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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 28, 1996 COMMISSION FILE NUMBER 0-22480
DM MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 04-2973769
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 RECREATION PARK DRIVE
HINGHAM, MA 02043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 740-2718
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.
Class
-----
Common stock, $0.01 par value 4,456,908 shares outstanding
at November 5, 1996
Total number of pages 86
The Exhibit Index is located on Page 12
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DM MANAGEMENT COMPANY & SUBSIDIARY
<TABLE>
INDEX TO FORM 10-Q
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C>
Item 1. Consolidated Financial Statements........................................................................................3-7
Consolidated Balance Sheets at September 28, 1996, September 30, 1995 and June 29, 1996....................................3
Consolidated Statements of Operations for the three months ended September 28, 1996 and September 30, 1995.................4
Consolidated Statements of Cash Flows for the three months ended September 28, 1996 and September 30, 1995.................5
Notes to Consolidated Financial Statements ..............................................................................6-7
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations ......................8-9
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K..........................................................................................10
Signature.........................................................................................................................11
Exhibit Index.....................................................................................................................12
</TABLE>
2
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DM MANAGEMENT COMPANY & SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
SEPTEMBER 28, SEPTEMBER 30, JUNE 29,
1996 1995 1996
------------- ------------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 296 $ 370 $ 221
Marketable securities, net of unrealized loss ................. 3,862 -- 3,858
Inventory ..................................................... 10,200 8,675 10,866
Prepaid catalog expenses ...................................... 3,875 4,103 4,154
Other current assets .......................................... 1,915 2,355 1,098
-------- -------- --------
Total current assets ................................. 20,148 15,503 20,197
Marketable securities, net of unrealized loss ........................... -- 3,943 --
Property and equipment, net ............................................. 6,994 6,812 6,872
Non-current assets of discontinued operations ........................... -- 5,366 --
-------- -------- --------
Total assets ......................................... $ 27,142 $ 31,624 $ 27,069
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 6,943 $ 5,217 $ 9,651
Accrued expenses .............................................. 1,658 2,276 1,438
Accrued customer returns ...................................... 1,441 2,247 1,231
Short-term revolver ........................................... 1,721 -- --
Current portion of mortgage note and other long-term debt ..... 864 283 889
-------- -------- --------
Total current liabilities ........................... 12,627 10,023 13,209
Mortgage note ........................................................... 1,338 1,448 1,366
Other long-term debt .................................................... 3,431 1,975 3,014
Commitments
Stockholders' equity:
Special preferred stock (par value $0.01), 1,000,000 shares
authorized .......................................... -- -- --
Common stock (par value $0.01) 15,000,000 shares authorized,
4,326,157, 4,261,558 and 4,305,293 shares issued and
outstanding at September 28, 1996, September 30, 1995
and June 29, 1996, respectively .................... 43 42 43
Additional paid-in capital .................................... 39,902 39,827 39,890
Unrealized loss on marketable securities ...................... (132) (57) (136)
Accumulated deficit ........................................... (30,067) (21,634) (30,317)
-------- -------- --------
Total stockholders' equity .......................... 9,746 18,178 9,480
-------- -------- --------
Total liabilities and stockholders' equity .......... $ 27,142 $ 31,624 $ 27,069
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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DM MANAGEMENT COMPANY & SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
----------------------------
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Net sales .......................................................................................... $20,541 $22,312
Cost of goods sold ................................................................................. 12,114 13,297
------- -------
Gross profit .................................................................................. 8,427 9,015
Selling, general and administrative expenses ....................................................... 8,067 9,262
------- -------
Income (loss) from continuing operations before interest and income taxes ..................... 360 (247)
Interest expense, net .............................................................................. 82 58
------- -------
Income (loss) from continuing operations before income taxes .................................. 278 (305)
Provision (benefit) for income taxes ............................................................... 28 (31)
------- -------
Income (loss) from continuing operations ...................................................... 250 (274)
Loss from discontinued operations ............................................................. -- (393)
------- -------
Net income (loss) ............................................................................. $ 250 $ (667)
======= =======
Income (loss) per common and common equivalent share
Primary:
Continuing operations ......................................................................... $ 0.05 $ (0.06)
Discontinued operations ....................................................................... -- (0.09)
------- -------
Net income (loss) per common and common equivalent share ...................................... $ 0.05 $ (0.15)
======= =======
Weighted average common and common equivalent shares outstanding ................................... 4,730 4,566
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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DM MANAGEMENT COMPANY AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
------------------------------
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................ $ 250 $ (667)
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Amortization related to discontinued operations .......................... -- 113
Use of liability for expected losses of discontinued operations .......... (897) --
Depreciation and amortization ............................................ 266 217
Changes in assets and liabilities:
Decrease in inventory ...................................................... 666 1,569
Decrease in prepaid catalog expenses ....................................... 279 321
Increase in other current assets ........................................... (328) (782)
Decrease in accounts payable and accrued expenses .......................... (2,488) (164)
Increase in accrued customer returns ....................................... 210 1,056
Decrease (increase) in net current assets of discontinued operations ....... 408 (1,274)
------- -------
Net cash (used in) provided by operating activities ............................ (1,634) 389
Cash flows from investing activities:
Additions to property and equipment .......................................... (350) (43)
------- -------
Net cash used in investing activities .......................................... (350) (43)
Cash flows from financing activities:
Borrowings under debt agreements ............................................. 8,460 6,696
Payments of debt borrowings .................................................. (6,369) (6,868)
Principal payments on capital lease obligations .............................. (44) (35)
Proceeds from stock transactions ............................................. 12 --
------- -------
Net cash provided by (used in) financing activities ............................ 2,059 (207)
------- -------
Net increase in cash and cash equivalents ...................................... 75 139
Cash and cash equivalents at:
Beginning of period .......................................................... 221 231
------- -------
End of period ................................................................ $ 296 $ 370
======= =======
Supplemental information:
Non-cash financing activities:
Increase in capital lease obligations ...................................... $ 38 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements included herein have been prepared by DM
Management Company (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and in the opinion of
management contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for such interim periods 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 pursuant to such
rules and regulations. Accordingly, although the Company believes that the
disclosures are adequate to make the information presented not misleading, these
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report to Stockholders for the fiscal year ended June 29, 1996.
A. DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 1996, the Company announced its plans
to divest its Carroll Reed segment. In connection with this divestiture, the
Company recorded a $3,175,000 liability for expected losses from the Carroll
Reed operations during the phase-out period. The Carroll Reed loss for the three
months ended September 28, 1996 of $897,000 was recorded against the liability
for expected losses. The results of operations for the three months ended
September 30, 1995 have been classified as loss from discontinued operations in
the accompanying consolidated statement of operations. The Company is pursuing
the divestment of the Carroll Reed assets and expects to conclude this
divestiture during fiscal 1997.
The current assets and liabilities of the Carroll Reed segment have been
classified as net current assets of discontinued operations and are included in
other current assets in the accompanying consolidated balance sheets as
summarized below (in thousands):
<TABLE>
<CAPTION>
September 28, September 30, June 29,
1996 1995 1996
------------- ------------- --------
<S> <C> <C> <C>
Current assets
Inventory $1,968 $1,432 $2,477
Prepaid catalog expenses 328 854 492
Other current assets 30 119 149
------ ------ ------
Total current assets 2,326 2,405 3,118
------ ------ ------
Current liabilities
Accounts payable 7 1,196 286
Accrued expenses 9 29 --
Accrued customer returns 59 147 173
Liability for expected losses 1,761 -- 2,658
------ ------ ------
Total current liabilities 1,836 1,372 3,117
------ ------ ------
Net current assets of discontinued operations $ 490 $1,033 $ 1
====== ====== ======
</TABLE>
Non-current assets of discontinued operations on the accompanying
consolidated balance sheet at September 30, 1995 are comprised solely of the net
intangible assets related to the Carroll Reed segment.
6
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DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. DEBT
The Company's credit facilities at September 28, 1996 consisted of a
$1,650,000 mortgage note, payments on which are due monthly based on a 15-year
amortization, with the remaining balance payable in full on August 31, 1999, and
a revolving line of credit totaling $7,000,000 which includes (i) a $4,000,000
line (the "$4,000,000 Revolver") which expired on October 31, 1996; and, (ii) a
$3,000,000 line which would have expired on November 30, 1996.
A summary of the Company's outstanding long-term credit facilities follows
(in thousands):
<TABLE>
<CAPTION>
September 28,1996 September 30,1995
----------------- -----------------
<S> <C> <C>
Mortgage note $1,448 $1,558
$4,000,000 Revolver 4,000 1,830
Capitalized lease obligations 185 318
------ ------
Total long-term debt 5,633 3,706
Less current maturities 864 283
------ ------
Long-term debt $4,769 $3,423
====== ======
</TABLE>
The Company's credit facilities at September 28, 1996 were collateralized
by the Company's marketable securities. The mortgage note is also collateralized
by a first mortgage on the Company's office and distribution facility. The terms
of the Company's financing arrangements contain various lending conditions and
covenants, including restrictions on permitted liens, limitations on capital
expenditures and dividends, and compliance with certain financial coverage
ratios.
On November 4, 1996, the Company replaced its $7,000,000 revolving line of
credit with a $12,000,000 facility consisting of (i) an $8,000,000 revolving
line of credit, which reduces to $5,000,000 during the months of May through
November and expires on June 1, 1997; and, (ii) a $4,000,000 term loan, which
expires on December 31, 2001 and requires quarterly principal payments of
$200,000 commencing on December 31, 1996. In consideration for the new facility,
the Company has given its bank a first security interest on substantially all
assets.
C. INVENTORY
Inventory, consisting of merchandise for sale, is stated at the lower of
cost or market, with cost determined using the first-in, first-out method.
D. NET INCOME (LOSS) PER SHARE
Net income (loss) per common and common equivalent share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period. Common stock
equivalents consist of common stock issuable on the exercise of outstanding
stock options and are calculated using the treasury method. Fully diluted net
income (loss) per share has not been presented because the amount would not
differ significantly from that presented.
E. RECLASSIFICATIONS
Certain financial statement amounts have been reclassified to be consistent
with current period presentation.
F. FISCAL YEAR
The Company's fiscal year is comprised of 52-53 weeks. Fiscal 1996 ended on
June 29, 1996 and included 53 weeks. Fiscal 1997 will be a 52-week year ending
on June 28, 1997. The additional week in fiscal 1996 was added in the first
quarter.
7
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DM MANAGEMENT COMPANY AND SUBSIDIARY
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 28, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTERLY OVERVIEW
Net income for the three months ended September 28, 1996 ("first quarter
fiscal 1997") was $250,000 or $0.05 per share. This compares to a net loss from
continuing operations of $274,000 or $0.06 per share and a net loss, including
loss from discontinued operations, of $667,000 or $0.15 per share for the three
months ended September 30, 1995 ("first quarter fiscal 1996"). This is the
Company's fourth consecutive quarter of profit improvement from continuing
operations over the prior year's comparable quarter. Management believes this
profit improvement is evidence that the various creative, marketing, operational
and financial strategies that the Company has adopted are working.
The Company's fiscal year is comprised of 52-53 weeks. Fiscal 1996 was a
53-week year ending June 29, 1996. The additional week was added in first
quarter fiscal 1996. Accordingly, all comparisons of first quarter fiscal 1997
to first quarter fiscal 1996 are comparisons of a 13-week period to a 14-week
period.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 28, 1996 WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
CONTINUING OPERATIONS
Sales and circulation. Net sales for first quarter fiscal 1997 decreased
7.9% to $20.5 million from $22.3 million for first quarter fiscal 1996. The $1.8
million decline was primarily attributable to the impact of one less week of
sales in first quarter fiscal 1997 as compared to the previous year's 14-week
period. During first quarter fiscal 1997, the Company circulated 15.7% fewer
full-price catalogs and 76.4% fewer sale catalogs, resulting in an overall
circulation decrease of 26.9% versus first quarter fiscal 1996. Customer
response rates rose by approximately 10% and average revenue per order increased
approximately 5%. In addition, despite the decrease in circulation, the
Company's 12-month customer list was 1.6% larger at September 28, 1996 than at
September 30, 1995.
Gross profit. Gross profit as a percentage of net sales was 41.0% in first
quarter fiscal 1997, as compared to 40.4% in first quarter fiscal 1996. The
gross profit improvement is primarily attributable to a decrease in off-price
sales volume in first quarter fiscal 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses in first quarter fiscal 1997 were $8.1 million or 39.3%
of net sales, compared to $9.3 million or 41.5% of net sales in first quarter
fiscal 1996. The decrease in selling, general and administrative expenses as a
percentage of net sales was attributable to the increased productivity of the
Company's first quarter fiscal 1997 mailings.
Interest (income) expense. Interest income was $55,000 and $56,000 for
first quarter fiscal 1997 and first quarter fiscal 1996, respectively, as
invested balances remained at substantially the same level for both quarters.
Interest expense increased to $137,000 in first quarter fiscal 1997 from
$114,000 in first quarter fiscal 1996 due to the Company's increased usage of
its credit facilities.
Income taxes. The effective tax rate for first quarter fiscal 1997 and
first quarter fiscal 1996 was 10.1% and 10.2%, respectively. The effective rates
reflect the full tax rate at the state level where operating loss carryforwards
have been fully utilized and are no longer available, as well as the impact of
the federal alternative minimum tax.
8
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DM MANAGEMENT COMPANY AND SUBSIDIARY
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 28, 1996
DISCONTINUED OPERATIONS
During fourth quarter fiscal 1996, the Company announced its plans to
divest its Carroll Reed segment. Accordingly, the results of the Carroll Reed
operations for first quarter fiscal 1996 have been classified as loss from
discontinued operations in the accompanying consolidated statement of
operations. The net loss incurred for first quarter fiscal 1997 has been
recorded as a reduction to the Company's liability for expected losses
established in connection with the Company's decision to divest the Carroll Reed
segment (see Note A to the consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
During first quarter fiscal 1997, the Company funded its working capital
needs through cash generated from operations and through use of its credit
facilities. The Company's primary working capital need is to fund costs incurred
in advance of revenue generation, primarily inventory acquisition and catalog
development, production and mailing costs incurred prior to the beginning of
each selling season. The Company has two selling seasons which correspond to the
fashion seasons. The Fall season begins in July and ends in December. The Spring
season begins in January and ends in early July.
The Company's credit facilities at September 28, 1996 consisted of a
$1,650,000 mortgage note, payments on which are due monthly based on a 15-year
amortization, with the remaining balance payable in full on August 31, 1999, and
a revolving line of credit totaling $7,000,000 which includes (i) a $4,000,000
line which expired on October 31, 1996; and, (ii) a $3,000,000 line which would
have expired on November 30, 1996.
On November 4, 1996, the Company replaced its $7,000,000 revolving line of
credit with a $12,000,000 facility consisting of (i) an $8,000,000 revolving
line of credit, which reduces to $5,000,000 during the months of May through
November and expires on June 1, 1997; and, (ii) a $4,000,000 term loan, which
expires on December 31, 2001 and requires quarterly principal payments of
$200,000 commencing on December 31, 1996. In consideration for the new facility,
the Company has given its bank a first security interest on substantially all
assets.
Inventory levels at September 28, 1996 were 17.8% higher than at September
30, 1995. The increase is attributable to the timing of the Company's mailings.
Quarter-end prepaid catalog expenses for first quarter fiscal 1997 decreased
5.6% as compared to first quarter fiscal 1996. The Company's more conservative
circulation strategy is primarily responsible for the decline.
The Company's existing credit facilities and those expected to be available
in the future, and its cash flows from operations, are expected to provide the
capital resources necessary to support the Company's operating needs for the
foreseeable future.
Various factors could cause actual results to differ materially from those
projected in forward-looking statements made by management. These factors
include, but are not limited to, the potential for changes in consumer spending,
consumer preferences and general economic conditions, increasing competition in
the apparel industry and possible future increases in operating costs.
9
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DM MANAGEMENT COMPANY AND SUBSIDIARY
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 28, 1996
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
Material Contracts
------------------
10.1 $8,000,000 Commercial Promissory Grid Note and Loan Agreement
dated November 4, 1996, between the Company and Fleet National
Bank
10.2 $3,600,000 Commercial Promissory Term Note and Loan Agreement
dated November 4, 1996, between the Company and Fleet National
Bank
10.3 $400,000 Time Note dated November 4, 1996, between the Company
and Fleet National Bank
10.4 Security Agreement dated November 4, 1996, between the Company
and Fleet National Bank
10.5 Pledge Agreement dated November 4, 1996, between the Company, DM
Management Security Corporation and Fleet National Bank
Per Share Earnings
------------------
11.1 Statement re: computation of per share earnings.
Financial Data Schedule
-----------------------
27 Financial Data Schedule
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended
September 28, 1996.
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DM MANAGEMENT COMPANY
Dated: November 11, 1996 By: /s/Samuel L. Shanaman
----------------------------------
Samuel L. Shanaman
Authorized Officer
Executive Vice President,
Chief Operating Officer and Chief
Financial Officer (Principal
Financial Officer)
11
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DM MANAGEMENT COMPANY AND SUBSIDIARY
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 28, 1996
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
10.1 $8,000,000 Commercial Promissory Grid Note and Loan
Agreement dated November 4, 1996, between the Company
and Fleet National Bank 13
10.2 $3,600,000 Commercial Promissory Term Note and Loan
Agreement dated November 4, 1996, between the Company
and Fleet National Bank 38
10.3 $400,000 Time Note dated November 4, 1996, between the
Company and Fleet National Bank 62
10.4 Security Agreement dated November 4, 1996, between the
Company and Fleet National Bank 68
10.5 Pledge Agreement dated November 4, 1996, between the
Company, DM Management Security Corporation and Fleet
National Bank 76
11.1 Statement re: computation of per share earnings. 83
27 Financial Data Schedule 85
12
<PAGE> 1
FLEET NATIONAL BANK COMMERCIAL PROMISSORY GRID NOTE AND LOAN AGREEMENT
$8,000,000.00 Date: November 4, 1996
FOR VALUE RECEIVED, on the Termination Date (as defined below) the
undersigned, DM Management Company, a Delaware corporation (the "Borrower),
hereby promises to pay to the order of FLEET NATIONAL BANK (the "Bank") at the
office of the Bank at One Federal Street, Boston, Massachusetts 02211, or at
such other address as the holder hereof may designate, the principal sum of
Eight Million DOLLARS ($8,000,000.00), or the aggregate unpaid principal amount
of all advances made by the Bank to the Borrower hereunder, whichever is less,
in lawful money of the United States. During the period from the date hereof
until June 1, 1997 (as such date may be extended, in writing from time to time,
in the Bank's sole and absolute discretion, the "Termination Date"), unless an
Event of Default (as defined below) occurs, the Borrower (SELECT ONE AND
COMPLETE):
/X/ may borrow, repay and reborrow, provided, however, the amount
outstanding shall not at any time exceed Availability (defined
below). If the amount outstanding exceeds Availability, such
excess shall immediately be repaid to the Bank, without notice
or demand;
/ / may reborrow; provided, however, that for any period of twelve
(12) consecutive months there shall be no borrowings or
reborrowings and no outstanding principal under this Note for
at least thirty (30) days;
/ / may borrow and repay; provided, however, that once any amount
is repaid, such amount may NOT thereafter be reborrowed.
The Borrower also promises to pay interest on each advance at the
interest rate set forth on Exhibit A annexed thereto and to pay all reasonable
out-of-pocket costs, including attorneys' fees, costs relating to the appraisal
and/or valuation of assets and all costs incurred in the collection, defense,
preservation, administration, enforcement or protection of this Note or in any
guaranty or endorsement of this Note. All payments shall be applied first to the
payment of interest on the unpaid principal of all advances due under this Note
and the balance on account of the principal due under this Note.
This Note shall be deemed to incorporate Rider A attached hereto by
this reference and has been executed and delivered subject to the following
terms and conditions:
(1) ADVANCES. All advances shall be due and payable on the
Termination Date. The Bank is authorized (but not required) to charge principal
and interest and all other amounts due under this Note to any account of the
Borrower with the Bank when and as it becomes due. If any advance is made, the
Bank may, at its option, record on the books and records of the Bank or endorse
on Schedule I hereto, an appropriate notation evidencing any advance, each
repayment on account of the principal thereof, and the amount of interest paid;
and the Borrower authorizes the Bank to maintain such records or make such
notations and agrees that the amount shown on the books and records or on said
Schedule 1, as
-1-
<PAGE> 2
applicable, as outstanding from time to time shall constitute the amount owing
to the Bank pursuant to this Note, absent manifest error. In the event the
amount shown on Schedule 1 conflicts with the amount noted as due pursuant to
the books and records of the Bank, the books and records of the Bank shall
control the disposition of the conflict.
(2) INTEREST. Interest shall be payable monthly beginning November
__, 1996, and continuing thereafter on the same day of each succeeding month and
on the Termination Date. To the extent that interest is accruing at the Prime
Rate, changes in the rate of interest resulting from changes in the Prime Rate
shall take place immediately without notice or demand any kind. Interest on this
Note shall be computed on the basis of a year of three hundred sixty (360) days
and actual days elapsed. Upon default or after maturity or after judgment has
been rendered on this Note, the unpaid principal balance of all advances shall,
at the option of the Bank, bear interest at a rate which is four (4) percentage
points per annum greater than the Prime Rate. If, at any time, the rate of
interest, together with all amounts which constitute interest and which are
reserved, charged or taken by Bank as compensation for fees, services or
expenses incidental to the making, negotiating or collection of any advance
evidenced hereby, shall be deemed by any competent court of law, governmental
agency or tribunal to exceed the maximum rate of interest permitted to be
charged by the Bank to the Borrower, then, during such time as such rate of
interest would be deemed excessive, that portion of each sum paid attributable
to that portion of such interest rate that exceeds the maximum rate of interest
so permitted shall be deemed a voluntary prepayment of principal.
(3) LETTERS OF CREDIT. (a)(i) The Borrower may request that the
Bank issues Letters of Credit ("L/Cs") for the account of the Borrower. Each
such request shall be in such manner as may from time to time be acceptable to
the Bank, and which may include, without limitation, (A) telephone notice to
such person as may be designated by the Bank or (B) written notice.
(ii) The Bank, in the Bank's discretion in each instance, may
issue any L/C so requested by the Borrower, provided that no Event of Default is
then occurring and provided further that the aggregate face amount of the L/C's
and the principal balance of the Note shall not exceed the Borrower's
Availability (defined above), and provided that the L/C (if so issued) is in
form satisfactory to the Bank.
(iii) The Borrower shall execute such documentation to apply
for and support the issuance of an L/C as may reasonably be required by the
Bank.
(b) The Bank, without the request of the Borrower, may advance
under the Note any amount which the Borrower is obligated to pay to the Bank or
for which the Borrower or the Bank becomes obligated on account of, or in
respect to, any L/C. Such advance shall be made even if such advance would
result in Availability's being exceeded. Such action on the part of the Bank
shall not constitute a waiver of the Bank's rights hereunder.
(4) LATE CHARGE. The Bank may collect a late charge not to exceed
five (5) percent of any installment of interest or principal, or of any other
amount due to the Bank which is not paid or reimbursed by the Borrower within
ten (10) days of the due date thereof to defray the extra cost and expense
involved in
-2-
<PAGE> 3
handling such delinquent payment and the increased risk of noncollection. The
minimum late charge shall be $25.00.
(5) COMMITMENT FEE. The Borrower agrees to pay to the Bank a
commitment fee to defray the Bank's expense involved in continuing to review the
condition of the Borrower and determining whether the Bank will make requested
advances to the Borrower. The review fee shall be payable on an annual basis, in
advance, commencing October __, 1996 and be in an amount equal to $5,208.34 per
annum.
(6) PREPAYMENT. The Borrower has the right to pay before due the
unpaid balance of this Note or any part thereof without penalty or premium but
subject to the payment of all costs described in Paragraph 5 of Exhibit A. If,
at any time, the aggregate principal amount of all advances outstanding under
this Note shall exceed the maximum amount permitted by this Note, the Borrower
shall immediately prepay so much of the outstanding principal balance, together
with accrued interest on the portion of principal so prepaid, as shall be
necessary in order that the unpaid principal balance, after giving effect to
such prepayments, shall not be in excess of the maximum amount permitted by this
Note. All such prepayments will be applied first to the payment of all accrued
interest accrued to the date of the prepayment and the remainder to the
principal balances of this Note.
(7) FINANCIAL STATEMENTS; NOTICE OF DEFAULT. The Borrower shall
deliver to the Bank (a) promptly upon the Bank's written request, such
information (not otherwise required to be delivered by this paragraph 7) about
the financial condition, business and operations of (SELECT ONE OR MORE) /X/ the
Borrower, any guarantor, endorser or surety of Borrower's obligations hereunder
to the Bank (the "Guarantor"), / / ________, as the Bank may, from time to time,
reasonably request;
(SELECT ONE OR MORE AND INSERT AN "X" IN THOSE BOXES WHICH ARE TO BE
APPLICABLE;)
(a) /X/ monthly reports; within 15 days after the close of
each month the Borrower will furnish the Bank with a monthly borrowing base
certificate in the form of Exhibit C annexed hereto, accompanied by supporting
inventory reports.
(b) /X/ INTERIM REPORTS; within 45 days after the close of
all but the last quarter of each fiscal year of (SELECT ONE OR MORE) /X/ the
Borrower, a balance sheet of such person(s) as of the close of each period and a
statement of income for that portion of the period then ended, and including
expense schedules breaking out such expenses as interest and depreciation
(SELECT ONE) (i) / / reviewed in conformity with GAAP by a firm of independent
certified public acceptable to the Bank; (ii) / / compiled by a firm of
independent certified public accountants acceptable to the Bank and certified by
an officer of such person(s) as true, accurate and complete; or (iii) /X/
internally prepared by such person(s) and certified by an officer of such
person(s) as true, accurate, and complete;
(c) /X/ ANNUAL REPORT; within 120 days after the close of
each fiscal year of (SELECT ONE OR MORE) /X/ the Borrower, / / Guarantor, / /
, financial statements including a balance sheet as of the close of
such year and statements of income and changes in stockholders' equity
and cash
-3-
<PAGE> 4
flows for the year then ended, and (SELECT ONE) (i) /X/ accompanied by a report
thereon, prepared in conformity with GAAP and containing an opinion, unqualified
as to scope, of a firm of independent certified public accountants acceptable to
the Bank; (ii) / / reviewed in conformity with GAAP by a firm of independent
certified public accountants acceptable to the Bank; (iii) / / compiled by a
firm of independent certified public accountants acceptable to the Bank and
certified by an officer of such person(s) as true, accurate and complete; or
(iv) / / internally prepared by such person(s) and certified by an officer of
such person(s) as true, accurate and complete;
(d) / / PERSONAL FINANCIAL STATEMENTS; within days after the
close of each calendar year of (SELECT ONE OR MORE) / / the Borrower, / /
Guarantor, / / , personal financial statements signed and dated by such
person(s) in form and detail satisfactory to the Bank;
(e) / / FEDERAL TAX RETURN; within days after the
close of each (SELECT ONE) / / fiscal / / calendar year of (SELECT ONE OR
MORE) / / the Borrower, / / Guarantor, / / ____________________, such person's
federal income tax return and all schedules thereto, signed and dated and
filed with the Internal Revenue Service;
(f) /X/ CERTIFICATE OF COMPLIANCE; simultaneously with the
delivery of the financial statements required in (b) and (c) above, a
Certificate of Compliance certifying that, as at the end of the applicable
period, (SELECT ONE OR MORE) /X/ the Borrower / / Guarantor, / / ,
is in full compliance with all affirmative, negative and financial covenants set
forth in this Note applicable to such person and certified by an officer of such
person(s), as accurate, true and complete;
All financial statements delivered to the Bank shall be consolidated,
consolidating and/or individual statements, as the Bank shall require. Upon
becoming aware of any Event of Default or of any occurrence which but for the
giving of notice or the passage of time would become an Event of Default, the
Borrower and each Guarantor will promptly deliver written notice thereof to the
Bank.
(8) COVENANTS. Except as otherwise set forth in Section 8(a) of
Rider A, unless the Bank otherwise consents in writing:
(a) ENCUMBRANCES AND AGREEMENTS NOT TO PLEDGE. (i) The
Borrower shall not incur or permit to exist any lien, mortgage,
security interest, pledge, charge or other encumbrance, against any of
its property or assets, whether now owned or hereafter acquired
(including, without limitation, any lien or encumbrance relating to any
response, removal or clean-up of any toxic substances or hazardous
wastes), except: (A) liens, mortgages, security interests, charges or
other encumbrances in favor of the Bank or specifically permitted, in
writing, by the Bank; (B) pledges or deposits in connection with or to
secure worker's compensation or unemployment insurance; and (C) liens
for taxes not yet due and liens for taxes which are being contested in
good faith and by appropriate proceedings with the prior written
consent of the Bank which consent will not be unreasonably withheld and
against which, if requested by the Bank, the Borrower shall maintain
reserves in amounts and in form (book, cash,
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<PAGE> 5
bond or otherwise) satisfactory to the Bank. The Borrower shall not
enter into any agreements with any other party which would prohibit the
Borrower from granting any encumbrances, as otherwise prohibited
hereunder.
(ii) The Borrower shall not enter into or permit to
exist any agreement, arrangement or understanding, either oral or in
writing, with any person or entity other than the Bank which restricts
or prohibits the Borrower from incurring or permitting to exist any
lien, mortgage, security interest, pledge, charge or other encumbrance
against any of its property or assets.
(b) LIMITATION ON INDEBTEDNESS. The Borrower shall not
create or incur any Indebtedness (as defined below) for borrowed money,
become liable, either actually or contingently in respect of letters of
credit or banker's acceptances or issue or sell any obligations of the
Borrower, excluding, however, from the operation of this covenant: (i)
advances made hereunder and all other Indebtedness of the Borrower to
the Bank; and (ii) Indebtedness subordinated in payment and priority to
all Indebtedness of the Borrower to the Bank in writing and in form and
substance satisfactory to the Bank.
(c) CONTINGENT LIABILITIES. The Borrower shall not
assume, guarantee, endorse or otherwise become liable upon the
obligations of any person, entity or corporation except by the
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business.
(d) CONSOLIDATION, MERGER OR CONVERSION. The Borrower
shall not merge, consolidate or convert with or into any other
corporation or entity; and, for the purposes of this paragraph 8(d),
the acquisition of all or substantially all of the assets, together
with the assumption of all or substantially all of the obligations and
liabilities, of any corporation or entity shall be deemed to be a
consolidation with such corporation or entity, unless upon closing of
such purchase or acquisition, Borrower is in compliance with all
financial covenants in Section 9.
(e) STRUCTURE, TAX CLASSIFICATION. The Borrower shall not
make or consent to a material change in the structure of the Borrower,
or, if a general partnership not classified as a limited liability
partnership as of the date of this Note, register or otherwise become
classified as a limited liability partnership, or, if a corporation,
change its election to be taxed under Subchapter C or Subchapter S, as
applicable, of the Internal Revenue Code, or make or consent to the
making of any action that causes or could cause any federal or state
authority, for any reason, to classify, alter or reclassify the tax
treatment applicable to the Borrower or any Guarantor or their
respective operations from the tax treatment attributed or deemed
attributed to the Borrower or such Guarantor as of the date of
execution and delivery of this Note.
(g) ADDITIONAL COVENANTS. Borrower makes the additional
covenants set forth in Section 8(d) of Rider A attached hereto.
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<PAGE> 6
(9) FINANCIAL COVENANTS. Unless the Bank otherwise consents in
writing:
(a) DEFINITIONS. As used in this Note, the following
terms shall have the following meanings:
CAPITAL ASSETS means assets that in accordance with
GAAP are required or permitted to be depreciated or amortized
on a balance sheet.
CAPITAL EXPENDITURES ("Cap X") means, for any period,
the aggregate amount of all expenditures for the acquisition,
construction, improvement, replacement or purchase of Capital
Assets and Intangible Assets, including, but not limited to,
expenditures under Capital Leases.
CAPITAL LEASES means capital leases, conditional
sales contracts and other title retention agreements relating
to the purchase or acquisition of Capital Assets.
CURRENT MATURITY OF LONG-TERM DEBT ("CMLTD") means
the current maturity of long term Indebtedness paid during the
applicable period, including, but not limited to, amounts
required to be paid during such period under Capital Leases.
CURRENT RATIO means the ratio of Total Current Assets
to Total Current Liabilities.
DEBT SERVICE AND CAPITAL EXPENDITURES COVERAGE RATIO
means, during the applicable period, that quotient equal to
(A) the aggregate of (i) Earnings Before Interest, Taxes,
Depreciation and Amortization plus or minus (ii) change in
Working Capital, with increases in Working Capital to be
subtracted from Earnings Before Interest, Taxes, Depreciation
and Amortization and decreases in Working Capital to be added
to Earnings Before Interest, Taxes, Depreciation and
Amortization, minus (iii) Capital Expenditures and minus (iv)
Dividends, divided by (B) the sum of (i) Interest and (ii)
Current Maturity of Long-Term Debt; that is,
EBITDA +/- change in Working Capital - Cap X - Dividends
--------------------------------------------------------
Interest + CMLTD
DEBT SERVICE AND UNFINANCED CAPITAL EXPENDITURES
COVERAGE RATIO means, during the applicable period, that
quotient equal to (A) the aggregate of (i) Earnings Before
Interest, Taxes, Depreciation and Amortization plus or minus
(ii) change in Working Capital, with increases in Working
Capital to be subtracted from Earnings Before Interest, Taxes,
Depreciation and Amortization and decreases in Working Capital
to be added to Earnings Before Interest, Taxes, Depreciation
and Amortization, minus (iii) Unfinanced Capital Expenditures
and minus (iv) Dividends, divided by (B) the sum of (i)
Interest and (ii) Current Maturity of Long-Term Debt; that is,
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<PAGE> 7
EBITDA +/- change in Working Capital -Unfinanced Cap X -Dividends
-----------------------------------------------------------------
Interest + CMLTD
EARNINGS BEFORE INTEREST AND TAXES means, for the
applicable period, income from continuing operations before
the payment of Interest and taxes determined in accordance
with GAAP.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION ("EBITDA") means, for the applicable period,
income from continuing operations before the payment of
Interest and taxes plus depreciation and amortization
determined in accordance with GAAP.
GAAP means generally accepted accounting principles
in the United States of America, as in effect on the date of
the preparation and delivery of the financial statements
described in paragraph 7 of this Note and consistently
followed, without giving effect to any subsequent changes
other than changes consented to in writing by the Bank.
INDEBTEDNESS means all obligations that in accordance
with GAAP should be classified as liabilities upon a balance
sheet.
INTANGIBLE ASSETS means assets that in accordance
with GAAP are properly classifiable as intangible assets,
including, but not limited to, goodwill, franchises, licenses,
patents, trademarks, trade names and copyrights.
INTEREST means, for the applicable period, all
interest paid or payable, including, but not limited to,
interest paid or payable on Indebtedness and on Capital
Leases, determined in accordance with GAAP.
INTEREST COVERAGE RATIO means the ratio of Earnings
Before Interest and Taxes to Interest.
QUICK RATIO means the quotient equal to (A) the
aggregate of (i) cash and currency on hand and on deposit,
demand deposits and checks held, plus (ii) short term, highly
liquid investments that are readily convertible to known
amounts of cash, plus (iii) marketable securities plus (iv)
accounts receivable less allowances for doubtful accounts
receivable, divided by (B) Total Current Liabilities.
TANGIBLE NET WORTH means Total Assets minus the sum
of (i) Intangible Assets and (ii) Total Liabilities.
TOTAL ASSETS means total assets determined in
accordance with GAAP.
TOTAL CURRENT ASSETS means total current assets
determined in accordance with GAAP.
-7-
<PAGE> 8
TOTAL CURRENT LIABILITIES means total current
Indebtedness determined in accordance with GAAP.
TOTAL LIABILITIES means total Indebtedness determined
in accordance with GAAP.
UNFINANCED CAPITAL EXPENDITURES ("Unfinanced Cap X")
means Capital Expenditures minus new long term Indebtedness
issued during the applicable period plus the aggregate amount
of all long term Indebtedness prepaid during such period.
WORKING CAPITAL means Total Current Assets less Total
Current Liabilities.
(b) ACCOUNTING TERMS. Unless otherwise defined or
specified in this paragraph 9, all accounting terms shall be construed
and all accounting determinations shall be made in accordance with
GAAP.
(c) CALCULATION OF FINANCIAL COVENANTS. The calculation
of the financial covenants set forth below shall be measured against
the financial statements required to be delivered to the Bank pursuant
to paragraph 7 of this Note as follows (SELECT ONE OR MORE):
/X/ On a Consolidated basis. / / On an Consolidating basis. / / On an
individual basis.
(d) TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. As
applied to (SELECT ONE OR MORE) /X/ Borrower, / / Guarantor, / /
, Borrower shall not permit or Borrower shall cause the person
indicated above not to permit the ratio of Total Liabilities to
Tangible Net Worth to be greater than the ratio set forth for such
period:
For the fiscal quarters ending September 30 and March 31, 3.75 to 1.0;
For the fiscal quarter ending December 31, 4.0 to 1.0;
For the fiscal quarter ending June 30, 3.5 to 1.0;
(e) OTHER. (i) The Borrower shall maintain minimum
Liquidity (defined below) of $3,500,000.00. Liquidity is defined as all
cash and currency on hand and on deposit, demand deposit and checks
held, plus short term, highly liquid investments that are readily
convertible to known amounts of cash, plus marketable securities, such
covenant to be tested quarterly.
(ii) The Borrower shall maintain Debt Service
Coverage (defined below) of 1.25:1 commencing December 31, 1996 and on
a four quarter rolling average basis thereafter. Debt Service Coverage
means, during the applicable period, that quotient equal to (A) the
aggregate of (I) EBITDA plus (II) interest income (including dividends
received on marketable securities) minus (III) Unfinanced Cap X and
minus (IV) dividends and distributions paid with respect to the
Borrower's capital stock, divided by (B) the sum of (I) Current
Maturities of Long Term Debt and (II) Interest.
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<PAGE> 9
(10) EVENTS OF DEFAULT; REMEDIES. If any one or more of the
following "Events of Default" shall occur:
(a) Failure to make payment of principal or interest on the
Note or in the payment of any other liability owing by the Borrower to
the Bank, now existing or hereinafter incurred, whether direct or
contingent, when due; or
(b) Failure by the Borrower to observe or perform any covenant
contained in this Note, or failure by the Borrower to perform any of
its obligations under any document, instrument or agreement governing,
evidencing or securing this Note, and continuance of such failure
unremedied for a period of thirty (30) days after notice of such
failure has been received by the Borrower from the Bank, provided that
no notice or grace period shall be required with respect to the breach
of any provision of Paragraph 9, above; or
(c) Any representation or warranty made by the Borrower or any
Guarantor to the Bank herein or in any document, instrument or
agreement governing, evidencing or securing this Note or any statement,
certificate or other data furnished by any of them in connection
herewith or therewith proves at any time to be incorrect in any
material respect; or
(d) A judgment or judgments, singly or in the aggregate in
excess of $100,000.00 for the payment of money shall be rendered
against the Borrower or any Guarantor, and any such judgment shall
remain unsatisfied and in effect for any period of thirty (30)
consecutive days without a stay of execution; or
(e) Any levy, seizure, attachment, garnishment, execution or
similar process shall be issued or levied on any of the Borrower's or
any Guarantor's property; or
(f) The Borrower or any Guarantor shall (i) apply for or
consent to the appointment of a receiver, conservator, trustee or
liquidator of all or a substantial part of any of its assets; (ii) be
unable, or admit in writing its inability, to pay its debts as they
mature; (iii) file or permit the filing of any petition, case,
arrangement, reorganization, or the like under any insolvency or
bankruptcy law, or the adjudication of it as a bankrupt, or the making
of an assignment for the benefit of creditors or the consenting to any
form of arrangement for the satisfaction, settlement or delay of debt
or the appointment of a receiver for all or any part of its properties:
or (iv) take any action for the purpose of effecting any of the
foregoing; or
(g) An order, judgment or decree shall be entered, or a case
shall be commenced, against the Borrower or any Guarantor, without the
application, approval or consent of the Borrower or such Guarantor by
or in any court of competent jurisdiction, approving a petition or
permitting the commencement of a case seeking reorganization or
liquidation of the Borrower or any Guarantor or appointing a receiver,
trustee, conservator or liquidator of the Borrower or any Guarantor, or
of all or a substantial part of its assets and Borrower or any
Guarantor, indicates its approval
-9-
<PAGE> 10
thereof, consent thereto, or acquiescence therein, or such order,
judgment, decree or case shall continue unstayed and in effect for any
period of ninety (90) consecutive days; or
(h) The Borrower or any Guarantor shall dissolve or liquidate,
or be dissolved or liquidated, or cease to legally exist, or if the
Borrower is not a natural person, merge, consolidate or convert, or be
merged, consolidated or converted with or into any other corporation or
entity; or
(i) A Borrower or Guarantor who is a natural person shall die;
or
(j) Failure by the Borrower or any Guarantor to pay any other
Indebtedness for borrowed money, or if any such other Indebtedness
shall be accelerated, or if there exists any event of default under any
instrument, document or agreement governing, evidencing or securing
such other Indebtedness beyond any period of grace provided with
respect thereto; or
(k) Any guaranty, document, instrument or agreement now or
hereafter guaranteeing, governing, evidencing or securing this Note
ceases to be in full force and effect or any party thereto notifies the
Bank that such party has no continuing obligation to pay or perform in
accordance with the terms thereof).
(l) The occurrence of any Event of Default under the
Borrower's Notes of even date in the respective principal amounts
$3,600,000.00 and $400,000.00 or any documents executed therewith.
then, and in such event (other than an Event of Default described in paragraphs
10 (f) and (g) above), the Bank may declare all advances outstanding hereunder,
together with accrued interest thereon and all applicable late charges and
surcharges and all other liabilities and obligations of the Borrower to the Bank
to be forthwith due and payable, whereupon the same shall become forthwith due
and payable and the availability of advances hereunder shall be deemed
automatically terminated; all of the foregoing without presentment or demand for
payment, notice of non-payment, protest or any other notice or demand of any
kind, all of which are expressly waived by the Borrower. Notwithstanding the
foregoing, upon the occurrence of an Event of Default described in paragraphs 10
(f) or (g) above, (i) the availability of advances hereunder shall automatically
terminate and (ii) all advances outstanding hereunder, together with accrued
interest thereon and all applicable late charges and surcharges and all other
liabilities and obligations of the Borrower to the Bank shall become
automatically due and payable without presentment or demand for payment, notice
of non-payment, protest or any other notice or demand of any kind; all of which
are expressly waived by the Borrower.
(11) LIEN AND SETOFF. The Borrower and each Guarantor hereby give
the Bank a lien and right of set off for all of Borrower's and each Guarantor's
liabilities and obligations hereunder upon and against all the deposits,
credits, collateral and property of the Borrower and each Guarantor, now or
hereafter in the possession, custody, safekeeping or control of the Bank or any
entity under the control of Fleet Financial Group, Inc. or in transit to any of
them but not including any funds managed by or invested with or through Fleet
Investment
-10-
<PAGE> 11
Advisors, the Fleet Funds, or any other investment advisor or mutual fund
affiliated with the Bank. At any time, after the occurrence and during the
continuance of an Event of Default without demand or notice, Bank may set off
the same or any part thereof and apply the same to any such liability or
obligation of the Borrower or any Guarantor.
(12) INDEMNIFICATION. The Borrower and each Guarantor, jointly and
severally, agree to defend, indemnify and hold harmless the Bank and any
participants, successors or assigns of the Bank and the officers, directors,
employees and agents of each of them from and against any and all losses,
claims, liabilities, asserted liabilities, costs and expenses, including,
without limitation, out-of-pocket costs of litigation and attorneys' fees,
incurred in connection with any and all claims or proceedings for bodily injury,
property damage, abatement or remediation, environmental damage or impairment or
any other injury or damage (including all foreseeable and unforeseeable
consequential damage) or any diminution in value of any real property resulting
from or relating, directly or indirectly, to (a) any release, spilling, leaking,
migrating, discharging, escaping, leaching, dumping or disposing (a "Release")
into the environment of any toxic substances or hazardous wastes, a threatened
Release, the existence or removal of any toxic substances or hazardous wastes
on, into, from, through or under any real property owned or operated by the
Borrower or any Guarantor (whether or not such Release was caused by Borrower,
any Guarantor, a tenant, subtenant, prior owner or tenant or any other person
and whether or not the alleged liability is attributable to the handling,
storage, generation, transportation or disposal of toxic substances or hazardous
wastes or the mere presence of such toxic substances or hazardous wastes) or (b)
the breach or alleged breach by Borrower or any Guarantor of any federal, state
or local law or regulation concerning public health, safety or the environment
with respect to any real property owned or operated by the Borrower or any
Guarantor and/or any business conducted thereon; provided, however, that the
indemnification provided for in this paragraph shall not apply to any losses,
claims, liabilities, asserted liabilities, costs or expenses arising out of the
negligence, willful misconduct or bad faith of the Bank or any other party
otherwise entitled to indemnification hereunder.
(13) PREJUDGMENT REMEDY WAIVER. BORROWER AND EACH GUARANTOR (a)
ACKNOWLEDGE THAT THE ADVANCES EVIDENCED BY THIS NOTE ARE PART OF A COMMERCIAL
TRANSACTION AND (b) TO THE EXTENT PERMITTED BY ANY STATE OR FEDERAL LAW, WAIVE
THE RIGHT ANY OF THEM MAY HAVE TO PRIOR NOTICE OF AND A HEARING ON THE RIGHT OF
ANY HOLDER OF THIS NOTE TO ANY REMEDY OR COMBINATION OF REMEDIES THAT ENABLES
SAID HOLDER, BY WAY OF ATTACHMENT, FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN,
TO DEPRIVE BORROWER OR ANY GUARANTOR OF ANY OF THEIR PROPERTY, AT ANY TIME,
PRIOR TO FINAL JUDGMENT IN ANY LITIGATION INSTITUTED IN CONNECTION WITH THIS
NOTE.
(14) JURY TRIAL WAIVER. THE BANK, BORROWER AND EACH GUARANTOR
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER
INSTITUTED BY OR AGAINST THE BANK, THE BORROWER OR ANY GUARANTOR IN RESPECT OF
THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING,
GOVERNING OR SECURING THIS NOTE.
(15) JOINT AND SEVERAL OBLIGATIONS; MISCELLANEOUS. This Note shall be
the joint and several obligation of Borrower and each Guarantor and each
provision of this Note shall apply to each and all jointly and severally and to
the
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<PAGE> 12
property and liabilities of each and all, who hereby waive diligence, demand,
presentment for payment, notice of nonpayment, protest and notice of dishonor,
and who hereby agree to any extension or delay in the time for payment or
enforcement, to renewal of this Note and to any substitution or release of any
collateral, all without notice and without any effect on their liabilities. Any
delay on the part of the holder hereof in exercising any right hereunder or
under any mortgage or security agreement which may secure this Note shall not
operate as a waiver of any such right, and any waiver granted for one occasion
shall not operate as a waiver in the event of a subsequent default. The rights
and remedies of the holder hereof shall be cumulative and not in the
alternative, and shall include all rights and remedies granted herein, in any
document, instrument or agreement governing, evidencing or securing this Note
and under all applicable laws. This Note is the final, complete and exclusive
statement of the terms governing this Note. If any provision of this Note shall
to any extent be held invalid or unenforceable, then only such provision shall
be deemed ineffective and the remainder of this Note shall not be effected. The
provisions of this Note shall bind the heirs, executors, administrators, assigns
and successors of each and every Borrower and each Guarantor and shall inure to
the benefit of Bank, its successors and assigns. This Note shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
(16) ACKNOWLEDGMENT OF BORROWER. Borrower acknowledges receipt of a
copy of this Note, and attests that each advance is to be used for general
commercial purposes and that no part of such proceeds will be used, in whole or
in part, for the purpose of purchasing or carrying any "margin stock" as such
term is defined in Regulation U of the Board of Governors of the Federal Reserve
System.
IN WITNESS WHEREOF, the Borrower has executed or caused this Note to be
duly executed, as a sealed instrument.
Witness: DM MANAGEMENT COMPANY
/s/ David R. Pierson
By: /s/ Olga L. Conley
---------------------------------
VP Of Finance
AGREED:
FLEET NATIONAL BANK
By: /s/ Luke G. Tsokanis
---------------------------------
Vice President
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<PAGE> 13
RIDER A
TO
PROMISSORY NOTE DATED AS OF November 4, 1996 MADE BY
DM MANAGEMENT COMPANY
PAYABLE TO ORDER OF FLEET NATIONAL BANK
This Rider A is incorporated by reference in the Promissory Note dated
as of November 4, 1996 (the "Note"), made by DM Management Company, a Delaware
corporation (the "Borrower"), payable to the order of FLEET National Bank (the
"Bank") in the original principal amount of $8,000,000, and amends and
supplements the provisions of the Note referenced below. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
thereto in the Note. The section and paragraph references used in this Rider
correspond to the section and paragraph designations used in the Note.
(1). PURPOSES OF CREDIT. Advances under this Note may be
used to purchase machinery, equipment, and for general corporate
purposes, including for issuances of letters of credit.
(7)(g). Additional Financial Information.
--------------------------------
(i) SEC REPORTS. The Borrower shall also deliver to the Bank,
promptly as they become available, copies of all financial statements, reports,
notices and proxy statements sent or made available by the Borrower to its
stockholders and copies of all reports and other materials filed by the Borrower
with the Securities and Exchange Commission; and
(8)(a). ENCUMBRANCES. In addition to the encumbrances permitted by
clauses (A), (B) and (C) of Section (8)(a), the Borrower shall also be permitted
(x) to have the presently-existing security interests and capitalized leases
listed on the schedule annexed hereto as Exhibit 8(a) showing the nature and
amount of indebtedness secured in each case, (y) to grant or create Purchase
Money Security Interests to the extent permitted by clause (D) of paragraph (i)
of Section 8(d) below, and (z) to have other liens and encumbrances incidental
to the conduct of the Borrower's business or the ownership of its assets which
were not incurred in connection with the borrowing of money or the obtaining of
advances or credit and which do not in the aggregate
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<PAGE> 14
materially detract from the value of its assets or materially impair the use
thereof in the operation of its business.
(8)(d). ADDITIONAL NEGATIVE COVENANTS. Borrower hereby covenants that
without the prior written consent of the Bank in each case:
(i) INDEBTEDNESS. Neither the Borrower nor any Subsidiary
shall incur, assume or permit to exist indebtedness for borrowed money, or
indebtedness arising out of the ownership, purchase or acquisition of real or
personal property subject or subjected to a Purchase Money Security Interest
(including capitalized leases), to any person, firm or entity other than the
Bank except:
(A) indebtedness subordinated to obligations and
liabilities of the Borrower to the Bank, the amount and terms of which have
received the prior written approval of the Bank;
(B) indebtedness of wholly-owned subsidiaries to
the Borrower or other wholly-owned subsidiaries of the Borrower;
(C) other presently existing indebtedness shown
on either Exhibit 8(a) or in the balance sheet of the Borrower as of September
30, 1996; and
(D) indebtedness of the Borrower and its
subsidiaries which is secured by Purchase Money Security Interests (including
capitalized lease obligations) so long as the purchase price, or aggregate
rents, for the equipment involved in the case of telecommunications equipment
does not exceed $100,000, and in the case of any other transaction (or in a
related series of transactions) does not exceed $200,000, and provided that
after the incurrence of any such indebtedness the Borrower remains in compliance
with all financial covenants. For purposes of this section "Purchase Money
Security Interest" includes security agreements, chattel mortgages, conditional
sales, leases which are or should be capitalized under GAAP on the Borrower's
books, and other security or title retention devices undertaken or assumed in
connection with the acquisition of tangible personal property or existing or
created in such property at the time of acquisition thereof or otherwise given
as security for borrowed money, provided the amount of the debt
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<PAGE> 15
secured thereby does not exceed the cost of fair value of the property involved,
whichever is less.
(ii) EQUITY DISTRIBUTIONS. Neither the Borrower nor any of its
subsidiaries (other than a wholly-owned subsidiary) shall make any Equity
Distribution in excess of twenty five (25%) of Net Income in any fiscal year. As
used herein, "Equity Distribution" means (a) the declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of the
Borrower; (b) the redemption, purchase or other retirement of any shares, or of
any option or warrant or right to purchase any shares, of any class of capital
stock of the Borrower, directly or indirectly through a subsidiary, for
consideration paid or to be paid in money or property; and (c) any other
distribution on or in respect of any shares of any class of capital stock of the
Borrower; PROVIDED, however, that no payment for the redemption, purchase or
other retirement of shares, options, warrants or rights to acquire any of the
same, arising out of the termination of employment of any employee of the
Borrower or any subsidiary shall constitute an Equity Distribution so long as
(a) no Event of Default exists at the time of or would result from such payment,
and (b) the aggregate amount of all such payments after the date of this
Agreement shall not exceed $100,000.
-3-
<PAGE> 16
$8,000,000.00 Note
EXHIBIT A
1. INTEREST RATES. (a) Loan Amounts shall bear interest
at the Floating Rate or the Libor Rate (respectively defined below), as
specified from time to time by the Borrower in the Conversion Notice
with respect to the subject Loan amount.
(b) The Borrower shall pay interest on the principal
balance of the Note outstanding in arrears on the last day of the month
and on the last day of any Interest Period applicable to a Libor Rate
Loan.
2. NOTICE AND MANNER OF CONVERTING INTEREST RATES. (a)
Whenever the Borrower desires to convert an interest rate, the
Borrower shall notify the Bank (which notice shall be irrevocable) no
later than (i) Noon on the day on which any Floating Rate Loan is being
requested to be made and (ii) Noon, Two (2) Business days prior to (and
not counting) the day on which any Libor Rate Loan is being requested
to be made. Such notice shall specify the amount and the interest rate
for the proposed advance chosen by the Borrower. Each such notification
(a "RENEWAL/CONVERSION NOTICE") shall be immediately followed by a
written confirmation thereof by the Borrower in substantially the form
of EXHIBIT B, annexed hereto, PROVIDED that if such written
confirmation differs in any material respect from the action taken by
the Bank, the records of the Bank shall control.
(b) Libor Rate Loans shall each be in an amount of
not less than $1,000,000.00 and in $100,000.00 increments in excess of
such minimum.
(c) The Bank may rely on any request for a loan or
advance or financial accommodation which the Bank, in good faith,
believes to have been made by a person duly authorized to act on behalf
of the Borrower and may decline to make any such requested loan or
advance or to provide any such financial accommodation pending the
Bank's being furnished with such documentation concerning that person's
authority to act as may be satisfactory to the Bank.
3. DURATION OF INTEREST PERIODS. (a) Subject to the
definition of the term "Interest Period", the Borrower shall have the
option to elect a subsequent Interest Period to be applicable to an
advance by giving notice of such election in the form of EXHIBIT B,
annexed hereto received no later than 10:00 Boston time One (1)
Business Day before the end of the then applicable Interest Period, if
such Loan is to be continued as or converted to a Floating Rate Loan,
and Two (2) Business Days before (and not counting) the end of the then
applicable Interest Period if such Loan is to be continued as, or
converted to, a Libor Rate Loan.
(b) If the Bank does not receive a notice of election
of, or conversion to, an Interest Period for a Libor Rate Loan pursuant
to subsection (a) within the applicable time limits specified
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<PAGE> 17
therein, or if, when such notice must be given, an Event of Default
exists, the Borrower shall be deemed to have elected to convert such
Loan in whole into a Floating Rate Loan on the last day of the then
current Interest Period with respect thereto.
4. Changed Circumstances. In the event that:
---------------------
(a) on any day on which the rate for a Libor
Rate Loan would otherwise be set, the Bank shall have
determined in good faith (which determination shall be final
and conclusive) that adequate and fair means do not exist for
ascertaining such rate; or
(b) at any time the Bank shall have determined
in good faith (which determination shall be final and
conclusive) that:
(i) the making or continuation of or
conversion of any loan to a Libor Rate Loan has been
made impracticable or unlawful by (A) the occurrence
of a contingency that materially and adversely
affects the applicable market or (B) compliance by
the Bank in good faith with any applicable law or
governmental regulation, guideline or order or
interpretation or change thereof by any governmental
authority charged with the interpretation or admin-
istration thereof or with any request or directive of
any such governmental authority (whether or not
having the force of law); or
(ii) the indices on which the interest
rates for Libor Rate Loans shall no longer represent
the effective cost to the Bank for U.S. dollar
deposits in the interbank market for deposits in
which it regularly participates;
then, and in any such event, the Bank shall forthwith so
notify the Borrower thereof. Until the Bank notifies the
Borrower that the circumstances giving rise to such notice no
longer apply, the obligation of the Bank to make Libor Rate
Loans of the type affected by such changed circumstances or to
permit the Borrower to select Libor Rate for any advances
shall be suspended. If at the time the Bank so notifies the
Borrower, the Borrower has previously given the Bank a Notice
of Borrowing or a Renew al/Conversion Notice with respect to
one or more Libor Rate Loans, but such advances have not yet
gone into effect, such notification shall be deemed to be void
and the Borrower may borrow under interest rate options
otherwise available hereunder, by giving a substitute Notice
of Borrowing or a Renewal/Conversion Notice. Upon the
expiration of the Interest Period for any Libor Rate Loan
which is outstanding on the date of such notification, the
amount of such Libor Rate Loan shall thereafter constitute a
Floating Rate Loan.
5. PAYMENTS AND PREPAYMENTS. (a) Floating Rate Loans
may be prepaid at any time and from time to time without premium or
penalty.
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<PAGE> 18
(b) In the event of any prepayment of any Libor Rate
Loan, other than at the end of the Interest Rate Period applicable to
the subject loan, the Borrower shall repay the Bank's costs in respect
of such repayment, which costs shall be determined as follows:
(Applicable Rate - Tbillrate) X PP X D
-------------------------------------------
360
WHERE:
Applicable
Rate = The Libor Rate for the Loan then
being prepaid.
Libor
Rate = The Libor Rate of interest on that
Libor Rate Loan being prepaid.
TBillRate = The effective per annum rate at which
a readily marketable bond or other
obligation of, or entitled to the
full faith and credit of, the United
States (selected by the Bank in the
Bank's reasonable discretion)
maturing on or near the maturity date
of the subject Libor Rate Loan and in
approximately the amount of the Libor
Rate Loan being prepaid could be
purchased on or about the date of the
subject prepayment.
PP = The amount of principal being prepaid.
D = The number of days from the date on
which the subject prepayment is made
until the expiry of the Interest
Period for the Libor Rate Loan being
prepaid.
x Indicates multiplication.
6. DEFINITIONS. The following terms as used herein
shall have the meanings assigned to them below:
"Acceptable Inventory": Such of the Borrower's Inventory, as
is less than twelve (12) months old, based upon invoice date,
warehoused at the Borrower's Winterbrook Way, Meredith, New Hampshire
location, (and of such types and quantities, as the Bank in its
reasonable discretion from time to time determines to be acceptable for
borrowing,) as to which Inventory, the Bank has a perfected security
interest which is prior and superior to all security interests, claims,
and encumbrances.
"Availability": The lesser of (i) $8,000,000.00, reduced to
$5,000,000.00 during the month of May through November, or (ii) (A)
Fifty percent (50%) of Acceptable Inventory, plus (B) Fifty percent
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<PAGE> 19
(50%)of the face amount of letters of credit issued by the Bank for the
account of the Borrower, plus (C)$1,000,000.00.
"BUSINESS DAY" shall mean a day on which the Bank is open for
the transaction of banking business in Boston, Massachusetts, and, if
the applicable Business Day relates to a Libor Rate Loan, a day on
which dealings are carried on in the applicable Eurodollar interbank
market and banks are open for business in the applicable Eurodollar
interbank market and in the place where payment is to be made for such
Libor Rate Advance.
"CONVERT, CONVERSION AND CONVERTED" shall refer to the
conversion of Floating Rate Loan, or Libor Rate Loan to advances of
another Type.
"FLOATING RATE": shall mean with respect to any Interest
Period the interest rate generally announced by the Bank from time to
time as its Prime Rate plus (i)one-half percent (1/2%) per annum for
the first $5,000,000.00 in borrowings outstanding, or (ii) plus one
percent (1%) for borrowings outstanding in excess of $5,000,000.00.
"FLOATING RATE LOAN": any loan bearing interest at the
Floating Rate.
"INTEREST PERIOD": (a) With respect to each Libor Rate Loan,
the period commencing on the date of the making or continuation of or
conversion to such Libor Rate Loan and ending one, two, three or six
months thereafter, as the Borrower may elect in the applicable Notice
of Borrowing or Conversion.
(b) With respect to each Floating Rate Loan, the
period commencing on the date of the making or continuation of or
conversion to such Floating Rate Loan and ending on that date as of
which the subject Floating Rate Loan is converted to a Libor Rate Loan.
Provided that:
--------
(i) Any Interest Period applicable to a
Libor Rate Loan that begins on a day for which there
is no numerically corresponding day in the calendar
month at the end of such Interest Period shall end,
subject to clause (ii) below, on the last Business
Day of a calendar month.
(ii) any Interest Period which would
otherwise end after the Termination Date shall end on
the Termination Date except that no Libor Rate Loan
shall have an Interest Period of less than One (1)
month.
"LIBOR RATE LOAN": any loan bearing interest at the Libor
Rate.
"LIBOR RATE": That per annum rate determined by application
of the following formula:
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<PAGE> 20
[ Libor Offer Rate]
------------------------
[ 1.00 - Reserve Rate, (if applicable) ]
plus two and one-quarter percent (2.25%) for the first $5,000,000.00 in
borrowings outstanding and, plus two and three-quarter percent (2.75%)
for borrowings outstanding in excess of $5,000,000.00
"LIBOR OFFER RATE": that rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Bank to be the
prevailing rate per annum at which deposits on U.S. Dollars are offered
to the Bank by first-class banks in the London interbank market in
which the Bank regularly participates at a time reasonably
contemporaneous to the giving of a Notice of Borrowing at the Libor
Rate, not less Two (2) Business Days before the first day of the
Interest Period of the loan referenced in such Notice of Borrowing, for
a deposit approximately in the amount of the subject loan for a period
of time approximately equal to such Interest Period.
"PRIME RATE" shall mean the interest rate announced by the
Bank from time to time as its Prime Rate. If interest hereunder is
computed in relation to the Bank's Prime Rate, then as said Bank's
Prime Rate changes from time to time, the interest rate, hereunder will
change correspondingly at the time of each Bank's Prime Rate change,
without notice or demand of any kind. If, at any time, the rate of
interest together with all amounts which constitute interest and which
are reserved, charged or taken by Bank as compensation for fees,
services or expenses incidental to the making, negotiating or
collection of the loan evidenced hereby, shall be deemed by any
competent court of law, governmental agency or tribunal to exceed the
maximum rate of interest permitted to be charged by the Bank to the
Borrower under the laws of any applicable jurisdiction or the rules or
regulations of any appropriate regulatory authority or agency, then,
during such time as such rate of interest would be deemed excessive,
that portion of each sum paid attributable to that portion of such
interest rate that exceeds the maximum rate of interest so permitted
shall be deemed a voluntary prepayment of principal.
"RESERVE PERCENTAGE" shall mean as of any date, that
percentage (expressed as a decimal) which is in effect on such date as
specified in Regulation D of the Board of Governors of the Federal
Reserve System (or any successor or similar regulations relating to
reserve requirements for nonpersonal time deposits) for determining the
reserve requirements (including without limitation any basic,
supplemental or emergency reserve requirements) for the Bank in respect
of new U.S. dollar nonpersonal time deposits in Boston, Massachusetts,
having a maturity comparable to the relevant Interest Period and in an
amount of $100,000 or more. The Reserve Percentage shall be adjusted
automatically on and as of the effective date of any change in the
Reserve Percentage.
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<PAGE> 21
"RESERVE RATE" shall mean for any day with respect to a Libor
Rate Loan, the maximum rate (expressed as a decimal) at which any Bank
subject thereto would be required to maintain reserves under Regulation
D of the Board of Governors of the Federal Reserve System (or any
successor or similar regulations relating to such reserve requirements)
against "Eurocurrency Liabilities" (as that term is used in Regulation
D) if such liabilities were outstanding. The Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in
the Reserve Rate.
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<PAGE> 22
EXHIBIT B
RENEWAL/CONVERSION NOTICE
-------------------------
To: Fleet National Bank (the "Lender")
One Federal Street
Boston, Massachusetts 02211
Re: $8,000,000.00 Commercial Promissory Grid Note (the "Note")
Between the Lender and DM Management Company (the "Borrower"), a
Delaware Corporation. Terms used herein which are defined in the Note
are used as so defined.
This Notice confirms the renewal/conversion of a loan at the Libor Rate
as follows:
1. Amount to be renewed at Libor Rate: $
-----------------
Minimum of $1,000,000.00
Increments of $100,000.00
Start Date of Interest Period: $
-----------------
Date of Expiry of Interest Period: $
--------------
Applicable Interest Period: $
--------------
- --------------------------------------------------------------------------------
The Borrower, hereby certifies that all representations and warranties
contained in the Note are true and accurate in all material respects on the date
of this Renewal Notice and on the effective date of the subject loan as though
such representations and warranties had been made on those dates (except to the
extent that such representations or warranties expressly relates to an earlier
date).
DM MANAGEMENT COMPANY
("Borrower")
By:
----------------------------
<PAGE> 23
Exhibit C
---------
BORROWING BASE CERTIFICATE
--------------------------
Date: ________________________
Period Ending: _____________
Fleet National Bank
1 Federal Street
Boston, Massachusetts 02110
This certificate confirms our Availability as of ____________________,
pursuant to the Commercial Promissory Grid Note and Loan Agreement dated
November 4, 1996 (the "Loan Agreement") between DM Management Company (the
"Borrower") and Fleet National Bank ("Bank"). The Borrower hereby certifies that
all representations and warranties contained in the Loan Agreement and the
documents executed in connection with the Loan Agreement are true and accurate
in all material aspects on the date of this Borrowing Base Certificate as though
such representations and warranties had been made on that date (except to the
extent that such representations or warranties expressly relate to an earlier
date). The Borrower represents and warrants that no Event of Default has
occurred.
Total Inventory as of __/__/__ $________
Less: Inventory more than 12 months old ($_______)
50% Availability (A) $_________
Issued and outstanding Letters of Credit $_______
50% Availability (B) $_________
Plus (C) $1,000,000
----------
TOTAL (A plus B plus C) (D) __________
AVAILABILITY
Lesser of (i) D or (ii) $8,000,000 during
the months of December through April or $5,000,000
the months of May through November $_________
Less: Current Loan Balance $(_______)
Less: Letters of Credit and Acceptances $(_______)
Net Available/(Deficit) $_________
<PAGE> 24
Terms used herein which are defined in the Loan Agreement are used as
so defined.
Very truly yours,
DM MANAGEMENT COMPANY
By:___________________________
Name:_________________________
Title:________________________
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<PAGE> 1
FLEET NATIONAL BANK COMMERCIAL PROMISSORY TERM NOTE AND LOAN AGREEMENT
$3,600,000.00 Date: November 4, 1996
FOR VALUE RECEIVED, on the Termination Date (as defined below) the
undersigned, DM Management Company, a Delaware corporation (the "Borrower),
hereby promises to pay to the order of FLEET NATIONAL BANK (the "Bank") at the
office of the Bank at One Federal Street, Boston, Massachusetts 02211, or at
such other address as the holder hereof may designate, the principal sum of
Three Million Six Hundred Thousand DOLLARS ($3,600,000.00), or the aggregate
unpaid principal amount of all advances made by the Bank to the Borrower
hereunder, whichever is less, in lawful money of the United States. During the
period from the date hereof until December 31, 2001 (as such date may be
extended, in writing from time to time, in the Bank's sole and absolute
discretion, the "Termination Date"), unless an Event of Default (as defined
below) occurs, the Borrower (SELECT ONE AND COMPLETE):
/ / may borrow, repay and reborrow;
/ / may reborrow; provided, however, that for any period of twelve
(12) consecutive months there shall be no borrowings or
reborrowings and no outstanding principal under this Note for
at least thirty (30) days;
/X/ may borrow and repay; provided, however, that once any amount
is repaid, such amount may NOT thereafter be reborrowed.
The Borrower also promises to pay interest on each advance at the
interest rate set forth on Exhibit A annexed thereto and to pay all reasonable
out-of-pocket costs, including attorneys' fees, costs relating to the appraisal
and/or valuation of assets and all costs incurred in the collection, defense,
preservation, administration, enforcement or protection of this Note or in any
guaranty or endorsement of this Note. All payments shall be applied first to the
payment of interest on the unpaid principal of all advances due under this Note
and the balance on account of the principal due under this Note.
This Note shall be deemed to incorporate Rider A attached hereto by
this reference and has been executed and delivered subject to he following terms
and conditions:
(1) ADVANCES. All advances shall be due and payable on the
Termination Date. The Bank is authorized (but not required) to charge principal
and interest and all other amounts due under this Note to any account of the
Borrower with the Bank when and as it becomes due. If any advance is made, the
Bank may, at its option, record on the books and records of the Bank or endorse
on Schedule I hereto, an appropriate notation evidencing any advance, each
repayment on account of the principal thereof, and the amount of interest paid;
and the Borrower authorizes the Bank to maintain such records or make such
notations and agrees that the amount shown on the books and records or on said
Schedule 1, as applicable, as outstanding from time to time shall constitute the
amount owing to the Bank pursuant to this Note, absent manifest error. In the
event the
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<PAGE> 2
amount shown on Schedule 1 conflicts with the amount noted as due pursuant to
the books and records of the Bank, the books and records of the Bank shall
control the disposition of the conflict.
(2) PAYMENTS. Interest shall be payable monthly beginning November
__, 1996, and continuing thereafter on the same day of each succeeding month and
on the Termination Date. To the extent that interest is accruing at the Prime
Rate, changes in the rate of interest resulting from changes in the Prime Rate
shall take place immediately without notice or demand any kind. Interest on this
Note shall be computed on the basis of a year of three hundred sixty (360) days
and actual days elapsed. Upon default or after maturity or after judgment has
been rendered on this Note, the unpaid principal balance of all advances shall,
at the option of the Bank, bear interest at a rate which is four (4) percentage
points per annum greater than the Prime Rate. If, at any time, the rate of
interest, together with all amounts which constitute interest and which are
reserved, charged or taken by Bank as compensation for fees, services or
expenses incidental to the making, negotiating or collection of any advance
evidenced hereby, shall be deemed by any competent court of law, governmental
agency or tribunal to exceed the maximum rate of interest permitted to be
charged by the Bank to the Borrower, then, during such time as such rate of
interest would be deemed excessive, that portion of each sum paid attributable
to that portion of such interest rate that exceeds the maximum rate of interest
so permitted shall be deemed a voluntary prepayment of principal. Principal
shall be payable in quarterly installments of $200,000.00 each, commencing June
30, 1997, with the full unpaid principal balance plus all accrued and unpaid
interest due and payable in full on the Termination Date.
(3) INTENTIONALLY OMITTED.
(4) LATE CHARGE. The Bank may collect a late charge not to exceed
five (5) percent of any installment of interest or principal, or of any other
amount due to the Bank which is not paid or reimbursed by the Borrower within
ten (10) days of the due date thereof to defray the extra cost and expense
involved in handling such delinquent payment and the increased risk of
noncollection. The minimum late charge shall be $25.00.
(5) INTENTIONALLY OMITTED.
(6) PREPAYMENT. The Borrower has the right to pay before due the
unpaid balance of this Note or any part thereof without penalty or premium but
subject to the payment of all costs described in Paragraph 5 of Exhibit A. If,
at any time, the aggregate principal amount of all advances outstanding under
this Note shall exceed the maximum amount permitted by this Note, the Borrower
shall immediately prepay so much of the outstanding principal balance, together
with accrued interest on the portion of principal so prepaid, as shall be
necessary in order that the unpaid principal balance, after giving effect to
such prepayments, shall not be in excess of the maximum amount permitted by this
Note. All such prepayments will be applied first to the payment of all accrued
interest accrued to the date of the prepayment and the remainder to the
principal balances of this Note.
(7) FINANCIAL STATEMENTS; NOTICE OF DEFAULT. The Borrower shall
deliver to the Bank (a) promptly upon the Bank's written request, such
information (not
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<PAGE> 3
otherwise required to be delivered by this paragraph 7) about the financial
condition, business and operations of (SELECT ONE OR MORE) /X/ the Borrower, any
guarantor, endorser or surety of Borrower's obligations hereunder to the Bank
(the "Guarantor"), / / ________, as the Bank may, from time to time, reasonably
request;
(SELECT ONE OR MORE AND INSERT AN "X" IN THOSE BOXES WHICH ARE TO BE
APPLICABLE;)
(a) /X/ monthly reports; within 15 days after the close of
each month the Borrower will furnish the Bank with a monthly borrowing base
certificate, accompanied by supporting inventory reports.
(b) /X/ Interim Reports; within 45 days after the close of
all but the last quarter of each fiscal year of (SELECT ONE OR MORE) /X/ the
Borrower, balance sheet of such person(s) as of the close of each period and a
statement of income for that portion of the period then ended, and including
expense schedules breaking out such expenses as interest and depreciation
(SELECT ONE) (i) / / reviewed in conformity with GAAP by a firm of independent
certified public acceptable to the Bank; (ii) / / compiled by a firm of
independent certified public accountants acceptable to the Bank and certified by
an officer of such person(s) as true, accurate and complete; or (iii) /X/
internally prepared by such person(s) and certified by an officer of such
person(s) as true, accurate, and complete;
(c) /X/ ANNUAL REPORT; within 120 days after the close of
each fiscal year of (SELECT ONE OR MORE) /X/ the Borrower, / / Guarantor, / /
, financial statements including a balance sheet as of the close of
such year and statements of income and changes in stockholders' equity and cash
flows for the year then ended, and (SELECT ONE) (i) /X/ accompanied by a report
thereon, prepared in conformity with GAAP and containing an opinion, unqualified
as to scope, of a firm of independent certified public accountants acceptable to
the Bank; (ii) / / reviewed in conformity with GAAP by a firm of independent
certified public accountants acceptable to the Bank; (iii) / / compiled by a
firm of independent certified public accountants acceptable to the Bank and
certified by an officer of such person(s) as true, accurate and complete; or
(iv) / / internally prepared by such person(s) and certified by an officer of
such person(s) as true, accurate and complete;
(d) / / PERSONAL FINANCIAL STATEMENTS; within days after the
close of each calendar year of (SELECT ONE OR MORE) / / the Borrower, / /
Guarantor, / / , personal financial statements signed and dated by such
person(s) in form and detail satisfactory to the Bank;
(e) / / FEDERAL TAX RETURN; within days after the close of
each (SELECT ONE) / / fiscal / / calendar year of (SELECT ONE OR MORE) / / the
Borrower, / / Guarantor, / / ____________________, such person's federal income
tax return and all schedules thereto, signed and dated and filed with the
Internal Revenue Service;
(f) /X/ CERTIFICATE OF COMPLIANCE; simultaneously with the
delivery of the financial statements required in (b) and (c) above, a
Certificate of Compliance certifying that, as at the end of the applicable
period, (SELECT ONE OR MORE) /X/ the Borrower / / Guarantor, / / ,
is in
-3-
<PAGE> 4
full compliance with all affirmative, negative and financial covenants set forth
in this Note applicable to such person and certified by an officer of such
person(s), as accurate, true and complete;
All financial statements delivered to the Bank shall be consolidated,
consolidating and/or individual statements, as the Bank shall require. Upon
becoming aware of any Event of Default or of any occurrence which but for the
giving of notice or the passage of time would become an Event of Default, the
Borrower and each Guarantor will promptly deliver written notice thereof to the
Bank.
(8) COVENANTS. Except as otherwise set forth in Section 8(a) of
Rider A, unless the Bank otherwise consents in writing:
(a) ENCUMBRANCES AND AGREEMENTS NOT TO PLEDGE. (i) The
Borrower shall not incur or permit to exist any lien, mortgage,
security interest, pledge, charge or other encumbrance, against any of
its property or assets, whether now owned or hereafter acquired
(including, without limitation, any lien or encumbrance relating to any
response, removal or clean-up of any toxic substances or hazardous
wastes), except: (A) liens, mortgages, security interests, charges or
other encumbrances in favor of the Bank or specifically permitted, in
writing, by the Bank; (B) pledges or deposits in connection with or to
secure worker's compensation or unemployment insurance; and (C) liens
for taxes not yet due and liens for taxes which are being contested in
good faith and by appropriate proceedings with the prior written
consent of the Bank which consent will not be unreasonably withheld and
against which, if requested by the Bank, the Borrower shall maintain
reserves in amounts and in form (book, cash, bond or otherwise)
satisfactory to the Bank. The Borrower shall not enter into any
agreements with any other party which would prohibit the Borrower from
granting any encumbrances, as otherwise prohibited hereunder.
(ii) The Borrower shall not enter into or permit to
exist any agreement, arrangement or understanding, either oral or in
writing, with any person or entity other than the Bank which restricts
or prohibits the Borrower from incurring or permitting to exist any
lien, mortgage, security interest, pledge, charge or other encumbrance
against any of its property or assets.
(b) LIMITATION ON INDEBTEDNESS. The Borrower shall not
create or incur any Indebtedness (as defined below) for borrowed money,
become liable, either actually or contingently in respect of letters of
credit or banker's acceptances or issue or sell any obligations of the
Borrower, excluding, however, from the operation of this covenant: (i)
advances made hereunder and all other Indebtedness of the Borrower to
the Bank; and (ii) Indebtedness subordinated in payment and priority to
all Indebtedness of the Borrower to the Bank in writing and in form and
substance satisfactory to the Bank.
(c) CONTINGENT LIABILITIES. The Borrower shall not
assume, guarantee, endorse or otherwise become liable upon the
obligations of any person, entity or corporation except by the
endorsement of negotiable
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<PAGE> 5
instruments for deposit or collection or similar transactions in the
ordinary course of business.
(d) CONSOLIDATION, MERGER OR CONVERSION. The Borrower
shall not merge, consolidate or convert with or into any other
corporation or entity; and, for the purposes of this paragraph 8(d),
the acquisition of all or substantially all of the assets, together
with the assumption of all or substantially all of the obligations and
liabilities, of any corporation or entity shall be deemed to be a
consolidation with such corporation or entity, unless upon closing of
such purchase or acquisition, Borrower is in compliance with all
financial covenants in Section 9.
(e) STRUCTURE, TAX CLASSIFICATION. The Borrower shall not
make or consent to a material change in the structure of the Borrower,
or, if a general partnership not classified as a limited liability
partnership as of the date of this Note, register or otherwise become
classified as a limited liability partnership, or, if a corporation,
change its election to be taxed under Subchapter C or Subchapter S, as
applicable, of the Internal Revenue Code, or make or consent to the
making of any action that causes or could cause any federal or state
authority, for any reason, to classify, alter or reclassify the tax
treatment applicable to the Borrower or any Guarantor or their
respective operations from the tax treatment attributed or deemed
attributed to the Borrower or such Guarantor as of the date of
execution and delivery of this Note.
(g) ADDITIONAL COVENANTS. Borrower makes the additional
covenants set forth in Section 8(d) of Rider A attached hereto.
(9) FINANCIAL COVENANTS. Unless the Bank otherwise consents in
writing:
(a) DEFINITIONS. As used in this Note, the following
terms shall have the following meanings:
CAPITAL ASSETS means assets that in accordance with
GAAP are required or permitted to be depreciated or amortized
on a balance sheet.
CAPITAL EXPENDITURES ("Cap X") means, for any period,
the aggregate amount of all expenditures for the acquisition,
construction, improvement, replacement or purchase of Capital
Assets and Intangible Assets, including, but not limited to,
expenditures under Capital Leases.
CAPITAL LEASES means capital leases, conditional
sales contracts and other title retention agreements relating
to the purchase or acquisition of Capital Assets.
CURRENT MATURITY OF LONG-TERM DEBT ("CMLTD") means
the current maturity of long term Indebtedness paid during the
applicable period, including, but not limited to, amounts
required to be paid during such period under Capital Leases.
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<PAGE> 6
CURRENT RATIO means the ratio of Total Current Assets
to Total Current Liabilities.
DEBT SERVICE AND CAPITAL EXPENDITURES COVERAGE RATIO
means, during the applicable period, that quotient equal to
(A) the aggregate of (i) Earnings Before Interest, Taxes,
Depreciation and Amortization plus or minus (ii) change in
Working Capital, with increases in Working Capital to be
subtracted from Earnings Before Interest, Taxes, Depreciation
and Amortization and decreases in Working Capital to be added
to Earnings Before Interest, Taxes, Depreciation and
Amortization, minus (iii) Capital Expenditures and minus (iv)
Dividends, divided by (B) the sum of (i) Interest and (ii)
Current Maturity of Long-Term Debt; that is,
EBITDA +/- change in Working Capital - Cap X - Dividends
--------------------------------------------------------
Interest + CMLTD
DEBT SERVICE AND UNFINANCED CAPITAL EXPENDITURES
COVERAGE RATIO means, during the applicable period, that
quotient equal to (A) the aggregate of (i) Earnings Before
Interest, Taxes, Depreciation and Amortization plus or minus
(ii) change in Working Capital, with increases in Working
Capital to be subtracted from Earnings Before Interest, Taxes,
Depreciation and Amortization and decreases in Working Capital
to be added to Earnings Before Interest, Taxes, Depreciation
and Amortization, minus (iii) Unfinanced Capital Expenditures
and minus (iv) Dividends, divided by (B) the sum of (i)
Interest and (ii) Current Maturity of Long-Term Debt; that is,
EBITDA +/- change in Working Capital -Unfinanced Cap X -Dividends
-----------------------------------------------------------------
Interest + CMLTD
EARNINGS BEFORE INTEREST AND TAXES means, for the
applicable period, income from continuing operations before
the payment of Interest and taxes determined in accordance
with GAAP.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION ("EBITDA") means, for the applicable period,
income from continuing operations before the payment of
Interest and taxes plus depreciation and amortization
determined in accordance with GAAP.
GAAP means generally accepted accounting principles
in the United States of America, as in effect on the date of
the preparation and delivery of the financial statements
described in paragraph 7 of this Note and consistently
followed, without giving effect to any subsequent changes
other than changes consented to in writing by the Bank.
INDEBTEDNESS means all obligations that in accordance
with GAAP should be classified as liabilities upon a balance
sheet.
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<PAGE> 7
INTANGIBLE ASSETS means assets that in accordance
with GAAP are properly classifiable as intangible assets,
including, but not limited to, goodwill, franchises, licenses,
patents, trademarks, trade names and copyrights.
INTEREST means, for the applicable period, all
interest paid or payable, including, but not limited to,
interest paid or payable on Indebtedness and on Capital
Leases, determined in accordance with GAAP.
INTEREST COVERAGE RATIO means the ratio of Earnings
Before Interest and Taxes to Interest.
QUICK RATIO means the quotient equal to (A) the
aggregate of (i) cash and currency on hand and on deposit,
demand deposits and checks held, plus (ii) short term, highly
liquid investments that are readily convertible to known
amounts of cash, plus (iii) marketable securities plus (iv)
accounts receivable less allowances for doubtful accounts
receivable, divided by (B) Total Current Liabilities.
TANGIBLE NET WORTH means Total Assets minus the sum
of (i) Intangible Assets and (ii) Total Liabilities.
TOTAL ASSETS means total assets determined in
accordance with GAAP.
TOTAL CURRENT ASSETS means total current assets
determined in accordance with GAAP.
TOTAL CURRENT LIABILITIES means total current
Indebtedness determined in accordance with GAAP.
TOTAL LIABILITIES means total Indebtedness determined
in accordance with GAAP.
UNFINANCED CAPITAL EXPENDITURES ("Unfinanced Cap X")
means Capital Expenditures minus new long term Indebtedness
issued during the applicable period plus the aggregate amount
of all long term Indebtedness prepaid during such period.
WORKING CAPITAL means Total Current Assets less Total
Current Liabilities.
(b) ACCOUNTING TERMS. Unless otherwise defined or
specified in this paragraph 9, all accounting terms shall be construed
and all accounting determinations shall be made in accordance with
GAAP.
(c) CALCULATION OF FINANCIAL COVENANTS. The calculation
of the financial covenants set forth below shall be measured against
the financial statements required to be delivered to the Bank pursuant
to paragraph 7 of this Note as follows (SELECT ONE OR MORE):
-7-
<PAGE> 8
/X/ On a Consolidated basis. / / On an Consolidating basis. / / On an
individual basis.
(d) TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. As
applied to (SELECT ONE OR MORE) /X/ Borrower, / / Guarantor, / / ,
Borrower shall not permit or Borrower shall cause the person indicated
above not to permit the ratio of Total Liabilities to Tangible Net
Worth to be greater than the ratio set forth for such period:
For the fiscal quarters ending September 30 and March 31, 3.75 to 1.0;
For the fiscal quarter ending December 31, 4.0 to 1.0; For the fiscal
quarter ending June 30, 3.5 to 1.0;
(e) OTHER. (i) The Borrower shall maintain minimum
Liquidity (defined below) of $3,500,000.00. Liquidity is defined as all
cash and currency on hand and on deposit, demand deposit and checks
held, plus short term, highly liquid investments that are readily
convertible to known amounts of cash, plus marketable securities, such
covenant to be tested quarterly.
(ii) The Borrower shall maintain Debt Service
Coverage (defined below) 1.25:1 commencing December 31, 1996 and on a
four quarter rolling average basis thereafter. Debt Service Coverage
means, during the applicable period, that quotient equal to (A) the
aggregate of (I) EBITDA plus (II) interest income (including dividends
received on marketable securities) minus (III) Unfinanced Cap X and
minus (IV) dividends and distributions paid with respect to the
Borrower's capital stock, divided by (B) the sum of (I) Current
Maturities of Long Term Debt and (II) Interest.
(10) EVENTS OF DEFAULT; REMEDIES. If any one or more of the
following "Events of Default" shall occur:
(a) Failure to make payment of principal or interest on
the Note or in the payment of any other liability owing by the Borrower
to the Bank, now existing or hereinafter incurred, whether direct or
contingent, when due; or
(b) Failure by the Borrower to observe or perform any
covenant contained in this Note, or failure by the Borrower to perform
any of its obligations under any document, instrument or agreement
governing, evidencing or securing this Note, and continuance of such
failure unremedied for a period of thirty (30) days after notice of
such failure has been received by the Borrower from the Bank, provided
that no notice or grace period shall be required with respect to the
breach of any provision of Paragraph 9, above; or
(c) Any representation or warranty made by the Borrower
or any Guarantor to the Bank herein or in any document, instrument or
agreement governing, evidencing or securing this Note or any statement,
certificate or other data furnished by any of them in connection
herewith or therewith proves at any time to be incorrect in any
material respect; or
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<PAGE> 9
(d) A judgment or judgments, singly or in the aggregate
excess of $100,000.00 for the payment of money shall be rendered
against the Borrower or any Guarantor, and any such judgment shall
remain unsatisfied and in effect for any period of thirty (30)
consecutive days without a stay of execution; or
(e) Any levy, seizure, attachment, garnishment, execution
or similar process shall be issued or levied on any of the Borrower's
or any Guarantor's property; or
(f) The Borrower or any Guarantor shall (i) apply for or
consent to the appointment of a receiver, conservator, trustee or
liquidator of all or a substantial part of any of its assets; (ii) be
unable, or admit in writing its inability, to pay its debts as they
mature; (iii) file or permit the filing of any petition, case,
arrangement, reorganization, or the like under any insolvency or
bankruptcy law, or the adjudication of it as a bankrupt, or the making
of an assignment for the benefit of creditors or the consenting to any
form of arrangement for the satisfaction, settlement or delay of debt
or the appointment of a receiver for all or any part of its properties:
or (iv) take any action for the purpose of effecting any of the
foregoing; or
(g) An order, judgment or decree shall be entered, or a
case shall be commenced, against the Borrower or any Guarantor, without
the application, approval or consent of the Borrower or such Guarantor
by or in any court of competent jurisdiction, approving a petition or
permitting the commencement of a case seeking reorganization or
liquidation of the Borrower or any Guarantor or appointing a receiver,
trustee, conservator or liquidator of the Borrower or any Guarantor, or
of all or a substantial part of its assets and Borrower or any
Guarantor, indicates its approval thereof, consent thereto, or
acquiescence therein, or such order, judgment, decree or case shall
continue unstayed and in effect for any period of ninety (90)
consecutive days; or
(h) The Borrower or any Guarantor shall dissolve or
liquidate, or be dissolved or liquidated, or cease to legally exist, or
if the Borrower is not a natural person, merge, consolidate or convert,
or be merged. consolidated or converted with or into any other
corporation or entity; or
(i) A Borrower or Guarantor who is a natural person shall
die; or
(j) Failure by the Borrower or any Guarantor to pay any
other Indebtedness for borrowed money, or if any such other
Indebtedness shall be accelerated, or if there exists any event of
default under any instrument, document or agreement governing,
evidencing or securing such other Indebtedness beyond any period of
grace provided with respect thereto; or
(k) Any guaranty, document, instrument or agreement now
or hereafter guaranteeing, governing, evidencing or securing this Note
ceases to be in full force and effect or any party thereto notifies the
Bank that such party has no continuing obligation to pay or perform in
accordance with the terms thereof).
-9-
<PAGE> 10
(l) The occurrence of any Event of Default under the
Borrower's Notes of even date in the respective principal amounts
$8,000,000.00 and $400,000.00 or any documents executed therewith.
then, and in such event (other than an Event of Default described in paragraphs
10 (f) and (g) above), the Bank may declare all advances outstanding hereunder,
together with accrued interest thereon and all applicable late charges and
surcharges and all other liabilities and obligations of the Borrower to the Bank
to be forthwith due and payable, whereupon the same shall become forthwith due
and payable and the availability of advances hereunder shall be deemed
automatically terminated; all of the foregoing without presentment or demand for
payment, notice of non-payment, protest or any other notice or demand of any
kind, all of which are expressly waived by the Borrower. Notwithstanding the
foregoing, upon the occurrence of an Event of Default described in paragraphs 10
(f) or (g) above, (i) the availability of advances hereunder shall automatically
terminate and (ii) all advances outstanding hereunder, together with accrued
interest thereon and all applicable late charges and surcharges and all other
liabilities and obligations of the Borrower to the Bank shall become
automatically due and payable without presentment or demand for payment, notice
of non-payment, protest or any other notice or demand of any kind; all of which
are expressly waived by the Borrower.
(11) LIEN AND SETOFF. The Borrower and each Guarantor hereby give
the Bank a lien and right of set off for all of Borrower's and each Guarantor's
liabilities and obligations hereunder upon and against all the deposits,
credits, collateral and property of the Borrower and each Guarantor, now or
hereafter in the possession, custody, safekeeping or control of the Bank or any
entity under the control of Fleet Financial Group, Inc. or in transit to any of
them but not including any funds managed by or invested with or through Fleet
Investment Advisors, the Fleet Funds, or any other investment advisor or mutual
fund affiliated with the Bank. At any time, after the occurrence and during the
continuance of an Event of Default without demand or notice, Bank may set off
the same or any part thereof and apply the same to any such liability or
obligation of the Borrower or any Guarantor.
(12) INDEMNIFICATION. The Borrower and each Guarantor, jointly and
severally, agree to defend, indemnify and hold harmless the Bank and any
participants, successors or assigns of the Bank and the officers, directors,
employees and agents of each of them from and against any and all losses,
claims, liabilities, asserted liabilities, costs and expenses, including,
without limitation, out-of-pocket costs of litigation and attorneys' fees,
incurred in connection with any and all claims or proceedings for bodily injury,
property damage, abatement or remediation, environmental damage or impairment or
any other injury or damage (including all foreseeable and unforeseeable
consequential damage) or any diminution in value of any real property resulting
from or relating, directly or indirectly, to (a) any release, spilling, leaking,
migrating, discharging, escaping, leaching, dumping or disposing (a "Release")
into the environment of any toxic substances or hazardous wastes, a threatened
Release, the existence or removal of any toxic substances or hazardous wastes
on, into, from, through or under any real property owned or operated by the
Borrower or any Guarantor (whether or not such Release was caused by Borrower,
any Guarantor, a tenant, subtenant, prior owner or tenant or any other person
and whether or not the alleged liability is attributable to the handling,
storage,
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<PAGE> 11
generation, transportation or disposal of toxic substances or hazardous wastes
or the mere presence of such toxic substances or hazardous wastes) or (b) the
breach or alleged breach by Borrower or any Guarantor of any federal, state or
local law or regulation concerning public health, safety or the environment with
respect to any real property owned or operated by the Borrower or any Guarantor
and/or any business conducted thereon; provided, however, that the
indemnification provided for in this paragraph shall not apply to any losses,
claims, liabilities, asserted liabilities, costs or expenses arising out of the
negligence, willful misconduct or bad faith of the Bank or any other party
otherwise entitled to indemnification hereunder.
(13) PREJUDGMENT REMEDY WAIVER. BORROWER AND EACH GUARANTOR (a)
ACKNOWLEDGE THAT THE ADVANCES EVIDENCED BY THIS NOTE ARE PART OF A COMMERCIAL
TRANSACTION AND (b) TO THE EXTENT PERMITTED BY ANY STATE OR FEDERAL LAW, WAIVE
THE RIGHT ANY OF THEM MAY HAVE TO PRIOR NOTICE OF AND A HEARING ON THE RIGHT OF
ANY HOLDER OF THIS NOTE TO ANY REMEDY OR COMBINATION OF REMEDIES THAT ENABLES
SAID HOLDER, BY WAY OF ATTACHMENT, FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN,
TO DEPRIVE BORROWER OR ANY GUARANTOR OF ANY OF THEIR PROPERTY, AT ANY TIME,
PRIOR TO FINAL JUDGMENT IN ANY LITIGATION INSTITUTED IN CONNECTION WITH THIS
NOTE.
(14) JURY TRIAL WAIVER. THE BANK, BORROWER AND EACH GUARANTOR
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER
INSTITUTED BY OR AGAINST THE BANK, THE BORROWER OR ANY GUARANTOR IN RESPECT OF
THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING,
GOVERNING OR SECURING THIS NOTE.
(15) JOINT AND SEVERAL OBLIGATIONS; MISCELLANEOUS. This Note shall be
the joint and several obligation of Borrower and each Guarantor and each
provision of this Note shall apply to each and all jointly and severally and to
the property and liabilities of each and all, who hereby waive diligence,
demand, presentment for payment, notice of nonpayment, protest and notice of
dishonor, and who hereby agree to any extension or delay in the time for payment
or enforcement, to renewal of this Note and to any substitution or release of
any collateral, all without notice and without any effect on their liabilities.
Any delay on the part of the holder hereof in exercising any right hereunder or
under any mortgage or security agreement which may secure this Note shall not
operate as a waiver of any such right, and any waiver granted for one occasion
shall not operate as a waiver in the event of a subsequent default. The rights
and remedies of the holder hereof shall be cumulative and not in the
alternative, and shall include all rights and remedies granted herein, in any
document, instrument or agreement governing, evidencing or securing this Note
and under all applicable laws. This Note is the final, complete and exclusive
statement of the terms governing this Note. If any provision of this Note shall
to any extent be held invalid or unenforceable, then only such provision shall
be deemed ineffective and the remainder of this Note shall not be effected. The
provisions of this Note shall bind the heirs, executors, administrators, assigns
and successors of each and every Borrower and each Guarantor and shall inure to
the benefit of Bank, its successors and assigns. This Note shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
(16) ACKNOWLEDGMENT OF BORROWER. Borrower acknowledges receipt of a
copy of this Note, and attests that each advance is to be used for general
commercial purposes and that no part of such proceeds will be used, in whole or
in part, for
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<PAGE> 12
the purpose of purchasing or carrying any "margin stock" as such term is defined
in Regulation U of the Board of Governors of the Federal Reserve System.
IN WITNESS WHEREOF, the Borrower has executed or caused this Note to be
duly executed, as a sealed instrument.
Witness: DM MANAGEMENT COMPANY
/s/ David R. Pierson
By: /s/ Olga L. Conley
-----------------------
VP of Finance
AGREED:
FLEET NATIONAL BANK
By: /s/ Luke G. Tsokanis
-----------------------
Vice President
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<PAGE> 13
RIDER A
TO
PROMISSORY NOTE DATED AS OF NOVEMBER 4, 1996 MADE BY
DM MANAGEMENT COMPANY
PAYABLE TO ORDER OF FLEET NATIONAL BANK
This Rider A is incorporated by reference in the Promissory Note dated
as of November 4, 1996 (the "Note"), made by DM Management Company, a Delaware
corporation (the "Borrower"), payable to the order of Fleet National Bank (the
"Bank") in the original principal amount of $3,600,000, and amends and
supplements the provisions of the Note referenced below. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
thereto in the Note. The section and paragraph references used in this Rider
correspond to the section and paragraph designations used in the Note.
(1). PURPOSES OF CREDIT. Advances under this Note shall be
used to repay existing indebtedness to the Bank.
(7)(g). Additional Financial Information.
--------------------------------
(i) SEC REPORTS. The Borrower shall also deliver to the Bank,
promptly as they become available, copies of all financial statements, reports,
notices and proxy statements sent or made available by the Borrower to its
stockholders and copies of all reports and other materials filed by the Borrower
with the Securities and Exchange Commission; and
(8)(a). ENCUMBRANCES. In addition to the encumbrances permitted by
clauses (A), (B) and (C) of Section (8)(a), the Borrower shall also be permitted
(x) to have the presentlyexisting security interests and capitalized leases
listed on the schedule annexed hereto as Exhibit 8(a) showing the nature and
amount of indebtedness secured in each case, (y) to grant or create Purchase
Money Security Interests to the extent permitted by clause (D) of paragraph (i)
of Section 8(d) below, and (z) to have other liens and encumbrances incidental
to the conduct of the Borrower's business or the ownership of its assets which
were not incurred in connection with the borrowing of money or the obtaining of
advances or credit and which do not in the aggregate materially detract from the
value of its assets or materially impair the use thereof in the operation of its
business.
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<PAGE> 14
(8)(d). ADDITIONAL NEGATIVE COVENANTS. Borrower hereby covenants that
without the prior written consent of the Bank in each case:
(i) INDEBTEDNESS. Neither the Borrower nor any Subsidiary
shall incur, assume or permit to exist indebtedness for borrowed money, or
indebtedness arising out of the ownership, purchase or acquisition of real or
personal property subject or subjected to a Purchase Money Security Interest
(including capitalized leases), to any person, firm or entity other than the
Bank except:
(A) indebtedness subordinated to obligations and
liabilities of the Borrower to the Bank, the amount and terms of which have
received the prior written approval of the Bank;
(B) indebtedness of wholly-owned subsidiaries to
the Borrower or other wholly-owned subsidiaries of the Borrower;
(C) other presently existing indebtedness shown
on either Exhibit 8(a) or in the balance sheet of the Borrower as of September
30, 1996; and
(D) indebtedness of the Borrower and its
subsidiaries which is secured by Purchase Money Security Interests (including
capitalized lease obligations) so long as the purchase price, or aggregate
rents, for the equipment involved in the case of telecommunications equipment
does not exceed $100,000, and in the case of any other transaction (or in a
related series of transactions) does not exceed $200,000, and provided that
after the incurrence of any such indebtedness the Borrower remains in compliance
with all financial covenants. For purposes of this section "Purchase Money
Security Interest" includes security agreements, chattel mortgages, conditional
sales, leases which are or should be capitalized under GAAP on the Borrower's
books, and other security or title retention devices undertaken or assumed in
connection with the acquisition of tangible personal property or existing or
created in such property at the time of acquisition thereof or otherwise given
as security for borrowed money, provided the amount of the debt secured thereby
does not exceed the cost of fair value of the property involved, whichever is
less.
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<PAGE> 15
(ii) EQUITY DISTRIBUTIONS. Neither the Borrower nor any of its
subsidiaries (other than a wholly-owned subsidiary) shall make any Equity
Distribution in excess of twenty five (25%) of Net Income in any fiscal year. As
used herein, "Equity Distribution" means (a) the declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of the
Borrower; (b) the redemption, purchase or other retirement of any shares, or of
any option or warrant or right to purchase any shares, of any class of capital
stock of the Borrower, directly or indirectly through a subsidiary, for
consideration paid or to be paid in money or property; and (c) any other
distribution on or in respect of any shares of any class of capital stock of the
Borrower; PROVIDED, however, that no payment for the redemption, purchase or
other retirement of shares, options, warrants or rights to acquire any of the
same, arising out of the termination of employment of any employee of the
Borrower or any subsidiary shall constitute an Equity Distribution so long as
(a) no Event of Default exists at the time of or would result from such payment,
and (b) the aggregate amount of all such payments after the date of this
Agreement shall not exceed $100,000.
-3-
<PAGE> 16
$3,600,000.00 Note
EXHIBIT A
1. INTEREST RATES. (a) Loan Amounts shall bear interest
at the Floating Rate, the Libor Rate or the Cost of Funds (respectively
defined below), as specified from time to time by the Borrower in the
Conversion Notice with respect to the subject Loan amount.
(b) The Borrower shall pay interest on the principal
balance of the Note outstanding in arrears on the last day of the month
and on the last day of any Interest Period applicable to a Libor Rate
Loan or the Cost of Funds Rate Loan.
2. NOTICE AND MANNER OF CONVERTING INTEREST RATES. (a)
Whenever the Borrower desires to convert an interest rate, the
Borrower shall notify the Bank (which notice shall be irrevocable) no
later than (i) Noon on the day on which any Floating Rate Loan is being
requested to be made and (ii) Noon, Two (2) Business days prior to (and
not counting) the day on which any Libor Rate Loan or Cost of Funds
Rate Loan is being requested to be made. Such notice shall specify the
amount and the interest rate for the proposed advance chosen by the
Borrower. Each such notification (a "RENEWAL/CONVERSION NOTICE") shall
be immediately followed by a written confirmation thereof by the
Borrower in substantially the form of EXHIBIT B, annexed hereto,
PROVIDED that if such written confirmation differs in any material
respect from the action taken by the Bank, the records of the Bank
shall control.
(b) Libor Rate Loans and Cost of Funds shall each be
in an amount of not less than $1,000,000.00 and in $100,000.00
increments in excess of such minimum.
(c) The Bank may rely on any request for a loan or
advance or financial accommodation which the Bank, in good faith,
believes to have been made by a person duly authorized to act on behalf
of the Borrower and may decline to make any such requested loan or
advance or to provide any such financial accommodation pending the
Bank's being furnished with such documentation concerning that person's
authority to act as may be satisfactory to the Bank.
3. DURATION OF INTEREST PERIODS. (a) Subject to the
definition of the term "Interest Period", the Borrower shall have the
option to elect a subsequent Interest Period to be applicable to an
advance by giving notice of such election in the form of EXHIBIT B,
annexed hereto received no later than 10:00 Boston time One (1)
Business Day before the end of the then applicable Interest Period, if
such Loan is to be continued as or converted to a Floating Rate Loan,
and Two (2) Business Days before (and not counting) the end of the then
applicable Interest Period if such Loan is to be continued as, or
converted to, a Libor Rate Loan or a Cost of Funds Loan.
(b) If the Bank does not receive a notice of election
of, or conversion to, an Interest Period for a Libor Rate Loan or a
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<PAGE> 17
Cost of Funds Rate Loan pursuant to subsection (a) within the
applicable time limits specified therein, or if, when such notice must
be given, an Event of Default exists, the Borrower shall be deemed to
have elected to convert such Loan in whole into a Floating Rate Loan on
the last day of the then current Interest Period with respect thereto.
4. Changed Circumstances. In the event that:
---------------------
(a) on any day on which the rate for a Libor
Rate Loan or a Cost of Funds Rate Loan would otherwise be set,
the Bank shall have determined in good faith (which
determination shall be final and conclusive) that adequate and
fair means do not exist for ascertaining either such rate; or
(b) at any time the Bank shall have determined
in good faith (which determination shall be final and
conclusive) that:
(i) the making or continuation of or
conversion of any loan to a Libor Rate Loan or a Cost
of Funds Rate Loan has been made impracticable or
unlawful by (A) the occurrence of a contingency that
materially and adversely affects the applicable
market or (B) compliance by the Bank in good faith
with any applicable law or governmental regulation,
guideline or order or interpretation or change
thereof by any governmental authority charged with
the interpretation or administration thereof or with
any request or directive of any such governmental
authority (whether or not having the force of law);
or
(ii) the indices on which the interest rates
for Libor Rate Loans shall no longer represent the
effective cost to the Bank for U.S. dollar deposits
in the interbank market for deposits in which it
regularly participates;
then, and in any such event, the Bank shall forthwith so
notify the Borrower thereof. Until the Bank notifies the
Borrower that the circumstances giving rise to such notice no
longer apply, the obligation of the Bank to make Libor Rate
Loans or Cost of Funds Rate Loans of the type affected by such
changed circumstances or to permit the Borrower to select
Libor Rate or Cost of Funds Rate Loans for any advances shall
be suspended. If at the time the Bank so notifies the
Borrower, the Borrower has previously given the Bank a Notice
of Borrowing or a Renewal/Conversion Notice with respect to
one or more Libor Rate Loans or Cost of Funds Rate Loans, but
such advances have not yet gone into effect, such notification
shall be deemed to be void and the Borrower may borrow under
interest rate options otherwise available hereunder, by giving
a substitute Notice of Borrowing or a Renewal/Conversion
Notice. Upon the expiration of the Interest Period for any
Libor Rate Loan or a Cost of Funds Rate Loan which is
outstanding on the date of such notification, the amount of
such Libor Rate Loan or Cost of
-2-
<PAGE> 18
Funds Rate Loan shall thereafter constitute a Floating Rate
Loan.
5. PAYMENTS AND PREPAYMENTS. (a) Floating Rate Loans
may be prepaid at any time and from time to time without premium or
penalty.
(b) In the event of any prepayment of any Libor Rate
Loan or Cost of Funds Rate Loan, other than at the end of the Interest
Rate Period applicable to the subject loan, the Borrower shall repay
the Bank's costs in respect of such repayment, which costs shall be
determined as follows:
(Applicable Rate - Tbillrate) X PP X D
-------------------------------------------
360
Where:
-----
Applicable
Rate = The Libor Rate or Cost of Funds Rate
for the Loan then being prepaid.
Cost of
Funds Rate = The Cost of Funds Rate of interest on
that Cost of Funds Rate Loan being
prepaid.
Libor
Rate = The Libor Rate of interest on that
Libor Rate Loan being prepaid.
TBillRate = The effective per annum rate at which
a readily marketable bond or other
obligation of, or entitled to the full
faith and credit of, the United States
(selected by the Bank in the Bank's
reasonable discretion) maturing on or
near the maturity date of the subject
Libor Rate Loan or Cost of Funds Rate
Loan and in approximately the amount
of the Libor Rate Loan or Cost of
Funds Rate Loan being prepaid could be
purchased on or about the date of the
subject prepayment.
PP = The amount of principal being prepaid.
D = The number of days from the date on
which the subject prepayment is made
until the expiry of the Interest
Period for the Libor Rate Loan or Cost
of Funds Rate Loan being prepaid.
x Indicates multiplication.
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<PAGE> 19
6. DEFINITIONS. The following terms as used herein
shall have the meanings assigned to them below:
"BUSINESS DAY" shall mean a day on which the Bank is open for
the transaction of banking business in Boston, Massachusetts, and, if
the applicable Business Day relates to a Libor Rate Loan, a day on
which dealings are carried on in the applicable Eurodollar interbank
market and banks are open for business in the applicable Eurodollar
interbank market and in the place where payment is to be made for such
Libor Rate Advance.
"CONVERT, CONVERSION AND CONVERTED" shall refer to the
conversion of Floating Rate Loan, or Libor Rate Loan to advances of
another Type.
"COST OF FUNDS": shall mean with respect to any Interest
Period for each Cost of Funds Rate Loan the rate of interest paid by
the Bank on such date to procure funds in the principal amount selected
during such Interest Period, as adjusted to reflect the Bank's costs,
expenses and reserve requirements in connection with procurement of
such funds.
"COST OF FUNDS RATE": shall mean with respect to any interest
Period for each Cost of Funds Rate Loan, an interest rate per annum
equal at all times during such Interest Period to the sum of (i) the
Cost of Funds plus (ii) two percent (2%).
"COST OF FUNDS RATE LOAN": any loan bearing interest at the
Cost of Funds Rate.
"FLOATING RATE": shall mean with respect to any Interest
Period the interest rate generally announced by the Bank from time to
time as its Prime Rate.
"FLOATING RATE LOAN": any loan bearing interest at the
Floating Rate.
"INTEREST PERIOD": (a) With respect to each Libor Rate Loan,
the period commencing on the date of the making or continuation of or
conversion to such Libor Rate Loan and ending one, two, three or six
months thereafter, and with respect to each Cost of Funds Rate Loan the
period commencing on the date of the making or continuation of or
conversation to such Cost of Funds Rate Loan and ending a minimum of
one year thereafter, as the Borrower may elect in the applicable Notice
of Borrowing or Conversion.
(b) With respect to each Floating Rate Loan, the
period commencing on the date of the making or continuation of or
conversion to such Floating Rate Loan and ending on that date as of
which the subject Floating Rate Loan is converted to a Libor Rate Loan
or Cost of Funds Rate Loan.
Provided that:
--------
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<PAGE> 20
(i) Any Interest Period applicable to a
Libor Rate Loan or Cost of Funds Rate Loan that
begins on a day for which there is no numerically
corresponding day in the calendar month at the end of
such Interest Period shall end, subject to clause
(ii) below, on the last Business Day of a calendar
month.
(ii) any Interest Period which would
otherwise end after the Termination Date shall end on
the Termination Date except that no Libor Rate Loan
shall have an Interest Period of less than One (1)
month.
"LIBOR RATE LOAN": any loan bearing interest at the Libor
Rate.
"LIBOR RATE": That per annum rate determined by application
of the following formula:
[ LIBOR OFFER RATE]
------------------------
[ 1.00 - Reserve Rate, (if applicable) ]
plus two percent (2%).
"LIBOR OFFER RATE": that rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Bank to be the
prevailing rate per annum at which deposits on U.S. Dollars are offered
to the Bank by first-class banks in the London interbank market in
which the Bank regularly participates at a time reasonably
contemporaneous to the giving of a Notice of Borrowing at the Libor
Rate, not less Two (2) Business Days before the first day of the
Interest Period of the loan referenced in such Notice of Borrowing, for
a deposit approximately in the amount of the subject loan for a period
of time approximately equal to such Interest Period.
"PRIME RATE" shall mean the interest rate announced by the
Bank from time to time as its Prime Rate. If interest hereunder is
computed in relation to the Bank's Prime Rate, then as said Bank's
Prime Rate changes from time to time, the interest rate, hereunder will
change correspondingly at the time of each Bank's Prime Rate change,
without notice or demand of any kind. If, at any time, the rate of
interest together with all amounts which constitute interest and which
are reserved, charged or taken by Bank as compensation for fees,
services or expenses incidental to the making, negotiating or
collection of the loan evidenced hereby, shall be deemed by any
competent court of law, governmental agency or tribunal to exceed the
maximum rate of interest permitted to be charged by the Bank to the
Borrower under the laws of any applicable jurisdiction or the rules or
regulations of any appropriate regulatory authority or agency, then,
during such time as such rate of interest would be deemed excessive,
that portion of each sum paid attributable to that portion of such
interest rate that exceeds the maximum rate of interest so permitted
shall be deemed a voluntary prepayment of principal.
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<PAGE> 21
"RESERVE PERCENTAGE" shall mean as of any date, that
percentage (expressed as a decimal) which is in effect on such date as
specified in Regulation D of the Board of Governors of the Federal
Reserve System (or any successor or similar regulations relating to
reserve requirements for nonpersonal time deposits) for determining the
reserve requirements (including without limitation any basic,
supplemental or emergency reserve requirements) for the Bank in respect
of new U.S. dollar nonpersonal time deposits in Boston, Massachusetts,
having a maturity comparable to the relevant Interest Period and in an
amount of $100,000 or more. The Reserve Percentage shall be adjusted
automatically on and as of the effective date of any change in the
Reserve Percentage.
"RESERVE RATE" shall mean for any day with respect to a Libor
Rate Loan, the maximum rate (expressed as a decimal) at which any Bank
subject thereto would be required to maintain reserves under Regulation
D of the Board of Governors of the Federal Reserve System (or any
successor or similar regulations relating to such reserve requirements)
against "Eurocurrency Liabilities" (as that term is used in Regulation
D) if such liabilities were outstanding. The Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in
the Reserve Rate.
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<PAGE> 22
EXHIBIT B
---------
RENEWAL/CONVERSION NOTICE
-------------------------
To: Fleet National Bank (the "Lender")
One Federal Street
Boston, Massachusetts 02211
Re: $3,600,000.00 Commercial Promissory Term Note (the "Note")
Between the Lender and DM Management Company (the "Borrower"), a
Delaware Corporation. Terms used herein which are defined in the Note
are used as so defined.
This Notice confirms the renewal/conversion of a loan at the Libor Rate
as follows:
1. Amount to be renewed at Libor Rate: $______________
Minimum of $1,000,000.00
Increments of $100,000.00
Start Date of Interest Period: $______________
Date of Expiry of Interest Period: $______________
Applicable Interest Period: $______________
2. Amount to be renewed at Cost of Funds Rate: $______________
Minimum of $1,000,000.00
Increments of $100,000.00
Start Date of Interest Period: $______________
Date of Expiry of Interest Period: $______________
Applicable Interest Period: $______________
- --------------------------------------------------------------------------------
The Borrower, hereby certifies that all representations and
warranties contained in the Note are true and accurate in all
<PAGE> 23
material respects on the date of this Renewal Notice and on the effective date
of the subject loan as though such representations and warranties had been made
on those dates (except to the extent that such representations or warranties
expressly relates to an earlier date).
DM MANAGEMENT COMPANY
("Borrower")
By:___________________________
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<PAGE> 1
FLEET NATIONAL BANK TIME NOTE
$400,000.00 Date: November 4, 1996
FOR VALUE RECEIVED, on the Termination Date (as defined below) the
undersigned, DM Management Company, a Delaware corporation (the "Borrower),
hereby promises to pay to the order of FLEET NATIONAL BANK (the "Bank") at the
office of the Bank at One Federal Street, Boston, Massachusetts 02211, or at
such other address as the holder hereof may designate, the principal sum of Four
Hundred Thousand DOLLARS ($400,000.00), or the aggregate unpaid principal amount
of all advances made by the Bank to the Borrower hereunder, whichever is less,
in lawful money of the United States.
The Borrower promises to pay interest on the principal balance
outstanding at the interest rate generally announced by the Bank from time to
time as its Prime Rate and to pay all reasonable out-of-pocket costs, including
attorneys' fees, costs relating to the appraisal and/or valuation of assets and
all costs incurred in the collection, defense, preservation, administration,
enforcement or protection of this Note or in any guaranty or endorsement of this
Note. All payments shall be applied first to the payment of interest on the
unpaid principal of all advances due under this Note and the balance on account
of the principal due under this Note.
(1) PAYMENTS. Interest shall be payable monthly beginning November
__, 1996, and continuing thereafter on the same day of each succeeding month and
on the Termination Date. Changes in the rate of interest resulting from changes
in the Prime Rate shall take place immediately without notice or demand any
kind. Interest on this Note shall be computed on the basis of a year of three
hundred sixty (360) days and actual days elapsed. Upon default or after maturity
or after judgment has been rendered on this Note, the unpaid principal balance
of all advances shall, at the option of the Bank, bear interest at a rate which
is four (4) percentage points per annum greater than the Prime Rate. If, at any
time, the rate of interest, together with all amounts which constitute interest
and which are reserved, charged or taken by Bank as compensation for fees,
services or expenses incidental to the making, negotiating or collection of any
advance evidenced hereby, shall be deemed by any competent court of law,
governmental agency or tribunal to exceed the maximum rate of interest permitted
to be charged by the Bank to the Borrower, then, during such time as such rate
of interest would be deemed excessive, that portion of each sum paid
attributable to that portion of such interest rate that exceeds the maximum rate
of interest so permitted shall be deemed a voluntary prepayment of principal.
Principal shall be payable in two (2) installments of $200,000.00 each, payable
on December 31, 1996 and March 31, 1997 (the "Termination Date").
(2) LATE CHARGE. The Bank may collect a late charge not to exceed
five (5) percent of any installment of interest or principal, or of any other
amount due to the Bank which is not paid or reimbursed by the Borrower within
ten (10) days of the due date thereof to defray the extra cost and expense
involved in handling such delinquent payment and the increased risk of
noncollection. The minimum late charge shall be $25.00.
-1-
<PAGE> 2
(3) PREPAYMENT. The Borrower has the right to pay before due the
unpaid balance of this Note or any part thereof without penalty or premium.
(4) EVENTS OF DEFAULT; REMEDIES. If any one or more of the
following "Events of Default" shall occur:
(a) Failure to make payment of principal or interest on the
Note or in the payment of any other liability owing by the Borrower to
the Bank, now existing or hereinafter incurred, whether direct or
contingent, when due; or
(b) Failure by the Borrower to observe or perform any covenant
contained in this Note, or failure by the Borrower to perform any of
its obligations under any document, instrument or agreement governing,
evidencing or securing this Note, and continuance of such failure
unremedied for a period of thirty (30) days after notice of such
failure has been received by the Borrower from the Bank, provided that
no notice or grace period shall be required with respect to the breach
of any provision of Paragraph 9, above; or
(c) Any representation or warranty made by the Borrower or any
Guarantor to the Bank herein or in any document, instrument or
agreement governing, evidencing or securing this Note or any statement,
certificate or other data furnished by any of them in connection
herewith or therewith proves at any time to be incorrect in any
material respect; or
(d) A judgment in excess of $25,000.00 for the payment of
money shall be rendered against the Borrower or any Guarantor, and any
such judgment shall remain unsatisfied and in effect for any period of
thirty (30) consecutive days without a stay of execution; or
(e) Any levy, seizure, attachment, garnishment, execution or
similar process shall be issued or levied on any of the Borrower's or
any Guarantor's property; or
(f) The Borrower or any Guarantor shall (i) apply for or
consent to the appointment of a receiver, conservator, trustee or
liquidator of all or a substantial part of any of its assets; (ii) be
unable, or admit in writing its inability, to pay its debts as they
mature; (iii) file or permit the filing of any petition, case,
arrangement, reorganization, or the like under any insolvency or
bankruptcy law, or the adjudication of it as a bankrupt, or the making
of an assignment for the benefit of creditors or the consenting to any
form of arrangement for the satisfaction, settlement or delay of debt
or the appointment of a receiver for all or any part of its properties:
or (iv) take any action for the purpose of effecting any of the
foregoing; or
(g) An order, judgment or decree shall be entered, or a case
shall be commenced, against the Borrower or any Guarantor, without the
application, approval or consent of the Borrower or such Guarantor by
or in any court of competent jurisdiction, approving a petition or
permitting the commencement of a case seeking reorganization or
liquidation of the Borrower or any Guarantor or appointing a receiver,
trustee, conservator
-2-
<PAGE> 3
or liquidator of the Borrower or any Guarantor, or of all or a
substantial part of its assets and Borrower or any Guarantor, indicates
its approval thereof, consent thereto, or acquiescence therein, or such
order, judgment, decree or case shall continue unstayed and in effect
for any period of ninety (90) consecutive days; or
(h) The Borrower or any Guarantor shall dissolve or liquidate,
or be dissolved or liquidated, or cease to legally exist, or if the
Borrower is not a natural person, merge, consolidate or convert, or be
merged. consolidated or converted with or into any other corporation or
entity; or
(i) A Borrower or Guarantor who is a natural person shall die;
or
(j) Failure by the Borrower or any Guarantor to pay any other
Indebtedness for borrowed money, or if any such other Indebtedness
shall be accelerated, or if there exists any event of default under any
instrument, document or agreement governing, evidencing or securing
such other Indebtedness beyond any period of grace provided with
respect thereto; or
(k) Any guaranty, document, instrument or agreement now or
hereafter guaranteeing, governing, evidencing or securing this Note
ceases to be in full force and effect or any party thereto notifies the
Bank that such party has no continuing obligation to pay or perform in
accordance with the terms thereof).
(l) The occurrence of any Event of Default under the
Borrower's Notes of even date in the respective principal amounts
$8,000,000.00 and $3,600,000.00 or any documents executed therewith.
then, and in such event (other than an Event of Default described in paragraphs
4 (f) and (g) above), the Bank may declare all advances outstanding hereunder,
together with accrued interest thereon and all applicable late charges and
surcharges and all other liabilities and obligations of the Borrower to the Bank
to be forthwith due and payable, whereupon the same shall become forthwith due
and payable and the availability of advances hereunder shall be deemed
automatically terminated; all of the foregoing without presentment or demand for
payment, notice of non-payment, protest or any other notice or demand of any
kind, all of which are expressly waived by the Borrower. Notwithstanding the
foregoing, upon the occurrence of an Event of Default described in paragraphs 4
(f) or (g) above, (i) the availability of advances hereunder shall automatically
terminate and (ii) all advances outstanding hereunder, together with accrued
interest thereon and all applicable late charges and surcharges and all other
liabilities and obligations of the Borrower to the Bank shall become
automatically due and payable without presentment or demand for payment, notice
of non-payment, protest or any other notice or demand of any kind; all of which
are expressly waived by the Borrower.
(5) LIEN AND SETOFF. The Borrower and each Guarantor hereby give
the Bank a lien and right of set off for all of Borrower's and each Guarantor's
liabilities and obligations hereunder upon and against all the deposits,
credits, collateral and property of the Borrower and each Guarantor, now or
hereafter in the possession, custody, safekeeping or control of the Bank or any
entity under
-3-
<PAGE> 4
the control of Fleet Financial Group, Inc. or in transit to any of them but not
including any funds managed by or invested with or through Fleet Investment
Advisors, the Fleet Funds, or any other investment advisor or mutual fund
affiliated with the Bank. At any time, after the occurrence and during the
continuance of an Event of Default without demand or notice, Bank may set off
the same or any part thereof and apply the same to any such liability or
obligation of the Borrower or any Guarantor.
(6) INDEMNIFICATION. The Borrower and each Guarantor, jointly and
severally, agree to defend, indemnify and hold harmless the Bank and any
participants, successors or assigns of the Bank and the officers, directors,
employees and agents of each of them from and against any and all losses,
claims, liabilities, asserted liabilities, costs and expenses, including,
without limitation, out-of-pocket costs of litigation and attorneys' fees,
incurred in connection with any and all claims or proceedings for bodily injury,
property damage, abatement or remediation, environmental damage or impairment or
any other injury or damage (including all foreseeable and unforeseeable
consequential damage) or any diminution in value of any real property resulting
from or relating, directly or indirectly, to (a) any release, spilling, leaking,
migrating, discharging, escaping, leaching, dumping or disposing (a "Release")
into the environment of any toxic substances or hazardous wastes, a threatened
Release, the existence or removal of any toxic substances or hazardous wastes
on, into, from, through or under any real property owned or operated by the
Borrower or any Guarantor (whether or not such Release was caused by Borrower,
any Guarantor, a tenant, subtenant, prior owner or tenant or any other person
and whether or not the alleged liability is attributable to the handling,
storage, generation, transportation or disposal of toxic substances or hazardous
wastes or the mere presence of such toxic substances or hazardous wastes) or (b)
the breach or alleged breach by Borrower or any Guarantor of any federal, state
or local law or regulation concerning public health, safety or the environment
with respect to any real property owned or operated by the Borrower or any
Guarantor and/or any business conducted thereon; provided, however, that the
indemnification provided for in this paragraph shall not apply to any losses,
claims, liabilities, asserted liabilities, costs or expenses arising out of the
negligence, willful misconduct or bad faith of the Bank or any other party
otherwise entitled to indemnification hereunder.
(7) PREJUDGMENT REMEDY WAIVER. BORROWER AND EACH GUARANTOR (a)
ACKNOWLEDGE THAT THE ADVANCES EVIDENCED BY THIS NOTE ARE PART OF A COMMERCIAL
TRANSACTION AND (b) TO THE EXTENT PERMITTED BY ANY STATE OR FEDERAL LAW, WAIVE
THE RIGHT ANY OF THEM MAY HAVE TO PRIOR NOTICE OF AND A HEARING ON THE RIGHT OF
ANY HOLDER OF THIS NOTE TO ANY REMEDY OR COMBINATION OF REMEDIES THAT ENABLES
SAID HOLDER, BY WAY OF ATTACHMENT, FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN,
TO DEPRIVE BORROWER OR ANY GUARANTOR OF ANY OF THEIR PROPERTY, AT ANY TIME,
PRIOR TO FINAL JUDGMENT IN ANY LITIGATION INSTITUTED IN CONNECTION WITH THIS
NOTE.
(8) JURY TRIAL WAIVER. THE BANK, BORROWER AND EACH GUARANTOR
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER
INSTITUTED BY OR AGAINST THE BANK, THE BORROWER OR ANY GUARANTOR IN RESPECT OF
THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING,
GOVERNING OR SECURING THIS NOTE.
-4-
<PAGE> 5
(9) JOINT AND SEVERAL OBLIGATIONS; MISCELLANEOUS. This Note shall be
the joint and several obligation of Borrower and each Guarantor and each
provision of this Note shall apply to each and all jointly and severally and to
the property and liabilities of each and all, who hereby waive diligence,
demand, presentment for payment, notice of nonpayment, protest and notice of
dishonor, and who hereby agree to any extension or delay in the time for payment
or enforcement, to renewal of this Note and to any substitution or release of
any collateral, all without notice and without any effect on their liabilities.
Any delay on the part of the holder hereof in exercising any right hereunder or
under any mortgage or security agreement which may secure this Note shall not
operate as a waiver of any such right, and any waiver granted for one occasion
shall not operate as a waiver in the event of a subsequent default. The rights
and remedies of the holder hereof shall be cumulative and not in the
alternative, and shall include all rights and remedies granted herein, in any
document, instrument or agreement governing, evidencing or securing this Note
and under all applicable laws. This Note is the final, complete and exclusive
statement of the terms governing this Note. If any provision of this Note shall
to any extent be held invalid or unenforceable, then only such provision shall
be deemed ineffective and the remainder of this Note shall not be effected. The
provisions of this Note shall bind the heirs, executors, administrators, assigns
and successors of each and every Borrower and each Guarantor and shall inure to
the benefit of Bank, its successors and assigns. This Note shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
(10) ACKNOWLEDGMENT OF BORROWER. Borrower acknowledges receipt of a
copy of this Note, and attests that each advance is to be used for general
commercial purposes and that no part of such proceeds will be used, in whole or
in part, for the purpose of purchasing or carrying any "margin stock" as such
term is defined in Regulation U of the Board of Governors of the Federal Reserve
System.
IN WITNESS WHEREOF, the Borrower has executed or caused this Note to be
duly executed, as a sealed instrument.
Witness: DM MANAGEMENT COMPANY
/s/ David R. Pierson By: /s/ Olga L. Conley
-------------------
VP of Finance
-5-
<PAGE> 1
FLEET NATIONAL BANK SECURITY AGREEMENT
(All Assets)
DM Management Company (the "Debtor") having its chief executive office and a
place of business at 25 Recreation Park Drive, Hingham, Massachusetts, hereby
grants to Fleet National Bank (the "Bank"), having an address at One Federal
Street, Boston, Massachusetts 02211, a security interest in all of the Debtor's
present and future right, title and interest in and to any and all of the
following property whether now existing or hereafter created and wherever
located (all of which is hereinafter called the "Collateral"):
All equipment and fixtures, as defined in the Uniform Commercial Code
(as defined below) and all machinery, tools, parts, furniture, furnishings,
motor vehicles and other personal property, tangible or intangible, presently
owned or hereafter acquired by the Debtor, together with additions and
accessions thereto and substitutions and replacements therefor, and the products
and proceeds (including insurance and condemnation proceeds) thereof;
All inventory and goods as defined in the Uniform Commercial Code,
whether presently owned or hereafter acquired, including, without limitation,
all inventory in the possession of others or in transit, all goods held for sale
or lease or to be furnished under contacts for service or which have been so
furnished, raw materials, work in process, and materials used or consumed or to
be used or consumed in the business of the Debtor, and completed and unshipped
merchandise, and the products and proceeds (including insurance and condemnation
proceeds) of the foregoing;
All accounts, chattel paper, instruments, documents and general
intangibles, as defined in the Uniform Commercial Code, including those now
existing and those hereafter arising or coming into existence, and including,
without limitation, all rights of payment for goods sold or leased or services
rendered, all rights of payment under contracts whether or not currently due or
not yet earned by performance and accounts receivable arising or to arise
therefrom, and all rights of the Debtor in and to the goods represented thereby
including returned and repossessed goods, and all rights the Debtor may have or
acquire for securing or enforcing the foregoing, including, without limitation,
the rights to reserves, deposits, income tax refunds, choses in action,
judgments or insurance proceeds, and the products and proceeds of all of the
foregoing;
All goodwill, trade secrets, computer programs, customer lists, trade
names, trademarks, copyrights, franchises, licenses and patents and the proceeds
thereof;
All books and records relating to the conduct of Debtor's business;
All deposit accounts maintained by the Debtor with the Bank or other
bank, trust company, investment firm or fund or any similar institution or
organization and the proceeds thereof;
Any deposits, credits, collateral or property of the Debtor at any time
now or hereafter in the possession, custody, safekeeping or control of the Bank
or any entity under the control of Fleet Financial Group, Inc. or in transit to
any of them and the proceeds thereof (the "Deposits and Securities");
The following other collateral, together with all additions thereto,
substitutions and replacements therefor and the products and proceeds (including
insurance and condemnation proceeds) thereof;
-1-
<PAGE> 2
to secure the payment and performance of all liabilities and obligations now or
hereafter owing from the Debtor to the Bank of whatever kind of nature, whether
or not currently contemplated at the time of this Agreement, whether such
obligations be direct or indirect, absolute or contingent or due or to become
due, including all obligations of the Debtor, actual or contingent, in respect
of letters of credit or banker's acceptances issued by the Bank for the account
of or guarantied by the Debtor and all obligations of any partnership or joint
venture as to which Debtor is or may become personally liable including, without
limitations, those Commercial Promissory Notes of even date in the respective
principal amounts of $8,000,000.00, $3,600,000.00 and $400,000.00 (collectively,
the "Notes") (the "Obligations", which term shall include all accrued interest
and all costs and expenses, including attorney's fees, costs and expenses
relating to the appraisal and/or valuation of assets and all costs and expenses
incurred or paid by the Bank in exercising, preserving, defending, collecting,
enforcing, administering or protecting any of its rights under the Obligations
or hereunder or with respect to the Collateral or in any litigation arising out
of the transactions evidenced by the Obligations). The Bank shall have the
unrestricted right from time to time after the occurrence and during the
continuance of an Event of Default (as hereinafter defined) to apply (or to
change any application already made) the proceeds of any of the Collateral to
any Obligations, as the Bank, in its sole discretion, may determine.
I. REPRESENTATIONS AND WARRANTIES OF DEBTOR
The Debtor hereby represents and warrants that:
(a) Debtor is a corporation, it is duly organized and validly existing
and is in good standing under the laws of its jurisdiction of organization.
Debtor is qualified to do business in every state in which the nature of its
business conducted or the character of its property owned in such state would
require such qualification, except where the failure to be so qualified would
not have a material adverse effect on the Borrower.
(b) Debtor has the power to execute, deliver and perform this
Agreement, to borrow from the Bank or to guaranty to the Bank the obligations of
others. The execution, delivery and performance of this Agreement and any notes,
guaranties or other documents, instruments or agreements evidencing Debtor's
obligations to the Bank have been duly authorized, if Debtor is a corporation,
partnership, limited liability company, trust or other legal entity, will not
violate the articles of organization, partnership agreement, declaration of
trust or other or similar organizational documents or the bylaws of the Debtor,
if the Debtor is a corporation, partnership, limited liability company, trust or
other legal entity, or any law, regulation or court order, and will not result
in a default under any agreement or indenture to which the Debtor is a party.
(c) Debtor has furnished to the Bank such tax returns, financial
statements, including balance sheets and income statements showing profit (or
loss) and other information about the Debtor's financial condition as the Bank
shall have requested. These financial statements fairly present the financial
condition of the Debtor for the periods then ended, reflect all known
liabilities, direct or contingent of a type required to be set forth on
financial statements, and, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except in the case
of interim financial statements, which are subject to normal year-end audit
adjustments and the addition of footnotes. There has been no material adverse
change in the assets, liabilities, financial condition, business or prospects of
Debtor since the date of the last dated financial statements delivered to the
Bank before the date of this Agreement.
(d) Debtor has good and marketable title to the property and assets
which are reflected on the last dated financial statements and which it purports
to own, other than property and assets that have been disposed of in the
ordinary course of business since the date of such financial statements. All of
the Collateral which Debtor purports to own is owned by the Debtor free and
clear of all liens, pledges, security
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<PAGE> 3
interests and mortgages, except for liens, pledges, security interests or
mortgages in favor of the Bank or liens, pledges, security interests or
mortgages previously disclosed to the Bank in writing or permitted by the Notes.
No effective financing statement covering the Collateral or any proceeds thereof
is on file in any public office except those disclosed in writing to the Bank or
permitted by the Notes.
(e) There is no suit or proceeding at law or in equity pending or, to
the knowledge of the Debtor, threatened against the Debtor or any of its
properties which, if adversely determined, would materially impair the rights of
the Debtor to carry on its business substantially as it is now being conducted
or would have a materially adverse effect upon the financial condition of the
Debtor. The Debtor is not a party to any document, agreement or instrument, and
is not subject to any charge, order or other restriction, materially and
adversely affecting its business, properties, assets, operations or condition,
financial or otherwise, except as previously disclosed to the Bank in writing.
(f) Debtor has filed all federal, state and local tax returns and other
reports it is required by law to file and has paid all taxes and other charges
that are due and payable, other than taxes which are being contested in good
faith and by appropriate proceedings.
(g) Debtor is not in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any document, agreement or instrument to which Debtor is
a party, except for defaults in purchase or sale orders or other agreements
which neither individually nor in the aggregate have a materially adverse effect
on the Debtor.
(h) Debtor has not, during the preceding five (5) years, changed its
name, been a party to a merger, or used any other corporate or fictitious name
except as previously described to the Bank in writing.
(i) The Debtor's chief executive office, is the location set forth at
the beginning of this Agreement. The Collateral other than any motor vehicles or
other movable equipment is now and will continue to be kept at the location set
forth at the beginning of this Agreement and the following additional locations
until such time as the written consent of the Bank to a change in location is
received:
(i) Route 104, Winterbrook Way, Meredith, New Hampshire; (ii) Mills
Falls Marketplace, Meredith, New Hampshire; (iii) Settlers Green, North
Conway, New Hampshire; (iv) 279 Great Road, Bedford, Massachusetts; (v)
Lexington Road, Laconia, New Hampshire. Records concerning the
Collateral located at all such locations.
II. COVENANTS OF DEBTOR
The Debtor hereby agrees and covenants that:
(a) Debtor will keep the Collateral free from all liens, security
interests and encumbrances except for the security interest granted herein or
those permitted by the Notes or otherwise specifically permitted, in writing,
and will defend the Collateral against all claims and demands of all persons at
any time claiming any interest therein. The Debtor will not sell or otherwise
transfer the Collateral or any interest therein except in the ordinary course of
business.
(b) Debtor will not change its name without giving the Bank 30 days
prior written notice in which it sets forth its new name and the date on which
the new name shall first be used. Debtor shall maintain its chief executive
office or if the Debtor is an individual with no place of business, its
residence, at the address set forth in the beginning of this Agreement. Debtor
shall, at all times, keep the Bank accurately informed in writing of each
location where the Debtor's assets are kept and of each of its places of
business and Debtor shall not remove any records to another state or change the
location or open or close, move or change any existing or new place of business
without giving the Bank at least thirty (30) days' prior written notice thereof.
(c) Debtor will, at its expense, furnish to the Bank, upon Bank's
demand, such further information, will execute and deliver to the Bank such
financing statements and other agreements, instruments or documents, and will do
all such acts as the Bank may, at any time
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<PAGE> 4
or from time to time, reasonably request, or as may be necessary or appropriate
to establish and maintain a valid and enforceable first security interest of the
Bank in the Collateral.
(d) Debtor will keep the Collateral (to the extent that it consists of
tangible property) at all times insured against risks of loss or damage by fire
(including so-called extended coverage), theft and such other casualties as the
Bank may reasonably require, including collision in the case of any motor
vehicle, all in such amounts, under such forms of policies, under such terms,
for such periods and written by such companies or underwriters as the Bank may
approve, which approval may not be unreasonably withheld, losses in all cases to
be payable first to the Bank "as its interest may appear." All policies of
insurance shall provide for at least thirty (30) days' prior written notice of
cancellation to the Bank, and the Debtor shall furnish the Bank with
certificates of such insurance or other evidence satisfactory to the Bank as to
compliance with the provisions of this paragraph. After the occurrence and
during the continuance of an Event of Default, Debtor hereby irrevocably
appoints the Bank to act as attorney-in-fact for the Debtor in making, adjusting
and settling claims under such policies of insurance or endorsing the Debtor's
name on any drafts drawn by insurers of the Collateral or any other document to
effect collection.
(e) Debtor will notify the Bank in writing promptly upon its learning
of any event, condition, loss, damage, litigation, administrative proceeding or
other circumstance which may materially and adversely affect the assets,
liabilities, financial condition, business or prospects of the Debtor or the
Bank's security interest in the Collateral. In the event that the Bank, in its
sole discretion, shall determine that there has been any loss, damage or
material diminution in the value of the Collateral, the Debtor will, whenever
the Bank requests, pay to the Bank to be applied against the Obligations such
amounts as the Bank, in its sole discretion, shall have determined represents
such loss, damage or material diminution in value (any such payment not to
affect the Bank's security interest in such Collateral).
(f) Debtor will keep the Collateral in good order and repair, will not
waste or destroy the Collateral or any part thereof and will not use the
Collateral in violation of any applicable statute, ordinance or policy of
insurance thereon. The Bank may examine and inspect the Collateral, the Debtor's
books and records and any documents or instruments relating to the Collateral at
any reasonable time or times wherever located.
(g) Debtor will preserve and keep in force its existence and will
promptly pay all lawful taxes and assessments, except taxes and assessments
being contested in good faith and by appropriate proceedings. Unless the Bank
consents in writing, and except to the extent otherwise permitted by the Notes,
this Security Agreement or any of the other documents executed in connection
therewith or herewith, the Debtor will not (i) incur indebtedness for borrowed
money or issue or sell any obligations of the Debtor, other than indebtedness to
the Bank or indebtedness subordinated in payment and priority to the Bank in
writing and in form satisfactory to the Bank, (ii) sell any of its assets other
than inventory in the ordinary course of its business and other assets related
to the Carroll Read business, (iii) incur, create or assume or suffer to exist
any security interest, mortgage, pledge, lien or other encumbrance on its assets
other than those in favor of the Bank, (iv) enter into or permit to exist any
agreement, arrangement or understanding with any person or entity other than the
Bank which restricts or prohibits the Debtor from incurring or suffering to
exist any security interest, mortgage, pledge, lien or other encumbrance on its
assets or (v) guarantee or otherwise in any way become responsible for
obligations of others except for the endorsement of instruments for deposit or
collection in the ordinary course of business.
(j) At its option, but without obligation to do so, the Bank may
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral; may place and pay for insurance on the
Collateral; may order and pay for the repair, maintenance and preservation of
the Collateral; and may pay any fees for filing or recording such instruments or
documents as may be necessary or desirable to perfect the security interest
granted herein. The Debtor agrees to reimburse the Bank on demand for any
payment made or any expense incurred by the Bank pursuant to the foregoing
authorization, and all such payments and expenses shall constitute part of the
principal amount of Obligations hereby secured and shall bear interest at the
highest rate payable on the Obligations of the Debtor to the Bank.
(k) If the Debtor shall create, assume or permit to exist any lien,
pledge, security interest, mortgage or encumbrance upon any of its property or
assets whether now owned or hereafter acquired, other than liens, pledges,
security interests, mortgages or encumbrances
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<PAGE> 5
existing as of the date hereof and disclosed to the Bank in writing or permitted
pursuant to this or any agreement related to the Obligations, it will secure the
Obligations or cause them to be secured by any such lien, pledge, security
interest, mortgage or encumbrance equally and ratably with any and all
indebtedness thereby secured.
(l) If any part of the Collateral is a fixture, the Debtor will, on
demand, use reasonable efforts to furnish the Bank with a disclaimer or release
signed by all persons having an interest in the real estate or any interest in
the Collateral which is prior to the Bank's interest.
III. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default" under this Security Agreement:
(a) The failure of the Debtor to pay when due, whether by acceleration
or otherwise, any part of the Obligations beyond any period of grace provided
with respect thereto;
(b) The failure of the Debtor to perform, keep or observe any other
term, provision, condition, covenant, warranty or representation contained in
this Security Agreement or in any of the Notes and the continuance of such
failure unremedied for a period of thirty (30) days after notice (if notice is
required pursuant to the operative documents) of such failure has been received
by the Debtor from the Bank;
(c) Any warranty, representation or statement made or furnished to the
Bank by or on behalf of the Debtor proves at anytime not to have been true and
correct in any material respect when made;
(d) The (i) occurrence of any material loss, theft, damage or
destruction of, or (ii) issuance or making of any levy, seizure, attachment,
execution or similar process on, a material portion of the Collateral or a
material portion of Debtor's property;
IV. REMEDIES
After the occurrence of an Event of Default and during the continuance
thereof, the Bank shall have the following rights and remedies:
(a) All of the rights and remedies of a secured party under the Uniform
Commercial Code in effect from time to time in the state referred to in the
Bank's address set forth at the beginning of this Agreement (the "Uniform
Commercial Code") or any other applicable law or at equity, all of which rights
and remedies shall be cumulative and non-exclusive, to the extent permitted by
law, in addition to any other rights and remedies contained in this Security
Agreement or in any document, instrument or agreement evidencing, governing or
securing the Obligations.
(b) The right to (i) take possession of the Collateral, without resort
to legal process and without prior notice to Debtor, and for that purpose Debtor
hereby irrevocably appoints the Bank its attorney-in-fact to enter upon any
premises on which the Collateral or any part thereof may be situated and remove
the Collateral therefrom, or (ii) require the Debtor to assemble the Collateral
and make it available to Bank in a place to be designated by the Bank, in its
sole discretion. The Debtor shall make available to the Bank all premises,
locations and facilities necessary for the Bank's taking possession of the
Collateral or for removing or putting the Collateral in saleable form.
(c) The right to sell or otherwise dispose of all or any part of the
Collateral by public or private sale or sales. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Bank will give the Debtor at least five (5)
days' prior written notice of the time and place of any public sale thereof or
of the time after which any private sale or any other intended disposition
(which may include, without limitation, a public sale or lease of all or part of
the Collateral) is to be made. The
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<PAGE> 6
Debtor agrees that 5 days is a reasonable time for such notice. The Bank, its
employees, attorneys and agents may bid and become purchasers at any such sale,
if public, and may purchase at any private sale any of the Collateral that is of
a type customarily sold on a recognized market or which is subject to widely
distributed standard price quotations. Any public or private sale shall be free
from any right of redemption which the Debtor waives and releases. If there is a
deficiency after such sale and the application of the net proceeds from such
sale, the Debtor shall be responsible for the same, with interest.
(d) The right (and Debtor irrevocably appoints the Bank as
attorney-in-fact for the Debtor for this purpose, such appointment being coupled
with an interest), without prior notice to Debtor and without resort to legal
process, to notify the persons liable for payment of the Accounts at any time
and direct such persons to make payments directly to the Bank, and to perform
all acts the Debtor could take to collect on the Account, including, but without
limitation, the right to notify postal authorities to change the address for
delivery, open mail, endorse checks, bring collection suits, and realize upon
Collateral securing the Accounts. At the Bank's request, all bills and
statements sent by the Debtor to the persons liable for payments of the Accounts
shall state that they have been assigned to, and are solely payable to, the
Bank, and Debtor shall direct persons liable for the payment of the Accounts to
pay directly to the Bank any sums due or to become due on account thereof.
(e) The right without demand or notice to apply and set off any or all
of the Deposits and Securities against, any and all Obligations.
V. WAIVERS
(a) DEBTOR (i) ACKNOWLEDGES THAT THIS AGREEMENT IS PART OF A COMMERCIAL
TRANSACTION AND (ii) TO THE EXTENT PERMITTED BY ANY STATE OR FEDERAL LAW, WAIVES
THE RIGHT IT MAY HAVE TO PRIOR NOTICE OF AND A HEARING ON THE RIGHT OF ANY
HOLDER OF ANY AND ALL LOANS AND OTHER TRANSACTIONS SECURED HEREBY TO ANY REMEDY
OR COMBINATION OF REMEDIES THAT ENABLES SAID HOLDER, BY WAY OF ATTACHMENT,
FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN, TO DEPRIVE DEBTOR OF ANY OF ITS
PROPERTY, AT ANY TIME, PRIOR TO FINAL JUDGMENT IN ANY LITIGATION INSTITUTED IN
CONNECTION WITH THIS AGREEMENT.
(b) THE BANK AND DEBTOR IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY
IN ANY PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST THE BANK OR THE DEBTOR IN
RESPECT OF THIS AGREEMENT, ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING,
GOVERNING OR SECURING THE OBLIGATIONS HEREBY SECURED OR THE COLLATERAL.
(c) THE DEBTOR WAIVES NOTICE OF NON-PAYMENT, DEMAND, PRESENTMENT,
PROTEST OR NOTICE OF PROTEST OF THE COLLATERAL AND ALL OTHER NOTICES, CONSENTS
TO ANY RENEWALS OR EXTENSIONS OF TIME OF PAYMENT THEREOF AND GENERALLY WAIVES
ANY AND ALL SURETYSHIP DEFENSES AND DEFENSES IN THE NATURE THEREOF.
VI. GENERAL
(a) No waiver by the Bank of any failure to pay or perform shall be
effective unless in writing nor operate as a waiver of any other failure to pay
or perform or of the same failure to pay or perform on a future occasion, nor
shall the failure or delay of the Bank to exercise, or the partial exercise of,
any right, power or privilege provided for hereunder in any circumstances
preclude the full exercise of such right, power or privilege in the same or
similar circumstances in the future or the exercise of any other right or
remedy.
(b) This Security Agreement is intended as the final, complete and
exclusive statement of the provisions contained in this Security Agreement. No
amendment, modification, termination or waiver of any provision of this Security
Agreement or consent to any departure
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<PAGE> 7
by the Debtor therefrom shall, in any event, be effective unless the same shall
be in writing and signed by the Bank. Any waiver of, or consent to any departure
from, any provision of this Security Agreement shall be effective only in the
specific instance of and for the specific purpose for which it is given, and
shall not be deemed to extend to similar situations or to the same situation at
a subsequent time. No notice to or demand upon the Debtor shall in any case
entitle Debtor to any other or further notice or demand in similar or other
circumstances.
(c) All rights of the Bank hereunder shall inure to the benefit of its
successors and assigns, and all obligations of the Debtor shall bind the heirs,
legal representatives, successors and assigns of Debtor.
(d) Debtor will pay to the Bank on demand any and all costs and
expenses, including attorney's fees, costs and expenses relating to the
appraisal and/or valuation of assets and all costs and expenses incurred or paid
by the Bank in exercising, collecting, establishing, defending, preserving,
protecting, administering or enforcing any of its rights in the Collateral or
under any of the Obligations.
(e) This Agreement and the security interest created hereby shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
(f) Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall to any extent be held invalid or
unenforceable, then only such provision shall be deemed ineffective and the
remainder of this Agreement shall not be affected.
(h) Debtor hereby acknowledges receipt of a full completed copy of this
Security Agreement.
IN WITNESS WHEREOF, Debtor has duly authorized and executed this
Agreement as a sealed agreement this 4th day of November , 1996.
WITNESS: DEBTOR:
/s/ David R. Pierson
DM Management Company
By: Olga L. Conley
---------------------------
VP of Finance
BANK:
FLEET NATIONAL BANK
By: /s/ Luke G. Tsokanis
----------------------------
Print name: Luke G. Tsokanis
Title: Vice President
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<PAGE> 1
PLEDGE AGREEMENT
- --------------------------------------------------------------------------------
November 4, 1996
----------------
Date
1. To secure the prompt, punctual, and faithful performance of
all and each of the Liabilities (as that term is defined herein) of DM
Management Company (hereinafter, the "Borrower") to Fleet National Bank, a
national banking association with office at One Federal Street, Boston,
Massachusetts (herein after, the "Bank"), DM Management Security Corporation,
(the "Pledgor"), the wholly owned subsidiary of the Borrower, hereby grants to
the Bank a security interest in and to, and assigns, pledges, and delivers to
the Bank the following property, and all products, proceeds, substitutions,
additions, interest, dividends, and other distributions (including, without
limitation, stock splits) in respect thereto, and all books, records, and papers
relating to the foregoing (all of which is referred to hereinafter as the
"Collateral"):
Account #0123680070 maintained with the Bank
2. The Pledgor represents that the Collateral is held and owned
by the Pledgor free and clear of all liens, encumbrances, attachments, security
interests, pledges, and charges, other than those in favor of the Bank and those
permitted by the Notes (as hereafter defined), and if the Collateral is
securities, is fully paid for and nonassessable.
3. The Pledgor shall
(a) execute all such instruments, documents, and papers,
and will do all such acts as the Bank may request from time to time to
carry into effect the provisions and intent of this Agreement,
including, without limitation, the execution of stop transfer orders,
stock powers, noti fications to obligors on the Collateral, the
providing of notifications in connection with book entry securities or
general intangibles, and the providing of instructions to the issuers
of uncertificated securities, and will do all such other acts as the
Bank may request with respect to the perfection and protection of the
security interest granted herein and the assignment effected hereby;
(b) keep the Collateral free and clear of all liens,
encumbrances, attachments, security interests, pledges, and charges
other than those in favor of the Bank and those permitted by the Notes
(as hereafter defined);
(c) deliver to the Bank, if and when received by the
Pledgor, any item representing or constituting any of the Collateral,
including, without limitation, all unreinvested cash dividends and all
stock certificates whether now existing or hereafter received as a
result of any stock dividends, stock splits or other transaction;
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<PAGE> 2
(d) upon the request of the Bank, cause the issuer of any
uncerti ficated securities comprising any of the Collateral to issue
certificates with respect thereto;
(e) upon the request of the Bank, cause certificated
securities comprising any of the Collateral to be issued in the name of
the Bank, as pledgee;
(f) not cause or permit any of the Collateral presently
evidenced by written certificates to be converted to uncertificated
securities;
(g) not exercise any right with respect to the Collateral
which would dilute or adversely affect the Bank's rights in the
Collateral;
(h) not file any affidavit for replacement of lost stock
certifi cates or bonds; and
(i) not vote the Collateral in favor of or consent to any
resolu tion which might
(i) impose any restrictions upon the sale, transfer, or
disposition of the Collateral; or
(ii) result in the issuance of any additional shares of
stock of any class; or
(iii) vest additional powers, privileges, preferences, or
priorities to any other class of stock.
4. Upon the occurrence of any one or more of the following events
of default (herein, "Events of Default"), the Bank may exercise the Bank's
rights and remedies upon default: (a) The failure by the Borrower to pay upon
demand (or when due, if not payable on demand), and after the expiration of any
applicable grace or cure periods, any of the Liabilities; (b) The failure by the
Borrower or the Pledgor to promptly, punctually, and faithfully perform,
discharge, or comply with any Liability, after the expiration of any applicable
grace or cure periods.
5. Upon the occurrence of any Event of Default, and at any time
there after, while such Event of Default is continuing, the Bank shall have all
of the rights and remedies of a secured party upon default under the Uniform
Commercial Code as adopted in Massachusetts, in addition to which the Bank may
sell or otherwise dispose of the Collateral and/or enforce and collect the
Collateral (including, without limitation, the liquidation of debt instruments
or securities and the exercise of conversion rights with respect to convertible
securities, whether or not such instruments or securities have matured and
whether or not any penalties or other charges are imposed on account of such
action), for application towards (but not necessarily in complete satisfaction
of) the Liabilities. The Borrower shall remain liable to the Bank for any
deficiency remaining following such application. Unless the Collateral is
perishable, threatens to decline speedily in value, or is of a type customarily
sold on a recognized market (in which event the Bank shall give the Pledgor such
notice as may be practicable under the circumstances), the Bank shall give the
Pledgor at
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<PAGE> 3
least the greater of the minimum notice required by law or seven (7) days prior
written notice of the date, time, and place of any public sale thereof or of the
time after which any private sale or any other intended disposition is to be
made. The Pledgor acknowledges that any exercise by the Bank of the Bank's
rights upon default may be subject to compliance by the Bank with any statute,
regulation, ordinance, directive, or order of any federal, state, municipal, or
other governmental authority, including, without limitation, any of the
foregoing restricting the sale of securities. The Bank, in its sole discretion
at any such sale, may restrict the prospective bidders or purchasers as to their
number, nature of business and investment intention, and impose without
limitation, a re quirement that the persons making such purchases represent and
agree, to the satisfaction of the Bank, that they are purchasing the Collateral
for their own account, for investment, and not with a view to the distribution
or resale thereof. The proceeds of any collection or of any sale or disposition
of the Collateral held pursuant to this Agreement shall be applied towards the
Liabili ties in such order and manner as the Bank determines in its sole
discretion, any statute, custom, or usage to the contrary notwithstanding.
6. The Pledgor hereby designates the Bank as and for the
attorney-in-fact of the Pledgor to: endorse in favor of the Bank any of the
Collateral; cause the transfer of any of the Collateral in such name as the Bank
may, from time to time, determine; cause the issuance of certificates for book
entry and/or uncertificated securities; renew, extend, or roll over any
Collateral; and make demand and initiate actions to enforce any of the
Collateral. The Bank may take such action with respect to the Collateral as the
Bank may reasonably determine to be necessary to protect and preserve its
interest in the Collateral. The Bank shall also have and may exercise at any
time all rights, remedies, powers, privileges, and discretions of the Pledgor
with respect to and under the Collateral, provided, however, the Bank shall have
no right to exercise any voting rights available to holders of the Collateral at
any time the Collateral is held by the Bank solely as pledgee hereunder, and
whether or not an Event of Default has occurred. All of the rights, remedies,
powers, privileges and discretions included in this Paragraph 6, may be
exercised by the Bank only after the occurrence of an Event of Default and
during the continuance thereof. The within designation, being coupled with an
interest, is irrevocable until the within instrument is terminated by a written
instrument executed by a duly authorized officer of the Bank. The power of
attorney shall not be affected by subsequent disability or incapacity of the
Pledgor. The Bank shall not be liable for any act or omission to act pursuant to
this Paragraph except for any act or omission to act which is in actual bad
faith, is negligent or constitutes willful misconduct.
7. The rights, remedies, powers, privileges, and discretions of
the Bank hereunder (hereinafter, the "Bank's Rights and Remedies") shall be
cumulative and not exclusive of any rights, remedies, powers, privileges or
discretions which it otherwise may have. No delay or omission by the Bank in
exercising or enforcing any of the Bank's Rights and Remedies shall operate as,
or constitute, a waiver thereof. No waiver by the Bank of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement. No exercise of any of the
Bank's Rights and Remedies and no other agreement or transaction of whatever
nature entered into between the Bank and the Pledgor at any time shall preclude
any other exer cise of the Bank's Rights and Remedies. No waiver by the Bank of
any of the
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<PAGE> 4
Bank's Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. All of the
Bank's Rights and Remedies and all of the Bank's rights, remedies, powers,
privileges, and discretions under any other agreement or transaction are
cumulative and not alternative or exclusive and may be exercised by the Bank at
such time or times and in such order of preference as the Bank in its sole
discretion may determine.
8. As used herein, the following terms have the following
meanings:
(a) "Liability" and "Liabilities" means and refers to the
Borrower's $8,000,000.00 Commercial Promissory Grid Note, $3,600,000.00
Commercial Promissory Grid Note, and $400,000.00 Commercial Promissory
Time Note, each of even date, as amended (collectively, the "Notes").
"Liabilities" also means and refers to all interest and other amounts
which may be charged to the Borrower and/or which may be due from the
Borrower to the Bank from time to time on the Notes. "Liabilities" also
means and refers to any and all obligations of the Pledgor and the
Borrower to act or to refrain from acting in accordance with the terms,
provisions, and covenants of the Notes and this Agreement.
(b) "Costs of Collection" includes, without limitation, all
attorneys' reasonable fees, and out-of-pocket expenses incurred by the
Bank's attorneys, and all costs incurred by the Bank in the
administration of the Liabilities, this Agreement, and all other
instruments and agreements executed in connection with or relating to
the Liabilities including, without limitation, costs and expenses
associated with travel on behalf of the Bank. Costs of Collection also
includes, without limitation, all attorneys' fees, out-of-pocket
expenses incurred by the Bank's attorneys, and all costs and expenses
incurred by the Bank, includ ing, without limitation, costs and
expenses associated with travel on behalf of the Bank, which costs and
expenses are directly or indirectly related to or in respect of the
Bank's efforts to preserve, protect, collect, or enforce the
Collateral, the Liabilities and/or the Bank's Rights and Remedies or
any of the Bank's rights and remedies against or in respect of the any
guarantor or other person liable in respect of the Liabilities (whether
or not suit is instituted in connection with such efforts). The Costs
of Collection shall be added to the Liabilities of the Borrower to the
Bank, as if such had been lent, advanced, and credited by the Bank to,
or for the benefit of, the Borrower.
9. The Pledgor and the Borrower each (a) waives presentment,
demand, notice, and protest with respect to the Liabilities and the Collateral;
and (b) waives any delay on the part of the Bank without notice to or consent
from the Pledgor; (c) assents to any indulgence or waiver which the Bank may
grant or give any other person liable or obliged to the Bank for or on the
Liabilities without notice to or consent from the Pledgor; and (d) authorizes
the Bank to alter, amend, cancel, waive, or modify any term or condition of the
obligations of any other person liable or obligated to the Bank for or on the
Liabilities, without notice to or consent from the Pledgor; and (e) agrees that
no release of any property securing the Liabilities, without notice to or
consent from the Pledgor, shall affect the rights of the Bank with respect to
the Collateral hereunder; and
-4-
<PAGE> 5
if entitled thereto, (f) waives the right to notice and/or hearing prior to the
Bank's exercising of the Bank's rights and remedies hereunder upon default.
10. The Bank shall have no duty as to the collection or protection
of the Collateral or any income or distribution thereon, beyond the safe custody
of such of the Collateral as may come into the possession of the Bank and shall
have no duty as to the preservation of rights against prior parties or any other
rights pertaining thereto. The Bank's Rights and Remedies may be exercised
without resort or regard to any other source of satisfaction of the Liabilities.
11. This Agreement shall be binding upon the Pledgor and upon the
Pledgor's heirs, executors, administrators, representatives, successors, and
assigns, and shall inure to the benefit of the Bank and the Bank's successors
and assigns.
12. This Agreement and all other instruments executed in
connection with the Liabilities incorporate all discussions and negotiations
between the Pledgor and the Bank concerning the matters included herein and in
such other instruments. No such discussions or negotiations shall limit, modify,
or otherwise affect the provisions hereof. No modification, amendment, or waiver
of any provision of the within Agreement or of any provision of any other
agreement between the Pledgor and the Bank shall be effective unless executed in
writing by a duly authorized officer of the party to be charged with such
modification, amendment of waiver.
13. This Agreement and all other documents in the Bank's
possession which relate to the Liabilities may be reproduced by the Bank by any
photographic, photostatic, microfilm, micro-card, miniature photographic,
xerographic, or similar process, and, with the exception of instruments
constituting the Collateral, the Bank may destroy the original from which any
document was so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business) and any enlargement,
facsimile, or further repro duction shall likewise be admissible in evidence.
14. This Agreement, and all rights and obligations hereunder,
including matters of construction, validity, and performance, shall be governed
by the laws of The Commonwealth of Massachusetts. The Pledgor submits to the
jurisdiction of the courts of said Commonwealth for all purposes with respect to
the within Agreement and the Pledgor's relationships with the Bank.
-5-
<PAGE> 6
15. It is intended that this Agreement take effect as a sealed
instrument.
Signed in my Presence DM MANAGEMENT COMPANY
---------------------
(Borrower)
/s/ David R. Pierson By: /s/ Olga L. Conley
- ------------------------------------ -----------------------------------
David R. Pierson Olga L. Conley
Print Name:------------------------- Print Name:---------------------------
VP of Finance
Title:--------------------------------
DM MANAGEMENT SECURITY CORPORATION
----------------------------------
(Pledgor)
By: /s/ Olga L. Conley
-----------------------------------
Print Name: Olga L. Conley
---------------------------
Title: Treasurer
-------------------------------
6
<PAGE> 1
EXHIBIT 11.1
DM MANAGEMENT COMPANY AND SUBSIDIARY
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 28, 1996
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
------------- -------------
Primary
- -------
<S> <C> <C>
Weighted average shares of common stock outstanding during the period ... 4,311,779 4,261,553
Adjustments:
Assumed exercise of options .......................................... 418,624 304,693
--------- ---------
4,730,403 4,566,246
========= =========
<CAPTION>
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
------------ -------------
Fully Diluted
- -------------
<S> <C> <C>
Weighted average shares of common stock outstanding during the period ... 4,311,779 4,261,553
Adjustments:
Assumed exercise of options .......................................... 418,680 304,693
--------- ---------
4,730,459 4,566,246
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT SEPTEMBER 28, 1996 AND FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 28,
1996 CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<CIK> 0000910721
<NAME> DM MANAGEMENT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<EXCHANGE-RATE> 1
<CASH> 296
<SECURITIES> 3,862
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 10,200
<CURRENT-ASSETS> 20,148
<PP&E> 6,994
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,142
<CURRENT-LIABILITIES> 12,627
<BONDS> 4,769
<COMMON> 43
0
0
<OTHER-SE> 9,703
<TOTAL-LIABILITY-AND-EQUITY> 27,142
<SALES> 20,541
<TOTAL-REVENUES> 20,541
<CGS> 12,114
<TOTAL-COSTS> 12,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 278
<INCOME-TAX> 28
<INCOME-CONTINUING> 250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
