the Borrower
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shall permit the Lender to obtain environmental site assessments (in all events,
at the Borrower's expense) conducted by such Persons as are satisfactory to the
Lender. The Lender contemplates conducting One (1) such site assessment during
any Twelve (12) month period during which the within Agreement is in effect, but
in its discretion, after the occurrence of an Event of Default, may undertake
additional site assessments during such periods.
(f) The Lender agrees that, to the extent that any of the actions
set forth in this Section 5-9 are also undertaken by the Revolving Credit
Lenders by Persons and methodology acceptable to the Lender and the Participants
and the results thereof are shared by the Revolving Credit Lenders with the
Lender and the Participants hereunder, the Lender will not undertake any action
described in this Section 5-9 which would duplicate the efforts of the Revolving
Credit Lenders.
5-10. Additional Financial Information.
(a) In addition to all other information required to be provided
pursuant to this Article 5, the Borrower promptly shall provide the Lender, with
such other and additional information concerning the Borrower, the Collateral,
the operation of the Borrower's business, and the Borrower's financial
condition, including original counterparts of financial reports and statements,
as the Lender may from time to time reasonably request from the Borrower.
(b) The Borrower may provide the Lender, from time to time
hereafter, with updated projections of the Borrower's anticipated performance
and operating results.
(c) In all events, the Borrower, no sooner than Ninety (90) nor
later than Thirty (30) days prior to the end of each of the Borrower's fiscal
years, shall furnish the Lender with an updated and extended projection which
shall extend at least through the end of the then next fiscal year.
(d) Such updated and extended projections shall be prepared
pursuant to a methodology and shall include such assumptions as are satisfactory
to the Lender.
(e) The Borrower recognizes that all appraisals, inventories,
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analysis, financial information, and other materials which the Lender or any
Participant may obtain, develop, or receive with respect to the Borrower is
confidential to the Lender and the Participants and that, except as otherwise
provided herein, the Borrower is not entitled to receipt of any of such
appraisals, inventories, analysis, financial information, and other materials,
nor copies or extracts thereof or therefrom.
5-11. Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBIT 5-11,
annexed hereto. Compliance with such financial performance covenants shall be
made as if no Material Accounting Changes had been made (other than any Material
Accounting Changes specifically taken into account in the setting of such
covenants). The Lender may, but shall not be obligated to, determine the
Borrower's compliance with such covenants based upon financial reports and other
reports and statements provided by the Borrower to the Lender (whether or not
such financial reports and statements are required to be furnished pursuant to
the within Agreement) as well as by reference to interim financial information
provided to, or developed by, the Lender.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
6-1. Use of Inventory Collateral.
(a) The Borrower shall not engage in any sale of the Inventory
other than for fair consideration in the conduct of the Borrower's business in
the ordinary course (including any sale programs) and shall not engage in sales
or other dispositions to creditors (other than sales in the ordinary course of
business on ordinary business terms) ; sales or other dispositions in bulk; and
any use of any of the Inventory in breach of any provision of this Agreement.
(b) Without the consent of the Lender, no sale of Inventory shall
be on consignment, approval, or under any other circumstances such that, with
the exception of the Borrower's customary return policy applicable to the return
of inventory purchased by the Borrower's retail customers in the ordinary
course, such Inventory may be returned to the Borrower.
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6-2. Inventory Quality. All Inventory now owned or hereafter acquired
by the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's prior written consent in each
instance) as the Borrower may reasonably deem to accord with sound business
practice, provided, however, the authority granted the Borrower pursuant to this
Section 6-3 may be limited or terminated by the Lender at any time after the
occurrence of an Event of Default in the Lender's discretion.
6-4. Validity of Accounts.
(a) The amount of each Account shown on the books, records,
and invoices of the Borrower represented as owing by each Account Debtor is and
will be the correct amount actually owing by such Account Debtor and shall have
been fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the
validity or collectibility of any material portion of the Accounts and shall
notify the Lender of any such fact promptly after Borrower becomes aware of any
such impairment.
(c) Except as otherwise expressly permitted by this
Agreement, the Borrower shall not post any bond to secure the Borrower's
performance under any agreement to which the Borrower is a party nor cause any
surety, guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Lender) in the event of the
Borrower's failure so to perform.
6-5. Notification to Account Debtors. The Lender shall have the right
at any time (after an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
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ARTICLE 7 - GRANT OF SECURITY INTEREST
7-1. Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Lender a continuing security
interest in and to, and assigns to the Lender the following, and each item
thereof, whether now owned or now due, or in which the Borrower has an interest,
or hereafter acquired, arising, or to become due, or in which the Borrower
obtains an interest, and all products, Proceeds, substitutions, and accessions
of or to any of the following (all of which, together with any other property in
which the Lender may in the future be granted a security interest, is referred
to herein as the "COLLATERAL"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's
business, and all rights of access to such books,
records, and information, and all property in which
such books, records, and information are stored,
recorded, and maintained.
(i) All Investment Property, Instruments, Documents,
Deposit Accounts, policies and certificates of
insurance, deposits, impressed accounts, compensating
balances, money, cash, or other property (including,
without limitation, the Segregated Accounts).
(j) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and
credit insurance, whether any of such proceeds,
refunds, and premium rebates arise out of any of the
foregoing (7-1(a) through 7-1(i)) or otherwise.
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(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (7-1(a) through
7-1(i)), including the right of stoppage in transit.
7-2. Extent and Duration of Security Interest. The within grant of a
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
7-3. Mortgages. The Liabilities are also secured by mortgages and deeds
of trust on the Real Estate and assignments of leases and rents relating thereto
(all of which for purposes of this Agreement shall be deemed "Collateral").
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT.
8-1. Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful attorney,
with full power of substitution, exercisable after the occurrence and during the
continuance of any Event of Default, to convert the Collateral into cash at the
sole risk, cost, and expense of the Borrower, but for the sole benefit of the
Lender. The rights and powers granted the Lender by the within appointment
include but are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating
to the Collateral.
(b) Sign change of address forms to change the address to which
the Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal
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representative of the Borrower whom the Lender determines to be the appropriate
person to whom to so turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon
any and all checks, drafts, notes, acceptances, or other items or instruments;
sign and endorse the name of the Borrower on, and receive as secured party, any
of the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security and mortgage interest in the
Collateral and other assets of the Borrower.
8-2. No Obligation to Act. The Lender shall not be obligated to do any
of the acts or to exercise any of the powers authorized by Section 8-1 herein,
but if the Lender elects to do any such act or to exercise any of such powers,
it shall not be accountable for more than it actually receives as a result of
such exercise of power, and shall not be responsible to the Borrower for any act
or omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been
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grossly negligent or in actual bad faith.
ARTICLE 9 - EVENTS OF DEFAULT.
The occurrence of any event described in this Article 9 respectively
shall constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event
of Default described in Sections 9-10 or 9-11, any and all Liabilities shall
become due and payable without any further act on the part of the Lender. Upon
the occurrence of any other Event of Default, any and all Liabilities shall
become immediately due and payable, at the option of the Lender and without
notice or demand. The occurrence of any Event of Default shall also constitute,
without notice or demand, a default under all other agreements between the
Lender and the Borrower and instruments and papers given the Lender by the
Borrower, whether such agreements, instruments, or papers now exist or hereafter
arise.
9-1. Failure to Pay Term Loan. The failure by the Borrower to pay any
amount when due under the Term Loan.
9-2. Failure To Make Other Payments. The failure by the Borrower to pay
when due (or within Three (3) Business Days after demand, if payable on demand)
any payment Liability other than under the Term Loan.
9-3. Failure to Perform Covenant or Liability (No Grace Period). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 9-1 or Section 9-2 hereof, and included in any of the following
provisions hereof:
Section Relates to :
--------------------------------------------------
4-2 Due Organization
4-4 Location of Collateral
4-5 Title to Assets
4-6 Indebtedness
4-7 Insurance Policies
4-9(b) Real Estate
4-11(d) Asset Sales
4-12 Pay taxes
4-17 Dividends, Mergers
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4-18 Loans and Advances
4-20 Lines of Business
4-21 Affiliate Transactions
4-23 Additional Assurances
Article 5 Reporting Requirements and Financial
Covenants
9-4. Failure to Perform Covenant or Liability (Grace Period). The
failure by the Borrower, upon Ten (10) days written notice by the Lender, to
cure the Borrower's failure to promptly, punctually and faithfully perform,
discharge, or comply with any covenant or Liability not described in any of
Sections 9-1, 9-2, or 9-3 hereof.
9-5. Misrepresentation. Any material representation or warranty at any
time made by the Borrower to the Lender under this Agreement, any Loan Document,
certificate, financial statement or report delivered pursuant hereto, was not
true or complete in all material respects when given.
9-6. Revolving Credit Default. The occurrence of any of the following
with respect to the Revolving Credit:
(a) The occurrence of a payment Event of Default, not cured
within applicable grace period, if any.
(b) The acceleration by the Revolving Credit Lenders of the
time for payment of the Revolving Credit as a result of the occurrence
of an Event of Default.
(c) The failure of the Borrower to comply with the provisions
of Article 7 (Cash Management) of the Loan and Security Agreement
evidencing the Revolving Credit (as amended and in effect from time to
time), which failure is not waived by the Revolving Credit Lenders or
cured by the Borrower within any applicable grace period.
(d) The outstanding principal balance of the Revolving Credit
exceeds Maximum Loan Exposure (as defined in the Loan and Security
Agreement referenced in Section 9-6(c), above) by an amount in excess
of the Permitted Overadvance (as defined in the Intercreditor Agreement
between the Lender and the Revolving Credit Lenders), which is not
cured by the Borrower within any applicable grace periods.
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9-7. Default Under Other Agreements. The occurrence of any breach or
default under any agreement between the Lender (other than with respect to the
Revolving Credit) and the Borrower or instrument or paper given the Lender by
the Borrower (other than with respect to the Revolving Credit), whether such
agreement, instrument, or paper now exists or hereafter arises (notwithstanding
that the Lender may not have exercised its rights upon default under any such
other agreement, instrument or paper).
9-8. Casualty Loss. Non-Ordinary Course Sales. The occurrence of any
(a) uninsured loss, theft, damage, or destruction of or to any material portion
of the Collateral, or (b) sale (other than sales in the ordinary course of
business or otherwise permitted under this Agreement) of any material portion of
the Collateral.
9-9. Judgment. Restraint of Business.
(a) The service of process upon the Lender seeking to attach, by
trustee, mesne, or other process, any of the Borrower's funds on deposit with,
or assets of the Borrower in the possession of, the Lender, which attachment is
not stayed, dissolved or otherwise satisfied within ten (10) days of its
issuance.
(b) The entry of any judgment against the Borrower which (i)
together with all other existing judgments against the Borrower, exceeds
$750,000.00 in the aggregate, or (ii) could reasonably be expected to have a
material adverse effect on the Borrower's business, financial condition,
operations, performance, properties or prospects, which judgment is not
satisfied (if a money judgment) or appealed from (with execution or similar
process stayed) within thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
9-10. Business Failure. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the application
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for, consent to, or sufferance of the appointment of a receiver, trustee, or
other person, pursuant to court action or otherwise, over all, or any part of
the Borrower's property; provided that the filing of such an application against
the Borrower by another Person shall not constitute an Event of Default unless
the Borrower fails to timely contest same, or if timely contested, such
application is not dismissed within sixty (60) days after its commencement; the
granting of any trust mortgage or execution of an assignment for the benefit of
the creditors of the Borrower, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower; the
offering by or entering into by the Borrower of any composition, extension, or
any other arrangement seeking relief from or extension of the debts of the
Borrower; or the initiation of any judicial or non-judicial proceeding or
agreement by, against, or including the Borrower which seeks or intends to
accomplish a reorganization or arrangement with creditors; and/or the initiation
by or on behalf of the Borrower of the liquidation or winding up of all or any
part of the Borrower's business or operations.
9-11. Bankruptcy. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by or against the Borrower initiating any matter in which the Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure; provided that the
filing of any such complaint, application, or petition against the Borrower by
another Person shall not constitute an Event of Default unless the Borrower
fails to timely contest same, or if timely contested, such complaint,
application or petition is not dismissed within sixty (60) days after its
commencement.
9-12. Default by Guarantor or Related Entity. The occurrence of any of
the foregoing Events of Default with respect to any guarantor of the
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Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any parent, subsidiary, or Related Entity, as if such guarantor,
parent, or Related Entity were the "Borrower" described therein.
9-13. Indictment - Forfeiture. The indictment of, or institution of any
legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower and/or the imposition of any stay or other order, the effect of which
could be to restrain in any material way the conduct by the Borrower of its
business in the ordinary course.
9-14. Termination of Guaranty. The termination or attempted termination
of any guaranty by any guarantor of the Liabilities.
9-15. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to the validity of any material provisions of any
Loan Document or the applicability or enforceability of any Loan Document in
accordance with the subject Loan Document's terms in all material respects or
which seeks to void, avoid, limit, or otherwise adversely affect any security
interest created by or in any Loan Document or any payment made pursuant
thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable in accordance
with the subject Loan Document's terms in all material respects or which voids,
avoids, limits, or otherwise adversely affects any security interest created by
any Loan Document or any payment made pursuant thereto.
9-16. Executive Management. The death, disability, or failure of any of
R. Carter Pate and/or Dennis May at any time to exercise that authority and
discharge those management responsibilities with respect to the Borrower as are
exercised and discharged by such Person at the execution of the within
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Agreement and a qualified successor reasonably acceptable to the Lender has not
replaced such Person within 100 days of such death, disability, or failure.
9-17. Change in Control. Any Change in Control.
9-18. Material Adverse Change. There shall occur any material adverse
change in the assets, liabilities, financial condition, business or prospects of
the Borrower, as determined by the Lender acting in good faith.
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT.
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Lender's exercise of any of such rights and remedies.
10-1. Rights of Enforcement. The Lender shall have all of the rights
and remedies of a secured party upon default under the UCC, in addition to which
the Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which
include the sale or other disposition of the Collateral.
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
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(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
10-2. Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at
public or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Lender's own right or by one or more agents and contractors. Such sale(s)
may be conducted upon any premises owned, leased, or occupied by the Borrower.
The Lender and any such agent or contractor, in conjunction with any such sale,
may augment the Inventory with other goods (all of which other goods shall
remain the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice shall satisfy all requirements for notice to the Borrower which are
imposed under the UCC or other applicable law with respect to the exercise of
the Lender's rights and remedies upon default.
(d) The Lender or any Participant may purchase the Collateral,
or any portion of it at any public sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
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Rights and Remedies under this Article 10 towards the Liabilities in such
manner, and with such frequency, as the Lender determines.
10-3. Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article 10, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 10.
10-4. Grant of Nonexclusive License. The Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
10-5. Assembly of Collateral. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
10-6. Rights and Remedies. The rights, remedies, powers, privileges,
and discretions of the Lender hereunder (herein, the "RIGHTS AND REMEDIES")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Rights and Remedies shall operate as, or constitute, a waiver
thereof. No waiver by the Lender of any Event of Default or of any default under
any other agreement shall operate as a waiver of any other default hereunder or
under any other agreement. No single or partial exercise of any
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of the Rights or Remedies, and no express or implied agreement or transaction of
whatever nature entered into between the Lender and any person, at any time,
shall preclude the other or further exercise of the Rights and Remedies. No
waiver by the Lender of any of the Rights and Remedies on any one occasion shall
be deemed a waiver on any subsequent occasion, nor shall it be deemed a
continuing waiver. All of the Rights and Remedies and all of the Lender's
rights, remedies, powers, privileges, and discretions under any other agreement
or transaction are cumulative, and not alternative or exclusive, and may be
exercised by the Lender at such time or times and in such order of preference as
the Lender in its sole discretion may determine. The Rights and Remedies may be
exercised without resort or regard to any other source of satisfaction of the
Liabilities.
ARTICLE 11 - NOTICES.
11-1. Notice Addresses. All notices, demands, and other communications
made in respect of this Agreement shall be made to the following addresses, each
of which may be changed upon seven (7) days written notice to all others given
by certified mail, return receipt requested:
If to the Lender:
BankBoston Retail Finance Inc.
40 Broad Street
Boston, Massachusetts 02109
Attention : Mr. Robert J. DeAngelis
Senior Vice President
Fax : 617 434-4339
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With a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attention : David S. Berman, Esquire
Fax : 617 723-6831
If to the Borrower:
Sun Television and Appliances, Inc.
6600 Port Road
Groveport, Ohio 43125
Attention : Mr. R. Carter Pate
Fax : 214-764-7829 and 614-492-4018
With a copy to:
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
Attention : Attorney Jennifer T. Mills
Fax: : 614 227-2100
11-2. Notice Given.
(a) Except as otherwise specifically provided herein, notices
shall be deemed made and correspondence received, as follows (all times being
local to the place of delivery or receipt):
(i) By mail: the sooner of when actually received or Three
(3) days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business
Day following the day when sent.
(iii) By Hand: If delivered on a Business Day after 9:00 AM
and no later than Three (3) hours prior to the close of customary
business hours of the recipient, when delivered. Otherwise, at the
opening of the then next Business Day.
(iv) By Facsimile transmission (which must include a header
indicated the party sending such transmission): If sent on a Business
Day no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent (but in
no event earlier than 10:00 AM). Otherwise, at the opening of the then
next Business Day.
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due
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notice was given shall each be deemed receipt of the notice sent.
ARTICLE 12 - GENERAL.
12-1. Protection of Collateral. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
12-2. Successors and Assigns; Intercreditor Agreement. (a) This
Agreement shall be binding upon the Borrower and the Borrower's representatives,
successors, and assigns and shall enure to the benefit of the Lender and each
Participant and the respective successors and assigns of each provided, however,
no trustee or other fiduciary appointed with respect to the Borrower shall have
any rights hereunder. In the event that the Lender assigns or transfers all or
any portion of its rights under this Agreement, the assignee shall thereupon be
deemed a "Lender" hereunder to extent of such assignment, shall succeed to and
become vested with all rights, powers, privileges, and duties of such assignor
hereunder to the extent so assigned and such assignor shall thereupon be
discharged and relieved from its duties and obligations hereunder.
(b) The Borrower recognizes that the Lender's exercise of any
discretion accorded to the Lender herein and of its rights, remedies, powers,
privileges, and discretions with respect to the Borrower is subject to the
provisions of an Intercreditor Agreement with the Revolving Credit Lenders and
of a Participation Agreement with the Participants (each of which sets forth,
among other things, certain prerequisites to the undertaking of certain action
under the Loan Documents).
12-3. Severability. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
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any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
12-4. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate
all discussions and negotiations between the Borrower and the Lender, either
express or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
12-5. Power of Attorney. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done
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by virtue of this Agreement. No power of attorney set forth in this Agreement
shall be affected by any disability or incapacity suffered by the Borrower and
each shall survive the same. All powers conferred upon the Lender by this
Agreement, being coupled with an interest, shall be irrevocable until this
Agreement is terminated by a written instrument executed by a duly authorized
officer of the Lender.
12-6. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion (subject, however, to the terms of the
Intercreditor Agreement with the Revolving Credit Lenders and participation
agreements with any Participants). The Borrower shall remain liable for any
deficiency remaining following such application.
12-7. Costs and Expenses. The Borrower shall pay on demand all Costs of
Collection and all reasonable expenses of the Lender and each Participant in
connection with the preparation, execution, and delivery of this Agreement and
of any other Loan Documents, whether now existing or hereafter arising, and all
other reasonable expenses which may be incurred by the Lender and each
Participant in preparing or amending this Agreement and all other agreements,
instruments, and documents related thereto, or otherwise incurred with respect
to the Liabilities, but excluding, in any event those costs and expenses for
which the Borrower is not responsible under Section 5-9 hereof. The Borrower
specifically authorizes the Lender to pay all such fees and expenses and in the
Lender's discretion, to add such fees and expenses to the Loan Account. The
within undertaking, on the part of the Borrower, shall survive payment of the
Liabilities and/or any termination, release, or discharge executed by the Lender
in favor of the Borrower, other than a termination, release, or discharge which
makes specific reference to this Section 12-7.
12-8. Copies and Facsimiles. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by that Person or by the Lender by any photographic, microfilm,
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xerographic, digital imaging, or other process, and that Person may destroy any
document so reproduced. Any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or not
the original is in existence and whether or not such reproduction was made in
the regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
12-9. Massachusetts Law. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
12-10. Consent to Jurisdiction.
(a) The Borrower agrees that any legal action, proceeding,
case, or controversy against the Borrower with respect to any Loan Document may
be brought in the Superior Court of Suffolk County Massachusetts or in the
United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all
process upon it, and irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to the Borrower at the
Borrower's address for notices as specified herein.
(c) The Borrower WAIVES any objection based on forum non
conveniens and any objection to venue of any action or proceeding instituted
under any of the Loan Documents.
(d) Nothing herein shall affect the right of the Lender to
bring legal actions or proceedings in any other competent jurisdiction.
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(e) The Borrower agrees that any action commenced by the
Borrower asserting any claim or counterclaim arising under or in connection with
this Agreement or any other Loan Document shall be brought solely in the
Superior Court of Suffolk County Massachusetts or in the United States District
Court, District of Massachusetts, sitting in Boston, Massachusetts, and that
such Courts shall have exclusive jurisdiction with respect to any such action.
12-11. Indemnification. The Borrower shall indemnify, defend, and hold
the Lender and each Participant and any director, employee, officer, partner,
agent, Affiliate, attorneys, accountants, and consultants of any of the
foregoing (each, an "INDEMNIFIED PERSON") harmless of and from any claim brought
or threatened against any Indemnified Person by the Borrower, any guarantor or
endorser of the Liabilities, or any other Person (as well as from attorneys'
reasonable fees and expenses in connection therewith) on account of the
relationship of the Borrower or of any Guarantor or endorser of the Liabilities
with the Lender or any Participant (each of claims which may be defended,
compromised, settled, or pursued by the Indemnified Person with counsel of the
Lender's selection, but at the expense of the Borrower) other than any claim as
to which a final determination is made in a judicial proceeding (in which the
Lender and any other Indemnified Person has had an opportunity to be heard),
which determination includes a specific finding that the Indemnified Person
seeking indemnification had acted in a grossly negligent manner or in actual bad
faith or in breach by such Indemnified Person of its contractual obligations
under the Loan Documents. If for any reason the foregoing indemnification is
unavailable to any Indemnified Person or insufficient to hold it harmless, then
the Borrower shall contribute to the amount paid or payable by such Indemnified
Person as a result of such loss, claim, damage or liability to the maximum
amount legally permissible. The within indemnification shall survive payment of
the Liabilities and/or any termination, release, or discharge executed by the
Lender in favor of the Borrower, other than a termination, release, or discharge
which makes specific reference to this Section 12-11. The Borrower also agrees
that any Indemnified Person shall not have any liability to the Borrower, any
person
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asserting claims on behalf or in right of the Borrower or any other person in
connection with or as a result of either this arrangement or any matter referred
to herein or in the Loan Documents except to the extent that there is a final
determination made in a judicial proceeding, which determination includes a
specific finding that the losses, claims, damages, liabilities or expenses
incurred by the Borrower resulted from the gross negligence or bad faith of such
Indemnified Person or the breach by such Indemnified Person of its contractual
obligations under the Loan Documents.
12-12. Rules of Construction. The following rules of construction shall
be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
(a) Words in the singular include the plural and words in the
plural include the singular.
(b) Headings (indicated by being underlined) and the Table of
Contents are solely for convenience of reference and do not constitute a part of
the instrument in which included and do not affect such instrument's meaning,
construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without limitation"
(or similar words) is illustrative and not limitational.
(e) Text which is underlined, shown in italics, shown in BOLD,
shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be
deemed to be conspicuous.
(f) The words "may not" are prohibitive and not permissive.
(g) The word "or" is not exclusive.
(h) Terms which are defined in one section of an instrument are
used with such definition throughout the instrument in which so defined.
(i) The symbol "$" refers to United States Dollars.
(j) References to "herein", "hereof", and "within" are to this
entire Loan Agreement and not merely the provision in which such reference is
included.
(k) Except as otherwise specifically provided, all references to
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time are to Boston time.
(l) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder, unless otherwise provided (A) the day
of the act, event, or default from which the designated period of time begins to
run shall not be included and the last day of the period so computed shall be
included unless such last day is not a Business Day, in which event the last day
of the relevant period shall be the then next Business Day and (B) the period so
computed shall end at 5:00 PM on the relevant Business Day.
(m) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 12- 13
hereof, provided, however, in the event of any inconsistency between the
provisions of the within Agreement and any other Loan Document, the provisions
of the within Agreement shall govern and control.
12-13. Intent. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this
Agreement be broadly construed in favor of the Lender.
(c) The security interests created by this Agreement secure
all Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the Lender
and each Participant in connection with such Person's relationship(s) with the
Borrower shall be borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the Lender's
consent to any action of the Borrower which is prohibited unless such consent is
given may be given or refused by the Lender in its sole discretion.
12-14. Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to the undersigned from the Lender and any cash, securities,
instruments or other property of the undersigned in the possession of the
Lender, whether for safekeeping or otherwise (regardless of the reason such
Person had received the same) shall at all times constitute security for all
Liabilities and for any and all obligations of the undersigned to the Lender,
and may be applied or set off against the Liabilities and against such
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obligations at any time, whether or not such are then due and whether or not
other collateral is then available to the Lender.
12-15. Maximum Interest Rate. Regardless of any provision of any Loan
Document, none of the Lender or any Participant shall be entitled to contract
for, charge, receive, collect, or apply as interest on any Liability, any amount
in excess of the maximum rate imposed by applicable law. Any payment which is
made which, if treated as interest on a Liability would result in such
interest's exceeding such maximum rate shall be held, to the extent of such
excess, as additional collateral for the Liabilities as if such excess were
"Collateral."
12-16. Waivers.
(a) The Borrower (and all guarantors, endorsers, and sureties
of the Liabilities) make each of the waivers included in Section 12-16(b),
below, knowingly, voluntarily, and intentionally, and understands that the
Lender, in entering into the financial arrangements contemplated hereby and in
providing loans and other financial accommodations to or for the account of the
Borrower as provided herein, whether not or in the future, is relying on such
waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all forms of demand
and notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the
Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER OR ANY PARTICIPANT IS OR BECOMES A
PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE
LENDER OR ANY PARTICIPANT OR IN WHICH THE LENDER OR ANY PARTICIPANT IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR
IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR
ANY
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OTHER PERSON AND THE LENDER OR ANY PARTICIPANT (AND THE LENDER AND EACH
PARTICIPANT LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY
SUCH CASE OR CONTROVERSY).
(iv) The benefits or availability of any stay, limitation,
hindrance, delay, or restriction (including, without limitation, any
automatic stay which otherwise might be imposed pursuant to Section 362
of the Bankruptcy Code) with respect to any action which the Lender may
or may become entitled to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability could be reduced or claimed
to be paid otherwise than in accordance with the tenor of and written
terms of such Liability.
(vi) Any claim to consequential, special, or punitive
damages.
SUN TELEVISION AND APPLIANCES, INC.
("BORROWER")
By /s/ R. CARTER PATE
---------------------------------
Print Name: R. Carter Pate
--------------------------------
Title: President
--------------------------------
BANKBOSTON RETAIL FINANCE INC.
("LENDER")
By /s/ ROBERT DEANGELIS
---------------------------------
Print Name: Robert DeAngelis
--------------------------------
Title: Senior Vice President
--------------------------------
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<PAGE> 1
Exhibit 10(r)
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement is made
as of the 31st day of December, 1997 by and among
Sun Television and Appliances, Inc. (the "Borrower"), an
Ohio corporation with its principal executive offices at 6600 Port
Road, Groveport, Ohio 43125; and
BankBoston Retail Finance Inc., Fremont Financial
Corporation, National City Commercial Finance, Inc., FINOVA
Capital Corporation, Foothill Capital Corporation and
Congress Financial Corporation (New England) (collectively,
the "Lenders"); and
BankBoston Retail Finance Inc., as Agent for the Lenders (in
such capacity, the "Agent")
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders entered into a certain
Loan and Security Agreement dated as of November 19, 1997 (the "Loan
Agreement"); and
WHEREAS, the Borrower, the Agent and the Lenders desire to modify and
amend the Loan Agreement as provided herein.
NOW, THEREFORE, it is hereby agreed as follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined shall have the same meanings herein
as in the Loan Agreement.
2. Amendment to Article 10.
Article 10 of the Agreement is hereby amended by
deleting Section "10-18. Material Adverse Change." in
its entirety.
3. Conditions to Effectiveness. This Amendment shall not be
effective until each of the following conditions precedent
have been fulfilled to the satisfaction of the Agent and the
Lenders:
(a) This Amendment shall have been duly executed and
delivered by the respective parties hereto and, shall
be in full force and effect and shall be in
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<PAGE> 2
form and substance satisfactory to each of the
Lenders.
(b) All action on the part of the Borrower necessary
for the valid execution, delivery and performance
by the Borrower of this Amendment shall have been
duly and effectively taken and evidence thereof
satisfactory to the Agent shall have been provided
to the Agent. Each of the Lenders shall have
received from the Borrower true copies of the
resolutions adopted by its board of directors
authorizing the transactions described herein,
certified by the Borrower's secretary to be true
and complete.
(c) The Borrower shall have provided such additional
instruments and documents to the Agent and the
Lenders as the Agent and the Agent's counsel may have
reasonably requested.
4. Ratification of Loan Documents. Except as provided herein,
all terms and conditions of the Loan Agreement and the other
Loan Documents remain in full force and effect. The Borrower
hereby ratifies, confirms, and reaffirms all representations,
warranties, and covenants contained therein and acknowledges
and agrees that the Liabilities, as modified hereby, are and
continue to be secured by the Collateral. The Borrower further
acknowledges and agrees that Borrower does not have any
offsets, defenses, or counterclaims against the Agent or any
Lender under the Loan Documents, and to the extent that any
such offsets, defenses, or counterclaims may exist, the
Borrower hereby waives and releases the Agent and Lenders
therefrom.
5. Miscellaneous.
(a) This Amendment may be executed in several
counterparts and by each party on a separate
counterpart, each of which when so executed and
delivered shall be an original, and all of which
together shall constitute one instrument.
(b) This Amendment expresses the entire understanding of
the parties with respect to the transactions
contemplated hereby. No prior negotiations or
discussions shall limit, modify, or otherwise affect
the provisions hereof.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have hereunto executed this
Agreement as a sealed instrument as of the date first above written.
SUN TELEVISION AND
APPLIANCES, INC.
By: /s/ R. CARTER PATE
------------------------------
Name: R. Carter Pate
Title: Chairman of Board
BANKBOSTON RETAIL FINANCE INC.
individually and as Agent
By: /s/ ROBERT DEANGELIS
------------------------------
Name: Robert DeAngelis
Title: Senior Vice President
FREMONT FINANCIAL CORPORATION
By: /s/ JOHN P. NEWER
------------------------------
Name: John P. Newer
Title: Senior Vice President
NATIONAL CITY COMMERCIAL
FINANCE, INC.
By: /s/ JOHN P. DUNN
------------------------------
Name: John P. Dunn
Title: Vice President
3
<PAGE> 4
FINOVA CAPITAL CORPORATION
By /s/ THOMAS L. GIBBSON
------------------------------
Name: Thomas L. Gibbson
Title: Vice President
FOOTHILL CAPITAL CORPORATION
By /s/ MATTHEW J. SIMONEAU
------------------------------
Name: Matthew J. Simoneau
Title: Vice President
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
By /s/ MARC E. SWARTZ
------------------------------
Name: Marc E. Swartz
Title: Senior Vice President
4
<PAGE> 1
Exhibit 10(s)
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement is made as of this
28th day of May, 1998 by and between
BankBoston Retail Finance Inc. (in such capacity, the
"Agent") as Agent for the Lenders party to a certain Loan
and Security Agreement dated as of November 19, 1997,
The Lenders (so referred to herein) party to the above
referenced Loan and Security Agreement, and
Sun Television and Appliances, Inc., an Ohio corporation with its
principal executive offices at 6600 Port Road, Groveport, Ohio 43125
in consideration of the mutual covenants herein contained and
benefits to be derived herefrom.
W I T N E S S E T H:
WHEREAS, on November 19, 1997, the Agent, the Lenders and the Borrower
entered in a certain Loan and Security Agreement (as amended and in effect, the
"Agreement"); and
WHEREAS, the Agent, the Lenders and the Borrower desire to modify
certain of the provisions of the Agreement as set forth herein.
NOW, THEREFORE, it is hereby agreed among the Agent, the Lenders and
the Borrowers as follows:
1. Capitalized Terms. All capitalized terms used herein
and not otherwise defined shall have the same meaning
herein as in the Agreement.
2. Amendments to Article 1. The provisions of Article 1 of the
Agreement are hereby amended by deleting the definition of
"EBITDA" in its entirety and substituting the following in its
stead:
"EBITDA": The Borrower's earnings from operations, before
interest, taxes, depreciation and amortization, but excluding
the fiscal year end 1998 audit adjustments totaling
approximately $5,100,000.00, each as determined in accordance
with GAAP.
3. Amendments to Exhibits. The provisions of subparagraph (c) of
Exhibit 5-12(a) to the Agreement are hereby amended by
deleting the "Cumulative EBITDA" for the
1
<PAGE> 2
periods from and including June, 1998 appearing therein and
substituting the following in its stead:
CUMULATIVE
MONTH EBITDA
----- ----------
June '98 (8,350,997)
July (8,453,862)
August (7,833,920)
September (6,964,625)
October (6,251,220)
November (3,572,293)
December '98 3,525,859
January '99 3,548,397
February 3,939,471
March 2,695,662
April 2,034,687
May 1,966,783
June 2,031,970
July 2,426,588
August 3,235,653
September 3,559,620
October 3,938,583
November 8,108,490
December '99 17,509,293
January '00 17,072,908
February '00 16,904,177
The "Cumulative EBITDA" requirements for all periods prior to June,
1998 remain unchanged and in full force and effect.
4. Ratification of Loan Documents. Except as provided
herein, all terms and conditions of the Agreement on
the other Loan Documents remain in full force and
effect. The Borrower hereby ratifies, confirms, and
reaffirms (i) all of the representations, warranties
and covenants therein contained (except to the extent
that such representations and warranties expressly
relate to an earlier date), and (ii) that all
Collateral secures all of the Liabilities, as modified
hereby. The Borrower further acknowledges and agrees
that it does not have any offsets, defenses, or
counterclaims against the Agent or the Lenders under
the Loan and Security Agreement or the other Loan
Documents and, to the extent that the Borrower has, or
ever had, any such offsets, defenses, or counterclaims,
the Borrower hereby waives and releases the same.
5. Conditions to Effectiveness. This Second Amendment to
Loan and Security Agreement shall not be effective
2
<PAGE> 3
until each of the following conditions precedent have been
fulfilled to the satisfaction of the Agents:
(a) This Second Amendment to Loan and Security Agreement
shall have been duly executed and delivered by the
Borrower, the Agent and the Lenders. The Agent shall
have received a fully executed copy hereof and of
each other document required hereunder.
.
(b) The Agent shall have received (i) the Borrower's
audited 1998 fiscal year end financial statements,
bearing the unqualified opinion of the Borrower's
independent certified public accountants, and (ii)
the written statement of the Borrower's President
and Chief Financial Officer certifying that there
has been no material change in the Borrower's
financial condition from that reflected in the
audited 1998 fiscal year end financial statements.
(c) The Borrower shall have paid to the Agent all fees
and expenses then due and owing pursuant to the Loan
and Security Agreement, as modified hereby,
including, without limitation, reasonable attorneys'
fees incurred by the Agent and the
Lenders.
(d) No Suspension Event shall have occurred and be
continuing.
(e) The Borrower shall have provided such additional
instruments and documents to the Agent as the Agent
and its counsel may have reasonably
requested.
6. Miscellaneous.
(a) On or before July 11, 1998, the Borrower shall
furnish the Agent with a true copy of a certificate of the
resolutions adopted by its board of directors authorizing and
ratifying the transactions described herein, certified by the
Borrower's secretary as of a recent date to be true and
complete.
(b) This Second Amendment to Loan and Security
Agreement may be executed in several counterparts and by each
party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which
together shall constitute one instrument.
3
<PAGE> 4
(c) This Second Amendment to Loan and Security
Agreement expresses the entire understanding of the parties
with respect to the transactions contemplated hereby. No prior
negotiations or discussions shall limit, modify, or otherwise
affect the provisions hereof.
(d) Any determination that any provision of this
Second Amendment or any application hereof is invalid, illegal
or unenforceable in any respect and in any instance shall not
effect the validity, legality, or enforceability of such
provision in any other instance, or the validity, legality or
enforceability of any other provisions of this Second
Amendment to Loan and Security Agreement.
(e) The Borrower shall pay on demand all costs and
expenses of the Agent and each Lender, including, without
limitation, reasonable attorneys' fees in connection with the
preparation, negotiation, execution and delivery of this
Second Amendment to Loan and Security Agreement.
(f) The Borrower warrants and represents that the
Borrower has consulted with independent legal counsel of the
Borrower's selection in connection with this Second Amendment
and is not relying on any representations or warranties of the
Agent or any Lender or their respective counsel in entering
into this Second Amendment.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have hereunto caused this Second
Amendment to be executed and their seals to be hereto affixed as of the date
first above written.
AGENT
BANKBOSTON RETAIL FINANCE INC.
By: /s/ MICHAEL L. PIZETTE
----------------------------
Name: Michael L. Pizette
--------------------------
Title: Director
-------------------------
LENDERS
BANKBOSTON RETAIL FINANCE INC.
By: /s/ MICHAEL L. PIZETTE
----------------------------
Name: Michael L. Pizette
--------------------------
Title: Director
-------------------------
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
By: /s/ MARC E. SWARTZ
----------------------------
Name: Marc E. Swartz
--------------------------
Title: Senior Vice President
-------------------------
FOOTHILL CAPITAL CORPORATION
By: /s/ ERIK R. SAWYER
----------------------------
Name: Erik R. Sawyer
--------------------------
Title: Assistant Vice President
-------------------------
5
<PAGE> 6
FINOVA CAPITAL CORPORATION
By: /s/ MARYANN V. RICHARDSON
----------------------------
Name: Maryann V. Richardson
--------------------------
Title: Assistant Vice President
-------------------------
FREMONT FINANCIAL CORPORATION
By: /s/ CHERI RITLMAN
----------------------------
Name: Cheri Ritlman
--------------------------
Title: Vice President
-------------------------
NATIONAL CITY COMMERCIAL
FINANCE, INC.
By: /s/ CHRISTINA M. LOCAS
----------------------------
Name: Christina M. Locas
--------------------------
Title: Vice President
-------------------------
BORROWER
SUN TELEVISION AND APPLIANCES,
INC.
By: /s/ R. CARTER PATE
----------------------------
Name: R. Carter Pate
--------------------------
Title: President and Chief
Executive Officer
-------------------------
AGREED:
SUN TV AND APPLIANCES, INC.
By: /s/ R. CARTER PATE
----------------------------
Name: R. Carter Pate
--------------------------
Title: President and Chief Executive Officer
--------------------------------------
6
<PAGE> 1
Exhibit 10(t)
SUN TELEVISION & APPLIANCES, INC.
SEVERANCE AGREEMENT
This Severance Agreement ("Agreement") is entered into as of this 22nd
day of October, 1997 between Sun Television & Appliances, Inc. ("Company"),
and Dennis May ("Employee").
The Company and the Employee desire that Employee's severance
arrangement with the Company be subject to the terms and conditions as stated
herein and agree as follows.
1. In the event that Employee's employment is terminated
by Company other than for Good Cause within 90 days following a
Triggering Event, the Company shall pay Employee the Severance Benefit
in the manner described in Section 2. For purposes of this Agreement,
the capitalized terms shall have the following definitions:
(a) "Good Cause" shall mean one or more of the
following grounds:
(i) commission of an act of dishonesty,
including, but not limited to
misappropriation of funds or any
property of the Company;
(ii) engagement in activities or conduct
injurious to the best interests or
reputation of the Company;
(iii) refusal to perform or negligence in
performing assigned duties and
responsibilities;
(iv) insubordination;
(v) the clear violation of any terms or
conditions of any written agreement
or agreements the Employee may from
time to time have with the Company;
(vi) the Employee's dependence, as
determined by the Company, on
alcohol, or any narcotic drug or any
controlled or illegal substance; or
(vii) commission of a crime which is a
felony, a misdemeanor involving an
act of moral turpitude, or a
misdemeanor committed in connection
with his employment by the Company
which causes the Company a
detriment.
<PAGE> 2
(b) "Severance Benefit" shall mean an amount
equal to the annual compensation that would be paid to
Employee based on the base rate of compensation paid to
Employee on the day immediately prior to the Triggering Event.
(c) "Triggering Event" shall mean:
(i) the Company shall sell all or
substantially all of the assets of
the Company;
(ii) the Company shall participate in a
merger, reorganization,
consolidation or similar business
combination with a "person" (as such
term is used in Section 13(d) and
14(d) of the Securities Exchange Act
of 1934, as amended) or affiliate
thereof, other than a merger,
consolidation of business
combination which would result in
the outstanding common stock of the
Company immediately prior thereto
continuing to represent either by
remaining outstanding or by being
converted in the common stock of the
surviving entity or a parent or an
affiliate thereof, at least 50% of
the outstanding common stock of the
Company or such surviving entity or
parent or affiliate thereof
outstanding immediately after such
merger, consolidation, or business
combination;
(iii) a plan of complete liquidation of
the Company; or
(iv) the occurrence of any other event or
circumstance which is not covered by
(i), (ii) or (iii) above which the
Board determines effects the control
of the business of the Company and,
in order to implement the purposes
of this agreement as set forth
above, adopts a resolution that such
event or circumstance constitutes a
Triggering Event for purposes of
this Agreement.
2. Except to the extent provided below in Section 3, the
Severance Benefit shall be paid to Employee in 12 equal monthly
payments due on the first day of the month beginning with the month
following the termination of Employee's employment and continuing for
the next 11 consecutive months.
3. In the event Employee obtains employment with another
employer within the twelve months period during which the Severance
Benefit is being paid, the benefits provided under this Agreement shall
cease on the date that such employment commences; provided, however,
that in no event will the payments provided pursuant to this agreement
cease prior to the payment to Employee of six monthly payments
(one-half of the Severance Benefit).
2
<PAGE> 3
4. Employee agrees to voluntarily resign his employment
with the Company at the request of Company upon the happening of a
Triggering Event and provide for an orderly transfer of duties and
programs.
5. Employee acknowledges that the benefits described in
this Agreement include benefits to which he is not otherwise entitled
to receive by virtue of his employment with Company, and in
consideration of receiving these benefits, employee agrees to waive any
claim which he may have to any other benefits to which he would be
otherwise entitled to receive by virtue of employment except claims
for:
(i) benefits under COBRA;
(ii) dental, medical, life insurance and
retirement benefits to the extent that
entitlement to such benefits survives
employee's termination of employment; and
(iii) unemployment benefits.
6. It is understood that this Agreement contains the
entire Agreement between the parties. It is further understood that
this agreement is mutually and voluntarily entered into to accommodate
the wishes and desires of each party. No modification of this
agreement, shall be effective unless it is in writing duly executed by
both parties.
7. This agreement shall be governed by and interpreted
in accordance with the laws of the State of Ohio and shall inure to the
benefit of and be binding upon the Company and its successors and
assigns. Any action to challenge, interpret and enforce the terms of
this agreement shall be brought in a court of general jurisdiction in
the State of Ohio.
IN WITNESS WHEREOF, the undersigned has hereto set his hand this 22nd
day of October, 1997.
/s/ DENNIS MAY
-----------------------------------
Dennis May
Sun Television & Appliances, Inc.
/s/ R. CARTER PATE
-----------------------------------
By: R. Carter Pate
Its:Chairman
3
<PAGE> 1
Exhibit 10(u)
AGREEMENT OF EMPLOYMENT
THIS AGREEMENT OF EMPLOYMENT made and entered into as of February 12,
1998 by and between Sun Television and Appliances, Inc., an Ohio corporation
having its principal office at 6600 Port Road, Groveport, Ohio 43125 (the
"Company") and Beth A. Savage (the "Employee").
WITNESSETH:
WHEREAS, the Company and the Employee mutually desire that Employee
became the Chief Financial Officer of the Company; and
WHEREAS, the Company and Employee wish to enter into this Agreement to
set forth their mutual understanding as to the terms and conditions of
Employee's continued employment by the Company.
It is therefore agreed between the parties as follows:
I. DEFINITIONS.
For purposes of this Agreement, the capitalized terms shall have the
following definitions:
A. "Good Cause" shall mean one or more of the following
grounds:
(1) commission of an act of dishonesty,
including, but not limited to,
misappropriation of funds or any property of
the Company;
(2) engagement in activities or conduct
injurious to the best interests or
reputation of the Company;
(3) refusal to perform assigned duties and
responsibilities;
(4) the clear violation of any terms or
conditions of any written agreement or
agreements the Employee may from time to
time have with the Company;
(5) commission of a crime which is a felony, or
a misdemeanor committed in connection with
his employment by the Company which causes
the Company a detriment.
B. "Severance Benefit" shall mean a certain number of
months of Base Salary that will be paid to Employee based on the base
rate of compensation
<PAGE> 2
of Employee on the day immediately prior to the (i) Triggering Event in
the case of a payment pursuant to Section VI B. or (ii) the termination
of employment in the event of a payment pursuant to Section VI C.
C. "Triggering Event" shall mean:
(1) the Company shall sell all or substantially
all of the assets of the Company;
(2) the Company shall participate in a merger,
reorganization, consolidation or similar
business combination with a "person" (as
such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as
amended) or affiliate thereof, other than a
merger, consolidation of business
combination which would result in the
outstanding common stock of the Company
immediately prior thereto continuing to
represent either by remaining outstanding or
by being converted in the common stock of
the surviving entity or a parent or an
affiliate thereof, at least 50% of the
outstanding common stock of the Company or
such surviving entity or parent or affiliate
thereof outstanding immediately after such
merger, consolidation, or business
combination;
(3) a plan of complete liquidation of the
Company;
(4) an order for relief shall be filed with
respect to the Company under Title 11 United
States Code (the Bankruptcy code"); a
receiver, custodian or trustee shall be
appointed for the Company under any
insolvency laws of any state.
(5) a case under the Bankruptcy code shall be
initiated against the Company or an
application for the appointment of a
receiver, custodian, or trustee shall be
sought with respect to the Company, and in
any such instance such proceeding shall not
be timely contested, or if timely contested,
remains unstayed or undismissed for a period
of 60 days; or
(6) the occurrence of any other event or
circumstance which is not covered by (A),
(B),(C),(D) or (E) above which the Board
determines effects the control of the
business of the Company and, in order to
implement the purposes of this agreement as
set forth above, adopts a resolution that
such event or circumstance constitutes a
Triggering Event for purposes of this
Agreement.
- 2 -
<PAGE> 3
II. EMPLOYMENT. The Company agrees to employ the Employee as the
Company's Chief Financial Officer, and the Employee, in consideration of such
employment, hereby accepts such employment. During the term of her employment,
the Employee shall use her best efforts to do all things necessary and incident
to her position and the dispatch of her responsibilities. Unless otherwise
approved in advance by the Company's Board of Directors, Employee shall devote
her full business time and energy exclusively to the business and affairs of the
Company and in no event shall Employee engage in any outside activities which
would be reasonably expected to affect the Company adversely.
III. TERM. This Agreement shall be effective as of February 23,
1998, (the "Commencement Date") and shall continue until terminated as provided
in Section VI hereof.
IV. COMPENSATION AND BENEFITS. Except as otherwise provided upon a
termination of Employee's employment, the Company shall compensate Employee and
provide the benefits as set forth in this Section IV. In addition, the Company
shall reimburse Employee or pay directly for reasonable business expenses
incurred by her during her employment term.
A. Base Salary. The Company shall pay Employee a minimum
$140,000 annual base salary (the "Base Salary"). Employee will be
eligible for Base Salary review by the Compensation and Stock Options
Committee (the "Committee") of the Company's Board of Directors
annually.
B. Annual Incentive. Employee shall participate in an
annual incentive compensation program as same may be amended from time
to time. The incentive compensation amount shall be earned based on the
full fiscal year results of the Company with the first incentive
compensation grant based on the 1999 fiscal year of the Company. Until
such time as Employee and the Committee provide otherwise, the
performance goals and incentive compensation will be as follows: (i)
satisfaction of agreed upon non-earnings based benchmarks -- incentive
compensation of $40,000 and (ii) achievement of earnings targets --
incentive compensation of up to $70,000. The foregoing incentive
compensation is not cumulative. The Employee must be employed by the
Company on the last day of the fiscal year of the Company to earn the
incentive compensation.
C. Employee shall receive and enjoy such paid vacation,
health care insurance, retirement plan participation and other fringe
benefits comparable in scope and amount to those enjoyed by other
senior executives of the Company.
V. STOCK OPTIONS. Upon the execution of this Agreement, the
Company shall grant to Employee a non-qualified stock option to acquire 100,000
shares of the Company's common stock subject to the terms of a stock option
agreement between the Company and Employee to be effective February 23, 1998.
- 3 -
<PAGE> 4
VI. TERMINATION.
A. Death. This Agreement shall be terminated on the
death of the Employee effective as of the date of her death. Employee's
spouse or estate, as the case may be, shall be entitled to retain the
Employee's salary installment for the month in which she dies and shall
be entitled to all incentive payments earned by but not yet paid to
Employee prior to her death.
B. Change in Control or Bankruptcy Filing. In the event
that (i) Employee's employment is terminated by Company, or (ii)
Employee terminates her employment at the request of the Company, in
either event other than for Good Cause and within 120 days following a
Triggering Event, the Company shall pay Employee the Severance Benefit
in the manner described below.
(1) Except to the extent provided below in
paragraph (2), the Severance Benefit shall be equal to nine
months Base Salary of Employee and paid to Employee in nine
equal monthly payments due on the first day of the month
beginning with the month following the termination of
Employee's employment and continuing for the next eight
consecutive months.
(2) In the event Employee obtains employment
with another employer within the nine months period during
which the Severance Benefit is being paid, the benefits
provided under this Agreement shall cease on the date that
such employment commences; provided, however, that in no event
will the payments provided pursuant to this agreement cease
prior to the payment to Employee of six monthly payments
(two-thirds of the Severance Benefit).
(3) Employee agrees to voluntarily resign her
employment with the Company at the request of Company upon the
happening of a Triggering Event and provide for an orderly
transfer of duties and programs.
C. Without Cause. The Company may terminate Employee's
employment at any time. In the event Employee's employment is
terminated, and if subsection B above (Change in Control or Bankruptcy
Filing) shall not be applicable, and the employment is terminated other
than for Good Cause, the Severance Benefit shall be six months Base
Salary and shall be paid to Employee in six equal monthly payments due
on the first day of the month beginning with the month following the
termination of Employee's employment and continuing the next five
consecutive months.
D. For Cause. The Company may terminate Employee's
employment at any time for Good Cause effective upon written notice to
Employee. In such event, Employee shall receive her salary through the
effective date of termination but will receive no further payments.
- 4 -
<PAGE> 5
E. Acknowledgement. Employee acknowledges that the
benefits described in this Agreement include benefits to which she is
not otherwise entitled to receive by virtue of her employment with
Company, and in consideration of receiving these benefits, employee
agrees to waive any claim which she may have to any other benefits to
which she would be otherwise entitled to receive by virtue of
employment except claims for:
(i) benefits under COBRA;
(ii) dental, medical, life insurance and
retirement benefits to the extent
that entitlement to such benefits
survives employee's termination of
employment; and
(iii) unemployment benefits.
VII. MISCELLANEOUS
A. Binding Effect. This Agreement shall be binding upon
the parties hereto, the beneficiaries, heirs, executors, administrators
and successors of the Employee and the successors and assigns of the
Company.
B. Counterparts. This Agreement may be executed in two
or more counterparts, any one of which shall constitute an original
without reference to the others.
C. Severability of Clauses. Each of the paragraphs of
this Agreement shall stand dependently and severally, and the
invalidity of any one paragraph or portion thereof shall not affect the
validity of any other provision. In the event any provision shall be
construed to be invalid, no other provision of this Agreement shall be
affected thereby. Furthermore, it is agreed that any period of
restriction or covenant hereinabove stated shall not include any period
of violation or period of time required for litigation or arbitration
to enforce such restrictions or covenants.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date first above written.
SUN TELEVISION AND APPLIANCES, INC.
Attest:
/s/ MICHAEL LARIMER By /s/ DENNIS MAY
- ------------------------- -------------------------
"EMPLOYEE"
/s/ BETH A. SAVAGE
---------------------------
Beth A. Savage
- 6 -
<PAGE> 1
Exhibit 11
COMPUTATION OF NET (LOSS) INCOME
PER COMMON SHARE
FOR THE YEARS ENDED FEBRUARY 28, 1998, MARCH 1, 1997 AND MARCH 2, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
February 28, March 1, March 2,
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Net (loss) income $(33,551) $(45,341) $ 6,591
========= ========= =======
Common shares outstanding:
Weighted average................ 17,439 17,407 17,291
Dilutive effect of stock options -- -- 139
-------- -------- -------
Weighted average shares used
to calculate diluted (loss)
earnings per share............. 17,439 17,407 17,430
======== ======== =======
Net (loss) income per share:
Assuming basic.................. $ (1.92) $ (2.60) $ .38
======== ======== =======
Assuming diluted................ $ (1.92) $ (2.60) $ .38
======== ======== =======
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders of
Sun Television and Appliances, Inc.:
We consent to incorporation by reference in the registration statement (File
Nos. 333-39207, 33-44932 and 33-82744) on Form S-8 of Sun Television and
Appliances, Inc. of our report dated April, 29 1998, relating to the balance
sheet of Sun Television and Appliances, Inc. as of February 28, 1998, and the
related statements of operations, stockholders' equity and cash flows for the
year then ended, and the related schedule, which report appears in the February
28, 1998 annual report on Form 10-K of Sun Television and Appliances, Inc.
KPMG Peat Marwick LLP
Columbus, Ohio
April 29, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders of
Sun Television and Appliances, Inc.
We consent to incorporation by reference in the registration statement (File
Nos. 333-39207, 33-44932 and 33-82744) on Form S-8 of Sun Television and
Appliances, Inc. of our report dated May 5, 1997, relating to the balance sheet
of Sun Television and Appliances, Inc. as March 1, 1997, and the related
statements of operations, stockholders' equity and cash flows for each of the
two years then ended, and the related schedule, which report appears in the
February 28, 1998 annual report on Form 10-K of Sun Television and Appliances,
Inc.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Columbus, Ohio
May 28, 1998
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
-----------------
Each of the undersigned officers and directors of SUN TELEVISION AND
APPLIANCES, INC., an Ohio corporation (the "Company"), hereby appoints R. Carter
Pate, Dennis L. May and Beth A. Savage as his true and lawful attorneys-in-fact,
or any of them, with power to act without the others, as his true and lawful
attorney-in-fact, in his name and on his behalf, and in any and all capacities
stated below, to sign and to cause to be filed with the Securities and Exchange
Commission the Company's Annual Report on Form 10-K, for the year ended February
28, 1998, and any and all amendments thereto, hereby granting unto said
attorneys, and to each of them, full power and authority to do and perform in
the name and on behalf of the undersigned, in any and all such capacities, every
act and thing whatsoever necessary to be done in and about the premises as fully
as each of the undersigned could or might do in person, hereby granting to each
such attorney full power of substitution and revocation, and hereby ratifying
all that any such attorney or his substitute may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney in counterparts if necessary, effective as of May 27, 1998.
/s/ R. Carter Pate /s/ Brady J. Churches
- --------------------------------- ---------------------------------
R. Carter Pate, Chairman of the Board, Brady J. Churches, Director
President, and Chief Executive Officer
(Principal Executive Officer)
/s/ Beth A. Savage /s/ Thomas Epstein
- ---------------------------------- ---------------------------------
Beth A. Savage, Chief Financial Officer Thomas Epstein, Director
and Treasurer
(Principal Accounting Officer and
Principal Financial Officer)
/s/ Paul D. Bauer /s/ Ned L. Sherwood
- ---------------------------------- ---------------------------------
Paul D. Bauer, Director Ned L. Sherwood, Director
/s/ Macy T. Block
- ---------------------------------- ---------------------------------
Macy T. Block, Director Frank Doczi
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874690
<NAME> SUN TELEVISION AND APPLIANCES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> FEB-28-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,186<F1>
<ALLOWANCES> 0
<INVENTORY> 92,053
<CURRENT-ASSETS> 123,444
<PP&E> 78,782
<DEPRECIATION> 0
<TOTAL-ASSETS> 222,355
<CURRENT-LIABILITIES> 58,364
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 74,967
<TOTAL-LIABILITY-AND-EQUITY> 222,355
<SALES> 508,065
<TOTAL-REVENUES> 508,065
<CGS> 390,140
<TOTAL-COSTS> 390,140
<OTHER-EXPENSES> 144,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,598
<INCOME-PRETAX> (31,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (1,657)<F2>
<CHANGES> 0
<NET-INCOME> (33,551)
<EPS-PRIMARY> (1.92)
<EPS-DILUTED> (1.92)
<FN>
<F1>Trade accounts receivable net allowance for doubtful accounts of $475.
<F2>Net of income tax benefit.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000874690
<NAME> SUN TELEVISION AND APPLIANCES, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-01-1997
<PERIOD-START> MAR-03-1996
<PERIOD-END> MAR-01-1997
<EXCHANGE-RATE> 1
<CASH> 1,828
<SECURITIES> 0
<RECEIVABLES> 11,597<F1>
<ALLOWANCES> 0
<INVENTORY> 97,253
<CURRENT-ASSETS> 134,200
<PP&E> 104,719
<DEPRECIATION> 0
<TOTAL-ASSETS> 257,598
<CURRENT-LIABILITIES> 76,129
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 107,909
<TOTAL-LIABILITY-AND-EQUITY> 257,598
<SALES> 683,386
<TOTAL-REVENUES> 683,386
<CGS> 533,672
<TOTAL-COSTS> 533,672
<OTHER-EXPENSES> 197,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,537)
<INCOME-PRETAX> (54,885)
<INCOME-TAX> (9,544)
<INCOME-CONTINUING> (43,722)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,619)<F2>
<CHANGES> 0
<NET-INCOME> (45,341)
<EPS-PRIMARY> (2.60)
<EPS-DILUTED> (2.60)
<FN>
<F1>Trade accounts receivable net allowance for doubtful accounts of $400.
<F2>Net of income tax benefit.
</FN>
</TABLE>
