SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended May 2, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File No. 000-19372
CATHERINES STORES CORPORATION
(exact name of registrant as specified in its charter)
Tennessee 62-1350411
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3742 Lamar Avenue, Memphis, Tennessee, 38118 (Address of principal executive
offices)
Registrant's telephone number, including area code (901) 363-3900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports).
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
As of June 5, 1998 there were 7,242,789 shares of Catherines Stores
Corporation common stock outstanding.
<PAGE>
CATHERINES STORES CORPORATION
FORM 10-Q
May 2, 1998
Table of Contents
Page No.
PART 1 - FINANCIAL INFORMATION
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART 2 - OTHER INFORMATION 14-15
<PAGE>
PART 1 - FINANCIAL INFORMATION
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirteen weeks ended
May 2, 1998 May 3, 1997
Net sales $76,452,394 $70,968,193
Cost of sales, including
buying and occupancy costs.............. 51,109,138 48,670,830
---------- ----------
Gross margin ........................... 25,343,256 22,297,363
Selling, general and
administrative expenses ................ 2,431,048 19,653,566
Amortization of intangible
assets ................................. 254,308 274,878
------- -------
Operating income before
store closing costs .................... 4,657,900 2,368,919
Store closing costs (Note 7) ........... 188,657 0
------- -------
Operating income ....................... 4,469,243 2,368,919
Interest expense, net .................. 279,648 322,424
------- -------
Income before income taxes ............. 4,189,595 2,046,495
Provision for income taxes ............. 1,718,000 833,000
--------- -------
Net income ............................. $2,471,595 $1,213,495
========== ==========
Net income per common
share (Note 6) ......................... $0.34 $0.17
===== =====
Diluted net income per
common share (Note 6) .................. $0.34 $0.17
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 2, January 31,
1998 1998
A S S E T S
Current Assets:
Cash and cash equivalents .................... $ 4,465,146 $ 3,089,290
Receivables .................................. 3,409,960 2,580,025
Merchandise inventory ........................ 52,257,309 48,310,215
Prepaid expenses and other ................... 4,557,846 4,044,144
Deferred income taxes ........................ 2,504,000 2,504,000
------------- -------------
Total current assets ........................ 67,194,261 60,527,674
------------- -------------
Property and Equipment, at cost:
Land ......................................... 500,000 500,000
Leasehold improvements ....................... 23,570,355 23,213,674
Fixtures and equipment ....................... 29,238,240 28,573,919
Equipment under capital leases ............... 13,547,653 13,356,177
Improvements in process ...................... 1,029,561 830,144
------------- -------------
67,885,809 66,473,914
Less accumulated depreciation
and amortization ............................ (34,335,635) (32,398,729)
------------- -------------
33,550,174 34,075,185
------------- -------------
Deferred Income Taxes ........................ 435,000 435,000
Other Assets and Deferred Charges, less
accumulated amortization of $1,797,691
and $1,716,072 .............................. 2,534,998 2,506,096
Goodwill, less accumulated amortization
of $5,059,546 and $4,886,858 ................ 22,564,028 22,739,081
------------- -------------
$ 126,278,461 $ 120,283,036
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................. $ 24,401,740 $ 21,761,405
Accrued expenses (Note 3) .................... 17,098,763 14,750,159
Current maturities of long-term bank
and other debt .............................. 2,258,358 2,853,585
-------------- -------------
Total current liabilities .................... 43,758,861 39,365,149
Long-Term Bank and Other Debt, less
current maturities (Note 4) ................. 9,883,524 10,788,920
Stockholders' Equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, none issued
and outstanding ............................. -- --
Common stock, $.01 par value, 50,000,000
shares authorized, 7,236,989 and
7,231,070 shares issued and outstanding ..... 72,370 72,311
Additional paid-in capital ................... 46,564,879 46,529,424
Retained earnings ............................ 25,998,827 23,527,232
------------- -------------
Total stockholders' equity ................... 72,636,076 70,128,967
------------- -------------
$ 126,278,461 $ 120,283,036
============= =============
The accompanying notes are an integral part of these consolidated balance
sheets.
-4-
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen weeks ended
May 2, 1998 May 3, 1997
Cash Flows from Operating Activities:
Net income ................................... $ 2,471,595 $ 1,213,495
----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities--
Depreciation and amortization .............. 2,191,213 2,211,091
Change in reserve for store
closing costs ............................. 148,211 0
Net change in current assets and
liabilities (Note 2) ...................... 166,782 (5,071,873)
Change in other noncash reserves ........... (616,785) (75,089)
Change in other assets ..................... (108,156) (33,388)
----------- -----------
Total adjustments ........................ 1,781,265 (2,969,259)
----------- -----------
Net cash provided by (used in)
operating activities ........................ 4,252,860 (1,755,764)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures ....................... (1,299,029) (1,410,952)
----------- -----------
Net cash used in investing activities ........ (1,299,029) (1,410,952)
----------- -----------
Cash Flows from Financing Activities:
Sales of common stock ...................... 35,514 41,560
Proceeds from long-term bank
and other debt ............................ 6,919,000 5,236,000
Principal payments of long-
term bank and other debt .................. (8,532,489) (458,602)
----------- -----------
Net cash (used in) provided by
financing activities ........................ (1,577,975) 4,818,958
----------- -----------
Net Increase in Cash and
Cash Equivalents ............................ 1,375,856 1,652,242
Cash and Cash Equivalents,
beginning of period ......................... 3,089,290 2,992,339
----------- -----------
Cash and Cash Equivalents,
end of period ............................... $ 4,465,146 $ 4,644,581
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) which management considers necessary to present fairly the
consolidated financial position of Catherines Stores Corporation ("Stores") and
its wholly owned subsidiaries as of May 2, 1998 and January 31, 1998, and the
consolidated results of their operations and their cash flows for the thirteen
weeks ended May 2, 1998 and May 3, 1997. Stores and its subsidiaries are
collectively referred to as the "Company". The results of operations for the
thirteen week periods may not be indicative of the results for the entire year.
These statements should be read in conjunction with the audited
financial statements and related notes which have been incorporated by reference
in the Company's Form 10-K for the year ended January 31, 1998. Accordingly,
significant accounting policies and other disclosures necessary for complete
financial statements in conformity with generally accepted accounting principles
have been omitted since such items are reflected in the Company's audited
financial statements and related notes thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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.
(2) Statements of Cash Flows
The changes in current assets and liabilities reflected in the
statements of cash flows were as follows:
Thirteen weeks ended
May 2, May 3,
1998 1997
Increase (decrease) in cash and cash
equivalents-
Receivables .................................. $ (780,631) $ (531,170)
Merchandise inventory ........................ (3,206,613) (3,896,047)
Prepaid expenses and other ................... (513,702) (1,314,947)
Accounts payable ............................. 2,640,335 48,146
Accrued expenses ............................. 2,027,393 622,145
----------- -----------
Total ..................................... $ 166,782 $(5,071,873)
=========== ===========
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<PAGE>
Interest paid during the thirteen weeks ended May 2, 1998 and May 3, 1997
was approximately $106,000 and $323,000, respectively. Income taxes paid during
the thirteen weeks ended May 2, 1998 and May 3, 1997 were approximately $463,000
and $453,000, respectively.
(3) Accrued Expenses
Accrued expenses consisted of the following:
May 2, January 31,
1998 1998
Payroll and related benefits ............... $ 3,252,927 $ 3,252,177
Taxes other than income taxes .............. 1,607,580 1,059,127
Rent and other related costs ............... 2,221,094 2,252,587
Deferred revenues .......................... 2,001,063 1,819,288
Reserve for earned discounts ............... 1,309,000 1,140,000
Reserve for store closing costs ............ 1,263,422 1,115,211
Other ...................................... 5,443,677 4,111,769
----------- -----------
Total ................................... $17,098,763 $14,750,159
=========== ===========
(4) Long-Term Bank and Other Debt
Long-term bank and other debt consisted of the following:
May 2, January 31,
1998 1998
Due to banks:
Term notes ................................. $ 0 $ 1,250,000
Working capital notes ...................... 0 7,000,000
Mortgage note .............................. 6,897,971 0
Other:
Capital lease and other obligations ........ 5,243,911 5,392,505
------------ ------------
12,141,882 13,642,505
Less current maturities .................... (2,258,358) (2,853,585)
------------ ------------
Total ...................................... $ 9,883,524 $ 10,788,920
============ ============
On February 27, 1998, the Company entered into a new mortgage financing
agreement and amended the existing bank credit agreement. The new mortgage
financing agreement provides a $6,919,000 mortgage facility with a seven-year
term and a 20-year amortization period. The interest rate on the mortgage note
is fixed at 7.5%. Proceeds from the note were used to repay the Company's
outstanding term loan and to reduce amounts outstanding under the working
capital facility. The existing bank credit agreement was amended to reduce the
amount available from $28 million to $25 million, including the swing line of
credit, and to increase the interest rate to the agent bank's prime rate or
LIBOR plus 2 1/4%, at the Company's option. Amounts available under the new
agreement are based on the Company's eligible receivables and inventories.
-7-
<PAGE>
At May 2, 1998, the Company had approximately $19,800,000 available
under its combined working capital and swing line facility. Outstanding letters
of credit were approximately $5,200,000 at May 2, 1998. During the thirteen
weeks ended May 2, 1998, the Company entered into a supplement to a capital
lease agreement for the purpose of obtaining laptop computers and general office
equipment. The cost of this equipment, approximately $113,000, was financed by
capital leases.
(5) Leases
During the thirteen weeks ended May 2, 1998, the Company amended leases
for three stores, which increased future minimum rental payments by
approximately $264,000 since January 31, 1998. Total future minimum rental
payments under all noncancelable operating leases with initial or remaining
lease terms of one year or more are approximately $71,052,000.
Total rent expense for all operating leases was as follows:
Thirteen Weeks Ended
May 2, May 3,
1998 1997
Minimum rentals ...................... $5,229,744 $5,293,110
Contingent rentals ................... 36,003 80,376
---------- ----------
Total ................................ $5,265,747 $5,373,486
========== ==========
(6) Net Income Per Common Share
The reconciliation of net income per common share and diluted net
income per common share is as follows:
Diluted
Net Income Net Income
Per Stock Per
Common Share Options Common Share
Thirteen weeks ended May 2, 1998:
Net income ......................... $2,471,595 0 $2,471,595
Weighted average shares ............ 7,232,696 125,250 7,357,946
---------- ----------
Per share amount ................... $ 0.34 $ 0.34
========== ==========
Thirteen weeks ended May 3, 1997:
Net income ......................... $1,213,495 0 $1,213,495
Weighted average shares ............ 7,198,532 61,071 7,259,603
---------- ----------
Per share amount ................... $ 0.17 $ 0.17
========== ==========
-8-
<PAGE>
(7) Store Closing Costs
The Company reviewed its store base in late fiscal 1997 and committed to a
plan to close 30 underperforming stores upon lease termination or by settlement
with the landlords. Two underperforming stores were closed during the first
quarter of fiscal 1998 at a cost of approximately $39,000 and eight additional
stores have scheduled closing dates during the remainder of fiscal 1998. The
remaining stores' leases are still being negotiated with the landlords.
Based on negotiations with landlords during the first quarter of 1998,
the Company reserved an additional $150,000 for the estimated costs to close
certain stores.
-9-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This outlook contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: general economic
conditions; competitive factors and pricing pressures; the Company's ability to
predict fashion trends; consumer apparel buying patterns; adverse weather
conditions and inventory risks due to shifts in market demand. The Company does
not undertake to publicly update or revise the forward-looking statements even
if experience or future changes make it clear that projected results expressed
or implied therein will not be realized.
Overview
The Company's net income for the thirteen week period ended May 2, 1998
was $2,472,000 compared to $1,213,000 in the thirteen week period ended May 3,
1997. Operating income margins were 5.8% for the first quarter of 1998 compared
to 3.3% in 1997. First quarter operating income before store closing costs
almost doubled the operating income for first quarter of 1997.
The Company reviewed its store base in late fiscal 1997 and committed
to a plan to close 30 underperforming stores upon lease termination or by
settlement with the landlords. Two underperforming stores were closed during the
first quarter of fiscal 1998 at a cost of approximately $39,000 and eight
additional stores have scheduled closing dates during the remainder of fiscal
1998. The remaining stores' leases are still being negotiated with the
landlords.
Through negotiations with landlords during the first quarter of 1998,
the Company reserved an additional $150,000 for the estimated costs to close
certain stores.
Liquidity and Capital Resources
The Company's cash provided by operations was $4,253,000 during the
thirteen weeks ended May 2, 1998, compared to cash used in operations of
$1,756,000 during the thirteen weeks ended May 3, 1997. The increase in cash
flow provided by operations is primarily attributable to an increase in net
income and a decrease in working capital. The Company's working capital was
-10-
<PAGE>
$23,435,000 at May 2, 1998 compared to $28,871,000 at May 3, 1997. Compared to
the first quarter of 1997, inventory per store decreased 2.6%. The Company's
internally generated cash flow financed its operating requirements, capital
expenditures and debt service during the thirteen week period ended May 2, 1998.
The Company maintains a merchant services agreement with a third party
credit processor. This agreement provides for the Company to sell, without
recourse, accounts receivable from private label credit card sales. The third
party provides all authorization, billing and collection services for these
accounts. The five-year agreement, which expires in January 2000, automatically
renews unless terminated by either party or by mutual agreement.
Capital Expenditures
The Company incurred approximately $1,200,000 to relocate, remodel or
expand existing stores during the first quarter of 1998. The Company estimates
that fiscal 1998 capital expenditures will be approximately $7,000,000 to
$8,000,000 of which an estimated $5,000,000 will be used for the opening of four
to six new locations and the remodeling, relocation and expansion of
approximately 31 other locations. An additional $1,200,000 will be used to
purchase new information technology to upgrade the merchandise planning and
allocation systems and the customer profile database system. The remainder of
capital expenditures are to upgrade existing computer systems, add additional
software technology and to maintain existing facilities.
Banking Arrangements
In February 1998, the Company entered into a new mortgage financing
agreement and amended the existing bank credit agreement. The Company's prior
bank credit agreement provided a $5,000,000 term loan, a working capital
facility of $25,000,000 and a swing line of credit of $3,000,000 with the
Company's agent bank. The term loan required quarterly principal payments of
$250,000. The working capital facility could have been be used for letters of
credit. The interest rate was the bank's prime rate or LIBOR plus 1 1/4% , at
the Company's option.
The new mortgage financing agreement provides a $6,919,000 mortgage
facility with a seven-year term and a 20-year amortization period. The interest
rate on the mortgage note is fixed at 7.5%. Proceeds from the note were used to
repay the term loan and to reduce the amounts outstanding under the working
capital facility. The existing bank credit facility was amended to reduce the
amount available from $28,000,000 to $25,000,000, including the swing line of
credit, and to increase the interest to the agent bank's prime rate or LIBOR
plus 2 1/4%, at the Company's option. The new agreement expires June 30, 2001.
-11-
<PAGE>
At May 2, 1998, the Company had approximately $19,800,000 available under
its combined working capital and swing line facility and approximately
$5,200,000 in outstanding letters of credit.
The Company believes that its internally generated cash flow, together
with borrowings under the bank credit agreement, will be adequate to finance the
Company's operating requirements, debt repayments and capital needs during the
foreseeable future.
Results of Operations
Thirteen Weeks Ended May 2, 1998 Compared to Thirteen Weeks Ended May 3,
1997
Net sales in the first quarter of 1998 increased 7.7% to $76,452,000
from $70,968,000 in the first quarter of 1997. Comparable stores' sales
increased 10.4%. The average unit selling price, the number of saleschecks
generated, number of units sold and the average number of units per salescheck
all increased. During the first quarter, two stores were closed permanently and
one store was closed temporarily due to tornado damage, reducing the number of
stores operated by the Company on May 3, 1998 to 440. At May 3, 1997, the
Company operated 460 stores.
Gross margin, after buying and occupancy costs, increased as a
percentage of sales to 33.1% from 31.4% in the first quarter of 1997. The
increase is attributable to leveraged buying and occupancy costs and an increase
in merchandise margin.
Selling, general and administrative expenses increased to $20,431,000
in the first quarter of 1998 compared to $19,654,000 in the first quarter of
1997. The increase is primarily attributable to store and management performance
bonuses and consultant services incurred to re-engineer the merchandise
assortment planning and distribution functions, offset by decreased advertising,
supplies and other service costs. As a percentage of sales, the selling, general
and administrative expenses decreased to 26.7% from 27.7% in the first quarter
of 1997.
The Company reviewed its store base in late fiscal 1997 and committed
to a plan to close 30 underperforming stores upon lease termination or by
settlement with the landlords. Two underperforming stores were closed during the
first quarter of fiscal 1998 at a cost of approximately $39,000 and eight
additional stores have scheduled closing dates during the remainder of fiscal
1998. The remaining stores' leases are still being negotiated with the
landlords.
Based on negotiations with landlords during the first quarter of 1998,
the Company reserved an additional $150,000 for the estimated costs to close
certain stores.
-12-
<PAGE>
Interest expense was approximately $280,000 in the first quarter of
1998 compared to $322,000 in the first quarter of 1997. The decrease is
primarily attributable to the decrease in working capital borrowings, offset by
an increase in capital lease expense.
Income taxes were provided at effective rates of 41.0% and 40.7% for
the thirteen weeks ended May 2, 1998 and May 3, 1997, respectively.
Net income for the first quarter of 1998 was $2,472,000 compared to
$1,213,000 for the first quarter of 1997. Diluted net income per common share
("Net income per common share") was $0.34 per share in the first quarter of 1998
and $0.17 per share in the first quarter of 1997.
Year 2000 Compliance
The Company has developed a plan to ensure its systems are compliant
with the requirements to process transactions in the year 2000. The majority of
the Company's information systems are serviced by outside vendors who are in the
process of completing all necessary updates to ensure they will continue to be
effective in the year 2000. The Company is also requesting from its key
third-party providers certifications of year 2000 compliance. All of these costs
will be borne by the key third-parties. The Company expects the majority of its
information systems to be year 2000 compliant by 1999, however, no assurances
can be given that the efforts by the Company, its outside service providers and
its third parties will be successful. The Company does not expect that the costs
to achieve year 2000 compliance will be material to its consolidated financial
position or results of operations.
-13-
<PAGE>
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time involved in routine litigation
incidental to the conduct of its business, substantially all of which is covered
by existing insurance coverage. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
consolidated financial condition or results of operations.
Item 2. Changes in the Rights of the Company's Security Holders
Not applicable
Item 3. Defaults by the Company on its Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holder
The Annual Meeting of the Stockholders of the Company was held on June
3, 1998. Matters voted upon at the meeting were the election of directors, the
ratification of independent public accountants and the increase in the number of
authorized shares under the incentive plan and to ratify all grants of options
under this plan to date.
The results of the voting were as follows:
Abstain/
Broker
For Against Withheld Non-Voter
Election of directors:
Stanley H. Grossman 4,557,590 2,074,671
Wellford L. Sanders, Jr. 4,556,212 2,076,049
Appointment of Arthur
Andersen LLP 6,618,390 4,521 9,350
Increase incentive plan
authorized shares and
ratification of all grants
under the plan to date 2,126,302 4,489,071 16,888
Item 5. Other Information
Not applicable
-14-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(A) 10.40 Loan Agreement between Catherines Stores Corporation,
Catherines, Inc. and National Bank of Commerce dated February 27,
1998.
27.1 Financial Data Shcedule (for Edgar filing only)
(B) None
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SIGNATURES
June 3, 1998 /s/ David C. Forell
--------------- ------------------------------------
(Date) David C. Forell,
Executive Vice President,
Chief Financial Officer
-15-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000875194
<NAME> CATHERINES STORE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 4,465
<SECURITIES> 0
<RECEIVABLES> 3,413
<ALLOWANCES> 0
<INVENTORY> 52,257
<CURRENT-ASSETS> 67,194
<PP&E> 67,886
<DEPRECIATION> (34,336)
<TOTAL-ASSETS> 126,278
<CURRENT-LIABILITIES> 43,759
<BONDS> 0
0
0
<COMMON> 46,637
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 126,278
<SALES> 76,452
<TOTAL-REVENUES> 76,452
<CGS> 51,109
<TOTAL-COSTS> 51,109
<OTHER-EXPENSES> 20,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280
<INCOME-PRETAX> 4,190
<INCOME-TAX> 1,718
<INCOME-CONTINUING> 2,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,472
<EPS-PRIMARY> $0.34
<EPS-DILUTED> $0.34
</TABLE>
LOAN AGREEMENT Exhibit 10.40
BETWEEN
CATHERINES STORES CORPORATION,
CATHERINES, INC.
AND
NATIONAL BANK OF COMMERCE
This is an Agreement between CATHERINES STORES CORPORATION, a Tennessee
corporation ("Stores"), and CATHERINES, INC., a Delaware corporation ("CI")
(hereinafter collectively referred to as "Company"), and NATIONAL BANK OF
COMMERCE, One Commerce Square, Memphis, Tennessee 38150 (hereinafter called
"Bank"), entered into as of the _____ day of ____________, 1998.
RECITALS:
ARTICLE I
DEFINITIONS
Section 1.1. The terms defined in this Section 1.1 (except as otherwise
expressly provided for in this Agreement) shall apply to all terms and
provisions of this Agreement:
(a) Business Day - shall mean the business day of Bank and, in the event
any provision of this Agreement or any other instrument or agreement
evidencing or securing the Loan requires that action be taken on or
before a particular date that falls on a day that is not a business day
of Bank, the time for the taking of such action shall automatically be
postponed until the next following business day of Bank.
(b) Current Portion of Long-Term Debt - shall mean that portion of the
Company's total long-term debt that matures or is payable within a
twelve-month period, or within the operating cycle if longer, including
all amounts payable within such period on capital leases.
(c) Debt Coverage Ratio - shall mean the quotient determined by dividing
(i) the sum of Net Income (before the payment of income taxes) for the
previous twelve-month period, plus depreciation, amortization,
interest expense, operating lease expenses, the non-cash portion of
Store Closing Expenses, which shall not exceed $1,925,000 for purposes
of the calculation, and the non-cash portion of write-offs by the
Company pursuant to FASB 121, all computed for the previous
twelve-month period; by (ii) the sum of Current Portion of Long-Term
Debt, plus interest expense and operating lease expenses, all computed
for the previous twelve-month period.
(d) Inter-Company Indebtedness - shall mean Indebtedness of Stores or one
or more of its subsidiaries that is owed solely to Stores or one or
more other subsidiaries.
(e) Loan - shall mean the term loan advanced to Company by Bank pursuant to
Article II and the Note (defined below) executed by the Company.
(f) Loan Documents - shall mean, collectively, this Agreement, together
with the following documents:
(i) Promissory Note of even date executed by Company and made
payable to Bank in the original principal amount of $6,919,000
("Note");
(ii) Leasehold Deed of Trust of even date executed by Company
for the benefit of Bank (the "Leasehold Deed of Trust");
(iii) Deed of Trust of even date executed by the Industrial
Development Board of the City of Memphis and County of Shelby,
Tennessee, for the benefit of Bank (collectively with the Leaseholder
Deed of Trust, the "Deeds of Trust"); and
(iv) UCC-1 financing statements executed by Company and Bank.
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(g) Net Income - shall mean for any period, the net income of Company for
such period as determined in accordance with generally accepted
accounting procedures.
(h) Obligation or Obligations - shall include (1) all indebtedness of
Company to Bank under this Agreement or any other Loan Document or any
other instrument or agreement between Company and Bank, including,
without limitation, the indebtedness of Company under the Loan, (2)
any advance under the Loan that may be in excess of the limits set
forth in Section 2.1 below and the interest accrued and unpaid
thereon, (3) all liabilities of Company acquired by purchase by Bank,
by assignment or participation, (4) all other indebtedness of or
damages against Company, however arising, whenever arising, and
whether absolute or contingent, due or to become due to Bank, and (5)
all costs and expenses incurred by Bank or its agents in connection
with this Agreement or any other Loan Document and all related
agreements and documents including reasonable attorneys' fees and
court costs incurred by Bank in obtaining legal advice regarding this
Agreement or any other Loan Document or in enforcing payment thereof
or of any indebtedness of Company or to extend Bank's lien or to
defend any action or proceeding related to this Agreement or any
collateral, including any costs and expenses of any proceeding in
which Bank is involved with Company.
(i) Store Closing Expenses - shall mean such expenses as set forth in the
Company's consolidated financial statements delivered in accordance
with Article V below.
(j) Tangible Net Worth - shall mean total assets of Company as set forth on
the balance sheet of Company prepared in accordance with generally
accepted accounting principles less (i) the Company's Total Liabilities
and (ii) the net book value of all items of the following character
which are included in the assets of Company: (1) goodwill, (2)
organizational expense, (3) research and development expenses, (4)
patents, trademarks, trade names, and copyrights, (5) deferred charges,
(6) treasury stock, and (7) any other assets of an intangible nature.
(k) Total Liabilities - shall mean the aggregate amount of all obligations
of the Company as shown on the balance sheet of the Company prepared in
accordance with generally accepted accounting principles.
Section 1.2 All accounting terms not specifically defined herein shall
be construed in accordance with generally accepted accounting principles
consistently applied.
ARTICLE II
OBLIGATIONS
Section 2.1 Subject to the terms and provisions of this Agreement,
Company desires to borrow from Bank, and Bank has agreed to extend Company a
term loan in the maximum principal amount not to exceed the lesser of (i) Six
Million Nine Hundred Nineteen Thousand and No/100 Dollars ($6,919,000.00), or
(ii) an amount equal to eighty-five percent (85%) of the appraised value of the
Premises, as defined in Article III.
Section 2.2 All of Company's indebtedness to Bank under the Loan or any
other Loan Document related to the Loan or Note or otherwise under or related to
this Agreement and any and all expenses related thereto shall be due and payable
in full March 1, 2005 (the "Maturity Date").
All unpaid principal, accrued and unpaid interest and costs to be paid
by Company under the Loan shall bear interest at the rate of seven and one-half
percent (7.5%) per annum. Payments of principal and interest based upon a twenty
(20) year amortization shall be due and payable monthly commencing April 1,
1998, and on the first day of each calendar month thereafter until the Maturity
Date, at which time all outstanding principal and interest under the Loan shall
be due and payable in full, all as more particularly set forth in the Note. From
and after the occurrence of any Event of Default, all Obligations shall bear
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interest at the maximum rate permitted under applicable law. In no event shall
the rate of interest at any time exceed the maximum effective rate of interest
which Bank, as a national bank, is permitted to contract for and charge under
applicable law in effect from time to time.
Section 2.3 Company shall be permitted to prepay the Loan in whole upon
giving Bank not less than thirty (30) days' prior written irrevocable notice,
together with payment of any applicable prepayment fee. Company acknowledges
that if the Note is prepaid before the stated Maturity Date and Bank is unable
to collect the prepayment fee, Bank may suffer damages from the loss of income
caused by its inability to obtain the yield it would have realized from the
Note. If Company elects to prepay it shall prepay the entire unpaid balance of
the Loan with accrued interest and all other sums due at such time, together
with the following prepayment fee:
(i) If the Loan is prepaid at any time prior to March 1, 1999,
the prepayment fee shall be equal to two percent (2%) of the then
outstanding balance under the Loan; and
(ii) If the Loan is prepaid at any time during the period
commencing March 1, 1999, and prior to March 1, 2000, the prepayment
fee shall be equal to one and one-half percent (1.5%) of the then
outstanding balance under the Loan.
(iii) If the Loan is prepaid at any time during the period
commencing March 1, 2000, and prior to the Maturity Date, the
prepayment fee shall be equal to one percent (1%) of the then
outstanding balance under the Loan.
The prepayment fee shall be due and payable if the Loan is paid by any
means before the Maturity Date, or in the event of payment upon an acceleration
hereunder. If for any reason the prepayment fee is deemed unenforceable, in
whole or in part, Bank may pursue any of the legal or equitable right or remedy
now or hereafter available to Bank and shall be entitled to recover an amount
equal to the damages incurred as a result of the prepayment but in no event in
excess of the amount of the prepayment penalty.
Section 2.4 Bank shall not be obligated to advance the Loan unless all
of the following conditions are satisfied:
(i) All of the Loan Documents provided for herein or otherwise
requested by Bank to evidence and secure the Loan must have been
executed and delivered to Bank.
(ii) If requested by Bank, it shall have received an opinion
of Company's counsel in form and substance acceptable to Bank.
(iii) All representations and warranties made in this
Agreement, in all other Loan Documents, and any other instrument
executed in connection herewith or therewith shall have been true and
correct as of the date made, and as of the date of the funding of the
Loan.
(iv) Company must not otherwise be in default hereunder or
under any other Loan Document, or under any other instrument or
agreement now or hereafter existing between Company and Bank.
(v) Unless waived in writing by Bank, Bank shall have
received:
(A) A paid title insurance policy, prepared upon
opinion of counsel selected by Bank, in form and content, and with a
company acceptable to Bank, insuring that the Loan Documents create a
valid first lien in and upon the Premises, free and clear of all
defects and encumbrances except such as Bank and its counsel shall
approve, and containing full coverage against liens of mechanics,
materialmen, laborers and any other parties who might claim statutory
or common law liens, and no survey exceptions other than those approved
by Bank and Bank's counsel, together with any other endorsements
required by Bank;
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(B) Suitable policies or evidence of the insurance in
accordance with applicable requirements of this Agreement and the Deeds
of Trust;
(C) Unless waived by Bank, a boundary survey,
certified by a surveyor registered as such in the state in which the
Premises is located, to which is attached a certificate satisfactory to
Bank dated within sixty (60) days of the date hereof and covering such
matters as Bank shall require, including, but not limited to, the
location of all present and proposed improvements, building setback
lines, right-of-ways, easements and encroachments, and means of public
ingress and egress;
(D) Certification to the effect that a search of the
public records disclosed no conditional sales contracts, chattel
mortgages, financing statements or title retention agreements filed and
recorded in the real property records which affect the Premises;
(E) An appraisal acceptable to Bank; and
(F) An environmental audit acceptable to Bank.
ARTICLE III
COLLATERAL
Section 3.1 As further assurance of payment of the Obligations, Company
has executed and caused the execution and delivery of the Deeds of Trust,
whereby first mortgage liens are granted to Bank on the leasehold and fee
interests in that real property and improvements known municipally as 3742 Lamar
Avenue, Memphis, Tennessee (the "Premises"), as more particularly described in
the Deeds of Trust.
Section 3.2 In order to further secure the payment of the Obligations,
Company hereby grants to Bank a security interest and right of set off against
all of Company's presently owned or hereafter acquired monies, items, credits,
deposits and instruments (including certificates of deposit) presently or
hereafter in the possession of Bank. By maintaining any such accounts or
property at Bank, Company acknowledges that it voluntarily subjects such
accounts or property to Bank's rights hereunder, and agrees that Bank shall not
be liable for the dishonor of any instrument resulting from Bank's exercise of
its rights hereunder, provided, that such rights shall be exercised by Bank only
after an Event of Default has occurred.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 The Company represents and warrants to the Bank (which
representations and warranties will survive the making of the Loan) that:
(a) The Company is duly organized, validly existing and in good standing
with the Secretary of State under the laws of the respective states of
incorporation and is authorized to do business in the state of
Tennessee and any other state where the Company is doing business.
(b) The Company has the full power, authority, and legal right to execute
and deliver and to perform and observe the provisions of this Agreement
and to borrow hereunder and in doing so it will not violate any law,
its Charter or bylaws or any other agreement or instrument binding upon
it. Company has taken or caused to be taken all necessary action to
authorize the execution, delivery and performance of this Agreement and
all other Loan Documents, as applicable. The Deeds of Trust grant to
Bank a direct, valid, enforceable and perfected first lien mortgage on
the Premises and Company's leasehold estate therein.
(c) The consolidated financial statement of the Company and all
subsidiaries for the fiscal year ended February 1, 1997, fairly
reflects the financial condition of the Company and subsidiaries and
the results of its operation as of the dates and for the periods
stated. No material adverse changes have since occurred.
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(d) The Company has no liabilities, direct or contingent, except those
disclosed in the certified financial statement above. Company is not in
default under any indenture, mortgage, deed of trust, agreement or
other instrument to which it is a party or by which it may be bound,
which default would have a material adverse effect on the financial
condition or business operation of Company and the execution hereof, or
any other instrument executed in connection herewith, nor the
consummation of the transactions herein and therein contemplated, will
violate any of the foregoing instruments to which Company is a party.
(e) Company has filed or caused to be filed all federal, state and local
tax returns, which are required to be filed, and has paid or caused to
be paid all taxes as shown on said returns or on any assessment
received by it, to the extent that such taxes have become due, except
as otherwise permitted by the provisions hereof.
(f) There is no civil or administrative action, suit or proceeding at law
or in equity or by or before any court, arbitrator, civil or
administrative governmental instrumentality or other agency now
pending, or, to the knowledge of the Company, threatened against or
affecting the Company, which, if adversely determined, would result in
any material adverse change in the business, or in the condition,
financial or otherwise, of the Company. The Company is not in default
with respect to any order, writ, injunction, judgment or decree of any
court or of any governmental agency or department.
(g) Except as disclosed to Bank in writing, all prior, existing and
current conduct of business and activities, including but not limited
to all conduct and activities related to the Premises, comply and have
at all times complied with all applicable present and will comply with
all future statutes, regulations, rules, ordinances, codes, licenses,
permits, orders, approvals, plans, authorizations, concessions,
franchises, and similar terms, of all governmental agencies,
departments, commissions, boards, bureaus, or instrumentalities of the
United States, or any states wherein the Company does business, and
political subdivisions thereof and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders of all
types (all of which are hereinafter referred to as "Legal
Requirements"), including specifically but without limitation those
relating to the protection of human health or the environment.
(h) Neither Company nor any predecessor of Company has received notice or
other communication concerning any alleged violation of any Legal
Requirement relating to protection of human health or the environment,
and neither Company nor any predecessor of Company has received notice
or other communication concerning any alleged violation of any other
Legal Requirement that has not been corrected to the satisfaction of
the appropriate authority.
(i) Neither Company nor any predecessor of Company has engaged in or
permitted any operations or activities for the purpose of or in any way
involving the handling, manufacture, treatment, storage, use,
generation, release, discharge, refining, dumping, disposal, sale or
distribution of any Pollutant, Contaminant, Hazardous Material,
Hazardous Substance, or Hazardous Waste, as those terms are or may
become defined under any federal, state or local statute, regulation,
rule or ordinance or amendments thereto in violation of any of the
foregoing.
ARTICLE V
COVENANTS
Section 5.1 Until this Agreement has been terminated in writing and the
Obligations, including all principal, interest and service fees, have been paid
in full, and this Loan Agreement is terminated in a writing signed on behalf of
Bank and Company, the Company (at its expense) shall:
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(a) Furnish to Bank (i) within one hundred twenty (120) days after the
close of each fiscal year, a copy of the consolidated financial
statement of the Company and all subsidiaries, audited by independent
certified public accountants of recognized standing acceptable to
Bank, such reports shall be prepared in accordance with generally
accepted accounting principles consistently applied and shall include
Company's balance sheet, statement of income, statement of
stockholder's equity, and statement of cash flows; (ii) within forty-
five (45) days of the close of the first three (3) fiscal quarters,
quarterly financial statements in the form of Company's Form 10Q filed
with the Securities and Exchange Commission for that quarter; and
(iii) such additional information as the Bank from time to time may
request.
(b) Furnish to Bank copies of management letters from Company's independent
certified public accountants when available.
(c) Keep insured the Premises and all buildings, machinery, equipment,
furnishings, inventory and supplies insured by insurance companies
acceptable to the Bank and in such amounts as the Bank may, from time
to time reasonably require, all as more particularly set forth in the
Deeds of Trust.
(d) Comply with all applicable statutes and government regulations and pay
all taxes, assessments, governmental charges, claims for labor,
supplies, rent and other obligations which, if unpaid, might become a
lien against the Premises except liabilities being contested in good
faith and against which, if requested by Bank, the Company will post
bond or establish and maintain reserves satisfactory to Bank.
(e) Maintain the Premises and all other assets and properties in good
operating condition.
(f) Permit an authorized representative of Bank to visit and inspect at
reasonable times during regular business hours any of its properties,
collateral, including its books, and to make extracts therefrom, and to
discuss its affairs, finances and accounts with its officers.
(g) When requested by Bank in the exercise of its reasonable judgment,
furnish to Bank at the expense of the Company, a written environmental
audit report or survey of the Premises, which audit report or survey
shall be prepared by an independent licensed consultant approved in
writing in advance by Bank; provided, the cost of same shall be borne
by Bank in the event that said report shows no material adverse change
in the condition thereof.
(h) When requested by Bank in the exercise of its reasonable judgment,
furnish to Bank at the expense of Company, a written inspection report
and/or a written appraisal report with respect to the Premises, or any
item thereof, which report or appraisal shall be prepared by a
qualified independent appraiser or consultant approved in writing in
advance by the Bank; provided, the cost of same shall be borne by Bank
in the event that said report shows no material adverse change in value
thereof.
(i) Upon discovery promptly notify Bank of the occurrence of any Event of
Default hereunder, or of the filing of any suit or proceeding before
any court or government agency against Company in which an adverse
decision could have a material adverse effect upon Company or its
business.
(j) Maintain and preserve its corporate existence in full force and effect.
Section 5.2 While any Obligation remains unpaid and until this Loan
Agreement is terminated in a writing signed on behalf of Bank and Company,
except with the prior written consent of the Bank, the Company shall not, nor
shall it permit any subsidiary to:
(a) Except for mergers or the consolidation of any subsidiary of Company
with any other subsidiary of Company, make or acquiesce in any material
change in management, nor permit any reorganization, sale of assets,
liquidation or dissolution, merger, or agree to
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any sale of stock by shareholders or any other transfer or transaction
which would result in the change of ownership or beneficial voting
control (whether directly or indirectly) of more than forty-nine
percent (49%) of the equity securities of the Company or any
subsidiary.
(b) Engage in, directly or through other corporations or entities, any
material business other than the business presently conducted.
(c) Assume, guarantee, endorse or otherwise become directly liable with
respect to any obligation of any person, firm, corporation or other
entity other than Inter-Company Indebtedness.
(d) Permit Tangible Net Worth, on a consolidated basis, to be less than
$43,000,000 at the close of any fiscal quarter. For each fiscal year
after December 31, 1998, the foregoing tangible net worth requirement
will increase by an amount equal to fifty percent (50%) of Company's
Net Income for the previous fiscal year.
(e) Permit the Debt Coverage Ratio, on a consolidated basis, to be less
than 1.2:1 at the end of each fiscal year.
(f) Incur, create, assume become or be liable in any manner in respect of,
or suffer to exist, any debt for borrowed money except:
(i) indebtedness under this Agreement;
(ii) indebtedness presently existing and listed on Schedule
5.2(1);
(iii) indebtedness created by Bank;
(iv) indebtedness as incurred or assumed by the Company (A) in
connection with any financing lease entered into after the closing date
or (B) as to CI only, to pay all or any part of the purchase price of
property acquired after the closing date, not to exceed the purchase
price of the property so acquired; provided that except in the case of
InterCompany Indebtedness, the outstanding principal balances of the
indebtedness described in subsections 5.2(f)(iv) and (v) shall not at
any time exceed the sum of $10,000,000;
(v) indebtedness incurred by Stores and CI after the closing
date (A) under unsecured lines of credit with any person, firm,
company, or other entity and (B) under demand and other short-term
promissory notes payable to or to the order of any person; provided
that except in the case of Inter-Company Indebtedness, the outstanding
principal balances of the indebtedness described in subsections
5.2(f)(iv) and (v) shall not at any time exceed the sum of $10,000,000;
(vi) Inter-Company Indebtedness, including without limitation,
(A) Inter-Company Indebtedness incurred by Stores or any subsidiary of
Company under an unsecured loan or advance from Stores or any
subsidiary of Company, which loan or advance is used by the borrowing
entity to purchase inventory from Stores or is used by Stores to
purchase inventory from any person or entity and (B) Inter-Company
Indebtedness created by the purchase, sale, lease, license or exchange
of property or the rendering of any service by Stores or any subsidiary
of Company to Stores or any subsidiary of Company; and
(vii) any sale and leaseback transaction.
(g) Create or suffer to be created or to exist upon its property any
mortgage, lien, charge, security interest or encumbrance of any kind
except:
(i) liens permitted under this Agreement;
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(ii) liens presently existing and listed on Schedule 5.2(2);
(iii) liens created by Bank;
(iv) liens for taxes, assessments, charges or other
governmental levies not yet due or as to which the period of grace (not
to exceed 60 days), if any, related thereto has not expired or which
are being contested in good faith and by appropriate proceedings, so
long as adequate reserves with respect thereto are maintained on the
books of Stores or any subsidiary in accordance with generally accepted
accounting principles;
(v) carriers', warehousemen's, mechanics', landlord's,
materialmen's, repairmen's or other like liens arising in the ordinary
course of business (A) which are not overdue for a period of more than
60 days or (B) which are being contested in good faith and by
appropriate proceedings;
(vi) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
legislation, or to secure the performance of statutory obligations,
appeal or similar bonds, leases and trade contracts (exclusive of
obligations for the payment of borrowed money);
(vii) liens securing indebtedness permitted by subsection
5.2(f)(iv), provided that any such lien shall be confined solely to the
item or items of property acquired with the proceeds of such
indebtedness or which is or are the subject of a financing lease
permitted by said section;
(viii) liens on property of the Company created solely for the
purpose of securing indebtedness permitted by subsection 5.2(f)(iv),
incurred to finance or refinance the purchase price of property;
provided that no such lien shall extend to or cover the property other
than the respective property so acquired, and the principal amount of
indebtedness secured by any such lien shall at no time exceed the
original purchase price of such property;
(ix) rights of setoff in favor of banks arising in the
ordinary course of business;
(x) any lien constituting a renewal or continuation of any
lien permitted by this subsection 5.2(g), but only in the case of each
such renewal or continuation, to the extent that the principal amount
of indebtedness secured by such lien does not exceed the principal
amount of such indebtedness so secured at the time of the renewal or
continuation, and that such lien is limited to all or a part of the
property that secured the lien renewed or continued; and
(xi) other liens incidental to the conduct of its business or
the ownership of the property which are not incurred in connection with
borrower money and which do not in the aggregate materially detract
from the value of its property or materially impair the use thereof in
the operation of its business and which, in any event, do not secure
obligations in excess of $75,000.
(h) As to Stores, disburse or distribute as dividends nor expend or
exchange in redemption or purchase of its capital stock any cash or
property (except its own capital stock) on an annual basis in excess of
ten percent (10%) of Company's Net Profit.
(i) Sell or otherwise dispose of any substantial part of its assets,
capital stock or properties or transfer directly or indirectly any
interest in the Premises.
(j) Cause, permit or suffer the existence or the commission by Company,
its agents, employees, contractors, tenants, or invitees, or by any
other person of a violation of any Legal Requirement related to any of
Company's conduct or activities which results in a material adverse
change in the business, or condition, financial or otherwise, of the
Company.
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(k) Cause, permit, or suffer any Pollutant, Contaminant, Hazardous
Material, Hazardous Substance, or Hazardous Waste, as those terms are
or may become defined under any federal, state or local statute,
regulation, rule or ordinance or amendments thereto, to be brought
upon, treated, kept, stored disposed of, discharged, released,
produced, manufactured, generated, refined, used upon, or sold or
distributed on or from any of its premises or through the conduct or
activities of Company, its agents, employees, contractors, tenants,
invitees, or any other person related to Company's conduct or
activities without (i) notice to Bank, and (ii) complying with all
such federal, state or local statutes, regulations, rules and/or
ordinances.
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
Section 6.1 If any one or more of the following events (herein called
Events of Default) shall occur and be continuing:
(a) Default in payment of any of the Obligations when the same shall
become due and payable; or
(b) Default in due observance or performance of any covenant, agreement, or
provision of this Agreement or any material agreement(s) by which the
Company is or shall be bound, including, without limitation, either of
the Deeds of Trust and each and every other Loan Document, and such
default continues for ten (10) days, or any Loan Document shall at any
time cease to be in full force and effect or declared void or Company
shall deny any further liability hereunder or thereunder; or
(c) Any representation or warranty heretofore or hereafter made in writing
by or on behalf of Company herein or in either of the Deeds of Trust or
any other Loan Document or otherwise in connection with this Agreement
or any Loan Document shall prove to have been false or incorrect in any
material respect on the date on or as of when made; or
(d) Failure to pay when due and before the expiration of any grace period
any other indebtedness of $50,000 or more which Company is obligated to
pay in any capacity to any person or entity, whether such indebtedness
shall have become due because of acceleration of maturity or otherwise,
including but not limited to failure to pay when due and before the
expiration of any grace period the Obligations created by this
Agreement; or
(e) Company shall:
(i) admit in writing its inability to pay its debts as they
become due; or
(ii) file a petition in bankruptcy or for reorganization under
the Bankruptcy Act, or file a pleading asking such relief under similar
state laws, or have or suffer to be filed an involuntary petition in
bankruptcy against Company which is not contested and discharged within
sixty (60) days; or
(iii) make an assignment for the benefit of creditors or
become voluntarily or involuntarily dissolved or become insolvent; or
(iv) consent to the appointment of a trustee or receiver for
all or a major portion of its property; or
(v) be finally adjudicated a debtor or insolvent under any
federal or state law; or
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(vi) become subject to a court order under any federal or
state law appointing a receiver or trustee for all or a major part of
its property or ordering the winding up or liquidation of its affairs,
or approving a petition filed against it under the Bankruptcy Act,
which order, shall not be vacated, denied, set aside, or stayed within
sixty (60) days from the date of entry; or
(vii) become subject to a final judgment for the payment of
money and the same shall not be discharged or provision made for its
discharge within forty-five (45) days from the date of entry thereof or
an appeal or other appropriate proceeding for review thereof shall not
be taken within said period and a stay of execution pending such appeal
shall not be obtained; or
(viii) become subject to a writ or warrant of attachment or
any similar process issued by any court against all or any substantial
portion of its property and such writ or warrant of attachment or any
similar process in not stayed or is not released within forty-five (45)
days after its entry or levy or after any stay is vacated or set aside;
(ix) become subject to a tax lien or judgment lien on the
Premises, or in the event of a levy against Premises, or any part
thereof of any execution, attachment, sequestration or other writ; or
(g) The sale or other voluntary or involuntary transfer of any equity
interest in Company that results in the change of ownership or direct
or indirect voting control of more than forty-nine percent (49%) of the
equity interest of CI;
then and in such event (unless all defaults shall theretofore have been remedied
or waived in writing), without demand, presentment, or other notice of any kind,
all of which are hereby expressly waived, Bank may, in its discretion, declare
the unpaid principal under the Loan, or, with respect to any event specified in
(i)-(vi) of subparagraph (f) above, the unpaid principal balance under the Loan
shall be, together with all unpaid interest, penalties and service fees,
immediately due and payable in full. An Event of Default hereunder shall
constitute a default under each and every other Loan Document.
Section 6.2 If one or more Events of Default shall occur, Bank may
proceed to protect and enforce all rights hereunder by any appropriate
proceeding, whether for specific performance of any covenant or agreement
contained in this Agreement, or in aid of the exercise of any power granted in
this Agreement, or may proceed to enforce the payment of Obligation or to
enforce any other legal or equitable right under any other Loan Document or
otherwise available to Bank.
Section 6.3 All rights, remedies, or powers hereby conferred upon Bank
shall be deemed cumulative and not exclusive of any other rights, remedies, or
powers available at law or in equity. No delay in exercising or failure or
omission to exercise any right, remedy, or power shall impair any such right,
remedy, or power or shall be construed to be a waiver of any Event of Default or
any acquiescence therein. Any such right, remedy, or power may be exercised from
time to time, independently or concurrently, and as often as shall be deemed
expedient. No waiver of any Event of Default shall extend to any subsequent
Event of Default. No single or partial exercise of any right, remedy, or power
shall preclude other or further exercise thereof.
Section 6.4 Company covenants that if default is made in any payment of
principal or interest on any Obligation, it will pay such further amount as
shall be sufficient to cover the costs and expense of collection, including
reasonable attorneys' fees and costs of court. This Agreement and the books and
records of Bank shall constitute prima facie evidence of all matters with
respect to the Loan and amounts due hereunder.
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ARTICLE VII
FURTHER AGREEMENTS AND COVENANTS
Section 7.1 Notices shall be deemed to have been properly given when
hand delivered or deposited in the United States mail, registered or certified,
first class postage prepaid whether or not the same is actually received, if
addressed to:
The Company: Catherines Stores Corporation
Catherines, Inc.
3742 Lamar Avenue
Memphis, TN 38118
Attention: David C. Forell
With a copy to: Waring Cox, PLC
50 North Front Street, 13th Floor
Memphis, TN 38103
Attention: Samuel D. Chafetz, Esq.
The Bank: National Bank of Commerce
Metropolitan Banking
One Commerce Square, Second Floor
Memphis, TN 38150
Attention: Lynn Carson
With a copy to: Burch, Porter & Johnson, PLLC
50 North Front Street, Suite 800
Memphis, TN 38103
Attention: LeeAnne M. Cox, Esq.
or directed to such address as either party may direct by a written notice sent
in accordance with this Section.
Section 7.2 All covenants and agreements contained in this Agreement
and in any agreement or instrument evidencing or securing the Loan shall be
binding upon and inure to the benefit of the parties and their successors and
assigns, provided, Company may not assign this Agreement without the prior
written consent of Bank.
Section 7.3 This Agreement shall be deemed a contract made under the
laws of Tennessee, except with regard to interest which shall be governed by
Federal law in effect from time to time. Anything in this Agreement or any other
instrument or agreement evidencing or securing the Loan to the contrary
notwithstanding, it is understood and agreed by the parties that, if for any
reason interest paid or contracted to be paid by Company on the Loan shall
exceed the maximum amount permitted by applicable law, all amounts which exceed
the maximum amount permitted by such law shall be credited on interest accrued,
or principal, or both, at the time of payment so that such interest shall not
exceed the maximum amount permitted from time to time by applicable law.
Section 7.4 Both Company and Bank each knowingly, voluntarily,
irrevocably and without coercion, waive all rights to trial by jury of all
disputes between them. Neither Bank nor Company shall be deemed to have
relinquished this waiver of jury trial unless the party claiming that this
waiver has been relinquished produces a written instrument signed by the other
party stating that this waiver has in fact been relinquished.
Section 7.5 The parties agree that the sole proper venue for the
determination of any litigation commenced by the Company against the Bank on any
basis shall be in a court of competent jurisdiction which is located in Shelby
County, Tennessee and the parties hereby expressly declare that any other venue
shall be improper and the Company expressly waives any right to a determination
of any such litigation by Company against the Bank by a court in any other
venue. Company further agrees that service of process by any judicial officer or
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by registered or certified U.S. Mail, as specified in Section 7.1 on Notices,
shall establish personal jurisdiction over the Company and Company waives any
rights under the laws of any state to object to jurisdiction within the State of
Tennessee. Company acknowledges that this Agreement was negotiated, executed and
delivered in the State of Tennessee and shall be governed and construed in
accordance with the laws thereof. Provided, however, nothing contained in this
Section 7.5 shall prevent Bank from bringing any action or exercising any rights
against any security or against Company or any guarantor personally, and any
property of either, within any other state. Initiating such proceedings or
taking such action in any other state shall in no event constitute a waiver of
the agreement contained herein that the laws of the State of Tennessee shall
govern the rights and obligations of Company and Bank hereunder or of the
submission herein made by Company to personal jurisdiction within the State of
Tennessee. The aforesaid means of obtaining personal jurisdiction and perfecting
service of process are not intended to be exclusive, but are cumulative and in
addition to all other means of obtaining personal jurisdiction and perfecting
service of process now or hereafter provided by the laws of the State of
Tennessee.
Section 7.6 The provisions of this Agreement shall be considered
severable, and should any one or more provisions hereof be stricken or otherwise
determined to be unenforceable for any reason, then the remaining provisions
shall continue in full force and effect and shall be enforced in accordance with
their terms.
Section 7.7 This Agreement may be executed in multiple counterparts,
all of which together shall constitute one and the same instrument.
Section 7.8 All conditions of the obligations of either party
hereunder, including the obligation of Bank to advance the Loan are imposed
solely and exclusively for the benefit of the other party and Bank's successors
and assigns and any permitted assigns of Company. No other person or entity
shall have standing to require satisfaction of such conditions in accordance
with their terms or, with respect to Company, be entitled to assume that Bank
will refuse to advance the Loan in the absence of strict compliance with any or
all thereof, and no other person or entity shall, under any circumstances, be
deemed to be a beneficiary of such conditions, any and all of which may be
freely waived in whole or in part by the respective party to whom the
performance of any such condition shall run at any time if in the sole
discretion of such party it deems it desirable to do so.
Section 7.9 Bank is not the agent or representative of Company, and
Company is not the agent or representative of Bank, and nothing in this
Agreement shall be construed to make Bank liable to anyone for goods delivered
to or services performed with respect to the Premises or for debts or claims
accruing against Company. Nothing herein nor the acts of the parties hereto
shall be construed to create a partnership or joint venture between Bank and
Company, or any other relationship except as debtor and creditor.
Section 7.10 Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
Section 7.11 Whenever the singular or plural number, or the masculine,
feminine or neuter gender is used herein, it shall equally include the other.
All references to "Company" shall be deemed to refer to Catherines, Inc., and
Catherines Stores Corporation both in the conjunctive and in the disjunctive
whenever the context permits. All obligations under this agreement and all other
Loan Documents shall be the joint and several obligations of said entities.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
day and year first above written.
CATHERINE STORES CORPORATION
By:
Title:
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CATHERINES, INC.
By:
Title:
NATIONAL BANK OF COMMERCE
By:
Title:
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Schedule 5.2(1)
EXISTING INDEBTEDNESS
1. Master Equipment Lease Agreement dated March 15, 1991, between Sanwa
Business Credit Corporation and Catherines, Inc., together with
Amendments 1 through 5 thereto.
2. Master Lease Agreement No. 092893 dated September 28, 1993, between
Econocom- USA, Inc., and Catherines, Inc.
3. Equipment Lease Agreement dated December 31, 1993, by and between First
American National Bank and Catherines, Inc.
4. Promissory Notes with an outstanding principal balance of $7,500.65 as
of February _____, 1998, relating to Virginia Speciality Stores, Inc.'s
Chapter 11 Reorganization.
5. Fixed Rate Term Loan with the National Bank of Commerce with a fixed
7.5% interest rate to Catherines Stores Corporation and Catherines,
Inc., in the principal amount equal to the lesser of $6,919,000.00 or
85% of the appraised value of the real estate located at 3742 Lamar
Avenue, Memphis, Tennessee, titled in the name of the Industrial
Development Board and leased to Catherines.
6. Indebtedness under the Loans as defined in that certain Amended and
Restated Credit Agreement dated February 27, 1998, by and between
Catherines, Inc., Catherines Stores Corporation, Catherines of
Pennsylvania, Inc., Catherines of California, Inc., Catherines
Partners, L.P., and First American National Bank, as Agent, Hibernia
National Bank and Bank One, N.A.
7. Security interest in various credit card accounts with Hurley State
Bank and Catherines, Inc., pursuant to a (i) Purchase Agreement dated
October 1, 1992, between Catherines, Inc., and Hurley State Bank and
(ii) Purchase Agreement dated December 15, 1990, between Catherines,
Inc. (as successor to Virginia Specialty Stores, Inc., by merger) and
Hurley State Bank.
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Schedule 5.2(2)
Permitted Liens
1. National Bank of Commerce
One Commerce Square
Memphis, TN 38103
Deed of Trust, Security Agreement and Fixture Filing dated February 27,
1998, and Leasehold Deed of Trust, Security Agreement and Fixture
Filing dated February 27, 1998, securing a Term Loan with the National
Bank of Commerce with a fixed 7.5% interest rate to Catherines Stores
Corporation and Catherines, Inc., in the principal amount equal to the
lesser of $6,919,000 or 85% of the appraised value of the real estate
located at 3742 Lamar Avenue, Memphis, Tennessee, titled in the name of
the Industrial Development Board and leased to Catherines, Inc.
2. Liens related to indebtedness described in Schedule 5.2(1).
3. Security Interest in all surveillance and related equipment provided by
Sensormatic Electronics Corp. to Catherines, Inc., and Catherine Stores
Corporation whether now owned or leased by and from Sensormatic
Electronics Corp.
4. Security interest in the favor of Koury Corporation by Catherine Stores
Corporation on all furnishings, equipment, fixtures, inventory,
accounts receivable and other personal property of any kind belonging
to Catherine Stores Corporation at a certain premises in Greensboro,
North Carolina.
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