================================================================================
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 Commission File
January 31, 1998 Number 000-19372
REGISTRANT: CATHERINES STORES CORPORATION
State of Incorporation: Tennessee I.R.S. Employer
Identification
Number:
62-1350411
Address of Principal Executive Offices: Registrant's
3742 Lamar Avenue Telephone
Memphis, Tennessee 38118 Number:
901-363-3900
SECURITIES REGISTERED SECURITIES REGISTERED
PURSUANT TO SECTION PURSUANT TO SECTION
12(b) OF THE ACT: 12(g) OF THE ACT:
None Common Stock,
$0.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ____X____ No _________
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of April 1, 1998, there were 7,231,070 shares of Common
1
<PAGE>
Stock outstanding. The aggregate market value of the Registrant's Common Stock
held by non-affiliates of the Registrant as of April 1, 1998, was $58,752,444
based on the last reported sales price per share on the NASDAQ National Market
System on that date.
Documents incorporated by reference:
1. Portions of the Annual Report to Shareholders for the fiscal year
ended January 31, 1998 are incorporated by reference into Part II - Items 5, 6,
7 and 8 and Part IV - Item 14 (a)1.
2. Portions of the Company's Proxy Statement (the "Proxy Statement")
relating to the Annual Meeting to be held on June 3, 1998 which has been filed
with the Commission are incorporated by reference into Part III - Items 10, 11,
12 and 13.
PART I
ITEM 1. BUSINESS
- -----------------
Overview
- --------
Catherines Stores Corporation, (the "Company"), through its wholly
owned subsidiaries, Catherines, Inc. ("Catherines"), Catherines of California,
Inc., and Catherines of Pennsylvania, Inc., and through a limited partnership,
Catherines Partners, LP, is a leading specialty retailer of large-size women's
apparel, operating 443 stores in 39 states. The Company operates four separate
divisions with distinct merchandising concepts and marketing strategies.
The Catherine's division operates 214 stores in medium-sized cities,
primarily in the Southeast, Southwest and Midwest, and competes principally on
the basis of merchandise selection and customer service. The PS...Plus Sizes,
Plus Savings ("Plus Sizes") division operates 114 stores in major metropolitan
areas such as Chicago, Washington, D.C., Houston, Dallas, Detroit, Seattle and
Los Angeles and competes principally on the basis of merchandise selection and
price. Both divisions' stores offer a full assortment of merchandise, primarily
at budget to moderate prices. The merchandise assortment emphasizes casual
fashions. The stores carry a complete range of large sizes, including sizes over
26 that frequently are not offered by the Company's competitors.
The Added Dimensions division operates 86 stores in medium- sized cities
throughout the Southeast and Midwest offering full price, high quality
merchandise. Added Dimensions has an extensive private label sportswear
merchandise program which allows it to offer exclusive fashions to its
2
<PAGE>
customers. The Answer division operates 29 stores in major metropolitan areas.
Stores in the Washington, D.C., Detroit and Chicago areas account for
approximately two-thirds of The Answer's stores. The Answer competes by offering
better branded merchandise below competitors' prices. Both divisions' stores
offer a full assortment of sportswear, dresses, coats and more limited
assortments of intimate apparel and accessories at moderate to better prices.
The merchandise assortment is predominately career-oriented.
Customer Base
- -------------
The Company seeks to serve the primary apparel and accessory needs of
women who wear size 14 or larger. The Company estimates that over 20 million
American women wear size 14 or larger. The Company's target customer is over 35
years of age, has traditional but fashion-conscious tastes, and is primarily
concerned with fit and value in apparel selection. The Company believes that
customers are attracted to its stores by the Company's emphasis on broad
assortments, quality, fit, value and customer service.
Merchandising
- -------------
The Company's stores offer sportswear, dresses, intimate apparel,
coats, shoes and accessories. Sportswear makes up over half of the Company's
sales. The Catherine's and Plus Sizes divisions offer a broad assortment of
merchandise in sizes over 26, making the Company one of the few retailers to
emphasize these sizes.
The majority of the Company's merchandising mix is composed of brand
name product lines which appeal to a wide spectrum of customer tastes. Brand
name merchandise is purchased primarily from domestic vendors including Jessica
Howard, Koret, Judy's Group, C. M. Shapes and Victoria Jones Woman.
Private label merchandise made exclusively for the Company comprises
approximately 35% of the merchandise mix. Significant private label categories
include sweaters, blouses, skirts, tops, coats, activewear, suits and hosiery.
Trademarks owned and used include "CST Studio", "Maggie Barnes", "Kathy White",
"Liz & Me", "AD Sport", "Grove Avenue" and "Jon Lawrence." Private label
merchandise, which carries a higher initial markup, allows the Company to offer
its customers exclusive merchandise at attractive prices and to control size
specifications and quality. The Company employs a vice-president of product
development and a three-person product development staff to design the styles
and develop fit specifications. The Company expects to continue to expand its
private label merchandise.
3
<PAGE>
Personalized customer service is emphasized in all operating divisions.
Sales associates are trained in techniques that emphasize product knowledge,
wardrobing and telephone contact to better advise and service the customers.
Personnel in all operating divisions provide fitting room service. Personalized
service is supplemented by store procedures designed to allow the customer to
efficiently make purchases and by merchandise presentation. Sales associates can
also use the Company's systems to locate garments in a size, style or color
requested by the customer but not available in the associate's store.
The Company's point-of-sale registers capture financial, credit and
statistical information at the time of each merchandise transaction. This
information is used on a regular basis to evaluate and adjust each store's
merchandise mix. Merchandise assortments are tailored to each store, with
merchandise selected and distributed based on each store's profile and sales
experience.
All four operating divisions carry a broad selection of merchandise.
Catherine's and Plus Sizes focus on budget to moderate price points, while Added
Dimensions and The Answer concentrate on moderate to better price points.
Catherine's and Added Dimensions are competitively priced while Plus Sizes and
The Answer price below competitors. All divisions centrally control markdowns
which are taken during the season on slow selling styles. At the end of the
season, merchandise is consolidated and liquidated through clearance sales.
Purchasing and Distribution
- ---------------------------
A significant portion of the Company's merchandise is purchased from
domestic vendors who offer brand name merchandise not generally sold by the
Company's competitors. The Company attempts to obtain exclusive merchandise from
these vendors for the Company, including merchandise for the Company's larger
sizes.
In addition to domestically purchased brand name merchandise, the Company
also has private label merchandise produced in the Far East. A group of the
Company's buyers visits manufacturers in Taiwan, Hong Kong and Korea twice a
year to arrange for merchandise to be manufactured for the Company under its own
private labels. Approximately 15% of the Company's merchandise is purchased
overseas. Such purchases are made in U.S. dollars and generally are financed by
letters of credit. To date, the Company has not experienced difficulties in
purchasing merchandise overseas or importing such merchandise into the United
States. The instability of the Asian markets during 1997 did not have a material
impact on the Company; however, if political instability in a country where
imported merchandise is produced or other factors disrupt or curtail overseas
production, the Company believes it would have adequate alternate sources of
merchandise.
4
<PAGE>
At January 31, 1998, the Company employed one executive vice-president
of merchandising, five vice-presidents of merchandising, 20 buyers and 4
associate buyers. The merchandise and buying staff is supplemented by a
vice-president of product development and a three-person product development
staff, which designs, develops fit specifications, controls quality and procures
private label merchandise. The Catherine's and PS...Plus Sizes, Plus Savings
buyers are based in Memphis and visit New York City approximately eight times
per year to make purchases. Added Dimensions and The Answer's merchandising and
buying organization operates from leased facilities in New York City. In fiscal
1997, the Company purchased merchandise from approximately 600 vendors. The
Company's ten largest domestic vendors accounted for 21% of the Company's
purchases with no single vendor accounting for more than 3% of the Company's
domestic purchases. The Company believes its relationships with its vendors are
strong and that the loss of any one vendor would not have a material adverse
effect on the Company's business.
Almost all of the Company's purchases are shipped to the Company's
213,000 square foot distribution center in Memphis, Tennessee. At the
distribution center, which is designed to handle up to approximately 1,000
stores, merchandise is received, counted, and sorted for distribution to the
Company's stores. A merchandise distribution and planning staff determines the
quantities to be shipped to each store based on the store's needs and
merchandise profile. After the merchandise is picked and packed by store, it is
shipped to the stores daily via commercial package delivery services.
Store Operations
- ----------------
As of January 31, 1998, the Company operated 443 stores in 39 states and
the District of Columbia. The following table sets forth the location of these
stores:
Store Locations by State
- ------------------------
State Total State Total
- ----- ----- ----- -----
Alabama 14 Mississippi 6
Arkansas 4 Missouri 10
Arizona 4 Nebraska 3
California 17 New Jersey 6
Colorado 4 New Mexico 1
Connecticut 1 New York 14
District of Columbia 1 North Carolina 20
5
<PAGE>
Delaware 2 Oklahoma 6
Florida 22 Ohio 36
Georgia 24 Oregon 4
Illinois 26 Pennsylvania 11
Indiana 15 Rhode Island 1
Iowa 5 South Carolina 14
Kansas 3 South Dakota 1
Kentucky 4 Tennessee 22
Louisiana 18 Texas 36
Maryland 11 Virginia 24
Massachusetts 5 Washington 8
Michigan 24 Wisconsin 7
Minnesota 7 West Virginia 2
The Company's stores range in size from approximately 2,100 to 8,100
square feet and average approximately 3,670 square feet. In order to be in a
position to provide a broader assortment of merchandise in its stores, the
Company expects future stores for all divisions to be as large or larger than
the current average and intends, where warranted, to expand smaller existing
stores, either by expanding in existing locations or by moving to larger
locations as leases expire, to take advantage of market opportunities to
increase sales.
Over 84% of the Company's stores are located in strip shopping centers
or are free standing. The remaining stores are located in shopping malls. The
Company believes its locations generally are in high traffic areas and offer
adequate parking. The Company seeks to create an atmosphere of excitement
through its new merchandise flow, sales promotions, merchandise presentation and
the quality, value and depth of its merchandise assortments.
Each store is generally staffed by a store manager, a co- manager
and/or one or more assistant managers, and several sales associates. Most store
managers have at least five years of retail experience. Store managers report to
district managers, who in turn report to the Company's Regional Directors of
Stores.
The Company periodically reviews its store base and determines whether
particular stores need to be improved or closed. During the last 5 years, the
Company opened 31% of its current store base and remodeled/relocated 30% of its
current store base. The Company generally closes a store at the end of a lease
term when the operating profit generated by the store is insufficient to make a
contribution to fixed corporate overhead. Stores are closed prior to lease
expiration when they are unprofitable and have, in the Company's opinion,
limited potential for improvement and the Company has reached satisfactory
agreement with the landlord for closing the location. The Company closed 20
stores in fiscal year 1997, nine stores in fiscal year 1996 and 12 stores in
fiscal year 1995. The Company plans to close an additional 30 stores.
6
<PAGE>
During fiscal 1997, the Company opened six stores and relocated 10
stores. The average capital cost to build a new store is approximately $110,000
plus inventory requirements of approximately $110,000 per store (of which
approximately 45% is financed by vendor accounts payable).
The Company expects to open between four and six stores and to relocate
or remodel up to 31 stores in fiscal 1998. The Company believes there are
adequate real estate opportunities to open additional stores in the markets it
currently serves and to enter new markets in its overall trade areas.
Marketing
- ---------
The Company uses direct mail as its primary advertising medium. The
Company builds its mailing list by capturing customer name, address, payment and
purchase information at the point-of-sale. Using this list of over two million
names, each of the Company's operating divisions sends approximately 30 direct
mail pieces per year designed to attract customers to its stores for special
values or discounts. In fiscal 1997, advertising expense was 4.0% of net sales
with direct mail accounting for 81% of the total.
The Company offers two types of customer loyalty programs. Catherine's
and PS...Plus Sizes, Plus Savings offers a "Perks" card which is purchased by
the customer and entitles her to a discount on all purchases for one year. Added
Dimensions and The Answer provide in house charge customers with a "Preferred
Customer" program, which entitles them to a gift certificate when certain
purchase levels are reached.
In addition, the Company believes its stores' locations in convenient
high traffic mall and highly visible strip shopping centers, and its creative
store displays, attract customers.
Credit Operations
- -----------------
The Company offers each operating divisions' customers the convenience
of a private label credit card. Sales made with the private label card accounted
for 35% of the Company's fiscal 1997 net sales. The Company's credit card is
held by more than 1,092,000 customers. The Company also permits its customers to
pay in cash, with personal checks, third party cards or by using its layaway
plan.
7
<PAGE>
The Company uses Hurley State Bank ("HSB"), a subsidiary of SPS
Transactions, Inc., to finance and service its private label credit card
program. HSB provides the following services: new account approval, credit
authorization, billing and account collection. Under this agreement, the Company
sells its receivables from in-house credit sales on a daily basis without
recourse, at face value. The five-year agreement, which expires in January 2000,
automatically renews unless terminated by either party or by mutual agreement.
The Company may be charged a discount fee on these sales beginning in February
1999. The agreement allows the Company to repurchase the accounts receivable at
the end of the five-year term at face value and allows the purchaser to put the
accounts receivable back to the Company at face value in the event of a change
in the Company's ownership. The balance of accounts receivable held by HSB, on
January 31, 1998, was approximately $86,386,000.
Merchandise Information Systems
- -------------------------------
The Company uses a sophisticated on-line merchandise information system
which was purchased from and is maintained by a third party. The Company
operates its own in-house computer facility. Buyers are on-line with the system
and are provided with detailed daily sales and inventory information, from which
they make decisions regarding purchases and markdowns. The District Managers
have access available to them, through lap-top computers, of daily sales,
inventory information and other information that can be used in making staffing
and merchandise decisions. The distribution center uses the system to facilitate
the recording of merchandise receipts, the printing of tickets and the
distribution of merchandise. This system also allows the Company to capture, at
the point-of-sale, customer profile information which is used as a customer
mailing list for direct mail promotion of sales events.
The Company scans merchandise price tickets at the point-of-sale and
point-of-sale computers automatically determine the correct price through a
price look-up capability. The computers also capture financial, credit and
statistical information and provide reports on sales by department and class for
financial reporting purposes, and weekly reports on sales by style, color and
size for use by the Company's buyers and management. The merchandise
distributors use this information on a regular basis to evaluate and adjust each
store's merchandise mix.
The Company continues to review its information systems needs.
Currently, the Company is upgrading and updating some of its merchandising
systems to client server based technology. In making these changes, the Company
will be able to access information more quickly, retain statistical information
for longer periods of time and enhance reporting capabilities.
Employees
- ---------
8
<PAGE>
As of January 31, 1998, the Company had approximately 2,640 full-time
equivalent employees. The Company has a significant number of part-time store
employees and, as is typical in the retail industry, has experienced high
turnover in its retail sales personnel. However, the Company has not experienced
significant difficulty in hiring qualified personnel. Of the total work force,
approximately 283 employees are employed in the Company's corporate offices and
distribution center. Some of the Company's distribution center employees are
represented by the Upholstery and Allied Industries Division of the United
Steelworkers of America. The Company and the union have ratified a three-year
contract, which expires in 1998. Management believes there has been no material
effect on its operations from this representation.
Competition
- -----------
All aspects of the women's retail apparel business are highly
competitive. The Company's primary competitors are department stores, specialty
retailers, discount stores and mail order companies. Many of these competitors
are larger and have greater financial, marketing and other resources than the
Company. The Company believes that the breadth of its merchandise assortments,
including sizes over 26, its advertising programs, its customer service and its
ability to obtain desirable store locations are important factors in enabling it
to compete effectively.
Trademarks
- ----------
The Company owns all rights to the trademarks and trade names it believes
are necessary to conduct its business as presently operated. The Company
believes that its trade names, "Catherine's," "PS...Plus Sizes, Plus Savings,"
"Added Dimensions" and "The Answer, The Elegant Large-Size Discounter," are
material to its business.
ITEM 2. PROPERTIES
- -------------------
The Company leases all of its stores and believes the lease terms are
generally favorable. At January 31, 1998, the average base rent for the
Company's 443 stores was $12 per square foot. Lease terms range from one to
thirteen years and approximately 45% contain renewal options. Approximately 85%
of the leases have percentage rent clauses. Most of the leases also require the
Company to pay a pro rata share of taxes and common area maintenance. Some of
the leases for recently opened stores permit the Company to terminate the lease
within two to three years after commencement of the lease term if sales fail to
meet minimum thresholds.
9
<PAGE>
The Company owns its corporate offices and its distribution center. The
distribution center was designed to handle up to 1,000 stores. Management feels
that these facilities will adequately handle the Company's office space and
distribution requirements for the foreseeable future.
The following table sets forth, as of January 31, 1998, the number of
leases that will expire in each of the indicated calendar years (including
renewal options):
Number of
Calendar Year Leases Expiring
- ------------- ---------------
1998 59
1999 95
2000 73
2001 91
2002 57
Thereafter 68
----
443
====
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
- ------------------------------------------------------------
SECURITY HOLDER MATTERS
- -----------------------
MARKET PRICE INFORMATION
The Company's Common Stock is traded on the National Market System of
the National Association of Security Dealers, Inc. Automated Quotation System
(the "NASDAQ National Market System") under the symbol "CATH." The high and low
sales prices per share of the Common Stock as reported on the NASDAQ National
Market System are incorporated by reference to the Annual Report to
Shareholders under the caption "Market Price Information".
The Company has not heretofore paid cash dividends and it is
10
<PAGE>
not anticipated that the Company will pay such dividends in the foreseeable
future due to restrictions on such payments contained in the Company's bank
credit agreement and its point-of-sale equipment lease agreement, and the
business judgment of the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Incorporated by reference to the Annual Report to Shareholders under
the caption "Selected Financial Data".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
Incorporated by reference to the Annual Report to Shareholders under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Incorporated by reference to the Annual Report to Shareholders under the
caption "Financial Statements".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURES
- ------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Incorporated by reference to the Proxy Statement under the caption
"Election of Directors".
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Incorporated by reference to the Proxy Statement under the caption
"Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Incorporated by reference to the Proxy Statement under the caption
"Ownership of Common Stock by Directors, Officers and Certain Beneficial
Owners".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Incorporated by reference to the Proxy Statement under the caption
"Compensation Committee Interlocks and Insider Participation".
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a)1. Consolidated Financial Statements
Statements incorporated herein by reference to the Annual Report to
Shareholders:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.
CONSOLIDATED BALANCE SHEETS as of January 31, 1998
and February 1, 1997.
CONSOLIDATED STATEMENTS OF INCOME for the
Years Ended January 31, 1998, February 1,
1997 and February 3, 1996.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for
the Years Ended January 31, 1998, February 1, 1997
and February 3, 1996.
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Years
Ended January 31, 1998, February 1, 1997 and February
3, 1996.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(a)2. Financial Statement Schedules
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.
Schedule I - Condensed Financial Information
of Registrant
Schedule II - Valuation and Qualifying
Accounts
All other statements are omitted because they
are not applicable or not required or because
the required information is included in the
consolidated financial statements.
(a)3. Exhibits. See Index to Exhibits.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
last quarter covered by this report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 28, 1998.
CATHERINES STORES CORPORATION
By:/s/David C. Forell
------------------------------
David C. Forell
Executive Vice President and
Chief Financial Officer
13
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board of
Directors, Chief Executive
Officer and Director
/s/Bernard J. Wein (Principal Executive Officer) March 18, 1998
- ------------------
Bernard J. Wein
Executive Vice President,
/s/Stanley H. Grossman Secretary and Director March 18, 1998
- ----------------------
Stanley H. Grossman
Executive Vice President
and Chief Financial Officer
and Director (Principal
Financial and Accounting
/s/David C. Forell Officer) March 18, 1998
- ------------------
David C. Forell
/s/James H. Lindy Director March 18, 1998
- -----------------
James H. Lindy
/s/Allen B. Morgan, Jr. Director March 18, 1998
- -----------------------
Allen B. Morgan, Jr.
/s/Wellford L. Sanders, Jr. Director March 18, 1998
- ---------------------------
Wellford L. Sanders, Jr.
/s/Elliot J. Stone Director March 18, 1998
- ------------------
Elliot J. Stone
14
<PAGE>
Catherines Stores Corporation Schedule I
Condensed Financial Information of Registrant
Balance Sheets
(dollars in thousands)
January 31, February 1,
1998 1997
---------- ----------
ASSETS:
Cash ........................................... $ 5 $ 5
Accounts Receivable ............................ 852 750
Inventory ...................................... 9,213 12,472
Prepaid Expenses ............................... 243 225
Deferred Income Taxes .......................... 456 268
Investment in Subsidiaries -
eliminated in consolidation ................. 72,203 71,573
Intercompany Receivable ........................ 622 659
Property and Equipment, net of
accumulated depreciation .................... 5,443 6,525
------- -------
TOTAL ASSETS ................................... 89,037 92,477
======= =======
LIABILITIES:
Accounts Payable ............................... 18,150 22,518
Accrued Liabilities ............................ 13 5
Income Taxes Payable ........................... 745 8
------- -------
Total Liabilities ........................... 18,908 22,531
------- -------
STOCKHOLDERS' EQUITY:
Common Stock ................................... 72 72
Additional Paid-In Capital ..................... 46,530 46,391
Retained Earnings .............................. 23,527 23,483
------- -------
Total Stockholders' Equity .................. 70,129 69,946
------- -------
TOTAL LIABILITIES &
STOCKHOLDERS'EQUITY ......................... $89,037 $92,477
======= =======
The accompanying notes are an integral part of these balance sheets.
15
<PAGE>
Schedule I
(continued)
Catherines Stores Corporation
Condensed Financial Information of Registrant
Statements of Income
(dollars in thousands)
Years Ended
------------
January 31, February 1, February 3,
1998 1997 1996
-------- -------- --------
Sales .......................... $ 168,523 $ 170,002 $ 182,842
Cost of sales .................. 157,915 159,217 161,216
--------- --------- ---------
Gross margin ................... 10,608 10,785 21,626
Selling, general
and administrative
expenses ...................... 10,987 12,633 11,299
--------- --------- ---------
Income (loss)
before income
taxes ......................... (379) (1,848) 10,327
Income tax benefit
(provision) ................... 142 647 (3,614)
Equity in
subsidiaries'
continuing earnings
(losses) ...................... 281 2,487 (3,603)
--------- --------- ---------
Net income ..................... $ 44 $ 1,286 $ 3,110
========= ========= =========
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
Catherines Stores Corporation Schedule I
Condensed Financial Information of Registrant (continued)
Statements of Cash Flows
(dollars in thousands)
Years Ended
-----------
January February February
31, 1998 1, 1997 3, 1996
-------- -------- -------
Cash flows from operating activities:
Net income ............................... $ 44 $ 1,286 $ 3,110
Adjustments to reconcile net
income to net cash provided
by (used in ) operating
activities:
Equity in undistributed
(earnings) losses of
subsidiaries .......................... (281) (2,487) 3,603
Depreciation and amoritization ......... 634 306 312
Change in current assets and
liabilities ........................... (1,174) 1,223 (7,020)
Change in deferred income
taxes ................................. (188) (268) 0
------- ------- -------
Total adjustments in current
assets and liabilities ................. (1,009) (1,226) (3,105)
------- ------- -------
Net cash provided by (used in)
operating activities ..................... (965) 60 5
------- ------- -------
Cash flows from investing activities:
Capital expenditures ..................... (232) (327) (206)
Cash distribution from
subsidiaries ............................ 1,058 3,839 0
------- ------- -------
Net cash provided by (used in)
investing activities ...................... 826 3,512 (206)
------- ------- -------
Cash flows from financing activities:
Sales of common stock, net
of cash expenses ........................ 139 164 206
Repurchase of common stock ............... 0 (3,736) 0
------- ------- -------
Net cash provided by (used in)
financing activities ...................... 139 (3,572) 206
------- ------- -------
Net change in cash ......................... $ 0 $ 0 $ 5
======= ======= =======
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
SCHEDULE I
(Continued)
Catherines Stores Corporation
Notes to Consolidated Financial Statements
January 31, 1998
---------------------
1. GENERAL
- -----------
Catherines Stores Corporation ("Stores"), through its wholly-owned
subsidiaries, collectively "the Company", operates retail specialty stores
selling women's large-size clothing and accessories in locations throughout the
United States. Stores' principal assets are its investments in its subsidiaries
and a retail distribution center. Stores provides merchandise buying and
distribution services to its operating subsidiaries.
These statements should be read in conjunction with the audited
consolidated financial statements of the Company as of January 31, 1998,
February 1, 1997 and February 3, 1996. Accordingly, significant accounting
policies and other disclosures necessary for complete financial statements in
conformity with generally accepted principles have been omitted since such items
are reflected in the Company's audited consolidated financial statements and
related notes thereto. Information with respect to material contingencies,
long-term obligations and guarantees of Stores, for all periods presented, is
also disclosed in the audited consolidated financial statements and related
notes thereto.
Accounts Receivable
Accounts receivable consists of trade vendor receivables.
Merchandise Inventory
Merchandise inventory represents inventory purchased by Stores for its
operating subsidiaries that was in transit to or being held at its retail
distribution facility at fiscal year end.
Intercompany Transactions
Stores and its subsidiaries have entered into an exclusive merchandise
buying and distribution services agreement and an agency agreement. Under the
buying and distribution services agreement, Stores performs all transactions
necessary to provide merchandise to its subsidiaries for retail sales. These
goods are sold at a markup and are recorded as sales on Stores' financial
statements with a coresponding entry to intercompany receivable. One of Stores'
subsidiaries has an agency agreement with Stores and the other subsidiaries in
which it provides all administrative and management services. The subsidiary, in
18
<PAGE>
turn, assesses a fee to Stores and its other subsidiaries for these services.
These fees, plus all funds distributed to meet the obligations of Stores or its
other subsidiaries, are recorded as intercompany transactions. All intercompany
transactions are eliminated in consolidation.
Income Taxes
For separate-company reporting purposes, Stores records its income tax
provision or benefit as if it were filing separate tax returns. The results of
operations for Stores' is actually included in the consolidated income tax
returns filed by the Company.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
2. STATEMENTS OF CASH FLOWS
- ----------------------------
In fiscal 1996, Stores repurchased 509,500 shares of its outstanding
common stock on the open market. To effect this purchase, a cash distribution of
approximately $3,736,000 was made to Stores by its subsidiaries.
19
<PAGE>
Schedule II
Catherines Stores Corporation
Valuation and Qualifying Accounts
(dollars in thousands)
(1)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Balance Charged Charged Balance
at (credited) (credited) at
beginning to to end
of costs and other of
Description period expenses accounts Deductions period
- ----------- -------- ---------- --------- ------------ ------
Year ended
February 3,
1996:
Allowance for
doubtful
accounts ........ $ 112 $ 151 -- $ (208) $ 55
Reserve for
inventory
markdowns ....... 1,550 630 -- -- 2,180
Reserve for
inventory
shrinkage ....... 146 10 -- -- 156
Reserve for
layaway
cancellations ... 49 (20) -- -- 29
Reserve for
sales returns
and
allowances ...... 190 60 -- -- 250
Year ended
February 1,
1997:
Allowance for
doubtful
accounts ........ 55 164 -- (144) 75
Reserve for
inventory
markdowns ....... 2,180 270 -- -- 2,450
Reserve for
inventory
shrinkage ....... 156 -- -- -- 156
Reserve for
layaway
cancellations ... 29 (2) -- -- 27
20
<PAGE>
Reserve for
sales returns
and
allowances ....... 250 13 -- -- 263
Year ended
January 31,
1998:
Allowance for
doubtful
accounts ......... 75 202 -- (192) 85
Reserve for
inventory
markdowns ........ 2,450 145 -- -- 2,595
Reserve for
inventory
shrinkage ........ 156 8 -- -- 164
Reserve for
layaway
cancellations .... 27 9 -- -- 36
Reserve for
sales returns
and
allowances ....... $ 263 $ 39 -- -- $ 302
(1) Accounts written off, less recoveries.
21
<PAGE>
EXHIBIT INDEX
Number
Assigned in
Regulation S-K
Item 601 Description of Exhibits
(2) 2.1 Agreement and Plan of Merger pursuant to which the
Registrant's succession has occurred is incorporated herein
by reference to Exhibit 2.1 to the Registration of
Securities of Certain Successor Issuers on Form 8-B dated
January 29, 1995, to which such Agreement and Plan of
Merger is attached as Exhibit A.
(3) 3.1 Charter is incorporated by reference to Exhibit 2.1 to the
Registration of Securities of Certain Successor Issuers on
Form 8-B dated January 29, 1995, to which such Charter is
attached as Exhibit B.
3.2 Bylaws are incorporated by reference to Exhibit 2.1 to the
Registration of Securities of Certain Successor Issuers on
Form 8-B dated January 29, 1995, to which such Charter is
attached as Exhibit C.
(4) 4.1 Specimen Common Stock Certificate is incorporated by
reference to Exhibit 4.1 to the Registration of Securities
of Certain Successor Issuers on Form 8-B dated January 29,
1995.
(10) 10.1 Form of Indemnity Agreement dated as of June 3, 1992
between Registrant and each of Stanley H. Grossman, David
C. Forell, James H. Lindy and Allen B. Morgan, Jr. is
incorporated herein by reference to Exhibit 10.23 to the
Registration Statement of the Company dated November 30,
1992 (SEC File No. 33-55320).
10.2 Form of Indemnity Agreement dated as of May 23, 1991 between
Catherines, Inc. And each of Bernard J. Wein, Robert V.
Glaser, Wellford L. Sanders, Jr., Elliot J. Stone and Savio W.
Tung is incorporated herein by reference to Exhibit 10.23 to
Amendment No. 1 to the Registration Statement of the Company
dated June 28, 1991 (SEC File No. 33-40832).
10.3 Form of Indemnity Agreement dated as of June 3, 1992
between Catherines, Inc. and each of Stanley H. Grossman,
David C. Forell, James H. Lindy and Allen B. Morgan, Jr. is
incorporated herein by reference to Exhibit 10.20 to the
Registration Statement of the Company dated November 30,
1992 (SEC File No. 33-55320).
10.4 Master Equipment Lease Agreement dated March 15, 1991
between Sanwa Business Credit Corporation and Catherines,
Inc. and related agreements is incorporated herein by
<PAGE>
reference to Exhibit 10.25 to Amendment No. 1 to the
Registration Statement of the Company dated June 28, 1991
(SEC File No. 33-40832).
10.5 Supplement No. 1 to Master Equipment Lease Agreement dated
as of September 30, 1991 between Sanwa Business Credit
Corporation and Catherines, Inc. and related agreements is
incorporated herein by reference to Exhibit 10.21 to the
Registration Statement of the Company dated March 12, 1992
(SEC File No. 33-46334).
10.6 Supplement No. 2 to Master Equipment Lease Agreement dated
as of June 8, 1992 between Sanwa Business Credit
Corporation and Catherines, Inc. and related agreements is
incorporated herein by reference to Exhibit 10.23 to the
Registration Statement of the Company dated November 30,
1992 (SEC File No. 33-55320).
10.7 Hardware Purchase and Software License Agreement between
STS Systems, Ltd. and Catherines, Inc. is incorporated
herein by reference to Exhibit 10.23 to the Registration
Statement of the Company dated March 12, 1992 (SEC File No.
33-46334).
10.8 Purchase agreement dated October 1, 1992 between Catherines,
Inc. and Hurley State Bank is incorporated herein by reference
to Exhibit 10.25 to the Registration Statement of the Company
dated November 30, 1992 (SEC File No. 33-55320).
10.9 Merchant Services Agreement dated October 1, 1992 between
Catherines, Inc. and Hurley State Bank is incorporated herein
by reference to Exhibit 10.26 to the Registration Statement of
the Company dated November 30, 1992 (SEC File No. 33-55320).
10.10 Service Agreement dated October 1, 1992 between Catherines,
Inc. and Hurley State Bank is incorporated herein by reference
to Exhibit 10.27 to the Registration Statement of the Company
dated November 30, 1992 (SEC File No. 33- 55320).
10.11 Agreement and Plan of Merger dated as of October 2, 1992 among
Catherines Stores Corporation, Virginia Acquisition Corp.,
Virginia Specialty Stores, Inc. and Walter S. Segsloff is
incorporated herein by reference to Exhibit 10.1 to the
Current Report on Form 8-K of the Company dated November 17,
1992.
10.12 Amendment No. 1 dated November 3, 1992 to said Agreement and
Plan of Merger is incorporated herein by reference to Exhibit
10.2 to the Current Report on Form 8-K of the Company dated
November 17, 1992.
10.13 Escrow Agreement dated as of November 3, 1992 by and among
Catherines Stores Corporation, Virginia Acquisition Corp.,
<PAGE>
Virginia Specialty Stores, Inc., Walter S. Segaloff, Signet
Trust Company and W.S.S. Group, Inc. is incorporated herein
reference to Exhibit 10.3 to the Current Report on Form 8-K
of the Company dated November 17, 1992.
10.14 Noncompetition Agreement dated as of November 3, 1992, among
Catherines Stores Corporation, Virginia Acquisition Corp.,
Virginia Specialty Stores, Inc. and Walter S. Segaloff is
incorporated herein by reference to Exhibit 10.6 to the
Current Report on Form 8-K of the Company dated November 17,
1992.
10.15 Indemnity Agreement dated as of November 3, 1992 among
Catherines Stores Corporation, Virginia Acquisition Corp.,
Virginia Specialty Stores, Inc. and Walter S. Segaloff is
incorporated herein by reference to Exhibit 10.7 to the
Current Report on Form 8-K of the Company dated November 17,
1992.
10.16 Stock Purchase and Registration Agreement dated as of November
3, 1992 by and among Catherines Stores Corporation, Signet
Trust Company, the Purchaser Advisors and the Purchasers is
incorporated herein by reference to Exhibit 10.9 to the
Current Report on Form 8-K of the Company dated November 17,
1992.
10.17 Supplement No. 3 to Master Lease Agreement dated as of
December 31, 1992, between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated herein by
reference to Exhibit 10.37 to the Registration Statement of
the Company dated November 30, 1992, (SEC File No. 33-
55320).
10.18 Supplement No. 4 to Master Lease Agreement dated as of
December 31, 1992, between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated herein by
reference to Exhibit 10.37 to the Registration Statement of
the Company dated November 30, 1992 (SEC File No. 33-
55320).
10.19 Real Estate Purchase Agreement dated as of February 24, 1993
by and between Catherines, Inc. and Holiday Inns, Inc. is
incorporated herein by reference to Exhibit 10.27 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.20 Supplement No. 5 to Master Lease Agreement dated as of June
30, 1993, between Sanwa Business Credit Corporation Business
Credit Corporation and Catherines, Inc. is incorporated herein
by reference to Exhibit 10.30 to the Annual Report on Form
10-K of the Company for the fiscal year ended January 29,
1994.
10.21 Master Lease Agreement No. 092893 dated September 28, 1993
between Econocom-USA, Inc. and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.31 to the
<PAGE>
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.22 Real Property Lease Agreement dated as of December 10, 1993 by
and between the Industrial Development Board of the City of
Memphis and County of Shelby, Tennessee and Catherines, Inc.
is incorporated herein by reference to Exhibit 10.32 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.23 Equipment Lease Agreement dated December 31, 1993 by and
between First American National Bank and Catherines, Inc. is
incorporated herein by reference to Exhibit 10.33 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.24 Credit Agreement dated as of March 31, 1994, between and among
Catherines, Inc., Catherines Stores Corporation, Virginia
Specialty Stores, Inc., Added Dimensions, Inc. Linda
Karan-Large Size Factory Outlet, Inc., The Answer-The Elegant
Large Size Discounter, Inc. and First American National Bank
is incorporated herein by reference to Exhibit 10.34 to the
Annual Report on Form 10-K of the Company for the fiscal year
ended January 29, 1994.
10.25 Amendment to Supplement No. 1 dated as of October 1, 1994,
by and between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.33 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.26 Amendment to Supplement No. 3 dated as of October 1, 1994,
by and between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.34 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.27 Amendment to Supplement No. 5 dated as of October 1, 1994,
by and between Sanwa Business Credit Corporation and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.35 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.28 Second Amendment to Master Equipment Lease Agreement dated as
of June 8, 1992, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated herein by
reference to Exhibit 10.36 to Registration of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
10.29 Fifth Amendment to Master Equipment Lease Agreement dated as
of January 29, 1995, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated herein
by reference to Exhibit 10.37 to Registration of
Certain Successor Issuers on Form 8-B dated January 29, 1995.
<PAGE>
10.30 First Amendment to Credit Agreement dated as of January 29,
1995, between and among Catherines, Inc., Catherines Stores
Corporation, Catherines of California, Inc., Catherines of
Pennsylvania, Inc., CSC Sub, Inc., Catherines Partners, L.P.
and First American National Bank, as Agent for itself and
Hibernia National Bank and The Hongkong and Shanghai Banking
Corporation Limited is incorporated herein by reference to
Exhibit 10.38 to Registration of Certain Successor Issuers on
Form 8-B dated January 29, 1995.
10.31 First Amended and Restated Merchant Services Agreement dated
as of October 1, 1992, by and between Hurley State Bank and
Catherines, Inc. is incorporated herein by reference to
Exhibit 10.39 to Registration of Certain Successor Issuers on
Form 8-B dated January 29, 1995.
10.32 First Amended and Restated Merchant Services Agreement dated
as of November 2, 1992, by and between Hurley State Bank and
Virginia Specialty Stores, Inc. is incorporated herein by
reference to Exhibit 10.40 to Registration of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
10.33 Amendment to Network Services Agreement dated as of January
29, 1995, by and between SPS Payment Systems, Inc. and
Catherines, Inc is incorporated herein by reference to Exhibit
10.41 to Registration of Certain Successor Issuers
on Form 8-B dated January 29, 1995.
10.34 Supplement No. 6 to Master Equipment Lease Agreement dated as
of October 1, 1994, by and between Sanwa Business Credit
Corporation and Catherines, Inc. is incorporated herein by
reference to Exhibit 10.42 to Registration of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
10.35 Master Agreement dated as of February 1, 1995, among
Catherines, Inc., Investcorp International, Inc. and Card
Establishment Services, Inc. is incorporated herein by
reference to Exhibit 10.35 to the Annual Report on Form 10-
K of the Company for fiscal year ended February 6, 1996.
10.36 Standard Agreement dated as of June 8, 1995, between
Catherines Stores Corporation and United Steelworkers of
America, AFL-CIO, CLLC, Local No. 1002 is incorporated herein
by reference to Exhibit 10.36 to the Annual Report on Form
10-K of the Company for fiscal year ended February 6, 1996.
10.37 Second Amendment to Credit Agreement dated as of December 6,
1995, between and among Catherines, Inc., Catherines Stores
Corporation, Catherines of California, Inc., Catherines of
Pennsylvania, Inc., Catherines, Partners, L.P. and First
American National Bank, as Agent for itself and Hibernia
National Bank and The Hongkong and Shanghai Banking
Corporation Limited is incorporated herein by reference to
<PAGE>
Exhibit 10.37 to the Annual Report on Form 10- K of the
Company for fiscal year ended February 6, 1996.
10.38 Third Amendment to Credit Agreement between and among
Catherines, Inc., Catherines Stores Corporation, Catherines of
California, Inc. Catherines of Pennsylvania, Inc., Catherines
Partners, L.P. and First American National Bank, as Agent for
itself and Hibernia national Bank and The Hongkong and
Shanghai Banking Corporation Limited is incorporated herein by
reference to Exhibit 10.38 to the Annual Report on Form 10-K
of the Company for fiscal year ended February 6, 1996.
10.39* Fourth Amendment to Credit Agreement between and among
Catherines, Inc., Catherines Stores Corporation, Catherines of
California, Inc., Catherines of Pennsylvania, Inc., Catherines
Partners, L.P. and First American National Bank, individually
and in its capacity as Agent, Hibernia National Bank and Bank
One, N.A. dated February 27, 1998.
MANAGEMENT CONTENTS, COMPENSATORY PLANS OR ARRANGEMENTS, ETC.
10.100 Form of Executive Employment Agreements dated May 23, 1991
between Catherines, Inc. and each of Bernard J. Wein, Stanley
H. Grossman and David C. Forell is incorporated herein by
reference to Exhibit 10.2 to the Registration Statement of the
Company dated May 24, 1991 (SEC file No. 33-40832).
10.101 The Registrant's Restated 1990 Performance Units Plan, as
amended, is incorporated herein by reference to Exhibit 10.4
to the Registration Statement of the Company dated May 24,
1991 (SEC File No. 33-40832).
10.102 Executive Annuity Agreement dated April 20, 1989 between
Catherines, Inc. and Bernard J. Wein is incorporated herein by
reference to Exhibit 10.6 to the Registration Statement of the
Company dated May 24, 1991 (SEC File No. 33-40832).
10.103 Executive Annuity Agreement dated April 20, 1989 between
Catherines, Inc. and Stanley Grossman is incorporated herein
by reference to Exhibit 10.7 to the Registration Statement of
the Company dated May 24, 1991 (SEC File No. 33-40832).
10.104 Executive Insurance Agreement dated April 20, 1989 between
Catherines, Inc. and David C. Forell is incorporated herein by
reference to Exhibit 10.8 to the Registration Statement of the
Company dated May 24, 1991 (SEC File No. 33-40832).
10.105 Catherines Senior Management Bonus Plan is incorporated herein
by reference to Exhibit 10.9 to the Registration Statement of
the Company dated May 24, 1991 (SEC File No. 33-40832).
10.106 The Registrant's 1994 Omnibus Incentive Plan is
incorporated by reference to Exhibit 10.1 to the
Registration Statement of the Registrant dated May 31, 1994
(SEC File No. 33-79598).
(11)11.1* Statement re: Computation of Weighted Average Number of
Common Shares Outstanding.
<PAGE>
(13)13.1* The Company's Annual Report to Shareholders for the fiscal
year to which this Annual Report on Form 10-K relates, to the
extent incorporated herein by reference.
(21) 21.1 Subsidiaries are incorporated herein by reference to
Exhibit 21.1 to Registration of Securities of Certain
Successor Issuers on Form 8-B dated January 29, 1995.
(23)23.1* Consent of Arthur Andersen LLP.
23.2* Report of Arthur Andersen LLP on Schedules.
(27)* Financial Data Schedule (EDGAR FILING ONLY).
- ------------------------------------
*Previously unfiled documents are noted with an asterisk.
<PAGE>
CATHERINES, INC.
CATHERINES STORES CORPORATION
CATHERINES OF PENNSYLVANIA, INC.
CATHERINES OF CALIFORNIA, INC.
CATHERINES PARTNERS, L.P.
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of February 27, 1998
FIRST AMERICAN NATIONAL BANK, individually and
in its capacity as Agent
HIBERNIA NATIONAL BANK
BANK ONE, N.A.
- 1 -
<PAGE>
Page
TABLE OF CONTENTS
This Table of Contents is not a part of the Amended and Restated Credit
Agreement and is only for convenience of reference.)
Page
SECTION 1. DEFINITIONS.............................................. ...3
1.1 Defined Terms....................................................3
1.2 Accounting Terms................................................23
1.3 Other Definitional Provisions...................................23
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS............................24
2.1 Working Capital Commitments and Working Capital
Loans.......................................................24
2.2 Working Capital Note............................................24
2.3 Optional Prepayments............................................24
2.4 Requirements of Law.............................................25
2.5 Use of Proceeds.................................................27
2.6 Swingline Loan Subfacility......................................27
SECTION 3. LETTERS OF CREDIT...........................................28
3.1 Issuance of Letters of Credit...................................28
3.2 Participating Interests.........................................28
3.3 Procedure for Opening Letters of Credit.........................28
3.4 Payments in Respect of Letters of Credit........................28
3.5 Letter of Credit Fees...........................................29
3.6 Letter of Credit Reserves.......................................30
3.7 Further Assurances..............................................31
3.8 Obligations Absolute............................................31
3.9 Assignments.....................................................32
3.10 Participations .................................................32
3.11 Certification as to L/C Exposure on Closing Da..................32
SECTION 4. INTEREST RATE PROVISIONS; FEES; PAYMENTS....................32
4.1 Procedure for Borrowing.........................................32
4.2 Interest Rates and Payment Dates................................34
4.3 Computation of Interest and Fees................................34
i
<PAGE>
Page
4.4 Conversion Options..............................................35
4.5 Pro Rata Treatment and Payments.................................35
4.6 Fees............................................................36
4.7 Changes of Commitment Amounts...................................36
4.8 Inability to Determine Interest Rate............................37
4.9 Illegality......................................................38
4.10 Indemnity.......................................................38
SECTION 5. CONDITIONS PRECEDENT........................................39
5.1 Conditions Precedent to this Amended and
Restated Credit Agreement .....................................39
5.2 Conditions to Each Loan and Each Letter of Credit...............43
SECTION 6. REPRESENTATIONS AND WARRANTIES..............................44
6.1 Financial Condition.............................................44
6.2 Entity Existence; Compliance with Law...........................44
6.3 Entity Power; Authorization; Enforceable
Obligations.................................................45
6.4 No Legal Bar....................................................46
6.5 No Material Litigation..........................................46
6.6 No Default......................................................46
6.7 Ownership of Property; Liens....................................46
6.8 Patents, Copyrights, Permits and Trademarks.....................46
6.9 No Burdensome Restrictions......................................46
6.10 Margin Regulations..............................................46
6.11 Investment Company Act..........................................47
6.12 Disclosure......................................................47
6.13 The Security Documents..........................................47
6.14 ERISA...........................................................47
6.15 Subsidiaries....................................................48
SECTION 7. AFFIRMATIVE COVENANTS.......................................48
7.1 Financial Statements............................................48
7.2 Certificates; Reports and Other Information.....................49
7.3 Payment of Obligations..........................................51
7.4 Conduct of Business and Maintenance of Existence................51
7.5 Maintenance of Property.........................................51
7.6 Insurance.......................................................51
ii
<PAGE>
Page
7.7 Inspection of Property; Books and Records;
Discussions.................................................52
7.8 Notices.........................................................52
7.9 Maintenance of Liens of the Security Documents..................53
7.10 Security Documents..............................................53
7.11 Termination of Merchant Services Agreements.....................54
7.12 Annual Inventory Valuation......................................54
7.13 Further Assurances..............................................54
SECTION 8. FORMATION OF NEW SUBSIDIARIES.....................................54
SECTION 9. NEGATIVE COVENANTS..........................................55
9.1 Indebtedness....................................................55
9.2 Limitation on Liens.............................................56
9.3 Limitation on Contingent Obligations............................57
9.4 Prohibition on Fundamental Changes..............................57
9.5 Prohibition on Sale of Assets...................................57
9.6 Limitation on Investments, Loans and Advances...................58
9.7 Consolidated Working Capital....................................58
9.8 Consolidated Net Worth..........................................58
9.9 Capital Expenditures........................................... 58
9.10 Debt Coverage Ratio.............................................59
9.11 Entity Documents................................................59
9.12 Limitation on Dividends.........................................59
9.13 Transactions with Affiliates and among Credit Parties...........59
SECTION 10. EVENTS OF DEFAULT...........................................60
SECTION 11. MISCELLANEOUS....................................................63
11.1 Amendments and Waivers.........................................63
11.2 Notices........................................................63
11.3 No Waiver; Cumulative Remedies.................................64
11.4 Survival of Representations, Warranties and
Covenants..................................................65
11.5 Payment of Expenses and Taxes..................................65
11.6 Successors and Assigns; Participations; Purchasing
Banks......................................................65
11.7 Adjustments....................................................69
11.8 Merger.........................................................69
iii
<PAGE>
11.9 Effectiveness..................................................69
11.10 Governing Law; No Third Party Rights...........................70
11.11 Submission to Jurisdiction: Waivers............................70
11.12 Counterparts...................................................71
11.13 Obligations of Banks Several...................................71
SCHEDULES
1.1 Store Locations
1.2 Swingline Loan Commitment Percentage
Working Capital Commitment
Working Capital Commitment Percentage
4.1(d) FANB Rate Lending Office
5.1(n) Exceptions to UCC Filings
5.1(o) List of Jurisdictions and Lien Searches 5.1(p) States Without
Good Standing Certificates 6.5 Material Litigation 6.7 Imperfect Record
Title or Leaseholds 6.13 UCC Filing List 6.15 Subsidiaries of Parent
and Company 9.1(b) Permitted Indebtedness 9.2(g) Permitted Liens 9.3
Contingent Obligations
EXHIBITS
A First Amended and Restated Assignment and Security Agreement-Intex
B First Amended and Restated Assignment and Security Agreement-PA Co
C First Amended and Restated Assignment and Security Agreement-RT Co
D First Amended and Restated Assignment and Security Agreement-The Company
E Borrowing Base Certificate
F Commitment Transfer Supplement
G First Amended & Restated Security Agreement (Company)
H HSB Purchase Agreement
I Second Amended and Restated Guaranty Agreement (Intex)
iv
<PAGE>
J First Amended and Restated Security Agreement (Intex)
K L/C Participation Certificate
L Merchant Services Agreements
M Second Amended and Restated Guaranty Agreement (PA Co.)
N First Amended & Restated Pledge Agreement (PA Co.)
O First Amended and Restated Security Agreement (PA Co.)
P Second Amended & Restated Guaranty Agreement (Parent)
Q First Amended and Restated Pledge Agreement (Parent)
R First Amended and Restated Security Agreement (Parent)
S Second Amended and Restated Guaranty Agreement (RT Co.)
T First Amended and Restated Pledge Agreement (RT Co.)
U First Amended and Restated Security Agreement (RT Co.)
V First Amended and Restated Swingline Note
W Second Amended and Restated Working Capital Note [2.2]
X Waring Cox Opinion Letter [5.1(b)]
v
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "Amended and Restated
Credit Agreement"), dated as of February 27, 1998, is made by and among
CATHERINES, INC., a Delaware corporation (the "Company"), CATHERINES STORES
CORPORATION, a Tennessee corporation (the "Parent"), CATHERINES OF PENNSYLVANIA,
INC., a Tennessee corporation ("PA Co."), CATHERINES OF CALIFORNIA, INC., a
California corporation ("RT Co."), CATHERINES PARTNERS, L.P., a Tennessee
limited partnership ("Intex"), and FIRST AMERICAN NATIONAL BANK, a national
banking association ("FANB"), individually and in its capacity as agent for the
Banks, defined below (together with any of its successors in such capacity, the
"Agent"), HIBERNIA NATIONAL BANK, a national banking association ("Hibernia")
and BANK ONE, N.A., a national banking association ("Bank One"); (together with
their successors, transferees and assigns from time to time parties hereto shall
be referred to collectively as the "Banks" and each individually shall be
referred to as a "Bank").
W I T N E S S E T H:
A. The Company, Catherines Stores Corporation, a Delaware corporation
(the "Predecessor Parent"), Virginia Specialty Stores, Inc. ("VSS"), Added
Dimensions, Inc. ("Added Dimensions"), Linda Karan-Large Size Factory Outlet,
Inc. ("Linda Karan"), The Answer-The Elegant Large Size Discounter, Inc. ("The
Answer") (Added Dimensions, Linda Karan and The Answer collectively called "VSS
Subsidiaries") and FANB entered into a Credit Agreement dated as of March 31,
1994 (the "Original Credit Agreement") pursuant to which FANB provided a term
loan and a working capital loan facility to the Company. In connection with the
execution of the Original Credit Agreement the Company, the Predecessor Parent,
VSS and the VSS Subsidiaries executed a number of ancillary documents
(collectively the "Original Loan Documents") including without limitation
various security agreements, pledge agreements and mortgages in favor of Agent
for the benefit of the Banks (collectively the "Original Security Documents").
B. Hibernia and The Hongkong and Shanghai Banking Corporation Limited
("Hongkong") became parties to the Original Credit Agreement by the execution of
certain Commitment Transfer Supplements dated as of March 31, 1994.
C. Subsequent to the execution of the Original Credit Agreement, PA
Co., RT Co., Intex and CSC Sub, Inc., a Tennessee corporation ("CSC Sub") were
formed, the VSS Subsidiaries merged with VSS and certain assets were transferred
from the Company to PA Co., RT Co., Intex and CSC Sub. The corporate restructure
and the transfer of assets were contemplated by the terms of the Original Credit
Agreement and were subject to the execution by the Company, the Predecessor
Parent, VSS, PA Co., RT Co., Intex and CSC Sub of a First Amendment to Credit
Agreement (the "First Amendment") dated as of January 29, 1995, whereby PA Co.,
RT Co., Intex and CSC Sub became Credit Parties and certain ancillary documents
were executed in connection therewith (collectively, the "First Amendment Loan
Documents") including but not limited to security
- 1 -
<PAGE>
agreements and pledge agreements in favor of Agent for the benefit of FANB,
Hibernia and Hongkong (collectively, the "First Amendment Security Documents").
D. Subsequent to the execution of the First Amendment, VSS merged into
the Company and the Parent became a successor corporation by virtue of a merger
between CSC Sub and the Predecessor Parent. As of December 6, 1995, the Company,
Parent, PA Co., RT Co., Intex, FANB, Hibernia and Hongkong executed a Second
Amendment to Credit Agreement (the "Second Amendment") whereby (a) the working
capital loan facility was increased from $20,000,000.00 to $25,000,000.00; (b) a
$3,000,000.00 swingline loan subfacility was provided; (c) the term of the
working capital loan facility was extended; (d) certain collateral was released
as security for the Loans and (e) certain other amendments were made to the
credit facilities. In connection therewith the Credit Parties executed certain
ancillary documents (collectively, the "Second Amendment Loan Documents")
including, but not limited to, amendments to security agreements, amendments to
pledge agreements and amendments to deeds of trust in favor of Agent
(collectively, the "Second Amendment Security Documents").
E. As of April 26, 1996, the Credit Parties, FANB, Hibernia and
Hongkong executed a Third Amendment to Credit Agreement (the "Third Amendment")
to reflect certain changes to the financial covenants of the Credit Agreement.
F. As of September 4, 1996, the Credit Parties, FANB, Hibernia and
Hongkong executed a Fourth Amendment to Credit Agreement (the "Fourth
Amendment") (a) to extend term of the swingline loan subfacility, (b) to extend
the term of the working capital loan facility and (c) to reflect certain changes
to the financial covenants of the Credit Agreement. In connection therewith the
Credit Parties executed certain ancillary documents (collectively, the "Fourth
Amendment Loan Documents") including but not limited to the amendments to the
deeds of trust (collectively, the "Fourth Amendment Security Documents").
G. As of December 4, 1996, the Credit Parties, FANB, Hibernia and
Hongkong executed a Fifth Amendment to Credit Agreement (the "Fifth Amendment")
to reflect certain changes to the Credit Agreement.
H. The Original Credit Agreement as amended by the First Amendment,
Second Amendment, Third Amendment, Fourth Amendment and Fifth Amendment is
referred to herein as the "Prior Credit Agreement". The Original Loan Documents,
the First Amendment Loan Documents, the Second Amendment Loan Documents, the
Third Amendment Loan Documents, and the Fourth Amendment Loan Documents are
collectively referred to as the "Prior Loan Documents". The Original Security
Documents, the First Amendment Security Documents, the Second Amendment Security
Documents, and the Fourth Amendment Security Documents are collectively referred
to as the "Prior Security Documents".
- 2 -
<PAGE>
I. Pursuant to the Prior Credit Agreement, FANB, Hibernia and Hongkong
have made Loans and issued Letters of Credit pursuant to their Commitments under
and as defined in the Prior Credit Agreement. The obligations of the Company and
the other Credit Parties pursuant to the Prior Credit Agreement are embodied
within the Prior Loan Documents and are evidenced by the Term Notes, certain
working capital promissory notes, as amended and restated (the "Prior Working
Capital Notes") and a certain swingline note, as amended (the "Prior Swingline
Note") (the Term Notes, the Prior Working Capital Notes and the Prior Swingline
Note being collectively referred to herein as the "Prior Notes") and certain
guaranties of the Parent, PA Co., RT Co. and Intex, as amended (the "Prior
Guaranties").
J. Simultaneously herewith, the Company shall pay and satisfy the
indebtedness evidenced by the Term Notes, the Term Loan Commitment shall
terminate, the liens of the Deeds of Trust shall be released, Bank One shall
acquire all of Hongkong's participating interest in the Working Capital Loan and
all of Hongkong's participating interest in the Letters of Credit pursuant to
the execution of a Commitment Transfer Supplement dated as of the date of this
Amended and Restated Credit Agreement and executed immediately prior to or
concurrently with the execution of this Amended and Restated Credit Agreement,
and Bank One shall become a Bank party to this Amended and Restated Credit
Agreement all in accordance with the terms and conditions of this Amended and
Restated Credit Agreement. In addition and among other things, the "Working
Capital Commitments" as defined in the Prior Credit Agreement shall be reduced
and restated as defined in this Amended and Restated Agreement.
K. The Credit Parties and the Banks wish to further amend the Credit
Parties' obligations pursuant to this Amended and Restated Agreement and restate
the Credit Parties' obligations to the Banks, on the terms and conditions set
forth herein. Except as set forth herein, the Credit Parties' obligations will
continue to be secured by the liens and security interests granted in the Prior
Security Documents.
NOW, THEREFORE, in consideration of the above Recitals, which are
incorporated in this Amended and Restated Agreement, in consideration of the
mutual agreements and covenants contained herein and for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used herein the following terms shall have the
following meanings:
"Accounts" shall mean all accounts receivable, book debts, notes,
drafts, instruments, documents, acceptances and other forms of obligations now
owned or hereafter received or acquired by or belonging or owing to the Credit
Parties (including, under any trade names, styles or divisions
- 3 -
<PAGE>
thereof) whether arising out of goods sold by it or services rendered by it or
from any other transaction, whether or not the same involves the sale of goods
or performance or services by the Credit Parties (including, without limitation,
any such obligation which might be characterized as an account, general
intangible or chattel paper under the Uniform Commercial Code in effect in any
jurisdiction) and all of the Credit Parties' rights in, to and under all
purchase orders now owned or hereafter received or acquired by it for goods or
services, and all of the Credit Parties' rights to any goods represented by any
of the foregoing (including returned or repossessed goods and unpaid sellers'
rights), and all moneys due or to become due to the Credit Parties under all
contracts for the sale of goods and/or the performance of services by it
(whether or not yet earned by performance on the part of the Credit Parties) or
in connection with any other transaction, now in existence or hereafter arising,
including without limitation the right to receive the proceeds of said purchase
orders and contracts, and all collateral security and guarantees of any kind
given by any Person with respect to any of the foregoing; individually, an
"Account."
"Affiliate" of a Person (the "Primary Person") shall mean (a) any
Person which, directly or indirectly, is in control of, is controlled by, or is
under common control with, the Primary Person or (b) any Person who is a
director or officer (i) of the Primary Person, (ii) of any Subsidiary of the
Primary Person or (iii) of any Person described in clause (a) above. For
purposes of this definition, control of a Person shall mean the power, directly
or indirectly, (i) to vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person or (ii) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Agent" shall mean FANB in its capacity as agent for the Banks or any
successor agent.
"Amended and Restated Credit Agreement" shall mean this Amended and
Restated Credit Agreement, as the same may from time to time be amended,
supplemented or otherwise modified. The Amended and Restated Credit Agreement
may sometimes be referred to herein as the "Agreement".
"Annual Inventory Valuation" shall mean the annual audit of the Net
Recoverable Liquidation Value of Eligible Inventory required to be furnished to
the Agent pursuant to subsection 7.12.
"Applicable Margin" shall mean 2.25% per annum.
"Asset Sale" shall mean any sale, sale-leaseback, or other disposition
by the Credit Parties or any of their Subsidiaries of any of their property or
assets, including the stock of any of their Subsidiaries (except sales and
dispositions permitted by paragraphs (a) through (h) of subsection 9.5 and by
Section 8).
- 4 -
<PAGE>
"Assignments" shall mean the Assignment of the Company, the Assignment of
Intex, the Assignment of PA Co. and the Assignment of RT Co.
"Assignment of Intex" shall mean the amended and restated assignment
and security agreement, of even date with this Amended and Restated Credit
Agreement, substantially in the form of Exhibit "A" to this Amended and Restated
Credit Agreement, as the same may be amended, supplemented or otherwise
modified, pursuant to which Intex reassigns and regrants a security interest in
its rights to payment under the Company Merchant Services Agreement and the VSS
Merchant Services Agreement as said rights have been assigned to Intex pursuant
to that certain Assignment, Assumption and Processing Agreement I (Catherines
Cards Program) and that certain Assignment, Assumption and Processing Agreement
II (VSSI Cards Program), as collateral for the Loans.
"Assignment of PA Co." shall mean the amended and restated assignment
and security agreement, of even date with thisAmended and Restated Credit
Agreement, substantially in the form of Exhibit "B" to this Amended and Restated
Credit Agreement, as the same may be amended, supplemented or otherwise
modified, pursuant to which PA Co. reassigns and regrants a security interest in
its rights to payment under the Company Merchant Services Agreement and the VSS
Merchant Services Agreement as said rights have been assigned to PA Co. pursuant
to that certain Assignment, Assumption and Processing Agreement I (Catherines
Cards Program) and that certain Assignment, Assumption and Processing Agreement
II (VSSI Cards Program), as collateral for the Loans.
"Assignment of RT Co." shall mean the amended and restated assignment
and security agreement, of even date with this Amended and Restated Credit
Agreement, substantially in the form of Exhibit "C" to this Amended and Restated
Credit Agreement, as the same may be amended, supplemented or otherwise
modified, pursuant to which RT Co. reassigns and regrants a security interest in
its rights to payment under the Company Merchant Services Agreement and the VSS
Merchant Services Agreement as said rights have been assigned to RT Co. pursuant
to that certain Assignment, Assumption and Processing Agreement I (Catherines
Cards Program) and that certain Assignment, Assumption and Processing Agreement
II (VSSI Cards Program), as collateral for the Loans.
"Assignment of the Company" shall mean the amended and restated
assignment and security agreement, dated of even date with this Amended and
Restated Credit Agreement, substantially in the form of Exhibit "D" to this
Amended and Restated Credit Agreement, as the same may be amended, supplemented
or otherwise modified, pursuant to which the Company reassigns and regrants a
security interest in its rights to payments under the Merchant Services
Agreements, as collateral for the Loans.
- 5 -
<PAGE>
"Available Working Capital Commitment" as to any Bank at a particular
date, shall mean an amount equal to (a) the amount of such Bank's Working
Capital Commitment at such time less (b) the sum of (i) such Bank's Working
Capital Loan Exposure and (ii) such Bank's L/C Exposure; collectively, as to all
the Banks, the "Available Working Capital Commitments."
"Base Rate" shall mean the reference or base rate established by FANB
from time to time and utilized in contracting for interest on its variable rate
loans that do not utilize an externally established reference rate. The Base
Rate is one of several interest rate indices employed by FANB. The Credit
Parties acknowledge that FANB has made, and may hereafter make, loans bearing
interest at rates which are lower and higher than the Base Rate.
"Basic Documents" shall mean, collectively, this Amended and Restated
Credit Agreement (including all schedules and exhibits hereto), the Security
Documents, the Working Capital Notes, the Swingline Note, and any other
document, instrument or agreement executed in connection with this Amended and
Restated Credit Agreement, the documents, instruments and agreements executed in
connection with the Prior Credit Agreement (unless superseded according to
Section 11.8) or hereafter executed and delivered by any Credit Party to the
Agent or the Banks and any amendments or supplements to any such documents or
agreements.
"Borrowing Base" shall mean, as of the date of any determination
thereof, an amount equal to the lesser of (a) the aggregate Commitments of all
Banks at such time or (b) the sum of (i) (A) 40% of Eligible Inventory if the
date of determination occurs during amonth, other than March, April or November
or (B) 45% of Eligible Inventory if the date of determination occurs during
March, April or November, or (C) 125% of the Net Recoverable Liquidation Value
of Eligible Inventory only if the Net Recoverable Liquidation Value of the
Eligible Inventory as determined pursuant to a Second Inventory Valuation
performed pursuant to subsection 7.12 is less than 32% of Eligible Inventory
plus (ii) 75% of the net face amount of Eligible Accounts Receivables at such
time minus (iii) 60% of the L/C Exposure at such time. "Net face amount" shall
mean the face amount of such receivables less applicable credits, offsets,
rebates and discounts. For purposes of determining the Borrowing Base, Eligible
Inventory shall be calculated utilizing the cost value, after adjustments, as
reflected on the consolidated balance sheet of the Parent and its Subsidiaries.
"Borrowing Base Certificate" shall mean a certificate substantially in
the form of Exhibit "E" to this Amended and Restated Credit Agreement.
"Borrowing Date" shall mean (a) any Business Day with respect to FANB
Rate Loans, or any Working Day with respect to Eurodollar Loans, specified in a
notice pursuant to subsection 4.1 of this Amended and Restated Credit Agreement
as a date on which the Banks and/or the Swingline Lender make Loans under this
Amended and Restated Credit Agreement, or (b) any Business Day on which the
Company, in a notice pursuant to subsection 3.1, requests the Issuing Bank to
issue a Letter of Credit under this Amended and Restated Credit Agreement.
- 6 -
<PAGE>
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in Memphis, Tennessee, and London, England are
authorized or required by law to close.
"Capital Expenditures" for any period, shall mean all amounts that
would, in accordance with GAAP, be set forth as capital expenditures (exclusive
of any amount attributable to capitalized interest) on the consolidated
statement of changes in cash flows of the Parent, its consolidated Subsidiaries
and Intex or other similar statement of the Parent, its consolidated
Subsidiaries and Intex for such period.
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition, (ii) certificates of deposit and eurodollar time deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any Bank or with any domestic commercial bank having capital
and surplus in excess of $300,000,000 and a Thomson BankWatch Rating of C or
better, (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (i) and (ii) entered
into with any financial institution meeting the qualifications specified in
clause (ii) above, (iv) commercial paper issued by any Bank or the parent
corporation of any Bank having a Thomson BankWatch Rating of C or better, and
commercial paper rated A-1 or the equivalent thereof by Standard & Poor's
Corporation or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
and in each case maturing within nine months after the date of acquisition, (v)
tax exempt securities rated A1 or the equivalent thereof by Standard & Poor's
corporation or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
and having maturities of not more than one year from the date of acquisition and
(vi) money market funds investing solely in Cash Equivalents.
"Change in Law" shall mean, with respect to any Bank, the adoption of
any law, rule, regulation, policy, guideline or directive (whether or not having
the force of law) or any change therein or in the interpretation or application
thereof by any Governmental Authority having jurisdiction over such Bank, in
each case after the date hereof.
"Change of Control" shall mean any direct or indirect acquisition by
any Person or any Person that as of the date hereof is a direct or indirect
stockholder of the Parent or any Person who is a member of the management of any
of the foregoing or any Affiliate thereof, or senior management of the Credit
Parties or any entity the majority in interest of which is owned by such senior
management), whether singly or in concert with one or more Persons, of 20% or
more, on a fully diluted basis, of the outstanding Parent Common Stock , or any
change in the ownership of the common stock of the Company, PA Co., RT Co., or
any change in the ownership of Intex.
- 7 -
<PAGE>
"Closing Date" shall mean the date upon which all the conditions in
subsection 5.1 have been satisfied, which the parties have scheduled to occur on
February 27, 1998.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean the property, real and personal, tangible and
intangible, and the proceeds thereof, which are subject from time to time to the
Liens purported to be created by the Prior Security Documents (except for the
real property described in the Deeds of Trust) and the Security Documents.
"Commission" shall mean the Securities and Exchange Commission.
"Commitment Percentage" shall mean, with respect to any Bank, its
existing Working Capital Commitment Percentage or its Swingline Loan Commitment
Percentage, as the context may require.
"Commitments" shall be the collective reference to the Working Capital
Commitments and the Swingline Commitment; individually, a "Commitment."
"Commitment Transfer" shall mean an assignment or transfer pursuant to
paragraph (c) of subsection 11.6 hereof and evidenced by a Commitment Transfer
Supplement.
"Commitment Transfer Supplement" shall mean the supplement substantially in
the form of Exhibit "F".
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with a Credit Party within the
meaning of Section 414(b) or (c) of the Code.
"Company" shall have the meaning specified in the preamble of this
Amended and Restated Credit Agreement, its successors and assigns, as permitted
in thisAmended and Restated Credit Agreement.
"Company Security Agreement" shall mean the amended and restated
security agreement of even date entered into by the Company in favor of the
Agent for the ratable benefit of the Banks, substantially in the form of Exhibit
"G" to this Amended and Restated Credit Agreement, as the same may from time to
time be amended, supplemented or otherwise modified.
"Consolidated Adjusted Operating Profit" shall mean, for any period,
the consolidated Net Income of the Parent and its Subsidiaries for such period,
plus, without duplication and to the extent reflected as a charge in the
statement of such consolidated Net Income for such period, the sum of (i) taxes
measured by income, (ii) interest expense, (iii) depreciation and amortization
expense, (iv) any non-cash FASB 121 charges or any other charges which would
cause the acceleration of
- 8 -
<PAGE>
depreciation expense provided that such amount does not exceed $500,000.00 per
Fiscal Year and (v) operating lease expense. The parties have agreed that the
non-cash portion of Store closing expenses shall also be added to the sum of
subparagraphs (i) through (v) for purposes of calculating the Consolidated
Adjusted Operating Profit for the Fiscal Year ending January 31, 1998, and for
each of the three (3) fiscal quarters thereafter, provided that such amount does
not exceed $1,925,000.
"Consolidated Current Assets" at a particular date, shall mean all
amounts which would, in conformity with GAAP, be included under current assets
on a consolidated balance sheet of the Parent and its Subsidiaries as at such
date.
"Consolidated Current Liabilities" at a particular date, shall mean all
amounts which would, in conformity with GAAP, be included under current
liabilities on a consolidated balance sheet of the Parent, its Subsidiaries and
Intex as at such date, but in any event including, in the case of the Parent and
its Subsidiaries, all L/C Obligations, Working Capital Loans and Swingline Loans
at such date.
"Consolidated Net Worth" at a particular date, shall mean all amounts
which would be included under shareholders' equity on a consolidated balance
sheet of the Parent and its Subsidiaries determined in accordance with GAAP as
at such date.
"Consolidated Working Capital" at a particular date, shall mean the
excess, if any, of Consolidated Current Assets over Consolidated Current
Liabilities at such date.
"Contingent Obligation" as to any Person, shall mean any obligation of
such Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person (whether or not contingent)
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided, however, that
the term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount (based on the maximum reasonably anticipated net liability
in respect thereof as determined by such Person in good faith) of the primary
obligation or portion thereof in respect of which such Contingent Obligation is
made or, if not stated or determinable, the maximum reasonably anticipated net
liability in respect thereof
- 9 -
<PAGE>
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith. Notwithstanding any of the foregoing to the contrary, the
term "Contingent Obligation" shall not include any tort claims less than Five
Million Dollars ($5,000,000) in the aggregate until the earlier of (a) the
reduction of any such claim to judgment (whether or not appealed) and (b) the
recognition of any such claim as a liability pursuant to GAAP.
"Contractual Obligation" as to any Person, shall mean any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Parties" shall mean, collectively, the Company, the Parent, PA
Co., RT Co., and Intex, individually, a "Credit Party".
"Debt Coverage Ratio" shall mean as of any period of determination a
fraction (x) the numerator of which is the Consolidated Adjusted Operating
Profit for such period and (y) the denominator of which is interest expense for
such period plus current maturities of long term debt plus current maturities of
Financing Leases according to GAAP plus operating lease expense.
"Deed of Trust" shall mean that certain Tennessee Deed of Trust with
Security Agreement and Fixture Filing dated March 31, 1994, amended by First
Modification and Extension of Deed of Trust dated December 6, 1995, and by
Second Modification and Extension of Deed of Trust dated as of September 4,
1996, executed by The Industrial Development Board of the City of Memphis and
County of Shelby, Tennessee encumbering the fee title to the property located in
Memphis, Tennessee used as the Company's national headquarters and distribution
facility, which Deed of Trust shall be released as of the Closing Date subject
to the terms of paragraph (s) of subsection 5.1 hereof.
"Deeds of Trust" shall mean the Deed of Trust and the Leasehold Deed of
Trust.
"Default" shall mean any event specified in Section 10, whether or not
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Direct Operating Profit Report" shall mean the report required to be
furnished to the Agent pursuant to the terms of paragraph (h) of subsection 7.2.
"Dividend Ratio" shall mean as of the end of each Fiscal Year a
fraction (a) the numerator of which is Consolidated Adjusted Operating Profit
and (b) the denominator of which is the sum of (i) interest expense, (ii) taxes
measured by income, (iii) Capital Expenditures, (iv) payments of obligations
arising with respect to Financing Leases, (v) the increase or decrease in
Consolidated Working Capital at the end of such Fiscal Year from the end of the
prior Fiscal Year (such amount may be negative) and (vi) dividends paid or
proposed to be paid during the current Fiscal Year.
- 10 -
<PAGE>
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Eligible Account Receivables" shall mean all accounts receivable of
the Credit Parties which: (i) arose from a bona fide outright performance of
services by the Credit Parties and the services covered by such account have
been fully performed for the respective account debtor; (ii) are due and payable
not more than thirty (30) days from date of invoice and are not more than sixty
(60) days past due; (iii) are not from an employee, officer, director,
stockholder or an Affiliate; (iv) arose in the ordinary course of business; and
(v) have not otherwise been declared ineligible by Agent in the exercise of its
reasonable discretion.
The following accounts shall not be Eligible Accounts Receivable: (i)
all accounts owing by an account debtor if any account owing by such account
debtor is at that time unpaid for a period exceeding sixty (60) days after the
original due date of the original invoice related thereto; (ii) accounts which
have credit balances; (iii) accounts which are subject to any claim for credit
(other than discounts given in the ordinary course of business), rights of
setoff, allowance or adjustment by the account debtor, or any counterclaim by
the account debtor; (iv) accounts which in Agent's reasonable opinion may be
subject to liens or conflicting claims of ownership; (v) accounts which are
subject to any assignment, claim, lien or security interest of any character
except the security interest of Agent; (vi) accounts for which notice of
bankruptcy, insolvency or adverse change in the financial condition of the
account debtor has been received; and (vii) Agent has notified Credit Parties
that the account or account debtor is unsatisfactory and Agent has reasonable
grounds for such objection.
"Eligible Inventory" at a particular date, shall mean all
Inventorywhich in conformity with GAAP, is included on the consolidated balance
sheet of the Parent and its Subsidiaries as determined using the retail method
on a FIFO basis.
"Equipment" shall mean all "equipment" as said term is defined in
Section 9-109(2) of the UCC, including, without limitation, all present and
future furniture, Fixtures, office supplies, motor vehicles, equipment,
machinery and associated equipment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurodollar Lending Office" shall mean the office of each Bank, if any,
which shall be making or maintaining Eurodollar Loans as designated as such from
time to time in a notice from such Bank to the Agent and the Company.
"Eurodollar Loans" shall mean Loans at such time as they are made
and/or being maintained at a rate of interest based upon a Eurodollar Rate.
- 11 -
<PAGE>
"Eurodollar Rate" shall mean, with respect to any Interest Period for
any Eurodollar Loan, the rate per annum equal to the applicable London interbank
offered rate for U.S. Dollar deposits appearing on Telerate Page 3750 as of
11:00 a.m. London time two Working Days prior to the first day of such Interest
Period (and if no London interbank offered rate of such maturity then appears on
Telerate Page 3750, then the Eurodollar Rate shall be equal to the London
interbank offered rate for U.S. Dollar Deposits maturing immediately before or
immediately after such maturity, whichever is higher, as determined by the Agent
from Telerate Page 3750) for the number of days comprised
- 12 -
<PAGE>
therein and in an amount equal to the amount of the Eurodollar Loan to be
outstanding during such Interest Period divided by (b) a number equal to 1.00
minus the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements current on the date two Working Days prior to
the beginning of such Interest Period (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other Governmental Authority
having jurisdiction with respect thereto), as now and from time to time
hereafter in effect, dealing with reserve requirements prescribed for
Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) maintained by a member bank of such System (such
Eurodollar Rate to be rounded upwards, if necessary, to the next higher 1/100 of
one percent).
"Event of Default" shall mean any of the events specified in Section
10, provided that any requirement for the giving of notice, the lapse of time,
or both, has been satisfied.
"Excluded Leases" shall mean all lease agreements to which any Credit
Party is a party.
"FANB Rate" shall mean the greater of (i) the rate of interest publicly
announced by FANB from time to time as its Base Rate and (ii) 1/2% per annum
above the rate set forth opposite the caption "Federal Funds (Effective)" in the
weekly statistical release designated by "H.15(519)", or any successor
publication, published by the Board of Governors of the Federal Reserve System.
"FANB Rate Lending Office" shall mean, initially, the office of each
Bank designated as such in Schedule 4.1(d); thereafter, such other office of
such Bank, if any, located within the United States which shall be making or
maintaining FANB Rate Loans.
"FANB Rate Loans" shall mean Loans at such time as they are made and/or
being maintained at a rate of interest based upon the FANB Rate.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"Facing Fee" shall mean an administrative fee payable in connection
with the issuance of each Standby L/C as provided in Paragraph (c) of subsection
3.5.
"Financing Lease" shall mean any lease of property, real or personal,
the obligations under which are capitalized on a consolidated balance sheet of
the Parent and its consolidated Subsidiaries.
"Fiscal Year" shall mean the fiscal year of each of the Credit Parties,
as applicable, which in each case shall end on the Saturday closest to January
31 of each year.
"Fixtures" shall mean all "fixtures" as said term is defined in Section
9-313(1)(a) of the UCC.
- 13 -
<PAGE>
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time, provided that for purposes
of subsections 9.7, 9.8, 9.9, and 9.10 and the terms used therein which are
defined "in accordance with GAAP", "GAAP" shall mean generally accepted
accounting principles in the United States of America as in effect on the date
hereof.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranties" shall mean the Parent Guaranty, the Intex Guaranty, the PA Co.
Guaranty, and the RT Co. Guaranty.
"HSB" shall mean The Hurley State Bank.
"HSB Purchase Agreement" shall mean the Purchase Agreement between the
Company and HSB dated as of October 1, 1992, a copy of which is attached hereto
as Exhibit "H".
"Indebtedness" of a Person, at a particular date, shall mean, without
duplication, (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property, (b) the face amount of all letters of
credit issued for the account of such Person and, without duplication, all
outstanding drafts drawn thereunder and any unpaid reimbursement obligation or
indemnity with respect thereto, (c) all liabilities secured by any Lien on any
property owned by such Person, to the extent attributable to such Person's
interest in such property, even though such Person has not assumed or become
liable for the payment thereof, (d) all liabilities of such Person under
Financing Leases and (e) all indebtedness of such Person arising under
acceptance facilities; but excluding trade and other accounts and accrued
expenses payable in the ordinary course of business and accrued reserves with
respect to expenses arising in the ordinary course of business.
"Insolvency" as to any Multiemployer Plan, shall be in the condition
such that such Plan is insolvent within the meaning of such term as used in
Section 4245 of ERISA.
"Insolvent" shall mean pertaining to a condition of Insolvency.
"Inter-Company Indebtedness" shall mean Indebtedness of one or more of
the Credit Parties owed solely to one or more other Credit Parties.
"Interest Payment Date" shall mean (a) in the case of the FANB Rate
Loans (other than Swingline Loans), the fifteenth day of each February, May,
August and November, commencing on May 15, 1998, and the date of payment
(including prepayment) in full of the Working Capital Loans, (b) in the case of
the Eurodollar Loans, the last day of each Interest Period and (c) in the case
of the
- 14 -
<PAGE>
Swingline Loans, the fifteenth day of each February, May, August and November,
commencing on May 15, 1998, and on the date of payment (including prepayment) in
full of the Swingline Loans.
"Interest Period" shall mean with respect to any Eurodollar Loan:
(a) initially, the period commencing on, as the case may be, the
Borrowing Date or conversion date with respect to such Eurodollar Loan and
ending one, two or three months thereafter as selected by the Company in its
notice of borrowing as provided in subsection 4.1 or its notice of conversion as
provided in subsection 4.4; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending one, two
or three months thereafter as selected by the Company by irrevocable notice to
the Agent not less than three Working Days prior to the last day of the then
current Interest Period with respect to such Eurodollar Loan:
provided that the foregoing provisions relating to Interest Periods are
subject to the following:
(A) if any Interest Period would otherwise end on a day which
is not a Working Day, that Interest Period shall be extended to the
next succeeding Working Day, unless the result of such extension would
be to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Working Day;
(B) in the case of any Interest Period for a Working Capital
Loan, any Interest Period that would otherwise extend beyond the
Working Capital Termination Date, shall end on such Working Capital
Termination Date, or if such Working Capital Termination Date shall not
be a Working Day, on the immediately preceding Working Day;
(C) if the Company shall fail to give notice as provided above
in clause (b), it shall be deemed to have selected a conversion of a
Eurodollar Loan into an FANB Rate Loan (which conversion shall occur
automatically and without need for compliance with the conditions for
conversion set forth in subsection 4.4);
(D) any Interest Period that begins on the last day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Working Day of a calendar month; and
(E) the Company shall select Interest Periods so as not to
require a prepayment (to the extent practicable) or a scheduled payment
of a Eurodollar Loan during an Interest Period for such Eurodollar
Loan.
- 15 -
<PAGE>
"Intex Guaranty" shall mean the amended and restated guaranty agreement
of even date in favor of the Banks, substantially in the form of Exhibit "I" to
this Amended and Restated Credit Agreement, as the same may be amended,
supplemented or otherwise modified.
"Intex Security Agreement" shall mean the amended and restated security
agreement of even date executed and delivered by Intex in favor of the Agent for
the ratable benefit of the Banks, substantially in the form of Exhibit "J" to
this Amended and Restated Credit Agreement, as the same may from time to time be
amended, supplemented or otherwise modified.
"Inventory" shall mean all inventory, wherever located, now owned or
hereafter acquired by any Credit Party or in which any Credit Party now has or
hereafter may acquire any right, title or interest, including, without
limitation, all goods and other personal property now or hereafter owned by any
Credit Party which are held for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in any Credit
Party's business, or in the processing, packaging or shipping of the same, and
all finished goods, including, but not limited to, all inventory as defined in
Section 9-109(4) of the UCC.
"Issuing Bank" shall mean FANB.
"L/C Application" shall mean a Trade L/C Application or a Standby L/C
Application.
"L/C Exposure" at a particular date, shall mean the sum of (a) the
aggregate maximum amount available to be drawn under all issued and outstanding
Letters of Credit at such date and (b) the aggregate unreimbursed amounts drawn
under Letters of Credit at such date.
"L/C Obligations" shall mean the obligations of the Company to
reimburse the Issuing Bank for any payments made by the Issuing Bank under any
Letter of Credit that have not been reimbursed by the Company pursuant to
paragraph (a) of subsection 3.4.
"L/C Participating Interest" shall mean an undivided participating
interest in the face amount of each issued and outstanding Letter of Credit and
the L/C Application relating thereto.
"L/C Participation Certificate" shall mean a certificate substantially
in the form of Exhibit "K" to this Amended and Restated Credit Agreement.
"Lease Obligations" shall mean, as of the date of any determination
thereof, the rental commitments of the Credit Parties, if any, under leases for
real and/or personal property (net of income from assignments or subleases
thereof), excluding, however, Financing Leases.
"Leasehold Deed of Trust" shall mean the Tennessee Leasehold Deed of Trust
with Security Agreement, Fixture Filing and Assignment of Rents and Leases dated
March 31, 1994, as amended
- 16 -
<PAGE>
by First Modification and Extension of Deed of Trust dated as of December 6,
1995, and by Second Modification and Extension of Deed of Trust dated as of
September 4, 1996, executed by the Company on the Company's leasehold interest
in the Scheduled Leases, which Leasehold Deed of Trust is being released as of
the Closing Date pursuant to the terms of paragraph (s) of subsection 5.1
hereof.
"Letter of Credit" shall mean a Trade L/C or a Standby L/C.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien, charge or encumbrance, or preference,
priority or other security agreement or preferential arrangement in respect of
any asset of the Credit Parties of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
Financing Lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Commercial Code or comparable law of any jurisdiction).
"Loan Exposure" at a particular date, shall mean the aggregate
principal amount of Working Capital Loans and Swingline Loans outstanding at
such date.
"Loans" shall mean, collectively, the Working Capital Loans and the
Swingline Loans.
"Merchant Services Agreements" shall mean (i) that certain Merchant
Services Agreement between the Company and HSB dated as of October 1, 1992, as
amended by that certain Amendment thereto effective October 1, 1994, as further
amended and restated in that certain First Amended and Restated Merchant
Services Agreement dated as of October 1, 1992, a copy of which is attached as
Exhibit "L-1", and (ii) that certain First Amended and Restated Merchant
Services Agreement between VSS and HSB dated November 2, 1992, as amended by
that certain Amendment thereto effective October 1, 1994, and as further amended
and restated in that certain Amended and Restated Merchant Services Agreement
dated as of November 2, 1992, between HSB and the Company (as
successor-in-interest of VSS by merger), a copy of which is attached hereto as
Exhibit "L-2", as further modified or amended from time to time.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Income" for any period, shall mean the consolidated net income of
the Parent and its Subsidiaries for such period, determined in accordance with
GAAP (but excluding any extraordinary gains and extraordinary losses
attributable to such period).
"Net Loss" for any Fiscal Year, shall mean the consolidated negative
net income of the Parent and its Subsidiaries for such period, determined in
accordance with GAAP (but excluding any extraordinary gains and extraordinary
losses attributable to such period).
- 17 -
<PAGE>
"Net Proceeds" shall mean (1) with respect to the sale of any asset by
the Credit Parties or any of their Subsidiaries (other than Inventory sold in
the ordinary course of business) the excess, if any, of (a) the sum received in
connection with such sale, whether or not such sum is in whole or in part cash,
less (b) the sum of (i) the principal amount of any Indebtedness which is
secured by any such asset and which is required to be repaid in connection with
the sale thereof (other than Indebtedness hereunder), (ii) the out-of-pocket
expenses incurred by the Credit Parties or any of their Subsidiaries in
connection with such sale and (iii) provision for taxes attributable to such
sale (as estimated by the Credit Parties or any of their Subsidiaries in good
faith); and (2) with respect to the sale of any capital stock by the Parent, the
excess of (a) the sum received in connection with such sale, whether or not such
sum is in whole or in part cash, over (b) the underwriting discounts and
commissions (if any), and out-of-pocket expenses up to $400,000, incurred by the
Parent in connection with such sale.
"Net Recoverable Liquidation Value" shall mean the net recoverable
liquidation value of the Eligible Inventory as determined by the Annual
Inventory Valuation required to be performed pursuant to Section 7.12.
"Notes" shall mean, collectively, the Working Capital Notes and the
Swingline Note.
"Operating Account" shall mean the Company's checking and depository
account established with the Swingline Lender which is used by the Company for
working capital purposes.
"PA Co. Guaranty" shall mean the amended and restated guaranty
agreement of even date entered into by PA Co. in favor of the Banks,
substantially in the form of Exhibit "M" to this Amended and Restated Credit
Agreement, as the same may be amended, supplemented or otherwise modified.
"PA Co. Pledge Agreement" shall mean the amended and restated pledge
agreement of even date entered into by the Company in favor of the Agent for the
ratable benefit of the Banks, pursuant to which the Company ratifies, affirms
and repledges the stock of PA Co. as security for the Loans, substantially in
the form of Exhibit "N" to thisAmended and Restated Credit Agreement, as the
same may be amended, supplemented or otherwise modified.
"PA Co. Security Agreement" shall mean the amended and restated
security agreement of even date executed and delivered by PA Co. in favor of the
Agent for the ratable benefit of the Banks, substantially in the form of Exhibit
"O" to this Amended and Restated Credit Agreement, as the same may from time to
time be amended, supplemented or otherwise modified.
"Parent" shall have the meaning specified in the preamble of this
Amended and Restated Credit Agreement, its successors and assigns, as permitted
in this Amended and Restated Credit Agreement.
- 18 -
<PAGE>
"Parent Common Stock" shall mean, collectively, the Common Stock, $.01
par value, of the Parent, as amended, supplemented or otherwise modified from
time to time.
"Parent Guaranty" shall mean the amended and restated guaranty
agreement of even date entered into by the Parent in favor of the Banks,
substantially in the form of Exhibit "P", to this Amended and Restated Credit
Agreement, as the same may be amended, supplemented or otherwise modified.
"Parent Pledge Agreement" shall mean the amended and restated pledge
agreement of even date entered into by the Parent in favor of the Agent for the
benefit of the Banks, pursuant to which the Parent ratifies, afrirms and
repledges the stock of the Company as security for the Loans, substantially in
the form of Exhibit "Q" to this Amended and Restated Credit Agreement, as the
same may from time to time be amended, supplemented or otherwise modified.
"Parent Security Agreement" shall mean the amended and restated
security agreement of even date executed and delivered by Parent in favor of the
Agent for the ratable benefit of the Banks, substantially in the form of Exhibit
"R" to this Amended and Restated Credit Agreement, as the same may be from time
to time amended, supplemented or otherwise modified.
"Participants" shall have the meaning specified in paragraph (b) of
subsection 11.6 of this Amended and Restated Credit Agreement.
"Participating Bank" shall mean any Bank (other than FANB) with respect
to its L/C Participating Interest in each Letter of Credit.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title I. of ERISA.
"Permitted Liens" shall mean, collectively, the Liens described in
subsection 9.2.
"Person" shall mean and include an individual, a partnership, a
corporation, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture or other entity or a Governmental Authority.
"Plan" at any particular time, shall mean any employee benefit plan
which is covered by ERISA and in respect of which a Credit Party or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Pledge Agreements" shall mean the Parent Pledge Agreement, the PA Co.
Pledge Agreement and the RT Co. Pledge Agreement.
- 19 -
<PAGE>
"Prior Credit Agreement" shall have the meaning specified in paragraph
H of the Recitals to this Amended and Restated Credit Agreement.
"Prior Loan Documents" shall have the meaning specified in paragraph H
of the Recitals to this Amended and Restated Credit Agreement.
"Prior Notes" shall have the meaning specified in paragraph I of the
Recitals to this Amended and Restated Credit Agreement.
"Prior Security Documents" shall have the meaning specified in
paragraph H of the Recitals to this Amended and Restated Credit Agreement.
"Prior Working Capital Notes" shall have the meaning specified in
paragraph I of the Recitals to this Amended and Restated Credit Agreement.
"Proceeds" shall have the meaning specified in the UCC and, in any
event, shall include, but not be limited to, (a) any and all proceeds of the
insurance, indemnity, warranty or guaranty payable to the Credit Parties from
time to time with respect to any of the Collateral, (b) any and all payments (in
any form whatsoever) made or due and payable to the Credit Parties from time to
time in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any Person acting under color of Governmental
Authority) and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
"Purchasing Banks" shall have the meaning specified in paragraph (c) of
subsection 11.6 of this Amended and Restated Credit Agreement.
"Register" shall have the meaning specified in paragraph (d) of
subsection 11.6 of this Amended and Restated Credit Agreement.
"Reimbursement Obligation" shall mean the obligation of the Company to
reimburse the Issuing Bank for any amounts described in subsection 3.4.
"Related Document" shall mean any agreement, certificate, document or
instrument relating to a Letter of Credit.
"Reorganization" as to any Multiemployer Plan, shall mean the condition
that such Plan is in reorganization as such term is used in Section 4241 of
ERISA.
"Reportable Event" shall mean any of the events set forth in Section
4043 (b) of ERISA, other than those events as to which the thirty-day period is
waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. 2615.
- 20 -
<PAGE>
"Reporting Accountants" shall have the meaning specified in paragraph (a)
of subsection 7.1.
"Required Banks" at a particular time, the holders of at least 51% of
the aggregate principal amount of the Notes, or, if no amounts are outstanding
under the Notes, Banks having at least 51% of the aggregate amount of the
Commitments.
"Requirement of Law" as to any Person, shall mean the Certificate of
Incorporation and Bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or final determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" shall mean, as to the Parent, the Company, PA Co.
or RT Co., any of their respective Presidents and Chief Executive Officers,
Executive Vice Presidents and Chief Financial Officers or Executive Vice
Presidents and Secretaries or Vice Presidents and Treasurers, and as to Intex,
the President and Chief Executive Officer, Executive Vice President and Chief
Financial Officer or Executive Vice President and Secretary or Vice President
and Treasurers of its corporate general partner.
"RT Co. Guaranty" shall mean the amended and restated guaranty
agreement of even date entered into by RT Co. in favor of the Banks,
substantially in the form of Exhibit "S" to this Amended and Restated Credit
Agreement, as the same may from time to time be amended, supplemented or
otherwise modified.
"RT Co. Pledge Agreement" shall mean the amended and restated pledge
agreementof even date entered into by the Company in favor of the Agent for the
ratable benefit of the Banks, pursuant to which the Company ratifies, affirms
and repledges the stock of RT Co. as security for the Loans, substantially in
the form of Exhibit "T" to this Amended and Restated Credit Agreement, as the
same may be from time to time amended, supplemented or otherwise modified.
"RT Co. Security Agreement" shall mean the amended and restated
security agreement of even date entered into by RT Co. in favor of the Agent for
the ratable benefit of the Banks, substantially in the form of Exhibit "U" to
this Amended and Restated Credit Agreement, as the same may from time to time be
amended, supplemented or otherwise modified.
"Sale and Leaseback" shall mean any arrangement with any Person whereby
a Credit Party shall sell or transfer any property, real or personal, whether
now owned or hereafter acquired and thereafter rent or lease such property or
other property.
"Second Inventory Valuation" shall mean the audit of the Net
Recoverable LiquidationValue of Eligible Inventory required to be furnished to
the Agent pursuant to subsection 7.12.
- 21 -
<PAGE>
"Security Agreements" shall mean the Company Security Agreement, the Intex
Security Agreement, the PA Co. Security Agreement, the RT Co. Security Agreement
and the Parent Security Agreement.
"Security Documents" shall mean the Assignments, Security Agreements,
the Guaranties, the Pledge Agreements and any other collateral security
documents from time to time executed and delivered in connection herewith or
therewith.
"Single Employer Plan" shall mean any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Standby L/C" shall mean an irrevocable letter of credit under which
the Issuing Bank agrees to make payments in Dollars for the account of the
Company, on behalf of the Company in respect of obligations of the Company or
such Subsidiary incurred pursuant to contracts made or performances undertaken
or to be undertaken or matters relating to which the Company is or proposes to
become a party in the ordinary course of the Company's business, including,
without limiting the foregoing, for insurance purposes or in respect of advance
payments or bid or performance bonds.
"Standby L/C Application" shall be as defined in subsection 3.1.
"Store Locations" shall mean the store locations listed on Schedule
1.1, individually, a "Store Location" or a "Store".
"Store Closing Report" shall mean the report required to be furnished
to the Agent pursuant to paragraph (h) of subsection 7.2.
"Subsidiary" of a Person shall mean (a) a corporation of which shares
of stock of each class having ordinary voting power (other than stock having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly, through one or more intermediaries, or both, by such Person or by
one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person or (b) a partnership, the general partnership of
which is owned by such Person or by one or more subsidiaries of such Person or
by such Person and one or more subsidiaries of such Person.
"Swingline Commitment" means the obligation of the Swingline Lender to
make Swingline Loans to the Company pursuant to subsection 2.6 of this Amended
and Restated Credit Agreement in an aggregate principal amount at any time
outstanding up to the Swingline Committed Amount, as such amounts may be reduced
from time to time in accordance with the provisions hereof.
- 22 -
<PAGE>
"Swingline Committed Amount" means the amount of the Swingline Lender's
Swingline Commitment as specified in subsection 2.6 of this Amended and Restated
Credit Agreement.
"Swingline Lender" means FANB, in its capacity as such, together with
its successors and assigns.
"Swingline Loans" means swingline revolving loans made by the Swingline
Lender pursuant to the provisions of subsection 2.6 of this Amended and Restated
Credit Agreement, individually, a "Swingline Loan".
"Swingline Loan Commitment Percentage" shall mean, as to any Bank, the
percentage set forth opposite such Bank's name under such heading on Schedule
1.2 hereof.
"Swingline Loan Termination Date" shall mean the earlier of (i) June
15, 2001 or (ii) such date as the Swingline Commitment shall terminate
hereunder.
"Swingline Note" means the amended and restated promissory note to be
entered into by the Company in favor of the Swingline Lender substantially in
the form of Exhibit "V" to this Amended and Restated Credit Agreement evidencing
the Swingline Loans provided pursuant to subsection 2.6 of the Amended and
Restated Credit Agreement as such promissory note may be amended, modified,
supplemented, extended, renewed or replaced from time to time.
"Syndicate Purchasing Banks" shall be as defined in paragraph (c) of
subsection 11.6.
"Term Loan Commitment" shall mean the obligations of the Banks to make
term loans to the Company pursuant to the terms of the Prior Credit Agreement.
"Term Notes" shall mean the following notes, each dated March 31, 1994,
executed by the Company: (i) Term Note in the original principal sum of
$2,000,000.00 in favor of FANB; (ii) Term Note in the original principal sum of
$1,500,000.00 in favor of Hibernia; and (iii) Term Note in the original
principal sum of $1,500,000.00 in favor of Bank One.
"Total Exposure" at a particular date, shall mean the sum of the Loan
Exposure at such date and the L/C Exposure at such date (computed after giving
effect to any borrowing and any application of proceeds of any borrowing
pursuant to this Amended and Restated Credit Agreement and/or the issuance of
any Letter of Credit on such date).
"Trade L/C" shall mean a commercial documentary letter of credit,
payable in Dollars and issued by the Issuing Bank for the account of the Company
for the purchase of materials, goods or services in the ordinary course of
business.
"Trade L/C Application" shall be as defined in subsection 3.1.
- 23 -
<PAGE>
"Transferee" shall have the meaning specified in paragraph (f) of
subsection 11.6.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Tennessee.
"Working Capital Commitment" shall mean, as to any Bank, its obligation
to make Working Capital Loans to the Company pursuant to subsection 2.1 in the
amount not to exceed the amount set forth opposite such Bank's name in Schedule
1.2 hereto and to purchase its L/C Participating Interest in any Letters of
Credit, as the same may be reduced from time to time pursuant to subsections 2.1
and 4.7, collectively, as to all the Banks, the "Working Capital Commitments."
"Working Capital Commitment Percentage" shall mean, as to any Bank, the
percentage set forth opposite such Bank's name under such heading on Schedule
1.2.
"Working Capital Commitment Period" shall mean the period from and
including the Closing Date to but not including the Working Capital Termination
Date.
"Working Capital Loan" and "Working Capital Loans" shall have the
respective meanings specified in subsection 2.1.
"Working Capital Loan Exposure" at a particular date, shall mean the
aggregate principal amount of Working Capital Loans outstanding at such date.
"Working Capital Note" and "Working Capital Notes" shall have the
respective meanings specified in subsection 2.2.
"Working Capital Termination Date" shall mean the earlier of (i) June
15, 2001 or (ii) such date as the Working Capital Commitment shall terminate
hereunder.
"Working Day" shall mean any day on which dealings in foreign
currencies and exchange between banks may be carried on in Memphis, Tennessee
and London, England.
1.2 Accounting Terms. As used in this Amended and Restated Credit
Agreement, the Working Capital Notes, the Swingline Note, or any certificate,
report or other document made or delivered pursuant to this Amended and Restated
Credit Agreement, accounting terms not defined in subsection 1.1 and accounting
terms partly defined in said subsection 1.1 to the extent not defined, shall
have the respective meanings given to them under GAAP.
1.3 Other Definitional Provisions. (a) Unless otherwise defined
therein, all terms defined in this Amended and Restated Credit Agreement shall
have the defined meanings when used in the Working Capital Notes, the Swingline
Note or any certificate, report or other document made or delivered pursuant to
this Amended and Restated Credit Agreement.
- 24 -
<PAGE>
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Amended and Restated Credit Agreement shall refer to
this Amended and Restated Credit Agreement as a whole and not to any particular
provision of this Amended and Restated Credit Agreement, and Section,
subsection, Schedule and Exhibit references are to this Amended and Restated
Credit Agreement, unless otherwise specified. Defined terms used in the singular
may also refer to the plural of such term when used in this Amended and Restated
Credit Agreement, and the use of defined terms in the plural form may also refer
to the singular use of such term.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS
2.1 Working Capital Commitments and Working Capital Loans. Subject to
the terms and conditions hereof, each Bank severally, and not jointly, agrees to
make working capital loans hereunder (individually, a "Working Capital Loan";
collectively, as to the Banks, the "Working Capital Loans") to the Company from
time to time during the Working Capital Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the Working Capital
Commitments, as such amount may be reduced as provided herein, provided that no
Working Capital Loans shall be made if, after giving effect thereto the Total
Exposure would exceed the Borrowing Base. During the Working Capital Commitment
Period the Company may use the Working Capital Commitments by borrowing,
prepaying the Working Capital Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The outstanding principal
balances of the Working Capital Loans on the Closing Date are set forth in the
certificate described in paragraph (v) of subsection 5.1. The Company represents
and warrants to the Banks that the aggregate of such outstanding principal
amounts do not exceed the lesser of the Working Capital Commitment as defined in
the Amended and Restated Credit Agreement or the Borrowing Base as of such date.
2.2 Working Capital Notes. The Working Capital Loans made by each Bank
pursuant hereto shall be evidenced by an amended and restated promissory note of
the Company, substantially in the form of Exhibit "W" with appropriate
insertions as to payee, date and principal amount (individually, a "Working
Capital Note"; collectively, the "Working Capital Notes"), payable to the order
of such Bank and representing the obligation of the Company to pay the lesser of
(a) the amount of the initial Working Capital Commitment of such Bank and (b)
the aggregate unpaid principal amount of all Working Capital Loans made by such
Bank, with interest thereon as prescribed in subsection 4.2. Each Bank is hereby
authorized to record the date and amount of each Working Capital Loan made by
such Bank, and the date and amount of each payment or prepayment of principal
thereof and the date of each interest rate conversion pursuant to subsection 4.4
and the principal amount subject thereto on the schedules annexed to and
constituting a part of its Working Capital Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded.
Each Working Capital Note shall (x) be dated as of March 31, 1994, and (y) be
stated to mature on the Working Capital Termination Date.
- 25 -
<PAGE>
2.3 Optional Prepayments. The Company may, at its option, at any one
time or from time to time, prepay the Loans in whole or in part, in the case of
FANB Rate Loans, upon at least one Business Day's prior notice to the Agent, or
in the case of Eurodollar Loans, upon at least three Working Days notice,
specifying the type of Loan to be prepaid and the date and amount of such
prepayment, provided that Eurodollar Loans may not be optionally prepaid on
other than the last day of an Interest Period with respect thereto. Such notice
shall be irrevocable, and the payment amount specified in such notice shall be
due and payable on the date specified. Upon receipt of such notice the Agent
shall promptly notify each Bank thereof. Any optional partial prepayment of the
Loans shall be in the aggregate amount of $250,000 or an integral multiple of
$50,000 in excess thereof.
2.4 Requirements of Law. (a) In the event that any Change in Law or
compliance by any Bank with any request or directive (whether or not having the
force of law) from any central bank or other Governmental Authority:
(i) does or shall subject any Bank or its Eurodollar Lending
Office, if any, to any tax of any kind whatsoever with respect to this
Amended and Restated Credit Agreement, any Note or any Eurodollar Loans
made by it, or change the basis of taxation of payments to such Bank or
its Eurodollar Lending Office of principal, the commitment fee,
interest or any other amount payable hereunder (except for (x) income,
excise and franchise taxes imposed on such Bank or its Eurodollar
Lending Office, if any, by the jurisdiction under the laws of which
such Bank is organized or any political subdivision or taxing authority
thereof or therein, or by any jurisdiction in which such Bank's
Eurodollar Lending Office, if any, is located or any political
subdivision or taxing authority thereof or therein, including changes
in the rate of tax on or based on the overall net income of such Bank
or such Eurodollar Lending Office, and (y) taxes resulting from the
substitution of any such system by another system of taxation, provided
that the taxes payable by Banks subject to such other system of
taxation are not generally charged to borrowers from such Banks having
loans or advances bearing interest at a rate similar to the Eurodollar
Rate);
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Bank which are not
otherwise included in the determination of the Eurodollar Rate; or
(iii) does or shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank or
its Eurodollar Lending Office, if any, of making, converting, renewing or
maintaining advances or extensions of credit or to reduce any amount receivable
hereunder, in each case, in respect of its Eurodollar Loans, then, in any such
case, the Company shall promptly pay such Bank, upon its demand, any additional
amounts necessary to compensate such Bank for such additional cost or reduced
amount receivable
- 26 -
<PAGE>
which such Bank deems to be material as determined by such Bank with respect to
such Eurodollar Loans, together with interest on each such amount from the date
demanded until payment in full thereof at a rate per annum equal to the FANB
Rate.
(b) In the event that any Change in Law with respect to any Bank shall,
in the opinion of such Bank, require that any Commitment of such Bank be treated
as an asset or otherwise be included for purposes of calculating the appropriate
amount of capital to be maintained by such Bank or any corporation controlling
such Bank, and such Change in Law shall have the effect of reducing the rate of
return on such Bank's or such corporation's capital, as the case may be, as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank or such corporation, as the case may be, could have achieved but for
such Change in Law (taking into account such Bank's or such corporation's
policies, as the case may be, with respect to capital adequacy) by an amount
reasonably deemed by such Bank to be material, then from time to time following
notice by such Bank to the Company of such Change in Law as provided in
paragraph (c) of this subsection 2.4, within 15 days after demand by such Bank,
the Company shall pay to such Bank such additional amount or amounts as will
compensate such Bank or such corporation, as the case may be, for such
reduction.
(c) If any Bank becomes entitled to claim any additional amounts
pursuant to this subsection 2.4, it shall promptly notify the Company through
the Agent of the event by reason of which it has become so entitled. If any Bank
has notified the Company through the Agent of any increased costs pursuant to
paragraphs (a) or (b) of this subsection 2.4, the Company at any time thereafter
may, upon at least three Business Days' notice to the Agent which shall promptly
notify the Banks thereof), and subject to subsection 4.10, prepay (or convert
into FANB Rate Loans) all (but not a part) of the Eurodollar Loans then
outstanding of such Bank. Each Bank agrees that, upon the occurrence of any
event giving rise to the operation of paragraphs (a) or (b) of this subsection
2.4 with respect to such Bank, it will, if requested by the Company and to the
extent permitted by law or by the relevant Governmental Authority, endeavor in
good faith to avoid or minimize the increase in costs or reduction in payments
resulting from such event (including, without limitation, endeavoring to change
its Eurodollar Lending Office); provided, however, that such avoidance or
minimization can be made in such a manner that such Bank, in its sole
determination, suffers no economic, legal or regulatory disadvantage. If any
Bank has notified the Company through the Agent of any increased costs pursuant
to paragraphs (a) or (b) of this subsection 2.4, the Company at any time
thereafter may, upon at least five Business Days' notice to the Agent which
shall promptly notify the Banks thereof, and subject to subsection 4.10, reduce
or terminate such Bank's Working Capital Commitment in accordance with
subsection 4.7.
(d) Each Bank (i) represents to the Company (for the benefit of the
Company and the Agent) that under applicable law and treaties no taxes are
required to be withheld by the Company, the Agent or such Bank with respect to
any payments to be made to such Bank in respect of the Loans or the L/C
Participating Interests, (ii) agrees to furnish to the Company (with a copy to
the Agent) either U.S. Internal Revenue Service Form 4224 or U.S. Internal
Revenue Service Form 1001
- 27 -
<PAGE>
(wherein such Bank claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) agrees (for the
benefit of the Company and the Agent) to provide the Company (with a copy to the
Agent) a new Form 4224 or Form 1001 upon the expiration or obsolescence of any
previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments duly executed and completed
by such Bank, and to comply from time to time with all applicable U.S. laws and
regulations with regard to such withholding tax exemption. Notwithstanding any
provision of subsection 2.4 to the contrary, the Company shall have no
obligation to pay any amount to or for the account of any Bank (or the
Eurodollar Lending Office of any Bank) on account of any taxes pursuant to this
subsection 2.4 to the extent that such amount results from (i) the failure of
any Bank to comply with its obligations pursuant to this subsection 2.4 or (ii)
any representation or warranty made or deemed to be made by any Bank pursuant to
this subsection 2.4(d) proving to have been incorrect, false or misleading in
any material respect when so made or deemed to be made.
(e) A certificate in reasonable detail as to any amounts submitted by
such Bank through the Agent to the Company shall be conclusive in the absence of
manifest error. The covenants contained in this subsection 2.4 shall survive the
termination of this Amended and Restated Credit Agreement and payment of the
outstanding Notes.
2.5 Use of Proceeds. The Company shall use all the proceeds of the
Working Capital Loans (i) for the working capital requirements of the Company
arising in the ordinary course of business and (ii) for general corporate
purposes. The Company shall use all the proceeds of the Swingline Loans for the
short term working capital requirements of the Company arising in the ordinary
course of business.
2.6 Swingline Loan Subfacility.
(a) Swingline Commitment. Subject to the terms and conditions of this
subsection 2.6 and in reliance upon the representations and warranties set forth
herein, the Swingline Lender, in its individual capacity, agrees to make
revolving credit loans (each a "Swingline Loan" and, collectively, the
"Swingline Loans") to the Company from time to time from the date of this
Amended and Restated Credit Agreement until the Swingline Loan Termination Date,
provided that the aggregate principal amount of Swingline Loans outstanding at
any one time shall not exceed Three Million Dollars ($3,000,000.00) (the
"Swingline Committed Amount"); provided, that no Swingline Loan shall be made
if, after given effect thereto the Total Exposure would exceed the Borrowing
Base. During such period, Swingline Loans may be prepaid or repaid and
reborrowed in accordance with the provisions hereof. The aggregate outstanding
principal balances of the Swingline Loans on the Closing Date is set forth in
the Certificate described in paragraph (v) of subsection 5.1. The Company
represents and warrants to the Banks that the aggregate of the outstanding
principal amounts does not exceed the Swingline Commitment as of such date.
- 28 -
<PAGE>
(b) Swingline Note. The Swingline Loans made by the Swingline Lender
shall be evidenced by an amended and restated promissory note of the Company in
the original amount of the Swingline Committed Amount and substantially in the
form of Exhibit "V". The Swingline Lender is hereby authorized to record the
date and amount of each Swingline Loan made by the Swingline Lender, and the
date and amount of each payment or prepayment of principal thereof and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. The Swingline Note shall be dated the date of the
Second Amendment and be stated to mature on the Swingline Loan Termination Date.
SECTION 3. LETTERS OF CREDIT
3.1 Issuance of Letters of Credit. (a) Subject to the terms and
conditions hereof, the Issuing Bank, on behalf of the Banks, and in reliance on
the agreement of the Banks set forth in subsection 3.10, agrees to issue for the
account of the Company, from time to time during the Working Capital Commitment
Period, Letters of Credit. The Company may from time to time request the Issuing
Bank to issue a Trade L/C or a Standby L/C by delivering to the Issuing Bank at
its address specified in subsection 11.2, a letter of credit application in the
Issuing Bank's then customary form for Trade L/Cs (a "Trade L/C Application") or
an application in the Issuing Bank's customary form for Standby L/Cs (a "Standby
L/C Application") completed to the satisfaction of the Issuing Bank, together
with such other certificates, documents and other papers and information as the
Issuing Bank may reasonably request.
(b) Each Letter of Credit issued hereunder shall, among other things,
(i) be in such form requested by the Company as shall be acceptable to the
Issuing Bank in its reasonable discretion, (ii) as to Trade L/C's, have an
expiry date not later than 120 days after the date of issuance of such Trade L/C
and as to both Trade L/C's and Standby L/C's have an expiry date not later than
the Working Capital Termination Date. Each L/C Application and each Letter of
Credit shall be subject to the Uniform Customs and Practice for Documentary
Credit (1983 Revisions), International Chamber of Commerce Publication No. 400
and subsequent revisions thereof approved by a Congress of such Chamber, and if
requested by the Issuing Bank, Article V of the UCC and, to the extent not
inconsistent therewith, the laws of the State of Tennessee.
3.2 Participating Interests. Effective in the case of each Letter of
Credit as of the date of the opening thereof, the Issuing Bank agrees to allot
and does allot, to itself and each other Bank, and each Bank severally and
irrevocably agrees to take and does take in such Letter of Credit and the
related L/C Application, an L/C Participating Interest in a percentage equal to
such Bank's Working Capital Commitment Percentage.
3.3 Procedure for Opening Letters of Credit. The Issuing Bank will
notify each Bank after the end of each calendar month of any L/C Applications
received by the Issuing Bank from the Company during such month. Upon receipt of
any L/C Application from the Company, the Issuing
- 29 -
<PAGE>
Bank will process such L/C Application, and the other certificates, documents
and other papers delivered to the Issuing Bank in connection therewith, in
accordance with its customary procedures and, subject to the terms and
conditions hereof, shall promptly open such Letter of Credit by issuing the
original of such Letter of Credit to the beneficiary thereof and by furnishing a
copy thereof to the Company and, after the end of the calendar month in which
such Letter of Credit was opened, to the other Banks, provided that no such
Letter of Credit shall be issued if, after given effect thereto, the Total
Exposure would exceed the Borrowing Base.
3.4 Payments in Respect of Letters of Credit. (a) The Company agrees
forthwith upon demand by the Issuing Bank and otherwise in accordance with the
terms of the L/C Application relating thereto, (i) to reimburse the Issuing Bank
for any payment made by the Issuing Bank under any Letter of Credit and (ii) to
pay interest on any unreimbursed portion of any such payment from the date of
such payment until reimbursement in full thereof at a rate per annum equal to
(A) prior to the date which is one Business Day after the day on which the
Issuing Bank demands reimbursement from the Company for such payment, at the
current rate for FANB Rate Loans and (B) on such date and thereafter, three
(3.0%) above the FANB Rate.
(b) In the event that the Issuing Bank makes a payment under any Letter
of Credit and is not reimbursed in full therefor forthwith upon demand of the
Issuing Bank, and otherwise in accordance with the terms of the L/C Application
relating to such Letter of Credit, the Issuing Bank will promptly notify each
other Bank. Forthwith upon its receipt of any such notice, each other Bank will
transfer to the Issuing Bank, in immediately available funds, an amount equal to
such other Bank's pro rata share of the L/C Obligation arising from such
unreimbursed payment. Upon its receipt from such other Bank of such amount, the
Issuing Bank will complete, execute and deliver to such other Bank an L/C
Participation Certificate dated the date of such receipt and in such amount.
(c) Whenever, at any time after the Issuing Bank has made a payment
under any Letter of Credit and has received from any other Bank such other
Bank's pro rata share of the L/C Obligation arising therefrom, the Issuing Bank
receives any reimbursement on account of such L/C Obligation or any payment of
interest on account thereof, the Issuing Bank will distribute to such other Bank
its pro rata share thereof in like funds as received; provided however, that in
the event that the receipt by the Issuing Bank of such reimbursement or such
payment of interest (as the case may be) is required to be returned, such other
Bank will return to the Issuing Bank any portion thereof previously distributed
by the Issuing Bank to it in like funds as such reimbursement or payment is
required to be returned by the Issuing Bank.
3.5 Letter of Credit Fees. (a) In lieu of any Letter of Credit
commissions and fees provided for in any L/C Application relating to Standby
L/Cs (other than standard issuance, amendment and negotiation fees customarily
charged by FANB), the Company agrees to pay the Agent for the account of the
Issuing Bank and the Participating Banks, with respect to each Standby L/C, a
Standby L/C fee of one percent (1%) per annum on the amount available to be
drawn under each
- 30 -
<PAGE>
Standby L/C payable, in arrears, on the last day of each fiscal quarter of the
Company and calculated on the basis of a 360-day year for actual days elapsed
from such date of issuance to the expiration date of such Standby L/C.
(b) In lieu of any Letter of Credit commissions and fees provided for
in any L/C Application relating to Trade L/Cs (other than standard issuance,
amendment and negotiation fees customarily charged by FANB), the Company agrees
to pay the Agent for the account of the Issuing Bank and the Participating
Banks, with respect to each Trade L/C, a Trade L/C fee of one quarter of one
percent (.25%) of the face amount of each Trade L/C, payable in advance on the
issuance date of each Trade L/C. After Default, the Agent will disburse any
Trade L/C fees received pursuant to this subsection 3.5 to the respective Banks
promptly following the end of the calendar month in which such Trade L/C fees
were received.
(c) In lieu of any Letter of Credit commissions and fees provided for
in any L/C Application relating to Standby L/Cs (other than standard issuance,
amendment and negotiation fees customarily charged by FANB), the Company agrees
to pay FANB, for its own separate account, with respect to each Standby L/C, a
Facing Fee of one-quarter of one percent (.25%) per annum on the amount
available to be drawn under each Standby L/C payable, in arrears, on the last
day of each fiscal quarter of the Company and calculated on the basis of a
360-day year or actual days elapsed from such date of issuance to the expiration
date of such Standby L/C.
(d) For purposes of any payment of fees required pursuant to this
subsection 3.5, the Agent agrees to provide to the Company a statement of any
such fees to be so paid; provided that the failure by the Agent to provide the
Company with any such invoice shall not relieve the Company of its obligation to
pay such fees.
3.6 Letter of Credit Reserves. (a) If any Change in Law shall either
(i) impose, modify, deem or make applicable any reserve, special deposit,
assessment or similar requirement against letters of credit issued by the
Issuing Bank or (ii) impose on the Issuing Bank any other condition regarding
this Amended and Restated Credit Agreement or any Letter of Credit, and the
result of any event referred to in clause (i) or (ii) above shall be to increase
the cost of the Issuing Bank issuing or maintaining any Letter of Credit (which
increase in cost shall be the result of the Issuing Bank's reasonable allocation
of the aggregate of such cost increases resulting from such events), then, upon
demand by the Issuing Bank, the Company shall immediately pay to the Issuing
Bank, from time to time as specified by the Issuing Bank, additional amounts
which shall be sufficient to compensate the Issuing Bank for such increased
cost, together with interest on each such amount from the date demanded until
payment in full thereof at a rate per annum equal to the FANB Rate for FANB Rate
Loans. A certificate, setting forth in reasonable detail the calculation of the
amounts involved, submitted by the Issuing Bank to the Company concurrently with
any such demand by the Issuing Bank, shall be conclusive, absent manifest error,
as to the amount thereof.
- 31 -
<PAGE>
(b) In the event that any Change in Law with respect to the Issuing
Bank shall, in the opinion of the Issuing Bank, require that any obligation
under any Letter of Credit be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
the Issuing Bank or any corporation controlling the Issuing Bank, and such
Change in Law shall have the effect of reducing the rate of return on the
Issuing Bank's or such corporation's capital, as the case may be, as a
consequence of the Issuing Bank's obligations under such Letter of Credit to a
level below that which the Issuing Bank or such corporation, as the case may be,
could have achieved but for such Change in Law (taking into account the Issuing
Bank's or such corporation's policies, as the case may be, with respect to
capital adequacy) by an amount deemed by the Issuing Bank to be material, then
from time to time following notice by the Issuing Bank to the Company of such
Change in Law, within 15 days after demand by the Issuing Bank, the Company
shall pay to the Issuing Bank such additional amount or amounts as will
compensate the Issuing Bank or such corporation, as the case may be, for such
reduction. The Issuing Bank agrees that, upon the occurrence of any event giving
rise to the operation of paragraph (a) or (b) of this subsection 3.6 with
respect to such Issuing Bank, it will, if requested by the Company and to the
extent permitted by law or by the relevant Governmental Authority, endeavor in
good faith to avoid or minimize the increase in costs or reduction in payments
resulting from such event; provided, however, that such avoidance or
minimization can be made in such a manner that such Issuing Bank, in its sole
determination, suffers no economic, legal or regulatory disadvantage. If the
Issuing Bank becomes entitled to claim any additional amounts pursuant to this
subsection 3.6(b), it shall promptly notify the Company of the event by reason
of which it has become so entitled. A certificate, in reasonable detail setting
forth the calculation of the amounts involved, submitted by the Issuing Bank to
the Company concurrently with any such demand by the Issuing Bank, shall be
conclusive, absent manifest error, as to the amount thereof.
(c) The Company and each Participating Bank agrees that (i) the
provisions of the foregoing paragraphs (a) and (b) and (ii) the provisions of
each L/C Application providing for reimbursement or payment to the Issuing Bank
in the event of the imposition or implementation of, or increase in, any
reserve, special deposit, capital adequacy or similar requirement in respect of
the Letter of Credit relating thereto, shall apply equally to each Participating
Bank in respect of its L/C Participating Interest in such Letter of Credit, as
if the references in such paragraphs and provisions referred to, where
applicable, such Participating Bank or any corporation controlling such
Participating Bank.
3.7 Further Assurances. The Company hereby agrees, from time to time,
to do and perform any and all acts and to execute any and all further
instruments reasonably requested by the Issuing Bank more fully to effect the
purposes of this Amended and Restated CRedit Agreement and the issuance of
Letters of Credit hereunder.
3.8 Obligations Absolute. The payment obligations of the Company under
this Amended and Restated Credit Agreement with respect to the Letters of Credit
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Amended and Restated
- 32 -
<PAGE>
Credit Agreement under all circumstances, including, without limitation, the
following circumstances:
(a) the existence of any claim, set-off, defense or other right which
the Company or any of its Subsidiaries may have at any time against any
beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom
any such beneficiary or any such transferee may be acting), the Issuing Bank,
the Agent or any Bank, or any other Person, whether in connection with this
Amended and Restated Credit Agreement, the Related Documents, any Basic
Documents, the transactions contemplated herein, or any unrelated transaction;
(b) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent or invalid or any statement therein
being untrue or inaccurate in any respect, except for any such circumstances or
happening constituting gross negligence or willful misconduct on the part of the
Issuing Bank;
(c) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate which does not comply with the terms of
such Letter of Credit or is insufficient in any respect, except where such
payment constitutes gross negligence or wilful misconduct on the part of the
Issuing Bank; or
(d) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing, except for any such circumstances or happening
constituting gross negligence or wilful misconduct on the part of the Issuing
Bank.
3.9 Assignments. No Participating Bank's participation in any Letter of
Credit or any of its rights or duties hereunder shall be subdivided, assigned or
transferred (other than in connection with a transfer of part or all of such
Participating Bank's Working Capital Commitment in accordance with subsection
11.6) without the prior written consent of the Issuing Bank, which consent will
not be unreasonably withheld. Such consent may be given or withheld without the
consent or agreement of any other Participating Bank. Notwithstanding the
foregoing, a Participating Bank may pursuant to subsection 11.6(b)
subparticipate its L/C Participating Interest without obtaining the prior
written consent of the Issuing Bank.
3.10 Participations. Each Bank's obligation to purchase participating
interests pursuant to subsection 3.2 shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i)
any set-off, counterclaim, recoupment, defense or other right which such Bank
may have against the Issuing Bank, the Credit Parties or any other Person for
any reason whatsoever; (ii) the occurrence or continuance of an Event of
Default; (iii) any adverse change in the condition (financial or otherwise) of
the Credit Parties; (iv) any breach of this Amended and Restated Credit
Agreement by the Credit Parties or any other Bank; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
- 33 -
<PAGE>
3.11 Certification as to L/C Exposure on Closing Date. The L/C Exposure
as of the Closing Date is set forth in the certificate described in paragraph
(v) of subsection 5.1. The Company represents and warrants to the Banks that the
L/C Exposure does not exceed the Available Working Capital Commitment as of such
date.
SECTION 4. INTEREST RATE PROVISIONS; FEES; PAYMENTS
4.1 Procedure for Borrowing. (a) The Company may borrow under the
Working Capital Commitment on any Working Day, if the borrowing is of Eurodollar
Loans, or on any Business Day, if the borrowing is of FANB Rate Loans, provided
that, with respect to any borrowings, the Company shall give the Agent
irrevocable notice (which notice must be received by the Agent prior to 10:00
a.m., Memphis, Tennessee time, (i) three Working Days prior to the requested
Borrowing Date if all or any part of the Loans are to be Eurodollar Loans and
(ii) one Business Day prior to the request or Closing Date if the borrowing is
to be solely of FANB Rate Loans) and specifying (A) the amount of the borrowing,
(B) whether such Loans are initially to be Eurodollar Loans or FANB Rate Loans
or a combination thereof and (C) if the borrowing is to be entirely or partly
Eurodollar Loans, the length of the Interest Period for such Eurodollar Loans.
Upon receipt of such notice the Agent shall promptly notify each Bank. Not later
than 12:00 noon, Memphis, Tennessee on the Borrowing Date specified in such
notice, each Bank shall make available to the Agent at the office of the Agent
specified in subsection 11.2 (or at such other location as the Agent may direct)
an amount in immediately available funds equal to the amount of the Loan to be
made by such Bank. Loan proceeds received by the Agent hereunder shall promptly
be made available to the Company, at the office of the Agent specified in
Subsection 11.2 with the aggregate amount actually received by the Agent from
the Banks and in like funds as received by the Agent.
(b) Any borrowing or continuation of, or conversion to or from,
Eurodollar Loans hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, (i) the aggregate principal
amount of all Eurodollar Loans having the same Interest Period shall not be less
than $1,000,000 or a whole multiple of $250,000 in excess thereof and (ii) no
more than three Interest Periods shall be in effect at any one time.
(c) All or any part of the outstanding Working Capital Loans may be
converted in accordance with subsection 4.4, provided that partial conversions
of FANB Rate Loans shall be in the aggregate principal amount of $250,000 or a
whole multiple of $50,000 in excess thereof and the aggregate principal amount
of the resulting Eurodollar Loans outstanding in respect of any one Interest
Period shall be at least $1,000,000 or a whole multiple of $250,000 in excess
thereof.
(d) Eurodollar Loans shall be made by each Bank at its Eurodollar
Lending Office as designated from time to time by each Bank and FANB Rate Loans
shall be made by each Bank at its FANB Rate Lending Office as designated in
Schedule 4.1(d).
- 34 -
<PAGE>
(e) Swingline Loans shall be made available to the Company by the
Swingline Lender's crediting the Operating Account of the Company. Said
crediting shall be made automatically as the Company's Operating Account falls
below a zero balance (the "Zero Account Balance"). Any funds in the Operating
Account in excess of the Zero Account Balance shall be applied first, to repay
any outstanding principal on the Swingline Loans and second, to prepay any
outstanding interest under the Swingline Loans. Notwithstanding the foregoing,
Swingline Lender shall have the right, in its reasonable discretion and upon
written notice to the Company, to terminate the automatic feature of the
borrowings under the Swingline Loans and to require the Company to thereafter
provide notice to Swingline Lender prior to such borrowings, such notice to be
made in accordance with Swingline Lender's instructions.
(f) Swingline Loans shall bear interest on the unpaid principal amount
thereof at a variable rate per annum equal to the FANB Rate. Accrued interest on
such principal as shall be outstanding from time to time shall be due and
payable on a quarterly basis on each Interest Payment Date and the entire
outstanding principal shall be due and payable on the Swingline Loan Termination
Date. Additional payments of principal and interest shall be made pursuant to
the terms of subsection 4.1(e) hereof. The Company shall not have the right to
convert the interest payable under the Swingline Loans from an FANB Rate to a
Eurodollar Rate.
4.2 Interest Rates and Payment Dates. (a) Eurodollar Loans shall bear
interest for each Interest Period applicable thereto, commencing on the first
day of such Interest Period to, but excluding, the last day of such Interest
Period, on the unpaid principal amount thereof at a rate per annum equal to the
Eurodollar Rate determined for such Interest Period plus the Applicable Margin.
(b) FANB Rate Loans shall bear interest for the period from and
including the date such Loans are made to, but excluding, the maturity date
thereof, or to, but excluding, the conversion date if such Loans are earlier
converted into Eurodollar Loans, on the unpaid principal amount thereof at a
rate per annum equal to the FANB Rate.
(c) If all or a portion of the principal amount of any of the Loans
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise) such Loan, if a Eurodollar Loan, shall be converted into an FANB Rate
Loan at the end of the then-current Interest Period for said Eurodollar Loan
(which conversion shall occur automatically and without need for compliance with
the conditions for conversion set forth in subsection 4.4), and any such overdue
principal amount shall, without limiting the rights of the Banks under Section
10, bear interest at a rate per annum which is 3.5% above the FANB Rate from the
date of such non-payment until paid in full (including interest after judgment
as well as before judgment).
(d) If at any time the Net Recoverable Liquidation Value of Eligible
Inventory as determined by the Annual Inventory Valuation required to be
furnished to the Agent pursuant to subsection 7.12, is less than 32% of Eligible
Inventory, all the outstanding Eurodollar Loans and all Eurodollar Loans made
after the date of said report shall bear interest at a rate per annum equal to
- 35 -
<PAGE>
the Eurodollar Rate plus the Applicable Margin plus 2.00% and all then
outstanding FANB Rate Loans and all FANB Rate Loans made thereafter shall bear
interest at a rate per annum equal to the FANB Rate plus 2.00%. The 2.00%
increase in the interest rate shall continue until, and shall be eliminated
when, the Net Recoverable Liquidation Value of Eligible Inventory as verified by
a report performed pursuant to subsection 7.12, exceeds 32% of the cost value of
the Eligible Inventory.
(e) Interest shall be payable in arrears on each Interest Payment Date.
4.3 Computation of Interest and Fees. (a) Interest and fees (except
fees pursuant to subsections 3.5(b) and 4.6(b) or as otherwise set forth herein)
shall be calculated on the basis of a 360 day year, as applicable for the actual
days elapsed. The Agent shall as soon as practicable notify the Company and the
Banks of each determination of a Eurodollar Rate. Any change in the interest
rate on the Loans resulting from a change in the FANB Rate shall become
effective, without notice, as of the opening of business on the day on which
such change in the FANB Rate shall become effective.
(b) Each determination of an interest rate by the Banks pursuant to any
provision of this Amended and Restated Credit Agreement shall be conclusive and
binding on the Company and the Banks in the absence of manifest error. The Agent
shall, at the request of the Company, deliver to the Company a statement showing
the quotations used by the Agent in determining the Eurodollar Rate.
4.4 Conversion Options. The Company may elect from time to time to
convert Eurodollar Loans into FANB Rate Loans by giving the Agent irrevocable
notice of such election, to be received by the Agent prior to 10:00 a.m.,
Memphis, Tennessee time, at least three Working Days prior to the proposed
conversion date, provided that any such conversion of Eurodollar Loans shall
only be made on the last day of an Interest Period with respect thereto. The
Company may elect from time to time to convert all or a portion of the FANB Rate
Loans then outstanding (other than Swingline Loans) to Eurodollar Loans by
giving the Agent irrevocable notice of such election, to be received by the
Agent prior to 10:00 a.m., Memphis, Tennessee time, at least three Working Days
prior to the proposed conversion date, specifying the Interest Period selected
therefor, and, if no Default or Event of Default has occurred and is continuing,
such conversion shall be made on the requested conversion date or, if such
requested conversion date is not a Working Day, on the next succeeding Working
Day. Upon receipt of any notice pursuant to this subsection 4.4, the Agent shall
promptly notify each Bank thereof.
4.5 Pro Rata Treatment and Payments. (a) Each borrowing of Loans by the
Company from the Banks and any reduction of the Commitments of the Banks
hereunder shall be made pro rata according to the relevant Commitment
Percentages of the Banks.
- 36 -
<PAGE>
(b)(i) Except for payments (including prepayments) to be made by the
Company to the Swingline Lender on account of principal, interest and fees due
under the Swingline Loans, all payments (including prepayments) to be made by
the Company on account of principal, interest and fees shall be made to the
Agent for the account of the Banks at the Agent's office located at 6000 Poplar
Avenue, Suite 300, Memphis, Tennessee 38119, in lawful money of the United
States of America and in immediately available funds. The Agent shall promptly
distribute such payments upon receipt in like funds as received (except fees
payable pursuant to subsection 4.6(b)); (ii) all payments (including
prepayments) to be made by the Company to the Swingline Lender on account of
principal, interest and fees due under the Swingline Loans shall be made to the
Swingline Lender for the individual benefit of the Swingline Lender at the
Swingline Lender's office located at 6000 Poplar Avenue, Suite 300, Memphis,
Tennessee 38119, in lawful money of the United States of America and in
immediately available funds.
(c) Unless the Agent shall have been notified in writing by any Bank
prior to a Borrowing Date that such Bank will not make the amount which would
constitute its Commitment Percentage of the borrowing on such date available to
the Agent, the Agent may assume that such Bank has made such amount available to
the Agent on such Borrowing Date in accordance with subsection 4.1 and the Agent
may, in reliance upon such assumption, make a corresponding amount available to
the Company. If such amount is made available to the Agent by such Bank on a
date after such Borrowing Date, such Bank shall pay to the Agent on demand an
amount equal to the product of (i) the daily average Federal funds rate during
such period as quoted by the Agent, times (ii) the amount of such Bank's
Commitment Percentage of such borrowing, times (iii) a fraction the numerator of
which is the number of days that elapse from and including such Borrowing Date
to the date on which such Bank's Commitment Percentage of such borrowing shall
have become immediately available to the Agent and the denominator of which is
360, as applicable. A certificate of the Agent submitted to any Bank with
respect to any amounts owing under this subsection 4.5(c) shall be conclusive,
absent manifest error. If such Bank's Commitment Percentage of such borrowing is
not in fact made available to the Agent by such Bank within three Business Days
after such Borrowing Date, the Agent shall be entitled to recover such amount
with interest thereon at the rate per annum applicable to FANB Rate Loans
hereunder, on demand, from the Company, without prejudice to any rights which
the Company or the Agent may have against such Bank hereunder. Nothing contained
in this subsection 4.5(c) shall relieve any Bank which has failed to make
available its ratable portion of any borrowing hereunder from its obligation to
do so in accordance with the terms hereof.
(d) The failure of any Bank to make the Loan to be made by it on any
Borrowing Date shall not relieve any other Bank of its obligation, if any,
hereunder to make its Loan on such Borrowing Date, but no Bank shall be
responsible for the failure of any other Bank to make the Loan to be made by
such other Bank on such Borrowing Date.
4.6 Fees. (a) Commitment Fee. The Company agrees to pay to the Agent for
the account of each Bank a commitment fee from and including the Closing Date to
but not including the
- 37 -
<PAGE>
Working Capital Termination Date, computed at the rate of 1/4 of 1% per annum on
the average daily amount of the Available Working Capital Commitment of such
Bank, such fee to be payable quarterly in arrears and on the Working Capital
Termination Date, or such earlier date as the Working Capital Commitments shall
terminate as provided herein, and the accrual of such fee shall commence on the
Closing Date.
(b) Agent's Fee. The Company shall pay to the Agent for its own benefit
an annual agent's fee in an amount and upon terms set forth in the Agent's fee
letter dated March 31, 1994, between the Company and FANB.
(c) Bank One's Fee. On the Closing Date, the Company shall pay to Bank
One for its own benefit a commitment fee of .15% of Bank One's Working Capital
Commitment.
4.7 Changes of Commitment Amounts. (a) The Company shall have the
right, upon not less than three Business Days' notice to the Agent, to terminate
or, from time to time, reduce the unused portions of Working Capital
Commitments. To the extent, if any, that the sum of the Working Capital Loan
Exposure and L/C Exposure exceeds the amount of the Working Capital Commitments
as then reduced, the Company shall be required to make a prepayment equal to the
excess amount, the proceeds of which shall be applied first, to payments of the
Working Capital Loans then outstanding, second, to payment of L/C Obligations,
and last, to cash collateralize any outstanding Letters of Credit on terms
reasonably satisfactory to the Required Banks. Any complete termination of the
Working Capital Commitment shall be accompanied by prepayment in full of the
Working Capital Loans and L/C Obligations and by cash collateralization of any
outstanding Letters of Credit on terms reasonably satisfactory to the Agent.
Upon the complete termination of the Working Capital Commitments, any Letter of
Credit then outstanding which has been so fully cash collateralized shall no
longer be considered a "Letter of Credit" as defined in subsection 1.1 and (i)
if such Letter of Credit is a Standby L/C, then fees will be due in an amount
equal to one percent (1%) per annum on the amount available to be drawn under
each such Standby L/C and (ii) any L/C Participating Interests heretofore
granted by the Issuing Bank to the Banks in such Letter of Credit shall be
deemed terminated. With respect to Letters of Credit, "fully cash
collateralized" shall mean that the contingent obligation of the Company to
reimburse the Issuing Bank for any subsequent drawings thereafter made shall be
fully secured beforehand by cash collateral specifically held by the Agent for
such purposes in an amount equal to the undrawn amount of such Letter of Credit
or otherwise be secured in a manner acceptable to the Issuing Bank. Any partial
reduction of the Working Capital Commitments shall be in an amount of $250,000
or a whole multiple of $50,000 in excess thereof and shall in each case reduce
permanently the Working Capital Commitments then in effect.
(b) Once terminated or reduced the Working Capital Commitment may not
be reinstated.
4.8 Inability to Determine Interest Rate. In the event that the Agent
shall have determined (which determination shall be conclusive and binding upon
the Company) that (a) by reason of
- 38 -
<PAGE>
circumstances affecting the interbank eurodollar market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for any Interest Period
with respect to (i) proposed Loans that the Company has requested be made as
Eurodollar Loans, (ii) any Eurodollar Loans that will result from the requested
conversion of all or part of the FANB Rate Loans into Eurodollar Loans or (iii)
the continuation of any Eurodollar Loan as such for an additional Interest
Period, or (b) dollar deposits in the relevant amount and for the relevant
period with respect to any such Eurodollar Loan are not generally available to
the Banks in their respective Eurodollar Lending Offices' interbank eurodollar
markets, the Agent shall forthwith give telex or telecopy notice of such
determination, confirmed in writing, to the Company and to the Banks at least
one Working day prior to, as the case may be, the requested Borrowing Date, the
conversion date or the last day of such Interest Period. If such notice is given
(i) any requested Eurodollar Loans shall be made as FANB Rate Loans, (ii) any
FANB Rate Loans that were to have been converted to Eurodollar Loans shall be
continued as FANB Rate Loans, and (iii) any outstanding Eurodollar Loans shall
be converted, on the last day of the then current Interest Period applicable
thereto, into FANB Rate Loans. Until such notice has been withdrawn by the
Agent, no further Eurodollar Loans shall be made.
4.9 Illegality. Notwithstanding any other provisions herein, if any
Change in Law occurring after the date that any lender becomes a Bank party to
this Amended and Restated Credit Agreement, shall make it unlawful for such Bank
to make or maintain Eurodollar Loans as contemplated by this Amended and
Restated Credit Agreement, the commitment of such Bank hereunder to make
Eurodollar Loans or to convert all or a portion of FANB Rate Loans into
Eurodollar Loans shall forthwith be canceled and such Bank's Loans then
outstanding as Eurodollar Loans, if any, shall, if required by law and if such
Bank so requests, be converted automatically to FANB Rate Loans on the date
specified by such Bank in such request. To the extent that such affected
Eurodollar Loans are converted into FANB Rate Loans, all payments of principal
which would otherwise be applied to such Eurodollar Loans shall be applied
instead to such Bank's FANB Rate Loans other than Swingline Loans. The Company
hereby agrees promptly to pay any Bank, upon its demand, any additional amounts
necessary to compensate such Bank for any costs incurred by such Bank in making
any conversion in accordance with this subsection 4.9 including, but not limited
to, any interest or fees payable by such Bank to lenders of funds obtained by it
in order to maintain its Eurodollar Loans hereunder (such Bank's notice of such
costs, as certified in reasonable detail as to such amounts to the Company
through the Agent, to be conclusive absent manifest error).
4.10 Indemnity. The Company agrees to indemnify each Bank and to hold
such Bank harmless from any loss or expense which such Bank may sustain or incur
as a consequence of (a) default by the Company in payment of the principal
amount of or interest on any Eurodollar Loans of such Bank, including, but not
limited to, any such loss or expense arising from interest or fees payable by
such Bank to lenders of funds obtained by it in order to make or maintain its
Eurodollar Loans hereunder, (b) default by the Company in making a borrowing
after the Company has given a notice in accordance with subsection 4.1 or in
making a conversion of FANB Rate Loans to Eurodollar Loans after the Company has
given notice in accordance with subsection 4.4, or (c) a payment or prepayment
of a Eurodollar Loan or conversion of any Eurodollar Loan into an FANB
- 39 -
<PAGE>
Rate Loan, in either case on a day which is not the last day of an Interest
Period with respect thereto, including, but not limited to, any such loss or
expense arising from interest or fees payable by such Bank to lenders of funds
obtained by it in order to maintain its Eurodollar Loans hereunder. The Company
further agrees to pay to each such Bank an amount equal to the excess, if any,
of (i) the amount of interest which otherwise would have accrued on the
principal amount paid, prepaid, converted or not borrowed for (A) the period
from the date of such payment or prepayment to the last day of the Interest
Period applicable to such Loan or (B) in the case of a failure to borrow or to
convert to a Eurodollar Loan, the Interest Period applicable to such Loan which
would have commenced on the date specified for such borrowing or conversion, at
the applicable rate of interest for such Loan provided for herein exclusive of
any margin applicable thereto minus (ii) the interest component of the amount
such Bank would have bid in the London interbank market. This covenant shall
survive termination of this Amended and Restated Credit Agreement and payment of
the outstanding Notes.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions Precedent to this Amended and Restated Credit Agreement.
The terms and provisions of this Amended and Restated Credit Agreement shall not
become effective or supersede the Prior Credit Agreement until the Closing Date.
Accordingly, until the Closing Date, the Commitments, as defined in this Amended
and Restated Credit Agreement, shall not be in effect and the Banks shall not be
obligated to make any Loans or issue any Letters of Credit hereunder until the
Closing Date occurs. The parties acknowledge that to the extent any Loans are
made to the Company or any Letters of Credit are issued prior to the Closing
Date, they are made pursuant to the Prior Credit Agreement. From and after the
Closing Date, the interest rates set forth in this Amended and Restated Credit
Agreement shall be deemed to apply to all outstanding Loans to the Company and
outstanding Letters of Credit issued pursuant to the Prior Credit Agreement. The
obligation of the Banks to make the Loans or issue Letters of Credit pursuant to
the terms and conditions of this Amended and Restated Credit Agreement shall be
subject to the fulfillment of the following conditions to the satisfaction of
the Agent:
(a) Amended and Restated Credit Agreement and Notes. Each Bank shall
have received an original of this Amended and Restated Credit Agreement duly
executed by a duly authorized officer of each of the Credit Parties and a
Working Capital Note, duly executed by a duly authorized officer of Company,
each conforming to the requirements hereof. FANB shall have received an original
of the Swingline Note, duly executed by a duly authorized officer of Company.
(b) Legal Opinions of Counsel to the Credit Parties . Each Bank shall
have received a counterpart of an opinion, dated the Closing Date, of Waring
Cox, PLC, counsel to the Credit Parties, in substantially the form of Exhibit
"X".
- 40 -
<PAGE>
(c) Corporate Proceedings. Each Bank shall have received a copy of the
resolutions of the Boards of Directors of the corporate Credit Parties
authorizing (i) the execution, delivery and performance of each of the Basic
Documents to which it is a party, (ii) the borrowings and applications for
Letters of Credit provided for herein and (iii) the granting by Credit Parties
of the pledges, security interests and assignments granted by them pursuant to
the Security Documents, all as certified by the Secretary or Assistant Secretary
of the relevant Credit Parties as of the Closing Date, which certificate shall
state that the resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the Closing Date.
(d) Incumbency Certificates. Each Bank shall have received a
counterpart of a certificate of the Secretary or an Assistant Secretary of the
relevant Credit Parties dated the Closing Date, as to the incumbency and
signature of the officer or officers signing each of the Basic Documents to
which it is a party and any other certificate or other document to be delivered
pursuant thereto, together with evidence of the incumbency of such Secretary or
Assistant Secretary.
(e) Corporate Documents. Each Bank shall have received (i) a copy of
the Certificate of Incorporation of each of the corporate Credit Parties
certified by the Secretary of State of the state of its incorporation and (ii) a
copy of the Bylaws (as amended through the Closing Date) of each of the
corporate Credit Parties, certified by a respective Secretary or Assistant
Secretary of the each of the corporate Credit Parties.
(f) Partnership Documents. Each Bank shall have received (i) a copy of
the Certificate of Limited Partnership of Intex certified by the Secretary of
State of Tennessee, (ii) a copy of the Certificate of Limited Partnership of
Intex duly filed in the Register's Office of Shelby County, Tennessee, and (iii)
a copy of the Agreement of Limited Partnership of Intex, certified by an officer
of its general partner.
(g) Collateral Security. Each Bank shall have received a counterpart of
each of the following documents, each duly executed and delivered by the
applicable Credit Party thereto and each of which shall be in full force and
effect:
(i) the Security Documents;
(ii) the Pledge Agreements;
(iii) the Guaranties;
(iv) the Assignments.
(h) Consents, Licenses, Approvals, etc. Each Bank shall have received,
together with executed certificates, true copies (in each case certified as to
authenticity on such date by a duly
- 41 -
<PAGE>
authorized officer of the applicable Credit Parties of all documents and
instruments, including, in the reasonable judgment of the Company and the Agent,
all material consents (including, without limitation, all material landlord
consents), authorizations and filings licenses and approvals, if any, required
in connection with the execution, delivery and performance by the applicable
Credit Parties and the validity and enforceability of, this Amended and Restated
Credit Agreement, the Notes and the other Basic Documents, and such licenses and
approvals shall be in full force and effect.
(i) No Legal Restraints. There shall be no litigation, inquiry,
injunction, restraining order, investigation or proceeding of or before any
Governmental Authority (including any proposed statute, rule or regulation)
pending or, to the best knowledge of the Credit Parties threatened against any
Credit Party or any of their respective properties or revenues with respect to
the Basic Documents or any of the transactions contemplated hereby or thereby.
There shall be no injunction, writ, preliminary restraining order or any order
of any nature issued by any Governmental Authority directing that any of the
transactions provided for herein, in the Notes, in any of the other Basic
Documents not be consummated as herein or therein provided which, if adversely
determined, would have a material adverse effect on the business, operations,
property, assets or financial condition of the Credit Parties as a whole.
(j) Fees. All fees required to be paid on or prior to the Closing Date
shall have been paid.
(k) Representations and Warranties. The representations, warranties and
disclosure made by the Credit Parties in this Amended and Restated Credit
Agreement or in any Basic Document or made by any of the Credit Parties in any
certificate, document or financial or other statement furnished in connection
herewith or therewith, shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if made on such date.
(l) Borrowing Base Certificate. The Agent shall have received a
Borrowing Base Certificate, dated the Closing Date, computed for the immediately
preceding period, prepared in accordance with the terms of paragraph (i) of
subsection 7.2 hereof.
(m) Evidence of Insurance. The Agent shall have received evidence
satisfactory to it that the Credit Parties have obtained all policies of
insurance required pursuant to subsection 7.6 and pursuant to any of the
Security Documents.
(n) UCC Filings. Except as set forth on Schedule 5.1(n), documents
(including, without limitation, financing statements) required under any of the
Security Documents in order to create in favor of Agent, a perfected security
interest in the Collateral with respect to which a security interest may be
perfected by a filing under the UCC shall have been executed and delivered to
the Agent. Except as set forth on Schedule 5.1(n), as to the UCC filings against
the Accounts, the Agent shall have received acknowledgment copies of all such
filings (or, in lieu thereof, the Agent shall have received other evidence
satisfactory to the Banks that all such filings have been made);
- 42 -
<PAGE>
and the Agent shall have received evidence that all necessary filing fees and
all taxes or other expenses related to such filings have been paid in full.
(o) Lien Search. The Agent shall have received the results of recent
lien searches in the jurisdictions listed on Schedule 5.1(o) and the results of
such search shall reveal no Liens on any assets of the Credit Parties, except
for Permitted Liens, and other Liens approved by the Banks.
(p) Good Standing Certificates. Except as set forth on Schedule 5.1(p)
hereto, the Agent shall have received, with a counterpart for each Bank, copies
of certificates dated as of a recent date from the Secretary of State or other
appropriate authority of such jurisdiction, evidencing the good standing of the
Credit Parties in each state where the ownership, lease or operation of property
or the conduct of business requires it to qualify as a foreign corporation
except where the failure to so qualify would not have a material adverse effect
on the business, operations, properties, assets or financial condition of the
Credit Parties taken as a whole.
(q) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing on the Closing Date or after giving effect
to the Loans to be made on such date. No event of default (or condition which
would constitute an event of default with the giving of notice, the lapse of
time, or both) under material (in the reasonable opinion of the Company and the
Agent) contracts of the Credit Parties such as, but not limited to, agreements
with respect to capital stock, financing documents and lease agreements shall
have occurred and be continuing on the Closing Date.
(r) Material Adverse Change. For the period from the date of execution
of this Amended and Restated Credit Agreement to the Closing Date, there shall
have been (i) no material adverse change in the business, operations,
properties, assets or financial condition of the Credit Parties taken as a whole
and (ii) no occurrence or event which shall have a material adverse effect on
the rights and remedies of the Banks or on the ability of the Credit Parties to
perform their respective obligations to the Banks. The Banks shall not have
become aware of any undisclosed materially adverse information with respect to
(i) the business, operations, properties, assets or financial condition of the
Credit Parties taken as a whole, (ii) the ability of the Credit Parties to
perform their respective obligations under the Basic Documents or (iii) the
rights and remedies of the Banks under the Basic Documents.
(s) Payment in Full of Term Notes. The Agent shall have received, for
the benefit of the Banks, payment in full in immediately available funds of all
indebtedness due the Banks under the Term Notes, including the outstanding
principal as of the Closing Date, any unpaid accrued interest as of the Closing
Date, and any other fees or charges due the Agent or Banks under the Term Notes.
Upon receipt of payment in full of the Term Notes, the Term Loan Commitment
shall terminate and the Agent shall execute and deliver to the Credit Parties,
releases of the Deeds of Trust to evidence the release of its liens on the real
property described in said Deeds of Trust.
- 43 -
<PAGE>
(t) Mandatory Prepayment. To the extent, if any, that the sum of the
Working Capital Loan Exposure and L/C Exposure as of the Closing Date exceeds
the amount of the Working Capital Commitment, as defined in this Amended and
Restated Credit Agreement, the Company shall make a prepayment on the Closing
Date equal to the excess amount. To the extent, if any, that the aggregate
outstanding principal under the Swingline Loans as of the Closing Date exceeds
the Swingline Commitment, as defined in this Amended and Restated Credit
Agreement, the Company shall make a prepayment on the Closing Date equal to the
excess amount. To the extent, if any, that the Total Exposure as of the Closing
Date exceeds the Borrowing Base, as defined in this Amended and Restated Credit
Agreement, the Company shall make a prepayment on the Closing Date equal to the
excess. All such prepayments shall be made to the Agent for the account of the
Banks, in lawful money of the United States of America in immediately available
funds and the Agent shall promptly distribute such payments to the Banks on a
ratable basis.
(u) Inventory Valuation. The Agent shall have received (i) an audit
performed by independent auditors selected by the Agent which verifies the Net
Recoverable Liquidation Value of the Eligible Inventory or (ii) a written
agreement executed by the Company and the Agent which specifies the date by
which such audit will be performed, such agreement to be satisfactory in form
and substance to Agent. The Company shall pay up to $20,000 of the expense of
the audit and FANB shall pay any expense of the audit which exceeds $20,000.
(v) Certificate of Outstanding Balance Under Prior Notes and L/C
Exposure. The Banks shall have received a certificate setting forth (i) the
amounts under the Prior Notes outstanding as of the Closing Date and (ii) the
L/C Exposure as of the Closing Date.
(w) Additional Matters. All corporate and other proceedings and all
other documents (including, without limitation, any tax sharing agreement,
employment agreement, management compensation arrangement or other financing
arrangement of the Credit Parties and all documents referred to herein and not
appearing as exhibits hereto) and legal matters in connection with the
transactions contemplated by this Amended and Restated Credit Agreement, the
Working Capital Notes, the Swingline Note and the other Basic Documents shall be
reasonably satisfactory in form and substance to the Banks and their respective
counsel.
5.2 Conditions to Each Loan and Each Letter of Credit. The obligation
of the Banks to make any Loans requested to be made by them on any date in
accordance with and pursuant to the terms and conditions of this Amended and
Restated Credit Agreement, and the obligation of the Issuing Bank to issue any
Letter of Credit requested to be opened on any date in accordance with and
pursuant to the terms and conditions of this Amended and Restated Credit
Agreement, is subject to the satisfaction of the following conditions as of the
date such Loan or Letter of Credit is requested to be made or issued, as the
case may be:
(a) Representations and Warranties. Each of the representations and
warranties (other than the representations and warranties in subsections 6.1(b)
and 6.16) made by the Credit Parties, in or
- 44 -
<PAGE>
pursuant to the Basic Documents shall be true and correct in all material
respects on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Loans or the Letters of
Credit requested to be made or issued, as the case may be, on such date.
(c) Borrowing Base. After giving effect to the Loan to be made at such
time or the Letter of Credit to be issued, neither the Swingline Loan Commitment
nor the Working Capital Commitment shall be exceeded, and provided further, that
no Loans shall be made or Letters of Credit issued if, after giving effect
thereto the Total Exposure would exceed the Borrowing Base.
(d) Additional Matters. Each borrowing and each L/C Application by the
Company hereunder shall constitute a representation and warranty by the Credit
Parties as of the date of such borrowing or issuance of such Letter of Credit
that the conditions contained in this subsection 5.2 have been satisfied.
SECTION 6. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Amended and Restated
Credit Agreement and to make the Loans and issue the Letters of Credit, the
Credit Parties hereby represent and warrant to each Bank that:
6.1 Financial Condition. (a) The audited consolidated balance sheet of
the Parent and its Subsidiaries as of February 1, 1997, and the related
consolidated statements of common stockholders' equity and cash flows and the
consolidated statement of income and retained earnings of the Parent and its
Subsidiaries, and the unaudited consolidated balance sheet of the Parent and its
Subsidiaries as of January 3, 1998, and the related consolidated statements of
stockholders' equity and cash flows and the consolidated statement of income and
retained earnings of the Parent and its Subsidiaries, together with the notes to
such financial statements, copies of each of which have heretofore been
furnished to each Bank, have been prepared in conformity with GAAP consistently
applied (except in each case as described in the notes thereto) and on that
basis fairly present the financial condition and results of operations of the
Parent and its Subsidiaries as of and for the periods indicated.
(b) Since January 3, 1998, there has been no material adverse change in
the business, operations, property, assets or financial condition of the Credit
Parties taken as a whole, and none of the Credit Parties has, since January 3,
1998, incurred any material obligation, contingent or otherwise, which has a
material adverse impact on the business, operations, properties or financial or
other condition of such Credit Parties taken as a whole.
- 45 -
<PAGE>
6.2 Entity Existence; Compliance with Law.
(a) Each of the corporate Credit Parties (i) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has the corporate power and authority
and the legal right to own or lease and operate its property, and to conduct the
business in which it is currently engaged, (iii) except as described in Schedule
5.1(p), is duly qualified as a foreign corporation and in good standing under
the laws of each jurisdiction where failure to so qualify and remain in good
standing would materially and adversely affect its ability to own or lease and
operate its property or to conduct the business in which it is currently engaged
or intends to engage in the future and (iv) is in compliance with all
Requirements of Law, except where noncompliance would not have a material
adverse effect on the business, operations, assets or financial condition of
each such Credit Party.
(b) Intex (i) is duly organized, validly existing and in good
standing under the laws of Tennessee, (ii) has the partnership power and
authority and the legal right to own or lease and operate its property, and to
conduct the business in which it is currently engaged, (iii) is duly qualified
as a foreign limited partnership and in good standing under the laws of each
jurisdiction where failure so to qualify and remain in good standing would
materially and adversely affect its ability to own or lease and operate its
property or to conduct the business in which it is currently engaged or intends
to engage in the future and (iv) is in compliance with all Requirements of Law,
except where non-compliance would not have material adverse effect on the
business, operations, assets or financial conditions of Intex.
6.3 Entity Power; Authorization; Enforceable Obligations.
(a) Each of the corporate Credit Parties has the corporate
power and authority and Intex has the partnership power and authority, to make,
deliver and perform all of its obligations in connection with this Amended and
Restated Credit Agreement, the Notes and the other Basic Documents to which it
is a party, and the Company has the corporate power and authority to borrow
hereunder and to request the issuance of Letters of Credit hereunder; the
Company has taken all necessary corporate action to authorize the borrowings and
the issuance of Letters of Credit on the terms and conditions of this Amended
and Restated Credit Agreement and the Notes, and to authorize the execution,
delivery and performance by it of this Amended and Restated Credit Agreement,
the Notes and the other Basic Documents to which it is a party; and each of the
other corporate Credit Parties has taken all necessary corporate action and
Intex has taken all necessary partnership action, to authorize the execution,
delivery and performance of each Basic Document to which it is a party. No
consent or authorization of, filing with, or other act by or in respect of, any
other Person is required in connection with the borrowings hereunder, the
issuance of Letters of Credit or with the execution, delivery or performance by
the Credit Parties or the validity of or enforceability against the Credit
Parties, of this Amended and Restated Credit Agreement or the other Basic
Documents to which each is a party (except such filings as are necessary in
connection with the perfection of the Liens created by such documents, which
filings have been duly made
- 46 -
<PAGE>
and/or obtained and are in full force and effect). Each of this Amended and
Restated Credit Agreement, each Note and each Basic Document to which each
Credit Party is a party has been duly executed and delivered on behalf of each
such Credit Party. Each of this Amended and Restated Credit Agreement, each Note
and each other Basic Document to which each Credit Party is a party constitutes
a legal, valid and binding obligation of each such Credit Party, enforceable
against the Credit Parties in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws affecting creditors' rights generally, and except as
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
6.4 No Legal Bar. The execution, delivery and performance by each of
the Credit Parties, of this Amended and Restated Credit Agreement, the Notes and
each other Basic Document to which it is a party and the borrowing contemplated
by this Amended and Restated Credit Agreement and the Notes do not and will not
violate any Requirement of Law or any Contractual Obligation applicable to or
binding upon the applicable Credit Party or any of their properties or assets,
except where noncompliance would not have a material adverse effect on the
business, operations, property, assets or financial condition of the Credit
Parties taken as a whole and will not result in the creation or imposition of
any Lien on any such properties or assets pursuant to the provisions of any
Requirement of Law or any Contractual Obligations other than the Lien of the
Security Documents.
6.5 No Material Litigation. Except as set forth in Schedule 6.5 hereto,
no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Credit Parties,
threatened by or against any of the Credit Parties or against any of their
properties or revenues (a) with respect to this Amended and Restated Credit
Agreement or any other Basic Document or any of the transactions contemplated
hereby or (b) which, if adversely determined, would have a material adverse
effect on the business, operations, property, assets or financial condition of
the Credit Parties taken as a whole.
6.6 No Default. None of the Credit Parties are in default in the
payment or performance of any of their Contractual Obligations in any respect
that is material to the Credit Parties, and no Default or Event of Default has
occurred and is continuing. None of the Credit Parties are in default in any
respect that is material to them under any order, award or decree of any
Governmental Authority or arbitrator binding upon or affecting them or by which
any of their properties or assets may be bound or affected.
6.7 Ownership of Property; Liens. On the date hereof, each of the
Credit Parties has good record title in fee simple to, or valid and subsisting
leasehold interests in, all its real property, except as set forth on Schedule
6.7 hereto, and good title to or valid and subsisting leasehold interests in all
its other property, and none of such property is subject to any Lien, except for
Permitted Liens and other Liens approved by the Banks.
- 47 -
<PAGE>
6.8 Patents, Copyrights, Permits and Trademarks. Each of the Credit
Parties owns, or has a valid license in, all material domestic and foreign
letters patent, patents, patent applications, patent and know-how licenses,
inventions, technology, permits, trademark registrations and applications,
trademarks, trade names, trade secrets, service marks, copyrights, product
designs, applications, formulae, processes and the industrial property rights
("proprietary rights") used in the operation of its businesses in the manner in
which they are currently being conducted and planned to be conducted. None of
the Credit Parties is aware of any material existing or threatened infringement
or misappropriation of any proprietary rights of others by the Credit Parties or
of any proprietary rights of the Credit Parties by others.
6.9 No Burdensome Restrictions. No Contractual Obligation of any of the
Credit Parties, materially adversely affects the business, operations, property,
assets or financial condition of the Credit Parties, taken as a whole.
6.10 Margin Regulations. None of the Credit Parties are engaged, nor
will they engage, principally or as one of their important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Loan will be used for "purchasing" or "carrying" "margin stock" as
defined in Regulation U of such Board of Governors.
6.11 Investment Company Act. None of the Credit Parties is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, nor is it controlled by such a
company.
6.12 Disclosure. No statement or other form of disclosure or
representation and warranty made by the any of the Credit Parties in this
Amended and Restated Credit Agreement or in any other Basic Document to which it
is a party, or in any financial statement, report, certificate or any other
document furnished in connection herewith or therewith contains any materially
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to any of the Credit Parties that has not been disclosed to each Bank
in writing prior to the date of this Amended and Restated Credit Agreement with
respect to the transactions contemplated by this Amended and Restated Credit
Agreement and the other Basic Documents which materially and adversely affects
the business, operations, property, assets or financial condition of the Credit
Parties taken as a whole.
6.13 The Security Documents. (a) The provisions of the Security
Agreements are effective to create in favor of the Agent for the benefit of the
Banks, a legal, valid and enforceable security interest in all rights, title and
interests of the Credit Parties in the collateral described therein; when
financing statements have been filed in the offices in the jurisdictions listed
in Schedule 6.13 hereto and when the Security Agreement has been filed in the
United States Patent and Trademark Office,
- 48 -
<PAGE>
the Security Agreement shall constitute a fully perfected first Lien on, and
security interest in, all rights, title and interests of the Credit Parties in
the Collateral described therein to the extent the filing of financing
statements under the Uniform Commercial Code and the filing of the Security
Agreement in the United States Patent and Trademark Office are permissible
methods of perfection of security interests in the collateral described therein
in each such jurisdiction, subject to no prior Liens, except for Permitted Liens
and other Liens approved by the Banks.
(b) The property which is subject to the Lien of the Security Documents
constitutes substantially all the property of any nature of the Credit Parties
(other than the real property described in the Deeds of Trust, Inventory,
Excluded Leases, Equipment, Fixtures, and "Assets to be Sold", as defined in the
HSB Purchase Agreement and rights under the Merchant Services Agreements and HSB
Purchase Agreement).
6.14 ERISA. No Reportable Event that may result in a liability that
would have a material adverse effect on the business, operations, property,
assets or financial condition of the Credit Parties has occurred since December
10, 1987 with respect to any Plan, and each Plan has complied and has been
administered in all material respects, in accordance with applicable provisions
of ERISA and the Code; provided, however, for the period preceding December 10,
1987, to the best knowledge of the Company no Reportable Event that may result
in a liability that would have a material adverse effect on the business,
operations, property, assets or financial condition of the Parent, the Company
and the other Subsidiaries has occurred with respect to any Plan, and each Plan
has complied and been administered in all material respects, in accordance with
the applicable provisions of ERISA and the Code. The present value of all
accrued benefits under each Single Employer Plan maintained by the Company or
any Commonly Controlled Entity (based on those assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such accrued benefits by more
than $100,000. Neither the Company nor any Commonly Controlled Entity has during
the immediately preceding six-year period had a complete or partial withdrawal
from any Multiemployer Plan that has resulted or could result in any material
adverse effect to the business, operations, property, assets or financial
condition of the Company or any Commonly Controlled Entity, and the liability to
which the Company or any Commonly Controlled Entity would become subject under
ERISA if the Company or any Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the most recent valuation date
applicable thereto is not in excess of $100,000. Neither the Company nor any
Commonly Controlled Entity has received notice that any Multiemployer Plan is in
Reorganization or is Insolvent nor, to the best knowledge of the Company, is any
such Multiemployer Plan in Reorganization or Insolvent nor, to the best
knowledge of the Company, is any such Reorganization or Insolvency reasonably
likely to occur. The present value (determined using actuarial and other
assumptions which are reasonable in respect of the benefits provided and the
employees participating) of the liability of the Company for post-retirement
benefits to be provided to its current and former employees under Plans which
are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the
aggregate, exceed the assets under all such Plans allocable to such benefits by
an amount in excess of $1,000,000.
- 49 -
<PAGE>
6.15 Subsidiaries. The only Subsidiaries of the Parent and the Company
are the Persons set forth on Schedule 6.15 hereto.
SECTION 7. AFFIRMATIVE COVENANTS
Each of the Credit Parties hereby agrees that, so long as the
Commitments remain in effect, any Note remains outstanding and unpaid, any
Letter of Credit remains issued and outstanding or any other amount is owing to
any Bank or the Agent hereunder or under any other Basic Document, it shall:
7.1 Financial Statements. Furnish to each Bank:
(a) as soon as available, but in any event within 90 days after the end
of each Fiscal Year of the Parent, a copy of the audited consolidated balance
sheets of the Parent and its Subsidiaries as at the end of such Fiscal Year, and
the related consolidated statements of common stockholders' equity and cash
flows and the consolidated statement of income and retained earnings of the
Parent and its Subsidiaries for such Fiscal Year, setting forth in each case, in
comparative form the corresponding figures for the previous year or portion
thereof, all in reasonable detail, certified for all Fiscal Years commencing
with the Fiscal Year ending January 29, 1994 without a "going concern" or like
qualification or exception, or qualification arising out of the scope of the
audit, by independent certified public accountants of nationally recognized
standing acceptable to the Banks (such accountants being called herein, the
"Reporting Accountants");
(b) as soon as available, but in any event within 45 days after the end
of each of the first three quarterly periods of each Fiscal Year of the Parent,
or if an extension has been granted by the Commission for the filing by the
Parent of its quarterly report on Form 10-Q, then by the earlier of the date
such Form 10-Q is actually filed and the last day of such extended time period,
a copy of
the unaudited consolidated balance sheets of the Parent and its Subsidiaries as
at the end of each such quarter and the related unaudited consolidated
statements of stockholders' equity and cash flows and the consolidated statement
of operations and retained earnings of the Parent and its Subsidiaries for such
quarterly period and the portion of the Fiscal Year through such date, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer of the Parent and its Subsidiaries (subject
to normal year-end audit adjustments); and
(c) as soon as practicable, and in any event within 30 days after the
end of each fiscal month (other than any fiscal month ending on the last day of
any fiscal quarter) of each year, a copy of the unaudited consolidated balance
sheets of the Parent and its Subsidiaries as at the end of such month and the
related unaudited consolidated statements of stockholders' equity and cash flows
and the consolidated statement of income and retained earnings of the Parent and
its Subsidiaries for such month and the portion of the Fiscal Year of the
Company and the Parent through the end of such month, such financial statements
to be certified by a Responsible Officer of the Parent.
- 50 -
<PAGE>
All such financial statements shall be complete and correct in all
material respects (subject, in the case of interim statements, to normal
year-end audit adjustments) and shall be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such Reporting Accountants or Responsible
Officer, as the case may be, and disclosed therein).
7.2 Certificates; Reports and Other Information. Furnish to each Bank:
(a) concurrently with the delivery of the financial statements referred
to in subsection 7.1(a) a letter from the Reporting Accountants stating that, in
making the examination necessary to express their opinion on such financial
statements, no knowledge was obtained of any Default or Event of Default under
subsections 9.7 through 9.10, except as specified in such letter;
(b) concurrently with the delivery of the financial statements referred
to in subsections 7.1(a) through (c), a certificate of the chief financial
officer of the Parent (i) stating that, to the best of such officer's knowledge,
each Credit Party as the case may be, during such period has observed or
performed all its covenants and other agreements contained in this Amended and
Restated Credit Agreement and the Security Documents to be observed or performed
by it, and that such officer has obtained no knowledge of any Default or Event
of Default (not theretofore reported and cured or duly waived), except as
specified in such certificate, (ii) stating, to the best of such officer's
knowledge, that all such financial statements are complete and correct in all
material respects and have been prepared in reasonable detail and in accordance
with GAAP applied consistently throughout the periods reflected therein (except
as disclosed therein) and (iii) in the case of the consolidated financial
statements of the Parent and its Subsidiaries referred to in subsections 7.1(a)
and (b), showing in detail the calculations supporting such statements in clause
(i) in this subsection 7.2(b) in respect of subsections 9.7 through 9.10;
(c) promptly upon receipt thereof, copies of all final reports
submitted to the Parent by Reporting Accountants or other independent certified
public accountants in connection with each annual, interim or special financial
audit of the books of the Parent and its Subsidiaries made by such accountants,
including, without limitation, any final comment letter submitted by such
accountants to management in connection with their annual audit;
(d) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by the Parent to its
security holders (or, if made available generally by the Parent to their
security holders, shall make such statements, reports and notices available to
each Bank on the same basis) and shall furnish to each Bank copies of all
regular and periodic reports and all final registration statements and final
prospectuses, if any, filed by the Parent with any securities exchange or with
the Commission or any Governmental Authority succeeding to any of its functions;
- 51 -
<PAGE>
(e) not more than 60 days before the beginning of each Fiscal Year of
the Parent, a copy of the projections by the Parent of the consolidated
operating budget and cash flow of the Parent and its Subsidiaries for such
Fiscal Year and a consolidated profit and loss statement and balance sheet for
each month of such Fiscal Year, such projections to be in form reasonably
satisfactory to the Banks and accompanied by a certificate of the chief
financial officer of the Parent to the effect that such projections have been
prepared on the basis of sound financial planning practice and that such officer
has no reason to question the reasonableness of any material assumptions on
which such projections were prepared;
(f) concurrently with the delivery of the financial statements of the
Parent and its Subsidiaries referred to in subsections 7.1(a) through (c) a
monthly financial report in form and content satisfactory to Agent;
(g) information which identifies any and all charges which comprise
FASB 121 charges or other charges specified in subparagraph (iv) of the
definition of Consolidated Adjusted Operating Profit as set forth in subsection
1.1 hereof;
(h) as soon as practicable and in any event, within 45 days following
the end of each fiscal quarter (i) a report which details the status of Store
closings, including a comparison of actual and projected Store closing expenses
(a "Store Closing Report") and (ii) a direct operating profit report as detailed
for each Store Location; both in form and content satisfactory to Agent;
(i) On the Closing Date and no later than the 15th day of each month
thereafter, a Borrowing Base Certificate pursuant to which a Responsible Officer
shall certify the Borrowing Base as of the date of report submission, with such
details concerning the manner and method of the calculation of the components
thereof as the Agent may reasonably request for verification purposes from time
to time, which Borrowing Base Certificate shall determine the effective
Borrowing Base until submission of the next succeeding such certificate; and
(j) promptly, such additional financial and other information
(including, without limitation, more frequent cash flow projections) as any Bank
may from time to time reasonably request.
7.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods) all its
obligations, including taxes, and liabilities of whatever nature, except when
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings.
7.4 Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same general type as now conducted by it, and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges and franchises
necessary in the normal conduct of its business, except as otherwise permitted
by subsection 9.4; and comply with all applicable Requirements of Law, except to
the extent that the failure to comply
- 52 -
<PAGE>
therewith would not have a material adverse effect on the business, operations,
property, assets or financial condition of the Credit Parties taken as a whole.
7.5 Maintenance of Property. Keep all property which is useful and
necessary in its business in good working order and condition (ordinary wear and
tear excepted).
7.6 Insurance. (a) Maintain with financially sound and reputable
insurance companies (i) insurance on all its material property in such amounts
and against such risks as are reasonably satisfactory to the Banks (including,
without limitation, business interruption insurance in the amount of
$1,500,000), and (ii) "all-risk" insurance against loss or damage to all its
assets, in such form and with such insurance companies as shall reasonably be
satisfactory to the Banks; provided that the amount of such insurance in effect
from time to time shall in no event be less than the replacement value of its
assets.
(b) Maintain general public liability insurance in such amounts, in
such form and with such insurance companies as shall reasonably be satisfactory
to the Banks.
(c) Cause (i) all liability insurance policies to name the Agent as an
additional insured, (ii) all property loss or damage insurance policies with
respect to any assets to contain a loss payable clause in favor of the Agent
providing that any payment with respect to a loss (other than a loss covered by
subsection 7.6(d) below) in excess of $500,000 shall be paid solely to the Agent
and, unless a Default or an Event of Default shall have occurred and be
continuing, any payment with respect to a loss of $500,000 or less shall be paid
to the applicable Credit Party, (iii) all insurance policies to provide that no
cancellation, reduction in amount or material change in coverage thereof shall
be effective until at least 30 days after receipt by the Agent of written notice
thereof, (iv) all insurance policies to insure the interests of the Banks
regardless of any breach of or violation by any Credit Party or any other Person
of any warranties, declarations or conditions contained therein, (v) all
insurance policies to provide that the Banks shall have no obligation or
liability for premiums, commissions, assessments or calls in connection with
such insurance or in connection with any representation or warranty made by any
Credit Party or any other Person in connection with obtaining of such insurance,
(vi) all business interruption insurance to name the Agent as an additional
insured and (vii) all applicable insurance policies to contain such other
provisions as are set forth in the relevant Security Documents.
(d) Thirty days prior to the expiration date of each policy maintained
hereunder, the Credit Parties shall either (i) deliver to each Bank copies of
the renewals of the insurance policies (in each case, with a certified true and
correct copy of such policy by the insurer named therein) maintained by the
Credit Parties as required by this subsection 7.6 or (ii) notify each Bank of
the policies which have not been renewed.
7.7 Inspection of Property; Books and Records; Discussions. Keep proper
books of record and account in which entries in conformity with GAAP and all
Requirements of Law shall be made
- 53 -
<PAGE>
of all dealings and transactions in relation to its business and activities; and
permit representatives of any Bank to visit and inspect any of its properties
during normal business hours with reasonable notice and examine and make
abstracts from any of its books and records at any reasonable time and as often
as may reasonably be desired, and to discuss its business, operations,
properties, assets and financial and other condition with its officers and
employees and with its Reporting Accountants and other independent certified
public accountants; provided, that, information obtained pursuant to the above
shall be subject to the confidentiality provisions of subsection 11.6(f) hereof.
7.8 Notices. Promptly give notice to the Agent and each Bank:
(a) of the occurrence of any Default or Event of Default:
(b) of any (i) default or event of default under any instrument or
other material agreement, or (ii) litigation, investigation or proceeding which
may exist at any time with any Governmental Authority, which in any such case,
if adversely determined, would have a material adverse effect on the business,
operations, property, assets or financial condition of the Credit Parties, taken
as a whole;
(c) of all litigation or proceedings (i) which involve uninsured
liability in excess of $250,000 (in the aggregate), (ii) in which injunctive or
similar relief is sought which if obtained could have a material adverse effect
on its business, operations, property, assets or financial or other condition,
or (iii) which questions the validity or enforceability of any Basic Document
which in any such case, if adversely determined, would have a material adverse
effect on the business operations, property, assets or financial condition of
the Credit Parties, taken as a whole;
(d) of the following events, as soon as practicable, and in any event
within 30 days, after it knows or has reason to know of the following events:
(i) the occurrence or expected occurrence of any Reportable Event with respect
to any Plan or any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or
the taking of any other action by the PBGC, any Credit Party or any Commonly
Controlled Entity, or any Multiemployer Plan with respect to the withdrawal
from, or the termination, Reorganization or Insolvency of, any Single Employer
Plan or Multiemployer Plan, and in addition to such notice, shall deliver to the
Agent and each Bank a certificate of its chief financial officer setting forth
the details thereof and the action that the Credit Party or the Commonly
Controlled Entity proposes to take with respect thereto;
(e) as soon as practicable, and in any event within ten Business Days
after its occurrence, of the entering into, or the amendment, supplement or
other modification of, any agreement, whether or not in existence on the date
hereof, for the lease, hire or use of all real property and personal property
with a dollar value in excess of $250,000 (other than a Financing Lease or the
lease by a Credit Party of a new store location), together with a copy of such
agreement, amendment, supplement or modification.
- 54 -
<PAGE>
Each notice pursuant to this subsection shall be accompanied by a
statement of the chief executive officer or chief financial officer of the
Credit Party setting forth details of the occurrence referred to therein and
stating what action the Credit Party proposes to take with respect thereto.
7.9 Maintenance of Liens of the Security Documents. (a) Promptly upon
the reasonable request of any Bank at the Company's expense, execute,
acknowledge and deliver, or cause the execution, acknowledgment and delivery of,
and thereafter register, file or record, or cause to be registered, filed or
recorded, in an appropriate governmental office, any document or instrument
supplemental to or confirmatory of the Security Documents or otherwise necessary
or desirable for the creation and/or perfection of the Liens on all assets
(other than real property assets) now owned or hereafter acquired, of the Credit
Parties.
(b) Maintain, install, locate and use the equipment (other than an
amount for any 12-month period with an aggregate fair market value of $25,000 or
less) included within the Collateral in a manner and in jurisdictions which are
consistent with the continued effectiveness and validity of the filing and
recordings made in respect thereof under the Security Documents.
7.10 Security Documents. Upon the creation or acquisition of any
Subsidiary of the Credit Parties after the date hereof (i) such Credit Party
immediately shall cause each such Subsidiary to execute and deliver a subsidiary
guarantee and such other Security Documents as the Agent may require and (ii)
such Credit Party immediately shall pledge all of the issued and outstanding
capital stock of such Subsidiary pursuant to a pledge agreement.
7.11 Termination of Merchant Services Agreements. Following notice from
HSB or the Company that either is terminating either or both of the Merchant
Services Agreements, the Company shall and the Parent shall cause the Company,
after such termination, (i) if there is no successor to HSB, to execute and
deliver a security agreement and financing statements conveying a first priority
security interest to Agent on all of the Company's accounts pledged and/or sold
to HSB and (ii) if there is a successor to HSB (which successor shall be subject
to the approval of the Banks), to execute and deliver (A) a merchant services
agreement (or similar documents) with such successor to HSB and (B) an
assignment in the form of the Assignment of the Company;
7.12 Annual Inventory Valuation. As soon as practicable but in any
event within 90 days following the end of each Fiscal Year, the Company shall
obtain and deliver to Agent an audit of the Net Recoverable Liquidation Value of
Eligible Inventory performed by independent auditors selected by the Agent (the
"Annual Inventory Valuation"). The Company shall bear the costs and expenses of
the Annual Inventory Valuation up to a maximum of $20,000. If the costs and
expenses of the Annual Inventory Valuation exceed $20,000, the excess shall be
paid by FANB. In the event the Annual Inventory Valuation reflects a Net
Recoverable Liquidation Value which is less than 32% of the cost value of
Eligible Inventory no later than six (6) months following the date of such
Annual Inventory Valuation, the Company shall obtain and deliver to the Agent,
at the Company's
- 55 -
<PAGE>
sole cost and expense, an updated audit of the Net Recoverable Liquidation Value
performed by auditors selected by the Agent (the "Second Inventory Valuation");
and
7.13 Further Assurances. At any time and from time to time, upon the
Agent's request and at the expense of the Company, the Credit Parties will
promptly and duly execute and deliver or cause to be executed and delivered any
and all further instruments and documents and take such further action as the
Agent may reasonably request to effect the purpose of the Security Documents,
including (without limitation) the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction in
order to place on the public records notice of the effect of the Security
Documents;
SECTION 8. FORMATION OF NEW SUBSIDIARIES.
Each Bank and the Agent hereby agree to the following notwithstanding
anything in the Amended and Restated Credit Agreement or other Basic Documents
to the contrary: the Credit Parties may form one or more new Subsidiaries (a
"New Subsidiary") and transfer, assign and convey assets into such New
Subsidiary; provided, that (i) Agent shall have received a copy of the proposed
plan at least thirty (30) business days prior to the effective date of the
transactions and has approved same; (ii) the Parent has furnished to the Agent,
and the Agent has approved, a pro forma consolidated balance sheet and income
statement of the Parent and its Subsidiaries which reflects no adverse financial
impact resulting from the transaction, (iii) such New Subsidiary becomes a party
to the Amended and Restated Credit Agreement, has executed a guaranty of the
Loans, and has executed such documents (including, without limitation, security
agreements and financing statements) in order to create in favor of the Agent
for the ratable benefit of the Banks, a perfected security interest in the
Collateral transferred to such New Subsidiary, (iv) each Bank and Agent shall
have received a counterpart of an opinion of counsel to the Company (or the New
Subsidiary) in form reasonably satisfactory to Agent and its counsel, (v) such
other requirements reasonably requested by the Agent and the Banks, and (vi) the
Company has reimbursed the Agent and the Banks for all reasonable expenses
incurred by the Agent and the Banks in connection with the foregoing, including
reasonable attorneys' fees and expenses.
SECTION 9. NEGATIVE COVENANTS
Each of the Credit Parties hereby agrees that, so long as the
Commitments remain in effect, any Notes remain outstanding and unpaid, any
Letter of Credit remains issued and outstanding or any other amount is owing to
the Agent or any Bank hereunder or under any other Basic Document, it shall not,
directly or indirectly, and shall not permit any of its Subsidiaries to:
9.1 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness in respect of the Loans, the Notes, the Letters of
Credit and all other obligations of the Credit Parties under this Amended and
Restated Credit Agreement;
- 56 -
<PAGE>
(b) Indebtedness in favor of National Bank of Commerce more
particularly described on Schedule 9.1(b) (the "NBC Indebtedness") and certain
other Indebtedness outstanding on the Closing Date as listed on Schedule 9.1(b);
(c) Indebtedness in an aggregate amount equal to the amount by which
the Commitments have been permanently reduced pursuant to Section 4.7 of this
Amended and Restated Credit Agreement, provided that such Indebtedness shall
contain provisions in respect of subordination, amortization, rate of interest
and acceleration of the due date of such Indebtedness prior to its stated
maturity which, in the sole discretion of the Agent and the Banks, are
acceptable in form and substance to the Agent and the Banks;
(d) Indebtedness as incurred or assumed by the Company (i) in
connection with any Financing Lease entered into after the Closing Date, (ii) in
connection with any Sale and Leaseback transaction and (iii) as to the Company
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 the aggregate amount of all such Indebtedness at any one time
outstanding as to the Credit Parties (excluding the NBC Indebtedness) shall not
exceed (x) $10,000,000 less (y) Indebtedness (excluding the NBC Indebtedness)
permitted by subsections 9.1(b) and 9.1(e);
(e) Indebtedness incurred by the Parent and its Subsidiaries after the
Closing Date (i) under unsecured lines of credit with any Person, (ii) under
demand and other short-term promissory notes payable to or to the order of any
Person and (iii) in connection with any Sale and Leaseback transactions,
provided that, except in the case of Inter-Company Indebtedness, the aggregate
principal amount (excluding the NBC Indebtedness) shall not exceed (x)
$10,000,000 less (y) Indebtedness (excluding the NBC Indebtedness) permitted by
subsections 9.1(b) and 9.1(d) hereof, provided further that any Indebtedness
incurred pursuant to this Section 9.1(e) after September 25, 1992 may only be
incurred by the Company and the Parent; and
(f) Inter-Company Indebtedness, including without limitation, (i)
Indebtedness incurred by any Credit Party (each, a "borrowing Credit Party")
under an unsecured loan or advance from any other Credit Party which loan or
advance is used by the borrowing Credit party (other than the Parent) to
purchase Inventory from the Parent or is used by the Parent to purchase
Inventory from any Person and (ii) Indebtedness created by the purchase, sale,
lease, license or exchange of property or the rendering of any service by a
Credit Party to any other Credit Party, provided such transactions are not
otherwise prohibited under the Amended and Restated Credit Agreement and are, in
the reasonable judgment of the Board of Directors of the Credit Parties in the
ordinary course of business and are upon fair and reasonable terms no less
favorable to the Credit Parties than it would obtain in a comparable arms length
transaction with a Person not an Affiliate.
9.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets, income or profits, whether now owned or
hereafter acquired, except:
(a) 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
- 57 -
<PAGE>
are being contested in good faith and by appropriate proceedings, if adequate
reserves with respect thereto are maintained on the books of the Parent and its
Subsidiaries, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business (i)
which are not overdue for a period of more than 60 days or (ii) which are being
contested in good faith and by appropriate proceedings;
(c) 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);
(d) Liens in favor of the Banks pursuant to the Security Documents;
(e) Liens securing Indebtedness permitted by subsection 9.1(d),
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 subsection;
(f) Liens on property of any Credit Party created solely for the
purpose of securing Indebtedness permitted by subsection 9.1(d), incurred to
finance or refinance the purchase price of property; provided that no such Lien
shall extend to or cover other property of any Credit Party 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;
(g) Liens in existence on the Closing Date, which Liens are listed on
Schedule 9.2(g);
(h) rights of setoff in favor of banks arising in the ordinary course
of business of the Credit Parties;
(i) any Lien constituting a renewal or continuation of any Lien
permitted by this subsection 9.2, 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
(j) other Liens incidental to the conduct of its business or the
ownership of the property which are not incurred in connection with borrowed
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.
9.3 Limitation on Contingent Obligations. Create, incur, assume or
suffer to exist any Contingent Obligation, except Contingent Obligations in
existence on the Closing Date and listed on Schedule 9.3, but in no event to
include any extensions or renewals thereof.
- 58 -
<PAGE>
9.4 Prohibition on Fundamental Changes. Except for mergers or
consolidations of Subsidiaries with other Subsidiaries, enter into any
transaction of acquisition or merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or make any material change in the present method of conducting
business or engage in any type of business other than of the same general type
now conducted by the Credit Parties.
9.5 Prohibition on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, tax benefits, receivables and leasehold
interests), whether now owned or hereafter acquired, except (a) the sale or
other disposition of any tangible property that, in its reasonable judgment, has
become uneconomic, obsolete or worn out, and which is disposed of in the
ordinary course of business, (b) the sale of inventory in the ordinary course of
business, (c) the sale or other disposition of any property in connection with
the permanent closing of any Store, (d) the sale or other disposition of assets
in one or a series of related transactions, other than Inventory , sold in arms
length transactions for a fair market price, provided that any Net Proceeds of
each such sale or related sales described in this paragraph which exceed
$250,000 and any Net Proceeds of the aggregate of such transactions in any
twelve month period which exceed $250,000 shall be utilized (excluding any
duplication of any such excess) to prepay any outstanding principal and interest
under the Working Capital Loans, on a ratable basis, (e) other sales and
dispositions which are approved in writing by the Required Banks, (f)
transactions described in Section 8 and (g) transactions with Affiliates or
among Credit Parties permitted under subsection 9.13.
9.6 Limitation on Investments, Loans and Advances. Make or suffer to
exist any advances or loans to, or investments (by way of transfers of property,
contributions to capital, acquisitions of stock, securities or evidences of
indebtedness or otherwise) in, any other Person, except that:
(a) the Credit Parties may acquire and hold Cash Equivalents:
(b) the Company and its Subsidiaries may make advances to its employees
for travel, relocation or other purposes or loans to its employees to purchase
or carry Parent Common Stock, provided that all such advances or loans are in
the ordinary course of business, and further provided that the aggregate
outstanding amount of all such advances shall at no time exceed $100,000 and the
amount of all of such loans shall at no time exceed $300,000;
(c) Any Credit Party may make loans and advances to any other Credit
Party in amounts necessary for such Credit Party's reasonable operating expenses
incurred in the ordinary course of business;
(d) the Company and the Parent may make investments, provided that,
either (i) the aggregate expenditure by the Company and the Parent with respect
to all such transactions shall not exceed $2,000,000, or (ii) any such
investment shall be made in any Credit Party; and
(e) the Company may make payments to the Parent with respect to any
Fiscal Year pursuant to any tax sharing agreement in a dollar amount equivalent
to the tax the Company would pay for
- 59 -
<PAGE>
such Fiscal Year if it paid tax on a stand-alone basis; provided, however, that
no such payments may be made by the Company if (i) the Parent, on a consolidated
basis, has no tax liability for such year, or (ii) if a Default or Event of
Default occurs under Section 10(a), Section 10(h) or as a result of failure to
comply with subsections 9.7 through 9.10.
9.7 Consolidated Working Capital. Permit Consolidated Working Capital, at
any time, to be less than $8,000,000.
9.8 Consolidated Net Worth. Permit Consolidated Net Worth on the last
day of any month to be less than $69,785,974 (the "Minimum Consolidated Net
Worth Requirement") through January 31, 1998. Commencing with the 1998 Fiscal
Year the Minimum Consolidated Net Worth Requirement shall be adjusted to
$69,000,000. Such Minimum Consolidated Net Worth Requirement shall be increased
at the end of the 1998 Fiscal Year and at the end of each Fiscal Year thereafter
by adding (if applicable) to the preceding Fiscal Year's Minimum Consolidated
Net Worth Requirement fifty percent (50%) of Net Income for the preceding Fiscal
Year.
9.9 Capital Expenditures. Permit Capital Expenditures to exceed an
aggregate of $5,000,000 (the "Minimum Capital Expenditures Requirement") in the
Fiscal Year ending January 31, 1998. The Minimum Capital Expenditures
Requirement shall be increased to $8,000,000.00 in the Fiscal Year ending
January 30, 1999. The Minimum Capital Expenditures Requirement shall be
increased at the end of each Fiscal Year thereafter by adding to the previous
Fiscal Year's Minimum Capital Expenditures Requirement an amount equal to a
fifty percent (50%) of Net Income for the preceding Fiscal Year.
9.10 Debt Coverage Ratio. Permit the Debt Coverage Ratio, in each case
for the period of four (4) consecutive fiscal quarters ending on the last day of
each fiscal quarter (a) commencing with the fiscal quarter ending January 31,
1998, through the fiscal quarter ending October 31, 1998, to be less than 1.20
to 1.0, (b) commencing with the fiscal quarter ending January 30, 1999, through
the fiscal quarter ending October 30, 1999, to be less than 1.25 to 1.0 and
commencing with the fiscal quarter ending January 29, 2000, and continuing on
each fiscal quarter thereafter to be less than 1.30 to 1.0.
9.11 Entity Documents. Amend its Certificate of Incorporation or its
partnership agreement, as in effect on the Closing Date, in any respect without
the prior written consent of the Agent and the Banks.
9.12 Limitation on Dividends. Declare any cash dividends on any shares
of any class of stock of the Credit Parties or make any payment on account of,
or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, retirement or other acquisition of any shares of any class of stock
of the Credit Parties, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Credit Parties; except that the Company or
the Parent may declare dividends on any class or series of stock of the Company
or the Parent, provided that, (i) (A) no Default or Event of Default exists and
(B) the Dividend Ratio for such Fiscal Year exceeds 1.05 to 1.0 or
- 60 -
<PAGE>
(ii) dividends paid by the Company to the Parent are used by the Parent to
satisfy obligations of the Parent and the Company under the Consulting Agreement
and the Noncompetition Agreement.
9.13 Transactions with Affiliates or Among Credit Parties. Enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
(a) such transactions (i) are not otherwise prohibited under this Amended and
Restated Credit Agreement and (ii) are, in the reasonable judgment of the Board
of Directors of the Credit Parties in the ordinary course of business and are
upon fair and reasonable terms no less favorable to the Credit Parties than it
would obtain in a comparable arm's length transaction with a Person not an
Affiliate, (b) such transactions, including without limitation any purchase,
sale, lease, license or exchange of property are between or among Credit Parties
in the ordinary course of business, or if such transactions are not in the
ordinary course of business, Agent has received ten (10) days' prior written
notice and receipt of copies of all of the proposed instruments for the transfer
and/or relocation of said assets and has approved such transaction, or (c) any
such transaction is a loan to an employee permitted under Section 9.6(b).
SECTION 10. EVENTS OF DEFAULT
Upon the occurrence and continuance of any of the following events:
(a) The Company shall fail to pay (i) any principal of any
Loan, when due in accordance with the terms hereof or of the respective
Note or (ii) any interest on any Note or any fee or other amount
payable hereunder within five days after any such interest, fee or
other amount becomes due; or
(b) Any representation or warranty or statement that is
material in the reasonable judgment of the Agent and made or deemed
made by the Credit Parties in this Amended and Restated Credit
Agreement or in any other Basic Document to which it is a party or
which is contained in any certificate, document or financial or other
statement furnished at any time under or in connection herewith or
therewith shall prove to have been incorrect in any material respect on
or as of the date made or deemed made; or
(c) The Credit Parties, as applicable, shall default in the
observance or performance of any covenant or agreement contained in
Section 9 or subsections 7.9, 7.10 or 7.11; or
(d) The Credit Parties, as applicable, shall default in the
observance or performance of any other covenant or agreement contained
in this Amended and Restated Credit Agreement or any other Basic
Document which is not specified in clauses (a) through (c) above or in
clause (e) below, and such default shall continue unremedied for a
period of 30 days after the Credit Party, as applicable, becomes aware,
or should reasonably have become aware, of such default; provided,
that, a Credit Party's failure to deliver to the Banks the financial
information enumerated in paragraphs (f), (g) or (h) of subsection 7.2
hereof
- 61 -
<PAGE>
shall not be deemed an Event of Default until 15 days have elapsed from
the receipt of a notice of nondelivery from the Agent or any Bank; or
(e) Any Security Document shall cease, for any reason, to be
in full force and effect or the Credit Parties shall so assert in
writing; or any Security Document shall cease to be effective to grant
a Lien on the collateral described therein with the priority purported
to be created thereby, except in each case as a result of the Agent's
gross negligence in failing to retain possession of any Collateral or
failure to file any continuation statement with respect to the
Collateral; or
(f) (i) The Parent shall fail to own and control, of record
and beneficially, with power to vote, 100% of the issued and
outstanding shares of stock of the Company, RT Co. and PA Co. or (ii) a
Change of Control shall occur; or (iii) the Parent and the Company
collectively shall fail to own all of the Partnership interests in
Intex; or
(g) Any Credit Party shall (i) default in any payment of
principal of or interest on any Indebtedness (other than Indebtedness
hereunder), or in the payment of any matured Contingent Obligation
beyond the period of grace (not to exceed 60 days), if any, provided in
the instrument or agreement under which such Indebtedness or Contingent
Obligation was created, and the aggregate amount of all such payment
defaults at any one time outstanding is equal to or in excess of
$250,000; or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or Contingent
Obligation or contained in any instrument or agreement evidencing,
securing or relating thereto or any other event shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Contingent
Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice if
required, any such Indebtedness to become due prior to its stated
maturity (any applicable grace period having expired); or
(h) (i) Any Credit Party shall commence any case, proceeding
or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for
all or any substantial part of its assets, or any Credit Party shall
make a general assignment for the benefit of its creditors; or (ii)
there shall be commenced against any Credit Party any case, proceeding
or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief of any adjudication or
appointment or (B) remains undismissed, undischarged, unstayed or
unbonded for a period of 45 days; or (iii) there shall be commenced
against any Credit Party any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been
vacated, discharged, stayed
- 62 -
<PAGE>
or bonded pending appeal within 60 days from entry thereof; or (iv) any
Credit Party shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii) or (iii) above; or (v) any Credit Party shall
generally not pay its debts as they become due; or
(i) (A) Any Person shall engage in any nonexempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (B) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan, (C) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion
of the Banks, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (D) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (E) any Credit Party or
any Commonly Controlled Entity shall, or is, in the reasonable opinion
of the Banks, likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (F) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (A) through
(F) above, such event or condition, together with all other such events
or conditions, if any, could in the reasonable judgment of the Agent
subject any Credit Party to any tax, penalty or other liabilities in
the aggregate material in relation to the business, operations,
property, assets or financial or other condition of any Credit Party
and their Subsidiaries taken as a whole; or
(j) One or more judgments or decrees shall be entered against
any Credit Party involving in the aggregate a liability (to the extent
not paid or covered by insurance) of more than $250,000 and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 60 days from the entry thereof;
then, and in any such event, (a) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (h) above with respect to any Credit Party,
automatically the Commitments shall terminate and the Loans and the
Reimbursement Obligations (with accrued interest thereon) and all other amounts
owing under this Amended and Restated Credit Agreement and the Notes shall
immediately become due and payable, and (b) if such event is any other Event of
Default, either or both of the following actions may be taken: (i) with the
consent of the Required Banks, the Agent may, or upon the request of the
Required Banks, the Agent shall, by notice to the Company declare the
Commitments and the Issuing Bank's obligation to open Letters of Credit to be
terminated forthwith, whereupon the Commitments and such obligations shall
immediately terminate (and the Issuing Bank shall issue no further Letters of
Credit hereunder); and (ii) with the consent of the Required Banks, the Agent
may, or upon the request of the Required Banks, the Agent shall, by notice of
default to the Company, declare the Loans and the Reimbursement Obligations
(with accrued interest thereon) and all other amounts owing under this Amended
and Restated Credit Agreement and the Notes to be due and payable forthwith,
whereupon the same shall immediately become due and payable. If all
Reimbursement Obligations have become due and payable the
- 63 -
<PAGE>
Company shall immediately deposit with the Issuing Bank on behalf of the Banks
an amount equal to the aggregate maximum potential Reimbursement Obligations
under all issued and unexpired Letters of Credit. The Issuing Bank shall apply
such amount to that portion of the Reimbursement Obligations which have become
fixed under such Letters of Credit and shall return any remaining balance of
such amount to the Company upon the expiration of all such Letters of Credit.
All payments made by the Company under this Section 10 shall be applied in
accordance with subsection 4.5. Without limiting the effect of any of the
foregoing, upon the occurrence of any Event of Default, the Agent and/or the
Banks may exercise any and all remedies and other rights provided pursuant to
this Amended and Restated Credit Agreement and the Security Documents. Except as
expressly provided above in this Section 10, presentment, demand, protest and
all other notices of any kind whatsoever (including, without limitation, notice
of intent to accelerate the maturity of any obligations of the Credit Parties
hereunder or notice of acceleration of any such obligations) are hereby
expressly waived by the Credit Parties.
SECTION 11 MISCELLANEOUS
11.1 Amendments and Waivers. Neither this Amended and Restated Credit
Agreement, the Notes, any other Basic Document nor any terms hereof or thereof
may be amended, waived, discharged or terminated unless such amendment, waiver,
discharge or termination is in writing signed by the Credit Parties and the
Required Banks; provided, however, that no such waiver and no such amendment,
supplement or modification shall (a) reduce the amount or extend the maturity of
any Note, or reduce the rate or extend the time of payment of interest thereon,
or reduce any fee payable to any Bank hereunder, or change the amount of any
Bank's Commitment, in each case without the consent of the Bank affected
thereby, or (b) amend, modify or waive any provision of this subsection or
reduce the percentage specified in the definition of Required Banks, or consent
to the assignment or transfer by the Credit Parties of any of its rights and
obligations under the Basic Documents or expressly release all or any portion of
the Collateral, or increase the aggregate amount of the Commitments, in each
case without the written consent of all of the Banks. Any such waiver and any
such amendment, supplement or modification shall apply equally to each of the
Banks and shall be binding upon the Credit Parties, the Banks and all future
holders of the Notes. In the case of any waiver, the Credit Parties and the
Banks shall be restored to their former positions and rights hereunder and under
the outstanding Notes and the other Basic Documents, and any Default or Event of
Default waived shall be deemed to be cured; but no such waiver shall extend to
any subsequent or other Default or Event of Default, or impair any right
consequent thereon.
11.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telegraph, telex or facsimile transmission) and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when delivered
by hand, or three Business Days after being deposited in the mail, postage
prepaid or, in the case of telegraphic notice, when delivered to the telegraph
company or, in the case of telex notice, when sent, answer back received, or, in
the case of facsimile transmission, when transmission is completed, addressed as
follows, or to such other address as may be hereafter notified by the respective
parties hereto and any future holder of a Note:
- 64 -
<PAGE>
The Credit Parties: Catherines, Inc.
3742 Lamar Avenue
Memphis, Tennessee 38118
Attention: Chief Financial Officer
with a copy to: Waring Cox, PLC
Morgan Keegan Tower
50 North Front Street, Suite 1300
Memphis, Tennessee 38103-2115
Attention: Sam Chafetz
FANB, Agent or First American National Bank
The Issuing Bank: 6000 Poplar Avenue, Suite 300
Memphis, Tennessee 38119
Attention: Elizabeth A. Stacy
with a copy to: Glankler Brown, PLLC
6000 Poplar, Suite 200
Memphis, Tennessee 38119
Attention: Lynn A. Gardner or
J. William Pierce, Jr.
Hibernia: Hibernia National Bank
National Accounts Department
313 Carondelet Street
New Orleans, LA 70161
Attention: Jeffrey E. Peck, V.P.
Bank One: Bank One, N.A.
40 North Main Kettering
Tower, Third Floor Dayton,
OH 45423 Attention: Glenn
T. Campbell, V.P.
provided that any notice, request or demand to or upon any Bank pursuant to
subsections 2.3, 2.4(c), 4.1, 4.4, 4.7, and 4.11 shall not be effective until
received.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of any Bank, any right, remedy, power or
privilege hereunder, or under any other Basic Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein
- 65 -
<PAGE>
provided and provided in the other Basic Documents are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations, Warranties and Covenants. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
until the payment in full of all amounts due under or in connection with the
Basic Documents.
11.5 Payment of Expenses and Taxes. The Credit Parties agree (a) to pay
or reimburse the Agent for reasonable out-of-pocket costs and expenses incurred
by any Bank in connection with the development, preparation and execution of,
and any amendment, supplement or modification to, or extension or waiver of this
Amended and Restated Credit Agreement, the Basic Documents and any other
documents prepared in connection therewith, and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel (including local counsel and patent
and trademark counsel) to the Agent incurred in connection with the foregoing
and in connection with legal advice rendered with respect to this Amended and
Restated Credit Agreement, and the Basic Documents, (b) to pay or reimburse the
Agent and each Bank for all their respective costs and expenses incurred in
connection with, and to pay, indemnify, and hold the Agent, each Bank and their
respective officers, directors, employees, agents, Affiliates, attorneys-in-fact
and attorneys harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever arising out of or in
connection with, the enforcement or preservation of any rights under the Basic
Documents and any such other documents, including, without limitation,
reasonable fees and disbursements of counsel to the Agent and of counsel to each
of the Banks, (c) to pay, indemnify, and to hold the Agent and each Bank
harmless from, any and all broker's fees, recording and filing fees and any and
all liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Amended and Restated
Credit Agreement, the Notes, the other Basic Documents and any such other
documents, and (d) to pay, indemnify, and hold the Agent, each Bank and their
respective officers, directors, employees, agents, attorneys-in-fact, Affiliates
and attorneys harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever arising out of or in
connection with the making of the Loans, the taking of security interests under
the Security Documents or the use of the proceeds of the Loans (all the
foregoing, collectively, the "indemnified liabilities"), provided that the
Credit Parties shall have no obligation hereunder with respect to indemnified
liabilities arising from (i) the gross negligence or wilful misconduct of the
Agent or any Bank, or (ii) legal proceedings commenced against the Agent or any
Bank by any security holder or creditor of the Agent or any Bank arising out of
and based upon rights afforded any such security holder or creditor solely in
its capacity as such, or (iii) legal proceedings commenced against the Agent or
any Bank by any other Bank or by any Transferee. The Amended and Restated Credit
Agreements in this subsection shall survive repayment of the Notes and all other
amounts payable hereunder.
- 66 -
<PAGE>
11.6 Successors and Assigns; Participations; Purchasing Banks. (a) This
Amended and Restated Credit Agreement shall be binding upon and inure to the
benefit of the Credit Parties, the Parent, the Banks and the Agent, all future
holders of the Notes and their respective successors and assigns, except that
the Credit Parties may not assign or transfer any of their rights or obligations
under this Amended and Restated Credit Agreement without the prior written
consent of each Bank.
(b) Any Bank may, in the ordinary course of its commercial banking or
lending business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
Loan owing to such Bank, any participating interest in the Letters of Credit of
such Bank, any Note held by such Bank, any Commitment of such Bank or any other
interest of such Bank hereunder. In the event of any such sale by a Bank of
participating interests to a Participant, such Bank's obligations under this
Amended and Restated Credit Agreement to the other parties to this Amended and
Restated Credit Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the holder of
any such Note for all purposes under this Amended and Restated Credit Agreement
and the Credit Parties and the Agent shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under this
Amended and Restated Credit Agreement. The Credit Parties agree that if amounts
outstanding under this Amended and Restated Credit Agreement and the Notes are
due and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of setoff in respect of its participating interest in amounts
owing under this Amended and Restated Credit Agreement and any Note to the same
extent as if the amount of its participating interest were owing directly to it
as a Bank under this Amended and Restated Credit Agreement or any Note;
provided, that such right of setoff shall be subject to the obligation of such
Participant to share with the Banks, and the Banks agree to share with such
Participant. The Company also agrees that each Participant shall be entitled to
the benefits of subsections 2.4 (subject to the limitations set forth in the
ultimate sentence of paragraph (d) of subsection 2.4), 3.6 and 4.10 with respect
to its participation in the Letters of Credit and in the Commitments and the
Loans outstanding from time to time; provided, that no Participant shall be
entitled to receive any greater amount pursuant to such subsections than the
transferor Bank would have been entitled to receive in respect of the amount of
the participation transferred by such transferor Bank to such Participant had no
such transfer occurred.
(c) Any Bank may, in the ordinary course of its commercial banking or
lending business and in accordance with applicable law, (i) at any time sell all
or any part of its rights and obligations under this Amended and Restated Credit
Agreement and the Notes to any Bank or any Affiliate thereof (the "Syndicate
Purchasing Banks"), provided that, in the event of a sale of less than all of
such rights and obligations, such assigning Bank after any such sale to any
other Bank or any Affiliate of such Bank shall retain Commitments and/or Loans
and L/C Participating Interests aggregating at least $2,000,000 of the aggregate
Commitments (or such lesser amount as the Agent may determine), and, (ii) with
the consent of the Company and the Agent (which in each case shall not be
unreasonably withheld) sell to one or more additional banks or financial
institutions (together with Syndicate Purchasing-Banks, the "Purchasing Banks"),
all or any part of its rights and obligations under this Amended and Restated
Credit Agreement and the Notes, pursuant to a
- 67 -
<PAGE>
Commitment Transfer Supplement, executed by such Purchasing Bank, such
transferor Bank (and, in the case of a Purchasing Bank that is not then a Bank
or an Affiliate thereof, by the Company and the Agent), and delivered to the
Agent for its acceptance and recording in the Register (as defined below);
provided that (A) each such sale pursuant to clause (ii) of this subsection
11.6(c) shall be in an amount of $2,000,000 of the aggregate Commitments or more
and (B) in the event of a sale of less than all of such rights and obligations,
such Bank after any such sale shall retain a Commitment and/or Loans aggregating
at least $2,000,000 of the aggregate Commitments. Upon such execution, delivery,
acceptance and recording, from and after the Transfer Effective Date as defined
in the Commitment Transfer Supplement determined pursuant to such Commitment
Transfer Supplement, (x) the Purchasing Bank thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Bank hereunder with a Commitment as set forth
therein, and (y) the transferor Bank thereunder shall, to the extent of the
interest transferred, as reflected in such Commitment Transfer Supplement, be
released from its obligations under this Amended and Restated Credit Agreement
(and, in the case of a Commitment Transfer Supplement covering all or the
remaining portion of a transferor Bank's rights and obligations under this
Amended and Restated Credit Agreement, such transferor Bank shall cease to be a
party hereto). Such Commitment Transfer Supplement shall be deemed to amend this
Amended and Restated Credit Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Bank and the resulting
adjustment of Commitment Percentages arising from the purchase by such
Purchasing Bank of all or a portion of the rights and obligations of such
transferor Bank under this Amended and Restated Credit Agreement and the Notes.
On or prior to the Transfer Effective Date determined pursuant to such
Commitment Transfer Supplement, the Company, at its own expense, shall execute
and deliver to the Agent in exchange for the surrendered Notes amended and
restated Notes to the order of such Purchasing Bank in an amount equal to the
Commitments assumed by it pursuant to such Commitment Transfer Supplement and,
if the transferor Bank has retained any Commitments hereunder, amended and
restated Notes to the order of the transferor Bank in an amount equal to the
Commitments retained by it hereunder. Such amended and restated Notes shall be
dated the Closing Date and shall otherwise be in the form of the Notes replaced
thereby. The Notes surrendered by the transferor Bank for transfer and
replacement shall be returned by the Agent to the Company marked "replaced and
cancelable."
(d) The Agent shall maintain at its address referred to in subsection
11.2 a copy of each Commitment Transfer Supplement delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
Banks and the Commitment of, the principal amount of any Working Capital Loans
and Swingline Loans owing to, and, if such Bank has any Working Capital
Commitment, the L/C Participating Interests of, each Bank from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Company, the Agent and the Banks may treat each Person whose name is
recorded in the Register as the owner of the Loan or L/C participating Interest
recorded therein for all purposes of this Amended and Restated Credit Agreement.
The Register shall be available for inspection by the Company or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement executed by a
transferor Bank and a Purchasing Bank (and, in the case of a Purchasing Bank
that is not then a Bank or an Affiliate
- 68 -
<PAGE>
thereof, by the Company and the Agent), together with payment to the Agent of a
registration and processing fee of $1,000 if the Purchasing Bank is not a Bank
prior to the execution of such supplement and $1,000 otherwise, the Agent shall
(i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer
Effective Date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Banks and the Company.
(f) The Banks agree that they will use reasonable efforts to protect
the confidentiality of any confidential information concerning the Credit
Parties and their Affiliates. Notwithstanding the foregoing, the Credit Parties
authorize each Bank to disclose to any Participant or Purchasing Bank (each, a
"Transferee") and any prospective Transferee any and all financial information
in such Bank's possession concerning the Credit Parties and their Affiliates
which has been delivered to such Bank by or on behalf of the Credit Parties
pursuant to this Amended and Restated Credit Agreement or which has been
delivered to such Bank by or on behalf of the Credit Parties in connection with
such Bank's credit evaluation of the Credit Parties and their Affiliates prior
to becoming a party to this Amended and Restated Credit Agreement, provided,
that any such Transferee or prospective Transferee agrees for itself and its
Affiliates to use reasonable efforts to protect the confidentiality of any
confidential information supplied by a Bank or the Credit Parties concerning the
Credit Parties and their Affiliates.
(g) If, pursuant to this subsection 11.6, any interest in this Amended
and Restated Credit Agreement or any Note is transferred to any Transferee which
is organized under the laws of any jurisdiction other than the United States or
any State thereof, the transferor Bank shall cause such Transferee, concurrently
with the effectiveness of such transfer, (i) to represent to the transferor Bank
(for the benefit of the transferor Bank, the Agent and the Company) that under
applicable law and treaties no taxes will be required to be withheld by the
Agent, the Company or the transferor Bank with respect to any payments to be
made to such Transferee in respect of the Loans or L/C Participating Interests,
(ii) to furnish to the transferor Bank (and, in the case of any Purchasing Bank
registered in the Register, the Agent and the Company) either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
such Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree (for the
benefit of the transferor Bank, the Agent and the Company) to provide the
transferor Bank (and, in the case of any Purchasing Bank registered in the
Register, the Agent and the Company) a new Form 4224 or Form 1001 upon the
expiration or obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and regulations and
amendments duly executed and completed by such Transferee, and to comply from
time to time with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
(h) The Credit Parties agree to assist the Agent in locating
replacement lenders for any Bank that advises the Agent it seeks to sell all or
a portion of its Loans and will prepare an information package for delivery to
potential replacement lenders. The Credit Parties agree they will be responsible
for the contents of the information package and prior to dissemination by the
Agent of the information package, the Credit Parties agree to enter into a
letter agreement with the Agent
- 69 -
<PAGE>
whereby (i) the Credit Parties will give negative assurances that the
information package (other than portions thereof provided by the Agent) contains
no material untrue statement or omission (other than any such untrue statement
or omission subsequently corrected prior to the date of any reliance thereon),
(ii) the Credit Parties will agree to supplement the information package from
time to time as necessary until completion of the replacement so that the
representation and warranty described in the foregoing clause (i) remains
correct and (iii) the Credit Parties will agree to indemnify the Agent in the
event it incurs any liability or expense because the representation and warranty
described in the foregoing clause (i) is untrue or alleged to be untrue. The
Credit Parties will (or, prior to the Closing Date, use their best efforts to)
make appropriate officers and representatives of the Credit Parties available to
participate in one or more information meetings for potential replacement
lenders at such times and places as the Agent shall reasonably request.
(i) Nothing herein shall prohibit any Bank from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
11.7 Adjustments. If any Bank (a "benefitted Bank") shall at any time
receive any payment of all or part of its Loans, or interest thereon, or receive
any collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, pursuant to events or proceedings of the nature referred to in clause
(h) of Section 10, or otherwise) in a greater proportion than any such payment
to and collateral received by any other Bank, if any, in respect of such other
Bank's Loans, or interest thereon, and such greater proportionate payment or
receipt of collateral is not expressly permitted hereunder, such benefitted Bank
shall purchase for cash from the other Banks such portion of each such other
Bank's Loans, or shall provide such other Bank with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Bank to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Banks; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Bank, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Company agrees that each Bank so purchasing a portion of another Bank's Loans
may exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Bank were the direct
holder of such portion.
11.8 Merger. This Amended and Restated Credit Agreement with Schedules
and Exhibits, and with the documents, instruments and agreements referred to
herein or therein embodies the entire understanding and agreement among the
parties hereto and supersedes all prior negotiations, agreements and
understandings relating to the subject matter hereof. There exist no other
agreements or understandings among the Banks and the Credit Parties or other
party, explicit or implied, with respect to the subject matter hereof. Each
party acknowledges and agrees that this Amended and Restated Credit Agreement is
fully integrated and not in need of parol evidence in order to reflect the
intentions of the parties, and that the parties intend the literal words of this
Amended and Restated Credit Agreement to govern the transactions described
herein, and for all prior negotiations, drafts and other extraneous
communications to have no significance or evidenciary effect whatsoever.
- 70 -
<PAGE>
11.9 Effectiveness. The Amended and Restated Credit Agreement shall
become effective upon the satisfaction of the conditions precedent enumerated in
subsection 5.1 hereof. The parties hereto intend that this Amended and Restated
Credit Agreement from and after the Closing Date shall supercede the Prior
Credit Agreement and that the relationship of the parties hereto from and after
the Closing Date shall be governed by the terms of this Amended and Restaed
Credit Agreement. The Notes, from and after the Closing Date, shall evidence all
obligations under this Amended and Restated Credit Agreement including without
limitation the outstanding balances of the Prior Swingline Note and the Prior
Working Capital Notes. The parties hereto expressly agree that the execution,
delivery and acceptance by the parties of this Amended and Restated Credit
Agreement (and the documents, instruments and certificates referred to herein)
are not intended to, do not, and shall not be deemed to constitute a payment,
cancellation, satisfaction, discharge, extinguishment, or novation of the
indebtedness and obligations evidenced by the Prior Swingline Notes and the
Prior Working Capital Notes. Except for the Deeds of Trust which shall have been
released by the Banks, the Prior Security Documents shall continue to secure the
Loans as set forth in the Security Documents, but the terms of the Security
Documents shall govern the rights and obligations of the parties from and after
the Closing Date and shall reconfirm and ratify the provisions of the Prior
Security Documents relating to such rights and obligations.
11.10 Governing Law; No Third Party Rights. THIS AMENDED AND RESTATED
CREDIT AGREEMENT, THE NOTES IN FAVOR OF THE BANKS AND THE RIGHTS AND DUTIES OF
THE PARTIES UNDER THIS AMENDED AND RESTATED CREDIT AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TENNESSEE.
11.11 Submission to Jurisdiction: Waivers. Each of the Credit Parties
hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Amended and Restated Credit Agreement and
the other Basic Documents to which it is a party, or for recognition
and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of
Tennessee, the courts of the United States of America for the Western
District of Tennessee, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid to the Credit Party;
- 71 -
<PAGE>
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction: and
(v) agrees that a final judgment in such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any manner provided by law.
(b) The Credit Parties, the Agent and the Banks hereby irrevocably and
unconditionally waive trial by jury in any legal action or proceeding relating
to this Amended and Restated Credit Agreement or any other Basic Document to
which it is a party and for any counterclaim herein or therein.
11.12 Counterparts. This Amended and Restated Credit Agreement may be
executed by one or more of the parties to this Amended and Restated Credit
Agreement on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
11.13 Obligations of Banks Several. No Bank shall be obligated to make
the Loans of any other Bank hereunder. The obligation of each Bank to make its
Loans hereunder shall be subject to the condition that each other Bank shall
have made the Loans to be made by it on such date.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Credit Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above written.
CATHERINES, INC.
By:/s/David C. Forell
------------------
David C. Forell
Executive Vice President
CATHERINES STORES CORPORATION CATHERINES PARTNERS, L.P.
By: CATHERINES, INC.,
its general partner
By:/s/David C. Forell By:/s/David C. Forell
------------------ ------------------
David C. Forell David C. Forell
Executive Vice President Executive Vice President
- 72 -
<PAGE>
CATHERINES OF CALIFORNIA, INC. CATHERINES OF PENNSYLVANIA, INC.
By:/s/David C. Forell By:/s/David C. Forell
------------------ ------------------
David C. Forell David C. Forell
Executive Vice President Executive Vice President
FIRST AMERICAN NATIONAL BANK
By:/s/Elizabeth A. Stacy
---------------------
Name: Elizabeth A. Stacy
Title:Vice President
HIBERNIA NATIONAL BANK
By:/s/Christopher B. Pitre
-----------------------
Name:Christopher B. Pitre
Title:Assistant Vice President
BANK ONE, N.A.
By:/s/Glenn Campbell
-----------------
Name:Glenn Campbell
Title:Vice President
- 73 -
<PAGE>
The following exhibits and schedules to the Amended and Restated Credit
Agreement have been omitted, and Catherines Stores Corporation will file
supplementally any such exhibits or schedules to the Commission upon request:
SCHEDULES
1.1 Store Locations
1.2 Swingline Loan Commitment Percentage
Working Capital Commitment
Working Capital Commitment Percentage
4.1(d) FANB Rate Lending Office
5.1(n) Exceptions to UCC Filings
5.1(o) List of Jurisdictions and Lien Searches 5.1(p) States Without
Good Standing Certificates 6.5 Material Litigation 6.7 Imperfect Record
Title or Leaseholds 6.13 UCC Filing List 6.15 Subsidiaries of Parent
and Company 9.1(b) Permitted Indebtedness 9.2(g) Permitted Liens 9.3
Contingent Obligations
EXHIBITS
A First Amended and Restated Assignment and Security Agreement-Intex
B First Amended and Restated Assignment and Security Agreement-PA Co
C First Amended and Restated Assignment and Security Agreement-RT Co
D First Amended and Restated Assignment and Security Agreement-The Company
E Borrowing Base Certificate
F Commitment Transfer Supplement
G First Amended & Restated Security Agreement (Company)
H HSB Purchase Agreement
I Second Amended and Restated Guaranty Agreement (Intex)
J First Amended and Restated Security Agreement (Intex)
<PAGE>
K L/C Participation Certificate
L Merchant Services Agreements
M Second Amended and Restated Guaranty Agreement (PA Co.)
N First Amended & Restated Pledge Agreement (PA Co.)
O First Amended and Restated Security Agreement (PA Co.)
P Second Amended & Restated Guaranty Agreement (Parent)
Q First Amended and Restated Pledge Agreement (Parent)
R First Amended and Restated Security Agreement (Parent)
S Second Amended and Restated Guaranty Agreement (RT Co.)
T First Amended and Restated Pledge Agreement (RT Co.)
U First Amended and Restated Security Agreement (RT Co.)
V First Amended and Restated Swingline Note
W Second Amended and Restated Working Capital Note [2.2]
X Waring Cox Opinion Letter [5.1(b)]
<PAGE>
Exhibit 11.1
The computation of weighted average number of common shares outstanding is as
follows:
Year Year Year
ended ended ended
January February February
31, 1998 1, 1997 3, 1996
-------- --------- --------
Weighted average
common shares outstanding 7,212,655 7,479,976 7,656,753
Common stock equivalents--
shares issuable under the
1994 Omnibus Incentive
Plan, the 1992 Nonqualified
Stock Option Plan, and the 1990
Performance Units Plan 70,660 90,812 196,837
------ ------ -------
Total Weighted Average
Common Shares Outstanding 7,283,315 7,570,788 7,853,590
========= ========= =========
The Company repurchased 509,500 shares in fiscal year 1996 reducing the weighted
average common shares outstanding.
<PAGE>
TABLE OF CONTENTS
Letter to Shareholders
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Financial Statements
Market Price Information
Selected Financial Data
Directors and Officers
Shareholder Information
1
<PAGE>
Catherines Stores Corporation is a leading specialty retailer of women's
large-size clothing and accessories, operating 443 stores in 39 states. The
Company operates four store concepts: Catherine's (214 stores), Added Dimensions
(86 stores), PS...Plus Sizes, Plus Savings (114 stores) and The Answer (29
stores), each offering a unique merchandising concept to the large-size
customer.
2
<PAGE>
TO OUR SHAREHOLDERS:
Catherines Stores Corporation's fiscal 1997 net sales were a record
$277.2 million, a 3.4% increase over the prior year. Comparable stores' sales
increased 3.1% for the year. The momentum in comparable stores' sales improved
each quarter. Comparable stores' sales decreased 1.9% in the first quarter and
increased 1.5%, 3.8% and 9.8% in the second, third and fourth quarters,
respectively. We increased comparable stores' sales in each of the last eight
months of the year.
The improved sales performance resulted from programs undertaken in
response to the consumer research done in 1996. In 1996, we formed a consumer
advisory board, conducted focus groups in four cities and mailed an extensive
customer survey. In response to this survey, we changed our pricing strategy in
dresses by emphasizing key price points, implemented higher-priced suit programs
and changed our merchandise assortments to emphasize more casual career looks.
We also changed our promotional strategy, virtually eliminating newspaper
advertising in favor of direct mailings to our customers.
Our earnings before interest, taxes, depreciation, amortization and
store charges for fiscal 1997 were approximately $15.1 million, a 17%
improvement over fiscal 1996. As in prior years, we evaluated our store base and
wrote-down assets of stores whose future cash flows were expected to be less
than the Company's investment. In addition, we identified 50 stores that were
unprofitable and that should be closed. In fiscal 1997, we closed 20 of these
stores and expensed approximately $1.9 million for the costs to close the 30
remaining stores. These stores will be closed in 1998 either as the leases
expire or as we negotiate termination agreements with our landlords. The charges
to write-off the impaired assets of stores and store closing costs were
approximately $3.7 million before taxes and reduced our diluted net income per
common share ("Net income per share") by $0.34. Similar charges in fiscal 1996
reduced last year's net income per share by $0.07. Our reported net income for
fiscal 1997 was $44,000 or $0.01 per share compared to $1.3 million or $0.17 per
share in fiscal 1996. Before the charges to write-off impaired assets and the
costs of closed stores, net income per share was $0.35 in fiscal 1997 compared
to $0.24 per share in the prior year.
During fiscal 1997, the Company opened 6 new stores and remodeled or
relocated 30 stores. Total capital expenditures for the year were $4.4 million.
In addition, the Company replaced its store point-of-sale systems with personal
computer-based systems. The cost of this equipment, $3.5 million, was financed
by capital leases.
Our plans for 1998 are to open four to six new stores and to relocate
or remodel 31 stores at an estimated cost of approximately $5.0 million. We also
expect to spend approximately $1.2 million on new information technology to
upgrade our merchandise planning and allocation systems and our customer profile
data base system.
With the upgrade of our merchandise planning and allocation systems, we
have realigned our merchandise organization. Although our total number of people
in this important area of the Company will remain the same, we will have fewer
buyers and more planners and allocators. The buyers will have more time to focus
on product development and vendor relations. The planners and allocators, with
the tools provided by the new systems, will enhance our analytical capabilities.
The results should be store assortments that better match our customers' wants,
which should improve sales and margins.
We are also developing a program to meet our customers' need, as
identified through our customer surveys, to find more flattering fashions. We
3
<PAGE>
have prepared video training for our entire store and merchandising staff that
identifies different body types and instructs on the styles that enhance each
body type. This program will allow our sales associates to better serve our
customers and will allow our merchants to improve their merchandise selection.
Shortly after the end of the fiscal year, we restructured our financing
arrangements. Taking advantage of low long-term interest rates, we mortgaged our
real property in Memphis, Tennessee. The $6.9 million mortgage loan has a
seven-year term with payments based on a 20-year amortization. The proceeds of
the mortgage loan were used to retire our bank term loan and to reduce the
outstanding balance on our Revolving Credit Agreement. Simultaneous with the new
mortgage agreement, our bank group extended the Revolving and Swingline Credit
Agreements from March 15, 1999 to June 30, 2001 and reduced the amount available
from $28 million to $25 million. We expect the availability to be adequate to
meet our needs through the term of the agreements.
As we look forward to 1998, the momentum and programs begun in 1997
should yield further improvement. The economy remains strong and our potential
customer base continues to grow. We continue to refine our merchandise
assortments and eliminate unprofitable assets. With the continued support of our
employees, shareholders and vendors, we believe that we will be successful in
1998 and beyond.
Bernard J. Wein
President and Chief Executive Officer
4
<PAGE>
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 the projected results
expressed or implied therein will not be realized.
Overview
The Company's net income for the 52 week year ended January 31, 1998
("1997") was $44,000 compared to $1,286,000 in the 52 week year ended February
1, 1997 ("1996") and $3,111,000 in the 53 week year ended February 3, 1996
("1995"). Comparable 52 week stores' sales increased 3.1% in 1997, decreased
5.3% in 1996 and increased 0.4% in 1995. Operating income margins were 0.7%,
1.3% and 2.3% in 1997, 1996 and 1995, respectively.
Operating income before write-down of store assets and store closing
costs was $5,589,000 in 1997, $4,369,000 in 1996 and $9,231,000 in 1995. As a
percentage of net sales, operating income before write-down of store assets and
store closing costs was 2.0%, 1.7% and 3.3% for 1997, 1996 and 1995,
respectively. Cash provided by operating activities was $12,297,000 in 1997,
$8,363,000 in 1996 and $10,955,000 in 1995.
In the fourth quarter of 1995, the Company implemented the provisions
of Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). This statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the expected future cash
flows are less than the carrying amount of the asset, an impairment loss is
recognized.
In late 1997, the Company committed to a plan to close 30
underperforming stores upon lease termination or by settlement with the
landlords. The Company anticipates closing the majority of these stores in
fiscal 1998.
5
<PAGE>
The following table reflects the pre-tax charges incurred by the
Company during the three fiscal years ended January 31, 1998 for the write-down
of goodwill, leasehold improvements and furniture and fixtures of
underperforming stores under the provisions of SFAS 121, the costs of stores
closed and the estimated costs of future store closings.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Stores Amount Stores Amount Stores Amount
<S> <C> <C> <C> <C> <C> <C>
Write-off of impaired
assets under SFAS 121 7 $ 565,000 14 $ 944,000 40 $1,957,000
Costs incurred to
close stores ........ 20 1,158,000 9 12,000 12 779,000
Estimated costs of
future store closings 30 1,942,000 0 0 0 0
---------- ---------- ---------- --------- -------- -------
Total ................ 57 $3,665,000 23 $ 956,000 52 $2,736,000
======== ========== ========== ========== ========= ==========
Diluted net income
per common share,
as reported ......... $ 0.01 $ 0.17 $ 0.40
========== ========== ==========
Diluted net income
per common share,
excluding above costs $ 0.35 $ 0.24 $ 0.63
========== ========== ==========
</TABLE>
The Company has a contract, which expires in the year 2000 unless renewed,
to sell to a third party, without recourse, accounts receivable created by its
private label credit card . The third party provides all authorization, billing
and collection services for these accounts. At the end of the term, the Company
can repurchase the receivables at face value.
6
<PAGE>
Results of Operations
The following table sets forth income statement data, expressed as a
percentage of net sales, for 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales, including buying
and occupancy costs 70.4 70.3 69.7
---- ---- ----
Gross margin 29.6 29.7 30.3
Selling, general and
administrative expenses 27.2 27.6 26.5
Amortization of intangible assets 0.4 0.4 0.5
--- --- ---
Operating income before write-down
of store assets and store
closing costs 2.0 1.7 3.3
Write-down of store assets and
store closing costs 1.3 0.4 1.0
--- --- ---
Operating income 0.7 1.3 2.3
Interest, net 0.5 0.4 0.3
--- --- ---
Income before income taxes 0.2 0.9 2.0
Provision for income taxes 0.2 0.4 0.9
--- --- ---
Net income 0.0% 0.5% 1.1%
==== ==== ====
1997 Compared to 1996
Net sales increased 3.4% to $277,152,000 in 1997 from $268,002,000 in
1996. Comparable stores' sales increased 3.1% due to increases in the number of
saleschecks generated, units sold and average unit price, offset by a decrease
in the average number of units per salescheck.
Gross margin, after buying and occupancy costs, decreased as a
percentage of sales to 29.6% in 1997 from 29.7% in 1996. The decrease is
primarily attributable to a decrease in merchandise margins, offset by a
decrease in buying and occupancy costs. Merchandise margins as a percentage of
sales decreased by 9 basis points. This decrease was primarily attributable to
an increase in merchandise markdowns, offset by a decrease in merchandise
shrinkage. The decrease in buying and occupancy costs is due primarily to a
reduction in the number of stores operated during 1997 versus 1996.
Selling, general and administrative expenses increased to $75,432,000
in 1997 from $73,945,000 in 1996. This increase was primarily attributable to
corporate and store management bonuses earned based on the increase in operating
income before the write-down of store assets and store closing costs and the
outsourcing of computer network maintenance. These costs were partially offset
by reduced advertising costs and a reduction in new store opening costs. As a
percentage of sales, selling, general and administrative expenses decreased from
27.6% in 1996 to 27.2% in 1997. Average selling, general and administrative
costs per store remained relatively flat as compared to 1996.
Under the provisions of SFAS 121, the Company wrote-down, to estimated
fair market value, unamortized goodwill, leasehold improvements and furniture
and fixtures related to seven underperforming locations in 1997 and 14
underperforming locations in 1996 whose carrying values were impaired. These
7
<PAGE>
non-cash costs were approximately $565,000 in 1997 and $944,000 in 1996. In
addition, during 1997 the Company incurred costs of approximately $1,158,000 for
asset write-offs and other expenses related to the closing of 20 stores. The
Company plans to close an additional 30 stores during 1998 and has expensed
approximately $1,942,000 for asset write-offs and other costs expected to be
incurred in connection with those store closings.
Amortization of intangibles decreased to $1,037,000 in 1997 from
$1,168,000 in 1996 because certain intangibles were fully amortized in 1997.
Interest expense increased to $1,295,000 in 1997 from $1,127,000 in 1996 as a
result of increased borrowings under the credit facility and increased capital
lease interest expense.
The effective tax rate for 1997 was 93.0% compared to 43.7% in 1996.
The rate is primarily impacted by non-tax deductible goodwill amortization,
certain non-tax deductible business expenses and state income taxes.
1996 Compared to 1995
Net sales decreased 2.2% to $268,002,000 in 1996 from $274,130,000 in
1995. The sales decrease was primarily attributable to there being only 52 weeks
in 1996 compared to 53 weeks in 1995, offset by the addition of 34 new stores.
Comparable stores' sales on a 52 week basis decreased 5.3% due to a decrease in
the number of customers and units sold, offset by an increase in the average
units per salescheck and the average unit price.
Gross margin, after buying and occupancy costs, decreased as a
percentage of sales to 29.7% in 1996 from 30.3% in 1995. The decrease is
primarily attributable to new stores whose occupancy costs are a higher
percentage to sales than the occupancy costs of mature stores, offset by a
reduction in promotional markdowns. Merchandise margins increased by 87 basis
points.
Selling, general and administrative expenses increased to $73,945,000
in 1996 from $72,598,000 in 1995. This increase was primarily attributable to
the pre-opening and operating costs of 34 new stores and higher general office
depreciation and employee benefit costs. Advertising and store payroll were
reduced in reaction to sales trends and to maintain productivity. Average
selling, general and administrative costs per store decreased 4.2%. As a
percentage of sales, selling, general and administrative expenses increased to
27.6% from 26.5%.
Under the provisions of SFAS 121, the Company wrote-down, to estimated
fair market value, unamortized goodwill, leasehold improvements and furniture
and fixtures related to 14 underperforming locations in 1996 and 40
underperforming locations in 1995 whose carrying values were impaired. These
non-cash costs were approximately $944,000 in 1996 and $1,957,000 in 1995. In
addition, in 1995 the Company incurred costs of approximately $779,000 for asset
write-offs and other expenses related to the closing of 12 stores.
Amortization of intangibles decreased to $1,168,000 in 1996 from
$1,204,000 in 1995 due to certain intangibles becoming fully amortized during
1996. Interest expense increased to $1,127,000 in 1996 from $944,000 in 1995 as
a result of increased borrowings under the credit facility, offset by lower
interest rates.
The effective tax rate for 1996 was 43.7% compared to 44.0% in 1995.
The rate is primarily impacted by non-tax deductible goodwill amortization and
state income taxes.
Liquidity and Capital Resources
8
<PAGE>
Cash from Operations
- --------------------
Historically, the Company's primary sources of liquidity have been cash
flow from operations and borrowings under its bank credit agreement.
For the past three fiscal years, cash flows from operations were as
follows:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Net income $ 44 $1,286 $3,111
Depreciation and amortization 9,505 8,558 7,236
Other non-cash charges,
including the write-down
of store assets and store
closing costs 2,120 (82) 1,746
Changes in current assets and liabilities 628 (1,399) (1,138)
----- ------- -------
Cash provided by operating activities $12,297 $8,363 $10,955
======= ====== =======
For fiscal 1997 compared to 1996, cash provided by operating activities
increased primarily due to the 27.9% increase in operating income before the
write-down of store assets and store closing costs. Also contributing to the
increase in cash provided by operations was an increase in depreciation and
amortization charges of approximately $947,000. In 1996, lower net income
resulted in a decline in operating cash flow.
Banking Arrangements
- --------------------
On February 27, 1998, the Company entered into a new mortgage financing
agreement and extended its 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%. The note is secured by the land and buildings at the Company's
corporate office. Proceeds from the mortgage note were used to repay the
Company's outstanding term loan and to reduce amounts outstanding under the
existing working capital facility. The new mortgage financing agreement reduced
the total current maturities of long-term debt by approximately $612,000.
The existing bank credit agreement was amended to reduce the amount
available from $25,000,000 to $22,000,000 and to increase the interest rate to
the agent bank's prime rate or LIBOR plus 2 1/4%, at the Company's option. The
agreement is secured by substantially all of the Company's assets with the
exception of inventory and the assets securing the mortgage note mentioned
above. The working capital facility requires an annual commitment fee of 1/2 of
1% of the average daily amount of available unused commitment. The agreement
also provides for a swing line of credit of $3,000,000 with the Company's agent
bank, and it may be used to fund letters of credit. Under the terms of the
agreement, capital expenditures are limited to $8,000,000 in 1998 and are
adjusted annually thereafter based on net income. Amounts available under the
new agreement are based on the Company's receivables and inventories. The new
agreement expires June 30, 2001.
The Company's prior bank credit agreement provided a $25,000,000
revolving credit facility and a $5,000,000 term loan, both secured by
substantially all of the Company's assets, except domestic inventory.
9
<PAGE>
Interest was at either the bank's prime rate or the LIBOR rate plus 1 1/4%, at
the Company's option. The term loan payments were $250,000 per quarter. The
prior agreement would have expired in March 1999.
At January 31, 1998, the Company had approximately $18,198,000 combined
availability under its working capital and swing line of credit, after
considering outstanding letters of credit of approximately $2,802,000. The
Company's peak borrowing under the working capital and swing line facilities
during fiscal year 1997, including outstanding letters of credit, was
$24,936,000 in October 1997. In fiscal years 1996 and 1995, the peak borrowings
were $23,157,000 in November 1996 and $17,213,000 in November 1995,
respectively. The Company expects peak borrowings to be lower in fiscal 1998 due
to a lower number of stores, which will reduce inventory requirements. In
addition, the pay down of the amounts outstanding under the working capital
facility will reduce the required payments on outstanding borrowings.
The Company believes that its internally generated cash flow, together
with borrowings under the mortgage financing and bank credit agreements, will be
adequate to finance the Company's operating requirements, debt repayments and
capital needs during the foreseeable future. Any material shortfalls in
operating cash flow could require management to seek alternative sources of
financing or to reduce the number of stores that the Company expects to open,
relocate or remodel.
Capital Expenditures
- --------------------
The Company's capital expenditures, other than those funded by capital
leases, were approximately $4,438,000 in 1997, $10,780,000 in 1996 and
$9,873,000 in 1995. The majority of capital expenditures were for fixtures,
equipment and leasehold improvements for new, relocated and remodeled stores.
The Company opened six new stores in 1997, 34 new stores in 1996 and 40 new
stores in 1995. Underperforming stores are closed upon lease termination, or
earlier if possible. The Company closed 20 underperforming stores in fiscal year
1997, nine underperforming stores in fiscal year 1996 and 12 underperforming
stores in fiscal year 1995.
During 1997, the Company, through its master capital lease agreements,
financed the purchase of point-of-sale computers for all stores and upgraded its
data processing systems. The discounted present value of the additional rental
payments was $4,151,000. The total present value of all capital leases entered
into by the Company as of January 31, 1998 is approximately $5,349,000. At the
end of the initial term of the leases, the Company has the option to purchase
the equipment at fair market value or one dollar in the case of store
point-of-sale computers, renew the leases or return the equipment.
Some of the capital lease agreements require the Company to maintain
certain financial ratios, minimum levels of net worth and working capital.
Additionally, some of the capital lease agreements restrict future liens and
indebtedness, sales of assets and dividend payments. These covenants are similar
to the bank credit agreement.
In 1998, the Company expects to open approximately five new stores and
relocate or remodel approximately 31 current locations. 1998 capital
expenditures are expected to be between $7,000,000 and $8,000,000.
Working Capital
- ---------------
The Company's working capital, current ratio, and ratio of sales to
average working capital at the end of the last three fiscal years were as
follows:
10
<PAGE>
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Working capital $21,163 $22,209 $21,212
Current ratio 1.5 1.5 1.5
Ratio of sales to average
working capital 12.8 12.3 13.7
The Company funds inventory purchases through cash flows from
operations and borrowings under the bank credit agreement. The Company has also
established favorable payment terms with its vendors.
Common Stock Repurchase
- -----------------------
During fiscal year 1996, the Company, with the approval of its Board of
Directors, repurchased approximately $3,736,000, or 509,500 common shares, of
its outstanding common stock through open-market purchases at approximately
$7.33 per common share. The share repurchases were financed with borrowings
under the bank credit agreement.
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.
Inflation
- ---------
Inflation has had only a minor effect on the Company's results of
operations and its internal sources of liquidity and working capital. Management
believes that the Company can maintain margins by increasing prices to offset
inflationary cost increases.
Seasonality
- -----------
The Company's sales do not vary significantly by quarter. Unlike many
other apparel retailers, the Company historically has realized a larger
percentage of its operating income in the first half of the fiscal year, with
the fourth quarter generally creating an operating loss. Higher margins are
generated during the Easter and Mother's Day seasons due to lower promotional
and clearance markdowns. The Company's operating loss during the fourth quarter
is generally caused by price competition from other retailers, higher
promotional costs and a shift to lower margin items in the mix of merchandise
sold.
11
<PAGE>
Catherines Stores Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
--------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $3,089,290 $2,992,339
Receivables 2,580,025 3,051,595
Merchandise inventory 48,310,215 51,933,957
Prepaid expenses and other 4,044,144 3,478,849
Deferred income taxes (Note 8) 2,504,000 1,294,000
--------- ---------
Total current assets 60,527,674 62,750,740
---------- ----------
Property and Equipment, at cost:
Land 500,000 500,000
Buildings and leasehold improvements 23,213,674 22,703,829
Fixtures and equipment 28,573,919 27,799,419
Equipment under capital leases 13,356,177 9,204,817
Improvements in process 830,144 425,542
------- -------
66,473,914 60,633,607
Less accumulated depreciation and amortization (32,398,729) (25,119,716)
------------ ------------
34,075,185 35,513,891
Deferred Income Taxes (Note 8) 435,000 388,000
Other Assets and Deferred Charges,
net of accumulated amortization of
$1,716,072 and $1,910,112 (Note 4) 2,506,096 2,999,552
Goodwill, net of accumulated amortization of
$4,886,858 and $4,251,347 22,739,081 23,713,253
---------- ----------
$120,283,036 $125,365,436
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $21,761,405 $25,973,186
Accrued expenses (Note 5) 14,750,159 12,053,356
Current maturities of long-term bank and other debt 2,853,585 2,514,849
--------- ---------
Total current liabilities 39,365,149 40,541,391
---------- ----------
Long-Term Bank and Other Debt, less
current maturities (Note 6) 10,788,920 14,877,902
Commitments and Contingencies (Notes 2, 7, and 9)
Stockholders' Equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, none issued - -
Common stock, $.01 par value, 50,000,000 shares
authorized, 7,231,070 and 7,191,656 shares
issued and outstanding 72,311 71,917
Additional paid-in capital 46,529,424 46,390,691
Retained earnings 23,527,232 23,483,535
---------- ----------
Total stockholders' equity 70,128,967 69,946,143
---------- ----------
$120,283,036 $125,365,436
============ ============
The accompanying notes are an integral part of these balance sheets.
</TABLE>
12
<PAGE>
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended
January 31, February 1, February 3,
1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Net sales $277,152,476 $268,001,571 $274,129,516
Cost of sales, including buying
and occupancy costs 195,093,555 188,520,002 191,096,720
----------- ----------- -----------
Gross margin 82,058,921 79,481,569 83,032,796
Selling, general and administrative
expenses 75,432,159 73,944,644 72,598,074
Amortization of intangible assets 1,037,363 1,167,700 1,204,218
--------- --------- ---------
Operating income before write-down
of store assets and store
closing costs 5,589,399 4,369,225 9,230,504
Write-down of store assets and
store closing costs (Note 10) 3,665,478 956,231 2,736,261
--------- ------- ---------
Operating income 1,923,921 3,412,994 6,494,243
Interest and other, net 1,295,224 1,127,020 943,730
--------- --------- -------
Income before income taxes 628,697 2,285,974 5,550,513
Provision for income taxes (Note 8) 585,000 1,000,000 2,440,000
------- --------- ---------
Net income $43,697 $1,285,974 $3,110,513
======= ========== ==========
Net income per common share (Note 11) $0.01 $0.17 $0.41
===== ===== =====
Diluted net income per common share
(Note 11) $0.01 $0.17 $0.40
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------ --------- -------- -------- -----
<S> <C> <C> <C> <C>
Balance at January
28, 1995 $79,199 $52,548,290 $19,087,048 $(2,798,514) $68,916,023
Net income - - 3,110,513 - 3,110,513
Cancellation of
treasury stock (2,779) (2,795,735) - 2,798,514 -
Net proceeds from
the sale of
31,176 shares of
common stock 312 205,553 - - 205,865
--- ------- -------- -------- -------
Balance at February
3,1996 76,732 49,958,108 22,197,561 - 72,232,401
Net income - - 1,285,974 - 1,285,974
Repurchase of
509,500 shares of
common stock (5,095) (3,730,992) - - (3,736,087)
Net proceeds from
the sale of
27,982 shares of
common stock 280 163,575 - - 163,855
--- ------- -------- -------- -------
Balance at February
1,1997 71,917 46,390,691 23,483,535 - 69,946,143
Net income - - 43,697 - 43,697
Net proceeds from
the sale of
39,414 shares of
common stock 394 138,733 - - 139,127
--- ------- -------- -------- -------
Balance at January
31, 1998 $72,311 $46,529,424 $23,527,232 $ - $70,128,967
======= =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Catherines Stores Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
-----------
January 31, February 1, February 3,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $43,697 $1,285,974 $3,110,513
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation and amortization 9,505,111 8,557,880 7,236,139
Write-down of underperforming and
closed store assets (Note 10) 1,841,290 920,980 2,494,203
Store closing costs, net of cash
expended 1,115,211 - -
Change in deferred income taxes (1,257,000) (1,128,000) (1,151,000)
Net change in current assets
and liabilities (Note 3) 628,303 (1,399,550) (1,138,090)
Change in other noncash reserves 271,525 302,402 622,789
Change in other assets 149,269 (176,785) (219,431)
------- --------- ---------
Total adjustments 12,253,709 7,076,927 7,844,610
---------- --------- ---------
Net cash provided by operating
activities 12,297,406 8,362,901 10,955,123
---------- --------- ----------
Cash Flows from Investing Activities:
Capital expenditures (4,437,975) (10,780,164) (9,872,713)
----------- ------------ -----------
Net cash used by investing activities (4,437,975) (10,780,164) (9,872,713)
----------- ------------ -----------
Cash Flows from Financing Activities:
Sales of common stock 139,127 163,855 205,865
Repurchase of common stock - (3,736,087) -
Proceeds from long-term bank debt - 8,250,000 3,750,000
Principal payments of long-term bank
and other debt (7,901,607) (3,222,974) (3,083,871)
----------- ----------- -----------
Net cash provided (used) by
financing activities (7,762,480) 1,454,794 871,994
----------- --------- -------
Net Change in Cash and Cash Equivalents 96,951 (962,469) 1,954,404
Cash and Cash Equivalents,
beginning of year 2,992,339 3,954,808 2,000,404
--------- --------- ---------
Cash and Cash Equivalents,
end of year $3,089,290 $2,992,339 $3,954,808
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Catherines Stores Corporation ("Catherines"), through its wholly-owned
subsidiaries, operates retail specialty stores selling women's large-size
clothing and accessories in stores located throughout the United States.
Catherines' principal assets are its investments in its subsidiaries and a
retail distribution center. Catherines provides merchandise buying and
distribution services to the operating subsidiaries.
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.
Principles of Consolidation
The consolidated financial statements include the accounts of
Catherines and its subsidiaries (collectively, the "Company"). Significant
intercompany balances and transactions are eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest January 31 of
the following calendar year. Fiscal years 1997 and 1996 contained 52 weeks,
while fiscal year 1995 contained 53 weeks.
Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in short-term
securities with original maturities of three months or less.
Merchandise Inventory
Merchandise inventory is stated at the lower of cost (applied on a
first-in, first-out basis using the retail inventory method) or market. Trade
and purchase discounts are recorded as a reduction of inventory cost in the
period in which the merchandise is received. Certain general and administrative
costs associated with both the buying and distribution of merchandise from the
retail distribution center to the stores are included in inventory. These costs
were approximately $2,631,000 and $2,646,000 at January 31, 1998 and February 1,
1997, respectively. Purchasing, distribution and occupancy costs charged to cost
of sales were approximately $43,807,000, $42,449,000 and $39,301,000 in fiscal
years 1997, 1996 and 1995, respectively.
16
<PAGE>
Property and Equipment
Depreciation is provided using the straight-line method based upon the
estimated useful lives of the assets, which are 40 years for buildings and three
to ten years for fixtures and equipment. Leasehold improvements are amortized
over the shorter of their economic lives or the terms of the leases.
Expenditures for maintenance and repairs are charged to operations, while
renewals and betterments are capitalized. Long-lived assets are reviewed for
impairment upon the occurrence of events or changes in circumstances that
indicate that the carrying value of these long-lived assets may not be
recoverable, as measured by comparing the assets' net book value to the
estimated future cash flows generated by their use. Impaired assets are recorded
at the lesser of their carrying value or fair value.
Goodwill
Goodwill represents the excess of the purchase price over the
underlying fair value of net assets acquired. Goodwill is being amortized evenly
over 40 years. The Company, at least annually, evaluates whether events or
circumstances have occurred that may impact the recoverability of goodwill. Upon
the occurrence of any such event or circumstance, the Company remeasures the
realizable portion of goodwill using methodology similar to that for property
and equipment.
Income Taxes
Provision for income taxes is based on reported results of operations
before income taxes. Deferred income taxes reflect the future tax consequences
attributable to temporary differences between the Company's assets and
liabilities for financial reporting and income tax purposes, using income tax
rates in effect during the periods presented. The effect of a change in existing
income tax rates is recognized in the income tax provision in the period that
includes the enactment date.
Computation of Net Income per Common Share
Net income per common share is computed as net income divided by the
weighted average number of common shares outstanding during the period. Diluted
net income per common share ("Net income or earnings per common share") is
computed as net income divided by the weighted average number of common shares
outstanding during the period and common shares issuable under the Company's
stock option plans (see Notes 9 and 11).
Store Preopening Expenses
Costs associated with the opening of new stores are expensed as
incurred.
Advertising
The Company expenses advertising costs when the event advertised occurs.
17
<PAGE>
Advertising expense, included in selling, general and administrative
expenses in the accompanying consolidated statements of income, was
approximately $11,084,000, $11,497,000 and $11,900,000 in fiscal years 1997,
1996 and 1995, respectively.
Stock-Based Compensation
Stock options are accounted for using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations.
Financial Instruments
The Company has certain financial instruments which include cash and cash
equivalents, accounts receivable and accounts payable. The carrying amounts of
these financial instruments approximate their fair value because of their short
maturities. As of January 31, 1998 and February 1, 1997 substantially all of the
Company's long-term debt is at a short-term variable interest rate; therefore,
the carrying value approximates market value.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
(2) Accounts Receivable
The Company sells accounts receivable from its proprietary credit card
to a third party credit provider, without recourse. The five-year agreement,
which expires in January 2000, automatically renews unless terminated by either
party or by mutual agreement.
Under the agreement, the Company sells its receivables from in-house
credit sales on a daily basis. Net proceeds from the sale of customer accounts
receivable to the third party were approximately $105,287,000 for the year ended
January 31, 1998, $104,232,000 for the year ended February 1, 1997 and
$105,603,000 for the year ended February 3, 1996.
The agreement allows the Company to repurchase the accounts receivable
at the end of the five-year term and allows the purchaser to put the receivables
back to the Company at face value in the event of a change in the Company's
ownership. The net balance of accounts receivable held by the third party was
approximately $86,386,000 at January 31, 1998, $75,698,000 at February 1, 1997
and $67,232,000 at February 3, 1996.
(3) Statements of Cash Flows
The net change in current assets and liabilities reflected in the
consolidated statements of cash flows was as follows:
18
<PAGE>
<TABLE>
<CAPTION>
Years Ended
-----------
January 31, February 1, February 3,
1998 1997 1996
--------- --------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash and
cash equivalents-
Receivables $461,570 $709,342 $545,938
Merchandise inventory 3,471,217 (2,127,375) (5,749,161)
Prepaid expenses and other (565,295) 57,768 (283,077)
Accounts payable (4,211,781) (211,629) 1,999,529
Accrued expenses 1,472,592 172,344 2,348,681
--------- ------- ---------
Total $628,303 $(1,399,550) $(1,138,090)
======== ============ ============
</TABLE>
In addition to the transactions in the accompanying consolidated statements
of cash flows, the Company acquired equipment under capital lease obligations of
approximately $4,151,000, $1,601,000 and $789,000 during fiscal years 1997, 1996
and 1995, respectively.
(4) Other Assets and Deferred Charges
Other assets and deferred charges, net of accumulated amortization,
together with the related amortization methods and periods were as follows:
<TABLE>
<CAPTION>
January 31, February 1, Amortization Methods
1998 1997 and Periods
---- ---- -----------
<S> <C> <C> <C>
Covenants not to compete $1,095,041 $1,324,348 Straight line over
term of agreements
Trademarks and tradenames 1,067,405 1,112,482 Straight line over
40 years
Deferred financing costs 69,805 Effective interest
method over term
of financing
Other 343,650 492,917
------- -------
Total $2,506,096 $2,999,552
========== ==========
</TABLE>
(5) Accrued Expenses
Accrued expenses consisted of the following:
January 31, February 1,
1998 1997
---------- -----------
Payroll and related benefits $3,252,177 $2,430,673
Taxes other than income taxes 1,059,127 1,138,246
Rent and other related costs 2,252,587 2,307,074
Deferred revenues 1,819,288 1,830,652
Insurance premiums and reserve
for self-insured claims 378,415 1,006,664
Reserve for earned discounts 1,140,000 220,000
Reserve for store closing costs 1,115,211 0
Other 3,733,354 3,120,047
--------- ---------
19
<PAGE>
Total $14,750,159 $12,053,356
=========== ===========
(6) Long-Term Bank and Other Debt
Long-term bank and other debt consisted of the following:
January 31, February 1,
1998 1997
---------- -----------
Due to banks:
Term notes $1,250,000 $2,250,000
Working capital notes 7,000,000 12,000,000
Other:
Capital lease and other
obligations 5,392,505 3,142,751
--------- ---------
13,642,505 17,392,751
Less current maturities (2,853,585) (2,514,849)
----------- -----------
Total $10,788,920 $14,877,902
=========== ===========
In February 1998, the Company entered into a new mortgage financing
agreement and amended the existing bank credit agreement. The Company's bank
credit agreement provided a $5,000,000 term loan and a working capital facility
of $25,000,000, secured by substantially all of the Company's assets, except
domestic inventory. This facility also provided for a swing line of credit of
$3,000,000 with the Company's agent bank. The interest rate was either the
bank's prime rate or LIBOR plus 1 1/4%, at the Company's option. The weighted
average interest rate on borrowings was 7.2% and 7.3% for the fiscal years ended
January 31, 1998 and February 1, 1997. The working capital facility could also
be used to fund letters of credit. The working capital facility required an
annual commitment fee of 1/2 of 1% of the average daily unused commitment. Term
loan repayments were $250,000 per quarter.
At January 31, 1998, the Company had approximately $18,198,000 combined
availability under its working capital and swing line facilities, after
considering outstanding letters of credit of approximately $2,802,000. The
Company's peak borrowing under the working capital and swing line facilities
during fiscal year 1997, including outstanding letters of credit, was
$24,936,000 in October 1997. In fiscal years 1996 and 1995, the peak borrowings
were $23,157,000 in November 1996 and $17,213,000 in November 1995,
respectively. The Company could prepay amounts outstanding under the working
capital, term loan and swing line facilities without penalty.
The bank credit agreement required that the Company maintain certain
financial covenants, one of which was waived for fiscal year 1997, financial
ratios and minimum levels of net worth and working capital. The bank credit
agreement also restricted future liens and indebtedness, sales of assets,
dividend payments and limited repurchases of the Company's common stock. Capital
20
<PAGE>
expenditures are restricted to $8,000,000 in 1998 and are adjusted annually
thereafter based on net income.
In each of the three fiscal years ended January 31, 1998, the Company
entered into capital leases for data processing and point-of-sale equipment. The
required lease payments for fiscal year 1998 approximate $2,170,000. At the end
of the initial term of the leases, the Company has the option of purchasing the
equipment at fair market value, or $1 in the case of the point-of-sale
equipment, renewing the leases or turning in the equipment. Some of the capital
lease agreements contain requirements and restrictions similar to those of the
bank credit agreement.
Cash interest paid was approximately $1,146,000, $901,000 and $753,000
during fiscal years 1997, 1996 and 1995, respectively.
On February 27, 1998, the Company entered into a new mortgage financing
agreement and extended its 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%. The note is secured by the land and buildings at the Company's
corporate office. Proceeds from the mortgage note were used to repay the
Company's outstanding term loan and to reduce amounts outstanding under the
existing working capital facility. The existing bank credit agreement was
amended to reduce the amount available from $25,000,000 to $22,000,000 and to
increase the interest to the agent bank's prime rate or LIBOR plus 2 1/4%, at
the Company's option. The agreement is secured by substantially all of the
Company's assets with the exception of inventory and the assets securing the
mortgage note mentioned above. Amounts available under the new agreement are
based on the amounts of Company inventories and receivables. The new agreement
expires June 30, 2001.
Annual principal requirements on long-term bank and other debt, as
adjusted for the new bank agreements discussed above, and capital lease
principal and interest payments are approximately as follows:
<TABLE>
<CAPTION>
Principal on Principal on Interest on
Bank Capital Capital
Fiscal Year Debt Leases Leases Total
- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
1998 $388,000 $1,853,000 $316,000 $2,557,000
1999 162,000 1,432,000 199,000 1,793,000
2000 174,000 835,000 121,000 1,130,000
2001 1,269,000 826,000 60,000 2,155,000
2002 203,000 443,000 9,000 655,000
Thereafter 6,054,000 3,000 0 6,057,000
--------- ----- - ---------
Total $8,250,000 $5,392,000 $705,000 $14,347,000
========== ========== ======== ===========
</TABLE>
21
<PAGE>
(7) Leases
The Company leases store locations and certain equipment under
operating lease agreements which expire at varying dates through 2008. Most of
the store leases include renewal options for an additional two to ten years, and
require the Company to pay taxes, insurance and certain common area maintenance
costs in addition to specified minimum rents. Most of the store leases also
require the payment of contingent rent based upon a specified percentage of
sales in excess of a base amount.
Total rent expense for all operating leases was as follows:
Years Ended
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- -----------
Minimum rentals $21,144,808 $20,401,261 $18,802,621
Contingent rentals 298,296 334,871 444,282
------- ------- -------
Total $21,443,104 $20,736,132 $19,246,903
=========== =========== ===========
At January 31, 1998, future minimum rental payments under all
noncancelable operating leases with initial or remaining lease terms of one year
or more were approximately as follows:
Fiscal Year:
1998 $19,933,000
1999 16,895,000
2000 13,494,000
2001 9,547,000
2002 6,294,000
Thereafter 8,063,000
---------
Total $74,226,000
===========
(8) Income Taxes
Components of the provision for income taxes were as follows:
Years Ended
-----------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
Current:
Federal $2,021,000 $2,062,000 $3,294,000
State 184,000 66,000 467,000
Deferred (1,620,000) (1,128,000) (1,321,000)
----------- ----------- -----------
Total $585,000 $1,000,000 $2,440,000
======== ========== ==========
Income taxes paid were approximately $1,294,000, $1,695,000 and
$3,335,000 for fiscal years 1997, 1996 and 1995, respectively.
22
<PAGE>
A reconciliation of the provision for income taxes to the amount
computed by applying the federal statutory tax rate to income before income
taxes is as follows:
<TABLE>
<CAPTION>
Years Ended
-----------
January 31, February 1, February 3,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit (3.2) 1.2 3.0
Goodwill amortization 54.7 11.3 6.6
Benefit of graduated federal
income tax rate on income
under $10,000,000 (1.0) (1.0) (1.0)
Meals and entertainment, penalties
and other 7.5 (2.8) 0.4
--- ----- ---
Total 93.0% 43.7% 44.0%
===== ===== =====
</TABLE>
Deferred income taxes result from differences in the timing of
recognition of revenues and expenses for financial reporting and income tax
purposes. The components of the Company's net deferred income tax asset are as
follows:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
---------- ---------
<S> <C> <C>
Deferred income tax assets:
Difference in book and tax bases of property
and equipment $1,972,000 $1,934,000
Reserves established for deferred revenues
and estimated costs 3,120,000 1,724,000
State income tax net operating loss carryforwards 286,000 230,000
------- -------
5,378,000 3,888,000
--------- ---------
Deferred income tax liabilities:
Difference in book and tax bases of trademarks
and tradenames and other intangible assets (2,439,000) (2,206,000)
----------- -----------
Net deferred income tax asset $2,939,000 $1,682,000
========== ==========
</TABLE>
The deferred income tax asset recorded in the accompanying consolidated
balance sheets represents potential future income tax benefits. These future
income tax benefits are expected to be realized through the reduction of income
taxes otherwise payable when reversals of temporary differences between the
financial reporting and income tax bases of the Company's assets and liabilities
occur.
(9) Employee Benefit Plans
The Company has established the Catherines, Inc. Retirement Savings &
Profit Sharing Plan for all eligible associates. This plan allows participants
to defer up to 15% of their income and receive matching employer contributions
on a portion of that deferral. The Company has also established a nonqualified
23
<PAGE>
retirement savings plan for certain officers and key executives. Those employees
who participate in this plan may defer up to 20% of their income and receive a
matching employer contribution on a portion of that deferral. Participants in
these plans become fully vested in the Company's contribution over five years.
The Company made contributions of approximately $218,000, $217,000 and $235,000
in fiscal years 1997, 1996 and 1995, respectively.
The Profit Sharing Plan allows the Company to contribute additional
amounts at the discretion of the Board of Directors. Any such amounts
contributed are to be allocated equally among all eligible participants. The
Board of Directors authorized discretionary contributions of $120,000 and
$153,000 for the fiscal years ended February 1, 1997 and February 3, 1996,
respectively. The Company has accrued approximately $163,000 for discretionary
contributions at January 31, 1998.
The Company has three stock option plans; the 1994 Omnibus Incentive
Plan (the "1994 Plan"), the 1992 Nonqualified Stock Option Plan (the "1992
Plan") and the 1990 Performance Units Plan (the "1990 Plan"), and an employee
stock purchase plan (the "ESPP"). The Company accounts for these plans using the
intrinsic value method, under which no compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company's net income and net income per common
share would have been reduced to the following pro forma amounts:
Year Ended 1997 1996 1995
---- ---- ----
Net Income (Loss):
As reported $43,697 $1,285,974 $3,110,513
Pro forma (383,374) 911,721 2,893,512
Net Income (Loss) per
Common Share:
As reported $0.01 $0.17 $0.40
Pro forma $(0.05) $0.12 $0.37
The effect on fiscal year 1997, 1996 and 1995 pro forma net income
(loss) and net income per common share of expensing the estimated fair value of
stock options is not necessarily representative of the effect on reported
earnings in future years due to the vesting period of stock options and the
potential for issuance of additional stock options in future years.
The weighted average fair value of options granted in fiscal years
1997, 1996 and 1995 were $2.52, $6.48 and $5.51, respectively. The fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for grants in fiscal
24
<PAGE>
years 1997, 1996 and 1995:
Year Ended 1997 1996 1995
---- ---- ----
Risk-free interest rate 6.0% 6.6% 7.3%
Price volatility 60.8% 51.9% 52.2%
Expected term 4 years 4 years 4 years
Under the 1994 Plan, a committee of the Board of Directors may grant
options to key employees to purchase up to 650,000 shares of the Company's
common stock at not less than the fair market value at the date of the grant.
Nonemployee directors are automatically granted options each year to purchase
the Company's common stock at fair market value on the date of the Company's
annual meeting. All options become exercisable equally over four years beginning
one year from the date of the grant and expire in ten years. If not exercised,
these options revert back to the plan and can be reissued as new options. The
number of options available to be granted under this plan at January 31, 1998
was 69,750. All options available under the 1992 Plan and the 1990 Plan have
been granted.
A summary of the Company's stock option plans at January 31, 1998,
February 1, 1997 and February 3, 1996 and changes during the years then ended is
presented in the table and
narrative below:
Weighted
Option Average
Shares Exercise Price
------ --------------
Outstanding,
beginning of year 1995 615,200 $8.93
Granted 190,000 7.57
Exercised (7,000) 1.67
Forfeited (24,000) 12.46
--------
Outstanding, end of year 774,200 $8.55
=======
Exercisable, end of year 412,200
Outstanding,
beginning of year 1996 774,200 $8.55
Granted 166,500 9.06
Exercised (3,600) 1.67
Forfeited (4,000) 8.25
-------
Outstanding, end of year 933,100 $8.66
=======
Exercisable, end of year 530,350
Outstanding,
beginning of year 1997 933,100 $8.66
Granted 153,750 4.84
Exercised (8,000) 1.67
Forfeited (73,000) 8.55
--------
Outstanding, end of year 1,005,850 $8.13
=========
Exercisable, end of year 646,288
A summary by price range is as follows:
25
<PAGE>
Option price range $1.67 - $10.00 $10.50 - $16.00
-------------- ---------------
Options in this range 785,850 220,000
Weighted average price $6.49 $14.01
Contractual life 6.9 years 6.0 years
Options exercisable 426,288 220,000
Weighted average price $5.95 $14.01
The ESPP allows full-time employees with at least one year of service
to contribute 1% to 10% of their pay towards the purchase of the Company's
common stock up to a maximum of $25,000. Purchases are made quarterly at the
lesser of 85% of the stock's closing market price on the first or last business
day of the quarter. During fiscal years 1997, 1996 and 1995; 31,414, 24,382 and
24,176 common shares were purchased under the ESPP, respectively. Net proceeds
were approximately $125,000, $158,000 and $193,000 for fiscal years 1997, 1996
and 1995, respectively. There are 124,193 shares remaining available under the
ESPP. The weighted average fair value of shares sold in fiscal year 1997 was
$4.43.
The Company has employment agreements with each of its three most
senior officers. The agreements provide for severance payments if the executives
are terminated for other than cause, varying from one-and-one-half to two years'
salary and bonus. If all three officers were terminated, the Company's maximum
obligation would be approximately $2,900,000. In the event that an executive is
entitled to severance payments he is also entitled to the continuation of health
and insurance benefits and certain additional retirement benefits pursuant to
executive annuity and life insurance agreements for a specified period of time
following termination of employment. One agreement will expire on January 31,
1999. The remaining agreements expire June 1, 1999 and are automatically
extended for additional one-year periods unless either party gives notice of
termination at least one year prior to the expiration date.
(10) Write-down of Store Assets and Store Closing Costs
In the fourth quarter of 1995, the Company implemented the provisions
of Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). This statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the expected future cash
flows are less than the carrying amount of the asset, an impairment loss is
recognized.
In late 1997, the Company committed to a plan to close 30
underperforming stores upon lease termination or by settlement with the
landlord. The Company anticipates closing the majority of these stores in 1998.
The estimated cash cost to close these stores is approximately $1,115,000 and is
26
<PAGE>
included in accrued expenses in the accompanying financial statements.
The following table reflects the pre-tax charges incurred by the
Company during the three fiscal years ended January 31, 1998 for the write-down
of goodwill, leasehold improvements and furniture and fixtures of
underperforming stores under the provisions of SFAS 121, the costs of stores
closed and the anticipated costs of future store closings.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Stores Amount Stores Amount Stores Amount
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Write-off of impaired
assets under SFAS 121 7 $565,000 14 $944,000 40 $1,957,000
Costs incurred to close
stores 20 1,158,000 9 12,000 12 779,000
Estimated costs of future
store closings 30 1,942,000 0 0 0 0
-- --------- ----- ------- ---- ------------
Total 57 $3,665,000 23 $956,000 52 $2,736,000
== ========== == ======== == ==========
</TABLE>
During 1997, approximately $700,000 of cash payments were made related
to the stores closed.
(11) 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
1997:
Net income $43,697 $43,697
Weighted average shares 7,212,655 70,660 7,283,315
--------- ---------
Per share amount $0.01 $0.01
===== =====
1996:
Net income $1,285,974 $1,285,974
Weighted average shares 7,479,976 90,812 7,570,788
--------- ---------
Per share amount $0.17 $0.17
===== =====
1995:
Net income $3,110,513 $3,110,513
Weighted average shares 7,656,753 196,837 7,853,590
--------- ---------
Per share amount $0.41 $0.40
===== =====
Options to purchase approximately 660,000 shares of common stock at
prices ranging from $7.25 to $16.00 per share were outstanding during fiscal
1997 but were not included in the computation of diluted net income per share
because the exercise prices were greater than the average market price of the
common shares.
27
<PAGE>
(12) Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share data)
Fiscal Year Ended January 31, 1998
- ----------------------------------
<TABLE>
<CAPTION>
First Second Third(4) Fourth(5) Total
----- ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Net Sales $70,968 $70,664 $67,670 $67,850 $277,152
Operating Income (Loss) 2,369 3,138 484 (4,067) 1,924
Net Income (Loss) $1,213 $1,654 $72 $(2,895) $44
Weighted Average Number of
Common and Common
Equivalent Shares 7,260 7,260 7,294 7,318 7,283
Diluted Earnings (Loss)
per Share(1) $0.17 $0.23 $0.01 $(0.40) $0.01
</TABLE>
Fiscal Year Ended February 1, 1997
- ----------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth(3) Total
----- ------ ----- --------- ------
<S> <C> <C> <C> <C> <C>
Net Sales $70,464 $68,833 $65,642 $63,063 $268,002
Operating Income (Loss) 3,901 3,248 376 (4,112) 3,413
Net Income (Loss) $2,155 $1,736 $41 $(2,646) $1,286
Weighted Average Number of
Common and Common
Equivalent Shares(2) 7,834 7,870 7,504 7,249 7,571
Diluted Earnings (Loss)
per Share(1) $0.28 $0.22 $0.01 $(0.36) $0.17
</TABLE>
1 The sum of the quarterly earnings per share amounts may not equal the annual
amount reported, as per share amounts are computed independently for each
quarter while the full year is based on the annual weighted average common and
common equivalent shares outstanding.
2 In the third quarter of fiscal year 1996, the Company repurchased 509,500
shares of its outstanding common stock.
3 Includes asset impairment charges of approximately $944,000 before taxes, or
$0.07 per common share after taxes.
4 Includes closed store costs of approximately $639,000 before taxes, or $0.06
per common share after taxes.
5 Includes asset impairment and store closing costs of approximately $2,851,000
before taxes, or $0.26 per common share after taxes.
28
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year
-----------
1997(5) 1996(4) 1995(3) 1994 1993
------- ------- ------- ---- ----
(Dollars in thousands, except per share and per square foot data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $277,152 $268,002 $274,130 $256,427 $244,743
Operating income 1,924 3,413 6,494 10,550 13,339
Net income 44 1,286 3,111 5,600 7,325
== ===== ===== ===== =====
Net income per common share $0.01 $0.17 $0.41 $0.72 $0.94
===== ===== ===== ===== =====
Diluted net income per
common share $0.01 $0.17 $0.40 $0.71 $0.91
===== ===== ===== ===== =====
Weighted average number
of common shares
outstanding(1)(2) 7,212,655 7,479,976 7,656,753 7,724,135 7,830,191
========= ========= ========= ========= =========
Weighted average number
of common and common
equivalent shares
outstanding(1)(2) 7,283,315 7,570,788 7,853,590 7,894,722 8,054,150
========= ========= ========= ========= =========
Balance Sheet Data:
Working capital $21,163 $22,209 $21,212 $18,749 $18,172
Total assets 120,283 125,365 121,459 113,335 105,428
Long-term debt 10,789 14,878 7,719 6,387 4,974
Selected Operating Data:
Comparable store net sales
increase (decrease) 3.1% -5.3% 0.4% -0.4% 2.7%
Number of stores
Beginning of year 457 432 404 375 352
Opened 6 34 40 35 25
Closed 20 9 12 6 2
End of year 443 457 432 404 375
Total square feet at end
of year (in 000's) 1,627 1,664 1,516 1,404 1,239
Average net sales per store $616 $603 $656 $658 $673
Average net sales per
square foot $168 $169 $188 $194 $203
</TABLE>
(1) The Company repurchased 509,500 and 300,000 shares of its outstanding common
stock in 1996 and 1994, respectively.
(2) In April 1993, the Company sold 377,000 shares of common stock to partially
fund the acquisition, construction and renovation of its corporate office and
distribution center.
(3) In the fourth quarter of 1995, the Company implemented the provisions of
SFAS 121 and closed 12 stores resulting in a pre-tax charge of $2,736,000, or
$0.23 per common share after taxes.
(4) Includes asset impairment charges of $944,000 before taxes, or $0.07 per
common share after taxes.
(5) Includes asset impairment and store closing costs before taxes of
approximately $3,665,000, or $0.34 per common share after taxes.
29
<PAGE>
MARKET PRICE INFORMATION
The Company's Common Stock is traded on the National Market System of the
National Association of Security Dealers, Inc. Automated Quotation System (the
"NASDAQ National Market System") under the symbol "CATH." The following table
sets forth, for each quarterly period in the two most recent fiscal years, the
high and low sales price per share of the Company's Common Stock as reported on
the NASDAQ National Market System.
High Low
1996:
1st Quarter.............................. 10 1/4 6 1/8
2nd Quarter............................. 10 1/4 8 1/4
3rd Quarter.............................. 8 1/2 5 1/2
4th Quarter.............................. 6 1/4 4 5/8
1997:
1st Quarter.............................. 5 7/8 4 3/4
2nd Quarter............................. 4 3/4 3 3/8
3rd Quarter.............................. 6 5/8 4 3/8
4th Quarter.............................. 7 1/8 5 5/8
1998:
1st Quarter (through April 1 ) 8 3/8 6 1/4
The last reported sale price per share of the Common Stock as reported
on the NASDAQ National Market System on April 1, 1998 was $8.125. As of April 1,
1998, there were 230 holders of record of the Common Stock.
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Catherines Stores Corporation:
We have audited the accompanying consolidated balance sheets of
CATHERINES STORES CORPORATION (a Tennessee corporation) and subsidiaries as of
January 31, 1998 and February 1, 1997, and the related consolidated statements
of income, stockholders' equity and cash flows for each of the three fiscal
years ended January 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Catherines Stores Corporation and subsidiaries as of January 31, 1998 and
February 1, 1997, and the consolidated results of their operations and their
cash flows for each of the three fiscal years ended January 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 10, 1998.
31
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Catherines Stores Corporation's management is responsible for the fair
presentation of the consolidated financial statements and the related financial
data presented in this annual report. The statements were prepared in accordance
with generally accepted accounting principles and include amounts determined by
management's estimates and judgments, based on currently available information,
which it believes are reasonable under the circumstances. Actual results could
differ from those estimates.
The Company maintains a system of internal controls which management
believes provides reasonable assurance that the financial statements are
reliably prepared, assets are properly accounted for and safeguarded, and
transactions are properly recorded and authorized. The concept of reasonable
assurance implies that the cost of controls should not exceed their benefits,
recognizing that limitations exist within any system.
The Board of Directors oversees management's administration of the
Company's financial and accounting policies and the practices and preparation of
the financial statements. The Audit Committee, which consists of four
nonmanagement directors, meets regularly with management and the independent
public accountants to review their activities. The independent public
accountants have direct access to the Audit Committee and meet regularly with
the Audit Committee, with and without management representatives present.
David C. Forell
Executive Vice President
and Chief Financial Officer
32
<PAGE>
DIRECTORS
Bernard J. Wein
Chairman of the Board, President and Chief Executive Officer
David C. Forell
Executive Vice President and Chief Financial Officer
Stanley H. Grossman
Executive Vice President and Secretary
James H. Lindy
Principal, Lindy and Associates
Allen B. Morgan, Jr.
Chairman and Chief Executive Officer, Morgan Keegan and Co., Inc.
Wellford L. Sanders, Jr.
Managing Director - Wheat First Union
Elliot J. Stone
Management Consultant, Former Chairman of Jordan Marsh
Department Stores
33
<PAGE>
OTHER CORPORATE OFFICERS
E. Glenn Irelan
Executive Vice President/Stores, Marketing and Real Estate
James A. Spector
Senior Vice President/Human Resources
Wayne Carpenter
Vice President/Loss Prevention
Dorothy M. Dawson
Vice President/Treasurer
GiGi DeJesus-Frerichs
Vice President/Product Development
Donna B. Giles
Vice President/Stores
Robin C. Joseph
Vice President/Merchandising
Morrison B. Kimball
Vice President/Distribution Center
Joan E. Munsee
Vice President/Merchandising
Teresa Rio
Vice President/Merchandising
William D. Serex
Vice President/Real Estate
David S. Silberman
Vice President/Merchandising
Donna L. Thomas
Vice President/Merchandising
D. Jill Evans
Controller
Joseph M. Gohn
Assistant Secretary
34
<PAGE>
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders will be held at 10:00 a.m. at the
executive offices of the Company, 3742 Lamar Avenue, Memphis, Tennessee
on Wednesday, June 3, 1998.
Executive Offices
3742 Lamar Avenue
Memphis, TN 38118
[email protected]
Common Stock Listing
NASDAQ National Market System
Symbol: CATH
Independent Public Accountants
Arthur Andersen LLP
Memphis, TN 38103
Legal Counsel
Waring Cox, PLC
Memphis, TN 38103
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
www. chasemellon.com
Form 10-K
A copy of Form 10-K filed by the Company with the
Securities and Exchange Commission for the fiscal year
ended January 31, 1998 may be obtained by shareholders
without charge upon written request to David C. Forell,
Executive Vice President and Chief Financial Officer, at
the Executive Offices of the Company or at www.sec.gov
keyword: Catherines.
35
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included (or incorporated by reference) in this Form
10-K, into the Company's previously filed registration statements of the
Catherines Stores Corporation 1994 Omnibus Incentive Plan on Form S-8 (File No.
33- 79598), the Catherines Stores Corporation 1992 Nonqualified Stock Option
Plan on Form S-8 (File No. 33-48964), the Catherines Stores Corporation 1992
Employee Stock Purchase Plan on Form S-8 (File No. 33-48968) and the Catherines
Stores Corporation 1990 Performance Units Plan on Form S-8 (File No. 33-47070).
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
April 28, 1998.
<PAGE>
Exhibit 23.2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Catherines Stores Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Catherines Stores
Corporation's 1997 annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated March 10, 1998. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedules listed in Item 14(a)2 on page 12 are the
responsibility of the Company's management and are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 10, 1998.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME OF
CATHERINES STORES CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000875194
<NAME> CATHERINES STORES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-2-1997
<PERIOD-END> JAN-31-1998
<CASH> 3,089
<SECURITIES> 0
<RECEIVABLES> 2,580
<ALLOWANCES> 0
<INVENTORY> 48,310
<CURRENT-ASSETS> 60,528
<PP&E> 66,474
<DEPRECIATION> (32,399)
<TOTAL-ASSETS> 120,283
<CURRENT-LIABILITIES> 39,365
<BONDS> 0
0
0
<COMMON> 46,602
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 120,283
<SALES> 277,152
<TOTAL-REVENUES> 277,152
<CGS> 195,094
<TOTAL-COSTS> 195,094
<OTHER-EXPENSES> 80,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,295
<INCOME-PRETAX> 629
<INCOME-TAX> 585
<INCOME-CONTINUING> 44
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
