SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: Commission File Number
September 30, 1997 0-20984
HAHN AUTOMOTIVE WAREHOUSE, INC.
(Exact name of Registrant as specified in its Charter)
New York 16-0467030
(State of Incorporation) (I.R.S.Employer Identification
No.)
415 West Main Street, Rochester, New York 14608
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 235-
1595.
Securities registered pursuant to Section 12(b) of the Act and
the Exchange on which such securities are registered:
COMMON STOCK, PAR VALUE $0.01 PER SHARE NASDAQ
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 or No .
<PAGE> 1
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held
by non-affiliates of the Registrant as of December 15, 1997,
(based upon the closing price of $5.88 on that day, as reported
on the NASDAQ:NMS) was approximately $11,262,114. For the sole
purpose of making this calculation, the term "non-affiliate" has
been interpreted to exclude the directors and corporate officers.
Such interpretation is not intended to be, and should not be
construed as an admission by the Registrant or such directors or
corporate officers that such directors or corporate officers are
"affiliates" of the Registrant, as that term is defined in the
Securities Act of 1933.
The number of shares of Registrant's Common Stock, par value $.01
per share, outstanding as of December 15, 1997: 4,745,014.
Documents Incorporated By Reference
Portions of the Registrant's definitive Proxy Statement for its 1998
Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to regulations 14A, not
later than 120 days after September 30, 1997, are incorporated by
reference in Part III (Items 10, 11, 12, and 13) of this Form 10-K.
<PAGE>2
PART I
Item 1. BUSINESS
(a) General Development of Business
This Annual Report on Form 10-K ("Form 10-K") contains forward-
looking statements. Hahn Automotive Warehouse, Inc. desires to
take advantage of the "safe harbor" which is afforded such
statements under the Private Securities Litigation Reform Act of
1995 when they are accompanied by meaningful cautionary
statements identifying important factors that could cause actual
results to differ materially from those in the forward-looking
statements. Such cautionary statements are set forth under the
heading "Important Information Regarding Forward-Looking
Statements" located in Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of
this Form 10-K. All references to a "Fiscal" year refer to the
twelve (12) month period ended September 30 of such year.
Hahn Automotive Warehouse, Inc. was incorporated in the State of
New York in 1958. Its principal executive offices are located in
Rochester, New York. Unless the context indicates otherwise, the
term "Company" refers to Hahn Automotive Warehouse, Inc. and its
consolidated subsidiaries other than AUTOWORKS, Inc.
("AUTOWORKS").
The Company is engaged in the sale of automotive aftermarket
products to commercial service establishments on a regional
basis. The Company's business is conducted through ten full-
service distribution centers, four specialty distribution
centers, nine direct distribution centers and 83 jobber stores
that operate in the same areas as the Company's full-service
distribution centers generally under the name Advantage Auto
Stores. The Company's operations are located along the Eastern
Seaboard and in the Midwest.
On October 14, 1996, the Company acquired four direct
distribution centers located in the Rochester, New York area for
a purchase price of $2.7 million. An insignificant number of
jobber customers of the Company were served by these direct
distribution centers. On May 1, 1997, the Company acquired the
assets of a jobber in Canandaigua, New York for a purchase price
of $831,000. The Company did not operate any jobber stores in
this area prior to the acquisition. Both acquired companies
previously purchased products from the Company.
Since November 29, 1993, the Company also engaged in the retail
sale of automotive aftermarket products through its wholly-owned
subsidiary, AUTOWORKS. Due to continuing losses and negative
cash flow, the Company decided, during Fiscal 1997, to exit the
retail business. To that end, on July 24, 1997, AUTOWORKS filed
a petition for relief under Chapter 11 of Title 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the
Western District of New York ("Chapter 11 Proceeding"). (See
Part 1 - Item 3 "Legal
<PAGE>3
Proceedings"). The filing was undertaken to assure the orderly
administration of AUTOWORKS' assets and liabilities. Neither the
Company nor any Company subsidiary (other than AUTOWORKS) filed a
petition or is in bankruptcy.
Effective August 20, 1997, pursuant to a Bankruptcy Court order
entered on the previous day, AUTOWORKS entered into an Agency
Agreement with a national liquidator for the purpose of
liquidating its retail inventory, furniture, fixtures and
equipment all specified in such order. Under the Agency
Agreement, the liquidator assumed a major portion of AUTOWORKS'
operating expenses incurred after the date of the Agreement.
AUTOWORKS received approximately $11,150,000 from liquidation, of
which approximately $10,800,000 was used to reduce the principal
outstanding under a revolving credit facility and Senior Secured
Notes which were secured by AUTOWORKS' assets and $350,000 was
placed in escrow pursuant to Bankruptcy Court order. In
connection with the AUTOWORKS liquidation, the Company recorded a
one-time charge to earnings, net of taxes, during the third
quarter of Fiscal 1997 of $18.8 million or $3.96 per share. (See
Part 1 - Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
On October 22, 1997, the Company entered into a new long-term $50
million credit facility which is secured by substantially all of
the Company's assets. The facility consists of up to a $50
million borrowing base revolving credit facility (less the
outstanding balance of a $2.5 million term loan, a $3.5 million
swing line advance facility and a $2.0 million letter of credit
sub-facility). Proceeds from the facility were used to repay the
Company's prior revolving credit facility and senior secured
notes. (See Part 1 - Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
(c) Narrative Description of Business
The Company's continuing operations are contained in one industry
segment: wholesale sale of automotive aftermarket parts and
products. Below is a description of the segment.
Industry Overview
The market is composed of two basic segments: Passenger car and
light truck products and heavy duty truck products. The Company
operates in the passenger car and light truck market, and
currently does not have a presence in the heavy duty truck
market. The market for passenger car and light truck products has
two basic sales channels: (i) wholesale or installed parts
service, serving professional installers, vehicle dealers, retail
auto parts stores and other distributors, and (ii) retail,
serving do-it-yourself ("DIY") retail customers. The wholesale
segment is the Company's primary area of focus.
<PAGE>4
Traditionally, the wholesale segment has distributed automotive
parts using a three-step or full-service distribution process.
With full-service distribution, parts manufacturers deliver parts
to warehouse distributors, who then deliver to local jobbers who
sell individual parts to end users. Full-service distribution
allows jobbers to provide rapid parts availability to local area
professional installers, including service stations, garages and
major accounts.
The two-step or direct distribution process has evolved in response
to increasing capital needs and shrinking margins, and to date has
been more successful in metropolitan areas where there are higher
concentrations of professional installers. Direct distributors
eliminate a level of distribution from the traditional full-service
distribution process. Thus, a large jobber may purchase directly
from manufacturers and sell directly to professional installers,
thereby eliminating the warehouse distributor level, or a warehouse
distributor may skip the jobber level and sell parts directly to
installers. The Company's direct distribution division targets
this market.
The Company believes that the automotive aftermarket is changing as a
result of (i) the proliferation of the number of auto parts
required to serve the growing number of domestic and foreign
vehicle makes and models available in the United States, and (ii)
the consolidation in the automotive parts aftermarket due to parts
proliferation and the fragmented nature of the industry. The
Company further believes that these developments may represent
growth opportunities.
In the Company's opinion, distributors such as the Company are well
positioned to take advantage of these growth opportunities because
of their ability to achieve economies of scale in purchasing,
inventory management and employee training. Further, the Company
believes that the factors cited above for giving rise to such
opportunities are causing a growing number of independent jobbers
to become associated with programmed distribution groups, such as
Auto Value Associates, Inc. ("Auto Value"), and that distributor
members of such groups, like the Company, will be the prime
beneficiaries. (For a description of the program, see section
entitled "Auto Value Program.")
Wholesale Distribution Centers and Jobbing Store Network
The Company purchases over 156,000 automotive aftermarket stock
keeping units ("SKUs"), consisting predominately of nationally
branded automotive hard parts, as well as maintenance items,
accessories, and private label products, from approximately 219
manufacturers, and distributes these products through its
distribution network to approximately 1,400 independent jobbing
stores and 83 Company-owned jobbing stores, which operate
principally under the Advantage Auto Stores name. These jobbers
supply automotive parts to commercial establishments performing
automotive services and, to a much lesser extent, the DIY market.
The Company's distribution network consists of ten full-service
distribution
<PAGE>5
centers, four specialty distribution centers, and nine direct
distribution centers located along the Eastern Seaboard and in the
Midwest. The Company generally does not sell tires or perform
automobile repairs or installations through either its distribution
centers or jobbing operations.
Distribution Strategy
The Company's distribution strategy is based on five key elements:
Rapid Delivery From Extensive Inventory - The Company
maintains a broad product inventory of approximately 156,000 SKUs
throughout its full-service distribution network, from which it
generally delivers products to customers within 24 hours of
receipt of an order. The Company believes that speed of delivery
is essential for a jobber to meet the time constraints of its
service establishment customers and to manage its own inventory.
Strong Customer Relationships and Trained Work Force - The
Company is a customer driven company built on strong, long-term
relationships. The Company provides operational support to its
customers on a regular basis to assist them in many aspects of
their businesses. In addition, the Company maintains trained and
experienced sales and distribution center personnel to assist
jobbers in selecting parts and filling their inventory needs.
Growth in Existing Markets - The Company seeks to build its
revenue base in existing markets by (i) adding new jobbing store
customers within territories presently served, and
(ii) encouraging existing accounts to purchase additional product
lines from the Company.
Leadership in Auto Value Programmed Distribution Group -
Auto Value is one of the fastest growing independent nationwide
purchasing and marketing programs in the automotive aftermarket.
The Company believes that it is the largest participant by sales
volume and number of jobbing customers who subscribe to Auto
Value's marketing program. The Company seeks to convert its
independent jobbing customers to the Auto Value program, as the
Company requires such customers to source the preponderance of
their inventory needs from the Company.
Operating Efficiencies - The Company's operations are
structured to realize operating efficiencies both for itself and
for its customers, to benefit from economies of scale in product
purchasing, information systems and employee training and to
provide an efficient distribution system with the objectives of
ease of order placement and speed of delivery. In addition,
within the wholesale division, the Company has been successful
<PAGE>6
the past at overall integration of its distribution center
and jobbing store acquisitions and improving the earnings of such
acquisitions through implementation of these operating
efficiencies and through the realization of such economies of
scale.
Products
The Company's distribution centers and Company-owned jobber stores,
operating as Advantage Auto Stores (and Genuine Auto Parts in the
Dayton, Ohio, area) (herein collectively referred to as "Advantage
Auto Stores"), generally offer a wide selection of predominantly
nationally branded automotive products for domestic and foreign
cars, vans, and light trucks. The Company stocks a wide range of
automotive aftermarket products throughout its full-service
distribution network, consisting principally of new and
remanufactured automotive hard parts, as well as maintenance items
and accessory products. Hard parts include, among others, brake
parts, exhaust components, engine parts, suspension parts, and fuel
systems.
The Company's customers purchase name-brand products and private-
label products which carry a larger gross profit margin.
These private-label products, marketed under the Parts Master (R)
label, are manufactured by a variety of vendors for members of the
Auto Value programmed distribution group. Parts Master products
accounted for approximately 21.2%, 17.2%, and 15.7% (in 1997, 1996
and 1995, respectively) of the Company's net sales, within the
wholesale division in each of the last three Fiscal years, with the
remainder of net sales derived from manufacturer's branded
products. Since Parts Master brand products enable the Company to
enjoy higher profit margins as compared to name brand products, the
Company continually seeks ways to expand sales of Parts Master
products, in some instances by having national brand manufacturers
supply these products under this label.
Distribution Center Operations
Central to the Company's strategy of providing rapid distribution of
a broad variety of parts is a distribution system comprised of two
varieties of distribution centers: full-service and specialty
(which consist of pick-up and accessory distribution centers).
Full-service distribution centers distribute to jobbers within a
radius of approximately 150 miles, and nine of them serve as hubs
for a surrounding network of Company-owned Advantage Auto Stores.
The Company extends the distribution area of three of its full-
service distribution centers with smaller pick-up distribution
centers. These pick-up distribution centers carry specialized
inventory categories with slower inventory turns for customer pick-
up when
<PAGE>7
needed, to supplement regular deliveries from the full-service
distribution center. The Company also operates a specialty
distribution center to centralize the purchasing and distribution
of accessory items.
The Company operates ten full-service distribution centers, three
pick-up distribution centers and one accessory distribution center.
The inventory carried by full-service distribution centers
generally range from approximately 42,200 to over 86,000 SKUs,
while the pick-up distribution centers stock, on average,
approximately 26,700 SKUs and the accessory distribution center
stocks select items, such as floor mats, antennas and mirrors.
Each full-service distribution center employs a General Manager, a
sales force and clerical, stock-handling and delivery employees.
Customers may place their stock orders by computer, telephone, fax
or in person at service counters.
Direct Distribution
Commencing with the Company's acquisition of Meisenzahl Auto Parts
Inc. and an affiliate company (collectively, "Meisenzahl") at the
end of Fiscal 1994, the Company entered the direct distribution
market. During Fiscal 1995, the Company established three
additional direct distribution centers (two of which do business
under the name Professional Auto Warehouse) in targeted
metropolitan areas. In early Fiscal 1997, the Company acquired
four direct-distribution centers in or about the Rochester, New
York, area. The Company has selected direct distribution center
locations based on both competitive rent and a high concentration
of repair bays.
The Company believes that its direct distribution centers carry a
more complete inventory selection than other national direct
distributors. The average Company direct distribution center
stocks approximately 29,000 SKUs, with the largest stocking over
62,500 SKUs. These locations stock and sell a complete inventory
of replacement parts for domestic and foreign cars, vans, and light
trucks at competitive prices because they utilize a direct
distribution system, rather than the traditional full-service
(three-step) system used by other suppliers in the industry. In
addition to parts, the direct distribution centers also supply
professional installers with equipment and tools. Each direct
distribution center maintains a delivery fleet to provide
professional installers their orders on a rapid basis.
The Company expects to continue to expand the number of its direct
distribution centers by opening new locations during Fiscal 1998,
subject to debt service and other funding requirements.
<PAGE>8
Auto Value Program
The Company is a member of Auto Value, an independent corporation
which was incorporated in 1983 to provide to its shareholders the
benefits of collective purchasing power under arrangements which it
negotiates with vendors from whom its shareholders may purchase
inventory. Auto Value neither purchases nor sells automotive parts
and is not involved in the chain of distribution.
Auto Value offers its shareholders value-added marketing,
merchandising, advertising and promotion and interior and exterior
design layout for delivery to the participating jobber customers of
its shareholders. Auto Value also offers its shareholders access
to private-label products under the Parts Master name.
Auto Value requires its shareholders to participate in its purchasing
programs to a specified degree and to contribute equally toward its
operating expenses, which are generally nominal. Shareholders
whose jobber customers participate in the marketing service of the
Auto Value program are required to pay a basic fee plus charges for
goods and services provided under the program.
Eli N. Futerman, President of the Company is past Chairman and
currently a director of Auto Value Associates, Inc. The Company
does not believe that any material conflicts of interests exist as
a result of Mr. Futerman's positions in the Company and Auto Value.
Jobber Services
The Company's extensive inventory line provides jobber customers with
the opportunity to purchase aftermarket products from a single
source, which affords its jobber customers the opportunity to
reduce operating expenses and improve inventory planning and
control.
The Company provides support to its customers through its account
executives who visit them on a regular basis, advising such
customers on products and services, assisting in solving
logistical, marketing, merchandising, and other problems as well as
soliciting increased purchases from the Company. These customer
support services are supplemented by manufacturers' sales
representatives who periodically call on the Company's customers on
behalf of the Company and by annual trade shows at various Company
locations.
The Company provides value-added services to its jobber customers
that participate in the Auto Value programmed distribution group.
Through the Auto Value program, the Company assists its
participating jobber customers in marketing, merchandising,
inventory management and control, store appearance, advertising and
promotion.
<PAGE>9
During Fiscal 1997, 41 new independent jobber customers joined the
Auto Value program through the Company. During Fiscal 1997, 13
independent jobbers resigned from the program and four were
terminated, for failing to meet certain program requirements. As
of October 31, 1997, 248 of the Company's independent jobber
customers and all of the Company's 83 Advantage Auto Stores
participated in the Auto Value marketing program.
Advantage Auto Stores
To support its distribution center business, the Company operates
a chain of jobbing stores under the Advantage Auto Store name,
except for certain Company-owned jobbing stores in the Dayton,
Ohio, region which operate under the Genuine Parts Company name;
references to Advantage Auto Stores in this report include these
jobbing stores. The Advantage Auto Stores are located only in
regions supplied by the Company's full-service distribution
centers. As of October 31, 1997, the Company owned and operated
a total of 83 Advantage Auto Stores.
As the Advantage Auto Stores are members of the Auto Value
program, they typically feature certain consistent appearances
and merchandising programs. The stores emphasize knowledgeable
sales people and rapid availability of parts with daily truck
deliveries. Approximately seven years ago, the Company embarked
on a jobbing store remodeling project. During Fiscal 1997, the
Company remodeled 12 jobbing stores. The Company plans to remodel
or relocate 10 jobbing stores in the next Fiscal year.
Purchasing
All product selection and purchasing functions for the
distribution centers and the jobbing stores are centralized at
the Company's headquarters in Rochester, New York, except for
accessory products which are purchased by management of the
specialty distribution center. The Company purchases its
products from more than 300 suppliers (which includes the 219
manufacturers which provide product to the full-service
distribution network) which ship directly to the Company's
distribution centers. In most areas, the Company sources each of
its product lines from one supplier, although most automotive
parts categories have more than one competitive supplier.
Inventory purchases are based upon quality, price, service,
market conditions and, where appropriate, brand recognition.
Suppliers' programs are reviewed periodically to evaluate product
mix, quality, pricing and service.
The manufacturers of automotive aftermarket products typically
provide replacement warranties, which the Company extends to its
customers. In general, the Company has certain privileges with
most of its suppliers that enable it to return slower moving or
overstocked items for full credit, which minimizes inventory
<PAGE>10
obsolescence. The Company extends a return policy to its stocking
customers. From time to time, the Company's suppliers permit it
to defer payments for certain product lines for several months.
Such deferrals are often extended by a supplier in connection
with promotional programs, seasonal products and the opening of
new distribution centers.
In Fiscal 1997, the Company's 15 largest suppliers accounted for
approximately 70% of its total distribution center purchases, and
its largest supplier accounted for approximately 17% of its
distribution center purchases. The Company considers its
relationships with its suppliers to be good and believes that
alternate sources of supply exist at substantially similar costs
for substantially all products which it stocks. The Company's
suppliers are generally able to meet its demand for products.
Inventory Control and Management Information System
The Company's management information system is an important
element in its strategy of maintaining margins while offering its
customers competitive prices and rapid delivery of a wide variety
of products. The fully integrated, real-time system, which was
designed for general use by distributors in the automotive
aftermarket, operates on mainframe computers located at the
Company's Rochester, New York, headquarters and links all of the
Company's distribution centers. The system enables the Company's
Advantage Auto Stores and independent jobbing customers to
communicate electronically with the Company. A majority of the
Company's independent jobber customers have the capability to
access pricing and product availability information in the
Company's computer system. This electronic link streamlines and
hastens the order process by enabling the Advantage Auto Stores,
as well as the independent jobbing customers to electronically
determine product availability and order products, eliminating
the need to telephone or visit a distribution center directly to
place an order.
The system is maintained by a third party vendor under a service
agreement. This third party has advised the Company that it is
taking responsibility under this service arrangement, at no
increased cost to the Company, to correct "year 2000"
deficiencies which are believed to exist in the system, although
the details of the correction program have not yet been made
available to the Company.
Advertising
The Company's Advantage Auto Stores promote broad product
availability, competitive prices and customer service through
direct mail and local media, including newspapers, yellow pages
<PAGE>11
and radio. Direct distribution centers are promoted through
yellow-page advertising and direct mail. Full-service
distribution centers provide the Auto Value marketing program to
affiliated jobbers and their installer customers.
Trademarks
The Company owns and has registered its Advantage Auto Store
trademark in the United States Patent and Trademark Office. In
addition, the Company is a licensee of the Auto Value and Parts
Master trademarks pursuant to a trademark license agreement which
provides for termination upon the occurrence of certain events.
Under the trademark license agreement, the Company has the right
to use and permit its jobber customers to use the Auto Value and
Parts Master trademarks. The Company believes that these
trademarks are material to the Company's business.
Competition
The automotive replacement parts market is highly fragmented and
extremely competitive. The Company competes most directly with
national and regional warehouse distribution networks. The
Company believes that the largest warehouse distribution network
is National Automotive Parts Association, the largest member of
which is Genuine Parts Company (which is not affiliated with the
Company's Dayton, Ohio, area jobbing stores of the same name),
which distributes under the NAPA trademark. The wholesale
distribution market contains numerous other participants,
including programmed buyer groups. The Company competes with
these groups on the basis of product availability, service and
price.
Through its chain of Advantage Auto Stores, the Company also
competes directly with other independent jobbing stores,
automotive specialty retail chains and discount and general
merchandise stores. The Company also competes indirectly with
various original equipment manufacturers and other manufacturers,
distributors and retailers who sell aftermarket products in
alternative distribution channels. Some of the Company's current
and potential competitors are larger and have far greater
financial resources.
Distribution Center and Jobbing Store Employees
As of October 31, 1997, the Company had 1,109 employees in full-
service,speciality and direct-distribution centers and jobbing
operations, of whom 70 were distribution center and jobbing store
account executives, 54 were headquarters personnel, 174 were
distribution center and jobbing store management personnel and
the remaining 811 were distribution center workers, jobbing store
employees, drivers, counter persons, data entry and other
personnel.
<PAGE>12
Of these employees, 885 were full time and 224 part time. As of
October 31, 1997, a total of 21 employees at two distribution
centers were represented under collective bargaining agreements.
The Company has never experienced any material labor disruption
and is unaware of any efforts or plans to organize additional
employees. Management believes that its labor relations with its
employees are good.
<PAGE>13
Item 2. PROPERTIES
Distribution Center and Jobbing Facilities
The Company's principal executive offices are located in
Rochester, New York, and presently occupies 22,000 square feet.
As of October 31, 1997, the Company operated the following
distribution center locations:
<TABLE>
<CAPTION>
Approximate
Location Gross Ground
Level Type
Square Feet
<S> <C> <C> <C>
New York
Rochester 40,000 Full-Service
Rochester-North 37,000 Direct Dist.
Rochester-South 11,400 Direct Dist.
Rochester- 15,000 Direct Dist.
Merchants 5,000 Direct Dist.
Rochester-Greece 4,500 Direct Dist.
Rochester-Gates 5,000 Direct Dist.
Farmington 35,000 Full-Service
Bronx 34,500 Full-Service
Syracuse 27,800 Full-Service
Buffalo 8,000 Direct Dist.
Buffalo 22,000 Full-Service
Newburgh 5,700 Accessory
Batavia 12,900 Direct Dist.
Albany
Ohio
Dayton 59,800 Full-Service
Independence 33,500 Full-Service
North Carolina
Goldsboro 39,000 Full-Service
Virginia
Richmond 32,700 Full-Service
Norfolk 6,500 Pick-Up
Maryland
Bladensburg 18,100 Full-Service
Baltimore 10,700 Pick-Up
Indiana
Indianapolis 13,000 Pick-Up
Pennsylvania
Harrisburg 14,500 Direct Dist.
</TABLE>
<PAGE>14
The Company owns the Independence, Ohio, site; leases its Norfolk,
Virginia; Albany, New York; and Harrisburg, Pennsylvania, sites
from unaffiliated parties under leases which expire on March 31,
2005; December 31, 1999; and September 30, 2000, respectively;
leases its direct distribution Rochester-Merchants, Rochester-
Gates and Farmington sites from an unaffiliated party under
leases which expire in 2001; leases its Rochester-Greece direct
distribution site from an unaffiliated party which expires in
1998; and leases its Rochester and Buffalo direct distribution
locations from David Appelbaum, a Vice President of the Company
under leases which expire in September 2004. A third direct
distribution location in Rochester is also leased from a
partnership comprised of Mr. Appelbaum and an unaffiliated third
party and expires concurrently with other leases held by Mr.
Appelbaum. The Company leases the remaining distribution
facilities from members of the Futerman family or affiliates
thereof under leases which expire in 2001, 2004 and 2007. Except
for the Independence, Ohio, site (which is subject to a first
mortgage), none of the Company's facilities are subject to any
encumbrance.
As of October 31, 1997, there were 83 Advantage Auto Stores
served by the Company's distribution centers as follows:
<TABLE>
<CAPTION>
Advantage Advantage
Distribution Center Auto Distribution Center Auto
Locations Stores Location Stores
Serviced Serviced
<S> <C> <C> <C>
Rochester, New York 17 Dayton, Ohio 22
Syracuse, New York 10 Goldsboro, North 7
Carolina
Buffalo, New York 6 Richmond, Virginia 12
Newburgh, New York 2 Bladensburg, Maryland 5
Cleveland, Ohio 2
</TABLE>
As of October 31, 1997, the Company leased 79 and owned four
Advantage Auto Stores sites. As of October 31, 1997, leases on
13 store sites were month-to-month, leases on 46 store sites had
remaining terms of three years or less, and leases on 20 store
sites had remaining terms of more than three years, excluding
renewal options. The Company leases certain of these sites from
members of the Futerman family.
<PAGE> 15
The Company believes that the distribution center and jobbing
store leases with members of the Futerman family, taken as a
whole, are no less favorable to the Company than leases which
could have been obtained from third parties dealing at arm's
length.
Discontinued AUTOWORKS Facilities.
AUTOWORKS leases from an unaffiliated party a 312,000 square foot
distribution center located in Moraine, Ohio, which previously
served the AUTOWORKS store chain. The lease of the Moraine
distribution center expires at the end of December 1997. The
remaining leases for AUTOWORKS' locations have been assigned to
and assumed by third parties, terminated by agreement or rejected
in connection with the Chapter 11 bankruptcy filed on July 24,
1997. Five (5) leased properties, which have not been terminated
or assumed, are guaranteed by the Company. The Company is in the
process of attempting to obtain agreements to terminate these
guarantees.
Item 3. LEGAL PROCEEDINGS.
The Company is involved in various claims and disputes arising in
the normal course of business. The Company's management believes
that it has meritorious defenses and/or insurance coverage
against such matters and that the outcome of all pending
proceedings, individually and in the aggregate, will not have a
material adverse effect upon the Company's business, results of
operations, cash flows or financial position.
On October 31, 1995 a complaint was filed against the Company by
27 former employees of AUTOWORKS, INC. seeking class action
status in the United States District Court, Southern District of
Ohio, Western Division (Case Number C-3-95-904). The complaint
requests compensatory damages, liquidated damages and attorney's
fees available under the Fair Labor Standards Act based on an
alleged failure to pay overtime wages to certain individuals
classified as exempt employees. The Company is vigorously
defending this action and maintains that the plaintiffs were
employees of AUTOWORKS, INC., and its conduct was appropriate and
not wrongful. To that end, the Company filed a motion for summary
judgment; the plaintiffs cross moved for partial summary
judgment. The Company's motion for summary judgment has been
denied, with leave to file another motion for summary judgment on
two (2) specific issues raised by the trial court. The Company
has filed a motion for reconsideration of this decision, which is
now pending before the Court. Plaintiffs' motion for partial
summary judgment has been granted in part (Plaintiffs held to be
not exempt under the "salary" test of FLSA) and denied in part.
In addition, the Trial Court has requested submissions from both
parties as to whether a procedural stay is appropriate, which
submissions have
<PAGE>16
been filed. While the outcome of this litigation is inherently
uncertain, the Company believes that it is unlikely that any
adverse verdict would have a significant financial impact on its
financial condition.
On July 24, 1997, AUTOWORKS filed a voluntary petition for relief
under Chapter 11 of Title 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the Western District of New York
("Bankruptcy Court") to assure the orderly administration of its
assets and liabilities. Neither Hahn nor any Hahn subsidiary
other than AUTOWORKS filed for protection under Chapter 11 and
neither Hahn nor any Hahn subsidiary other than AUTOWORKS is in
bankruptcy. The discussion below sets forth various aspects of
the Chapter 11 Proceeding, but is not intended to be an
exhaustive summary.
After filing the Chapter 11 proceeding, AUTOWORKS continues to
operate as a debtor-in-possession. The Bankruptcy Court issued
an order approving a consensual cash collateral arrangement
between AUTOWORKS and the former banking syndicate which had
provided a revolving line of credit to AUTOWORKS. Thereafter,
AUTOWORKS' source of funding was from cash flow from its own
operations.
On August 20, 1997, AUTOWORKS obtained court approval of an Agency
Agreement with a national liquidator for the purpose of
liquidating its retail inventory, furniture, fixtures and
equipment, all as specified in such order. Under the Agency
Agreement, the liquidator assumed a major portion of AUTOWORKS'
operating expenses incurred after the date of the Agreement.
AUTOWORKS received $11,150,000 from the liquidation, of which
approximately $10,800,000 was used to reduce principal
outstanding under the revolving credit facility and Senior
Secured Notes which were secured by AUTOWORKS' assets. As part
of that transaction, $350,000 was placed in escrow pursuant to
Bankruptcy Court order.
Since August 21, 1997, AUTOWORKS has had no ongoing
revenue-generating operations. AUTOWORKS has only limited cash
and had current liabilities of approximately $17.9 million, at
September 30, 1997.
The Company has an unsecured claim in the approximate amount of
$33.4 million against the AUTOWORKS bankruptcy estate. The
Company does not expect to receive any significant dividend from
AUTOWORKS upon completion of the bankruptcy proceedings.
The Official Unsecured Creditors' Committee in the AUTOWORKS
bankruptcy proceeding has requested that AUTOWORKS pursue a claim
against the Company for alleged preferential transfers between
the Company and AUTOWORKS amounting to approximately $6.5
million. Such Committee is presently investigating this claim
and the transactions in general between the Company and AUTOWORKS
through discovery which is being conducted as permitted under
Bankruptcy Court procedures, although no adversary proceeding has
been
<PAGE>17
commenced. Counsel for AUTOWORKS has rejected the Committee's
request on the ground that the claim does not appear to have
merit. However, the Committee has the ability to pursue
Bankruptcy Court relief in its own right. The Committee has also
indicated that relief may be sought against the Company under the
doctrine of substantive consolidation for alleged fraud in
connection with the Company's acquisition of AUTOWORKS and under
fraudulent conveyance laws. While the Company does not believe
that it should be held liable under applicable law should these
claims ever be brought in an adversary proceeding, and would
defend itself vigorously therein, there can be no assurance that
the Company would prevail or, because of the early stage of
discovery, as to the magnitude of any potential exposure
therefrom. The Company believes that the Committee is
investigating, through the aforementioned discovery, both its
asserted claims and other possible claims which it may or may not
assert in the future. There can be no assurance the Committee or
other parties to the bankruptcy proceeding will not assert other
claims against the Company in the future.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of Fiscal 1997
to a vote of the Company's shareholders, through the solicitation
of proxies or otherwise.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS.
The Company's common stock is traded in the over-the-counter
market and quoted on the National Association of Securities
Dealer Automated Quotation System-National Market System
("NASDAQ:NMS"). Its trading symbol is HAHN. The table below
shows the range of high and low actual trade prices for the
Company's common stock during each quarterly period of Fiscal
years 1997 and 1996:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
September 30, 1997 September 30, 1996
High Low High Low
<S> <C> <C> <C> <C> <C>
1st Quarter 9 8 1st Quarter 7 7 5/16
2nd Quarter 9 7 1/2 2nd Quarter 8 3/4 5 3/4
3rd Quarter 9 6 3/4 3rd Quarter 9 1/2 8 1/8
4th Quarter 7 6 4th Quarter 9 1/4 8
</TABLE>
The Company did not pay any cash dividends in Fiscal years 1993
through 1997. The Company did issue a 4% stock dividend on May
1, 1995, May 1, 1996 and May 1, 1997, to holders of record on
April
<PAGE>18
10, 1995, April 10, 1996 and April 10, 1997, respectively. The
Company does not intend to pay any cash dividends for the
foreseeable future and intends to retain earnings, if any, for
the future operation and expansion of the Company's business.
Any determination to pay dividends in the future will be at the
discretion of the Company's Board of Directors and will be
dependent upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed
relevant by the Board of Directors. The agreement with the
lender prohibits the Company from paying cash dividends on its
common stock, provided, however, for each Fiscal year ending
after September 30, 1997, the Company may distribute dividends if
it is not in default and would not be put default by virtue of
such dividends. The amount of the aggregate cash dividend may
not exceed certain specified amounts of the Company's adjusted
net earnings, as defined in such agreement, for the Fiscal year.
On December 1, 1997, there were 74 holders of record of the
Company's common stock and the Company believes there were 498
beneficial owners.
<PAGE>19
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information of
the Company for each of the five fiscal years in the period ended September
30, 1997. This table should be read in conjunction with the audited
consolidated financial statements of the Company and the related notes
thereto included elsewhere herein and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
1997 1996 (1) 1995 (1) 1994 (1) 1993
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales $142,242 $138,395 $130,733 $122,875 $119,074
Cost of products sold 86,967 86,077 79,773 78,218 76,047
Gross profit 55,275 52,318 50,960 44,657 43,027
Selling, general and
administrative expense 46,717 41,657 39,215 34,357 33,767
Depreciation and amortization 2,005 1,756 1,902 1,805 1,785
Income from operations 6,553 8,905 9,843 8,495 7,475
Interest expense (4,670) (4,402) (4,387) (3,129) (2,294)
Other income 719 600 434 441 476
Income before provision
for income taxes 2,602 5,103 5,890 5,807 5,657
Provision for income taxes 1,011 1,950 2,152 2,228 1,786
Income from continuing operations $1,591 $3,153 $3,738 $3,579 $3,871
Loss from discontinued operations:
Write-down of investment in subsidiary, net of tax (18,789) -- -- --
Income (loss) from discontinued operations, net of tax (3,937) (1,294) (5,115) 563
Total income (loss) from discontinued operations (22,726) (1,294) (5,115) 563
Net income (loss) ($21,135) $1,859 ($1,377) $4,142
Income from continuing operations per share $0.34 $0.66 $0.79 $0.80
Income (loss) from discontinued operations per share (4.79) (0.27) (1.08) 0.12
Net income (loss) per share (4) ($4.45) $0.39 ($0.29) $0.92
Weighted average shares outstanding (4) 4,745,014 4,745,014 4,743,938 4,496,526
</TABLE>
<TABLE>
<CAPTION>
1997 1996(1) 1995(1) 1994(1) 1993
<S> <C> <C> <C> <C> <C>
Pro Forma (2) (3):
Historical income before income taxes $5,657
Pro forma adjustments other
than income taxes 208
Pro forma income before
income taxes 5,865
Pro forma income taxes 2,276
Pro forma net income $3,589
Pro forma net income per share (4) $0.80
Pro forma weighted average
shares outstanding (4) 4,495,857
Balance Sheet Data:
Working capital $38,748 $65,452 $64,623 $60,456 $39,560
Total assets 77,792 97,819 97,602 95,805 66,486
Long-term debt and capital
lease obligations, excluding
current maturities 39,171 40,893 41,368 38,173 21,974
Stockholders' equity 12,364 33,499 31,640 32,973 26,548
(1) As a result of the Chapter 11 Bankruptcy filing of
AUTOWORKS, Inc. this subsidiary has been deconsolidated.
(2) Assumes the following occurred on
October 1, 1991: (i) the
acquisition of 11 Futerman family
Advantage Auto Stores purchased
January 1, 1992; (ii) the
acquisition of nine Futerman
family Advantage Auto Stores
purchased April 1, 1992; (iii) the
elimination of intercompany sales
between the Company and these
twenty stores; (iv) the
termination of arrangements with a
related party partnership and the
resulting net reduction of
advertising expense; and (v) the
sale of sufficient shares
of Common Stock in the initial
public offering and the
application of the net proceeds
therefrom to retire certain
outstanding indebtedness and to
pay the final S Corporation
distribution
(3) For the period prior to January 1,
1993, the Company was an S
Corporation and was
not subject to corporate income
taxes. The pro forma net income
has been computed as if the
Company were subject to
corporation income taxes for all
periods presented, based on the
tax laws in effect during the
respective periods.
(4) Net income per share and weighted
average shares outstanding as of
September 30, 1996, 1995 and 1994 and the
pro forma net income per share and
pro forma weighted average shares
outstanding for 1993, have been
restated to reflect 4% stock
dividends to shareholders of
record on April 10, 1997, 1996 and
1995. The stock dividend was
distributed on May 1, 1997, 1996
and 1995.
</TABLE>
<PAGE>21
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information in this Item 7 contains forward-looking statements.
The Company desires to take advantage of the "safe harbor" which is
afforded such statements under the Private Securities Litigation
Reform Act of 1995 when they are accompanied by meaningful
cautionary statements identifying important factors that could
cause results to differ materially from those in the forward-
looking statements. Such cautionary statements are set forth under
the heading "Important Information Regarding Forward-Looking
Statements" below in this Item 7.
The discussion contained in this Item 7 should be read in connection
with the Selected Financial Data and the Consolidated Financial
Statements and accompanying footnotes elsewhere in this Form 10-K.
In all periods discussed herein, the Company's Fiscal year ended on
September 30.
General
During the current Fiscal year discussed below, the Company's
results of operations and financial condition have been affected
by two acquisitions and the filing of the Chapter 11 Proceeding
by AUTOWORKS.
The first acquisition occurred in October, 1996. The Company
acquired a former customer with four (4) direct distribution
centers which operated in the Rochester, New York area. The
total purchase price was $2.7 million, of which the Company paid
$600,000 in cash and the balance with deferred payments. These
locations have been integrated into the Company's direct
distribution center division.
The second acquisition occurred in May, 1997 when the Company
acquired a former jobbing customer which operated in the
Canandaigua, New York trading area. The total purchase price was
$831,000, of which $450,000 was paid in cash and the balance with
deferred payments. This acquisition is being operated as a
jobbing store within the full-service distribution division.
The Company financed the cash portions of these purchases with
borrowings under its prior revolving credit facility.
Due to AUTOWORKS continuing losses and negative cash flow, the
Company decided during Fiscal 1997 to exit the retail business
and focus its operations in the wholesale automotive aftermarket
segment. AUTOWORKS filed a Chapter 11 Petition for
Reorganization on July 24, 1997. As a result, the Company has
deconsolidated AUTOWORKS and classified it as a discontinued
operation in the Company's financial statements and all previous
periods have been restated to reflect this treatment;
references herein to previous period figures are to the restated
figures and do not include AUTOWORKS. In connection with this
treatment, the Company recorded a one-time charge of $18.8
million, net of taxes, during the third Fiscal quarter of 1997.
<PAGE>22
Results of Operations
Fiscal Year 1997 Compared to Fiscal Year 1996
Net sales for Fiscal 1997 increased $3.8 million, or 2.8%, from
the prior Fiscal year, to $142.2 million. The increase is
attributable to increases of 44.8% at the direct distribution
centers and 1.5% at the full-service distribution centers,
partially offset by a 6.1% decline in net sales at the Advantage
Auto Stores. The direct distribution centers' increase resulted
from the October 1996 acquisition of four (4) direct distribution
centers and a 6.8% increase in comparable location sales from the
previous Fiscal year. The Advantage Auto Stores' decline in net
sales is principally due to three (3) store closings during
Fiscal 1996 and a 5.3% decrease in comparable net sales
(primarily as the result of increased competition in certain
markets).
Gross profit from continuing operations for Fiscal 1997 was $55.3
million, or 38.9% of net sales, compared to $52.3 million, or
37.8%, of net sales for Fiscal 1996. Gross profit expressed as a
percentage of net sales increased as the result of the two (2)
acquisitions during Fiscal 1997, and to a lesser extent, the
changing sales mix and maturation of the direct distribution
division, which generally has a higher gross margin than full-
service distribution center sales.
Selling, general, and administrative expenses increased $5.0
million from $41.7 million in Fiscal 1996, or 30.1% of net sales,
to $46.7 million, or 32.8% of net sales, in Fiscal 1997. This
increase is primarily attributable to the two (2) Fiscal 1997
acquisitions, increased payroll expenses and additional
administrative expenses associated with the AUTOWORKS bankruptcy
filing.
Depreciation and amortization expense increased $249,000 for
Fiscal 1997 from the previous Fiscal year. This increase is
attributable to the write-off of capitalized origination costs
associated with the Company's prior credit facility (which was
replaced by the Company's new credit facility described below)
which were being amortized over the term of the prior facility,
and an increase in amortization expense related to goodwill
associated with the 1997 acquisitions. The increases were
partially offset by the utilization of operating leases rather
than the purchase of fixed assets as a result of the capital
expenditure limitation imposed by the Company's then effective
credit facility.
Income from continuing operations before interest and taxes for
Fiscal 1997 decreased $2.4 million from $8.9 million, or 6.4% of
net sales in Fiscal 1996, to $6.5 million, or 4.6% of net sales
in Fiscal 1997 primarily as a result of the factors discussed
above.
Interest expense increased $300,000 in Fiscal 1997 to $4.7 million
compared to $4.4 million for the previous year. This increase is
attributable to higher average borrowings outstanding in Fiscal
1997 and a higher interest rate during the fourth quarter of
Fiscal 1997,
<PAGE>23
due to the Company's forebearance agreement under its prior credit
facility. Interest expense for Fiscal 1998 is expected to
decrease significantly as a result of decreased borrowings, and
the lower interest rates on the Company's new credit facility.
The Fiscal 1997 provision for income taxes on income from
continuing operations was $1.0 million, an effective rate of
38.9%, as compared to $2.0 million, an effective rate of 38.2%,
in Fiscal 1996 due to the decrease in income from continuing
operations. The effective rate in both years differs from the
Federal rate of 34% primarily due to state income taxes.
As a result of the factors discussed above, for Fiscal 1997, the
Company had income from continuing operations of $1.6 million, or
$.34 per share, as compared to the last Fiscal year's income from
continuing operations of $3.2 million, or $.66 per share.
During Fiscal 1997 the Company incurred a net loss of $21.1
million, or $4.45 a share, compared to net income of $1.9
million, or $.39 a share, in Fiscal 1996. The loss incurred in
Fiscal 1997 includes the one time charge relative to AUTOWORKS as
discussed above of $18.8 million, net of tax, and losses from
discontinued operations for the first nine months of the Fiscal
year of $3.9 million, net of tax. Net income in Fiscal 1996
includes losses from discontinued operations of $1.3 million, net
of tax.
Earnings per share and weighted average number of shares
outstanding as of September 30, 1996 and 1995 have been restated
to reflect the 4% stock dividends to shareholders of record on
April 10, 1997 and 1996. This dividend was distributed on May 1
of both years.
Fiscal Year 1996 Compared to Fiscal Year 1995
Net sales for Fiscal 1996 increased $7.7 million, or 5.9%, over
the prior Fiscal year, to $138.4 million. The most significant
contributing factor to this increase was a 33.4% increase in net
sales at the direct distribution centers, resulting from the
opening of a new location and a full twelve months of sales from
the location that opened in Fiscal 1995. Additionally, sales
from Advantage Auto Stores and the full-service distribution
centers increased by 4.1% and 3.0%, respectively, over the prior
fiscal year.
Gross profit for Fiscal 1996 was $52.3 million, or 37.8% of net
sales, compared with $51.0 million or 39.0% of net sales for
Fiscal 1995. The dollar increase is attributable to the overall
increase in net sales as discussed above, while the percentage
decrease is due to the change in sales mix (the significant
increase in lower margin sales from the direct distribution
centers relative to a much smaller increase in higher margin
sales of the Advantage Auto Stores).
Selling, general and administrative expenses increased $2.4
million to $41.7 million, or 30.1% of net sales, from $39.2
million in Fiscal
<PAGE>24
1995, or 30.0% of net sales. The increase resulted largely from
the opening of a new direct distribution location and a full year
of expense from the direct distribution location that opened in
Fiscal 1995.
Depreciation and amortization expense decreased $146,000 from $1.9
million in Fiscal 1995 to $1.8 million in Fiscal 1996. This
decrease is due to the increased utilization of operating leases
rather than the purchase of fixed assets as a result of the
capital expenditure limitation imposed by the Company's then
effective credit facility.
Income from continuing operations before interest and taxes
decreased by $900,000 to $8.9 million for Fiscal 1996, or 6.4% of
net sales, from $9.8 million for Fiscal 1995, or 7.5% of net
sales, as a result of the above factors.
Interest expense was $4.4 million for both Fiscal years. Average
borrowings outstanding under the Company's credit facility were
slightly lower in Fiscal 1996, which was offset by slightly
higher interest rates during the fourth quarter of Fiscal 1996.
The Fiscal 1996 provision for income taxes on income from
continuing operations was $2.0 million, an effective rate of
38.2%, as compared to $2.2 million, an effective rate of 36.5%,
in Fiscal 1995 due to the decrease in income from continuing
operations. The effective rate in both years differs from the
Federal rate of 34% primarily due to state income taxes.
Income from continuing operations decreased $500,000 to $3.2
million for Fiscal 1996, (or $.66 per share) from $3.7 million
for Fiscal 1995, or $.79 per share.
During Fiscal 1996 the Company recognized net income of $1.9
million, or $.39 a share, compared to a net loss of $1.4 million,
or $.29 a share, in Fiscal 1995. Net income for Fiscal 1996 and
1995 includes losses from discontinued operations of $1.3
million and $5.1 million, net of tax, respectively.
Earnings per share and weighted average number of shares
outstanding as of September 30, 1996 and 1995, have been
restated to reflect the 4% stock dividends to shareholders of
record on April 10, 1996 and 1995. This dividend was distributed
on May 1 of both years.
Liquidity and Capital Resources
During Fiscal 1997, continuing operations generated net cash of
$1.0 million, resulting from income from continuing operations
adjusted for non-cash items (including depreciation and bad debt)
of $4.8 million reduced primarily by an increase in other assets
of $3.9 million.
During Fiscal 1996, continuing operations generated net cash of
$6.2 million, resulting from income from continuing operations
adjusted for non-cash items (including depreciation and bad debt)
of $5.6 million.
<PAGE>25
Investing activities consist mainly of routine capital
expenditures for delivery vehicles, computer equipment, and store
and warehouse fixtures. Capital expenditures from continuing
operations were $1.1 million, $300,000, and $1.0 million in each
of the last three (3) Fiscal years.
Financing activities during Fiscal 1997 and 1996 consumed $5.5
million and $1.9 million of net cash, respectively, and provided
$5.0 million of cash during Fiscal 1995. Funds consumed during
Fiscal 1997 and Fiscal 1996 reflect payments on long-term debt
and a reduction of net borrowings under the Company's prior
credit facility. In 1996, such payments were partially offset by
the issuance of subordinated debt to Michael Futerman and Eli N.
Futerman, Chief Executive Officer and President of the Company,
respectively. In Fiscal 1995, the $5.0 million provided by
financing activities was the result of increased borrowings on
the credit facility, partially offset by payments on long-term
debt.
The Company is subject to various actual and potential losses,
claims, obligations and proceedings, including those pertaining
to AUTOWORKS as well as others, as disclosed in Part I, Item 3,
above and in Note 6 to the Financial Statements. The Company has
made provision for certain anticipated operating expenses (such
as certain real estate and equipment lease obligations and self-
insured exposures) of AUTOWORKS for which it may be jointly
liable with AUTOWORKS, recorded at $5.1 million at September 30,
1997. While the Company believes that these recorded liabilities
and other reserves are reasonable in light of the Company's
current information, the judgments involved in the determination
thereof are inherently subjective and uncertain such that there
can be no assurance that they will prove sufficient in light of
future developments.
Further, the Company believes that its information systems contain
"year 2000" deficiencies, which the Company's third party
maintenance contractor has undertaken to correct at no increased
cost to the Company. However, such contractor has not yet
advised the Company of the timing or other details of its
correction program.
In the future the Company expects to make minor strategic
acquisitions and open new direct distribution centers and
Advantage Auto stores to the extent that its debt service and
other funding requirements permit. The Company's ability to
continue to open new direct distribution centers will depend on
the Company's ability to negotiate extended payment terms with
vendors, which initially minimizes additional working capital
requirements. The Company believes that it will be able to
continue to obtain such financing.
New Credit Facility
On October 22, 1997, the Company entered into a Loan and Security
Agreement (the "New Credit Facility") with Fleet Capital
Corporation ("Fleet"), which provides for, among other things, a
revolving credit facility with $50 million in maximum
availability subject, however, to
<PAGE>26
borrowing base restrictions, including a $2.5 million term loan, a
$3.5 million supplemental availability line and a $2.0 million
letter of credit sub-facility. The proceeds of the initial
borrowing under the New Credit Facility, $36 million were used to
repay all amounts outstanding under the previous credit agreement
and Senior Secured Notes.
The financial statements are presented as if borrowings
outstanding under the prior credit facility and Senior Secured
Notes had been replaced with borrowings under the New Credit
Facility as of September 30, 1997.
At the Company's option, loans outstanding under the New Credit
Facility may be maintained at either (a) the LIBOR rate plus 175
to 250 basis points depending on the Company's financial
performance or (b) the prime rate of Fleet Bank plus up to 75
basis points depending on the Company's financial performance.
LIBOR is fixed for interest periods of one, two, three or six
months at the option of the Company.
The Company is required to pay an unused facility fee of between
25 basis points and 37.5 basis points (depending on the Company's
financial performance) on the unutilized revolving facility
commitment. The Company must pay a letter of credit fee equal to
Fleet Capital's prime rate plus up to 75 basis points (depending
on the Company's financial performance) on the aggregate stated
amount of each letter of credit for its stated duration.
The obligations of the Company under the New Credit Facility are
secured by a first priority security interest on substantially
all present and future assets of the Company. The obligations of
the Company under the New Credit Facility are guaranteed up to a
maximum amount of $2.5 million by Michael Futerman, who is an
officer, director and principal shareholder of the Company.
Secured mortgages on certain real estate were pledged as
collateral guarantees by Michael Futerman.
The New Credit Facility contains customary restrictive covenants,
including, without limitation, restrictions on changes in
character of the business, mergers, sales or transfers of assets,
acquisitions, capital expenditures, liens, indebtedness,
restricted payments or repurchases of other indebtedness,
dividends and transactions with affiliates. The New Credit
Facility also requires that the Company maintain (i) an adjusted
tangible net worth through September 30, 1998 of not less than
the greater of $13 million or 75% of the Company's tangible net
worth as of September 30, 1997 and thereafter 75% of the tangible
net worth as of the previous Fiscal year end as well as (ii) as
of the end of each quarter a ratio of fixed charges to cash flow
of not less 1.0 to 1.0 for the four previous quarters (with a
limited period measurement for the first year).
The revolving credit facility matures on October 22, 2002, and the
term loan is payable in nineteen (19) quarterly payments of
$125,000 each commencing on February 1, 1998 and is all due and
payable on November 1, 2002. The supplemental line (which was
fully advanced at the closing) is payable in forty-seven (47)
monthly payments of $72,917 commencing October 1, 1998 and is all
due and payable on September 1, 2002. Principal repaid
<PAGE>27
on the supplemental line is not available for further borrowing.
The Company is required to make mandatory prepayment on loans
outstanding under the New Credit Facility with the proceeds of
certain asset sales and on the term loan and the supplemental
line with 50% of the Company's annual cash flow up to a maximum
of $500,000 (or $250,000 if the term loan or supplemental line
have been paid in full).
As of November 30, 1997, the Company had an outstanding balance of
$37.9 million under the New Credit Facility.
The Company's principal sources of liquidity for its operational
requirements are internally generated funds, borrowings under its
revolving credit facility, leasing arrangements and extended
payment terms from vendors. The Company anticipates that these
sources will provide sufficient working capital to operate its
business, make expected capital expenditures and to meet its
other short-term and longer-term liquidity needs.
Recent Accounting Pronouncements
The FASB issued Statement of Financial Accounting Standards No.
128, entitled "Earnings per Share" ("SFAS No. 128"), in February
1997. SFAS No. 128 requires standards to replace the presentation
of primary earnings per share ("EPS") with a presentation of
basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities
with complex capital structures. The Company is required to
adopt the computation, presentation and disclosure requirements
of SFAS No. 128 for the fiscal year ending September 30, 1998.
The adoption of FAS No. 128 is not expected to have a significant
impact on the Company's earnings per share as currently
determined.
Inflation
The Company does not believe that its operations have been
materially affected by inflation. In general, the Company has
been able to pass on to its customers any increases in the cost
of its inventory.
Seasonality
The Company's business is somewhat seasonal in nature, primarily
as a result of the impact of weather conditions on the demand for
automotive aftermarket products. Historically, the Company's net
sales and gross profits have been higher in the second half of
each Fiscal year than in the first half.
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K which are not
historical facts, including but not limited to (i) anticipated
trends in the Company's business and the automotive replacement
parts industry, (ii) the sufficiency of cash to fund the
Company's debt service requirements and working capital needs and
(iii) the statements found under the captions "Results of
Operations" and "Liquidity and Capital Resources" above, are
<PAGE>28
forward-looking statements within the meanings of Section 27A of
the Securities Act of 1933 and Section 21E of the Exchange Act of
1934, as amended; such statements are typically identified by the
words "believe," "expect," "anticipate," "intend," "estimate,"
"plan" and similar expressions. These statements involve a
number of risks and uncertainties, certain of which are beyond
the Company's control. The actual results of the future events
described in the forward-looking statements in this Form 10-K
could materially differ from those contemplated in the forward-
looking statements in this Form 10-K. In addition to the risks
and uncertainties of ordinary business operations, some of the
factors that could cause actual results to differ materially are
the risks and uncertainties (i) discussed herein, (ii) contained
in the Company's other public reports and filings and public
statements from time to time and (iii) set forth below:
1. The Company is highly leveraged, with substantial existing
indebtedness. The Company's ability to make scheduled payments
of principal or interest on, or to refinance, its indebtedness
will depend on its future operating performance and cash flow,
which are subject to prevailing economic conditions, prevailing
interest rate levels, and financial, competitive, business and
other factors beyond its control. The degree to which the
Company is leveraged could have important consequences, including
(i) the Company's future ability to obtain additional financing
for working capital or other purposes may be limited because of
the existence of this indebtedness and the borrowing advance
terms thereof; (ii) a substantial portion of the Company's cash
flow from operations will be dedicated to the payment of
principal and interest on its indebtedness until its term loan
and supplemental line of credit have been paid in full, thereby
reducing funds available for operation; (iii) certain of the
Company's borrowings are at variable rates of interest, which
could cause the Company to be vulnerable to increases in interest
rates; and (iv) the Company may be more vulnerable to economic
downturns and may be limited in its ability to respond to
competitive pressures. Failure to comply with the Company's
payment, covenant or other obligations under its credit
facilities could result in a default thereunder that, if not
cured or waived, could result in acceleration of the relevant
indebtedness or of other indebtedness governed by agreements or
instruments containing cross default provisions.
2. The Company operates in a highly competitive environment and
its dollar sales and unit volume could be negatively affected by
its ability to maintain or increase prices, changes in sales mix
and changes in the demand for automotive products and changes in
the automotive replacement parts industry generally, including
pricing and other changes by the Company's competitors. The
Company competes directly and indirectly with numerous
distributors, retailers and manufacturers of automotive
aftermarket products, some of which distribute in channels that
may be expanding in terms of market share relative to the
channels in which the Company distributes its products. In
addition, some of the Company's current and potential competitors
are larger, have greater financial resources, and are less
leveraged than the Company. Furthermore, particularly in light
of the trend in the automotive parts industry toward increasing
consolidation at the warehouse and jobber levels, the Company's
<PAGE>29
financial performance may be significantly affected by the
Company's ability to compete successfully for associated jobber
customers and otherwise take advantage of consolidation
opportunities and other trends.
3. The Company's financial performance is subject to and could
be negatively impacted by changes in economic conditions, vehicle
quality, new parts warranties and maintenance, vehicle scrappage
rates and weather conditions, which can cause seasonal variations
in the Company's results of operations. The occurrence of
violent weather or mild weather may result in significant
fluctuations in operating results. Temperature extremes tend to
enhance sales by causing a higher incidence of parts failure and
increasing sales of seasonal products, while milder weather tends
to depress sales.
4. The Company's continued growth and financial performance
depends, in part, on the Company's ability to secure the consent
of its lender to future acquisitions and the Company's ability to
conclude past and future acquisitions on favorable terms and to
enhance those acquisitions and integrate them into its
operations. Full realization of the potential benefits of any
significant acquisition will be dependent upon a variety of
factors, including (i) retention of substantial portion of sales,
(ii) achieving sales volumes sufficient to utilize reductions in
cost of goods sold (as a percentage of net sales), (iii)
achieving significant reduction in selling, general and
administrative expenses by, among other things, consolidating
redundant operating and administrative facilities and closure of
non-performing facilities, and (iv) obtaining deferred payment
terms and other changeover incentives from suppliers. There can
be no assurance as to the extent to which any such benefits may
be realized from any acquisitions or the timing of any such
realization. Failure to achieve a substantial portion of such
potential benefits within time frames anticipated by the Company
could materially and adversely affect the Company's future
results of operations and financial position.
5. The Company is subject to risks, uncertainties and expenses
associated with the AUTOWORKS bankruptcy proceeding. The
Official Unsecured Creditors' Committee in the AUTOWORKS
bankruptcy proceeding has asserted, and is investigating, certain
alleged claims against the Company. See note 6 to Financial
Statements and Part I, Item 3 ("Legal Proceedings") above. These
claims have not presently been brought in any adversary
proceeding. The Company does not believe that it should be held
liable under applicable law should any such adversary proceeding
be commenced, and would defend itself vigorously therein.
Nonetheless, there can be no assurance that the Company would
prevail in any such proceeding or, because of the early stage of
discovery, as to the magnitude of any potential exposure
therefrom. Further, there can be no assurance that such
Committee or other parties to the bankruptcy proceeding will not
assert and bring other claims against the Company in the future.
The Company believes that the Committee is investigating, through
Bankruptcy Court discovery, both its asserted claims and other
possible claims which it may or may not assert in the future.
The Company will therefore be subject to risks, uncertainties and
expenses, as well as to the expense
<PAGE>30
and liquidity impact of any unfavorable outcomes or settlements.
To the extent that the Company sustains losses growing out of the
AUTOWORKS bankruptcy which are presently not reserved or
otherwise provided for, its earnings and liquidity could be
adversely affected.
6. The Company's past success has been largely dependent on
certain key personnel of the Company, including Michael Futerman,
Eli N. Futerman and Daniel J. Chessin. The loss of the services
of these individuals could have a material adverse impact on the
Company's business and results of operations. Additionally, in
order to implement and manage its growth strategy, the Company
will be dependent upon its ability to continue to attract and
retain qualified personnel. There can be no assurance that the
Company would be able to continue to secure or retain such
personnel.
<PAGE>31
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial data required
by this Item 8 are listed at Part IV, Item 14 and are filed
herewith immediately following the signature page hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE.
There has been no change in accountants or reported disagreements
on accounting principles or practices or financial statement
disclosures.
PART III
Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under this Item 10 shall be included in
the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 29, 1998, and the
appropriate information therefrom is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information required under this Item 11 shall be included in
the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 29, 1998, and the
appropriate information therefrom is incorporated herein by
reference.
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required under this Item 12 shall be included in
the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 29, 1998, and the
appropriate information therefrom is incorporated herein by
reference.
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this Item 13 shall be included in
the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A on or before January 29, 1998, and the
appropriate information therefrom is incorporated herein by
reference.
<PAGE>32
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) List of documents filed.
(1) Financial Statements:
Report of Independent Accountants
Balance Sheets at September 30, 1997, and 1996
Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995
Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1997, 1996
and 1995
Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995
Notes to Financial Statements
Financial Statement Schedules
Report of Independent Accountants on Financial
Statement Schedule
Schedule II Valuation and Qualifying Account Reserves
for the Years Ended September 30, 1997, 1996 and 1995
(3) Exhibits
Those exhibits required to be filed by Item 601 of Regulation S-K
are listed in the Exhibit Index immediately preceding the
exhibits filed herewith and such listing is incorporated herein
by reference.
<PAGE>33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HAHN AUTOMOTIVE WAREHOUSE, INC.
Date: December 26, 1997 By: S//Michael Futerman
Michael Futerman, Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons
on behalf of the registrant and in the capacities and on the date
indicated.
Date: December 26, 1997 S//Michael Futerman
Michael Futerman, Director
Date: December 26, 1997 S//Eli N. Futerman
Eli N. Futerman, Director
Date: December 26, 1997 S//Albert J. Van Erp
Albert J. Van Erp, Principal
Financial Officer and Principal
Accounting Officer
Date: December 26, 1997 *Daniel J. Chessin
Daniel J. Chessin, Director
Date: December 26, 1997 *Ira D. Jevotovsky
Ira D. Jevotovsky, Director
Date: December 26, 1997 *Stephen B. Ashley
Stephen B. Ashley, Director
Date: December 26, 1997 *William A. Buckingham
William A. Buckingham, Director
Date: December 26, 1997 *Robert I. Israel
Robert I. Israel, Director
Date: December 26, 1997 *E. Philip Saunders
E. Philip Saunders, Director
* By: S//Eli N. Futerman
Eli N. Futerman, Attorney-in-Fact
<PAGE>34
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FINANCIAL STATEMENTS AND SCHEDULES
September 30, 1997
FORMING A PART OF
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
OF
HAHN AUTOMOTIVE WAREHOUSE, INC.
<PAGE>35
Hahn Automotive Warehouse, Inc. and Subsidiaries
Index To Consolidated Financial Statements
September 30, 1997
Report of Independent Accountants
Consolidated Balance Sheets at September 30, 1997 and 1996
Consolidated Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants or Financial Statement
Schedules
Schedule II - Valuation and Qualifying Account Reserves
<PAGE>36
Report of Independent Accountants
To the Board of Directors and Stockholders of Hahn Automotive
Warehouse, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Hahn Automotive Warehouse, Inc. and Subsidiaries as of September
30, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1997.
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 audits 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 Hahn Automotive Warehouse, Inc. and Subsidiaries as
of September 30, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years
in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
By: S//Coopers & Lybrand, L.L.P.
Rochester, New York
November 25, 1997
<PAGE>37
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data) September 30, September 30,
1997 1996
ASSET (as restated)
Current Assets:
<S> <C> <C>
Cash $632 $79
Trade receivables, net of allowance for doubtful
accounts of $3,230 in 1997 and $2,209 in 1996 16,995 17,052
Inventory 42,516 41,636
Assets from discontinued operations -- 29,267
Other current assets 4,862 845
Total current assets 65,005 88,879
Property, equipment and leasehold improvements, net 5,062 5,608
Other assets 7,725 3,332
$77,792 $97,819
Liabilities and Stockholders' Equity
Current portion of long-term debt and capital
lease obligations 1,330 3,376
Notes payable-officers and affiliates 2,704 2,560
Accounts payable 12,062 12,980
Compensation related liabilities 1,880 1,664
Discontinued operations 5,066 --
Other accrued expenses 3,215 2,847
Total current liabilities 26,257 23,427
Long-Term Debt 38,896 40,443
Capital Lease Obligations 275 450
Stockholders' Equity
Common stock (par value $.01 per share;
authorized 20,000,000 shares; issued and
outstanding 4,745,014 in 1997 and 4,562,513
in 1996) 47 46
Additional paid-in capital 25,975 24,607
Retained earnings (deficit) (13,658) 8,846
Total stockholders' equity 12,364 33,499
$77,792 $97,819
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>38
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share data)
For the
Years Ended
September
30,
1997 1996 1995
(as restated) (as restated)
<S> <C> <C> <C>
Net sales $142,242 $138,395 $130,733
Cost of product sold 86,967 86,077 79,773
Gross profit 55,275 52,318 50,960
Selling, general and administrative expense 46,717 41,657 39,215
Depreciation and amortization 2,005 1,756 1,902
Income from operations 6,553 8,905 9,843
Interest expense (4,670) (4,402) (4,387)
Other income 719 600 434
Income before provision for income taxes 2,602 5,103 5,890
Provision for income taxes 1,011 1,950 2,152
Income from continuing operations 1,591 3,153 3,738
Loss from discontinued operations:
Write-down of investment in subsidiaries, net of tax (18,789) -- --
Loss from discontinued operations, net of tax (3,937) (1,294) (5,115)
Total loss from discontinued operations (22,726) (1,294) (5,115)
Net income (loss) ($21,135) $1,859 ($1,377)
Income from continuing operations per share $0.34 $0.66 $0.79
Loss from discontinued operations per share ($4.79) ($0.27) ($1.08)
Net income (loss) per share ($4.45) $0.39 ($0.29)
Weighted average shares outstanding 4,745,014 4,745,014 4,743,938
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Hahn Automotive Warehouuse, Inc. and Subsidiaries
Consolidated Statement of Change in Stockholders' Equity
(In thousands except share and per share data)
Additional Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at 4,214,300 $42 $21,200 $11,731 $32,973
September 30, 1994
Net loss -- -- -- (1,377) (1,377)
Stock options exercised 4,000 -- 44 -- 44
Stock dividend 168,732 2 1,917 (1,919) --
Balance at September 30, 1995 4,387,032 44 23,161 8,435 31,640
Net income -- -- -- 1,859 1,859
Stock Dividend 175,481 2 1,446 (1,448) --
Balance at September 30, 1996 4,562,513 46 24,607 8,846 33,499
Net loss -- -- -- (21,135) (21,135)
Stock dividend 182,501 1 1,368 (1,369) --
Balance at September 30, 1997 4,745,014 $47 $25,975 $(13,658) $12,364
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands except for share and per share data)
For the
years ended
September 30,
1997 1996 1995
(as restated) (as restated)
Cash flows from operating activities:
<S> <C> <C> <C>
Net Income from continuing operations $1,591 $3,153 $3,738
used in operating activities:
Items to reconcile net income to cash
used in operating activities:
Depreciation and amortization 2,005 1,756 1,902
Provision for doubtful accounts 1,176 696 770
Loss from discontinued operations
before non-cash items (3,103) (538) (6,206)
Change in assets and liabilities:
Trade Receivables (1,119) (913) (1,799)
Inventory 1,020 1,141 (586)
Other Assets (3,901) (625) (964)
Accounts payable and other accruals 232 1,005 1,411
Net assets of discontinued operations 9,243 (2,591) (810)
Net cash provided by (used in)
operating activities 7,144 3,084 (2,544)
Cash flows from investing activities:
Additions to property, equipment and
leasehold improvements, net:
Continuing operations (1,067) (294) (1,007)
Discontinued Operations -- (880) (1,544)
Net Cash used in investing activities (1,067) (1,174) (2,551)
Cash flows from financing activities:
Net borrowings under line of credit (1,433) 1,276 8,031
Proceeds from long-term debt and
demand notes 89 -- 842 2,150 --
Proceeds from notes payable-officers
and affiliates -- 2,150 --
Payment of long-term debt and demand notes (3,501) (4,765) (3,374)
Payment of notes payable-officers
and affiliates (237) (90) (82)
Payment of capital lease obligations (442) (478) (461)
Issuance of Common Stock -- -- 44
Net cash provided by (used in)
financing activities (5,524) (1,907) 5,000
Net Net increase (decrease) in cash 553 3 (95)
Cash at beginning of year 79 76 171
Cash at end of year $632 $79 $76
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $4,689 $4,467 $4,41
Income taxes $297 $1,589 $1,779
Supplemental disclosure of non-cash investing
activities:
Debt issued in connection with acquisition $1,900 -- --
Supplemental disclosure of non-cash financing acivities:
Issuance of 182,501, 175,481 and 168,732 shares of
common stock in conjunction with the 4% stock
dividend in fiscal 1997, 1996 and 1995,
respectively $1,369 $1,448 $1,919
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 41
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
1. Summary of Accounting Policies
The Company
The Company sells and distributes automotive aftermarket parts in
the wholesale market through its network of warehouses and jobber
facilities along the Eastern Seaboard and in the Midwest.
Principles of Consolidation
The consolidated financial statements include the accounts of Hahn
Automotive Warehouse, Inc. (the Company) and its wholly-owned
subsidiaries. As a result of its Chapter 11 bankruptcy filing,
the Company's AUTOWORKS, Inc. subsidiary (see note 2) has been
deconsolidated. All significant intercompany transactions have
been eliminated.
Inventory
Inventory consists primarily of automotive replacement parts and
accessories and is stated at the lower of cost, on a last-in,
first-out (LIFO) basis, or market. The replacement cost of the
inventory exceeded the LIFO value by approximately $3,583 and
$3,883 at September 30, 1997 and 1996, respectively.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost
and are depreciated over their estimated useful lives using the
straight-line method. Major renewals and betterments are
capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. When properties are retired or otherwise
disposed of, the related cost and accumulated depreciation are
removed from the accounts.
Assets Under Capital Leases
Leases which meet the capital lease criteria of Statement of
Financial Standards No. 13, "Accounting for Leases", are recorded
as assets and obligations at the lesser of the present value of
future rental payments or the fair market value of the leased
property at the inception of the lease. Amortization of
capitalized leased property has been provided using the straight-
line method over the estimated useful lives of the assets.
Goodwill
Intangible assets are amortized using a straight-line method over
lives ranging from 20 to 30 years. The Company evaluates the
existence of goodwill impairment on the basis of whether the
goodwill is fully recoverable from projected undiscounted net
cash flows of the business.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
Advertising
Advertising expenses are charged to operations during the year in
which they are incurred and were approximately $1,128, $223 and
$695 for the years ended September 30, 1997, 1996 and 1995,
respectively.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. This statement requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities.
<PAGE> 42
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
Net Income Per Share
Net income per share is computed based on the weighted average
number of shares outstanding. Shares issuable upon the exercise
of the stock options under the "treasury stock" method are not
considered since the effect would be anti-dilutive or
insignificant.
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
128 - Earnings Per Share (FAS No. 128), which will be effective
for the Company's fiscal year ended September 30, 1998. FAS No.
128 is intended to simplify the earnings per share computations
and make them more comparable from company to company. The
adoption of FAS No. 128 is not expected to have a significant
impact on the Company's earnings per share as currently
determined.
Use of Estimates in the Preparation of Financial Statements
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.
Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value.
Current Assets and Liabilities - The carrying amount of cash
and equivalents, other assets and accrued liabilities
approximate fair value because of the short maturity of
those instruments.
Long-Term Debt - The carrying value of the Company's long-
term debt approximates fair value at the balance sheet date.
Concentration of Credit Risk
The Company provides credit, in the normal course of business, to
jobber customers in the automotive aftermarket. The Company's
customers are not concentrated in any one geographic region nor
does any single customer account for a significant amount of
sales or accounts receivable. The Company performs credit
evaluations of its customers and maintains allowances for
potential credit losses which, when realized, have been within
the range of management's expectations.
2. Discontinued Operations
In the third quarter of fiscal 1997, the Company made the decision
to exit the AUTOWORKS, Inc. ("AUTOWORKS") retail business. On
July 24, 1997, the Company's retail subsidiary, AUTOWORKS filed
for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court in the
Western District of New York to assure orderly administration of
AUTOWORKS' assets and liabilities. Under Chapter 11, AUTOWORKS
will operate as a debtor-in-possession while its assets are sold
or liquidated, and its operations are reduced and/or
discontinued. As a result, the Company has deconsolidated, and
classified as a discontinued operation, the AUTOWORKS'
subsidiary, which was accounted for on the liquidation basis of
accounting, effective July 24, 1997. The consolidated financial
statements presented herein (including all prior periods'
statements which have been restated) reflect all discontinued
operations separately from continuing operations.
<PAGE> 43
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
2. Discontinued Operations (con't.)
The Company recorded a provision of $18,789, net of tax, in the
third quarter of fiscal 1997, for the loss expected on the
divestment of the AUTOWORKS retail business. This provision
includes the write down of the Company's investment in AUTOWORKS
to its net realizable value and a reserve for obligations for
which the Company is jointly liable with AUTOWORKS, including
self-insured exposures and certain real-estate and equipment
leases guaranteed by the Company.
At September 30, the assets and liabilities of AUTOWORKS are
summarized as follows:
<TABLE>
<CAPTION>
Assets 1997 1996
<S> <C> <C>
Cash $833 $120
Accounts 40 523
receivable, net
Inventory 220 29,277
Property, plant and equipment 712 7,754
Other assets 127 4,432
Total assets 1,932 42,106
Liabilities
Current liabilities $17,906 $12,838
Due to affiliates 33,375 37,999
Total liabilities 51,281 50,837
Liabilities exceeding assets $49,349 $8,731
</TABLE>
Operating results (exclusive of the aforementioned provisions) of
AUTOWORKS for the years ended September 30, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(10
months)
<S> <C> <C> <C>
Net sales $57,292 $82,977 $93,659
Loss from operations, net of tax $(3,937) $(1,294) $(5,115)
</TABLE>
3. Acquisitions
During fiscal year 1997, the Company acquired the assets of Nu-Way
Auto Parts, Inc. ("Nu-Way") and Finn of Canandaigua, Inc.
("Finn") for approximately $3,500. These acquisitions did not
have a significant impact on the Company's results of operations.
<PAGE> 44
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
4. Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements consist of the
following:
<TABLE>
<CAPTION>
September 30,
1997 1996 Useful
Lives
(as (Years)
restated)
<S> <C> <C> <C>
Land $25 $30 --
Buildings 880 1,025 10-30
Buildings under capitalized leases 3,136 3,136 10-20
Leasehold improvements 2,163 2,509 10
Computer equipment 2,177 2,016 6
Furniture and fixtures 4,466 3,384 8
Vehicles 3,337 3,642 4-5
16,184 15,742
Less: Accumulated depreciation and
amortization 11,122 10,134
$5,062 $5,608
</TABLE>
Depreciation and amortization expense related to property,
equipment and leasehold improvements for the years ended
September 30, 1997, 1996 and 1995 was approximately $1,614,
$1,724 and $1,892 respectively. Included in accumulated
depreciation and amortization at September 30, 1997 and 1996 was
approximately $2,824 and $2,557 respectively, of accumulated
amortization on capital leases.
5. Long-Term Debt
Long-term debt includes the following:
<TABLE>
<CAPTION>
September 30,
1997 1996
(as restated)
<S> <C> <C>
Credit Facility Agreement $37,830 $36,000
Senior secured notes -- 6,400
Other 2,220 977
40,050 43,377
Less: Current portion 1,154 2,934
$38,896 $40,443
</TABLE>
On October 22, 1997, the Company closed on a new Credit Facility
Agreement. The new agreement expires on October 22, 2002 and
provides a revolving credit note subject to a borrowing base, up
to a maximum of $50,000. The proceeds of the initial borrowings
under the Credit Facility Agreement were used to repay all
amounts outstanding under the Company's previously existing
credit agreement and Senior Secured Notes. Borrowings
outstanding under the previous credit agreement and Senior
Secured Notes as of September 30, 1997 are assumed to have been
replaced as of the balance sheet date with borrowings under the
new Credit Facility Agreement.
<PAGE> 45
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
5. Long-Term Debt (con't.)
Borrowings under the Credit Facility Agreement bear interest at an
annual rate equal to, at the Company's option, either (a) LIBOR
plus 1.75% to 2.5%, dependent upon the Company's financial
performance, or (b) the bank prime rate plus 0% to .75%,
dependent upon the Company's financial performance. LIBOR and
prime were 5.8% and 8.5%, respectively, at September 30, 1997.
The Credit Facility Agreement is collateralized by substantially
all of the Company's assets and contains covenants and
restrictions, including limitations on indebtedness, liens,
leases, mergers and sales of assets, investments, dividends,
stock purchases and other payments in addition to tangible net
worth and fixed charge ratio requirements. Restrictive covenants
include maintenance of a minimum tangible net worth and a minimum
fixed charge coverage ratio.
On December 14, 1995, the Company entered into an agreement with
its Chief Executive Officer and principal stockholder whereby he
would, upon request of a Special Committee of disinterested
directors of the Company's Board of Directors ("Special
Committee"), purchase from the Company subordinated debt up to a
maximum aggregate principal amount of $4,000 on terms and
conditions to be negotiated with, but ultimately determined by
the Special Committee. As a result, the Company executed
promissory notes (Notes) with the Chief Executive Officer and the
President of the Company, on February 1 and January 24, 1996,
respectively, in the aggregate amount of $2,150. The Notes bear
interest which is payable monthly, at the annual rate of 12%.
Commencing January 1, 1997, the Notes require monthly principal
repayments with possible mandatory prepayments if the Company's
net income exceeds certain defined amounts. Final principal and
interest payments are due February 1, 2001. The remaining
balance of notes payable due to officers and affiliates is
comprised of a number of notes to related parties with varying
terms.
Annual maturities of long-term debt for subsequent fiscal years
are approximately: 1998 - $1,154; 1999 - $1,542; 2000 - $1,519;
2001 - $1,529; 2002 - $2,278; and thereafter - $32,028.
6. Commitments and Contingencies
Leases
The Company leases certain warehouse facilities from related
parties. The leases, which meet the requirements of a capital
lease under Financial Accounting Standards Board Statement No.
13, have terms of approximately ten years.
The Company also leases warehouse and jobber facilities under
noncancelable operating lease agreements, which expire through
2004. Certain of the leases are for facilities owned by related
parties. Most of these operating leases include provisions for
rent escalations and increases in operating expenses (real estate
taxes, insurance and maintenance). Rent expense related to all
facility operating leases totaled approximately $2,908, $2,691
and $2,567 which included approximately $1,908, $1,914 and $1,200
of payments to related parties for the years ended September 30,
1997, 1996 and 1995, respectively.
In addition, the Company leases various equipment under
noncancelable operating lease agreements expiring through 2001.
Rent expense related to all equipment operating leases totaled
approximately $1,479, $909 and $355, for the years ended
September 30, 1997, 1996 and 1995, respectively.
<PAGE> 46
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
Future minimum rental payments under noncancelable leases for
fiscal years subsequent to September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Capital
Leases Operating
Leases
Related Related
Parties Parties Other
<S> <C> <C> <C>
1998 $176 $1,175 $1,281
1999 82 889 972
2000 91 528 756
2001 102 463 542
2002 295 338
Thereafter 547 169
451 $3,897 $4,058
Less: Current 176
Portion
Long-term $275
portion
</TABLE>
Contingencies
The Company is a defendant in certain lawsuits which have arisen
in the ordinary course of business. Management is of the opinion
that such lawsuits will not result in any material liability to
the Company. Accordingly, no provision for loss has been made in
the financial statements related to these matters.
Uncertainties Related to the Bankruptcy of AUTOWORKS
The Official Unsecured Creditors' Committee in the AUTOWORKS
bankruptcy proceeding has requested that AUTOWORKS pursue a claim
against the Company for alleged preferential transfers between
the Company and AUTOWORKS amounting to approximately $6.5
million. Such Committee is presently investigating this claim
and the transactions in general between the Company and AUTOWORKS
through discovery which is being conducted as permitted under
Bankruptcy Court procedures, although no adversary proceeding has
been commenced. Counsel for AUTOWORKS has rejected the
Committee's request on the ground that the claim does not appear
to have merit. However, the Committee has the ability to pursue
Bankruptcy Court relief in its own right. The Committee has also
indicated that relief may be sought against the Company under the
doctrine of substantive consolidation for alleged fraud in
connection with the Company's acquisition of AUTOWORKS and under
fraudulent conveyance laws. While the Company does not believe
that it should be held liable under applicable law should these
claims ever be brought in an adversary proceeding, and would
defend itself vigorously therein, there can be no assurance that
the Company would prevail or, because of the early stage of
discovery, as to the magnitude of any potential exposure
therefrom. The Company believes that the Committee is
investigating, through the aforementioned discovery, both its
asserted claims and other possible claims which it may or may not
assert in the future. There can be no assurance the Committee or
other parties to the bankruptcy proceeding will not assert other
claims against the Company in the future.
Year 2000
The Company is a licensee of its mainframe and jobber store
software under a long-term licensing agreement. The software
provider is responsible for maintenance of the systems including
modifications to enable uninterrupted usage after the year 2000.
Accordingly, the Company will not incur any significant costs
related to correcting any year 2000 deficiencies. The software
provider has a formal plan for compliance with year 2000 system
enhancements which is expected to be completed midway through
1999. However at this time it is unwilling to release the details
of the plan to its clients or third parties.
<PAGE> 47
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
7. Income Taxes
Income tax expense (benefit) is comprised of the following for
the years ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
(as (as
restated) restated)
<S> <C> <C> <C>
Continuing operations:
Current:
Federal $1,423 $1,287 $1,420
State 315 929 792
1,738 2,216 2,212
Deferred (727) (266) (60)
Total provision for income taxes
from continuing operations 1,011 1,950 2,152
operations
Discontinued operations:
Current: (3,923) (802) (2,522)
Deferred (4,027)
-- --
Total provision for income taxes
from discontinued operations (7,950) (802) (2,522)
Total provision for (benefit from) income $(6,939) $1,148 $(370)
taxes
</TABLE>
Temporary differences which give rise to deferred tax assets and
liabilities at September 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
(as restated)
<S> <C> <C>
Accounts receivable $1,152 $955
Inventory (1,121) (1,328)
Accrued liabilities 1,807 194
Deferred Compensation 138 120
Other 42 (487)
Net operating loss carryforwards 2,190
--
Net assets $4,208 $(546)
</TABLE>
The Company believes it will have adequate future income to offset
all deferred tax assets. The net operating loss carryforwards
are available to use through 2012.
Actual tax expense differs from the expected tax expense computed
by applying the Federal statutory rate to income from continuing
operations before income taxes due principally to state income
taxes.
8. Employee Retirement Plan
The Company has a 401(k) profit sharing plan for all eligible
employees. Under the plan, employees are entitled to contribute
up to 15% of their base salary, and the Company will match up to
15% of the employee's contributions up to a maximum of 15% of the
employee's compensation. The Company may also make a
discretionary contribution at year end. The Company's matching
contribution under the plan was approximately $100, $74 and $76
for the years ended September 30, 1997, 1996 and 1995,
respectively.
<PAGE> 48
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
9. Stockholder's Equity and Stock Options
On March 15, 1997, 1996 and 1995, the Board of Directors declared
a 4% stock dividend on the Company's common stock, distributable
May 1 of each year to stockholders of record as of April 10,
1997, 1996 and 1995, respectively. Accordingly, amounts equal to
the fair market value of the additional shares issued have been
charged to retained earnings and credited to common stock and
additional paid-in capital at September 30, 1997, 1996 and 1995.
Earnings per share and weighted average shares outstanding as of
September 30, 1996 and 1995, and for each of the quarters
presented, were restated to reflect this 4% stock dividend.
The Company has two stock option plans which provide for the
granting of options of up to 750,000 shares of stock to officers
and key employees of the Company and an aggregate of 40,000
shares to non-employee Directors at the fair value of the common
stock at the date of grant. The options have a maximum duration
of ten years and may be exercised in cumulative annual increments
of 33 1/3% commencing one year after the date of grant.
The following table summarizes the Company's stock option
transactions:
<TABLE>
<CAPTION>
Option Price
Range
Shares Per Share
<S> <C> <C>
Options outstanding-September 30, 1994 180,000 $10.38 to $15.25
Exercised (4,000) 10.38 to 12.50
Expired (3,833) 10.38 to 12.50
Granted 191,150 13.50 to 30.69
Stock dividend 14,533 10.38 to 30.69
Options outstanding-September 30, 1995 377,850 10.38 to 30.69
Exercised -- --
Expired -- --
Granted 65,760 8.50 to 10.38
Stock dividend 17,744 8.50 to 30.69
Options outstanding-September 30, 1996 461,354 8.50 to 30.69
Exercised -- --
Expired (11,899) 8.00 to 13.50
Granted 89,250 7.50 to 8.00
Stock dividend 21,624 7.50 to 30.69
Options outstanding-September 30, 1997 560,329 $7.50 to $30.69
Options exercisable:
September 30, 1995 116,076 $10.38 to $30.69
September 30, 1996 253,149 $10.38 to $30.69
September 30, 1997 399,727 $8.50 to $30.69
</TABLE>
<PAGE> 49
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
9. Stockholder's Equity and Stock Options (con't.)
Included in exercisable options at September 30, 1997 are 140,608
options reserved for sale to the President of the Company. These
options became exercisable annually beginning April 29, 1997 at
option prices ranging from $17.33 to $30.69. Certain options
will expire on April 29, 1999 and 2002, if certain conditions are
not met. The remaining exercisable options will expire no later
than April 29, 2004.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock Based Compensation (FAS
123), which is effective for the Company's 1997 fiscal year. FAS
123 requires companies to recognize compensation expense for
grants of stock options, or provide pro forma disclosures
relative to what the effect of such accounting recognition would
have been. The Company has elected to continue using APB Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25). No
compensation expense has been recorded, however pro forma
disclosures of net income and earnings per share have been
provided as if FAS 123 had been adopted.
Pro forma income and income per share information, as required by
FAS 123, has been determined as if the Company had accounted for
employee stock options under FAS 123's fair value method. The
fair value of these options was estimated at grant date using a
Black-Scholes option pricing model with the following weighted-
average assumptions for 1997 and 1996, respectively:
<TABLE>
<CAPTION>
<S> <C>
Dividend 0%,
yields:
Volatility factors of
the expected
market price of the 30.33%
Company's common stock:
Expected option life: 5 years
Interest rate on the
date of the grant,
with the maturity equal to Risk free zero coupon
the expected term: government
issue ranging from
5.57% to 6.34%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting
period (3 years). The weighted average exercise price of options
was $16.34. The weighted average fair value of options granted
was $3.08 for options whose stock price on the date of the grant
equaled the exercise price and $1.00 for options whose stock
price on the date of the grant was less than the exercise price.
The pro forma compensation expense the Company would have
recognized was $76 and $70 in 1997 and 1996, respectively. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Pro forma income from continuing $1,543 $3,110
operations
Pro forma income from continuing $.33 $.66
operations per share
</TABLE>
This disclosure is not likely to be representative of the effects
on reported income for future years, since options fully vest
over three years and additional options are generally granted
each year.
<PAGE> 50
Hahn Automotive Warehouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in Thousands, Except Share and Per Share Data)
10. Quarterly Financial Data
The following tables set forth the unaudited quarterly results of
continuing operations for each of the fiscal quarters in the
years ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Fiscal 1997 Dec. 31 Mar. 31 30-Jun Sept. 30 Year
<S> <C> <C> <C> <C> <C>
Net sales $33,872 $33,630 $37,920 $36,820 $142,242
Gross profit $13,101 $12,692 $14,049 $15,433 $55,275
Income from continuing operations $656 $26 $203 $706 $1,591
Loss from discontinued operations (585) (1,501) (20,640) -- ($22,726)
Net income (loss) $71 ($1,475) ($20,437) $706 ($21,135)
Income from continuing operations per share $0.14 $0.01 $0.04 $0.15 $0.34
Loss from discontinued operations per share (0.12) (0.32) (4.35) -- (4.79)
Net income (loss) per share $0.02 ($0.31) ($4.31) $0.15 ($4.45)
Fiscal 1996 (as restated)
Net sales $30,692 $32,260 $39,441 $36,002 $138,395
Gross profit $10,495 $14,146 $14,597 $13,080 $52,318
Income (loss) from continuing operations ($697) $1,523 $1,196 $1,131 $3,153
Loss from discontinued operations (668) (366) (212) (48) (1,294)
Net income (loss) ($1,365) $1,157 $984 $1,083 $1,859
Income (loss) from continuing operations per share ($0.15) $0.32 $0.25 $0.24 $0.66
Loss from discontinued operations per share (0.14) (0.08) (0.04) (0.01) (0.27)
Net income (loss) per share ($0.29) $0.24 $0.21 $0.23 $0.39
</TABLE>
<PAGE> 51
Report of Independent Accountants
To the Board of Directors and Shareholders of Hahn Automotive
Warehouse, Inc. and Subsidiaries
Our report on the consolidated financial statements of Hahn
Automotive Warehouse, Inc. and Subsidiaries is included on Page F-
3 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial
statement schedule listed in the index on Page F-2 of this Form
10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information to be included therein.
By: S//Coopers & Lybrand, L.L.P.
Rochester, New York
November 25, 1997
<PAGE> 52
<TABLE>
<CAPTION>
Hahn Automotive Warehouse, Inc. and Subsidiaries
Schedule II-Valuation and Qualifying Account Reserves
For the Years Ended September 30, 1997, 1996 and 1995
(in thousands, as restated)
Additions
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
<S> <C> <C> <C> <C>
Description
1997:
Allowance for doubtful accounts
and notes receivable $2,209 $1,176 ($155) $3,230
1996:
Allowance for doubtful accounts
and notes receivable $2,018 $690 ($499) $2,209
1995:
Allowance for doubtful accounts
and notes receivable $1,483 $770 ($235) $2,018
</TABLE>
<PAGE> 53
To the Board of Directors and Shareholders of Hahn Automotive
Warehouse, Inc. and Subsidiaries
Our report on the consolidated financial statements of Hahn
Automotive Warehouse, Inc. and Subsidiaries is included on Page F-
3 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial
statement schedule listed in the index on Page F-2 of this Form
10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information to be included therein.
By: S//Coopers & Lybrand, L.L.P.
Rochester, New York
November 25, 1997
<PAGE> 54
EXHIBITS FILED WITH
FORM 10-K
OF
HAHN AUTOMOTIVE WAREHOUSE, INC.
FOR FISCAL YEAR ENDED
September 30, 1997
FORMING A PART OF
ANNUAL REPORT PURSUANT TO SECTION 13 OF OR 15(d)
THE SECURITIES EXCHANGE ACT OF 1934
<PAGE> 55
EXHIBIT INDEX
Exhibit 3.1 Restated Certificate of Incorporation
of Hahn (Exhibit 3.1 to The Company's
Registration Statement on Form S-1 (No. 33-
48694) as filed with the SEC on January
19, 1993)*
Exhibit 3.2 Amended and Restated By- Laws of Hahn
(Exhibit 3 to Hahn's Quarterly Report on
Form 10-Q for quarterly period ended March
31, 1994)*
Exhibit 4.1 Shareholders' Agreement, dated
September 30, 1994, between Hahn and David
Appelbaum (Exhibit 4.1 to Hahn's Annual
Report on Form 10-K for the Fiscal year
ended September 30, 1994)*
Exhibit 10.1 1992 Stock Option Plan (Exhibit 10.1
to Hahn's Registration Statement on Form S-
1 (No. 33-48694) as filed with the SEC on
January 19, 1993)*
Exhibit 10.2 Amendment No. 1 to 1992 Stock Option
Plan (Exhibit A to Hahn's 1995 Proxy
Statement)*
Exhibit 10.3 Amendment No. 2 to 1992 Stock Option
Plan (Exhibit A to Hahn's 1996 Proxy
Statement)*
Exhibit 10.4 Stock Option Agreement, dated April
29, 1994, between Hahn and Eli N. Futerman
(Exhibit 10.3 to Hahn's Quarterly Report
on Form 10-Q for the quarterly period
ended June 30, 1994)*
Exhibit 10.5 1993 Stock Option Plan for Non-
Employee Directors (Exhibit 4 to Hahn's
Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1994)*
Exhibit 10.6 Amended and Restated Selective
Incentive Plan Agreement, dated June 9,
1992, between Hahn and Eli N. Futerman
(Exhibit 10.2 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.7 Amended and Restated Selective
Incentive Plan Agreement, dated June 9,
<PAGE> 56
1992, between Hahn and Timothy
Vergo (Exhibit 10.3 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.8 Amended and Restated Selective
Incentive Plan Agreement, dated June 9,
1992, between Hahn and Albert J. Van Erp
(Exhibit 10.4 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.9 Amended and Restated Selective
Incentive Plan Agreement, dated June 9,
1992, between Hahn and Daniel J. Chessin
(Exhibit 10.5 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.10 Amended and Restated Selective
Incentive Plan Agreement, dated June 9,
1992, between Hahn and Ira D. Jevotovsky
(Exhibit 10.6 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.11 Deferred Compensation Agreement,
dated April 1, 1990, between Naftali
Futerman and Hahn (Exhibit 10.7 to Hahn's
Registration Statement on Form S-1 (No. 33-
48694) as filed with the SEC on January
19, 1993)*
Exhibit 10.12 Lease Agreement, executed June 10,
1992, between Michael Futerman as landlord
and Hahn as tenant, as amended (Exhibit
10.89 to Hahn's Registration Statement on
Form S-1 (No. 33-48694) as filed with the
SEC on January 19, 1993)*
Exhibit 10.13 Lease Agreement, executed June 10,
1992, between Eli N. Futerman as landlord
and Hahn as tenant, as amended (Exhibit
10.9 to Hahn's Registration Statement on
Form S-1 (No. 33-48694), as filed with the
SEC on January 19, 1993)*
Exhibit 10.14 Lease Agreement, executed June 11,
1992, between EDR Associates as landlord
and Hahn as tenant (Exhibit 10.10 to
Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on
January 19, 1993)*
<PAGE> 57
Exhibit 10.15 Lease Agreement, fully executed June
11, 1992, between Eli Futerman, Daphne
Futerman and Rina F. Chessin as landlord
and Hahn as tenant (Exhibit 10.11 to
Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on
January 19, 1993)*
Exhibit 10.16 Lease Agreement, executed June 12,
1992, between Futerman Associates as
landlord and Hahn as tenant (Exhibit 10.12
to Hahn's Registration Statement on Form S-
1 (No. 33-48694) as filed with the SEC on
January 19, 1993)*
Exhibit 10.17 Sublease Agreement, executed June 10,
1992, between 415 West Main St., Inc. as
landlord and Hahn as tenant (Exhibit 10.13
to Hahn's Registration Statement on Form S-
1 (No. 33-48694) as filed with the SEC on
January 19, 1993)*
Exhibit 10.18 Amendment to Sublease Agreement,
dated December 21, 1994, between 415 West
Main St., Inc. and Hahn (Exhibit 10.15 to
Hahn's Annual Report on Form 10-K for the
Fiscal year ended September 30, 1994)*
Exhibit 10.19 Massachusetts Mutual Life Insurance
Company Note Agreement, dated as of
December 15, 1989, for $15,000,000, 10.25%
Senior Secured Notes due June 15, 1999, as
amended (Exhibit 10.14 to Hahn's
Registration Statement on Form S-1 (No. 33-
48694), as filed with the SEC on January
19, 1993)*
Exhibit 10.20 Waiver in Respect Of, and Amendment
To Note Agreement, dated as of October 17,
1993, between Massachusetts Mutual Life
Insurance Company and Hahn (Exhibit 10.15
to Hahn's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993)*
Exhibit 10.21 Lease Agreement, dated October 1,
1989, between Eli N. Futerman as lessor
and Hahn as lessee for lease of computer
equipment, as amended and assigned
(Exhibit 10.19 to Hahn's Registration
Statement on Form S-1 (No. 33-48694), as
filed with the SEC on January 19, 1993)*
<PAGE> 58
Exhibit 10.22 Master Equipment Lease Agreement,
dated April 19, 1994, between Hahn,
AUTOWORKS Holdings, Inc., AUTOWORKS, Inc.
and Fleet Bank (Exhibit 10.22 to Hahn's
Annual Report on Form 10-K for the year
ended September 30, 1994)*
Exhibit 10.23 Amendment to Addendum to Master Lease
Agreement dated June 26, 1996 between
Fleet Bank of New York as lessor and Hahn
and AUTOWORKS as lessees dated June 26,
1996 (filed herewith)
Exhibit 10.24 Trademark License and Marketing
Agreement, effective May 1, 1988, between
Auto Value Associates, Inc. and Hahn
(Exhibit 10.22 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.25 Shareholders' Agreement, dated as of
December 15, 1983, among Auto Value
Associates, Inc. and the shareholders of
Auto Value Associates, Inc., including
Hahn, as amended (Exhibit 10.23 to Hahn's
Registration Statement on Form S-1 (No. 33-
48694) as filed with the SEC on January
19, 1993)*
Exhibit 10.26 Hahn's Promissory Note, dated April
1, 1992, in the principal amount of
$250,000 in favor of Eli N. Futerman
(Exhibit 10.27 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.27 Hahn's Promissory Note, dated April
1, 1992, in the principal amount of
$250,000 in favor of Michael Futerman
(Exhibit 10.28 to Hahn's Registration
Statement on Form S-1 (No. 33-48694) as
filed with the SEC on January 19, 1993)*
Exhibit 10.28 Hahn's Promissory Note, dated April
1, 1992, in the principal amount of
$250,000 in favor of Naftali Futerman
(Exhibit 10.29 to Hahn's Registration
Statement on Form S-1(No. 33-48694) as
filed with the SEC on January 19, 1993)*
<PAGE> 59
Exhibit 10.29 Hahn's Amended and Restated
Promissory Note, dated as of February 1,
1996, in the original principal amount of
$1,650,000 in favor of Michael Futerman
(Exhibit 10.2 to Hahn's Quarterly Report
on Form 10-Q for the quarter ended June
30, 1996)*
Exhibit 10.30 Hahn's Amended and Restated
Promissory Note, dated as of February 1,
1996, in the original principal amount of
$500,000 in favor of Eli Futerman (Exhibit
10-3 to Hahn's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1996)*
Exhibit 10.31 Deferred Compensation Agreement,
dated November 30, 1992, between Hahn and
Michael Futerman (Exhibit 10.37 to Hahn's
Registration Statement on Form S-1 (No. 33-
48694) as filed with the SEC on January
19, 1993)*
Exhibit 10.32 Hahn Automotive Warehouse, Inc.
Health Benefit Retirement Plan (Exhibit
10.38 to Hahn's Registration Statement on
Form S-1 (No. 33-48694) as filed with the
SEC on January 19, 1993)*
Exhibit 10.33 Tax Indemnification Agreement, dated
as of December 31, 1992, among Hahn and
Michael Futerman, Sara Futerman, Eli N.
Futerman, Rina Chessin, Daphne Futerman
and Naftali Futerman (Exhibit 10.39 to
Hahn's Registration Statement on Form S-1
(No. 33-48694) as filed with the SEC on
January 19, 1993)*
Exhibit 10.34 Seller's Trademark License Agreement,
dated November 28, 1993, between Northern
Automotive Corporation and AUTOWORKS
(Exhibit 28.2 to Hahn's Current Report on
Form 8-K, dated December 10, 1993 (File No
0-20984)*
Exhibit 10.35 Credit Facility Agreement, dated June
26, 1996, among Hahn, AUTOWORKS, the
several lenders named therein and the
Fleet Bank, as agent (Exhibit 10.1 to
Hahn's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996)*
<PAGE> 60
Exhibit 10.36 Pro Forma Balance Sheet at September
30, 1996 and Pro Forma Income Statement
for the Fiscal year then ended (Exhibit to
Hahn's Current Report on Form 8-K filed on
August 11, 1997)*
Exhibit 10.37 Pro Forma Balance Sheet at March 31,
1997 and Pro Forma Income Statement for
the six months then ended (Exhibit to
Hahn's Current Report on Form 8-K filed on
August 11, 1997)*
Exhibit 10.38 Press Release dated July 25, 1997 in
reference to the AUTOWORKS, Inc.
subsidiary filing for protection under
Chapter 11 of the Bankruptcy Court on July
24, 1997 (Exhibit 1 to Hahn's Current
Report on Form 8-K filed on July 28,
1997)*
Certain instruments respecting long-term debt of the Company and
its subsidiaries have been omitted pursuant to Regulation Item
601. The Company hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
Exhibit 10.39 Waiver, Modification and Third
Amendment to the Credit Facililty
Agreement and Forebearance Agreement,
dated July 24, 1997 among the Company and
its wholly-owned subsidiaries and the
syndicate of banks (Exhibit 10.1 to Hahn's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997)*
Exhibit 10.40 Buyer's Trademark License Agreement,
dated November 28, 1993, between Northern
Automotive Corporation and AUTOWORKS
(Exhibit 28.3 to Hahn's Current Report on
Form 8-K, dated December 10, 1993 (File
No. 0-20984)*
Exhibit 10.41 Credit Facility Amendment Number 1,
dated October 10, 1996, among Hahn,
AUTOWORKS, the several lenders named
therein and Fleet Bank, as agent (Exhibit
10.37 to Hahn Annual Report on Form 10-K
for the Fiscal year ended September 30,
1997)*
<PAGE> 61
Exhibit 10.42 Lease Agreement, dated as of May 24,
1971, between Irvin Baron, John A.
Cervieri, Jr., Richard S. Ellwood, Carroll
J. Royce, Lathrop S. Haskings, Walter F.
Leinhardt and John C. Slagle as Trustees
of Property Capital Trust as Landlord and
John E. Benz as Tenant, and Sublease
Agreement dated as of May 6, 1986, between
John E. Benz as Landlord and AUTOWORKS
Holdings as Tenant, both of which cover
the Moraine, Ohio, distribution center
(Exhibit 10.54 to Hahn's Annual Report on
Form 10-K for the fiscal year ended
September 30, 1993)*
Exhibit 10.43 Credit Facility Agreement, dated
October 22, 1997 between The Company and
Fleet Capital Corporation (filed
herewith).
Exhibit 10.44 Letter Agreement, dated August 5,
1997 between Schottenstein Bernstein
Capital Group, LLC, HLCO Trading Company,
Inc. and Garcel, Inc. d/b/a Great American
Asset Management, as joint venturers and
AUTOWORKS, Inc. (Exhibit 10.2 to Hahn's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997) (as modified
by Gordon Brothers Partners, Inc. and
AUTOWORKS, Inc. on August 20, 1997 with
respect to store disposition and
liquidation pricing).*
Exhibit 10.45 Lease Agreement dated September 30,
1994, between Meisenzahl and David
Appelbaum (Exhibit 10.47 to Hahn's Annual
Report on Form 10-K for the Fiscal year
ended September 30, 1994)*
Exhibit 10.46 Lease Agreement, dated September 30,
1994, between Meisenzahl and David
Appelbaum (Exhibit 10.45 to Hahn's Annual
Report on Form 10-K for the Fiscal year
ended September 30, 1994)*
Exhibit 10.47 Non-Competition Agreement, dated
September 30, 1994, between Hahn and David
Appelbaum (Exhibit 10.49 to Hahn's Annual
Report on Form 10-K for the Fiscal year
ended September 30, 1994)*
<PAGE> 62
Exhibit 10.48 Tax Procedures and Indemnity
Agreement, dated September 30, 1994,
between Hahn and David Appelbaum (Exhibit
10.50 to Hahn's Annual Report On Form 10-K
for the Fiscal year ended September 30,
1994)*
Exhibit 10.49 Indemnification Agreement, dated as
of September 30, 1994, executed by David
Appelbaum in favor of Hahn, Meisenzahl and
Regional (Exhibit 10.51 to Hahn's Annual
Report on Form 10-K for the Fiscal year
ended September 30, 1994)*
Exhibit 10.50 Letter Agreement, dated December 14,
1995, between Hahn and Michael Futerman
(Exhibit 10.53 to Hahn's Annual Report on
Form 10-K for Fiscal year ended September
30, 1995)*
Exhibit 10.51 Sixth Amendment to Note Agreement
dated July 24, 1997 between the Company
and Massachusetts Mutual Life Insurance
Company (Exhibit 10.3 to Hahn's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1997)*
Exhibit 21 List of
Subsidiaries (filed herewith)
Exhibit 23 Consent of Coopers &
Lybrand L.L.P. with respect to Financial
Statements and Financial Statement Schedules
(filed herewith)
Exhibit 24 Powers of Attorney
for Directors (filed herewith)
Exhibit 27 Selected Financial
Data (filed herewith)
*These exhibits are incorporated herein by reference to
the registration statement or report referenced after
each exhibit which an asterisk appears.
Indicates executive compensation plans and arrangements.
<PAGE> 63
Exhibit 10.43 Credit Facility Agreement dated
October 22, 1997, between The Company and
Fleet Capital Corporation (filed herewith)
<PAGE> 64
_________________________________________________
HAHN AUTOMOTIVE WAREHOUSE, INC.
MEISENZAHL AUTO PARTS, INC.
BORROWERS
FLEET CAPITAL CORPORATION
LENDER
__________________________________________________
__________________________________________________
__________________________________________________
LOAN AND SECURITY AGREEMENT
Dated: October 22, 1997
$50,000,000
__________________________________________________
__________________________________________________
__________________________________________________
FLEET CAPITAL CORPORATION
__________________________________________________
TABLE OF CONTENTS
PAGE
SECTION 1. CREDIT FACILITY 1
1.1 Revolving Credit Loans. 1
1.2 Term Loan 1
1.3 Supplemental Availability Line 1
1.4 Use of Proceeds 1
1.5 Letters of Credit; LC Guaranties 2
SECTION 2. INTEREST, FEES AND CHARGES 2
2.1 Interest 2
2.2 Computation of Interest and Fees 4
2.3 Facility Fee 4
2.4 Unused Line Fee 4
2.5 Audit and Appraisal Expenses 5
2.6 Reimbursement of Expenses 5
2.7 Bank Charges 5
2.8 Indemnity re: LIBOR 6
2.9 Letter of Credit and LC Guaranty Fees 6
SECTION 3. LOAN ADMINISTRATION 6
3.1 Manner of Borrowing Revolving Credit Loans 6
3.2 Payments 7
3.3Mandatory Prepayments 8
3.4 Application of Payments and Collections 9
3.5 All Loans to Constitute One Obligation 9
3.6 Loan Account 9
3.7 Statements of Account 9
SECTION 4. TERM AND TERMINATION 9
4.1 Term of Agreement 9
4.2 Termination. 10
SECTION 5. SECURITY INTERESTS 11
5.1 Security Interest in Collateral 11
5.2 Lien Perfection; Further Assurances 11
SECTION 6. COLLATERAL ADMINISTRATION 12
6.1General 12
6.2 Administration of Accounts. 13
6.3 Administration of Inventory 14
6.4 Administration of Equipment 15
6.5 Payment of Charges 15
SECTION 7. REPRESENTATIONS AND WARRANTIES 15
7.1 General Representations and Warranties 15
7.2 Continuous Nature of Representations and Warranties 21
7.3 Survival of Representations and Warranties 21
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 21
8.1 Affirmative Covenants 21
8.2 Negative Covenants 23
8.3 Specific Financial Covenants 27
SECTION 9. CONDITIONS PRECEDENT 28
9.1 Documentation 28
9.2 No Default 29
9.3 Other Loan Documents 29
9.4 Availability 29
9.5 No Litigation 29
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT 30
10.1 Events of Default 30
10.2 Acceleration of the Obligations 32
10.3 Other Remedies 32
10.4 Remedies Cumulative; No Waiver 33
10.5 Cure. 34
SECTION 11. MISCELLANEOUS 34
11.1 Power of Attorney 34
11.2 Indemnity 34
11.3 Modification of Agreement; Sale of Interest 35
11.4 Severability 35
11.5 Successors and Assigns 35
11.6 Cumulative Effect; Conflict of Terms 35
11.7 Execution in Counterparts 36
11.8 Notice 36
11.9 Lender's Consent 37
11.10 Credit Inquiries 37
11.11 Time of Essence 37
11.12 Entire Agreement 37
11.13 Interpretation 37
11.14 GOVERNING LAW; CONSENT TO FORUM 37
11.15 WAIVERS BY BORROWERS 38
11.16 Joint and Several Liability. 38
ii
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 22nd day
of October, 1997, by and among FLEET CAPITAL CORPORATION ("Lender"), a Rhode
Island corporation with an office at 200 Glastonbury Boulevard,
Glastonbury, CT 06033; and HAHN AUTOMOTIVE WAREHOUSE, INC. ("Hahn" or a
"Borrower"), a New York corporation and MEISENZAHL AUTO PARTS, INC.
("Meisenzahl" or a "Borrower" and collectively with Hahn, the "Borrowers") a New
York corporation, each with their chief executive office and principal
place of business at 415 West Main Street, Rochester, NY 14608.
Capitalized terms used in this Agreement have the meanings assigned to them in
Appendix A, General Definitions. Accounting terms not otherwise specifically
defined herein shall be construed in accordance with GAAP consistently
applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and the
other Loan Documents, Lender agrees to make a Total Credit Facility of up to
$50,000,000 available upon Borrowers' request therefor, as
follows:
1.1 REVOLVING CREDIT LOANS. Lender agrees, for so long as
no Default or Event of Default has occurred and is continuing, to make
Revolving Credit Loans to Borrowers from time to time, as requested by
Borrowers in the manner set forth in subsection 3.1.1 hereof, up to a maximum
principal amount at any time outstanding equal to the Borrowing Base which
shall be repayable in accordance with the terms of the Revolving Credit
Note. If the unpaid balance of the Revolving Credit Loans should exceed
the Borrowing Base or any other limitation set forth in this
Agreement, such Revolving Credit Loans shall nevertheless constitute Obligations
that are due and payable on demand, secured by the Collateral and entitled
to all benefits thereof. Lender has the right to establish reserves
against the Borrowing Base, in such amounts and with respect to such matters
as Lender deems reasonably necessary or appropriate in its sole discretion.
1.2 TERM LOAN. Lender agrees to make a term loan to Borrowers on the
Closing Date in the principal amount of $2,500,000 ("Term Loan"),
which shall be repayable in accordance with the terms of the Term Loan
Note.
1.3 SUPPLEMENTAL AVAILABILITY LINE. Lender agrees to make
a
supplemental availability line in the maximum principal amount of
$3,500,000 ("Supplemental Availability Line") available to
Borrowers under which a cash advance of $3,500,000 ("Supplemental Availability
Loan") will be made to Borrowers on the Closing Date. The Supplemental
Availability Loan shall be repayable in accordance with the terms of the
Supplemental Availability Line Note. There shall be no availability for
borrowing under the Supplemental Availability Line after the Supplemental
Availability Loan is made thereunder.
1.4 USE OF PROCEEDS. The Loans shall be used solely for the
following purposes: (i) repayment of existing borrowed indebtedness owing
to Fleet Bank, as agent for a banking syndicate and Massachusetts Mutual
Life Insurance Company and (ii) for Borrowers' general
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operating capital needs, including the issuance of Letters of
Credit, all in a manner consistent with the provisions of this Agreement and
all applicable laws.
1.5 LETTERS OF CREDIT; LC GUARANTIES. Lender agrees, for
so long as no Default or Event of Default has occurred and is continuing and
if requested by Borrowers, to (i) issue its, or cause to be issued
by its Affiliate, Letters of Credit for the account of either Borrower
or (ii) execute LC Guaranties by which Lender or its Affiliate shall
guaranty the payment or performance by either Borrower of its reimbursement
obligations with respect to Letters of Credit and letters of credit issued
for a Borrower's account by other Persons in support of that Borrower's
obligations (other than obligations for the repayment of Money
Borrowed), PROVIDED that the LC Amount at any time shall not exceed the LC
Cap. No Letter of Credit or LC Guaranty may have an expiration date that
is more than 365 days after the date of issuance. In addition, no Letter
of Creditor LC Guaranty may have an expiration date that is after the last
day of the Original Term or the then applicable Renewal Term. Any
amounts paid by Lender under any LC Guaranty or in connection with any Letter of
Credit shall be treated as Revolving Credit Loans, shall be secured by
all of the Collateral and shall bear interest and be payable at the same
Floating Rate and in the same manner as Revolving Credit Loans. Documentary
Letters of Credit may only be issued to support the purchase of Eligible
Inventory.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 INTEREST.
2.1.1 RATE OPTIONS. At the time of each Loan under the
Total Credit Facility, and thereafter from time to time, Borrowers
shall have the right, subject to the terms and conditions of this Agreement, and
provided no Default or Event of Default has occurred and is continuing, to
designate to Lender in writing that all or a portion of the Loans shall
bear interest at either (i) the LIBOR Based Rate or (ii) the Floating Rate.
Interest on each portion thereof shall accrue and be paid at the time and
rate applicable to the respective option selected by Borrowers or
otherwise governing under the terms of this Agreement. If for any reason
the LIBOR Based Rate option is unavailable or Borrowers fail to designate
(in accordance with the terms hereof) that the LIBOR Based Rate shall
apply, the Floating Rate shall apply. The rate of interest on Floating
Rate Loans shall increase or decrease by an amount equal to any increase or
decrease in the Base Rate effective as of the opening of business on the
day that any such change in the Base Rate occurs.
(a) LIBOR RATE OPTION:
(i) REQUESTS. Provided no Default or Event
of Default has occurred and is continuing, and subject to the provisions of
this Section 2.1.1 (a), if Borrowers desire to have the LIBOR Based
Rate apply to all or a portion of the Loans, Borrowers shall give Lender a
written irrevocable request no later than 11:00 A.M. Eastern time on the
second (2nd) Business Day prior to the requested borrowing date
specifying (i) the date the LIBOR Based Rate shall apply (which shall be a
Business Day), (ii) the LIBOR Interest Period, (iii) the Loan to be subject to
the LIBOR Based Rate and (iv) the amount to be subject to the LIBOR Based Rate
provided that such amount shall be in the minimum amount of Five Hundred
2
<PAGE>
Thousand Dollars ($500,000.00). In no event may Borrowers have
outstanding at any time more than six tranches of LIBOR Rate Loans.
(ii) LIBOR INTEREST PERIODS. LIBOR Rate
Loans shall be selected by Borrowers for a LIBOR Interest Period during which
the LIBOR Based Rate is applicable; provided, however, that if the LIBOR
Interest Period would otherwise end on a day which shall not be a London
Business Day, such LIBOR Interest Period shall be extended to the next
preceding or succeeding London Business Day as is the Bank's custom in the
market to which such LIBOR Rate Loan relates. All accrued and unpaid
interest on a LIBOR Rate Loan shall be paid in accordance with Section 3.2.2.
No LIBOR Interest Period with respect to the Revolving Credit may end
after the Revolving Credit Maturity Date and no LIBOR Interest Period with
respect to the Term Loan or the Supplemental Availability Loan may end after
their respective maturity dates. Subject to all of the terms and
conditions applicable to a request to convert all or a portion of the Loans
to a LIBOR Rate Loan, Borrowers may extend a LIBOR Rate Loan as of the last
day of the LIBOR Interest Period to a new LIBOR Rate Loan. If Borrowers
fail to notify Lender of the LIBOR Interest Period for a subsequent LIBOR
Rate Loan at least two (2) Business Days prior to the last day of the then
current LIBOR Interest Period of an outstanding LIBOR Rate Loan, then
such outstanding LIBOR Rate Loan shall, at the end of the applicable
LIBOR Interest Period, accrue interest at the Floating Rate.
(iii) ADJUSTMENTS. The Adjusted LIBOR Rate
may be automatically adjusted by Lender to take into account the
additional or increased cost of maintaining any necessary reserves for
Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable LIBOR Interest Period, including but not
limited to, changes in tax laws (except changes of general applicability in
corporate income tax laws) and changes in the reserve requirements imposed
by the Board of Governors of the Federal Reserve System (or any
successor or other applicable governing body), that increase the cost to Lender
of funding the LIBOR Rate Loan. Lender shall give Borrowers reasonable notice
of such a determination and adjustment, which determination shall be prima
facie evidence of the correctness of the fact and the amount of such
adjustment.
(iv) UNAVAILABILITY. If Borrowers shall have
requested the rate based on the Adjusted LIBOR Rate in accordance with this
Section 2.1.1(a) and Lender shall have determined, in good faith, that
Eurodollar deposits equal to the amount of the principal of the requested
LIBOR Rate Loan and for the LIBOR Interest Period specified are unavailable,
or that the rate based on the Adjusted LIBOR Rate will not adequately and
fairly reflect the cost of the Adjusted LIBOR Rate applicable to the
specified LIBOR Interest Period, of making or maintaining the principal
amount of the requested LIBOR Rate Loan during the LIBOR Interest Period
specified, or that by reason of circumstances affecting Eurodollar markets,
adequate means do not exist for ascertaining the rate based on the
Adjusted LIBOR Rate applicable to the specified LIBOR Interest Period, Lender
shall promptly give notice of such determination to Borrowers that the
rate based on the Adjusted LIBOR Rate is not available. A determination, in
good faith, by Lender hereunder shall be prima facie evidence of the
correctness of the fact and amount of such additional costs or
unavailability. Upon such a determination, (i) the obligation to convert to, or
maintain a LIBOR Rate Loan at the rate based on the Adjusted LIBOR Rate shall be
suspended until Lender shall have notified Borrowers that such conditions
3
<PAGE>
shall have ceased to exist, and (ii) the portion of the Loans
subject to the request or requested conversion shall accrue interest at the
Floating Rate.
2.1.2 DEFAULT RATE OF INTEREST. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, the
principal amount of all Loans shall bear interest at a rate per annum equal
to two (2) percentage points above the interest rate otherwise
applicable thereto (the "Default Rate").
2.1.3 MAXIMUM INTEREST. In no event whatsoever shall
the aggregate of all amounts deemed interest hereunder or under the
Notes and charged or collected pursuant to the terms of this Agreement or
pursuant to the Notes exceed the highest rate permissible under any law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. If any provisions of this Agreement or the Notes are in
contravention of any such law, the rate hereunder shall
automatically be reduced to the maximum rate permitted by applicable law, and
Lender shall, in its discretion, apply such excess to the principal balance of
the Loans or refund such excess to Borrowers, and such provisions shall be
amended to conform thereto.
2.2 COMPUTATION OF INTEREST AND FEES. Interest, Letter of
Credit and LC Guaranty fees and Unused Line Fees, termination charges and
collection charges hereunder shall be calculated daily and shall be computed
on the actual number of days elapsed over a year of 360 days. For the
purpose of computing interest hereunder, all items of payment received by
Lender shall be deemed applied by Lender on account of the Obligations
(subject to final payment of such items) on the Business Day of receipt by
Lender (determined in accordance with Section 3.4 hereof) of fully collected
funds from the Dominion Account.
2.3 FACILITY FEE. Borrowers shall pay to Lender a facility
fee of $250,000 ("Facility Fee"), which shall be fully earned on the
Closing Date. $200,000 of the Facility Fee shall be payable and non-refundable
on the Closing Date (less the $42,500 commitment fee paid to Lender,
which shall be credited against such payment). The remaining $50,000 of the
Facility Fee shall be payable on the date which is six (6) months from the
Closing Date.
2.4 UNUSED LINE FEE. Borrowers shall pay to Lender a fee
("Unused Line Fee") equal to a percentage, determined as set forth below,
of the difference between the Total Credit Facility and the average
daily principal balance of outstanding Loans and the aggregate undrawn
face amount of all Letters of Credit and LC Guaranties then
outstanding. The Unused Line Fee shall be payable monthly in arrears on the
first day of each calendar month hereafter. The percentage to be used to
determine the amount of Unused Line Fees shall be (a) .25% per annum from the
Closing Date through but not including the first day of the first
Adjustment Period after June 30, 1998 and thereafter (b)(i) .375% per annum
during any Adjustment Period next following a Measurement Period in which
the Borrowers' Fixed Charge Coverage Ratio was less than or equal to
1.25 to 1.0 or (ii) .25% per annum during any Adjustment Period following
a Measurement Period in which the Fixed Charge Coverage Ratio was
more than 1.25 to 1.0. No reduction in the percentage used to determine
the Unused Line Fee shall occur during the existence of a Default or an
Event of Default. For purposes of the foregoing, (i) the Borrowers' Fixed
Charge Coverage Ratio will be determined by reference to the financial
statements to be delivered to Lender pursuant to Section 8.1.3 hereof and
(ii) the percentage
4
<PAGE>
used to determine the Unused Line Fee for any Adjustment Period
will remain fixed for such Adjustment Period.
2.5 AUDIT AND APPRAISAL EXPENSES. Borrowers shall pay to
Lender, in connection with audits and appraisals of Borrowers' books and
records and such other matters as Lender shall deem appropriate, all out-of-
pocket expenses incurred by Lender in connection with such audits and
appraisals, provided that, notwithstanding anything to the contrary herein,
Borrowers'obligation under this paragraph shall, provided that no Event of
Default is outstanding at the time of any such audit or appraisal (in which
case no limits shall apply), be limited to two (2) such audits or
appraisals per 12 month period (measured from the date hereof) and $10,000 per
year.
2.6 REIMBURSEMENT OF EXPENSES. If, at any time or times
regardless of whether or not an Event of Default then exists, Lender incurs
legal or accounting expenses or any other costs or out-of-pocket expenses
in connection with (i) the analysis, negotiation and preparation of
this Agreement or any of the other Loan Documents, or any amendment,
modification, replacement or termination of this Agreement or any
of the other Loan Documents, (ii) the administration of this Agreement
(except to the extent otherwise provided by Section 2.5 above with respect
to audit and appraisal expenses) or any of the other Loan Documents and
the transactions contemplated hereby and thereby; (iii) any
litigation, contest, dispute, suit, proceeding or action (whether instituted
by Lender, Borrowers or any other Person) in any way relating to the
Collateral, the Loans, this Agreement or any of the other Loan Documents or any
Obligor's affairs; (iv) any enforcement, protection, preservation or
defense (or any attempt to do so) of any rights of Lender or any Participating
Lender against any Obligor or any other Person which may be obligated to
Lender by virtue of this Agreement or any of the other Loan Documents,
including, without limitation, the Account Debtors; or (v) any attempt to
inspect, verify, protect, preserve, restore, collect, sell, liquidate or
otherwise dispose of or realize upon the Collateral (except to the extent
otherwise provided by Section 2.5 above with respect to audit and appraisal
expenses); then all such legal or accounting expenses, other
costs and out of pocket expenses of Lender shall be charged to Borrowers. All
amounts chargeable to Borrowers under this Section 2.6 shall be
Obligations secured by all of the Collateral, shall be payable on demand to
Lender and shall bear interest from the date such demand is made until paid in
full at the Floating Rate from time to time. Borrowers shall also reimburse
Lender for expenses incurred by Lender in its administration of the
Collateral to theextent and in the manner provided of.
2.7 BANK CHARGES. Borrowers shall pay to Lender, on
demand, any and all fees, costs or expenses which Lender or any Participating
Lender pays to a bank or other similar institution (including without
limitation any fees paid by Lender to any Participating Lender) arising out of
or in connection with (i) the forwarding to Borrowers or any other
Person on behalf of Borrowers or by Lender or any Participating Lender of
proceeds of loans made by Lender to Borrowers pursuant to this Agreement and
(ii) the depositing for collection, by Lender or any Participating Lender,
of any check or item of payment received or delivered to Lender on
account of the Obligations, provided such fees, costs and expenses are the
customarily charged fees by such Persons. Notwithstanding the foregoing, the
Borrowers shall have no obligation to pay Lender any fees, costs or
expenses described in this Section 2.7 that are incurred by or in
connection with a Participating Lender until after the second anniversary of the
Closing Date.
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2.8 INDEMNITY RE: LIBOR. Each Borrower hereby indemnifies
Lender and holds Lender harmless from and against any and all losses or
expenses that Lender may sustain or incur as a consequence of any prepayment or
any Default by Borrowers in the payment of the principal of or
interest on any LIBOR Rate Loan or failure by Borrowers to complete a borrowing
of, a prepayment of or conversion of or to a LIBOR Rate Loan after
notice thereof has been given by Borrowers including (but not limited to) any
interest payable by Lender to lenders of funds obtained by it in order to
make or maintain its LIBOR Rate Loans hereunder, and any other loss or
expense incurred by Lender by reason of the liquidation or reemployment
of deposits or other funds acquired by Lender to make, continue, convert into
or maintain, a LIBOR Rate Loan.
2.9 LETTER OF CREDIT AND LC GUARANTY FEES. Borrowers shall
pay to Lender for Letters of Credit and LC Guaranties of letters of
credit, a fee equal to 2.0% per annum of the aggregate face amount of such
Letters of Credit and LC Guaranties outstanding from time to time during the
term of this Agreement, which fee shall be due and payable on the first
calendar day each month. Borrowers shall also pay all customary fees and
charges associated with the issuance, amendment, extension or termination
thereof, which fees and charges shall be deemed fully earned and shall be
payable on demand and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason.
SECTION 3. LOAN ADMINISTRATION.
3.1 MANNER OF BORROWING REVOLVING CREDIT LOANS. Borrowings
under the Revolving Credit Facility established pursuant to Section 1
hereof shall be as follows:
3.1.1 LOAN REQUESTS. A request for a Revolving Credit
Loan shall be made, or shall be deemed to be made, in the following manner:
(i) Borrowers may give Lender notice of its intention to borrow, in
which notice Borrowers shall specify the amount of the proposed
borrowing and the proposed borrowing date (which shall be a Business Day), no
later than 12:00 noon, Eastern time, on the proposed borrowing date,
PROVIDED, however, that no such request may be made at a time when there
exists a Default or an Event of Default that has not been waived by
Lender; and (ii) the becoming due of any amount required to be paid under this
Agreement or any of the Notes, whether as interest or for any other
Obligation, shall be deemed irrevocably to be a request for a Revolving Credit
Loan on the due date in the amount required to pay such interest or other
Obligation. As an accommodation to Borrowers, Lender shall permit telephonic
requests for loans and electronic transmittal of instructions, authorizations,
agreements or reports to Lender by Borrowers. Unless Borrowers
specifically direct Lender in writing not to accept or act upon
telephonic or electronic communications from Borrowers, Lender shall have no
liability to Borrowers for any loss or damage suffered by Borrowers as a
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports
communicated to it telephonically or electronically and purporting to have been
sent to Lender by Borrowers, except in the case of Lender's gross negligence and
intentional misconduct, and Lender shall have no duty to verify
the origin of any such communication or the authority of the person sending
it.
3.1.2 DISBURSEMENT. Each Borrower hereby irrevocably
authorizes Lender to disburse the proceeds of each Revolving Credit Loan
requested, or deemed to be requested,
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pursuant to this subsection 3.1.2 as follows: (i) the proceeds
of each Revolving Credit Loan requested under subsection 3.1.1(i) shall
be disbursed by Lender in lawful money of the United States of
America in immediately available funds, in the case of the initial
borrowing, in accordance with the terms of the written disbursement letter from
Borrowers, and in the case of each subsequent borrowing, by wire
transfer to such bank account as may be agreed upon by Borrowers and
Lender from time to time or elsewhere if pursuant to a written direction from
Borrowers; and (ii) the proceeds of each Revolving Credit Loan
requested under subsection 3.1.1(ii) shall be disbursed by Lender by way of
direct payment of the relevant interest or other Obligation.
3.1.3 AUTHORIZATION. Each Borrower hereby irrevocably
authorizes Lender, in Lender's sole discretion, to advance to Borrowers, and
to charge to Borrowers' Loan Account hereunder as a Revolving Credit Loan,
a sum sufficient to pay all principal of the Loans as it become due,
interest accrued on the Obligations during the immediately preceding month
and all fees provided for hereunder or related thereto and, provided
Lender provides Borrowers with an invoice therefore prior to charging
Borrowers' Loan Account, to pay all costs, fees and expenses at any time
owed by Borrowers to Lender hereunder.
3.1.4 SPECIFIED OFFICER. All requests for a Revolving
Credit Loan and elections of interest rate shall be made by Borrowers
through a Specified Officer, and Borrowers agree that any request so made
by a Specified Officer shall be deemed made by both Borrowers.
3.1.5 BORROWING BASE CERTIFICATES. Borrowers shall
deliver to Lender a Borrowing Base Certificate and supporting documentation
as requested by Lender but no less frequently than on a weekly
basis.
3.2 PAYMENTS. Except where evidenced by notes or other
instruments issued or made by Borrowers to Lender specifically containing
payment provisions which are in conflict with this Section 3.2 (in which
event the conflicting provisions of said notes or other instruments shall
govern and control), the Obligations shall be payable as follows:
3.2.1 PRINCIPAL. Principal payable on account of Loans
shall be payable by Borrowers to Lender immediately upon the earliest of
(i) the receipt by Lender or Borrowers of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which Lender elects to accelerate the maturity and
payment of the Obligations, (iii) in the case of principal payable on
account of Revolving Credit Loans, the Revolving Credit Maturity Date, and
in the case of principal payable on account of the Term Loan and the
Supplemental Availability Loan in accordance with the terms of the Term Loan
Note and the Supplemental Availability Line Note, respectively or (iv)
termination of this Agreement pursuant to Section 4 hereof; PROVIDED,
HOWEVER, that if an Overadvance shall exist at any time, Borrowers shall, on
demand, repay the Overadvance.
3.2.2 INTEREST. Interest accrued on the Revolving
Credit Loans shall be due on the earliest of (i) the first calendar day of
each month (for the immediately preceding month), computed through the last
calendar day of the preceding month, (ii) the occurrence of an Event of
Default in consequence of which Lender elects to accelerate the maturity and
payment of the Obligations, (iii) in the case of interest accruing on the
Revolving Credit Loans, the Revolving
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Credit Maturity Date, and in the case of interest accruing on the
Term Loan and the Supplemental Availability Loan, on their respective
maturity dates, or (iv) termination of this Agreement pursuant to Section 4
hereof.
3.2.3 COSTS, FEES AND CHARGES. Costs, fees and charges
payable pursuant to this Agreement shall be payable by Borrowers as and
when provided in Section 2 hereof, to Lender or to any other Person
designated by Lender in writing.
3.2.4 OTHER OBLIGATIONS. The balance of the
Obligations requiring the payment of money, if any, shall be payable by
Borrowers to Lender as and when provided in this Agreement, the Notes, the
Other Agreements or the Security Documents, or on demand, whichever is
later.
3.3 MANDATORY PREPAYMENTS.
3.3.1 PROCEEDS OF SALE, LOSS, DESTRUCTION OR
CONDEMNATION OF COLLATERAL. Except as provided in subsection 6.4.2 hereof, if
Borrowers sell any of the Equipment, or if any of the Collateral is lost or
destroyed or taken by condemnation, Borrowers shall pay to Lender, unless
otherwise agreed by Lender, as and when received by Borrowers and as a
mandatory prepayment of the Loans, a sum equal to the proceeds (including
insurance payments) received by Borrowers from such sale, loss, destruction
or condemnation. Any such prepayments shall be applied first to the
Term Loan, second to the Supplemental Availability Loan and lastly
against the Revolving Credit Loans and shall be applied first to accrued but
unpaid interest with respect to the applicable Loan and then to
principal in the inverse order of maturity of unpaid installments. If either
Borrower obtains funds representing proceeds or other payments with
respect to the disposition or collection of any General Intangibles, Borrowers
shall pay to Lender, unless otherwise agreed by Lender, as and when such
funds are received by Borrowers and as a mandatory prepayment of the Loans,
a sum equal to such funds received by Borrowers. Any such prepayments
shall be applied first to the Supplemental Availability Loan, second, to
the Term Loan and lastly, to the Revolving Credit Loans and shall be
applied first to accrued but unpaid interest with respect to the applicable
Loan and then to principal in the inverse order of maturity of unpaid
installments.
3.3.2 LIBOR RATE LOANS. No portion of the LIBOR Rate
Loans may be repaid during a LIBOR Interest Period unless Borrowers first
satisfy in full their obligations under Section 2.8 hereunder arising from
such repayment.
3.3.3 EXCESS CASH FLOW RECAPTURE. Until the Term Loan
and Supplemental Availability Loan have been repaid in full,
Borrowers shall, on an annual basis, within fifteen (15) Business Days of
delivery to Lender of Borrowers' annual audited financial statements for each
year, prepay the Term Loan and/or the Supplemental Availability Loan
(as Lender shall elect in its sole discretion) in an amount equal to fifty
percent (50%)(but not to exceed a payment of $500,000 on account of any one
fiscal year or $250,000 on account of any one fiscal year if prior to the end of
such fiscal year, the Supplemental Availability Loan was paid in full)
of Borrowers' Cash Flow for such year ("Excess Cash Flow Payments").
All Excess Cash Flow Payments shall be applied first against accrued
but unpaid interest with respect to the applicable Loan and then to
principal in the inverse order of the maturity of unpaid installments.
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3.4 APPLICATION OF PAYMENTS AND COLLECTIONS. All items of
payment received by Lender by 2:00 p.m., Eastern time, on any Business
Day shall be deemed received on that Business Day. All items of payment
received after 2:00 p.m., Eastern time, on any Business Day shall be deemed
received on the following Business Day. Each Borrower irrevocably waives the
right to direct the application of any and all payments and collections at
any time or times hereafter received by Lender from or on behalf of
Borrowers, and each Borrower does hereby irrevocably agree that Lender shall
have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by Lender
or its agent against the Obligations, in such manner as Lender may deem
advisable, notwithstanding any entry by Lender upon any of its books and
records, PROVIDED, that, notwithstanding the foregoing, Lender agrees
that, unless an Event of Default has occurred, payments and collections which
Lender otherwise determines in accordance with the foregoing to be
applicable to principal shall be applied, first, to principal accruing interest
at the Floating Rate and thereafter to principal accruing interest at
the LIBOR Based Rate. If as the result of collections of Accounts as
authorized by subsection 6.2.6 hereof a credit balance exists in the Loan
Account, such credit balance shall not accrue interest in favor of Borrowers,
but shall be available to Borrowers at any time or times for so long as no
Default or Event of Default exists and is continuing, and Lender shall
provide written notice of the existence of such credit balance to Borrowers.
Lender may, at its option, offset such credit balance against any of the
Obligations upon and after the occurrence of an Event of Default.
3.5 ALL LOANS TO CONSTITUTE ONE OBLIGATION. The Loans
shall constitute one general Obligation of Borrowers, and shall be
secured by Lender's Lien upon all of the Collateral.
3.6 LOAN ACCOUNT. Lender shall enter all Loans as debits
to the Loan Account and shall also record in the Loan Account all payments
made by Borrowers on any Obligations and all proceeds of Collateral which
are finally paid to Lender, and may record therein, in accordance
with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to
Borrowers.
3.7 STATEMENTS OF ACCOUNT. Lender will account to
Borrowers monthly with a statement of Loans, charges and payments made pursuant
to this Agreement, and, in the absence of manifest error, such account
rendered by Lender shall be deemed final, binding and conclusive upon
Borrowers unless Lender is notified by Borrowers in writing to the contrary
within 45 days of the date each accounting is mailed to Borrowers. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
SECTION 4. TERM AND TERMINATION
4.1 TERM OF AGREEMENT. Subject to Lender's right to cease
making Loans to Borrowers during the existence of any Event of Default,
this Agreement shall be in effect for a period of five (5) years from
the date hereof, through and including October 22, 2002 (the "Original
Term"), and this Agreement shall automatically renew itself for one-year
periods thereafter (the "Renewal Terms"), unless terminated as provided
in Section 4.2 hereof.
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4.2 TERMINATION.
4.2.1 TERMINATION BY LENDER. Upon at least 120 days
prior written notice to Borrowers, Lender may terminate this Agreement
as of the last day of the Original Term or the then current Renewal Term
and Lender may terminate this Agreement without notice upon or after the
occurrence and during the continuance of an Event of Default.
4.2.2 TERMINATION BY BORROWERS. Upon at least 90 days
prior written notice to Lender (or 30 days if in anticipation of a sale
of Borrowers), Borrowers may, at their option, terminate this
Agreement; PROVIDED HOWEVER, no such termination shall be effective until
Borrowers have paid all of the Obligations (including without limitation,
the Obligations described in Section 4.2.3 below) in immediately
available funds and all Letters of Credits and LC Guaranties have expired
or have been cash collateralized to Lender's satisfaction. Any notice of
termination given by Borrowers in anticipation of a sale of the
Borrowers shall be revocable at any time in writing; any notice of
termination given by Borrowers for any other reason shall be irrevocable unless
Lender otherwise agrees in writing, and Lender shall have no obligation
to make any Loans or issue or procure any Letters of Credit or LC
Guaranties on or after the termination date stated in such notice. Borrowers
may elect to terminate this Agreement in its entirety only. No section of
this Agreement or type of Loan available hereunder may be terminated
singly.
4.2.3 TERMINATION CHARGES. At the effective date of
termination of this Agreement for any reason, Borrowers shall pay to Lender
(in addition to the then outstanding principal, accrued interest and
other charges owing under the terms of this Agreement and any of the
other LoanDocuments) as liquidated damages for the loss of the bargain and
not as a penalty, an amount equal to the product of the Total Credit
Facility times (a) three (3%) percent if the termination occurs during the first
twelve (12) months of the Original Term and (b) one half of one (.50%)
percent if termination occurs during the second twelve (12) month period of
the Original Term and (c) zero (0%) percent thereafter.
4.2.4 EFFECT OF TERMINATION. All of the Obligations
shall be immediately due and payable upon the termination date stated in
any notice of termination of this Agreement. All undertakings, agreements,
covenants, warranties and representations of Borrowers contained in the Loan
Documents shall survive any such termination and Lender shall retain its
Liens in the Collateral and all of its rights and remedies under the Loan
Documents notwithstanding such termination until Borrowers have paid the
Obligations to Lender, in full, in immediately available funds, together with
the applicable termination charge, if any. Notwithstanding the
payment in full of the Obligations, Lender shall not be required to terminate
its security interests in the Collateral unless, with respect to any loss or
damage Lender may incur as a result of dishonored checks or other items
of payment received by Lender from Borrowers or any Account Debtor and
applied to the Obligations, Lender shall, at its option, (i) have received a
written agreement, executed by Borrowers and by any Person whose loans or
other advances to Borrowers are used in whole or in part to satisfy the
Obligations, indemnifying Lender from any such loss or damage; or
(ii) have retained such monetary reserves and/or Liens on the Collateral
for such period of time as Lender, in its reasonable discretion, may deem
necessary to protect Lender from any such loss or damage.
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SECTION 5. SECURITY INTERESTS
5.1 SECURITY INTEREST IN COLLATERAL. To secure the prompt
payment and performance to Lender of the Obligations, each Borrower
hereby grants to Lender a continuing Lien upon all of such Borrower's assets,
including all of the following Property and interests in Property of such
Borrower, whether now owned or existing or hereafter created, acquired or
arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) Chattel Paper;
(v) Instruments;
(vi) Documents;
(vii) General Intangibles;
(viii)Fixtures;
(ix) Deposit Accounts;
(x) Investment Property;
(xi) All monies and other Property of any kind now
or at any time or times hereafter in the possession or under the
control of Lender or a bailee or Affiliate of Lender;
(xii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i)
through (x) above, including, without limitation, proceeds of and
unearned premiums with respect to insurance policies insuring any of
the Collateral; and
(xiii) All books and records (including, without
limitation, customer lists, credit files, computer programs, print-outs,
and other computer materials and records) of Borrowers pertaining to
any of (i) through (x) above.
5.2 LIEN PERFECTION; FURTHER ASSURANCES. Borrowers shall
execute such UCC-1 financing statements as are required by the Code and
such other instruments, assignments or documents as are necessary to perfect
Lender's Lien upon any of the Collateral and shall take such other action
as may be required to perfect or to continue the perfection of Lender's
Lien upon the Collateral, including, without limitation, delivering to Lender
the sole originals of all certificates of title and executing all
agreements required by Lender to have Lender's Liens
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noted on all certificates of title, in form and substance
acceptable to Lender and after the occurrence of an Event of Default and upon
the request of Lender, delivering the sole originals of all Instruments and
Chattel Paper. Unless prohibited by applicable law, each Borrower hereby
authorizes Lender to execute and file any such financing
statement on such Borrower's behalf. The parties agree that a carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be filed in any appropriate office in lieu
thereof. At Lender's request, Borrowers shall also promptly execute or cause
to be executed and shall deliver to Lender any and all documents, instruments
and agreements deemed necessary by Lender to give effect to or carry out the
terms or intent of the Loan Documents, including without limitation,
landlord's waivers from the owner of each property on which Collateral is
located.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 GENERAL
6.1.1 LOCATION OF COLLATERAL. All Collateral, other
than Inventory in transit and motor vehicles, (i) will at all times be
kept by Borrowers at one or more of the business locations set forth in
EXHIBIT 6.1.1 hereto and at such new locations which Borrowers may
hereafter establish provided that Borrowers provide Lender, not less than
ten (10) days prior to removal of any Collateral to such new location,
with written notice thereof and provided further that prior to removal of any
Collateral to such new location Borrowers will take all actions relative to
such location as Lender may require under Section 5.2 hereof, and (ii)
shall not, without the prior written approval of Lender, be otherwise
moved from any such location or new location except, prior to an Event of
Default and Lender's acceleration of the maturity of the Obligations in
consequence thereof, for (A) sales of Inventory in the ordinary course of
business; (B) removals in connection with dispositions of Equipment that are
authorized by subsection 6.4.2 hereof; and (C) removals in connection with
returns thereof to vendors. Exhibit 6.1.1 shall be deemed automatically
amended to include any new location of which Borrowers give Lender written
notice pursuant to Section 6.1.1, but Borrowers shall furnish Lender
with an updated Exhibit 6.1.1 on no less than a quarterly basis, unless
Borrowers have not opened or closed any locations since last furnishing
Lender with such an updated exhibit.
6.1.2 INSURANCE OF COLLATERAL. Borrowers shall
maintain and pay for insurance upon all Collateral wherever located and with
respect to Borrowers' business, covering casualty, hazard, public liability
and such other risks in such amounts and with such insurance companies as
are reasonably satisfactory to Lender. Borrowers shall deliver
certified copies of such policies to Lender with satisfactory lender's loss
payable endorsements, naming Lender as loss payee, assignee or additional
insured, as appropriate. Each policy of insurance or endorsement shall
contain a clause requiring the insurer to give not less than 30 days prior
written notice to Lender in the event of cancellation of the policy for
any reason whatsoever and a clause specifying that the interest of Lender
shall not be impaired or invalidated by any act or neglect of Borrowers or the
owner of the Property or by the occupation of the premises for purposes
more hazardous than are permitted by said policy. If Borrowers fail
to provide and pay for such insurance, Lender may, at its option, but shall
not be required to, procure the same and charge Borrowers therefor.
Borrowers agree to deliver to Lender, promptly as rendered, true copies of
all reports made in any reporting forms to insurance companies.
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6.1.3 PROTECTION OF COLLATERAL. All expenses of
protecting, storing, warehousing, insuring, handling, maintaining and
shipping the Collateral, any and all excise, property, sales, and use taxes
imposed by any state, federal, or local authority on any of the Collateral
or in respect of the sale thereof shall be borne and paid by Borrowers.
If Borrowers fail to promptly pay any portion thereof when due,
Lender may, at its option, but shall not be required to, pay the same and charge
Borrowers therefor. Lender shall not be liable or responsible in any way
for the safekeeping of any of the Collateral or for any loss or damage
thereto or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other person
whomsoever, but the same shall be at Borrowers' sole risk.
6.2 ADMINISTRATION OF ACCOUNTS.
6.2.1 RECORDS, SCHEDULES AND ASSIGNMENTS OF ACCOUNTS.
Borrowers shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit to Lender on such
periodic basis as Lender shall reasonably request a sales and collections report
for the preceding period, in form satisfactory to Lender. On or before
the 20th day of each month from and after the date hereof, Borrowers shall
deliver to Lender, in form reasonably acceptable to Lender, a detailed
aged trial balance of all Accounts existing as of the last day of the
preceding month, specifying the names and face value for each Account Debtor
obligated on an Account so listed ("Schedule of Accounts"), and, upon Lender's
request therefor, copies of proof of delivery of inventory and the
original copy of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
such other matters and information relating to the status of then existing
Accounts as Lender shall reasonably request. In addition, if Eligible
Accounts in an aggregate face amount in excess of $500,000 become ineligible
because they fall within one of the specified categories of ineligibility set
forth in the definition of Eligible Accounts, Borrowers shall notify
Lender of such occurrence no later than the third Business Day following such
occurrence and the Borrowing Base shall thereupon be adjusted to reflect
such occurrence.
6.2.2 DISCOUNTS, ALLOWANCES, DISPUTES. If Borrowers
grant any discounts, allowances or credits that are not shown on the face
of the invoice or statement (or attachments thereto) for the Eligible
Account involved, Borrowers shall report such discounts, allowances or
credits, as the case may be, to Lender as part of the next required Schedule
of Accounts. If any amounts due and owing on an Eligible Account in
excess of $100,000 are in dispute between Borrowers and any Account Debtor,
Borrowers shall provide Lender with written notice thereof at the time of
submission of the next Schedule of Accounts, explaining in detail the reason
for the dispute, all claims related thereto and the amount in
controversy. Upon and after the occurrence and during the continuance of an
Event of Default, Lender shall have the right to settle or adjust all
disputes and claims directly with the Account Debtor and to compromise the
amount or extend the time for payment of the Accounts upon such terms and
conditions as Lender may deem advisable, and to charge the deficiencies,
costs and expenses thereof, including attorney's fees, to Borrowers.
6.2.3 TAXES. If an Account includes a charge for any
tax payable to any governmental taxing authority, Lender is authorized, in
its sole discretion, to pay the amount thereof to the proper taxing
authority for the account of Borrowers and to charge Borrowers
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therefor, provided, however that Lender shall not be liable for
any taxes to any governmental taxing authority that may be due by
Borrowers.
6.2.4 ACCOUNT VERIFICATION. At any time and from time
to time after the occurrence and during the continuance of an Event of
Default, any of Lender's officers, employees or agents shall have the right in
the name of Lender, any designee of Lender or either Borrower, to verify
the validity, amount or any other matter relating to any Accounts by
mail telephone, telegraph or otherwise; Lender may seek the same
verification prior to an Event of Default, provided reasonable advance written
notice thereof is given to Borrowers. Borrowers shall cooperate fully
with Lender in an effort to facilitate and promptly conclude any such
verification process.
6.2.5 MAINTENANCE OF DOMINION ACCOUNT. Borrowers shall
maintain a Dominion Account pursuant to an arrangement reasonably
acceptable to Lender with such banks as may be selected by Borrowers and be
acceptable to Lender. Borrowers shall issue to any such banks an irrevocable
letter of instruction directing such banks to deposit all payments or other
remittances received by it to the Dominion Account for
application on account of the Obligations. All funds deposited in the Dominion
Account shall immediately become the property of Lender and Borrowers
shall obtain the agreement by such banks in favor of Lender to waive any
offset rights against the funds so deposited. Lender assumes no responsibility
for such arrangement, including, without limitation, any claim of accord
and satisfaction or release with respect to deposits accepted by any
bank thereunder.
6.2.6 COLLECTION OF ACCOUNTS, PROCEEDS OF COLLATERAL.
To expedite collection, Borrowers shall endeavor in the first
instance to make collection of its Accounts for Lender. All remittances
receivedby Borrowers on account of Accounts, together with the proceeds of
any other Collateral, shall be held as Lender's property by Borrowers as
trustee of an express trust for Lender's benefit and Borrowers shall
immediately deposit same in kind in the Dominion Account. Lender retains the
right at all times during the existence of an Event of Default to notify
Account Debtors that Accounts have been assigned to Lender and to collect
Accounts directly in its own name and to charge the collection costs and
expenses, including attorneys' fees, to Borrowers. Within sixty (60) days
of the Closing Date, Borrowers shall enter into a lockbox and cash
management arrangement satisfactory to Lender and shall notify their Account
Debtors to remit all payments with respect to Accounts directly to a
lockbox in accordance with such arrangement.
6.3 ADMINISTRATION OF INVENTORY.
6.3.1 RECORDS AND REPORTS OF INVENTORY. Borrowers
shall keep accurate and complete records of their inventory. Borrowers
shall furnish Lender Inventory reports in form and detail satisfactory to
Lender, as requested by Lender but no less frequently than monthly, not
later than the 20{th} day of each month as of the last day of the then prior
month. Borrowers shall conduct a physical inventory no less frequently
than once annually at each of the locations set forth on Exhibit 6.3.1 to
this Agreement and shall provide to Lender a report (in the form of
Borrowers' form PHY-28, the form of which has been furnished to Lender)
based on each such physical inventory promptly thereafter, together with such
supporting information as Lender shall request. With respect to all other
locations, Borrowers shall conduct its customary periodic
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cycle counts and shall submit to Lender a report detailing
variances in excess of 10% at each particular location, together with such
supporting information as Lender shall request.
6.3.2 RETURNS OF INVENTORY. If at any time or times
hereafter any Account Debtor returns any Inventory to Borrowers the
shipment of which generated an Account on which such Account Debtor is obligated
in excess of $100,000, Borrowers shall immediately notify Lender of the same,
specifying the reason for such return and the location, condition and
intended disposition of the returned Inventory.
6.4 ADMINISTRATION OF EQUIPMENT.
6.4.1 RECORDS AND SCHEDULES OF EQUIPMENT. Borrowers
shall keep accurate records itemizing and describing the kind, type,
quality, quantity and value of its Equipment and all dispositions made in
accordance with subsection 6.4.2 hereof, and shall furnish Lender with a current
schedule containing the foregoing information on an annual basis and, if
an Event of Default is outstanding, more often if requested by Lender.
Immediately on request therefor by Lender, Borrowers shall deliver to Lender
appropriate evidence of ownership, if any, of any of the Equipment.
6.4.2 DISPOSITIONS OF EQUIPMENT. Borrowers will not
sell, lease or otherwise dispose of or transfer any of the Equipment or any
part thereof without the prior written consent of Lender; PROVIDED,
HOWEVER, that the foregoing restriction shall not apply, for so long as no
Default or Event of Default exists, to (i) dispositions of Equipment
which, in the aggregate during any consecutive twelve-month period, has a fair
market value or book value, whichever is less, of $100,000 or less,
provided that all proceeds thereof are remitted to Lender for application to
the Loans, or (ii) dispositions of Equipment that is substantially worn,
damaged or obsolete, provided that Borrowers shall, if such Equipment has a
market value or book value, whichever is less, in excess of $25,000,
have given Lender at least 5 days prior written notice of such disposition.
The proceeds of any such sale of Equipment shall be applied to the
Loans in the manner set forth in Section 3.3.1 of this Agreement.
6.5 PAYMENT OF CHARGES. All amounts chargeable to
Borrowers under Section 6 hereof shall be Obligations secured by all of the
Collateral, shall be payable on demand and shall bear interest from the date
such advance was made until paid in full at the Floating Rate.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 GENERAL REPRESENTATIONS AND WARRANTIES. To induce
Lender to enter into this Agreement and to make advances hereunder, each
Borrower warrants, represents and covenants to Lender that:
7.1.1 ORGANIZATION AND QUALIFICATION. Each Borrower is
a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each Borrower is
duly qualified and is authorized to do business and is in good
standing as a foreign corporation in each state or jurisdiction listed on
EXHIBIT 7.1.1 hereto and in all other states and jurisdictions in which the
failure of such Borrower to be so qualified would be reasonably likely to
have a Material Adverse Effect.
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7.1.2 CORPORATE POWER AND AUTHORITY. Each Borrower is
duly authorized and empowered to enter into, execute, deliver and
perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of
the other Loan Documents have been duly authorized by all necessary
corporate action and do not and will not (i) require any consent or approval of
the shareholders of either Borrower; (ii) contravene either
Borrower's charter, articles or certificate of incorporation or by-laws; (iii)
violate, or cause either Borrower to be in default under, any provision of
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award in effect having applicability to Borrowers; (iv) result
in a breach of or constitute a default in any respect under any
indenture or loan or credit agreement or any other material agreement, lease
or instrument to which either Borrower is a party or by which it or
its Properties may be bound or affected, the breach of which would be
reasonably likely to result in a Material Adverse Effect; or (v)
result in, or require, the creation or imposition of any Lien (other than
Permitted Liens) upon or with respect to any of the Properties now owned or
hereafter acquired by either Borrower.
7.1.3 LEGALLY ENFORCEABLE AGREEMENT. This Agreement
is, and each of the other Loan Documents when delivered under this Agreement
will be, a legal, valid and binding obligation of each Borrower, enforceable
against it in accordance with its respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws relative to or affecting the
enforcement of creditors' rights generally in effect from time to time and by
general principles of equity.
7.1.4 CAPITAL STRUCTURE. EXHIBIT 7.1.4 hereto states
(i) the correct name of each of the Subsidiaries of Borrowers, its
jurisdiction of incorporation and the percentage of its Voting Stock owned by
Borrowers, (ii) the name of each Borrower's corporate or joint venture
Affiliates and the nature of the affiliation, (iii) the number, nature and
holder of all outstanding Securities of Borrowers and (iv) the number of
authorized, issued and treasury shares of Borrowers. Borrowers have good
title to all of the shares it purports to own of the stock of each of their
Subsidiaries, free and clear in each case of any Lien other than
Permitted Liens. All such shares have been duly issued and are fully paid
and non-assessable. Except as set forth in EXHIBIT 7.1.4, there are no
outstanding options to purchase, or any rights or warrants to subscribe for,
or any commitments or agreements to issue or sell, or any Securities or
obligations convertible into, or any powers of attorney relating
to, shares of the capital stock of either Borrower. Except as set forth in
EXHIBIT 7.1.4, there are no outstanding agreements or instruments binding
upon any of Borrower's shareholders relating to the ownership of its
shares of capital stock.
7.1.5 CORPORATE NAMES. Neither Borrower has been known
as or
used any corporate, fictitious or trade names since January 1,
1992 except
those listed on EXHIBIT 7.1.5 hereto. Except as otherwise set
forth on
EXHIBIT 7.1.5 since January 1, 1992, neither Borrower has been
the
surviving corporation of a merger or consolidation or acquired
all or
substantially all of the assets of any Person.
7.1.6 BUSINESS LOCATIONS; AGENT FOR PROCESS. Each
Borrower's chief executive office and other places of business are as listed
on EXHIBIT 6.1.1 hereto. During the preceding one-year period,
neither Borrower has had an office, place of business or agent for
service of
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process other than as listed on EXHIBIT 6.1.1. Except as shown
on EXHIBIT 6.1.1, no inventory is stored with a bailee, warehouseman or
similar party, nor is any Inventory consigned to any Person.
7.1.7 TITLE TO PROPERTIES; PRIORITY OF LIENS. Each
Borrower has good, indefeasible and marketable title to and fee simple
ownership of, or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of the Collateral and all of its other
Property, including good leasehold title with respect to Property leased
from others, in each case, free and clear of all Liens except Permitted Liens.
Each Borrower has paid or discharged all lawful claims which, if
unpaid, might
become a Lien against any of either Borrower's Properties that is
not a Permitted Lien. The Liens granted to Lender under Section 5
hereof, if properly perfected, are first priority Liens, subject only to
Permitted Liens.
7.1.8 ACCOUNTS. Lender may rely, in determining which
Accounts are Eligible Accounts, on all statements and representations made
by Borrowers with respect to any Account or Accounts. Unless
otherwise indicated in writing to Lender, with respect to each Account that
Borrowers have requested Lender to treat as an Eligible Account:
(i) It is genuine and in all respects what it
purports to be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, BONA FIDE sale
and delivery of goods or rendition of services by a Borrower in
the ordinary course of its business and in accordance in all
material respects with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a
part of the contract between the applicable Borrower and the Account
Debtor;
(iii) It is for a liquidated amount maturing as
stated in the duplicate invoice covering such sale or rendition of
services, a copy of which has been furnished or is available to Lender;
(iv) Such Account, and Lender's security interest
therein, is not, and will not (by voluntary act or omission of
Borrowers) be with the passage of time, subject to any offset, Lien,
deduction, defense, dispute, counterclaim or any other adverse
condition except for disputes resulting in returned goods where the amount in
controversy is deemed by Lender to be immaterial, and each
such Account is absolutely owing to Borrowers and is not
contingent in any respect or for any reason;
(v) Neither Borrower has made any agreement with
any Account Debtor thereunder for any extension, compromise,
settlement or modification of any such Account or any deduction therefrom,
except discounts or allowances which are granted by Borrowers in
the ordinary course of its business for prompt payment and which are
reflected in the calculation of the net amount of each respective invoice
related thereto and are reflected in the Schedules of Accounts
submitted to Lender pursuant to subsection 6.2.1 hereof;
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(vi) There are no facts, events or occurrences
which in any way impair the validity or enforceability of any Accounts or
tend to reduce the amount payable thereunder from the face amount of
the invoice and statements delivered to Lender with respect
thereto;
(vii) To the best of each Borrower's knowledge,
the Account Debtor thereunder (1) had the capacity to contract at the
time any contract or other document giving rise to the Account was
executed and (2) such Account Debtor is Solvent; and
(viii) To the best of each Borrower's knowledge,
there are no proceedings or actions which are threatened or pending
against any Account Debtor thereunder which could reasonably be expected
to result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account.
7.1.9 EQUIPMENT. The Equipment is in good operating
condition and repair, and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the Equipment
shall be maintained and preserved, reasonable wear and tear excepted,
provided, that the foregoing will not obligate Borrowers to repair any Equipment
which in Borrowers' reasonable business judgment is obsolete or no longer
used or useful by the Borrowers in the ordinary course of their business.
Borrowers will not permit any of the Equipment to become affixed
to any real Property leased to Borrowers so that an interest arises
therein under the real estate laws of the applicable jurisdiction unless the
landlord of such real Property has executed a landlord waiver or leasehold
mortgage in favor of and in form acceptable to Lender, and Borrowers will not
permit any of the Equipment to become an accession to any personal
Property other than Equipment that is subject to first priority (except for
Permitted Liens) Liens in favor of Lender. All of Borrowers' Equipment for
which a certificate of title has been issued is as set forth on EXHIBIT
7.1.9 to the Agreement.
7.1.10 FINANCIAL STATEMENTS; FISCAL YEAR. The
Consolidated balance sheets of Borrowers and such other Persons described
therein as of September 30, 1997, and the related statements of income, changes
in stockholder's equity, and changes in financial position for the
periods ended on such dates, have been prepared in accordance with GAAP,
and present fairly in all material respects the financial positions
of Borrowers and such Persons at such dates and the results of
Borrowers' operations for such periods, subject to audit and normal year-end
adjustments and appropriate footnotes. Since September 30, 1997,
there has been no material adverse change in the condition, financial or
otherwise, of either Borrower as shown on the Consolidated balance sheet as
of such date and no change in the aggregate value of Equipment and real
Property owned by Borrowers, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The fiscal year of each Borrower ends on September 30 of each
year.
7.1.11 FULL DISCLOSURE. The financial statements
referred to in subsection 7.1.10 hereof do not, nor does this Agreement or
any other written statement of either Borrower to Lender, contain any
untrue statement of a material fact or omit a material fact necessary to
make the statements contained therein or herein not misleading. There is
no fact known to either Borrower which Borrowers have failed to disclose
to Lender in writing which materially affects adversely or, so far as
Borrowers can now reasonably foresee, will materially affect adversely
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the Properties, business, prospects, profits or condition
(financial or otherwise) of the Borrowers or the ability of the Borrowers to
perform this Agreement or the other Loan Documents.
7.1.12 SOLVENT FINANCIAL CONDITION. Each Borrower
is now and, after giving effect to the Loans to be made and the Letters of
Credit and LC Guaranties to be issued hereunder, at all times will be,
Solvent.
7.1.13 SURETY OBLIGATIONS. Except as disclosed in
Exhibit 7.1.13 hereto, neither Borrower is obligated as surety or
indemnitor under any surety or similar bond or other contract or has issued or
entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any Person.
7.1.14 TAXES. The federal tax identification
numbers of Borrowers are shown on EXHIBIT 7.1.14 hereto. Each Borrower has
filed all federal, state and local tax returns and other reports it is
required by law to file and has paid, or made provision for the payment of,
all taxes, assessments, fees, levies and other governmental charges upon it,
its income and Properties as and when such taxes, assessments, fees,
levies and charges that are due and payable, unless and to the extent any
thereof are being actively contested in good faith and by appropriate
proceedings and the applicable Borrower maintains reasonable reserves on its
books therefor. The provision for taxes on the books of Borrowers are
adequate for all years not closed by applicable statutes, and for its
current fiscal year.
7.1.15 BROKERS. There are no claims against either
Borrower for brokerage commissions, finder's fees or investment banking
fees in connection with the transactions contemplated by this Agreement.
7.1.16 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES.
Each Borrower owns or possesses all the patents, trademarks, service
marks, trade names, copyrights and licenses necessary for the present
and planned future conduct of its business without any known conflict with
the rights of others. All such patents, trademarks, service marks,
tradenames, copyrights, licenses and other similar rights are listed on
EXHIBIT 7.1.16 hereto. EXHIBIT 7.1.16 also identifies all such intellectual
property rights which are currently licensed to either Borrower and the
name of the licensor thereof.
7.1.17 GOVERNMENTAL CONSENTS. Each Borrower has,
and is in good standing with respect to, all governmental consents,
approvals, licenses, authorizations, permits, certificates, inspections and
franchises necessary to continue to conduct its business as heretofore or
proposed to be conducted by it and to own or lease and operate its Properties
as now owned or leased by it, except where the failure to have or be in
good standing would not be reasonably likely to have a Material
Adverse Effect.
7.1.18 COMPLIANCE WITH LAWS. Each Borrower and
their respective Properties, business operations and leaseholds are in
compliance with the provisions of all federal, state and local laws, rules
and regulations applicable to it, its Properties or the conduct of
its business except where the failure to be in compliance would not be
reasonably likely to have a Material Adverse Effect, and there have been no
citations, notices or orders of noncompliance issued to either Borrower
under any such law, rule or regulation which have not
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been remedied, the failure to remedy of which would be reasonably
likely to have a Material Adverse Effect. Each Borrower has established
and maintains an adequate monitoring system to insure that it remains
in compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced by an either
Borrower in violation of the Fair Labor Standards Act (29 U.S.C. <section>
201 ET SEQ.), as amended, except for any violation which would not be
reasonably likely to have a Material Adverse Effect.
7.1.19 RESTRICTIONS. Except as set forth on
Exhibit 7.1.19 hereto, neither Borrower is a party or subject to any contract,
agreement, or charter or other corporate restriction, which materially and
adversely affects its business or the use or ownership of any of its
Properties. Neither Borrower is a party or subject to any material contract
or agreement which restricts its right or ability to incur
Indebtedness, other than as set forth on EXHIBIT 7.1.19 hereto, none of which
prohibit the execution of or compliance with this Agreement or the other Loan
Documents by either Borrower.
7.1.20 LITIGATION. Except as set forth on EXHIBIT
7.1.20 hereto, there are, as of the Closing Date, no actions, suits,
proceedings or, to either Borrower's knowledge, governmental investigations
pending, or to the knowledge of either Borrower, threatened, against either
Borrower, or the business, operations, Properties, prospects, profits or
condition of either Borrower. As of the Closing Date, none of the matters
disclosed on Exhibit 7.1.20, if determined adversely to either Borrower, would
be reasonably likely to have a Material Adverse Effect. Neither
Borrower is in default with respect to any order, writ, injunction, judgment,
decree or rule of any court, governmental authority or arbitration board or
tribunal which would be reasonably likely to have a Material Adverse
Effect.
7.1.21 NO DEFAULTS. No event has occurred and no
condition exists which would, upon or after the execution and delivery of
this Agreement or Borrowers' performance hereunder, constitute a
Default or an Event of Default. Neither Borrower is in default, and no event
has occurred and no condition exists which constitutes, or which with
the passage of time or the giving of notice or both would constitute,
a default in the payment of any Indebtedness to any Person for Money
Borrowed which would, individually or collectively, be reasonably likely to have
a Material Adverse Effect.
7.1.22 LEASES. EXHIBIT 7.1.22(A) hereto is a
complete listing of all capitalized leases of Borrowers and EXHIBIT 7.1.22(B)
hereto is a complete listing of all operating leases of Borrowers as of the
Closing Date. To the best of Borrowers' knowledge, each Borrower is in
full compliance in all material respects with all of the terms of each
of its respective capitalized and operating leases listed in said
Exhibits, the failure to comply with which would be reasonably likely to have a
Material Adverse Effect. All leases of Property from officers or
directors of either Borrower (or their family members) provide for Rentals
which are not in excess of applicable market rates.
7.1.23 PENSION PLANS. Except as disclosed on
EXHIBIT 7.1.23 hereto, neither Borrower has any Plan. Each Borrower is in
compliance in all respects with the requirements of ERISA and the regulations
promulgated thereunder with respect to each Plan, the failure to
comply with which could result in a Material Adverse Effect. To
Borrowers' knowledge, no fact or situation that could reasonably be expected
to result in a material adverse
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change in the financial condition of Borrowers exists in
connection with any Plan. Neither Borrower has any withdrawal liability in
connection with a Multiemployer Plan.
7.1.24 TRADE RELATIONS. There exists no actual or,
to Borrowers' knowledge, threatened termination, cancellation or
limitation of, or any modification or adverse change in, the business
relationship between either Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of the Borrowers, or with any material supplier, and there exists no
present condition or state of facts or circumstances which would
materially adversely affect Borrowers or prevent either Borrower from
conducting such business after the consummation of the transaction contemplated
by this Agreement in substantially the same manner in which it has
heretofore been conducted.
7.1.25 LABOR RELATIONS. Except as described on
EXHIBIT 7.1.25 hereto, neither Borrower is a party to any collective bargaining
agreement. There are no material grievances, disputes or controversies with
any union or any other organization of either Borrower's employees, or, to
Borrower's knowledge, threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or organization.
7.2 CONTINUOUS NATURE OF REPRESENTATIONS AND WARRANTIES.
Each representation and warranty contained in this Agreement and the
other Loan Documents shall be continuous in nature and shall remain
accurate, complete and not misleading in all material respects at all times
during the term of this Agreement, except for changes in the nature of either
Borrower's business or operations that would render the information herein
or in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Borrowers contained in this Agreement or any
of the other Loan Documents shall survive the execution, delivery and
acceptance thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 AFFIRMATIVE COVENANTS. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
each Borrower covenants that, unless otherwise consented to by Lender
in writing, it shall:
8.1.1 VISITS AND INSPECTIONS. Permit representatives
of Lender, from time to time, as often as may be reasonably requested, but
only during normal business hours and, unless an Event of Default shall be
outstanding, upon reasonable advance notice, to visit and inspect the
Properties of each Borrower, inspect, audit and make extracts from its books and
records, and discuss with its officers, its employees and its independent
accountants, each Borrower's business, assets, liabilities, financial
condition, business prospects and results of operations.
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8.1.2 NOTICES. Promptly notify Lender in writing of
the occurrence of any event or the existence of any fact which
renders any representation or warranty in this Agreement or any of the other
Loan Documents inaccurate, incomplete or misleading in any material
respect.
8.1.3 FINANCIAL STATEMENTS. Keep adequate records and
books of account with respect to its business activities in which proper
entries are made in accordance with GAAP reflecting all its financial
transactions; and cause to be prepared and furnished to Lender the following
(all to be prepared in accordance with GAAP applied on a consistent basis):
(i) not later than 120 days after the close of
each fiscal year of Borrowers, audited financial statements of the
Borrowers as of the end of such year, prepared on a Consolidated basis,
certified by a firm of independent certified public accountants of
recognized standing selected by Borrowers but acceptable to Lender and
accompanied by an unqualified opinion from such accountants
(except for a qualification for a change in accounting principles
with which the accountant concurs);
(ii) upon completion, but not later than 30 days
after the end of each month hereafter (and 45 days in the case of the
last month of Borrowers' fiscal year) unaudited interim financial
statements of the Borrowers as of the end of such month and of the portion
of the Borrowers' fiscal year then elapsed, on a Consolidated
basis, including a balance sheet and a profit and loss statement,
certified by the principal financial officer of Borrowers as having
been prepared in accordance with GAAP and fairly presenting the
Consolidated financial position and results of operations of
the Borrowers for such month and period subject only to changes
from audit and year-end adjustments and except that such statements
need not contain notes;
(iii) upon completion, but not later than 30 days
after (a) the end of each fiscal quarter of Borrowers during the
fiscal year ending September 30, 1998 and (b) each month at all times
thereafter, unaudited statements of cash flows, certified by the
principal financial officer of Borrowers as having been prepared in
accordance with GAAP and fairly presenting the Consolidated financial
position and results of operations of the Borrowers for such month
and period subject only to changes from audit and year-end adjustments
and except that such statements need not contain notes;
(iv) not later than 30 days prior to the close of
each fiscal year of Borrowers, financial Projections for
Borrowers for Borrowers' upcoming fiscal year (commencing with Projections
for Borrowers' fiscal year ending September 30, 1999), prepared
on a month by month basis, in form acceptable to Lender;
(v) promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial
statements or reports filed with any public agency which either Borrower
has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which either
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
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(vi) promptly after the filing thereof and the
request of Lender, copies of any annual report to be filed with ERISA
in connection with each Plan and promptly after the filing
thereof, copies of all documents filed to obtain tax refunds; and
(vii) such other data and information (financial
and otherwise) as Lender, from time to time, may reasonably
request, bearing upon or related to the Collateral or either
Borrower's financial condition or results of operations.
Concurrently with the delivery of the financial
statements described in clause (i) of this subsection 8.1.3, Borrowers shall
forward to Lender a copy of the accountants' letter to either Borrower's
management that is prepared in connection with such financial statements and
also shall cause to be prepared and shall furnish to Lender a
certificate of the aforesaid certified public accountants certifying to Lender
that, based upon their examination of the financial statements of the
Borrowers performed in connection with their examination of said financial
statements, they are not aware of any Event of Default resulting
from a breach of the covenants set forth in Sections 8.2.8 or 8.3 of
this Agreement, or, if they are aware of such Event of Default,
specifying the nature thereof. Concurrently with the delivery of the financial
statements described in clauses (i) and (ii) of this subsection 8.1.3, or
more frequently if requested by Lender, Borrowers shall cause to be
prepared and furnished to Lender a Compliance Certificate in the form of
EXHIBIT 8.1.3 hereto executed by the Chief Financial Officer of Borrowers,
together with a work sheet reflecting all calculations made in completing the
Compliance Certificate.
8.1.4 LANDLORD AND STORAGE AGREEMENTS. Provide Lender
with copies of all agreements between either Borrower and each
landlord for each warehouse at which any Inventory may, from time to time, be
kept and for such other locations as Lender may request from time to time.
8.1.5 RETENTION OF CONSULTANT. Borrowers shall retain
their existing consultant, Claymore Partners, (or another consultant
selected by Borrowers and acceptable to Lender) as consultants with respect
to Borrowers' business operations and finances and shall continue to
retain such consultants until integration of a centralized accounts
receivable
software system is completed and is acceptable to Lender.
8.2 NEGATIVE COVENANTS. During the term of this Agreement,
and thereafter for so long as there are any Obligations to Lender,
each Borrower covenants that, unless Lender has first consented
thereto in writing, it will not:
8.2.1 MERGERS; CONSOLIDATIONS; ACQUISITIONS. Merge or
consolidate with any Person, nor acquire all or any substantial
part of the Properties of any Person, except for a merger or consolidation of
one Borrower into the other Borrower, provided that prior to any such
merger or consolidation, Borrowers take all steps required by Lender to
insure that Lender shall continue to have a first priority perfected security
interest in all of Borrowers' Property, including without limitation, the
recording of all required UCC-1 financing statements, and except for the
following types of acquisitions:
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(i) acquisitions of Inventory in the
ordinary course of Borrowers' business in transactions that do not involve the
purchase of businesses that will be ongoing;
(ii) the acquisition of capital assets,
rather than an ownership interest in a separate entity, so long as the
acquisition of such assets is treated as a Capital Expenditure for purposes of
Section 8.2.8 of this Agreement and provided no Default or Event of Default has
occurred or would otherwise be caused by, or would exist after giving effect
to, such acquisition;
(iii) the acquisition of either capital
assets or ownership interests in separate entities to the extent the
purchase price for such assets or entities is paid through the issuance of Hahn
equity securities up to an aggregate maximum value of $1,500,000 for all
such transactions in any fiscal year, provided, however, (a) no
Default or Event of Default has occurred or would otherwise be caused by, or
would exist after giving effect to, such acquisition, (b) Borrowers shall
not assume any contingent liabilities which would cause, or be reasonably
likely to cause, a Material Adverse Effect, (c) the business of the
acquired Person shall be substantially similar to the lines of business of
Borrowers and (d) if the transaction involves the acquisition of a separate
entity, that Person, immediately after such acquisition, joins in and becomes
a party to this Agreement and grants to Lender a security interest in all of
its Property and shall execute and deliver or cause to be executed
and delivered to Lender all agreements, documents and instruments
required by Lender for such purposes, including without limitation, joinder
agreements, UCC-1 financing statements and landlords' waivers, all on terms
and conditions satisfactory to Lender; and
(iv) the acquisition of all of the assets of
or ownership interests in separate entities where the consideration
is not paid by issuance of Hahn equity securities, provided each of the
following conditions are satisfied: (a) no Default or Event of Default has
occurred or would otherwise be caused by, or would exist after giving
effect to, such acquisition; (b) Borrowers shall not assume any contingent
liabilities which would cause, or be reasonably likely to cause, a Material
Adverse Effect; (c) the business of the acquired Person shall be
substantially similar to the lines of business of Borrowers; (d) any Person
acquired by Borrowers shall, immediately after such acquisition, join in and
become a party to this Agreement and grant to Lender a first priority
perfected security interest in all of its Property and shall execute and or
cause to be executed and delivered to Lender all agreements, documents and
instruments required by Lender for such purposes, including
without limitation, joinder agreements, UCC-1 financing statements and
landlords' waivers, all on terms and conditions satisfactory to Lender; (e)
Lender shall have received a satisfactory certificate prepared and
signed by the chief financial officer of Borrowers showing the cost attributed
by Borrowers to the capital assets acquired and pro forma covenant
compliance with the financial covenants set forth in Sections 8.2.8
(provided that up to $500,000 of the amount attributed to the acquisition of
capital assets in such acquisitions in any single fiscal year shall not be
considered Capital Expenditures for the purposes of determining compliance
with Section 8.2.8) and 8.3 herein immediately following the
applicable acquisition and projected compliance with such covenants for no
fewer than the next four (4) succeeding fiscal quarters of Borrowers,
setting forth in reasonable detail the calculations used in presenting such
costs and projections and with such supporting information as may be
reasonably requested by Lender; (f) after taking into account
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the effect of such acquisition, Borrowers shall have Aggregate
Adjusted Availability of at least $1,000,000 and (g) Lender shall have
received a satisfactory officer's certificate from a Specified Officer of
the Borrowers to the effect that the conditions set forth in clauses
(a) - (f) have been satisfied as of the date of the acquisition.
8.2.2 LOANS. Make any loans or other advances of money
to any Person, other than (i) loans from one Borrower to another
Borrower in the ordinary course of business and (ii) loans to employees in the
ordinary course of business not to exceed $500,000 at any time outstanding
in the aggregate.
8.2.3 TOTAL INDEBTEDNESS FOR MONEY BORROWED. Create,
incur,assume, or suffer to exist any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Indebtedness of a Borrower to the other
Borrower;
(iii) Subordinated Debt;
(iv) Permitted Purchase Money Indebtedness;
(v) accounts payable to trade creditors and
current operating expenses (other than for Money Borrowed) which are
not more than 30 days from the due date (which may be an extended
dating date), and which are incurred in the ordinary course of business
and paid within such time period, unless the same are being actively
contested in good faith and by appropriate and lawful proceedings; and
Borrowers shall have set aside such reserves, if any, with respect
thereto as are required by GAAP and deemed adequate by Borrowers and
their independent accountants;
(vi) Obligations to pay Rentals permitted by
subsection 8.2.13 and Capitalized Lease Obligations permitted under
Section 8.2.8;
(vii) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business; and
(viii) Indebtedness of a Borrower as disclosed in
Borrowers' financial statements as of September 30, 1997, which have
been delivered to Lender.
8.2.4 AFFILIATE TRANSACTIONS. Enter into, or be a
party to any transaction with any Affiliate of either Borrower, except in the
ordinary course of and pursuant to the reasonable requirements of
Borrowers' business and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to Borrowers than Borrowers
would obtain in a comparable arm's length transactions with a Person not an
Affiliate of Borrowers.
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8.2.5 LIMITATION ON LIENS. Create or suffer to exist
any Lien upon any of its Property, income or profits, whether now owned or
hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due, or being
contested in the manner described in subsection 7.1.14 hereto, but only if in
Lender's judgment such Lien does not materially adversely affect
Lender's rights or the priority of Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of
Borrowers' business by operation of law or regulation, but only if
payment in respect of any such Lien is not at the time required and any
such Lien, or such Liens in the aggregate, do not, in Lender's
judgment, materially detract from the value of the Property of either
Borrower or materially impair the use thereof in the operation of
either Borrower's business;
(iv) Purchase Money Liens securing Permitted
Purchase Money Indebtedness;
(v) such other Liens as appear on EXHIBIT 8.2.5
hereto; and
(vi) such other Liens as Lender may hereafter
approve in writing.
8.2.6 SUBORDINATED DEBT. Make any payment of any part
or all of any Subordinated Debt or otherwise repurchase, redeem or retire
any instrument evidencing any such Subordinated Debt except as
expressly permitted by the applicable subordination agreement, or enter
into any agreement (oral or written) which could in any way be construed
to amend, modify, alter or terminate any one or more instruments or
agreements evidencing or relating to any Subordinated Debt except as
expressly permitted by the applicable subordination agreement.
8.2.7 DISTRIBUTIONS. Declare or make any
Distributions; provided, however, that so long as no Event of Default or Default
has occurred and is continuing or would result after taking into
account the effect of any such Distribution, Hahn may make Distributions
related to any fiscal year not exceeding twenty-five percent (25%) of Borrowers'
Adjusted Net Earnings in that fiscal year. To the extent that allowed
Distributions relative to any fiscal year are not made in such year, the unpaid
amount shall not increase the allowable amount for any other fiscal
year.
8.2.8 CAPITAL EXPENDITURES. Make Capital Expenditures
(including, without limitation, by way of capitalized leases)
which, in the aggregate, as to Borrowers, exceed $1,200,000 during any fiscal
year.
8.2.9 DISPOSITION OF ASSETS. Sell, lease or otherwise
dispose of any of its Properties, including any disposition of Property as
part of a sale and leaseback transaction, to or in favor of any Person,
except (i) sales of Inventory in the ordinary course of business for so long
as no Event of Default exists hereunder and (ii) dispositions expressly
authorized by this Agreement.
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8.2.10 STOCK OF SUBSIDIARIES. Permit any of its
Subsidiaries to issue any additional shares of its capital stock except
director's qualifying shares.
8.2.11 BILL-AND-HOLD SALES, ETC. Make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on
approval or consignment basis, or any sale on a repurchase or return basis
except for sales on a repurchase or return basis entered into by Borrowers
in the ordinary course of their business and which require potential
expenditures by Borrowers of less than $500,000 in the aggregate during any
fiscal year in connection with Borrowers' performance thereunder.
8.2.12 INVESTMENT. Make or have any Investment,
except as otherwise permitted under Section 8.2.1.
8.2.13 LEASES. Become a lessee under any operating
lease (other than a lease under which a Borrower is lessor) of Property
if the aggregate Rentals payable during any current or future period of
12 consecutive months under the lease in question and all other
leases under which Borrowers is then lessee would exceed 5% of aggregate gross
sales of the Borrowers. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease.
8.2.14 TAX CONSOLIDATION. File or consent to the
filing of any consolidated income tax return with any Person other than a
Borrower.
8.3 SPECIFIC FINANCIAL COVENANTS. During the term of this
Agreement, and thereafter for so long as there are any Obligations to
Lender, Borrowers covenant that, unless otherwise consented to by Lender
in writing, they shall maintain the following financial covenants,
determined on a consolidated basis for the Borrowers:
(i) TANGIBLE NET WORTH. For the period from the
Closing Date through September 30, 1998, Borrowers shall have and maintain a
Tangible Net Worth of not less than the greater of (a) $13,000,000 or (b)
75% of the Borrowers' actual Tangible Net Worth as of September 30, 1997.
The minimum Tangible Net Worth requirement during each fiscal year commencing
with the fiscal year beginning October 1, 1998 shall be the greater of (a)
the minimum Tangible Net Worth requirement for the immediately
preceding fiscal year or (b) 75% of the Borrowers' actual Tangible Net Worth as
of the last day of the immediately preceding fiscal year;
(ii) FIXED CHARGE COVERAGE RATIO. Borrowers shall
have a Fixed Charge Coverage Ratio of not less than 1.0 to 1.0 as of the end
of each of their fiscal quarters (measured quarterly (a) on a cumulative
basis for the three (3) month period ending December 31, 1997, for the six (6)
month period ending March 31, 1998, for the nine (9) month period
ending June 30, 1998 and for the twelve (12) month period ending September 30,
1998 and (b) on a rolling four (4) quarter basis thereafter). For the fiscal
quarter ended December 31, 1997, $500,000 shall be added to the Fixed
Charge Coverage Ratio numerator and for the fiscal quarter ended March
31, 1998, $850,000 shall be added to the Fixed Charge Coverage Ratio
numerator and for the fiscal quarter ended June 30, 1998, $400,000 shall be
added to the Fixed Charge Coverage Ratio numerator; such amounts shall not be
cumulative.
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SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement
or any of the other Loan Documents, and without affecting in any manner the
rights of Lender under the other sections of this Agreement, Lender shall
not be required to make any Loan under this Agreement unless and until
each of the following conditions has been and continues to be satisfied:
9.1 DOCUMENTATION. Lender shall have received, in form and
substance reasonably satisfactory to Lender and its counsel, a duly
executed copy of this Agreement and the other Loan Documents, together with such
additional documents, instruments and certificates as Lender and its counsel
shall require in connection therewith from time to time, all in form
and substance reasonably satisfactory to Lender and its counsel,
including without limitation, the following:
(A) Certified copies of Borrowers casualty insurance
policies, together with loss payable endorsements on Lender's standard form
of Lender Loss Payee and Mortgagee Endorsement naming Lender as lender loss
payee or mortgagee, as applicable, and certified copies of Borrowers'
liability insurance policies, together with endorsements naming Lender as
additional insured;
(B) Certified copies of (i) resolutions of each
Borrower's board of directors authorizing the execution and delivery of this
Agreement and the Loan Documents and the performance of all transactions
contemplated hereby and thereby, (ii) each Borrower's by-laws, and (iii) an
incumbency certificate of each Borrower;
(C) A copy of the Articles or Certificate of
Incorporation of each Borrower, and all amendments thereto, certified by the
Secretary of State or other appropriate official of its jurisdiction of
incorporation;
(D) Good standing certificates for each Borrower,
issued by the Secretary of State or other appropriate official of each
Borrower's jurisdiction of incorporation and each jurisdiction where the
conduct of such Borrower's business activities or the ownership of its
Properties necessitates qualification;
(E) A closing certificate signed by the President of
each Borrower dated as of the date hereof, stating that (i) the
representations and warranties set forth in Section 7 hereof are true and
correct on and as of such date, (ii) each Borrower is on such date in compliance
with all the terms and provisions set forth in this Agreement and (iii) on
such date no Default or Event of Default has occurred or is continuing;
(F) The Security Documents duly executed, accepted and
acknowledged by or on behalf of each of the signatories thereto;
(G) The Other Agreements duly executed and delivered
by each Borrower;
(H) The favorable, written opinion of Borrowers'
counsel as to the transactions contemplated by this Agreement and any of the
other Loan Documents;
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(I) Mortgages, title insurance reports and insurance
issued thereunder, surveys and flood plain certificates of the Real
Property;
(J) Written instruction from Borrowers directing the
application of proceeds of the initial Loans made pursuant to this Agreement,
and an initial Borrowing Base Certificate from Borrowers;
(K) Duly executed agreement establishing the Dominion
Account with a financial institution acceptable to Lender for the
collection or servicing of the Accounts;
(L) Payment of all fees and expenses owing hereunder;
(M) Duly executed intercreditor and subordination
agreements or provisions with respect to the Subordinated Debt together with
the original notes related to such indebtedness;
(N) All documents, instruments and agreements related
to the AutoWorks, Inc. bankruptcy case selected by Lender, which must be
consistent with Borrowers' representations to Lender about such
matters; and
(O) Such other documents, instruments and agreements
as Lender shall reasonably request in connection with the foregoing
matters;
9.2 NO DEFAULT. No Default or Event of Default shall
exist.
9.3 OTHER LOAN DOCUMENTS. Each of the conditions precedent
set forth in the other Loan Documents shall have been satisfied.
9.4 AVAILABILITY. Lender shall have determined that
immediately after Lender has made the initial Loans and issued the initial
Letters of Credit and LC Guaranties contemplated hereby, and paid all
closing costs incurred in connection with the transactions contemplated hereby,
Aggregate Adjusted Availability on the Closing Date shall not be less than
$3,000,000.
9.5 NO LITIGATION. No action, proceeding, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions
contemplated hereby.
9.6 PROCEEDS OF AUTOWORKS SALE. Consistent with Borrowers'
prior representations to Lender, Borrowers' secured creditors shall
have received cash proceeds from the sale of the assets of AutoWorks, Inc. of
at least $10,981,000 and such proceeds shall have been applied to
reduction of Borrowers' Indebtedness existing prior to the Closing Date.
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SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT
10.1 EVENTS OF DEFAULT. The occurrence of one or more of
the following events shall constitute an "Event of Default":
10.1.1 PAYMENT OF OBLIGATIONS. Borrowers shall fail
to pay any of the Obligations on the due date thereof (whether due at
stated maturity, on demand, upon acceleration or otherwise).
10.1.2 MISREPRESENTATIONS. Any representation,
warranty or other statement made or furnished to Lender by or on behalf of
either Borrower in this Agreement, any of the other Loan Documents or
any instrument, certificate or financial statement furnished in
compliance with or in reference thereto proves to have been false or misleading
in any material respect when made or furnished or when reaffirmed
pursuant to Section 7.2 hereof.
10.1.3 BREACH OF SPECIFIC COVENANTS. Borrowers
shall fail or neglect to perform, keep or observe any covenant contained in
Sections 5.2, 6.1.1, 6.1.2, 6.2, 8.1.1, 8.1.2, 8.1.3, 8.2 or 8.3 hereof on the
date that Borrowers are required to perform, keep or observe such covenant.
10.1.4 BREACH OF OTHER COVENANTS. Borrowers shall
fail or neglect to perform, keep or observe any covenant contained in
this Agreement (other than a covenant which is dealt with specifically
elsewhere in Section 10.1 hereof) and the breach of such other covenant is
not cured to Lender's reasonable satisfaction within 30 days after the
sooner to occur of either receipt of notice by any officer of either
Borrower of such breach from Lender or the date on which such failure or neglect
first becomes known or should have become known to any officer of
either Borrower.
10.1.5 DEFAULT UNDER SECURITY DOCUMENTS/OTHER
AGREEMENTS. Any event of default shall occur under, or any Obligor shall
default in the performance or observance of any term, covenant, condition or
agreement contained in, any of the Security Documents or the Other
Agreements and such default shall continue beyond any applicable grace period.
10.1.6 OTHER DEFAULTS. There shall occur any
default or event of default on the part of Borrowers, or either of them,
under any agreement, document or instrument to which either Borrower is a
party or by which either Borrower or any of their respective Property is
bound, creating or relating to any Indebtedness (other than the
Obligations) which singly or in the aggregate with any other such Indebtedness
equals or exceeds $1,000,000 if the holder of such Indebtedness would be
entitled to accelerate such Indebtedness as a consequence of such default or
event of default.
10.1.7 UNINSURED LOSSES. Any material loss, theft,
damage or destruction of any of the Collateral not substantially covered by
insurance in excess of $500,000 in the aggregate.
10.1.8 INTENTIONALLY OMITTED.
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10.1.9 INSOLVENCY AND RELATED PROCEEDINGS. Any Obligor
shall cease to be Solvent or shall suffer the appointment of a
receiver, trustee, custodian or similar fiduciary, or shall make an
assignment for the benefit of creditors, or any petition for an order for
relief shall be filed by or
against any Obligor under the Bankruptcy Code (if against an
Obligor, the continuation of such proceeding for more than 30 days without
being terminated or stayed), or any Obligor shall make any offer of
settlement, extension or composition to their respective unsecured creditors
generally.
10.1.10 BUSINESS DISRUPTION; CONDEMNATION. There shall
occur a cessation of a substantial part of the business of either
Borrower for a period which would have a Material Adverse Effect; either
Borrower shall suffer the loss or revocation of any license or permit now held
or hereafter acquired by such Borrower which is necessary to the
continued or lawful operation of its business and which loss or revocation has
a Material Adverse Effect; or either Borrower shall be enjoined,
restrained or in any way prevented by court, governmental or administrative
order from conducting all or any material part of its business affairs; or
any material lease or agreement pursuant to which either Borrower
leases, uses or occupies any Property shall be canceled or terminated prior to
the expiration of its stated term and which loss or termination has a
Material Adverse Effect; or any part of the Collateral shall be taken
through condemnation or the value of such Property shall be impaired
through condemnation.
10.1.11 CHANGE OF OWNERSHIP OR MANAGEMENT. Michael
Futerman or Eli Futerman cease to directly or indirectly own and control a
majority of the issued and outstanding voting capital stock of Hahn
respectively owned by such Persons on the Closing Date or either Eli Futerman or
Daniel Chessin ceases to be active in the management of Borrowers to the
extent of his level of management as of the Closing Date.
10.1.12 ERISA. A Reportable Event shall occur which
Lender, in its sole discretion, shall determine in good faith constitutes
grounds for the termination by the Pension Benefit Guaranty Corporation of
any Plan or for the appointment by the appropriate United States district
court of a trustee for any Plan, or if any Plan shall be terminated or any
such trustee shall be requested or appointed, or if either Borrower is
in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan resulting from such Borrower's
complete or partial withdrawal from such Plan and such "default" has a
Material Adverse Effect.
10.1.13 CHALLENGE TO AGREEMENT. Any Obligor or any
Subsidiary of any Obligor, or any Affiliate of either of them, shall
challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement, or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.
10.1.14 REPUDIATION OF OR DEFAULT UNDER GUARANTY
AGREEMENT. Any Guarantor shall revoke or attempt to revoke the Guaranty
Agreement signed by such Guarantor, or shall repudiate such Guarantor's
liability thereunder or shall be in default under the terms thereof.
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10.1.15 CRIMINAL FORFEITURE. Any Obligor shall be
criminally indicted or convicted or any proceeding or investigation shall be
pending or threatened against such Obligor that could lead to a
forfeiture of any material Property of such Obligor.
10.1.16 JUDGMENTS. Either Borrower shall suffer final
judgment or judgments for the payment of money (in excess of insurance
coverage) in excess of $1,000,000 in the aggregate and which remain unpaid,
unvacated, unbonded or unstayed by appeal for a period of 30 days of the
date of entry.
10.2 ACCELERATION OF THE OBLIGATIONS. Without in any way
limiting the right of Lender to demand payment of any portion of the
Obligations payable on demand in accordance with Section 3.2 hereof, upon or at
any time during the existence of an Event of Default, all or any portion of the
Obligations shall, at the option of Lender and without presentment, demand
protest or further notice by Lender, become at once due and payable and
Borrowers shall forthwith pay to Lender, the full amount of such
Obligations, PROVIDED, that upon the occurrence of an Event of Default
specified in subsection 10.1.9 hereof (other than an Event of Default based
solely on an Obligor's ceasing to be Solvent), all of the Obligations shall
become automatically due and payable without declaration, notice or
demand by Lender.
10.3 OTHER REMEDIES. During the existence of an Event of
Default, Lender shall have and may exercise from time to time the
following rights and remedies:
10.3.1 All of the rights and remedies of a secured
party under the Code or under other applicable law, and all other legal and
equitable rights to which Lender may be entitled, all of which rights and
remedies shall be cumulative and shall be in addition to any other rights
or remedies contained in this Agreement or any of the other Loan
Documents, and none of which shall be exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrowers to assemble the
Collateral, at Borrowers' expense, and make it available to Lender at a place
designated by Lender which is reasonably convenient to both parties, and
(ii) enter any premises where any of the Collateral shall be located and to
keep and store the Collateral on said premises until sold (and if said
premises be the Property of Borrowers, Borrowers agree not to charge Lender
for storage thereof).
10.3.3 The right to sell or otherwise dispose of all
or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on
credit, all as Lender, in its sole discretion, may deem advisable. Each
Borrower agrees that 10 days written notice to Borrowers of any public or
private sale or other disposition of Collateral shall be reasonable notice
thereof, and such sale shall be at such locations as Lender may designate in
said notice. Lender shall have the right to conduct such sales on
Borrowers' premises, without charge therefor, and such sales may be
adjourned from time to time in accordance with applicable law. Lender shall
have the right to sell, lease or otherwise dispose of the Collateral, or
any part thereof, for cash, credit or any combination thereof, and private
sale and, in lieu of actual payment of such purchase price, may set off the
amount of such price against the Obligations. The proceeds realized from
the sale of any Collateral may be applied, upon
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Lender's obtaining cleared funds, first to the costs, expenses
and attorneys' fees incurred by Lender in collecting the Obligations,
in enforcing the rights of Lender under the Loan Documents and in
collecting, retaking, completing, protecting, removing, storing, advertising
for sale, selling and delivering any Collateral, second to the interest due
upon any of the Obligations; and third, to the principal of the
Obligations (with the application to each Loan to be in the sole discretion of
Lender). If any deficiency shall arise, each Borrower shall remain jointly
and severally liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other
right to use, without charge, each Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, tradenames, trademarks and
advertising matter, or any Property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any Collateral
and each Borrower's rights under all licenses and all franchise agreements
shall inure to Lender's benefit to the extent permitted under such
agreements.
10.3.5 Lender may, at its option, require Borrowers
to deposit with Lender funds equal to the LC Amount and, if Borrowers fail
to promptly make such deposit, Lender may advance such amount as a Revolving
Credit Loan (whether or not an Overadvance is created thereby). Any
such deposit or advance shall be held by Lender as cash collateral to fund
future payments on LC Guaranties and future drawings against Letters of
Credit. At such time as all LC Guaranties have been paid or terminated
and all Letters of Credit have been drawn upon or expired, any amounts
remaining in such reserve shall be applied against any outstanding
Obligations, or, if all Obligations have been indefeasible paid in full,
returned to Borrowers.
10.3.6 Lender may, at its option, require Borrowers
to execute and deliver to Lender formal written assignments of all of its
Accounts from time to time, which shall include all Accounts that have
been created since the date of the last assignment, together with copies of
invoices or invoice registers related thereto, which requirement, whether or
not exercised, shall not limit, impair or affect the grant of a
security interest on all Accounts under Section 5 hereof.
10.4 REMEDIES CUMULATIVE; NO WAIVER. All covenants,
conditions, provisions, warranties, guaranties, indemnities, and other
undertakings of Borrowers contained in this Agreement and the other Loan
Documents, or in any document referred to herein or contained in any agreement
supplementary hereto or in any schedule or in any guaranty agreement given to
Lender or contained in any other agreement between Lender and any Obligor,
heretofore, concurrently, or hereafter entered into, shall be
deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrowers herein
contained. The failure or delay of Lender to require strict performance by
Obligors of any provision of this Agreement or to exercise or enforce any
rights, Liens, powers, or remedies hereunder or under any of the aforesaid
agreements or other documents or security or Collateral shall not operate as a
waiver of such performance, Liens, rights, powers and remedies, but all
such requirements, Liens, rights, powers, and remedies shall continue
in full force and effect until all Loans and all other Obligations owing
or to become owing from Borrowers to Lender shall have been fully
satisfied. None of the undertakings, agreements, warranties, covenants and
representations of Obligors contained in this Agreement or any of
the other Loan Documents and no Event of Default by Obligors under this
Agreement or any other Loan Documents shall be
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deemed to have been suspended or waived by Lender, unless such
suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of
Lender and directed to Obligors.
10.5 CURE. Nothing contained in this Agreement or the other
Loan Documents shall be deemed to compel Lender to accept a cure of,
or waive any, Event of Default at any time for any reason.
SECTION 11. MISCELLANEOUS
11.1 POWER OF ATTORNEY. Each Borrower hereby irrevocably
designates, makes, constitutes and appoints Lender (and all Persons
designated by Lender) as such Borrower's true and lawful attorney (and agent-in-
fact) and Lender, or Lender's agent, may, without notice to Borrowers and
in either such Borrower's or Lender's name, but at the cost and expense of
Borrowers:
11.1.1 At any time, and from time to time, as Lender
or said agent, in its sole discretion, may determine, endorse either
Borrower's name on any checks, notes, acceptances, drafts, money orders or
any other evidence of payment or proceeds of the Collateral which come into
the possession of Lender or under Lender's control.
11.1.2 At such time or times upon or after the
occurrence of an Event of Default and an acceleration of the Obligations as
Lender or its agent in its sole discretion may determine: (i) demand payment of
the Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally exercise all of
Borrowers' rights and remedies with respect to the collection of the Accounts
; (ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the
Accounts or other Collateral; (iii) sell or assign any of the Accounts and
other Collateral upon such terms, for such amounts and at such time or
times as Lender deems advisable; (iv) take control, in any manner, of any
item of payment or proceeds relating to any Collateral; (v) prepare, file
and sign either Borrower's name to a proof of claim in bankruptcy or
similar document against any Account Debtor or to any notice of lien,
assignment or satisfaction of lien or similar document in connection with any
of the Collateral; (vi) receive, open and dispose of all mail addressed
to Borrowers and to notify postal authorities to change the address
for delivery thereof to such address as Lender may designate; (vii)
endating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of either Borrower upon
any chattel paper, document, instrument, invoice, freight bill, bill
of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (ix) use either Borrower's stationery and
sign the name of either Borrower's to verifications of the Accounts and
notices thereof to Account Debtors; (x) use the information recorded on
or contained in any data processing equipment and computer hardware
and software relating to the Accounts, Inventory, Equipment and any
other Collateral; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary, in Lender's
determination, to fulfill each Borrower's obligations under this Agreement.
11.2 INDEMNITY. Each Borrower hereby agrees to indemnify
Lender and hold Lender harmless from and against any liability, loss,
damage, suit, action or proceeding ever suffered
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or incurred by Lender (including reasonable attorneys' fees and
legal expenses) as the result of either Borrower's failure to observe,
perform or discharge such Borrower's duties hereunder. In addition, each
Borrower shall defend Lender against and save it harmless from all claims
of any Person with respect to the Collateral. Without limiting the
generality of the foregoing, these indemnities shall extend to any claims
asserted against Lender by any Person under any Environmental Laws or
similar laws by reason of any Borrower's or any other Person's failure to
comply with laws applicable to solid or hazardous waste materials or other
toxic substances. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrowers under this Section 11.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.
11.3 MODIFICATION OF AGREEMENT; SALE OF INTEREST. This
Agreement may not be modified, altered or amended, except by an agreement in
writing signed by Borrowers and Lender. No Borrower may sell, assign or
transfer any interest in this Agreement, any of the other Loan Documents,
or any of the Obligations, or any portion thereof, including, without
limitation, either Borrower's rights, title, interests, remedies, powers, and
duties hereunder or thereunder. Each Borrower hereby consents to
Lender's participation, sale, assignment, transfer or other disposition,
at any time or times hereafter, of this Agreement and any of the other Loan
Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In the case of an assignment, the assignee shall
have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were "Lender" hereunder and Lender shall be
relieved of all obligations hereunder upon any such assignments. Each Borrower
agrees that it will use its best efforts to assist and cooperate with Lender
in any manner reasonably requested by Lender to effect the sale of
participations in or assignments of any of the Loan Documents or any portion
thereof or interest therein, including, without limitation, assisting in the
preparation of appropriate disclosure documents. Borrowers
further agree that Lender may disclose credit information regarding Borrowers
to any potential participant or assignee. Notwithstanding the
foregoing, Lender agrees that it shall not participate, sell, assign, transfer
or dispose of any of its interest in, to and under this Agreement or any of the
other Loan Documents prior to the second anniversary of the date
hereof.
11.4 SEVERABILITY. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
11.5 SUCCESSORS AND ASSIGNS. This Agreement, the Other
Agreements and the Security Documents shall be binding upon and inure to the
benefit of the successors and assigns of Borrowers and Lender permitted
under Section 11.3 hereof.
11.6 CUMULATIVE EFFECT; CONFLICT OF TERMS. The provisions
of the Other Agreements and the Security Documents are hereby made
cumulative with the provisions of this Agreement. Except as otherwise provided
in Section 3.2 hereof and except as otherwise provided in any of the other
Loan Documents by specific reference to the applicable provision of
this Agreement, if any provision contained in this Agreement is in
direct conflict with, or inconsistent with, any
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provision in any of the other Loan Documents, the provision
contained in this Agreement shall govern and control.
11.7 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which counterparts taken together
shall constitute but one and the same instrument.
11.8 NOTICE. Except as otherwise provided herein, all
notices, requests and demands to or upon a party hereto, to be effective,
shall be in writing and shall be sent by certified or registered mail,
return receipt requested, by personal delivery against receipt, by
overnight courier or by facsimile and, unless otherwise expressly provided
herein, shall be deemed to have been validly served, given or delivered
immediately when delivered against receipt, three Business Days after deposit
in the mail, postage prepaid, one Business Day after deposit with an
overnight courier or, in the case of facsimile notice, when sent, addressed
as follows:
If to Lender: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, CT 06033
Attention: Loan
Administration Manager
Facsimile No.: 860-657-7759
With a copy to: Blank Rome Comisky & McCauley
One Logan Square
Philadelphia, PA 19103
Attention: Harvey I. Forman, Esq.
Facsimile No.: 215-569-5555
If to either Borrower: Hahn Automotive Warehouse, Inc.
415 West Main Street
Rochester, NY 14608
Attention: Eli Futerman, President
Facsimile No.: 716-235-3108
With a copy to: Woods, Oviatt, et al.
2 State Street
Rochester, NY 14614
Attention: Gordon Forth, Esquire
Facsimile No.: 716-454-3968
or to such other address as each party may designate for itself
by notice given in accordance with this Section 11.8; PROVIDED, HOWEVER,
that any notice, request or demand to or upon Lender pursuant to
subsections 2.1.1, 3.1.1 and 4.2.2 hereof shall not be effective until received
by Lender.
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11.9 LENDER'S CONSENT. Whenever Lender's consent is
required to be obtained under this Agreement, any of the Other Agreements or any
of the Security Documents as a condition to any action, inaction,
condition or event, Lender shall be authorized to give or withhold such
consent in its sole and absolute discretion and to condition its consent upon
the giving of additional collateral security for the Obligations, the
payment of money or any other matter.
11.10 CREDIT INQUIRIES. Each Borrower hereby authorizes and
permits Lender to respond (in its discretion and without any obligation
to do so) to usual and customary credit inquiries from third parties
concerning Borrowers.
11.11 TIME OF ESSENCE. Time is of the essence of this
Agreement, the Other Agreements and the Security Documents.
11.12 ENTIRE AGREEMENT. This Agreement and the other Loan
Documents, together with all other instruments, agreements and certificates
executed by the parties in connection therewith or with reference thereto,
embody the entire understanding and agreement between the parties hereto
and thereto with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and inducements, whether
express or implied, oral or written.
11.13 INTERPRETATION. No provision of this Agreement or any
of the other Loan Documents shall be construed against or interpreted to
the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party having or being
deemed to have structured or dictated such provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK,
THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND
THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH
COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW
YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND
REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF BORROWERS, EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE
STATE COURTS OF NEW YORK, OR, AT LENDER'S OPTION, THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NEW YORK, SHALL
HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN BORROWERS AND LENDER PERTAINING TO THIS AGREEMENT OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. EACH
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
EACH BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
37
<PAGE>
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWERS AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE
SO MADE SHALL BE DEEMED COMPLETED UPON BORROWERS' ACTUAL RECEIPT
THEREOF. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY
LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
TAKING OF ANY ACTION TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
11.15 WAIVERS BY BORROWERS. EACH BORROWER WAIVES (i)
THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR
ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH EITHER BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii)
NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL
OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES;
(iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS;
AND (v) NOTICE OF ACCEPTANCE HEREOF. EACH BORROWER ACKNOWLEDGES
THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S
ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE
FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWERS. EACH
BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY
WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
11.16 JOINT AND SEVERAL LIABILITY. The liability of each of
the entities comprising the "Borrowers" hereunder shall be joint and
several.
38
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed
on the day and year specified at the beginning of this Agreement.
ATTEST: HAHN AUTOMOTIVE WAREHOUSE,
INC.
By:
Title:
ATTEST: MEISENZAHL AUTO PARTS, INC.
By:
Title:
FLEET CAPITAL CORPORATION
("Lender")
By:
Title:
39
<PAGE>
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as
of October 22, 1997, by and among Fleet Capital Corporation, Hahn Automotive
Warehouse, Inc., Meisenzahl Auto Parts, Inc., the following terms
shall have the following meanings (terms defined in the singular to
have the same meaning when used in the plural and vice versa):
ACCOUNT DEBTOR - any Person who is or may become
obligated under or on account of an Account.
ACCOUNTS - all accounts, contract rights, chattel
paper, instruments and documents, whether now owned or hereafter
created or acquires by either Borrower or in which either Borrower now
has or hereafter acquired any interest.
ADJUSTED NET EARNINGS - with respect to any fiscal
period, means the net earnings (or loss) for such fiscal period of the
Borrowers, as reflected on the Consolidated financial statement of the
Borrowers supplied to Lender pursuant to subsection 8.1.3 of the
Agreement, but excluding:
(i) any gain or loss arising from the sale of capital
assets;
(ii) any gain arising from any write-up of assets;
(iii) net earnings or losses of any Subsidiary of
either Borrower accrued prior to the date it became a Subsidiary;
(iv) net earnings or losses of any corporation,
substantially all the assets of which have been acquired in any
manner by a Borrower, realized by such corporation prior to the
date of such acquisition;
(v) net earnings or losses (to the extent either
Borrower is required to fund such losses) of any business entity in
which either Borrower has an ownership interest unless such
net earnings shall have actually been received by Borrowers
in the form of cash distributions;
(vi) any portion of the net earnings of any Subsidiary
of either Borrower which for any reason is unavailable for
payment of dividends to a Borrower;
(vii) the net earnings or losses of any Person to which
any assets of the Borrowers shall have been sold,
transferred or disposed of, or into which either Borrower shall have
merged, or been a party to any consolidation or other form of
reorganization, prior to the date of such transaction;
i
<PAGE>
(viii) any gain arising from the acquisition of any
Securities of a Borrower; and
(ix) any gain arising from extraordinary or non-
recurring items.
ADJUSTED LIBOR RATE - For any LIBOR Interest Period, as
applied to a LIBOR Rate Loan, the rate per annum (rounded upwards,
if necessary to the next 1/16 of 1%) determined pursuant to the
following formula:
Adjusted Libor Rate = LIBOR RATE 1.00 - Reserve Percentage)
For purposes hereof, "Libor Rate" shall mean the arithmetic
average of the rates of interest per annum (rounded upwards, if
necessary to the next 1/16 of 1%) at which Bank is offered deposits of United
States Dollars in the interbank eurodollar loan market on or about
2:00 P.M. New York, New York time two (2) Business Days prior to the
commencement of such LIBOR Interest Period on amounts
substantially equal to the LIBOR Rate Loan as to which Borrowers may elect
the Adjusted LIBOR Rate to be applicable with a maturity of
comparable duration to the LIBOR Interest Period selected by Borrowers
for such LIBOR Rate Loan.
ADJUSTMENT PERIOD - (i) the period from the first day
of the calendar month next following the date the June 30, 1998
internally prepared financial statements have been delivered to Lender
to the first day of the calendar month next following the date the
September 30, 1998 audited financial statements have been
delivered to Lender and thereafter (ii) the twelve (12) calendar month
period following a Measurement Period commencing with the first
calendar month next following the calendar month for which the annual
financial statements required by Section 8.1.3(ii) hereof for the
immediately preceding fiscal year end have been delivered by Borrowers
to Lender.
AFFILIATE - a Person (other than a Subsidiary): (i)
which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, a Person;
(ii) which beneficially owns or holds 25% (or, when used in the
definition of Eligible Account, 5%) or more of any class of the Voting
Stock of a Person; or (iii) 25% (or, when used in the definition of
Eligible Account, 5%) or more of the Voting Stock (or in the case of
a Person which is not a corporation, 25% (or, when used in the
definition of Eligible Account, 5%) or more of the equity interest) of
which is beneficially owned or held by a Person or a Subsidiary of a
Person.
AGREEMENT - the Loan and Security Agreement referred to
in the first sentence of this Appendix A, all Exhibits thereto and
this Appendix A.
AGGREGATE ADJUSTED AVAILABILITY - as of any applicable
measurement date, an amount equal to the then applicable
Borrowing Base LESS (b) the sum of (i) the amount of Revolving Credit
Loans and the LC Amount outstanding on such date PLUS (ii) as of such
date, all sums due and owing to trade creditors which remain
outstanding beyond
ii
<PAGE>
normal trade terms (as set forth in this Agreement) or
special terms granted by trade creditors, PLUS (iii) any reserves against
the Borrowing Base permitted by Section 1.1 hereof in effect on
such date, PLUS (iv) closing payments and expenses with respect
to any determination hereof, as of the Closing Date (and only to be
considered if the applicable determination date is the
Closing Date).
APPLICABLE MARGIN -
(i) with respect to LIBOR Rate Loans, 200 basis
points during the period from the date hereof through but not
including the first day of the first Adjustment Period after June 30,
1998, and thereafter the following basis points during the following
Adjustment Periods:
<TABLE>
<CAPTION>
Basis Points Adjustment
Period
<S> <C> <C>
175 During any Adjustment
Period next following
a Measurement Period in
which the Borrowers'
Fixed Charge Coverage Ratio
equaled or
exceeded 1.40 to 1.0.
200 During any Adjustment
Period next following
a Measurement Period in
which the Borrowers'
Fixed Charge Coverage Ratio
equaled or
exceeded 1.26 to 1.0 and
was less than or
equal to 1.39 to 1.0
225 During any Adjustment
Period next following
a Measurement Period in
which the Borrowers'
Fixed Charge Coverage Ratio
equaled or
exceeded 1.10 to 1.0 and
was less than or
equal to 1.25 to 1.0
250 During any Adjustment
Period next following
a Measurement Period in
which the Borrowers'
Fixed Charge Coverage Ratio
was less than or
equaled 1.09 to 1.0
</TABLE>
(ii) With respect to Floating Rate Loans, 50 basis
points during the period from the date hereof through and including the first
day of the first Adjustment Period after June 30, 1998, and thereafter the
following basis points during the following Adjustment Periods:
<TABLE>
<CAPTION>
Basis Points ADJUSTMENT
PERIOD
<S> <C> <C>
0 During any Adjustment Period
next following a
Measurement Period in which
the Borrowers'
Fixed Charge Coverage Ratio
equaled or
exceeded 1.40 to 1.0.
25 During any Adjustment
Period next following
a Measurement Period in
which the Borrowers'
Fixed Charge Coverage Ratio
equaled or
exceeded 1.26 to 1.0 and
was less than or
equal to 1.39 to 1.0
50 During any Adjustment
Period next following
a Measurement Period in
which the Borrowers'
Fixed Charge Coverage Ratio
equaled or
exceeded 1.10 to 1.0 and
was less than or
equal to 1.25 to 1.0
75 During any Adjustment
Period next following
a Measurement Period in
which the Borrowers'
Fixed Charge Coverage Ratio
was less than or
equaled 1.09 to 1.0
</TABLE>
For purposes of the foregoing, (i) the Borrower's Fixed
Charge Coverage Ratio will be determined by reference to the
financial statements to be delivered to Lender pursuant to Section
8.1.3 hereof, (ii) the Applicable Margin applicable to any LIBOR Rate Loan
will change during the related LIBOR Interest Period should there
be a change required in accordance with the foregoing and
effective upon any change in the Applicable Margin in accordance with the
foregoing during such LIBOR Interest Period, (iii) the Applicable
Margin for any Adjustment Period will remain fixed for such Adjustment
Period, and (iv) the Applicable Margin for any Adjustment Period for
which Borrowers fail to provide financial statements for the
related Measurement Period in accordance with Section 8.1.3(i)
hereof will, subject to Section 2.1.2 hereof, be 25 basis points higher
than the Applicable Margin in effect during the then most recent
Adjustment Period for which such financial statements for the related
Measurement Period were provided. Notwithstanding the foregoing there
shall be no reductions in the amount of the Applicable Margin during the
existence of a Default or an Event of Default.
AVAILABILITY - the amount of money which Borrowers are
entitled to borrow from time to time as Revolving Credit Loans, such
amount being the difference derived when the principal amount of
Revolving Credit Loans then outstanding (including any amounts which
Lender may have paid for the account of Obligors pursuant to any of the
Loan Documents and which have not been reimbursed by Borrowers),
any established reserves and the LC Amount is subtracted from
the Borrowing Base. If the amount outstanding is equal to or
greater than the Borrowing Base, Availability is 0.
BANK - Fleet National Bank, or such other bank as
Lender may hereafter designate.
BASE RATE - the rate of interest announced or quoted by
Bank from time to time as its prime rate for commercial loans, whether
or not such rate is the lowest rate charged by Bank to its most
preferred borrowers; and, if such prime rate for commercial loans is
discontinued by Bank as a standard, a comparable reference
rate designated by Bank as a substitute therefor shall be the
Base Rate.
iii
<PAGE>
BASE RATE LOAN - that portion of the Loans that bears
interest at the Floating Rate.
BORROWING BASE - as at any date of determination
thereof, an amount equal to the lesser of:
(i) an amount equal to (a) the difference between
(A) $50,000,000 and (B) the principal balance outstanding
under the Term Loan and the Supplemental Availability Loan MINUS
(b) the LC Amount; or
(ii) an amount equal to:
(a) the lesser of (1) $20,000,000 or (2) 70% of
the net amount of Eligible Accounts outstanding at such
date;
PLUS
(b) the lesser of (1) $37,500,000 or (2) 60% of
the value at such date of Eligible Inventory, in each case
calculated on the basis of the lower of cost or market with the
cost of finished goods calculated on a first-in, first-out
basis; and MINUS
(c) any reserves established by Lender pursuant
to Section 1.1 of the Agreement (it being understood
that if any Account or Inventory is excluded from the Borrowing
Base hereunder, no reserve may be taken with respect to
such matter);
MINUS
(d) an amount equal to one hundred (100%)
percent of the face amount of all outstanding standby Letters of
Credit and LC Guaranties related to standby Letters of Credit;
and MINUS
(e) fifty (50%) percent of the face amount of
all outstanding commercial Letters of Credit and LC
Guaranties related to commercial Letters of Credit.
For purposes hereof, the net amount of Eligible
Accounts at any time shall be the face amount of such Eligible Accounts less
any and all returns, rebates, discounts (which may, at Lender's
option, be calculated on shortest terms), credits, allowances or excise
taxes of any nature at any time issued, owing, claimed by Account
Debtors, granted, outstanding or payable in connection with such
Accounts at such time as well as finance
iv
<PAGE>
charges. For the purposes of the preceding sentence, the
amount of finance charges shall be deemed to be three (or such other
multiple as FCC may determine based upon the results of its audit) times
the preceding month's finance charge income.
BORROWING BASE CERTIFICATE - the certificate signed by
the chief executive or chief financial officer of Borrowers showing
the status of Borrowers' Accounts and Inventory, outstanding Revolving
Credit Loans and other information in the form of EXHIBIT A-1 to
the Agreement.
BUSINESS DAY - any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of New
York or is a day on which banking institutions located in such state
are closed.
CAPITAL EXPENDITURES - expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a useful life
of more than one year, including the total principal portion of
Capitalized Lease Obligations, except for leases with Affiliates
expected to be recapitalized by December, 1997.
CAPITALIZED LEASE OBLIGATION - any Indebtedness
represented by obligations under a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
CASH FLOW - for any period, means Borrowers' EBITDA
MINUS (i) taxes paid for such period MINUS (ii) unfinanced Capital
Expenditures MINUS, (iii) scheduled principal payments on account of
current maturities of long-term Indebtedness MINUS, (iv) principal
payments on Capitalized Lease Obligations and MINUS (v) Interest
Expense, all as determined in accordance with GAAP.
CHATTEL PAPER - as defined in the Code.
CLOSING DATE - the date on which all of the conditions
precedent in Section 9 of the Agreement are satisfied and the initial
Loan is made or the initial Letter of Credit or LC Guaranty is
issued under the Agreement.
CODE - the Uniform Commercial Code as adopted and in
force in the State of New York, as from time to time in effect.
COLLATERAL - all of the Property and interests in
Property described in Section 5 of the Agreement, and all other
Property and interests in Property that now or hereafter secure the
payment and performance of any of the Obligations.
CONSOLIDATED - the consolidation in accordance with
GAAP of the accounts or other items as to which such term applies.
v
<PAGE>
DEFAULT - an event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both,
become an Event of Default.
DEFAULT RATE - as defined in subsection 2.1.2 of the
Agreement.
DEPOSIT ACCOUNTS - as defined in the Code.
DISTRIBUTION - in respect of any corporation means and
includes:
(i) the payment of any dividends or other distributions on
capital stock of the corporation (except distributions in such
stock) and (ii) the redemption or acquisition of Securities unless made
contemporaneously from the net proceeds of the sale of
Securities.
DOCUMENTS - as defined in the Code.
DOMINION ACCOUNT - a special account of Lender
established by Borrowers pursuant to the Agreement at a bank selected by
Borrowers, but acceptable to Lender in its reasonable discretion, and
over which Lender shall have sole and exclusive access and control for
withdrawal purposes.
EBITDA - Adjusted Net Earnings plus the sum of
depreciation, amortization and Interest Expense during the period for
which Adjusted Net Earnings was calculated and plus or minus any change in
Borrowers' LIFO reserve from the immediately preceding period of
measurement, determined on a consolidated basis for the Borrowers.
ELIGIBLE ACCOUNT - an Account arising in the ordinary
course of either Borrower's business from the sale of goods or
rendition of services, provided that no Account shall be an Eligible
Account if:
(i) it arises out of a sale made by a Borrower to
a Subsidiary or an Affiliate of a Borrower or to a Person
controlled by an Affiliate of a Borrower; or
(ii) it is due or unpaid more than 90 days after
the original statement date or more than 60 days after the
due date provided, however, that a dated account (if otherwise
eligible) shall be eligible so long as it is unpaid less than 60
days past the specified payment date and so long as advances
against dated accounts do not exceed an aggregate principal amount
outstanding at any one time in excess of $1,750,000; or
(iii) 50% or more of the Accounts from the Account
Debtor are not deemed Eligible Accounts hereunder; or
(iv) the total unpaid Accounts of the Account
Debtor exceed 20% of the net amount of all Eligible Accounts, to the
extent of such excess; or
vi
<PAGE>
(v) any covenant, representation or warranty
contained in the Agreement with respect to such Account has been
breached; or
(vi) the Account Debtor is also a Borrower's
creditor or supplier, or the Account Debtor has disputed liability
with respect to such Account, or the Account Debtor has made
any claim with respect to any other Account due from such Account
Debtor to a Borrower, or the Account otherwise is or may become
subject to any right of setoff by the Account Debtor; or
(vii) the Account Debtor has commenced a voluntary
case under the federal bankruptcy laws, as now constituted
or hereafter amended, or made an assignment for the
benefit of creditors, or a decree or order for relief has been
entered by a court having jurisdiction in the premises in respect of
the Account Debtor in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter
amended, or any
other petition or other application for relief under
the federal bankruptcy laws has been filed against the Account
Debtor, or ifthe Account Debtor has failed, suspended business,
ceased to be Solvent, or consented to or suffered a receiver,
trustee, liquidator or custodian to be appointed for it or for
all or a significant portion of its assets or affairs; or
(viii) it arises from a sale to an Account Debtor
outside the United States, unless the sale is on letter of
credit, guaranty or acceptance terms, in each case acceptable
to Lender in its sole discretion; or
(ix) it arises from a sale to the Account Debtor
on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-
approval, consignment or any other repurchase or return basis; or
(x) the Account Debtor is the United States of
America or any department, agency or instrumentality thereof,
unless the applicable Borrower assigns its right to payment of
such Account to Lender, in a manner reasonably satisfactory to
Lender, so as to comply with the Assignment of Claims Act of 1940 (31
U.S.C. <section>203 ET SEQ., as amended); or
(xi) the Account is not at all times subject to
Lender's duly perfected, first priority security interest
(through no fault of Lender) or is subject to a Lien other than a
Permitted Lien; or
(xii) the goods giving rise to such Account have
not been delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been performed by
the applicable Borrower and accepted by the Account Debtor
or the Account otherwise does not represent a final sale; or
(xiii) the Account is evidenced by chattel paper
or an instrument of any kind, or has been reduced to
judgment; or
vii
<PAGE>
(xiv) the applicable Borrower has made any
agreement with the Account Debtor for any deduction therefrom, except
for discounts or allowances which are made in the ordinary
course of business for prompt payment and which discounts or
allowances are reflected in the calculation of the face value of each
invoice or any statement (or attachment thereto) related to such
Account; or
(xv) the Account is otherwise deemed unacceptable
by Lender in its reasonable discretion.
ELIGIBLE INVENTORY - raw materials or finished goods
Inventory of either Borrower, provided that no Inventory shall be
Eligible Inventory if:
(i) it is not new and in good, saleable condition;
or
(ii) it is obsolete or unmerchantable; or
(iii) it does not meet all standards imposed by
any governmental agency or authority; or
(iv) it does not conform in all respects to the
warranties and representations set forth in the Agreement, or
(v) it is not at all times subject to Lender's
duly perfected, first priority security interest (through no
fault of Lender) or is subject to a Lien other than a Permitted
Lien; or
(vi) it is not situated at a location listed on
Exhibit 6.1.1; or
(vii) Lender has not received a landlord's waiver
acceptable to Lender as to the location where the inventory is
located, unless Lender has created a reserve with respect
thereto under the Borrowing Base; or
(ix) it is slow moving inventory (meaning such
portion of Borrowers' Inventory in excess of a twelve month
supply); or
(viii) it is otherwise deemed unacceptable by
Lender in its reasonable discretion.
ENVIRONMENTAL LAWS - all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidelines,
orders and consent decrees relating to health, safety and environmental
matters.
EQUIPMENT - all machinery, apparatus, equipment,
fittings, furniture, fixtures, motor vehicles and other tangible
personal Property (other than Inventory) of every kind and
description used in either Borrower's operations or owned by a Borrower or in
which a Borrower has an interest, whether now owned or hereafter
acquired by either Borrower
viii
<PAGE>
and wherever located, and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
ERISA - the Employee Retirement Income Security Act of
1974, as amended, and all rules and regulations from time to time
promulgated thereunder.
EVENT OF DEFAULT - as defined in Section 10.1 of the
Agreement.
EXCESS CASH FLOW PAYMENT - as defined in Section 3.3.3
of the Agreement.
FIXED CHARGES - for any applicable period, without
duplication, (i) Interest Expense for such period, PLUS (ii) scheduled
payments of principal of all Indebtedness of the Borrowers during such
period (including, without limitation, that portion of any
Capitalized Lease Obligations attributable to principal amortization in
accordance with GAAP), PLUS (iii) all cash payments made during such period
on account of federal and state taxes based on or measured by the net
income of the Borrowers PLUS (iv) all cash payments in satisfaction of
liability of AutoWorks, Inc., PLUS (v) all unfinanced Capital
Expenditures, provided, however, that Capital Expenditures shall not be
included in the foregoing calculation as long as Aggregate Adjusted
Availability equals at least $3,000,000 at all times PLUS (vi) all
Distributions, all as determined for the Borrowers on a consolidated basis
inaccordance with GAAP.
FIXED CHARGE COVERAGE RATIO - the ratio obtained by
dividing the sum of EBITDA by Fixed Charges, as determined on a
consolidated basis for Borrowers for the applicable periods.
FLOATING RATE - a per annum rate equal to the sum of
the Base Rate plus the Applicable Margin.
FLOATING RATE LOAN - that portion of the Loans on which
interest accrues at the Floating Rate.
GAAP - generally accepted account principles in the
United States of America in effect from time to time.
GENERAL INTANGIBLES - all personal property of either
Borrower (including without limitation, patents, trademarks, service
marks, tradenames, copyrights, licenses, contract rights, tax,
insurance and other refunds, deposits, books and records, customer rights,
claims and choses in action) other than goods, Accounts, chattel
paper, documents, instruments and money, whether now owned or
hereafter created or acquired by a Borrower.
GUARANTOR - any Person who may now or hereafter
guarantee payment or performance of the whole or any part of the Obligations,
including Michael Futerman.
INDEBTEDNESS - as applied to a Person means, without
duplication
ix
<PAGE>
(i) all items which in accordance with GAAP would
be included in determining total liabilities as shown on
the liability side of a balance sheet of such Person as at
the date as of which Indebtedness is to be determined,
including, without limitation, Capitalized Lease Obligations,
(ii) all obligations of other Persons which such
Person has guaranteed,
(iii) all reimbursement obligations in connection
with letters of credit or letter of credit guaranties issued
for the account of such Person, and
(iv) in the case of Borrowers (without
duplication), the
Obligations.
INSTRUMENTS - as defined in the Code.
INTEREST EXPENSE - for any period, all amounts which,
in conformity with GAAP, should be included as interest expense
on a consolidated statement of operations of the Borrowers for
such period, including in any event, without limitation, interest accrued
on the Loans, interest accrued in respect of all Subordinated Debt,
that portion of any Capitalized Lease Obligations attributable to
interest expense in accordance with GAAP, debt issuance costs
(excluding any original issue discount on the Subordinated Notes and any
debt issuance costs incurred on or prior to the date hereof with
respect to the Subordinated Notes and the Loans) and capitalized
interest accrued during such period, all commissions, all discounts and other
fees and charges accrued with respect to letters of credit and
bankers' acceptance financing and net costs under interest rate
protection agreements (including amortization of such costs), all as
determined for the Borrowers on a consolidated basis for such period in
accordance with GAAP.
INVENTORY - all of either Borrower's inventory, whether
now owned or hereafter acquired including, but not limited to, all
goods intended for sale or lease by a Borrower, or for display or
demonstration; all work in process; all raw materials and
other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, printing,
packing, shipping, advertising, selling, leasing or furnishing of
such goods or otherwise used or consumed in either Borrower's business;
and all documents evidencing and General Intangibles relating to any
of the foregoing, whether now owned or hereafter acquired by a
Borrower.
INVESTMENT - any investment made in cash or by delivery
of Property to any Person, whether by acquisition of stock,
Indebtedness or other obligation or Security, or by loan, advance or
capital contribution, or otherwise, or in any Property.
INVESTMENT PROPERTY - as defined in the Code.
LC AMOUNT - at any time, the aggregate undrawn face
amount of all Letters of Credit and LC Guaranties then outstanding.
LC CAP - $2,000,000.
x
<PAGE>
LC GUARANTY - any guaranty pursuant to which Lender or
any Affiliate of Lender shall guaranty the payment or
performance by either Borrower of its reimbursement obligation under any
Letter of Credit.
LETTER OF CREDIT - any letter of credit (including
standby and documentary letters of credit) issued by Lender or any of
Lender's Affiliates for the account of a Borrower.
LIBOR BASED RATE - a per annum rate equal to the sum of
the Adjusted LIBOR Rate plus the Applicable Margin.
LIBOR INTEREST PERIOD - a period of one, two, three or
six months duration during which the LIBOR Based Rate is applicable.
LIBOR RATE LOAN - that portion of the Loans on which
interest accrues at the LIBOR Based Rate.
LIEN - any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on common law, statute or contract.
The term "Lien" shall also include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
Property. For the purpose of the Agreement, a Borrower shall be deemed to
be the owner of any Property which it has acquired or holds subject
to a conditional sale agreement or other arrangement pursuant to
which title to the Property has been retained by or vested in some
other Person for security purposes.
LOAN ACCOUNT - the loan account established on the
books of Lender pursuant to Section 3.6 of the Agreement.
LOAN DOCUMENTS - the Agreement, the Other Agreements
and the Security Documents.
LOANS - all loans and advances of any kind made by
Lender pursuant to the Agreement.
LONDON BUSINESS DAY - any Business Day on which banks
in London, England are open for business.
MATERIAL ADVERSE EFFECT - any specified event,
condition or occurrence as to any one or more Obligors or any of their
Subsidiaries which individually or in the aggregate with any other such
event, condition or occurrence and whether through the effect on
any such Obligor's or Subsidiary's business, Property, prospects,
profits or condition (financial or otherwise) or otherwise, in the
judgment of Lender could reasonably be expected to materially and
adversely effect the financial condition, business or Properties of the
Obligors taken as a whole.
xi
<PAGE>
MAXIMUM CREDIT AMOUNT - an amount equal to the
difference between (i) $50,000,000 and (ii) the outstanding principal balance
of the Term Loan and the Supplemental Availability Loan.
MEASUREMENT PERIOD - the nine (9) month period ending
June 30, 1998, the twelve (12) month period ending September 30, 1998
and each fiscal year thereafter which is applicable in the context of
the respective provision where such term is used to reflect a
period for which the specified calculation is to be made.
MONEY BORROWED - means (i) Indebtedness arising from
the lending of money by any Person to a Borrower; (ii) Indebtedness,
whether or not in any such case arising from the lending by any Person
of money to a Borrower, (A) which is represented by notes payable or
drafts accepted that evidence extensions of credit, (B) which
constitutes obligations evidenced by bonds, debentures, notes or similar
instruments, or (C) upon which interest charges are
customarily paid (other than accounts payable) or that was issued or assumed
as full or partial payment for Property; (iii) Indebtedness that
constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations
with respect to letters of credit or guaranties of letters of
credit and (v) Indebtedness of a Borrower under any guaranty of
obligations that would constitute Indebtedness for Money Borrowed under
clauses (i) through (iii) hereof, if owed directly by a Borrower.
MORTGAGOR - any mortgagor of real property mortgaged to
secure the Guarantor's obligations and liabilities to Lender.
MULTIEMPLOYER PLAN - has the meaning set forth in
Section 4001(a)(3) of ERISA.
NOTES - collectively, the Revolving Credit Note, the
Term Loan Note and the Supplemental Availability Line Note and any
amendment, modification, supplement or replacement of or for any of the
foregoing.
OBLIGATIONS - all Loans and all other advances, debts,
liabilities, obligations, covenants and duties, together
with all interest, fees and other charges thereon, owing, arising,
due or payable from Borrowers to Lender of any kind or nature,
present or future, whether or not evidenced by any note, guaranty or
other instrument, whether arising under the Agreement or any of
the other Loan Documents or otherwise whether direct or indirect
(including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter
arising and however acquired (including without limitation,
reimbursement obligations concerning Letters of Credit and LC Guaranties).
OBLIGORS - collectively, each Borrower, Guarantor and
Mortgagor.
OPERATING LEASE - any lease of real or personal
Property (other than leases the lessee's obligations under which are
Capitalized Lease Obligations).
ORIGINAL TERM - as defined in Section 4.1 of the
Agreement.
xii
<PAGE>
OTHER AGREEMENTS - any and all agreements, instruments
and documents (other than the Agreement and the Security
Documents), heretofore, now or hereafter executed by any Obligor or any
other third party and delivered to Lender in respect of the
transactions contemplated by the Agreement.
OVERADVANCE - the amount, if any, by which the sum of
the outstanding principal amount of Revolving Credit Loans PLUS
the LC Amount exceeds the Borrowing Base.
PARTICIPATING LENDER - each Person who shall be granted
the right by Lender to participate in any of the Loans described in
the Agreement and who shall have entered into a participation
agreement in form and substance satisfactory to Lender.
PERMITTED LIENS - any Lien of a kind specified in
subsection 8.2.5 of the Agreement.
PERMITTED PURCHASE MONEY INDEBTEDNESS - Purchase Money
Indebtedness of Borrowers incurred after the date hereof
which is secured by a Purchase Money Lien.
PERSON - an individual, partnership, corporation,
limited liability company, joint stock company, land trust, business
trust, or unincorporated organization, or a government or agency or
political subdivision thereof.
PLAN - an employee benefit plan now or hereafter
maintained for employees of Borrower that is covered by Title IV of ERISA.
PROJECTIONS - Borrowers' forecasted consolidated (a)
balance sheets, (b) profit and loss statements, (c) cash flow
statements, and (d) capitalization statements, all prepared in good faith by
Borrowers' management using reasonable assumptions and
formatted consistent with Borrowers' historical financial statements,
together with appropriate supporting details and a statement of
underlying assumptions.
PROPERTY - any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
PURCHASE MONEY INDEBTEDNESS - means and includes (i)
Indebtedness (other than the Obligations) for the payment of all or any
part of the purchase price of any fixed assets, (ii) any Indebtedness
(other than the Obligations) incurred at the time of or within 10 days
prior to or after the acquisition of any fixed assets for the purpose of
financing all or any part of the purchase price thereof, and (iii) any
renewals, extensions or refinancing thereof, but not any increases in
the principal amounts thereof outstanding at the time.
PURCHASE MONEY LIEN - a Lien upon fixed assets which
secures Purchase Money Indebtedness, but only if such Lien shall at
all times be confined solely to the fixed assets the purchase price of
which was financed through the incurrence of the Purchase Money
Indebtedness secured by such Lien.
xiii
<PAGE>
REAL PROPERTY - those certain parcels of real property
to be mortgaged in favor of Lender by Michael Futerman, on terms
and conditions satisfactory to Lender, as more fully described
on Exhibit A-5 to the Agreement.
REGULATION D - Regulation D of the Board of Governors
of the Federal Reserve System, comprising Part 204 of Title 12,
Code of Federal Regulations, as amended, and any successor thereto.
RENEWAL TERMS - as defined in Section 4.1 of the
Agreement.
RENTALS - as defined in subsection 8.2.13 of the
Agreement.
REPORTABLE EVENT - any of the events set forth in
Section 4043(b) of ERISA.
RESERVE PERCENTAGE - for any day, that reserve
(expressed as a decimal) which is in effect (whether or not actually
incurred) with respect to Bank on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor or any other
banking authority to which Bank is subject including any board or
governmental or administrative agency of the United States or any other
jurisdiction to which Bank is subject), for determining the
maximum reserve requirement (including without limitation any basic,
supplemental, marginal or emergency reserves) for Eurocurrency
liabilities as defined in Regulation D.
REVOLVING CREDIT FACILITY - the credit facility for
Revolving Credit Loans made available to Borrowers by Lender pursuant
to Section 1.1 of the Agreement.
REVOLVING CREDIT LOAN - a Loan made by Lender as
provided in Section 1.1 of the Agreement.
REVOLVING CREDIT MATURITY DATE - the last day of the
Original Term or, if any Renewal Term is in effect, then the last day
of such Renewal Term.
REVOLVING CREDIT NOTE - the secured promissory note to
be executed by Borrowers on the Closing Date in favor of Lender
to evidence Borrowers' obligation to repay the Revolving Credit
Loans, which shall be in the form of EXHIBIT A-2 to the Agreement.
SCHEDULE OF ACCOUNTS - as defined in subsection 6.2.1
of the Agreement.
SECURITY - shall have the same meaning as in Section
2(1) of the Securities Act of 1933, as amended.
SECURITY DOCUMENTS - all instruments and agreements now
or at any time hereafter securing the whole or any part of the
Obligations or any other obligations or liabilities of any Obligor to
Lender.
xiv
<PAGE>
SOLVENT - as to any Person, such Person (i) owns
Property whose fair saleable value is greater than the amount required to
pay all of such Person's Indebtedness (including contingent debts),
(ii) is able to pay all of its Indebtedness as such Indebtedness matures
and (iii) has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to
engage.
SPECIFIED OFFICER - The President of each Borrower or
such other officer of a Borrower as the President of either Borrower
may hereafter specify in writing to Lender.
SUBORDINATED CREDITORS - Michael Futerman and Eli N.
Futerman as well as any other Person from time to time becoming a holder
of the Subordinated Notes, and their respective successors and
assigns.
SUBORDINATED DEBT - Indebtedness of the Borrowers to
the Subordinated Creditors evidenced by the Subordinated Notes,
as well as any other Indebtedness of the Borrowers, the holder(s) of
which has executed and delivered to Lender a written subordination
agreement in form and substance acceptable to Lender.
SUBORDINATED NOTES - the restated promissory note in
the face amount of $500,000 dated as of February 1, 1996 from Hahn to
Eli Futerman and the promissory note in the face amount of
$1,650,000 dated as of February 1, 1996 from Hahn to Michael Futerman.
SUBSIDIARY - any corporation of which a Person owns,
directly or indirectly through one or more intermediaries, more than 50%
of the Voting Stock at the time of determination.
SUPPLEMENTAL AVAILABILITY LINE - as defined in Section
1.3 of the Agreement.
SUPPLEMENTAL AVAILABILITY LINE NOTE - the secured
promissory note to be executed by Borrowers on the Closing Date in favor of
Lender to evidence Borrowers' obligation to repay the Supplemental
Availability Loan, which shall be in the form of EXHIBIT A-4 to the
Agreement.
SUPPLEMENTAL AVAILABILITY LOAN - as defined in Section
1.3 of the Agreement.
TANGIBLE ASSETS - the sum of (a) all assets except:
(i) any surplus resulting from any write-up of assets subsequent to
June 30, 1997; (ii) deferred assets, other than prepaid insurance and
prepaid and deferred taxes; (iii) patents, copyrights, trademarks,
trade names, non-compete agreements, franchises and other similar
intangibles; (iv) goodwill, including any amounts, however
designated on a Consolidated balance sheet of a Person or its
Subsidiaries, representing the excess of the purchase price paid for
assets or stock over the value assigned thereto on the books of such Person;
(v) Investments; (vi) unamortized debt discount and expense;
(vii) assets located and notes and receivables due from obligors outside
of the United States of America; (viii) intercompany credit
balances not eliminated in consolidation; (ix) leasehold improvements net
of any related depreci
xv
<PAGE>
ation or amortization; and (x) Accounts, notes and other
receivables due from Affiliates, employees or suppliers and receivables
evidenced by note(s) from customers, PLUS (b) the principal balance
and accrued unpaid interest of Subordinated Debt; in each case
determined a consolidated basis for the Borrowers plus or minus (c)
Borrowers' LIFO reserve.
TANGIBLE NET WORTH - at any date means a sum equal to:
(i) the net book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other proper
reserves) at which the Tangible Assets of a Person would be shown on a
balance sheet at such date in accordance with GAAP, MINUS
(ii) the amount at which such Person's liabilities
(other than capital stock and surplus and Subordinated Debt) and
including as liabilities all reserves for contingencies and other
potential liabilities, all as would be shown on such balance sheet in
accordance with GAAP.
TERM LOAN NOTE - the secured promissory note to be
executed by Borrowers on the Closing Date in favor of Lender to evidence
Borrowers' obligation to repay the Term Loan, which shall be
in the form of EXHIBIT A-3 to the Agreement.
TOTAL CREDIT FACILITY - $50,000,000.
VOTING STOCK - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the
absence of contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
OTHER TERMS. All other terms contained in the
Agreement shall have, when the context so indicates, the meanings provided
for by the Code to the extent the same are used or defined therein.
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to
the Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to cover all
genders.
The section titles, table of contents and list of exhibits
appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor
statutes and regulations. All references to any of the Loan Documents
shall include any and all modifications thereto and any and all
extensions or renewals thereof.
xvi
<PAGE>
LIST OF EXHIBITS
Exhibit A-1 Borrowing Base Certificate
Exhibit A-2 Revolving Credit Note
Exhibit A-3 Term Loan Note
Exhibit A-4 Supplemental Availability Line Note
Exhibit A-5 Real Property to be Mortgaged by Michael Futerman
Exhibit 6.1.1 Borrowers' Business Locations
Exhibit 6.3.1 Locations Where Physical Inventories Performed
Exhibit 7.1.1 Jurisdictions in which each Borrower and each
Subsidiary is Authorized to do Business
Exhibit 7.1.4 Capital Structure of Borrowers
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.9 Title Vehicles
Exhibit 7.1.13 Surety Obligations
Exhibit 7.1.14 Tax Identification Numbers of each Borrower
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrowers' Right to Incur
Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(a) Capitalized Leases
Exhibit 7.1.22(b) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.5 Permitted Liens
xvii
<PAGE>
Exhibit 21 List of Subsidiaries
<PAGE> 66
Exhibit 21
List of Subsidiaries
Autoworks, Inc. - Michigan
Meisenzahl Auto Parts, Inc. - New York
HFV, Inc. - Delaware
<PAGE> 67
Exhibit 23 Consent of Coopers & Lybrand
L.L.P. with respect to Financial Statements
and Financial Statement Schedules (filed
herewith)
<PAGE> 68
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Hahn Automotive Warehouse, Inc. on Form S-8 (File
Nos. 33-81854 and 33-64100) of our report dated November 25,
1997, on our audits of the consolidated financial statements and
financial statement schedule of Hahn Automotive Warehouse, Inc.
as of September 30, 1997 and 1996, and for each of the three
fiscal years in the period ended September 30, 1997, which
reports are included in this Annual Report on Form 10-K.
By: S//Coopers & Lybrand, L.L.P.
Rochester, New York
December 24, 1997
<PAGE> 69
Exhibit 24 Powers of Attorney
<PAGE> 70
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//Michael Futerman
Michael Futerman, Director
<PAGE> 71
POWER OF ATTORNEY
The undersigned officer of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//Albert J. Van Erp
Albert J. Van Erp, Principal
Financial Officer and
Principal
Accounting Officer
<PAGE> 72
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//Daniel J. Chessin
Daniel J. Chessin, Director
<PAGE> 73
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//Ira D. Jevotovsky
Ira D. Jevotovsky, Director
<PAGE> 74
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//Stephen B. Ashley
Stephen B. Ashley, Director
<PAGE> 75
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//William A. Buckingham
William A. Buckingham,
Director
<PAGE> 76
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//Robert I. Israel
Robert I. Israel, Director
<PAGE> 77
POWER OF ATTORNEY
The undersigned director of Hahn Automotive Warehouse,
Inc. (The "Corporation"), does hereby constitute and
appoint Eli N. Futerman, my true and lawful attorney
and agent, to execute the Corporation's Annual Report
on Form 10-K for the Fiscal year ended September 30,
1997, and any and all amendments thereto, and to do any
and all acts and things in my name and on my behalf in
my capacity as an officer of the Corporation, and to
execute any and all instruments for me and in my name
in such capacity which he may deem necessary or
advisable to the Corporation to comply with the
Securities and Exchange Act of 1934, as amended, and
any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection
therewith.
Date: December 19, 1997
By: s//E. Philip Saunders
E. Philip Saunders, Director
<PAGE> 78
Exhibit 27 Selected Financial Data
EXHIBIT 27
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 632 79
<SECURITIES> 0 0
<RECEIVABLES> 16,995 17,052
<ALLOWANCES> 0 0
<INVENTORY> 42,516 41,636
<CURRENT-ASSETS> 65,005 88,879
<PP&E> 5,062 5,608
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 77,792 97,819
<CURRENT-LIABILITIES> 26,257 23,427
<BONDS> 0 0
0 0
0 0
<COMMON> 47 46
<OTHER-SE> 12,364 33,499
<TOTAL-LIABILITY-AND-EQUITY> 77,792 97,819
<SALES> 142,241 138,395
<TOTAL-REVENUES> 142,241 138,395
<CGS> 86,966 86,077
<TOTAL-COSTS> 48,002 42,813
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (22,726) (1,294)
<INTEREST-EXPENSE> 4,670 4,402
<INCOME-PRETAX> 2,602 5,103
<INCOME-TAX> 1,011 1,950
<INCOME-CONTINUING> 1,591 3,153
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,591 3,153
<EPS-PRIMARY> (4.45) (0.39)
<EPS-DILUTED> (4.45) (0.39)
</TABLE>
