<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
November 3, 1999 0-21486
HARRY'S FARMERS MARKET, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-2037452
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1180 Upper Hembree Road, Roswell, Georgia 30076
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 667-8878
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N/A
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(Former name, former address and former fiscal year, if changed since last
report)
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____________
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class A Common 4,139,375
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Class Outstanding at December 16, 1999
Class B Common 2,050,701
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Class Outstanding at December 16, 1999
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
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Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Amounts in thousands (Unaudited)
November 3, February 3,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 700 $ 1,697
Accounts receivable, net of allowance 178 526
Inventories 9,976 7,138
Prepaid expenses 516 431
Assets held for sale - 281
Other current assets - 76
Deferred transaction costs --
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Total current assets 11,370 10,149
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PROPERTY AND EQUIPMENT
Buildings 31,681 31,328
Equipment 30,909 30,438
Vehicles 184 191
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62,774 61,957
Accumulated depreciation (31,248) (27,861)
--------- --------
31,526 34,096
Land 7,224 7,224
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Total property and equipment 38,750 41,320
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OTHER ASSETS
Assets held for sale 4,900 4,900
Deposits on equipment 377 240
Loan costs 559 110
Other 164 268
--------- --------
6,000 5,518
--------- --------
Total assets $ 56,120 $ 56,987
========= ========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Amounts in thousands (Unaudited)
November 3, February 3,
1999 1999
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 409 $ 991
Accounts payable - trade 8,660 8,729
Workers' compensation and general liability
insurance 302 253
Accrued payroll and payroll taxes payable 632 625
Sales taxes payable 62 128
Other accrued liabilities 904 870
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Total current liabilities 10,969 11,596
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LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES 14,795 14,203
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CONVERTIBLE DEBT 15,248 15,159
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OTHER NON-CURRENT LIABILITIES 449 478
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REDEEMABLE PREFERRED STOCK 10,693 10,582
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STOCKHOLDERS' EQUITY
Common Stock - Class A 34,681 34,681
Common Stock - Class B 3,936 3,936
Additional Paid-in Capital 1,270 1,380
Accumulated deficit (35,921) (35,028)
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Total stockholders' equity 3,966 4,969
========= ========
Total liabilities and stockholders' equity $ 56,120 $ 56,987
========= ========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share data For the Thirteen Weeks Ended,
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November 3, 1999 October 28, 1998
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<S> <C> <C> <C> <C>
Net sales $33,592 100.0 % $31,925 100.0 %
Cost of goods sold 24,037 71.6 23,189 72.6
------- ------ ------- -----
Gross profit 9,555 28.4 8,736 27.4
------- ------ ------- -----
Operating expenses
Direct store expenses 5,768 17.1 5,584 17.5
Selling, general & administrative expenses 2,975 8.9 3,360 10.6
Depreciation and other amortization 1,034 3.1 1,056 3.3
------- ------ ------- -----
Total operating expenses 9,777 29.1 10,000 31.4
------- ------ ------- -----
Operating income (loss) (222) (0.7) (1,264) (4.0)
Interest expense (679) (2.0) (591) (1.9)
Other income 348 1.0 305 1.0
------- ------ ------- -----
Pretax loss (553) (1.7) (1,550) (4.9)
Income taxes - - - -
------- ------ ------- -----
Net loss (553) (1.7) (1,550) (4.9)
Provision for accretion of warrants (37) (0.1) (37) (0.1)
------- ------ ------- -----
Net loss applicable to common shareholders $ (590) (1.8)% $(1,587) (5.0)%
======= ====== ======= =====
Net loss per common share - Basic $ (0.10) $ (0.26)
======= =======
Net loss per common share - Diluted $ (0.10) $ (0.26)
======= =======
</TABLE>
See accompanying notes to financial statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share data For the Thirty-nine Weeks Ended,
---------------------------------------------------------
November 3, 1999 October 28, 1998
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<S> <C> <C> <C> <C>
Net sales $102,425 100.0 % $99,388 100.0 %
Cost of goods sold 73,343 71.6 71,538 72.0
-------- ------ -------- ------
Gross profit 29,082 28.4 27,850 28.0
-------- ------ ------- ------
Operating expenses
Direct store expenses 17,557 17.1 16,384 16.5
Selling, general & administrative expenses 9,173 9.0 9,978 10.0
Depreciation and other amortization 3,084 3.0 2,983 3.0
-------- ------ ------- ------
Total operating expenses 29,814 29.1 29,345 29.5
-------- ------ ------- ------
Operating loss (732) (0.7) (1,495) (1.5)
Interest expense (1,752) (1.7) (1,788) (1.8)
Other income 1,592 1.5 982 1.0
-------- ------ ------- ------
Pretax loss (892) (0.9) (2,301) (2.3)
Income taxes - - -
-------- ------ ------- ------
Net loss (892) (0.9) (2,301) (2.3)
Provision for accretion of warrants (111) (0.1) (111) (0.1)
-------- ------ ------- ------
Net loss applicable to common shareholders $ (1,003) (1.0)% $(2,412) (2.4)%
======== ====== ======= ======
Net loss per common share - Basic $ (0.16) $ (0.39)
======== =======
Net loss per common share - Diluted $ (0.16) $ (0.39)
======== =======
</TABLE>
See accompanying notes to financial statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share data For the Thirty-nine Weeks Ended,
----------------------------------------------
November 3, October 28,
1999 1998
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<S> <C> <C>
Changes in Cash
Cash flows from operating activities:
Net income $ (893) $(2,301)
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation and amortization 3,464 3,539
Amortization of debt discount 127 -
Gain on sale of assets (60) -
Loss on writedown of notes receivable - 63
Decrease in accounts receivables 422 36
Decrease (Increase) in inventories (2,838) 5
Decrease (Increase) in prepaid expenses (85) 92
Decrease in other current assets 2 157
Increase (decrease) in accounts payable (68) 300
Increase (decrease) in accrued liabilities 64 (52)
Decrease in deferred revenue (89) (109)
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Net cash provided by operating activities 46 1,730
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Cash flows from investing activities:
Capital expenditures, including capitalized interest (888) (3,053)
Proceeds from sale of property and equipment 145 37
Proceeds from sale of other assets 262 -
Decrease in notes receivable - 76
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Net cash used in investing activities (481) (2,940)
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Cash flows from financing activities:
Line of credit 800 (46)
Principal payments on long-term obligations (859) (1,224)
Proceeds from issuance of convertible debt - 2,000
Deferred loan costs (503) -
-------- -------
Net cash provided by (used in) financing activities (562) 730
-------- -------
Net decrease in cash (997) (480)
Cash at beginning of period 1,697 1,479
-------- -------
Cash at end of period $ 700 $ 999
======== =======
Supplemental Schedule of Noncash Investing and Financing
Activities:
Capital leases $ - $ 2,385
======== =======
</TABLE>
See accompanying notes to financial statements
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 3, 1999
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments which are, in
the opinion of management, necessary to present fairly the financial position as
of November 3, 1999, and the results of operations and cash flows for the
thirty-nine weeks then ended. All such adjustments are of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes for
the fiscal year ended February 3, 1999, included in the Company's Annual Report
on Form 10-K filed by the Company.
Due to the seasonal nature of the Company's business, the results for the
quarter ended November 3, 1999, are not necessarily indicative of the results
for the entire 2000 fiscal year.
NOTE B - INVENTORIES
Inventories consist primarily of grocery items, which are stated at the lower of
cost or market. Cost is determined under the first-in, first-out (FIFO)
valuation method.
NOTE C - EARNINGS PER SHARE
Basic net earnings per common share are based upon the weighted average number
of common shares outstanding during the period. Diluted net earnings per common
share are based upon the weighted average number of common shares outstanding
plus dilutive potential common shares, including options and warrants
outstanding during the period. All comparative earnings per share data for
prior periods presented have been restated. The following table sets forth the
computation of basic and diluted income (loss) per share.
For the thirteen weeks ended:
<TABLE>
<CAPTION>
November 3, October 28,
1999 1998
---- ----
<S> <C> <C>
Numerator for basic loss per common share $ (590) $(1,587)
====== =======
Denominator for basic loss per common share - weighted
average shares outstanding $6,183 $ 6,183
Effect of assumed conversion of debt and preferred stock - -
------ -------
Denominator for diluted loss per common share - adjusted
weighted average shares outstanding $6,183 $ 6,183
====== =======
Basic loss per share $(0.10) $ (0.26)
====== =======
Diluted net loss per share $(0.10) $ (0.26)
====== =======
</TABLE>
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<PAGE>
For the thirty-nine weeks ended:
<TABLE>
<CAPTION>
November 3, October 28,
1999 1999
---- ----
<S> <C> <C>
Numerator for basic loss per common share $(1,003) $(2,412)
======= =======
Denominator for basic loss per common share-weighted average
shares outstanding 6,183 6,183
Effect of assumed conversion of debt and preferred stock - -
------- -------
Denominator for diluted net loss per common share-adjusted
weighted average shares outstanding 6,183 6,183
======= =======
Basic net loss per share $ (0.16) $ (0.39)
======= =======
Diluted net income (loss) per share $ (0.16) $ (0.39)
======= =======
</TABLE>
NOTE D - CLAIMS AND LITIGATION
The Company is involved in various claims and litigation, which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
NOTE E - SUBSEQUENT EVENTS
On December 2, 1999, the Company entered into a new credit agreement (the
"New Loan") with Back Bay Capital Funding, LLC with a committed amount of up to
$24.5 million. The new credit agreement enabled the Company to completely
terminate its relationship with Boston Chicken, Inc. for $4.0 million,
repurchase all outstanding shares of Series AA Preferred Stock for approximately
$2.75 million and satisfy all outstanding indebtedness owing to its senior
lender Creditanstalt for approximately $12.1 million. The remaining
availability under the line will be used for working capital purposes. The New
Loan consists of a term loan of $19,500,000 and a senior revolving credit
facility of up to $5,000,000. Subsequent to this transaction, the Company
estimates that its book value per common share will be in excess of $3.10 a
share.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
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Thirteen Weeks Ended November 3, 1999 (the "Third Quarter of Fiscal 2000")
compared to Thirteen Weeks Ended October 28, 1998 (the "Third Quarter of Fiscal
1999").
Net sales for the Third Quarter of Fiscal 2000 were approximately $33.6
million, compared to approximately $31.9 million for the Third Quarter of Fiscal
1999. The sales increase of $1.7 million or approximately 5.3%, consisted of
approximately $3.3 million in sales from new stores, which was partially offset
by a comparable store sales decrease of approximately 4.6%. Management believes
that the decrease in comparative store sales is largely due to growing
competition in the Atlanta market and cannibalization by its new stores.
Gross profits in the Third Quarter of Fiscal 2000 increased to
approximately $9.6 million or 28.4% of net sales, compared to approximately $8.7
million or 27.4% of net sales in the Third Quarter of Fiscal 1999. The increase
in gross profit dollars was largely due to a higher gross profit percent and
from gross margin dollars related to the net increase in sales.
Direct store expenses in dollars increased to approximately $5.8 million or
17.1% of net sales in the Third Quarter of Fiscal 2000 compared to approximately
$5.6 million or 17.5% of net sales in the Third Quarter of Fiscal 1999. The
decrease in direct store expenses in the Third Quarter of Fiscal 2000 as a
percent of sales compared to the Third Quarter of Fiscal 1999 was due to the
Third Quarter of Fiscal 1999 having significant preopening expenses relating to
the opening of the Dunwoody Harry's In A Hurry store.
Selling, general and administrative expenses for the Third Quarter of
Fiscal 2000 decreased to approximately $3.0 million or 8.9% of net sales
compared to approximately $3.4 million or 10.5% of net sales in the Third
Quarter of Fiscal 1999. The decrease was due to (1) a focused effort by the
Company to control its selling, general and administrative expenses and (2) an
increase in net sales over which to spread the cost.
Depreciation and amortization, which includes depreciation and amortization
for the stores and the corporate facilities, but excludes the manufacturing
facilities (which are included in cost of goods sold) was approximately $1.0
million or 3.1 % of net sales for the Third Quarter of Fiscal 2000 compared to
approximately $1.0 million or 3.3 % of net sales for the Third Quarter of Fiscal
1999. The slight decrease in depreciation as a percent of sales in the Third
Quarter of Fiscal 2000 is primarily due to assets becoming fully depreciated
since the end of the Third Quarter of Fiscal 1999, which is mostly offset by
depreciation relating to the build-out of certain properties (mainly the
addition of two new stores and the relocation of the bakery facility to the
Alpharetta mega-store in the first part of fiscal 2000).
Due to the reasons set forth above, the Company had an operating loss of
approximately $(0.2) million or (0.7)% of net sales during the Third Quarter of
Fiscal 2000 compared to an operating loss of approximately $(1.3) million or
(4.0) % of net sales in the Third Quarter of Fiscal 1999.
Interest expense in the Third Quarter of Fiscal 2000 was approximately $0.7
million compared to approximately $0.6 million in the third Quarter of Fiscal
1999. The increase was due to a higher average amount of debt outstanding.
Other income remained unchanged at approximately $0.3 million or 1.0 % of
net sales during both the Third Quarter of Fiscal 2000 and the Third Quarter of
Fiscal 1999.
For the Third Quarters of Fiscal 2000 and 1999 no income tax provision was
necessary. The Company has unrecognized net operating loss carry forwards for
financial purposes of approximately $32.0 million that may be applied against
future earnings. However, should the Company experience a change in ownership in
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<PAGE>
accordance with Section 382 of the Internal Revenue Code of 1986, as amended,
the extent that the Company may apply such loss carry forwards may be limited.
As a result of the above, the Company had a net loss applicable to common
shareholders for the Third Quarter of Fiscal 2000 of approximately $(0.6)
million or $(0.10) per common share - Basic, compared with net loss applicable
to common shareholders of approximately $(1.6) million or $(0.26) per common
share - Basic, during the Third Quarter of Fiscal 1999.
Thirty-nine Weeks Ended November 3, 1999 (the "First Three-Quarters of Fiscal
2000") compared to Thirty-nine Weeks Ended October 28, 1998 (the "First Three-
Quarters of Fiscal 1999").
Net sales for the First Three-Quarters of Fiscal 2000 were approximately
$102.4 million compared to approximately $99.4 million for the First Three
Quarters of Fiscal 1999. The sales increase of $3.0 million or approximately
3.0%, consisted of a $11.1 million sales increase from new stores partially
offset by a comparable store sales decrease of 8.0 % for the First Three
Quarters of Fiscal 2000. Management believes that the decrease in comparative
store sales is largely due to growing competition in the Atlanta area and
cannibalization by its new stores.
Gross profits in the First Three-Quarters of Fiscal 2000 increased to
approximately $29.1 million or 28.4% of net sales, compared to approximately
$27.9 million or 28.0 % of net sales in the First Three-Quarters of Fiscal 1999.
The increase in gross profit dollars was largely due to sales at new stores.
Direct store expenses increased to approximately $17.6 million or 17.1 % of
net sales in the First Three-Quarters of Fiscal 2000 compared to approximately
$16.4 million or 16.5 % of net sales in the First Three-Quarters of Fiscal 1999.
Direct store expenses increased due to (1) the addition of two new Harry's In a
Hurry stores, which generally incur higher direct store expenses as a percent of
sales than mega stores, and (2) the decrease in comparable store sales which
resulted in direct store expenses at comparable stores increasing as a percent
of sales.
Selling, general and administrative expenses for the First Three-Quarters
of Fiscal 2000 decreased to approximately $9.2 million or 9.0 % of net sales
compared to approximately $10.0 million or 10.0 % of net sales in the First
Three-Quarters of Fiscal 1999. The decrease is due to (1) a focused effort by
the Company to control its selling, general and administrative expense and (2)
an increase in net sales over which to spread the cost.
Depreciation and amortization, which includes depreciation and amortization
for the stores and the corporate facilities, but excludes the manufacturing
facilities (which are included in cost of goods sold) was approximately $3.1
million or 3.0% of net sales for the First Three-Quarters of Fiscal 2000
compared to approximately $3.0 million or 3.0 % of net sales for the First
Three-Quarters of Fiscal 1999. The slight increase in depreciation in the First
Three-Quarters of Fiscal 2000 is primarily due to the build-out of certain
properties (mainly related to the addition of two new stores and the relocation
of the bakery facility to the Alpharetta mega-store in the first part of fiscal
2000). The increase in depreciation and amortization costs related to the new
assets was primarily offset by assets which have become fully depreciated since
the end of the First Three Quarters of Fiscal 1999.
Due to the reasons set forth above, the Company had an operating loss of
approximately $(0.7) million or (0.7) % of net sales during the First Three
Quarters of Fiscal 2000 compared to an operating loss of approximately $(1.5)
million or (1.5) % of net sales in the First Three Quarters of Fiscal 1999.
Interest expense decreased slightly to approximately $1.75 million or 1.7%
of net sales in the First Three-Quarters of Fiscal 2000, compared to
approximately $1.79 million or 1.8% of net sales in the First Three-Quarters of
Fiscal 1999.
Other income increased to approximately $1.6 million or 1.5% of net sales
during the First Three-Quarters of Fiscal 2000, from approximately $1.0 million
or 1.0 % of net sales in the First Three-Quarters of Fiscal
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1999. This increase was primarily due to the Company receiving approximately
$500,000 from the sale of certain property rights related to the use of a
billboard on one of the Company's properties.
For the First Three-Quarters of Fiscal 2000 and 1999 no income tax
provision was necessary. The Company has unrecognized net operating loss carry
forwards for financial purposes of approximately $32.0 million that may be
applied against future earnings. However, should the Company experience a change
in ownership in accordance with Section 382 of the Internal Revenue Code of
1986, as amended the extent that the Company may apply such loss carry forwards
may be limited.
As a result of the above, the Company had a net loss applicable to common
shareholders for the First Three Quarters of Fiscal 2000 of approximately $(1.0)
million or $(0.16) per common share - Basic, compared with net loss applicable
to common shareholders of approximately $(2.4) million or $(0.39) per common
share - Basic, during the First Three Quarters of Fiscal 1999.
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<PAGE>
Liquidity and Capital Resources
During the First Three-Quarters of Fiscal 2000, the Company's operating
activities provided approximately $0.1 million of cash flow. The Company
invested approximately $0.9 million for capital expenditures, and received
approximately $0.4 million in proceeds from the sale of certain assets.
Additionally, during the First Three-Quarters of Fiscal 2000, the Company
borrowed approximately $0.8 million on its line of credit and paid approximately
$0.9 million on its long-term obligations. In addition, the Company expended and
deferred approximately $0.5 million dollars relating to the New Loan and various
costs associated with the settlements with Boston Chicken and the Preferred
Shareholders. As a result, net cash during the First Three-Quarters of Fiscal
2000 decreased by approximately $1.0 million, which resulted in a cash balance
at the end of the First Three-Quarter of Fiscal 2000 of approximately $0.7
million.
Cash used in investing activities in the First Three-Quarters of Fiscal
2000 was approximately $0.5 million. Investing activities consisted of
approximately $0.9 million of capital expenditures for property and equipment
relating to stores, manufacturing facilities and the corporate infrastructure.
In addition, cash provided by investing activities consisted of approximately
$0.1 million in proceeds from the sale of equipment and approximately $0.3
million in proceeds from the sale of other assets.
To increase liquidity, the Company continues to seek purchaser(s)/leasee(s)
for the unused portion of its distribution facility, as well as a remaining
outparcel at its Gwinnett County megastore property.
As of November 3, 1999, the Company had working capital of approximately
$0.4 million, compared to a working capital deficit of approximately $1.5
million at the end of the prior fiscal year. The improvement in the Company's
total working capital position as of November 3, 1999, compared to the end of
the prior year, is due to (1) the Company obtaining long-term operating leases
to finance certain equipment for the two new Harry's In A Hurry stores which
opened in fiscal 1999 and (2) the proceeds from the sale of the right to place a
billboard on its property for approximately $500,000.
On December 2, 1999, subsequent to the end of the third quarter, the
Company entered into a new credit agreement (the "New Loan") with Back Bay
Capital Funding, LLC with a committed amount of up to $24.5 million. The New
Loan consists of a term loan of $19,500,000 and a senior revolving credit
facility of up to $5,000,000. The new credit agreement enabled the Company to
completely terminate its relationship with Boston Chicken, Inc. for $4.0
million, repurchase all outstanding shares of Series AA Preferred Stock for
approximately $2.75 million and satisfy all outstanding indebtedness owing to
its senior lender Creditanstalt for approximately $12.1 million. The remaining
availability under the line will be used for working capital purposes.
The Company's ability to fund its working capital and capital expenditure
requirements, make principal and interest payments and meet its other cash
requirements depends, among other things, on the availability of internally
generated funds and the continued availability of, and compliance with, its
credit facilities. Management believes that internally generated funds and
available credit facilities will provide the Company with sufficient sources of
funds to satisfy its anticipated cash requirements in fiscal 2000. However, if
there is a significant reduction of internally generated funds, the Company may
require funds from outside financing sources. In such event, there can be no
assurance that the Company would be able to obtain such funding as and when
required or on acceptable terms.
Year 2000
In 1997, the Company established an investigative group supervised by Harry
A. Blazer, the President and Chief Executive Officer of the Company, which
consisted of personnel from the Company's internal MIS department and outside
product specialists. This group has identified all computer-based systems and
applications that the Company uses in its operations and has categorized them by
their critical nature to the operations of the Company. The group is in the
process of determining and performing the necessary modifications and
replacements to insure that the Company's operations will be minimally effected
by the Year 2000 issue.
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<PAGE>
Although the investigative group is also verifying the Year 2000 compliance
of the Company's significant outside vendors, at the present time, it does not
believe that the failure of any particular third party to be Year 2000 compliant
will have a material adverse effect on the operations or financial condition of
the Company. The investigative group is also in the process of establishing and
implementing a contingency plan for the Company to provide alternative methods
to insure the continuation of the Company's operations in the event of a Year
2000 based failure either internally or externally.
Based on current information, management believes that all hardware and
software modifications necessary to operate and effectively manage the Company
will be performed by the beginning of the year 2000 and that related
expenditures over the remainder of fiscal 2000 will not exceed $100,000.
Other Matters
On October 8, 1999, the Company's stock began trading on the Nasdaq
Smallcap system. On November 4, 1999, the Company's stock received a temporary
exception to the Nasdaq's minimum bid price requirement. Accordingly, the
Company's symbol was changed to HARYC. The Company has until February 2, 2000,
to evidence a closing bid price of at least $1.00 per share for a minimum of ten
consecutive trading days. There can be no assurance that the Company will be
able to meet this requirement.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995.
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, such as statements relating to financial results, business strategy,
plans for future business development activities, capital spending or financing
sources, capital structure and the effects of regulation and competition, and
are thus prospective. Such forward-looking statements are subject to risks,
uncertainties and other factors, which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to:
economic conditions, changes in consumer spending, weather, competition, changes
in the rate of inflation, changes in state or federal legislation or regulation,
inability to develop new stores as planned, acceptance of new stores, stability
and availability of product costs, unavailability of anticipated financings,
inability to consummate proposed transactions, interest rates, the impact of
certain litigation, the potential for the Company to be delisted from the Nasdaq
Smallcap system, the inability of the Company to consummate the sale of the
distribution facility and other uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
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PART II - OTHER INFORMATION
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<PAGE>
Item 1. Legal Proceedings
From time to time the Company is involved in lawsuits in the ordinary
course of business. Such lawsuits have not resulted in any material losses to
date, and the Company does not believe that the outcome of any existing lawsuits
will have a material adverse effect on its business or financial condition.
In addition, on May 7, 1999, Fine Distributing, Inc. ("Fine") filed suit
against the Company in the Superior Court of Cobb County, Georgia, alleging that
the Company repudiated a distributing agreement with Fine (the "Complaint"), in
breach of the terms of the agreement. Fine is seeking an unspecified amount of
damages. The Company has timely answered the Complaint and has filed certain
counterclaims against Fine related to the distribution agreement, including
claims that Fine breached the distribution agreement and conspired with another
party to defraud the Company. The Company has not yet determined the amount of
damages it has suffered as a result of these breaches. The Company believes the
claims made by Fine are without merit and intends to vigorously defend itself
against all allegations as well as pursue all remedies available to the Company
raised in its counterclaims; however, due to the uncertainties of litigation,
the Company is unable to predict an outcome at this time. Discovery in this
action is ongoing.
Item 2. Changes in Securities
There been no material modification in the instruments defining the rights
of shareholders during the First Quarter of Fiscal 2000. None of the rights
evidenced by the shares of the Company's common stock have been materially
limited or qualified by the issuance or modification of any other class of
securities.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
10.1 Amendment No. 1 to Settlement and Release Agreement dated as of
October 22, 1999, by and among the Company, Marthasville Trading
Company, Inc., Karalea, Inc. Harry Blazer, Progressive Food
Concepts, Inc. and Boston Chicken, Inc.
10.2 Securities Purchase Agreement dated as of November 17, 1999 by
and between the Company and Robert Fleming Nominees Ltd.
10.3 Securities Purchase Agreement dated as of November 17, 1999 by
and between the Company and Orbis Pension Trustees Ltd.
-16-
<PAGE>
10.4 Securities Purchase Agreement dated as of November 17, 1999 by
and between the Company and AXA Equity & Law Life Assurance
Society.
10.5 Securities Purchase Agreement dated as of November 17, 1999 by
and between the Company and Ashford Capital Partners, L.P.
10.6 Securities Purchase Agreement dated as of November 17, 1999 by
and between the Company and Theodore Ashford.
10.7 Loan and Security Agreement dated December 2, 1999 between Back
Bay Capital Funding, LLC and the Company.
10.8 Indemnity Agreement Regarding Hazardous Materials dated December
2, 1999 among the Company, Karalea, Inc., Marthasville Trading
Company, Inc. and Back Bay Capital Funding, LLC.
B. No reports on Form 8-K were filed during the quarter ended November 3,
1999.
-17-
<PAGE>
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.
HARRY'S FARMERS MARKET, INC.
Dated: December 17, 1999 By: /S/ HARRY A. BLAZER
--------------------- ----------------------------------------
Harry A. Blazer
Chairman, President and Chief Executive
Officer
(principal executive officer)
By: /S/ JOHN D. BRANCH
----------------------------------------
Dated: December 17, 1999 John D. Branch
--------------------- Senior Vice President & Chief Financial
Officer
(principal financial and accounting officer)
-18-
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1 TO SETTLEMENT AND RELEASE AGREEMENT
THIS AMENDMENT NO. 1 TO SETTLEMENT AND RELEASE AGREEMENT (the "Amendment")
dated as of October 22, 1999 by and among HARRY'S FARMERS MARKET, INC., a
Georgia corporation ("HFMI"), MARTHASVILLE TRADING COMPANY, INC., a Georgia
corporation ("Marthasville"), KARALEA, INC., a Georgia corporation ("Karalea"),
HARRY BLAZER, an individual ("Blazer" Blazer, HFMI, Marthasville and Karalea are
sometimes collectively referred to as the "HFMI Parties"), PROGRESSIVE FOOD
CONCEPTS, INC. (formerly known as HFMI Acquisition Corporation), a Delaware
corporation and a debtor in possession in the bankruptcy cases described below
("PFCI") and BOSTON CHICKEN, INC., a Delaware corporation and a debtor in
possession in the bankruptcy cases described below ("BCI"; BCI and PFCI are
sometimes collectively referred to as the "BCI Parties").
Recitals
1. The BCI Parties and the HFMI Parties entered into that certain Settlement
and Release Agreement dated as of September 2, 1999 (the "Settlement Agreement";
all capitalized terms not otherwise defined herein shall have the meanings set
forth in the Settlement Agreement).
2. The BCI Parties and the HFMI Parties have each agreed to (i) extend the
date by which the Closing can occur to November 30, 1999 (unless otherwise
further extended as set forth below) and (ii) modify certain of the other terms
thereof, as provided for herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
Section 1. Amendments.
----------
(a) The Settlement Agreement is hereby amended by deleting Section 2(a) in
its entirety and inserting in lieu thereof the following:
"(a) Closing. The closing of the settlement referenced herein (the
-------
"Closing") shall take place at the offices of Alston & Bird, Atlanta,
Georgia or at such other place as is mutually agreeable to the parties.
Unless the parties hereto shall mutually agree, the Closing shall occur on
or before November 30, 1999."
(b) The Settlement Agreement is hereby amended by deleting Section 2(b)(v)
in its entirety and inserting in lieu thereof the following:
"(v) that certain Order Approving Compromise and Settlement with
Harry's Farmers Market, Inc. (the "Order") previously entered on the docket
of the Case [DE 1140] on or about August 26, 1999 shall be final and non-
appealable, unless the HFMI Parties shall elect to waive this condition.
For the purposes of this Agreement, "final and non-appealable" shall mean
that either (a)
<PAGE>
no appeal of the Order has been filed within the time period specified by
Rule 8002(a), Federal Rules of Bankruptcy Procedure, (b) in the event a
timely appeal has been filed, the effectiveness of the Order has not been
stayed in accordance with Rule 8005, Federal Rules of Bankruptcy Procedure,
or (c) in the event the Order was stayed pending appeal, such stay has been
terminated by subsequent court order."
(c) The Settlement Agreement is hereby amended by adding the following new
Section 2(b)(vii) to the end of Section 2(b):
"(vii) the Bankruptcy Court's written order, in substantially the
form attached as hereto as Exhibit A-1, approving the terms of this
Amendment shall have been entered on the docket in the Case (the "Amendment
Order") and, unless otherwise waived by the HFMI Parties, shall have become
final and non-appealable."
Section 3. Benefits of Orders.
------------------
Each reference to the Settlement Agreement in any the Order or the
Amendment Order shall be deemed to be a reference to the Settlement Agreement as
amended by this Amendment, and as the Settlement Agreement may from time to time
be further amended, supplemented, restated or otherwise modified in the future
by one or more other written amendments or supplemental or modification
agreements entered into pursuant to the applicable provisions thereof.
Section 4. Conditions to Effectiveness of Amendment. The effectiveness of
----------------------------------------
this Amendment is subject to the condition precedent that each of the following
be received by each party, each of which shall be satisfactory in form and
substance to such party:
(a) this Amendment executed by each of the parties hereto; and
(b) the Amendment Order shall have been entered on the docket in the Case
(the "Amendment Order").
Section 5. BCI Parties' Representations. Each of the BCI Parties hereby
----------------------------
represents and warrants to the HFMI Parties as follows:
(a) Each of the BCI Parties is duly organized, and is a validly existing
corporation, in good standing under the laws of the jurisdiction of its
formation. The execution, delivery and performance of this Amendment and the
other documents contemplated hereby are within each of the BCI Parties' powers,
have been duly authorized by all necessary action and do not contravene, or
result in a default under, any of its charter documents or any law, agreement or
other obligation to which it is subject.
-2-
<PAGE>
(b) This Amendment has been duly and validly executed and delivered by each
of the BCI Parties, is the legal, valid and binding obligation of each of the
BCI Parties, enforceable against each of the BCI Parties in accordance with its
terms. No registration with, notice to, consent or approval of, or any other
action by, any governmental authority or other person is required in connection
with the execution, delivery and performance of this Amendment by each of the
BCI Parties other than the approval of the Bankruptcy Court.
(c) The BCI Parties have duly noticed the motion seeking approval of the
Court of this Amendment, including, without limitation, providing notice of the
motion to all parties which have liens, claims or other encumbrances against the
Loan Documents, the IP Documents, the Consulting Agreement and the Warrants.
Section 6. HFMI's Representations. HFMI hereby represents and warrants to
----------------------
each of the BCI Entities as follows:
(a) HFMI is duly organized, and is a validly existing corporation, in good
standing under the laws of the jurisdiction of its formation. The execution,
delivery and performance of this Amendment and the other documents contemplated
hereby are within HFMI's powers, have been duly authorized by all necessary
action and do not contravene, or result in a default under, any of its charter
documents or any law, agreement or other obligation to which it is subject.
(b) This Amendment has been duly and validly executed and delivered by
HFMI, is the legal, valid and binding obligation of HFMI, enforceable against
HFMI in accordance with its terms. No registration with, notice to, consent or
approval of, or any other action by, any governmental authority or other person
is required in connection with the execution, delivery and performance of this
Amendment by HFMI, other than the consent of its senior lender.
Section 7. Reaffirmation. Each party hereby repeats and reaffirms all
-------------
obligations as of the date hereof under the Settlement Agreement.
Section 8. Effect. Except as expressly herein amended, the terms and
------
conditions of the Settlement Agreement shall remain in full force and effect.
Section 9. Survival of Agreement. All agreements, representations and
---------------------
warranties made herein shall survive the execution and delivery of this
Amendment.
Section 10. Amendments. This Amendment may not be amended except in
----------
writing signed by all of the parties hereto.
Section 11. Severability. In case any provision of this Amendment shall
------------
be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
-3-
<PAGE>
Section 12. Review of Documents. Each of the parties hereto acknowledges
-------------------
that, prior to the execution and delivery of this Amendment, it has had the
opportunity to review and ask questions regarding this Agreement and the other
documents and instruments referred to herein and to discuss the same and this
Amendment with its counsel.
Section 13. Headings Descriptive; Entire Agreement. The headings of the
--------------------------------------
several sections and subsections of this Amendment are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement. This Amendment, and the agreements and documents
required to be delivered pursuant to the terms of this Amendment constitute the
entire agreement among the parties hereto and thereto regarding the subject
matters hereof and thereof and supersede all prior agreements, representations
and understandings related to such subject matters.
Section 14. Counterparts. This Amendment may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties.
Section 15. Choice of Law. This Amendment shall be construed and enforced
-------------
in accordance with and subject to the substantive laws of the State of Georgia.
Section 16. Successors and Assigns. Each reference herein to any party
----------------------
shall be deemed to include such parties' successors and assigns including any
trustee appointed in the Case; provided, however, no party may assign or
-------- -------
transfer its obligations hereunder to any person or entity.
[Signatures on Following Page]
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Amendment No. 1 to Settlement and Release Agreement as of the
date and year first written above.
<TABLE>
<CAPTION>
<S> <C>
BOSTON CHICKEN, INC, as debtor PROGRESSIVE FOOD CONCEPTS,
and debtor in possession INC., as debtor and debtor in possession
By: /s/ Amy S. Powers By: /s/ Amy S. Powers
--------------------------------- -------------------------------------
Name: Amy S. Powers Name: Amy S. Powers
------------------------------- -----------------------------------
Title: Sr. Vice President Title: Sr. Vice President
------------------------------ ----------------------------------
HARRY'S FARMERS MARKET, INC. KARALEA, INC.
By: /s/ Harry Blazer By: /s/ Harry Blazer
--------------------------------- -------------------------------------
Name: Harry Blazer Name: Harry Blazer
------------------------------- -----------------------------------
Title: President Title: President
------------------------------ ----------------------------------
MARTHASVILLE TRADING COMPANY, INC.
By: /s/ Harry Blazer /s/ Harry Blazer
--------------------------------- -----------------------------------------
Name: Harry Blazer HARRY BLAZER, individually
-------------------------------
Title: President
------------------------------
</TABLE>
-5-
<PAGE>
EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 17th day of November, 1999, by and between HARRY'S FARMERS
MARKET, INC., a Georgia corporation ("Harry's"), and Robert Fleming Nominees
Ltd., a U.K. company ("Fleming").
BACKGROUND
----------
WHEREAS, on December 30, 1994, Fleming purchased 888,888 shares of Series A
Redeemable Convertible Preferred Stock, stated value $9.00 per share, of Harry's
(the "Series A Stock");
WHEREAS, on December 30, 1994, Fleming purchased warrants to purchase an
aggregate of 344,444 shares of Series A Stock as represented by that certain
Warrant Certificate dated December 30, 1994 to purchase up to 300,000 shares of
the Class A Common Stock, no par value, of Harry's (the "Common Stock") and that
certain Performance Warrant Certificate dated December 30, 1994 to purchase up
to 44,444 shares of Common Stock (collectively, the "Warrants").
WHEREAS, on January 31, 1997, in contemplation of Harry's entering into a
relationship with Progressive Food Concepts, Inc., Harry's and Fleming entered
into that certain Preferred Stock Exchange Agreement dated January 31, 1997
pursuant to which each share of Series A Stock held by Fleming was exchanged for
one share of Series AA Preferred Stock, stated value $9.00 per share, of Harry's
(the "Preferred Stock") and the shares of Series A Stock previously held by
Fleming were canceled;
WHEREAS, on January 31, 1997, the Warrants were amended to change the
exercise price to $4.00 per share;
WHEREAS, Fleming owns and desires to sell to Harry's, and Harry's desires
to purchase from Fleming, the 888,888 shares of Preferred Stock, which is all of
the Preferred Stock owned by Fleming, and the Warrants, which, together,
comprise all the securities of Harry's owned by Fleming, other than 50,000
shares of Common Stock owned by Fleming (the "Fleming Common Stock"), which are
not a part of this Agreement.
In consideration of the foregoing, the mutual representations, warranties,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
<PAGE>
1. TERMS OF ACQUISITION
--------------------
1.1 Sale and Transfer of Securities.
-------------------------------
(a) The closing for the purchase and sale contemplated by this Agreement
shall be held at the offices of Alston & Bird, One Atlantic Center, 1201 West
Peachtree Street, Atlanta, Georgia, 30309, as soon as practicable following the
satisfaction of the conditions set forth in Section 8 herein, but in no event
later than December 15, 1999, or at such other place as the parties hereto may
agree in writing (the date on which the closing actually occurs is hereinafter
referred to as the "Closing Date").
(b) On the Closing Date and upon the terms and subject to the conditions of
this Agreement, Fleming will sell, convey, transfer, assign and deliver to
Harry's, and Harry's will purchase and accept from Fleming, 888,888 shares of
Preferred Stock (the "Shares"), as evidenced by stock certificate number P-5,
and the Warrants (collectively, the Shares and the Warrants are referred to
herein as the "Securities").
(c) On the Closing Date, Fleming will convey to Harry's good, valid and
marketable title to the Securities free and clear of any and all liabilities,
obligations, liens, encumbrances, restrictions or rights of others of any
character whatsoever. On the Closing Date, Fleming will deliver to Harry's (i)
stock certificate number P-5 evidencing the Shares registered in the name of
Fleming, duly endorsed in blank on the reverse thereof or accompanied by a duly
executed stock power and (ii) the original executed Warrants.
2. PURCHASE PRICE
--------------
2.1 Purchase Price. In full payment of the purchase price for the
--------------
Securities, on the Closing Date, Harry's will pay Fleming Two Million Dollars
($2,000,000) (the "Purchase Price") by wire transfer of immediately payable
funds to an account designated in writing by Fleming.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
---------------------------------------------
Fleming represents and warrants to Harry's as follows:
3.1 Ownership of Securities. Fleming is the record and beneficial owner
-----------------------
of the Securities free and clear of any liens, claims, options, charges,
encumbrances or rights of others. At no time since December 30, 1994 has
Fleming assigned the Warrants in whole or in part or transferred the Warrants.
Except for the Fleming Common Stock, the Securities constitute Fleming's only
interest in or to Harry's, its business or any of its assets.
-2-
<PAGE>
3.2 Consents. Fleming may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority, and all of the Securities may
be sold by it to Harry's without the imposition of any lien, charge or
encumbrance with respect to such Securities.
3.3 Authorization and Binding Effect. Fleming has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Fleming and are duly
authorized to execute this Agreement on Fleming's behalf. This Agreement
constitutes a legal, valid and binding agreement enforceable against Fleming in
accordance with the terms hereof. Upon consummation of the transactions
contemplated herein, Harry's will own the Securities sold by Fleming pursuant to
this Agreement free and clear of any liens, claims, options, charges,
encumbrances or rights of others.
3.4 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Fleming is a party or is bound, (ii) Fleming's corporate documents or (iii) any
law, rule, regulation, judgment, order, injunction, decree, or award against or
binding upon Fleming.
3.5 Access to Information. Fleming has owned the Securities since
---------------------
December 30, 1994 and at all times since such date has had full and free access
to Harry's, its management personnel and its financial statements and
information. Fleming has had the opportunity to ask questions of and receive
answers or obtain additional information from Harry's concerning the financial
and other affairs and prospects of Harry's and the terms and conditions of the
sale of the Securities. Fleming is familiar with Harry's and the business in
which it is engaged. Fleming is fully aware that future events could impact the
value of the Securities, and Fleming has conducted its own analysis in deciding
to enter into this Agreement. Fleming acknowledges that the negotiations
culminating in this Agreement have been at arm's length. Fleming has made its
own investigation of Harry's, its business, its financial statements and
information, has solely relied on the results of such investigation in entering
into this Agreement and has not relied on any statements or representations by
Harry`s or any of its representatives, counsel or agents other than those
representations and warranties contained in Section 4 of this Agreement.
3.6 Certain Prior Actions. Prior to the date of this Agreement, Fleming
---------------------
has not taken any actions, or failed to take any actions, that if taken or not
taken immediately after the execution and delivery of this Agreement would
violate the provisions of Section 5 hereof.
-3-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF HARRY'S
-----------------------------------------
Harry's represents and warrants to Fleming as follows:
4.1 Consents. Harry's may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority.
4.2 Authorization and Binding Effect. Harry's has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Harry's and are duly
authorized to execute this Agreement on Harry's behalf. This Agreement
constitutes a legal, valid and binding obligation of Harry's enforceable against
Harry's in accordance with its terms.
4.3 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Harry's is a party or is bound, (ii) its Articles of Incorporation or its
Bylaws, or (iii) any law, rule, regulation, judgment, order, injunction, decree,
or award against or binding upon Harry's.
4.4 Corporate Existence, Power and Authority.
-----------------------------------------
(a) Harry's is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Harry's is duly
qualified, licensed and authorized to do business and is in good standing in
each jurisdiction in which it owns or leases any property or in which the
conduct of its business requires it to so qualify or be so licensed, except for
such jurisdictions where the failure to so qualify or be so licensed would not
have a material adverse effect on Harry's assets, properties, liabilities,
business, results of operations or condition (financial or otherwise).
(b) No proceeding has been commenced looking toward the dissolution or
merger of Harry's or the amendment of its certificate of incorporation. Harry's
is not in violation in any material respect of its certificate of incorporation
or by-laws.
(c) Harry's has all requisite power, authority (corporate and other) and
legal right to own or to hold under lease and to operate the properties it owns
or holds and to conduct its business as now being conducted.
4.5 Litigation. Other than has been disclosed in its filings with
----------
the Securities and Exchange Commission, there is no action, suit, proceeding,
investigation or claim pending, to which Harry's has received any oral or
written notice, or, to the best knowledge of Harry's, threatened in law, equity
or otherwise before any court, administrative agency or arbitrator which (i)
questions the validity of this Agreement or
-4-
<PAGE>
any action taken or to be taken pursuant hereto or (ii) might adversely affect
the right or title of Fleming in the Fleming Common Stock.
5. COVENANTS OF FLEMING From and after the date hereof, Fleming
--------------------
shall perform and comply with the following covenant:
5.1 Nondisclosure of Trade Secrets and Confidential Information. As
-----------------------------------------------------------
used in this Agreement, the term "Confidential Information" shall mean all
information regarding Harry's or its activities, business and current or
prospective customers or suppliers that are not generally known to persons not
employed by Harry's, including without limitation, information regarding Harry's
products, contracts, corporate records or proceedings, current or prospective
employees, pricing, costs, financial results or condition, relationships with
its customers and suppliers, and relationships with its employees. Confidential
Information shall not include information that has become generally available to
the public by the act of one who has the right to disclose such information
without violating any right or privilege of Harry's. For one (1) year after the
date hereof with respect to Confidential Information, Fleming shall not directly
or indirectly transmit or disclose any Confidential Information to any person,
concern or entity, and shall not make use of any such Confidential Information,
directly or indirectly, for itself or others. In the event that Fleming is
requested in any proceeding to disclose any Confidential Information, Fleming
shall give Harry's prompt notice of such request so that Harry's may seek an
appropriate protective order. If, in the absence of a protective order, Fleming
is nonetheless compelled by law to disclose Confidential Information, Fleming
may disclose such information in such proceeding without liability hereunder;
provided, however, that Fleming gives Harry's written notice of the Confidential
Information to be disclosed as far in advance of its disclosure as is
practicable and, upon Harry's request and at Harry's expense, uses its best good
faith efforts to obtain assurances that confidential treatment will be accorded
to the information provided by Fleming or its agents.
5.2 Injunctive Relief. Fleming acknowledges that the nondisclosure
-----------------
covenant contained in this Section 5 is a reasonable means of protecting and
preserving Harry's interests and the confidentiality of the Confidential
Information. Fleming agrees that any breach of this covenant will result in
irreparable damage and injury to Harry's and that Harry's will be entitled to
injunctive relief in any court of competent jurisdiction without the necessity
of posting any bond. Fleming also agrees that any injunctive relief shall be in
addition to any damages that may be recoverable by Harry's.
5.3 Enforceability of Covenants. Fleming and Harry's agree that
---------------------------
Fleming's obligations under the nondisclosure covenant are separate and distinct
from its obligations under other provisions of this Agreement, are material, and
a failure or alleged failure of Harry's to perform its obligations under any
provision of this Agreement shall not constitute a defense to the enforceability
of the nondisclosure covenant.
-5-
<PAGE>
6. INDEMNIFICATION
---------------
6.1 Indemnity by Fleming. Fleming hereby agrees to indemnify
--------------------
Harry's, and each of its officers, directors, shareholders, employees, agents
and counsel against, and to hold each of the foregoing harmless from, any and
all losses, liabilities, costs, damages and expenses (including but not limited
to reasonable attorneys' fees, including attorneys' fees necessary to enforce
its rights to indemnification hereunder) arising from or resulting by reason of
any material inaccuracy in any of the representations or warranties, or any
breach of any of the covenants or agreements, made or to be performed by Fleming
pursuant to this Agreement.
6.2 Indemnity by Harry's. Harry's hereby agrees to indemnify Fleming
--------------------
and each of its officers, directors, shareholders, employees, agents and counsel
against, and to hold each of the foregoing harmless from, any and all losses,
liabilities, costs, damages and expenses (including but not limited to
reasonable attorneys' fees, including attorneys' fees necessary to enforce his
rights to indemnification hereunder) arising from or resulting by reason of any
material inaccuracy in any of the representations or warranties, or any breach
of any of the covenants or agreements, made or to be performed by Harry's
pursuant to this Agreement.
6.3 Termination of Existing Agreements. Subject to the foregoing
----------------------------------
sentence, on and as of the Closing Date all agreements of any kind and nature
between Fleming and Harry's, including, without limitation, that certain Amended
and Restated Stockholders Agreement dated January 31, 1997 and that certain
Registration Rights Agreement dated December 30, 1994, as amended, will be
terminated and of no further force or effect without any further action on the
part of the parties hereto.
7. NEGATIVE COVENANT OF FLEMING From the date hereof to the Closing Date,
----------------------------
which shall be no later than December 15, 1999, Fleming shall not sell any of
the Shares, assign the Warrants in whole or in part or transfer the Warrants.
8. CONDITIONS PRECEDENT TO PARTIES' OBLIGATIONS TO CLOSE The obligations of
-----------------------------------------------------
Fleming and Harry's to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction of each of the following
conditions, unless waived in whole or in part by the parties.
8.1 Financing Commitments. Harry's shall have obtained financing in
---------------------
such amount and on such terms as the Board of Directors of Harry's, in its
reasonable discretion, shall have determined is acceptable.
8.2 Fleming Representations and Warrants. The representations and
------------------------------------
warranties made by Fleming in Article 3 hereof shall be true and correct on and
as of the
-6-
<PAGE>
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
8.3 Harry's Representations and Warrants. The representations and
------------------------------------
warranties made by Harry's in Article 4 hereof shall be true and correct on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
8.4 Compliance by Fleming. Fleming shall have duly performed in all
---------------------
material respects all of the covenants and negative covenants contained in this
Agreement to be performed by Fleming.
9. MISCELLANEOUS
-------------
9.1 Representations and Warranties. All of the representations,
------------------------------
warranties, covenants and agreements made by any of the parties in or pursuant
to this Agreement shall survive the consummation of the transactions
contemplated by this Agreement.
9.2 Successors and Assigns. No party may assign any of its rights
----------------------
hereunder without the prior written consent of the other party hereto.
9.3 Governing Law. This Agreement shall be controlled, construed and
-------------
enforced in accordance with the substantive laws of the State of New York,
without regard to the laws related to choice or conflict of laws.
9.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be one and the same Agreement and shall become
effective when one or more counterparts have been signed by all of the parties
and delivered to the other parties.
9.5 Further Assurances. Fleming shall at any time and from time to
------------------
time after the date hereof take whatever actions Harry's may reasonably request
to effectuate, record or perfect its transfer of the Securities to Harry's
pursuant to this Agreement or to otherwise effectuate or consummate any of the
transactions contemplated hereby.
9.6 Interpretations. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against Harry's or Fleming,
whether under any rule of construction or otherwise. No party to this Agreement
shall be considered the draftsman. On the contrary, this Agreement has been
reviewed, negotiated and accepted by both parties and their attorneys and shall
be construed and interpreted according to the ordinary meaning of the words used
so as fairly to accomplish the purposes and intentions of all parties hereto.
-7-
<PAGE>
9.7 Notices. All notices, requests, demands and other communications
-------
hereunder shall be (i) delivered by hand, (ii) mailed by registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed, (iii) sent by national overnight courier service, or (iv) sent by
facsimile, graphic scanning or other telegraphic communications equipment to the
parties, addressed as follows:
To Fleming: Robert Fleming Nominees, Ltd.
c/o Fleming Capital Management
320 Park Avenue
New York, New York 10022
Attention: Mr. Christopher M. V. Jones
Telecopy: (212) 508-3928
with copies to: Morgan Lewis & Bockius, LLP
101 Park Avenue
New York, New York 10178
Attention: David W. Pollak, Esq.
Telecopy: (212) 309-6273
To Harry's: Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention: Mr. Harry Blazer
Telecopy: (770) 661-4920
with copies to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John L. Latham, Esq.
Telecopy: (404) 881-7777
(b) All notices, requests, instructions or documents given to any
party in accordance with this Section 9.7 shall be deemed to have been given (i)
on the date of receipt if delivered by hand, overnight courier service or if
sent by facsimile, graphic scanning or other telegraphic communications
equipment or (ii) on the date three (3) business days after depositing with the
United States Postal Service if mailed by United States registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
9.7.
9.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties relating to the subject matter hereof and thereof
and supersedes all prior
-8-
<PAGE>
oral and written, and all contemporaneous oral negotiations, discussions,
writings, correspondence and agreements relating to the subject matter of this
Agreement.
9.9 Modifications, Amendments and Waivers. The failure or delay of
-------------------------------------
any party at any time or times to require performance of any provision of this
Agreement shall in no manner affect its right to enforce that provision. No
single or partial waiver by any party of any condition of this Agreement, or the
breach of any term, agreement or covenant or the inaccuracy of any
representation or warranty of this Agreement, whether by conduct or otherwise,
in any one or more instances shall be construed or deemed to be a further or
continuing waiver of any such condition, breach or inaccuracy or a waiver of any
other condition, breach or inaccuracy.
9.10 Severability. Should any one or more of the provisions of this
------------
Agreement be determined to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith to replace any provisions determined to be invalid,
illegal or unenforceable with valid, legal and enforceable provisions the
economic effect of which comes as close as practicable to that of the invalid,
illegal or unenforceable provisions.
[SIGNATURES CONTINUED ON NEXT PAGE]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Stock Purchase
Agreement to be duly executed and delivered under seal as of the date first
above written.
HARRY'S FARMERS MARKET, INC.
By: /s/ John D. Branch
---------------------------------
Name: John D. Branch
---------------------------------
Title: Sr. Vice President and CFO
---------------------------------
[CORPORATE SEAL]
ROBERT FLEMING NOMINEES, LTD.
By: /s/ Arthur Levy
---------------------------------
Name: Arthur Levy
---------------------------------
Title: Director
---------------------------------
[SEAL]
-10-
<PAGE>
EXHIBIT 10.3
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 17th day of November, 1999, by and between HARRY'S FARMERS
MARKET, INC., a Georgia corporation ("Harry's"), and ORBIS PENSION TRUSTEES LTD.
("Orbis").
BACKGROUND
----------
WHEREAS, on December 30, 1994, Orbis purchased 111,111 shares of Series A
Redeemable Convertible Preferred Stock, stated value $9.00 per share, of Harry's
(the "Series A Stock");
WHEREAS, on December 30, 1994, Orbis purchased warrants to purchase an
aggregate of 43,056 shares of Series A Stock as represented by that certain
Warrant Certificate dated December 30, 1994 to purchase up to 37,500 shares of
the Class A Common Stock, no par value, of Harry's (the "Common Stock") and that
certain Performance Warrant Certificate dated December 30, 1994 to purchase up
to 5,556 shares of Common Stock (collectively, the "Warrants").
WHEREAS, on January 31, 1997, in contemplation of Harry's entering into a
relationship with Progressive Food Concepts, Inc., Harry's and Orbis entered
into that certain Preferred Stock Exchange Agreement dated January 31, 1997
pursuant to which each share of Series A Stock held by Orbis was exchanged for
one share of Series AA Preferred Stock, stated value $9.00 per share, of Harry's
(the "Preferred Stock") and the shares of Series A Stock previously held by
Orbis were canceled;
WHEREAS, on January 31, 1997, the Warrants were amended to change the
exercise price to $4.00 per share;
WHEREAS, Orbis owns and desires to sell to Harry's, and Harry's desires to
purchase from Orbis, the 111,111 shares of Preferred Stock, which is all of the
Preferred Stock owned by Orbis, and the Warrants, which, together, comprise all
the securities of Harry's owned by Orbis.
In consideration of the foregoing, the mutual representations, warranties,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
<PAGE>
1. TERMS OF ACQUISITION
--------------------
1.1 Sale and Transfer of Securities.
-------------------------------
(a) The closing for the purchase and sale contemplated by this Agreement
shall be held at the offices of Alston & Bird, One Atlantic Center, 1201 West
Peachtree Street, Atlanta, Georgia, 30309, as soon as practicable following the
satisfaction of the conditions set forth in Section 8 herein, but in no event
later than December 15, 1999, or at such other place as the parties hereto may
agree in writing (the date on which the closing actually occurs is hereinafter
referred to as the "Closing Date").
(b) On the Closing Date and upon the terms and subject to the conditions of
this Agreement, Orbis will sell, convey, transfer, assign and deliver to
Harry's, and Harry's will purchase and accept from Orbis, 111,111 shares of
Preferred Stock (the "Shares"), as evidenced by stock certificate number P-3,
and the Warrants (collectively, the Shares and the Warrants are referred to
herein as the "Securities").
(c) On the Closing Date, Orbis will convey to Harry's good, valid and
marketable title to the Securities free and clear of any and all liabilities,
obligations, liens, encumbrances, restrictions or rights of others of any
character whatsoever. On the Closing Date, Orbis will deliver to Harry's (i)
stock certificate number P-3 evidencing the Shares registered in the name of
Orbis, duly endorsed in blank on the reverse thereof or accompanied by a duly
executed stock power and (ii) the original executed Warrants.
2. PURCHASE PRICE
--------------
2.1 Purchase Price. In full payment of the purchase price for the
--------------
Securities, on the Closing Date, Harry's will pay Orbis Two Hundred Fifty
Thousand Three Hundred Forty Four Dollars ($250,344) (the "Purchase Price") by
wire transfer of immediately payable funds to an account previously designated
in writing by Orbis.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
---------------------------------------------
Orbis represents and warrants to Harry's as follows:
3.1 Ownership of Securities. Orbis is the record and beneficial owner of
-----------------------
the Securities free and clear of any liens, claims, options, charges,
encumbrances or rights of others. At no time since December 30, 1994 has Orbis
assigned the Warrants in whole or in part or transferred the Warrants. The
Securities constitute Orbis' only interest in or to Harry's, its business or any
of its assets.
-2-
<PAGE>
3.2 Consents. Orbis may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority, and all of the Securities may
be sold by it to Harry's without the imposition of any lien, charge or
encumbrance with respect to such Securities.
3.3 Authorization and Binding Effect. Orbis has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Orbis and are duly
authorized to execute this Agreement on Orbis' behalf. This Agreement
constitutes a legal, valid and binding agreement enforceable against Orbis in
accordance with the terms hereof. Upon consummation of the transactions
contemplated herein, Harry's will own the Securities sold by Orbis pursuant to
this Agreement free and clear of any liens, claims, options, charges,
encumbrances or rights of others.
3.4 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Orbis is a party or is bound, (ii) Orbis' corporate documents or (iii) any law,
rule, regulation, judgment, order, injunction, decree, or award against or
binding upon Orbis.
3.5 Access to Information. Orbis has owned the Securities since December
---------------------
30, 1994 and at all times since such date has had full and free access to
Harry's, its management personnel and its financial statements and information.
Orbis has had the opportunity to ask questions of and receive answers or obtain
additional information from Harry's concerning the financial and other affairs
and prospects of Harry's and the terms and conditions of the sale of the
Securities. Orbis is familiar with Harry's and the business in which it is
engaged. Orbis is fully aware that future events could impact the value of the
Securities, and Orbis has conducted its own analysis in deciding to enter into
this Agreement. Orbis acknowledges that the negotiations culminating in this
Agreement have been at arm's length. Orbis has made its own investigation of
Harry's, its business, its financial statements and information, has solely
relied on the results of such investigation in entering into this Agreement and
has not relied on any statements or representations by Harry`s or any of its
representatives, counsel or agents other than those representations and
warranties contained in Section 4 of this Agreement.
3.6 Certain Prior Actions. Prior to the date of this Agreement, Orbis has
---------------------
not taken any actions, or failed to take any actions, that if taken or not taken
immediately after the execution and delivery of this Agreement would violate the
provisions of Section 5 hereof.
-3-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF HARRY'S
-----------------------------------------
Harry's represents and warrants to Orbis as follows:
4.1 Consents. Harry's may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority.
4.2 Authorization and Binding Effect. Harry's has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Harry's and are duly
authorized to execute this Agreement on Harry's behalf. This Agreement
constitutes a legal, valid and binding obligation of Harry's enforceable against
Harry's in accordance with its terms.
4.3 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Harry's is a party or is bound, (ii) its Articles of Incorporation or its
Bylaws, or (iii) any law, rule, regulation, judgment, order, injunction, decree,
or award against or binding upon Harry's.
4.4 Corporate Existence, Power and Authority.
-----------------------------------------
(a) Harry's is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Harry's is duly
qualified, licensed and authorized to do business and is in good standing in
each jurisdiction in which it owns or leases any property or in which the
conduct of its business requires it to so qualify or be so licensed, except for
such jurisdictions where the failure to so qualify or be so licensed would not
have a material adverse effect on Harry's assets, properties, liabilities,
business, results of operations or condition (financial or otherwise).
(b) No proceeding has been commenced looking toward the dissolution or
merger of Harry's or the amendment of its certificate of incorporation. Harry's
is not in violation in any material respect of its certificate of incorporation
or by-laws.
(c) Harry's has all requisite power, authority (corporate and other) and
legal right to own or to hold under lease and to operate the properties it owns
or holds and to conduct its business as now being conducted.
4.5 Litigation. Other than has been disclosed in its filings with
----------
the Securities and Exchange Commission, there is no action, suit, proceeding,
investigation or claim pending, to which Harry's has received any oral or
written notice, or, to the best knowledge of Harry's, threatened in law, equity
or otherwise before any court,
-4-
<PAGE>
administrative agency or arbitrator which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto.
5. COVENANTS OF ORBIS From and after the date hereof, Orbis shall
------------------
perform and comply with the following covenant:
5.1 Nondisclosure of Trade Secrets and Confidential Information. As
-----------------------------------------------------------
used in this Agreement, the term "Confidential Information" shall mean all
information regarding Harry's or its activities, business and current or
prospective customers or suppliers that are not generally known to persons not
employed by Harry's, including without limitation, information regarding Harry's
products, contracts, corporate records or proceedings, current or prospective
employees, pricing, costs, financial results or condition, relationships with
its customers and suppliers, and relationships with its employees. Confidential
Information shall not include information that has become generally available to
the public by the act of one who has the right to disclose such information
without violating any right or privilege of Harry's. For one (1) year after the
date hereof with respect to Confidential Information, Orbis shall not directly
or indirectly transmit or disclose any Confidential Information to any person,
concern or entity, and shall not make use of any such Confidential Information,
directly or indirectly, for itself or others. In the event that Orbis is
requested in any proceeding to disclose any Confidential Information, Orbis
shall give Harry's prompt notice of such request so that Harry's may seek an
appropriate protective order. If, in the absence of a protective order, Orbis
is nonetheless compelled by law to disclose Confidential Information, Orbis may
disclose such information in such proceeding without liability hereunder;
provided, however, that Orbis gives Harry's written notice of the Confidential
Information to be disclosed as far in advance of its disclosure as is
practicable and, upon Harry's request and at Harry's expense, uses its best good
faith efforts to obtain assurances that confidential treatment will be accorded
to the information provided by Orbis or its agents.
5.2 Injunctive Relief. Orbis acknowledges that the nondisclosure
-----------------
covenant contained in this Section 5 is a reasonable means of protecting and
preserving Harry's interests and the confidentiality of the Confidential
Information. Orbis agrees that any breach of this covenant will result in
irreparable damage and injury to Harry's and that Harry's will be entitled to
injunctive relief in any court of competent jurisdiction without the necessity
of posting any bond. Orbis also agrees that any injunctive relief shall be in
addition to any damages that may be recoverable by Harry's.
5.3 Enforceability of Covenants. Orbis and Harry's agree that Orbis'
---------------------------
obligations under the nondisclosure covenant are separate and distinct from its
obligations under other provisions of this Agreement, are material, and a
failure or alleged failure of Harry's to perform its obligations under any
provision of this Agreement shall not constitute a defense to the enforceability
of the nondisclosure covenant.
-5-
<PAGE>
6. INDEMNIFICATION
---------------
6.1 Indemnity by Orbis. Orbis hereby agrees to indemnify Harry's,
------------------
and each of its officers, directors, shareholders, employees, agents and counsel
against, and to hold each of the foregoing harmless from, any and all losses,
liabilities, costs, damages and expenses (including but not limited to
reasonable attorneys' fees, including attorneys' fees necessary to enforce its
rights to indemnification hereunder) arising from or resulting by reason of any
material inaccuracy in any of the representations or warranties, or any breach
of any of the covenants or agreements, made or to be performed by Orbis pursuant
to this Agreement.
6.2 Indemnity by Harry's. Harry's hereby agrees to indemnify Orbis
--------------------
and each of its officers, directors, shareholders, employees, agents and counsel
against, and to hold each of the foregoing harmless from, any and all losses,
liabilities, costs, damages and expenses (including but not limited to
reasonable attorneys' fees, including attorneys' fees necessary to enforce his
rights to indemnification hereunder) arising from or resulting by reason of any
material inaccuracy in any of the representations or warranties, or any breach
of any of the covenants or agreements, made or to be performed by Harry's
pursuant to this Agreement.
6.3 Termination of Existing Agreements. Subject to the foregoing
----------------------------------
sentence, on and as of the Closing Date all agreements of any kind and nature
between Orbis and Harry's, including, without limitation, that certain Amended
and Restated Investors Agreement dated January 31, 1997 and that certain
Registration Rights Agreement dated December 30, 1994, as amended, will be
terminated and of no further force or effect without any further action on the
part of the parties hereto.
7. NEGATIVE COVENANT OF ORBIS From the date hereof to the Closing Date, which
--------------------------
shall be no later than December 15, 1999, Orbis shall not sell any of the
Shares, assign the Warrants in whole or in part or transfer the Warrants.
8. CONDITIONS PRECEDENT TO PARTIES' OBLIGATIONS TO CLOSE The obligations of
-----------------------------------------------------
Orbis and Harry's to consummate the transactions contemplated by this Agreement
shall be subject to the satisfaction of each of the following conditions, unless
waived in whole or in part by the parties.
8.1 Financing Commitments. Harry's shall have obtained financing in
---------------------
such amount and on such terms as the Board of Directors of Harry's, in its
reasonable discretion, shall have determined is acceptable.
8.2 Orbis Representations and Warrants. The representations and
----------------------------------
warranties made by Orbis in Article 3 hereof shall be true and correct on and as
of the
-6-
<PAGE>
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
8.3 Harry's Representations and Warrants. The representations and
------------------------------------
warranties made by Harry's in Article 4 hereof shall be true and correct on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
8.4 Compliance by Orbis. Orbis shall have duly performed in all
-------------------
material respects all of the covenants and negative covenants contained in this
Agreement to be performed by Orbis.
9. MISCELLANEOUS
-------------
9.1 Representations and Warranties. All of the representations,
------------------------------
warranties, covenants and agreements made by any of the parties in or pursuant
to this Agreement shall survive the consummation of the transactions
contemplated by this Agreement.
9.2 Successors and Assigns. No party may assign any of its rights
----------------------
hereunder without the prior written consent of the other party hereto.
9.3 Governing Law. This Agreement shall be controlled, construed and
-------------
enforced in accordance with the substantive laws of the State of New York,
without regard to the laws related to choice or conflict of laws.
9.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be one and the same Agreement and shall become
effective when one or more counterparts have been signed by all of the parties
and delivered to the other parties.
9.5 Further Assurances. Orbis shall at any time and from time to
------------------
time after the date hereof take whatever actions Harry's may reasonably request
to effectuate, record or perfect its transfer of the Securities to Harry's
pursuant to this Agreement or to otherwise effectuate or consummate any of the
transactions contemplated hereby.
9.6 Interpretations. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against Harry's or Orbis,
whether under any rule of construction or otherwise. No party to this Agreement
shall be considered the draftsman. On the contrary, this Agreement has been
reviewed, negotiated and accepted by both parties and their attorneys and shall
be construed and interpreted according to the ordinary meaning of the words used
so as fairly to accomplish the purposes and intentions of all parties hereto.
-7-
<PAGE>
9.7 Notices. All notices, requests, demands and other communications
-------
hereunder shall be (i) delivered by hand, (ii) mailed by registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed, (iii) sent by national overnight courier service, or (iv) sent by
facsimile, graphic scanning or other telegraphic communications equipment to the
parties, addressed as follows:
To Orbis: Orbis Pension Trustees Ltd.
c/o Chatsworth Management Services, Ltd.
One Connaught Place
London W2 2DY
Attention: Mr. David Lewis
Telecopy: 011-44-71-298-0002
To Harry's: Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention: Mr. Harry Blazer
Telecopy: (770) 661-4920
with copies to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John L. Latham, Esq.
Telecopy: (404) 881-7777
(b) All notices, requests, instructions or documents given to any
party in accordance with this Section 9.7 shall be deemed to have been given (i)
on the date of receipt if delivered by hand, overnight courier service or if
sent by facsimile, graphic scanning or other telegraphic communications
equipment or (ii) on the date three (3) business days after depositing with the
United States Postal Service if mailed by United States registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
9.7.
9.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties relating to the subject matter hereof and thereof
and supersedes all prior oral and written, and all contemporaneous oral
negotiations, discussions, writings, correspondence and agreements relating to
the subject matter of this Agreement.
9.9 Modifications, Amendments and Waivers. The failure or delay of
-------------------------------------
any party at any time or times to require performance of any provision of this
Agreement shall in no manner affect its right to enforce that provision. No
single or partial waiver by any
-8-
<PAGE>
party of any condition of this Agreement, or the breach of any term, agreement
or covenant or the inaccuracy of any representation or warranty of this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be construed or deemed to be a further or continuing waiver of any such
condition, breach or inaccuracy or a waiver of any other condition, breach or
inaccuracy.
9.10 Severability. Should any one or more of the provisions of this
------------
Agreement be determined to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith to replace any provisions determined to be invalid,
illegal or unenforceable with valid, legal and enforceable provisions the
economic effect of which comes as close as practicable to that of the invalid,
illegal or unenforceable provisions.
[SIGNATURES CONTINUED ON NEXT PAGE]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed and delivered under seal as of the date first
above written.
HARRY'S FARMERS MARKET, INC.
By: /s/ John D. Branch
-----------------------------
Name: John D. Branch
---------------------------
Title: Sr. Vice President and CFO
--------------------------
[CORPORATE SEAL]
ORBIS PENSION TRUSTEES LTD.
By: /s/ David J. Lewis
-----------------------------
Name: David J. Lewis
---------------------------
Title: Investment Manager
--------------------------
[SEAL]
-10-
<PAGE>
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 17th day of November, 1999, by and between HARRY'S FARMERS
MARKET, INC., a Georgia corporation ("Harry's"), and AXA EQUITY & LAW LIFE
ASSURANCE SOCIETY ("AXA").
BACKGROUND
----------
WHEREAS, on December 30, 1994, AXA purchased 166,667 shares of Series A
Redeemable Convertible Preferred Stock, stated value $9.00 per share, of Harry's
(the "Series A Stock");
WHEREAS, on December 30, 1994, AXA purchased warrants to purchase an
aggregate of 64,583 shares of Series A Stock as represented by that certain
Warrant Certificate dated December 30, 1994 to purchase up to 56,250 shares of
the Class A Common Stock, no par value, of Harry's (the "Common Stock") and that
certain Performance Warrant Certificate dated December 30, 1994 to purchase up
to 8,333 shares of Common Stock (collectively, the "Warrants").
WHEREAS, on January 31, 1997, in contemplation of Harry's entering into a
relationship with Progressive Food Concepts, Inc., Harry's and AXA entered into
that certain Preferred Stock Exchange Agreement dated January 31, 1997 pursuant
to which each share of Series A Stock held by AXA was exchanged for one share of
Series AA Preferred Stock, stated value $9.00 per share, of Harry's (the
"Preferred Stock") and the shares of Series A Stock previously held by AXA were
canceled;
WHEREAS, on January 31, 1997, the Warrants were amended to change the
exercise price to $4.00 per share;
WHEREAS, AXA owns and desires to sell to Harry's, and Harry's desires to
purchase from AXA, the 166,667 shares of Preferred Stock, which is all of the
Preferred Stock owned by AXA, and the Warrants, which, together, comprise all
the securities of Harry's owned by AXA.
In consideration of the foregoing, the mutual representations, warranties,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
<PAGE>
1. TERMS OF ACQUISITION
--------------------
1.1 Sale and Transfer of Securities.
-------------------------------
(a) The closing for the purchase and sale contemplated by this Agreement
shall be held at the offices of Alston & Bird, One Atlantic Center, 1201 West
Peachtree Street, Atlanta, Georgia, 30309, as soon as practicable following the
satisfaction of the conditions set forth in Section 8 herein, but in no event
later than December 15, 1999, or at such other place as the parties hereto may
agree in writing (the date on which the closing actually occurs is hereinafter
referred to as the "Closing Date").
(b) On the Closing Date and upon the terms and subject to the conditions of
this Agreement, AXA will sell, convey, transfer, assign and deliver to Harry's,
and Harry's will purchase and accept from AXA, 166,667 shares of Preferred Stock
(the "Shares"), as evidenced by stock certificate number P-4, and the Warrants
(collectively, the Shares and the Warrants are referred to herein as the
"Securities").
(c) On the Closing Date, AXA will convey to Harry's good, valid and
marketable title to the Securities free and clear of any and all liabilities,
obligations, liens, encumbrances, restrictions or rights of others of any
character whatsoever. On the Closing Date, AXA will deliver to Harry's (i)
stock certificate number P-4 evidencing the Shares registered in the name of
AXA, duly endorsed in blank on the reverse thereof or accompanied by a duly
executed stock power and (ii) the original executed Warrants.
2. PURCHASE PRICE
--------------
2.1 Purchase Price. In full payment of the purchase price for the
--------------
Securities, on the Closing Date, Harry's will pay AXA Three Hundred Seventy Four
Thousand One Hundred Forty Dollars ($374,140) (the "Purchase Price") by wire
transfer of immediately payable funds to an account previously designated in
writing by AXA.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
---------------------------------------------
AXA represents and warrants to Harry's as follows:
3.1 Ownership of Securities. AXA is the record and beneficial owner of
-----------------------
the Securities free and clear of any liens, claims, options, charges,
encumbrances or rights of others. At no time since December 30, 1994 has AXA
assigned the Warrants in whole or in part or transferred the Warrants. The
Securities constitute AXA's only interest in or to Harry's, its business or any
of its assets.
-2-
<PAGE>
3.2 Consents. AXA may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority, and all of the Securities may
be sold by it to Harry's without the imposition of any lien, charge or
encumbrance with respect to such Securities.
3.3 Authorization and Binding Effect. AXA has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of AXA and are duly
authorized to execute this Agreement on AXA's behalf. This Agreement
constitutes a legal, valid and binding agreement enforceable against AXA in
accordance with the terms hereof. Upon consummation of the transactions
contemplated herein, Harry's will own the Securities sold by AXA pursuant to
this Agreement free and clear of any liens, claims, options, charges,
encumbrances or rights of others.
3.4 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
AXA is a party or is bound, (ii) AXA's corporate documents or (iii) any law,
rule, regulation, judgment, order, injunction, decree, or award against or
binding upon AXA.
3.5 Access to Information. AXA has owned the Securities since December
---------------------
30, 1994 and at all times since such date has had full and free access to
Harry's, its management personnel and its financial statements and information.
AXA has had the opportunity to ask questions of and receive answers or obtain
additional information from Harry's concerning the financial and other affairs
and prospects of Harry's and the terms and conditions of the sale of the
Securities. AXA is familiar with Harry's and the business in which it is
engaged. AXA is fully aware that future events could impact the value of the
Securities, and AXA has conducted its own analysis in deciding to enter into
this Agreement. AXA acknowledges that the negotiations culminating in this
Agreement have been at arm's length. AXA has made its own investigation of
Harry's, its business, its financial statements and information, has solely
relied on the results of such investigation in entering into this Agreement and
has not relied on any statements or representations by Harry`s or any of its
representatives, counsel or agents other than those representations and
warranties contained in Section 4 of this Agreement.
3.6 Certain Prior Actions. Prior to the date of this Agreement, AXA has
---------------------
not taken any actions, or failed to take any actions, that if taken or not taken
immediately after the execution and delivery of this Agreement would violate the
provisions of Section 5 hereof.
-3-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF HARRY'S
-----------------------------------------
Harry's represents and warrants to AXA as follows:
4.1 Consents. Harry's may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority.
4.2 Authorization and Binding Effect. Harry's has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Harry's and are duly
authorized to execute this Agreement on Harry's behalf. This Agreement
constitutes a legal, valid and binding obligation of Harry's enforceable against
Harry's in accordance with its terms.
4.3 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Harry's is a party or is bound, (ii) its Articles of Incorporation or its
Bylaws, or (iii) any law, rule, regulation, judgment, order, injunction, decree,
or award against or binding upon Harry's.
4.4 Corporate Existence, Power and Authority.
-----------------------------------------
(a) Harry's is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Harry's is duly
qualified, licensed and authorized to do business and is in good standing in
each jurisdiction in which it owns or leases any property or in which the
conduct of its business requires it to so qualify or be so licensed, except for
such jurisdictions where the failure to so qualify or be so licensed would not
have a material adverse effect on Harry's assets, properties, liabilities,
business, results of operations or condition (financial or otherwise).
(b) No proceeding has been commenced looking toward the dissolution or
merger of Harry's or the amendment of its certificate of incorporation. Harry's
is not in violation in any material respect of its certificate of incorporation
or by-laws.
(c) Harry's has all requisite power, authority (corporate and other) and
legal right to own or to hold under lease and to operate the properties it owns
or holds and to conduct its business as now being conducted.
4.5 Litigation. Other than has been disclosed in its filings with
----------
the Securities and Exchange Commission, there is no action, suit, proceeding,
investigation or claim pending, to which Harry's has received any oral or
written notice, or, to the best knowledge of Harry's, threatened in law, equity
or otherwise before any court,
-4-
<PAGE>
administrative agency or arbitrator which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto.
5. COVENANTS OF AXA From and after the date hereof, AXA shall perform and
----------------
comply with the following covenant:
5.1 Nondisclosure of Trade Secrets and Confidential Information. As
-----------------------------------------------------------
used in this Agreement, the term "Confidential Information" shall mean all
information regarding Harry's or its activities, business and current or
prospective customers or suppliers that are not generally known to persons not
employed by Harry's, including without limitation, information regarding Harry's
products, contracts, corporate records or proceedings, current or prospective
employees, pricing, costs, financial results or condition, relationships with
its customers and suppliers, and relationships with its employees. Confidential
Information shall not include information that has become generally available to
the public by the act of one who has the right to disclose such information
without violating any right or privilege of Harry's. For one (1) year after the
date hereof with respect to Confidential Information, AXA shall not directly or
indirectly transmit or disclose any Confidential Information to any person,
concern or entity, and shall not make use of any such Confidential Information,
directly or indirectly, for itself or others. In the event that AXA is
requested in any proceeding to disclose any Confidential Information, AXA shall
give Harry's prompt notice of such request so that Harry's may seek an
appropriate protective order. If, in the absence of a protective order, AXA is
nonetheless compelled by law to disclose Confidential Information, AXA may
disclose such information in such proceeding without liability hereunder;
provided, however, that AXA gives Harry's written notice of the Confidential
Information to be disclosed as far in advance of its disclosure as is
practicable and, upon Harry's request and at Harry's expense, uses its best good
faith efforts to obtain assurances that confidential treatment will be accorded
to the information provided by AXA or its agents.
5.2 Injunctive Relief. AXA acknowledges that the nondisclosure
-----------------
covenant contained in this Section 5 is a reasonable means of protecting and
preserving Harry's interests and the confidentiality of the Confidential
Information. AXA agrees that any breach of this covenant will result in
irreparable damage and injury to Harry's and that Harry's will be entitled to
injunctive relief in any court of competent jurisdiction without the necessity
of posting any bond. AXA also agrees that any injunctive relief shall be in
addition to any damages that may be recoverable by Harry's.
5.3 Enforceability of Covenants. AXA and Harry's agree that AXA's
---------------------------
obligations under the nondisclosure covenant are separate and distinct from its
obligations under other provisions of this Agreement, are material, and a
failure or alleged failure of Harry's to perform its obligations under any
provision of this Agreement shall not constitute a defense to the enforceability
of the nondisclosure covenant.
-5-
<PAGE>
6. INDEMNIFICATION
---------------
6.1 Indemnity by AXA. AXA hereby agrees to indemnify Harry's, and
----------------
each of its officers, directors, shareholders, employees, agents and counsel
against, and to hold each of the foregoing harmless from, any and all losses,
liabilities, costs, damages and expenses (including but not limited to
reasonable attorneys' fees, including attorneys' fees necessary to enforce its
rights to indemnification hereunder) arising from or resulting by reason of any
material inaccuracy in any of the representations or warranties, or any breach
of any of the covenants or agreements, made or to be performed by AXA pursuant
to this Agreement.
6.2 Indemnity by Harry's. Harry's hereby agrees to indemnify AXA and
--------------------
each of its officers, directors, shareholders, employees, agents and counsel
against, and to hold each of the foregoing harmless from, any and all losses,
liabilities, costs, damages and expenses (including but not limited to
reasonable attorneys' fees, including attorneys' fees necessary to enforce his
rights to indemnification hereunder) arising from or resulting by reason of any
material inaccuracy in any of the representations or warranties, or any breach
of any of the covenants or agreements, made or to be performed by Harry's
pursuant to this Agreement.
6.3 Termination of Existing Agreements. Subject to the foregoing
----------------------------------
sentence, on and as of the Closing Date all agreements of any kind and nature
between AXA and Harry's, including, without limitation, that certain Amended and
Restated Investors Agreement dated January 31, 1997 and that certain
Registration Rights Agreement dated December 30, 1994, as amended, will be
terminated and of no further force or effect without any further action on the
part of the parties hereto.
7. NEGATIVE COVENANT OF AXA From the date hereof to the Closing Date, which
------------------------
shall be no later than December 15, 1999, AXA shall not sell any of the Shares,
assign the Warrants in whole or in part or transfer the Warrants.
8. CONDITIONS PRECEDENT TO PARTIES' OBLIGATIONS TO CLOSE The obligations of
-----------------------------------------------------
AXA and Harry's to consummate the transactions contemplated by this Agreement
shall be subject to the satisfaction of each of the following conditions, unless
waived in whole or in part by the parties.
8.1 Financing Commitments. Harry's shall have obtained financing in
---------------------
such amount and on such terms as the Board of Directors of Harry's, in its
reasonable discretion, shall have determined is acceptable.
8.2 AXA Certificate Regarding Representations and Warrants. The
------------------------------------------------------
representations and warranties made by AXA in Article 3 hereof shall be true and
correct
-6-
<PAGE>
on and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
8.3 Harry's Certificate Regarding Representations and Warrants. The
----------------------------------------------------------
representations and warranties made by Harry's in Article 4 hereof shall be true
and correct on and as of the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date.
8.4 Compliance by AXA. AXA shall have duly performed in all material
-----------------
respects all of the covenants and negative covenants contained in this Agreement
to be performed by AXA.
9. MISCELLANEOUS
-------------
9.1 Representations and Warranties. All of the representations,
------------------------------
warranties, covenants and agreements made by any of the parties in or pursuant
to this Agreement shall survive the consummation of the transactions
contemplated by this Agreement.
9.2 Successors and Assigns. No party may assign any of its rights
----------------------
hereunder without the prior written consent of the other party hereto.
9.3 Governing Law. This Agreement shall be controlled, construed and
-------------
enforced in accordance with the substantive laws of the State of New York,
without regard to the laws related to choice or conflict of laws.
9.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be one and the same Agreement and shall become
effective when one or more counterparts have been signed by all of the parties
and delivered to the other parties.
9.5 Further Assurances. AXA shall at any time and from time to time
------------------
after the date hereof take whatever actions Harry's may reasonably request to
effectuate, record or perfect its transfer of the Securities to Harry's pursuant
to this Agreement or to otherwise effectuate or consummate any of the
transactions contemplated hereby.
9.6 Interpretations. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against Harry's or AXA, whether
under any rule of construction or otherwise. No party to this Agreement shall
be considered the draftsman. On the contrary, this Agreement has been reviewed,
negotiated and accepted by both parties and their attorneys and shall be
construed and interpreted according to the ordinary meaning of the words used so
as fairly to accomplish the purposes and intentions of all parties hereto.
-7-
<PAGE>
9.7 Notices. All notices, requests, demands and other communications
-------
hereunder shall be (i) delivered by hand, (ii) mailed by registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed, (iii) sent by national overnight courier service, or (iv) sent by
facsimile, graphic scanning or other telegraphic communications equipment to the
parties, addressed as follows:
To AXA: AXA Equity & Law Life Assurance Society
c/o AXA Sun Light Investment Management Limited
100 Borough High Street
London SE1 1LD
Attention: Mr. Tony Arnold
Telecopy: 011-44-71-645-2380
To Harry's: Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention: Mr. Harry Blazer
Telecopy: (770) 661-4920
with copies to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John L. Latham, Esq.
Telecopy: (404) 881-7777
(b) All notices, requests, instructions or documents given to any
party in accordance with this Section 9.7 shall be deemed to have been given (i)
on the date of receipt if delivered by hand, overnight courier service or if
sent by facsimile, graphic scanning or other telegraphic communications
equipment or (ii) on the date three (3) business days after depositing with the
United States Postal Service if mailed by United States registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
9.7.
9.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties relating to the subject matter hereof and thereof
and supersedes all prior oral and written, and all contemporaneous oral
negotiations, discussions, writings, correspondence and agreements relating to
the subject matter of this Agreement.
9.9 Modifications, Amendments and Waivers. The failure or delay of
-------------------------------------
any party at any time or times to require performance of any provision of this
Agreement shall in no manner affect its right to enforce that provision. No
single or partial waiver by any
-8-
<PAGE>
party of any condition of this Agreement, or the breach of any term, agreement
or covenant or the inaccuracy of any representation or warranty of this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be construed or deemed to be a further or continuing waiver of any such
condition, breach or inaccuracy or a waiver of any other condition, breach or
inaccuracy.
9.10 Severability. Should any one or more of the provisions of this
------------
Agreement be determined to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith to replace any provisions determined to be invalid,
illegal or unenforceable with valid, legal and enforceable provisions the
economic effect of which comes as close as practicable to that of the invalid,
illegal or unenforceable provisions.
[SIGNATURES CONTINUED ON NEXT PAGE]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed and delivered under seal as of the date first
above written.
HARRY'S FARMERS MARKET, INC.
By: /s/ John D. Branch
-------------------------------
Name: John D. Branch
-------------------------------
Title: Sr. Vice President and CFO
-------------------------------
[CORPORATE SEAL]
AXA EQUITY & LAW LIFE
ASSURANCE SOCIETY
By: /s/ Paul D. Fuller
-------------------------------
Name: Paul D. Fuller
-------------------------------
Title:
-------------------------------
[SEAL]
-10-
<PAGE>
EXHIBIT 10.5
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 17th day of November, 1999, by and between HARRY'S FARMERS
MARKET, INC., a Georgia corporation ("Harry's"), and ASHFORD CAPITAL PARTNERS,
L.P. ("Ashford Capital").
BACKGROUND
----------
WHEREAS, on December 30, 1994, Ashford Capital purchased 44,444 shares of
Series A Redeemable Convertible Preferred Stock, stated value $9.00 per share,
of Harry's (the "Series A Stock");
WHEREAS, on December 30, 1994, Ashford Capital purchased warrants to
purchase an aggregate of 17,222 shares of Series A Stock as represented by that
certain Warrant Certificate dated December 30, 1994 to purchase up to 15,000
shares of the Class A Common Stock, no par value, of Harry's (the "Common
Stock") and that certain Performance Warrant Certificate dated December 30, 1994
to purchase up to 2,222 shares of Common Stock (collectively, the "Warrants").
WHEREAS, on January 31, 1997, in contemplation of Harry's entering into a
relationship with Progressive Food Concepts, Inc., Harry's and Ashford Capital
entered into that certain Preferred Stock Exchange Agreement dated January 31,
1997 pursuant to which each share of Series A Stock held by Ashford Capital was
exchanged for one share of Series AA Preferred Stock, stated value $9.00 per
share, of Harry's (the "Preferred Stock") and the shares of Series A Stock
previously held by Ashford Capital were canceled;
WHEREAS, on January 31, 1997, the Warrants were amended to change the
exercise price to $4.00 per share;
WHEREAS, Ashford Capital owns and desires to sell to Harry's, and Harry's
desires to purchase from Ashford Capital, the 44,444 shares of Preferred Stock,
which is all of the Preferred Stock owned by Ashford Capital, and the Warrants,
which, together, comprise all the securities of Harry's owned by Ashford
Capital.
In consideration of the foregoing, the mutual representations, warranties,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
<PAGE>
1. TERMS OF ACQUISITION
--------------------
1.1 Sale and Transfer of Securities.
-------------------------------
(a) The closing for the purchase and sale contemplated by this
Agreement shall be held at the offices of Alston & Bird, One Atlantic Center,
1201 West Peachtree Street, Atlanta, Georgia, 30309, as soon as practicable
following the satisfaction of the conditions set forth in Section 8 herein, but
in no event later than December 15, 1999, or at such other place as the parties
hereto may agree in writing (the date on which the closing actually occurs is
hereinafter referred to as the "Closing Date").
(b) On the Closing Date and upon the terms and subject to the
conditions of this Agreement, Ashford Capital will sell, convey, transfer,
assign and deliver to Harry's, and Harry's will purchase and accept from Ashford
Capital, 44,444 shares of Preferred Stock (the "Shares"), as evidenced by stock
certificate number P-2, and the Warrants (collectively, the Shares and the
Warrants are referred to herein as the "Securities").
(c) On the Closing Date, Ashford Capital will convey to Harry's good,
valid and marketable title to the Securities free and clear of any and all
liabilities, obligations, liens, encumbrances, restrictions or rights of others
of any character whatsoever. On the Closing Date, Ashford Capital will deliver
to Harry's (i) stock certificate number P-2 evidencing the Shares registered in
the name of Ashford Capital, duly endorsed in blank on the reverse thereof or
accompanied by a duly executed stock power and (ii) the original executed
Warrants.
2. PURCHASE PRICE
--------------
2.1 Purchase Price. In full payment of the purchase price for the
--------------
Securities, on the Closing Date, Harry's will pay Ashford Capital Ninety Nine
Thousand Thirty Seven Dollars ($99,037) (the "Purchase Price") by wire transfer
of immediately payable funds to an account previously designated in writing by
Ashford Capital.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
---------------------------------------------
Ashford Capital represents and warrants to Harry's as follows:
3.1 Ownership of Securities. Ashford Capital is the record and beneficial
-----------------------
owner of the Securities free and clear of any liens, claims, options, charges,
encumbrances or rights of others. At no time since December 30, 1994 has
Ashford Capital assigned the Warrants in whole or in part or transferred the
Warrants. The Securities constitute Ashford Capital's only interest in or to
Harry's, its business or any of its assets.
-2-
<PAGE>
3.2 Consents. Ashford Capital may enter into this Agreement and perform
--------
its obligations under this Agreement without the necessity of obtaining any
consent from anyone, including any governmental authority, and all of the
Securities may be sold by it to Harry's without the imposition of any lien,
charge or encumbrance with respect to such Securities.
3.3 Authorization and Binding Effect. Ashford Capital has the corporate
--------------------------------
power and authority to execute, deliver, enter into and perform this Agreement
and to consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Ashford Capital and
are duly authorized to execute this Agreement on Ashford Capital's behalf. This
Agreement constitutes a legal, valid and binding agreement enforceable against
Ashford Capital in accordance with the terms hereof. Upon consummation of the
transactions contemplated herein, Harry's will own the Securities sold by
Ashford Capital pursuant to this Agreement free and clear of any liens, claims,
options, charges, encumbrances or rights of others.
3.4 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Ashford Capital is a party or is bound, (ii) Ashford Capital's corporate
documents or (iii) any law, rule, regulation, judgment, order, injunction,
decree, or award against or binding upon Ashford Capital.
3.5 Access to Information. Ashford Capital has owned the Securities since
---------------------
December 30, 1994 and at all times since such date has had full and free access
to Harry's, its management personnel and its financial statements and
information. Ashford Capital has had the opportunity to ask questions of and
receive answers or obtain additional information from Harry's concerning the
financial and other affairs and prospects of Harry's and the terms and
conditions of the sale of the Securities. Ashford Capital is familiar with
Harry's and the business in which it is engaged. Ashford Capital is fully aware
that future events could impact the value of the Securities, and Ashford Capital
has conducted its own analysis in deciding to enter into this Agreement.
Ashford Capital acknowledges that the negotiations culminating in this Agreement
have been at arm's length. Ashford Capital has made its own investigation of
Harry's, its business, its financial statements and information, has solely
relied on the results of such investigation in entering into this Agreement and
has not relied on any statements or representations by Harry`s or any of its
representatives, counsel or agents other than those representations and
warranties contained in Section 4 of this Agreement.
3.6 Certain Prior Actions. Prior to the date of this Agreement, Ashford
---------------------
Capital has not taken any actions, or failed to take any actions, that if taken
or not taken immediately after the execution and delivery of this Agreement
would violate the provisions of Section 5 hereof.
-3-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF HARRY'S
-----------------------------------------
Harry's represents and warrants to Ashford Capital as follows:
4.1 Consents. Harry's may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority.
4.2 Authorization and Binding Effect. Harry's has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Harry's and are duly
authorized to execute this Agreement on Harry's behalf. This Agreement
constitutes a legal, valid and binding obligation of Harry's enforceable against
Harry's in accordance with its terms.
4.3 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Harry's is a party or is bound, (ii) its Articles of Incorporation or its
Bylaws, or (iii) any law, rule, regulation, judgment, order, injunction, decree,
or award against or binding upon Harry's.
4.4 Corporate Existence, Power and Authority.
-----------------------------------------
(a) Harry's is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Harry's is duly
qualified, licensed and authorized to do business and is in good standing in
each jurisdiction in which it owns or leases any property or in which the
conduct of its business requires it to so qualify or be so licensed, except for
such jurisdictions where the failure to so qualify or be so licensed would not
have a material adverse effect on Harry's assets, properties, liabilities,
business, results of operations or condition (financial or otherwise).
(b) No proceeding has been commenced looking toward the dissolution or
merger of Harry's or the amendment of its certificate of incorporation. Harry's
is not in violation in any material respect of its certificate of incorporation
or by-laws.
(c) Harry's has all requisite power, authority (corporate and other) and
legal right to own or to hold under lease and to operate the properties it owns
or holds and to conduct its business as now being conducted.
4.5 Litigation. Other than has been disclosed in its filings with
----------
the Securities and Exchange Commission, there is no action, suit, proceeding,
investigation or claim pending, to which Harry's has received any oral or
written notice, or, to the best
-4-
<PAGE>
knowledge of Harry's, threatened in law, equity or otherwise before any court,
administrative agency or arbitrator which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto.
5. COVENANTS OF ASHFORD CAPITAL From and after the date hereof, Ashford
----------------------------
Capital shall perform and comply with the following covenant:
5.1 Nondisclosure of Trade Secrets and Confidential Information. As
-----------------------------------------------------------
used in this Agreement, the term "Confidential Information" shall mean all
information regarding Harry's or its activities, business and current or
prospective customers or suppliers that are not generally known to persons not
employed by Harry's, including without limitation, information regarding Harry's
products, contracts, corporate records or proceedings, current or prospective
employees, pricing, costs, financial results or condition, relationships with
its customers and suppliers, and relationships with its employees. Confidential
Information shall not include information that has become generally available to
the public by the act of one who has the right to disclose such information
without violating any right or privilege of Harry's. For one (1) year after the
date hereof with respect to Confidential Information, Ashford Capital shall not
directly or indirectly transmit or disclose any Confidential Information to any
person, concern or entity, and shall not make use of any such Confidential
Information, directly or indirectly, for itself or others. In the event that
Ashford Capital is requested in any proceeding to disclose any Confidential
Information, Ashford Capital shall give Harry's prompt notice of such request so
that Harry's may seek an appropriate protective order. If, in the absence of a
protective order, Ashford Capital is nonetheless compelled by law to disclose
Confidential Information, Ashford Capital may disclose such information in such
proceeding without liability hereunder; provided, however, that Ashford Capital
gives Harry's written notice of the Confidential Information to be disclosed as
far in advance of its disclosure as is practicable and, upon Harry's request and
at Harry's expense, uses its best good faith efforts to obtain assurances that
confidential treatment will be accorded to the information provided by Ashford
Capital or its agents.
5.2 Injunctive Relief. Ashford Capital acknowledges that the
-----------------
nondisclosure covenant contained in this Section 5 is a reasonable means of
protecting and preserving Harry's interests and the confidentiality of the
Confidential Information. Ashford Capital agrees that any breach of this
covenant will result in irreparable damage and injury to Harry's and that
Harry's will be entitled to injunctive relief in any court of competent
jurisdiction without the necessity of posting any bond. Ashford Capital also
agrees that any injunctive relief shall be in addition to any damages that may
be recoverable by Harry's.
5.3 Enforceability of Covenants. Ashford Capital and Harry's agree
---------------------------
that Ashford Capital's obligations under the nondisclosure covenant are separate
and distinct from its obligations under other provisions of this Agreement, are
material, and a failure or
-5-
<PAGE>
alleged failure of Harry's to perform its obligations under any provision of
this Agreement shall not constitute a defense to the enforceability of the
nondisclosure covenant.
6. INDEMNIFICATION
---------------
6.1 Indemnity by Ashford Capital. Ashford Capital hereby agrees to
----------------------------
indemnify Harry's, and each of its officers, directors, shareholders, employees,
agents and counsel against, and to hold each of the foregoing harmless from, any
and all losses, liabilities, costs, damages and expenses (including but not
limited to reasonable attorneys' fees, including attorneys' fees necessary to
enforce its rights to indemnification hereunder) arising from or resulting by
reason of any material inaccuracy in any of the representations or warranties,
or any breach of any of the covenants or agreements, made or to be performed by
Ashford Capital pursuant to this Agreement.
6.2 Indemnity by Harry's. Harry's hereby agrees to indemnify Ashford
--------------------
Capital and each of its officers, directors, shareholders, employees, agents and
counsel against, and to hold each of the foregoing harmless from, any and all
losses, liabilities, costs, damages and expenses (including but not limited to
reasonable attorneys' fees, including attorneys' fees necessary to enforce his
rights to indemnification hereunder) arising from or resulting by reason of any
material inaccuracy in any of the representations or warranties, or any breach
of any of the covenants or agreements, made or to be performed by Harry's
pursuant to this Agreement.
6.3 Termination of Existing Agreements. Subject to the foregoing
----------------------------------
sentence, on and as of the Closing Date all agreements of any kind and nature
between Ashford Capital and Harry's, including, without limitation, that certain
Amended and Restated Investors Agreement dated January 31, 1997 and that certain
Registration Rights Agreement dated December 30, 1994, as amended, will be
terminated and of no further force or effect without any further action on the
part of the parties hereto.
7. NEGATIVE COVENANT OF ASHFORD CAPITAL From the date hereof to the Closing
------------------------------------
Date, which shall be no later than December 15, 1999, Ashford Capital shall not
sell any of the Shares, assign the Warrants in whole or in part or transfer the
Warrants.
8. CONDITIONS PRECEDENT TO PARTIES' OBLIGATIONS TO CLOSE The obligations of
-----------------------------------------------------
Ashford Capital and Harry's to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction of each of the following
conditions, unless waived in whole or in part by the parties.
-6-
<PAGE>
8.1 Financing Commitments. Harry's shall have obtained financing in
---------------------
such amount and on such terms as the Board of Directors of Harry's, in its
reasonable discretion, shall have determined is acceptable.
8.2 Ashford Capital Representations and Warrants. The
--------------------------------------------
representations and warranties made by Ashford Capital in Article 3 hereof shall
be true and correct on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date.
8.3 Harry's Representations and Warrants. The representations and
------------------------------------
warranties made by Harry's in Article 4 hereof shall be true and correct on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
8.4 Compliance by Ashford Capital. Ashford Capital shall have duly
-----------------------------
performed in all material respects all of the covenants and negative covenants
contained in this Agreement to be performed by Ashford Capital.
9. MISCELLANEOUS
-------------
9.1 Representations and Warranties. All of the representations,
------------------------------
warranties, covenants and agreements made by any of the parties in or pursuant
to this Agreement shall survive the consummation of the transactions
contemplated by this Agreement.
9.2 Successors and Assigns. No party may assign any of its rights
----------------------
hereunder without the prior written consent of the other party hereto.
9.3 Governing Law. This Agreement shall be controlled, construed and
-------------
enforced in accordance with the substantive laws of the State of New York,
without regard to the laws related to choice or conflict of laws.
9.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be one and the same Agreement and shall become
effective when one or more counterparts have been signed by all of the parties
and delivered to the other parties.
9.5 Further Assurances. Ashford Capital shall at any time and from
------------------
time to time after the date hereof take whatever actions Harry's may reasonably
request to effectuate, record or perfect its transfer of the Securities to
Harry's pursuant to this Agreement or to otherwise effectuate or consummate any
of the transactions contemplated hereby.
-7-
<PAGE>
9.6 Interpretations. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against Harry's or Ashford
Capital, whether under any rule of construction or otherwise. No party to this
Agreement shall be considered the draftsman. On the contrary, this Agreement
has been reviewed, negotiated and accepted by both parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
9.7 Notices. All notices, requests, demands and other communications
-------
hereunder shall be (i) delivered by hand, (ii) mailed by registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed, (iii) sent by national overnight courier service, or (iv) sent by
facsimile, graphic scanning or other telegraphic communications equipment to the
parties, addressed as follows:
To Ashford Capital: Ashford Capital Partners, L.P.
3801 Kennett Pike, Suite B-107
Greenville, Delaware 19807
Attention: Mr. Theodore Ashford
Telecopy: (302) 655-8690
To Harry's: Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention: Mr. Harry Blazer
Telecopy: (770) 661-4920
with copies to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John L. Latham, Esq.
Telecopy: (404) 881-7777
(b) All notices, requests, instructions or documents given to any
party in accordance with this Section 9.7 shall be deemed to have been given (i)
on the date of receipt if delivered by hand, overnight courier service or if
sent by facsimile, graphic scanning or other telegraphic communications
equipment or (ii) on the date three (3) business days after depositing with the
United States Postal Service if mailed by United States registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
9.7.
-8-
<PAGE>
9.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties relating to the subject matter hereof and thereof
and supersedes all prior oral and written, and all contemporaneous oral
negotiations, discussions, writings, correspondence and agreements relating to
the subject matter of this Agreement.
9.9 Modifications, Amendments and Waivers. The failure or delay of
-------------------------------------
any party at any time or times to require performance of any provision of this
Agreement shall in no manner affect its right to enforce that provision. No
single or partial waiver by any party of any condition of this Agreement, or the
breach of any term, agreement or covenant or the inaccuracy of any
representation or warranty of this Agreement, whether by conduct or otherwise,
in any one or more instances shall be construed or deemed to be a further or
continuing waiver of any such condition, breach or inaccuracy or a waiver of any
other condition, breach or inaccuracy.
9.10 Severability. Should any one or more of the provisions of this
------------
Agreement be determined to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith to replace any provisions determined to be invalid,
illegal or unenforceable with valid, legal and enforceable provisions the
economic effect of which comes as close as practicable to that of the invalid,
illegal or unenforceable provisions.
[SIGNATURES CONTINUED ON NEXT PAGE]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed and delivered under seal as of the date first
above written.
HARRY'S FARMERS MARKET, INC.
By: /s/ John D. Branch
---------------------------------
Name: John D. Branch
---------------------------------
Title: Sr. Vice President and CFO
---------------------------------
[CORPORATE SEAL]
ASHFORD CAPITAL PARTNERS, L.P.
By: /s/ Theodore H. Ashford
---------------------------------
Name: Theodore H. Ashford
---------------------------------
Title: President, Ashcap Corp., General
---------------------------------
Partner
-------
[SEAL]
-10-
<PAGE>
EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 17th day of November, 1999, by and between HARRY'S FARMERS
MARKET, INC., a Georgia corporation ("Harry's"), and THEODORE ASHFORD
("Ashford").
BACKGROUND
----------
WHEREAS, on December 30, 1994, Ashford purchased 11,111 shares of Series A
Redeemable Convertible Preferred Stock, stated value $9.00 per share, of Harry's
(the "Series A Stock");
WHEREAS, on December 30, 1994, Ashford purchased warrants to purchase an
aggregate of 4,306 shares of Series A Stock as represented by that certain
Warrant Certificate dated December 30, 1994 to purchase up to 3,750 shares of
the Class A Common Stock, no par value, of Harry's (the "Common Stock") and that
certain Performance Warrant Certificate dated December 30, 1994 to purchase up
to 556 shares of Common Stock (collectively, the "Warrants").
WHEREAS, on January 31, 1997, in contemplation of Harry's entering into a
relationship with Progressive Food Concepts, Inc., Harry's and Ashford entered
into that certain Preferred Stock Exchange Agreement dated January 31, 1997
pursuant to which each share of Series A Stock held by Ashford was exchanged for
one share of Series AA Preferred Stock, stated value $9.00 per share, of Harry's
(the "Preferred Stock") and the shares of Series A Stock previously held by
Ashford were canceled;
WHEREAS, on January 31, 1997, the Warrants were amended to change the
exercise price to $4.00 per share;
WHEREAS, Ashford owns and desires to sell to Harry's, and Harry's desires
to purchase from Ashford, the 11,111 shares of Preferred Stock, which is all of
the Preferred Stock owned by Ashford, and the Warrants, which, together,
comprise all the securities of Harry's owned by Ashford.
In consideration of the foregoing, the mutual representations, warranties,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
<PAGE>
1. TERMS OF ACQUISITION
--------------------
1.1 Sale and Transfer of Securities.
-------------------------------
(a) The closing for the purchase and sale contemplated by this Agreement
shall be held at the offices of Alston & Bird, One Atlantic Center, 1201 West
Peachtree Street, Atlanta, Georgia, 30309, as soon as practicable following the
satisfaction of the conditions set forth in Section 8 herein, but in no event
later than December 15, 1999, or at such other place as the parties hereto may
agree in writing (the date on which the closing actually occurs is hereinafter
referred to as the "Closing Date").
(b) On the Closing Date and upon the terms and subject to the conditions of
this Agreement, Ashford will sell, convey, transfer, assign and deliver to
Harry's, and Harry's will purchase and accept from Ashford, 11,111 shares of
Preferred Stock (the "Shares"), as evidenced by stock certificate number P-1,
and the Warrants (collectively, the Shares and the Warrants are referred to
herein as the "Securities").
(c) On the Closing Date, Ashford will convey to Harry's good, valid and
marketable title to the Securities free and clear of any and all liabilities,
obligations, liens, encumbrances, restrictions or rights of others of any
character whatsoever. On the Closing Date, Ashford will deliver to Harry's (i)
stock certificate number P-1 evidencing the Shares registered in the name of
Ashford, duly endorsed in blank on the reverse thereof or accompanied by a duly
executed stock power and (ii) the original executed Warrants.
2. PURCHASE PRICE
--------------
2.1 Purchase Price. In full payment of the purchase price for the
--------------
Securities, on the Closing Date, Harry's will pay Ashford Twenty Seven Thousand
Five Hundred Ten Dollars ($27,510) (the "Purchase Price") by wire transfer of
immediately payable funds to an account previously designated in writing by
Ashford.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
---------------------------------------------
Ashford represents and warrants to Harry's as follows:
3.1 Ownership of Securities. Ashford is the record and beneficial owner
-----------------------
of the Securities free and clear of any liens, claims, options, charges,
encumbrances or rights of others. At no time since December 30, 1994 has
Ashford assigned the Warrants in whole or in part or transferred the Warrants.
The Securities constitute Ashford's only interest in or to Harry's, its business
or any of its assets.
-2-
<PAGE>
3.2 Consents. Ashford may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority, and all of the Securities may
be sold by him to Harry's without the imposition of any lien, charge or
encumbrance with respect to such Securities.
3.3 Authorization and Binding Effect. Ashford has the capacity and the
--------------------------------
power to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. This Agreement
constitutes a legal, valid and binding agreement enforceable against Ashford in
accordance with the terms hereof. Upon consummation of the transactions
contemplated herein, Harry's will own the Securities sold by Ashford pursuant to
this Agreement free and clear of any liens, claims, options, charges,
encumbrances or rights of others.
3.4 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Ashford is a party or is bound or (ii) any law, rule, regulation, judgment,
order, injunction, decree, or award against or binding upon Ashford.
3.5 Access to Information. Ashford has owned the Securities since
---------------------
December 30, 1994 and at all times since such date has had full and free access
to Harry's, its management personnel and its financial statements and
information. Ashford has had the opportunity to ask questions of and receive
answers or obtain additional information from Harry's concerning the financial
and other affairs and prospects of Harry's and the terms and conditions of the
sale of the Securities. Ashford is familiar with Harry's and the business in
which it is engaged. Ashford is fully aware that future events could impact the
value of the Securities, and Ashford has conducted his own analysis in deciding
to enter into this Agreement. Ashford acknowledges that the negotiations
culminating in this Agreement have been at arm's length. Ashford has made his
own investigation of Harry's, its business, its financial statements and
information, has solely relied on the results of such investigation in entering
into this Agreement and has not relied on any statements or representations by
Harry`s or any of its representatives, counsel or agents other than those
representations and warranties contained in Section 4 of this Agreement.
3.6 Certain Prior Actions. Prior to the date of this Agreement, Ashford
---------------------
has not taken any actions, or failed to take any actions, that if taken or not
taken immediately after the execution and delivery of this Agreement would
violate the provisions of Section 5 hereof.
-3-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF HARRY'S
-----------------------------------------
Harry's represents and warrants to Ashford as follows:
4.1 Consents. Harry's may enter into this Agreement and perform its
--------
obligations under this Agreement without the necessity of obtaining any consent
from anyone, including any governmental authority.
4.2 Authorization and Binding Effect. Harry's has the corporate power and
--------------------------------
authority to execute, deliver, enter into and perform this Agreement and to
consummate the transactions contemplated by this Agreement. The officers
executing this Agreement are the duly elected officers of Harry's and are duly
authorized to execute this Agreement on Harry's behalf. This Agreement
constitutes a legal, valid and binding obligation of Harry's enforceable against
Harry's in accordance with its terms.
4.3 No Breach. The execution, delivery and performance of this Agreement
---------
and the consummation of the transactions contemplated hereby will not violate or
result in a breach of or default under (i) any instrument or agreement to which
Harry's is a party or is bound, (ii) its Articles of Incorporation or its
Bylaws, or (iii) any law, rule, regulation, judgment, order, injunction, decree,
or award against or binding upon Harry's.
4.4 Corporate Existence, Power and Authority.
-----------------------------------------
(a) Harry's is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Harry's is duly
qualified, licensed and authorized to do business and is in good standing in
each jurisdiction in which it owns or leases any property or in which the
conduct of its business requires it to so qualify or be so licensed, except for
such jurisdictions where the failure to so qualify or be so licensed would not
have a material adverse effect on Harry's assets, properties, liabilities,
business, results of operations or condition (financial or otherwise).
(b) No proceeding has been commenced looking toward the dissolution or
merger of Harry's or the amendment of its certificate of incorporation. Harry's
is not in violation in any material respect of its certificate of incorporation
or by-laws.
(c) Harry's has all requisite power, authority (corporate and other) and
legal right to own or to hold under lease and to operate the properties it owns
or holds and to conduct its business as now being conducted.
4.5 Litigation. Other than has been disclosed in its filings with the
-----------
Securities and Exchange Commission, there is no action, suit, proceeding,
investigation or claim pending, to which Harry's has received any oral or
written notice, or, to the best knowledge of Harry's, threatened in law, equity
or otherwise before any court,
-4-
<PAGE>
administrative agency or arbitrator which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto.
5. COVENANTS OF ASHFORD From and after the date hereof, Ashford shall
--------------------
perform and comply with the following covenant:
5.1 Nondisclosure of Trade Secrets and Confidential Information. As used in
-----------------------------------------------------------
this Agreement, the term "Confidential Information" shall mean all information
regarding Harry's or its activities, business and current or prospective
customers or suppliers that are not generally known to persons not employed by
Harry's, including without limitation, information regarding Harry's products,
contracts, corporate records or proceedings, current or prospective employees,
pricing, costs, financial results or condition, relationships with its customers
and suppliers, and relationships with its employees. Confidential Information
shall not include information that has become generally available to the public
by the act of one who has the right to disclose such information without
violating any right or privilege of Harry's. For one (1) year after the date
hereof with respect to Confidential Information, Ashford shall not directly or
indirectly transmit or disclose any Confidential Information to any person,
concern or entity, and shall not make use of any such Confidential Information,
directly or indirectly, for itself or others. In the event that Ashford is
requested in any proceeding to disclose any Confidential Information, Ashford
shall give Harry's prompt notice of such request so that Harry's may seek an
appropriate protective order. If, in the absence of a protective order, Ashford
is nonetheless compelled by law to disclose Confidential Information, Ashford
may disclose such information in such proceeding without liability hereunder;
provided, however, that Ashford gives Harry's written notice of the Confidential
Information to be disclosed as far in advance of its disclosure as is
practicable and, upon Harry's request and at Harry's expense, uses its best good
faith efforts to obtain assurances that confidential treatment will be accorded
to the information provided by Ashford or its agents.
5.2 Injunctive Relief. Ashford acknowledges that the nondisclosure covenant
-----------------
contained in this Section 5 is a reasonable means of protecting and preserving
Harry's interests and the confidentiality of the Confidential Information.
Ashford agrees that any breach of this covenant will result in irreparable
damage and injury to Harry's and that Harry's will be entitled to injunctive
relief in any court of competent jurisdiction without the necessity of posting
any bond. Ashford also agrees that any injunctive relief shall be in addition to
any damages that may be recoverable by Harry's.
5.3 Enforceability of Covenants. Ashford and Harry's agree that Ashford's
---------------------------
obligations under the nondisclosure covenant are separate and distinct from its
obligations under other provisions of this Agreement, are material, and a
failure or alleged failure of Harry's to perform its obligations under any
provision of this Agreement shall not constitute a defense to the enforceability
of the nondisclosure covenant.
-5-
<PAGE>
6. INDEMNIFICATION
---------------
6.1 Indemnity by Ashford. Ashford hereby agrees to indemnify Harry's, and
--------------------
each of its officers, directors, shareholders, employees, agents and counsel
against, and to hold each of the foregoing harmless from, any and all losses,
liabilities, costs, damages and expenses (including but not limited to
reasonable attorneys' fees, including attorneys' fees necessary to enforce its
rights to indemnification hereunder) arising from or resulting by reason of any
material inaccuracy in any of the representations or warranties, or any breach
of any of the covenants or agreements, made or to be performed by Ashford
pursuant to this Agreement.
6.2 Indemnity by Harry's. Harry's hereby agrees to indemnify Ashford
--------------------
against, and to hold Ashford harmless from, any and all losses, liabilities,
costs, damages and expenses (including but not limited to reasonable attorneys'
fees, including attorneys' fees necessary to enforce his rights to
indemnification hereunder) arising from or resulting by reason of any material
inaccuracy in any of the representations or warranties, or any breach of any of
the covenants or agreements, made or to be performed by Harry's pursuant to this
Agreement.
6.3 Termination of Existing Agreements. Subject to the foregoing sentence,
----------------------------------
on and as of the Closing Date all agreements of any kind and nature between
Ashford and Harry's, including, without limitation, that certain Amended and
Restated Investors Agreement dated January 31, 1997 and that certain
Registration Rights Agreement dated December 30, 1994, as amended, will be
terminated and of no further force or effect without any further action on the
part of the parties hereto.
7. NEGATIVE COVENANT OF ASHFORD From the date hereof to the Closing Date,
----------------------------
which shall be no later than December 15, 1999, Ashford shall not sell any of
the Shares, assign the Warrants in whole or in part or transfer the Warrants.
8. CONDITIONS PRECEDENT TO PARTIES' OBLIGATIONS TO CLOSE The obligations of
-----------------------------------------------------
Ashford and Harry's to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction of each of the following
conditions, unless waived in whole or in part by the parties.
8.1 Financing Commitments. Harry's shall have obtained financing in such
---------------------
amount and on such terms as the Board of Directors of Harry's, in its reasonable
discretion, shall have determined is acceptable.
8.2 Ashford Representations and Warrants. The representations and
------------------------------------
warranties made by Ashford in Article 3 hereof shall be true and correct on and
as of the
-6-
<PAGE>
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
8.3 Harry's Representations and Warrants. The representations and
------------------------------------
warranties made by Harry's in Article 4 hereof shall be true and correct on and
as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
8.4 Compliance by Ashford. Ashford shall have duly performed in all
---------------------
material respects all of the covenants and negative covenants contained in this
Agreement to be performed by Ashford.
9. MISCELLANEOUS
-------------
9.1 Representations and Warranties. All of the representations, warranties,
------------------------------
covenants and agreements made by any of the parties in or pursuant to this
Agreement shall survive the consummation of the transactions contemplated by
this Agreement.
9.2 Successors and Assigns. No party may assign any of its rights hereunder
----------------------
without the prior written consent of the other party hereto.
9.3 Governing Law. This Agreement shall be controlled, construed and
-------------
enforced in accordance with the substantive laws of the State of New York,
without regard to the laws related to choice or conflict of laws.
9.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be one and the same Agreement and shall become
effective when one or more counterparts have been signed by all of the parties
and delivered to the other parties.
9.5 Further Assurances. Ashford shall at any time and from time to time
------------------
after the date hereof take whatever actions Harry's may reasonably request to
effectuate, record or perfect its transfer of the Securities to Harry's pursuant
to this Agreement or to otherwise effectuate or consummate any of the
transactions contemplated hereby.
9.6 Interpretations. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against Harry's or Ashford
whether under any rule of construction or otherwise. No party to this Agreement
shall be considered the draftsman. On the contrary, this Agreement has been
reviewed, negotiated and accepted by both parties and their attorneys and shall
be construed and interpreted according to the ordinary meaning of the words used
so as fairly to accomplish the purposes and intentions of all parties hereto.
-7-
<PAGE>
9.7 Notices. All notices, requests, demands and other communications
-------
hereunder shall be (i) delivered by hand, (ii) mailed by registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed, (iii) sent by national overnight courier service, or (iv) sent by
facsimile, graphic scanning or other telegraphic communications equipment to the
parties, addressed as follows:
To Ashford: Mr. Theodore Ashford
c/o Ashford Capital Partners, L.P.
3801 Kennett Pike, Suite B-107
Greenville, Delaware 19807
Telecopy: (302) 655-8690
To Harry's: Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention: Mr. Harry Blazer
Telecopy: (770) 661-4920
with copies to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: John L. Latham, Esq.
Telecopy: (404) 881-7777
(b) All notices, requests, instructions or documents given to any
party in accordance with this Section 9.7 shall be deemed to have been given (i)
on the date of receipt if delivered by hand, overnight courier service or if
sent by facsimile, graphic scanning or other telegraphic communications
equipment or (ii) on the date three (3) business days after depositing with the
United States Postal Service if mailed by United States registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
9.7.
9.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties relating to the subject matter hereof and thereof
and supersedes all prior oral and written, and all contemporaneous oral
negotiations, discussions, writings, correspondence and agreements relating to
the subject matter of this Agreement.
9.9 Modifications, Amendments and Waivers. The failure or delay of
-------------------------------------
any party at any time or times to require performance of any provision of this
Agreement shall in no manner affect its right to enforce that provision. No
single or partial waiver by any party of any condition of this Agreement, or the
breach of any term, agreement or
-8-
<PAGE>
covenant or the inaccuracy of any representation or warranty of this Agreement,
whether by conduct or otherwise, in any one or more instances shall be construed
or deemed to be a further or continuing waiver of any such condition, breach or
inaccuracy or a waiver of any other condition, breach or inaccuracy.
9.10 Severability. Should any one or more of the provisions of this
------------
Agreement be determined to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith to replace any provisions determined to be invalid,
illegal or unenforceable with valid, legal and enforceable provisions the
economic effect of which comes as close as practicable to that of the invalid,
illegal or unenforceable provisions.
[SIGNATURES CONTINUED ON NEXT PAGE]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Securities Purchase
Agreement to be duly executed and delivered under seal as of the date first
above written.
HARRY'S FARMERS MARKET, INC.
By: /s/ John D. Branch
------------------------------
Name: John D. Branch
------------------------------
Title: Sr. Vice President and CFO
------------------------------
[CORPORATE SEAL]
/s/ Theodore Ashford
--------------------------------------
Theodore Ashford
-10-
<PAGE>
EXHIBIT 10.7
================================================================================
--------------------------------------------------
LOAN AND SECURITY AGREEMENT
--------------------------------------------------
BACK BAY CAPITAL FUNDING, LLC
The Lender
--------------------------------------------------
HARRY'S FARMERS MARKET, INC.
The Borrower
--------------------------------------------------
December 2, 1999
================================================================================
1
<PAGE>
TABLE OF CONTENTS
Article 1 - Definitions: 11
Article 2 - The Revolving Credit: 37
2-1. Establishment of Revolving Credit 37
2-2. Advances in Excess of Borrowing Base (Overloans). 39
2-3. Risks of Value of Collateral 39
2-4. Commitment to Make Revolving Credit Loans and Support Letters
of Credit. 39
2-5. Revolving Credit Loan Requests 40
2-6. Making of Revolving Credit Loans 41
2-7. The Revolving Credit Note 42
2-8. Payment of The Loan Account 42
2-9. Interest on Revolving Credit Loans. 43
2-10. Procedures For Issuance of L/C's 43
2-11. Fees For L/C's 44
2-12. Concerning L/C's 45
ARTICLE 3 - THE TERM LOAN 46
3-1. The Term Loan 47
3-2. The Term Note 47
3-3. Interest Rate and Payments of Interest on the Term Loan 47
3-4. Repayment of Term Loan 47
3-5. Mandatory Prepayments of Term Loan 48
3-6. Optional Prepayments of the Term Loan 49
ARTICLE 4 - APPLICABLE TO ALL LOANS 50
4-1. Commitment Fee 50
4-2. Facility Fee 50
4-3. Early Termination Fee 50
4-4. The Loan Account 51
4-5. Concerning Fees. 52
4-6. Lender's Discretion 52
4-7. Calculation of Interest 53
Article 5 - Conditions Precedent: 53
5-1 Corporate Due Diligence. 53
5-2. Opinion. 54
5-3. Officers' Certificates. 54
5-4. Additional Documents. 54
5-5. Representations and Warranties. 54
5-6. Minimum Day One Availability. 55
5-7. All Fees and Expenses Paid. 55
5-8. Year 2000 Compliance 55
5-9. Completion of Material Transactions 55
2
<PAGE>
5-10. No Litigation or Material Defaults 55
5-11. No Suspension Event. 55
5-12. No Adverse Change. 56
Article 6 - General Representations, Covenants and Warranties: 56
6-1. Payment and Performance of Liabilities. 56
6-2. Due Organization. Corporate Authorization. No Conflicts. 56
6-3. Trade Names. 57
6-4. Infrastructure. 58
6-5. Year 2000 Compliance. 58
6-6. Locations. 59
6-7. Title to Assets. 60
6-8. Indebtedness 62
6-9. Insurance. 63
6-10. Licenses 64
6-11. Leases. 64
6-12. Requirements of Law 65
6-13. Labor Relations 65
6-14. Maintain Properties 66
6-15. Taxes. 66
6-16. No Margin Stock. 67
6-17. ERISA 67
6-18. Hazardous Materials 68
6-19. Litigation 69
6-20. Dividends. Investments. Corporate Action 69
6-21. Loans 70
6-22. Protection of Assets 70
6-23. Line of Business 70
6-24. Affiliate Transactions 71
6-25. Further Assurances 71
6-26. Adequacy of Disclosure 72
6-27. No Restrictions on Liabilities 73
6-28. Use of Loan Proceeds 73
6-29. Other Covenants 73
Article 7 - Financial Reporting and Performance Covenants: 74
7-1. Maintain Records 74
7-2. Access to Records 74
7-3. Immediate Notice to Lender 75
7-4. Borrowing Base Certificate 76
7-5. Weekly Reports 77
7-6. Monthly Reports 77
7-7. Quarterly Reports 78
7-8. Annual Reports 78
3
<PAGE>
7-9. Officers' Certificates 79
7-10. Inventories, Appraisals, and Audits 80
7-11. Additional Financial Information 81
7-12. Financial Performance Covenants 82
Article 8 - Use and Collection of Collateral: 82
8-1. Use of Inventory Collateral 82
8-2. Inventory Quality 82
8-3. Adjustments and Allowances 82
8-4. Validity of Accounts 83
8-5. Notification to Account Debtors 83
Article 9 - Cash Management. Payment of Liabilities: 83
9-1 Depository Accounts 83
9-2. Credit Card Receipts 84
9-3. The Concentration, Blocked, and Operating Accounts 84
9-4. Proceeds and Collection of Accounts 85
9-5. Payment of Liabilities 86
9-6. The Operating Account 87
Article 10 - Grant of Security Interest: 87
10-1. Grant of Security Interest 87
10-2. Extent and Duration of Security Interest 88
10-3. Distribution Center 88
10-4. Certain Intellectual Property 89
10-5. Release of Collateral 89
10-6. Life Insurance 89
Article 11 - Lender As Borrower's Attorney-In-Fact: 90
11-1. Appointment as Attorney-In-Fact 90
11-2. No Obligation to Act 90
Article 12 - Events of Default: 91
12-1. Failure to Pay. 91
12-2. Failure To Make Other Payments 91
12-3. Failure to Perform Covenant or Liability (No Grace Period) 91
12-4. Failure to Perform Covenant or Liability (Grace Period) 93
12-5. Misrepresentation 93
12-6. Acceleration of Other Debt. Breach of Lease 93
12-7. Default Under Other Agreements 93
12-8. Uninsured Casualty Loss 93
12-9. Attachment. Judgment. Restraint of Business 93
12-10. Business Failure 94
12-11. Bankruptcy 94
12-12. Default by Guarantor or Affiliate 94
12-13. Indictment - Forfeiture 95
12-14. Termination of Guaranty 95
4
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12-15. Challenge to Loan Documents 95
12-16. Key Management. 95
12-17. Change in Control. 95
Article 13 - Rights and Remedies Upon Default: 96
13-1. Rights of Enforcement 96
13-2. Sale of Collateral 97
13-3. Occupation of Business Location 98
13-4. Grant of Nonexclusive License. 98
13-5. Assembly of Collateral 98
13-6. Rights and Remedies 98
Article 14 - Notices: 99
14-1. Notice Addresses 99
14-2. Notice Given 100
Article 15 - Term: 100
15-1. Termination of Revolving Credit 100
15-2. Actions On Termination 100
Article 16 - General: 101
16-1. Protection of Collateral 101
16-2. Publicity. 101
16-3. Successors and Assigns. 101
16-4. Severability 101
16-5. Amendments. Course of Dealing 102
16-6. Power of Attorney 102
16-7. Application of Proceeds 102
16-8. Increased Costs 103
16-9. Costs and Expenses of the Lender 103
16-10. Copies and Facsimiles 104
16-11. Massachusetts Law 104
16-12. Consent to Jurisdiction 104
16-13. Indemnification 105
16-14. Rules of Construction. 105
16-15. Intent 108
16-16. Right of Set-Off 108
16-17. Pledges To Federal Reserve Banks: 108
16-18. Maximum Interest Rate. 108
16-19. Waivers. 109
5
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EXHIBITS
1-1(a) : Gwinnett Outparcels
1-1(b) : Levy Appraised Equipment Locations
1-1(c) : Ponce Sale/Leaseback Equipment
2-7 : Revolving Credit Note
3-2 : Term Note
5-4(b) : Form of Comfort Letter
5-4(d) : Additional Documents
6-2 : Affiliates
6-3 : Trade Names
6-6 : Locations, Leases, and Landlords
6-7 : Encumbrances
6-8 : Indebtedness
6-9 : Insurance Policies
6-11 : Capital Leases
6-15 : Taxes
6-19 : Litigation
7-4 : Borrowing Base Certificate
7-12 : Financial Performance Covenants
8-4 : Bonds
9-1 : DDA's.
9-2 : Credit Card Arrangements
6
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================================================================================
LOAN AND SECURITY AGREEMENT Back Bay Capital Funding, LLC
THE LENDER
================================================================================
December 2, 1999
THIS AGREEMENT is made between
Back Bay Capital Funding, LLC (the "Lender"), a Delaware limited
liability company with offices at 40 Broad Street, Boston, Massachusetts
02109,
and
Harry's Farmers Market, Inc. (the "Borrower"), a Georgia corporation
with its principal executive offices at 1180 Upper Hembree Road, Roswell,
Georgia 30076
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
Article 1 - Definitions:
As herein used, the following terms have the following meanings or are
defined in the section of this Agreement so indicated:
"Accounts" and "Accounts Receivable" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts
receivable, credit card receivables, notes, drafts, acceptances, and
other forms of obligations and receivables and rights to payment for
credit extended and for goods sold or leased, or services rendered,
whether or not yet earned by performance; all "contract rights" as
formerly defined in the UCC; all Inventory which gave rise thereto,
and all rights associated with such Inventory, including the right
7
<PAGE>
of stoppage in transit; all reclaimed, returned, rejected or
repossessed Inventory (if any) the sale of which gave rise to any
Account.
"ACH": Automated clearing house.
"Account Debtor": Has the meaning given that term in the UCC.
"Adjusted EBITDA": For any period of calculation, EBITDA less actual
Capital Expenditures made by the Borrower and its Subsidiaries during
such period.
"Adjusted Fixed Charge Ratio": The Fixed Charge Ratio as adjusted in the
following manner: In calculating Adjusted EBITDA, there shall be added
thereto an amount equal to the Net Proceeds received by the Borrower
or its Subsidiaries from the sale, refinancing or other disposition of
the Distribution Center during the immediately preceding twelve month
period but in no event in excess of the actual amount of Capital
Expenditures made by the Borrower and its Subsidiaries during such
period .
"Affiliate": (a) With respect to any two Persons, a relationship in which
(i) one holds, directly or indirectly, not less than Twenty Five
Percent (25%) of the capital stock, beneficial interests, partnership
interests, or other equity interests of the other; or (ii) one has,
directly or indirectly, the right, under ordinary circumstances, to
vote for the election of a majority of the directors (or other body or
Person who has those powers customarily vested in a board of directors
of a corporation); or (iii) not less than Twenty Five Percent (25%) of
their respective ownership is directly or indirectly held by the same
third Person.
(b) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother-sister, Subsidiary, or affiliate, of the Borrower; could have
such enterprise's tax returns or financial statements consolidated
with the Borrower's; could be a member of the same controlled group of
corporations (within the meaning of Section 1563(a)(1), (2) and (3) of
the Internal Revenue Code of 1986, as amended from time to time) of
which the Borrower is a member; controls or is controlled by the
Borrower.
8
<PAGE>
"Applicable Term Loan Rate": The per annum rate at which interest accrues
on the Term Loan, being the following for the periods set forth below:
------------------------------------------------------------------
Period Interest Rate
------------------------------------------------------------------
December 2, 1999 through 17%
December 1, 2000
------------------------------------------------------------------
From and after December 2, 2000 17.5%
------------------------------------------------------------------
After the occurrence of an Event of Default, the Applicable Term Loan
Rate shall be two percent (2%) in excess of the applicable rate set
forth above.
"Applied Gross Margin Method": Is defined in Section 7-6 hereof.
"Appraised Equipment Value": From the date of this Agreement through
November 15, 2000, $1,750,215.00 (subject to reduction by an amount
equal to the orderly liquidation value of any Equipment of the
Borrower (i) sold or otherwise disposed of by the Borrower after the
date of this Agreement through November 15, 2000, and (ii) in which
the Lender does not have a first perfected security interest); and
thereafter the orderly liquidation value of the Equipment owned by the
Borrower in which the Lender has a first priority perfected security
interest, as determined by a Qualified Equipment Appraiser.
"Appraised Inventory Liquidation Value": The product of (a) the Cost of
Eligible Inventory (net of Inventory Reserves) multiplied by (b) that
percentage, determined from the then most recent appraisal of the
Borrower's Inventory undertaken at the request of the Lender by a
Qualified Inventory Appraiser, to reflect the appraiser's estimate of
the net realization on the Liquidation of the Borrower's Inventory.
9
<PAGE>
"Appraised Real Estate Value": From the date of this Agreement through
November 15, 2000, $33,875,000.00 (subject to reduction by an amount
equal to the fair market value of any Real Estate (i) sold or
otherwise disposed of by the Borrower or any Guarantor after the date
of this Agreement through November 15, 2000, and (ii) in which the
Lender does not have a first priority perfected Encumbrance); and
thereafter the fair market value of Real Estate owned by the Borrower
and Guarantors in fee simple title and in which the Lender has a first
priority perfected Encumbrance, as determined by a Qualified Real
Estate Appraiser.
"Asset Sale": Any sale, lease, conveyance, transfer or other disposition by
the Borrower or any of its Subsidiaries (including by way of merger,
consolidation or a sale-leaseback transaction) in any transaction or
group of transactions that are part of a common plan, of any asset
(other than (i) sales, leases, and other dispositions of Inventory in
the ordinary course of business, (ii) sales of any assets in any
fiscal year of the Borrower, having a value of less than $33,000.00
individually and up to $100,000.00 in the aggregate after the date
hereof, and (iii) the Ponce Sale/Leaseback Assets).
"Availability": The lesser of (a) or (b), where
(a) is the result of
(i) The Loan Ceiling
Minus
(ii) The aggregate unpaid balance of the Loan
Account and the Term Loan.
Minus
(iii) The aggregate undrawn Stated Amount of all
then outstanding L/C's.
Minus
(iv) The aggregate of the Availability Reserves.
(b) is the result of
(i) The Borrowing Base
Minus
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<PAGE>
(ii) The aggregate unpaid balance of the Loan
Account and the Term Loan
Minus
(iii) The aggregate undrawn Stated Amount of all
then outstanding L/C's.
Minus
(iv) The aggregate of the Availability Reserves.
"Availability Reserves": Such reserves as the Lender from time to time
determines in the Lender's discretion as being appropriate to reflect
the impediments to the Lender's ability to realize upon the
Collateral. Without limiting the generality of the foregoing,
Availability Reserves may include (but are not limited to) reserves
based on the following:
(i) Rent (based upon past due rent and/or whether or not a
Landlord's Waiver, acceptable to the Lender, has been
received by the Lender; provided however, to the
extent that a reserve is established due to the
failure of the Lender to have received a landlord's
waiver, such reserve shall not exceed three months
rent for such location).
(ii) Customer Credit Liabilities.
(iii) Taxes and other governmental charges, including, ad
valorem, personal property, and other taxes (other
than real estate taxes unless a Suspension Event then
exists) which could reasonably be expected to have
priority over the Collateral Interests of the Lender
in the Collateral.
(iv) L/C Landing Costs.
(v) Year 2000 compliance.
(vi) Payables which are past due or, without duplication,
are greater than 70% of the cost of the then
Perishable Inventory of the Borrower and which are
subject to the Perishable Agricultural Commodities
Act, the Packers and Stockyard Act, and other similar
statutes.
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<PAGE>
(vii) The Realty Reserve
"Bankruptcy Code": Title 11, U.S.C., as amended from time to time.
"Base Number": One (1) in each fiscal year of the Borrower
ending January, 2001 and January, 2002, or such other
number in excess thereof as the Lender shall agree in
writing, provided that, if the Borrower does not open a
new store in its fiscal year ending January, 2001, the
Base Number for the Borrower's fiscal year ending January,
2002 shall be two (2).
"Blocked Account": Any DDA into which the contents of any other DDA is
transferred.
"Blocked Account Agreement": An Agreement, in form satisfactory to the
Lender, which Agreement recognizes the Lender's Collateral Interest in
the contents of the DDA which is the subject of such Agreement and
agrees that such contents shall be transferred only to the
Concentration Account or as otherwise instructed by the Lender.
"Borrower": Is defined in the Preamble.
"Borrowing Base": The sum of the following:
a. the Inventory Advance Rate of the Cost of the
Borrower's Eligible Inventory (net of Inventory
Reserves and the Loan to Collateral Reserve).
plus
----
b. the lesser of (i) the difference between (A)
$24,000,000.00 and (B) the amount of principal
amortization required to be paid to the Lender on
account of the Loans (other than ordinary course
payments on the Revolving Credit Loans) from and
after the date hereof (whether as regularly
scheduled amortization or mandatory prepayments), or
(ii) the sum of (A) 65% of the then
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<PAGE>
Appraised Real Estate Value, plus 70% of the then
----
current Appraised Equipment Value.
plus
----
c. The Overadvance.
plus
----
d. The Insurance Escrow.
"Borrowing Base Certificate": Is defined in Section 7-4.
"Business Day": Any day other than (a) a Saturday or Sunday; (b) any day on
which banks in Boston, Massachusetts or in Roswell, Georgia, generally
are not open to the general public for the purpose of conducting
commercial banking business; or (c) a day on which the principal
office of the Lender is not open to the general public to conduct
business.
"Capital Expenditures": The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.
"Capital Lease": Any lease which may be capitalized in accordance with
GAAP.
"Change in Control": The occurrence of any of the following:
(a) The acquisition after the date of this Agreement, by any
group of persons (within the meaning of the Securities Exchange Act of
1934, as amended) or by any Person, of beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange Commission)
of the issued and outstanding capital stock of the Borrower entitled
to more than 35% of the total combined voting power of all equity
securities of the Borrower.
(b) More than half of the persons who were directors of the
Borrower on the first day of any period consisting of Twelve (12)
consecutive calendar months (the first of which Twelve (12) month
periods commencing with the first day of the month during which this
Agreement was executed), cease, for any reason other than death or
disability, to be directors of the Borrower.
13
<PAGE>
"Chattel Paper": Has the meaning given that term in the UCC.
"Collateral": Is defined in Section 10-1.
"Collateral Interest": Any interest in property to secure an obligation,
including, without limitation, a security interest, mortgage, and deed
of trust.
"Commitment Fee": Is defined in Section 4-1.
"Concentration Account": Is defined in Section 9-3.
"Cost": The lower of
(a) the calculated cost of purchases, as determined from
invoices received by the Borrower, the Borrower's purchase
journal or stock ledger, based upon the Borrower's accounting
practices, known to the Lender, which practices are in effect on
the date on which this Agreement was executed; or
(b) the cost equivalent of the lowest ticketed or promoted
price at which the subject inventory is offered to the public,
after all mark-downs (whether or not such price is then reflected
on the Borrower's accounting system), which cost equivalent is
determined in accordance with the retail method of accounting,
reflecting the Borrower's historic business practices.
"Cost" does not include inventory capitalization costs or other non-
purchase price charges (except for freight and direct transportation
charges) used in the Borrower's calculation of cost of goods sold.
"Costs of Collection": Includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the
Lender's attorneys, and all reasonable costs incurred by the Lender in
the administration of the Liabilities and/or the Loan Documents,
including, without limitation, reasonable costs and expenses
associated with travel on behalf of the Lender, where such costs and
expenses are directly or indirectly related to or in respect of the
Lender's: administration and management of the Liabilities;
14
<PAGE>
negotiation, documentation, and amendment of any Loan Document; or
efforts to preserve, protect, collect, or enforce the Collateral, the
Liabilities, and/or the Lender' Rights and Remedies and/or any of the
rights and remedies of the Lender against or in respect of any
guarantor or other person liable in respect of the Liabilities
(whether or not suit is instituted in connection with such efforts).
The Costs of Collection are Liabilities, and at the Lender's option
may bear interest at the then effective rate of interest applicable to
loans and advances under the Revolving Credit.
"Current Pay Interest": The per annum rate at which interest shall be
paid in cash on the Term Loan, being the following for the periods set
forth below:
--------------------------------------------------
Period Pay Rate
December 2, 1999 through 12%
December 1, 2000
--------------------------------------------------
December 2, 2000 through December 1, 13%
2001
--------------------------------------------------
From and after December 2, 2001 14%
--------------------------------------------------
"Customer Credit Liability": Gift certificates, merchandise credits,
layaway obligations, frequent shopping programs, and similar
liabilities of any Borrower to its retail customers and prospective
customers.
"DDA": Any checking or other demand daily depository account maintained by
the Borrower.
"Debt Service Charges": For any period of calculation, with respect to
the Borrower and its Subsidiaries, the sum of (i) permanent reductions
of principal, and interest, on account of Indebtedness for borrowed
money actually paid in cash during such period, plus (ii)
15
<PAGE>
Capital Lease payments paid in cash during such period, plus (iii)
income taxes paid in cash during such period, each as determined in
accordance with GAAP.
"Deemed Revolver": The sum of (a) $5,000,000.00 from the date hereof
through June 1, 2000, and (b) from and after June 2, 2000, the average
principal balance of the Revolving Credit Loans during the sixty (60)
day period immediately preceding the date of calculation.
"Deposit Account": Has the meaning given that term in the UCC.
"Distribution Center": The real property owned by Roman Properties,
Inc. and located at Northfield Business Center, Alpharetta, Georgia
formerly used by the Borrower as a bakery and distribution center and
presently used as a distribution center.
"Documents": Has the meaning given that term in the UCC.
"Documents of Title": Has the meaning given that term in the UCC.
"EBITDA": The Borrower's and its Subsidiaries' consolidated earnings
before interest, taxes, depreciation, and amortization, each as
determined in accordance with GAAP.
"Early Termination Fee": Is defined in Section 4-3.
"Eligible Inventory": All of the following:
Such of the Borrower's Non-Perishable Inventory, at such
locations, and of such types, character, qualities and quantities, as
the Lender in its discretion from time to time determines to be
acceptable for borrowing, as to which Inventory, the Lender has a
perfected security interest which is prior and superior to all
security interests, claims, and all Encumbrances other than Permitted
Encumbrances.
In no event, however, does "Eligible Inventory" include: any
Perishable Inventory; non-merchandise Inventory (such as labels, bags,
and packaging materials); damaged
16
<PAGE>
goods; return to vendor merchandise; packaways; consigned Inventory;
other similar categories of Goods; and Inventory not located at the
Borrower's business locations set forth on EXHIBIT 6-6 hereof.
"Employee Benefit Plan": As defined in ERISA.
"Encumbrance": Each of the following:
(a) Any security interest, mortgage, pledge, hypothecation, lien,
attachment, or charge of any kind (including any agreement to give any
of the foregoing); the interest of a lessor under a Capital Lease;
conditional sale or other title retention agreement; sale of accounts
receivable or chattel paper; or other arrangement pursuant to which
any Person is entitled to any preference or priority with respect to
the property or assets of another Person or the income or profits of
such other Person or which constitutes an interest in property to
secure an obligation; each of the foregoing whether consensual or non-
consensual and whether arising by way of agreement, operation of law,
legal process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"End Date": The date upon which both (a) all Liabilities have been paid in
full and (b) all obligations of the Lender to make loans and advances
and to provide other financial accommodations to the Borrower
hereunder shall have been irrevocably terminated.
"Environmental Laws": All of the following as applicable to the Borrower,
any Guarantor, or the Collateral:
(a) Any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements which regulate or relate to, or impose any standard of
conduct or liability on account of or in respect to environmental
protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.
17
<PAGE>
(b) The common law relating to damage to Persons or property
from Hazardous Materials.
"Equipment": Includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery, office
equipment, plant equipment, tools, dies, molds, store fixtures,
furniture, and other goods, property, and assets which are used and/or
were purchased for use in the operation or furtherance of the
Borrower's business, and any and all accessions or additions thereto,
and substitutions therefor.
"ERISA": The Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a
group which includes the Borrower and which would be treated as a
single employer under Section 414 of the Internal Revenue Code of
1986, as amended.
"Events of Default": Is defined in Article 12. Each reference to an
"Event of Default" is to an Event of Default not then duly waived by
the Lender and an Event of Default shall be deemed continuing unless
so duly waived.
"Excess Cash Flow": For any period of measurement, EBITDA less the sum of
(i) Capital Expenditures (to the extent permitted hereunder during
such period, whether or not actually made), (ii) payments of
principal, and interest, on account of Indebtedness for borrowed money
actually paid in cash during such period by the Borrower or any of its
Subsidiaries, excluding, however, any principal payments made on
account of the Revolving Credit Loans in the ordinary course of
business in accordance with the provisions of Article 9 hereof and any
payments on the Loans required pursuant to Sections 3-4 or 3-5 hereof,
(iii) Capital Lease payments paid in cash by the Borrower or any of
its Subsidiaries during such period, and (iv) income taxes paid in
cash by the Borrower and its Subsidiaries during such period.
18
<PAGE>
"Excluded Reductions": Any reduction of the Loans (at a time when a
Suspension Event does not exist) by virtue of (a) the application of
Excess Cash Flow or (b) any payments made as a result in the decline
in the Appraised Equipment Value or the Appraised Real Estate Value,
or (c) any payments made from the Net Proceeds of any insured casualty
to, or condemnation of, the Collateral.
"Exempt DDA": A so-called "zero balance account" or any other depository
account maintained by the Borrower or any Guarantor, the only contents
of which may be transfers from the Operating Accounts and actually
used solely (i) for petty cash purposes; or (ii) for payroll, or (iii)
for payment of beer and wine vendors pursuant to applicable Georgia
law.
"Expansion Conditions": (a) The non-existence of a Suspension Event at
both the time the Borrower desires to execute a new lease relating to
a store or open a new store and immediately thereafter.
(b) With respect to any new leases relating to a store (other than a
Refinancing Lease) or store openings in excess of the Base Number, the
Lender having furnished its prior written consent thereto, which
consent shall not be unreasonably withheld and shall be based upon,
among other things, (u) current projections from the Borrower
incorporating the additional planned store openings, (v) the ability
of the Borrower to generate sufficient liquidity to meet all of its
financial obligations, (w) demonstration of adequate infrastructure
and systems support, (x) obtaining of landlord's waivers for such
location in form reasonably satisfactory to the Lender, (y) obtaining
of a consent from the landlord to the collateral assignment of the
Borrower's Leasehold Interest to the Lender (provided that the failure
-------------
of the Borrower to obtain such consent shall not be required if the
Borrower has used its best efforts to obtain such consent and has been
unable to do so), and (z) no Suspension Event then existing or arising
as a result thereof..
"Facility Fee": Is defined in Section 4-2.
19
<PAGE>
"Fixed Charge Ratio": For any period of calculation, the ratio of the
Borrower's consolidated Adjusted EBITDA, to its consolidated Debt
Service Charges, calculated on a trailing four quarters basis.
"Fixtures": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or adopted
by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in
respect of which reference to GAAP is being made, provided, however,
in the event of a Material Accounting Change, then unless otherwise
specifically mutually agreed to by the Lender and the Borrower, (a)
the Borrower's compliance with the financial performance covenants
imposed pursuant to Section 7-12 shall be determined as if such
Material Accounting Change had not taken place and (b) the Borrower
shall include, with its monthly, quarterly, and annual financial
statements a schedule, certified by the Borrower's chief financial
officer, on which the effect of such Material Accounting Change to the
statement with which provided shall be described.
"General Intangibles": Includes, without limitation, "general intangibles"
as defined in the UCC; and also all: rights to payment for credit
extended; deposits; amounts due to the Borrower; credit memoranda in
favor of the Borrower; warranty claims; tax refunds and abatements;
insurance refunds and premium rebates; all means and vehicles of
investment or hedging, including, without limitation, options,
warrants, and futures contracts; records; customer lists; telephone
numbers; goodwill; causes of action; judgments; payments under any
settlement or other agreement; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission;
licenses; franchises; license agreements, including all rights of the
Borrower to enforce same; permits, certificates of convenience and
necessity, and similar rights granted by any governmental authority;
patents, patent applications, patents pending, and other intellectual
property; internet addresses and domain names; developmental ideas and
concepts; proprietary processes; blueprints, drawings, designs,
diagrams, plans, reports, and charts; catalogs; manuals; technical
data; computer software programs (including the
20
<PAGE>
source and object codes therefor), computer records, computer
software, rights of access to computer record service bureaus, service
bureau computer contracts, and computer data; tapes, disks,
semiconductors chips and printouts; trade secrets rights, copyrights,
mask work rights and interests, and derivative works and interests;
user, technical reference, and other manuals and materials; trade
names, trademarks, service marks, and all goodwill relating thereto;
applications for registration of the foregoing; and all other general
intangible property of the Borrower in the nature of intellectual
property; proposals; cost estimates, and reproductions on paper, or
otherwise, of any and all concepts or ideas, and any matter related
to, or connected with, the design, development, manufacture, sale,
marketing, leasing, or use of any or all property produced, sold, or
leased, by the Borrower or credit extended or services performed, by
the Borrower, whether intended for an individual customer or the
general business of the Borrower, or used or useful in connection with
research by the Borrower.
"Goods": Has the meaning given that term in the UCC.
"Guarantors": Each of Marthasville Trading Company and Karalea, Inc.
and any other present or future direct or indirect Subsidiary of the
Borrower (other than Roman Properties, Inc. and any Special
Refinancing Subsidiary).
"Gwinnett Outparcels": Certain outparcels consisting of vacant land
more particularly described on Exhibit 1-1(a) which are part of the
Real Estate comprising the Borrower's Gwinnett store.
"Hazardous Materials": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances or petroleum products, which (as to any
of the foregoing) are defined or regulated as a hazardous material in
or under any Environmental Law and (b) oil in any physical state.
"Indebtedness": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
21
<PAGE>
(a) In respect of money borrowed (including any indebtedness
which is non-recourse to the credit of such Person but which is
secured by an Encumbrance on any asset of such Person) whether or not
evidenced by a promissory note, bond, debenture or other written
obligation to pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the face amount of all
letters of credit and acceptances issued for the account of such
Person or reimbursement on account of which such Person would be
obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
(f) In connection with any sale and leaseback transaction.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an Encumbrance on any
asset of such Person, whether or not such Indebtedness is assumed
by such Person.
(y) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on
account of any obligation of any third party.
(z) The Indebtedness of a partnership or joint venture in
which such Person is a general partner or is otherwise obligated
under the debts of such joint venture.
"Indebtedness" excludes any trade payables incurred in the ordinary
course of business.
"Indemnified Person": Is defined in Section 16-13.
"Instruments": Has the meaning given that term in the UCC.
22
<PAGE>
"Insurance Escrow": At any time an amount equal to the lesser of (a) the
Reconstruction Proceeds then being held in escrow by the Lender, or
(b) the amount by which the Lender has reduced the Borrowing Base by
virtue of a decline in the Appraised Real Estate Value of a particular
parcel of Real Estate due solely to a casualty to, or condemnation of,
such Real Estate which casualty or condemnation resulted in the
delivery of such Reconstruction Proceeds to the Lender.
"Inventory": Includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping materials
related to any of the foregoing, and all names or marks affixed or to
be affixed thereto for identifying or selling the same; Goods held for
sale or lease or furnished or to be furnished under a contract or
contracts of sale or service by the Borrower, or used or consumed or
to be used or consumed in the Borrower's business; Goods of said
description in transit: returned, repossessed and rejected Goods of
said description; and all documents (whether or not negotiable) which
represent any of the foregoing.
"Inventory Advance Rate": Sixty percent (60%).
"Inventory Reserves": Such Reserves as may be established from time to
time by the Lender in the Lender's discretion with respect to the
determination of the saleability, at retail, of the Eligible Inventory
or which reflect such other factors as affect the market value of the
Eligible Inventory. Without limiting the generality of the foregoing,
Inventory Reserves may include (but are not limited to) reserves based
on the following:
(i) Aged and/or Spoiled Inventory (based upon Inventory on
hand beyond a given number of days).
(ii) Seasonality.
(iii) Shrinkage.
(iv) Imbalance.
(v) Change in Inventory character.
(vi) Change in Inventory composition
(vii) Change in Inventory mix.
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<PAGE>
(viii) Markdowns (both permanent and point of sale)
(ix) Retail markons and markups inconsistent with prior
period practice and performance; industry standards;
current business plans; or advertising calendar and
planned advertising events.
"Investment Property": Has the meaning given that term in the UCC.
"Issuer": The issuer of any L/C.
"L/C": Any letter of credit, the issuance of which is procured by the
Lender for the account of the Borrower and any acceptance made on
account of such letter of credit.
"L/C Landing Costs": To the extent not included in the Stated Amount of an
L/C, customs, duty, freight, and other out-of-pocket costs and
expenses which will be expended to "land" the Inventory, the purchase
of which is supported by such L/C.
"Lease": Any lease or other agreement, no matter how styled or structured,
pursuant to which the Borrower is entitled to the use or occupancy of
any space.
"Leasehold Interest": Any interest of the Borrower as lessee under any
Lease.
"Lender": Is defined in the Preamble to this Agreement.
"Lender's Rights and Remedies": Is defined in Section 13-16.
"Levy Appraised Equipment": Equipment located at any of the Real Estate
set forth in Exhibit 1-1(b) and described in, or of a type described
in, certain appraisals of Norman Levy Associates, Inc. dated February
25, 1999 and March 26, 1999.
"Liabilities": Includes, without limitation, the following:
(i) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender, each of every kind, nature,
and description.
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<PAGE>
(ii) Each obligation to repay any loan, advance, indebtedness,
note, obligation, overdraft, or amount now or hereafter owing by the
Borrower to the Lender, (including all future advances whether or not
made pursuant to a commitment by the Lender), whether or not any of
such are liquidated, unliquidated, primary, secondary, secured,
unsecured, direct, indirect, absolute, contingent, or of any other
type, nature, or description, or by reason of any cause of action
which the Lender, may hold against the Borrower.
(iii) All notes and other obligations of the Borrower now or
hereafter assigned to or held by the Lender, each of every kind,
nature, and description.
(iv) All interest, fees, and charges and other amounts which may
be charged by the Lender, to the Borrower and/or which may be due from
the Borrower to the Lender, from time to time.
(v) All costs and expenses incurred or paid by the Lender, in
respect of any agreement between the Borrower and the Lender, Lender
or instrument furnished by the Borrower to the (including, without
limitation, Costs of Collection, attorneys' reasonable fees, and all
court and litigation costs and expenses).
(vi) Any and all covenants of the Borrower to or with the Lender,
Lender and any and all obligations of the Borrower to act or to
refrain from acting in accordance with any agreement between the
Borrower and the Lender, or instrument furnished by the Borrower to
the Lender,.
(vii) Each of the foregoing as if each reference to " the
Lender," were to each Affiliate of the Lender.
"Loans": Collectively, the Revolving Credit Loans and the Term Loan.
"Loan Account": Is defined in Section 4-4.
"Loan Ceiling": The sum of $24,500,000.00 minus all principal
payments made or required to be made on the Loans after the date
hereof (including, without limitation, those required pursuant to
Sections 3-4 and 3-5 hereof, but excluding any principal payments
25
<PAGE>
made on account of the Revolving Credit Loans in the ordinary course
of business in accordance with the provisions of Article 9 hereof).
"Loan Documents": This Agreement, each instrument and document executed
and/or delivered as contemplated by Article 5, below, and each other
instrument or document from time to time executed and/or delivered in
connection with the arrangements contemplated hereby or in connection
with any transaction with the Lender or any Affiliate of the Lender,
including, without limitation, any transaction which arises out of any
cash management, depository, investment, letter of credit, interest
rate protection, or equipment leasing services provided by the Lender
or any Affiliate of the Lender, as each may be amended from time to
time.
"Loan to Collateral Percentage": Ninety percent (90%).
"Loan to Collateral Reserve": A Reserve set so that the amount made
available under the Borrowing Base on account of Eligible Inventory
does not exceed in the aggregate the product of the Appraised
Inventory Liquidation Value multiplied by the Loan to Collateral
Percentage.
"Material Accounting Change": Any change in GAAP applicable to accounting
periods subsequent to the Borrower's fiscal year most recently
completed prior to the execution of this Agreement, which change has a
material effect on the Borrower's financial condition or operating
results, as reflected on financial statements and reports prepared by
or for the Borrower, when compared with such condition or results as
if such change had not taken place or where preparation of the
Borrower's statements and reports in compliance with such change
results in the breach of a financial performance covenant imposed
pursuant to Section 7-12(a) where such a breach would not have
occurred if such change had not taken place or visa versa.
"Maturity Date": November 28, 2002.
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<PAGE>
"Net Proceeds": With respect to any event, (a) the cash proceeds received
in respect of such event, including (i) any cash received in respect
of a Refinancing Loan, (ii) any cash received in respect of any
non-cash proceeds, but only as and when received, (iii) in the case of
a casualty, insurance proceeds, and (iv) in the case of a condemnation
or similar event, condemnation awards and similar payments, in each
case net of (b) the sum of (i) all reasonable fees and out-of-pocket
expenses (including legal, title and recording tax expenses, and
commissions) paid by the Borrower or any Subsidiary to third parties
(other than to Affiliates) in connection with such event, (ii) in the
case of a sale or other disposition of an asset (including pursuant to
a casualty or condemnation), the amount of all payments required to be
made by the Borrower or any Subsidiary as a result of such event to
repay Indebtedness (other than the Liabilities) secured by a Permitted
Encumbrance on such asset that is senior to the lien of the Lender.
"Non-Perishable Inventory": All Inventory which in the ordinary course of
the Borrower's business consistent with past practices is part of the
following departments of the Borrower: alcohol, beverages, coffee,
health and beauty care, housewares, ethnic, staples, spices and candy,
and seasonal and groceries (but only to the extent of household
cleaning and laundry supplies in the grocery department).
"Operating Account(s)": Is defined in Section 9-3.
"Overadvance": $0 unless the Borrowing Base is exceeded solely by virtue of
a decline in the appraised values of the Real Estate and/or Equipment
included in the calculation of the Borrowing Base. In such event, the
Overadvance shall mean an amount equal to (a) the difference between
the applicable appraised values immediately prior to such declination
and the new appraised values, multiplied by (b) the applicable advance
rate (i.e. 65% for Real Estate and 70% for Equipment). The Overadvance
may be outstanding only for a period of one hundred (100) days after
the Lender advises the Borrower of any declination in value, after
which time, the Overadvance will be $0.
27
<PAGE>
"Overloan": A loan, advance, or providing of credit support (such as the
issuance of any L/C) to the extent that, at the time it is made, it
exceeds Availability immediately prior to the making of such loan,
advance, or providing of credit support.
"Participant": Is defined in Section 16-16, hereof.
"Perishable Inventory": Any Inventory that does not constitute Non-
Perishable Inventory.
"Permitted Encumbrances": Those Encumbrances permitted as provided in
Section 6-7 hereof.
"Person": Any natural person, governmental authority, and any corporation,
limited liability company, trust, partnership, joint venture, or other
enterprise or entity.
"PIK Interest": With respect to the Term Loan, the difference between
the Applicable Term Loan Rate and Current Pay Interest.
"Ponce Sale/Leaseback Assets": Assets consisting of certain Equipment at
the Borrower's Harry's in a Hurry store at 1905 Ponce De Leon Drive ,
Atlanta, Georgia, which Equipment is more particularly described on
Exhibit 1-1(c), and which Equipment is or will be the subject of a
sale/leaseback transaction yielding Net Proceeds not to exceed
$400,000.00.
"Proceeds": Includes, without limitation, "Proceeds" as defined in the UCC
(defined below), and each type of property described in Section 10-1
hereof.
"Qualified Equipment Appraiser": Any of Norman Levy Associates, Inc.,
Michael Fox International, or Daley-Hodkin Corp., or if no such
appraisal firm is available, such other Person as may be reasonably
acceptable to the Lender.
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<PAGE>
"Qualified Inventory Appraiser": Any of Hilco/Great American, The Nassi
Group, LLC, or Buxbaum Group/BGA Consulting, or if no such appraisal
firm is available, such other Person as may be reasonably acceptable
to the Lender.
"Qualified Real Estate Appraiser": Such Person as may be reasonably
acceptable to the Lender provided that such Person must be on the
Lender's list of approved appraisers (as modified from time to time).
"Real Estate". All real property (including any improvements thereon) at
any time owned by the Borrower or any of its Subsidiaries and all
Leasehold Interests.
"Realty Reserve": An amount equal to $750,000.00 increasing by the sum of
$25,000.00 each month commencing May 1, 2000; provided that the Realty
Reserve shall not exceed an amount equal to the lesser of (a)
$1,500,000.00, or (b) the amount of principal and interest becoming
due on the Term Loan in the immediately succeeding six months; and (b)
the amount of real estate taxes and insurance premiums becoming due in
the immediately succeeding six months on all Real Estate.
"Receipts": All cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Collateral.
"Receivables Collateral": That portion of the Collateral which consists of
the Borrower's Accounts, Accounts Receivable, General Intangibles,
Chattel Paper, Instruments, Documents of Title, Documents, Investment
Property, letters of credit for the benefit of the Borrower, and
bankers' acceptances held by the Borrower, and any rights to payment.
"Reconstruction Proceeds": Net Proceeds received by the Borrower or any
of the Guarantors in respect of a casualty or a condemnation or
similar event, in an amount not to exceed (i) $500,000.00 in the
aggregate per casualty occurrence, or (ii) $150,000.00 in the
aggregate per condemnation occurrence (or such greater amounts to
which the
29
<PAGE>
Lender may agee in writing), which Net Proceeds are used within 180
days after receipt by the Borrower or such Guarantor to repair,
restore, or replace the asset subject to such casualty or
condemnation. Pending the use of the Reconstruction Proceeds, the
Reconstruction Proceeds shall be pledged to, and held by, the Lender
as Collateral in a separate interest bearing account, and shall be
released to the Borrower for the purposes permitted hereunder pursuant
to such procedures as the Borrower and the Lender may agree.
"Refinancing Lease": A Lease between the Borrower, as lessee, and
Karalea, Inc. or any Special Refinancing Subsidiary, as lessor, which
is entered into in connection with a Refinancing Loan.
"Refinancing Loan(s)": Any loan obtained by the Borrower or any
Subsidiary, the proceeds of which are used to repay all or a portion
of the Release Price on any Real Estate.
"Release Price": The amount of Net Proceeds (together with any payments
permitted under the final paragraph of Section 3-5) which the Lender
must receive in order to, release its Encumbrance on any Real Estate
in connection with, and to consent to, any sale, refinancing, or other
disposition thereof, such Release Price being the following amounts
for the following properties, unless a Suspension Event then exists:
<TABLE>
<CAPTION>
====================================================================================================
Property Release Price In Release Price In Release Price In a
a Single a Dual Composite
Transaction Transaction Transaction
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1180 Upper Hembree Road $ 8,100,000.00 $ 7,560,000.00 $7,020,000.00
- ----------------------------------------------------------------------------------------------------
70 Powers Ferry Road $11,490,000.00 $10,730,000.00 $9,965,000.00
====================================================================================================
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2025 Satellite Point $ 5,830,000.00 $ 5,440,000.00 $5,050,000.00
- ----------------------------------------------------------------------------------------------------
Distribution Center $ 1,700,000.00 $ 1,700,000.00 $1,700,000.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
As used herein, a "Single Transaction" means a sale, refinancing or other
disposition of only the subject property; a "Dual Transaction" means a
contemporaneous sale, refinancing or other disposition of any two
properties (exclusive of the Distribution Center); and a "Composite
Transaction" means a contemporaneous sale, refinancing or other disposition
of all three properties (exclusive of the Distribution Center).
During the existence of a Suspension Event, the Lender shall not be
obligated to release any Real Estate except upon payment of such amounts as
the Lender may require in its discretion.
"Requirement of Law": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or other
requirements having the force of law and (ii) all court orders and
injunctions, arbitrator's decisions, and/or similar rulings, in each
instance ((i) and (ii)) of or by any federal, state, municipal, and
other governmental authority, or court, tribunal, panel, or other body
which has or claims jurisdiction over such Person, or any property of
such Person, or of any other Person for whose conduct such Person
would be responsible.
(b) That Person's charter, certificate of incorporation,
articles of organization, and/or other organizational documents, as
applicable; and (c) that Person's by-laws and/or other instruments
which deal with corporate or similar governance, as applicable.
"Reserves": The following: Loan to Collateral Reserve; Availability
Reserves; Realty Reserves, and Inventory Reserves.
""Revolving Credit": Is defined in Section 2-1(a).
"Revolving Credit Ceiling": $5,000,000.00.
"Revolving Credit Loans": Loans made under the Revolving Credit.
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<PAGE>
"Revolving Credit Note": Is defined in Section 2-7.
"Revolving Credit Obligations": The aggregate of the Borrower's
liabilities, obligations, and indebtedness of any character on account
of or in respect to the Revolving Credit.
"SEC": The Securities and Exchange Commission.
"Stated Amount": The maximum amount for which an L/C may be honored.
"Special Refinancing Subsidiary": Is defined in Section 6-20.
"Subsidiary": Any corporation, association, partnership, limited liability
company, trust, or other business entity of which the designated
parent shall at any time own directly or indirectly through a
Subsidiary or Subsidiaries at least a majority (by number of votes or
controlling interests) of the outstanding Voting Interests, including
any Special Refinancing Subsidiary. Notwithstanding the foregoing, a
Special Refinancing Subsidiary shall not be deemed to be a Subsidiary
for purposes of any of the provisions in (a) Articles 8 and 9 hereof,
and (b) only after the Lender's receipt of the Release Price for, and
any other amounts required to be paid under this Agreement upon the
transfer of, any assets transferred to such Special Refinancing
Subsidiary, Articles 10 and 11 hereof and Sections 6-7, 6-11, 6-14,
6-20, 6-21, 6-22, 6-25, 6-27 and 7-10 hereof.
"Suspension Event": Any occurrence, circumstance, or state of facts which
(a) is an Event of Default; or (b) would become an Event of Default if
any requisite notice were given and/or any requisite period of time
were to run and such occurrence, circumstance, or state of facts were
not absolutely cured within any applicable grace period.
"Term Loan": The term loan to be made by the Lender to the Borrower
pursuant to Section 3-1 hereof.
"Term Note": Is defined in Section 3-2 hereof.
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<PAGE>
"Termination Date": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 12-11, below; or (c) the
Lender's notice to the Borrower setting the Termination Date on
account of the occurrence of any Event of Default other than as
described in Section 12-11, below.
"UCC": The Uniform Commercial Code as presently in effect in Massachusetts
(Mass. Gen. Laws, Ch. 106).
"Voting Interests": Stock or similar ownership interests, of any class or
classes (however designated), the holders of which are at the time
entitled, as such holders, (a) to vote for the election of a majority
of the directors (or persons performing similar functions) of the
corporation, association, partnership, limited liability company,
trust or other business entity involved, or (b) to control, manage, or
conduct the business of the corporation, partnership, association,
limited liability company, trust or other business entity involved.
"Year 2000 Compliant": Computer applications, imbedded microchips, and
other systems and subsystems which properly recognize and perform
their intended function without any material adverse effect on account
of their respective inability to recognize certain dates prior to, on,
and after December 31, 1999 or on account of their treating any date
prior to, on, or after December 31, 1999 other than as the specific
date in question.
Article 2 - The Revolving Credit:
2-1. Establishment of Revolving Credit.
(a. The Lender hereby establishes a revolving line of credit (the
"Revolving Credit") in the Borrower's favor pursuant to which Lender, subject
to, and in accordance with, this Agreement, Lender shall make loans and advances
and otherwise provide financial accommodations to and for the account of the
Borrower as provided herein.
(b. Loans, advances, and financial accommodations under the Revolving
Credit shall be made with reference to the Borrowing Base, shall be subject to
Availability and shall not exceed the Revolving Credit Ceiling. The Borrowing
Base and Availability shall be determined by the Lender by
33
<PAGE>
reference to Borrowing Base Certificates furnished as provided in Section 7-4,
below, and shall be subject to the following:
(i Such determination shall take into account those Reserves as
the Lender may determine as being applicable thereto.
(ii The Cost of Eligible Inventory will be determined in a manner
consistent with current tracking practices.
(c The initial Reserves as of the date of this Agreement are the
following:
(i The Realty Reserve.
(ii A PACA/Packers Reserve (an Inventory Reserve): In an amount
equal to all payables which are past due and exceed $2,300,000.00, or, without
duplication, are greater than 70% of the Cost of the then Perishable Inventory
of the Borrower, and, in each case, which are subject to a lien under the
Perishable Agricultural Commodities Act and/or the Packers and Stockyard Act
(each as amended and in effect).
(iii A Payables Reserve (an Availability Reserve): In an amount
equal to any past due real estate taxes and/or ad valorem taxes owed by the
Borrower or any Guarantor.
(d The amount of Reserves shall be established, and may be revised, by
the Lender in good faith and in the exercise of its reasonable credit judgment
(i) to reflect events, conditions, contingencies or risks that, as determined by
the Lender in good faith, do or may affect any of (A) the Collateral or any
other property which is security for the Liabilities or its value, (B) the
assets, business or prospects of the Borrower, or (C) the security interests and
other rights of the Lender in, or to realize upon, the Collateral and any other
property which is security for the Liabilities (including the enforceability,
perfection and priority thereof), or (ii) to reflect the Lender's good faith
belief that any collateral report or financial information furnished by or on
behalf of the Borrower to the Lender is or may have been incomplete, inaccurate
or misleading in any material respect, or (iii) in respect of any state of facts
which the Lender determines in good faith constitutes a Suspension Event.
Notwithstanding the foregoing, or any other provision in this Agreement or in
any other Loan Document, the Lender shall not establish any Reserves which is
based solely upon the decline in the fair market value of any Real Estate
included in the calculation of the Borrowing Base. A change to a then existing
Reserve may be made only with not less than seven (7) Business Days prior notice
to the Borrower (unless the Lender determines that the Collateral would be
materially and adversely affected by such delay or a Suspension Event exists, in
which case such Reserve may be immediately imposed), except that a change to a
then existing
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<PAGE>
Reserve, which change reflects changed circumstances of which the Borrower has
knowledge (such as a change in the aggregate of Gift Certificates then
outstanding), may be made without such notice.
2-2. Advances in Excess of Borrowing Base (Overloans).
(a The Lender does not have any obligation to make any loan or
advance, or otherwise to provide any credit to or for the benefit of the
Borrower where the result of such loan, advance, or credit is an Overloan.
(b The Lender's providing of an Overloan on any one occasion does
not affect the obligations of the Borrower hereunder (such as the Borrower's
obligation to immediately repay any amount which otherwise constitutes an
Overloan) nor obligate the Lender to do so on any other occasion.
2-3. Risks of Value of Collateral. The Lender's reference to a given asset
in connection with the making of loans, credits, and advances and the providing
of financial accommodations under the Revolving Credit and/or the monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks
concerning the value of the Collateral are and remain upon the Borrower. All
Collateral secures the prompt, punctual, and faithful performance of the
Liabilities whether or not relied upon by the Lender in connection with the
making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit.
2-4. Commitment to Make Revolving Credit Loans and Support Letters of
Credit. Subject to the provisions of this Agreement, the Lender shall make a
loan or advance under the Revolving Credit and shall endeavor to have an L/C
issued for the account of the Borrower, in each instance if duly and timely
requested by the Borrower as provided herein provided that:
(a The Stated Amount of all outstanding L/Cs (after giving effect
to the requested L/C), together with the outstanding balance of all Revolving
Credit Loans (after giving effect to the requested Revolving Credit Loan) will
not exceed the Revolving Credit Ceiling.
(b The amount of the loan or advance or L/C so requested does not
exceed Availability.
(c The Revolving Credit has not been suspended as provided in
Section 2-5(h).
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<PAGE>
2-5. Revolving Credit Loan Requests.
(a Requests for loans and advances under the Revolving Credit may be
requested by the Borrower in such manner as may from time to time be acceptable
to the Lender.
(b Subject to provisions of this Agreement, a request for a loan or
advance (in each instance in an amount which is not less than $10,000.00) shall
be made by 1:00PM on a Business Day will be made by the end of business on that
Business Day; otherwise, by the end of the then next Business Day.
(c Any request for a Revolving Credit Loan which is made after the
applicable deadline therefor, as set forth above, shall be deemed to have been
made at the opening of business on the then next Business Day. Each request for
a Revolving Credit Loan shall be made in such manner as may from time to time be
acceptable to the Lender.
(d If, during each of the Thirty (30) days immediately preceding the
day on which a loan request is made there has been no unpaid principal balance
in the Loan Account on account of loans and advances under the Revolving Credit,
the loan so requested shall be made (subject to all other provisions of this
Agreement) no later than the Second Business Day after (and not counting) the
day on which the loan otherwise would have been made as provided above.
(e The Borrower may request that the Lender cause the issuance of
L/C's for the account of the Borrower as provided in Section 2-10.
(f The Lender may rely on any request for a loan or advance, or other
financial accommodation under the Revolving Credit which the Lender, in good
faith, believes to have been made by a Person duly authorized to act on behalf
of the Borrower and may decline to make any such requested loan or advance, or
issuance, or to provide any such financial accommodation pending the Lender's
being furnished with such documentation concerning that Person's authority to
act as may be satisfactory to the Lender.
(g A request by the Borrower for loan or advance, or other financial
accommodation under the Revolving Credit shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request,
each of the following is true and correct:
(i To the knowledge of the Borrower, there has been no material
adverse change in the Borrower's financial condition from the most recent
financial information furnished Lender pursuant to this Agreement. The Lender
acknowledges and agrees that the Fine Foods litigation and the delisting of the
Borrower's capital stock shall not in and of themselves be deemed to be a
material adverse change.
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<PAGE>
(ii To the knowledge of the Borrower, the Borrower is in compliance
with, and has not breached any of, its covenants contained in this Agreement.
(iii All or a portion of any loan or advance so requested will be set
aside by the Borrower to cover all of the Borrower's obligations for sales tax
on account of sales since the then most recent borrowing pursuant to the
Revolving Credit.
(iv To the knowledge of the Borrower, each representation which is
made herein or in any of the Loan Documents (defined below) is then true and
complete as of and as if made on the date of such request.
(v To the knowledge of the Borrower, no Suspension Event is
then extant.
(h Upon the occurrence from time to time of any Suspension Event and
during the continuation thereof:
(i The Lender may suspend the Revolving Credit immediately.
(ii The Lender shall not be obligated, during such suspension, to
make any loans or advance, or to provide any financial accommodation hereunder
or to seek the issuance of any L/C.
2-6. Making of Revolving Credit Loans.
(a A loan or advance under the Revolving Credit shall be made by the
transfer of the proceeds of such loan or advance to the Operating Account or as
otherwise instructed by the Borrower.
(b A loan or advance shall be deemed to have been made under the
Revolving Credit (and the Borrower shall be indebted to the Lender for the
amount thereof immediately) at the following:
(i The Lender's initiation of the transfer of the proceeds of such
loan or advance in accordance with the Borrower's instructions (if such loan or
advance is of funds requested by the Borrower).
(ii The charging of the amount of such loan to the Loan Account
(in all other circumstances).
(c There shall not be any recourse to or liability of the Lender or
any Revolving Credit Lender, on account of the following (other than any claim
as to which a final determination is made in a judicial proceeding (in which the
Lender has had an opportunity to be heard), which determination includes a
specific finding that the Lender had acted in a grossly negligent manner or in
actual bad faith):
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<PAGE>
(i Any delay in the making of any loan or advance requested
under the Revolving Credit.
(ii Any delay by any bank or other depository institution in treating
the proceeds of any such loan or advance as collected funds.
(iii Any delay in the receipt, and/or any loss, of funds which
constitute a loan or advance under the Revolving Credit, the wire transfer of
which was properly initiated by the Lender in accordance with wire instructions
provided to the Lender by the Borrower.
2-7. The Revolving Credit Note. The Borrower's obligation to repay loans
and advances under the Revolving Credit, with interest as provided herein, shall
be evidenced by a note (the "Revolving Credit Note") in the form of EXHIBIT 2-7,
annexed hereto, executed by the Borrower. Neither the original nor a copy of the
Revolving Credit Note shall be required, however, to establish or prove any
Liability. In the event that the Revolving Credit Note is ever lost, mutilated,
or destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender upon delivery by the Lender to the Borrower of an
appropriate lost instrument affidavit.
2-8. Payment of The Loan Account.
(a The Borrower may repay all or any portion of the principal
balance of the Revolving Credit from time to time until the Termination Date.
(b The Borrower, without notice or demand from the Lender shall pay
the Lender that amount, from time to time, which is necessary so that there is
no Overloan outstanding.
(c The Borrower shall repay the Revolving Credit:
(i in an amount equal to the Net Proceeds from any Asset Sale
consisting of the Borrower's Inventory or the Distribution Center; and
(ii in an amount equal to the Net Proceeds from any other event
described in Sections 3-5(a), (c) and (d) hereof, to the extent that such
proceeds are not utilized to repay the Term Loan; and
(iii in accordance with the provisions of Article 9 thereof.
All amounts prepaid under this Section 2-8(c) may be reborrowed under the
Revolving Credit, subject to and in accordance with, the terms of this
Agreement, provided that if any Reconstruction Proceeds are not utilized within
180 days after receipt by the Borrower or any Guarantor to repair, restore or
replace the asset giving rise to the Reconstruction Proceeds, the Lender is
authorized to make a Revolving Credit
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Loan in the amount of such Reconstruction Proceeds and apply the proceeds
thereof in reduction of the Term Loan in accordance with the provisions of
Section 3-5.
(d The Borrower shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
2-9. Interest on Revolving Credit Loans.
(a The unpaid principal balance of the Loan Account shall bear
interest at the rate of thirteen percent (13%) per annum. Interest shall be
payable monthly in arrears on the last day of each month and on the Termination
Date.
(b Following the occurrence of any Event of Default (and whether or
not the Lender exercises the Lender's rights on account thereof), all Revolving
Credit Loans shall bear interest, at the option of the Lender at rate which is
the rate provided for in Section 2-9(a) plus Two Percent (2%) per annum.
2-10. Procedures For Issuance of L/C's.
(a The Borrower may request that the Lender cause the issuance of
L/C's for the account of the Borrower. Each such request shall be in such manner
as may from time to time be acceptable to the Lender.
(b The Lender will endeavor to cause the issuance of any L/C so
requested by the Borrower, provided that , at the time that the request is made,
the Revolving Credit has not been suspended as provided in Section 2-5(b) and if
so issued:
(i The aggregate Stated Amount of all L/C's then outstanding, does
not exceed Two Hundred Fifty Thousand Dollars ($250,000.00).
(ii The expiry of the L/C is not later than the earlier of Thirty
(30) days prior to the Maturity Date (unless the Borrower has furnished cash
collateral for any such L/C with a later expiry in an amount equal to 110% of
the Stated Amount thereof) or the following:
(A Standby's: One (1) year from initial issuance.
(B Documentary's: Sixty (60) days from issuance.
(iii Availability would not be exceeded.
(iv The Stated Amount of all outstanding L/Cs (after giving effect to
the requested L/C), together with the outstanding balance of all Revolving
Credit Loans will not exceed the Revolving Credit Ceiling.
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(c The Borrower shall execute such documentation to apply for and
support the issuance of an L/C as may be required by the Issuer.
(d There shall not be any recourse to, nor liability of, the Lender
on account of
(i Any delay or refusal by an Issuer to issue an L/C;
(ii Any action or inaction of an Issuer on account of or in respect
to, any L/C.
(e The Borrower shall reimburse the Issuer for the amount of any
honoring of a drawing under an L/C on the same day on which such honoring takes
place. The Lender, without the request of the Borrower, may advance under the
Revolving Credit (and charge to the Loan Account) the amount of any honoring of
any L/C and other amount for which the Borrower, the Issuer, or the Lender
becomes obligated on account of, or in respect to, any L/C. Such advance shall
be made whether or not a Suspension Event is then extant or such advance would
result in Availability's being exceeded. Such action shall not constitute a
waiver of the Lender's rights under Section 2-8(b) hereof.
2-11. Fees For L/C's.
(a The Borrower shall pay to the Lender a fee, on account of L/C's,
the issuance of which had been procured by the Lender, monthly in arrears, and
on the Termination Date and on the End Date, equal to four percent (4%) per
annum of the weighted average Stated Amount of all L/C's outstanding during the
period in respect of which such fee is being paid except that, following the
occurrence of any Event of Default, such fee shall be increased by two percent
(2%) per annum.
(b In addition to the fee to be paid as provided in Subsection
2-11(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so
requested by Lender), on demand, all issuance, processing, negotiation,
amendment, and administrative fees and other amounts charged by the Issuer on
account of, or in respect to, any L/C.
(c If any change in any law, executive order or regulation, or any
directive of any administrative or governmental authority (whether or not having
the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i impose, modify or deem applicable any reserve, special deposit or
similar requirements against letters of credit heretofore or hereafter issued by
any Issuer or with respect to which the Lender or any Issuer has an obligation
to lend to fund drawings under any L/C; or
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(ii impose on any Issuer any other condition or requirements relating
to any such letters of credit; and the result of any event referred to in
Section 2-11(c)(i) or 2-11(c)(ii), above, shall be to increase the cost to the
Lender or to any Issuer of issuing or maintaining any L/C (which increase in
cost shall be the result of such Issuer's reasonable allocation among that
Issuer's letter of credit customers of the aggregate of such cost increases
resulting from such events), then, upon demand by the Lender and delivery by the
Lender to the Borrower of a certificate of an officer of the Lender or the
subject Issuer describing such change in law, executive order, regulation,
directive, or interpretation thereof, its effect on such Issuer, and the basis
for determining such increased costs and their allocation, the Borrower shall
immediately pay to the Lender, from time to time as specified by the Lender,
such amounts as shall be sufficient to compensate the Lender or the subject
Issuer for such increased cost. Any Issuer's determination of costs incurred
under Section 2-11(c)(i) or 2-11(c)(ii), above, and the allocation, if any, of
such costs among the Borrower and other letter of credit customers of such
Issuer, if done in good faith and made on an equitable basis and in accordance
with such officer's certificate, shall be conclusive and binding on the Borrower
absent manifest error.
2-12. Concerning L/C's.
(a None of the Issuer, the Issuer's correspondents, or any advising,
negotiating, or paying bank with respect to any L/C shall be responsible in any
way for:
(i The performance by any beneficiary under any L/C of that
beneficiary's obligations to the Borrower.
(ii The form, sufficiency, correctness, genuineness, authority of any
person signing; falsification; or the legal effect of; any documents called for
under any L/C if (with respect to the foregoing) such documents on their face
appear to be in order.
(b The Issuer may honor, as complying with the terms of any L/C and
of any drawing thereunder, any drafts or other documents otherwise in order, but
signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
(i Select an advising bank, if any.
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(ii Select a paying bank, if any.
(iii Select a negotiating bank.
(d All directions, correspondence, and funds transfers relating to
any L/C are at the risk of the Borrower. The Issuer shall have discharged the
Issuer's obligations under any L/C which, or the drawing under which, includes
payment instructions, by the initiation of the method of payment called for in,
and in accordance with, such instructions (or by any other commercially
reasonable and comparable method). Neither the Lender nor the Issuer shall have
any responsibility for any inaccuracy, interruption, error, or delay in
transmission or delivery by post, telegraph or cable, or for any inaccuracy of
translation.
(e Lender's and the Issuer's rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.
(f Except to the extent otherwise expressly provided hereunder or
agreed to in writing by the Issuer and the Borrower, the L/C will be governed by
the Uniform Customs and Practice for Documentary Credits, International Chamber
of Commerce, Publication No. 500, and any subsequent revisions thereof.
(g The obligations of the Borrower under this Agreement with
respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of this Agreement, any L/C, or any other
agreement or instrument relating thereto.
(ii The Borrower's consent to any amendment or waiver of, or consent
to the departure from, any L/C.
(iii The existence of any claim, set-off, defense, or other right
which the Borrower may have at any time against the beneficiary of any L/C.
(iv Any good faith honoring of a drawing under any L/C, which
drawing possibly could have been dishonored based upon a strict construction of
the terms of the L/C.
ARTICLE 3 - THE TERM LOAN:
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3-1. The Term Loan. Upon the effective date of this Agreement, the Lender
shall loan to the Borrower and the Borrower shall borrow, the sum of
$19,500,000.00 (the "Term Loan").
3-2. The Term Note. The Borrower's obligation to repay the Term Loan, with
interest as provided herein, shall be evidenced by a note (the "Term Note") in
the form of EXHIBIT 3-2, annexed hereto, executed by the Borrower. Neither the
original nor a copy of the Term Note shall be required, however, to establish or
prove any Liability. In the event that the Term Note is ever lost, mutilated, or
destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender upon delivery by the Lender to the Borrower of an
appropriate lost instrument affidavit.
3-3. Interest Rate and Payments of Interest on the. The Term Loan shall
bear interest on the Term Loan outstanding principal amount thereof at a rate
equal to the Applicable Term Loan Rate. Current Pay Interest shall be payable in
arrears on the first day of each month commencing January 1, 2000, and when the
Term Loan is due (whether at maturity, by reason of acceleration or otherwise).
PIK Interest shall be evidenced by separate promissory notes executed by the
Borrower quarterly in arrears (commencing March 1, 2000), which PIK notes shall
bear interest at the Applicable Term Loan Rate, shall be payable in full on the
Maturity Date and shall be prepaid as provided herein. The failure of the
Borrower to execute any such PIK promissory note shall not limit or modify the
rights and obligations of the Lender or the Borrower with respect to such PIK
Interest. PIK Interest shall be subject to reduction based upon a calculation of
the Borrower's Adjusted Fixed Charge Ratio. In the event that the Adjusted Fixed
Charge Ratio for the fiscal year ending January 2001 is equal to or greater than
1.20:1.00 (determined and based upon the Borrower's annual audited financial
statements for such fiscal year delivered to the Lender in accordance with the
provisions of Section 7-8 hereof), PIK Interest shall be reduced by 50 basis
points for the fiscal year beginning February 2001. In the event that the
Adjusted Fixed Charge Ratio for the fiscal year ending January 2002 is equal to
or greater than 1.20:1.00 (determined and based upon the Borrower's annual
audited financial statements for such fiscal year delivered to the Lender in
accordance with the provisions of Section 7-8 hereof), PIK Interest either (a)
shall be reduced by 50 basis points for the fiscal year beginning February 2002,
or (b) if PIK Interest was reduced as of February 2001, shall be maintained at
the same rate as existed for the fiscal year beginning February 2001. If the
Adjusted Fixed Charge Ratio is not equal to or greater than 1.20:1.00 as at the
end of any fiscal year, PIK Interest shall remain (or be increased) to the
original levels in effect on the date of execution of this Agreement.
3-4. Repayment of Term Loan. The principal balance of the Term Loan shall
be repaid on the first day of each month, commencing January 1, 2000 in the
following amounts:
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---------------------------------------------------------------
Months Ending Principal Payment
---------------------------------------------------------------
January, 2000 through November, 2000 $100,000.00
---------------------------------------------------------------
December 2000 through November, 2001 $150,000.00
---------------------------------------------------------------
From and after December, 2001 $200,000.00
---------------------------------------------------------------
Unless sooner paid or accelerated, the outstanding principal balance of the Term
Loan, and all accrued and unpaid interest thereon, shall be due and payable in
full on the Maturity Date.
3-5. Mandatory Prepayments of Term Loan. In addition to other principal
reductions on the Term Loan required pursuant hereto,
(a) the Borrower shall pay to the Lender, and there shall become due and
payable, the Net Proceeds of any Refinancing Loan and any other
Indebtedness for borrowed money incurred by the Borrower or any Subsidiary
not permitted pursuant to Section 6-8 hereof, upon the Borrower's or any
Subsidiary's receipt thereof; and
(b) the Borrower shall pay, and there shall become due and payable, an
amount equal to fifty (50%) of Excess Cash Flow annually on or before April
30 of each year, with the first such payment to be on account of the fiscal
year ending January, 2001; and
(c) the Borrower shall pay, and there shall become due and payable, an
amount equal to the Net Proceeds from any Asset Sale (other than from the
Distribution Center) upon the Borrower's or its Subsidiary's receipt
thereof; provided that the transfer of any Real Estate (and related real
-------------
estate fixtures) which are transferred to a Special Refinancing Subsidiary
in connection with a Refinancing Loan shall not be deemed an Asset Sale for
purposes hereof as long as the Net Proceeds of such Refinancing Loan are
paid to the Lender in accordance with Section 3-5(a)
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hereof and such Net Proceeds, together with other amounts then paid to the
Lender are equal to or greater than the Release Price therefor; and
(d) Subject to the Borrower's ability to use Reconstruction Proceeds as
provided herein, the Borrower shall pay, and there shall become due and
payable, an amount equal to the Net Proceeds from any casualty or
condemnation to or of any of the Borrower's or its Subsidiaries' assets
upon the Borrower's or any such Subsidiary's receipt thereof; and
(e) if the Revolver Credit is then paid in full, the Borrower, without
notice or demand from the Lender shall pay the Lender that amount, from
time to time, which is necessary so that there is no Overloan outstanding.
provided that all Net Proceeds from any Asset Sale of, any casualty or
condemnation to, the Borrower's Inventory shall first be applied to the
Revolving Credit. Any prepayment on account of Excess Cash Flow shall be first
applied to accrued but unpaid interest on the Term Loan, then to any PIK
Interest (whether or not previously evidenced by a PIK note) and then to the
principal balance of the Term Loan as provided in the following sentence. The
portion of Excess Cash Flow to be applied to the principal of the Term Loan and
all other prepayments shall be applied to the principal balance of the Term Loan
in inverse order of maturity. No prepayment hereunder shall postpone the date
for, or reduce the amount of, any subsequently scheduled repayment of the Term
Loan. Any portion of the Term Loan which is prepaid may not be reborrowed.
Mandatory Prepayments shall be made with the cash Net Proceeds received
from the event giving rise thereto, provided that with respect to any Mandatory
Prepayments required from the sale of Real Estate (other than the Distribution
Center), in order to obtain the Lender's release of its Encumbrance on any such
property, (a) up to five percent (5%) of the applicable Release Price may be
paid by an advance under the Revolving Credit, and (b) the cash Net Proceeds
from the sale of the Distribution Center may be applied toward the applicable
Release Price, in each case as long as no Suspension Event would arise after
giving effect to the foregoing payment.
3-6. Optional Prepayments of the Term Loan. The Borrower shall have
the right, at its election, to repay the outstanding principal balance of the
Term Loan as a whole or in part, at any time
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without penalty or premium, other than provided in Section 4-3 hereof. All such
prepayments shall be applied to the principal balance of the Term Loan in
inverse order of maturity. No prepayment hereunder shall postpone the date for,
or reduce the amount of, any subsequently scheduled repayment of the Term Loan.
Any portion of the Term Loan which is prepaid may not be reborrowed..
ARTICLE 4 - APPLICABLE TO ALL LOANS:
4-1. Commitment Fee.
As compensation for the Lender's commitment to make loans and
advances to the Borrower and as compensation for the Lender's maintenance of
sufficient funds available for such purpose, the Lender has earned a Commitment
Fee (so referred to herein) of $ 980,000.00. The Commitment Fee shall be paid in
full on the date of execution hereof.
4-2. Facility Fee.
In addition to any other fee or expense paid by the Borrower on
account of the Revolving Credit and Term Loan, the Borrower shall pay the Lender
a Facility Fee (so referred to herein), which has been fully earned by the
Lender's execution of this Agreement. The Facility Fee shall be paid to the
Lender in monthly installments of $3,750.00 each through the End Date.
(a A proration of such monthly installment shall be paid out of the
first advance under the Revolving Credit for the period beginning with the date
on which this Agreement is executed and ending on the last day of the month of
such execution.
(b A monthly installment shall be paid on the first day of the month
next following that during which this Agreement is executed and on the first day
of each month thereafter.
4-3. Early Termination Fee.
If, other than by virtue of Excluded Reductions, (i) the Borrower
terminates the Revolving Credit and repays the Liabilities prior to the Maturity
Date, or (ii) the Liabilities are accelerated as a result of the occurrence of
an Event of Default, or (iii) if the Borrower prepays the Term Loan at any time
in whole or in part, the Borrower will pay an Early Termination Fee (so referred
to herein) to the Lender equal to (x) One and one half percent (1.5%) of the sum
of (1) the amount of the Term Loan so prepaid or accelerated, plus (2) the
Deemed Revolver if such repayment and termination occurs on or before December
1, 2000, or (y) One percent (1%) of the sum of (1) the amount of the Term Loan
so prepaid or
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accelerated, plus (2) the Deemed Revolver if such repayment and termination
occurs on or before December 1, 2000, or (y) One percent (1%) of the sum of (1)
the amount of the Term Loan so prepaid or accelerated, plus (2) the Deemed
Revolver if such repayment and termination occurs after December 1, 2000 and on
or before December 1, 2001; and (z) One half of one percent (0.5%) of the sum of
(1) the amount of the Term Loan so prepaid or accelerated, plus (2) the Deemed
Revolver if such repayment and termination occurs after December 1, 2001 and
before the Maturity Date.
4-4. The Loan Account.
(a An account ("Loan Account") shall be opened on the books of the
Lender in which a record shall be kept of all loans and advances made under the
Revolving Credit.
(b The Lender shall also keep a record (either in the Loan Account
or elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed to the Lender on account
of the Liabilities and of all credits against such amounts so owed.
(c All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The
amount of any item credited against the Liabilities which is charged back
against the Lender for any reason or is not so paid shall be a Liability and
shall be added to the Loan Account, whether or not the item so charged back or
not so paid is returned.
(d Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which the Borrower is obligated hereunder are payable on
demand. In the determination of Availability, the Lender may deem fees, service
charges, accrued interest, and other payments which will be due and payable
between the date of such determination and the first day of the then next
succeeding month as having been advanced under the Revolving Credit whether or
not such amounts are then due and payable.
(e The Lender, without the request of the Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
(including, without limitation, with respect to the Term Loan) to which Lender
is entitled from the Borrower pursuant hereto and may charge the same to the
Loan Account notwithstanding that such amount so advanced may result in
Availability's being exceeded. Such action on the part of the Lender shall not
constitute a waiver of the Lender's rights and Borrower's obligations under
Section 2-8(b). Any amount which is added to the principal balance of the Loan
Account as provided in this Section 4-4 shall bear interest at the interest rate
then and thereafter applicable to loans and advances under the Revolving Credit.
(f Any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and
shall be conclusively binding upon the Borrower absent manifest error, unless
the Borrower provides the Lender with written objection thereto within twenty
(20) days from the mailing of such statement, which written objection shall
indicate, with
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particularity, the reason for such objection. The Loan Account and the Lender's
books and records concerning the loan arrangement contemplated herein and the
Liabilities shall be prima facie evidence and proof of the items described
therein.
4-5. Concerning Fees.
The Borrower shall not be entitled to any credit, rebate or repayment of
the Commitment Fee, the Facility Fee, the Early Termination Fee or any other fee
earned by the Lender pursuant to this Agreement or any Loan Document
notwithstanding any termination of this Agreement or suspension or termination
of the Lender's obligation to make loans and advances hereunder.
4-6. Lender's Discretion.
(a Each reference in the Loan Documents to the exercise of
discretion or the like by the Lender shall be to the Lender's exercise of its
reasonable credit judgment, in good faith (which shall be presumed), based upon
the Lender's consideration of any such factor as the Lender, taking into
account information of which the Lender then has actual knowledge, believes:
(i Will or reasonably could be expected to affect the value of the
Collateral, the enforceability of the Lender's Collateral Interests therein, or
the amount which the Lender would likely realize therefrom (taking into account
delays which may possibly be encountered in the Lender's realizing upon the
Collateral and likely Costs of Collection).
(ii Indicates that any report or financial information delivered to
the Lender by or on behalf of the Borrower is incomplete, inaccurate, or
misleading in any material manner or was not prepared in accordance with the
requirements of this Agreement.
(iii Suggests an increase in the likelihood that the Borrower will
become the subject of a bankruptcy or insolvency proceeding.
(iv Constitutes a Suspension Event.
(b In the exercise of such judgement, the Lender also may take into
account any of the following factors:
(i Those included in, or tested by, the definitions of "Eligible
Inventory" and "Cost".
(ii The current financial and business climate of the industry in
which the Borrower competes (having regard for the Borrower's position in that
industry).
(iii General macroeconomic conditions which have a material effect
on the Borrower's cost structure.
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(iv Material changes in or to the mix of the Borrower's Inventory.
(v Seasonality with respect to the Borrower's Inventory and patterns
of retail sales.
(vi Such other factors as the Lender determines as having a material
bearing on credit risks associated with the providing of loans and financial
accommodations to the Borrower.
(c The burden of establishing the failure of the Lender to have
acted in a reasonable manner in the Lender's exercise of discretion shall be the
Borrower's.
4-7. Calculation of Interest. Interest and fees hereunder shall be
calculated on the basis of a 360 day year and for actual days elapsed.
Article 5 - Conditions Precedent:-
As a condition to the effectiveness of this Agreement, the establishment of
the Revolving Credit, and the making of the Term Loan and the first loan under
the Revolving Credit, each of the documents respectively described in Sections
5-1 through and including 5-4, (each in form and substance satisfactory to the
Lender) shall have been delivered to the Lender, and the conditions respectively
described in Sections 5-5 through and including 5-12, shall have been satisfied:
5-1 Corporate Due Diligence.
(a A Certificate of corporate good standing issued by the Secretary
of State of Georgia (or any other jurisdiction of organization) for the Borrower
and each of the Guarantors.
(b Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrower's
and each Guarantor's business conducted or assets owned could require such
qualification.
(c A Certificate of the Borrower's and each Guarantor's Secretary of
the due adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
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5-2. Opinion. An opinion of counsel to the Borrower and the Guarantors
in form and substance satisfactory to the Lender.
5-3. Officers' Certificates. Certificates executed by the President and
the Chief Financial Officer of the Borrower and stating that the representations
and warranties made by the Borrower and the Guarantors to the Lender in the Loan
Documents are true and complete as of the date of such Certificate, and that no
event has occurred which is or which, solely with the giving of notice or
passage of time (or both) would be an Event of Default.
5-4. Additional Documents. Such additional instruments and documents as
the Lender or its counsel reasonably may require or request including, without
limitation, the following:
(a) Those notifications and agreements described in Sections 9-1 and
9-2 (which relates to cash management).
(b) A Comfort Letter from Harry Blazer in the form of EXHIBIT 5-4(b)
hereto.
(c) Unlimited Guaranties from each of the Guarantors, together
with such mortgages, deeds of trust, security agreements and other documents as
may be necessary to furnish the Lender with a valid and perfected first priority
lien on all of the assets of the Guarantors; provided, however, with respect to
certain items relating to leased properties of the Borrower, as set forth in
Section 5-4(d), the Borrower shall only be required to use its best efforts to
obtain such items.
(d) Landlord's Waivers and consents to the collateral assignments of
lease from each of the Borrower's landlords, reasonably acceptable in form and
substance to the Lender, provided that as long as the Borrower has used its best
efforts to obtain such waivers and consents, this Agreement shall become
effective even if all such waivers and consents have not been obtained as of the
closing date.
(e) An agreement with each management company for the Real Estate,
on terms and conditions satisfactory to the Lender, which shall provide, among
other things, for the transfer of all amounts generated from the Real Estate
under the control or possession of each such management company solely to the
Concentration Account.
(f) Those instruments, documents and agreements described on EXHIBIT
5-4(d) hereto.
5-5. Representations and Warranties. Each of the representations made by
the Borrower or any Guarantor in this Agreement or in any of the other Loan
Documents or in any other
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report, statement, document, or paper provided by the Borrower or any Guarantor
shall be true and complete as of the date as of which such representation or
warranty was made.
5-6. Minimum Day One Availability. After giving effect to the first
funding under the Revolving Credit; all then held checks (if any); accounts
payable which are beyond credit terms then accorded the Borrower; overdrafts;
any charges to the Loan Account made in connection with the establishment of the
credit facilities contemplated hereby; and L/C's to be issued at, or immediately
subsequent to, such establishment, Availability shall not be less than
$1,500,000.00.
5-7. All Fees and Expenses Paid. All fees due at or immediately after
the first funding under the Revolving Credit and the Term Loan and all costs and
expenses incurred by the Lender in connection with the establishment of the
credit facilities contemplated hereby (including the fees and expenses of
counsel to the Lender) shall have been paid in full.
5-8. Year 2000 Compliance. The Lender shall have determined that the
operations of the Borrower and its Subsidiaries are Year 2000 Compliant in all
material respects.
5-9. Completion of Material Transactions. The Lender shall have
reviewed all material agreements of the Borrower and its Subsidiaries,
including, without limitation, all agreements with Progressive Food Concepts,
Inc. and/or Boston Chicken, Inc., The Orbis Pension Trustees, Ltd., and Robert
Fleming Nominees Ltd. and such agreements shall be satisfactory in form and
substance to the Lender. The debt and equity restructurings described in the
Confidential Financing Memorandum dated August 1999 from Houlihan Lokey Howard &
Zukin Capital shall have been consummated or shall be consummated
contemporaneously with the first advance under the Revolving Credit and Term
Loan.
5-10. No Litigation or Material Defaults. There shall not exist (a)
any litigation or other proceeding the result of which might reasonably be
expected to have a material adverse effect on the Borrower or any of its
Subsidiaries, other than the Fine Foods litigation, and (b) any default under
any material contract or agreement of the Borrower or any of its Subsidiaries.
The delisting of the Borrower's stock shall not, in and of itself, be deemed to
have a material adverse effect.
5-11. No Suspension Event. No Suspension Event shall then exist.
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5-12. No Adverse Change. No event shall have occurred or failed to
occur, which occurrence or failure is or could have a materially adverse effect
upon the Borrower's or any of its Subsidiaries' condition (financial or
otherwise), operations, assets, liabilities and/or prospects. The Fine Foods
litigation and the delisting of the Borrower's stock shall not, in and of
itself, be deemed to have a material adverse effect
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Boston, Massachusetts. Under no
circumstances shall this Agreement take effect until executed and accepted by
the Lender at said head office.
Article 6 - General Representations, Covenants and Warranties:-
To induce the Lender to establish the credit facilities contemplated herein
and to induce the Lender to provide loans and advances under the Revolving
Credit and the Term Loan (each of which loans shall be deemed to have been made
in reliance thereupon) the Borrower, in addition to all other representations,
warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in this Agreement.
6-1. Payment and Performance of Liabilities. The Borrower shall pay
each Liability when due (or when demanded, if payable on demand) and shall
promptly, punctually, and faithfully perform each other Liability.
6-2. Due Organization. Corporate Authorization. No Conflicts.
(a) The Borrower presently is and shall hereafter remain in good
standing as a Georgia corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
business, such qualification may be necessary, except where the failure to so
qualify would not have a material adverse effect on the business or any assets
of the Borrower.
(b) Each Affiliate as of the date of this Agreement is listed on
EXHIBIT 6-2, annexed hereto. Upon the Borrower's obtaining knowledge thereof,
the Borrower shall provide the Lender with
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prior written notice of any entity's becoming or ceasing to be an Affiliate.
Each Subsidiary presently is and shall hereafter remain in good standing in the
jurisdiction in which organized and is and shall hereafter remain duly qualified
and in good standing in every other State in which, by reason of the nature or
location of its assets or operation of its business, such qualification may be
necessary, except where the failure to so qualify would have not have a material
adverse effect on the business or any assets of such Subsidiary.
(c) The Borrower shall not change its state of incorporation nor its
taxpayer identification number.
(d) The Borrower and each Subsidiary has all requisite corporate power
and authority to execute and deliver all Loan Documents to which the Borrower or
such Subsidiary is a party and has and will hereafter retain all requisite
corporate power to perform all Liabilities.
(e) The execution and delivery by the Borrower and each Subsidiary of
each Loan Document to which it is a party; the Borrower's and each Subsidiary's
consummation of the transactions contemplated by such Loan Documents (including,
without limitation, the creation of Collateral Interests by the Borrower and the
Subsidiaries to secure the Liabilities); the Borrower's and each Subsidiary's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate action.
(ii) Do not, and will not, contravene in any material respect any
provision of any Requirement of Law or obligation of the Borrower or any
Subsidiary.
(iii) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any assets of the Borrower
or any Subsidiary pursuant to any Requirement of Law or obligation, except
pursuant to the Loan Documents.
(f) The Loan Documents have been duly executed and delivered by
Borrower and each Subsidiary which is a party thereto and are the legal, valid
and binding obligations of the Borrower and each Subsidiary, enforceable against
the Borrower and each such Subsidiary in accordance with their respective terms,
except as enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of
creditors' rights and except to the extent that availability of the remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought..
6-3. Trade Names.
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(a) EXHIBIT 6-3, annexed hereto, is a listing of:
(i) All names under which the Borrower or any of its Subsidiaries
ever conducted its business.
(ii) All Persons with whom the Borrower or any of its
Subsidiaries ever consolidated or merged, or from whom the Borrower or any of
its Subsidiaries ever acquired in a single transaction or in a series of related
transactions substantially all of such Person's assets.
(b) The Borrower will provide the Lender with not less than twenty-one
(21) days prior written notice (with reasonable particularity) of any change to
the Borrower's or any Subsidiary's name from that under which the Borrower or
any such Subsidiary is conducting its business at the execution of this
Agreement and will not effect such change unless the Borrower is then in
compliance with all provisions of this Agreement.
6-4. Infrastructure.
(a) The Borrower and each of its Subsidiaries has and will maintain a
sufficient infrastructure to conduct their respective businesses as presently
conducted and as contemplated to be conducted as described in the Borrower's
business plan.
(b) The Borrower and each of its Subsidiaries owns and possesses, or
has the right to use (and will hereafter own, possess, or have such right to
use) all patents, industrial designs, trademarks, trade names, trade styles,
brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, and other intellectual or proprietary property of any
third Person necessary for the Borrower's and each such Subsidiary's conduct of
the its respective business.
(c) To the knowledge of the Borrower, the conduct by the Borrower and
its Subsidiaries of the Borrower's and such Subsidiaries' business does not
presently infringe (nor will the Borrower conduct, or permit any Subsidiary to
conduct, its business in the future so as to infringe) the patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, or other
intellectual or proprietary property of any third Person.
6-5. Year 2000 Compliance.
Based upon a diligent inquiry undertaken by the Borrower, it appears
that the Borrower's and each of its Subsidiary's operations will be Year 2000
Compliant in all material respects by December 31, 1999. The Borrower will not
suffer or permit its operations thereafter to cease to be Year 2000
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Compliant in any manner which might reasonably be expected to have a materially
adverse effect on its operations.
6-6. Locations.
(a) The Collateral, and the books, records, and papers of Borrower
and its Subsidiaries pertaining thereto, are kept and maintained solely at the
following locations:
(i) The Borrower's chief executive offices at 1180 Upper Hembree
Road, Roswell, Georgia 30076.
(ii) Those locations which are listed on EXHIBIT 6-6, annexed
hereto, which EXHIBIT includes, with respect to each such location, the name and
address of the landlord on the Lease which covers such location (or an
indication that the Borrower or a Subsidiary owns the subject location) and of
all service bureaus with which any such records are maintained and the names and
addresses of each of the Borrower's and its Subsidiaries' landlords.
(b) The Borrower shall not, and shall not permit any Subsidiary to,
remove any of the Collateral from said chief executive office or those locations
listed on EXHIBIT 6-6 except for the following purposes:
(i) To accomplish sales of Inventory in the ordinary course of
business.
(ii) To move Inventory from one such location to another such
location.
(iii) To utilize such of the Collateral as is removed from such
locations in the ordinary course of business (such as motor vehicles).
(iv) To consummate the sale of the Ponce Sale/Leaseback Assets
and other asset sales permitted hereunder.
(c) The Borrower will not, and will not permit any Subsidiary
to:
(i) Execute, alter, modify, or amend any Lease (other than a
Refinancing Lease in connection with a Refinancing Loan to the extent permitted
hereunder), except for modifications which (A) are not materially less favorable
to the Borrower, (B) do not result in the occurrence of a Suspension Event, and
(C) do not result in the landlord's obtaining an Encumbrance on any assets of
the Borrower or its Subsidiaries.
(ii) Commit to, or open, any location at which the Borrower or
any Subsidiary maintains, offers for sales, or stores any of the Collateral.
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provided that, the Borrower may execute new leases for new stores
-------------
and open new stores if the Expansion Conditions are satisfied, as
long as the new store openings and new leases do not exceed the
Base Number for such fiscal year.
(d) Except as otherwise disclosed pursuant on Exhibit 6-6, or
permitted by this Section 6-6, no tangible personal property of the Borrower or
any Subsidiary is in the care or custody of any third party or stored or
entrusted with a bailee or other third party and none shall hereafter be placed
under such care, custody, storage, or entrustment if the personal property in
the care or custody of such Person has a value in excess of $100,000.00 unless
the Lender obtains a waiver from such Person satisfactory to the Lender.
6-7. Title to Assets.
(a) The Borrower and the Guarantors are, and shall hereafter remain,
the owner of the Collateral free and clear of all Encumbrances with the
exceptions of the following (the "Permitted Encumbrances"):
(i) Encumbrances in favor of the Lender.
(ii) Those Encumbrances (if any) listed on EXHIBIT 6-7, annexed
hereto and any renewals or replacements thereof, provided that such renewals or
replacements do not increase the principal amounts outstanding thereunder, do
not extend such Encumbrance to any other assets of the Borrower or any
Subsidiary, and are not materially less favorable to the Borrower or any
Guarantor.
(iii) Encumbrances to secure purchase money Indebtedness not
to exceed $5,000,000.00 in the aggregate outstanding at any time, provided that
if the Indebtedness secured by such security interest is equal to or greater
than $1,000,000.00, the Lender has received such agreement with the third party
which holds such Encumbrance as is reasonably satisfactory to the Lender.
(iv) Encumbrances securing the Refinancing Loans provided such
Encumbrances do not extend to any other property other than the Real Estate and
fixtures which being released in connection with such Refinancing Loans and any
Leases in connection with such Real Estate.
(v) Encumbrances for taxes, assessments or other governmental
charges or levies not at the time delinquent or thereafter payable with penalty
or being contested in good faith by appropriate proceedings, for which adequate
reserves in accordance with GAAP shall have been set aside on its books and as
to taxes other than real estate taxes, as to which no notice of tax lien has
been filed;
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(vi) Encumbrances of carriers, warehousemen, mechanics, and
materialmen incurred in the ordinary course of business for sums not overdue or
being contested in good faith by appropriate proceedings (which proceedings have
the effect of preventing the forfeiture or sale of the asset subject to such
Encumbrance) and for which adequate reserves in accordance with GAAP shall have
been set aside on its books;
(vii) Encumbrances (other than Encumbrances arising under ERISA
or Section 412(n) of the Code) incurred in the ordinary course of business in
respect of deposits made in connection with workmen's compensation, unemployment
insurance or other forms of governmental insurance or benefits, or securing
performance of tenders, statutory obligations, leases and contracts (other than
for borrowed money) entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds;
(viii) Encumbrances with respect to judgments to the extent
such judgments do not constitute a Suspension Event;
(ix) Encumbrances which arise by operation of law under Article
2 of the UCC in favor of unpaid sellers of goods, or Encumbrances in items or
any accompanying documents or proceeds of either arising by operation of law
under Article 4 of the UCC in favor of a collecting bank;
(x) Easements (including reciprocal easement agreements and
utility agreements), right-of-way, covenants, consents, reservations,
encroachments, variations and other restrictions, charges or encumbrances
(whether or not recorded) affecting the use of property, which do not materially
detract from the value of such property or impair the use thereof;
(xi) Leases and subleases granted by Karalea, Inc. to others in
the ordinary course of business not interfering in any material respect with any
business, and not detracting in any material respect from the value of any
property, of the Borrower or any of its Subsidiaries and otherwise in accordance
with the terms of the Loan Documents; and
(xii) Encumbrances on the capital stock of any Special
Refinancing Subsidiaries to secure Refinancing Loans
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
(c) The Borrower shall not acquire or obtain the right to use any
Equipment, the acquisition or right to use of which Equipment is otherwise
permitted by this Agreement, in which Equipment any third party has an interest,
except for:
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(i) Equipment which is merely incidental to the conduct of the
Borrower's business.
(ii) Without duplication of the provisions of Section 6-7(a)(iii)
hereof, Equipment, the acquisition or right to use of which has been consented
to by the Lender, which consent may be conditioned upon the Lender's receipt of
such agreement with the third party which has an interest in such Equipment as
is satisfactory to the Lender.
(d) The Borrower or any Guarantor shall be entitled to transfer any
Real Estate to a Special Refinancing Subsidiary at the time of consummation of
any Refinancing Loan as long as the Lender, contemporaneously therewith,
receives the Net Proceeds from such Refinancing Loan (but in no event less than
the Release Price for such Real Estate), a landlord's waiver from such Special
Refinancing Subsidiary and a collateral assignment of the Borrower's Lease with
the Special Refinancing Subsidiary, together with a landlord's consent to the
collateral assignment of the Leasehold Interest of the Borrower (unless the
Special Refinancing Subsidiary or the Borrower is prohibited by the lender
providing the Refinancing Loan from delivering such consent or collateral
assignment). The Borrower, the Guarantors and any Special Refinancing Subsidiary
shall use their best efforts to obtain approval of such lender for the delivery
of such consent and collateral assignment.
6-8. Indebtedness. The Borrower and its Subsidiaries do not and shall
not hereafter have any Indebtedness with the exceptions of:
(a) Any Indebtedness on account of the Revolving Credit and the Term
Loan.
(b) The Indebtedness (if any) listed on EXHIBIT 6-8, annexed hereto
and any renewals, refinancings or replacements thereof which do not increase the
principal amount outstanding thereunder and are otherwise not materially less
favorable to the Borrower. Notwithstanding the foregoing, the Borrower shall
not permit Roman Properties, Inc. to further encumber, or increase the amount of
any Indebtedness secured by, the Distribution Center.
(c) The Refinancing Loans.
(d) Indebtedness incurred to finance the acquisition of Equipment,
provided such Indebtedness shall not exceed $5,000,000.00 in the aggregate
outstanding at any time.
(e) Other Indebtedness which, when aggregated with the amounts
described in Section 6-8(c) hereof, does not exceed $10,000,000.00 in the
aggregate.
(f) Intercompany loans among the Borrower and any Guarantor.
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(g) Any guaranty made by the Borrower or any Subsidiary of any
obligations of any Special Refinancing Subsidiary if the underlying Indebtedness
guaranteed is otherwise permitted under this Agreement.
(h) Indebtedness under any Refinancing Lease.
(i) Indebtedness under any Lease between the Borrower and the
purchaser of the Distribution Center.
6-9. Insurance.
(a) EXHIBIT 6-9, annexed hereto, is a schedule of all insurance
policies owned by the Borrower and its Subsidiaries or under which the Borrower
or any Subsidiary is the named insured. Each of such policies is in full force
and effect. Neither the Borrower or any Subsidiary nor, to the knowledge of the
Borrower, the issuer of any such policy is in default or violation of any such
policy.
(b) The Borrower shall have and maintain, and shall cause each
Subsidiary to have and maintain, at all times insurance covering such risks, in
such amounts, containing such terms, in such form, for such periods, and written
by such companies as may be reasonably satisfactory to the Lender.
(c) All insurance carried by the Borrower and its Subsidiaries shall
provide for a minimum of Sixty (60) days' written notice of cancellation to the
Lender and all such insurance which covers the Collateral shall include an
endorsement in favor of the Lender, which endorsement shall provide that the
insurance, to the extent of the Lender's interest therein, shall not be impaired
or invalidated, in whole or in part, by reason of any act or neglect of the
Borrower or any Subsidiary or by the failure of the Borrower or any Subsidiary
to comply with any warranty or condition of the policy.
(d) The coverage reflected on EXHIBIT 6-9 presently satisfies the
foregoing requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances.
(e) The Borrower shall furnish the Lender from time to time with
certificates or other evidence satisfactory to the Lender regarding compliance
by the Borrower and its Subsidiaries with the foregoing requirements.
(f) In the event of the failure by the Borrower or any Subsidiary to
maintain insurance as required herein, the Lender, at its option, may obtain
such insurance, provided, however, the Lender's obtaining of such insurance
shall not constitute a cure or waiver of any Event of Default occasioned by the
Borrower's or any Subsidiary's failure to have maintained such insurance.
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(g) The Borrower shall advise the Lender of each claim in excess of
$75,000.00 made by the Borrower or any Subsidiary under any policy of insurance
which covers the Collateral and will permit the Lender, at the Lender's option
in each instance, to the exclusion of the Borrower and its Subsidiaries , to
conduct the adjustment of each such claim (and of all claims during the
existence of any Suspension Event). The Borrower hereby appoints the Lender as
the Borrower's attorney in fact to obtain, adjust, settle, and cancel any
insurance described in this section and to endorse in favor of the Lender any
and all drafts and other instruments with respect to such insurance. This
appointment, being coupled with an interest, is irrevocable until this Agreement
is terminated by a written instrument executed by a duly authorized officer of
the Lender. The Lender shall not be liable on account of any exercise pursuant
to said power except where there has been a final judicial determination (in a
proceeding in which the Lender had an opportunity to be heard) that such
exercise was grossly negligent manner or in willful misconduct. Subject to the
Borrower's ability to use Reconstruction Proceeds, as provided herein, the
Lender may apply any proceeds of such insurance against the Liabilities, whether
or not such have matured, in such order of application as the Lender may
determine, consistent, however, with the provisions of this Agreement.
6-10. Licenses. Each material license, distributorship, franchise, and
similar agreement issued to, or to which the Borrower or any Subsidiary is a
party is in full force and effect. To the Borrower's knowledge, no party to any
such license or agreement is in default or violation thereof. Neither the
Borrower nor any Subsidiary has received any notice or threat of cancellation
of any such material license or agreement.
6-11. Leases. EXHIBIT 6-11, annexed hereto, is a schedule of all
presently effective Capital Leases. (Exhibit 6-6 includes a list of all other
presently effective Leases). Each of such Leases and Capital Leases is in full
force and effect. To the Borrower's knowledge, no party to any such Lease or
Capital Lease is in default or violation of any such Lease or Capital Lease and
neither the Borrower nor any Subsidiary has received any notice or threat of
cancellation of any such Lease or Capital Lease. The Borrower hereby authorizes
the Lender at any time and from time to time to contact any of the Borrower's or
its Subsidiaries' landlords in order to confirm the Borrower's and such
Subsidiaries' continued compliance with the terms and conditions of the Lease(s)
between the Borrower or Subsidiary and that landlord and to discuss such issues,
concerning the Borrower's and/or the Subsidiary's occupancy under such Lease(s),
as the Lender may determine.
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6-12. Requirements of Law. The Borrower and each Subsidiary is in
compliance with, and shall hereafter comply with and use its respective assets
in compliance with, all Requirements of Law except where the failure of such
compliance will not have a materially adverse effect on the Borrower's or such
Subsidiary's business or assets. Neither the Borrower nor any Subsidiary has
received any notice of any violation of any Requirement of Law (other than of a
violation which is not reasonably likely to have a materially adverse effect on
the Borrower's or such Subsidiary's business or assets), which violation has not
been cured or otherwise remedied.
6-13. Labor Relations.
(a) The Borrower and its Subsidiaries have not been and are not
presently a party to any collective bargaining or other labor contract.
(b) There is not presently pending and, to the Borrower's knowledge,
there is not threatened any of the following:
(i) Any strike, slowdown, picketing, work stoppage, or
employee grievance process.
(ii) Any proceeding against or affecting the Borrower or any of
its Subsidiaries relating to the alleged violation of any Requirement of Law
pertaining to labor relations or National Labor Relations Board, the Equal
Employment Opportunity Commission, or any comparable governmental body,
organizational activity, or other labor or employment dispute against or
affecting the Borrower or any Subsidiary, which, if determined adversely to the
Borrower or such Subsidiary could have a materially adverse effect on the
Borrower or such Subsidiary, as applicable.
(iii) Any lockout of any employees by the Borrower or its
Subsidiaries, (and no such action is contemplated by the Borrower or any
Subsidiary).
(iv) Any application for the certification of a collective
bargaining agent.
(c) To the Borrower's knowledge, no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute.
(d) The Borrower and each Subsidiary:
(i) Has complied in all material respects with all
Requirements of Law relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing.
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(ii) Is not liable for the payment of a material amount of
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for the Borrower's or such Subsidiary's failure to comply with any
Requirement of Law referenced in Section 6-13(b)(ii).
6-14. Maintain Properties. The Borrower and each Guarantor shall:
(a) Keep the Collateral in good order and repair (ordinary reasonable
wear and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material part
of the Collateral.
(c) Not use any of the Collateral in violation of any policy of
insurance thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral or
the Distribution Center, other than the following:
(i) The sale of Inventory in compliance with this Agreement.
(ii) The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as provided
herein.
(iv) The sale of the Distribution Center for a price that will
yield Net Proceeds of at least $1,700,000.00.
(v) The sale and leaseback of the Ponce Sale/Leaseback Assets.
(vi) The sale of the Gwinnett Outparcels, but only if the
Lender determines, in its discretion, that the proposed sale and use of the
Gwinnett Outparcels will not decrease the value of the Real Estate in which the
Lender retains an Encumbrance. In determining whether the sale decreases the
value of such Real Estate, the Lender may require that it be furnished with
detailed plans regarding the development and use of the Gwinnett Outparcels and
may require that the remaining Real Estate be reappraised at the Borrower's
expense.
(vii) The transfer of any Real Estate and real estate fixtures
relating thereto to a Special Refinancing Subsidiary in connection with a
Refinancing Loan.
6-15. Taxes.
(a) Except as disclosed on EXHIBIT 6-15, to the knowledge of the
Borrower, there are no examinations of or with respect to the Borrower or any
Subsidiary presently being conducted by the Internal Revenue Service or any
other taxing authority.
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(b) The Borrower and each Subsidiary has paid, and hereafter shall:
pay, as they become due and payable, all taxes and unemployment contributions
and other charges of any kind or nature levied, assessed or claimed against the
Borrower, any Subsidiary, or the Collateral by any person or entity whose claim
could result in an Encumbrance upon any asset of the Borrower or any Subsidiary
or by any governmental authority (provided that the Borrower shall not be
required to pay any such taxes or claims as long as such tax or claim is being
disputed by the Borrower in good faith, the Borrower has established adequate
reserves therefor in accordance with GAAP, and, other than for real estate
taxes, no notice of tax lien has been filed with respect thereto); properly
exercise any trust responsibilities imposed upon the Borrower and each
Subsidiary by reason of withholding from employees' pay or by reason of the
Borrower's or any Subsidiary's receipt of sales tax or other funds for the
account of any third party; timely make all contributions and other payments as
may be required pursuant to any Employee Benefit Plan now or hereafter
established by the Borrower or any Subsidiary; and timely file all tax and other
returns and other reports with each governmental authority to whom the Borrower
or any Subsidiary is obligated to so file.
(c) At its option, the Lender may, but shall not be obligated to, pay
any taxes, unemployment contributions, and any and all other charges levied or
assessed upon the Borrower, any Subsidiary or the Collateral by any Person, and
make any contributions or other payments on account of the Borrower's Employee
Benefit Plan as the Lender, in the Lender's discretion, may deem necessary to
protect, maintain, preserve, collect, or realize upon any or all of the
Collateral or the value thereof or any right or remedy pertaining thereto,
provided, however, the Lender's making of any such payment shall not constitute
a cure or waiver of any Event of Default occasioned by the Borrower's or any
Subsidiary's failure to have made such payment.
6-16. No Margin Stock. Neither the Borrower nor any of its Subsidiaries
is engaged in the business of extending credit for the purpose of purchasing or
carrying any margin stock (within the meaning of Regulations U, T, and X of the
Board of Governors of the Federal Reserve System of the United States). No part
of the proceeds of any borrowing hereunder will be used at any time to purchase
or carry any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
6-17. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
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(a) Violate or fail to be in full compliance with the Borrower's
Employee Benefit Plan if such violation or failure could reasonably be expected
to have a material adverse effect on the Borrower and its Subsidiaries.
(b) Fail timely to file all reports and filings required by ERISA to
be filed by the Borrower if such failure could reasonably be expected to have a
material adverse effect on the Borrower and its Subsidiaries.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA) if such action could reasonably be expected
to have a material adverse effect on the Borrower and its Subsidiaries.
(d) Engage in, or commit, any act such that a tax or penalty could be
imposed upon the Borrower on account thereof pursuant to ERISA if such action
could reasonably be expected to have a material adverse effect on the Borrower
and its Subsidiaries.
(e) Accumulate any material funding deficiency within the meaning of
ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g) Be a member of, contribute to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA if such action or inaction could reasonably be expected
to have a material adverse effect on the Borrower and its Subsidiaries.
6-18. Hazardous Materials.
(a) Except as disclosed to the Lender in any environmental report
delivered to the Lender prior to the date hereof, neither the Borrower nor any
of its Subsidiaries has ever:
(i) Been legally responsible for any release or threat of
release of any Hazardous Material.
(ii) Received notification of any release or threat of release
of any Hazardous Material from any site or vessel occupied or operated by the
Borrower or any Subsidiary and/or of the incurrence of any expense or loss in
connection with the assessment, containment, or removal of any release or threat
of release of any Hazardous Material from any such site or vessel.
(b) The Borrower and each Subsidiary shall:
(i) Dispose of any Hazardous Material only in material
compliance with all Environmental Laws.
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(ii) Not store on any site or vessel occupied or operated by
the Borrower or any Subsidiary and not transport or arrange for the transport of
any Hazardous Material, except if such storage or transport is in the ordinary
course of the Borrower's or such Subsidiary's business and is in material
compliance with all Environmental Laws.
(c) The Borrower shall provide the Lender with written notice upon the
Borrower's obtaining knowledge of any incurrence of any material expense or
material loss by any governmental authority or other Person in connection with
the assessment, containment, or removal of any Hazardous Material, for which
expense or loss the Borrower or any Subsidiary may be liable.
6-19. Litigation. Except as described in EXHIBIT 6-19, annexed hereto,
there is not presently pending or threatened by or against the Borrower or any
Subsidiary any suit, action, proceeding, or investigation which, if determined
adversely to the Borrower or any such Subsidiary, is reasonably likely to have a
material adverse effect upon the Borrower's or such Subsidiary's financial
condition or ability to conduct its business as such business is presently
conducted or is contemplated to be conducted in the foreseeable future.
6-20. Dividends. Investments. Corporate Action. Neither the Borrower nor
any of its Subsidiaries shall:
(a) Pay any cash dividend or make any other distribution in respect of
any class of the Borrower's capital stock (except for distributions made solely
in other capital stock of the Borrower as long as no Suspension Event then
exists or would arise therefrom).
(b) Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock, except as contemplated in Section 6-28 hereof.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any Person other than investments in
Subsidiaries permitted under Section 6-20(f) hereof.
(d) Merge or consolidate or be merged or consolidated with or into any
other Person, provided that any Subsidiary may merge into the Borrower or any
Guarantor.
(e) Consolidate any of its operations with those of any other Person.
(f) Organize or create any Affiliate, provided however, that the
----------------
Borrower or any Guarantor may create a new Subsidiary if such new Subsidiary is
created solely to consummate a Refinancing Loan (a "Special Refinancing
Subsidiary").
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(g) Subordinate any debts or obligations owed to the Borrower or any
of its Subsidiaries by any third party to any other debts owed by such third
party to any other Person.
(h) Acquire any assets other than in the ordinary course and conduct
of the Borrower's and such Subsidiary's business as conducted at the execution
of this Agreement
6-21. Loans. Neither the Borrower nor any of its Subsidiaries shall
make any loans or advances to, nor acquire the Indebtedness of, any Person,
provided, however, the foregoing does not prohibit any of the following:
(a) Advance payments made to the Borrower's suppliers in the ordinary
course.
(b) Advances to the Borrower's officers, employees, and salespersons
with respect to reasonable expenses to be incurred by such officers, employees,
and salespersons for the benefit of the Borrower, which expenses are properly
substantiated by the person seeking such advance and properly reimbursable by
the Borrower.
(c) Loans to officers and employees of the Borrower and its
Subsidiaries in an aggregate amount not to exceed $100,000.00 at any time
outstanding.
(d) Any guaranty made by the Borrower or any Subsidiary of any
obligations of the Borrower or any other Subsidiary.
(e) Intercompany loans among the Borrower and the Guarantors.
6-22. Protection of Assets. The Lender, in the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action which the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of
the foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that the Lender had acted in actual bad faith or in a grossly
negligent manner. The Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Lender pursuant to this section 6-22.
6-23. Line of Business. Neither the Borrower nor any of its
Subsidiaries shall engage in any business other than the business in which it is
currently engaged or a business reasonably related thereto (the conduct of which
reasonably related business is reflected in the Borrower's business plan).
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6-24. Affiliate Transactions. Neither the Borrower nor any of its
Subsidiaries shall make any payment, nor give any value to any Affiliate except
for (i) goods and services actually purchased by the Borrower or such Subsidiary
from, or sold by the Borrower or such Subsidiary to, and (ii) accounting and
administrative services provided by or to the Borrower or such Affiliate, and
(iii) the leasing of any property from or to, such Affiliate, in each case for a
price and on terms which shall
(a) be competitive and fully deductible as an "ordinary and necessary
business expense" and/or fully depreciable under the Internal Revenue Code of
1986 and the Treasury Regulations, each as amended; and
(b) be no be less favorable to the Borrower or such Subsidiary than
those which would have been charged and imposed in an arms length transaction.
The Lender agrees that the transfer of any Real Estate and fixtures which are
released by the Lender in connection with any Refinancing Loan by the Borrower
or Karalea, Inc. to any Special Refinancing Subsidiary (or, if applicable, any
Refinancing Lease executed in connection with a Refinancing Loan) shall not be
deemed a violation of this Section 6-24.
6-25. Further Assurances.
(a) Neither the Borrower nor any of the Guarantors is the owner of,
nor has it any interest in, any property or asset which, immediately upon the
satisfaction of the conditions precedent to the effectiveness of the credit
facility contemplated hereby (Article 5) will not be subject to perfected
Collateral Interests in favor of the Lender (subject only to Permitted
Encumbrances) to secure the Liabilities.
(b) Neither the Borrower nor any Guarantor will hereafter acquire any
asset or any interest in property which is not, immediately upon such
acquisition, subject to such a perfected Collateral Interest in favor of the
Lender to secure the Liabilities (subject only to Permitted Encumbrances),
provided that such requirement shall not prevent the Borrower or any Guarantor
- -------------
from entering into a Lease (subject to the provisions of Section 6-6(c) hereof)
if the Borrower or Guarantor is unable to obtain a consent to the assignment of
its Leasehold Interest from the landlord as long as the Borrower or the
Guarantor, as the case may be, has (i) used its best efforts to obtain such
consent and (ii) obtained a landlord's waiver from such landlord in form
reasonably acceptable to the Lender.
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(c) The Borrower and each Guarantor shall execute and deliver to the
Lender such instruments, documents, and papers, and shall do all such things
from time to time hereafter as the Lender may reasonably request to carry into
effect the provisions and intent of this Agreement; to protect and perfect the
Lender's Collateral Interests in the Collateral (provided that such requirement
-------------
shall not prevent the Borrower or any Guarantor from entering into a Lease
(subject to the provisions of Section 6-6(c) hereof) if the Borrower or
Guarantor is unable to obtain a consent to the assignment of its Leasehold
Interest from the landlord as long as the Borrower or the Guarantor, as the case
may be, has (i) used its best efforts to obtain such consent, and (ii) obtained
a landlord's waiver from such landlord in form reasonably acceptable to the
Lender); and to comply with all applicable statutes and laws, and facilitate the
collection of the Receivables Collateral. The Borrower and each Guarantor shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the Collateral Interests created or
contemplated herein.
(d) The Borrower hereby designates the Lender as and for the
Borrower's true and lawful attorney, with full power of substitution, to sign
and file any financing statements in order to perfect or protect the Lender's
Collateral Interests in the Collateral.
(e) A carbon, photographic, or other reproduction of this Agreement or
of any financing statement or other instrument executed pursuant to this Section
6-25 shall be sufficient for filing to perfect the security interests granted
herein.
6-26. Adequacy of Disclosure.
(a) All financial statements furnished to the Lender by the Borrower
have been prepared in accordance with GAAP consistently applied and present
fairly the condition of the Borrower and its Subsidiaries at the date(s) thereof
and the results of operations and cash flows for the period(s) covered. There
has been no change in the financial condition, results of operations, or cash
flows of the Borrower and its Subsidiaries since the date(s) of such financial
statements, other than changes in the ordinary course of business, which changes
have not been materially adverse, either singularly or in the aggregate.
(b) The Borrower and its Subsidiaries do not have any material
contingent obligations or obligation under any Lease or Capital Lease which is
not noted in the Borrower's financial statements furnished to the Lender prior
to the execution of this Agreement.
(c) No document, instrument, agreement, or paper now or hereafter
given the Lender by the Borrower or any Guarantor in connection with the
execution of this Agreement by the
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Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower and its Subsidiaries, taken as a whole,
which has not been disclosed in writing to the Lender. The Borrower shall
furnish the Lender with updated Exhibits from time to time to reflect any
changes to the information thereon, but the delivery of such updated Exhibits
shall not be deemed the Lender's consent to any item described thereon or a
waiver of any Suspension Event arising from the transactions described therein;
in determining whether a Suspension Event exists (other than by virtue of the
inaccuracy of any such Exhibits), if any change from the Exhibits existing as of
the date of this Agreement would constitute or give rise to a Suspension Event
as of the date hereof, such change shall, in the Lender's discretion, be deemed
a Suspension Event.
6-27. No Restrictions on Liabilities. Neither the Borrower nor any
Guarantor shall enter into or directly or indirectly become subject to any
agreement which prohibits or restricts, in any manner, the Borrower's:
(a) Creation of, and granting of Collateral Interests in favor of the
Lender.
(b) Incurrence of Liabilities.
6-28. Use of Loan Proceeds. The initial advance of the Term Loan and
the Revolving Credit shall be utilized to refinance the Borrower's convertible
debt and other interests in the Borrower held by Progressive Food Concepts, Inc.
and Boston Chicken, Inc., to repurchase the Borrower's Series AA convertible
preferred stock owned by Robert Fleming Nominees, Ltd., AXA Equity Life
Assurance Society, Ashford Capital Partners, L.P., Theodore Ashford and The
Orbis Pension Trustees, Ltd., to refinance senior debt held by BankAustria
Creditanstalt Corporate Finance, Inc., and to pay transaction costs in
connection with this Agreement. The Revolving Credit thereafter shall be
utilized for on-going working capital purposes, but in no event shall be
utilized to make mandatory or optional prepayments on the Term Loan other than
with respect to payments due on Excess Cash Flow, as permitted in Section 3-5
hereof and as the Lender may otherwise consent (such consent not to be
unreasonably withheld).
6-29. Other Covenants. Neither the Borrower nor any of its Subsidiaries
shall indirectly do or cause to be done any act which, if done directly by the
Borrower or such Subsidiary, would breach any covenant contained in this
Agreement.
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Article 7 - Financial Reporting and Performance Covenants:
7-1. Maintain Records. The Borrower shall:
(a) At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's and its
Subsidiaries' transactions, all in accordance with GAAP applied consistently
with prior periods to fairly reflect the financial condition of the Borrower and
its Subsidiaries at the close of, and its results of operations for, the periods
in question.
(b) Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 7 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower and its Subsidiaries at the
close of, and its results of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d) At all times, retain independent certified public accountants who
are reasonably satisfactory to the Lender and instruct such accountants to fully
cooperate with, and be available to, the Lender to discuss the Borrower's and
its Subsidiaries' financial performance, financial condition, operating results,
controls, and such other matters, within the scope of the retention of such
accountants, as may be raised by the Lender. The Lender agrees that the
Borrower's current accountants, Grant Thornton, LLP, is reasonably acceptable to
the Lender.
(e) Not change the Borrower's or any Subsidiary's fiscal year or state
of incorporation.
7-2. Access to Records.
(a) The Borrower and its Subsidiaries shall accord the Lender with
access from time to time as the Lender may require to all properties owned by or
over which the Borrower or any of its Subsidiaries has control. The Lender
shall have the right, and the Borrower and its Subsidiaries will permit the
Lender from time to time as Lender may request, to examine, inspect, copy, and
make extracts
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from any and all of the Borrower's and its Subsidiaries' books, records,
electronically stored data, papers, and files. The Borrower shall make all of
the Borrower's copying facilities available to the Lender.
(b) The Borrower and each Subsidiary hereby authorizes the Lender to:
(i) Inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower or any
Subsidiary, or any service bureau, contractor, accountant, or other person, and
directs any such service bureau, contractor, accountant, or other person fully
to cooperate with the Lender with respect thereto.
(ii) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with the Borrower's computer
billing companies, collection agencies, and accountants and to sign the name of
the Borrower on any notice to the Borrower's Account Debtors or verification of
the Collateral.
(c) The Lender from time to time may designate one or more
representatives to exercise the Lender's rights under this Section 7-2 as fully
as if the Lender were doing so.
7-3. Immediate Notice to Lender.
(a) The Borrower shall provide the Lender with written notice promptly
upon the occurrence of any of the following events, which written notice shall
be with reasonable particularity as to the facts and circumstances in respect of
which such notice is being given:
(i) Any change in the Borrower's officers.
(ii) Any ceasing of the Borrower's or any Subsidiary's making
of payment, in the ordinary course, to any of its creditors (other than its
ceasing of making of such payments on account of a non-material dispute).
(iii) Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than Three (3) days
following the last day on which such rent was payable without a material adverse
effect to the Borrower.
(iv) Any material adverse change in the business, operations,
or financial affairs of the Borrower or any Subsidiary.
(v) The occurrence of any Suspension Event.
(vi) Any intention on the part of the Borrower to discharge the
Borrower's present independent accountants or any withdrawal or resignation by
such independent accountants from their acting in such capacity (as to which,
see Subsection 7-1(d)).
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(vii) Any litigation which, if determined adversely to the
Borrower or any Subsidiary, might have a material adverse effect on the
financial condition of the Borrower or such Subsidiary.
(b) The Borrower shall:
(i) Provide the Lender, when so distributed, with copies of any
materials distributed to the shareholders of the Borrower (qua such
shareholders).
(ii) Provide the Lender:
(A) When filed, copies of all filings with the SEC.
(B) When received, copies of all correspondence from the
SEC, other than routine non-substantive general communications from the SEC.
(iii) Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iv) At the request of the Lender, from time to time, provide
the Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio advertising).
(v) Provide the Lender, when received by the Borrower, with a
copy of any management letter or similar communications from any accountant of
the Borrower.
7-4. Borrowing Base Certificate. The Borrower shall provide the Lender by
with a Borrowing Base Certificate (in the form of EXHIBIT 7-4 annexed hereto, as
such form may be revised from time to time by the Lender), which Certificate may
be sent to the Lender by facsimile transmission. Borrowing Base Certificates
shall be provided no less frequently than monthly (no later than twenty (20)
days after each fiscal month end period based upon the preceding month end) and
on each day that the Borrower requests a Revolving Credit Loan hereunder.
Inventory reported on the Borrowing Base Certificate shall only be updated
monthly, except if, and as long as, Availability based upon eligible Real Estate
is less than $11,000,000.00, Inventory shall be provided no less frequently than
weekly, using purchases, sales and applied gross margins to calculate such
Inventory. The Borrower shall provide the Lender with inventory sales and
purchase information when requested by the Lender in connection with any
Borrowing Base Certificate.
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7-5. Weekly Reports. Weekly, on Monday of each week (as of the then
immediately preceding Wednesday) the Borrower shall provide the Lender with a
sales audit report (in such form as may be specified from time to time by the
Lender). Such report may be sent to the Lender by facsimile transmission.
7-6. Monthly Reports.
(a) For each fiscal month end, the Borrower shall provide the Lender
with original counterparts of the following (each in such form as the Lender
from time to time may specify):
Within Thirty (30) days of the end of the previous fiscal month end
(except for those month ends which are also the end of any of the Borrower's
fiscal quarters, in which event such reports shall be provided forty-five (45)
days of the end of the previous fiscal month end and provided further that,
solely with respect to the month ending October, 1999, such reports may be
delivered within 55 days of the end of such month):
(i) A rent roll on all locations owned by the Borrower or any
of its Subsidiaries, summarizing the status of all leases and payments due
thereunder
(ii) Evidence that all taxes on Real Estate which have become
due have been paid.
(iii) A schedule of purchases from the Borrower's ten largest
vendors (in terms of year to date purchases), which schedule shall be in such
form as may be satisfactory to the Lender and shall include year to date
cumulative purchases and an aging of payables to each such vendor.
(iv) A summary aging of the Borrower's and its Subsidiaries'
accounts payable.
(v) A Store Activity Report.
(vi) The officer's compliance certificate described in Section
7-9.
(vii) An internally prepared consolidated (and, if requested by
the Lender, consolidating) financial statements of the Borrower's and its
Subsidiaries' financial condition and the results of its operations for, the
period ending with the end of the subject month, reflecting both the month ended
and fiscal year to date results, which financial statement shall include, at a
minimum, a balance sheet, income statement, cash flow and comparison of same
store sales for the corresponding month of, and corresponding portion of the
fiscal year to, the then immediately previous year, as well as to the Borrower's
business plan.
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(viii) A roll forward of the Borrower's Inventory based upon
completion of physical inventories, or an applied gross margin utilizing sales
and purchases information (the "Applied Gross Margin Method"). The Inventory
must be rolled forward at least eight (8) times each fiscal year based upon
physical inventories (provided that the Lender in its discretion may reduce the
number of physical inventories required upon its satisfactory review of the
Borrower's planned implementation of a SKU perpetual inventory system). In any
event, Inventory may not be rolled forward utilizing the Applied Gross Margin
Method for consecutive months.
(ix) In any month in which a physical inventory has been
undertaken, a summary of the physical inventory results.
(x) A summary of Inventory levels by department.
(b) For purposes of Section 7-6(a), above, the first "previous month"
in respect of which the items required by that Section shall be provided shall
be October, 1999.
7-7. Quarterly Reports. Quarterly, within Forty Five (45) days
following the end of each of the Borrower's fiscal quarters, the Borrower shall
provide the Lender with the following:
(a) An original counterpart of a management prepared consolidated
(and, if requested by the Lender) consolidating financial statement of the
Borrower and its Subsidiaries for the period from the beginning of the
Borrower's then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "consolidated" basis), statement of changes in
shareholders' equity, and cash flows and comparisons for the corresponding
quarter of the then immediately previous year, as well as to the Borrower's
business plan.
(b) The officer's compliance certificate described in Section 7-9.
(c) The Borrower's Form 10Q report filed with the SEC.
7-8. Annual Reports.
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with the
following:
(i) An original signed counterpart of the Borrower's and its
Subsidiaries' consolidated annual financial statement, which statement shall
have been prepared by, and bear the unqualified opinion of, the Borrower's
independent certified public accountants (i.e. said statement shall be
"certified" by such accountants) and shall include, at a minimum (with
comparative information for the
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then prior fiscal year) a balance sheet, income statement, statement of changes
in shareholders' equity, and cash flows.
(ii) The officer's compliance certificate described in Section
7-9.
(iii) The Borrower's Form 10K report filed with the SEC.
(b) No later than the earlier of Fifteen (15) days prior to the end of
each of the Borrower's fiscal years or the date on which such accountants
commence their work on the preparation of the Borrower's annual financial
statement, the Borrower shall give written notice to such accountants (with a
copy of such notice, when sent, to the Lender that:
(i) Such annual financial statement will be delivered by the
Borrower to the Lender.
(ii) It is the one of the intentions of the Borrower, in its
engagement of such accountants, to satisfy the financial reporting requirements
set forth in this Article 7.
(iii) The Borrower has been advised that the Lender
will rely thereon with respect to the administration of, and transactions under,
the credit facility contemplated by this Agreement.
(c) Each annual statement shall be accompanied by such accountant's
Certificate indicating that, in conducting the audit for such annual statement,
nothing came to the attention of such accountants to believe that any Suspension
Event had occurred during the subject fiscal year (or if one or more had
occurred, the facts and circumstances thereof).
7-9. Officers' Certificates. The Borrower shall cause the Borrower's
President or its Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the financial condition of
the Borrower and its Subsidiaries at the close of, and the results of the
Borrower's and its Subsidiaries' operations and cash flows for, the period(s)
covered, subject, however to the following:
(i) Usual year end adjustments (this exception shall not be
included in the Certificate which accompanies such annual statement).
(ii) Material Accounting Changes (in which event, such
Certificate shall include a schedule (in reasonable detail) of the effect of
each such Material Accounting Change) not previously specifically taken into
account in the determination of the financial performance covenant imposed
pursuant to Section 7-12.
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(b) Indicate either that (i) no Suspension Event has occurred or (ii)
if such an event has occurred, its nature (in reasonable detail) and the steps
(if any) being taken or contemplated by the Borrower to be taken on account
thereof.
(c) Include calculations concerning the Borrower's compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section 77-12 hereof.
7-10. Inventories, Appraisals, and Audits.
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower.
(b) The Borrower, at its own expense, shall cause not less than
eight (8) physical inventories to be undertaken in each twelve (12) month period
during which this Agreement is in effect (the spacing of the scheduling of which
inventories shall be consistent with the Borrower's existing policies and
procedures) conducted by such inventory takers as are satisfactory to the Lender
and following such methodology as may be satisfactory to the Lender, provided
--------
that the Lender in its discretion may reduce the number of physical inventories
- ----
required upon its satisfactory review of the Borrower's planned implementation
of a SKU perpetual inventory system.
(i) The Borrower shall provide the Lender with a roll forward
of the results of each such inventory (as well as of any other physical
inventory undertaken by the Borrower) to the Borrower's books and records within
twenty (20) days following the completion of such inventory.
(ii) The Lender, in its discretion, following the occurrence of
a Suspension Event, may cause such additional inventories to be taken as the
Lender determines (each, at the expense of the Borrower).
(c) The Lender may obtain appraisals, from time to time (in all
events, at the Borrower's expense) conducted by such Qualified Equipment
Appraisers, Qualified Inventory Appraisers and Qualified Real Estate Appraisers,
as applicable. Absent the occurrence and continuation of a Suspension Event,
however, the Borrower shall not be responsible for the payment of expenses for
(i) more than one appraisal on each parcel of Real Estate and one Equipment
appraisal in any twelve month period at an aggregate expense not to exceed
$35,000.00, and (ii) more than two Inventory appraisals in any twelve month
period at an aggregate expense not to exceed $15,000.00, provided that if, and
as long as, Availability based upon eligible Real Estate is less than
$11,000,000.00, the Borrower shall be
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responsible for up to three Inventory appraisals in any twelve month period at
an aggregate expense not to exceed $22,500.00.
(d) The Lender contemplates conducting Four (4) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which this Agreement is in
effect, but in its discretion, may undertake additional such audits during such
period. Absent the occurrence, and continuation, of a Suspension Event, however,
the Borrower shall not be responsible for the payment of expenses for more than
four commercial finance audits in any twelve month period at an aggregate
expense not to exceed $24,000.00.
(e) The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping.
7-11. Additional Financial Information.
(a) In addition to all other information required to be provided
pursuant to this Article 7, the Borrower use its best efforts to provide the
Lender with such other and additional information concerning the Borrower, its
Subsidiaries, the Collateral, the operation of the Borrower's and its
Subsidiaries' business, and the Borrower's and its Subsidiaries' financial
condition, including original counterparts of financial reports and statements,
as the Lender may from time to time request from the Borrower.
(b) The Borrower may provide the Lender, from time to time hereafter,
with updated forecasts of the Borrower's anticipated performance and operating
results.
(c) In all events, the Borrower, no sooner than Ninety (90) nor later
than Fifty (50) days prior to the end of each of the Borrower's fiscal years,
shall provide furnish the Lender with an updated and extended forecast which
shall go out at least through the end of the then next fiscal year and shall
include an income statement, balance sheet, and statement of cash flow, by
month, each prepared in conformity with GAAP and consistent with the Borrower's
then current practices, provided that the forecast for the fiscal year ending
-------------
January, 2001 shall be furnished on or before February 1, 2000.
(d) The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Lender may
obtain, develop, or receive with respect to the Borrower is confidential to the
Lender and that, except as otherwise provided herein, the Borrower is not
entitled to receipt of any of such appraisals, inventories, analysis, financial
information, and other
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materials, nor copies or extracts thereof or therefrom. Notwithstanding the
foregoing, the Lender shall furnish the Borrower with copies of any appraisals
obtained by the Lender upon the Borrower's written request therefor.
7-12. Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBIT 7-12,
annexed hereto. Compliance with such financial performance covenants shall be
made as if no Material Accounting Changes had been made (other than any Material
Accounting Changes specifically taken into account in the setting of such
covenants). The Lender may determine the Borrower's compliance with such
covenants based upon financial reports and statements provided by the Borrower
to the Lender (whether or not such financial reports and statements are required
to be furnished pursuant to this Agreement) as well as by reference to interim
financial information provided to, or developed by, the Lender.
Article 8 - Use and Collection of Collateral:-
8-1. Use of Inventory Collateral.
(a) The Borrower shall not engage in any sale of the Inventory other
than for fair consideration in the conduct of the Borrower's business in the
ordinary course and shall not engage in sales or other dispositions to
creditors; sales or other dispositions in bulk; and any use of any of the
Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or under
any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender.
8-2. Inventory Quality. All Inventory now owned or hereafter acquired by
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
8-3. Adjustments and Allowances. The Borrower may grant such allowances
or other adjustments to the Borrower's Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable in a material amount,
which shall not be done without first obtaining the
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Lender's prior written consent in each instance) as the Borrower may reasonably
deem to accord with sound business practice, provided, however, the authority
granted the Borrower pursuant to this Section 8-3 may be limited or terminated
by the Lender at any time in the Lender's discretion.
8-4. Validity of Accounts.
(a) The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b) The Borrower has no knowledge of any impairment of the validity or
collectibility of any of the Accounts of a material amount and shall notify the
Lender of any such fact immediately after Borrower becomes aware of any such
impairment.
(c) Except as set forth on Exhibit 8-4, the Borrower shall not post
any bond to secure the Borrower's performance under any agreement to which the
Borrower is a party nor cause any surety, guarantor, or other third party
obligee to become liable to perform any obligation of the Borrower (other than
to the Lender) in the event of the Borrower's failure so to perform.
8-5. Notification to Account Debtors. The Lender shall have the right
(whether or not an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
Article 9 - Cash Management. Payment of Liabilities:
9-1 Depository Accounts.
(a) Annexed hereto as EXHIBIT 9-1 is a Schedule of all present DDA's
of the Borrower and Guarantors, which Schedule includes, with respect to each
depository (i) the name and address of that depository; (ii) the account
number(s) of the account(s) maintained with such depository; and (iii) a contact
person at such depository.
(b) The Borrower and each Guarantor shall deliver to the Lender, as
a condition to the effectiveness of this Agreement, a Blocked Account Agreement
with any depository institution at which any DDA is maintained other than an
Exempt DDA.
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(c) Neither the Borrower nor any Guarantor will establish any DDA
hereafter (other than an Exempt DDA) unless, contemporaneous with such
establishment, the Borrower delivers the following to the Lender:
(i) Notification to the depository at which such DDA is
established in form reasonably satisfactory to the Lender.
(ii) A Blocked Account Agreement executed on behalf of the
depository at which such DDA is established if the same would have been required
pursuant to Section 9-1(b) if the subject DDA were open at the execution of this
Agreement.
9-2. Credit Card Receipts.
(a) Annexed hereto as EXHIBIT 9-2, is a Schedule which describes all
arrangements to which the Borrower is a party with respect to the payment to the
Borrower of the proceeds of credit card charges for sales by the Borrower.
(b) The Borrower shall deliver to the Lender, as a condition to the
effectiveness of this Agreement, notifications, executed on behalf of the
Borrower, to each of the Borrower's credit card clearinghouses and processors of
notice (in form satisfactory to the Lender), which notice provides that payment
of all credit card charges submitted by the Borrower to that clearinghouse or
other processor and any other amount payable to the Borrower by such
clearinghouse or other processor shall be directed to the Concentration Account
or as otherwise designated from time to time by the Lender. The Borrower shall
not change such direction or designation except upon and with the prior written
consent of the Lender.
9-3. The Concentration, Blocked, and Operating Accounts.
(a) The following checking accounts have been or will be established
(and are so referred to herein):
(i) The "Concentration Account" (so referred to herein):
Established by the Lender with BankBoston, N.A..
(ii) The "Blocked Account" (so referred to herein): Established
by the Borrower with Fidelity National Bank.
(iii) The "Operating Accounts" (so referred to herein):
Established by the Borrower and Karalea, Inc. with Fidelity National Bank.
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(b) The contents of each DDA and of the Blocked Account constitutes
Collateral and Proceeds of Collateral. The contents of the Concentration Account
constitutes the Lender's property.
(c) The Borrower shall pay, or cause to be paid, all fees and charges
of, and maintain such impressed balances as may be required by the depository
in which any account is opened as required hereby (even if such account is
opened by and/or is the property of the Lender).
9-4. Proceeds and Collection of Accounts.
(a) All Receipts:
(i) Constitute Collateral and proceeds of Collateral.
(ii) Shall be held in trust by the Borrower and each Guarantor
for the Lender.
(iii) Shall not be commingled with any of the Borrower's or any
Guarantor's other funds.
(iv) Shall be deposited and/or transferred only to the Blocked
Account or the Concentration Account.
(b) The Borrower and each Guarantor shall cause the ACH or wire
transfer to the Blocked or the Concentration Account, no less frequently than
daily (and whether or not there is then an outstanding balance in the Loan
Account) of the following:
(i) The then contents of each DDA (other than the Operating
Accounts, the contents of which shall not exceed $100,000.00, or any Exempt
DDA), each such transfer to be net of any minimum balance, not to exceed
$2,000.00, as may be required to be maintained in the subject DDA by the bank at
which such DDA is maintained).
(ii) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Lender
on each Business Day on which any such transfer is made.
(c) Whether or not any Liabilities are then outstanding, the Borrower
and each Guarantor shall cause the ACH or wire transfer to the Concentration
Account, no less frequently than daily, of then entire available ledger balance
of the Blocked Account, net of such minimum balance, not to exceed $2,000.00, as
may be required to be maintained in the Blocked Account by the depository which
the Blocked Account is maintained.
(d) In the event that, notwithstanding the provisions of this Section
99-4, the Borrower or any Guarantor receives or otherwise has dominion and
control of any Receipts, or any
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proceeds or collections of any Collateral, such Receipts, proceeds, and
collections shall be held in trust by the Borrower or such Guarantor for the
Lender and shall not be commingled with any of the Borrower's or such
Guarantor's other funds or deposited in any account of the Borrower or any
Guarantor other than as instructed by the Lender.
9-5. Payment of Liabilities.
(a) On each Business Day, the Lender shall apply the then collected
balance of the Concentration Account (net of fees charged, and of such impressed
balances as may be required by the bank at which the Concentration Account is
maintained) towards the unpaid balance of the Revolving Credit and other
Liabilities then due, provided, however, for purposes of the calculation of
interest on the unpaid principal balance of the Loan Account, such payment shall
be deemed to have been made Two (2) Business Days after such transfer.
(b) The following rules shall apply to deposits and payments under and
pursuant to this Agreement:
(i) Funds shall be deemed to have been deposited to the Concentration
Account on the Business Day on which deposited, provided that notice of such
deposit is available to the Lender by 2:00PM on that Business Day.
(ii) Funds paid to the Lender, other than by deposit to the
Concentration Account, shall be deemed to have been received on the Business Day
when they are good and collected funds, provided that notice of such payment is
available to the Lender by 2:00PM on that Business Day.
(iii) If notice of a deposit to the Concentration Account (Section 9-
4) or payment (Section 9-5(a)) is not available to the Lender until after 2:00PM
on a Business Day, such deposit or payment shall be deemed to have been made at
9:00AM on the then next Business Day.
(iv) All deposits to the Concentration Account and other payments to
the Lender are subject to clearance and collection.
(c) The Lender shall transfer to the Operating Account any surplus in
the Concentration Account remaining after the application towards the
Liabilities referred to in Section 9-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that
(i) a Suspension Event has occurred and is continuing; or
(ii) one or more L/C's are then outstanding,
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then the Lender may establish a funded reserve of up to 110% of the aggregate
Stated Amounts of such L/C's. Such funded reserve shall either be (i) returned
to the Borrower in the event that no Suspension Event is then continuing or (ii)
applied towards the Liabilities following the occurrence of any Event of Default
described in Section 12-11 or acceleration following the occurrence of any other
Event of Default.
9-6. The Operating Account. Except as otherwise specifically provided
in, or permitted by, this Agreement, all checks shall be drawn by the Borrower
and the Guarantors upon, and other disbursements shall be made by the Borrower
and the Guarantors solely from, the Operating Accounts.
Article 10 - Grant of Security Interest:-
10-1. Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Liabilities, the
Borrower hereby grants to the Lender a continuing security interest in and to,
and assigns to the Lender the following, and each item thereof, whether now
owned or now due, or in which the Borrower has an interest, or hereafter
acquired, arising, or to become due, or in which the Borrower obtains an
interest, and all products, Proceeds, substitutions, and accessions of or to any
of the following (all of which, together with any other property in which the
Lender may in the future be granted a security interest, is referred to herein
as the "Collateral"):
(a) All Accounts and accounts receivable.
(b) All Inventory.
(c) All General Intangibles.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the Collateral
and/or to the operation of the Borrower's business, and all
rights of access to such books, records, and information, and all
property in which such books, records, and information are
stored, recorded, and maintained.
(i) All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance, deposits,
impressed accounts, compensating balances, money, cash, or other
property.
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(j) All insurance proceeds, refunds, and premium rebates, including,
without limitation, proceeds of fire and credit insurance,
whether any of such proceeds, refunds, and premium rebates arise
out of any of the foregoing. (1010-1(a) through 1010-1(i)) or
otherwise.
(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (10-1(a) through 10-1(l)),
including the right of stoppage in transit.
(l) All Leasehold Interests.
Notwithstanding the foregoing and any other contrary provisions in any other
Loan Document, "Collateral" shall not include (i) any interest the Borrower may
have in Roman Properties, Inc. unless and until the Borrower shall have obtained
the consent of Nationwide Life Insurance Company as set forth in Section 10-3,
below; and (ii) any Lease and real estate fixtures related thereto if the
consent of the landlord is required for such security interest unless the
landlord has consented thereto.
10-2. Extent and Duration of Security Interest. The security interest
created and granted herein is in addition to, and supplemental of, any security
interest previously granted by the Borrower to the Lender and shall continue in
full force and effect applicable to all Liabilities until both (a) all
Liabilities have been paid and/or satisfied in full and (b) the security
interest created herein is specifically terminated in writing by a duly
authorized officer of the Lender. Without limiting the generality of the
foregoing, the Borrower and the Guarantors are this day executing and delivering
to the Lender a mortgage/deed of trust on all Real Estate (other than the
Distribution Center) and the Guarantors are also granting the Lender a security
interest in their personal property. Subject to the provisions of Section 6-
14(r) hereof, such Real Estate shall be deemed "Collateral" for all purposes of
this Agreement.
10-3. Distribution Center. In the event that the Distribution Center
is not sold in accordance with the provisions of Section 6-14 hereof on or
before February 1, 2000, the Borrower shall pledge to the Lender all of the
capital stock of Roman Properties, Inc. All documentation necessary to grant
such pledge shall be executed and delivered on the date hereof and shall be held
in escrow by the Lender until February 2, 2000, at which time it may, subject
to the following sentence, be released and the Lender may take such action as
may be necessary to perfect its Encumbrance thereon. Notwithstanding the
foregoing, such pledge shall not be effective until the Borrower obtains the
written consent of Nationwide Life Insurance Company or its successors (the
holder of the first lien on the Distribution
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Center) thereto; the Borrower shall use its best efforts to obtain such consent
and shall furnish the Lender with evidence of such efforts.
10-4. Certain Intellectual Property. Without limiting any other
provisions hereof, the Lender's Encumbrance on the intellectual property which
is the subject of the intellectual property trust in which the Borrower and
Progressive Food Concepts, Inc. are beneficiaries shall not be required to be
perfected by filings with the United States Patent and Trademark Office on the
date hereof but rather shall be so perfected within thirty (30) days after the
date hereof.
10-5. Release of Collateral.
(a) As long as no Suspension Event then exists, the Lender shall
release its Encumbrance on any Real Estate owned by the Borrower and/or its
Subsidiaries or provide a customary payoff letter concurrently with the Lender's
receipt of the Net Proceeds therefrom (but in no event less than the Release
Price therefor). The Lender shall also release its Encumbrance on all fixtures
pertaining to any such Real Estate which are not Levy Appraised Equipment,
provided that if there is a dispute as to whether an item constitutes a fixture
- -------------
or Equipment (including Levy Appraised Equipment), the Lender shall not be
obligated to release its Encumbrance on such item unless and until the Lender
has received an amount equal to seventy percent (70%) of the orderly liquidation
value thereof as determined by the Lender in accordance with this Agreement.
The Lender shall (at the Borrower's expense) execute and deliver appropriate
release and termination documents reasonably requested by the Borrower to
effectuate such release.
(b) In that regard, if the Lender receives the appropriate Net
Proceeds (but in no event less than the Release Price) from Karelea, Inc. with
respect to its Real Estate, the Lender shall also release Karelea, Inc. from its
guaranty of the Liabilities.
(c) At the request of the Borrower, upon receipt of the Net
Proceeds from the sale of the Ponce Sale/Leaseback Assets, the Lender shall
release its lien upon the Ponce Sale/Leaseback Assets in order to permit the
Borrower to consummate the transaction related thereto.
(d) Upon receipt of the Net Proceeds from the sale of the
Gwinnett Outparcels, the Lender shall release its Encumbrances upon the Gwinnett
Outparcels in connection with any sale thereof, to the extent such sale is
permitted under Section 6-14 hereof.
10-6. Life Insurance. To further secure the Liabilities, the Borrower
is this day also granting the Lender a collateral assignment of life insurance
on the life of Harry Blazer in an amount not less than $10,000,000.00. The
Borrower shall maintain such insurance in full force and effect until the End
Date.
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Article 11 - Lender As Borrower's Attorney-In-Fact:-
11-1. Appointment as Attorney-In-Fact. The Borrower hereby
irrevocably constitutes and appoints the Lender as the Borrower's true and
lawful attorney, with full power of substitution, following the occurrence of an
Event of Default, to convert the Collateral into cash at the sole risk, cost,
and expense of the Borrower, but for the sole benefit of the Lender. The rights
and powers granted the Lender by this appointment include but are not limited to
the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment of
any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
11-2. No Obligation to Act. The Lender shall not be obligated to do any
of the acts or to exercise any of the powers authorized by Section 11-1 herein,
but if the Lender elects to do any such act
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or to exercise any of such powers, it shall not be accountable for more than it
actually receives as a result of such exercise of power, and shall not be
responsible to the Borrower for any act or omission to act except for any act or
omission to act as to which there is a final determination made in a judicial
proceeding (in which proceeding the Lender has had an opportunity to be heard)
which determination includes a specific finding that the subject act or omission
to act had been grossly negligent or in actual bad faith.
Article 12 - Events of Default:
The occurrence of any event described in this Article 12 shall constitute
an "Event of Default" herein. Upon the occurrence of any Event of Default
described in Section 12-11, any and all Liabilities shall become due and payable
without any further act on the part of the Lender. Upon the occurrence of any
other Event of Default, the Lender may declare any and all Liabilities shall
become immediately due and payable. The occurrence of any Event of Default
shall also constitute, without notice or demand, a default under all other
agreements between the Lender and the Borrower and any Guarantor and instruments
and papers heretofore, now or hereafter given the Lender by the Borrower or any
Guarantor.
12-1. Failure to Pay. The failure by the Borrower to pay any amount when
due under the Revolving Credit or the Term Loan.
12-2. Failure To Make Other Payments. The failure by the Borrower to pay
when due (or upon demand, if payable on demand) any payment Liability other than
under the Revolving Credit or the Term Loan.
12-3. Failure to Perform Covenant or Liability (No. Grace Period) (a) The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 12-1 or Section 12-2 hereof, and included in any of the following
provisions hereof:
Section Relates to:
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6-6 Location of Collateral
6-7 Title to Assets
6-8 Indebtedness
6-9 Insurance Policies
6-15 Pay taxes
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6-20 Dividends. Investments. Other Corporate Actions
6-24 Affiliate Transactions
6-25 Additional Assurances
6-28 Use of Loan Proceeds
Article 7 Reporting Requirements and Financial Performance
Covenants, except as provided in Section 12-3(b),
below.
Article 8 Use of Collateral
Article 9 Cash Management
(b) Notwithstanding anything to the contrary contained in Section 12-
3(a), above, the failure of the Borrower to comply with the following sections
of this Agreement shall not constitute an immediate Event of Default except upon
the circumstances described below:
(i) Section 7-4 unless the Borrower fails to deliver the reports
required under Section 7-4 hereof within three days after the date
when due, provided that the right of the Borrower to utilize the grace
period set forth herein may not occur more than four times in any
twelve month period.
(ii) Section 7-5 unless the Borrower fails to deliver the reports
required under Section 7-5 hereof within three days after the date
when due, provided that the right of the Borrower to utilize the grace
period set forth herein may not occur more than six times in any
twelve month period.
(iii) Section 7-6 unless the Borrower fails to deliver the reports
required under Section 7-6 hereof within ten days after the date when
due, provided that the right of the Borrower to utilize the grace
period set forth herein may not occur more than three times in any
twelve month period.
(iv) Section 7-7 unless the Borrower fails to deliver the reports
required under Section 7-7 hereof within five days after the date when
due, provided that the right of the Borrower to utilize the grace
period set forth herein may not occur more than two times in any
twelve month period.
(v) Section 7-8 unless the Borrower fails to deliver the reports
required under Section 7-8 hereof within ten days after the date when
due, provided that the right of the Borrower to utilize the grace
period set forth herein may not occur more than one time in any twelve
month period.
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12-4. Failure to Perform Covenant or Liability (Grace Period). The failure
by the Borrower, within thirty (30) days following the earlier of the Borrower's
knowledge of a breach of any covenant or Liability not described in any of
Sections 12-1, 12-2, or 12-3 or of its receipt of written notice from the Lender
of the breach of any of those Sections.
12-5. Misrepresentation. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender was
not true or complete in all material respects when given.
12-6. Acceleration of Other Debt. Breach of Lease. The occurrence of any
event such that any Indebtedness of the Borrower in excess of $250,000.00 in the
aggregate to any creditor other than the Lender could be accelerated or, without
the consent of the Borrower, more than one Lease is terminated.
12-7. Default Under Other Agreements. The occurrence of any breach or
default under any agreement (including any Loan Document) between the Lender and
the Borrower or instrument given by the Borrower to the Lender and the expiry,
without cure, of any applicable grace period (notwithstanding that the Lender
may not have exercised all or any of its rights on account of such breach or
default).
12-8. Uninsured Casualty Loss. The occurrence of any uninsured loss, theft,
damage, or destruction of or to any material portion of the Collateral, in any
case having a value in excess of $250,000.00 in the aggregate.
12-9. Attachment. Judgment. Restraint of Business.
(a) A warrant, writ of attachment or similar process, or judgment is
issued or entered against the Borrower, which warrant, writ, judgment or similar
process exceeds $250,000.00 in the aggregate and which is not satisfied (if a
money judgment) or appealed from (with execution or similar process stayed)
within thirty (30) days of its issuance or entry.
(b) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in
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the ordinary course and which could reasonably be expected to have a material
adverse effect on the Borrower.
12-10. Business Failure. Any act by, against, or relating to the
Borrower, or its property or assets, which act constitutes the determination, by
the Borrower, to initiate a program of partial or total self-liquidation;
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to court action or otherwise, over all, or
any part of the Borrower's property; the granting of any trust mortgage or
execution of an assignment for the benefit of the creditors of the Borrower, or
the occurrence of any other voluntary or involuntary liquidation or extension of
debt agreement for the Borrower; the offering by or entering into by the
Borrower of any composition, extension, or any other arrangement seeking relief
from or extension of the debts of the Borrower; or the initiation of any
judicial or non-judicial proceeding or agreement by, against, or including the
Borrower which seeks or intends to accomplish a reorganization or arrangement
with creditors; and/or the initiation by or on behalf of the Borrower of the
liquidation or winding up of all or any part of the Borrower's business or
operations.
12-11. Bankruptcy. The failure by the Borrower to generally pay the
debts of the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order with
respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may
be granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure; the filing of any complaint,
application, or petition against the Borrower initiating any matter in which the
Borrower is or may be granted any relief from the debts of the Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure, which
complaint, application, or petition is not timely contested in good faith by the
Borrower by appropriate proceedings or, if so contested, is not dismissed within
forty-five (45) days of when filed.
12-12. Default by Guarantor or Affiliate. The occurrence of any of the
foregoing Events of Default with respect to any Guarantor of the Liabilities, or
the occurrence of any of the foregoing Events of Default with respect to Roman
Properties, Inc. or any Special Refinancing Subsidiary as if it were the
"Borrower" described therein.
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12-13. Indictment - Forfeiture. The indictment of, or institution of any
legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies provide for the forfeiture of a material portion of the property of the
Borrower which proceedings or forfeiture could reasonably be expected to have a
material adverse effect on the Borrower.
12-14. Termination of Guaranty. The termination or attempted termination
of any guaranty by any Guarantor of the Liabilities.
12-15. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any Guarantor of
the Liabilities to the validity of any Loan Document or the applicability or
enforceability of any Loan Document strictly in accordance with the subject Loan
Document's terms or which seeks to void, avoid, limit, or otherwise adversely
affect any security interest created by or in any Loan Document or any payment
made pursuant thereto.
(b) Any determination by any court or any other judicial or government
authority that any Loan Document is not enforceable strictly in accordance with
the subject Loan Document's terms or which voids, avoids, limits, or otherwise
adversely affects any security interest created by any Loan Document or any
payment made pursuant thereto.
12-16. Key Management. The disability or failure of Harry Blazer at any
time to generally exercise that authority and discharge those management
responsibilities with respect to the Borrower as are exercised and discharged by
such Person at the execution of this Agreement provided, however, such
disability or failure shall not constitute an "Event of Default" as long as
Robert C. Glustrom remains a director of the Borrower and within ninety (90)
---
days after such occurrence the Borrower enters into an employment agreement with
a Person to succeed said Harry Blazer, which Person is experienced in the
Borrower's industry and in performing the duties performed by Harry Blazer for
the Borrower, is of good character and reputation, and has been approved by a
majority of the then Board of Directors of the Borrower.
12-17. Change in Control. Any Change in Control.
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Article 13 - Rights and Remedies Upon Default:-
Upon the occurrence of any Event of Default described in Section 12-11 and
upon the occurrence of any other Event of Default, and at all times thereafter,
the Lender shall have the following rights and remedies in addition to all of
the rights, remedies, powers, privileges, and discretions available to Lender
prior to the occurrence of an Event of Default. No stay which otherwise might be
imposed pursuant to Section 362 of the Bankruptcy Code or otherwise shall stay,
limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.
13-1. Rights of Enforcement. The Lender shall have all of the rights
and remedies of a secured party upon default under that part of Article 9 of the
UCC entitled "Default" (at the execution of this Agreement, Part 5 of Article 9
of the UCC and in the event of the adoption and effectiveness of the 1998
Revisions to Article 9 of the UCC, Part 6 thereof), in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To give notice to any bank at which any DDA or Blocked Account
is maintained and in which Proceeds of Collateral are deposited, to turn over
such Proceeds directly to the Lender.
(b) To give notice to any of the Borrower's customs brokers to
follow the instructions of the Lender as provided in any written agreement or
undertaking of such broker in favor of the Lender.
(c) To collect the Receivables Collateral with or without the taking
of possession of any of the Collateral.
(d) To take possession of all or any portion of the Collateral.
(e) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(f) To conduct one or more going out of business sales which include
the sale or other disposition of the Collateral.
(g) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(h) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
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13-2. Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at public
or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and remedies
upon default, may conduct one or more going out of business sales, in the
Lender's own right or by one or more agents and contractors. Such sale(s) may be
conducted upon any premises owned, leased, or occupied by the Borrower. The
Lender and any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain
the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such
written notice shall satisfy all requirements for notice to the Borrower which
are imposed under the UCC or other applicable law with respect to the exercise
of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(e) If any of the Collateral is sold, leased, or otherwise disposed of
by the Lender on credit, the Liabilities shall not be deemed to have been
reduced as a result thereof unless and until payment is finally received thereon
by the Lender.
(f) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 13 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
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13-3. Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article 13, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may have been so
entered upon, occupied, or used by the Lender. The Lender shall not be required
to remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Lender be liable to the Borrower for use or occupancy by the
Lender of any premises pursuant to this Article 13, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Lender's exercise of the Lender's Rights and Remedies.
13-4. Grant of Nonexclusive License. The Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
13-5. Assembly of Collateral. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
13-6. Rights and Remedies. The rights, remedies, powers, privileges,
and discretions of the Lender hereunder (herein, the Lender's Rights and
Remedies") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement. No single or partial
exercise of any of the Lender's Rights or Remedies, and no express or implied
agreement or transaction of whatever nature entered into between the Lender and
any person, at any time, shall preclude the other or further exercise of the
Lender's Rights and Remedies. No waiver by the Lender of any of the Lender's
Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. The Lender's
Rights and Remedies may be exercised at such
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time or times and in such order of preference as the Lender may determine. The
Lender's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
Article 14 - Notices:
14-1. Notice Addresses. All notices, demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender:
Back Bay Capital Funding, LLC
40 Broad Street
Boston, Massachusetts 02109
Attention : Michael Pizette
Managing Director
Fax : (617) 434-4312
With a copy to:
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention : David S. Berman, Esquire
Fax : 617 880 3456
If to the Borrower:
Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention : Harry Blazer
Fax : (770) 664-4920
With a copy to:
Alston & Bird, LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention : Al LaFiandra, Esquire
Fax: : (404) 881-7777
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14-2. Notice Given.
(a) Except as otherwise specifically provided herein, notices shall
be deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or Three (3)
days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business Day
following the day when sent.
(iii) By Hand: If delivered on a Business Day after 9:00 AM and
no later than Three (3) hours prior to the close of customary business hours of
the recipient, when delivered. Otherwise, at the opening of the then next
Business Day.
(iv) By Facsimile transmission (which must include a header on
which the party sending such transmission is indicated): If sent on a Business
Day after 9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, one (1) hour after being sent.
Otherwise, at the opening of the then next Business Day.
(b) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or Facsimile Number for which no due notice was
given shall each be deemed receipt of the notice sent.
Article 15 - Term:
15-1. Termination of Revolving Credit. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section 2-5(h) hereof)
until the Termination Date.
15-2. Actions On Termination. On the Termination Date, the Borrower
shall pay the Lender (whether or not then due), in immediately available funds,
all then Liabilities including, without limitation: the entire balance of the
Loan Account, the unpaid principal balance of the Revolving Credit Loans and
Term Loan; and all unreimbursed costs and expenses of Lender; for which the
Borrower is responsible; and shall make such arrangements concerning any L/C's
then outstanding are reasonably satisfactory to the Lender. Until such payment,
all provisions of this Agreement, other than those contained in Article 2 which
place an obligation on the Lender to make any loans or advances or to provide
financial accommodations under the Revolving Credit or otherwise, shall remain
in full force and
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effect until all Liabilities shall have been paid in full. The release by the
Lender of the Collateral Interests granted the Lender by the Borrower hereunder
may be upon such conditions and indemnifications as the Lender may require.
Article 16 - General:
16-1. Protection of Collateral. The Lender has no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender.
16-2. Publicity. The Lender may issue a "tombstone" notice of the
establishment of the credit facilities contemplated by this Agreement and may
make reference to the Borrower (and may utilize any logo or other distinctive
symbol associated with the Borrower) in connection with any advertising,
promotion, or marketing undertaken by the Lender.
16-3. Successors and Assigns. This Agreement shall be binding upon the
Borrower and the Borrower's representatives, successors, and assigns and shall
enure to the benefit of the Lender and its successors and assigns, provided,
however, no trustee or other fiduciary appointed with respect to the Borrower
shall have any rights hereunder. In the event that the Lender assigns or
transfers its rights under this Agreement, the assignee shall thereupon succeed
to and become vested with all rights, powers, privileges, and duties of the
Lender hereunder and the Lender shall thereupon be discharged and relieved from
its duties and obligations hereunder. Unless an Event of Default then exists
(other than an Event of Default arising out of the Borrower's failure to comply
with Sections 7-3 through and including 7-11), the Lender shall not assign its
right or obligations hereunder to any Person in competition with the Borrower in
a similar business without the Borrower's prior written consent.
16-4. Severability. Any determination that any provision of this
Agreement or any application thereof is invalid, illegal, or unenforceable in
any respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
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16-5. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and its Subsidiaries and the
Lender, either express or implied, concerning the matters included herein and in
such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower or any Subsidiary of the
Borrower's having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or
covenant or the amendment of the subject Loan Document. No change made by the
Lender to the manner by which Borrowing Base is determined shall obligate the
Lender to continue to determine Borrowing Base in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any Guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
16-6. Power of Attorney. In connection with all powers of attorney
included in this Agreement, the Borrower hereby grants unto the Lender full
power to do any and all things necessary or appropriate in connection with the
exercise of such powers as fully and effectually as the Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any disability or incapacity suffered by the Borrower and each
shall survive the same. All powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall be irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lender.
16-7. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such
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order and manner as the Lender determines in its sole discretion, consistent,
however, with the provisions of this Agreement. The Borrower shall remain liable
for any deficiency remaining following such application.
16-8. Increased Costs. If, as a result of any requirement of law, or of
the interpretation or application thereof by any court or by any governmental or
other authority or entity charged with the administration thereof, whether or
not having the force of law, which:
(a) subjects the Lender to any taxes or changes the basis of taxation,
or increases any existing taxes, on payments of principal, interest or other
amounts payable by the Borrower to the Lender under this Agreement (except for
taxes on the Lender based on net income or capital imposed by the jurisdiction
in which the principal or lending offices of the Lender are located);
(b) imposes, modifies or deems applicable any reserve, cash margin,
special deposit or similar requirements against assets held by, or deposits in
or for the account of or loans by or any other acquisition of funds by the
relevant funding office of the Lender;
(c). imposes on the Lender any other condition with respect to any
Loan Document; or
(d) imposes on the Lender a requirement to maintain or allocate
capital in relation to the Liabilities;
and the result of any of the foregoing, in the Lender's reasonable opinion, is
to increase the cost to the Lender of making or maintaining any loan, advance or
financial accommodation or to reduce the income receivable by the Lender in
respect of any loan, advance or financial accommodation by an amount which the
Lender deems to be material, then upon written notice from the Lender, from time
to time, to the Borrower (such notice to set out in reasonable detail the facts
giving rise to and a summary calculation of such increased cost or reduced
income), the Borrower shall forthwith pay to the Lender, upon receipt of such
notice, that amount which shall compensate the Lender for such additional cost
or reduction in income.
16-9. Costs and Expenses of the Lender. The Borrower shall pay from time
to time on demand all Costs of Collection and all reasonable costs, expenses,
and disbursements of (including attorneys' reasonable fees and expenses) which
are incurred by the Lender in connection with the preparation, negotiation,
execution, and delivery of this Agreement and of any other Loan Documents, and
all other reasonable costs, expenses, and disbursements which may be incurred
connection with or
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in respect to the credit facilities contemplated hereby or which otherwise are
incurred with respect to the Liabilities.
(a) The Borrower authorizes the Lender to pay all such fees and
expenses and in the Lender's discretion, to add such fees and expenses to the
Loan Account.
(b) The undertaking on the part of the Borrower in this Section 16-9
shall survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Lender in favor of the Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 1616-9.
16-10. Copies and Facsimiles. This Agreement and all documents which
relate thereto, which have been or may be hereinafter furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
16-11. Massachusetts Law. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the law of The Commonwealth of Massachusetts.
16-12. Consent to Jurisdiction.
(a) The Borrower agrees that any legal action, proceeding, case, or
controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Suffolk County Massachusetts or in the United
States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all process
upon it, and irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the Borrower at the
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Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
(c) The Borrower WAIVES any objection based on forum non conveniens
and any objection to venue of any action or proceeding instituted under any of
the Loan Documents and consents to the granting of such legal or equitable
remedy as is deemed appropriate by the Court.
(d) Nothing herein shall affect the right of the Lender to bring legal
actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the Borrower
asserting any claim arising under or in connection with this Agreement or any
other Loan Document shall be brought solely in the Superior Court of Suffolk
County Massachusetts or in the United States District Court, District of
Massachusetts, sitting in Boston, Massachusetts, and that such Courts shall have
exclusive jurisdiction with respect to any such action.
16-13. Indemnification. The Borrower shall indemnify, defend, and hold
the Lender and any Participant and any of their respective employees, officers,
or agents (each, an "Indemnified Person") harmless of and from any claim brought
or threatened against any Indemnified Person by the Borrower, any Guarantor or
endorser of the Liabilities, or any other Person (as well as from attorneys'
reasonable fees, expenses, and disbursements in connection therewith) on account
of the relationship of the Borrower or of any other Guarantor or endorser of the
Liabilities (each of claims which may be defended, compromised, settled, or
pursued by the Indemnified Person with counsel of the Lender's selection, but at
the expense of the Borrower) other than any claim as to which a final
determination is made in a judicial proceeding (in which the Lender and any
other Indemnified Person has had an opportunity to be heard), which
determination includes a specific finding that the Indemnified Person seeking
indemnification had acted in a grossly negligent manner or in actual bad faith.
This indemnification shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Lender in favor of the
Borrower, other than a termination, release, or discharge duly executed on
behalf of the Lender which makes specific reference to this Section 16-13.
16-14. Rules of Construction. The following rules of construction shall
be applied in the interpretation, construction, and enforcement of this
Agreement and of the other Loan Documents:
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(a) Unless otherwise specifically provided for herein, interest and
any fee or charge which is stated as a per annum percentage shall be calculated
based on a 360 day year and actual days elapsed.
(b) Words in the singular include the plural and words in the plural
include the singular.
(c) Cross references to Sections in this Agreement begin with the
Article in which that Section appears, followed by a colon, and then the Section
to which reference is made. (For example, a reference to "Section 5:5-6" is to
Section 5-6, which appears in Article 5 of this Agreement).
(d) Titles, headings (indicated by being underlined or shown in Small
----------
Capitals) and any Table of Contents are solely for convenience of reference; do
not constitute a part of the instrument in which included; and do not affect
such instrument's meaning, construction, or effect.
(e) The words "includes" and "including" are not limiting.
(f) Text which follows the words "including, without limitation" (or
similar words) is illustrative and not limitational.
(g) Except where the context otherwise requires or where the relevant
subsections are joined by "or", compliance with any Section or provision of any
Loan Document which constitutes a warranty or covenant requires compliance with
all subsections (if any) of that Section or provision. Except where the context
otherwise requires, compliance with any warranty or covenant of any Loan
Document which includes subsections which are joined by "or" may be accomplished
by compliance with any of such subsections.
(h) Text which is shown in italics, shown in bold, shown IN ALL
CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.
(i) The words "may not" are prohibitive and not permissive.
(j) The word "or" is not exclusive.
(k) Any reference to a Person's "knowledge" (or words of similar
import) are to such Person's knowledge assuming that such Person has undertaken
reasonable and diligent investigation with respect to the subject of such
"knowledge" (whether or not such investigation has actually been undertaken).
(l) Terms which are defined in one section of any Loan Document are
used with such definition throughout the instrument in which so defined.
(m) The symbol "$" refers to United States Dollars.
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(n) Unless limited by reference to a particular Section or provision,
any reference to "herein", "hereof", or "within" is to the entire Loan Document
in which such reference is made.
(o) References to "this Agreement" or to any other Loan Document is to
the subject instrument as amended to the date on which application of such
reference is being made.
(p) Except as otherwise specifically provided, all references to time
are to Boston time.
(q) In the determination of any notice, grace, or other period of time
prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act, event, or
default from which the designated period of time begins to run shall not be
included and the last day of the period so computed shall be included unless
such last day is not a Business Day, in which event the last day of the relevant
period shall be the then next Business Day and (II) the period so computed shall
end at 5:00 PM on the relevant Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but excluding".
(iv) The word "through" means "to and including".
(r) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 16-15
hereof, provided, however, in the event of any inconsistency between the
provisions of this Agreement and any other Loan Document, the provisions of this
Agreement shall govern and control.
(s) Whenever it is provided in this Agreement or any other Loan
Document that the Lender is entitled to receive or recover from the Borrower and
the Guarantors "fees and disbursements of counsel", or reasonable fees and
disbursements of counsel" or "reasonable attorneys' fees" or words of like
import referring to the out-of-pocket expenses of the Lender, each such phrase
shall be deemed to mean the reasonable fees and expenses of such outside counsel
actually incurred, based upon the hourly or other billing arrangements
customarily in effect between the Lender and the counsel in question, and not
based upon a percentage of any amount owing or in dispute (any applicable
statutory provisions permitting such calculation notwithstanding).
(t) Whenever it is provided in this Agreement or any other Loan
Document that the Lender is entitled to its costs and expenses, such costs and
expenses are intended to include the out-of-pocket expenses of the Lender and do
not include any internal costs or expenses of the Lender.
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16-15. Intent. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this Agreement
be broadly construed in favor of the Lender.
(c) The security interests created by this Agreement secure all
Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs, expenses, and disbursements incurred by
the Lender in connection with the Lender's relationship(s) with the Borrower
shall be borne by the Borrower.
(e) Unless otherwise explicitly provided herein, the Lender's
consent to any action of the Borrower which is prohibited unless such consent is
given may be given or refused by the Lender in its sole discretion and without
reference to Section 4-6 hereof.
16-16. Right of Set-Off. Any and all deposits or other sums at any
time credited by or due to the Borrower or any Guarantor from the Lender or any
participant in the credit facilities contemplated hereby (a "Participant") or
from any Affiliate of any of the foregoing, and any cash, securities,
instruments or other property of the Borrower or any Guarantor in the possession
of any of the foregoing, whether for safekeeping or otherwise (regardless of the
reason such Person had received the same) shall at all times constitute security
for all Liabilities and for any and all obligations of the Borrower to the
Lender or any Participant or such Affiliate and may be applied or set off
against the Liabilities and against such obligations at any time, whether or not
such are then due and whether or not other collateral is then available to the
Lender.
16-17. Pledges To Federal Reserve Banks: Nothing included in this
Agreement shall prevent or limit any , to the extent that such is subject to
any of the twelve Federal Reserve Banks organized under Section 4 of the Federal
Reserve Act (12 U.S.C. Section 341) from pledging all or any portion of that
Lender's interest and rights under this Agreement, provided, however, neither
such pledge nor the enforcement thereof shall release the pledging from its
obligations hereunder or under any of the Loan Documents.
16-18. Maximum Interest Rate. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made
104
<PAGE>
which, if treated as interest on a Liability would result in such interest's
exceeding such maximum rate shall be held, to the extent of such excess, as
additional collateral for the Liabilities as if such excess were "Collateral."
16-19. Waivers.
(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Section 16-19(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
establishing the facilities contemplated hereby and in providing loans and other
financial accommodations to or for the account of the Borrower as provided
herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice
of non-payment, demand, presentment, protest and all forms of demand and notice,
both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the
right to notice and/or hearing prior to the Lender's exercising of the Lender's
rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE
OR CONTROVERSY).
(iv) The benefits or availability of any stay, limitation,
hindrance, delay, or restriction(other than the automatic stay under 11 U.S.C.
(S)362) with respect to any action which the Lender may or may become entitled
to take hereunder.
(v) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and records
of the Lender, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
(vi) Any claim to consequential, special, or punitive damages.
105
<PAGE>
HARRY'S FARMERS MARKET, INC.
("Borrower")
By /s/ John D. Branch
------------------------
Print Name: John D. Branch
---------------------
Title: Sr. Vice President and CFO
--------------------------
BACK BAY CAPITAL FUNDING, LLC
("Lender")
By /s/ Michael L. Pizette
---------------------------
Print Name: Michael L. Pizette
------------------
Title: Managing Director
-----------------------
<PAGE>
EXHIBIT 10.8
INDEMNITY AGREEMENT REGARDING HAZARDOUS MATERIALS
-------------------------------------------------
THIS INDEMNITY AGREEMENT REGARDING HAZARDOUS MATERIALS (this "Agreement"),
is made as of this 2nd day of December, 1999, by Harry's Farmers Market, Inc.
("Borrower"), a corporation organized under the laws of the state of Georgia,
and Karalea, Inc. ("Karalea"), a corporation organized under the laws of the
state of Georgia, and Marthasville Trading Company, Inc. ("Marthasville"), a
corporation organized under the laws of the state of Georgia (hereinafter,
Karalea and Marthasville shall singly and collectively be referred to as the
"Guarantor"); for the benefit of BACK BAY CAPITAL FUNDING, LLC, a Delaware
limited liability company ("Lender"). Unless otherwise defined herein, all
capitalized terms used herein shall have the meaning provided for in that
certain Loan and Security Agreement of even date herewith by and between the
Borrower and the Lender (together with any and all restatements, renewals,
amendments, extensions and modifications thereof, the "Loan Agreement").
W I T N E S S E T H:
-------------------
WHEREAS, Borrower is the owner or lessor of certain real property located
in Gwinnett, Fulton, Cobb and DeKalb Counties, Georgia, more particularly
described in Exhibit A-1 and attached hereto and incorporated herein by this
-----------
reference, and Karalea is the owner of certain real property located in Cobb
County, Georgia, more particularly described in Exhibit A-2 and attached hereto
-----------
and incorporated herein by this reference (hereinafter, collectively, the
"Land"), (the Land, together with all improvements now or hereafter located in,
on or under the Land, collectively, the "Property");
WHEREAS, Lender has made and Borrower has accepted a loan in the aggregate
amount of $24,500,000.00 (the "Loan"), which Loan is evidenced by, among other
documents, instruments and agreements, the Loan Agreement, that certain
Revolving Credit Note of even date from Borrower to Lender in the face amount of
$5,000,000.00 (the "Term Note") and that certain Term Note of even date from
Borrower to Lender in the face amount of $19,500,000.00 (the "Revolving Credit
Note");
WHEREAS, as security for the Borrower's Liabilities, the Borrower has,
among other things, executed and delivered to the Lender that certain Deed to
Secure Debt and Security Agreement of even date conveying that portion of the
Propery described on Exhibit A-1 and to be recorded in the public records of the
-----------
aforesaid counties (together with all amendments, modifications, consolidations,
increases, supplements and extensions thereof, the "Borrower Security Deed");
WHEREAS, Marthasville and Karalea have each executed and delivered to the
Lender their respective Guaranties of even date herewith (collectively, the
"Guaranty") pursuant to which Marthasville and Karalea have each guarantied the
Liabilities (as defined in said Guaranty) of the Borrower to the Lender;
WHEREAS, as security for Karalea's Liabilities pursuant to its Guaranty,
Karalea has, among other things, executed and delivered to the Lender that
certain Deed to Secure Debt and Security Agreement of even date conveying that
portion of the Propery described on Exhibit A-2 and to be recorded in the public
-----------
records of the aforesaid county (together with all amendments, modifications,
consolidations, increases, supplements and extensions thereof, the "Karalea
Security Deed") (hereinafter, the
-1-
<PAGE>
Borrower Security Deed and the Karalea Security Deed shall collectively be
referred to as the "Security Deed");
WHEREAS, as a condition to making the Loan, Lender requires Borrower and
Guarantor to provide certain indemnities concerning Hazardous Materials (as
hereinafter defined) presently upon, in or under the Property, or hereafter
placed or otherwise located thereon or therein;
WHEREAS, to induce Lender to make the Loan to Borrower, Borrower and
Guarantor have agreed to provide this Agreement for Lender's benefit.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
($10.00) Dollars and other good and valuable consideration, the receipt and
sufficiently of which are hereby acknowledged, Lender, by its acceptance of
delivery hereof, and Guarantor and Borrower hereby agree as follows:
1. Definitions. The following definitions shall apply for purposes of this
-----------
Agreement:
(1) "Environmental Law" shall have the meaning set forth in the Loan
Agreement.
(2) "Hazardous Materials" shall have the meaning set forth in the Loan
Agreement
(3) "Indemnified Parties" shall mean Lender, Lender's parent, subsidiaries
and affiliates, and any Participant, and each of their respective
shareholders, directors, officers, employees and agents, and the successors
and assigns of any of them; and "Indemnified Party" shall mean any one of
the Indemnified Parties.
(4) "Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, storing, escaping, leaching, dumping, or
discarding, burying, abandoning, or disposing into the environment.
(5) "Threat of Release" shall mean a substantial likelihood of a Release
which requires action to prevent or mitigate damage to the environment
which may result from such Release.
2. Indemnity Agreement. Borrower and Guarantor, each jointly and severally,
-------------------
covenant and agree, at their sole cost and expense, to indemnify, defend (at
trial and appellate levels and with attorneys, consultants and experts
acceptable to Lender) and hold each Indemnified Party harmless against and from
any and all liens, damages, losses, liabilities, obligations, settlement
payments, penalties, assessments, citations, directives, claims, litigation,
demands, defenses, judgments, suits, proceedings, costs, disbursements or
expenses of any kind or of any nature whatsoever (including, without limitation,
reasonable attorneys', consultants' and experts'
-2-
<PAGE>
fees and disbursements incurred in investigating, defending against, settling or
prosecuting any claim, litigation or proceeding) which may at any time be
imposed upon, incurred by or asserted or awarded against such Indemnified Party
or the Property and, and arising directly or indirectly from or out of, and
arising or occurring prior to any transfer of the Property (as permitted
pursuant to the Loan Agreement) or a Foreclosure Transfer Event: (A) the Release
or Threat of Release of any Hazardous Materials on, in, under or affecting all
or any portion of the Property or any surrounding areas, regardless of whether
or not caused by or within the control of Borrower; (B) the violation of any
Environmental Laws relating to or affecting the Property or the Borrower,
whether or not caused by or within the control of Borrower; (C) the failure of
Borrower to comply fully with the terms and conditions of this Agreement; (D)
the violation of any Environmental Laws in connection with other real property
of Borrower which gives or may give rise to any rights whatsoever in any party
with respect to the Property by virtue of any Environmental Laws; or (E) the
enforcement of this Agreement, including, without limitation, (i) the costs of
assessment, containment and/or removal of any and all Hazardous Materials from
all or any portion of the Property or any surrounding areas, (ii) the costs of
any actions taken in response to a Release or Threat of Release of any Hazardous
Materials on, in, under or affecting all or any portion of the Property or any
surrounding areas to prevent or minimize such Release or Threat of Release so
that it does not migrate or otherwise cause or threaten danger to present or
future public health, safety, welfare or the environment, and (iii) costs
incurred to comply with the Environmental Laws in connection with all or any
portion of the Property or any surrounding areas. Lender's and the other
Indemnified Parties' rights under this Agreement shall be in addition to all
rights of Lender under each of the Security Deeds, the Term Note, the Revolving
Credit Note, the Loan Agreement, the Guaranty, and under any other Loan
Document, and payments by Borrower or Guarantor under this Agreement shall not
reduce Borrower's obligations and liabilities under any of the Loan Documents.
Notwithstanding the foregoing, the indemnification provided for herein shall not
apply to any matters resulting from the gross negligence or wilful misconduct of
any Indemnified Party. As used herein, "Foreclosure Transfer Event" shall mean a
transfer of title to any Property such that the lien of the Security Deed is
foreclosed at a foreclosure sale under the Security Deed pursuant to a judicial
decree or power of sale contained therein, or a conveyance by deed in lieu of
such foreclosure.
-3-
<PAGE>
3. Survival.
--------
(1) The indemnity set forth above in Paragraph 2 shall survive the
repayment of the Loan, any transfer of the Property (as permitted pursuant
to the Loan Agreement), and any exercise by Lender of any remedies under
the Security Deed, including without limitation, the power of sale, or any
other remedy in the nature of foreclosure, and shall not merge with any
deed given by Borrower to Lender in lieu of foreclosure or any deed under a
power of sale.
(2) It is agreed and intended by Borrower, Guarantor and Lender
that the indemnity set forth above in Paragraph 2 may be assigned or
otherwise transferred by Lender to its successors and assigns and to any
subsequent purchaser of all or any portion of the Property by, through or
under Lender, without notice to Borrower or Guarantor and without any
further consent of Borrower or Guarantor. To the extent consent of any such
assignment or transfer is required by law, advance consent to any such
assignment or transfer is hereby given by Borrower and Guarantor in order
to maximize the extent and effect of the indemnity given hereby.
4. No Waiver. The liabilities of Borrower and Guarantor under this
---------
Agreement shall in no way be limited or impaired by, and Borrower and
Guarantor hereby consent to and agree to be bound by, any amendment or
modification of the provisions of the Loan Documents to or with Lender by
Borrower or Guarantor or any person who succeeds Borrower as owner of the
Property. In addition, notwithstanding any terms of any of the Loan
Documents to the contrary, the liability of Borrower and Guarantor under
this Agreement shall in no way be limited or impaired by: (i) any
extensions of time for performance required by any of the Loan Documents;
(ii) any sale, assignment or foreclosure of either of the Security Deeds or
any sale or transfer of all or part of the Property; (iii) any exculpatory
provision in any of the Loan Documents limiting Lender's recourse to
property encumbered by the Security Deeds or to any other security, or
limiting Lender's rights to a deficiency judgment against Borrower; (iv)
the accuracy or inaccuracy of the representations and warranties made by
Borrower under any of the Loan Documents; (v) the release of Borrower or
any other person from performance or observance of any of the agreements,
covenants, terms or conditions contained in the Loan Documents by operation
of law, Lender's voluntary act, or otherwise; (vi) the release or
substitution, in whole or in part, of any security for either of the
-4-
<PAGE>
Term Note or the Revolving Credit Note; or (vii) Lender's failure to record the
Security Deeds or file any UCC-1 financing statements (or Lender's improper
recording or filing of any thereof) or to otherwise perfect, protect, secure or
insure any security interest or lien given as security for either of the Term
Note or the Revolving Credit Note; and, in any such case, whether with or
without notice to Borrower or Guarantor and with or without consideration.
5. Waiver by Borrower and Guarantor. Borrower and Guarantor waive any right
--------------------------------
or claim of right to cause a marshalling of Borrower's assets or to cause Lender
to proceed against any of the security for the Loan before proceeding under this
Agreement against Borrower and Guarantor or to proceed against Borrower and
Guarantor in any particular order; Borrower and Guarantor agree that any
payments required to be made hereunder shall become due on demand; Borrower and
Guarantor expressly waive and relinquish all rights and remedies (including any
rights of subrogation) accorded by applicable law to indemnitors or guarantors.
6. Delay. No delay on Lender's part in exercising any right, power or
-----
privilege under any of the Loan Documents shall operate as a waiver of any
privilege, power or right hereunder.
7. Releases. Any one or more of Borrower and Guarantor or any other party
--------
liable upon or in respect of this Agreement or the Loan may be released without
affecting the liability of any party not so released.
8. Counterparts. This Agreement may be executed in one or more counterparts,
------------
each of which shall be deemed an original. Said counterparts shall constitute
but one and the same instrument and shall be binding upon each of the
undersigned individually as fully and completely as if all had signed but one
instrument so that the joint and several liability of each of the undersigned
hereunder shall be unaffected by the failure of any of the undersigned to
execute any or all of the said counterparts.
9. Notices. All notices, demands, and other communications made in respect of
-------
this Agreement shall be made to the following addresses, each of which may be
changed upon seven (7) days written notice to all others given by certified
mail, return receipt requested:
If to the Lender:
Back Bay Capital Funding, LLC
40 Broad Street
Boston, Massachusetts 02109
Attention : Michael Pizette
Managing Director
Fax : (617) 434-4312
With a copy to:
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
-5-
<PAGE>
Attention : David S. Berman, Esquire
Fax : 617 880 3456
If to the Borrower:
Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention : Harry Blazer
Fax :
If to the Guarantors:
Karalea, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention : Harry Blazer
Fax :
Marthasville Trading Company, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention : Harry Blazer
Fax
With respect to
each of the Borrower
and the Guarantors
with a copy to:
Alston & Bird, LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention : Al LaFiandra, Esquire
Fax: : (404) 881-7777
Except as otherwise specifically provided herein, notices shall be deemed made
and correspondence received, as follows (all times being local to the place of
delivery or receipt):
(1) By mail: the sooner of when actually received or Three (3) days
following deposit in the United States mail, postage prepaid.
(2) By recognized overnight express delivery: the Business Day following
the day when sent.
(3) By Hand: If delivered on a Business Day after 9:00 AM and no later than
Three (3) hours prior to the close of customary business hours of the recipient,
when delivered. Otherwise, at the opening of the then next Business Day.
(4) By Facsimile transmission (which must include a header on which the
party sending such transmission is indicated): If sent on a Business Day after
-6-
<PAGE>
9:00 AM and no later than Three (3) hours prior to the close of customary
business hours of the recipient, one (1) hour after being sent. Otherwise,
at the opening of the then next Business Day.
(5) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
10. Amendments. No provision of this Agreement may be changed, waived,
----------
discharged or terminated orally, by telephone or by any other means except by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
11. Binding Effect. Except as herein provided, this Agreement shall be
--------------
binding upon Borrower and Guarantor and their respective heirs, personal
representatives, successors and assigns, and shall inure to the benefit of
Lender, the other Indemnified Parties, and their respective successors and
assigns. Notwithstanding the foregoing, Borrower and Guarantor, without the
prior written consent of Lender in each instance, may not assign, transfer or
set over to another, in whole or in part, all or any part of its or their
benefits, rights, duties and obligations hereunder, including, but not limited
to, performance of and compliance with conditions hereof.
12. Governing Law This Agreement and all rights and obligations
-------------
hereunder, including matters of construction, validity, and performance, shall
be governed by the law of The Commonwealth of Massachusetts.
13. Consent to Jurisdiction.
-----------------------
(1) The Borrower and each Guarantor agree that any legal action,
proceeding, case, or controversy against the Borrower or any Guarantor with
respect to this Agreement may be brought in the Superior Court of Suffolk
County Massachusetts or in the United States District Court, District of
Massachusetts, sitting in Boston, Massachusetts, as the Lender may elect in
the Lender's sole discretion. By execution and delivery of this Agreement,
the Borrower and the Guarantor, for themselves and in respect of their
property, accept, submit, and consent generally and unconditionally, to the
jurisdiction of the aforesaid courts.
(2) The Borrower and each Guarantor WAIVE personal service of any
and all process upon it, and irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by
-7-
<PAGE>
the mailing of copies thereof by certified mail, postage prepaid, to the
Borrower and to each Guarantor at their respective addresses for notices as
specified herein, such service to become effective five (5) Business Days
after such mailing.
(3) The Borrower and each Guarantor WAIVE any objection based on forum
non conveniens and any objection to venue of any action or proceeding
instituted under this Agreement and consent to the granting of such legal
or equitable remedy as is deemed appropriate by the Court.
(4) Nothing herein shall affect the right of the Lender to bring legal
actions or proceedings in any other competent jurisdiction.
(5) The Borrower and each Guarantor agree that any action commenced by
the Borrower or any Guarantor asserting any claim arising under or in
connection with this Agreement shall be brought solely in the Superior
Court of Suffolk County Massachusetts or in the United States District
Court, District of Massachusetts, sitting in Boston, Massachusetts, and
that such Courts shall have exclusive jurisdiction with respect to any such
action.
-8-
<PAGE>
IN WITNESS WHEREOF, Borrower and Guarantor have caused this Agreement to be
executed under seal as of the day and year first written above.
BORROWER:
HARRY'S FARMERS MARKET, INC.
By: /s/ John D. Branch
--------------------------------
Name: John D. Branch
--------------------------------
Title: Sr. Vice President and CFO
-----------------------------
GUARANTORS:
KARALEA, INC.
By: /s/ John D. Branch
--------------------------------
Name: John D. Branch
------------------------------
Title: Sr. Vice President and CFO
-----------------------------
MARTHASVILLE TRADING COMPANY, INC.
By: /s/ John D. Branch
--------------------------------
Name: John D. Branch
------------------------------
Title: Sr. Vice President and CFO
-----------------------------
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
PERIOD ENDED NOVEMBER 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> FEB-02-2000 FEB-02-2000
<PERIOD-START> AUG-05-1999 FEB-04-1999
<PERIOD-END> NOV-03-1999 NOV-03-1999
<CASH> 700 700
<SECURITIES> 0 0
<RECEIVABLES> 206 206
<ALLOWANCES> (28) (28)
<INVENTORY> 9,976 9,976
<CURRENT-ASSETS> 11,370 11,370
<PP&E> 69,998 69,998
<DEPRECIATION> 31,248 31,248
<TOTAL-ASSETS> 56,120 56,120
<CURRENT-LIABILITIES> 10,969 10,969
<BONDS> 14,795<F1> 14,795<F1>
10,693<F2> 10,693<F2>
0 0
<COMMON> 38,617 38,617
<OTHER-SE> (34,651) (34,651)
<TOTAL-LIABILITY-AND-EQUITY> 56,120 56,120
<SALES> 33,592 102,425
<TOTAL-REVENUES> 33,592 102,425
<CGS> 24,037 73,343
<TOTAL-COSTS> 9,777 29,814
<OTHER-EXPENSES> 331 160
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 679<F3> 1,752<F3>
<INCOME-PRETAX> (553)<F4> (892)<F4>
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (590)<F4> (1,003)<F4>
<EPS-BASIC> (0.10) (0.16)
<EPS-DILUTED> (0.10) (0.16)
<FN>
<F1>SHORT TERM PORTION INCLUDED IN CURRENT LIABILITIES
<F2>MANDATORY REDEEMABLE FOR $11 MILLION
<F3>INCLUDED IN OTHER EXPENSES
<F4>LOSS NET OF ACCRETION OF WARRANTS
</FN>
</TABLE>
