SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-12046
LEVITZ FURNITURE INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 23-2351830
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7887 NORTH FEDERAL HIGHWAY, BOCA RATON, FL 33487-1613
(Address of Principal Executive Offices) (Zip Code)
(561) 994-6006
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On October 31, 1998, there were 30,138,896 shares of the registrant's Common
Stock outstanding of which 26,565,234 shares were Voting Common Stock and
3,573,662 shares were Non-Voting Common Stock, with 181,732 shares held by the
registrant in its treasury.
<PAGE>
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS". THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF
SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) BANKRUPTCY COURT ACTIONS OR
PROCEEDINGS RELATED TO THE BANKRUPTCY OF LFI AND ITS SUBSIDIARIES; (2)
COMPETITIVE PRESSURE IN LFI's INDUSTRY; (3) GENERAL ECONOMIC CONDITIONS; (4)
CHANGES IN THE FINANCIAL MARKETS AFFECTING LFI's FINANCIAL STRUCTURE AND LFI's
COST OF CAPITAL AND BORROWED MONEY; (5) INVENTORY RISKS DUE TO CHANGES IN MARKET
DEMAND OR LFI'S BUSINESS STRATEGIES; (6) CHANGES IN EFFECTIVE TAX RATES; (7)
UNCERTAINTIES INHERENT IN LFI'S OPERATIONS; AND (8) DIFFICULTIES ENCOUNTERED BY
LFI OR OTHERS DEALING WITH THE YEAR 2000 ISSUE. LFI HAS NO DUTY UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD LOOKING
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q.
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1998
TABLE OF CONTENTS PAGE
- - ----------------- ----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets........................... 3
Consolidated Condensed Statements of Operations................. 4
Consolidated Condensed Statements of Cash Flows................. 5
Notes to Consolidated Condensed Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of Operations........................................ 12
Liquidity and Capital Resources................................. 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 19
Signatures .......................................................... 20
Exhibit Index........................................................ 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
SEPTEMBER 30, MARCH 31,
1998 1998
(UNAUDITED)
------------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,991 $ 5,339
Receivables 27,731 24,118
Inventories 120,289 142,618
Deposits and prepaid expenses 5,438 3,442
Deferred income taxes -- 3,521
----------- -----------
Total current assets 156,449 179,038
----------- -----------
PROPERTY AND EQUIPMENT, net 120,874 143,249
----------- -----------
PROPERTY UNDER CAPITAL LEASES, net 84,667 92,721
----------- -----------
OTHER ASSETS:
Receivable under account purchase agreement -- 554,322
Intangible leasehold interests 12,998 14,151
Deferred financing fees 956 2,061
Property held for disposal 33,593 17,766
Goodwill -- --
Other 5,711 3,496
----------- -----------
53,258 591,796
----------- -----------
$ 415,248 $ 1,006,804
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdrafts $ 10,319 $ 16,395
Current portion of long-term debt 1,728 1,333
Accounts payable, trade 33,353 30,511
Accrued expenses and other liabilities 78,595 55,847
Income taxes payable 218 231
Deferred income taxes 252 --
DIP Facility 151,335 148,381
----------- -----------
Total current liabilities 275,800 252,698
----------- -----------
LONG-TERM DEBT, net of current portion 5,255 5,702
----------- -----------
OBLIGATION UNDER ACCOUNT PURCHASE AGREEMENT -- 554,322
----------- -----------
OTHER NONCURRENT LIABILITIES 684 684
----------- -----------
DEFERRED INCOME TAXES 5,957 9,767
----------- -----------
LIABILITIES SUBJECT TO COMPROMISE 365,379 369,692
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, at par value 303 303
Capital in excess of par 213,560 213,560
Retained earnings (deficit) (451,359) (399,338)
Deferred compensation (43) (298)
Treasury stock, 181,732 shares at cost (288) (288)
----------- -----------
Total stockholders' deficit (237,827) (186,061)
----------- -----------
$ 415,248 $ 1,006,804
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 174,490 $ 207,258 $ 350,971 $ 418,625
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 95,982 116,772 193,164 232,539
Selling, general and administrative
expenses 78,847 97,756 160,680 184,748
Unusual operating expenses -- 3,400 -- 7,217
Depreciation and amortization 4,725 6,444 9,917 12,957
Interest expense, net 7,288 12,532 14,789 26,716
--------- --------- --------- ---------
186,842 236,904 378,550 464,177
--------- --------- --------- ---------
Loss before reorganization items and
income taxes (12,352) (29,646) (27,579) (45,552)
--------- --------- --------- ---------
Reorganization items:
Loss on store closings -- 25,914 21,135 25,914
Professional fees 1,695 714 3,307 714
--------- --------- --------- ---------
Total 1,695 26,628 24,442 26,628
--------- --------- --------- ---------
Loss before income taxes (14,047) (56,274) (52,021) (72,180)
Income tax benefit -- 19,831 -- 25,436
--------- --------- --------- ---------
Loss before extraordinary items (14,047) (36,443) (52,021) (46,744)
Extraordinary item, net of tax benefit
of $2,973 in 1997 -- (5,462) -- (5,462)
--------- --------- --------- ---------
Net loss $ (14,047) $ (41,905) $ (52,021) $ (52,206)
========= ========= ========= =========
Loss per common share:
Loss before extraordinary item $ (0.47) $ (1.22) $ (1.73) $ (1.56)
Extraordinary item -- (0.18) -- (0.18)
--------- --------- --------- ---------
Net loss per common share $ (0.47) $ (1.40) $ (1.73) $ (1.74)
========= ========= ========= =========
Weighted average number of common
shares outstanding 29,988,896 29,904,736 29,988,896 29,872,630
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (52,021) $ (52,206)
--------- ---------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 5,966 7,707
Amortization 3,951 5,250
Provision for deferred taxes -- (28,409)
Loss/(gain) on disposal of property and equipment (7) 136
Amortization of original issue discount on deferred
debentures -- 331
Amortization of deferred financing fees 1,105 3,738
Amortization of deferred compensation 255 616
Pension expense 202 772
Other 213 177
Reorganization items, non-cash 16,133 23,743
Extraordinary loss related to early redemption
of debt, before tax benefit -- 8,435
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables (2,929) 11,052
Inventories 20,655 49,099
Deposits and prepaid expenses (1,996) (4,328)
Income taxes receivable -- 2,299
Other, net (9) 392
Increase (decrease) in:
Accounts payable, trade 1,366 22,594
Accrued expenses and other liabilities 3,715 (8,766)
Income taxes payable (50) --
Other noncurrent liabilities 64 (250)
--------- ---------
Total adjustments 48,634 94,588
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,387) 42,382
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,994) (6,874)
Proceeds from sale of property and equipment and
other assets 8,722 2,343
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,728 (4,531)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 441,498 454,273
Repayments under credit facilities (438,757) (473,921)
Principal payments on long-term debt (52) (6,355)
Principal payments under capital lease obligations (1,302) (1,794)
Decrease in cash overdrafts (6,076) (11,173)
Payment of deferred financing fees -- (3,161)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,689) (42,131)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,348) (4,280)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,339 9,267
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,991 $ 4,987
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
5
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
1. CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION:
Levitz Furniture Incorporated, a Delaware corporation, was incorporated
in December 1984 for the purpose of acquiring Levitz Furniture
Corporation.
On September 5, 1997 (the "Petition Date"), Levitz Furniture
Incorporated, a Delaware corporation ("LFI" or the "Company"), and 11 of
its subsidiaries (collectively, the "Debtors"), including, Levitz
Furniture Corporation, a Florida corporation and wholly-owned subsidiary
of LFI ("Levitz"), filed voluntary petitions for relief under Chapter
11, Title 11 of the United States Code (the "Bankruptcy Code") with the
United States Bankruptcy Court for the District of Delaware, Wilmington,
Delaware ("the Court"). The bankruptcy cases of LFI and Levitz and their
affiliates are being jointly administered, for procedural purposes only,
under Case No. 97-1842(MFW). Pursuant to Sections 1107 and 1108 of the
Bankruptcy Code, LFI, as debtor and debtor-in-possession, has continued
to manage and operate its assets and businesses pending the confirmation
of a reorganization plan or plans and subject to the supervision and
orders of the Court.
The Debtors expect to reorganize their affairs under the protection of
Chapter 11 and to propose a Chapter 11 plan of reorganization for
themselves. Although management expects to file a plan of reorganization
during 1999 which would contemplate emergence in 1999, there can be no
assurance at this time that a plan of reorganization proposed by the
Debtors will be approved or confirmed by the Court, or that such plan
will be consummated. The Court approved a motion on November 12, 1998
granting The Debtors' request to extend its exclusive right to file a
plan of reorganization through March 1, 1999. There can be no assurance
that the Court will grant a further extension should the Debtors request
a further extension past March 1, 1999. After the expiration of the
exclusivity period, creditors would have the right to propose
alternative plans of reorganization. Any reorganization plan is likely
to result in a minimal, if any, distribution to existing stockholders as
a result of the issuance of equity to creditors or new investors.
The consolidated condensed financial statements have been presented in
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" (SOP 90-7) and have been
prepared in accordance with generally accepted accounting principles
applicable to a going concern, which principles, except as otherwise
disclosed, assume that assets will be realized and liabilities will be
discharged in the ordinary course of business. As a result of the
Chapter 11 cases and circumstances relating to this event, including
LFI's debt structure, its recurring losses, and current economic
conditions, such realization of assets and liquidation of liabilities
are subject to significant uncertainty. Additionally, the amounts
reported on the consolidated condensed balance sheet could materially
change because of changes in business strategies and the effects of any
proposed plan of reorganization.
The Debtors' ability to continue as a going concern is dependent upon,
among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to comply with the terms of the DIP
Facility and the ability to generate sufficient cash from operations and
to extend or replace current financing arrangements to meet obligations.
No assurances can be given that the Debtors will be able to meet these
objectives.
6
<PAGE>
In the Chapter 11 cases, substantially all unsecured liabilities as of
the Petition Date are subject to compromise or other treatment under a
plan of reorganization which must be confirmed by the Bankruptcy Court
after submission to any required vote by affected parties. For financial
reporting purposes, those liabilities and obligations have been
segregated and classified as "liabilities subject to compromise" in the
consolidated condensed balance sheets. Generally, all actions to enforce
or otherwise effect repayment of pre-Chapter 11 liabilities as well as
all pending litigation against the Debtors are stayed while the Debtors
continue their business operations as debtors-in-possession. Unaudited
schedules have been filed by the Debtors with the Court setting forth
the assets and liabilities of the Debtors as of the Petition Date as
reflected in the Debtor's accounting records. LFI has notified all known
claimants subject to the August 10, 1998 bar date of their need to file
a proof of claim with the Court. Differences between amounts shown by
the Debtors and claims filed by creditors are being investigated and
will be either amicably resolved or adjudicated before a court. The
ultimate amount of and settlement terms for such liabilities are subject
to an approved plan of reorganization and accordingly are not presently
determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other pre-petition executory contracts, subject to
Court approval. Claims for damages resulting from the rejection of real
estate leases and other executory contracts will be subject to separate
bar dates. The Debtors have not reviewed all real estate leases for
assumption or rejection. As of September 30, 1998, the Debtors had
rejected leases for fourteen store locations, reached agreement with the
landlords on two store locations to terminate without liability and
assumed and assigned to a third party leases on two store locations. The
Court has extended the time for which the Debtors may assume or reject
unexpired leases of nonresidential real property to March 31, 1999.
Accrued expenses and other liabilities and liabilities subject to
compromise include reserves for an estimated amount that may be claimed
by lessors for the stores that have been closed through September 30,
1998. The Debtors will continue to analyze their real estate leases and
executory contracts and may assume or reject additional leases and
contracts. Such rejections could result in additional liabilities
subject to compromise.
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments consisting of
normal recurring accruals necessary to present fairly the financial
position as of September 30, 1998, the results of operations and cash
flows for the periods then ended. The results of operations for the
period ended September 30, 1998, are not necessarily indicative of the
results to be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These consolidated condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in LFI's audited financial
statements for the year ended March 31, 1998, which is included in its
Form 10K filed for that period.
Certain amounts in the prior year's consolidated condensed financial
statements have been reclassified to conform to the current year's
presentation.
2. DEBT:
LFI and substantially all of its subsidiaries, as debtors-in-possession,
are parties to a Postpetition Credit Agreement dated as of September 5,
1997 (the "DIP Facility") with BT Commercial Corporation ("BTCC") as
agent. The DIP Facility has been approved by the Court and originally
provided for a total commitment of $260.0 million that is comprised of
revolving notes of $223.6 million and a term note of $36.4 million.
Letter of Credit obligations under the revolver portion of the DIP
Facility are limited to $25.0 million. The DIP Facility was amended on
September 4 and September 18, 1998. The minimum EBITDA covenants, as
defined below, for the quarters ending September 30 and December 31,
1998 were reduced and a new term loan was extended in
7
<PAGE>
the principal amount of $22.0 million under a second term note. The
proceeds from the second term note of $22.0 million were used to pay
down the revolving notes. This increased excess availability under the
revolving notes by $22.0 million at the time of the transaction. On
September 15, 1998 the total commitment under the revolver portion of
the DIP Facility was reduced from $223.6 million to $193.6 million. This
reduced the total commitment under the DIP Facility to $252.0 million.
The DIP Facility is intended to provide LFI with the cash and liquidity
to conduct its operations and pay for merchandise shipments at normal
levels during the course of the Chapter 11 proceedings.
Loans made under the DIP Facility revolving notes bear interest, at
Levitz's option, at a rate equal to either Bankers Trust Company's prime
lending rate plus 1.5% or BTCC's LIBOR rate plus 3.75%. The term notes
bear interest at 16%. Levitz is required to pay an unused line fee of
0.5%, and a letter of credit fee of 2.0%.
The maximum borrowings, excluding the term notes, under the DIP Facility
are limited to 85% of eligible accounts receivable, 75% of eligible
inventory (as defined in the DIP Facility) and a fixed asset sublimit
which is permanently reduced on each date on which an asset disposition,
as defined, occurs. Qualification of accounts receivable and inventory
items as "eligible" is subject to unilateral change at the discretion of
the lenders. Excess availability under the DIP Facility at September 30,
1998 was $38.5 million.
The DIP Facility is secured by substantially all of the assets of Levitz
and its subsidiaries and a perfected pledge of stock of all Levitz's
subsidiaries. The DIP Facility contains restrictive covenants including,
among other things, the maintenance of minimum earnings before interest,
taxes, depreciation and amortization as defined (EBITDA), limitations on
the incurrence of additional indebtedness, liens, contingent
obligations, sales of assets, capital expenditures and a prohibition on
paying dividends. LFI and Levitz are currently in compliance with the
DIP Facility covenants as amended.
The lenders under the DIP Facility have a super-priority administrative
expense claim against the estates of the Debtors. Management intends to
seek an extension or refinancing of the DIP Facility, now scheduled to
expire on March 5, 1999. However, no assurance can be given that this
objective will be met.
8
<PAGE>
3. LIABILITIES SUBJECT TO COMPROMISE:
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified
below. The amounts below in total vary significantly from the stated
amount of proofs of claim that were filed with the Court and may be
subject to future adjustment depending on Court action, further
developments with respect to potential disputed claims, and
determination as to the value of any collateral securing claims, or
other events. Additional claims may arise from the rejection of
additional real estate leases and executory contracts by the Debtors.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
(DOLLARS IN
LIABILITIES SUBJECT TO COMPROMISE THOUSANDS)
-------------
<S> <C>
Accounts payable, trade $ 38,477
Accrued expenses 15,736
13.375% Senior Notes due 10/15/98 96,031 (1)
9.625% Senior Subordinated Notes due 7/15/03 101,337 (1)
Senior Deferred Coupon Debentures due 6/15/02 8,716 (1)
Financing on store building 4,000
Obligations under capital leases 62,728
Reserve for lease rejection claims 11,011
Deferred rent on operating leases 2,669
Deferred gain on sale leasebacks 1,643
Supplemental executive retirement programs 13,405
Employment agreement severance costs 2,851
General liability claims 736
Reserve for previous store closings 2,817
Real estate taxes 2,644
Personal property taxes 578
---------
$ 365,379
=========
</TABLE>
(1) Includes accrued interest at September 4, 1997.
As a result of the Chapter 11 filing, no principal or interest payments
will be made on most pre-petition debt without Court approval or until a
plan of reorganization providing for the repayment terms has been
confirmed by the Court and becomes effective. Interest on pre-petition
unsecured obligations has not been accrued after the Petition Date
except that interest expense and principal payments will continue to be
recorded on capital lease obligations unless the Debtors reject the
leases. If a capital lease is rejected the obligation will be limited to
the lease rejection claim. Contractual interest expense of $11.6 million
was not recorded on certain pre-petition debt for the period ended
September 30, 1998.
4. PRIVATE-LABEL CREDIT CARD PROGRAM:
On September 4, 1998 Levitz and its operating subsidiaries entered into
an agreement ("Merchant Agreement") with Household Bank (SB), N.A.
("Household") whereby Household would provide financing to individual
consumers purchasing merchandise from Levitz ("Private-Label Credit Card
Program"). The Court approved the Merchant Agreement and granted a first
priority and security interest and lien to Household on certain reserves
retained or accumulated by Household, totaling $17.2 million at
September 30, 1998, and gave administrative expense status to
substantially all obligations of Levitz arising under the Merchant
Agreement.
Also on September 4, 1998, General Electric Capital Corporation ("GECC")
and Levitz terminated the Second Amended and Restated Account Purchase
and Credit Card
9
<PAGE>
Agreement (the "GECC Agreement") which was replaced by the Merchant
Agreement. Levitz and GECC jointly released each other from
substantially all obligations under the GECC Agreement. At the same time
GECC sold the majority of the portfolio under the GECC Agreement,
approximately $561.0 million, to Household.
As a result of the transfer of the GECC portfolio to Household, the
Company determined that the transaction qualified for sale treatment
under Financial Accounting Standards Board, Statement of Accounting
Standards No. 125, "Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities". As a result, the Receivable
under Account Purchase Agreement and the offsetting Obligation Under
Account Purchase Agreement were removed from the consolidated condensed
balance sheet for September 30, 1998.
Levitz is exposed to market risk under the terms of the Household
Agreement. Levitz may pay a fee or may receive income, based upon the
relationship among the interest earned on the portfolio, the amount of
the servicing fee, the cost of capital, promotional discount fees and
credit losses. Levitz is generally obligated for all credit losses under
the portfolio, including the GECC portfolio transferred to Household, up
to a maximum of 15% and for 50% of all credit losses above 15%. Levitz
is also required under the Merchant Agreement to fund a portfolio risk
reserve of 2.5% for the first year and 3.5% thereafter of all amounts
financed up to a stipulated amount.
5. REORGANIZATION ITEMS:
Store Closings
In June 1998 Management finalized a plan to close fifteen stores in
under-performing markets. Thirteen stores were closed at the end of June
1998, one store was closed in July 1998 and one store was closed in
September 1998. The plan also included the elimination of certain
support functions and the closing of warehouses in certain locations.
The majority of the support functions were eliminated in July 1998. The
specific warehouses are expected to be closed by the end of the fiscal
year. The pre-tax charge for the store closings and other charges of
$21.1 million includes non-cash charges of $10.0 million for the
write-down of assets to their net realizable values, $1.8 million loss
on the sale of inventory to a liquidator and anticipated lease rejection
claims of $4.3 million. Cash charges include severance pay of $1.1
million and continuing expenses of $3.9 million.
Professional fees
Professional fees include accounting, legal and consulting services
provided to LFI and the Creditors' Committee which, subject to Court
approval, are required to be paid by LFI while it is in Chapter 11.
6. UNUSUAL OPERATING EXPENSES:
In July 1997, the former President-Merchandising/Marketing resigned. LFI
accrued a charge for future payroll and employee benefit costs of $1.3
million in connection with the Officer's employment agreement. Also, LFI
recorded a $2.5 million reduction for the partial write-off of future
service revenue receivable under the GECC Agreement. The write-off
occurred since Levitz was required to account for the transfer of assets
under the GECC Agreement as a secured borrowing with a pledge of
collateral rather than as a sale for financial reporting purposes.
7. INCOME TAXES:
Income taxes are provided based on the asset and liability method of
accounting pursuant to Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". LFI had generated net
operating loss ("NOL") carryforwards of $62.3 million at March 31, 1998
as a result of net losses incurred in fiscal years 1998 and 1997. The
cumulative NOL benefit at March 31, 1998 was supported by deferred tax
credits that are projected to turn during the carryforward periods. LFI
has not recorded any tax benefits for the loss incurred during the
period ended September 30, 1998 and expects not to record any tax
benefits for the remainder of fiscal 1999.
10
<PAGE>
8. LOSS PER SHARE:
Common stock equivalents consist of stock options, restricted stock and
warrants. As of September 30, 1998 and 1997, there were common stock
equivalents outstanding for 7,184,237 and 7,745,987 shares,
respectively. All common stock equivalents have an antidilutive impact
on LFI's loss from continuing operations for the periods presented and,
therefore, are not included in LFI's computation of diluted loss per
share.
9. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
------- -------
<S> <C> <C>
Interest paid $13,407 $25,964
======= =======
Income tax paid (refunded), net $ 47 $(2,451)
======= =======
</TABLE>
In June 1997 Levitz exercised its option to issue additional term notes,
under the previous credit agreement, of approximately $1.4 million in
lieu of paying interest in cash.
10. NEW ACCOUNTING PRONOUNCEMENT:
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," in June 1997. SFAS No. 130 establishes standards
for reporting and disclosure of comprehensive income. LFI adopted this
statement effective April 1, 1998. For the periods ended September 30,
1998 and 1997, there were no differences between comprehensive loss and
net loss.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI"), and 11 of its subsidiaries (collectively, the
"Debtors"), including, Levitz Furniture Corporation, a Florida corporation and
wholly-owned subsidiary of LFI ("Levitz"), filed voluntary petitions for relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the District of Delaware,
Wilmington, Delaware ("the Court"). The bankruptcy cases of LFI and Levitz and
their affiliates are being jointly administered, for procedural purposes only,
under Case No. 97-1842(MFW). Pursuant to Sections 1107 and 1108 of the
Bankruptcy Code, LFI, as debtor and debtor-in-possession, has continued to
manage and operate its assets and businesses pending the confirmation of a
reorganization plan or plans and subject to the supervision and orders of the
Court.
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COMPARISON OF OPERATIONS
The following table sets forth LFI's results of operations expressed as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 55.0 56.3 55.0 55.6
----- ----- ----- -----
Gross profit 45.0 43.7 45.0 44.4
Selling, general and administrative
expenses 45.2 47.2 45.8 44.1
Unusual operating expenses -- 1.6 -- 1.7
Depreciation and amortization 2.7 3.1 2.8 3.1
Interest expense 4.2 6.1 4.2 6.4
----- ----- ----- -----
Loss before reorganization items
and income taxes (7.1) (14.3) (7.8) (10.9)
Reorganization items (1.0) (12.8) (7.0) (6.4)
----- ----- ----- -----
Loss before income taxes (8.1) (27.1) (14.8) (17.3)
Income tax benefit -- 9.5 -- 6.1
----- ----- ----- -----
Loss before extraordinary items (8.1) (17.6) (14.8) (11.2)
Extraordinary items, net of tax -- (2.6) -- (1.3)
----- ----- ----- -----
Net loss (8.1)% (20.2)% (14.8)% (12.5)%
===== ===== ===== =====
Comparable store sales increase/
(decrease) 8.7 % (11.1)% 2.8 % (8.8)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
Net sales of $174.5 million for the period ended September 30, 1998 decreased
$32.8 million or 15.8% from net sales of $207.3 million in the same period for
the prior year. The decrease in net sales was due to the closing of forty-four
stores from October 1997 through September 1998. Sales on a comparable store
basis increased 8.7% from the same period of the prior year. The increase in
comparable store sales was significantly impacted by the decline in comparable
store sales for the same period of the prior year which was primarily due to the
slow-down in shipments from trade vendors starting in August 1997 and continuing
during September 1997 when the Company filed for reorganization under Chapter 11
of the Bankruptcy Code.
13
<PAGE>
Gross profit as a percentage of net sales increased to 45.0% from 43.7% for the
three month periods ended September 30, 1998 and 1997, respectively. The
increase in gross profit as a percentage of net sales reflects normal product
advertising as compared to percentage-off advertising used during the same
period of the prior year.
Selling, general and administrative (SG&A) expenses of $78.8 million for the
three month period ended September 30, 1998 decreased $19.0 million or 19.3%
from SG&A expenses of $97.8 million in the same period for the prior year. As a
percentage of net sales, SG&A expenses decreased to 45.2% from 47.2% for the
periods ended September 30, 1998 and 1997, respectively. The dollar decrease in
SG&A expenses is primarily due to the store closings as noted above which
contributed to a reduction in advertising expense of $7.3 million, a reduction
in salaries, employee benefits and payroll taxes of $6.3, a reduction in
property related expenses of $3.5 million and other expenses of $1.9 million.
SG&A expenses as a percentage of net sales decreased primarily due to a
reduction in advertising expense of 1.3%. The decrease in advertising expense as
a percentage of net sales was partially offset by a reduction of service fee
income under the Company's private-label credit card program of 0.7%.
During the quarter ended September 30, 1997, LFI incurred a $3.4 million charge
as an unusual operating expense for write-off of a receivable due to the loss of
sale accounting treatment under the GECC Agreement.
Interest expense for the three month period ended September 30, 1998 decreased
to $7.3 million from $12.5 million for the same period of the prior year. As a
result of the Chapter 11 filing, no principal or interest payments are being
made on most pre-petition debt without Court approval or until a plan of
reorganization providing for the repayment terms has been confirmed by the Court
and becomes effective. Interest on pre-petition unsecured obligations has not
been accrued after the Petition Date except that interest expense and principal
payments are continuing to be recorded on capital lease obligations unless the
Debtors reject the leases. Contractual interest expense of $5.8 million was not
recorded on certain pre-petition debt for the three month period ended September
30, 1998.
Reorganization items include professional fees for accounting, legal and
consulting services provided to LFI and the Creditors' Committee which, subject
to Court approval, are required to be paid by LFI while it is in Chapter 11.
Reorganization items for the three month period ended September 30, 1997
included an estimated reserve for eighteen store closings of $25.9 million.
LFI has not recorded any tax benefits for the loss incurred during the three
month period ended September 30, 1998 and expects not to record any tax benefits
for the remainder of fiscal 1999.
As a result of the aforementioned factors, net loss for the three month period
ended September 30, 1998 amounted to $14.0 million or 8.1% of net sales as
compared to net loss of $41.9 million or 20.2% of net sales for the same period
of the prior year.
SIX MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 1997
Net sales of $351.0 million for the six month period ended September 30, 1998
decreased $67.6 million or 16.2% over net sales of $418.6 million in the same
period for the prior year. Sales on a comparable store basis increased 2.8%. The
decrease in net sales was due to the closing of forty-four stores from October
1997 through September 1998. The increase in comparable store sales was
significantly impacted by the decline in comparable store sales for the same
period of the prior year which was primarily due to the slow-down in shipments
from trade vendors starting in August 1997 and continuing during September 1997
when the Company filed for reorganization under Chapter 11 of the Bankruptcy
Code.
Gross profit as a percentage of net sales increased to 45.0% for the six month
period ended September 30, 1998 compared to 44.4% in the same period for the
prior year. The gross profit increase reflects a reduction in the frequency of
percentage-off advertising compared to the same period of the prior year.
14
<PAGE>
Selling, general and administrative ("SG&A") expenses decreased $24.1 million
for the six month period ended September 30, 1998 as compared to the same period
for the prior year. As a percentage of net sales, SG&A expenses increased to
45.8% from 44.1%. The dollar decrease in SG&A expenses is primarily due to the
store closings as noted above which contributed to a reduction in advertising
expense of $6.9 million, a reduction in salaries, employee benefits and payroll
taxes of $10.4 million, a reduction in property related expenses of $5.8 million
and other expenses of $5.8 million. In addition, SG&A was affected by a
reduction in the service fee income under the private-label credit card program
of $4.8 million.
During the six month period ended September 30, 1997, Levitz recorded a $5.9
million charge as an unusual operating expense for the write-off of the future
service revenue receivable under the GECC Agreement since Levitz was required to
account for the transfers of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financing
reporting purposes. Also, Levitz recorded a $1.3 million charge for the
settlement of an employment agreement upon resignation of an officer.
Interest expense for the six month period ended September 30, 1998 decreased to
$14.8 million from $26.7 million for the same period of the prior year. As a
result of the Chapter 11 filing, no principal or interest payments are being
made on most pre-petition debt without Court approval or until a plan of
reorganization providing for the repayment terms has been confirmed by the Court
and becomes effective. Interest on pre-petition unsecured obligations has not
been accrued after the Petition Date except that interest expense and principal
payments are continuing to be recorded on capital lease obligations unless the
Debtors reject the leases. Contractual interest expense of $11.6 million was not
recorded on certain pre-petition debt for the six month period ended September
30, 1998.
Reorganization items for the six month period ended September 30, 1998 included
professional fees of $1.7 million for accounting, legal and consulting services
provided to LFI and the Creditors' Committee while LFI is in Chapter 11.
Reorganization items for the six month period ended September 30, 1997 included
an estimated reserve of $25.9 million for the closing of eighteen stores. The
reserve included the writedown of property, capital lease assets, furniture and
fixtures to their net realizable values and included provisions for continuing
expenses and severance pay.
LFI has not recorded any tax benefits for the loss incurred during the six month
period ended September 30, 1998 and expects not to record any tax benefits for
the remainder of fiscal 1999.
The extraordinary loss net of tax benefit was $5.5 million or 1.3% of net sales
for the six month period ended September 30, 1997. The extraordinary loss was
due to the write-off of deferred financing fees related to the previous bank
credit agreement.
Net loss for the six month period ended September 30, 1998 was $52.0 million or
14.8% of net sales as compared to a net loss of $52.2 million or 12.5% of net
sales for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
LFI's only material asset is the common stock of Levitz and, therefore, its
ability to pay cash dividends, interest and principal, is dependent upon
dividends and other payments from Levitz. LFI's ability to obtain cash from
Levitz is restricted by the DIP Facility, the indentures relating to Levitz's
outstanding indebtedness and Florida law. LFI's only outstanding obligations are
$8.4 million of Senior Deferred Coupon Debentures due June 15, 2002, which are
unsecured and are classified as liabilities subject to compromise.
Levitz's primary sources of liquidity are cash flow from operations (including
the proceeds from the financing of customer credit card obligations by
Household), trade credit and borrowings under the DIP Facility. During the six
month period ended September 30, 1998, Levitz used approximately $24.2 million
of net cash flow in operations before
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<PAGE>
changes in operating assets and liabilities. Changes in operating assets and
liabilities increased net cash flow from operations by $20.8 million. Management
is attempting to increase cash flow from operations by pursuing initiatives
intended to increase sales in comparable stores, closing stores in
under-performing markets, eliminating certain support function positions and by
eliminating the cost of warehouse operations in markets where it is determined
that fewer warehouses can service the market.
Cash provided by investing activities for the six month period ended September
30, 1998 includes $8.7 million of proceeds from asset sales of closed
facilities. All of these proceeds were applied as repayments to the DIP Facility
as required by the agreement. Management is continuing to market all property
held for disposal and leasehold interests where rents are below market values to
reduce current borrowings and increase availability under the DIP Facility.
Levitz's total capital expenditures were approximately $3.0 million during the
period ended September 30, 1998. Capital expenditures were for existing store
improvements and equipment. Management estimates that approximately $5.0 million
to $7.0 million is required annually to adequately maintain and/or improve its
existing stores. Levitz closed fifteen stores during the six month period ended
September 1998 and may open up to three new stores during the fiscal year ending
March 31, 1999.
Net cash used in financing activities amounted to $4.7 million in the six month
period ended September 30, 1998 and includes increased borrowings under the DIP
Facility of $2.7 million less principal payments under long-term obligations of
$1.3 million and decrease in outstanding checks and cash overdrafts of $6.1
million which fluctuates based on the timing of payments.
Debt
LFI and substantially all of its subsidiaries, as debtors-in-possession, are
parties to a Postpetition Credit Agreement dated as of September 5, 1997 (the
"DIP Facility") as amended with BT Commercial Corporation ("BTCC") as agent. The
DIP Facility has been approved by the Court and includes a total commitment of
$252.0 million that is comprised of revolving notes of $193.6 million and a term
note of $58.4 million. Letter of Credit obligations under the revolver portion
of the DIP Facility are limited to $25.0 million. The DIP Facility is intended
to provide LFI with the cash and liquidity to conduct its operations and pay for
merchandise shipments at normal levels during the course of the Chapter 11
proceedings.
The DIP Facility was amended on September 4 and September 18, 1998. The minimum
EBITDA covenants for the quarter ending September 30 and December 31, 1998 were
reduced and a new term loan was extended in the principal amount of $22.0
million under a second term note. The proceeds from the second term note of
$22.0 million were used to pay down the revolving notes. This increased excess
availability under the revolving notes by $22.0 million at the time of the
transaction. On September 15, 1998 the total commitment under the revolver
portion of the DIP Facility was reduced from $223.6 million to $193.6 million.
This reduced the total commitment of the DIP Facility to $252.0 million.
Loans made under the DIP Facility revolving notes bear interest, at Levitz's
option, at a rate equal to either Bankers Trust Company's prime lending rate
plus 1.5% or BTCC's LIBOR rate plus 3.75%. The term notes bear interest at 16%.
Levitz is required to pay an unused line fee of 0.5%, and a letter of credit fee
of 2.0%.
The maximum borrowings, excluding the term commitments, under the DIP Facility
are limited to 85% of eligible accounts receivable, 75% of eligible inventory
(as defined in the DIP Facility) and a fixed asset sublimit which is permanently
reduced on each date on which an asset disposition, as defined, occurs.
Qualification of accounts receivable and inventory items as "eligible" is
subject to unilateral change at the discretion of the lenders. Excess
availability under the DIP Facility at September 30, 1998 was $38.5 million.
The DIP Facility is secured by substantially all of the assets of Levitz and its
subsidiaries and a perfected pledge of stock of all Levitz's subsidiaries. The
DIP Facility contains restrictive covenants including, among other things, the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization as defined (EBITDA), limitations on the incurrence of additional
indebtedness, liens, contingent obligations, sales of assets, capital
expenditures and a prohibition on paying dividends. Although LFI and Levitz are
currently in compliance with the DIP Facility covenants as
16
<PAGE>
amended, no assurances can be given that LFI and Levitz will be able to meet
their EBITDA covenants in the future. In the event that LFI and Levitz will not
meet future covenants, the Company would seek a waiver or amendment from the
lenders under the DIP Facility. No assurances can be given that such lenders
will grant LFI and Levitz such a waiver or amendment.
The lenders under the DIP Facility have a super-priority administrative expense
claim against the estate of the Debtors. Management intends to seek an extension
or refinancing of the DIP Facility, now scheduled to expire March 15, 1999.
However, no assurances can be given that this objective will be met.
On September 4, 1998 Levitz and its operating subsidiaries entered into an
agreement ("Merchant Agreement") with Household Bank (SB), N.A. ("Household")
whereby Household would provide financing to individual consumers purchasing
merchandise from Levitz ("Private-Label Credit Card Program"). The Court
approved the Merchant Agreement and granted a first priority and security
interest and lien to Household on certain reserves retained or accumulated by
Household, totaling $17.2 million at September 30, 1998, and gave administrative
expense status to substantially all obligations of Levitz arising under the
Merchant Agreement.
Also on September 4, 1998, General Electric Capital Corporation ("GECC") and
Levitz terminated the Second Amended and Restated Account Purchase and Credit
Card Agreement (the "GECC Agreement") which was replaced by the Merchants
Agreement. Levitz and GECC jointly released each other from substantially all
obligations under the GECC Agreement. At the same time GECC sold the majority of
the portfolio under the GECC Agreement, approximately $561.0 million, to
Household.
As a result of the transfer of the GECC portfolio to Household, the Company
determined that the transaction qualified for sale treatment under Financial
Accounting Standards Board, Statement of Accounting Standards No. 125,
"Accounting for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities". As a result, the Receivable under Account Purchase Agreement
and the offsetting Obligation Under Account Purchase Agreement were removed from
the consolidated condensed balance sheet for September 30, 1998.
Levitz is exposed to market risk under the terms of the Household Agreement.
Levitz may pay a fee or may receive income, based upon the relationship among
the interest earned on the portfolio, the amount of the servicing fee, the cost
of capital, promotional discount fees and credit losses. Levitz is generally
obligated for all credit losses under the portfolio, including the GECC
portfolio transferred to Household, up to a maximum of 15% and for 50% of all
credit losses above 15%. Levitz is also required under the Merchant Agreement to
fund a portfolio risk reserve of 2.5% for the first year and 3.5% thereafter of
all amounts financed up to a stipulated amount.
Going Concern
The Company believes that cash on hand, amounts available under the DIP
Facility, as amended, and funds from operations (including proceeds from the
financing of customer credit card obligations by Household) will enable the
Company to meet its immediate liquidity and capital expenditure requirements.
Continued availability under the DIP Facility is dependent upon LFI and Levitz
meeting the covenants thereunder or obtaining a waiver or amendment from the
lenders under the DIP Facility if necessary and extending or replacing the DIP
Facility which is scheduled to expire March 5, 1999. Until a plan or
reorganization is approved, the Company's long-term liquidity and the adequacy
of its capital resources cannot be determined.
Inherent in a successful plan of reorganization is a capital structure that
permits the Company to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of such case on the business of the Company or on the interests of
creditors and stockholders. Any reorganization plan is likely to result in a
minimal, if any, distribution to existing stockholders as a result of the
issuance of equity to creditors or new investors.
17
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Year 2000
There have been no significant changes to the Company's Year 2000 project as
reported in its Form 10-K for the fiscal year ended March 31, 1998. LFI is in
the process of assessing the risk to the availability and integrity of financial
systems and the reliability of operational systems. The Company is also
communicating with vendors, financial institutions and others with which it does
business to coordinate year 2000 conversion. The cost of achieving Year 2000
compliance, excluding in-house salaries, wages and benefits, has been estimated
at approximately $0.3 million for software maintenance and development and $0.3
million for other operational systems. The Company expects to spend $2.4 million
in capital expenditures for the enhancement of operational and financial
software and hardware systems as needed for current changes in business strategy
which will eliminate the need for achieving Year 2000 compliance on some
existing software. Most of the software has been purchased and is currently
being installed. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.
During 1999, the Company intends to develop contingency plans to address
potential disruptions due to internal systems and business disruption at third
parties. However, it is unlikely that any contingency plan can fully mitigate
the impact of significant business disruptions.
18
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PART II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.56: Merchant Agreement by and among Levitz Furniture
Corporation, certain other subsidiaries and Household Bank (SB)
N.A., dated September 4, 1998.
Exhibit 10.57: Amendment No. 7 dated as of September 4, 1998 to the
Postpetition Credit Agreement among Levitz Furniture Incorporated,
et al. and BT Commercial Corporation, as agent.
Exhibit 10.58: Amendment No. 8 dated as of September 18, 1998 to
the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent.
Exhibit 27: Financial Data Schedule
(b) Report on Form 8-K: None.
19
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SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEVITZ FURNITURE INCORPORATED
(Registrant)
Date: November 16, 1998 /s/ MICHAEL MCCREERY
-------------------------------------
Michael McCreery
Senior Vice President and
Chief Financial Officer
20
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EXHIBIT INDEX
Exhibits to Form 10-Q
<TABLE>
<CAPTION>
NUMBER
EXHIBIT TABLE EXHIBIT
------------- -------
<S> <C>
10.56 Merchant Agreement by and among Levitz Furniture
Corporation, certain other subsidiaries and Household Bank
(SB) N.A., dated September 4, 1998.
10.57 Amendment No. 7 dated as of September 4, 1998 to the
Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as
agent.
10.58 Amendment No. 8 dated as of September 18, 1998 to the
Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as
agent.
27 Financial Data Schedule.
</TABLE>
EXHIBIT NO. 10.56
MERCHANT AGREEMENT
<TABLE>
<S> <C> <C> <C>
BANK: Household Bank (SB), N.A. MERCHANTS: Levitz Furniture Corporation
1111 Town Center Drive Levitz Furniture Company of the
Las Vegas, NV 89134 Midwest, Inc.
Levitz Furniture Company of
the Pacific, Inc.
Levitz Furniture Company of
Washington, Inc.
7887 North Federal Highway
Boca Raton, FL 33487-1613
Facsimile Nos. (561) 994-5623
(561) 994-5615
</TABLE>
This Merchant Agreement ("AGREEMENT") is made and entered into as of the 4th day
of September, 1998, by and between Household Bank (SB), N.A. (herein
"HOUSEHOLD") and Levitz Furniture Corporation, a Florida corporation (herein
"PARENT"), its operating subsidiaries, Levitz Furniture Company of the Midwest,
Inc., a Colorado corporation, Levitz Furniture Company of the Pacific, Inc., a
California corporation, and Levitz Furniture Company of Washington, Inc., a
Washington corporation (collectively, the "OPERATING SUBSIDIARIES" and, together
with Parent, "MERCHANTS"), but shall be effective only as of the date (the
"Effective Date") on which the U.S. Bankruptcy Court for the District of
Delaware in the matter of IN RE: LEVITZ (Case Nos. 97-1842-97-1853) (the
"Chapter 11 Case") has entered an order, in substantially the form attached
hereto as Exhibit A (or otherwise acceptable to Household in its sole
discretion), approving and authorizing Merchants to enter into and perform this
Agreement (the "Approval Order") and, unless otherwise agreed by Household, such
Approval Order has become final and nonappealable. In consideration of the
mutual promises, covenants, and agreements set forth below and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Merchants, jointly and severally, and Household agree as follows:
SECTION 1. DEFINITIONS. In addition to the words and phrases defined above and
elsewhere in this Agreement, the following words and phrases shall have the
following meanings:
a. "ACCOUNT" means an account resulting from the issuance of a Card. An
Account may have more than one Card issued for it. Each Account shall be
owned by, and deemed to be the property of, Household. In addition, for
all periods after the closing of Household's purchase of the Existing
Portfolio (as defined below), "Account" shall also include those
accounts included in the Existing Portfolio, whether or not Household
has issued a Card with respect to such accounts.
b. "ACCOUNT BALANCES" means the amounts owed or shown as being outstanding
receivables on each Account, including outstanding extensions of credit,
accrued finance charges, whether billed or unbilled (including unbilled
finance charges relating to Same-As-Cash promotions), and any other
charges, fees and interest assessed on each Account reduced by the
amount of credit balances, if any, on such Account.
c. "AFFILIATE" means any entity that is owned by, owns or is under common
control with Household or its ultimate parent.
d. "APPLICABLE LAW" means collectively or individually any applicable law,
rule, regulation or judicial, governmental or administrative order,
decree, ruling, opinion or interpretation.
e. "APPLICATION APPROVAL RATE" means, for any Month, the number of credit
applications (excluding duplicate applications or applications that have
1
<PAGE>
been previously submitted) submitted during such Month that are accepted
by Household, divided by the total number of applications submitted
during such Month (excluding duplicate applications or applications that
have been previously submitted).
f. "AUTHORIZATION" means permission from Household to make a Card Sale.
g. "AUTHORIZATION CENTER" means the facility designated by HOUSEHOLD as the
facility at which Card Sales are authorized.
h. "AVERAGE ACCOUNT BALANCES" means, for any period, the sum of the daily
Account Balances for such period divided by the number of days in such
period.
i. "BUSINESS DAY" means any day except Saturday or Sunday or a day on which
banks are closed in the State of Nevada.
j. "CARD" means the private label credit card bearing Merchants' Marks
issued by Household for the Program.
k. "CARDHOLDER" means (i) the person in whose name an Account is opened,
and (ii) any other authorized users of the Account and Card.
l. "CARDHOLDER LIST" means the compilation of the names, addresses, and
telephone numbers consisting exclusively of Cardholders of and
applicants for Cards to Merchants, regardless of whether such applicants
were ultimately granted or denied credit.
m. "CARD SALE" means any sale of Goods that Merchants make to a Cardholder
pursuant to this Agreement that is charged to an Account.
n. "CHARGEBACK" means the return to Merchants and reimbursement to
Household of a Sales Slip for which Merchants were previously paid
pursuant to SECTION 6 herein.
o. "CREDIT LOSSES" means, for any Month, the aggregate amounts charged off
during such Month (net of aggregate recoveries during such Month) in
accordance with Household's ten-month contractual charge-off policies,
or such other policies agreed upon by Merchants and Household or
required by Applicable Law.
p. "CREDIT SLIP" means evidence of credit in electronic or paper form for
Goods purchased from Merchants.
q. "EXERCISE RATE" means expressed as a percentage, the amount of Account
Balances generated pursuant to a SAC Promotion which is paid off by
Cardholders prior to the expiration of the promotional period divided by
the total volume of Card Sales generated pursuant to the SAC Promotion.
r. "EXISTING PORTFOLIO" means the existing portfolio of credit card
accounts arising from the private label account purchase program
established and maintained by General Electric Capital Corporation
("GE") for Merchants, which existing portfolio of credit card accounts
Household has agreed to purchase pursuant to a Portfolio Purchase and
Sale Agreement dated September 4, 1998 by and between Household and GE.
s. "GOODS" means the products described in SECTION 2 below, certain
warranties expressly authorized by Household (which authorization shall
not be unreasonably withheld), and related services sold by Merchants in
the ordinary course of Merchants' business to consumers for individual,
family, personal or household use.
t. "INTEREST COVERAGE RATIO" means the result of dividing (i) net income
before income taxes, depreciation, amortization and interest expense by
2
<PAGE>
(ii) interest expense, calculated at the end of each of Merchants'
fiscal quarters using the previous twelve months' data from Merchants'
financial statements prepared in accordance with generally accepted
accounting principles.
u. "LIBOR" means, for each Month under this Agreement, the daily average of
the end-of-business-day quotations of the one-month London Interbank
Offered Rate as published by Bloomberg Financial Markets.
v. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, assets, operations, prospects, or financial condition of
Parent and the Operating Subsidiaries taken as a whole or (b) the
ability of Parent and the Operating Subsidiaries taken as a whole to pay
the obligations under the terms hereof.
w. "MERCHANTS MARKS" means Merchants' names, logos, registered trademarks
and service marks, if any, and other proprietary designations.
x. "MONTH" means a calendar month.
y. "OPERATING INSTRUCTIONS" means (i) the operating instructions and/or
procedures agreed to by the parties from time to time concerning the
Program and (ii) the Regulatory Guidelines provided by Household from
time to time.
z. "PRIME RATE" means the rate of interest per annum appearing in the Wall
Street Journal as the prime rate.
aa. "PROGRAM" means the private label revolving credit card program
associated with Merchants whereby Accounts will be established and
maintained by Household, Cards issued by Household to qualified
consumers purchasing Merchants' Goods, and Card Sales funded all
pursuant to the terms of this Agreement. Program shall also include
Household's administration of the Existing Portfolio following its
purchase by Household.
bb. "PROGRAM YEAR" means any consecutive twelve-month period beginning with
the Effective Date or an anniversary thereof.
cc. "SAME AS CASH OR SAC CARD SALE" means any Card Sale or Sales Slip which
is subject to a SAC Promotion.
dd. "SAC PROMOTION" means any credit promotion program with or without
monthly payments whereby interest accrues but is not assessed if the
Account Balance is paid off prior to the expiration of the promotional
period.
ee. "SALES SLIP" means evidence of a Card Sale in electronic or paper form
for Goods purchased from Merchants.
ff. "STIPULATED JUDGMENT" means that certain Stipulated Final Judgment
ordered and filed on August 18, 1997 in THE PEOPLE OF THE SATE OF
CALIFORNIA V. LEVITZ, ET AL., Alameda Superior Court Case No. 787452-5.
gg. "TERM" means the time period set forth in Section 16.
hh. "TERMINAL" means an electronic terminal or computer capable of
communicating by means of an on-line or dial-up electronic link with an
Authorization Center.
SECTION 2. SCOPE AND PURPOSE. Merchants engage in the sale of home furnishings
and other related products and related services ("Goods"), and Merchants desire
to make financing available to consumers purchasing Goods from Merchants.
Household, a credit card bank in the business of providing
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revolving credit financing pursuant to a credit card, has agreed to provide such
financing under the program to individual qualified consumers purchasing
Merchants' Goods pursuant to the terms and conditions set forth in this
Agreement.
a. FORMS AND CARDS. Household will at its expense provide to Merchants
standard Sales Slips, Credit Slips and other forms from time to time for
use by Merchants in the Program, which documents may be changed from
time to time by Household, provided that Merchants may use their
standard forms of Sales Slips and Credit Slips subject to the review and
approval of such forms by Household. Merchants agree to pay for Card
application/agreements. The design of Cards shall be agreed upon by
Household and Merchants, and Cards shall be produced at Household's
expense. The design and content of billing statements and the terms and
conditions of Accounts and Card application/agreements shall be
determined by Household and are subject to change by Household from time
to time. The expense of changes to Card application/agreements shall be
borne by the party for whose benefit the change is made, with the
parties dividing evenly the expense of changes that benefit both
Household and Merchants except that Merchants shall bear the expense of
any changes to Card application/agreements required by any change in
Applicable Law.
b. CREDIT REVIEW, OWNERSHIP OF ACCOUNTS. All completed applications for
Accounts submitted by Merchants to Household, whether mailed, telephoned
or otherwise electronically transmitted, will be processed and approved
or declined in accordance with Household's credit and other evaluation
criteria and procedures from time to time established by Household after
consultation with Parent, with Household having and retaining all rights
to reject or accept such Card applications in accordance with such
criteria and procedures. Household shall not materially change its
credit criteria except in response to changes in economic conditions or
credit loss experience. Household will only accept Card applications for
revolving credit pursuant to the credit card it issues for individual,
personal, family or household use. Household shall not be obligated to
accept applications for a Card or to approve any Card Sale for consumers
that do not have their principal residence and billing address in the
Continental United Sates. Subject to the provisions of SECTION 4AI
herein, Merchants may present any application declined by Household to
any third party for financing. Household shall not be obligated to take
any action under an Account, including making future advances or credit
available to Cardholders who fail to meet, after the issuance of a Card
to such Cardholder, Household's credit and other evaluation criteria.
Household or its Affiliates shall own the Accounts and bear the credit
risk for such Accounts except as otherwise provided in this Agreement.
Merchants acknowledge and agree that they shall have no interest
whatsoever in the Accounts; provided, however, that Merchants shall have
the right to use the Cardholder List and Merchants' general customer
information pursuant to SECTIONS 12 AND 21 hereof. ------------------
c. APPROVAL RATES. If the Application Approval Rate remains below 50%
during any three or more consecutive Months, then at either Household's
or Parent's request made in writing within the thirty days following the
expiration of the third such Month (an "Approval Rate Notice"),
Household and Parent will promptly meet and confer about the causes of
such rate. The parties will thereafter work in good faith to achieve a
higher Application Approval Rate. If the average Application Approval
Rate does not exceed 50% during the ninety-day period following the date
of the Approval Rate Notice ("Approval Rate Cure Period"), Merchants
shall have the right, for ninety days following the expiration of the
Approval Rate Cure Period, to notify Household of their intention to
terminate this Agreement pursuant to Section 16.b.(iv)(b).
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d. CARD PROMOTIONS, SERVICES AND ENHANCEMENTS. As part of the Program,
Household shall provide certain marketing services to Merchants. These
services shall include, but not be limited to, performing an initial
marketing audit related to the Program, assisting Merchants in creating
a credit marketing plan and with creative design and development of
point of sale materials and other services as such become available or
as Household offers to other customers. In addition, Household and
Parent will confer quarterly, or on such other periodic basis as they
may agree, at which time they may mutually agree to offer for the
upcoming period to existing or potential Cardholders special credit
promotions, including, but not limited to, one to twelve month SAC
Promotions, and other additional services and/or enhancements. The terms
of such promotions, services and enhancements shall be mutually agreed
upon by Household and Parent.
e. CREDIT INSURANCE PROVIDER. Merchants may select a credit insurance
provider for the Program, subject to Household's approval, which
approval shall not be unreasonably withheld and subject to the credit
insurance provider's providing to Household such representations,
warranties, covenants, certifications and indemnifications as Household
may reasonably request as to the credit insurance provider's compliance
with Applicable Laws, including without limitation the Stipulated
Judgment. Household may in its reasonable sole discretion terminate any
such credit insurance provider for any material breach of such
representations, warranties, covenants, certifications and
indemnifications or as otherwise provided in the agreement between
Household and the credit insurance provider. Household shall provide
Merchants with sixty (60) days prior written notice of its termination
of any such credit insurance provider.
SECTION 3. FEES, DISCOUNTS, CHARGES, RATES AND FUNDING.
a. CONSUMER RATE. The consumer rate to be charged on purchases with the
Card for consumers whose accounts are in good standing initially shall
be equal to the Prime Rate plus 14.4 percentage points (14.4%), except
that, at Household's discretion, the consumer rate to be charged on
purchases with the Card by Cardholders who are residents of the State of
New York may be a fixed rate of 24%. The consumer rate shall be subject
to change from time to time by Household with notice to Merchants and,
except with respect to changes in the Prime Rate, after consultation
with Parent to review any proposed change in the consumer rate.
b. ORIGINATION FEE. During the term of this Agreement and for ninety (90)
days after the effective date of termination of the Agreement or up to
the date of purchase of the Accounts pursuant to SECTION 16D. herein,
whichever is earlier, Household shall pay Merchants a monthly fee
("Origination Fee") equal to 100% of the accrued finance charges, and
accrued late fees, over-limit fees, and returned check charges, and in
each case net of reversals, (each of such fees to be set initially at
$25.00) with respect to all Accounts for such Month, less the following:
(i) an amount equal to the product of:
(A) the result of LIBOR divided by twelve, times
(B) the Average Account Balances for such Month, minus the
balance in the SAC Reserve at the end of the previous
Month;
provided, however, that in the event that a plan of reorganization for
Merchants under the United States Bankruptcy Code (11 U.S.C. Sections
101 et seq.) is confirmed by the Bankruptcy Court and becomes effective,
the amount under this subsection (i) for each Month in which the cash
balance of the Portfolio Reserve is no less than the greater of the
Fully Funded Amount (as that term is used in Section 7.a(ii)) or eight
percent (8%) of the Account Balances at the end of such Month, shall be:
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(A) for each Month where the Interest Coverage Ratio at the
end of the previous fiscal quarter was less than 1.5, the
product of:
(1) the result of LIBOR divided by twelve, times
(2) the Average Account Balances for such Month, minus
the balance in the SAC Reserve at the end of the
previous Month; and
(B) for each Month where the Interest Coverage Ratio at the
end of the previous fiscal quarter was equal to or greater
than 1.5, the product of:
(1) the result of LIBOR divided by twelve, times
(2) the Average Account Balances for such Month, minus
the balance in the SAC Reserve at the end of the
previous Month, minus twenty-five percent (25%) of
the average balance in the Portfolio Reserve for
such Month; and
(ii) Subject to the limitations in Section 3b. (ii)(C) and (D) below,
an amount equal to the Average Account Balance during such Month
multiplied by the Origination Factor. As used herein,
"Origination Factor" means a percentage determined as follows:
(A) For each of the first twelve (12) Months during the Term,
the Origination Factor shall be the percentage that is
equal to 88 basis points (.88%). Thereafter, the
Origination Factor shall be adjusted upward or downward as
of each anniversary of the Effective Date based on a
review by Household of historical and projected Credit
Losses.
(B) During any Month after the first twelve Months of the
Term, if aggregate Credit Losses since the Effective Date
have differed from aggregate amounts deducted by Household
under this Section 3b. (ii) by more than one million
($1,000,000) dollars ("Credit Losses Difference"), the
Origination Factor shall be immediately adjusted upward or
downward, as the case may be, to the extent necessary to
compensate Household or Merchant, as the case may be, for
the amount by which aggregate Credit Losses since the
Effective Date have differed from aggregate amounts
deducted by Household under this Section 3b. (ii) and to
reflect projected Credit Losses during the next twelve
(12) months.
(C) In no event shall the amount deducted in any Program Year
under this Section 3b. (ii) exceed the sum of (x) the
product of the Average Account Balances for the Program
Year multiplied by fifteen percent (15%) (the "Cap
Amount"), plus (y) fifty percent (50%) of the amount by
which the Credit Losses for the Program Year exceed the
Cap Amount provided, however, any Credit Losses Difference
at the beginning of the Program Year shall not be included
in determining the amounts which may be payable pursuant
to this provision (C).
(D) In no event shall the amount deducted in any Program Year
under this Section 3b. (ii) be less than the result of the
following calculation: (x) the product of the Average
Account Balances for the Program Year multiplied by eight
percent (8%) (the "Floor Amount"), minus (y) fifty percent
(50%) of the amount by which the Floor Amount exceeds the
Credit Losses for the Program Year provided, however, any
Credit Losses Difference at the beginning of the Program
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Year shall not be included in determining the amounts
which may be payable pursuant to this provision (D).
(iii) An amount equal to the following: For each Month beginning during
the first year of the Term, an amount equal to $3.55 multiplied
by the number of Accounts with debit or credit balances ("Active
Accounts") for which Household processes statements during such
Month. For each Month beginning during the second year of the
Term, an amount equal to $3.42 multiplied by the number of Active
Accounts for which Household processes statements during such
Month. For each Month beginning during the third, fourth and
fifth year of the Term, an amount equal to $3.31 multiplied by
the number of Active Accounts for which Household processes
statements during such Month. For each Renewal Term, this amount
will increase above the amount in effect at the end of the
expiring term by fifty percent (50%) of the cumulative increase
in the Consumer Price Index for the previous calendar year.
During each Month in which Household Life Insurance Company is
Merchants' credit insurance provider, the fee specified in this
Section 3b. (iii) will be reduced by $0.04 per Account.
(iv) Household's good faith estimate of the amount of finance charges
accrued during the Month for SAC Card Sales that will be credited
back to the Cardholder's Account as a result of the Cardholder
paying off all or any portion of the Account Balance prior to the
expiration of the promotional period (the "SAC Reversal
Estimate"); provided, however, that Household shall satisfy this
deduction first from the SAC Reserve to the extent it contains
funds and shall deduct only the deficiency, if any, from the
Origination Fee. Initially, Household shall use fifty-two percent
(52%) as the SAC Reversal Estimate, and quarterly, the parties
shall review actual experiences of finance charges reversed due
to SAC Promotions and compare them to withdrawals from the SAC
Reserve and deductions from the Origination Fee under this
Section 3b. (iv), and (A) shall make such payments or issue such
credits as are necessary to eliminate any discrepancy, and (B)
adjust the SAC Reversal Estimate for the following quarter based
on such comparison and Exercise Rates for the quarter and the
relative ratios expressed as percentages of SAC Promotions of a
given duration then in effect, divided by the total SAC Card
Sales for the quarter. Exhibit C illustrates Household's good
faith estimate of the initial SAC Reversal Estimate and the
methodology for determining the SAC Reversal Estimate as provided
above.
(v) An amount equal to the product of (A) the Average Account
Balances for the Month minus the amount in the SAC Reserve at the
end of the previous Month, multiplied by either (B) 0.205% for
each Month in which the balance of the Portfolio Reserve is less
than the Fully Funded Amount (as that term is used in Section 7a.
(ii)), or (C) 0.1867% for each Month in which the balance of the
Portfolio Reserve is equal to or greater than, the Fully Funded
Amount (as that term is used in Section 7a. (ii)) or Merchant's
Interest Rate Coverage Ratio meets the requirements of Section 7a
(iv) (A) or (C) hereof.
In any Month in which the deductions specified in this Section 3(b)
(excluding any deduction from the SAC Reserve) exceed 100% of the
accrued finance charges and accrued late fees, over limit fees and
returned check fees, in each case net of reversals, with respect to all
Accounts for such Month, Merchants shall pay the difference
("Origination Fee Shortfall") to Household in accordance with Section
3c.
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c. ACCEPTANCE & OFFSET. Subject to the terms, conditions, warranties and
representations in this Agreement, including Household's rights to
offset and to establish reserves, during the Term of this Agreement,
Household agrees to pay to Merchants (i) in accordance with Section 3d,
and provided that Merchants have satisfied all of the conditions set
forth in this Agreement with respect to a given Sales Slip, including,
without limitation, SECTIONS 4A, 5A, AND 8, the amount of such Sales
Slip presented to Household during the Term of this Agreement, less all
amounts due for Sales Slips subject to Chargeback under Section 6
hereof, reimbursements, refunds or customer credits and (ii) within
fifteen days after the end of each Month (unless otherwise provided
herein) and provided that Merchants have satisfied in all material
respects all of the conditions set forth in this Agreement, including,
without limitation, SECTIONS 4A, 5A, AND 8, the amount of the
Origination Fee (if any), less any amounts deducted by Household under
Section 3b of this Agreement. In the event that, for any Month, the
amounts deductible by Household under this Section 3c exceed the
Origination Fee payable for the Month, Household shall bill Merchants
for the difference and for the Origination Fee Shortfall, if any, within
fifteen days after the end of such Month and Merchants shall pay
Household within fifteen (15) days after the date of such invoice. In
the event that such amounts are not paid by Merchants within 30 days
after the date due, Household may offset and/or recoup said amounts from
payments to Merchants for valid and authorized Sales Slips or from other
amounts owed to Merchants under this Agreement, and, in the event such
offset is insufficient. Household may deduct such amounts from the
Portfolio Reserve (as defined in Section 7(a)(i)). Any payment made by
Household to Merchants in connection with any Sales Slip shall be
subject to subsequent review and verification by Household within 90
days after the date of such payment. Household's liability to Merchants
with respect to the funding or processing of any Card Sale, Sales Slip
or Credit Slip shall not exceed the amount on the Card Sale, Sales Slip
or Credit Slip in connection with such transaction. In no event shall
Household or Merchants be liable for any incidental or consequential
damages.
d. PAYMENTS. Subject to Section 3c, payments for Card Sales and Sales Slips
and other amounts payable by Household to Merchants shall be made by
deposit by wire transfer to Parent's account for itself and the
Operating Subsidiaries.
Household will use its best efforts to make payments for Sales Slips on
the Business Day of receipt, verification and processing by Household of
the transmission of the transaction data, if such transmission is
received by 7:30 a.m. Central Standard time; if received later than 7:30
a.m. Central Standard time, then on the first Business Day after said
transmission, but in no event shall such payments be made later than the
second Business Day after receipt of said transmission by Household.
SECTION 4A. MERCHANTS RESPONSIBILITIES CONCERNING CONSUMER TRANSACTIONS.
Merchants covenant and agree that Merchants shall:
a. Honor all valid Cards without discrimination, when properly presented by
Cardholders for payment of Goods.
b. Not require, through an increase in price or otherwise, any Cardholder
to pay any surcharge at the time of sale or pay any part of any charge
imposed by Household on Merchants.
c. Prominently display at each of its locations, advertising and
promotional materials relating to the Card, including without limitation
applications for the Card and use or display such materials in
accordance with any reasonable specifications provided by Household.
Such materials shall be used only for the purpose of soliciting Accounts
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for the Program. Any solicitation, written material, advertising or the
like relating to the Program or the products offered by Household
pursuant to the Program shall be prepared or furnished by Household or
shall receive Household's prior written approval. Merchants agree to pay
for mutually agreed upon promotional materials; provided, however, that
Merchants shall retain the right to use third-party vendors to produce
the materials. Any such materials shall not be used by Merchants
following termination of this Agreement.
d. Use only the form of, or modes of transmission for, Card applications,
Sales Slips and Credit Slips as are provided by Household, and not use
any Card application/agreements, Sales Slips, and Credit Slips provided
by Household other than in connection with a Card transaction.
e. With respect to applications for a Card:
(i) Make sure all information requested on the Card application is
complete and legible;
(ii) obtain the signature on the Card application of all persons whose
name(s) will appear on the Account or will be responsible for the
Account;
(iii) give the applicant the initial disclosures at the time of signing
the Card application/agreement prior to the first transaction
under the Account;
(iv) verify the identification of the individual(s) applying for the
Account, which verification may include obtaining driver's
license and social security numbers;
(v) provide all information reasonably required by Household from
time to time for approval of Card applications by telephone or
other electronic transmission and legibly insert the Account
number and Approval number on the Card application in the
designated area; and
(vi) send the actual original approved signed Card application to
Household at Household's address on PAGE ONE above or such other
address designated by Household in writing within five (5)
Business Days of approval of the Card application by Household.
f. With respect to Sales Slips:
(i) Enter legibly on a single Sales Slip prior to obtaining the
Cardholder's signature (1) a description of all Goods purchased
in the same transaction in detail sufficient to identify the
transaction; (2) the date of the transaction; (3) the
Authorization number; and (4) the entire amount due for the
transaction (including any applicable taxes);
(ii) REQUEST AUTHORIZATION FROM HOUSEHOLD'S AUTHORIZATION CENTER UNDER
ALL CIRCUMSTANCES. Household may refuse to accept or fund any
Sales Slip that is presented to Household for payment more than
one hundred eighty (180) days after the date of Authorization of
the Card Sale. Merchants agree not to divide a single item
between a Household Sales Slip and a sales slip for another
credit provider. If Authorization is granted, Merchants will
legibly enter the Authorization number in the designated area on
the Sales Slip. If Authorization is denied, or if Merchants have
reasonable grounds to believe that the Card is counterfeit,
fraudulent, or stolen, Merchants will not complete the
transaction and will follow any instructions from the
Authorization Center;
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(iii) if the transaction is to be completed electronically or otherwise
without a Card imprint, then enter on the Sales Slip sufficient
information to identify the Cardholder and Merchants, including
at least Merchants' name and the Cardholder's name and Account
number;
(iv) obtain the signature of the Cardholder on the Sales Slip, and
compare the signature on the Sales Slip with the signature panel
of the Card and if identification is uncertain or if Merchants
otherwise question the validity of the Card, contact Household's
Authorization Center for instructions. For telephone orders (TO)
or mail orders (MO) only, the Sales Slip may be completed without
the Cardholder's signature and a Card imprint, but Merchants
shall, in addition to all other requirements under this SECTION
4A, enter legibly on the signature line of the Sales Slip the
letters "TO" or "MO", as appropriate, and not deliver Goods or
perform services after being advised that the "TO" or "MO" has
been canceled or that the Card is not to be honored;
(v) IDENTIFICATION OF THE CARDHOLDER IS THE RESPONSIBILITY OF
MERCHANTS;
(vi) not present the Sales Slip to Household for funding until all
Goods are delivered and all the services are performed to the
Cardholder's satisfaction. If the Card Sale is canceled or the
Goods or services canceled or returned the Sales Slip is subject
to Chargeback;
(vii) enter the Card Sale into the Terminal; and
(viii) deliver a true and completed copy of the Sales Slip to the
Cardholder at the time of purchase or delivery of the Goods.
g. CREDIT SLIPS. If Goods are returned, any Card Sale or services are
terminated or canceled, or Merchants allow any price adjustment, then
Merchants shall not make any cash refund, but shall complete and deliver
promptly to Household a Credit Slip evidencing the refund or adjustment
and deliver to the Cardholder a true and complete copy of the Credit
Slip at the time the refund or adjustment is made. Merchants shall sign
and date each Credit Slip and include thereon a brief description of the
Goods returned, services terminated or canceled, refund or adjustment
made, the date of the original Card Sale, Authorization number,
Cardholder's name, address and Account number, and the date and amount
of the credit, all in sufficient detail to identify the transaction.
Merchants shall legibly reproduce on each Credit Slip the embossed
legends from the Card. The amount of the Credit Slip cannot exceed the
amount of the original transaction as reflected on the Sales Slip.
Merchants shall issue Credit Slips only in connection with previous bona
fide Card Sales and only as permitted hereunder.
h. CARDHOLDER COMPLAINTS. Merchants shall within three (3) Business Days of
receipt provide Household with a copy of any written complaint from any
Cardholder concerning his/her Account.
i. RIGHT OF FIRST REFUSAL; DISPLAY OF THIRD-PARTY MATERIALS. Merchants
shall actively promote the Program. Merchants agree to give Household
right of first refusal in presenting consumer credit applications and/or
Sales Slips. During the term of this Agreement, Merchants shall not
issue, arrange to issue, or accept any private label credit card or
account other than the Card, under any of Merchants' Marks, except with
respect to consumer credit applications declined by Household. To the
extent Merchants display other third party credit or charge card
materials, they shall display the advertising and promotional materials
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relating to the Card in a manner and with a frequency equal to or
greater than that accorded any other third party credit or charge card.
j. Satisfy all other requirements designated in any Operating Instructions
or as may be reasonably required from time to time by Household. In the
event there is any inconsistency between any Operating Instructions and
this Agreement, this Agreement shall govern unless otherwise expressly
indicated by Household in any Operating Instructions.
k. Present each Sales Slip and Credit Slip to Household or such other
person designated by Household in writing, for funding within five (5)
Business Days after the date of the respective sale or credit
transaction.
SECTION 4B. HOUSEHOLD'S SERVICE STANDARDS AND RESPONSIBILITIES CONCERNING
CONSUMER TRANSACTIONS. During the term of this Agreement, Household covenants
and agrees to provide the services and maintain the standards ("Service
Standards") set forth below:
a. For debit balance Accounts serviced by Household, Household will
maintain a customer service representative to statemented Account ratio
of 1 to 14,500. To the extent that Household can maintain the standards
set forth in PARAGRAPH B. below, then this PARAGRAPH A. will not apply.
b. The Service Standard for customer service calls to Household from
Cardholders shall be either an average abandonment rate of 5.0% or an
average speed of answer ("ASA") of thirty (30) seconds, whichever is
better.
c. The average systems "up time" for any Month will not be less than 98.5%.
d. The average speed of automated credit decisions for any Month will not
exceed 30 seconds from the receipt of transmission by Household from
Merchants to the transmission to Merchants by Household.
e. For Accounts collected by Household, and not referred to a collection
agency, Household will maintain an overall collector to delinquent
Account ratio of 1 to 1600 delinquent Accounts. With respect to Accounts
which are 4 or more payments past due Household will maintain a
collector to delinquent Account ratio of 1 to 525 delinquent accounts.
To the extent that Household can increase the number of delinquent
accounts handled by a collector and remain in compliance with PARAGRAPH
F. below, then this PARAGRAPH E. will not apply.
f. For Accounts collected by Household, and not referred to a collection
agency, the average number of payment promises obtained as a percent of
contacts made will be 43% and the average number promises kept as a
percent of promises made will be 59%.
g. Household will use its best efforts to collect or cause to be collected
the indebtedness due on delinquent Accounts and in connection therewith
shall conduct, or cause to be conducted collection activities in such a
manner and use or cause to be used, such technology as is generally
consistent with the consumer debt collection industry and Household's
standard debt collection policies, procedures, resources and its
existing or future technology and in accordance with Applicable Law.
h. Household shall advise Merchants of any governmental investigation or
legal action, which Household determines in its reasonable sole
discretion impairs Household's ability to fulfill its responsibilities
under the Agreement or which may have a material effect on the Program
or for which Merchants may be subject to joint or several liability with
Household as a result thereof.
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i. Household shall provide Merchants with copies of any proposed change in
terms notices within a reasonable period prior to mailing for Merchants'
to review provided that in the event any such change in terms notices
affects accrued finance charges, accrued late fees, over-limit fees,
returned check fees, the Origination Fee payable to Merchants herein,
grace periods, minimum payments, or calculation of Account Balances,
Merchants shall be afforded the opportunity to review and approve such
notices. The foregoing notwithstanding change in terms notices required
by changes in Applicable Law shall not require Merchants' prior
approval.
If Household fails to maintain any two or more of the Service Standards set
forth in paragraphs, a. through f., to the extent any such Service Standards are
then applicable, and the failure to maintain those Service Standards continue
for two consecutive Months, Household will reduce its account servicing fee set
forth in Section 3b(iii) above by $1.00 per Active Account (annualized) until
such time that Household has again achieved all of the above Service Standards
for two consecutive Months; provided, however, that such reduction in the
account servicing fee shall not take effect (x) with respect to paragraph a.,
b., or e. unless Household's actual performance measure varies negatively from
such Service Standard by more than 20%, and (y) with respect to paragraph f.
unless Household's actual performance measure varies negatively from such
Service Standard by more than 10%. If Household fails at any time to maintain
any two or more of the above Service Standards subject to the provision in the
preceding sentence and the failure to maintain any two or more of the Service
Standards continues for three consecutive Months, Household will reduce the
account servicing fee set forth in Section 3b(iii) above by an additional $1.00
per Active Account (annualized) until Household has performed all of the above
Service Standards for two consecutive Months. If Household fails to maintain any
two or more of the Service Standards for four (4) consecutive Months and fails
to cure such failure within 60 days, Merchants shall have the right to terminate
this Agreement under Section 16b(iv)(c) hereof.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
a. Merchants represent and warrant to Household as of the Effective Date
and throughout the term of this Agreement the following:
(i) That each Card Sale will arise out of a bona fide sale of Goods
by Merchants and will not involve the use of the Card for any
other purpose.
(ii) That each Card Sale will be to a consumer for personal, family,
or household purposes.
(iii) That Card applications/agreements will be available to the public
(a) without regard to race, color, religion, national origin,
sex, marital status, or age (provided the applicant has the
capacity to enter into a binding contract) and (b) not in any
manner which would discriminate against an applicant or
discourage an applicant from applying for the Card.
(iv) That, subject to entry of the Approval Order, (a) they have full
corporate power and authority to enter into this Agreement; (b)
all corporate action required under any organization documents to
make this Agreement binding and valid upon Merchants according to
its terms has been taken; and (c) this Agreement is and will be
binding, valid and enforceable upon Merchants according to its
terms.
(v) That, subject to entry of the Approval Order, neither (a) the
execution, delivery and performance of this Agreement, nor (b)
the consummation of the transactions contemplated hereby will
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<PAGE>
constitute a violation of law or a violation or default by
Merchants under their respective articles of incorporation,
bylaws or any organization documents, or any material agreement
or contract and no authorization of any governmental authority is
required in connection with the performance by Merchants of their
obligations hereunder.
(vi) That they have or will acquire and retain all required licenses
to perform their obligations under this Agreement and to conduct
their business, including without limitation, all licenses
required in connection with the sale of credit insurance or other
insurance policies.
(vii) That dates after December 31, 1999 will be properly recognized,
and date-related calculations will be correctly made, in the
operation of computer systems and functions material to the
operation of the Program.
(viii) That they are and will remain in compliance in all material
respects with Applicable Law, and are and will remain in
compliance with all respects of the Stipulated Judgment
applicable to Merchants. Parent shall deliver to Household a
quarterly certification of Merchants' compliance with the
Stipulated Judgment.
b. Household represents and warrants to Merchant as of the Effective Date
and throughout the term of this Agreement the following:
(i) That Accounts will be available to applicants without regard to
race, color, religion, national origin, sex, marital status, or
age (provided the applicant has the capacity to enter into a
binding contract).
(ii) That (a) it has full corporate power and authority to enter into
this Agreement; (b) all corporate action required under any
organization documents to make this Agreement binding and valid
upon Household according to its terms has been taken; and (c)
this Agreement is and will be binding, valid and enforceable upon
Household according to its terms.
(iii) Neither (a) the execution, delivery and performance of this
Agreement, nor (b) the consummation of the transactions
contemplated hereby will constitute a violation of law or a
violation or default by Household under its articles of
incorporation, bylaws or any organization documents, or any
material agreement or contract and no authorization of any
governmental authority is required in connection with the
performance by Household of its obligations hereunder.
(iv) That it has and will acquire and retain all required licenses to
perform its obligations under this Agreement and to conduct its
business.
(v) That dates after December 31, 1999 will be properly recognized,
and date-related calculations will be correctly made, in the
operation of computer systems and functions material to the
operation of the Program.
(vi) That it is and will remain in compliance in all material respects
with Applicable Law.
SECTION 6. CHARGEBACKS TO MERCHANTS. Merchants agree as follows:
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a. CHARGEBACKS. Any Sales Slip or Card Sale is subject to Chargeback under
any one or more of the following circumstances, and thereupon the
provisions of SECTION 6.B. below shall apply:
(i) The Card application or any information on the Card application
or the Sales Slip or any required information on the Sales Slip
(such as the account number, description of Goods purchased,
transaction amount or date) is illegible or materially
incomplete, or the Sales Slip or Card application is not executed
by the Cardholder; or Authorization is not obtained from
Household's Authorization Center, or a valid Authorization number
is not correctly and legibly entered on the Sales Slip; or the
Sales Slip is a duplicate of an item previously paid, or the
price of the Goods or services shown on the Sales Slip differs
from the amount shown on the Cardholder's copy of the Sales Slip;
(ii) Household determines that (1) any of Merchants has breached or
failed to satisfy in any material respect, any term, condition,
covenant, warranty, or other provision of this Agreement,
including, without limitation, SECTIONS 4A AND 5A above, or of
the Operating Instructions, in connection with a Sales Slip or
the transaction to which it relates, or an application for a Card
or the opening of an Account; or (2) the Sales Slip, Card
application or Card Sale is fraudulent or is subject to any claim
of illegality, cancellation, rescission, avoidance or offset for
any reason whatsoever, including, without limitation, negligence,
fraud, misrepresentation, or dishonesty on the part of the
customer or Merchants or their agents, employees, licensees, or
franchisees, or that the related transaction is not a bona fide
transaction in Merchants' ordinary course of business;
(iii) the Cardholder disputes or denies the Card Sale or other Card
transaction, the execution of the Sales Slip or Card application,
or the delivery, quality, or performance of the Goods, services
or warranties purchased, or the Cardholder has not authorized the
Card Sale, or alleges that a credit adjustment was requested and
refused or that a credit adjustment was issued by Merchants but
not posted to the Account; or
(iv) Merchants fail to deliver to Household the Sales Slip, Credit
Slip, Card application or other records of the Card transaction
within the times required in this Agreement.
b. RESOLUTION AND PAYMENT. Merchants are required to resolve any dispute or
other of the circumstances described above in (a) of this SECTION 6 to
Household's reasonable satisfaction within twenty-one (21) days of
notice of Chargeback or Merchants shall pay to Household the full amount
of each such Sales Slip subject to Chargeback or the portion thereof
designated by Household, as the case may be, plus the finance charges
thereon, any attorney fees incurred by Household, and other fees and
charges provided for in the Cardholder agreement; provided, however,
that payment by Merchants under this Section 6.b. shall not be required
with respect to any Cardholder dispute relating to the delivery, quality
or performance of the Goods, services or warranties purchased where (A)
Merchants have attempted in good faith to resolve the dispute, but
reasonably determine, and certify to Household, that the delivery,
quality, and performance of the Goods, services or warranties purchased
are not defective or where (B) Merchants are unable to schedule an
appointment within 21 days of notice of charge back or establish contact
with the Cardholder to resolve the dispute despite Merchants' good faith
efforts, and Merchants' so certify to Household; and provided, further,
however, that payment by Merchants under this Section 6.b. with respect
to any Sales Slips subject to Chargeback under Section 6.a.(i) (except
Chargebacks related to a duplicate Sales Slip of an item previously
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<PAGE>
paid, or the price of the Goods or services shown on the Sales Slip
differs from the amount shown on the Cardholders copy of the Sales Slip)
shall be required only when the Cardholder's payment on such Sales Slip
has become ninety days delinquent. Upon chargeback to Merchants of a
Sales Slip, Merchants shall bear all liability and risk of loss
associated with such Sales Slip or Card Sale, or the applicable portion
thereof, without warranty by, or recourse or liability to, Household.
Household may deduct amounts owed to Household under this Section from
any amounts owed to Merchants under this Agreement.
c. The terms and provisions of this SECTION 6 shall survive the termination
of this Agreement.
SECTION 7. RESERVES.
a. PORTFOLIO RESERVE.
(i) As soon as is commercially practicable after Household's
acquisition of the Existing Portfolio, Household and Merchants
shall establish a portfolio reserve (the "Portfolio Reserve") for
the sole benefit of Household. The purpose of the Portfolio
Reserve is to provide for payment of any amounts due Household at
the end of the Term or upon earlier termination of this
Agreement. Household may also deduct from the Portfolio Reserve
during the Term any amounts not paid by Merchants under Section 3
of this Agreement. In order to secure the performance of
Merchants' obligations hereunder, Merchants hereby grant
Household a first priority security interest in and lien upon the
Portfolio Reserve, and agree to execute such documents and take
such other actions as Household reasonably determines are
necessary in order to perfect such security interest and lien.
(ii) The Portfolio Reserve shall first be considered fully funded for
the Month when the balance of the Portfolio Reserve is no less
than eight percent (8.00%) of the Account Balances at the end of
such Month (the "Fully Funded Amount"). Notwithstanding the
foregoing, Household may, in its reasonable sole discretion,
elect to increase the Fully Funded Amount (and such increased
amount shall thereupon become the Fully Funded Amount);
(A) in accordance with the following chart and based on
Household's good faith estimate of Credit Losses, in the
event that Credit Losses for the previous twelve months
have exceeded twelve percent (12%) of Average Account
Balances on an annualized basis:
<TABLE>
<CAPTION>
---------------------------------- ---------------------------------------
CREDIT LOSSES AS A PERCENT OF CUMULATIVE RESULTING INCREASE IN
AVERAGE ACCOUNT BALANCES FULLY FUNDED AMOUNT OF PORTFOLIO
RESERVE
---------------------------------- ---------------------------------------
<S> <C>
12.1% to 12.9% 1% of Account Balances
---------------------------------- ---------------------------------------
13.0% to 13.9% 2% of Account Balances
---------------------------------- ---------------------------------------
14.0% to 14.9% 3% of Account Balances
---------------------------------- ---------------------------------------
15.0% to 15.9% 4% of Account Balances
---------------------------------- ---------------------------------------
16.0% to 16.9% 5% of Account Balances
---------------------------------- ---------------------------------------
17.0% to 17.9% 6% of Account Balances
---------------------------------- ---------------------------------------
</TABLE>
, or
(B) in accordance with the following chart in the event that
the amount of credit volume generated in any Program Year
through SAC Promotions greater than six months ("Long-Term
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<PAGE>
Promotions") is fifty percent (50%) or more of the total
credit volume for the Program Year:
<TABLE>
<CAPTION>
PERCENT OF LONG-TERM PROMOTIONS CUMULATIVE RESULTING INCREASE IN FULLY
TO TOTAL CREDIT VOLUME FUNDED AMOUNT OF PORTFOLIO RESERVE
<S> <C>
Less than 50% -0-
50%-59% 1.00% of Account Balances
60%-69% 2.00% of Account Balances
70%-79% 3.00% of Account Balances
80%-89% 4.00% of Account Balances
90%-100% 5.00% of Account Balances
</TABLE>
However, the Fully Funded Amount shall not be increased until
after the first time that the balance in the Portfolio Reserve
equals or is greater than 8%. Except as otherwise provided
herein, if the Portfolio Reserve contains an amount of funds in
excess of the Fully Funded Amount at the end of any Month,
Household shall pay such excess amounts to Merchants in
accordance with the payment procedures provided in Section 3.d.
of this Agreement.
(iii) The Portfolio Reserve shall be funded as follows: (A) When
Household purchases the Existing Portfolio, Household shall
deposit in the Portfolio Reserve an amount equal to the
difference between (x) 99% of the Account Balances that are
outstanding on Accounts contained in the Existing Portfolio at
the time of such purchase and (y) the sum of the actual purchase
price paid by Household for the Existing Portfolio plus the
amount of funds contained in the SAC Reserve; and (B) for any
Month in which the amount in the Portfolio Reserve is less than
the Fully Funded Amount, Household shall deduct from payments to
Merchants (x) during such Month commencing during the first year
of the Term, an amount equal to two and one-half percent (2.5%)
of each valid and authorized Sales Slip presented to Household
during such Month, and (y) during such Month commencing after the
first year of the Term, an amount equal to three and one-half
percent (3.5%) of each valid and authorized Sales Slip presented
to Household during such Month.
(iv) In the event a plan of reorganization for Merchants under the
United States Bankruptcy Code (11 U.S.C. Sections 101 et seq.)
has been confirmed by the Bankruptcy Court and becomes effective,
then:
(A) The first time that the Merchants' Interest Coverage Ratio
equals or exceeds 1.75 at the end of a fiscal quarter,
Household (A) shall pay to Parent an amount sufficient to
reduce the balance in the Portfolio Reserve to fifty
percent (50%) of the Fully Funded Amount (the "Portfolio
Reserve Payment"), and (B) provided that the Merchants'
Interest Coverage Ratio has not fallen below 1.75 at the
end of two consecutive fiscal quarters, shall restrict
further funding of the Portfolio Reserve to amounts
necessary to maintain the Portfolio Reserve at fifty
percent (50%) of the Fully Funded Amount.
(B) The first time after the Portfolio Reserve Payment has
been made that the Merchants' Interest Coverage Ratio is
(A) less than 1.75 at the end of two consecutive fiscal
quarters or (B) less than 1.50 at the end of any fiscal
quarter. Household will resume building the Portfolio
Reserve to the Fully Funded Amount, by thereafter
deducting from payments to Merchants an amount equal to
eight percent (8%) of each
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<PAGE>
valid and authorized Sales Slip presented to Household
until the balance in the Portfolio Reserve has reached the
Fully Funded Amount.
(C) Each time thereafter that the Merchants' Interest Coverage
Ratio equals or exceeds 1.75 at the end of two consecutive
fiscal quarters after having dropped below 1.75 for two or
more consecutive fiscal quarters, Household shall (A) pay
to Parent the Portfolio Reserve Payment and (B) provided
that the Merchants' Interest Coverage Ratio does not fall
below 1.75 at the end of two consecutive fiscal quarters,
restrict further funding of the Portfolio Reserve to
amounts necessary to maintain the Portfolio Reserve at
fifty percent (50%) of the Fully Funded Amount; and each
time thereafter that the Merchants' Interest Coverage
Ratio is (x) less than 1.75 at the end of two consecutive
fiscal quarters or (y) less than 1.50 at the end of any
fiscal quarter. Household will resume building the
Portfolio Reserve to the Fully Funded Amount, by
thereafter deducting from payments to Merchants an amount
equal to eight percent (8%) of each valid and authorized
Sales Slip presented to Household until the balance in the
Portfolio Reserve has reached the Fully Funded Amount.
b. SAC RESERVE. After Household's acquisition of the Existing Portfolio,
Household will establish a SAC reserve (the "SAC Reserve") for its sole
benefit to cover the promotional finance charges subject to reversal.
Household shall fund the SAC Reserve upon receipt and in the amount of
any funds that Household receives from GE that represent GE's
unamortized promotional discount amounts related to the Existing
Portfolio. In order to secure the performance of Merchants' obligations
hereunder, Merchants hereby grant Household a first priority security
interest in and lien upon the SAC Reserve, and agree to execute such
documents and take such other actions as Household reasonably determines
are necessary in order to perfect such security interest and lien.
c. LETTER OF CREDIT SUBSTITUTE. At any time that Merchants are not in
default under this Agreement, Merchants may obtain the release of the
amounts held in the Portfolio Reserve by delivering to Household an
irrevocable revolving standby letter of credit in form and substance
satisfactory to Household, and issued by a commercial bank acceptable to
Household in its reasonable sole discretion (the "Letter of Credit").
The face amount of the Letter of Credit or the combination of a Letter
of Credit and cash shall be no less than the Fully Funded Amount of the
Portfolio Reserve provided, however, if the amount of funds required to
be held in the Portfolio Reserve is increased or decreased pursuant to
the provisions of Section 7a(iv) above the face amount of the Letter of
Credit shall be adjusted accordingly. Upon delivery of the Letter of
Credit to Household, funds in the Portfolio Reserve shall be transferred
to Parent to the extent of the amount of such Letter of Credit. The
Letter of Credit shall remain in place for not less than twelve (12)
months from the date of issuance. Merchants shall renew or replace the
Letter of Credit not less than thirty (30) days prior to its expiration.
The Letter of Credit may be drawn upon by Household upon presentation to
the issuing bank of a statement issued by a duly authorized officer of
Household, (i) to recover amounts as and when due under this Agreement
that it would otherwise be entitled to deduct from the Portfolio Reserve
or (ii) to fund the Fully Funded Amount of the Portfolio Reserve if (A)
Merchants have not delivered to Household a new letter of credit at
least thirty (30) days prior to the expiration of the then existing
Letter of Credit, (B) Household is entitled under this Agreement to
withdraw amounts from the Portfolio Reserve, or (C) this Agreement
terminates and Merchants owe Household any amounts that are subject to
payment from the Portfolio Reserve.
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<PAGE>
d. CAPITALIZATION OF HOUSEHOLD. Household shall deliver to Parent an annual
certification that its capital measures meet the "Well capitalized"
category as that term is used and defined by the Office of the
Comptroller of the Currency.
SECTION 8. TAPE OR ELECTRONIC TRANSMISSION & RECORDS. Data, records and
information shall be transmitted and maintained as described below.
a. TRANSMISSION OF DATA. In lieu of forwarding paper Sales Slips and Credit
Slips to Household, Merchants shall transmit to Household, by electronic
transmission or other form of transmission reasonably designated by
Household all data required by this Agreement to appear on Sales Slips
and Credit Slips. Household shall provide at its expense a
telecommunication link between Merchants' computer system and
Household's computer system. All data transmitted shall be in a medium,
form and format reasonably designated by Household and shall be
presorted according to Household's instructions. Any errors in data
originated by Merchants or in Merchants' transmission of such data
shall, as between Household and Merchants, be the sole responsibility of
Merchants. The means of transmission indicated above in this Section
shall be the exclusive means of electronic transmission utilized by
Merchants for the transmission of Sales Slip or Credit Slip transaction
data to Household. Merchants shall use a leased line, supplied by
Household, for communicating with Household pursuant to the guidelines
set forth in SECTION 4A. Household's voice Authorization Center will be
available for use for times when the leased line authorization system is
not in operation. In the event the Authorization processing line is not
in operation as a result of a technical failure from Household, and as a
result the authorizations for Cardholder purchases cannot be obtained,
Merchants shall have a $750.00 floor release per transaction and/or
Cardholder. In the event that the system is not in operation as a result
of a problem from Merchants, and as a result the authorizations for
Cardholder purchases cannot be obtained, Merchants shall have a $750.00
floor release per transaction and/or Cardholder; provided, however, if
Household has closed or placed a hold on the Cardholder's Account to any
further sales transactions, Household shall be under no obligation to
purchase such Sales Slip. Merchants must obtain Authorization for any
sales amount exceeding $750.00. If either party finds that this floor
limit is not acceptable, this may by changed by mutual agreement of the
parties.
b. RECEIPT OF TRANSMISSION. Upon successful receipt of any transmission,
Household shall accept such transmission and pay Merchants in accordance
with this Agreement, subject to subsequent review and verification by
Household as provided in Section 3.c. and to all other rights of
Household and obligations of Merchants as set forth in this Agreement.
If data transmission is by tape, Merchants agree to deliver upon demand
by Household a duplicate tape of any prior tape transmission, if such
demand is made within forty-five (45) calendar days of the original
transmission and, with respect to any closed location, within ninety
(90) calendar days.
c. RECORDS. Merchants shall maintain the actual paper Sales Slips, Credit
Slips, and other records pertaining to any transaction covered by this
Agreement for such time and in such manner as Household or any law or
regulation may require, but in no event less than two (2) years after
the date Merchants presents each transaction data to Household, and
Merchants shall make and retain for at least seven (7) years legible
copies of such actual paper Sales Slips, Credit Slips or other
transaction records. Consistent with the foregoing record retention
requirements, within fifteen (15) days (thirty (30) in the case of a
closed Merchant store location), or such earlier time as may be
reasonably required by Household, or receipt of Household's request,
18
<PAGE>
Merchants shall provide to Household the actual paper Sales Slips,
Credit Slips or other transaction records, and any other documentary
evidence available to Merchants and reasonably requested by Household to
meet its obligations under law (including its obligations under the Fair
Credit Billing Act) or otherwise to respond to questions, complaints,
lawsuits, counterclaims or claims concerning Accounts or requests from
Cardholders, or to enforce any rights Household may have against a
Cardholder, including, without limitation, litigation by or against
Household, collection efforts and bankruptcy proceedings, or for any
other reason. In the event Merchants fail to comply in any respect with
the provisions of this Section, Household may process a Chargeback for
each Card Sale involved pursuant to SECTION 6 above.
d. Promptly upon termination of this Agreement or upon the request of
Household, Merchants will provide Household with all original and
microfilm copies of documents required to be retained under this
Agreement.
e. Subject to Section 20, Parent, by its officers, employees or other
professionals who agree to be bound by the provisions of Section 20,
shall have the right, at its own expense, to conduct reasonable audits
of Household's calculation and collection of the fees and charges
payable by or to Merchants hereunder and of Household's credit approval
and collection efforts, such audits to be conducted in a manner which
will minimize interference with Household's normal business operations.
f. Household will provide such reports to Merchants as are agreed to from
time to time.
g. The terms and provisions of SECTION 8C AND D shall survive the
termination of this Agreement and the provisions of SECTION E shall
remain in effect for ninety (90) days from the effective date of
termination of this Agreement.
SECTION 9. PAYMENTS BY CARDHOLDER AND ENDORSEMENT. Merchants agree that
Household has the sole right to payments on any Sales Slip funded by Household.
Unless specifically authorized in writing by Household, Merchants agree not to
make any collections on any such Sales Slip. Merchants may accept Cardholder
payments at Merchants' store locations in trust for Household, and agree to
deliver the same to Household within two (2) Business Days of Merchants'
receipt, together with the Cardholder's name, Account number, and any
correspondence accompanying the payment. Merchants agree that Merchants shall be
deemed to have endorsed any Sales Slip, Credit Slip, or Cardholder payments by
check, money order, or other instrument made payable to Merchants that a
Cardholder presents to Household in Household's favor, and Merchants hereby
authorize Household to supply such necessary endorsements on behalf of
Merchants.
SECTION 10. MERCHANTS CREDIT INFORMATION. Household may periodically review
Merchants' financial stability. To assist Household in doing this, Merchants
shall deliver to Household (i) an unaudited, condensed, consolidated financial
statement, including, without limitation, the Interest Coverage Ration, no later
than forty-five (45) days after the end of each quarter and (ii) an audited
consolidated financial statement no later than ninety (90) days after the end of
each fiscal year, including, without limitation, the all footnotes, and
supporting materials with sufficient detail to accurately portray the financial
condition of Merchants. Merchants warrant and represent that its credit
application and financial statements submitted to Household by or on behalf of
Merchants are true and accurate and Merchants agree to supply such additional
credit information as Household may reasonably request from time to time.
Merchants understand that Household, at its own expense, may verify the
information on any financial statement or other information provided by
Merchants and, from time to time, may seek credit and other information
concerning Merchants from others and may provide financial and other
19
<PAGE>
information to its affiliates or others for purposes of its asset
securitizations and sales.
SECTION 11. MERCHANTS' BUSINESS PRACTICES. Merchants agree to provide adequate
services in connection with each Card Sale pursuant to standard customs and
trade practices and any applicable Merchants' warranties, and to provide such
repairs, service and replacements and take such other correction action as may
be required by law.
SECTION 12. CARDHOLDER ACCOUNT INFORMATION. Merchants shall not sell, provide,
or exchange Account information in the form of imprinted Sales Slips, carbon
copies of imprinted Sales Slips, or other media obtained by reason of a Card
transaction to any third party other than to Merchants' agents for the purpose
of assisting Merchants in their business with Household or pursuant to a
government request; provided, however, that the foregoing shall not limit
Merchants' rights to maintain and use information as to its customers generally,
regardless of whether or not such information is also Account information.
SECTION 13. CHANGE IN OWNERSHIP. Merchants agree to send Household at least
thirty (30) days prior written notice of any change in Merchants' names or
locations, any material change in ownership of Merchants' business or any change
in Sales Slip or Credit Slip information concerning Merchants.
SECTION 14. INDEMNIFICATION.
a. INDEMNIFICATION BY MERCHANTS. Merchants shall be liable to and shall
indemnify and hold harmless Household and its Affiliates and their
respective officers, employees, agents and directors from any losses,
damages, claims, judgments, penalties, counterclaims, offsets costs,
expenses (including reasonable attorneys' fees) against Household or any
Affiliate of Household or their respective officers, employees, agents
and directors arising out of: (i) Merchants' failure to comply with this
Agreement or any of the Operating Instructions; (ii) any claim, dispute,
complaint or setoff made by a Cardholder with respect to anything done
or not done by Merchants in connection with Card Sales or credits; (iii)
anything done or not done by Merchants in connection with the furnishing
of any Goods, warranties or services purchased by Cardholders; (iv) the
death or injury to any person or the loss, destruction or damage to any
property arising out of the design, manufacture or furnishing by
Merchants of any Goods, warranties or services purchased by Cardholders;
(v) any claim or complaint of a third party in connection with
Merchants' advertisements and promotions relating to the Card which were
prepared by Merchants or at Merchants' direction (other than those that
are prepared by Household); (vi) any illegal or improper conduct of
Merchants or their employees or agents; and (vii) any claim or complaint
by a consumer that Merchants have violated the Equal Credit Opportunity
Act, Truth in Lending Act, or any other act and related Applicable Laws
and (viii) as provided in Section 19 (b) hereof, any claim of
infringement by virtue of Household's use of the Merchants Marks in
accordance with Section 19 hereof. Household may deduct any amounts
incurred by Household under this Section from amounts owed Merchants
under this Agreement pursuant to Section 14.d. below.
b. INDEMNIFICATION BY HOUSEHOLD. Household shall be liable to and shall
indemnify and hold harmless Merchants and its subsidiaries and
affiliates and their respective officers, employees, agents and
directors from any losses, damages, claims, judgments, penalties,
counterclaims, offsets, costs, expenses (including reasonable attorneys'
fees) against Merchants or their respective officers, employees, agents
and directors arising out of (i) Household's failure to comply with this
Agreement or any of the Operating Instructions; (ii) any claim, dispute,
complaint or set off by a Cardholder resulting from anything done or not
done by Household in connection with such Cardholder's Account; (iii)
20
<PAGE>
any illegal or improper conduct of Household, or its employees or agents
with respect to the Card, a Card Sale, an Account or any other matters
relating to the Program, including but not limited to matters relating
to collection and servicing the Accounts and repossession of Goods; (iv)
any claim, dispute, complaint or setoff by a consumer resulting from a
violation by Household, with respect to those portions of the
application/agreement, billing statement and other materials provided by
Household that are prepared by Household or at Household's direction
(other than those that are prepared by Merchant), of the Equal Credit
Opportunity Act, Truth in Lending Act or any other act and related
Applicable Laws and regulations; (v) any claim, dispute or complaint of
any third party in connection with advertisements and promotions
prepared or furnished by Household or at Household's direction relating
to the Program; (vi) Household's breach of Section 5.b.; and (vii) GE's
or any GE subcontractor's use of Merchant's Marks, pursuant to Section
19 below, or any illegal or improper conduct of GE or any GE
subcontractor under the Interim Servicing Agreement in connection with
the servicing of the Accounts. Notwithstanding the foregoing, the
indemnification by Household shall not apply to any claim or complaint
relating to (x) materials, including insurance election forms to be
included on the application/agreement form, that are provided to
Household by the credit insurance provider selected by merchant pursuant
to Section 2.e. or (y) the failure of Merchants to resolve a billing
inquiry or dispute with where such failure was not caused by Household.
c. NOTICE OF CLAIM & SURVIVAL. In the event that Household or Merchants
shall receive any claim or demand or be subject to any suit or
proceeding of which a claim may be made against the other under this
Section, the indemnified party shall give prompt written notice thereof
to the indemnifying party and the indemnifying party will be entitled to
participate in the settlement or defense thereof with counsel
satisfactory to indemnified party at the indemnifying party's expense.
In any case, the indemnifying party and the indemnified party shall
cooperate (at no cost to the indemnified party) in the settlement or
defense of any such claim, demand, suit, or proceeding. The terms of
this SECTION shall survive the termination of this ------- Agreement.
d. When an event giving rise to indemnification reaches final resolution
the party seeking indemnification under this Section shall forward to
the indemnifying party written notice of any amounts due and owing by it
along with any supporting documentation for such amount for which
indemnification is being sought and the indemnifying party shall within
thirty (30) days of receipt of such notice pay such amount to the
indemnified party or notify such party in writing why such amounts are
not due and owing to the indemnified party. The parties shall use their
best efforts to reach agreement on the amounts due and owing for
indemnification.
SECTION 15. NONWAIVER. Merchants' liability under this Agreement, including,
without limitation, their liability under SECTION 6 above, shall not be affected
by any settlement, extension, forbearance, or variation in terms that Household
may grant in connection with any Sales Slip or Account or by the discharge or
release of the obligations of the Cardholder(s) or any other person by operation
of law or otherwise.
SECTION 16. TERM AND TERMINATION.
a. TERM. This Agreement shall be effective as of the Effective Date;
provided, however, that if the Effective Date has not occurred by
September 30, 1998, or such later date agreed to by Household and
Merchants, this Agreement shall not become effective and shall be null
and void. If this Agreement becomes effective, it shall remain in effect
until the fifth (5th) anniversary of the Effective Date ("INITIAL
21
<PAGE>
TERM"), and shall be automatically renewed for successive two year terms
(the "RENEWAL TERM(S)") unless and until terminated as provided herein.
The Initial Term and any Renewal Terms are referred to collectively as
the "TERM". The termination of this Agreement shall not affect the
rights and obligations of the parties with respect to transactions and
occurrences which take place prior to the effective date of termination,
except as otherwise provided herein.
b. TERMINATION. This Agreement may be terminated:
(i) effective at the end of the Initial Term or any Renewal Term, by
Household or Merchants upon not less than three hundred and sixty
(360) days written notice prior to the end of such term;
(ii) by Household or Merchants upon written notice to the other in the
event the other party shall elect to wind up or dissolve its
operation or is wound up and dissolved; becomes insolvent or
generally fails to pay its debts as they become due (other than
debts incurred by Merchants prior to the commencement of the
Chapter 11 Case); makes an assignment for the benefit of creditors;
files a voluntary petition in bankruptcy, or for reorganization or
is adjudicated as bankrupt or insolvent (other than the
continuation of Merchants as debtors in the Chapter 11 Case); or
has a liquidator or trustee appointed over all or substantially all
of its affairs;
(iii) by Household upon not less than ninety (90) days written notice
(a) if a change occurs in Merchants' financial condition taken as a
whole and such change has a Material Adverse Effect, (b) if there
occurs any material change in the ownership (other than a change in
ownership as a result of the Chapter 11 Case) of any of Merchants
or of their business (regardless of the form of the transaction)
and such change has a Material Adverse Effect except if the
Material Adverse Effect is caused by any action or inaction of
Household, (c) in the event any of Merchants materially breaches
its obligations or any warranty or representation under this
Agreement and such breach has not been cured within ninety (90)
days after receipt of such notice, or (d) if any law, rule or
regulation by any federal, state or local authority takes effect
that materially impairs or restricts Merchants' or Household's
ability to perform their respective obligations hereunder or that
would, in Merchants' and Household's reasonable judgment, reduce by
more than ten percent (10%) the then current ratio of (A) collected
finance charges, late fees, overlimit fees and returned check
charges over (B) Average Account Balances;
(iv) by Merchants upon not less than ninety (90) days written notice in
the event that (a) Household materially breaches its obligations or
any warranty or representation under this Agreement including,
without limitation, SECTION 5B, and such breach has not been cured
within ninety (90) days after receipt of such notice; (b) Household
fails to maintain the Approval Rates in accordance with the
provisions of SECTION 2C; (c) Household materially breaches its
responsibilities under SECTION 4B of this Agreement; (d) there
occurs a material change in the ownership of Merchants or of the
Merchants' business (regardless of the form of the transaction) and
the new owner has a private label credit card program with
receivables in excess of $100 million that has been in existence
for 2 years, and in such event termination shall be effective six
months after Household's receipt of such written notice; or (e) if
any law, rule or regulation by any federal, state or local
authority takes effect that materially impairs or restricts
Merchants' or Household's ability to perform their respective
obligations hereunder or that would, in Merchants' and Household's
reasonable judgment, reduce by more than ten percent (10%) the
22
<PAGE>
then current ratio of (A) collected finance charges, late fees,
overlimit fees and returned check charges over (B) Average Account
Balances.
c. DUTIES AND RIGHTS UPON TERMINATION. Upon termination of this Agreement,
Merchants will promptly submit to Household all Card Sales, Sales Slips,
credit and other data made through the date of termination. Household is
not liable to Merchants for any incidental or consequential damages that
Merchants may suffer as a result of Household's termination of this
Agreement. Commencing on the ninety-first day following the effective
date of termination of this Agreement, Merchants shall pay to Household,
monthly, within ten (10) days of Household's request, a liquidation fee
in the amount of $5.00 per Month for each Account for which Household
processes a statement during such Month, until such time as the
outstanding Account Balances are liquidated and paid in full. In the
event this Agreement is terminated for any reason or notice of
termination is given by either party, Household may deduct amounts owed
to it by Merchants from the Portfolio Reserve and take such other
reasonable actions including but not limited to establishing and
maintaining additional reserves from payments otherwise payable to
Merchants to protect Household's rights under this Agreement and to
cover chargeback amounts and other amounts owing to Household. In the
event that this Agreement is terminated by Merchants under Section
16.b(iv)(d), then Merchants shall pay Household a termination fee (the
"Termination Fee") equal to a percentage of the Account Balances on the
effective date of the Termination. The percentage used to determine the
Termination Fee shall depend upon when this Agreement is terminated by
Merchants due a material change in the ownership of Merchants or of the
Merchants' business. Exhibit B hereto provides a listing of Termination
Fees applicable to termination during each year of the Agreement. The
provisions of this subsection shall survive the termination of this
Agreement.
d. PURCHASE OPTION.
(i) Upon termination of this Agreement pursuant to this Section 16,
Merchants shall have the option to purchase (or assign its option
to purchase to a third party), or to arrange for the purchase of,
the Accounts without recourse to Household and without
representation or warranty, express or implied, at a price equal
to the full amount of the Account Balances, less an amount equal
to the then current balance of the Portfolio Reserve and the then
current balance, if any, of the SAC Reserve; provided, however,
in the event that this Agreement is terminated by Merchants
pursuant to Section 16b(iv)(d) due to a material change in the
ownership of Merchants or of the Merchants' business, the price
shall be equal to the full amount of the Account Balances, plus
the Termination Fee, less an amount equal to the then current
balance of the Portfolio Reserve and the then current balance, if
any, of the SAC Reserve at the time such sale is consummated. The
percentage used to determine the Termination Fee shall depend on
when this Agreement is terminated by Merchants due to a material
change in the ownership of Merchants or of the Merchants'
business. Exhibit B hereto provides a listing of Termination Fees
applicable to such sale during each year of the Agreement.
(ii) The purchase shall occur not later than ninety (90) days after
the effective date of termination of this Agreement and shall be
under such terms and conditions as are reasonably acceptable to
Household.
23
<PAGE>
(iii) Household shall cooperate with Merchants to take, or cause to be
taken, such reasonable actions as are necessary to effect the
purchase of the Accounts.
SECTION 17. STATUS OF THE PARTIES. In performing their responsibilities pursuant
to this Agreement, Household and Merchants are in the position of independent
contractors, and in no circumstances shall either Household or Merchants be
deemed to be the agent or employee of the other. This Agreement is not intended
to create, nor does it create and shall not be construed to create, a
relationship of partner or joint venturer or an association for profit between
Household and Merchants. Any amounts ever owing by Merchants pursuant to this
Agreement represent contractual obligations only and are not a loan or debt.
SECTION 18. FORCE MAJEURE. No party to this Agreement shall be liable to the
other by reason of any failure in performance of this Agreement in accordance
with its terms if such failure arises out of a cause beyond the control and
without the fault or negligence of such party. Such causes may include but are
not limited to acts of God, of the public enemy or of civil or military
authority, unavailability of energy resources, system or communication failure,
delay in transportation, fires, strikes, riots or war. In the event of any force
majeure occurrence, the disabled party shall use its best efforts to meet its
obligations as set forth in this Agreement.
SECTION 19. LIMITED LICENSE.
(a) Merchants hereby grant to Household and Household accepts a
non-exclusive, non-transferable license for purposes of this Agreement
to use Merchants' Marks on the Cards, Card application/agreements,
periodic statements, billing statements, collection letters or
documents, promotional or advertising materials and otherwise in
connection with the Program provided, however, Household may grant to GE
or any GE subcontractor the right to use Merchants Marks in connection
with the foregoing solely during its interim servicing of the Accounts
and the Existing Portfolio under the terms of the Interim Servicing
Agreement dated September 4, 1998 by and between Household and GE which
agreement shall contain provision to protect Merchants rights, title and
interests in Merchants' Marks. All displays of the Merchants' Marks
shall conform to the prototypes provided by Merchants, shall include
such notices and trademark legends as Merchants shall reasonably
require, and shall be subject to Merchants' periodic reasonable review
of such use and to such reasonable specifications of Merchants.
Merchants may not use any name or service mark of Household or any of
its Affiliates in any manner without the prior written consent of
Household, except as in the reasonable determination by Merchants to be
required by Applicable Law.
(b) Merchants represent and warrant that they own appropriate federal or
state trademark registrations or enforceable common law rights to
protect their interest in the use and ownership of the Merchants' Marks,
and have the right to license the Merchants' Marks to Household as
contemplated by this Agreement. Merchants shall indemnify, defend and
hold Household harmless from any loss, damage, expense or liability
arising from any claims of alleged infringement of the Merchants' Marks
(including reasonable attorneys' fees and costs). Merchants shall, at
its expense, defend and/or settle any action that may be commenced
against Household alleging that the use of the Merchants' Marks
infringes upon any rights of others. In such event, Household shall, at
the reasonable direction of Merchant and at Merchants' expense, promptly
discontinue its use of the Merchants' Marks alleged to infringe.
(c) Household acknowledges Merchants' exclusive ownership interest in and to
the Merchants' Marks. Any and all goodwill arising from use of the
Merchants' Marks under this Agreement shall inure to the benefit of
24
<PAGE>
Merchants. Household agrees that it will not directly or indirectly
contest the validity of Merchants/ ownership of the Merchants/ Marks or
the license granted herein. Merchants are familiar with the manner in
which Household conducts similar programs. Household agrees that it will
use Merchants' Marks substantially in accordance with standards of
quality not less than those it is employing as of the date hereof in
connection with comparable programs. Merchants' shall have the right to
periodically inspect the use of the Merchants' Marks.
(d) Upon termination of this Agreement, all rights with respect to the
Merchants' Marks shall revert to Merchants and Household shall
discontinue use of the Merchants' Marks; provided, however, that
Household shall have the continuing right to use the Merchants' Marks to
service and collect upon indebtedness existing on the date of
Termination, subject to the terms of this Section 19.
SECTION 20. CONFIDENTIALITY. Merchants will keep confidential and not disclose
to any person or entity (except to employees, officers, partners, directors,
attorneys, accountants and other agents or advisors of Merchants who are engaged
in the implementation, execution, administration and enforcement of the Program)
all information, software, systems and data, that Merchants receive from
Household, or from any other source which is obligated to maintain the
confidentiality of the information, relating to the Program and matters which
are subject to the terms of this Agreement, including, but not limited to, the
Cardholder List except as permitted herein or other Account information, and,
except as otherwise permitted herein, shall use, or cause to be used, such
information solely for the purposes of the performance of Merchants' obligations
under the terms of this Agreement; provided, however, that Merchants may
disclose such information, software, systems, data, and matters (i) to the
extent that they become generally publicly available through no fault of
Merchants, or Merchants receive such information from an independent third party
not under any obligation of confidentiality directly or indirectly to Household,
or disclose thereof is required by Applicable Law, governmental request, or any
other legal process or authority having the force of law, (ii) to auditors of
Merchants, (iii) to the statutory committee of unsecured creditors and its
attorneys and financial advisors in Merchants' Chapter 11 cases, and (iv) to
advisors and agents retained by Merchants in connection with audits conducted
under Section 8.e. hereof, provided that any such information that is designated
as highly confidential by Household shall not be disclosed unless such committee
or such advisors specified in clauses (iii) and (iv) above in each case enter
into a confidentiality agreement with Merchants. Household will keep
confidential and not disclose to any person or entity (except employees,
officers, agents or directors of Household or its Affiliates who are engaged in
the implementation and execution of the Program) any information, software,
systems, or data that Household receives from Merchants, or from any other
source which is obligated to maintain the confidentiality of the information, or
which relates to the operation of Merchants' business, its Goods or the
Cardholder List except as permitted herein and, except as otherwise permitted
herein, shall use, or cause to be used, such information solely for the purposes
of the performance of Household's obligations under the terms of this Agreement;
provided, however, that Household may disclose such information (i) to the
extent that it becomes generally publicly available through no fault of
Household, or Household receives such information from an independent third
party not under any obligation of confidentiality directly or indirectly to
Merchants, or disclosure thereof is required by Applicable Law, governmental
request, or any other legal process or authority having the force of law, or
(ii) to auditors of Household. In the event Household sells or assigns the
Accounts or any portion of the Accounts under the Program, Household may
disclose any information under this provision reasonably necessary or required
to effectuate such sale or assignment, provided that such assignee agrees in
writing to maintain the confidentiality thereof to the same extent as Household.
The provisions of this SECTION 20 shall survive the termination of this
Agreement.
25
<PAGE>
SECTION 21. ADDITIONAL PRODUCTS & SERVICES.
(a) Household and/or any of its Affiliates may at any time, whether during
or after the term of this Agreement and whether or not the Accounts are
owned by Household, solicit Cardholders for deposit accounts, credit
cards or other types of loan accounts or other financial or insurance
services or products offered by Household and/or any of its Affiliates;
provided, however, that such solicitations shall not be targeted
exclusively or substantially exclusively to Merchants' customers and
Household shall not use any of Merchants' Marks in any such
solicitation. Except as provided above, Household will not, during the
term of this Agreement, or for ninety (90) days after the effective date
of termination of this Agreement, in the event the Accounts are
purchased pursuant to SECTION 16D. hereof, use, sell, license or rent
the Cardholder List, except in connection with the administration of the
program as provided in this Agreement.
(b) Merchants may at any time, whether during or after the term of this
Agreement solicit Cardholders for products and services other than
deposit accounts, credit cards or other types of loan accounts except
that if Merchants purchase the Accounts pursuant to SECTION 16D. hereof,
Merchants may also solicit such Cardholders for deposit accounts, credit
cards, or other types of loan accounts, provided that Merchants shall
not use Household's name in any such solicitation.
SECTION 22. NOTICES. All notices required or permitted by this Agreement shall
be in writing and shall be sent to the respective parties: if to Household, to
the Attention of President (with a copy to the Attention of General Counsel, HRS
Law Department 2700 Sanders Road, Prospect Hights, IL 60070); and if to
Merchants, to the Attention of Sheila C. Reinken, Vice President and Treasurer
with a copy to Edward P. Zimmer, Vice President and General Counsel at
Household's and Merchants' respective addresses set forth on page one of this
Agreement or such other addresses as each party may designate to the other by
notice hereunder. Said notices shall be deemed to be received when sent to the
above addresses (i) upon five (5) Business Days after deposit in the U.S. first
class mail with postage prepaid, (ii) upon personal delivery, or (iii) upon
receipt by telex, facsimile, or overnight/express courier service or mail.
SECTION 23. AMENDMENTS AND SUPPLEMENTARY DOCUMENTS. Household may amend this
Agreement with the consent of Merchants, which shall not be unreasonably
withheld, upon ten (10) days prior notice to Merchants if such modification is
reasonably determined by Household to be required by Applicable Law. Reference
herein to "this Agreement" shall include any schedules, appendices, exhibits,
and amendments hereto. Any amendment or modification to this Agreement must be
in writing and signed by a duly authorized officer of Household and Merchants to
be effective and binding; no oral amendments or modifications shall be binding
upon the parties.
SECTION 24. ASSIGNMENT. This Agreement is binding upon the parties and their
successors and assigns. Notwithstanding, Merchants may not assign this Agreement
without the prior written consent of Household, and except as otherwise provided
in the next sentence, Household may not assign this Agreement without the prior
consent of Parent; any purported assignment without such consent shall be void.
Notwithstanding the foregoing, Household may without Merchants' consent assign
this Agreement or any of the rights or obligations hereunder to any Affiliate of
Household at any time; provided, that Household shall not be released from any
obligations under this Agreement upon such assignment. In the event of such
assignment, the assignee shall have the same rights and remedies as Household
under this Agreement.
SECTION 25. NONWAIVER AND EXTENSIONS. Neither Household nor Merchants shall, by
any act, delay, omission, or otherwise, be deemed to have waived any rights
26
<PAGE>
or remedies hereunder. Merchants agree that Household's failure to enforce any
of its rights under this Agreement shall not affect any other right of Household
or the same right in any other instance. Household agrees that Merchants'
failure to enforce any of their rights under this Agreement shall not affect any
other right of Merchants or the same right in any other instance.
SECTION 26. RIGHTS OF PERSONS NOT A PARTY. This Agreement shall not create any
rights on the part of any person or entity not a party hereto, whether as a
third party beneficiary or otherwise.
SECTION 27. SECTION HEADINGS. The headings of the sections of this Agreement are
for reference only, are not a substantive part of this Agreement and are not to
be used to affect the validity, construction or interpretation of this Agreement
or any of its provisions.
SECTION 28. INTEGRATIONS. This Agreement contains the entire agreement between
the parties. There are merged herein all prior oral or written agreements,
amendments, representations, promises and conditions in connection with the
subject matter hereof. Any representations, warranties, promises or conditions
not expressly incorporated herein shall not be binding.
SECTION 29. GOVERNING LAW/SEVERABILITY. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois. If any provision
of this Agreement is contrary to Applicable Law, such provision shall be deemed
ineffective without invalidating the remaining provisions hereof.
SECTION 30. JURISDICTION. ANY SUIT, COUNTERCLAIM, ACTION OR PROCEEDING BY THE
PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT MUST BE BROUGHT SOLELY IN
THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS OR THE STATE OF FLORIDA OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA; AND THE PARTIES
HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND ANY
APPELLATE COURTS THEREOF FOR THE PURPOSE OF ANY SUCH SUIT, COUNTERCLAIM, ACTION,
PROCEEDING OR JUDGMENT (IT BEING UNDERSTOOD THAT SUCH CONSENT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS WAIVES ANY RIGHT TO SUBMIT ANY DISPUTES HEREUNDER TO
ANY COURTS OTHER THAN THOSE ABOVE). NOTWITHSTANDING THE FOREGOING, SO LONG AS
MERCHANTS' CHAPTER 11 CASES ARE PENDING, ANY SUIT, COUNTERCLAIM, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE BROUGHT IN THE
UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE.
SECTION 31. WAIVER OF JURY TRIAL. HOUSEHOLD AND MERCHANTS HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, ANY
RELATED DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM
ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY
SUCH ACTION, SUIT PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOUSEHOLD AND
MERCHANTS ENTERING INTO THIS AGREEMENT.
[Signatures appear on next page]
27
<PAGE>
IN WITNESS WHEREOF, Household and Merchants have caused their duly authorized
representatives to execute this Agreement as of the date set forth above.
<TABLE>
<S> <C>
BANK:
WITNESS OR ATTEST: HOUSEHOLD BANK (SB), N.A.
By: /s/ SHARYN MURPHY By: /s/ CHARLES A. CALIP
------------------------------- ------------------------------
Name: Sharyn Murphy Name: Charles A. Calip
------------------------------- ------------------------------
Title: Executive Secretary Title: Vice President
------------------------------- ------------------------------
MERCHANTS:
LEVITZ FURNITURE CORPORATION
WITNESS OR ATTEST: Federal Tax TD #23-1657490
By: /s/ MICHAEL E. MCCREERY By: /s/ SHEILA C. REINKEN
------------------------------- ------------------------------
Name: Michael E. McCreery Name: Sheila C. Reinken
------------------------------- ------------------------------
Title: Sr. V.P. / CFO Title: Vice President
------------------------------- ------------------------------
LEVITZ FURNITURE COMPANY OF THE
MIDWEST, INC.
WITNESS OR ATTEST: Federal Tax TD #23-1731443
By: /s/ MICHAEL E. MCCREERY By: /s/ SHEILA C. REINKEN
------------------------------- ------------------------------
Name: Michael E. McCreery Name: Sheila C. Reinken
------------------------------- ------------------------------
Title: Sr. V.P. / CFO Title: Vice President
------------------------------- ------------------------------
LEVITZ FURNITURE COMPANY OF THE
PACIFIC, INC.
WITNESS OR ATTEST: Federal Tax TD #23-1695763
By: /s/ MICHAEL E. MCCREERY By: /s/ SHEILA C. REINKEN
------------------------------- ------------------------------
Name: Michael E. McCreery Name: Sheila C. Reinken
------------------------------- ------------------------------
Title: Sr. V.P. / CFO Title: Vice President
------------------------------- ------------------------------
LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC.
WITNESS OR ATTEST: Federal Tax TD #23-1729443
By: /s/ MICHAEL E. MCCREERY By: /s/ SHEILA C. REINKEN
------------------------------- ------------------------------
Name: Michael E. McCreery Name: Sheila C. Reinken
------------------------------- ------------------------------
Title: Sr. V.P. / CFO Title: Vice President
------------------------------- ------------------------------
</TABLE>
28
<PAGE>
EXHIBIT A
FORM OF APPROVAL ORDER
[Form of Approval Order To Be Attached. The Approval Order must contain
the following provisions and such other provisions as Household considers
necessary: (i) a grant of authority allowing Merchants to enter into this
Agreement; (ii) grant of an allowed administrative claim by Household for all
amounts owing to Household under this Agreement not exceeding (a) eight percent
(8.00%) of the Account Balances less any balances in the Portfolio Reserve and
the SAC Reserve, plus (b) two and one-half percent (2.5%) of the Account
Balances; (iii) grant of a right to Household to offset any amounts owed by
Merchants to Household pursuant to this Agreement against the Portfolio Reserve
and the SAC Reserve, and against any other reserve account established pursuant
to this Agreement, without a requirement of any further order of the Bankruptcy
Court or any other court in order to allow Household to offset such amounts;
(iv) grant to Household of a perfected security interest in the Portfolio
Reserve and the SAC Reserve, and in any other reserve account established
pursuant to this Agreement; and (v) modification of the automatic stay of 11
U.S.C., Section 362 to allow Household the right to take any other actions
contemplated by this Agreement without further order of the Bankruptcy court or
any other court.]
29
<PAGE>
EXHIBIT B
Termination Fees
<TABLE>
<CAPTION>
Household Gives Merchants
Notice of Termination due To
A Change of Control in Merchants
During Following Years of the
Term of this Agreement Applicable Termination Fee
<S> <C>
Year 1 1.00% x Account Balances
Year 2 0.85% x Account Balances
Year 3 0.65% x Account Balances
Year 4 0.45% x Account Balances
Year 5 0.25% x Account Balances
All Years Thereafter 0.20% x Account Balance
During Term of Agreement
</TABLE>
30
<PAGE>
EXHIBIT C
<TABLE>
<CAPTION>
SAC REVERSAL ESTIMATE
------------------------------------ ---------------------------------
SAME AS CASH CREDIT
PROMOTION TERMS EXERCISE RATE AS A % OF
(MONTHS) VOLUME
------------------------------------ ---------------------------------
<S> <C>
1 12%
------------------------------------ ---------------------------------
2 20%
------------------------------------ ---------------------------------
3 33%
------------------------------------ ---------------------------------
4 43%
------------------------------------ ---------------------------------
5 48%
------------------------------------ ---------------------------------
6 52%
------------------------------------ ---------------------------------
7 57%
------------------------------------ ---------------------------------
8 59%
------------------------------------ ---------------------------------
9 63%
------------------------------------ ---------------------------------
10 67%
------------------------------------ ---------------------------------
11 71%
------------------------------------ ---------------------------------
12 71%
------------------------------------ ---------------------------------
13 72%
------------------------------------ ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
INITIAL SAC REVERSAL ESTIMATE
- - ------------------------- ----------------------- ----------------------- -----------------------
ASSUMED
PROMOTIONAL ASSUMED % OF
VOLUME TOTAL VOLUME EXERCISE RATE WEIGHTED RATE
- - ------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
A B (A x B)
- - ------------------------- ----------------------- ----------------------- -----------------------
3 month SAC 40% 33% 13.2%
- - ------------------------- ----------------------- ----------------------- -----------------------
6 month SAC 15% 52% 7.8%
- - ------------------------- ----------------------- ----------------------- -----------------------
12 month SAC 45% 71% 31.9%
- - ------------------------------------------------------------------------- -----------------------
52.9%
-----------------------
SAC Reversal Estimate 52.0%
- - ------------------------------------------------------------------------- -----------------------
</TABLE>
EXHIBIT NO. 10.57
SEVENTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT
THIS SEVENTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT,
dated as of September 4, 1998 (this "AMENDMENT"), is among LEVITZ FURNITURE
INCORPORATED, a Delaware corporation and a debtor and debtor in possession,
LEVITZ FURNITURE CORPORATION, a Florida corporation and a debtor and debtor in
possession ("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation
and a debtor and debtor in possession, LEVITZ SHOPPING SERVICE, INC., a Florida
corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF
THE MIDWEST, INC., a Colorado corporation and a debtor and debtor in possession,
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a
debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE
COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and
debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE
COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a
debtor in possession, JOHN M. SMYTH COMPANY, an Illinois corporation and a
debtor and debtor in possession, and JOHN M. SMYTH REALTY COMPANY an Illinois
corporation and a debtor and debtor in possession (collectively, the
"BORROWERS"), each Revolving Lender and Term Lender signatories hereto
(collectively the "LENDERS"), and BT COMMERCIAL CORPORATION, a Delaware
corporation, acting in its capacity as agent for the Lenders (in such capacity,
together with its successors in such capacity, the "AGENT"). Capitalized terms
used in this Amendment and not otherwise defined have the meanings assigned such
terms in the Postpetition Credit Agreement dated as of September 5, 1997 (as
amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among the Borrowers, the Lenders and the Agent.
PRELIMINARY STATEMENTS:
A. The Borrowers, the Lenders and the Agent are parties to the Credit
Agreement.
B. The Lenders have extended credit to the Borrowers under the Credit
Agreement by, among other things, the term loans (the "EXISTING TERM LOANS")
evidenced by the Term Note dated as of September 5, 1997, made by the Borrowers
in favor of the Term Lenders in the original principal amount of $36,356,250.
C. The Borrowers have requested that the Term Lenders and certain other
financial institutions (together with the Term Lenders, the "SECOND TERM
LENDERS") extend further credit by extending a new term loan (the "SECOND TERM
LOAN") to the Borrowers in the original principal amount of at least $20,000,000
and up to $30,000,000, to be evidenced by a promissory note (the "SECOND TERM
NOTE"), made by the Borrowers in favor of the Second Term Lenders, such
extension of credit to be secured by an interest in the Collateral PARI PASSU
and pro rata with the Existing Term Loans.
D. The Borrowers desire to establish a new private-label credit card
program as evidenced by the Merchant Agreement dated as of September 4, 1998
(the "HOUSEHOLD MERCHANT AGREEMENT"), among Household Bank (SB), N.A.
("HOUSEHOLD") and certain of the Borrowers. In connection with the establishment
of such a program, the Borrowers desire to terminate the GECC Account Purchase
Agreement pursuant to the terms a letter to be sent to GECC (the "LETTER").
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E. The Borrowers further desire to create a new wholly owned subsidiary
of LFC to be incorporated under the laws of the Turks and Caicos Islands
("NEWCO"), which subsidiary will provide reinsurance services for credit
insurance offered by the Borrowers to their customers in connection with the
private-label credit card program established with Household.
F. The Borrowers, the Lenders and the Agent have agreed to amend the
Credit Agreement to, among other things, (i) extend the Second Term Loan and
(ii) incorporate the Household Merchant Agreement, on the terms and subject to
the conditions of this Amendment.
G. The Borrowers have requested that the Lenders and the Agent consent
to (i) the extension of the Second Term Loan, (ii) the execution and delivery of
the Household Merchant Agreement and the Termination of the GECC Account
Purchase Agreement and (iii) the creation of Newco, on the terms and subject to
the conditions of this Amendment.
H. It is the intention of the Borrowers, the Lenders and the Agent that
this Amendment will become effective in whole or in part as provided in SECTION
5.
AGREEMENT:
In consideration of the premises and the mutual agreements contained in
this Amendment, the Borrowers, the Lenders and the Agent agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT (SECOND TERM LOAN).
On the date each of the conditions set forth in SECTION 5.1 is satisfied
by the Borrowers (the "SECOND TERM LOAN CLOSING DATE"), the Credit Agreement is
amended as follows:
1.1 The Credit Agreement is amended by adding Article 2B to the Credit
Agreement as follows:
ARTICLE 2B. SECOND TERM LOAN.
Subject to the terms and conditions set forth in this Credit
Agreement, and in reliance on the representations and warranties of the
Borrowers set forth herein, on September 4, 1998, the Second Term
Lenders agree to extend a term loan to the Borrowers in the original
principal amount of at least $20,000,000 and up to $30,000,000 (the
"SECOND TERM LOAN"). The Second Term Loan shall be evidenced by a Term
Note and shall be governed in all respects by the terms of this Credit
Agreement and the other Credit Documents.
1.2 Section 1.1 of the Credit Agreement is amended by deleting the
definition of "APPRAISED VALUE" in its entirety and replacing it as follows:
APPRAISED VALUE means (i) unless covered by an appraisal
described under clause (ii) below, with respect to the various parcels
of real property of the Borrowers for which a current appraisal dated
August 29, 1997 or later prepared by Ernst & Young L.L.P. has been
delivered to the Agent, the appraised liquidation value of each such
property as reflected in the applicable appraisal, (ii) with respect to
the Borrowers' leasehold interests in various parcels of real property
for which a current appraisal dated November 12, 1997, or later prepared
by Grubb & Ellis has been delivered to the Agent, the arithmetic mean of
the appraised liquidation value and the appraised fair market value of
each such property as reflected in the applicable appraisal, (iii) with
respect to any other leasehold interest of any Borrower in any real
property, the arithmetic mean of the appraised liquidation value and the
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<PAGE>
appraised fair market value of such leasehold interest (assuming the
same to be freely assignable to the extent provided in section 365 of
the Bankruptcy Code), as determined by a nationally recognized real
estate appraisal firm retained by the Agent and reasonably acceptable to
the Majority Term Lenders for purposes of making such determination and
in an appraisal reasonably satisfactory to the Agent and the Majority
Term Lenders, as of the earlier of the date of the sale, transfer or
other disposition by any Borrower of such leasehold interest and any
date after the Closing Date used in any such appraisal and (iv) with
respect to any other fee interest of any Borrower in any real property,
the appraised liquidation value of such fee interest, as determined by a
nationally recognized real estate appraisal firm retained by the Agent
and reasonably acceptable to the Majority Term Lenders for purposes of
making such determination and in an appraisal reasonably satisfactory to
the Agent and the Majority Term Lenders, as of the earlier of the date
of the sale, transfer or other disposition by any Borrower of such fee
interest and any date after the Closing Date used in any such appraisal;
it being understood that, if any appraisal delivered to the Agent
pursuant to clause (i), (ii), (iii) or (iv) sets forth a range of values
for liquidation value or fair market value of the subject property, the
"appraised liquidation value" of such property shall be the arithmetic
mean of the high and low values of the liquidation value specified for
such property and the "appraised market value" of such property shall be
the arithmetic mean of the high and low values of the fair market value
specified for such property and if the appraisal sets forth a range of
values for the subject property, alone, the "Appraised Value" of such
property shall be the arithmetic mean of the high and low values
specified for such property, as determined by the Agent and (v) with
respect to any other fixed assets of any Borrower, (including without
limitation fixtures, furniture and equipment) the fair market value of
such assets as determined by the Agent in the exercise of its Permitted
Discretion.
1.3 Section 1.1 of the Credit Agreement is further amended by adding the
following sentence to the end of the definition of "EXPENSES" as follows:
EXPENSES also means all reasonable costs and expenses of the Majority
Term Lenders incurred in connection with the Credit Documents and the
respective transactions contemplated therein, including, without
limitation, (I) the costs of conducting record searches and examining
collateral, (II) the reasonable fees and expenses of legal counsel and
paralegals, accountants, appraisers and other consultants, experts or
advisors retained by the Majority Term Lenders, including, without
limitation, consultants, experts or advisors retained in connection with
due diligence investigations and (III) the costs of reviewing and
preparing waivers, amendments and consents.
1.4 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
MAKE-WHOLE PREMIUM means, in connection with any payment of the
principal amount of all or any portion of the principal amount of the
Second Term Loan at any time prior to March 5, 1999, for any reason
(whether upon voluntary prepayment, mandatory prepayment, acceleration
or otherwise), an amount equal to the Present Value (as hereinafter
defined) of the difference in the interest that would have been payable
on each interest payment date on the amount of such principal being
prepaid (assuming each payment of interest on the Second Term Loan would
have been timely paid when due) and the interest that would be earned on
the prepaid amount at 7.00%. For purposes of this definition, PRESENT
VALUE shall be determined in accordance with generally accepted
financial practice in the United States of America at a discount rate
equal to 7.00% per annum applied on a monthly basis.
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<PAGE>
1.5 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
ORIGINAL TERM LENDERS means each financial institution identified
on ANNEX II as an "Original Term Lender".
1.6 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
ORIGINAL TERM LOAN has the meaning set forth in Article 2A.
1.7 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
SECOND TERM LENDERS means each financial institution identified
on ANNEX II as a "Second Term Lender."
1.8 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
SECOND TERM LOAN has the meaning set forth in Article 2B.
1.9 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "TERM LENDER" in its entirety and replacing it as follows:
TERM LENDERS means the Original Term Lenders and the Second
Term Lenders.
1.10 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "TERM LOAN" in its entirety and replacing it as follows:
TERM LOAN means the Original Term Loan and the Second Term Loan.
1.11 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "TERM NOTE" in its entirety and replacing it as follows:
TERM NOTE means, collectively, each promissory note of the
Borrowers payable to the order of any Term Lender, including, without,
limitation, the promissory note evidencing the Second Term Loan,
substantially in the form of EXHIBIT C-2 as amended, restated,
supplemented or otherwise modified from time to time, and including all
notes issued in replacement of, or in substitution or exchange for, any
of the foregoing.
1.12 Article 2A of the Credit Agreement is amended by deleting such
article in its entirety and replacing it as follows:
ARTICLE 2A. ORIGINAL TERM LOAN.
On each Business Day that Collections are to be applied to repay
the principal of the Prepetition Tranche A Term Loan pursuant to the
Postpetition Collateral Agency Agreement, then, unless an Actionable
Default has occurred and is continuing, each Original Term Lender shall
be deemed to fund a term loan to the Borrowers in an amount equal to its
Proportionate Share of the amount of the Collections so to be applied
(all term loans made in such manner by each Original Term Lender herein
collectively called the "Original Term Loan"). The Original Term Loan of
each Original Term Lender shall be evidenced by a Term Note and shall be
governed in all respects by the terms of this Credit Agreement and the
other Credit Documents. All Collections that would otherwise be applied
to repay the principal of the Prepetition Tranche A Term Loan
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under the Postpetition Collateral Agency Agreement shall be remitted to
the LFC Funds Administrator for the account of the Borrowers in
accordance with the deemed funding of the Original Term Loan under this
Article 2A so long as no Actionable Default has occurred and is
continuing.
1.13 Section 4.7A of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
4.7A NO PERMITTED PREPAYMENT OF TERM LOANS.
Until payment in full of all Postpetition Obligations in respect
of Revolving Loans and Letter of Credit Obligations and termination of
the Revolving Commitments pursuant to the terms and provisions hereof,
the Borrowers may not prepay the Term Loans at any time in whole or in
part. After payment in full of all Postpetition Obligations in respect
of Revolving Loans and Letter of Credit Obligations and termination of
the Revolving Commitments pursuant to the terms and provisions hereof,
the Borrowers may prepay the Term Loans at any time in whole or in part;
PROVIDED, that any such prepayment shall be applied on a pro rata basis
against the then outstanding balances of both the Original Term Loan and
the Second Term Loan and must include all of the interest (including
default rate interest, to the extent applicable) accrued on the
principal amount of the Term Loans so repaid through and including the
relevant date of repayment. Each time any principal amount of the Second
Term Loan is paid in whole or in part at any time prior to March 5,
1999, for any reason (whether by a voluntary prepayment, a mandatory
prepayment, upon acceleration or otherwise), the Borrowers shall pay the
Make-Whole Premium to the Second Term Lenders.
1.14 Article 8 of the Credit Agreement is amended by adding a new
Section 8.19 to such article as follows:
8.19 LEASEHOLD COVENANTS. No Borrower shall, or shall permit any
of its Subsidiaries to, directly or indirectly, fail to pay when due any
postpetition obligation relating to, or arising in connection with, its
leasehold interest in any real property, including, without limitation,
rent or other payments due under the lease for such real property, any
postpetition real estate taxes owing on such real property and payable
by the Borrowers or any insurance premiums due in connection with such
real property. Without obtaining the prior written consent of the Agent
and the Majority Term Lenders, no Borrower shall, or shall permit any of
its Subsidiaries to, directly or indirectly, (i) reject or apply to the
Bankruptcy Court to reject any executory contract or unexpired lease or
(ii) assume or apply to the Bankruptcy Court to assume any executory
contract or unexpired lease unless such assumption is pursuant to an
order of the Bankruptcy Court, acceptable to the Agent and the Majority
Term Lenders in their reasonable discretion, that specifically reserves
for the Borrowers the right to subsequently assign such executory
contract or unexpired lease under section 365(f) of the Bankruptcy Code
without, among other things, the consent of the relevant counterparties
to such executory contract or unexpired lease.
1.15 Section 9.2 of the Credit Agreement is amended by adding new
subsections (e) and (f) to such section as follows:
(E) OTHER REMEDIES. If any Event of Default shall have occurred
and be continuing, the Agent or the Majority Term Lenders may direct the
Borrowers how and when to exercise all rights of the Borrowers under
section 365 of the Bankruptcy Code and the Borrowers shall fully comply
with such directions; PROVIDED, that notwithstanding the foregoing, the
Majority Term Lenders may not exercise any of such rights until all
Postpetition Obligations owing to the Revolving Lenders have been
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<PAGE>
indefeasibly paid in full and the Revolving Commitments have been
terminated. Without in any manner limiting any right or remedy of the
Agent or any Lender under any other section or provision of this Credit
Agreement or any order related to or entered in connection therewith,
and unless the Borrowers and the Committee agree otherwise, no such
direction shall require any Borrower to assign any unexpired lease or
executory contract earlier than the earlier of (i) the expiration of
sixty days from the date of such direction and (ii) five Business Days
prior to (a) the day upon which the relevant lease or contract may be
deemed to be rejected under section 365 of the Bankruptcy Code (whether
by expiration of any relevant time period for assumption or rejection or
otherwise), (b) the scheduled hearing date on which the relevant
executory contract or unexpired lease may be assumed or rejected or (c)
the earliest day on which, in the good faith judgement of the Agent or
the Majority Term Lenders, a default not subject to cure could occur
with respect to that lease or contract. Unless the Borrowers and the
Committee agree otherwise, any such assignment pursuant to a Lender
direction described above shall be to the highest and best bidder at a
public auction held before the Bankruptcy Court or as the Bankruptcy
Court shall otherise direct. Notwithstanding anything to the contrary
contained herein, if the Borrowers do not fully honor and take all
actions requested in any such direction within three Business Days of
the delivery of such direction, the Agent or the Majority Term Lenders
may, on five days' notice to the Borrowers, the Committee and any
landlord or other counterparty to the relevant lease or contract, move
the Bankruptcy Court on behalf of the Borrowers for the relief specified
in the direction and such notice shall be due and sufficient notice of
such request under the circumstances.
(F) Without in any manner limiting any right or remedy of the
Agent or any Lender under any other section or provision of this Credit
Agreement or any order related to or entered in connection therewith,
and notwithstanding that a Default or Event of Default may not have
occurred and be continuing, the Agent or the Majority Term Lenders may
direct, no earlier than fifteen days prior to the day that any of the
events set forth in clause (i), (ii) or (iii) below could occur, the
Borrowers how and when to exercise all rights of the Borrowers under
section 365 of the Bankruptcy Code (and the Borrowers shall fully comply
with such direction(s)) with respect to any lease or executory contract
that (i) may be rejected or deemed to be rejected under section 365 of
the Bankruptcy Code (whether by expiration of any relevant time period
for assumption or rejection or otherwise), (ii) may be assumed or
rejected at a scheduled hearing date or (iii) in the good faith judgment
of the Agent or the Majority Term Lenders, a default not subject to cure
could occur. Unless the Borrowers and the Committee agree otherwise, any
such assignment pursuant to a Lender direction described above shall be
to the highest and best bidder at a public auction held before the
Bankruptcy Court or as the Bankruptcy Court shall otherwise direct.
Notwithstanding anything to the contrary contained herein, if the
Borrowers do not fully honor and take all actions requested in any such
direction within three Business Days of the delivery of such direction,
the Agent or the Majority Term Lenders may, on three days' notice to the
Borrowers, the Committee any landlord or other counterparty to the
relevant lease or contract, move the Bankruptcy Court on behalf of the
Borrowers for the relief specified in the direction and such notice
shall be due and sufficient notice of such request under the
circumstances.
1.16 Section 9.2A of the Credit Agreement is amended by adding the
following sentence to the end of the such section as follows:
Upon the acceleration of the Term Loans under this SECTION 9.2A, the
Borrowers will be required to pay the Make-Whole Premium (in respect of
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any principal amount of the Second Term Loans paid for any reason prior
to March 5, 1999) to the Second Term Lenders.
1.17 Section 11.8(c) of the Credit Agreement is amended by deleting the
first sentence from such section in its entirety and replacing it as follows:
Each Term Lender may assign to one or more Persons all or a portion of
its rights and obligations under this Credit Agreement, the Term Notes
and the other Credit Documents, with the consent of the Agent and the
Borrowers, which consents shall not be unreasonably withheld or delayed
(PROVIDED, that no consents shall be required (i) if an Event of Default
has occurred and is continuing or (ii) if the assignment is to an
Affiliate of a Term Lender or a fund or investment entity managed by a
Term Lender or an Affiliate of a Term Lender); and upon execution and
delivery to the Agent, for its acceptance and recording in the Register,
of an agreement in substantially the form of EXHIBIT G-2 (a "TERM
ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with surrender of any
Term Note or Term Notes subject to such assignment and a processing and
recordation fee of $2,500, such assignment shall be effective, the
Borrowers shall issue a replacement Term Note or Term Notes to such
Person or Persons who thereupon shall be a Term Lender or Term Lenders
for all purposes hereunder to the extent of the Term Note or Term Notes
so issued and ANNEX II hereto shall be deemed to be modified
accordingly.
1.18 Section 11.11(b) of the Credit Agreement is amended by deleting
clause (iii) from such section in its entirety and replacing it as follows:
(iii) ARTICLE 2A or 2B and SECTION 2.7, 4.1A, 4.5, 4.7(D), 4.7A, 4.9(B),
4.11, 6.19 (AND ANY SIMILAR REPRESENTATION MADE IN ANY AMENDMENT TO THIS
CREDIT AGREEMENT), 6.7, 7.14., 8.6, 8.17(C), 8.19, 9.2A, 9.2(B) OR
11.8(C) or (E), of this Credit Agreement and
1.19 Annex II of the Credit Agreement is amended by replacing such annex
with the ANNEX II attached to this Amendment as EXHIBIT A.
2. AMENDMENTS TO CREDIT AGREEMENT (HOUSEHOLD).
On the date each of the conditions set forth in SECTION 5.2 is satisfied by the
Borrowers (the "HOUSEHOLD CLOSING DATE"), the Credit Agreement is amended as
follows:
2.1 Section 1.1 of the Credit Agreement is amended by adding the
following definition to such section as follows:
"HOUSEHOLD" means Household Bank (SB), N.A.
2.2 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
"HOUSEHOLD MERCHANT AGREEMENT" means the Merchant Agreement dated
as of September 4, 1998, among Household and certain of the Borrowers.
2.3 Section 8.1 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
8.1 MINIMUM EBITDA. At the end of each period beginning on April
1, 1998, and ending on the last day of each month set forth below,
EBITDA for such period shall be an amount not less than the following:
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<TABLE>
<CAPTION>
PERIOD FROM APRIL
1998 TO END OF AMOUNT
------------------------ ----------------
<S> <C>
June 1998 ($3,209,000)
September 1998 ($8,000,000)
December 1998 ($1,750,000)
</TABLE>
2.4 Section 8.3(f) of the Credit Agreement is amended by deleting such
subsection in its entirety and replacing it as follows:
(F) Indebtedness and other obligations under the GECC Account
Purchase Agreement (including those under the letter dated September 4,
1998, sent to GECC by certain of the Borrowers) and the Household
Merchant Agreement, without giving effect to any amendments or
modifications or restatements thereof, or supplements thereto;
2.5 Section 8.4(b) of the Credit Agreement is amended by deleting such
subsection in its entirety and replacing it as follows:
(B) Liens granted to GECC under the GECC Account Purchase
Agreement and Liens granted to Household under the Household Merchant
Agreement;
2.6 Section 8.12 of the Credit Agreement is amended by deleting cause
(b)(iii) from such section in its entirety and replacing it as follows:
(III) restrictions set forth in the GECC Account Purchase Agreement or
the Household Merchant Agreement,
2.7 Section 8.14 of the Credit Agreement is amended by deleting clause
(i) from such section in its entirety and replacing it as follows:
(I) the GECC Account Purchase Agreement (other than the amendment dated
October 7, 1997, and the letter dated September 4, 1998, sent to GECC by
the Borrowers) or the Household Merchant Agreement and
2.8 Section 9.1(g) of the Credit Agreement is amended by deleting such
subsection in its entirety and replacing it as follows:
(G) DEFAULT UNDER GECC ACCOUNT PURCHASE AGREEMENT OR HOUSEHOLD
MERCHANT AGREEMENT. (i) Any default or breach by any Borrower shall
occur and be continuing under the GECC Account Purchase Agreement or the
Household Merchant Agreement or (ii) the GECC Account Purchase Agreement
or the Household Merchant Agreement shall be terminated for any reason,
in each case unless consented to by the Majority Lenders.
2.9 Schedule B, Part 6.9 of the Credit Agreement is amended by replacing
such schedule in its entirety with the information on EXHIBIT E.
2.A. AMENDMENT TO CREDIT AGREEMENT (LOCATION).
2A.1 Schedule B, Part 6.9(a) of the Credit Agreement is amended by
replacing such schedule with Schedule B, Part 6.9(a) attached to this Amendment
as Schedule I.
2A.2 Schedule B, Part 6.9(b) of the Credit Agreement is amended by
replacing such schedule with Schedule B, Part 6.9(b) attached to this Amendment
as Schedule II.
3. CONSENT.
3.1 SECOND TERM LOAN. On the Second Term Loan Closing Date, the Agent
and each Lender consents to the extension of the Second Term Loan by the
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Second Term Lenders in accordance with the terms of the Credit Agreement, as
amended by this Amendment. The Agent and each Lender acknowledge that the Second
Term Loan shall be secured by an interest in the Collateral PARI PASSU and pro
rata with the Existing Term Loan and the term "Secured Obligations" as used in
the Postpetition Collateral Agency Agreement shall include the obligations of
the Borrowers under the Credit Agreement with respect to the Second Term Loan.
The obligations of the Borrowers under the Credit Agreement with respect to the
Second Term Loan will be secured by the Collateral without having to amend the
Collateral Documents. The Agent and each Lender agree that at any time and from
time to time, at the cost and expense of the Borrowers, they will execute and
deliver all further instruments and documents, and take such further actions,
that may be reasonably necessary to so secure the Second Term Loan.
3.2 HOUSEHOLD TRANSACTION. On the Household Closing Date, the Agent and
the Majority Lenders consent to the termination of the GECC Account Purchase
Agreement and agree that such termination (or the filing of an application with
the Bankruptcy Court for such termination) will not constitute a breach of
Section 8.14 or Section 8.17 of the Credit Agreement or an Event of Default
under Section 9.1(g) the Credit Agreement. On the Household Closing Date, the
Agent and the Majority Lenders further consent to the entry of certain Borrowers
into the Household Merchant Agreement and agree that such entry will not
constitute an Event of Default under the Credit Agreement.
3.3 NEWCO. On the date each of the conditions set forth in SECTION 5.3
is satisfied by the Borrowers (the "NEWCO CLOSING DATE"), the Agent and the
Majority Lenders consent to the creation of Newco and agree that such creation
will not constitute a breach of Section 8.13 of the Credit Agreement or an Event
of Default under the Credit Agreement.
3.4 OTHER. Nothing in this Amendment should in any way be deemed (i) a
waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any
such Event of Default.
4. AGREEMENTS OF THE BORROWERS.
4.1 USE OF PROCEEDS. The proceeds from the Second Term Loan will be used
only to prepay outstanding Revolving Loans under the Credit Agreement. The
Borrowers acknowledge that the Revolving Line of Credit will be permanently
reduced in an amount equal to the original principal amount of the Second Term
Loan.
4.2 FURTHER ASSURANCES. The Borrowers acknowledge that the Second Term
Loan shall be secured by an interest in the Collateral PARI PASSU and pro rata
with the Existing Term Loan and the term "Secured Obligations" as used in the
Postpetition Collateral Agency Agreement shall include the obligations of the
Borrowers under the Credit Agreement with respect to the Second Term Loan. The
obligations of the Borrowers under the Credit Agreement with respect to the
Second Term Loan will be secured by the Collateral without having to amend the
Collateral Documents. The Borrowers agree that at any time and from time to
time, at their cost and expense, they will execute and deliver all further
instruments and documents, and take such further actions, that may be reasonably
necessary to so secure the Second Term Loan.
4.3 FAILURE TO COMPLY. The Borrowers agree that a breach of the
agreements in this SECTION 3 will constitute an Event of Default under the
Credit Agreement.
5. CONDITIONS PRECEDENT.
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This Amendment becomes effective on the date set forth above other than
with respect to SECTIONS 1, 2, 3.1, 3.2 AND 3.3 of this Amendment, which become
effective as described below:
5.1 SECOND TERM LOAN. With respect to SECTIONS 1 AND 3.1 of this
Amendment, this Amendment becomes effective upon satisfaction of the following
conditions:
(A) The representations and warranties of the Borrowers contained
in this Amendment are true and correct as of the Second Term Loan
Closing Date.
(B) This Amendment has been approved by the Bankruptcy Court
pursuant to an order (the "AMENDMENT APPROVAL ORDER") in form attached
as EXHIBIT B, which order is in full force and effect and has not been
reversed, modified, amended, appealed or stayed. The Agent and the
Second Term Lenders shall have been reasonably satisfied with the form
and timing or the notice of the motion for the entry of the Amendment
Approval Order and such notice and motion shall have been properly
served upon each lessor of property to any Borrower. Unless the Agent
and the Second Term Lenders agree otherwise, the Amendment Approval
Order shall have become final and non-appealable.
(C) The Borrowers have obtained an order of the Bankruptcy Court
extending the Borrowers' time to assume or reject executory contracts
and unexpired leases, pursuant to section 365(d)(4) of the Bankruptcy
Code, through March 31, 1999.
(D) The Second Term Lenders have completed their due diligence
review of the Borrowers and their properties and are satisfied, in their
sole and absolute discretion, with the results of such investigation.
Such due diligence investigation includes, without limitation, (i)
review of the Borrowers' financial statements, (ii) review of leases for
each of 32 properties selected by the Second Term Lenders, (iii) review
of the terms and provisions of the Borrowers' real estate holdings
(including leasehold documentation relating to such holdings) and (iv)
receipt and review of a report prepared by Keen Realty Consultants, such
report to be acceptable to the Second Term Lenders in their sole and
absolute discretion.
(E) The Agent and the Second Term Lenders have been reimbursed
for all fees and expenses (including reasonable attorneys' fees and
expenses) incurred in connection with the preparation of this Amendment
and the Second Term Loan.
(F) The Agent has received all of the following, each duly
executed and dated as of the Second Term Loan Closing Date (or such
other date as is satisfactory to the Agent) in form and substance
satisfactory to the Agent:
(1) SEVENTH AMENDMENT. Ten copies of this Amendment executed
by the LFC Funds Administrator, the Borrowers, the Agent
and all Lenders;
(2) SECOND TERM NOTES. Second Term Notes, substantially in the
form of Exhibit C-2 to the Credit Agreement (dated as of
the Second Term Loan Closing Date), made by the Borrowers
in favor of the Second Term Lenders;
(3) AMENDMENT APPROVAL ORDER. A copy of the Amendment Approval
Order; and
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(4) OTHER. Such other documents as the Agent or the Second
Term Lenders may reasonably request.
5.2 HOUSEHOLD. With respect to Sections 2 and 3.2, this Amendment
becomes effective upon satisfaction of the following conditions:
(A) The representations and warranties of the Borrowers contained
in SECTIONS 6.1 through and including 6.4 of this Amendment are true and
correct as of the Household Closing Date.
(B) The Agent has received ten copies of this Amendment, duly
executed by the LFC Funds Administrator, the Borrowers, the Agent and
the Majority Lenders.
(C) The Agent has received an executed copy of an agreement among
the Agent, Household and the Borrowers, in form and substance
satisfactory to the Agent.
(D) The Household Merchant Agreement and the Letter have been
approved by the Bankruptcy Court.
(E) (i) The Household Merchant Agreement has closed, (ii)
Household has purchased a substantial portion of the portfolio of the
Borrowers' customer accounts held by GECC under the GECC Account
Purchase Agreement and (iii) the GECC Account Purchase Agreement has
been terminated.
(F) The Agent has received such other documents as it may
reasonably request prior to the date of this Amendment.
5.3 NEWCO. With respect to SECTION 3.3, this Amendment becomes effective
upon satisfaction of the following conditions:
(A) The representations and warranties of the Borrowers contained
in SECTIONS 6.1 through and including 6.4 of this Amendment are true and
correct as of the Newco Closing Date.
(B) The Agent has received ten copies of this Amendment, duly
executed by the LFC Funds Administrator, the Borrowers, the Agent and
the Majority Lenders.
(C) The Agent has received a secretary certificate of Newco,
substantially in the form as the secretary certificates provided to the
Agent in connection with the closing of the Credit Agreement, with all
appropriate attachments thereto.
(D) The Agent has received an assumption agreement executed by
Newco, substantially in the form of EXHIBIT C.
(E) The Agent has received an updated Schedule B, Part 8.10 to
the Credit Agreement reflecting all accounts of Newco.
(F) The Agent has received a legal opinion from counsel to the
Borrowers in a form and substance acceptable to the Agent.
(G) The Agent has received such other documents as it may
reasonably request and such other conditions as the Agent may reasonably
request have been satisfied and, upon the request of the Borrowers, the
Agent will give the Borrowers written notice when this condition has
been satisfied.
11
<PAGE>
6. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants to the Agent and each
Lender that, after giving effect to this Amendment or any part of this
Amendment:
6.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
contained in the Credit Agreement and the other Credit Documents are true and
correct in all material respects on and as of the date of this Amendment, in
each case as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such representations
and warranties were true and accurate on and as of such earlier date).
6.2 EVENTS OF DEFAULT. No Default or Event or Default has occurred which
has not been waived (or, in the case of an Event of Default, cured) under the
terms of the Credit Agreement.
6.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as
contemplated by Section 5.1(B)), this Amendment and the Credit Agreement, as
amended by this Amendment, will constitute legal, valid and binding obligations
of the LFC Funds Administrator and each of the Borrowers and will be enforceable
against such Persons in accordance with their respective terms.
6.4 CONSENTS. The execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the consent or
approval of any Person other than the Bankruptcy Court (as contemplated by
SECTION 5.1(B)), except such consents and approvals as have been obtained.
6.5 NO PREPETITION OBLIGATIONS OUTSTANDING. As of the Second Term Loan
Closing Date, there are no Prepetition Obligations outstanding under the Credit
Agreement.
6.6 MATERIAL CONTRACTS. SCHEDULE B, PART 6.19, as amended by the
information contained on EXHIBIT D to this Amendment, contains a true, correct
and complete list of all the Material Contracts in effect on the Second Term
Loan Closing Date. Except as described on SCHEDULE B, PART 6.19, as amended by
the information contained on EXHIBIT D to this Amendment, no Material Contract
contains any burdensome restrictions on any Borrower or any Subsidiary of any
Borrower or any of their respective properties that could prevent such Borrower
or Subsidiary from conducting its business as conducted on the Second Term Loan
Closing Date. As of the Second Term Loan Closing Date, all of the Material
Contracts are in full force and effect and, except as described on SCHEDULE B,
PART 6.19, as amended by the information contained on EXHIBIT D to this
Amendment, no defaults currently exist thereunder by any Borrower or Subsidiary
of a Borrower that is a party thereto (other than defaults that need not be
cured under section 365(b)(2) of the Bankruptcy Code), or to the knowledge of
the Borrowers, any other party thereto. The Borrowers agree that the
representations and warranties set forth in this SECTION 5.7 will survive the
Second Term Loan Closing Date and that if such representations and warranties
are false or misleading in any material respect on the Second Term Closing Date,
an Event of Default will have occurred under Section 9.1(c) of the Credit
Agreement.
7. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
7.1 REFERENCES. Upon the effectiveness of this Amendment, or any part of
this Amendment, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference in
each of the other Credit Documents to the "Credit Agreement" shall mean and be
12
<PAGE>
a reference to the Credit Agreement as amended by this Amendment or any part of
this Amendment.
7.2 RATIFICATION. Except as expressly set forth in this Amendment, all
of the terms and conditions of the Credit Agreement and the other Credit
Documents remain in full force and effect and are ratified and confirmed in all
respects. The execution and delivery of this Amendment by the Agent and each of
the Lenders in no way obligates the Agent or any of the Lenders at any time
hereafter to consent to any other amendment or modification of any term or
provision of the Credit Agreement or any of the other Credit Documents, whether
of a similar or different nature.
8. GOVERNING LAW.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE
STATE OF NEW YORK.
9. HEADINGS: COUNTERPARTS.
Section headings in this Amendment are included for convenience of
reference only and do not constitute a part of this Amendment for any other
purpose. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its capacity as LFC Funds Administrator
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its individual capacity and it its capacity as the LFC
Funds Administrator
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Treasurer
------------------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a Florida
corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
14
<PAGE>
LEVITZ SHOPPING SERVICE, a Florida corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado
corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila Reinken
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington
corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
15
<PAGE>
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
JOHN M. SMYTH COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
------------------------------------------
Name: Sheila C. Reinken
------------------------------------------
Title: Vice President
------------------------------------------
AGENT:
BT COMMERCIAL CORPORATION, in its capacity as Agent
By: /s/ WAYNE D. HILLOCK
------------------------------------------
Name: Wayne D. Hillock
------------------------------------------
Title: Sr. V.P.
------------------------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware corporation in its
respective capacities as Revolving Lender and Collateral
Agent
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
16
<PAGE>
WAYLAND INVESTMENT FUND, LLC, in its capacity as Revolving
Lender
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
FINOVA CAPITAL CORPORATION, in its capacity as Revolving
Lender
By: /s/ BRIAN RUJAWITZ
------------------------------------------
Name: Brian Rujawitz
------------------------------------------
Title: AVP
------------------------------------------
HELLER FINANCIAL, INC., it its capacity as Revolving
Lender
By: /s/ SCOTT ZIEMKE
------------------------------------------
Name: Scott Ziemke
------------------------------------------
Title: AVP-Relationship Manager
------------------------------------------
LASALLE NATIONAL BANK, it its capacity as Revolving Lender
By: /s/ CHRISTOPHER G. CLIFFORD
------------------------------------------
Name: Christopher G. Clifford
------------------------------------------
Title: Sr. VP
------------------------------------------
CONGRESS FINANCIAL CORPORATIONN (CENTRAL), it its capacity
as Revolving Lender
By: /s/ STEVEN LINDERMAN
------------------------------------------
Name: Steven Linderman
------------------------------------------
Title: Vice President
------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION, it its capacity
as Revolving Lender
By: /s/ ROBERT HEINZ
------------------------------------------
Name: Robert Heinz
------------------------------------------
Title: SVP
------------------------------------------
17
<PAGE>
EXHIBIT A
ANNEX II
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF TERM LENDERS AND TERM COMMITMENT AMOUNTS
ORIGINAL TERM LENDERS:
1. SILVER OAK CAPITAL L.L.C.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $36,356,250
SECOND TERM LENDERS:
1. SILVER OAK CAPITAL L.L.C.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $___________
2. [OTHERS TO COME]
18
<PAGE>
EXHIBIT B
FORM OF AMENDMENT APPROVAL ORDER
[ATTACHED]
19
<PAGE>
EXHIBIT C
FORM OF ASSIGNMENT AGREEMENT
ASSUMPTION AGREEMENT
Reference is made to the Postpetition Credit Agreement dated as of
September 5, 1997 (as amended, waived or otherwise modified from time to time,
the "Credit Agreement"), among Levitz Furniture Incorporated and its affiliates,
as borrowers (collectively, the "Borrowers"), the financial institutions party
thereto, as lenders (collectively, the "Lenders"), and BT Commercial
Corporation, as agent for the Lenders (in such capacity, the "Agent").
Capitalized terms used in this assumption agreement and not otherwise defined
have the meanings assigned to such terms in the Credit Agreement.
The undersigned certifies to the Lenders and the Agent that it is a
wholly owned Subsidiary of _________, a Borrower under the Credit Agreement. By
its execution and delivery of this assumption agreement, the undersigned becomes
a party to the Credit Agreement and the other Credit Documents as (i) a Borrower
under the Credit Agreement, the Postpetition Collateral Agency Agreement and any
Note and (ii) a Grantor under the Postpetition Security Agreement, and by this
assumption agreement expressly and jointly and severally assumes all obligations
and liabilities of a Borrower or Grantor under the Credit Agreement and the
other Credit Documents. By its execution and delivery of this assumption
agreement, the undersigned makes each of the representations and warranties of
the Borrowers contained in the Loan Agreement on the date of this assumption
agreement, after giving effect to this assumption agreement.
This assumption agreement is governed by and interpreted in accordance
with the internal laws of the State of New York.
[NEWCO]
By:_________________________
Title:
Accepted:
BT COMMERCIAL CORPORATION, as Agent
By:_______________________________
Title:
20
<PAGE>
EXHIBIT D
SCHEDULE B - PART 6.19
1. Indenture dated as of March 1, 1996 between Levitz Furniture
Corporation, as Issuer, and American Bank National Association, as
Trustee, concerning 13-3/8% Senior Notes due 1998.
2. Indenture dated as of July 12, 1993 between Levitz Furniture
Corporation, as Issuer, and Norwest Bank Minnesota, National
Association, as Trustee, concerning 9-5/8% Senior Subordinated Notes due
2003.
3. Account Purchase and Credit Card Program Agreement dated as of May 2,
1994 by and among Levitz Furniture Corporation, General Electric Capital
Corporation et al.
4. Indenture dated as of December 1, 1992 between Levitz Furniture
Incorporated (formerly known as LFC Holding Corporation), as Issuer, and
First Bank National Association, as Trustee, concerning Senior Deferred
Coupon Debentures due 2002.
5. Merchant Agreement, dated as of the 4th day of September, 1998, between
Household Bank (SB), N.A., Levitz Furniture Corporation, Levitz
Furniture Company of the Midwest, Inc., Levitz Furniture Company of the
Pacific, Inc., and Levitz Furniture Company of Washington, Inc.
21
<PAGE>
EXHIBIT E
SCHEDULE B - PART 6.9(A)
Locations of Offices, Records and Inventory
(a) Principal place of business for all Borrowers:
7887 North Federal Highway
Boca Raton, Florida 33487
(Executive Office)
212 High Street
Pottstown, Pennsylvania 14624
(Accounting Office)
(b) (See attached list)
22
<PAGE>
SCHEDULE B, PART 6.9(B)
LEVITZ FURNITURE CORPORATION
OWNED REAL PROPERTY WAREHOUSE
- - ------------------- ---------
CONNECTICUT
1. 55 Graham Place X
Southington, Connecticut 06489-1594
Hartford County
FLORIDA
2. 10200 Quail Roost Drive X
Cutler Ridge, Florida 33157-6814
Dade County
3. 4740 South Cleveland Avenue X
Fort Myers, Florida 33907-1397
Lee County
4. 7795 SW 6th Street X
Plantation, Florida 33324-3389
Broward County
5. 3939 Gandy Boulevard X
Tampa, Florida 33611-3496
Hillsborough County
6. 3001 Okeechobee Boulevard X
West Palm Beach, Florida 33409-4082
Palm Beach County
NEW JERSEY
7. 429 U.S. Route 1 South X
Iselin, New Jersey 08830-3009
Middlesex County
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<PAGE>
8. 545 Route 17
Paramus, New Jersey 07652-3093
Bergen County
PENNSYLVANIA
9. 212 High Street
Pottstown, Pennsylvania 19464
Montgomery County
(ACTG)
TEXAS
10. 2901 East Pioneer Parkway X
Arlington, Texas 76010-8499
Tarrant County
11. 18633 LBJ Freeway X
Mesquite, Texas 75150-5697
Dallas County
LEASED REAL PROPERTY
CONNECTICUT
12. 136 Elm Street X
Stateline Plaza, #200
Enfield, Connecticut 06082-3885
Hartford County
13. 1799 Boston Post Road
Milford, Connecticut 06460-2706
New Haven County
DELAWARE
14. 601 Naamans Road X
Claymont, Delaware 19703-2395
Newcastle County
24
<PAGE>
FLORIDA
15. 7887 North Federal Highway
Boca Raton, Florida 33487-1613
Palm Beach County
16. 18489 U.S. 19 North
Clearwater, Florida 34624-2709
Pinellas County
17. 6001 Powerline Road X
Ft. Lauderdale, Florida 33309-2013
Broward County
18. 1400 N.W. 167 Street X
Miami, Florida 33169-5700
Dade County
19. 5217 U.S. 19 South
New Port Richey, Florida 34652-3967
Pasco County
20. 3750 West Colonial Drive
Orlando, Florida 32808-7906
Orange County
21. 1540 Semoran Boulevard X
Winter Park, Florida 32789-1502
Seminole County
GEORGIA
22. 2750 Sullivan Road X
College Park, Georgia 30337-6292
Fulton County
INDIANA
23. 8301 East Washington Street
Indianapolis, Indiana 46219-6897
Marion County
24. 6250 West 38th Street
Indianapolis, Indiana 46254
Marion County
LOUISIANA
25. 1401 South Clearview Parkway X
Jefferson, Louisiana 70121-1092
County of Jefferson Parish
MARYLAND
26. 6610 Baltimore National Pike
Baltimore, Maryland 21228-3986
Baltimore County
27. 7989 Rossville Boulevard X
Baltimore, Maryland 21236
Baltimore County
25
<PAGE>
28. 50 Orchard Road X
Glen Burnie, Maryland 21061-6397
Anne Arundel County
29. 12011 Rockville Pk. X
Rockville, Maryland 20852-1678
Montgomery County
30. 4949 Allentown Road X
Suitland, Maryland 20746-3989
Prince George's County
MASSACHUSETTS
31. Liberty Tree Mall X
Danvers, Massachusetts 01923-3696
Essex County
32. 160 Providence Highway X
Dedham, Massachusetts 02026-1809
Norfolk County
33. 260 Turnpike Road X
Westboro, Massachusetts 01581-2897
Worcester County
NEW HAMPSHIRE
34. 168 Daniel Webster Highway
Nashua, New Hampshire 03060-5502
Hillsborough County
NEW JERSEY
35. 1001 Church Road X
Cherry Hill, New Jersey 08002-1299
Camden County
36. 531 Route #46 X
Fairfield, New Jersey 07006-1907
Essex County
NEW YORK
37. 90 Price Parkway X
Farmingdale, New York 11735-1394
Suffolk County
38. 1 Rentar Plaza X
6626 Metropolitan Avenue
Middle Village, Queens, New York 11379
Queens County
39. 3050 Middle County Road
Nesconset, New York 11767-1005
Suffolk County
OHIO
40. 505 East Kemper Road X
Springdale, Ohio 45246-3278
Hamilton County
26
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PENNSYLVANIA
41. 201 Allendale Road
King of Prussia, Pennsylvania 19406-1634
Montgomery County
42. 1661 East Lincoln Highway X
Langhorne, Pennsylvania 19047-3096
Bucks County
43. 2650 MacArthur Road X
Whitehall, Pennsylvania 18052-3897
Lehigh County
44. 950 Woodland Road
Wyomissing, Pennsylvania 19610-1202
Berks County
TEXAS
45. 9012 Research Boulevard X
Austin, Texas 78758-7086
Travis County
46. 1333 Stemmons Freeway X
Dallas, Texas 75207-3798
Dallas County
47. 1411 Airway Boulevard X
El Paso, Texas 79925-2294
El Paso County
48. 6913 Camp Bowie Boulevard X
Fort Worth, Texas 76116-7187
Tarrant County
49. 5196 Rufe Snow Road
North Richland Hills, Texas 76180
Tarrant County
50. 6400 Avenue K X
Plano, Texas 75074-2507
Collin County
51. 5430 Great Fare Drive X
San Antonio, Texas 78218-5497
Bexar County
52. 6707 N.W. Loop #410
San Antonio, Texas 78238-4504
Bexar County
VIRGINIA
53. 2950 Gallows Road X
Falls Church, Virginia 22042-1018
Fairfax County
27
<PAGE>
GROUND LEASE
NEW YORK
54. 895 East Gate Boulevard X
Garden City East, New York 11530-2199
Nassau County
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC.
OWNED REAL PROPERTY
COLORADO
55. 5655 North Academy Blvd.
Colorado Springs, Colorado 80918-3658
El Paso County
56. 11111 West 6th Avenue X
Lakewood, Colorado 80215-5538
Jefferson County
57. 7125 West 88th Avenue X
Westminster, Colorado
Jefferson County
MINNESOTA
58. 3201 Country Drive X
St. Paul, Minnesota 55117-1096
Ramsey County, Minnesota
MISSOURI
59. 3920 South Noland Road
Independence, Missouri 64055-3347
Jackson County
60. 9124 Pershall Road X
Hazelwood, Missouri 63042-2896
St. Louis County
LEASED REAL PROPERTY
ARIZONA
61. 5870 West Bell Road
Glendale, Arizona 85308
Maricopa County
62. 225 South Dobson Road X
Mesa, Arizona 85202-2009
Maricopa County
63. 2801 West Indian School Road
Phoenix, Arizona 85017-4299
Maricopa County
64. 4718 East Thunderbird Road
Phoenix, Arizona 85032-5541
Maricopa County
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65. 7310 South Priest Drive
Tempe, Arizona 85283
Maricopa County
66. 2020 North 75th Avenue
Phoenix, Arizona
Maricopa County
COLORADO
67. 4401 South Tamarac Parkway
Denver, Colorado 80237-2401
Denver County
KANSAS
68. 9325 Rose Hill Road X
Lenexa, Kansas 66215-3790
Johnson County
MINNESOTA
69. 7007 Lakeland Avenue North
Brooklyn Park, Minnesota 55428-5612
Hennepin County
70. 12301 DuPont Avenue South X
Burnsville, Minnesota 55337-1689
Dakota County
MISSOURI
71. 5420 Chouteau Traffic Way
North Kansas City, Missouri 64119-2511
Jackson County
72. 14250 East Manchester Road
Manchester, Missouri 63021
St. Louis County
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC.
OWNED REAL PROPERTY
CALIFORNIA
73. 5375 San Fernando Road, West X
Los Angeles, California 90039-1087
Los Angeles County
74. 1604 Sisk Road X
Modesto, California 95353-2501
Stanislaus County
75. 2420 North Oxnard Boulevard X
Oxnard, California 93030-2090
Ventura County
76. 729 Nordahl Road
San Marcos, California 92069-3513
San Diego County
29
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OREGON
77. 13631 Southeast Johnson Road X
Milwaukie, Oregon 97222-1295
Clackamas County
78. 9770 SW Scholls Ferry Road
Tigard, Oregon 97223-4303
Washington County
LEASED REAL PROPERTY
CALIFORNIA
79. 1000 Tustin Avenue
Anaheim, California 92807-1724
Orange County
80. 1450 West Branch Street
Arroyo Grande, California 93420
San Luis Obispo County
81. 4606 California Avenue
Bakersfield, California 93309-1106
Kern County
82. 31833 Date Palm Drive
Cathedral City, California 92234
Riverside county
83. 17970 Studebaker Road
Cerritos, California 90701-3646
Los Angeles County
84. 1138 Broadway
Chula Vista, California 91911-2707
San Diego County
85. 1695 Willow Pass Road X
Concord, California 94520-0520
Contra Costa County
86. 470 McKinley Street
Corona, California 91719-1291
Riverside County
87. 40500 Albrae Street
Fremont, California 94538
Alameda County
88. 4525 West Shaw Avenue X
Fresno, California 93722-6208
Fresno County
89. 7441 Edinger Avenue X
Huntington Beach, California 92647-3598
Orange County
90. 23251 Avenida de la Carlota
Laguna Hills, California 92653-1532
Orange County
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<PAGE>
91. 4741 Watt Avenue X
North Highlands, California 95660-5515
Sacramento County
92. 19350 Nordhoff Street X
Northridge, California 91324-2492
Los Angeles County
93. 1460 Fitzgerald Drive
Pinole, California 94564-2227
Contra Costa County
94. 4299 Rosewood Drive, Unit 100
Pleasanton, California 94588
Alameda County
95. 1601 Kingsdale Avenue X
Redondo Beach, California 90278-3928
Los Angeles County
96. 5195 Redwood Drive
Rohnert Park, California 94928
Sonoma County
97. 736 Inland Center Drive X
San Bernardino, California 92408-1899
San Bernardino County
98. 1119 Industrial Road
San Carlos, California 94070-4125
San Mateo County
99. 1190 West Morena Boulevard X
San Diego, California 92110-3881
San Diego County
100. 633 West Bonita Avenue X
San Dimas, California 91773-2580
Los Angeles County
101. 3199 Alvarado Street X
San Leandro, California 94577-5790
Alameda County
102. 2121 Laurelwood Road X
Santa Clara, California 95054-2754
Santa Clara County
103. 900 Dubuque Avenue X
S. San Francisco, California 94080-1890
San Mateo County
104. 1777 East Hammer Lane
Stockton, California 95210-4116
San Joaquin County
105. 15300 Palmdale Road
Victorville, California 92392
San Bernardino County
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<PAGE>
NEVADA
106. 91 South Martin L. King Boulevard X
Las Vegas, Nevada 89106-4340
Clark County
GROUND LEASE
107. 17520 East Castleton Street
City of Industry, California 91744 (GROUND LEASE)
Los Angeles County
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC.
OWNED REAL PROPERTY
WASHINGTON
108. 20111 46th Avenue West X
Lynnwood, Washington 98036-6694
Snohomish County
LEASED REAL PROPERTY
WASHINGTON
109. 2402 84th Street, South
Tacoma, Washington 98409-3781
Pierce County
110. 17601 South Center Parkway X
Tukwila, Washington 98188-3794
King County
32
<PAGE>
SCHEDULE B - PART 6.18
1. Relative to the Washington Business and Occupation Tax audit for the
period January 1992 through June 1996, additional tax estimated at
$10,620 is due on petitioned issues for which partial relief was
granted. Thus audit is closed for all other purposes. The State of
Washington has sent bills for the remainder of the tax, but the amounts
computed were inconsistent with the settlement terms. As of September 4,
1998, the Borrowers are waiting for another revised billing statement.
2. The State of Connecticut delivered audit workpapers that propose
additional sales and use tax of approximately $25,400. The Borrowers are
seeking adjustments that could reduce the additional tax to
approximately $22,000. A portion of this additional tax (approximately
$3,000-$5,000) is attributable to construction contractors who were not
registered for sales/use tax with the State. Levitz anticipates billing
the contractors for their share of the additional tax.
3. The cities of Denver and New Orleans are currently auditing Levitz for
sales and/or use tax. Of the two, the Denver audit is further progressed
and an assessment is expected shortly; the amount thereof is currently
unknown. New Orleans, which is auditing the Jefferson Parish store for
sales into New Orleans, is still trying to decide on sample periods for
the audit. Both of these audits are correspondence audits (being handled
through the mail).
4. A sales/use tax audit by the State of California is scheduled to begin
September 21, 1998. The audit will cover the period April 1995 through
June 1998. No other audits are scheduled at this time.
5. Attached is a schedule prepared on September 3, 1998 concerning open tax
years.
6. There are tax sharing agreements between Levitz Furniture Incorporated
and Levitz Furniture Corporation and among Levitz Furniture Corporation
and the remaining Borrower subsidiaries.
33
<PAGE>
SCHEDULE B - PART 6.18 (CONT.)
OPEN TAX YEARS AS OF SEPTEMBER 3, 1998
Levitz Furniture Incorporated (the "Parent") has executed or filed with the IRS
an agreement extending the period of assessment or collection of income taxes as
follows:
<TABLE>
<CAPTION>
DATE STATUTE IS
EXTENDED TO THE
EXTENT OF NOL/
FISCAL YEAR NORMAL STATUTE CREDIT CARRYBACKS
ENDING EXPIRES OR WAIVERS
- - ------ ------- ----------
<S> <C> <C>
March 31, 1990 December 15, 1993 June 15, 1999 (1) (7)
March 31, 1991 December 15, 1994 October 31, 1998 (2) (7)
March 31, 1992 December 15, 1995 June 15, 1999 (3) (7)
March 31, 1993 December 15, 1996 June 15, 1999 (4) (7)
March 31, 1994 July 22, 1997 October 31, 1998 (6) (7)
March 31, 1995 December 15, 1998 June 15, 1999 (5) (7)
March 31, 1996 June 15, 1999 (7)
March 31, 1997 June 2, 2000 (7)
March 31, 1998 December 15, 2001
</TABLE>
(1) Statute for March 31, 1990 remains open only to the extent of the refund
generated from the carryback of the targeted jobs tax credit from March 31, 1993
(total exposure for carryback is $92,409). See Footnote (7).
(2) Statute for March 31, 1991 remains open only to the extent of the refund
generated from the carryback of the net operating loss (NOL) from March 31, 1994
(total exposure for carryback is $5,500,739). See Footnote (6).
(3) Statute for March 31, 1992 remains open to the extent of the refunds
generated from the carrybacks of the targeted jobs credit from March 31, 1995
(total exposure for carrybacks $186,220 = $137,349 and $48,871). See Footnote
(7).
(4) Statute for March 31, 1993 remains open only to the extent of the NOL from
March 31, 1996 (total exposure $4,875,054). See Footnote (7).
34
<PAGE>
SCHEDULE B - PART 6.18 (CONT.)
(5) Statute for March 31, 1995 remains open to the extent of the NOL from March
31, 1996 (total exposure $64,258). Statute for March 31, 1997 remains open to
the extent of the NOL from March 31, 1997 (total exposure $2,383,342). See
Footnote (7).
(6) Waiver signed on January 16, 1997. On June 3, 1997, Levitz Furniture Inc.
and Subsidiaries received notice of no exception from IRS Joint Committee on
Taxation for its FYE March 31, 1994 and FYE March 31, 1991 income tax returns.
(7) On May 28, 1998, Levitz Furniture, Inc. and Subsidiaries received clearance
from the Joint Committee on Taxation for its March 31 FYE for 1990, 1992, 1993,
1995, 1996 and 1997.
The extensions also extend to all applicable statuses of limitations for
state income tax assessments for the Parent and its Operating Subsidiaries. The
following Operating Subsidiaries have State Waivers extending the period of
assessment or collection of taxes:
<TABLE>
<CAPTION>
Levitz Furniture Co. of the Pacific, Inc.
TAX TAXING EXTENDED WAIVER
TYPE AUTHORITY PERIOD EXPIRES
- - ---- --------- ------ -------
<S> <C> <C> <C>
Sales/Use California 4/1/95 - 9/30/95 1/31/99
</TABLE>
<TABLE>
<CAPTION>
Levitz Furniture Corporation
TAX TAXING EXTENDED WAIVER
TYPE AUTHORITY PERIOD EXPIRES
- - ---- --------- ------ -------
<S> <C> <C> <C>
Sales/Use Connecticut 5/1/95 - 9/30/98 60 days after
assessment sent by
Connecticut
Department of
Revenue. No such
assessment has been
prepared by the
Department to date.
</TABLE>
Parent and all operating subsidiaries with the exception of John M.
Smyth Company have agreed or been requested to make adjustments under IRC
Section 481(a) by reason of a change in accounting method for the following:
Recognition of Income on Ordered and Undelivered Sales at the
time of Delivery (John M. Smyth Company already employed this
method of accounting, and therefore, did not require a change of
accounting method under IRC Section 3115).
EXHIBIT NO. 10.58
EIGHTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT
THIS EIGHTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT,
dated as of September 18, 1998 (this "AMENDMENT"), is among LEVITZ FURNITURE
INCORPORATED, a Delaware corporation and a debtor and debtor in possession,
LEVITZ FURNITURE CORPORATION, a Florida corporation and a debtor and debtor in
possession ("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation
and a debtor and debtor in possession, LEVITZ SHOPPING SERVICE, INC., a Florida
corporation and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF
THE MIDWEST, INC., a Colorado corporation and a debtor and debtor in possession,
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a
debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE
COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and
debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE
COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a
debtor in possession, JOHN M. SMYTH COMPANY, an Illinois corporation and a
debtor and debtor in possession, and JOHN M. SMYTH REALTY COMPANY, an Illinois
corporation and a debtor and debtor in possession (collectively, the
"BORROWERS"), each Revolving Lender and Term Lender signatories hereto
(collectively the "LENDERS"), AG CAPITAL FUNDING PARTNERS, L.P. (together with
any successors and permitted assigns, the "TERM LENDERS") and BT COMMERCIAL
CORPORATION, a Delaware corporation, acting in its capacity as agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"AGENT"). Capitalized terms used in this Amendment and not otherwise defined
have the meanings assigned to such terms in the Postpetition Credit Agreement
dated as of September 5, 1997 (as amended, restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT"), among the Borrowers, the
Lenders and the Agent.
PRELIMINARY STATEMENTS:
A. The Borrowers, the Lenders and the Agent are parties to the Credit
Agreement.
B. The Lenders have extended credit to the Borrowers under the Credit
Agreement by, among other things, the term loans (the "EXISTING TERM LOANS")
evidenced by the Term Note dated as of September 5, 1997, made by the Borrowers
in favor of the Term Lenders in the original principal amount of $36,356,250.
C. The Borrowers have requested that AG CAPITAL FUNDING PARTNERS, L.P.
(together with any successors and permitted assigns, the "SECOND TERM LENDERS")
extend further credit by extending a new term loan (the "SECOND TERM LOAN") to
the Borrowers in the original principal amount of $22,000,000 to be evidenced by
a promissory note (the "SECOND TERM Note"), made by the Borrowers in favor of
the Second Term Lenders, such extension of credit to be secured by an interest
in the Collateral PARI PASSU and pro rata with the Existing Term Loans.
D. The Borrowers, the Lenders and the Agent have agreed to amend the
Credit Agreement to extend the Second Term Loan on the terms and subject to the
conditions of this Amendment.
1
<PAGE>
E. The Borrowers have requested that the Lenders and the Agent consent
to the extension of the Second Term Loan on the terms and subject to the
conditions of this Amendment.
AGREEMENT:
In consideration of the premises and the mutual agreements contained in
this Amendment, the Borrowers, the Lenders and the Agent agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
On the date each of the conditions set forth in SECTION 4 is satisfied
by the Borrowers (the "CLOSING DATE"), the Credit Agreement is amended as
follows:
1.1 The Credit Agreement is amended by adding Article 2B to the Credit
Agreement as follows:
ARTICLE 2B. SECOND TERM LOAN.
Subject to the terms and conditions set forth in this Credit
Agreement, and in reliance on the representations and warranties of the
Borrowers set forth herein, on September 24, 1998, the Second Term
Lenders agree to extend a term loan to the Borrowers in the original
principal amount of $22,000,000 (the "SECOND TERM LOAN"). The Second
Term Loan shall be evidenced by a Term Note and shall be governed in all
respects by the terms of this Credit Agreement and the other Credit
Documents.
1.2 Section 1.1 of the Credit Agreement is amended by deleting the
definition of "APPRAISED VALUE" in its entirety and replacing it as follows:
APPRAISED VALUE means (i) unless covered by an appraisal
described under clause (ii) below, with respect to the various parcels
of real property of the Borrowers for which a current appraisal dated
September 1, 1997 prepared by Ernst & Young L.L.P. has been delivered to
the Agent, the appraised liquidation value of each such property as
reflected in the applicable appraisal, (ii) with respect to the
Borrowers' leasehold interests in various parcels of real property for
which a current appraisal dated November 12, 1997 prepared by Grubb &
Ellis has been delivered to the Agent, the arithmetic mean of the
appraised liquidation value and the appraised fair market value of each
such property as reflected in the applicable appraisal, (iii) with
respect to any other leasehold interest of any Borrower in any real
property, the arithmetic mean of the appraised liquidation value and the
appraised fair market value of such leasehold interest (assuming the
same to be freely assignable to the extent provided in section 365 of
the Bankruptcy Code), as determined by a nationally recognized real
estate appraisal firm retained by the Agent and reasonably acceptable to
the Majority Term Lenders for purposes of making such determination and
in an appraisal reasonably satisfactory to the Agent and the Majority
Term Lenders, as of the earlier of the date of the sale, transfer or
other disposition by any Borrower of such leasehold interest and any
date after the Closing Date used in any such appraisal and (iv) with
respect to any other fee interest of any Borrower in any real property,
the appraised liquidation value of such fee interest, as determined by a
nationally recognized real estate appraisal firm retained by the Agent
and reasonably acceptable to the Majority Term Lenders for purposes of
making such determination and in an appraisal reasonably satisfactory to
the Agent and the Majority Term Lenders, as of the earlier of the date
of the sale, transfer or other disposition by any Borrower of such fee
interest and any date after the Closing Date used in any such appraisal;
it being understood that, if any appraisal delivered to the Agent
2
<PAGE>
pursuant to clause (i), (ii), (iii) or (iv) sets forth a range of values
for liquidation value or fair market value of the subject property, the
"appraised liquidation value" of such property shall be the arithmetic
mean of the high and low values of the liquidation value specified for
such property and the "appraised market value" of such property shall be
the arithmetic mean of the high and low values of the fair market value
specified for such property and if the appraisal sets forth a range of
values for the subject property, alone, the "Appraised Value" of such
property shall be the arithmetic mean of the high and low values
specified for such property, as determined by the Agent and (v) with
respect to any other fixed assets of any Borrower, (including without
limitation fixtures, furniture and equipment) the fair market value of
such assets as determined by the Agent in the exercise of its Permitted
Discretion; PROVIDED, that no Appraised Value shall be less than zero.
1.3 Section 1.1 of the Credit Agreement is further amended by adding the
following terms after the term "exchange" and immediately preceding the term
"liquidation" in the definition of "ASSET DISPOSITION":
lease, sublease, rejection under Section 365 of the Bankruptcy
Code of any lease or sublease,
1.4 Section 1.1 of the Credit Agreement is further amended by adding the
following parenthetical immediately after the term "Fixed Asset Sublimit" in
clause (a) of the definition of "BORROWING BASE":
(which may be a negative number)
1.5 Section 1.1 of the Credit Agreement is further amended by adding the
following sentence to the end of the definition of "EXPENSES" as follows:
EXPENSES also means all reasonable costs and expenses of the
Majority Term Lenders incurred in connection with the Credit Documents
and the respective transactions contemplated therein, including, without
limitation, (i) the costs of conducting record searches and examining
collateral, (ii) the reasonable fees and expenses of legal counsel and
paralegals, accountants, appraisers and other consultants, experts or
advisors retained by the Majority Term Lenders, including, without
limitation, consultants, experts or advisors retained in connection with
due diligence investigations and (iii) the costs of reviewing and
preparing waivers, amendments and consents.
1.6 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "FIXED ASSET SUBLIMIT" in its entirety and replacing it as
follows:
FIXED ASSET SUBLIMIT means an amount equal to $90,000,000;
provided, that such amount shall be automatically and permanently
reduced (and may thereby become a negative number) on each date on which
an Asset Disposition occurs with respect to any real property, other
fixed assets or any leasehold interest in real property of any Borrower,
in an amount equal to (i) in the case of any Asset Disposition of or
with respect to any real property or any leasehold interest in real
property, the Appraised Value thereof, and (ii) in the case of any Asset
Disposition of or with respect to any other fixed assets (including
without limitation fixtures, furniture and equipment), twenty-five
percent (25%) of the Appraised Value thereof, provided that, no
reduction of the Fixed Asset Sublimit pursuant to this clause (ii) shall
occur as a result of the Borrowers' selling, transferring or otherwise
disposing of obsolete or worn out fixed assets with an aggregate
Appraised Value of up to $1,800,000.
3
<PAGE>
1.7 Section 1.1 of the Credit Agreement is further amended by adding the
term "sublease," after the term "lease" and immediately preceding the term
"conditional sale" in the definition of "LIEN".
1.8 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
MAKE-WHOLE PREMIUM means, in connection with any payment of the
principal amount of all or any portion of the principal amount of the
Second Term Loan at any time prior to March 5, 1999, for any reason
(whether upon voluntary prepayment, mandatory prepayment, acceleration
or otherwise), an amount equal to the Present Value (as hereinafter
defined) of the difference in the interest that would have been payable
on each interest payment date on the amount of such principal being
prepaid (assuming each payment of interest on the Second Term Loan would
have been timely paid when due) and the interest that would be earned on
the prepaid amount at 7.00%. For purposes of this definition, PRESENT
VALUE shall be determined in accordance with generally accepted
financial practice in the United Sates of America at a discount rate
equal to 7.00% per annum applied on a monthly basis.
1.9 Section 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
ORIGINAL TERM LENDERS means each financial institution identified
on ANNEX II as an "Original Term Lender."
1.10 Section 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
ORIGINAL TERM LOAN has the meaning set forth in Article 2A.
1.11 Section 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
SECOND TERM LENDERS means each financial institution identified
on ANNEX II as a "Second Term Lender."
1.12 Section 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
SECOND TERM LOAN has the meaning set forth in Article 2B.
1.13 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "TERM LENDER" in its entirety and replacing it as follows:
TERM LENDERS means the Original Term Lenders and the Second
Term Lenders.
1.14 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "TERM LOAN" in its entirety and replacing it as follows:
TERM LOAN means the Original Term Loan and the Second Term Loan.
1.15 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "TERM NOTE" in its entirety and replacing it as follows:
TERM NOTE means, collectively, each promissory note of the
Borrowers payable to the order of any Term Lender, including, without,
limitation, the promissory note evidencing the Second Term Loan,
substantially in the form of EXHIBIT C-2 as amended, restated,
supplemented or otherwise modified from time to time, and including all
4
<PAGE>
notes issued in replacement of, or in substitution or exchange for, any
of the foregoing.
1.16 Article 2A of the Credit Agreement is amended by deleting such
article in its entirety and replacing it as follows:
ARTICLE 2A. ORIIGINAL TERM LOAN.
On each Business Day that Collections are to be applied to repay
the principal of the Prepetition Tranche A Term Loan pursuant to the
Postpetition Collateral Agency Agreement, then, unless an Actionable
Default has occurred and is continuing, each Original Term Lender shall
be deemed to fund a term loan to the Borrowers in an amount equal to its
Proportionate Share of the amount of the Collections so to be applied
(all term loans made in such manner by each Original Term Lender herein
collectively called the "Original Term Loan"). The Original Term Loan of
each Original Term Lender shall be evidenced by a Term Note and shall be
governed in all respects by the terms of this Credit Agreement and the
other Credit Documents. All Collections that would otherwise be applied
to repay the principal of the Prepetition Tranche A Term Loan under the
Postpetition Collateral Agency Agreement shall be remitted to the LFC
Funds Administrator for the account of the Borrowers in accordance with
the deemed funding of the Original Term Loan under this Article 2A so
long as no Actionable Default has occurred and is continuing.
1.17 Section 4.7(d) of the Credit Agreement is amended by deleting such
subsection in its entirety and replacing it as follows:
(d) Upon any Asset Disposition, the Fixed Asset Sublimit shall be
reduced by the amount prescribed in the definition of "Fixed Asset
Sublimit" set forth in Article 1 and may thereby be reduced below zero
(-0-) to a negative number. In addition, after the Fixed Asset Sublimit
has been reduced to zero (-0-), the Revolving Commitment of each
Revolving Lender shall be reduced upon any Asset Disposition by such
Revolving Lender's Proportionate Share of the amount by which the Fixed
Asset Sublimit has been reduced below zero (-0-) under the definition of
"Fixed Asset Sublimit." After all the Revolving Commitments have been
reduced to zero (-0-) and all Letter of Credit Obligations have been
cash collateralized in the manner set forth in Section 9.2(c), the Net
Disposition Proceeds of any Asset Disposition shall be applied to repay
the outstanding Postpetition Obligations relating to the Term Loan.
1.18 Section 4.7A of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
4.7A NO PERMITTED PREPAYMENT OF TERM LOANS.
Until payment in full of all Postpetition Obligations in respect
of Revolving Loans and Letter of Credit Obligations and termination of
the Revolving Commitments pursuant to the terms and provisions hereof,
the Borrowers may not prepay the Term Loans at any time in whole or in
part. After payment in full of all Postpetition Obligations in respect
of Revolving Loans and Letter of Credit Obligations and termination of
the Revolving Commitments pursuant to the terms and provisions hereof,
the Borrowers may prepay the Term Loans at any time in whole or in part;
provided, that any such prepayment shall be applied on a pro rata basis
against the then outstanding balances of both the Original Term Loan and
the Second Term Loan and must include all of the interest (including
default rate interest, to the extent applicable) accrued on the
principal amount of the Term Loans so repaid through and including the
relevant date of repayment. Each time any principal amount of the Second
Term Loan is paid in whole or in part at any time prior to March 5,
1999, for any reason (whether by a voluntary prepayment, a mandatory
5
<PAGE>
prepayment, upon acceleration or otherwise), the Borrowers shall pay the
Make-Whole Premium to the Second Term Lenders.
1.19 Section 8.6 of the Credit Agreement is amended by (i) adding the
term "sublease," after the term "lease" and immediately preceding the term
"assign" and (ii) deleting the term "dispositions" in clause (iii) of such
section and replacing such term with the term "assignments."
1.20 Section 8.18(a) of the Credit Agreement is amended by (i) deleting
the term "of" after the term "Interim Financing Order" and replacing such term
with "," and (ii) adding the terms "or the Bankruptcy Court order approving the
amendment to this Credit Agreement incorporating the Second Term Loan" after the
terms "Permanent Financing Order."
1.21 Article 8 of the Credit Agreement is amended by adding a new
Section 8.19 to such article as follows:
8.19 LEASEHOLD COVENANTS. No Borrower shall, or shall permit any
of its Subsidiaries to, directly or indirectly, fail to pay when due any
postpetition obligation relating to, or arising in connection with, its
leasehold interest in any real property, including, without limitation,
rent or other payments due under the lease for such real property, any
postpetition real estate taxes owing on such real property and payable
by the Borrowers or any insurance premiums due in connection with such
real property. Without obtaining the prior written consent of the Agent
and the Majority Term Lenders, no Borrower shall, or shall permit any of
its Subsidiaries to, directly or indirectly, (i) reject or apply to the
Bankruptcy Court to reject any executory contract or unexpired lease or
(ii) assume or apply to the Bankruptcy Court to assume any executory
contract or unexpired lease (in each case, other than a lease that has
an Appraised Value equal to zero or other than a contract whose
assumption or rejection will not effect the value of any Collateral)
unless such assumption is pursuant to an order of the Bankruptcy Court,
acceptable to the Agent and the Majority Term Lenders in their
reasonable discretion, that specifically reserves for the Borrowers the
right to subsequently assign such executory contract or unexpired lease
under section 365(f) of the Bankruptcy Code without, among other things,
the consent of the relevant counterparties to such executory contract or
unexpired lease.
1.22 Section 9.2 of the Credit Agreement is amended by adding new
subsections (e) and (f) to such section as follows:
(E) OTHER REMEDIES. If any Event of Default shall have occurred
and be continuing, the Agent or the Majority Term Lenders may direct the
Borrowers how and when to exercise all rights of the Borrowers under
section 365 of the Bankruptcy Code and the Borrowers shall fully comply
with such directions; provided, that notwithstanding the foregoing, the
Majority Term Lenders may not exercise any of such rights until all
Postpetition Obligations owing to the Revolving Lenders have been
indefeasibly paid in full and the Revolving Commitments have been
terminated. Without in any manner limiting any right or remedy of the
Agent or any Lender under any other section or provision of this Credit
Agreement or any order related to or entered in connection therewith,
and unless the Borrowers and the Committee agree otherwise, no such
direction shall require any Borrower to assign any unexpired lease or
executory contract earlier than the earlier of (i) the expiration of
sixty days from the date of such direction and (ii) five Business Days
prior to (a) the day upon which the relevant lease or contract may be
deemed to be rejected under section 365 of the Bankruptcy Code (whether
by expiration of any relevant time period for assumption or rejection or
otherwise), (b) the scheduled hearing date on which the relevant
executory contract or unexpired lease may be assumed or rejected or (c)
the earliest day on which, in the good faith judgement of the Agent or
6
<PAGE>
the Majority Term Lenders, a default not subject to cure could occur
with respect to that lease or contract. Unless the Borrowers and the
Committee agree otherwise, any such assignment pursuant to a Lender
direction described above shall be to the highest and best bidder at a
public auction held before the Bankruptcy Court or as the Bankruptcy
Court shall otherwise direct. notwithstanding anything to the contrary
contained herein, if the Borrowers do not fully honor and take all
actions requested in any such direction within three Business Days of
the delivery of such direction, the Agent or the Majority Term Lenders
may, on five days' notice to the Borrowers, the Committee and any
landlord or other counterparty to the relevant lease or contract, move
the Bankruptcy Court on behalf of the Borrowers for the relief specified
in the direction. Such notice shall be due and sufficient notice of such
request under the circumstances unless the landlord agrees to extend the
period for curing the default or assuming the lease for any longer
period reasonably requested by the landlord to oppose the relief
requested in the direction. Notwithstanding anything to the contrary
contained herein, this Section 9.2(e) shall not apply to any lease that
has an Appraised Value of zero or to any contract whose assumption or
rejection will not effect the value of any Collateral.
(F) Without in any manner limiting any right or remedy of the
Agent or any Lender under any other section or provision of this Credit
Agreement or any order related to or entered in connection therewith,
and notwithstanding that a Default or Event of Default may not have
occurred and be continuing, the Agent or the Majority Term Lenders may
direct, no earlier than fifteen days prior to the day that any of the
events set forth in clause (i), (ii) or (iii) below could occur, the
Borrowers how and when to exercise all rights of the Borrowers under
section 365 of the Bankruptcy Code (and the Borrowers shall fully comply
with such direction(s)) with respect to any lease or executory contract
that (i) may be rejected or deemed to be rejected under section 365 of
the Bankruptcy Code (whether by expiration of any relevant time period
for assumption or rejection or otherwise), (ii) may be assumed or
rejected at a scheduled hearing date or (iii) in the good faith judgment
of the Agent or the Majority Term Lenders, a default not subject to cure
could occur. Unless the Borrowers and the Committee agree otherwise, any
such assignment pursuant to a Lender direction described above shall be
to the highest and best bidder at a public auction held before the
Bankruptcy Court or as the Bankruptcy Court shall otherwise direct.
Notwithstanding anything to the contrary contained herein, if the
Borrowers do not fully honor and take all actions requested in any such
direction within three Business Days of the delivery of such direction,
the Agent or the Majority Term Lenders may, on three days' notice to the
Borrowers, the Committee and any landlord or other counterparty to the
relevant lease or contract, move the Bankruptcy Court on behalf of the
Borrowers for the relief specified in the direction. Such notice shall
be due and sufficient notice of such request under the circumstances
unless the landlord agrees to extend the period for curing the default
or assuming the lease for any longer period reasonably requested by the
landlord to oppose the relief requested in the direction.
Notwithstanding anything to the contrary contained herein, this Section
9.2(f) shall not apply to any lease that has an Appraised Value of zero
or to any contract whose assumption or rejection will not effect the
value of any Collateral.
1.23 Section 9.2A of the Credit Agreement is amended by adding the
following sentence to the end of the such section as follows:
Upon the acceleration of the Term Loans under this Section 9.2A. the
Borrowers will be required to pay the Make-Whole Premium (in respect of
any principal amount of the Second Term Loans paid for any reason prior
to March 5, 1999) to the Second Term Lenders.
7
<PAGE>
1.24 Section 11.8(c)of the Credit Agreement is amended by deleting the
first sentence from such section in its entirety and replacing it as follows:
Each Term Lender may assign to one or more Persons all or a portion of
its rights and obligations under this Credit Agreement, the Term Notes
and the other Credit Documents, with the consent of the Agent and the
Borrowers, which consents shall not be unreasonably withheld or delayed
(provided, that no consents shall be required (i) if an Event of Default
has occurred and is continuing or (ii) if the assignment is to an
Affiliate of a Term Lender or a fund or investment entity managed by a
Term Lender or an Affiliate of a Term Lender); and upon execution and
delivery to the Agent, for its acceptance and recording in the Register,
of an agreement in substantially the form of EXHIBIT G-2 (a "TERM
ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with surrender of any
Term Note or Term Notes subject to such assignment and a processing and
recordation fee of $2,500, such assignment shall be effective, the
Borrowers shall issue a replacement Term Note or Term Notes to such
Person or Persons who thereupon shall be a Term Lender or Term Lenders
for all purposes hereunder to the extent of the Term Note or Term Notes
so issued and ANNEX II hereto shall be deemed to be modified
accordingly.
1.25 Section 11.11(b) of the Credit Agreement is amended by deleting
clause (iii) from such section in its entirety and replacing it as follows:
(III) ARTICLE 2A or 2B and SECTION 2.7, 4.1A, 4.5, 4.7(D), 4.7A, 4.9(B),
4.11, 6.19 (AND ANY SIMILAR REPRESENTATION MADE IN ANY AMENDMENT TO THIS
CREDIT AGREEMENT), 6.7, 7.14, 8.6, 8.17(C), 8.19, 9.2A, 9.2(B), (E) or
(F) or 11.8(C) or (E), of this Credit Agreement and
1.26 Annex II of the Credit Agreement is amended by replacing such annex
with the ANNEX II attached to this Amendment as EXHIBIT A.
2. CONSENT.
2.1 SECOND TERM LOAN. On the Closing Date, the Agent and each Lender
consents to the extension of the Second Term Loan by the Second Term Lenders in
accordance with the terms of the Credit Agreement, as amended by this Amendment.
The Agent and each Lender acknowledge that the Second Term Loan shall be secured
by an interest in the Collateral PARI PASSU and pro rata with the Existing Term
Loan and the term "Secured Obligations" as used in the Postpetition Collateral
Agency Agreement shall include the obligations of the Borrowers under the Credit
Agreement with respect to the Second Term Loan. The obligations of the Borrowers
under the Credit Agreement with respect to the Second Term Loan will be secured
by the Collateral without having to amend the Collateral Documents. The Agent
and each Lender agree that at any time and from time to time, at the cost and
expense of the Borrowers, they will execute and deliver all further instruments
and documents, and take such further actions, that may be reasonably necessary
to so secure the Second Term Loan.
2.2 OTHER. Nothing in this Amendment should in any way be deemed (i) a
waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any
such Event of Default.
3. AGREEMENTS OF THE BORROWERS.
3.1 USE OF PROCEEDS. The proceeds from the Second Term Loan will be used
only to prepay outstanding Revolving Loans under the Credit Agreement.
8
<PAGE>
3.2 FURTHER ASSURANCES. The Borrowers acknowledge that the Second Term
Loan shall be secured by an interest in the Collateral PARI PASSU and pro rata
with the Existing Term Loan and the term "Secured Obligations" as used in the
Postpetition Collateral Agency Agreement shall include the obligations of the
Borrowers under the Credit Agreement with respect to the Second Term Loan. The
obligations of the Borrowers under the Credit Agreement with respect to the
Second Term Loan will be secured by the Collateral without having to amend the
Collateral Documents. The Borrowers agree that at any time and from time to
time, at their cost and expense, they will execute and deliver all further
instruments and documents, and take such further actions, that may be reasonably
necessary to so secure the Second Term Loan.
3.3 SEVENTH AMENDMENT. The Borrowers and the Lenders agree that Sections
1 and 2.1 of the Seventh Amendment and Consent to Postpetition Credit Agreement
dated as of September 3, 1998, among the Borrowers, the Lenders and the Agent
are superceded by this Amendment and will have no further force and effect.
3.4 FAILURE TO COMPLY. The Borrowers agree that a breach of the
agreements in this SECTION 3 will constitute an Event of Default under the
Credit Agreement.
4. CONDITIONS PRECEDENT.
This Amendment becomes effective upon satisfaction of the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Borrowers contained in this Amendment are true and correct as of the
Closing Date.
4.2 AMENDMENT APPROVAL ORDER. This Amendment has been approved by the
Bankruptcy Court pursuant to an order (the "AMENDMENT APPROVAL ORDER") in form
attached as EXHIBIT B, which order is in full force and effect and has not been
reversed, modified, amended, appealed or stayed. The Agent and the Second Term
Lenders shall have been reasonably satisfied with the form and timing or the
notice of the motion for the entry of the Amendment Approval Order and such
notice and motion shall have been properly served upon each lessor of property
to any Borrower. Unless the Agent and the Second Term Lenders agree otherwise,
the Amendment Approval Order shall have become final and non-appealable.
4.3 BANKRUPTCY COURT ORDER. The Borrowers have obtained an order of the
Bankruptcy Court extending the Borrowers' time to assume or reject executory
contracts and unexpired leases, pursuant to section 365(d)(4) of the Bankruptcy
Code, through March 31, 1999.
4.4 DUE DILIGENCE. The Second Term Lenders have completed their due
diligence review of the Borrowers and their properties and are satisfied, in
their sole and absolute discretion, with the results of such investigation. Such
due diligence investigation includes, without limitation, (i) review of the
Borrowers' financial statements, (ii) review of leases for each of 32 properties
selected by the Second Term Lenders, (iii) review of the terms and provisions of
the Borrowers' real estate holdings (including leasehold documentation relating
to such holdings) and (iv) receipt and review of a report prepared by Keen
Realty Consultants, such report to be acceptable to the Second Term Lenders in
their sole and absolute discretion.
4.5 FEES AND EXPENSES. The Agent and the Second Term Lenders have been
reimbursed for all fees and expenses (including reasonable attorneys' fees and
expenses) incurred in connection with the preparation of this Amendment and the
Second Term Loan.
9
<PAGE>
4.6 DOCUMENTS. The Agent has received all of the following, each duly
executed and dated as of the Closing Date (or such other date as is satisfactory
to the Agent) in form and substance satisfactory to the Agent:
(A) EIGHTH AMENDMENT. Ten copies of this Amendment executed by the LFC
Funds Administrator, the Borrowers, the Agent and all Lenders;
(B) SECOND TERM NOTES. Second Term Notes, substantially in the form of
Exhibit C-2 to the Credit Agreement (dated as of the Closing Date),
made by the Borrowers in favor of the Second Term Lenders;
(C) AMENDMENT APPROVAL ORDER. A copy of the Amendment Approval Order;
and
(D) OTHER. Such other documents as the Agent or the Second Term Lenders
may reasonably request.
5. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants to the Agent and each
Lender that, after giving effect to this Amendment or any part of this
Amendment:
5.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
contained in the Credit Agreement and the other Credit Documents are true and
correct in all material respects on and as of the date of this Amendment, in
each case as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such representations
and warranties were true and accurate on and as of such earlier date).
5.2 EVENTS OF DEFAULT. No Default or Event or Default has occurred which
has not been waived (or, in the case of an Event of Default, cured) under the
terms of the Credit Agreement.
5.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as
contemplated by SECTION 4.1(B)), this Amendment and the Credit Agreement, as
amended by this Amendment, will constitute legal, valid and binding obligations
of the LFC Funds Administrator and each of the Borrowers and will be enforceable
against such Persons in accordance with their respective terms.
5.4 CONSENTS. The execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the consent or
approval of any Person other than the Bankruptcy Court (as contemplated by
SECTION 4.1(B)), except such consents and approvals as have been obtained.
5.5 NO PREPETITION OBLIGATIONS OUTSTANDING. As of the Closing Date,
there are no Prepetition Obligations outstanding under the Credit Agreement.
5.6 MATERIAL CONTRACTS. SCHEDULE B, PART 6.19, as amended by the
information contained on EXHIBIT C to this Amendment, contains a true, correct
and complete list of all the Material Contracts in effect on the Closing Date.
Except as described on SCHEDULE B, PART 6.19, as amended by the information
contained on EXHIBIT C to this Amendment, no Material Contract contains any
burdensome restrictions on any Borrower or any Subsidiary of any Borrower or any
of their respective properties that could prevent such Borrower or Subsidiary
from conducting its business as conducted on the Closing Date. As of the Closing
Date, all of the Material Contracts are in full force and effect and, except as
described on SCHEDULE B, PART 6.19, as amended by the information contained on
EXHIBIT C to this Amendment, no defaults currently exist thereunder by any
Borrower or Subsidiary of a Borrower that is a party
10
<PAGE>
thereto (other than defaults that need not be cured under section 365(b)(2) of
the Bankruptcy Code), or to the knowledge of the Borrowers, any other party
thereto. The Borrowers agree that the representations and warranties set forth
in this SECTION 5.6 will survive the Closing Date and that if such
representations and warranties are false or misleading in any material respect
on the Closing Date, an Event of Default will have occurred under Section 9.1(c)
of the Credit Agreement.
6. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
6.1 REFERENCES. Upon the effectiveness of this Amendment, or any part of
this Amendment, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference in
each of the other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement as amended by this Amendment or any part of
this Amendment.
6.2 RATIFICATION. Except as expressly set forth in this Amendment, all
of the terms and conditions of the Credit Agreement and the other Credit
Documents remain in full force and effect and are ratified and confirmed in all
respects. The execution and delivery of this Amendment by the Agent and each of
the Lenders in no way obligates the Agent or any of the Lenders at any time
hereafter to consent to any other amendment or modification of any term or
provision of the Credit Agreement or any of the other Credit Documents, whether
of a similar or different nature.
7. GOVERNING LAW.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE
STATE OF NEW YORK.
8. HEADINGS: COUNTERPARTS.
Section headings in this Amendment are included for convenience of
reference only and do not constitute a part of this Amendment for any other
purpose. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR
LEVITZ FURNITURE CORPORATION, a Florida corporation, in its
capacity as LFC Funds Administrator
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in its
individual capacity and it its capacity as the LFC Funds
Administrator
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: President
------------------------------------------
12
<PAGE>
LEVITZ SHOPPING SERVICE, a Florida corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado
corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California
corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington
corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: President
------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: President
------------------------------------------
13
<PAGE>
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: President
------------------------------------------
JOHN M. SMYTH COMPANY, an Illinois corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: Vice President
------------------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
By: /s/ EDWARD P. ZIMMER
------------------------------------------
Name: Edward P. Zimmer
------------------------------------------
Title: President
------------------------------------------
AGENT:
BT COMMERCIAL CORPORATION, in its capacity as Agent
By: /s/ WAYNE D. HILLOCK
------------------------------------------
Name: Wayne D. Hillock
------------------------------------------
Title: Sr. V.P.
------------------------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware corporation in its
respective capacities as Revolving Lender and Collateral
Agent
By: /s/ WAYNE D. HILLOCK
------------------------------------------
Name: Wayne D. Hillock
------------------------------------------
Title: Sr. V.P.
------------------------------------------
14
<PAGE>
FINOVA CAPITAL CORPORATION, it its capacity as Revolving
Lender
By: /s/ BRIAN RUJAWITZ
------------------------------------------
Name: Brian Rujawitz
------------------------------------------
Title: AVP
------------------------------------------
HELLER FINANCIAL, INC., it its capacity as Revolving Lender
By: /s/ SCOTT ZIEMKE
------------------------------------------
Name: Scott Ziemke
------------------------------------------
Title: AVP-Relationship Manager
------------------------------------------
LASALLE NATIONAL BANK, it its capacity as Revolving Lender
By: /s/ CHRISTOPHER G. CLIFFORD
------------------------------------------
Name: Christopher G. Clifford
------------------------------------------
Title: Sr. VP
------------------------------------------
CONGRESS FINANCIAL CORPORATIONN (CENTRAL), it its capacity
as Revolving Lender
By: /s/ STEVEN LINDERMAN
------------------------------------------
Name: Steven Linderman
------------------------------------------
Title: Vice President
------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION, it its capacity as
Revolving Lender
By: /s/ MICHAEL KEMPEL
------------------------------------------
Name: Michael Kempel
------------------------------------------
Title: VP
------------------------------------------
15
<PAGE>
SILVER OAK CAPITAL L.L.C., it its capacity as Revolving
Lender
By: /s/ JEFFREY H. ARONSON
------------------------------------------
Name: Jeffrey H. Aronson
------------------------------------------
Title: Authorized Signatory
------------------------------------------
AG CAPITAL FUNDING PARTNERS, L.P., it its capacity as
Revolving Lender
By: /s/ JEFFREY H. ARONSON
------------------------------------------
Name: Jeffrey H. Aronson
------------------------------------------
Title: Authorized Signatory
------------------------------------------
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION, it its capacity
as Revolving Lender
By: /s/ NANCY A. KAGAN
------------------------------------------
Name: Nancy A. Kagan
------------------------------------------
Title: Authorized Signatory
------------------------------------------
TERM LENDERS:
SILVER OAK CAPITAL L.L.C., it its capacity as Term Lender
By: /s/ JEFFREY H. ARONSON
------------------------------------------
Name: Jeffrey H. Aronson
------------------------------------------
Title: Authorized Signatory
------------------------------------------
AG CAPITAL FUNDING PARTNERS, L.P., in its capacity as Second
Term Lender
By: Angelo, Gordon & Co., L.P., as Investment Advisor
By: /s/ JEFFREY H. ARONSON
------------------------------------------
Name: Jeffrey H. Aronson
------------------------------------------
Title: Authorized Signatory
------------------------------------------
16
<PAGE>
EXHIIBIT A
ANNEX II
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF TERM LENDERS AND TERM COMMITMENT AMOUNTS
ORIGINAL TERM LENDERS:
1. SILVER OAK CAPITAL L.L.C.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $36,356,250
SECOND TERM LENDERS:
2. AG CAPITAL FUNDING PARTNERS, L.P.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $22,000,000
17
<PAGE>
EXHIBIT B
FORM OF AMENDMENT APPROVAL ORDER
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-01-1998
<CASH> 2,991
<SECURITIES> 0
<RECEIVABLES> 27,731
<ALLOWANCES> 0
<INVENTORY> 120,289
<CURRENT-ASSETS> 156,449
<PP&E> 120,874
<DEPRECIATION> 0
<TOTAL-ASSETS> 415,248
<CURRENT-LIABILITIES> 275,800
<BONDS> 5,255
0
0
<COMMON> 303
<OTHER-SE> (238,130)
<TOTAL-LIABILITY-AND-EQUITY> 415,248
<SALES> 350,971
<TOTAL-REVENUES> 350,971
<CGS> 193,164
<TOTAL-COSTS> 193,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,789
<INCOME-PRETAX> (52,021)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52,021)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,021)
<EPS-PRIMARY> (1.73)
<EPS-DILUTED> 0
</TABLE>
