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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
| X | Quarterly Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
--------------------------------------------------
or
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-21196
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Mothers Work, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 133045573
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
456 North 5th Street, Philadelphia, Pennsylvania 19123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 873-2200
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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Common Stock, $.01 par value - 3,571,213 shares
outstanding as of April 17, 1998
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<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote for Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Exhibit Index 17
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
ASSETS 1997 1998
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,665,760 $ 614,081
Receivables
Trade 2,781,803 4,279,691
Other 164,334 227,771
Inventories 63,812,590 66,723,107
Deferred income taxes 4,050,980 4,284,921
Prepaid expenses and other 2,695,218 2,295,797
------------- -------------
Total current assets 75,170,685 78,425,368
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net 45,373,439 46,279,769
------------- -------------
OTHER ASSETS:
Deferred income taxes 7,235,600 8,272,143
Goodwill, net 38,752,184 37,634,152
Other intangible assets, net 1,351,221 1,254,914
Deferred financing costs, net 3,339,759 3,145,145
Other assets 494,632 801,322
------------- -------------
Total other assets 51,173,396 51,107,676
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$ 171,717,520 $ 175,812,813
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 11,088,000 $ 17,649,957
Current portion of long-term debt 648,231 719,590
Accounts payable 17,264,704 15,000,732
Accrued expenses 14,087,057 14,294,012
------------- -------------
Total current liabilities 43,087,992 47,664,291
------------- -------------
LONG-TERM DEBT 96,375,620 96,600,164
------------- -------------
ACCRUED DIVIDENDS ON PREFERRED STOCK 2,228,700 2,812,808
------------- -------------
DEFERRED RENT 3,645,651 4,183,377
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Series A Cumulative convertible preferred stock, $.01 par value,
$280.4878 stated value, 2,000,000 shares authorized,
41,000 shares issued and outstanding (liquidation value
of $11,500,000) 11,500,000 11,500,000
Series B Junior participating preferred stock, $.01 par value
10,000 shares authorized, none outstanding - -
Common stock, $.01 par value, 10,000,000 shares authorized,
3,564,644 and 3,571,213 shares issued and outstanding 35,646 35,712
Additional paid-in capital 27,740,840 27,768,298
Accumulated deficit (12,896,929) (14,751,837)
------------- -------------
Total stockholders' equity 26,379,557 24,552,173
------------- -------------
$ 171,717,520 $ 175,812,813
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------------- ----------------------------------
1997 1998 1997 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 55,755,776 $ 67,760,866 $ 116,989,104 $ 145,157,742
COST OF GOODS SOLD 26,033,562 34,013,978 53,534,324 71,029,467
------------ ------------ ------------- -------------
Gross profit 29,722,214 33,746,888 63,454,780 74,128,275
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 31,857,766 34,517,982 61,046,665 69,567,854
RESTRUCTURING COSTS 5,617,094 - 5,617,094 -
------------ ------------ ------------- -------------
Operating income (loss) (7,752,646) (771,094) (3,208,979) 4,560,421
INTEREST EXPENSE, NET 3,240,093 3,560,518 6,572,231 7,101,705
------------ ------------ ------------- -------------
Loss before income taxes (10,992,739) (4,331,612) (9,781,210) (2,541,284)
INCOME TAX BENEFIT (3,103,413) (2,156,855) (2,359,945) (1,270,484)
------------ ------------ ------------- -------------
NET LOSS (7,889,326) (2,174,757) (7,421,265) (1,270,800)
PREFERRED DIVIDENDS 299,767 292,054 544,142 584,108
------------ ------------ ------------- -------------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (8,189,093) $ (2,466,811) $ (7,965,407) $ (1,854,908)
============ ============ ============ ============
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED EPS $ (2.30) $ (0.69) $ (2.24) $ (0.52)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC AND DILUTED EPS 3,563,342 3,570,662 3,561,306 3,567,653
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
MOTHERS WORK, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------------------------------
1997 1998
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,421,265) $(1,270,800)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities-
Depreciation and amortization 6,567,128 6,045,921
Non-cash portion of restructuring charges 3,822,515 -
Imputed interest on debt 56,730 64,344
Deferred tax benefit (2,359,945) (1,270,484)
Amortization of deferred financing costs 212,021 212,573
Provision for deferred rent 546,188 537,726
Changes in assets and liabilities, net of effects
from purchase of businesses-
Decrease (increase) in--
Receivables (759,313) (1,561,325)
Inventories 5,591,251 (2,910,517)
Prepaid expenses and other (327,630) 92,731
Increase in--
Accounts payable and accrued expense 1,964,617 1,726,911
Other liabilities 544,142 584,108
----------- -----------
Net cash provided by operating activities 8,436,439 2,251,188
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4,114,254) (5,182,983)
Increase in intangibles and other assets (238,779) (77,252)
----------- -----------
Net cash used in investing activities (4,353,033) (5,260,235)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in line of credit and cash overdrafts, net (3,682,845) 2,193,921
Repayments of long-term debt (209,869) (246,118)
Debt issuance costs (1,851) (17,959)
Proceeds from exercise of options 410 27,524
----------- -----------
Net cash (used in) provided by financing activities (3,894,155) 1,957,368
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 189,251 (1,051,679)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,262,435 1,665,760
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,451,686 $ 614,081
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 6,377,276 $ 6,871,280
=========== ===========
Income taxes $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements are presented in
accordance with the requirements for Form 10-Q and do not include all the
disclosures required by generally accepted accounting principles for complete
financial statements. In April 1998, the Company merged two of its subsidiaries,
Mothers Work (R.E.), Inc. and The Page Boy Company, Inc., into Mothers Work,
Inc. Reference should be made to the Form 10-K as of and for the year ended
September 30, 1997 for Mothers Work, Inc. and subsidiaries (the "Company") for
additional disclosures including a summary of the Company's accounting policies.
In the opinion of management, the consolidated financial statements contain all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the consolidated financial position of the Company for the periods
presented. The interim operating results of the Company may not be indicative of
operating results for the full year.
Capital lease obligations of $477,677 were incurred on equipment leases entered
into during the first six months of fiscal 1998.
2. STOCK OPTIONS AND WARRANTS
During the six months ended March 31, 1998, 171,300 options were granted to
certain officers, directors and employees for the purchase of the Company's
common stock at prices at least equal to the fair market value on the date of
grant.
3. EARNINGS PER SHARE (EPS)
In the first quarter of fiscal 1998 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share", which simplifies the
EPS calculation by replacing primary EPS with basic EPS and fully diluted EPS
with diluted EPS. Due to the Company's net losses, there is no difference
between Basic EPS and Diluted EPS in the quarter and six months ended March 31,
1997 and 1998.
4
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
-- (continued) --
4. LINE OF CREDIT
In April 1998, the Company replaced its existing $30 million Working Capital
Facility with a new Working Capital Facility that expires in April 2001. The new
Working Capital Facility increases the Company's borrowing capacity to $44
million, subject to limitations based upon eligible accounts receivable and
inventory, and reduces interest by 125 basis points and 75 basis points for Base
Rate borrowings and Adjusted LIBOR Rate borrowings, respectively. In addition to
the $44 million available for borrowings and letters of credit, the Company also
has an additional $4 million letter of credit to collateralize an Industrial
Revenue Bond. Further, there are no financial covenant requirements unless the
Aggregate Adjusted Availability, as defined, under the Working Capital Facility
is less than $10 million. If Aggregate Adjusted Availability is less than $10
million, then the Company must achieve a Minimum Cash Flow, as defined in the
agreement, of not less than zero. Consistent with the previous Working Capital
Facility, the new Working Capital Facility is secured by substantially all of
the Company's assets.
5. CONTINGENCIES
From time to time, the Company is named as a defendant in legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the financial position or operating results of the
Company.
6. SUBSIDIARY GUARANTORS
Pursuant to the terms of an indenture relating to the 12 5/8% Senior Unsecured
Exchange Notes due 2005, the direct subsidiaries of Mothers Work, Inc.,
consisting of Cave Springs, Inc., The Page Boy Company, Inc., and Mothers Work
(R.E.), Inc.(d/b/a A Pea in the Pod, Inc.)(collectively, the "Guarantors") have,
jointly and severally, unconditionally guaranteed the obligations of Mothers
Work, Inc. with respect to these Notes. There are no restrictions on the ability
of any of the Guarantors to transfer funds to Mothers Work, Inc. in the form of
loans, advances, or dividends, except as provided by applicable law.
Accordingly, set forth below is certain summarized financial information (within
the meaning of Section 1-02(bb) of Regulation S-X) for the Guarantors:
September 30, 1997 March 31, 1998
------------------ -------------
Current assets $ 4,127,213 $ 3,700,264
Noncurrent assets 80,125,458 81,342,659
Current liabilities 3,064,719 1,683,435
Noncurrent liabilities 52,539,740 48,567,703
Six Months Ended Six Months Ended
March 31, 1997 March 31, 1998
-------------- --------------
Net sales $ 23,818,443 $ 29,402,303
Costs and expenses 18,300,470 20,093,860
Net income 3,641,861 6,143,572
5
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
-- (continued) --
This summarized financial information for the Guarantors has been prepared from
the books and records maintained by the Guarantors and the Company. The
summarized financial information may not necessarily be indicative of the
results of operations or financial position had the Guarantors operated as
independent entities. Certain intercompany sales included in the subsidiary
records are eliminated in consolidation. The Guarantors receive all inventories
from and transfer all cash to Mothers Work, Inc., who, in turn, pays all
expenditures on behalf of the Guarantors. An amount due to/due from parent will
exist at any time as a result of this activity. The summarized financial
information includes the allocation of material amounts of expenses such as
corporate services, administration, and taxes on income. The allocations are
generally based on proportional amounts of sales or assets, and taxes on income
are allocated consistent with the asset and liability approach used for
consolidated financial statement purposes. Management believes these allocation
methods are reasonable.
7. SUBSEQUENT EVENT
On May 10, 1998 the Company announced that it will restructure its Episode
non-maternity bridge women's apparel business in an effort to eliminate the
losses from that business. As an initial step in that restructuring, during the
third quarter of fiscal 1998, the Company plans to close or convert to maternity
stores, approximately 21 Episode store locations. The majority will be outlet
store locations. Restructuring costs of $5.4 million will be recorded in the
third quarter of fiscal 1998 and include approximately $2.0 million for the
write-off of furniture, fixtures and leasehold improvements, $1.8 million for
lease termination and other costs and $1.6 million for the write-down of certain
finished goods inventory. These restructuring costs include an anticipated cash
payment of approximately $1.8 million that will occur through the fourth quarter
of fiscal 1998.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following tables set forth certain operating data as a percentage of sales
and as a percentage change for the periods indicated:
<TABLE>
<CAPTION>
% Period to Period
Percentage of Net Sales Increase (Decrease)
------------------------------------------- -------------------------------
Three Six
Months Ended Months Ended Three Months Six Months
March 31, March 31, March 1998 March 1998
------------------- ----------------- to to
1997 1998 1997 1998 March 1997 March 1997
------ ------ ----- ----- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 21.5 % 24.1%
Cost of goods sold 46.7 50.2 45.8 48.9 30.7 32.7
----- ----- ----- -----
Gross profit 53.3 49.8 54.2 51.1 13.5 16.8
Selling, general
and administrative Expenses 57.1 50.9 52.1 48.0 8.4 14.0
Restructuring costs 10.1 - 4.8 -
----- ----- ----- -----
Operating income (loss) (13.9) (1.1) (2.7) 3.1 NM NM
Interest expense, net 5.8 5.3 5.7 4.9 9.9 8.1
----- ----- ----- -----
Income (loss) before income taxes (19.7) (6.4) (8.4) (1.8) NM NM
Income tax provision (benefit) (5.6) (3.2) (2.1) (0.9) NM NM
----- ----- ----- -----
Net income (loss) (14.1)% (3.2)% (6.3)% (0.9)% NM NM
===== ===== ===== =====
</TABLE>
NM - Not Meaningful.
7
<PAGE>
The following table sets forth certain information representing growth in the
number of leased departments and Company-owned stores for the periods indicated:
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Beginning of period
Stores 455 496 442 473
Leased maternity departments 41 125 26 114
--- --- ---- -----
Total 496 621 468 587
Opened:
Stores 13 10 27 33
Leased maternity departments 55 19 70 31
Closed:
Stores (3) (7) (4) (7)
Leased maternity departments (1) (14) (1) (15)
--- ---- ---- ---
End of period
Stores 465 499 465 499
Leased maternity departments 95 130 95 130
=== ==== ==== ===
Total 560 629 560 629
=== ==== ==== ===
</TABLE>
Three Months Ended March 31, 1998 and 1997
Net Sales
Net sales in the second quarter of fiscal 1998 increased by $12.0 million or
21.5%, as compared to the second quarter of fiscal 1997. This increase consists
of $4.6 million generated by a quarterly comparable store sales increases of
10.8% in the Company's core maternity clothing business (based on 394 stores),
$1.3 million generated by an 18.8% quarterly comparable stores sales increase in
the Company's non-maternity Episode store chains (based on 32 stores), a $3.3
million net increase due to other maternity store opening and closing activity,
and a $2.8 million increase due to other Episode store opening activity. The
Company believes that a portion of the comparable store sales increase in the
maternity business is due to the consolidation announced in April 1997, and the
Company does not expect that benefit to continue past the one-year anniversary.
The Company had 629 locations, including 578 maternity clothing locations and 51
Episode(R) upscale "bridge" women's apparel stores at March 31, 1998 compared to
560 locations, including 527 maternity clothing locations and 33 Episode(R)
upscale "bridge" women's apparel stores at March 31, 1997.
Gross Profit
Gross profit in the second quarter of fiscal 1998 increased $4.0 million or
13.5%, as compared to the second quarter of fiscal 1997. This increase was
primarily generated by the increase in sales noted above. Gross profit as a
percentage of net sales decreased to 49.8% in the second quarter of fiscal 1998
as compared to 53.3% in the comparable period of the prior year. The Company's
core maternity business gross profit as a percent of sales decreased slightly in
second quarter of fiscal 1998 as compared to the second quarter of fiscal 1997.
In addition, the Company's Episode division gross profit as a percent of sales
decreased approximately 27% in the second quarter of fiscal 1998 as compared to
the second quarter of fiscal 1997. This decrease is due to the significant
sell-off of fall merchandise in the second quarter of fiscal 1998. Also
8
<PAGE>
contributing to the overall decreased gross profit as a percent of sales is the
increase of Motherhood and Episode sales as a percentage of overall sales. The
continued growth of Motherhood sales as a percentage of overall sales has
contributed to the decrease in gross profit percentage because Motherhood
operates with a lower gross profit percentage as compared to the high-end
maternity divisions. In addition, Episode sales have generated lower overall
margins than the maternity sales due to the high degree of competition in
high-end bridge women's apparel. The Company anticipates that its gross profit
as a percentage of sales may decrease further as the aggregate sales from the
Motherhood and Episode divisions increase as a percentage of gross sales.
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased $2.7 million or 8.4% in
the second quarter of fiscal 1998 as compared to the second quarter of fiscal
1997 and, as a percentage of net sales, decreased to 50.9% from 57.1% in the
second quarter of fiscal 1997. The decrease as a percentage of sales was
primarily due to the increase in net sales. The dollar increase in the second
quarter of fiscal 1998, as compared to the second quarter of fiscal 1997, was
primarily due to increases in store wages and benefits, rents and operating
expenses at the store level, which accounted for $1.9 million, $0.9 million and
$0.8 million of the increase, respectively. The increase in wages and benefits
and rents at the store level resulted from the increased number of stores opened
and the related staffing costs. In addition, higher corporate wages and royalty
expense contributed to the increase in selling, general and administrative
expenses in the second quarter of fiscal 1998 as compared to the second quarter
of fiscal 1997. These expenses increased due to the continued expansion of
operations as a result of new store rollouts. The aforementioned increase was
partially offset by a decrease in advertising expense and depreciation and
amortization of approximately $1.0 million and $0.5 million, respectively.
Advertising expense decreased due to the elimination of certain programs and
depreciation and amortization decreased during the second quarter of fiscal 1998
because during the second quarter of fiscal 1997 the Company recorded a charge
of approximately $0.7 million, under Statement of Financial Accounting Standards
No. 121, related to leasehold improvements and furniture and equipment at 14
store locations.
Restructuring Costs
Restructuring costs of $5.6 million, related to the restructuring of the
Company's core maternity business were recorded in the second quarter of fiscal
1997. The restructuring costs consisted primarily of $2.6 for the write-off of
furniture, fixtures and leasehold improvements, $1.7 million for lease
termination and other costs and $1.3 million for the write-off of patterns,
which have no future value.
Operating Loss
The operating loss in the second quarter of fiscal 1998 was $0.8 million
compared to an operating loss of $7.8 million in the second quarter of fiscal
1997. Operating income in the second quarter of fiscal 1998, exclusive of
Episode, was $3.9 million compared to operating income in the second quarter of
fiscal 1997 of $2.7 million, exclusive of Episode, restructuring costs and other
one time charges. Operating losses at the Episode division increased in the
second quarter of fiscal 1998 compared to the second quarter of fiscal 1997. Due
to the extremely competitive environment of upscale bridge women's clothing, and
the fact that the selling, general and administrative costs of the Episode
division as a percentage of sales are greater than the maternity division, the
Company must substantially increase revenue at Episode in order to improve
operating results. Since the Episode acquisition in June 1996, the Company has
taken certain initiatives that have resulted in increased revenue at Episode,
however these increases have not been substantial enough to improve operating
results. As a consequence of the Episode losses, the Company announced in May
that it will restructure its Episode non-maternity bridge women's apparel
business in an effort to eliminate the losses from that business. As an initial
step in that restructuring, during the third quarter of fiscal 1998, the Company
plans to close or convert to maternity stores, approximately 21 Episode store
locations. The majority will be outlet store locations. Restructuring costs of
$5.4 million will be recorded in the third quarter of fiscal 1998 and include
9
<PAGE>
approximately $2.0 million for the write-off of furniture, fixtures and
leasehold improvements, $1.8 million for lease termination and other costs and
$1.6 million for the write-down of certain finished goods inventory. These
restructuring costs include an anticipated cash payment of approximately $1.8
million that will occur through the fourth quarter of fiscal 1998. Although the
Company continues to take steps to improve the Episode business, there can be no
assurances that these steps will result in the increased revenue needed to
support the Episode operations.
Interest Expense, Net
Net interest expense increased by $0.3 million or 9.9%, in the second quarter of
fiscal 1998 compared with the second quarter of fiscal 1997, and as a percentage
of sales, decreased to 5.3% from 5.8% in the second quarter of fiscal 1997. The
dollar increase was primarily due to short-term borrowings under the line of
credit agreement.
Income Taxes
The effective income tax rate was 49.8% in the second quarter of fiscal 1998 as
compared to 28.2% in the second quarter of fiscal 1997. The change in the
effective income tax rate was primarily due to the relationship of
non-deductible goodwill amortization to income before income taxes.
Six Months Ended March 31, 1998 and 1997
Net Sales
Net sales in the first six months of fiscal 1998 increased by $28.2 million or
24.1%, as compared to the first six months of fiscal 1997. This increase was
primarily due to sales of $10.7 million generated by Episode(R) America stores,
acquired on June 1, 1996, $9.9 million generated by a year-to-date comparable
store sales increase of 11.3% in its core maternity clothing business (based on
376 stores), and a $7.6 million net increase due to other maternity store and
leased department opening and closing activity.
Gross Profit
Gross profit in the first six months of fiscal 1998 increased $10.7 million or
16.8%, as compared to the first six months of fiscal 1997. This increase was
primarily generated by the increase in sales noted above. Gross profit as a
percentage of net sales decreased to 51.1% in the first six months of fiscal
1998 as compared to 54.2% in the comparable period of the prior year. The
Company's core maternity business gross profit as a percent of sales decreased
slightly in first six months of fiscal 1998 as compared to the comparable period
in fiscal 1997. In addition, the Company's Episode division gross profit as a
percent of sales decreased approximately 10% in the first six months of fiscal
1998 as compared to the first six months of fiscal 1997. This decrease is due to
the significant sell-off of fall merchandise in the second quarter of fiscal
1998. Also contributing to the overall decreased gross profit as a percent of
sales is the increase of Motherhood and Episode sales as a percentage of overall
sales. The continued growth of Motherhood sales as a percentage of overall sales
has contributed to the decrease in gross profit percentage because Motherhood
operates with a lower gross profit percentage as compared to the high-end
maternity divisions. In addition, Episode sales have generated lower overall
margins than the maternity sales due to the high degree of competition in
high-end bridge women's apparel. The Company anticipates that its gross profit
as a percentage of sales may decrease further as Motherhood becomes a more
significant part of overall operations.
Selling, General & Administrative Expenses
Selling, general and administrative expenses increased by $8.5 million or 14.0%
in the first six months of fiscal 1998 as compared to the first six months of
fiscal 1997 and, as a percentage of net sales, decreased to 48.0% from 52.1% in
the first six months of fiscal 1997. The decrease as a percentage of sales was
primarily due to the increase in net sales. The dollar increase during the first
10
<PAGE>
six months of fiscal 1998 as compared to the first six months of fiscal 1997 was
primarily due to increases in store wages and benefits, rents and operating
expenses at the store level, which accounted for $4.9 million, $2.5 million and
$1.3 million of the increase, respectively. The increase in wages and benefits
and rents at the store level resulted from the increased number of stores opened
and the related staffing costs. In addition, higher corporate wages and royalty
expense contributed to the increase in selling, general and administrative
expenses in the first six months of fiscal 1998 as compared to fiscal 1997.
These expenses increased due to the continued expansion of operations as a
result of new store rollouts. The aforementioned increase was partially offset
by a decrease in advertising expense and depreciation and amortization of
approximately $1.0 million and $0.5 million, respectively. Advertising expense
decreased due to the elimination of certain programs and, depreciation and
amortization decreased during the first six months of fiscal 1998 because during
the first six months of fiscal 1997 the Company recorded a charge of
approximately $1.0 million, under Statement of Financial Accounting Standards
No. 121, related to leasehold improvements and furniture and equipment at 16
store locations.
Operating Income (Loss)
The operating income in the first six months of fiscal 1998 was $4.6 million
compared to an operating loss of $3.2 million for the comparable period in
fiscal 1997. Operating income in the first six months of fiscal 1998, exclusive
of Episode, was $11.3 million compared to operating income in the comparable
period of fiscal 1997 of $8.9, exclusive of Episode, restructuring costs and
other one time charges. Operating losses at the Episode division increased in
the first six months of fiscal 1998 compared to the first six months of fiscal
1997. Due to the extremely competitive environment of upscale bridge women's
clothing, and the fact that the selling, general and administrative costs of the
Episode division as a percentage of sales are greater than the maternity
division, the Company must substantially increase revenue at Episode in order to
improve operating results. Since the Episode acquisition in June 1996, the
Company has taken certain initiatives that have resulted in increased revenue at
Episode, however these increases have not been substantial enough to improve
operating results. As a consequence of the Episode losses, the Company announced
in May that it will restructure its Episode non-maternity bridge women's apparel
business in an effort to eliminate the losses from that business. As an initial
step in that restructuring, during the third quarter of fiscal 1998, the Company
plans to close or convert to maternity stores, approximately 21 Episode store
locations. The majority will be outlet store locations. Restructuring costs of
$5.4 million will be recorded in the third quarter of fiscal 1998 and include
approximately $2.0 million for the write-off of furniture, fixtures and
leasehold improvements, $1.8 million for lease termination and other costs and
$1.6 million for the write-down of certain finished goods inventory. These
restructuring costs include an anticipated cash payment of approximately $1.8
million that will occur through the fourth quarter of fiscal 1998. Although the
Company continues to take steps to improve the Episode business, there can be no
assurances that these steps will result in the increased revenue needed to
support the Episode operations.
Interest Expense, Net
Net interest expense increased by $0.5 million or 8.1% in the first six months
of fiscal 1998 compared with the comparable period in fiscal 1997, and as a
percentage of sales, decreased to 4.9% from 5.7% in the first six months of
fiscal 1997. The dollar increase was primarily due to short-term borrowings
under the line of credit agreement.
Income Taxes
The effective income tax rate was 50.0% in the first six months of fiscal 1998
as compared to 24.1% in the first six months of fiscal 1997. The change in the
11
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effective income tax rate was primarily due to the relationship of
non-deductible goodwill amortization to income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs during the first six months ended March 31, 1998 have
been primarily for furniture and fixtures and leasehold improvements required to
increase the number of retail locations. The Company's cash sources for the
first six months of fiscal 1998 have primarily been from operations and
borrowings on its line of credit. At March 31, 1998 the Company had available
cash and cash equivalents of $0.6 million, compared to $1.7 million at September
30, 1997.
Net cash provided by operating activities was $2.3 million in the first six
months of fiscal 1998 compared with $8.4 million in the first six months of
fiscal 1997. The net cash provided by operating activities in the first six
months of fiscal 1998 includes cash provided by net income, including
adjustments for non-cash items of $4.3 million, less cash consumed by working
capital of $2.0 million. The cash consumed by working capital in the first six
months of fiscal 1998 consisted of $4.5 million from an increase in inventories
and receivables, partially offset by an increase in accounts payable and accrued
expenses and other liabilities and a decrease in prepaid expenses and other
assets. The net cash provided by working capital in the first six months of
fiscal 1997 derives from cash provided by net income, after adjustments of
non-cash items of $1.4 million, plus cash provided by working capital of $7.0
million. The cash provided by working capital in the first six months of fiscal
1997 consisted of $8.1 million from a decrease in inventories and an increase in
accounts payable, accrued expenses and other liabilities, partially offset by an
increase in receivables, prepaid expenses and other assets.
Net cash used in investing activities was $5.3 million in the six months ended
March 31, 1998 compared with $4.4 million in the first six months of fiscal
1997. The cash used in investing activities for the first six months of fiscal
1998 included $4.5 million used for capital expenditures for new store
facilities, primarily Motherhood and Episode, and improvements to existing
stores, $0.7 million for other corporate capital expenditures and $0.1 million
for intangible and other assets. This compares with investing activities for the
first six months of fiscal 1997, which included $3.2 million used for capital
expenditures for new store facilities and improvements to existing stores and
$0.9 million for other corporate capital expenditures and $0.3 million for
intangible and other assets.
Net cash provided by financing activities was $2.0 in the first six months of
fiscal 1998 compared with net cash used in financing activities of $3.9 million
in the first six months of fiscal 1997. The cash provided by financing
activities in the first six months of fiscal 1998 resulted primarily from $2.2
million in net cash borrowings on the line of credit and cash overdraft activity
offset by $0.2 million in repayment of long-term debt. This compares with $3.7
million of cash used to repay borrowings on the line of credit and cash
overdraft activity plus $0.2 million in repayment of long-term debt during the
first six months of fiscal 1997.
In April 1998, the Company replaced its existing $30 million Working Capital
Facility with a new $44 million Working Capital Facility that expires in April
2001. In addition to the $44 million available for borrowings and letter of
credit, the Company also has an additional $4 million letter of credit to
collateralize an Industrial Revenue Bond. The new Working Capital Facility
increases the Company's borrowing capacity, subject to limitations based upon
eligible accounts receivable and inventory, and reduces interest by 125 basis
points and 75 basis points for Base Rate borrowings and Adjusted LIBOR Rate
borrowings, respectively. In addition, at such time as the monthly rolling
twelve-month earnings before interest, taxes and depreciation and amortization
reaches $30.0 million and remains at $30.0 million, interest will be reduced by
25 additional basis points under each borrowing. Further, contrary to the
previous Working Capital Facility, there are no financial covenant requirements
unless the Aggregate Adjusted Availability under the Working Capital Facility is
less than $10 million. If Aggregate Adjusted Availability is less than $10
12
<PAGE>
million, then the Company must achieve a Minimum Cash Flow, as defined in the
agreement, of not less than zero. Consistent with the previous Working Capital
Facility, the new Working Capital Facility is secured by substantially all of
the Company's assets. On May 8, 1998, the Company had $21.6 million in
borrowings and $ 7.0 million in letters of credit issued under the Working
Capital Facility.
In its maternity operations, the Company intends to focus primarily on growing
the moderate priced Motherhood and leased department business, subject to
capital and marketplace availability. The Company began expanding into the
leased department business approximately one year ago, and to date, revenue from
the leased departments has been below management's estimates. As a result,
selling, general and administrative expenses as a percentage of sales have been
higher than the maternity business as a whole. In addition, the gross margin
from Motherhood and the leased departments is typically lower than the remainder
of the maternity business, consequently as the Motherhood and leased department
business increases as a percentage of the maternity business it will produce
overall lower margins in the maternity business.
The Episode division has operated at a loss since the acquisition on June 1,
1996. The Company's strategy to broaden the product line at the Episode stores
and to add several stores in major metropolitan areas, has resulted in increased
revenue for the Episode division. However, revenue remains below management's
expectations. In addition, gross profit as a percentage of sales has decreased
and operating losses have increased when compared with the prior comparable
period. In order for the Episode division to endure, significant changes are
required. On May 10, 1998 the Company announced that its Board of Directors had
instructed management to restructure it Episode non-maternity bridge women's
apparel business to eliminate the losses from that business. During the third
quarter of fiscal 1998, and as an initial step, the Company plans to close or
convert to maternity stores, approximately 21 Episode store locations.
Restructuring costs of $5.4 million will be recorded in the third quarter of
fiscal 1998 and include approximately $2.0 million for the write-off of
furniture, fixtures and leasehold improvements, $1.8 million for lease
termination and other costs and $1.6 million for the write-down of certain
finished goods inventory. These restructuring costs include an anticipated cash
payment of approximately $1.8 million that will occur through the fourth quarter
of fiscal 1998. Based on the expected remaining Episode operations, the Company
must substantially increase revenues and gross profit percentage, and reduce
costs at its remaining locations in order to be profitable at that division. The
Company's management has limited experience in the bridge women's apparel
business and the integration of Episode into the rest of the Company's
operations has required substantial management time and other resources. In
addition, the operations of a bridge women's fashion business are subject to
numerous risks, unanticipated operating problems, and greater competition and
fashion risk than the Company's core maternity business. Based on the foregoing
factors, there can be no assurance that the Company's Episode operations will
become profitable. Further, the Episode restructuring could result in additional
indebtedness, which in turn could result in an increase in the degree of
financial leverage of the Company and a decrease in the Company's financial
flexibility. At March 31, 1998, the Episode assets consist primarily of
inventory and furniture, equipment and leasehold improvements of approximately
$13.7 million and $8.7 million, respectively. The Company also has lease
commitments on Episode stores approximating $39.1 million payable through 2011.
The Company believes that its current cash and working capital positions,
available borrowing capacity through the Working Capital Facility and net cash
expected to be generated from operations will be sufficient to fund the
Company's working capital requirements and required principal and interest
payments for fiscal 1998. Based on the Company's fiscal 1998 expansion plan, the
Company expects capital expenditures to be approximately $8.5 million, of which
$5.2 million has been expended through March 31, 1998. These expenditures
consist primarily of new Motherhood and Episode stores. There are currently no
restrictions on the ability of the Guarantors to transfer funds to the Company
in the form of cash dividends, loans or advances other than restrictions imposed
by applicable law.
13
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The Company has conducted a comprehensive review of its computer systems to
identify applications that could be affected by the Year 2000("Y2K") issue and
is developing an implementation plan to resolve the issue. Throughout fiscal
1998, the Company will assess its own internal computer systems and will contact
third parties with which it interacts electronically in order to get an
assessment of their Y2K issues. Based on preliminary results, the Company does
not believe the Y2K issue on its internal computer systems will have a material
adverse impact on operations. Notwithstanding the Company's efforts in this
regard, there does exist the risk that the Y2K issue will manifest itself in
unanticipated ways, thereby adversely affecting the Company's performance in the
future. In addition, the Company cannot give assurance that the third parties
with whom it does business will address any Y2K issues in their own systems on a
timely basis; their failure to do so could have a material adverse impact on the
Company.
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
Item 2, Management's Discussion and Analysis of Financial Condition and Results
of Operations, of this Report or made from time to time by management of the
Company involve risks and uncertainties, and are subject to change based on
various important factors. The following factors, among others, in some cases
have affected and in the future could affect the Company's financial performance
and actual results and could cause actual results for fiscal 1998 and beyond to
differ materially from those expressed or implied in any such forward-looking
statements: changes in consumer spending patterns, raw material price increases,
consumer preferences and overall economic conditions, the impact of competition
and pricing, changes in weather patterns, availability of suitable store
locations at appropriate terms, continued availability of capital and financing,
ability to develop merchandise and ability to hire and train associates, changes
in fertility and birth rates, political stability, currency and exchange risks
and changes in existing or potential duties, tariffs or quotas, postal rate
increases and charges, paper and printing costs, and other factors affecting the
Company's business beyond the Company's control.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on January
15, 1998, the shareholders of the Company elected three
directors of the Company, ratified the appointment of Arthur
Andersen LLP as the Company's independent auditors for the year
ending September 30, 1998, and approved an amendment to the
Company's Stock Option Plan to increase the number of shares
reserved for issuance.
Messrs. Dan W. Matthias, William L. Rulon-Miller and Elam M.
Hitchner, were elected to serve as directors at the meeting. The
voting results for Messrs. Matthias and Rulon-Miller were
2,354,903 shares in favor and 10,900 shares withheld. The voting
results for Mr. Hitchner were 2,342,703 shares for and 23,100
shares withheld. The vote ratifying the appointment of Arthur
Andersen LLP as independent auditors was 2,362,683 shares for,
1,900 shares against and 1,620 shares withheld. The vote to
amend the Stock Option Plan was 1,625,240 shares for, 330,417
shares against and 11,760 shares withheld.
Item 6. Exhibits and Reports on Form 8-K
(a) 10.1 Loan and Security Agreement dated as of April 24, 1998
by and among, Mothers Work, Inc., Cave Springs, Inc. and
Fleet Capital Corporation.
11 Statement re: Computation of per share earnings.
27 Financial Data Schedule (schedule submitted in electronic
format only)
99 Press Release
(b) Reports on Form 8-K.
None.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOTHERS WORK, INC.
Date: May 14, 1998 By: /s/ Dan W. Matthias
--------------------------------
Dan W. Matthias
Chief Executive Officer
And
Chairman of the Board
Date: May 14, 1998 By: /s/ Thomas Frank
--------------------------------
Thomas Frank
Chief Financial Officer
And
Vice President - Finance
16
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EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------ ----------- --------
10.1 Loan and Security Agreement dated as of April 24, 1998 1
By and among Mothers Work, Inc., Cave Springs, Inc.,
And Fleet Capital Corporation.
11 Statement re: Computation of per share earnings. 70
27 Financial Data Schedule (schedule submitted in
Electronic format only). 71
99 Press Release 72
17
EXHIBIT 10.1
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MOTHERS WORK, INC.
CAVE SPRINGS, INC.
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--------------------------------------------------
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LOAN AND SECURITY AGREEMENT
Dated: April 24, 1998
--------------------------------------------------
--------------------------------------------------
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FLEET CAPITAL CORPORATION
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TABLE OF CONTENTS
Page
SECTION 1. CREDIT FACILITY..............................................1
1.1 Revolving Credit Loans.......................................1
1.2 Letter of Credit; LC Guaranties..............................1
1.3 Special Purpose Credit.......................................2
1.4 Use of Proceeds..............................................2
SECTION 2. INTEREST, FEES AND CHARGES...................................3
2.1 Interest.....................................................3
2.2 Computation of Interest and Fees.............................5
2.3 Commitment Fee...............................................6
2.4 Collateral Management Fee....................................6
2.5 Audit and Appraisal Fees.....................................6
2.6 Reimbursement of Expenses....................................6
2.7 Bank Charges.................................................7
2.8 Indemnity re: LIBOR..........................................7
2.9 Letter of Credit and LC Guaranty Fees........................8
SECTION 3. LOAN ADMINISTRATION..........................................8
3.1 Manner of Borrowing Revolving Credit Loans...................8
3.2 Payments....................................................10
3.3 Mandatory and Permissive Prepayments........................10
3.4 Application of Payments and Collections.....................11
3.5 All Loans to Constitute One Obligation......................12
3.6 Loan Account................................................12
3.7 Statements of Account.......................................12
3.8 Joint and Several Liability.................................12
SECTION 4. TERM AND TERMINATION........................................13
4.1 Term of Agreement...........................................13
4.2 Termination.................................................13
SECTION 5. SECURITY INTERESTS..........................................14
5.1 Security Interest in Collateral.............................14
5.2 Lien Perfection; Further Assurances.........................15
5.3 Lien on Realty..............................................16
SECTION 6. COLLATERAL ADMINISTRATION...................................16
6.1 General.....................................................16
6.2 Administration of Accounts..................................17
6.3 Administration of Inventory.................................19
6.4 Administration of Equipment.................................20
6.5 Payment of Charges..........................................20
SECTION 7. REPRESENTATIONS AND WARRANTIES..............................20
7.1 General Representations and Warranties......................20
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7.2 Continuous Nature of Representations and Warranties.........26
7.3 Survival of Representations and Warranties..................27
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS.........................27
8.1 Affirmative Covenants.......................................27
8.2 Negative Covenants..........................................29
8.3 Specific Financial Covenants................................32
SECTION 9. CONDITIONS PRECEDENT........................................33
9.1 Documentation...............................................33
9.2 No Default..................................................34
9.3 Other Loan Documents........................................34
9.4 Availability................................................34
9.5 No Litigation...............................................35
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT...........35
10.1 Events of Default...........................................35
10.2 Acceleration of the Obligations.............................37
10.3 Other Remedies..............................................38
10.4 Remedies Cumulative; No Waiver..............................39
SECTION 11. MISCELLANEOUS.......................................... 40
11.1 Power of Attorney...........................................40
11.2 Indemnity...................................................41
11.3 Modification of Agreement; Sale of Interest.................41
11.4 Severability................................................42
11.5 Successors and Assigns......................................42
11.6 Cumulative Effect; Conflict of Terms........................42
11.7 Execution in Counterparts...................................42
11.8 Notice......................................................42
11.9 Lender's Consent............................................43
11.10 Credit Inquiries............................................43
11.11 Time of Essence.............................................43
11.12 Entire Agreement............................................43
11.13 Interpretation..............................................44
11.14 GOVERNING LAW; CONSENT TO FORUM.............................44
11.15 WAIVERS BY BORROWER.........................................45
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-iii-
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this ____ day of April, 1998,
by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island corporation
with an office at 200 Glastonbury Boulevard, Glastonbury, CT 06033 and MOTHERS
WORK, INC., a Delaware corporation ("Parent") and CAVE SPRINGS, INC., a Delaware
corporation ("Cave Springs") (collectively, "Borrowers" and singly each is a
"Borrower"), each with its chief executive office at 456 North Fifth Street,
Philadelphia, PA 19123.
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 $48,000,000.00
available upon Borrowers' request therefor, as follows:
1.1 Revolving Credit Loans. Lender agrees, for so long as no Default or
Event of Default exists, 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 at such time, 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, in
such amounts and with respect to such matters, as Lender deems necessary or
appropriate in its reasonable discretion.
1.2 Letter of Credit; LC Guaranties. Lender agrees, for so long as no
Default or Event of Default exists and if requested by Borrowers, to (i) issue
its, or cause to be issued by its Affiliate, Letters of Credit for the account
of any Borrower or (ii) execute LC Guaranties by which Lender or its Affiliate
shall guaranty the payment or performance by any Borrower of such Borrower's
reimbursement obligations with respect to Letters of Credit and letters of
credit issued for such Borrower's account by
<PAGE>
other Persons in support of 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 stand-by Letter of Credit or LC Guaranty (other than
the Special Purpose Credit) may have an expiration date that is more than 365
days after the date of issuance. No merchandise Letter of Credit or LC Guaranty
may have an expiration that is more than 90 days after the date of issuance. In
addition, no Letter of Credit or LC Guaranty may have an expiration date that is
after the Maturity Date. Any amounts paid by Lender under any LC Guaranty or in
connection with any Letter of Credit shall be immediately reimbursed by
Borrowers to Lender and any amounts not so immediately reimbursed 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 rate and in the same manner as
Revolving Credit Loans.
1.3 Special Purpose Credit. Lender agrees to issue its, or cause to be
issued by its Affiliate, a stand-by letter of credit for the account of Parent
and in favor of either (i) CoreStates Bank, N.A. to support its letter of credit
("CoreStates Letter of Credit") issued for the account of Parent and in favor of
Chase Manhattan Bank, as trustee for the IRB in the face amount of $3,919,684.93
("Back to Back Credit") or (ii) Chase Manhattan Bank in substitution of such
CoreStates Letter of Credit ("Replacement Letter of Credit"). The Back to Back
Credit shall have an expiration date of July 31, 1998 and no automatic renewal
provision. The Replacement Letter of Credit shall have an initial expiration
date which shall be 20 days before the expiration of the Original Term and,
provided that this Agreement has not been terminated pursuant to Section 4.2
hereof, the Replacement Letter of Credit will automatically renew for an
additional one year term commencing on the first expiration date, and for
additional one year terms on each expiration date thereafter, unless Lender
shall have provided notice to the beneficiary and Borrowers that the Replacement
Letter of Credit shall not be renewed, which notice shall be given at least 60
days prior to the then current expiration date of the Replacement Letter of
Credit. If such notice is not given, the Replacement Letter of Credit will
automatically renew for additional one year terms until July 31, 2020, when the
Replacement Letter of Credit shall, in any event, expire. Any amount paid by
Lender under or in connection with the Special Purpose Credit or under or in
connection with any LC Guaranty executed by Lender in connection with the
Special Purpose Credit shall be repaid by Borrowers on DEMAND.
1.4 Use of Proceeds. The proceeds of the Loans shall be used solely for
(i) satisfaction of all existing Indebtedness of Borrowers to CoreStates Bank,
N.A.; (ii) Borrowers' working capital needs; and (iii) other corporate needs of
Borrowers not
2
<PAGE>
otherwise prohibited under the terms of Section 8.2 of this Agreement. The
Special Purpose Credit shall be used solely to provide a credit enhancement to
the IRB.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Revolving Credit Interest:
(a) Rate Options. At the time of each Loan, 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 the (i) LIBOR Based Rate or
(ii) Floating Rate. Interest on each portion thereof shall accrue and be paid at
the time and rate applicable to the respective option designated 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 the LIBOR
Based Rate, 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.
(i) LIBOR Rate Option:
(A) 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)(i), if Borrowers desire to have the LIBOR Based Rate apply to all or a
portion of the Loans, Borrowers shall give Lender a telephonic or 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 (1) the date the
LIBOR Based Rate shall apply (which shall be a Business Day), (2) the LIBOR
Interest Period, and (3) the amount to be subject to the LIBOR Based Rate
provided that such amount shall be an integral multiple of $500,000.00. In no
event may Borrower have outstanding at any time more than six (6) different
tranches of LIBOR Rate Loans.
3
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(B) 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 Lender'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
monthly in accordance with Section 3.2.2. No LIBOR Interest Period with respect
to any of the Loans may end after the Maturity Date. 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.
(C) Adjustments. The Adjusted LIBOR Rate may be
automatically adjusted by Lender on a prospective basis 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), excluding the Reserve Percentage and any Reserve
which has resulted in a payment pursuant to Section 2.8 below, that increase the
cost to Lender of funding the LIBOR Rate Loan. Lender shall promptly give
Borrowers 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.
(D) Unavailability. If Borrowers shall have requested
the rate based on the Adjusted LIBOR Rate in accordance with this Section
2.1.1(a)(i) 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
4
<PAGE>
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 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. As soon as practicable after the
Adjusted LIBOR Rate again becomes available for an existing or requested LIBOR
Rate Loan, Lender shall notify Borrowers of such availability and Borrowers
shall have the option to direct Lender to convert, or maintain, as the case may
be, a LIBOR Rate Loan at the Adjusted LIBOR Rate in the manner provided herein.
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 hundred (200)
basis points above the interest rate otherwise applicable thereto (the "Default
Rate") and the per annum fees for all Letters of Credit and LC Guarantys shall
increase by 1% after the occurrence of an Event of Default.
2.1.3 Maximum Interest. In no event whatsoever shall the aggregate
of all amounts deemed interest hereunder or under the Note and charged or
collected pursuant to the terms of this Agreement or pursuant to the Note 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 Note 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, to the extent permitted
by applicable law, apply such excess to the principal balance of the Loans or
refund such excess to Borrowers, and such provisions shall be deemed amended to
conform thereto.
2.2 Computation of Interest and Fees. Interest and all fees shall be
calculated daily and shall be computed on the actual number of days elapsed over
a year of 360 days.
2.3 Commitment Fee. Borrowers shall pay to Lender, a commitment fee of
$150,000. Seventy-Five Thousand Dollars
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($75,000) of such fee has been paid and is fully earned and non-refundable. The
remaining $75,000, which is deemed fully earned and non-refundable, shall be
paid on the Closing Date.
2.4 Collateral Management Fee. Borrowers shall pay to Lender an annual
collateral management fee of $25,000 payable in advance quarterly ("Collateral
Management Fee") which fee shall be fully earned and non-refundable with respect
to each such quarter, commencing on the Closing Date and on the same day of each
quarterly period thereafter.
2.5 Audit and Appraisal Fees. Borrowers shall pay to Lender audit and
appraisal fees in accordance with Lender's current schedule of fees in effect
from time to time in connection with Lender's audits and appraisals of
Borrowers' books and records and such other matters as Lender shall deem
appropriate, plus all out-of-pocket expenses incurred by Lender in connection
with such audits and appraisals; provided that, so long as no Event of Default
has occurred and is continuing, all such audit and appraisal fees incurred
during each 12 month period after the Closing Date shall be limited to, and
included within, the Collateral Management Fee. Audit and appraisal fees shall
be payable on the first day of the month following the date of issuance by
Lender of a request for payment. Borrowers acknowledge and agree that nothing
herein contained is intended to limit Section 2.6 hereof or to limit Borrowers'
obligation to pay all of Lender's audit and appraisal fees after an Event of
Default.
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 (other than
those expressly covered by Section 2.5 above) in connection with (i) the
analysis, negotiation and preparation of this Agreement or any of the other Loan
Documents and closing on the Credit Facility described herein (provided that
Borrowers' reimbursement obligation for legal fees (excluding out-of-pocket
expenses) relating to closing on the Credit Facility shall be capped at
$15,000.00), any amendment, modification, replacement or termination of this
Agreement or any of the other Loan Documents; (ii) the reasonable out-of-pocket
expenses incurred in the administration of this Agreement 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, any Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the other Loan Documents or any Borrower's affairs;
(iv) any attempt to enforce any rights of Lender against Borrowers or any other
Person which may be obligated to Lender by virtue of this Agreement or any of
the other Loan Documents,
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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; then all such legal and
accounting expenses, other costs and out of pocket expenses of Lender shall be
charged to Borrowers. All amounts chargeable to Borrowers under clause (i) shall
be set forth on an estimated statement delivered by Lender at Closing (a final
statement shall be furnished within forty-five days of Closing) and any such
amounts shall be offset by a credit in the amount of $25,000 previously paid by
Borrowers. In the event such amounts do not exceed $25,000, Lender shall apply
the balance to any other fees owing to Lender on the Closing Date. All amounts
chargeable to Borrowers under this Section 2.6 shall be Obligations secured by
all of the Collateral, shall be payable 30 days after receipt of written notice
from Lender (unless an Event of Default has occurred, in which case such amounts
shall be payable immediately on demand) and shall bear interest from the date of
such notice or demand, as applicable, until paid in full at the Floating Rate
applicable to the Loans from time to time. Borrowers shall also reimburse Lender
for expenses incurred by Lender in its administration of the Collateral to the
extent and in the manner provided in Section 6 hereof. Notwithstanding anything
in this Section 2.6 (iii) and (iv) to the contrary, Borrowers shall have no
obligation to reimburse Lender for its out-of-pocket costs and expenses incurred
by Lender in any litigation commenced by Lender or Borrower against the other if
a final judgment for monetary damages in such litigation is entered by a court
of competent jurisdiction in favor of Borrowers against Lender and the court
finds that Lender's conduct resulting in such judgment constituted gross
negligence or willful misconduct.
2.7 Bank Charges. Borrowers shall pay to Lender, on demand, any and all
fees, costs or expenses which Lender pays to a bank or other similar institution
arising out of or in connection with (i) the forwarding to any Borrower or any
other Person on behalf of any Borrower, by Lender of proceeds of Loans made by
Lender to any Borrower pursuant to this Agreement and (ii) the depositing for
collection by Lender of any check or item of payment received or delivered to
Lender on account of the Obligations.
2.8 Indemnity re: LIBOR. Each Borrower hereby jointly and severally
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
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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 stand-by Letters of Credit and LC Guaranties of stand-by letters of
credit (including the Special Purpose Credit), a fee equal to 1.5% 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 Business Day of each month. Borrowers shall pay
to Lender for merchandise Letters of Credit and LC Guaranties of merchandise
Letters of Credit, a fee equal to 1.25% 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
Business Day of each month. Borrowers shall also pay all applicable reasonable
and customary fees and charges associated with the issuance, amendment, drawing,
modification, renewal, transfer or termination thereof, which fees and charges
shall be deemed fully earned and shall be payable upon issuance, amendment,
modification, renewal, transfer or termination of each such Letter of Credit or
LC Guaranty, 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
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, by an Authorized Officer in the following
manner: (i) Borrowers may give Lender notice of the 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 1:00
P.M. Eastern time on the proposed borrowing date, or, with respect to a LIBOR
Rate Loan, no later than 1:00 p.m. Eastern time two Business Days prior to 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; and (ii) the becoming
due of any amount required to be paid under this Agreement or the Note, whether
as interest or for any other Obligation (including any reimbursement obligation
under any Letter of Credit), 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
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Borrowers, Lender shall permit telephonic requests for Loans and electronic
transmittal of instructions, authorizations, agreements or reports to Lender by
Borrowers, provided that Lender only shall accept or act upon telephonic or
electronic communications from a representative of Borrower as set forth on
Exhibit 3.1.1 hereto, or such other individuals identified by Borrower from time
to time in a written notice delivered to Lender. 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 an authorized
representative of Borrowers as set forth on Exhibit 3.1.1 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. Borrowers hereby irrevocably authorize Lender
to disburse the proceeds of each Loan requested, or deemed to be requested,
pursuant to this subsection 3.1.2 as follows: (i) the proceeds of each 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 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. Borrowers hereby irrevocably authorize Lender,
in Lender's sole discretion, to advance to Borrowers, and to charge to
Borrowers' Loan Account hereunder as a Revolving Credit Loan (regardless of
whether an Overadvance is thereby created) a sum sufficient to pay all interest,
when due, accrued on the Obligations during the immediately preceding month, all
principal when due, all reimbursement obligations under any Letter of Credit or
LC Guaranty and all costs, fees and expenses at any time owed by Borrowers to
Lender hereunder.
3.1.4 Borrowing Base Certificates. Borrowers shall give Lender a
Borrowing Base Certificate, and supporting documentation, as requested by Lender
but no less frequently than on a monthly 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
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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
jointly and severally payable by Borrowers to Lender immediately upon the
earliest of (i) subject to Section 6.2.5, with respect to Borrowers' Accounts,
the receipt by Lender or Borrowers of any proceeds of any of the Collateral to
the extent of said proceeds under the conditions set forth in Section 3.3.1
below, (ii) the occurrence of an Event of Default in consequence of which Lender
elects to accelerate the maturity and payment of the Obligations, or (iii)
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 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 or (iii) 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 (other than
those set forth in this Section 3.2) requiring the payment of money shall be
payable by Borrowers to Lender as and when provided in this Agreement, the Note,
the Other Agreements or the Security Documents, or if not otherwise provided,
then on demand.
3.3 Mandatory and Permissive Prepayments.
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3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of
Collateral. If any Borrower sells any of its personal Property as expressly
permitted pursuant to this Agreement or if any of the Collateral is lost or
destroyed or taken by condemnation and no Event of Default is then outstanding,
the proceeds of any such sale, loss, destruction or taking (including insurance
proceeds) may be retained by Borrowers for any use in its business not
prohibited hereunder. Under all other circumstances, all proceeds (including
insurance proceeds) of any sale(s) of personal Property or of any loss,
destruction, or taking of personal Property shall be immediately paid to or
retained by Lender and applied as a mandatory prepayment of the Loans. If the
Real Property is lost, destroyed or taken by condemnation, the proceeds of any
such loss, destruction or taking (including insurance proceeds) shall be
immediately paid to or retained by Lender and held as cash collateral (without
interest accruing in favor of Borrowers), to secure any reimbursement
obligations arising under the Special Purpose Credit. Such cash collateral shall
be held until the earlier of (i) termination of the Special Purpose Credit or
(ii) payment in full of any reimbursement obligations thereunder.
3.3.2 LIBOR Rate Loans. No portion of the LIBOR Rate Loans may be
prepaid for any reason during a LIBOR Interest Period unless Borrowers first
satisfy in full the obligations under Section 2.8 arising from such prepayment.
3.4 Application of Payments and Collections. Subject to subsection 2.2
of this Agreement, 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. Until payment in full of
all Obligations and termination of this Agreement, Borrowers irrevocably waive
(except as expressly provided for in this Agreement or otherwise by Lender) 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
Borrowers 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, prior to the
occurrence of an Event of Default, and after payment of all outstanding
interest, Borrowers shall be entitled to direct whether a payment of principal
be applied to a Floating Rate Loan or LIBOR Rate Loan, and, in the absence of
directions, payment shall be applied first to Floating Rate Loans. If, as the
result of receipt of proceeds or collections of Collateral as authorized
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by subsection 6.2.5 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. Such credit balance may be applied to and offset any of the
Obligations arising from time to time.
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 such account rendered by Lender shall be deemed final, binding and
conclusive upon Borrowers absent manifest error unless Lender is notified by
Borrowers in writing to the contrary within thirty (30) 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.
3.8 Joint and Several Liability.
3.8.1. Joint and Several Liability - Parent and, subject only to
the terms of Subsection 3.8.4 hereof, each other Borrower, shall be jointly and
severally liable for all Obligations regardless of, inter alia which Borrower or
Borrowers requested (or received the proceeds of) a particular Loan.
3.8.2. Authorization of Parent by Other Borrowers - Each of the
other Borrowers hereby irrevocably authorizes Parent to give notices, designate
interest rate options, make requests, make payments, receive payments and
notices, give receipts and otherwise take action on behalf of such Borrower
under and with respect to any Loan Document.
3.8.3 Interrelatedness of Borrowers - The business operations of
each Borrower are interrelated and complement one another, and such companies
have a common business purpose, with intercompany bookkeeping and accounting
adjustments used to separate their respective Properties, liabilities, and
transactions. To permit their uninterrupted and continuous
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operations, such companies now require and will from time to time hereafter
require funds for general business purposes. The proceeds of Loans under this
Agreement will directly or indirectly benefit each Borrower hereunder severally
and jointly, regardless of which Borrower requests or receives part or all of
the proceeds of such Loan.
3.8.4 Maximum Amount of Joint and Several Liability - Without
limiting the effect of Sections 11.4 and 11.14 hereof, to the extent that
mandatory and non-waivable provisions of applicable law (including but not
limited to any applicable laws pertaining to fraudulent conveyance and any
applicable business corporation laws) otherwise would render the other Loan
Documents invalid or unenforceable, each Borrower's obligations hereunder and
under the other Loan Documents shall be limited to the maximum amount which does
not result in such invalidity or unenforceability.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making Loans
to Borrowers and issuing or procuring Letters of Credit or LC Guaranties, upon
or after the occurrence, and during the continuance, of any Default or Event of
Default, this Agreement shall be in effect for a period of three (3) years from
the date hereof (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.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 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 Borrower. Upon at least 90 days prior written
notice to Lender, Borrowers may, at their option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrowers have
paid all of the Obligations in immediately available funds and all Letters of
Credit and LC Guaranties have expired or have been cash collateralized to
Lender's satisfaction (or in lieu thereof Lender has received a back to back
letter of credit, in form and substance and from an issuer acceptable to Lender,
in an amount equal to 110% of the aggregate of all outstanding Letters of
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Credit and LC Guaranties). Any notice of termination given by Borrowers 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 and no section of this
Agreement or type of Loan available hereunder may be terminated singly.
4.2.3 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. 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,
either (i) Lender shall have received a written agreement in form and substance
satisfactory to Lender, executed by Borrowers and by any Person (whose
creditworthiness for such purpose is reasonably acceptable to Lender) whose
loans or other advances to Borrowers are used in whole or in part to satisfy the
Obligations, indemnifying Lender from any such potential loss or damage or (ii)
Lender shall have retained such monetary reserves as Lender, in its reasonable
discretion, may deem necessary to protect Lender from any such loss or damage.
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 first Lien upon the following assets of such Borrower, whether now
owned or existing or hereafter created, acquired or arising and wheresoever
located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) Fixtures;
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(v) General Intangibles;
(vi) Instruments;
(vii) Documents;
(viii) Investment Property;
(ix) Chattel Paper;
(x) Deposit Accounts;
(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 books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (i) through (xi) above;
and
(xiii) All accessions to, substitutions for and all replacements
and cash and non-cash proceeds of (i) through (xii) above, including, without
limitation, proceeds of and unearned premiums with respect to insurance policies
insuring any of the Collateral.
5.2 Lien Perfection; Further Assurances. Each Borrower 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
by applicable law to perfect or to continue the perfection of Lender's Lien upon
the Collateral, including without limitation, the execution of all instruments,
documents and agreements required to have Lender's Lien noted on all
certificates of title for such Borrower's Property for which such a certificate
has been issued and delivery to Lender of all Collateral requested by Lender to
be so delivered in order for Lender to obtain a perfected Lien thereon. 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, each Borrower 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,
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assignment of such Borrower's rights under licensing agreements.
5.3 Lien on Realty. The due and punctual payment and performance of the
Obligations shall also be secured by the Lien created by the Mortgage upon the
Real Property of Parent described therein. The Mortgage shall be executed by
Parent and PIDC Financing Corporation, a Pennsylvania non-profit corporation, in
favor of Lender and shall be duly recorded, at Borrowers' expense, in the office
where such recording is required to constitute a fully valid first Lien on the
Real Property covered thereby. Borrowers shall deliver to Lender, at Borrowers'
expense, a mortgagee title insurance policy issued by a title insurance company
satisfactory to Lender, which policy shall be in form and substance satisfactory
to Lender and shall insure a valid first Lien in favor of Lender on the Real
Property covered thereby, subject only to those exceptions acceptable to Lender
and its counsel. Borrower shall deliver to Lender such other documents,
including, without limitation, survey prints and flood plain certificates of the
Real Property, as Lender and its counsel may request relating to the Real
Property subject to the Mortgage.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other than Inventory
in transit and motor vehicles, will at all times be kept by Borrowers at one or
more of the locations set forth in Exhibit 6.1.1 hereto (or such other
location(s) included in the list of locations delivered to Lender with the
Compliance Certificate) and shall not, without the prior written approval of
Lender, be moved therefrom except, prior to an Event of Default and Lender's
acceleration of the maturity of the Obligations in consequence thereof, for (i)
sales of Inventory in the ordinary course of business; and (ii) removals of
Equipment in connection with dispositions thereof that are authorized by
subsection 6.4.2 hereof.
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, flood and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Lender. Borrowers shall deliver copies of such policies to
Lender with satisfactory mortgagee and lender's loss payable endorsements,
naming Lender as lender loss payee, assignee, mortgagee and/or additional
insured, as appropriate and providing that all such insurance proceeds are paid
to Lender. Each policy of insurance or endorsement shall contain a clause
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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 any Borrower 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.
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. Each Borrower
shall keep accurate and complete records of its Accounts and all payments and
collections thereon. On or before the fifteenth day of each month from and after
the date hereof, Borrowers shall deliver to Lender, in form acceptable to
Lender, a collections report for the preceding month and a detailed aged trial
balance of all Accounts existing as of the last day of the preceding month,
specifying the names, addresses, face value, dates of invoices and due dates for
each Account Debtor obligated on an Account so listed ("Schedule of Accounts"),
and, upon Lender's request therefor, copies of proof of delivery 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 Accounts in an
aggregate face amount in excess of $250,000 become newly ineligible because they
fall within one of the specified categories of ineligibility set forth in the
definition of Eligible Accounts or otherwise established by Lender, Borrowers
shall notify Lender of such occurrence no later than the sixth Business Day
following such
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occurrence and the Borrowing Base shall thereupon be adjusted to reflect such
occurrence. Borrowers shall, if requested by Lender, 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.
6.2.2 Discounts, Allowances, Disputes. If any Borrower grants any
discounts, allowances or credits that are not shown on the face of the invoice
for the 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 in excess of $100,000 are in dispute
between any Borrower 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 the occurrence of an Event of
Default (and during the continuation thereof), 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 attorneys' 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 (without any obligation
or duty on Lender's part), in its sole discretion, to pay the amount thereof to
the proper taxing authority for the account of Borrowers and to charge Borrowers
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. Whether or not a Default or an Event of
Default has occurred, any of Lender's officers, employees or agents shall have
the right, at any time or times hereafter, in the name of Lender, any designee
of Lender or Borrowers, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone, telegraph or otherwise. Borrowers
shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
6.2.5 Collection of Accounts, Proceeds of Collateral. To expedite
collection, Borrower shall endeavor in the first instance to make collection of
its Accounts. If an Event of Default is outstanding, or if Aggregate Adjusted
Availability is at any time less than $5,000,000, all remittances received by
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any Borrower on account of Accounts, together with the proceeds of any other
Collateral, shall be held as Lender's property by such Borrower as trustee of an
express trust for Lender's benefit and such Borrower shall immediately remit the
same in kind to Lender or to a depository account designated by Lender. Lender
retains the right at all times after the occurrence 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. Lender has no duty to protect,
insure, collect or realize upon the Accounts or preserve rights therein.
6.2.6 Maintenance of Dominion Accounts. Borrowers shall maintain
Dominion Accounts, 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 transfer all funds
received in the Dominion Accounts to Lender for application on account of the
Obligations upon written direction from Lender. Lender shall not issue any such
direction unless an Event of Default has occurred and is continuing or Aggregate
Adjusted Availability is at any time less than $5,000,000. After such direction
from Lender, all funds deposited in the Dominion Accounts 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 funds so deposited. Lender
assumes no responsibility for such arrangements, including without limitation,
any claim of accord and satisfaction or release with respect to deposits
accepted by any bank thereunder.
6.3 Administration of Inventory
6.3.1 Records and Reports of Inventory. Borrowers shall keep
accurate and complete records of its Inventory and continue to conduct a
physical inventory in accordance with its prior procedures. Borrowers shall
furnish to Lender a summary inventory report within fifteen (15) days of the end
of each fiscal quarter of Borrowers and such other inventory reports in form and
detail satisfactory to Lender at such times as Lender may request, together with
such supporting information as Lender shall request.
6.3.2 Inventory Valuation System. Borrowers shall at all times
maintain an Inventory valuation system acceptable to Lender, Borrowers' existing
system being acceptable to Lender.
6.4 Administration of Equipment
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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 thereof and if an Event of Default
is outstanding shall furnish Lender, upon Lender's request, with a current
schedule containing the foregoing information.
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 (a)
other than in the ordinary course of its business, including the disposition of
leasehold improvements and equipment in connection with store closures, or (b)
while an Event of Default is outstanding.
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 applicable to the Loans from time to
time.
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 jointly and
severally 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. Borrowers transact
business, but are not in good standing as foreign corporations, in the states so
indicated on Exhibit 7.1.1 hereto. Borrowers shall, within sixty (60) days from
the Closing Date, furnish Lender with proof that Borrowers have obtained good
standing status in such jurisdictions. There is no other state or jurisdiction
where the character of its Properties or the nature of its activities make such
qualification necessary and Borrower's lack of qualification is likely to have a
Material Adverse Effect.
7.1.2 Corporate Power and Authority. Each Borrower has full
corporate power and authority 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
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(i) require any consent or approval of the shareholders of such Borrower; (ii)
contravene such Borrower's charter, articles or certificate of incorporation or
by-laws; (iii) violate, or cause such 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 such Borrower;
(iv) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other material agreement, lease or instrument to
which such Borrower is a party or by which it or its Properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any Lien
upon or with respect to any of the Properties now owned or hereafter acquired by
such 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.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i) the
correct name of each of the Subsidiaries, if any, of each Borrower, its
jurisdiction of incorporation and the percentage of its Voting Stock owned by
such Borrower, (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 each Borrower (other than Parent) and
each Subsidiary of such Borrower and (iv) the number of authorized, issued and
treasury shares of each Borrower and each Subsidiary of such Borrower. Each
Borrower has good title to all of the shares it purports to own of the stock of
each of its 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 disclosed on 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 any Borrower (other than Parent) or any of its Subsidiaries. Except as
shown on Exhibit 7.1.4, there are no outstanding agreements or instruments
binding upon any shareholder of any Borrower (other than Parent) relating to the
ownership of its shares of capital stock.
7.1.5 Corporate Names. No Borrower has been known as or used any
corporate, fictitious or trade names except those listed on Exhibit 7.1.5 hereto
during the 5 year period preceding the Closing Date. Except as set forth on
Exhibit 7.1.5, no Borrower has been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets
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of any Person during the 5 year period preceding the Closing Date.
7.1.6 Business Locations; Agent for Process. Each Borrower's chief
executive offices and other places of business are as listed on Exhibit 6.1.1
hereto. 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 (including the
Real Property), and good title to all of the Collateral and all of its other
Property, in each case, free and clear of all Liens except Permitted Liens. Each
Borrower has paid or discharged, or reserved for, all lawful claims which, if
unpaid, might become a Lien against any Properties of Borrower that is not a
Permitted Lien. The Liens granted to Lender under Section 5 hereof 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:
(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 substantial compliance with the terms and
conditions of all purchase orders, contracts or other documents relating
thereto and forming a part of the contract between such 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 any Borrower) be in the
future, subject to any offset, Lien (except Permitted Liens), 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
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such Account is absolutely owing to such Borrower and is not contingent in any
respect or for any reason;
(v) No 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 such Borrower 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;
(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 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 satisfactory operating
condition and repair, in light of its intended use, in all material respects.
7.1.10 Financial Statements; Fiscal Year. The Consolidated balance
sheet of Parent and such other Persons described therein (including the accounts
of all Borrowers (and each Subsidiary of any Borrower for the respective periods
during which a Subsidiary relationship existed) as of December 31, 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 the financial positions of Borrowers at
such dates and the results of Borrowers' operations for such period. Since
December 31, 1997, there has been no material change in the condition, financial
or otherwise, of Borrowers and no change in the aggregate value of Equipment and
real Property (including the Real Property) owned by Borrowers. The fiscal year
of Borrowers and
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each of its Subsidiaries ends on September 30 of each year.
7.1.11 Full Disclosure. The financial statements referred to in
subsection 7.1.11 hereof do not, nor does this Agreement or any other written
statement of any 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 which Borrowers have failed to
disclose to Lender in writing which is likely to have a Material Adverse Effect.
7.1.12 Solvent Financial Condition. Each Borrower is now and, after
giving effect to the Loans to be made hereunder and the issuance of the Special
Purpose Credit, at all times will be, Solvent.
7.1.13 Surety Obligations. Except as set forth on Exhibit 7.1.13
hereto, no Borrower is obligated as surety or indemnitor under any surety or
similar bond or other contract issued or entered into or any agreement to assure
payment, performance or completion of performance of any undertaking or
obligation of any Person.
7.1.14 Taxes. Each Borrower's federal tax identification number is
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 are due and payable, unless and to
the extent any thereof are being actively contested in good faith and by
appropriate proceedings and such Borrower maintains reasonable reserves on its
books therefor. The provision for taxes on the books of each Borrower is
adequate for all years not closed by applicable statutes, and for its current
fiscal year.
7.1.15 Brokers. There are no claims against any 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 used in and 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 identified all such intellectual property which is currently licensed to
any Borrower and the licensor thereof.
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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.
7.1.18 Compliance with Laws. Except as set forth on Exhibit 7.1.18
hereto, Borrower has duly complied with, and its Properties, business operations
and leaseholds are in compliance in all material respects with, the provisions
of all federal, state and local laws, rules and regulations applicable to such
Borrower, its Properties or the conduct of its business and there have been no
citations, notices or orders of noncompliance issued to any Borrower under any
such law, rule or regulation except where such noncompliance would not be likely
to have a Material Adverse Effect. Each Borrower has established and maintains
an adequate monitoring system to ensure that it remains in compliance with all
federal, state and local laws, regulations and rules applicable to it. To
Borrower's knowledge, no Inventory has been produced in violation of the Fair
Labor Standards Act (29 U.S.C. ss. 201 et seq.), as amended.
7.1.19 Restrictions. No 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. No Borrower is a party or subject to any 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 any Borrower.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20 hereto,
there are no actions, suits, proceedings or investigations pending, or to the
knowledge of any Borrower, threatened, against or affecting any Borrower or the
business, operations, Properties, prospects, profits or condition of any
Borrower. No 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.
7.1.21 No Defaults. No event has occurred and no condition exists
which would, upon or after the any execution and delivery of this Agreement or
Borrowers' performance hereunder, constitute a Default or an Event of Default.
No Borrower is in default, and no event has occurred and no condition exists
which
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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.
7.1.22 Pension Plans. Except as disclosed on Exhibit 7.1.22 hereto,
no Borrower has any Plan. Except as disclosed on Exhibit 7.1.22 hereto, each
Borrower is in full compliance in all material respects with the requirements of
ERISA and the regulations promulgated thereunder with respect to each Plan. No
fact or situation that could result in a material adverse change in the
financial condition of any Borrower exists in connection with any Plan. Neither
any Borrower nor any Subsidiary of any Borrower has withdrawal liability in
connection with a Multiemployer Plan.
7.1.23 Third Party Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any credit card issuer having a
merchant agreement with any Borrower whose purchases individually or in the
aggregate are material to the business of any Borrower or with any material
supplier, the effect of which is likely to have a Material Adverse Effect. There
exists no present condition or state of facts or circumstances which would
materially affect adversely any Borrower or prevent any Borrower from conducting
such business after the consummation of the transactions contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.24 Labor Relations. Except as set forth on Exhibit 7.1.24
hereto, no 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 any Borrower's employees, or 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, in all respects, remain
accurate, complete and not misleading at all times during the term of this
Agreement except to the extent of changes resulting from transactions permitted
by this Agreement, changes disclosed to Lender in writing, and changes occurring
in the ordinary course of business which singly or in the aggregate do not cause
a Material Adverse Effect; provided that such disclosure indicating a Default or
Event of Default shall not be deemed a waiver by Lender of such Default or Event
of Default.
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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
jointly and severally 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 to visit and inspect the Properties of Borrowers, inspect,
audit and make extracts from its books and records, and discuss with its
officers, its employees and its independent accountants, Borrowers' business,
assets, liabilities, financial condition, business prospects and results of
operations.
8.1.2 Notices. Promptly notify Lender in writing of the occurrence
of any Default or Event of Default or the occurrence of 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. Such notice, in each case, shall specify the nature of the
occurrence or existence and what action Borrowers are taking (or propose to
take), with respect thereto.
8.1.3 Financial Statements. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
reflecting all of its financial transactions; and cause to be prepared and
furnished to Lender the following (all to be prepared on a consistent basis):
(i) not later than 120 days after the close of each fiscal
year of Borrowers, unqualified audited financial statements of Borrowers as
of the end of such year, on a Consolidated and Consolidating basis,
certified by a firm of independent certified public accountants of
recognized standing selected by Borrowers but acceptable to Lender to have
been prepared in accordance with GAAP, and upon completion internally
prepared financial statements of Borrowers;
(ii) not later than 30 days after the end of each month
hereafter, including the last month of Borrowers'
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fiscal year, unaudited interim financial statements of Borrowers as of the
end of such month and of the portion of Borrowers' fiscal year then
elapsed, certified by the principal financial officer of Borrowers to have
been prepared in accordance with GAAP and to fairly present the financial
position and results of operations of 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) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements or
reports which Borrowers have sent to all of its shareholders and copies of
any regular, periodic and special reports or registration statements which
Borrowers file with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(iv) promptly after the filing thereof, copies of any annual
report to be filed under ERISA in connection with each Plan;
(v) upon completion, but not later than 30 days prior to the
close of each fiscal year of Borrowers, financial Projections for
Borrowers, for Borrowers' upcoming fiscal year, prepared on a month by
month basis, in form acceptable to Lender; and
(vi) 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 Borrowers' financial condition or
results of operations, including without limitation, detailed monthly
accounts payable agings.
Within 45 days after 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 Borrowers' 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 Borrowers performed in connection with their examination
of said financial statements, they are not aware of any Event of Default, or, if
they are aware of such Event of Default, specifying the nature thereof, and
acknowledging in a manner satisfactory to Lender, that they are aware that
Lender is relying on such financial statements in making its decision with
respect to the Loans.
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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.
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, each Borrower
jointly and severally covenants that, unless Lender has first consented thereto
in writing, it will not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate
or permit any Subsidiary of any Borrower to merger or consolidate, with any
Person; acquire, or permit any Subsidiary of any Borrower to acquire, all or any
substantial part of the Properties of any Person; or create, or permit any
Subsidiary of any Borrower to create, any other Subsidiary.
8.2.2 Loans. Except for deposits and other prepayments made in the
ordinary course for services and inventory and equipment purchases, make, or
permit any Subsidiary of any Borrower to make, any loans or other advances of
money to any Person other than to a Borrower.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to
exist, or permit any Subsidiary of any Borrower to create, incur, assume or
suffer to exist, any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt;
(iii) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed), in each case incurred in the
ordinary course of business and consistent with past practices and paid within
the normal time period, unless the same are being actively contested in good
faith and by appropriate and lawful proceedings; and such Borrower shall have
set aside such reserves, if any, with respect thereto as are required by GAAP
and deemed adequate by such Borrower and its independent accountants;
(iv) Obligations to pay Rentals permitted by subsection
8.2.13 and Capitalized Lease Obligations permitted under subsection 8.2.11;
(v) Permitted Purchase Money Indebtedness;
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(vi) taxes not yet due or being contested in the manner
described in subsection 7.1.14 hereto;
(vii) Unsecured Indebtedness of Borrowers not to exceed
$3,000,000 at any one time outstanding;
(viii) Indebtedness of any Borrower or any Subsidiary of a
Borrower existing on the date hereof as set forth on Exhibit 8.2.3 hereto;
(ix) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in the
ordinary course of business; and
(x) Indebtedness of any Borrower or Subsidiary of any
Borrower to another Borrower.
8.2.4 Affiliate Transactions. Excluding transactions among
Borrowers, enter into, or be a party to, or permit any Subsidiary of any
Borrower to enter into, or be a party to, any transaction with any Affiliate of
Borrower or any stockholder, except in the ordinary course of and pursuant to
the reasonable requirements of such Borrower's business and upon fair and
reasonable terms which are fully disclosed to Lender and are no less favorable
to such Borrower (or Subsidiary) than Borrower (or Subsidiary) would obtain in a
comparable arm's length transaction with a Person not an Affiliate or
stockholder of such Borrower (or Subsidiary).
8.2.5 Limitation on Liens. Create or suffer to exist, or permit any
Subsidiary of any Borrower to 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 adversely affect Lender's rights or the
priority of Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of such Borrower's
(or Subsidiary's) business by operation of law or regulation, but only if
payment in respect of any such Lien is not at the time past due and such
Liens do not in the aggregate, materially detract from the value of the
Property of any Borrower (or Subsidiary) or materially impair the use
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thereof in the operation of any Borrower's (or Subsidiary's) business;
(iv) such other Liens as appear on Exhibit 8.2.5 hereto;
(v) statutory Liens created in favor of any Borrower's
lessors with respect to Property of such Borrower at the leased premises of
any such lessor;
(vi) Purchase Money Liens securing Permitted Purchase Money
Indebtedness; and
(vii) such other Liens as Lender may hereafter approve in
writing.
8.2.6 Subordinated Debt. Make, or permit any Subsidiary of any
Borrower to make, any payment of any part or all of any Subordinated Debt or
take any other action or omit to take any other action in respect of any
Subordinated Debt in contravention of the written terms of any instrument
evidencing such Subordinated Debt, or enter into, or permit any Subsidiary of
Borrower to enter into, any agreement (written or oral) which could in any way
be considered to amend, modify or terminate any instrument or agreement
evidencing or relating Subordinated Debt.
8.2.7 Distributions. Declare or make, or permit any Subsidiary of
Borrower to declare or make, any Distributions, other than dividends paid in
respect of shares of Parent preferred stock outstanding on the date hereof and
payments to repurchase capital stock of Parent not to exceed, in the aggregate
for both categories, $5,000,000, provided, no Default or Event of Default has
occurred or would result after giving effect to such dividends and/or
repurchases and, provided, further, that after giving effect to such dividends
and/or repurchases, Borrowers shall have Cash Flow in an amount greater than $0
for the fiscal quarter in which such dividends and/or repurchases are to be
made.
8.2.8 Disposition of Assets. Except for the disposition of
leasehold improvements and equipment in connection with store closures, sell,
lease or otherwise dispose of, or permit any Subsidiary of Borrower to sell,
lease or otherwise dispose 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 there has been no acceleration of the Obligations; or (ii) dispositions
expressly authorized by this Agreement.
8.2.9 Restricted Investment. Make or have, or permit any Subsidiary
or Borrower to make or have, any Restricted Investment.
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8.2.10 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary of
Borrower.
8.2.11 Capital Expenditures. Make, or permit any Subsidiary of any
Borrower to make Capital Expenditures which, in the aggregate, as to Borrowers
and their Subsidiaries exceed $13,000,000 during any fiscal year of Borrowers.
8.2.12 Stock of Subsidiaries. Issue, or permit any Subsidiary of
any Borrower to issue, any additional shares of its capital stock.
8.2.13 Inventory at Department Stores. Permit more than ten percent
(10%) of its total Inventory to be located in department stores or other
locations in which a Borrower leases or licenses a portion of the space in such
store for the sale of its Inventory.
8.3 Specific Financial Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations to Lender and during any
quarter that Aggregate Adjusted Availability is less than $10,000,000, each
Borrower jointly and severally covenants that, unless otherwise consented to by
Lender in writing, it shall:
8.3.1 Minimum Cash Flow. Achieve Cash Flow of not less than $0 for
the three month period ending June 30, 1998; the six month period ending
September 30, 1998; the nine month period ending December 31, 1998; the twelve
month period ending March 31, 1999; and for each twelve month period ending with
every subsequent quarter end thereafter through the term of this Agreement.
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
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with
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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 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 and/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 certificate for each Borrower, issued by the
Secretary of State or other appropriate official of such 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 chief executive officer 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) such 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 counsel to Borrowers as to
the transactions contemplated by this Agreement and any of the other Loan
Documents;
(I) Title insurance reports and commitments, surveys and flood
plain certificates of the Real Property;
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(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) Payoff agreement, mortgage satisfaction and UCC-3 termination
statements from Borrowers' existing lender;
(L) UCC-1 financing statement, state and federal tax lien and
judgment searches;
(M) Payment of all fees and expenses owing hereunder; and
(N) 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 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 $5,000,000.
9.5 No Litigation. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body (i) 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 or (ii)
which relates to the Collateral, assets, business operations or obligations of
any Borrower which (in Lender's judgment) could have a Material Adverse Effect.
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
Obligations owing hereunder or under the Note, or any other of the Obligations,
on the due date thereof (whether due at stated due date, maturity, on demand,
upon acceleration, or otherwise).
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10.1.2 Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of any Borrower or any
Subsidiary of any 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, 5.3,
6.1.1, 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 satisfaction
within 15 days after the sooner to occur of Borrowers' receipt of notice of such
breach from Lender or the date on which such failure or neglect first becomes
known to any officer of any Borrower.
10.1.5 Default Under Security Documents/Other Agreements. Any event
of default shall occur under, or Borrowers 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 with respect
to the Subordinated Debt or any default or event of default on the part of any
Borrower under any agreement, document or instrument to which such Borrower is a
party or by which such Borrower or any of its Property is bound, creating or
relating to any Indebtedness (other than the Obligations) which singly, or in
the aggregate, is in excess of $1,000,000.
10.1.7 Uninsured Losses. Any material loss, theft, damage or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.8 Adverse Changes. There shall occur any material adverse
change in the financial condition or business prospects of any Borrower.
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10.1.9 Insolvency and Related Proceedings. Any Borrower 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 such
Borrower under the Bankruptcy Code (if against such Borrower, the continuation
of such proceeding for more than 60 days), or any Borrower shall make any offer
of settlement, extension or composition to its unsecured creditors generally.
10.1.10 Business Disruption; Condemnation. There shall occur a
cessation of a substantial part of the business of any Borrower for a period
which significantly affects such Borrower's capacity to continue its business,
on a profitable basis; or any 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 will have a Material Adverse Effect; or any Borrower shall be
enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any part of its business affairs
which will have a Material Adverse Effect; or any lease or agreement pursuant to
which any Borrower leases, uses or occupies any Property shall be canceled or
terminated prior to the expiration of its stated term and such cancellation or
termination will have a Material Adverse Effect; or any material part of the
Collateral shall be taken through condemnation or the value of such Property
shall be impaired through condemnation.
10.1.11 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 in a "distress termination" pursuant to
Section 4041(c) or any such trustee shall be requested or appointed, or if any
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.
10.1.12 Challenge to Agreement. Any Borrower or any Subsidiary of
any Borrower 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.
10.1.13 Criminal Action or Forfeiture. Any Borrower shall be
criminally indicted or convicted under any law or engage
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in any conduct which is reasonably likely to result in a forfeiture of any
material Property of any Borrower.
10.1.14 Judgments. Any money judgment or judgments in excess of
$1,000,000 singly, or in the aggregate, which is/are not stayed pending appeal,
writ of attachment or similar process is filed against any Borrower.
10.1.15 Change of Control. There shall occur a Change of Control.
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 after the
occurrence 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, all of
the Obligations shall become automatically due and payable without declaration,
notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies (to the full extent permitted by applicable law):
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
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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.
Borrowers agree that 7 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 Lender may purchase all or any part of the
Collateral at public or, if permitted by law, 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, after allowing 2 Business Days for collection, 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. If any
deficiency shall arise, Borrowers shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to use,
without charge, Borrowers' 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 Borrowers' rights under all licenses and
all franchise agreements shall inure to Lender's benefit.
10.3.5 Lender may, at its option, reduce or modify the Borrowing
Base, or any portion thereof or the advance rates or to take additional reserves
in the Borrowing Base.
10.3.6 Lender may, at its option, require Borrowers to deposit with
Lender funds equal to the sum of the LC Amount and the face amount of the
Special Purpose Credit and, if Borrower fails 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 (without interest accruing in favor of Borrowers), to
fund future payments on such LC Guaranties and future drawings against such
Letters of Credit including the Special Purpose Credit. At such time as all LC
Guaranties have been paid or terminated and all Letters of Credit including the
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Special Purpose 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 indefeasibly paid in full, returned to Borrowers.
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 given to Lender or contained in any other agreement among
Lender and Borrowers, 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 Borrowers 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 Borrowers contained in
this Agreement or any of the other Loan Documents and no Default or Event of
Default by Borrowers under this Agreement or any other Loan Documents shall be
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
Borrowers.
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 such Borrower and in either such
Borrower's or Lender's name, but at the cost and expense of Borrowers:
11.1.1 At such time or times as Lender or said agent, in its sole
discretion, may determine, endorse the applicable 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 as Lender or its agent in its sole
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discretion may determine following the occurrence of an Event of Default and
during the continuation thereof: (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 the applicable 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)
endorse the name of the applicable Borrower upon any of the items of payment or
proceeds relating to any Collateral and deposit the same to the account of
Lender on account of the Obligations; (viii) endorse the name of the applicable
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 Borrowers' stationery and sign the
name of Borrowers 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 Borrowers' obligations under
this Agreement.
11.2 Indemnity. Each Borrower jointly and severally hereby agrees to
indemnify Lender and hold Lender harmless from and against any liability, loss,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including attorneys' fees and legal expenses) as the result of any Borrower's
failure to observe, perform or discharge any Borrower's duties hereunder or of
any claim brought by any creditor of any Borrower. In addition, each Borrower
jointly and severally 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.
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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. Borrowers may not 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, Borrowers' rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrowers
hereby consent 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. Each Borrower further agrees that Lender may
disclose credit information regarding Borrowers to any potential participant or
assignee.
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.
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
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inconsistent with, any 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, one
Business Day after deposit in the mail, postage prepaid, or 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: Northeast Loan Administration
Facsimile No.: 860-657-7759
With a copy to: Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Harvey I. Forman, Esq.
Facsimile No.: 215-569-5522
If to Borrower: Mothers Work, Inc.
465 North Fifth Street
Philadelphia, PA 19123
Attention: Thomas Frank
Chief Financial Officer
Facsimile No.: 215-625-6924
With a copy to: Pepper Hamilton LLP
Two Logan Square
Philadelphia, PA 19103
Attention: Elam Hitchner III, Esquire
Facsimile No.: 215-981-4750
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 or
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 to usual and customary credit inquiries from third parties
concerning such Borrower; provided, however, that Lender shall have no duty or
obligation to so respond or continue to respond.
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 HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
PHILADELPHIA, PENNSYLVANIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA; PROVIDED, HOWEVER,
THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
PENNSYLVANIA, 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 PENNSYLVANIA. AS PART OF THE CONSIDERATION FOR NEW VALUE
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF ANY BORROWER OR LENDER, EACH BORROWER HEREBY CONSENTS AND AGREES
THAT THE COMMON PLEAS COURT OF PHILADELPHIA, PENNSYLVANIA OR, AT LENDER'S
OPTION, THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
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PENNSYLVANIA, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN SUCH BORROWER 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 SUCH BORROWER HEREBY WAIVES ANY OBJECTION WHICH
SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE
OR FORUM NON 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 SUCH
BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER'S ACTUAL RECEIPT
THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
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 UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY
OTHER APPROPRIATE FORUM OR JURISDICTION.
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11.15 WAIVERS BY BORROWER. 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 SUCH BORROWER MAY IN ANY WAY BE LIABLE AND
HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) EXCEPT
AS OTHERWISE EXPRESSLY PROVIDED BY THIS AGREEMENT, 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 SUCH BORROWER. 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.
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IN WITNESS WHEREOF, this Agreement has been duly executed in
Philadelphia, Pennsylvania on the day and year specified at the beginning of
this Agreement.
MOTHERS WORK, INC.
By: /S/ THOMAS FRANK
----------------
Title: CFO AND VP FINANCE
------------------
CAVE SPRINGS, INC.
By: /S/ THOMAS FRANK
----------------
Title: VICE-PRESIDENT
--------------
Accepted in Philadelphia, PA
FLEET CAPITAL CORPORATION
By: /S/ KIM BUSHEY
--------------
Title: VICE-PRESIDENT
--------------
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of April __, 1998,
by and among Fleet Capital Corporation and Mothers Work, Inc. and Cave Springs,
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 - collectively, all accounts and accounts receivable,
contract rights arising from any Borrower's agreements with credit card
issuers, whether now owned or hereafter created or acquired by a
Borrower or in which a Borrower now has or hereafter acquired any
interest.
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 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 Borrower 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.
Adjusted Net Earnings From Operations - with respect to any fiscal
period, means the net earnings (or loss) after provision for income
taxes for such fiscal period of Borrowers, as reflected on the
Consolidated financial statement of 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;
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(iii) earnings of any Subsidiary of any Borrower accrued prior
to the date it became a Subsidiary;
(iv) earnings 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 of any business entity (other than a
Subsidiary of a Borrower) in which a Borrower has an ownership
interest unless such net earnings shall have actually been received
by that Borrower in the form of cash distributions;
(vi) any portion of the net earnings of any Subsidiary of a
Borrower which for any reason is unavailable for payment of
dividends to that Borrower;
(vii) the earnings of any Person to which any assets of a
Borrower shall have been sold, transferred of disposed of, or into
which a Borrower shall have merged, or been a party to any
consolidation or other form of reorganization, prior to the date of
such transaction;
(viii) any gain arising from the acquisition of any Securities
of a Borrower; and
(ix) any gain or loss arising from extraordinary or
non-recurring items.
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 5% or more of any class of the Voting Stock
of a Person; or (iii) 5% or more of the Voting Stock (or in the case of
a Person which is not a corporation, 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 as each of the same may be amended, modified, renewed,
extended, replaced, restated or substituted from time to time.
Aggregate Adjusted Availability - at the time of determination, an
amount equal to the then applicable Borrowing Base A less the sum of (i)
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the amount of Revolving Credit Loans plus the LC Amount as of such time
of determination (including Loans requested to be made on such date)
plus (ii) all sums then due and owing to trade creditors which remain
outstanding beyond normal trade terms or other normal business practice
of Borrowers, plus (iii) for the purposes of such determination on the
Closing Date, closing payments and expenses.
Authorized Officer - any officer of any Borrower authorized by
resolution of the Board of Directors of such Borrower to execute
documents, instruments, certificates and agreements on behalf of such
Borrower in favor of Lender and who is identified on the incumbency
certificate referenced in Section 9.1(B) herein.
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 sum of the principal amount of Revolving
Credit Loans then outstanding (including any amounts which Lender may
have paid for the account of any Borrower 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.
Back to Back Credit - as defined in Section 1.3 of the Agreement.
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 base rate for commercial loans, whether or not such
rate is the lowest rate charged by Bank to its most preferred borrowers;
and, if such base 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.
Borrowing Base - as any date of determination thereof, an amount
equal to the lesser of Borrowing Base A or Borrowing Base B.
Borrowing Base A - as at any date of determination thereof, an
amount equal to the lesser of:
(i) an amount equal to (a) $44,000,000 minus (b) the LC
Amount; or
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(ii) an amount equal to:
(a) 85% of the net amount of Eligible Accounts
outstanding at such date;
PLUS
(b) an amount equal to the sum of (1) 50% of the value of
Borrowers' raw material Eligible Inventory (including
Inventory in transit under Letters of Credit or LC Guarantys)
plus (2) the lesser of (X) $2,500,000 or (y) 50% of the value
of work-in-process Eligible Inventory plus (3) 70% of the
value of finished goods Eligible Inventory (including
Inventory in transit under Letters of Credit or LC Guarantys)
all at such date and all calculated on the basis of the lower
of cost (on a FIFO basis) or market;
MINUS
(c) such reserves as Lender may establish under Section
1.1 of the Agreement; and
MINUS
(d) the LC Amount.
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, 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, provided that in no event shall any Eligible Account have a
value less than $0.
Borrowing Base B - as at any date of determination thereof, an
amount equal to the greatest of:
(i) $15,000,000; and
(ii) an amount equal to the sum of
(a) 45% of Inventory;
PLUS
(b) 40% of Accounts in each case net of reserves and as
shown on Borrowers' consolidated balance sheet most recently
filed on Form 10-Q or Form 10-K by Borrowers with the
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Securities and Exchange Commission; provided that the amount
available under Borrowing Base B as calculated under the above
formula shall be reduced by any amount of Indebtedness (as
defined in the Indenture) permanently repaid as provided under
Section 4.11 of the Indenture;
PLUS
(c) the amount of Indebtedness Borrowers are permitted to
incur pursuant to Section 4.03(vii) of the Indenture which is
available to be used for borrowings from Lender hereunder; and
(iii) the amount of Indebtedness Borrowers are permitted to
incur pursuant to Section 4.03(i) of the Indenture, as such
Section may be amended in writing from time to time so long as
such amendment has been received by Lender.
Borrowing Base Certificate - the certificate signed by the
chief executive officer, chief financial officer, controller or
accounting manager of Borrowers showing the status of Borrowers'
Inventory, Accounts outstanding Revolving Credit Loans, LC Amount 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 Commonwealth of
Pennsylvania or is a day on which banking institutions located in such
state are closed.
Capital Expenditures - cash expenditures made 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 excluding expenditures for the replacement of any
assets leased under a Capitalized Lease Obligation in connection with a
casualty or loss thereof.
Cash Flow - for any period, means Borrower's (i) Adjusted Net
Earnings from Operations for such period plus (ii) depreciation and
amortization expenses for such period plus (iii) deferred taxes for
such period, plus (iv) non-financed Capital Expenditures, less (v)
principal payments on account of current maturities of long-term
Indebtedness, less (vi) principal payments on Capitalized Lease
Obligations, less (vii) Distributions and less (viii) an amount equal
to the difference (if a positive number) between (a) all loans and
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advances to Affiliates during such period and (b) all repayments of
loans and advances made to Borrowers by Affiliates in such period, all
as determined in accordance with GAAP.
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.
Change of Control - any transaction or event under which
directly or indirectly, Dan W. Matthias and Rebecca C. Matthias own (in
the aggregate) less than two-thirds of the Voting Stock of Parent that
they owned as of the Closing Date.
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 issued under the Agreement.
Code - the Uniform Commercial Code as adopted and in force in
the Commonwealth of Pennsylvania and 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.
Compliance Certificate - See Section 8.1.3 hereof.
Credit Facility - the Revolving Credit Facility and Special
Purpose Credit.
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.
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.
Dominion Account - a special account of Lender established by
Borrowers pursuant to the Agreement at banks selected by Borrowers, but
acceptable to Lender in its reasonable discretion, and over which,
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<PAGE>
subject to the conditions set forth in Section 6.2.6, Lender shall have
sole and exclusive access and control for withdrawal purposes.
Eligible Account - an Account constituting a retail credit
card account owing to a Borrower from a credit card issuer or an
Account owing to a Borrower arising from a leased department at a
department store, each of which arose in the ordinary course of a
Borrower's business from the sale of goods or rendition of services.
Without limiting the generality of the foregoing, 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 (A) 5 days after
the sale date with respect to retail credit card accounts or
(B) more than 30 days from the date such account is owing
under the applicable agreement with respect to leased
departments at department stores; 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
(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 any 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
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any other petition or other application for relief under the
federal bankruptcy laws has been filed against the Account
Debtor, or if the 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 such Borrower assigns its right to payment of such
Account to Lender, in a manner satisfactory to Lender, so as
to comply with the Assignment of Claims Act of 1940 (31 U.S.C.
ss.203 et seq., as amended); or
(xi) the Account is not at all times subject to
Lender's duly perfected, first priority security interest and
no other 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 a 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
(xiv) such 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 related to such Account; or
(xv) such Borrower has made an agreement with the
Account Debtor to extend the time of payment thereof; or
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<PAGE>
(xvi) the Account is otherwise deemed unacceptable by
Lender in its reasonable discretion.
Eligible Inventory - all Inventory of Borrowers, unless it
constitutes one of the following (the determination thereof to be in
Lender's reasonable discretion):
(i) it is slow-moving, obsolete, defective,
or not deemed saleable in accordance with Borrowers' standard
practices; or
(ii) it does not meet all material standards
imposed by any governmental agency or authority for Inventory
of its type; or
(iii) it does not conform, in all material
respects, to the warranties and representations applicable
thereto set forth in the Agreement; or
(iv) it is not at all times subject to
Lender's duly perfected, first priority security interest and
no other Lien except a Permitted Lien; or
(v) it is not situated at a location in the
United States listed on Exhibit 6.1.1 (as it may be amended,
supplemented or replaced from time to time in writing); or
(vi) it is in transit (except in transit
from any of Borrowers' warehouses to its retail stores or
between its retail stores or is under a Letter of Credit or LC
Guaranty); or
(vii) is otherwise deemed unacceptable by
Lender in its reasonable discretion.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and
consent decrees relating to environmental matters.
Equipment - collectively, all machinery, apparatus, equipment,
fittings, furniture, fixtures, motor vehicles and other tangible
personal Property (other than Inventory) of every kind and description
used in a Borrower's operations or owned by a Borrower or in which a
Borrower has an interest, whether now owned or hereafter acquired by
such Borrower and wherever located, and all parts, accessories and
special tools and all increases and accessions thereto and
substitutions and replacements therefor.
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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.
Floating Rate - a rate of interest equal to either (i) the
Base Rate plus 25 basis points or (ii) provided no Event of Default has
occurred and upon Borrowers' first attaining EBITDA of $30,000,000 on a
trailing 12 month period, the Base Rate. The rate reduction shall
become effective on the first day of the first calendar month after
financial statements demonstrating compliance with such conditions are
delivered to Lender.
Floating Rate Loans - collectively, all Loans bearing interest
at the Floating Rate.
GAAP - generally accepted accounting principles in the United
States of America in effect from time to time.
General Intangibles - collectively, all personal property of
Borrowers (including without limitation choses in action, patents,
trademarks and copyrights and applications therefor, tax and other
types of refunds, deposits, licenses, contract rights, and computer
disks, data and software) other than goods, Accounts, Chattel Paper,
Documents, Instruments, Investment Property and money, whether now
owned or hereafter created or acquired by Borrowers, provided, however,
that General Intangibles shall not include the interests of any
Borrower under any equipment lease or real estate lease to the extent
that the granting of a security interest in such lease hereunder would
cause a default under the terms of that particular lease.
Indebtedness - as applied to a Person means, without
duplication
(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,
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(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.
Indenture - that certain Indenture dated as of August 1, 1995
among Mothers Work, Inc., as Issuer, Cave Springs, Inc., The Page Boy
Company, Inc., Mothers Work (R.E.), Inc. and Motherhood Maternity
Shops, Inc., as Guarantors and Society National Bank, as Trustee.
Inventory - collectively, all Inventory of Borrowers, whether
now owned or hereafter acquired including, without limitation, all
goods intended for sale or lease by Borrowers, 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 Borrowers' business; and all Documents
evidencing and General Intangibles relating to any of the foregoing,
whether now owned or hereafter acquired by Borrowers.
IRB - shall mean the Variable/Fixed Rate Federally Taxable
Economic Development bonds, Series of 1995, in the original aggregate
amount of $4,000,000 issued pursuant to a Trust Indenture dated as of
September 1, 1995 by and between Mothers Work, Inc. and Chase Manhattan
Bank (successor to Society National Bank), as trustee.
Investment Property - has the meaning ascribed thereto in the
Code.
LC Amount - at any time, the aggregate undrawn face amount of
all Letters of Credit and LC Guaranties then outstanding plus the
aggregate amount of all unreimbursed draws on all Letters of Credit and
LC Guaranties, in each case excluding the Special Purpose Credit.
LC Cap - $14,000,000.
LC Guaranty - any guaranty pursuant to which Lender or any
Affiliate of Lender shall guaranty the payment or performance by a
Borrower of its reimbursement obligation to anyone other than Lender
under any letter of credit.
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Letter of Credit - any stand-by letter of credit, issued by
Lender or any of Lender's Affiliates for the account of a Borrower to
support non-borrowed obligations of such Borrower incurred in the
ordinary course of business or any merchandise letter of credit and/or
"steamship indemnity", issued by Lender or any of Lender's Affiliates
for the account of a Borrower to support such Borrower's purchase of
Inventory.
LIBOR Interest Period - a period of one, two, three or six
months duration during which the LIBOR Based Rate is applicable.
LIBOR Based Rate - a rate of interest equal to the Adjusted
LIBOR Rate plus either (i) 225 basis points or (ii) provided no Event
of Default has occurred and upon Borrowers' first attaining EBITDA of
$30,000,000 on a trailing 12 month period, 200 basis points. The rate
reduction shall become effective on the first day of the first calendar
month after financial statements demonstrating compliance with such
conditions are delivered to Lender.
LIBOR Rate Loans - collectively, all Loans bearing interest 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 and
including, without limitation, the security interest, security title or
lien arising from a security agreement, mortgage, deed of trust, deed
to secure debt, encumbrance, pledge, conditional sale or trust receipt,
or a lease, consignment or bailment for security purposes. 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, Borrowers 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 as each of the same may be amended, modified,
renewed, extended, replaced, restated or substituted from time to time.
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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 - a material and adverse effect on the
(a) financial condition, business, prospects or Property of Borrowers,
taken as a whole, (b) the ability of any Borrower to pay or perform its
obligations and undertakings hereunder, or (c) the validity or
enforceability of the Obligations or Lender's Liens in the Collateral
or the priority thereof.
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.
Maximum Revolving Credit Amount - $44,000,000.
Money Borrowed - means (i) Indebtedness arising from the
lending of money by any Person to any Borrower; (ii) Indebtedness,
whether or not in any such case arising from the lending by any Person
of money to any 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 any Borrower under any guaranty of
obligations that would constitute Indebtedness for Money Borrowed under
clauses (i) through (iii) hereof, if owed directly by such Borrower.
Mortgage - that certain mortgage as described in Section 5.3
of the Agreement, as the same may be amended, modified, renewed,
extended, replaced, restated or substituted from time to time, to be
executed by Parent and PIDC Financing Corporation in favor of Lender,
to be in form and substance acceptable to Lender, and by which Parent
shall grant and convey to Lender, a Lien upon the Real Property.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
Note - the Revolving Credit Note.
13
<PAGE>
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 any Borrower 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 in
respect of Letters of Credit, LC Guaranties and the Special Purpose
Credit). The term includes without limitation, all interest, charges,
fees, expenses, attorneys' fees, and any other sums chargeable to
Borrower, under any of the Loan Documents.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements and instruments
(other than the Agreement and the Security Documents), heretofore, now
or hereafter executed by any Borrower, any guarantor, or any other
third party and delivered to Lender in respect of the transactions
contemplated by the Agreement, as each of the same may be amended,
modified, renewed, extended, replaced, restated or substituted from
time to time.
Overadvance - the amount, if any, by which the outstanding
principal amount of Revolving Credit Loans 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.
14
<PAGE>
Projections - Borrowers' forecasted Consolidated and
Consolidating (a) balance sheets, (b) profit and loss statements, and
(c) cash flow statements, all prepared on a consistent basis 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 purchase
price thereof, and (iii) any renewals, extensions or refinancings
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.
Real Property - the real estate (with buildings, improvements,
rents and profits) described on Exhibit A-2 to this 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.
Rentals - as defined in subsection 8.2.13 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Replacement Letter of Credit - as defined in Section 1.3 of
the Agreement.
Reportable Event - any of the events set forth in Section
4043(b) of ERISA.
15
<PAGE>
Reserve - 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.
Reserve Percentage - for Bank on any day, that percentage
(expressed as a decimal) which is in effect on such day, prescribed by
the Board of Governors of the Federal Reserve System (or any successor
or any other banking authority to which Lender 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 (i) deposits of
United States Dollars or (ii) Eurocurrency liabilities as defined in
Regulation D, in each case used to fund a LIBOR Rate Loan subject to an
Adjusted LIBOR Rate. The Adjusted LIBOR Rate shall be adjusted
automatically on and as of the effective day of any change in the
Reserve Percentage.
Restricted 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 except the
following:
(i) investments in one or more Subsidiaries
of Borrowers to the extent existing on the Closing Date;
(ii) Property to be used in the ordinary
course of business;
(iii) Current assets arising from the sale
of goods and services in the ordinary course of business of
Borrower;
(iv) investments in direct obligations of
the United States of America, or any agency thereof or
16
<PAGE>
obligations guaranteed by the United States of America,
provided that such obligations mature within one year from the
date of acquisition thereof;
(v) investments in certificates of deposit
maturing within one year from the date of acquisition issued
by a bank or trust company organized under the laws of the
United States or any state thereof having capital surplus and
undivided profits aggregating at least $100,000,000;
(vi) investments in commercial paper given
the highest rating by a national credit rating agency and
maturing not more than 270 days from the date of creation
thereof; and
(vii) mutual funds that invest in any of the
foregoing.
Revolving Credit Loan - a Loan made by Lender as provided in
Section 1.1 of the Agreement.
Revolving Credit Facility - the credit facility established by
for the making of Revolving Credit Loans pursuant to Section 1.1.1
hereof.
Revolving Credit Note - the secured promissory note to be
executed by Borrower on the Closing Date in favor of Lender to evidence
Borrowers' joint an several obligation to repay the Revolving Credit
Loans, which shall be in the form of Exhibit A-3 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 - the Mortgage, and all other instruments
and agreements now or at any time hereafter securing the whole or any
part of the Obligations, as each of the same may be amended, modified,
renewed, extended, replaced, restated or substituted from time to time.
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.
Special Purpose Credit - Either the Back to Back Credit or the
Replacement Letter of Credit, whichever may be outstanding from time to
time.
17
<PAGE>
Subordinated Debt - Unsecured indebtedness of Borrowers that
is subordinated to the Obligations in a manner, under terms and subject
to a written agreement satisfactory to Lender.
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.
Total Credit Facility - $48,000,000.
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.
18
<PAGE>
LIST OF EXHIBITS
Exhibit A-1 Borrowing Base Certificate
Exhibit A-2 Real Property
Exhibit A-3 Revolving Credit Note
Exhibit 3.1.1 Authorized Representatives of Borrower
Exhibit 6.1.1 Borrower's and each Subsidiary's Business
Exhibit 7.1.1 Jurisdictions in which Borrower and each Subsidiary is
Authorized to do Business
Exhibit 7.1.4 Capital Structure of Borrower
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.13 Existing Sureties
Exhibit 7.1.14 Tax Identification Numbers of Subsidiaries
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.18 Compliance with Laws
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22 Pension Plans
Exhibit 7.1.24 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.3 Existing Indebtedness
Exhibit 8.2.5 Permitted Liens
Exhibit 11
MOTHERS WORK, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended March 31, Ended March 31,
---------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Common shares for Basic EPS 3,563,342 3,570,662 3,561,306 3,567,653
Effective of Dilutive Securities -- -- -- --
----------- ----------- ----------- -----------
Common shares of Diluted EPS 3,563,342 3,570,662 3,561,306 3,567,653
=========== =========== =========== ===========
Net loss $(7,889,326) $(2,174,757) $(7,421,265) $(1,270,800)
Preferred stock dividends (299,767) (292,054) (544,142) (584,108)
----------- ----------- ----------- -----------
Net loss applicable to common
stockholders $(8,189,093) $(2,466,811) $(7,965,407) $(1,854,908)
=========== =========== =========== ===========
Net loss per common share:
Basic and Diluted EPS $ (2.30) $ (0.69) $ (2.24) $ (0.52)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S SECOND QUARTER 10-Q FOR THE PERIOD ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 614,081
<SECURITIES> 0
<RECEIVABLES> 4,507,462
<ALLOWANCES> 0
<INVENTORY> 66,723,107
<CURRENT-ASSETS> 78,425,368
<PP&E> 73,016,623
<DEPRECIATION> 26,736,854
<TOTAL-ASSETS> 175,812,813
<CURRENT-LIABILITIES> 47,664,291
<BONDS> 96,600,164
0
11,500,000
<COMMON> 35,712
<OTHER-SE> 13,016,461
<TOTAL-LIABILITY-AND-EQUITY> 175,812,813
<SALES> 145,157,742
<TOTAL-REVENUES> 145,157,742
<CGS> 71,029,467
<TOTAL-COSTS> 71,029,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,101,705
<INCOME-PRETAX> (2,541,284)
<INCOME-TAX> (1,270,484)
<INCOME-CONTINUING> (1,270,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,270,800)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
EXHIBIT 99
MOTHERS WORK, INC.
CONTACT: Tom Frank
Chief Financial Officer
and VP-Finance
(215) 873-2200
For Immediate Release
MOTHERS WORK, INC. ANNOUNCES RESTRUCTURING OF EPISODE(R) DIVISION
AND COMPLETION OF NEW CREDIT AGREEMENT
Philadelphia, PA, May 10, 1998 -- Mothers Work, Inc. (NASDAQ:MWRK) today
announced that its Board of Directors had instructed management to restructure
its Episode(R) non-maternity bridge women's apparel business to eliminate the
losses from that business. As an initial step in that process, the company will
close or convert to maternity approximately 21 Episode retail locations by June
30, 1998. The majority will be outlet center locations. In connection with these
store closings and related actions, the Company will take a charge in the third
fiscal quarter of $5.4 million, the cash portion of which is approximately $1.8
million to be paid out through the fourth quarter of fiscal 1998. The Board of
Directors has authorized management to retain an advisor to assist in this
restructuring.
Mothers Work, Inc., also announced completion of a new $48.0 million financing
agreement with Fleet Capital on April 24, 1998. The facility provides for a
$44.0 million working capital facility and a $4.0 million "Special Purpose
Credit" which supports the company's building mortgage. Terms include interest
at 0.25% over Fleet prime, Libor plus 2.25% and a life of three years through
April 23, 2001. This facility replaced the company's existing $34.0 million
facility that provided $30.0 million of working capital and $4.0 million
supporting the company's building mortgage.
Mothers Work is the Real Time Retailer(TM), using its custom TrendTrack(TM)
computer systems and quick response replenishment process to "give the customer
what she wants, when she wants it." Mothers Work operates 631 locations,
including 580 maternity clothing locations and 51 Episode upscale "bridge"
women's apparel stores, of which 30 Episode stores will remain in operation
after this closure.
Episode America, a division of Mothers Work, Inc., is licensed to use the
EPISODE(R) trademark by Episode USA, Inc.
