<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 10-Q
( MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 02043
HINGHAM, MA (ZIP Code)
(Address of Principal Executive Offices)
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 |_|
Shares outstanding of the Registrant's common stock (par value $0.01) at
August 4, 1997: 4,667,854
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<PAGE> 2
DM MANAGEMENT COMPANY & SUBSIDIARY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements..............................................................................3-8
Consolidated Balance Sheets at June 28, 1997, June 29, 1996 and December 28, 1996................................3
Consolidated Statements of Operations for the three months and the six months ended June 28, 1997 and
June 29, 1996 .............................................................................................4
Consolidated Statements of Cash Flows for the six months
ended June 28, 1997 and June 29, 1996......................................................................5
Notes to Consolidated Financial Statements.....................................................................6-8
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations............9-12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............................................................13
Item 6. Exhibits and Reports on Form 8-K................................................................................14
Signature.........................................................................................................................15
</TABLE>
2
<PAGE> 3
DM MANAGEMENT COMPANY & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, DECEMBER 28,
ASSETS 1997 1996 1996
------------- ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................................. $ 6,388 $ 221 $ 384
Marketable securities, net of unrealized loss ............................. 3,872 3,858 3,879
Inventory ................................................................. 11,279 10,866 12,637
Prepaid catalog expenses .................................................. 3,870 4,154 2,714
Deferred income taxes ..................................................... 2,748 -- 2,670
Other current assets ...................................................... 779 1,098 724
-------- -------- --------
Total current assets ................................................. 28,936 20,197 23,008
Property and equipment, net .................................................... 7,033 6,872 7,173
Deferred income taxes .......................................................... 7,026 -- 7,928
-------- -------- --------
Total assets ......................................................... $ 42,995 $ 27,069 $ 38,109
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 8,164 $ 9,651 $ 8,143
Accrued expenses .......................................................... 2,709 1,438 1,877
Accrued customer returns .................................................. 3,423 1,231 1,309
Current portion of long-term debt ........................................ 836 889 1,017
-------- -------- --------
Total current liabilities ............................................ 15,132 13,209 12,346
Long-term debt ................................................................. 4,446 4,380 4,540
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,
4,661,254, 4,305,293 and 4,456,908 shares issued and outstanding as of
June 28, 1997, June 29, 1996 and December 28, 1996,
respectively ......................................................... 46 43 44
Additional paid-in capital ................................................ 40,501 39,890 40,048
Unrealized loss on marketable securities .................................. (122) (136) (115)
Accumulated deficit ....................................................... (17,008) (30,317) (18,754)
-------- -------- --------
Total stockholders' equity ........................................... 23,417 9,480 21,223
-------- -------- --------
Total liabilities and stockholders' equity ........................... $ 42,995 $ 27,069 $ 38,109
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE> 4
DM MANAGEMENT COMPANY & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- -------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ........................................... $ 32,885 $ 21,582 $ 57,428 $ 41,318
Costs and expenses:
Product ........................................ 14,563 9,507 25,415 17,769
Operations ..................................... 5,912 3,701 10,213 7,092
Selling ........................................ 7,822 6,201 14,136 11,997
General and administrative ..................... 2,606 1,512 4,734 3,397
Interest, net .................................. 7 55 68 179
-------- -------- -------- --------
Income from continuing operations before income taxes 1,975 606 2,862 884
Provision for income taxes .......................... 770 61 1,116 89
-------- -------- -------- --------
Income from continuing operations ................... 1,205 545 1,746 795
Discontinued operations:
Loss from operations ........................... -- (490) -- (476)
Loss on disposal ............................... -- (8,511) -- (8,511)
-------- -------- -------- --------
Loss from discontinued operations .............. -- (9,001) -- (8,987)
-------- -------- -------- --------
Net income (loss) ................................... $ 1,205 $ (8,456) $ 1,746 $ (8,192)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE:
Primary:
Continuing operations .......................... $ 0.23 $ 0.11 $ 0.35 $ 0.17
Discontinued operations ........................ -- (1.90) -- (1.94)
-------- -------- -------- --------
Net income (loss) per share .................... $ 0.23 $ (1.79) $ 0.35 $ (1.77)
======== ======== ======== ========
Weighted-average common and common equivalent shares
outstanding .................................... 5,151 4,737 5,057 4,620
Fully diluted:
Continuing operations .......................... $ 0.23 $ 0.11 $ 0.34 $ 0.17
Discontinued operations ........................ -- (1.87) -- (1.92)
-------- -------- -------- --------
Net income (loss) per share .................... $ 0.23 $ (1.76) $ 0.34 $ (1.75)
======== ======== ======== ========
Weighted-average common and common equivalent shares
outstanding .................................... 5,238 4,795 5,210 4,674
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE> 5
DM MANAGEMENT COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 28, JUNE 29,
1997 1996
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ 1,746 $ (8,192)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation ............................................. 754 478
Deferred income taxes .................................... 824 --
Liability for expected losses ............................ (152) 2,658
Write-off of intangible assets ........................... -- 5,336
Amortization related to discontinued operations .......... -- 189
Changes in assets and liabilities:
(Increase) decrease in inventory ......................... 1,358 (1,012)
(Increase) decrease in prepaid catalog expenses .......... (1,156) 1,512
(Increase) decrease in other current assets ............. 97 (161)
Increase in accounts payable and accrued expenses ........ 853 3,153
Increase in accrued customer returns ..................... 2,114 366
-------- --------
Net cash provided by operating activities ..................... 6,438 4,327
Cash flows used in investing activities:
Additions to property and equipment ...................... (614) (678)
Proceeds from sale of marketable securities .............. -- 6
Payment for purchase of Carroll Reed ..................... -- (907)
-------- --------
Net cash used in investing activities ......................... (614) (1,579)
Cash flows provided by (used in) financing activities:
Borrowings under debt agreements ......................... 5,764 13,109
Payments of debt borrowings .............................. (5,935) (15,918)
Principal payments on capital lease obligations .......... (104) (86)
Proceeds from stock transactions ......................... 455 27
-------- --------
Net cash provided by (used in) financing activities ........... 180 (2,868)
Net increase (decrease) in cash and cash equivalents .......... 6,004 (120)
Cash and cash equivalents at:
Beginning of period ...................................... 384 341
-------- --------
End of period ............................................ $ 6,388 $ 221
======== ========
SUPPLEMENTAL INFORMATION:
Cash paid for interest ........................................ $ 231 $ 292
Cash paid for taxes, including discontinued operations ........ $ 131 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE> 6
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 transition period ended December 28, 1996.
A. DISCONTINUED OPERATIONS:
On May 20, 1996, the Company announced its plan to divest its Carroll Reed
segment. Accordingly, the Carroll Reed segment has been accounted for as a
discontinued operation, and all assets, liabilities, results of operations and
cash flows associated with the Carroll Reed segment have been segregated from
those associated with continuing operations. In connection with this
divestiture, the Company recorded a charge of $8,511,000 for the loss on
disposal of discontinued operations consisting of $5,336,000 related to the
write-off of the remaining unamortized intangible assets and $3,175,000 for
expected losses during the phase-out period. As of June 28, 1997, the Company
had completed the phase-out of its Carroll Reed segment and had substantially
utilized its reserve for expected losses. The results of the Carroll Reed
operations through May 20, 1996 have been classified as a loss from discontinued
operations in the accompanying consolidated statements of operations for the
periods ending June 29,1996.
The net current assets and liabilities of the Carroll Reed segment, which
have been included in other current assets in the accompanying consolidated
balance sheets, are summarized below (in thousands):
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 28,
1996 1996
---------------------------
<S> <C> <C>
Current assets:
Inventory ............................ $2,477 $ --
Prepaid catalog expenses ............. 492 --
Other current assets ................. 149 49
------ ------
Total current assets .............. 3,118 49
------ ------
Current liabilities:
Accounts payable and accrued expenses 286 --
Accrued customer returns ............. 173 9
Liability for expected losses ........ 2,658 231
------ ------
Total current liabilities ......... 3,117 240
------ ------
Net current assets (liabilities)
of discontinued operations ... $ 1 $ (191)
====== ======
</TABLE>
6
<PAGE> 7
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
B. DEBT:
During second quarter 1997, the Company refinanced its existing debt by
entering into a loan agreement with a new bank. The aggregate principal
availability under the new loan agreement totals $13,750,000. At June 28, 1997,
the credit facilities provided for in the new loan agreement consisted of (i) a
$1,650,000 interim loan (the "Interim Loan"); (ii) a $3,600,000 term loan (the
"Term Loan"); (iii) a $6,000,000 revolving line of credit (the "Revolver"); and,
(iv) a $2,500,000 line for the issuance of commercial letters of credit (the
"Letter of Credit Line").
The Interim Loan was replaced by a $1,650,000 real estate loan (the "Real
Estate Loan") on July 30, 1997. Payments on the Real Estate Loan are due
monthly, based on a 15-year amortization, with the remaining balance payable on
July 30, 2002. Interest on the Real Estate Loan is fixed at 6.81% per annum
until August 31, 1999 at which time the Company may select from several interest
rate options. Payments on the Term Loan are due quarterly commencing on
September 2, 1997 through its maturity on June 1, 2002. The Term Loan provides
for several interest rate options. At June 28, 1997 the Term Loan bore interest
at 7.28% per annum. Both the Revolver and the Letter of Credit Line expire on
June 1, 1999. The Revolver also provides for several interest rate options.
There were no outstanding Revolver borrowings at June 28, 1997. Outstanding
letters of credit at June 28, 1997 totaled approximately $1,669,000.
The Company is required to pay a commitment fee of 1/8th of 1% per annum on
the unused portion of the Revolver commitment. All of the credit facilities
under the new loan agreement are collateralized by a first lien mortgage on the
Company's distribution center in Meredith, New Hampshire. The Term Loan is also
collateralized by the Company's marketable securities and substantially all
assets of the Company. The Revolver and the Letter of Credit Line are also
collateralized by substantially all assets of the Company, except the Company's
marketable securities. The terms of the new loan agreement contain various
lending conditions and covenants, including restrictions on permitted liens and
required compliance with certain financial coverage ratios.
A summary of the Company's outstanding credit facilities follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 28, JUNE 29, DECEMBER 28,
1997 1996 1996
------------------------------------------------
<S> <C> <C> <C>
Interim Loan/Real Estate Loan ............ $1,650 $1,476 $1,421
Term Loan ................................ 3,600 -- 4,000
Revolver ................................. -- 3,602 --
Capitalized lease obligations ............ 32 191 136
------ ------ ------
Total debt .......................... 5,282 5,269 5,557
Less current maturities ............. 836 889 1,017
------ ------ ------
Long-term debt ...................... $4,446 $4,380 $4,540
====== ====== ======
</TABLE>
C. NET INCOME (LOSS) PER SHARE:
Net income (loss) per share ("EPS") 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.
D. RECLASSIFICATIONS:
Certain financial statement amounts have been reclassified to be consistent
with current period presentation.
7
<PAGE> 8
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONCLUDED)
E. RECENT ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share," which modifies the way in which EPS
is calculated and disclosed. Currently, the Company discloses primary and fully
diluted EPS. SFAS 128 requires the disclosure of basic and diluted EPS for
financial statements issued for periods ending after December 15, 1997. The
restatement of all prior period EPS data presented is also required upon
adoption. Basic EPS excludes potentially dilutive securities and is computed by
dividing net income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS, similar to
fully diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock that then shared in the earnings of the entity. Early
application of SFAS 128 is not permitted.
The following table summarizes the Company's EPS and weighted-average
common and common equivalent shares outstanding on a pro-forma basis as
calculated under SFAS 128.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ----------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Pro-forma Basic EPS: --------- --------- ---------- -----------
Continuing operations ......................... $ 0.26 $ 0.13 $ 0.39 $ 0.19
Discontinued operations ....................... -- (2.10) -- (2.10)
-------- -------- -------- --------
Net income (loss) per share ................... $ 0.26 $ (1.97) $ 0.39 $ (1.91)
======== ======== ======== ========
Weighted-average common and common equivalent shares
outstanding.................................... 4,548 4,297 4,529 4,292
Pro-forma Diluted EPS:
Continuing operations ......................... $ 0.23 $ 0.11 $ 0.35 $ 0.17
Discontinued operations ....................... -- (1.90) -- (1.94)
-------- -------- -------- --------
Net income (loss) per share ................... $ 0.23 $ (1.79) $ 0.35 $ (1.77)
======== ======== ======== ========
Weighted-average common and common equivalent shares
outstanding ................................... 5,151 4,737 5,057 4,620
</TABLE>
F. COMMITMENTS:
Subsequent to June 28, 1997 the Company signed a letter of intent to
purchase approximately 360 acres of land in Tilton, New Hampshire for
$3,650,000. The site is intended to house an approximately 300,000 square foot
distribution center to be completed by the end of 1998. Construction is expected
to begin promptly. The estimated cost of this new state-of-the-art facility,
including land, construction and equipment, ranges from $20.0 to $25.0 million.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Income from continuing operations before income taxes increased over
225% to $2.0 million for the three months ended June 28, 1997 ("second
quarter 1997") as compared to $0.6 million for the three months ended June
29, 1996 ("second quarter 1996"). Income from continuing operations
increased 121% to $1.2 million for second quarter 1997 from $0.5 million
for second quarter 1996. Income from continuing operations per share was
$0.23 for second quarter 1997, more than twice the $0.11 reported for
second quarter 1996. The Company attributes its profit improvement to
strong customer response to its new business strategies which focus on
creative presentation, merchandise differentiation and brand building. The
Company's J. Jill title performed particularly well during the three months
and six months ended June 28, 1997. In addition, the combination of the
Company's The Very Thing! concept into its Nicole Summers title permitted
the Company to realize certain operational and selling efficiencies during
the three months and six months ended June 28, 1997.
The following table represents the Company's consolidated statements
of operations as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales ........................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Product ........................................ 44.3 44.1 44.3 43.0
Operations ..................................... 18.0 17.1 17.8 17.2
Selling ........................................ 23.8 28.7 24.6 29.1
General and administrative ..................... 7.9 7.0 8.2 8.2
Interest, net .................................. -- 0.3 0.1 0.4
----- ----- ----- -----
Income from continuing operations before income taxes 6.0 2.8 5.0 2.1
Provision for income taxes .......................... 2.3 0.3 2.0 0.2
----- ----- ----- -----
Income from continuing operations ................... 3.7 2.5 3.0 1.9
Loss from discontinued operations ................... -- (41.7) -- (21.7)
----- ----- ----- -----
Net income (loss) ................................... 3.7% (39.2)% 3.0% (19.8)%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 28, 1997 WITH THE THREE MONTHS
ENDED JUNE 29, 1996
Sales and Circulation
Second quarter 1997 net sales increased 52.4% over second quarter 1996
net sales, as catalog circulation, page counts, response rates and average
order size all increased. The Company attributes its increased response
rates and average order size to the creative and merchandising changes it
has implemented, including its use of a "total look" wardrobing concept,
and to its adoption of a more targeted circulation strategy that has cut
back on duplicate mailings while expanding prospecting. Prospecting
circulation as a percent of total circulation increased significantly
compared to last year, as the Company continued its plan to aggressively
grow sales and increase active customer counts.
Product Costs
Product costs as a percentage of net sales were slightly higher for
second quarter 1997 as compared to second quarter 1996 due to increased
promotional activity. In May 1997, the Company circulated a new
promotionally priced edition of its Nicole Summers catalog, designed to
compete with late-in-the-season retail store offerings. This catalog
provided the Company with an opportunity to grow sales by offering new
merchandise at value prices while at the same time serving as an excellent
vehicle to liquidate overstocked in-season merchandise without taking the
deep discounts typically found in a sale book. The resulting impact on the
Company's product cost percentage was partially offset by lower markdown
charges in second quarter 1997 as compared to second quarter 1996.
9
<PAGE> 10
Operations
Operations expense as a percentage of net sales increased in second
quarter 1997 as compared to second quarter 1996 as higher than expected
demand levels resulted in order processing inefficiencies. Backorder
processing costs, including increased packages per order, resulted in
increased postage and handling charges. The Company anticipates that these
order processing inefficiencies will continue into the Fall season. During
second quarter 1997 these order processing inefficiencies were partially
offset by efficiencies achieved from the merger of the Company's The Very
Thing! concept into its Nicole Summers title.
Selling
Improved catalog productivity and lower paper prices resulted in a 4.9
percentage point decline in selling costs as a percentage of net sales in
second quarter 1997 as compared to second quarter 1996.
General and Administrative
General and administrative expenses increased 72.4% for second quarter
1997 over second quarter 1996, from $1.5 million to $2.6 million, primarily
as a result of outside consulting fees for various systems and facilities
projects, increased depreciation and occupancy costs and increased
management infrastructure.
COMPARISON OF THE SIX MONTHS ENDED JUNE 28, 1997 WITH THE SIX MONTHS ENDED
JUNE 29, 1996
Sales and Circulation
Net sales for the six months ended June 28, 1997 increased 39.0% over
the same period in the prior year. Catalog circulation, page counts,
customer response rates and average order size all increased as compared
to the same period a year ago. Creatively distinctive catalog design,
differentiation in merchandising execution and a more targeted circulation
strategy were critical elements affecting the Spring season sales growth.
Prospecting circulation as a percent of total circulation increased
significantly compared to last year, as the Company continued its plan to
aggressively grow sales and increase active customer counts.
Product Costs
Product costs as a percentage of net sales were higher for the six
months ended June 28, 1997 as compared to the six months ended June 29,
1996 due in part to increased promotional activity in the current year. In
order to grow sales and be more competitive with its retail store
competition, the Company began a program to offer in-season merchandise at
promotional, rather that sale, prices. This increased promotional activity
resulted in the increased product cost percentage during the first six
months of 1997 as compared to 1996.
Operations
Operations expense as a percentage of net sales increased for the six
months ended June 28, 1997 as compared to the six months ended June 29,
1996, as order processing costs increased due to higher than expected
demand. Efficiencies achieved as a result of the merger of the Company's
The Very Thing! concept into its Nicole Summers title helped to somewhat
offset these additional costs.
Selling
Increased catalog productivity and lower paper prices resulted in the
4.5 percentage point decrease in selling expenses as a percentage of net
sales during the six months ended June 28, 1997 as compared to the same
period in the prior year.
General and Administrative
General and administrative expenses increased 39.4% for the six months
ended June 28, 1997 compared to the six months ended June 29, 1996, but
were unchanged as a percentage of net sales. The increase in general and
administrative expenses was primarily a result of outside consulting fees
on various systems and facilities projects, increased depreciation and
occupancy costs and increased management infrastructure.
10
<PAGE> 11
INCOME TAXES
The Company provides for income taxes at an effective tax rate that
includes the full federal and state statutory tax rates. Prior to
December 1996, the Company reduced the income tax provision recorded in
its financial statements by recording a tax benefit associated with its
net deferred tax assets, primarily net operating loss carryforwards
("NOL's"). Because of the uncertainty surrounding the realizability of
these assets, the Company placed a valuation allowance against the entire
balance of its net deferred tax assets. As a result, the Company
recognized the associated tax benefit as income was earned. This resulted
in a significantly lower effective tax rate for all periods reported
prior to December 1996.
In December 1996, management determined that it was more likely than
not that the Company would earn sufficient book and taxable income to fully
realize the benefit of its deferred tax assets. This determination required
the Company to remove the valuation allowance and recognize the deferred
tax benefit of $10,598,000 at December 28, 1996 in its entirety. Because,
for financial statement purposes, the benefit associated with the Company's
deferred tax assets has been fully realized, the Company's effective rate
can no longer be reduced by the recognition of this tax benefit over future
periods of income generation. As a result, the Company's tax provision is
substantially larger this year than in the prior year. Cash payments for
income taxes continue to be reduced by available NOL's resulting in cash
payments which are significantly less than the income tax provision
recorded for financial statement purposes during 1997.
DISCONTINUED OPERATIONS
On May 20, 1996, the Company announced its plan to divest its Carroll
Reed segment. Accordingly, the Carroll Reed segment has been accounted for
as a discontinued operation, and all assets, liabilities, results of
operations and cash flows associated with the Carroll Reed segment have
been segregated from those associated with continuing operations. The net
loss from this discontinued operation for 1997 has been charged to the
liability for expected losses established in connection with the
divestiture. As of June 28, 1997, the Company had completed the phase-out
of its Carroll Reed segment and had fully utilized its reserve for expected
losses. The results of operations for the Caroll Reed segment for 1996 have
been classified as income from discontinued operations in the accompanying
consolidated statements of operations.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 28, 1997, the Company funded its
working capital needs through cash generated from operations and through
use of its credit facilities. The Company used working capital to support
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.
During second quarter 1997, the Company refinanced its existing debt
by entering into a loan agreement with a new bank. The aggregate principal
availability under the new loan agreement totals $13,750,000. At June 28,
1997, the credit facilities provided for in the new loan agreement
consisted of (i) a $1,650,000 interim loan (the "Interim Loan"); (ii) a
$3,600,000 term loan (the "Term Loan"); (iii) a $6,000,000 revolving line
of credit (the "Revolver"); and, (iv) a $2,500,000 line for the issuance of
commercial letters of credit (the "Letter of Credit Line").
The Interim Loan was replaced by a $1,650,000 real estate loan (the
"Real Estate Loan") on July 30, 1997. Payments on the Real Estate Loan are
due monthly, based on a 15-year amortization, with the remaining balance
payable on July 30, 2002. Interest on the Real Estate Loan is fixed at
6.81% per annum until August 31, 1999 at which time the Company may select
from several interest rate options. Payments on the Term Loan are due
quarterly commencing on September 2, 1997 through its maturity on June 1,
2002. The Term Loan provides for several interest rate options. At June 28,
1997 the Term Loan bore interest at 7.28% per annum. Both the Revolver and
the Letter of Credit Line expire on June 1, 1999. The Revolver also
provides for several interest rate options. There were no outstanding
Revolver borrowings at June 28, 1997. Outstanding letters of credit at June
28, 1997 totaled approximately $1,669,000.
The Company was considerably more liquid at June 28, 1997 than at June
29, 1996 as cash and cash equivalents totaled $6.4 million versus $0.2
million for the respective periods. Cash used in investing activities was
$614,000 for the six months ended June 28, 1997, and $1.6 million for the
six months ended June 29, 1996. Capital investments for both periods
included additions to property and equipment. In 1996, investing activities
included a final payment for the purchase of Carroll Reed.
11
<PAGE> 12
Inventory levels at June 28, 1997 were only 3.8% higher than at June
29, 1996 due to the timing of receipts of Fall season merchandise. Prepaid
catalog expenses at June 28, 1997 were 6.8% lower than at June 29, 1996.
This decline is primarily attributable to lower paper inventory balances on
hand at June 28, 1997 than at June 29, 1996.
Subsequent to June 28, 1997, the Company signed a letter of intent to
purchase approximately 360 acres of land in Tilton, New Hampshire for
$3,650,000. The site is intended to house an approximately 300,000 square
foot distribution center to be completed by the end of 1998. Construction
is expected to begin promptly. The estimated cost of this new
state-of-the-art facility, including land, construction and equipment
ranges from $20.0 to $25.0 million.
Management intends to use the Company's capital resources to fund the
development and construction of its new distribution center as well as to
upgrade its information systems. Anticipated expenditures to upgrade its
existing information systems are estimated at approximately $2.0 million.
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
capital and operating needs for the foreseeable future.
RECENT ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), "Earnings per Share," which modifies the
way in which earnings per share ("EPS") is calculated and disclosed.
Currently, the Company discloses primary and fully diluted EPS. SFAS 128
requires the disclosure of basic and diluted EPS for financial statements
issued for periods ending after December 15, 1997. The restatement of all
prior period EPS data presented is also required upon adoption. Basic EPS
excludes potentially dilutive securities and is computed by dividing net
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS, similar to fully
diluted EPS, reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock that then shared in the earnings of the entity. Early
application of SFAS 128 is not permitted. See Note E to the accompanying
consolidated financial statements.
FORWARD-LOOKING STATEMENTS
The above discussion includes forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: changes in consumer spending and consumer preferences; general
economic and business conditions; increasing competition in the apparel
industry; success of operating initiatives; possible future increases in
operating costs; advertising and promotional efforts; brand awareness; the
existence or absence of adverse publicity; changes in business strategy;
quality of management; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability of qualified
personnel; labor and employee benefit costs; change in, or the failure to
comply with, government regulations; and other factors.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an Annual Meeting of Stockholders on May 8, 1997. At the
Annual Meeting, the stockholders of the Company voted to approve the following
actions by the following votes:
1. To fix the number of directors that shall constitute the whole Board
of Directors of the Company at six.
Number of Shares
----------------
For............................................. 3,664,454
Against......................................... 5,598
Abstain......................................... 250
2. To elect the following individuals as Directors of the Company:
Withholding
For Authority
--- ---------
CLASS A
William E. Engbers................... 3,514,275 156,027
Samuel L. Shanaman................... 3,509,086 161,216
CLASS B
Ruth M. Owades....................... 3,513,693 156,609
CLASS C
Thomas J. Litle...................... 3,514,275 156,027
3. To amend the 1993 Incentive and Nonqualified Stock Option Plan to
increase the number of shares of common stock that may be issued
pursuant to the options granted thereunder from 700,000 to 1,200,000.
Number of Shares
----------------
For.................................................... 2,097,727
Against................................................ 235,487
Abstain................................................ 850
Broker non-votes....................................... 1,336,238
4. To amend the 1993 Incentive and Nonqualified Stock Option Plan further
to alter the formula stock option grants thereunder to non-employee
directors of the Company.
Number of Shares
----------------
For................................................... 3,413,167
Against............................................... 232,488
Abstain............................................... 1,038
Broker non-votes...................................... 23,609
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) EXHIBITS
CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1 Restated Certificate of Incorporation of the Company (included
as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 25, 1993, File No. 0-22480, and
incorporated herein by reference)
3.2 By-Laws of the Company, as amended (included as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated January 14,
1997, File No. 0-22480, and incorporated herein by reference)
MATERIAL CONTRACTS
10.1 Loan Agreement dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts
10.2 Revolving Note dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts
10.3 Term Note dated June 5, 1997 between the Company and Citizens
Bank of Massachusetts
10.4 Interim Note dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts
10.5 Security Agreement dated June 5, 1997 between the Company
and Citizens Bank of Massachusetts
10.6 Grant of Security Interest in Trademarks dated June 5, 1997
between the Company and Citizens Bank of Massachusetts
10.7 Account Control Agreement dated June 5, 1997 between the
Company and Citizens Bank of Massachusetts
10.8 Real Estate Note dated July 30, 1997 between the Company and
Citizens Bank of Massachusetts
10.9 Mortgage dated July 30, 1997 between the Company and Citizens
Bank of Massachusetts
10.10 Letter of Intent to purchase certain land in Tilton, New
Hampshire, dated July 8, 1997 between the Company and Pike
Industries Inc.
PER SHARE EARNINGS
11.1 Statement re: computation of per share earnings
FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
(2) REPORTS ON FORM 8-K
The Company has not filed any reports on Form 8-K during the quarter
ended June 28, 1997.
14
<PAGE> 15
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: August 11, 1997 By: /S/ Samuel L. Shanaman
------------------------------
Samuel L. Shanaman
Authorized Officer
Executive Vice President,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial Officer)
15
<PAGE> 16
DM MANAGEMENT COMPANY & SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 28, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company
3.2 By-Laws of the Company, as amended
10.1 Loan Agreement dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts 17
10.2 Revolving Note dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts 53
10.3 Term Note dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts 56
10.4 Interim Note dated June 5, 1997 between the Company and
Citizens Bank of Massachusetts 59
10.5 Security Agreement dated June 5, 1997 between the Company
and Citizens Bank of Massachusetts 62
10.6 Grant of Security Interest in Trademarks dated June 5, 1997
between the Company and Citizens Bank of Massachusetts 73
10.7 Account Control Agreement dated June 5, 1997 between the
Company and Citizens Bank of Massachusetts 78
10.8 Real Estate Note dated July 30, 1997 between the Company and
Citizens Bank of Massachusetts 83
10.9 Mortgage dated July 30, 1997 between the Company and
Citizens Bank of Massachusetts 86
10.10 Letter of Intent to purchase certain land in Tilton, New
Hampshire, dated July 8, 1997 between the Company and Pike
Industries Inc. 93
11.1 Statement re: computation of per share earnings 98
27.1 Finciancial Data Schedule 100
</TABLE>
16
<PAGE> 1
LOAN AGREEMENT
This Agreement made as of June 5, 1997, by and between Citizens Bank of
Massachusetts (herein "BANK"), and DM Management Company, a Delaware corporation
(herein "BORROWER").
WITNESSETH:
WHEREAS, the BORROWER has requested the BANK to extend credit to it in an
aggregate principal amount at any one time outstanding of up to but not
exceeding $13,750.000.00 for the purposes of refinancing the indebtedness of the
BORROWER under loans from Fleet Bank and providing for the working capital needs
of the BORROWER; and
WHEREAS, the BANK is willing, on the terms provisions and conditions
contained herein, to extend credit accommodations;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Capitalized words and phrases in this Agreement shall have the
meanings ascribed to them in this Article.
"ACCOUNTANTS" shall mean the independent certified public accountants of
recognized national standing, who are selected and engaged by the BORROWER and
who are reasonably satisfactory to the BANK. Any one of the so-called "Big 6"
national accounting firms shall be satisfactory to the BANK.
"ADJUSTED LIBOR RATE" shall mean, for any INTEREST PERIOD, an interest rate
per annum determined by the BANK pursuant to the following formula:
ADJUSTED LIBOR RATE = LIBOR BASE RATE
---------------
1.00 - RESERVE RATE
"ADVANCE(S)" shall mean the amounts loaned by the BANK to the BORROWER
under Section 2.01 which shall be either LIBOR RATE ADVANCES or PRIME RATE
ADVANCES.
"ADVANCE FORMULA" shall mean the sum of (A) fifty percent (50%) of the
lower of the (i) cost or (ii) market value of ELIGIBLE INVENTORY and (B) One
Million Dollars ($1,000,000.00).
"APPRAISAL" shall mean a written APPRAISAL of the fair market value of the
REAL ESTATE as determined by an independent appraiser selected and engaged by
the BANK AT THE EXPENSE OF THE BORROWER made within sixty (60) days of the date
hereof.
<PAGE> 2
"AVAILABILITY" shall mean the amount determined by application of the
ADVANCE FORMULA.
"AVAILABILITY PERIOD" shall mean the period commencing on the CLOSING DATE
and ending on the TERMINATION DATE.
"BANK" shall mean Citizens Bank of Massachusetts and is successors and
assigns.
"BANK DEPOSIT" shall mean all sums of money on deposit to the credit of the
BORROWER at any bank, trust company, national banking association, savings bank,
savings and loan association or similar institution.
"BANKING DAY" shall mean any BUSINESS DAY on which banks are open for
business in Boston, Massachusetts.
"BANK'S OFFICE" shall mean the office of the BANK located at 55 Summer
Street, Boston, Massachusetts 02110 or such other office of the BANK as the BANK
shall, from time to time, designate by notice to the BORROWER.
"BORROWER" is defined in the Recitals.
"BORROWING" shall mean the making of an ADVANCE.
"BORROWING DATE" shall mean that date on which an ADVANCE is made.
"BORROWING REQUEST" shall mean a request by the BORROWER for a BORROWING.
"BUSINESS DAY" shall mean a calendar day other than (a) a Saturday, Sunday
or legal holiday in The Commonwealth of Massachusetts, and (b) a calendar day on
which banks are not authorized to be open for business in Boston, Massachusetts.
"CAPITALIZED LEASE OBLIGATION(S)" shall mean all rental obligations which,
under GAAP, are required to be capitalized on the books of the BORROWER in each
case taken at the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with GAAP.
"CATALOG(S)" shall mean the CATALOGS and other written offerings of
INVENTORY made by the BORROWER to the general public from time to time and all
rights therein.
"CLOSING" is defined in Article XVI.
"CLOSING DATE" shall mean the date, on or before September 21, 1997 on
which each of the conditions precedent specified herein for the Closing hereof
have been satisfied and a Closing is held.
"CODE" shall mean the Internal Revenue Code of 1986, as amended,
supplemented or modified from time to time, and all regulations issued
thereunder.
"COLLATERAL" shall mean all of BORROWER'S personal property, tangible or
intangible, including without limitation all accounts, BANK DEPOSITS, DOCUMENTS,
INVENTORY, general intangibles, equipment, contracts, CUSTOMER
-2-
<PAGE> 3
LISTS, INVESTMENT PROPERTY, LEASES, EQUIPMENT, CATALOGS, rights to the
trademarks "Nicole Summers" and "J. Jill, Ltd.", and other property described in
the SECURITY AGREEMENT, whether now existing or hereafter arising or acquired
and wherever located, and all proceeds thereof, including, without limitation,
all proceeds of fire and other insurance.
"CONTINGENT OBLIGATION" shall mean any undertaking by the BORROWER
guaranteeing or in effect guaranteeing any indebtedness, leases, dividends or
other obligations for borrowed money ("PRIMARY OBLIGATIONS") of any other PERSON
in any manner, whether directly or indirectly, including, without limitation,
any obligations, whether or not contingent: (a) to purchase any such PRIMARY
OBLIGATION or any property constituting direct or indirect security therefor;
(b) to advance or supply funds(i) for the purchase or payment of any such
PRIMARY OBLIGATIONS; or (ii) to maintain working capital or equity capital of
such PERSON or otherwise to maintain the net worth or solvency of such PERSON;
(c) to purchase property, securities or services primarily for the purpose of
assuring the owner of any such PRIMARY OBLIGATION of the ability of such PERSON
to make payment of such PRIMARY OBLIGATION; or (d) otherwise to assure or hold
harmless the owner of such PRIMARY OBLIGATION against loss in respect thereof;
provided, however, that the term "CONTINGENT OBLIGATION" shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business.
"CONTROL AGREEMENT" shall mean a certain agreement of even date herewith by
and between the BANK, the BORROWER and Fleet Bank of Massachusetts, N.A. with
respect to the FLEET INVESTMENT PROPERTY.
"CONVERSION DATE" shall mean any date on which pricing of the TERM LOAN or
REAL ESTATE LOAN shall change by reason of an election by the BORROWER or a
provision of the Agreement.
"COST OF FUNDS REDEPLOYMENT" is defined in Section 7.23.
"CREDIT BALANCE" shall mean the aggregate unpaid amount of ADVANCES
outstanding from time to time.
"CURRENT DEBT" shall mean, at any time, the whole or any portion of any
obligation for borrowed money (and notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money) payable on demand or within a period of one (1) year.
"CURRENT FINANCIALS" are described in Section 9.10 hereof.
"CUSTOMER LISTS" shall mean each and all of the mailing lists to which
CATALOGS are sent from time to time which BORROWER represents to BANK are
proprietary to it regardless of the media on which the same are stored.
"DEBT SERVICE COVERAGE" shall mean the ratio of (A) the aggregate of the
net earnings of BORROWER before interest expense, taxes, depreciation and
amortization, but specifically including interest income; (i) less UNFINANCED
CAPITAL EXPENDITURES less (ii) SHAREHOLDER PAYMENTS; less (iii) taxes paid in
cash; to (B) the aggregate of (i) interest paid and (ii) the amounts of all
maturities of Long Term Debt falling due in the twelve (12) month period
succeeding the calculation date, including principal payments due on the Loans
hereunder. Long Term Debt is amounts due in whole or in part more than 12 months
after the incurring thereof;
-3-
<PAGE> 4
however, for the purposes of calculating this covenant the REVOLVING LOANS are
specifically excluded from Long Term Debt.
"DEFAULT" shall mean the occurrence of an event which with the passage of
time or the requiring of the giving of notice, or both, may become an EVENT OF
DEFAULT.
"DOCUMENTS" shall mean a document of title as defined in the UCC.
"DOLLARS" or "$" shall mean lawful currency of the United States of
America.
"ELIGIBLE INVENTORY" shall mean those items of BORROWER'S INVENTORY which
(i) are finished, first quality and new goods on hand in BORROWER'S possession
on its premises, ready for sale in the ordinary course of BORROWER'S business,
and (ii) have been offered for sale in a CATALOG within the last twelve (12)
months from the date of determination.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, supplemented or modified from time to time, and all regulations issued
thereunder.
"EVENT OF DEFAULT" is defined in Article XII.
"ENVIRONMENTAL LAW(S)" shall mean any and all present and future federal,
state and local laws, rules and regulations, and any orders and decrees, in each
case as now or hereafter in effect, relating to the regulation or protection of
the environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or toxic (all as defined in such applicable
laws, rules and regulations) or HAZARDOUS MATERIAL into the environment.
"EQUIPMENT" shall mean and include, without limitation, all of BORROWER'S
tangible personal property utilized in the conduct of BORROWER'S business, all
replacements and substitutions therefor, and all accessions thereto, and
including, without in any way limiting the generality of the foregoing, all of
BORROWER'S machinery, equipment, furniture, trade fixtures and motor vehicles,
but excluding therefrom INVENTORY, as said term is defined in the CODE.
"EXCESS CASH FLOW" shall mean funds obtained from sources other than
borrowings.
"FINANCING AGREEMENTS" shall mean, collectively, this Loan Agreement, the
REVOLVING NOTE, the TERM NOTE, the INTERIM NOTE, the REAL ESTATE NOTE, the REAL
ESTATE MORTGAGE, the CONTROL AGREEMENT, each L/C APPLICATION, the SECURITY
AGREEMENT, and all other agreements executed and delivered by the BORROWER
hereunder, including any additional agreements granting a LIEN, and all other
agreements of every kind and nature now or hereafter in force between the BANK
and the BORROWER relating to the OBLIGATIONS, as the same may, from time to
time, be amended or supplemented.
"FISCAL YEAR" shall mean the fiscal year of the BORROWER.
"FLEET INVESTMENT PROPERTY" shall mean the INVESTMENT PROPERTY currently
held by Fleet Bank of Massachusetts, N.A. in account number 0123680070 and all
additions thereto and substitutions thereof.
-4-
<PAGE> 5
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time and applied with respect to the preparation of financial
statements.
"GENERAL INTANGIBLES" shall mean the BORROWER'S general intangibles, as
defined in the CODE, and all proceeds thereof, and shall also include goodwill,
trade secrets, computer programs, CUSTOMER LISTS, trade names, trademarks,
patents, rights to tax refunds of every kind and nature and proceeds of each of
the foregoing.
"HAZARDOUS MATERIAL" shall mean any chemical or other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any ENVIRONMENTAL LAW.
"INDEBTEDNESS" shall mean, at any time, all items which would, in
conformity with GAAP, be classified as liabilities on a consolidated balance
sheet of BORROWER as at such time, and in any event including (a) indebtedness
arising under acceptance facilities, and (b) all liabilities secured by any LIEN
on any property even though the owner of such property has not assumed or
otherwise become liable for the payment thereof.
"INTEREST PAYMENT DATE" shall mean:
(a) With respect to PRIME RATE ADVANCES, the last day of each month,
commencing with the last day of the month in which the first PRIME RATE ADVANCE
is made.
(b) With respect to LIBOR RATE ADVANCES:
(i) the last day of each INTEREST PERIOD; and
(ii) if the applicable INTEREST PERIOD is more than three months,
the last day of each three-month period during such INTEREST PERIOD.
(c) With respect to the TERM LOAN, the day of each quarterly payment of
principal, commencing with September 5, 1997.
(d) With respect to the REAL ESTATE LOAN, the last day of each monthly
payment of principal, commencing with the first such payment.
(e) With respect to the INTERIM LOAN, at the MATURITY DATE thereof.
"INTEREST PERIOD" shall mean:
(a) With respect to each LIBOR RATE ADVANCE: (i) initially, the period (A)
commencing on the BORROWING DATE of such ADVANCE, and (B) ending one, two, three
or six months thereafter, as the case may be, as determined in accordance with
the provisions of this Agreement; and (ii) thereafter, each subsequent INTEREST
PERIOD for such LIBOR RATE ADVANCE shall begin on the last day of the
immediately preceding INTEREST PERIOD and shall end one, two, three or six
months thereafter, as the BORROWER may select pursuant to Section 2.01; provided
that (A) any INTEREST PERIOD which would otherwise end on a day which is not a
BANKING DAY shall end and the next INTEREST PERIOD shall commence on the next
preceding day which is a BANKING DAY as determined conclusively by the BANK in
accordance with the then
-5-
<PAGE> 6
current bank practices in London, England, and (B) any INTEREST PERIOD for
a LIBOR RATE ADVANCE that would otherwise extend beyond the TERMINATION DATE
shall end on the TERMINATION DATE.
(b) With respect to each PRIME RATE ADVANCE: the entire period during which
such advance is unpaid.
(c) With respect to the TERM LOAN and the REAL ESTATE LOAN with respect to
any period when LIBOR RATE PRICING is not in effect, the entire period during
which any pricing other than LIBOR RATE PRICING is in effect.
(d) With respect to the TERM LOAN and the REAL ESTATE LOAN with respect to
any period that LIBOR RATE PRICING is in effect: (i) initially, the period (A)
commencing on the BORROWING DATE of such period, and (B) ending one, two, three
or six months thereafter, as the case may be, as determined in accordance with
the provisions of this Agreement; and (ii) thereafter, each subsequent INTEREST
PERIOD for such LIBOR RATE PRICING shall begin on the last day of the
immediately preceding INTEREST PERIOD and shall end one, two, three or six
months thereafter, as the BORROWER may select pursuant to Section 2.01; provided
that (A) any INTEREST PERIOD which would otherwise end on a day which is not a
BANKING DAY shall end and the next INTEREST PERIOD shall commence on the next
preceding day which is a BANKING DAY as determined conclusively by the BANK in
accordance with the then current bank practices in London, England, and (B) any
INTEREST PERIOD during which LIBOR RATE PRICING is in effect that would
otherwise extend beyond the MATURITY DATE of said loan shall end on the
TERMINATION DATE.
"INTERIM LOAN" shall mean the loan to be made by the BANK to the BORROWER
pursuant to Article V hereof.
"INTERIM NOTE" shall mean a promissory note dated as at the date of the
closing in the face amount provided in Section 5.02 hereof issued by the
BORROWER to the order of the BANK and evidencing the obligation to repay the
INTERIM LOAN. The INTERIM NOTE shall be in substantially the form of Exhibit
1.01A hereto.
"INVENTORY" shall mean all of BORROWER'S inventory, merchandise, finished
inventory and all other tangible personal property held by BORROWER for sale or
lease, furnished or to be furnished under contracts of service, or used or
consumed in BORROWER'S business, including the rights of the BORROWER in
INVENTORY in transit.
"INVENTORY COST" shall mean the cost of INVENTORY to the BORROWER computed
in accordance with GAAP.
"INVESTMENT PROPERTY" shall mean all of BORROWER'S securities, securities
entitlements and securities accounts.
"LEASE(S)" shall mean any right of BORROWER to use real or personal
property which property is owned by another.
"L/C APPLICATION" shall mean the BANK'S standard form of letter of credit
application and reimbursement agreement from time to time.
"L/C BALANCE shall mean the aggregate undrawn, uncanceled portions of all
LETTER(S) OF CREDIT outstanding from time to time and at any time.
-6-
<PAGE> 7
"L/C COMMITMENT AMOUNT" shall mean Two Million Five Hundred Thousand
Dollars ($2,500,000.00).
"LETTER(S) OF CREDIT" shall mean LETTER(S) OF CREDIT issued by the BANK for
the account of the BORROWER, payable on sight to a beneficiary who is a supplier
of goods to the BORROWER, which goods upon acquisition by, and delivery to, the
BORROWER, will be ELIGIBLE INVENTORY and which LETTER(S) OF CREDIT require the
delivery and presentation to BANK at the BANK'S OFFICE of DOCUMENTS reflecting a
sale of such goods to the BORROWER, as a condition of BANK'S payment thereon.
"LIBOR BASE RATE" shall mean, with respect to any LIBOR RATE ADVANCE for
any INTEREST PERIOD, the rate per annum determined by the BANK to be the rate at
which deposits in DOLLARS are offered to BANK in the London Interbank Market at
approximately 10:00 a.m. (Boston time) two BUSINESS DAYS prior to the first day
of such INTEREST PERIOD for delivery on the first day of such INTEREST PERIOD
for a period equal to such INTEREST PERIOD and in an amount substantially equal
to the principal amount of the BORROWING of which such LIBOR RATE ADVANCE or
LIBOR RATE ELECTION is a part.
"LIBOR MARGIN" shall mean one and one half percent 1.5% per annum.
"LIBOR RATE" shall mean, with respect to any INTEREST PERIOD for each LIBOR
RATE ADVANCE, an interest rate per annum equal at all times during such INTEREST
PERIOD to the sum of (i) the ADJUSTED LIBOR RATE and (ii) the LIBOR MARGIN.
"LIBOR RATE ADVANCE(S)" shall mean any ADVANCE, the interest rate on which
is calculated by reference to the LIBOR RATE.
"LIBOR RATE PRICING" shall mean any election of the BORROWER to pay or to
continue to pay the LIBOR RATE for any INTEREST PERIOD with respect to the TERM
LOAN and/or REAL ESTATE LOAN.
"LIEN" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever including, without limitation, any conditional sale or other title
retention agreement, and any financing lease having substantially the same
economic effect as any of the foregoing.
"LOAN ACCOUNT" shall mean the account or accounts on the books of BANK in
which will be recorded REVOLVING LOANS, ADVANCES and any other extensions of
credit made by BANK to the BORROWER pursuant to Article II hereof, payments made
on such REVOLVING LOAN(S) and any other appropriate debits and credits as
provided by the FINANCING AGREEMENTS.
"LOANS" shall mean collectively any and all of the REVOLVING LOAN(S), the
INTERIM LOAN, the TERM LOAN and the REAL ESTATE LOAN.
"MARGIN-STOCK" shall have the meaning set forth in Regulation U (12 CFR
221) of the Board of Governors of the Federal Reserve System.
-7-
<PAGE> 8
"MATURITY DATE" shall mean June 1, 2002.
"MULTIEMPLOYER PLAN" shall mean a PLAN which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"OBLIGATIONS" shall mean all LOANS, ADVANCES, indebtedness, liabilities,
and amounts, liquidated or unliquidated, owing from the BORROWER to the BANK, at
any time, and arising under the FINANCING AGREEMENTS, absolute or contingent,
due or to become due, now existing or hereafter arising or contracted. Said term
shall also include all interest, fees and other charges chargeable to the
BORROWER or due from the BORROWER to the BANK from time to time hereunder and
also all covenants, agreements or undertakings of the BORROWER to the BANK
whether for the payment of money or otherwise arising under the FINANCING
AGREEMENTS.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to ERISA.
"PERSON" shall mean any individual, corporation (including a business
trust), partnership, trust, unincorporated association, joint stock company or
other legal entity or organization and any government or agent or political
subdivision thereof.
"PLAN" shall mean any plan of a type described in Section 4021(a) of ERISA
in respect of which the BORROWER is an "employer" as defined in Section 3(5) of
ERISA.
"PRIME RATE" shall mean the annual rate of interest announced by the BANK
in Boston from time to time, as its "Prime Rate".
"PRIME RATE ADVANCE(S)" shall mean an ADVANCE, the interest rate on which
is calculated by reference to the PRIME RATE.
"PRIME RATE PRICING" shall mean any election of the BORROWER to pay the
PRIME RATE for any INTEREST PERIOD with respect to the TERM LOAN and/or REAL
ESTATE LOAN or pricing at the PRIME RATE in default of such election.
"REAL ESTATE" shall mean the real property located in Meredith, N.H. at
which the BORROWER maintains a distribution facility and commonly known and
numbered as One Winterbrook Way.
"REAL ESTATE CLOSING" shall mean the date of the closing of the REAL ESTATE
LOAN which shall occur, no later than sixty (60) days subsequent to the CLOSING
DATE upon satisfaction of the condition precedent thereto.
"REAL ESTATE LOAN" shall mean the loan to be made by the BANK to the
BORROWER pursuant to Article VI hereof.
"REAL ESTATE LOAN BALANCE" shall mean the outstanding unpaid balance from
time to time owed with respect to the REAL ESTATE LOAN
"REAL ESTATE MORTGAGE" shall mean a mortgage of the REAL ESTATE granted by
the BORROWER to the BANK securing repayment of the OBLIGATIONS including without
limitation the REAL ESTATE NOTE, which MORTGAGE shall include without
limitation:
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(a) A first security interest in the BORROWER'S equipment and fixtures from
time to time located at the REAL ESTATE, and in addition to the foregoing, all
contract rights, accounts, general intangibles and other personal property now
owned or hereafter acquired relating thereto.
(b) A first lien by assignment of the rents, leases and profits which may
from time to time be realized in connection with the REAL ESTATE. This
assignment shall call for exercise by the BANK only upon the occurrence of an
EVENT OF DEFAULT by BORROWER.
"REAL ESTATE NOTE" shall mean the promissory note dated as at the date of
the REAL ESTATE CLOSING in the face amount provided in Section 6.02 hereof
issued by the BORROWER to the order of BANK and evidencing the obligation to
repay the REAL ESTATE LOAN. The REAL ESTATE NOTE shall be in substantially the
form of Exhibit 1.01.B.
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"RESERVE RATE" shall mean the rate (expressed as a decimal) at which the
BANK would be required to maintain reserves under Regulation D (or its
equivalent) of the Board of Governors of the Federal Reserve System against
Eurocurrency Liabilities if such liabilities were outstanding. The ADJUSTED
LIBOR RATE shall be adjusted automatically on and as of the effective date of
any change in the RESERVE RATE, and the rate of interest thereby effected shall
simultaneously change.
"REVOLVING CREDIT COMMITMENT AMOUNT" shall mean the sum of Six Million
Dollars ($6,000,000.00).
"REVOLVING LOAN(S)" shall mean the ADVANCES.
"REVOLVING NOTE" shall mean a promissory note in the face amount of
REVOLVING CREDIT COMMITMENT AMOUNT issued by the BORROWER to the order of the
BANK and evidencing the obligation to repay the REVOLVING LOAN. The REVOLVING
NOTE shall be substantially in the form of Exhibit "1.01.C".
"SECURITY AGREEMENT" shall mean a Security Agreement in substantially the
form of Exhibit "1.01.D", duly executed and delivered by the BORROWER, to the
BANK granting a security interest in all of the assets of the BORROWER,
including, without limitation, the COLLATERAL and securing the payment and
performance of the OBLIGATIONS as provided in Article VIII hereof.
"SHAREHOLDER PAYMENTS" shall mean any payment or distribution to or for the
benefit of any holder of any class of capital stock of BORROWER with respect to
such capital stock, directly or indirectly, whether in cash or in kind,
including, without limitation, dividends or payments in redemption or retirement
of any stock.
"TANGIBLE NET WORTH" shall mean the net worth of the BORROWER including any
"Deferred Tax Asset" but excluding all other GENERAL INTANGIBLES.
"TERMINATION DATE" shall mean June 1, 1999.
"TERM LOAN" shall mean that certain loan made by BANK to BORROWER in the
principal amount of Three Million Six Hundred Thousand Dollars ($3,600,000.00)
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payable on the MATURITY DATE evidenced by the TERM NOTE as provided in Article
IV hereof.
"TERM LOAN BALANCE" shall mean the outstanding unpaid balance from time to
time owed with respect to the TERM LOAN.
"TERM NOTE" shall mean a promissory note in the face amount of Three
Million Six Hundred Thousand Dollars ($3,600,000.00) issued by the BORROWER
dated as at the date of the Closing to the order of the BANK evidencing the
obligation to repay the TERM LOAN. The TERM NOTE shall be substantially in the
form of Exhibit "1.01.E".
"TREASURY BASE RATE" shall mean the annual rate of interest equal to the
yield of United States Treasury securities with a three (3) year maturity with
respect to the REAL ESTATE LOAN and a five (5) year maturity with respect to the
TERM LOAN as determined by the BANK.
"TREASURY MARGIN" shall mean one and one-half percent (1.5%).
"TREASURY RATE" shall mean with respect to any INTEREST PERIOD an interest
rate per annum equal at all times during said INTEREST PERIOD to the sum of (i)
the TREASURY BASE RATE and (ii) the TREASURY MARGIN.
"TREASURY RATE PRICING" shall mean any election of the BORROWER to pay the
TREASURY RATE for any INTEREST PERIOD with respect to the TERM LOAN and/or the
REAL ESTATE LOAN.
"UCC" shall mean the Uniform Commercial Code as in effect in The
Commonwealth of Massachusetts, as amended from time to time.
"UNFINANCED CAPITAL EXPENDITURES" shall mean 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.
1.02 All terms defined in the UCC and used in this Agreement, and not
otherwise defined herein, shall have the meaning ascribed to them in the UCC.
1.03 All accounting terms used in this agreement, including, without
limitation, "net worth", "current assets", "current liabilities", "liabilities",
"net income", "income" and "expense" shall, except as otherwise specifically
provided herein, be determined in accordance with GAAP.
ARTICLE II
REVOLVING LOANS
2.01 Subject to, and upon the terms and conditions herein provided, during
the AVAILABILITY PERIOD, the BANK agrees to make ADVANCES to the BORROWER so
long as (A) after giving effect to the making of each ADVANCE, then the CREDIT
BALANCE does not exceed the lesser of REVOLVING CREDIT COMMITMENT AMOUNT or
AVAILABILITY and (B) at the time of such ADVANCE the conditions specified in
Section 2.08 have been and remain fulfilled.
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2.02 Whenever the BORROWER wishes to request the making of ADVANCE
hereunder, the BORROWER shall make such borrowing request in writing, which
shall be substantially in the form of Exhibit "2.02", and shall deliver the same
to the BANK not later than 12:00 noon (Boston time) two (2) BUSINESS DAYS prior
to the BORROWING DATE specified therein if the ADVANCE is to be a LIBOR RATE
ADVANCE, and not later than 12:00 noon (Boston time) on the BORROWING DATE
(followed by written certification within two (2) BUSINESS DAYS thereafter), if
the ADVANCE is to be a PRIME RATE ADVANCE).
2.03 Each BORROWING REQUEST for an ADVANCE pursuant to Section 2.02 shall
specify the proposed BORROWING DATE, the aggregate amount of the proposed
ADVANCE, whether such ADVANCE will be a PRIME RATE ADVANCE or a LIBOR RATE
ADVANCE and, in the case of a LIBOR RATE ADVANCE, the initial INTEREST PERIOD
with respect thereto.
2.04 The BANK will credit the amount of each ADVANCE to a demand deposit
account maintained by the BORROWER.
2.05 The debit balance of the LOAN ACCOUNT shall reflect the amount the
BORROWER'S indebtedness to the BANK from time to time by reason of ADVANCES and
any other appropriate charges under the FINANCING AGREEMENTS. At least once each
month the BANK shall render to the BORROWER a statement of account showing as of
its date the debit balance on the LOAN ACCOUNT which, unless within thirty (30)
days of such date, notice to the contrary is received by the BANK from the
BORROWER, shall be considered correct and accepted by the BORROWER and
conclusively binding upon it absent manifest error.
2.06 No ADVANCE will be made on or after the TERMINATION DATE.
2.07 All OBLIGATIONS arising under and by reason of this Article II shall
be paid in full, without notice or demand, on the TERMINATION DATE or upon
earlier acceleration, notwithstanding any provisions of the REVOLVING NOTE or
other instrument evidencing any part of the same.
2.08 No ADVANCES will be made nor any LETTERS OF CREDIT issued, nor the
INTERIM LOAN, REAL ESTATE LOAN or TERM LOAN made, unless each of the following
conditions shall have been and remain fulfilled as of the date of the CLOSING,
and as to the REAL ESTATE LOAN, as of the date of the REAL ESTATE CLOSING:
(a) All conditions precedent as set forth in Article XV shall have been
and remain fulfilled.
(b) No EVENT OF DEFAULT shall have occurred and be continuing, nor shall a
DEFAULT have occurred and be continuing.
(c) The warranties and representations set forth in Article IX hereof
shall be true and correct, in all material respects, as of the date
they were made and, except to the extent that written notice of a
change thereof shall have been given by the BORROWER to the BANK, and
such change would not constitute a default or event of default
pursuant to Section 12.01(e) on the date of the BORROWING REQUEST.
2.09 All ADVANCES and repayments of principal of the PRIME RATE ADVANCES
shall be in integral multiples of Ten Thousand Dollars ($10,000.00). All
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LIBOR RATE ADVANCES shall be in the minimum amount of Five Hundred Thousand
Dollars ($500,000.00) and in integral multiples of One Hundred Thousand Dollars
($100,000.00).
2.10 If at any time the CREDIT BALANCE exceeds the REVOLVING CREDIT
COMMITMENT AMOUNT or AVAILABILITY, BORROWER shall forthwith pay to the BANK such
amount as may be necessary to reduce the CREDIT BALANCE to the lesser of the
COMMITMENT AMOUNT or AVAILABILITY.
2.11 During the AVAILABILITY PERIOD, BORROWER may repay, in whole or in
part, without penalty, the outstanding principal of the PRIME RATE ADVANCES.
Such repayment may be effected by a new BORROWING subject to the provisions of
this Article II.
2.12 Notwithstanding the provisions of this Article II, the BANK, in its
discretion, may make ADVANCES in excess of the REVOLVING CREDIT COMMITMENT
AMOUNT or AVAILABILITY.
2.13 The obligation of the BORROWER to repay the REVOLVING LOANS with
interest thereon is and shall be evidenced by the REVOLVING NOTE.
2.14 Prior to the TERMINATION DATE, all LIBOR RATE ADVANCES shall be repaid
in full at the end of each applicable INTEREST PERIOD. Such repayment may be
effected by a new BORROWING.
2.15 A request by the BORROWER for a LIBOR RATE ADVANCE shall be
irrevocable.
2.16 The initial BORROWING shall be in the form of the making of ADVANCE(S)
pursuant to Section 2.01 in an aggregate principal amount which, when taken
together with the proceeds of the TERM LOAN and the INTERIM LOAN will be at
least equal to the aggregate outstanding principal amount of loans under
existing agreements with Fleet Bank. Such proceeds of such initial ADVANCE(S)
and of the TERM LOAN and of the INTERIM LOAN shall forthwith be applied to repay
in full all such outstanding loans or at BANK'S election may be advanced
directly to Fleet Bank of Massachusetts, N.A. The proceeds of all subsequent
ADVANCES shall be applied for the working capital needs of the BORROWER.
2.17 At least once each consecutive twelve (12) month period commencing
with the date hereof, the BORROWER shall fully repay the REVOLVING LOANS which
repayment shall not be effected by BORROWING, and BORROWER shall not effect or
permit any ADVANCE for a period of thirty (30) consecutive days thereafter
within said twelve (12) month period.
ARTICLE III
LETTERS OF CREDIT
3.01 Subject to and upon the terms and conditions herein provided, during
the AVAILABILITY PERIOD, the BANK shall issue LETTERS OF CREDIT so long as: (A)
After giving effect to each such issuance, the L/C BALANCE does not exceed the
L/C COMMITMENT AMOUNT; (B) All conditions specified in Section 2.08 shall have
been fulfilled; (C) BORROWER shall have delivered to the BANK (i) an L/C
APPLICATION, duly completed and executed, or a facsimile application followed up
by
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the original Documents received by the BANK within Three (3) BUSINESS DAYS
thereafter, ( ii) such other accompanying documentation as the BANK shall
require, and (iii) an amount equal to BANK'S then customary letter of credit
application fee and other fees, which amounts shall be non-refundable. The face
amount of any LETTER OF CREDIT shall not exceed the purchase price of the
INVENTORY purchased therewith and covered by the document relating thereto.
3.02 No LETTER OF CREDIT shall be issued after the TERMINATION DATE. No
LETTER OF CREDIT to be issued hereunder shall permit a draft to be presented
thereunder after the earlier of (A) 180 days after the date of issue thereof or
(b) three (3) BANKING DAYS before the TERMINATION DATE.
3.03 Each LETTER OF CREDIT shall be in such form, contain such terms and
support such transactions as shall be satisfactory to the Bank consistent with
its then current practices.
3.04 The BORROWER hereby agrees to indemnify and hold harmless the BANK
from and against any and all claims and damages, losses, liabilities, costs or
expenses which the BANK may incur (or which may be claimed against the Bank by
any PERSON whatsoever) by reason of or in connection with the execution and
delivery or transfer of, or payment or refusal to pay, under any LETTER OF
CREDIT; provided that the BORROWER shall not be required to indemnify the BANK
for any claims, damages, losses, liabilities, costs or expenses to the extent,
but only to the extent, caused by (x) the willful misconduct or gross negligence
or bad faith, the BANK in determining whether a request presented under any
LETTER OF CREDIT complied with the terms of such LETTER OF CREDIT or (y) the
BANK'S failure to pay under any LETTER OF CREDIT after the presentation to it of
DRAFT and DOCUMENTS strictly complying with the terms and conditions of such
LETTER OF CREDIT. Nothing in this Section is intended to limit the other
obligations of the BORROWER or the BANK under this Agreement.
3.05 Notwithstanding the provisions of Sections 3.01, BANK in its
discretion may issue LETTERS OF CREDIT such that the L/C BALANCE exceeds the L/C
COMMITMENT AMOUNT.
ARTICLE IV
TERM LOAN
4.01 At the CLOSING, if all of the conditions specified in Article XV and
Section 2.08 shall have been fulfilled, BANK shall lend to BORROWER the
principal sum of Three Million Six Hundred Thousand Dollars ($3,600,000.00) as
the TERM LOAN.
4.02 Until the earliest to occur of (i) the MATURITY DATE, (ii) or, (ii)
acceleration upon the occurrence of an EVENT OF DEFAULT; the principal amount of
the TERM LOAN shall be repaid in consecutive quarterly installments of One
Hundred and Eighty Thousand Dollars ($180,000.00) each commencing on September
2, 1997, with a final payment of the TERM LOAN BALANCE due on the MATURITY DATE.
4.03 The obligation of BORROWER to repay the TERM LOAN with interest
thereon shall be evidenced by the TERM NOTE.
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4.04 (a)The proceeds of the TERM LOAN shall be used to pay now existing
obligation of the BORROWER to Fleet Bank of Massachusetts, N.A.
4.05 The entire TERM LOAN will be subject to "PRIME RATE PRICING" or at
BORROWER'S election as provided below, "LIBOR RATE PRICING" or the TREASURY RATE
PRICING as follows:
(a) If the BORROWER wishes to convert the TERM LOAN from PRIME RATE PRICING
or what would be PRIME RATE PRICING but for an election as provided herein to
LIBOR RATE PRICING or if BORROWER wishes to continue to pay interest at the
LIBOR RATE after the end of a current INTEREST PERIOD as the case may be,
BORROWER shall give an irrevocable request to the BANK which must be received by
the BANK not later than 10:00 a.m., Boston time, two (2) BANKING DAYS before the
desired CONVERSION DATE, or the last day of any current INTEREST PERIOD
requesting that interest rate be so converted to or continued as the case may be
and the requested CONVERSION DATE if the requirement is to convert from PRIME
RATE PRICING. The request shall specify the duration of the INTEREST PERIOD
applicable to the conversion or continuance.
(b) If the BORROWER wishes to convert the TERM LOAN from PRIME RATE PRICING
or LIBOR RATE PRICING to TREASURY RATE PRICING, BORROWER shall give an
irrevocable request to the BANK which must be received by the BANK not later
than 10:00 a.m., Boston time, two (2) BANKING DAYS before the desired CONVERSION
DATE, or the last day of any current INTEREST PERIOD requesting that interest
rate be so converted and the requested CONVERSION DATE if the request is to
convert from PRIME RATE PRICING. Notwithstanding any other provision hereof,
once TREASURY RATE PRICING is elected, it shall be for the balance of the term
of the TERM LOAN.
(c) No such election to pay any rate other than the PRIME RATE shall be
given effect if on the date of election or the date on which such election would
be given effect, there exists any DEFAULT or EVENT OF DEFAULT.
ARTICLE V
THE INTERIM LOAN
5.01 At the CLOSING, if all of the conditions of Article XV and Section
2.08 shall have been satisfied, the BANK agrees to loan to the BORROWER as the
INTERIM LOAN that sum necessary to pay-off the current mortgage loan to the
BORROWER from Fleet Bank of Massachusetts, N.A. with respect to the REAL ESTATE.
5.02 The principal amount of the INTERIM LOAN shall not exceed One Million
Six Hundred Fifty Thousand Dollars ($1,650,000.00).
5.03 Interest on the INTERIM LOAN shall be at the PRIME RATE.
5.04 The INTERIM LOAN shall be paid in full sixty (60) days from the
CLOSING DATE.
5.05 The obligation to pay the INTERIM LOAN shall be evidenced by the
INTERIM NOTE.
ARTICLE VI
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REAL ESTATE LOAN
6.01 Subject to the terms, provisions and conditions hereof and provided
that no DEFAULT or EVENT OF DEFAULT shall have occurred, the BANK agrees to make
the REAL ESTATE LOAN to BORROWER in accordance with the terms, provisions and
conditions set forth below.
6.02 The amount of the REAL ESTATE LOAN shall be the lesser of (i) One
Million Six Hundred Fifty Thousand Dollars ($1,650,000.00) or (ii) 75% of the
appraised value of the REAL ESTATE as determined as determined by the APPRAISAL.
6.03 The proceeds of the REAL ESTATE LOAN shall be applied solely to
payment of the INTERIM NOTE in whole or in part.
6.04 Payment of the REAL ESTATE LOAN shall be effected in fifty-nine (59)
consecutive monthly payments in the principal amount of Nine Thousand One
Hundred Sixty-Seven Dollars ($9,167.00) and a final payment equal to the then
REAL ESTATE LOAN BALANCE. If the principal amount of the REAL ESTATE LOAN shall
be less than One Million Six Hundred Fifty Thousand Dollars ($1,650,000.00), the
regular monthly payments shall be in the amount of One One Hundred Eightieth
(1/180) of said principal amount.
6.05 The obligation of the BANK to make the REAL ESTATE LOAN is subject to
satisfaction by the BANK of each of the following:.
(a) The BANK shall have received the APPRAISAL.
(b) The BANK shall have been furnished with a satisfactory survey of the
REAL ESTATE depicting the following: that the bounds and measurements shown on
the plan are substantially correct, that the title lines and actual lines of
possession are the same; the location of all means of ingress to and egress from
the REAL ESTATE; the actual and/or plan location of all utilities services from
the REAL ESTATE to the nearest public road or right-of-way, and if from the REAL
ESTATE to the public right-of-way they pass over land owned by others, said
passage shall be by means of valid, recorded easement not subject to
divestiture; the bounds of any areas submitted to the Federal Flood Disaster
Protection Act and any other area restricting use; the location of all easements
and takings affecting the REAL ESTATE; and depicting that no encroachment over
any property lines or over any easements, servitudes or rights-of-way exist. The
survey shall have been certified to by a licensed professional engineer
reasonably acceptable to the BANK.
(c) The BANK shall have been furnished with a certificate of a licensed
professional engineer satisfactory to the BANK certifying to the following: (1)
That the utilities services, storm drainage and sewage facilities are sufficient
to adequately service the REAL ESTATE; (2) the REAL ESTATE and its current use
comply with all applicable zoning, building code, health, fire, safety and
environmental statutes, codes, bylaws and regulations.
(d) There shall have been delivered to the BANK the opinions of BORROWER'S
counsel relating to (i) due authorization, enforceability, non-contravention
absence of litigation; (ii) zoning and land use; (iii) such other matters (not
including compliance with ENVIRONMENTAL LAWS) as the BANK shall reasonably
require.
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(e) The BANK shall have received satisfactory reports from acceptable,
qualified professionals indicating on the basis of soils tests and other tests
and inspections that the REAL ESTATE complies with ENVIRONMENTAL LAWS and areas
adjacent thereto are free from hazardous materials, hazardous wastes, asbestos,
PCB's or toxic substances and that the REAL ESTATE has not been used as a dump
site for oil, hazardous materials, hazardous wastes, asbestos, PCB's or toxic
substances or otherwise used in such a manner which would cause the likelihood
of incurring any liability under Federal or state legal requirements regarding
oil, hazardous materials, hazardous wastes or toxic substances. Without
limitation, the REAL ESTATE MORTGAGE shall contain a provision whereby BORROWER
shall be obligated to immediately contain and remove any hazardous waste and
toxic substances found on the REAL ESTATE. In addition, it shall be an event of
default under the REAL ESTATE MORTGAGE if BORROWER shall fail to obtain a
satisfaction of any "Notice of Violation" ("NOV") within 60 days after the
issuance thereof or if any "Superlien" claim is filed against the REAL ESTATE
under the Superfund Act.
(f) The REAL ESTATE MORTGAGE shall have been insured by a title insurer
acceptable to the BANK, which policy shall comply with the following: it shall
be in the standard ALTA form; there shall be no exceptions for survey, easements
or other use restrictions not shown on the survey which are acceptable to the
BANK; there shall be no inspection exceptions except in respect to improvements
thereafter added; the standard form so-called pending disbursement exception
shall be permitted; and there shall be no other exceptions which in the opinion
of counsel to the BANK may have an adverse effect upon the use of all or any
portion of the REAL ESTATE as contemplated.
(g) The conditions specified in Article XV and Section 2.08 shall have
been, and remain, fulfilled.
(h) There shall be delivered to the BANK an insurance policy, including
liability and extended coverage, in amounts satisfactory to the BANK and first
payable to the BANK as mortgagee. The BANK shall have been furnished with
evidence that flood insurance is not required for the REAL ESTATE under the
Federal Flood Disaster Protection Act. In the event that flood insurance is
required, flood insurance written by a company satisfactory to the BANK and in
an amount and form acceptable to the BANK shall also have been disclosed.
(i) The BANK shall have received such other customary documents as the BANK
shall reasonably have requested.
6.06 All closing documents prepared to close the REAL ESTATE LOAN
contemplated hereby shall be in form and contain terms and provisions consistent
with this Article VI and as reasonably required by counsel to the BANK.
6.07 Whether or not the REAL ESTATE LOAN is closed, all costs and expenses
incurred in connection with the transaction, including, but not limited to,
attorney's fees, title insurance and endorsement premiums, appraisals, surveys,
recording fees, documentary stamps, any taxes, brokerage commissions, and any
and all other reasonable out-of-pocket expenses incurred by the BANK in the
ordinary course in connection with the REAL ESTATE LOAN shall be paid by the
BORROWER.
6.08 While the REAL ESTATE LOAN remains outstanding, no portion of the REAL
ESTATE PREMISES may be sold. While the LOAN remains outstanding, there shall be
no other liens on the REAL ESTATE granted by the BORROWER except such as granted
to the BANK hereunder.
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6.09 (a) The REAL ESTATE LOAN shall bear interest at the rate of six and
81/100% (6.81%) per annum from the date of the REAL ESTATE CLOSING until August
31, 1999. Thereafter it shall bear interest at the PRIME RATE unless there shall
be an election as provided below.
(b) If the BORROWER wishes to convert the REAL ESTATE LOAN from PRIME RATE
PRICING or what would be PRIME RATE PRICING but for an election as provided
herein to LIBOR RATE PRICING or if the BORROWER wishes to continue to pay
interest at the LIBOR RATE after the end of a current INTEREST PERIOD as the
case may be, BORROWER shall give an irrevocable request to the BANK which must
be received by the BANK not later than 10:00 a.m., Boston time, two (2) BANKING
DAYS before the CONVERSION DATE, or the last day of any current INTEREST PERIOD
requesting that interest rate be so converted to or continued as the case may be
and the requested CONVERSION DATE of the request is to convert from PRIME RATE
PRICING. The request shall specify the duration of the INTEREST PERIOD
applicable to the conversion or continuance.
(c) If the BORROWER wishes to convert the REAL ESTATE LOAN from PRIME RATE
PRICING or LIBOR RATE PRICING to TREASURY RATE PRICING, BORROWER shall give an
irrevocable request to the BANK which must be received by the BANK not later
than 10:00 a.m., Boston time, two (2) BANKING DAYS before the desired CONVERSION
DATE, or the last day of any current INTEREST PERIOD requesting that interest
rate be so converted and the requested CONVERSION DATE if the request is to
convert from PRIME RATE PRICING. Notwithstanding any other provision hereof,
once TREASURY RATE PRICING is elected, it shall be for the balance of the term
of the REAL ESTATE LOAN.
(d) No such election to pay any rate other than the PRIME RATE shall be
given effect if on the date of election or the date on which such election would
be given effect, there exists any DEFAULT or EVENT OF DEFAULT.
ARTICLE VII
INTEREST, FEES AND COMPUTATION
7.01 The BORROWER will pay interest on the daily outstanding unpaid balance
of principal of the ADVANCES at the following rates:
(a) On PRIME RATE ADVANCES, the PRIME RATE; and
(b) On LIBOR RATE ADVANCES, the LIBOR RATE.
7.02 Interest on the unpaid balance of the ADVANCES shall be paid on each
INTEREST PAYMENT DATE and upon the TERMINATION DATE or upon acceleration.
7.03 The BORROWER will pay interest on the TERM LOAN BALANCE at the PRIME
RATE unless BORROWER shall have made an election to pay at the TREASURY RATE or
LIBOR RATE as permitted in Section 4.05 in which case interest shall be payable
at the rate so elected.
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7.04 The BORROWER shall pay with interest on the daily outstanding unpaid
balance of the INTERIM LOAN at the PRIME RATE, all such interest to be paid at
maturity or upon earlier acceleration.
7.05 The BORROWER will pay interest on the REAL ESTATE LOAN BALANCE at the
PRIME RATE unless BORROWER shall have made an election to pay at the TREASURY
RATE or LIBOR RATE as permitted in Section 6.09 in which case interest shall be
payable at the rate so elected.
7.06 Interest shall be paid on the REAL ESTATE LOAN, the INTERIM LOAN and
the TERM LOAN at the rates herein provided until each of them shall be paid in
full and shall be payable on each INTEREST PAYMENT DATE.
7.07 The BORROWER will also pay to the BANK on demand such standard and
regular charges as the BANK makes with respect to commercial letters of credit,
including, without limitation insurance negotiation and acceptance fees.
7.08 BORROWER shall pay to BANK a commitment fee (the "Commitment Fee") for
the period commencing on the date hereof, to and including the earlier of the
TERMINATION DATE or acceleration of the CREDIT BALANCE equal to one eighth of
one percent (.125%) per annum (computed daily on the basis of the actual number
of days elapsed over a 360 day year) on the amount by which the REVOLVING CREDIT
COMMITMENT AMOUNT exceeds the CREDIT BALANCE. The Commitment Fee shall be
payable monthly in arrears and on the TERMINATION DATE.
7.09 In the event any payment of principal or interest, fee, or other
amount payable by the BORROWER under the FINANCING AGREEMENTS shall not be paid
when due and shall remain unpaid for ten (10) days thereafter, the BORROWER
shall pay interest with respect thereto commencing as of the date such payment
was initially due at a per annum rate equal to the sum of (x) the rate of
interest in effect on the due date of such payment, and (y) four percent (4%)
per annum. In the event that BORROWER shall default under terms of the L/C
Application, amounts due from BORROWER shall bear interest at a rate equal to
(a) PRIME RATE plus (b) three percent (3%) per annum payable daily.
7.10 All rates of interest based on the PRIME RATE shall change immediately
upon the date upon which a change in the PRIME RATE shall become effective.
7.11 Except as otherwise expressly provided in this Agreement, whenever any
payment to be made by the BORROWER hereunder shall be stated to be due on a day
other than a BANKING DAY, such payment shall be made on the next succeeding
BANKING DAY, and such extension of time shall in such case be included in the
computation of such payment.
7.12 All payments by the BORROWER under this Agreement shall be made
without set-off or counterclaim and free and clear of and without deduction for
any taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or hereafter
imposed or levied by any country or any political subdivision thereof or taxing
or other authority therein unless the BORROWER is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the BORROWER
with respect to any amount payable by it hereunder, the BORROWER will pay to the
BANK, on the date on which the said amount becomes due and payable hereunder,
such additional amount as shall be necessary to enable the BANK to receive the
same net amount which it would have
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<PAGE> 19
received on such due date had no such obligation been imposed upon the BORROWER.
The BORROWER will deliver promptly to the BANK certificates or other valid
vouchers for all taxes or other charges deducted from or paid with respect to
payments made by the BORROWER hereunder.
7.13 The BORROWER agrees to pay any present or future stamp or documentary
taxes and any other excise or property taxes, charges or similar levies,
excluding, in the case of the BANK, taxes imposed on it by the jurisdiction
under the laws of which the BANK is organized or any political subdivision
thereof and taxes imposed on its net income and franchise taxes imposed on it,
which arise from any payment made by the BORROWER hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, or any other FINANCING AGREEMENT. The BORROWER will indemnify the
BANK on demand for the full amount of any such taxes, charges or similar levies
paid by the BANK or any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto.
7.14 Without prejudice to the survival of any other agreement of the
BORROWER hereunder, the agreements and obligations of the BORROWER contained in
Sections 7.13 AND 7.14 shall survive the payment in full of principal of and
interest on the LOANS. The BANK agrees to give to the BORROWER notice of any
such taxes, charges or similar levies paid by it and for which demand for
payment may be made hereunder, and the BORROWER shall have the right to contest
the validity or legal assertion thereof; provided, however, that the foregoing
shall in no way limit the BORROWER'S obligation to indemnify the BANK as in this
Agreement provided.
7.15 All interest, fees or other charges payable by BORROWER to BANK shall
be computed on the basis of a year of three hundred sixty (360) days and for the
actual number of days elapsed.
7.16 INTENTIONALLY DELETED
7.17 Interest not paid when due shall become a portion of the loans to
which they relate and bear interest at the applicable rate until paid in full.
7.18 Upon the occurrence and during the continuance of an EVENT OF DEFAULT,
BORROWER hereby authorizes BANK to charge any account maintained by it with BANK
for any payment due from BORROWER hereunder or under any of the FINANCING
AGREEMENTS. In any of such cases, such authorization, however, does not obligate
BANK so to charge nor does it limit BORROWER's obligation to make such payment
when due..
7.19 Each payment to be made by BORROWERS hereunder, whether principal,
interest, fees, or of any other kind, shall be paid not later than 2:00 p.m.
(Boston time) on the day when due to the BANK at its principal office in Boston,
Massachusetts in DOLLARS and in immediately available funds.
7.20 The BANK shall calculate all interest rates arising and all interest
and fees due hereunder.
7.21 In the event that the BORROWER shall, before the due date therefor,
prepay all or any portion of the TERM LOAN or REAL ESTATE LOAN which is subject
to TREASURY RATE pricing, whether by reason of voluntary prepayment or
acceleration, BORROWER shall pay a prepayment charge equal to the BANK'S COST
OF FUNDS
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<PAGE> 20
REDEPLOYMENT unless such prepayment is made from BORROWER'S EXCESS CASH
FLOW.
7.22 In addition to and not in limitation of any other provision of this
Agreement, BORROWER will, on demand by the BANK at any time, indemnify the BANK
against COST OF FUNDS REDEPLOYMENT as a consequence of:
(a) The breach by the BORROWER of its OBLIGATIONS to borrow a LIBOR
RATE ADVANCE on the BORROWING DATE thereof;
(b) The failure by the BORROWER to pay, punctually on the due date
thereof, any amount payable hereunder with respect to a LIBOR RATE
ADVANCE;
(c) The repayment or prepayment of any principal of any LIBOR RATE
ADVANCE of the TERM LOAN or the REAL ESTATE LOAN at a time when the
said obligation is subject to LIBOR RATE PRICING, on a date other
than the due date of such principal, whether due to acceleration or
otherwise.
7.23 COSTS OF FUNDS REDEPLOYMENT shall mean the following:
(i) any costs incurred by the BANK in carrying funds which were to
have been borrowed by the BORROWER or in carrying funds to
cover the amount of any overdue principal of or overdue
interest thereon;
(ii) any interest payable by the BANK to lenders of the funds
borrowed by the BANK in order to carry the funds referred to
in the immediately preceding sub-clause (i); and
(iii) any losses incurred by the BANK in liquidating or re-employing
funds acquired from third parties to effect or maintain the
same. The amount (and the computations thereof) of any such
losses, costs and expenses shall be determined reasonably by
the BANK and set forth in a certificate signed by an officer
of the BANK, which certificate shall, save for manifest error,
be conclusive and binding upon the BORROWER.
7.24 Without prejudice to any other rights it may have, the BANK may
collect a "late charge" equal to five (5%) percent of any OBLIGATION not paid
within fifteen (15) days of the due date thereof.
7.25 If at any point, during the term of the REVOLVING LOAN, the TERM LOAN
or the REAL ESTATE LOAN the LIBOR BASE RATE shall cease to be available then,
thereafter, during such period of unavailability, LIBOR RATE ADVANCES and LIBOR
RATE PRICING shall cease to be available hereunder.
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<PAGE> 21
ARTICLE VIII
SECURITY, GUARANTIES AND SUBORDINATION
8.01 Any and all deposits or other sums at any time credited by or due from
BANK to BORROWER shall, at all times constitute security for all OBLIGATIONS and
upon and during the continuance of an Event of Default may be set off against
any of the OBLIGATIONS at any time when due whether or not security held by BANK
is deemed to be adequate.
8.02 The OBLIGATIONS other than those represented by the TERM NOTE shall be
also secured by a first priority, perfected security interest in the COLLATERAL
exclusive of the FLEET INVESTMENT PROPERTY pursuant to a security agreement in
the form of the SECURITY AGREEMENT. Those OBLIGATIONS represented by the TERM
NOTE shall also be secured by a first priority, protected, security interest in
the full COLLATERAL including, without limitation, the FLEET INVESTMENT PROPERTY
pursuant to the SECURITY AGREEMENT.
8.03 Upon the closing of the REAL ESTATE LOAN, the OBLIGATIONS shall also
be secured by first priority mortgage of the REAL ESTATE in the form of the
MORTGAGE which MORTGAGE shall be subject to no LIEN, except LIENS permitted
under Section 11.06 hereof.
8.04 The portion of the OBLIGATIONS evidenced by the TERM NOTE shall be
secured by a first priority perfected pledge of the FLEET INVESTMENT PROPERTY
pursuant to an agreement satisfactory to the BANK not subject to any LIENS
except those permitted pursuant to Section 11.06 hereof. If at any time that the
TERM LOAN shall be outstanding the FLEET INVESTMENT PROPERTY shall have a value
upon an immediate disposition in a recognized securities market which is less
than the unpaid principal of the TERM LOAN BALANCE, then, in any such event the
BORROWER shall immediately either (i) increase the said value of the FLEET
INVESTMENT PROPERTY pledged to the BANK to an amount at least equal to the TERM
LOAN BALANCE or (ii) make a payment in such amount as will reduce the said TERM
LOAN BALANCE to an amount equal to such value. With respect to the CONTROL
AGREEMENT, the BANK shall not originate "entitlement orders" concerning the
"Account" or deliver a "Notice of Exclusive Control" except after the occurance
of, and during the continuance of an EVENT OF DEFAULT.
ARTICLE IX
WARRANTIES AND REPRESENTATIONS BY BORROWERS
9.01 The BANK enters into this Agreement in reliance upon the warranties
and representations of the BORROWER set forth in this Article, each of which is
acknowledged by the BORROWER to be material. Each such warranty and
representation shall be deemed to have been newly made on each day BORROWER
requests an ADVANCE except to the extent that written notice of a change thereof
shall have been given by the BORROWER to the BANK, and such change would not
constitute a default or event of default pursuant to Section 12.01(e).
9.02 The BORROWER is a duly organized and existing corporation under the
laws of its state of incorporation and is in good standing under the laws
thereof.
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<PAGE> 22
9.03 The BORROWER is duly qualified to do business and is in good standing
as a foreign corporation in each state or other jurisdiction where the failure
to so qualify would have a material adverse effect on the BORROWER. All such
jurisdictions, if any, are listed on Exhibit "9.03".
9.04 The BORROWER has good title to all properties and assets which it
purports to own, as reflected in the CURRENT FINANCIALS, free and clear of all
mortgages, liens, pledges, security interests and encumbrances except those in
favor of FLEET BANK to secure the indebtedness of BORROWER being refinanced
hereby and which shall be paid at the CLOSING, and as set forth on Exhibit 9.04
or permitted by Section 11.06.
9.05 The BORROWER owns or leases and holds all real and personal property
necessary or incidental to the conduct of its businesses, including without
limitation, patents, trademarks, service marks, trade names, copyrights and
licenses and other rights with respect to the foregoing.
9.06 All books and records of the BORROWER, including, but not limited to,
minute books, by-laws and books of account fairly reflect all matters and
transactions which should currently be reflected therein.
9.07 The BORROWER'S business is limited to the sale of personal property
from CATALOGS and activities related thereto (including without limitation the
sale of personal property from retail outlet stores).
9.08 Except as set forth in Exhibit 9.08 and except for the FLEET
INVESTMENT PROPERTY, the BORROWER has no subsidiaries nor any investments in the
stock or securities of any other corporation, firm, trust or other entity.
9.09 Except as set forth in Exhibit 9.09, there are no actions, suits,
proceedings, or investigations pending or, to the knowledge of BORROWER,
threatened against the BORROWER or any of its properties in any court, before
any governmental authority, arbitration board, or any other tribunal which,
singly or in the aggregate, if decided adversely to BORROWER, would materially
and adversely affect the business, properties or condition (whether financial or
otherwise) of the BORROWER. BORROWER is not, nor by execution and delivery of
the FINANCING AGREEMENTS and performance of the OBLIGATIONS (with or without the
passage of time or the giving of notice), will be, in default with respect to
any order of any court, governmental authority, arbitration board or other
tribunal.
9.10 BORROWER has furnished to the BANK the financial statements referred
to on Exhibit "9.10". Said statements, the "CURRENT FINANCIALS," fairly present
the condition of the BORROWER at the dates thereof, all in conformity with GAAP
except, in respect of interim statements, with respect to footnotes and subject
to customary year end adjustments.
9.11 Except to the extent reflected or reserved against in the CURRENT
FINANCIALS or as set forth on Exhibit "9.11," if any, BORROWER, as of the date
of said financial statements, had no material liabilities of any nature, whether
accrued, absolute, contingent or otherwise, including, without limitation, tax
liabilities, due or to become due, or arising out of transactions entered into
or any state of facts existing prior thereto, of a type required by GAAP to be
reflected or reserved against on financial statements.
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<PAGE> 23
9.12 Since the date of the CURRENT FINANCIALS and through the date hereof,
and except as shown on Exhibit "9.12", there has not been:
(a) any change in the condition of the BORROWER'S assets or liabilities,
other than changes in its ordinary course of business, none of which
has been materially adverse.
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the BORROWER'S
properties or business;
(c) any declaration of, setting aside of, or making of a payment or any
dividend or other distribution with respect to the BORROWER'S
capital stock or any direct or indirect redemption, purchase or
other acquisition of any such stock;
(d) any materially adverse:
(i) controversy with any labor organization or employees;
(ii) claim or controversy involving any federal, state or
local government agencies; or
(iii) other event or condition affecting the businesses of
or properties of the BORROWER.
9.13 The BORROWER has filed all federal and state income tax returns,
excise tax returns and all other tax returns of every kind and nature which are
required to be filed by it and has paid all taxes shown to be due on said
returns, except where in the future such taxes are being contested in good faith
by a appropriate proceedings. To BORROWER's knowledge, no audit or other
investigation is presently being conducted with respect to any tax obligation of
BORROWER.
9.14 INTENTIONALLY DELETED
9.15 The execution and delivery of the FINANCING AGREEMENTS, the borrowing
by BORROWER as herein provided, the execution and delivery by them of all
instruments, agreements and documents of every kind and nature pursuant hereto
and the performance by the BORROWER of the OBLIGATIONS have been duly authorized
by the Board of Directors of the BORROWER and, to the extent required by law or
otherwise, by stockholders, and the FINANCING AGREEMENTS and all instruments,
agreements and documents executed pursuant thereto are valid and binding
obligations of the BORROWER enforceable in accordance with their terms, except
to the extent that such enforceability may be limited by laws of general
application affecting the rights of creditors.
9.16 There is no provision in the articles of organization, the by-laws, or
other charter documents of BORROWER, or any other indenture, contract or
agreement to which it is party or by which it is bound, which prohibits the
execution and delivery of the FINANCING AGREEMENTS or the performance by the
BORROWER of the OBLIGATIONS.
9.17 No DEFAULT or EVENT OF DEFAULT exists. Neither the nature of
BORROWER'S businesses or properties, nor any relationships in connection with
the
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<PAGE> 24
execution or delivery of the FINANCING AGREEMENTS is such as to require a
consent, approval, license, permit or authorization of, or filing, registration,
or qualification with, any governmental authority on the part of BORROWER as a
condition to the execution and delivery of the FINANCING AGREEMENTS or any
instrument, agreement or document contemplated hereby, or the performance by the
BORROWER of the OBLIGATIONS.
9.18 Exhibit "9.18" set forth a full list of all patents, patent
applications, registered copyrights, and registered trademarks and service marks
currently used by the BORROWER.
9.19 Exhibit "9.19" contains a description of all real property and
material personal property which the BORROWER holds under a term of a LEASE,
including a description of the property, the date of the LEASE and the identity
of the lessor.
ARTICLE X
AFFIRMATIVE COVENANTS
10.01 BORROWER shall furnish to BANK, in form and detail acceptable to
BANK:
(a) As soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year, statements, on an
unqualified audit basis of income, retained earnings and cash
flow of the BORROWER for such year, and audited balance sheets of
the BORROWER as at the end of such year, setting forth in each
case in comparative form corresponding figures for the preceding
fiscal year from the preceding annual audit, all in reasonable
detail and reasonably satisfactory in scope to the BANK and
certified by the ACCOUNTANTS whose certificate shall be on an
unqualified, audited basis representing an unqualified opinion,
all in scope and substance satisfactory to the BANK, and such
financial statements shall be prepared in accordance with GAAP.
(b) As soon as practicable and in any event within forty-five (45)
days after the end of each of the first three quarterly period in
each FISCAL YEAR, statements of income, retained earnings and
cash flow of the BORROWER for the period from the beginning of
the current FISCAL YEAR to the end of such quarterly period, and
balance sheet of the BORROWER as at the end of such quarterly
period, setting forth in each case commencing one year from the
date hereof, in comparative form, figures for the corresponding
period in the preceding FISCAL YEAR, all in reasonable detail,
and such financial statements shall be prepared in accordance
with GAAP subject to customary year end adjustments and the
absence of footnotes. Such quarterly statements may be prepared
internally.
(c) At the time of delivery of the reports required by Sections
10.01(a) and 10.01(b); a certificate of the Chief Financial
Officer, Vice President of Finance or Controller of the BORROWER
(i) stating that, in his, her or their opinions, if such be the
case, there has been and is existing no DEFAULT or EVENT OF
DEFAULT hereunder, or if that not be the case, setting forth the
details of all such DEFAULT or EVENT OF DEFAULT, and (ii) showing
appropriate calculations
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<PAGE> 25
indicating compliance (or non-compliance) with the covenants set
forth in Article XII.
(d) Monthly, within fifteen (15) days of the end of each month, a
certificate signed by BORROWER'S President, Chief Financial
Officer, Vice President of Finance or Controller certifying that
the REVOLVING LOANS do not exceed the lesser of AVAILABILITY or
the REVOLVING LOAN FACILITY AMOUNT and that the L/C
BALANCES do not exceed the L/C COMMITMENT AMOUNT and that the
TERM LOAN BALANCE does not exceed the net market value upon sale
(as elsewhere herein provided) of the FLEET INVESTMENT PROPERTY.
(e) Monthly, within thirty (30) days of the end of each month, a report,
certified by the BORROWER'S President, Chief Financial Officer, Vice
President of Finance or Controller showing the aging of BORROWER'S
INVENTORY.
(f) Periodically, promptly after filed, copies of all notices to
shareholders, all proxies, reports and any other publicly available
materials filed with the Securities Exchange Commission and all
press releases.
(g) With reasonable promptness, such other financial data and/or
operating data as the BANK may reasonably request in such form as
the BANK may reasonably request.
10.02 The BORROWER will, duly and punctually, pay all interest, principal
and all other amounts of money becoming due from it to the BANK and will duly
and punctually perform all things on its part to be done or performed under the
FINANCING AGREEMENTS.
10.03 The BORROWER shall, at all times, keep proper books of account which
shall at all times fairly reflect its financial condition and in which entries
will be made of its transactions in accordance with GAAP to the extent
applicable thereto.
10.04 The BORROWER shall make its books and records available, in its
offices, for inspection, examination and copying by the BANK and the BANK'S
representatives and will at all reasonable times (and, prior to a DEFAULT or
EVENT OF DEFAULT, upon reasonable notice), permit inspection of its books and
records and properties by the BANK and the BANK'S representatives.
10.05 The BORROWER will maintain its corporate existence in good standing.
The BORROWER will comply with all laws and regulations of the United States, or
any state or states thereof, of any political subdivision thereof and of any
governmental authority which may be applicable to it or to its business;
provided, however, that a failure so to comply which does not materially and
adversely affect its businesses or financial condition shall not be a breach
hereof.
10.06 The BORROWER will pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefit, withholding, sales and other taxes assessed against it or payable by it
at such times and in such manner to prevent any penalty from accruing or any
lien or charge from attaching to its properties. The provisions of this section,
however, shall not preclude BORROWER from contesting in good faith any such tax,
nor shall there be a default hereunder, by
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reason of the existence of a lien for taxes not then due provided that the
BORROWER shall have set aside on its books reserves certified by the BORROWER to
be adequate for the timely satisfaction of such obligations.
10.07 The BORROWER will put and maintain its properties in good repair,
working condition and order, reasonable wear and tear excepted, and from time to
time, make all needful and proper repairs, renewals and replacements.
10.08 The BORROWER will maintain insurance covering such risks and in such
minimum amounts as BANK may reasonably require, all such insurance to be in such
form and for such periods and written by such companies as shall be reasonably
acceptable to BANK. The BANK shall be named as an additional "loss payee" as
elsewhere herein provided and the BANK shall receive certified copies of such
original policies, if available, and upon the occurrence of an EVENT OF DEFAULT
the BANK shall forthwith be provided with and hold the originals of each such
policy.
10.09 The BORROWER will punctually and promptly make when due, after the
expiration of all applicable periods of grace or notice, all payments and
perform all other obligations which may be required of it with respect to any
indebtedness (whether for money borrowed, goods purchased, services rendered or
however such indebtedness may arise) owing to persons, firms or corporations
other than the BANK, including, without limitation, indebtedness which may be
secured by a security interest in assets of the BORROWER or its property and all
obligations under the terms of any Leases. The provisions of this Section shall
not preclude the BORROWER from contesting in good faith any such indebtedness or
obligation. The BORROWER may accept extended payment terms regularly offered by
any creditor selling goods to the BORROWER or furnishing services to the
BORROWER.
10.10 The BORROWER shall pay or cause to be paid when due all amounts
necessary to fund in accordance with its terms any deferred compensation and/or
other employee benefit plans, whether now in existence or hereafter created and
whether subject to the applicable provisions of ERISA and all regulations
thereunder, and it will not withdraw from participation in, permit the
termination or partial termination of, or permit the occurrence of any other
event with respect to any deferred compensation plan maintained for the benefit
of employees under circumstances that could result in any liability to "PBGC",
or any of its successors or assigns, or to the entity which provides funds for
such deferred compensation plan. To the extent that BORROWER become subject to
the provision of the ERISA, BORROWER will, promptly upon obtaining knowledge
thereof, notify the BANK of (i) the occurrence of any "reportable event"
described in Section 4043 of ERISA, (ii) receipt of notice of an application by
the PBGC to institute proceedings to terminate an employee benefit plan, and
(iii) receipt of notice of any liability pursuant to Section 4202 of ERISA.
10.11 The BORROWER shall promptly give notice to BANK of the commencement
of any suit or proceedings against the BORROWER, in which the amount claimed
exceeds Two Hundred and Fifty Thousand and 00/100 Dollars ($250,000.00) unless
such liability is fully covered by insurance in effect and the insurer is
defending such action without reservation of rights against the BORROWER.
10.12 Upon the occurrence of any DEFAULT or EVENT OF DEFAULT, BORROWER
shall promptly give the BANK notice thereof.
10.13 The BORROWER will give the BANK not less than thirty (30) days' prior
notice of any proposed change in its principal places of business or chief
executive
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offices or the establishment of any other location of COLLATERAL, other than
as currently shown on Exhibit 10.13.
10.14 The BORROWER will give the BANK not less than thirty (30) days' prior
notice of any intended change in its corporate name or the adoption of any trade
name.
10.15 In the event of any change in the identification of the directors and
statutory officers of the BORROWER as reflected on Exhibit "10.15", the BORROWER
shall, within thirty (30) days thereafter, give notice thereof to BANK.
10.16 The BORROWER shall, as of the date hereof commence to maintain its
primary deposit accounts with BANK, from which payments due on LOANS may be
deducted.
ARTICLE XI
NEGATIVE COVENANTS
11.01 The BORROWER will not issue evidences of INDEBTEDNESS nor create,
assume, become contingently liable for, nor suffer to exist INDEBTEDNESS for
borrowed money in addition to indebtedness to the BANK; provided, however, that
BORROWER may incur liabilities other than for money borrowed which are incurred
or arise in the ordinary course of the BORROWER'S business, and may in any
fiscal year of the BORROWER grant purchase money security interests in
connection with the purchase of property with a purchase price not to exceed Two
Hundred Fifty Thousand Dollars ($250,000.00) provided that the amount of
INDEBTEDNESS secured by such purchase money security interests shall not exceed
the lesser of (i) the purchase price or (ii) the fair market value of the
property financed and such purchase money security interest shall not relate to
any other assets or property of the BORROWER except the property thereby
acquired.
11.02 The BORROWER shall not make or continue any loans to any individual,
firm or corporation, including, without limitation, BORROWER'S, officers and
employees except for loans or advances to employees and officers in the ordinary
course of the BORROWER'S business not to exceed $100,000.00 at any time.
11.03 Except as described in Section 9.08, the BORROWER shall not invest in
or purchase any stock or securities of any individual, firm, partnership, joint
venture or corporation without the BANK'S prior written consent; provided,
however, that the BORROWER, without the BANK'S consent may invest in direct
obligations of or securities guaranteed by the United States of America or any
agency thereof, certificates of deposit or other obligations of the BANK or any
other member bank of the Federal Reserve System having assets of not less than
One Hundred Million Dollars, prime banker's acceptances, money-market funds,
commercial paper of a domestic issue rated either A1 by Standard & Poor's
Corporation or P1 by Moody's Investor Service, Inc., and other securities the
cost to BORROWER of which do not exceed One Hundred Thousand Dollars
($100,000.00) in the case of any single issuer.
11.04 The BORROWER will not merge or consolidate or be merged or
consolidated with or into any other corporation or entity.
11.05 Except for sales of INVENTORY in the ordinary course of business, the
BORROWER shall not sell or dispose of any of BORROWER'S assets except that the
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BORROWER may sell or otherwise dispose of EQUIPMENT which is no longer needed by
the BORROWER for the conduct of its business.
11.06 Except with respect to the BANK as provided herein, the BORROWER
shall not grant or suffer to exist, any mortgage, pledge, title retention
agreement, security interest, lien or encumbrance with respect to any of its
assets, tangible or intangible, whether now owned or hereafter acquired, or
subject any of its assets to the prior payment of any indebtedness, or transfer
in any manner any of such assets with the intent or purpose, directly or
indirectly, of subjecting such assets to the payment of INDEBTEDNESS except (i)
landlords', carriers', warehousemans', mechanics' and other similar liens
arising by operation of law in the ordinary course of the BORROWER'S businesses;
(ii) liens arising out of pledge or deposits under worker's compensation,
unemployment insurance, old age pension, social security, retirement benefits or
other similar legislation; (iii) liens in favor of the BANK; (iv) liens for
taxes not yet due or which are being contested in good faith by appropriate
proceedings and the BORROWER maintain appropriate reserves (reasonably approved
by the BANK) in respect thereto; (iv) judgment or prejudgment liens with respect
to which there has issued a stay of execution pending appeal or otherwise and as
to which the BORROWER maintain appropriate reserves in respect thereto
(reasonably approved by the BANK); (vi) easements, rights of way, restrictions
and other similar charges or liens relating to real property and not interfering
in a material way with the ordinary conduct of the BORROWER'S business; (vii)
liens securing the payment of INDEBTEDNESS permitted under Section 11.01 hereof;
and (viii) encumbrances on the BORROWER'S property or assets created in
connection with the refinancing of INDEBTEDNESS secured by liens on such
property permitted hereunder that do not extend to property and assets of the
BORROWER not encumbered prior to such refinancing.
11.07 The BORROWER will not engage in any business other than the business
in which it is currently engaged or a business reasonably allied thereto.
11.08 The BORROWER shall not guaranty, endorse, contingently agree to
purchase or otherwise become liable for obligations for borrowed money of any
other person, firm partnership, joint venture, corporation or other entity;
provided, however, that the provisions of this Section 11.08 shall not preclude
the BORROWER from endorsing checks, drafts or other similar items for collection
in the ordinary course of business.
11.09 The BORROWER will not make or enter into any so-called management
agreement whereby management, supervision or control of its business or any of
its principal functions shall be delegated to any persons other than its duly
elected officers and directors.
11.10 The BORROWER will not change its FISCAL YEAR.
11.11 The BORROWER will not, for any four (4) consecutive fiscal quarters,
permit DEBT SERVICE COVERAGE to be less than 1.25 to 1. Such covenant shall be
calculated quarterly based upon the preceding 12 months of operations commencing
with the twelve month period year ending June 30, 1997.
11.12 The BORROWER will not between the CLOSING DATE and December 30, 1997
permit its TANGIBLE NET WORTH to be or become less than Twenty One Million Two
Hundred Thousand Dollars ($21,200,000.00) nor at any time in any FISCAL YEAR
thereafter permit its tangible net worth to be less than (a) Twenty-One Million
Two Hundred Thousand Dollars($21,200,000.00) (b) plus Two Million Dollars
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<PAGE> 29
($2,000,000.00) multiplied by the number of whole years which shall have elapsed
subsequent to December 31, 1996.
ARTICLE XII
EVENTS OF DEFAULT
12.01 The occurrence of any of the following events shall be an EVENT OF
DEFAULT hereunder and under each of the FINANCING AGREEMENTS:
(a) The REVOLVING LOAN(S) and all accrued interest thereon shall not be
paid in full on the TERMINATION DATE.
(b) The BORROWER shall fail to make a payment of interest or principal
on account of the REVOLVING LOAN(S) the INTERIM LOAN, the REAL
ESTATE LOAN or the TERM LOAN or any other fee or charge arising
under the FINANCING AGREEMENTS within five (5) days of when such
payment is due, (or if within any grace period provided therein).
(c) The BORROWER shall fail to observe or perform any covenants
contained in this Agreement other than with respect to the payment
of money within TEN (10) days of notice from the BANK or such
earlier date as may be necessary to protect the interests of the
BANK.
(d) The BORROWER shall fail to observe any other covenant or agreement
contained in any FINANCING AGREEMENT or in any instrument, document
or agreement executed pursuant thereto when required or within any
grace period provided therein.
(e) Any written warranty, representation or statement made or furnished
to BANK by or on behalf of the BORROWER proves to have been false in
any material respect when made or furnished.
(f) Any event which results in the acceleration of the maturity of the
indebtedness of the BORROWER (i) to the BANK, or (ii) to any other
party under any indenture, agreement, undertaking or otherwise if
the same relates to aggregate INDEBTEDNESS, in excess of
$250,000.00.
(g) Any levy or seizure of any property of the BORROWER in which the
amount involved exceeds in the aggregate $250,000.00 and which levy
or seizure is not stayed within thirty (30) days and if reasonably
required by the BANK adequate security is imposed.
(h) Any attachment of any property of the BORROWER which attachment
secures claim in the aggregate of more than Two Hundred and Fifty
Thousand and 00/100 Dollars ($250,000.00) or more and is not
discharged within thirty (30) days.
(i) Dissolution, termination of existence, as the case may be of the
BORROWER.
(j) The BORROWER shall: (i) cease, be unable or admit in writing
its, inability to pay its debts as they mature or make a general
assignment for the benefit of, or enter into any composition,
trust mortgage or other
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<PAGE> 30
arrangement with creditors; (ii) apply for, or consent (by admission
of material allegations of a petition or otherwise) to the
appointment of a receiver, trustee or liquidator of the BORROWER or
of a substantial part of its assets, or authorize such application
or consent, or proceedings seeking such appointment shall be
commenced against the BORROWER and continue unstayed and undismissed
for sixty (60) days; or (iii) apply for, or consent (by admission of
material allegations of a petition or otherwise) to the application
of any bankruptcy, reorganization, readjustment of debt, insolvency,
dissolution, liquidation or other similar law of any jurisdiction,
or authorize such application or consent, or proceedings to such end
shall be instituted against the BORROWER and remain unstayed and
undismissed for sixty (60) days, be approved as properly instituted
or result in adjudication of bankruptcy or insolvency.
12.02 Upon the occurrence of any EVENT OF DEFAULT, all OBLIGATIONS
including, without limitation, the TERM LOAN and the INTERIM LOAN or the REAL
ESTATE LOAN, as the case may be shall, at the BANK'S option, become immediately
due and payable without notice or demand and the BANK shall have all such rights
and remedies as are provided herein or under the other FINANCING AGREEMENTS or
at law or in equity.
ARTICLE XIII
NOTICES
13.01 All communications herein provided shall be in writing and shall be
sufficient if (i) sent by United States mail, registered or certified, postage
prepaid, (ii) delivered by national courier service which requires receipt
evidencing delivery or (iii) sent by confirmed telephone facsimile and addressed
as provided in this Article.
13.02 The addresses to which such communications shall be sent are as
follows:
a) If intended for the BORROWER, to:
DM Management Company
25 Recreation Drive
Hingham, MA 02043
Fax: (617) 740-2408
Attn: Olga L. Conley, Vice President of Finance
with courtesy copies to:
Foley, Hoag & Eliot, LLP
One Post Office Square
Boston, MA 02109
Fax: (617) 832-7000
Attn: David R. Pierson, Esq.
b) If intended for BANK to:
Citizens Bank of Massachusetts
55 Summer Street
Boston, MA 02110
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<PAGE> 31
Fax: (617) 422-8354
Attn: Lori B. Leeth, Vice President
with courtesy copies to:
Goldstein & Manello, P.C.
265 Franklin Street
Boston, MA 02110
Fax: 617-946-8181
Attn: Richard J. Snyder, Esq.
13.03 The addresses set forth herein may be changed by notice to the other
party hereunder.
13.04 Any notice sent in accordance with the provisions and this Article
XIII shall be effective (i) if mailed, on the second BUSINESS DAY, (ii) if
delivered by courier service, upon receipt or (iii) if sent by confirmed
telephone facsimile, upon transmission.
-31-
<PAGE> 32
ARTICLE XIV
MISCELLANEOUS
14.01 The BORROWER will, from time to time, execute and deliver to the BANK
all such other and further reasonable instruments and documents and take or
cause to be taken all such other and further action as the BANK may reasonably
request in order to effect and confirm more securely in the BANK all rights
contemplated in this Agreement, and in any other of the FINANCING AGREEMENTS.
14.02 The BORROWER may take any action herein prohibited or omit to perform
any act required to be performed by the BORROWER if the BORROWER shall obtain
the BANK'S prior written consent to each such action, or omission to act. No
waiver on the BANK'S part on any one occasion shall be deemed a waiver on any
other occasion. The BANK shall not be deemed to have waived any of its rights
hereunder unless such waiver shall be in writing and duly signed by an
authorized officer of the BANK.
14.03 This Agreement may be amended only by an instrument in writing and
duly signed by the BORROWER and an authorized officer of the BANK.
14.04 All covenants, agreements, representations and warranties contained
in this Agreement shall bind the BORROWER and its successors and assigns, and
shall inure to the BANK'S benefit and the benefit of the BANK'S successors and
assigns, whether expressed or not; provided, however, that the BORROWER may not
assign its rights or benefits hereunder.
14.05 All rights of the BANK hereunder shall be cumulative. The BANK shall
not be required to have recourse to any COLLATERAL or other security before
enforcing its rights or remedies against the BORROWER. BORROWER hereby waives
presentment and protest of any instrument and any notice thereof.
14.06 If any provisions of this Agreement shall be held to be illegal or
unenforceable, such illegality or unenforceability shall relate solely to such
provision and shall not affect the remainder of this Agreement.
14.07 This Agreement shall be construed and enforced as an instrument under
seal in accordance with the laws of the Commonwealth of Massachusetts.
14.08 The captions herein contained are inserted as a matter of convenience
only and such captions do not form a part of this Agreement and shall not be
utilized in the construction hereof.
14.09 In the event the BORROWER fails to make any payment or take any
action required by this Agreement or any other of the FINANCING AGREEMENTS, BANK
may, but shall not be required to, upon prior notice to the BORROWER make such
payment or to take, or cause to be taken, such action. If the BANK chooses to
make any such payment or to take or cause to be taken any such action, the
amount of such payment and the cost of such action shall become part of the
OBLIGATIONS, shall be payable upon demand and, until paid in full, shall bear
interest at the rate set forth in Section 7.09 hereof.
14.10 The BORROWER shall pay on demand all reasonable out-of-pocket costs
and expenses of every kind and nature, including reasonable attorneys' fees and
costs,
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<PAGE> 33
incurred or expended by the BANK in connection with the preparation of the
FINANCING AGREEMENTS, the making of LOANS hereunder, the collection or sale or
attempted collection or sale of the COLLATERAL and the protection or supervision
thereof and the protection or enforcement of the BANK'S rights hereunder. The
BORROWER acknowledges that such supervision will include audits of the BORROWER'
business, records, and assets by employees, agents, or other representatives of
the BANK but the BORROWER shall not be required for to pay for such audits
unless undertaken after EVENT OF DEFAULT shall have occured and while the same
shall be continuing.
14.12 THE BANK, and the BORROWER each irrevocably waive all right to a
trial by jury in any proceeding hereafter instituted by or against the BANK or
the BORROWER in respect of this Agreement or arising out of any FINANCING
AGREEMENTS.
ARTICLE XV
CONDITIONS PRECEDENT
15.01 Unless each of the following conditions are satisfied at the CLOSING,
and until each of the following conditions are satisfied, no LOANS or ADVANCES
will be made, and the BANK shall have no obligation under this Agreement:
(a) All instruments and documents required to be executed on or prior to
the CLOSING pursuant to the terms hereof shall have been duly
executed and delivered.
(b) The BANK shall hold a valid and perfected security interest in the
COLLATERAL subject to no other lien, charge, encumbrances or
security interest of any kind or nature except as otherwise
explicitly provided in this Agreement.
(c) The TERM LOAN shall have been made.
(d) The INTERIM LOAN shall have been made.
(e) The BANK shall have received from counsel to the BORROWER opinions
satisfactory in form and substance to the BANK.
(f) The BANK shall have received a certificate from the Clerk or
other appropriate recording officer of each of the BORROWER in
form and substance satisfactory to the BANK and its counsel,
showing the authority of the BORROWER to enter into this LOAN
AGREEMENT, to perform the OBLIGATIONS and the specific authority
of the persons executing this Agreement and all instruments and
documents pursuant hereto so to execute. The BANK shall have
received certified copies of the Articles of Organization (or
other charter documents) and By-Laws of the BORROWER.
(g) All policies of insurance described herein or in any other of the
FINANCING AGREEMENTS, have been obtained, be in full force and
effect, and shall show BANK as an addiitional loss payee. The BANK
shall have received a binder with respect to each such policy
showing
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<PAGE> 34
compliance herewith. Such policies shall not be cancelled except upon
thirty (30) days advance written notice to BANK.
(h) The BANK shall have received such certificates from public officials
with respect to the corporate existence of each of the corporations
constituting the BORROWER and its qualification to do business and
good standing, as the BANK may reasonably require.
(i) BANK shall have received such other and further documents and
instruments as BANK may reasonably require.
ARTICLE XVI
CLOSING
16.01 All instruments and documents to be executed pursuant hereto shall be
executed and delivered at a CLOSING to be held on June 5, 1997 at the offices of
Goldstein & Manello, P.C., 265 Franklin Street, Boston, Massachusetts, or at
such other place and time as the parties may hereafter, in writing, agree.
ARTICLE XVII
TERMINATION
17.01 Upon the TERMINATION DATE, all obligations of BANK to make ADVANCES
shall terminate, and the CREDIT BALANCE shall become immediately due and payable
in full without notice or demand.
17.02 Notwithstanding the passage of the TERMINATION DATE, and the payment
of the CREDIT BALANCE, until all OBLIGATIONS shall have been fully paid,
performed and satisfied, all rights of BANK arising under this Agreement and
other FINANCING AGREEMENTS shall continue, and all obligations of BORROWER
arising under this Agreement and the other FINANCING AGREEMENTS shall continue.
17.03 BANK in its sole discretion, from time to time may extend the
TERMINATION DATE by written notice to BORROWER. BANK may condition any such
extension on such matters that it determines appropriate. BANK is in no way
obligated to extend or to consider extending the TERMINATION DATE.
ARTICLE XVIII
INCONSISTENCY IN FINANCING AGREEMENTS
18.01 In the event that in any provision of the other FINANCING AGREEMENTS,
is inconsistent with a provision of this Loan Agreement, then and in such event,
the provisions of this instrument shall control.
18.02 The existence of a provision in the other FINANCING AGREEMENTS which
are not present in this Revolving Line of Credit and Loan Agreement shall not be
deemed to be an inconsistency,
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the date first above written.
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<PAGE> 35
DM MANAGEMENT COMPANY
By: /s/ Olga L. Conley
---------------------------------------------
Olga L. Conley, its Vice President of Finance
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Lori B. Leeth, VP
---------------------------------------------
Lori B. Leeth, Vice President
-35-
<PAGE> 1
REVOLVING NOTE
Boston, Massachusetts
$6,000,000.00 June 5, 1997
ON DEMAND, the undersigned DM Management Company, for value received,
promises to pay to the order of Citizens Bank of Massachusetts (hereinafter
called the "Bank"), at its principal office at 55 Summer Street, Boston,
Massachusetts 02110, or such other location that the holder may specify
Six Million DOLLARS ($6,000,000.00)
or such lesser amount which shall have been advanced hereunder, with interest
thereon, as herein provided, until paid in full. This is the "Revolving Note"
issued by the undersigned pursuant to the terms of a certain Loan Agreement
dated the date hereof, by and between Bank and the undersigned (the "Loan
Agreement").
Interest shall accrue at the rates provided in the Loan Agreement for the
Revolving Loan as defined therein and shall be paid at maturity hereof. Overdue
principal and overdue interest from time to time outstanding shall bear interest
in accordance with the terms of the Loan Agreement. If any payment is not made
when due hereunder, then, without limitation on any other right of the Holder,
there shall be a late charge as provided in the Loan Agreement.
If an "Event of Default" (as defined in the Loan Agreement) shall occur,
the entire unpaid principal balance of this note and all accrued and unpaid
interest may become or be declared due and payable without notice or demand, in
the manner and with the effect provided in the Loan Agreement.
Every maker, endorser and guarantor of this note, or the obligation
represented by this note, waives presentment, demand, notice, protest, and all
other demands or notices in connection with the delivery, acceptance,
endorsement, performance, default, or enforcement of this note, assents to any
and all extensions or postponements of the time of payment or any other
indulgence, to any substitution, exchange, or release of collateral, and/or to
the addition or release of any other party or person primarily or secondarily
liable, and generally waives all suretyship defenses and defenses in the nature
thereof.
The undersigned will pay all reasonable out-of-pocket costs and expenses of
collection, including reasonable attorneys' fees, incurred or paid by the holder
in enforcing this note or the obligations hereby evidenced, to the extent
permitted by law.
No delay or omission of the holder in exercising any right of remedy
hereunder shall constitute a waiver of any such right or remedy.
The holder need not enter payments of principal or interest upon this note,
but may maintain a record thereof on a separate ledger maintained by the holder.
The word "holder" as used in this note shall mean the payee or indorsee of
this note who is in possession of it or the bearer if this note is at the time
payable to bearer.
<PAGE> 2
This note shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts and shall take effect as an instrument under
seal.
WITNESS: DM MANAGEMENT COMPANY
/s/ David R. Pierson By:/s/ Olga L. Conley
- --------------------------------- ----------------------------------------
Olga L. Conley, its Vice President of
Finance
<PAGE> 1
TERM NOTE
Boston, Massachusetts
$3,600,000.00 June 5, 1997
The undersigned DM Management Company, for value received, promises to pay
to the order of Citizens Bank of Massachusetts (hereinafter called the "BANK"),
at its principal office at 55 Summer Street, Boston, Massachusetts 02110, or
such other location that the holder may specify
Three Million Six Hundred Thousand Dollars ($3,600,000.00)
in quarterly payments of One Hundred Eighty Thousand Dollars ($180,000.00) each,
the first such payment to be made on September 5, 1997, and subsequent payments
to be made on the fifth day of each December, March, June and September,
thereafter, except a final payment of the entire unpaid balance of principal
shall be made on June 5, 2002, with interest thereon, as herein provided until
paid in full. This is the "Term Note" issued by the undersigned pursuant to the
terms of a certain Loan Agreement dated the date hereof, by and between Bank and
the undersigned (the "Loan Agreement").
Interest shall accrue at the rates provided in the Loan Agreement for the
Term Loan as defined therein. Overdue principal and overdue interest from time
to time outstanding shall bear interest in accordance with the terms of the Loan
Agreement. If any payment is not made when due hereunder, then, without
limitation on any other right of the Holder, there shall be a late charge as
provided in the Loan Agreement.
If an "Event of Default" (as defined in the Loan Agreement) shall occur,
the entire unpaid principal balance of this note and all accrued and unpaid
interest may become or be declared due and payable without notice or demand, in
the manner and with the effect provided in the Loan Agreement.
Every maker, endorser and guarantor of this note, or the obligation
represented by this note, waives presentment, demand, notice, protest, and all
other demands or notices in connection with the delivery, acceptance,
endorsement, performance, default, or enforcement of this note, assents to any
and all extensions or postponements of the time of payment or any other
indulgence, to any substitution, exchange, or release of collateral, and/or to
the addition or release of any other party or person primarily or secondarily
liable, and generally waives all suretyship defenses and defenses in the nature
thereof.
The undersigned will pay all reasonable out-of-pocket costs and expenses of
collection, including reasonable attorneys' fees, incurred or paid by the holder
in enforcing this note or the obligations hereby evidenced, to the extent
permitted by law.
No delay or omission of the holder in exercising any right of remedy
hereunder shall constitute a waiver of any such right or remedy.
The holder need not enter payments of principal or interest upon this note,
but may maintain a record thereof on a separate ledger maintained by the holder.
The word "holder" as used in this note shall mean the payee or indorsee of
this note who is in possession of it or the bearer if this note is at the time
payable to bearer.
<PAGE> 2
This note shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts and shall take effect as an instrument under
seal.
WITNESS: DM MANAGEMENT COMPANY
/s/ David R. Pierson By: /s/ Olga L. Conley
- --------------------------------- -----------------------------------------
Olga L. Conley, its Vice President of
Finance
<PAGE> 1
INTERIM NOTE
Boston, Massachusetts
$1,650,000.00 June 5, 1997
On or before Sixty (60) days from the date hereof, the undersigned DM
Management Company, for value received, promises to pay to the order of Citizens
Bank of Massachusetts (hereinafter called the "Bank"), at its principal office
at 55 Summer Street, Boston, Massachusetts 02110, or such other location that
the holder may specify
One Million Six Hundred Fifty Thousand DOLLARS ($1,650,000.00)
with interest payable at maturity as hereafter set forth. This is the "Interim
Note" issued pursuant to the terms of a certain Loan Agreement dated the date
hereof, by and between Bank and the undersigned, as amended (the "Loan
Agreement").
Interest shall accrue at the rate provided in the Loan Agreement for the
Interim Loan as defined therein and shall be paid at maturity hereof. Overdue
principal and overdue interest from time to time outstanding shall bear interest
in accordance with the terms of the Loan Agreement. If payment is not made when
due hereunder then, without limitation on any other right of the Holder, there
shall be a late charge as provided in the Loan Agreement.
If an "Event of Default" (as defined in the Loan Agreement) shall occur,
the entire unpaid principal balance of this note and all accrued and unpaid
interest may become or be declared due and payable without notice or demand, in
the manner and with the effect provided in the Loan Agreement.
Every maker, endorser and guarantor of this note, or the obligation
represented by this note, waives presentment, demand, notice, protest, and all
other demands or notices in connection with the delivery, acceptance,
endorsement, performance, default, or enforcement of this note, assents to any
and all extensions or postponements of the time of payment or any other
indulgence, to any substitution, exchange, or release of collateral, and/or to
the addition or release of any other party or person primarily or secondarily
liable, and generally waives all suretyship defenses and defenses in the nature
thereof.
The undersigned will pay all reasonable out-of-pocket costs and expenses of
collection, including reasonable attorneys' fees, incurred or paid by the holder
in enforcing this note or the obligations hereby evidenced, to the extent
permitted by law.
No delay or omission of the holder in exercising any right of remedy
hereunder shall constitute a waiver of any such right or remedy.
The holder need not enter payments of principal or interest upon this note,
but may maintain a record thereof on a separate ledger maintained by the holder.
The word "holder" as used in this note shall mean the payee or indorsee of
this note who is in possession of it or the bearer if this note is at the time
payable to bearer.
This note shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts and shall take effect as an instrument under
seal.
<PAGE> 2
WITNESS: DM MANAGEMENT COMPANY
/s/ David R. Pierson By: /s/ Olga L. Conley
- --------------------------------- ----------------------------------------
Olga L. Conley, its
Vice President of Finance
<PAGE> 1
SECURITY AGREEMENT
Date: June 5, 1997
1. GRANT OF SECURITY INTEREST
DM Management Company, a Delaware Corporation with a principal place of business
at 25 Recreation Park Drive, Hingham, Massachusetts 02043 (the "Debtor") hereby
grants to Citizens Bank of Massachusetts (the "Secured Party"), a security
interest in all of the Debtor's present and future right, title and interest in
and to the property described on Exhibit A (all of which is hereinafter called
the "Collateral") to secure (a) the full payment of the sum of $6,000,000.00, or
such lesser amount which shall have been advanced, together with interest and
other charges, all as provided in a certain "Revolving Note" of the Debtor (as
defined in a certain Loan Agreement ("Loan Agreement") of even date herewith by
and between the Debtor and the Secured Party) to the order of the Secured Party
of even date herewith, executed and delivered pursuant to the Loan Agreement in
the original face amount of $6,000,000.00, together with all substitutions or
replacements therefor and all renewals or extensions thereof and the full
performance of all other obligations of the maker of said note as provided
therein; (b) the full payment of the sum of $1,650,000.00, or such lesser amount
as may be the face amount of a certain "Real Estate Note" (as defined in the
Loan Agreement) of the Debtor to the order of the Secured Party, executed and
delivered by the Debtor to the Secured Party, pursuant to the Loan Agreement,
with interest and other charges as provided therein, together with all
substitutions and replacements therefor and all renewals and extensions thereof
and the full performance of all other obligations of the maker of said note as
provided therein; (c) the full payment of the sum of $3,600,000.00, with
interest and other charges, all as provided in a certain Term Note (as defined
in the Loan Agreement) of the Debtor to the order of the Secured Party of even
date herewith, executed and delivered by the Debtor to the Secured Party
pursuant to the Loan Agreement, in the original face amount of $3,600,000.00,
together with all substitutions or replacements therefor and all renewals or
extensions thereof and the full performance of all other obligations of the
maker of said note as provided therein; (d) the full payment of the sum of
$1,650,000.00, with interest and other charges, all as provided in a certain
Interim Note (as defined in the Loan Agreement) of the Debtor to the order of
the Secured Party of even date herewith, executed and delivered by the Debtor to
the Secured Party pursuant to the Loan Agreement, in the original face amount of
$1,650,000.00, together with all substitutions or replacements therefor and all
renewals or extensions thereof and the full performance of all other obligations
of the maker of said note as provided therein; (e) the full payment and
performance by the Debtor of all other indebtedness, obligations and liabilities
of the Debtor to the Secured Party, under the Loan Agreement (including, without
limitation, all "Obligations", as defined in the Loan Agreement) which Loan
Agreement provides, among other things, for the establishment of a "Revolving
Loan" (as defined therein) pursuant to which "Advances" (as defined therein) may
be made from time to time, and for repayment of all or a portion of the
outstanding balance of such Advances together with interest and other charges,
all in accordance therewith, for the issuance of letters of credit pursuant to
"L/C Applications" (as defined therein) therein and for the grant of "Loans" (as
defined therein) as provided therein; and (f) the full payment and performance
of all covenants and agreements herein contained on the part of the Debtor to be
kept and performed (collectively hereafter referred to as "Obligations").
Notwithstanding the foregoing, the grant hereby of a security interest in that
portion of the Collateral which is "Fleet Investment Property" (as such term is
defined in the Loan Agreement) shall secure only the full payment of the Term
Note with interest and all other charges relating thereto, including, without
limitation, all expenses of collection.
<PAGE> 2
2. REPRESENTATIONS, AGREEMENTS AND WARRANTIES OF DEBTOR
Debtor hereby represents and warrants that:
(a) Debtor has the power to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement (i) have been duly
authorized and are within its powers, (ii) will not violate any provision of its
organizational documents, (iii) will not violate any law, regulation of court
order and (iv) will not result in a default under any agreement of indenture to
which the Debtor is a party.
(b) Debtor has good and marketable title to the property and assets which are
reflected on its financial statements, tax returns or other information
furnished to the Secured Party, and which Debtor purports to own, except such
property and assets as have been disposed of in the ordinary course of business
after the date of any such document. All of the Collateral is owned by the
Debtor free and clear of all liens, pledges, security interests and mortgages,
except for liens, pledges, security interests or mortgages in favor of the
Secured Party or liens, pledges, security interests or mortgages previously
disclosed to the Secured Party in writing and acknowledged in writing by the
Secured Party or as otherwise provided in the Loan Agreement. No effective
financing statement covering the Collateral or any proceeds thereof is on file
in any public office, except as disclosed in writing to the Secured Party or as
otherwise provided in the Loan Agreement.
(c) Debtor has not, during the preceding five (5) years, changed its name, been
a party to a merger, or used any other name except as previously described to
the Secured Party in writing.
(d) The Debtor's principal place of business and the Debtor's chief executive
office is the location set forth on Exhibit A noted as "Debtor's Address." The
Debtor maintains places of business and the Collateral is now and will continue
to be kept at such location and at the additional locations, if any, noted as
"Additional Collateral Locations" on Exhibit B until such time it shall be
moved, which shall occur only after at least thirty (30) days written notice to
Secured Party and the execution by Debtor and filing of such additional filing
statements as Secured Party shall request.
(e) If any of the Collateral now existing or hereafter acquired is or is to be
attached to real estate, a description of said real estate to which such
Collateral is or is to be attached and the name and address of each record owner
thereof is set forth on Exhibit B noted as "Owner and Description of Real
Estate" or will be provided in writing to Secured Party on Demand.
3. COVENANTS AND AGREEMENTS OF DEBTOR
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
specifically permitted in writing by the Secured Party or permitted by the Loan
Agreement and will defend the Collateral against all claims and demands of all
persons at any time claiming any interest therein. Debtor will not sell or
otherwise transfer the Collateral or any interest therein except inventory in
the ordinary course of business or as otherwise provided in the Loan Agreement.
(b) Debtor will not change its name without giving the Secured Party 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 principal place of
business and chief executive office, or if the Debtor is an individual with no
place of business, its residence, at the address set forth on
-2-
<PAGE> 3
Exhibit A noted as "Debtor's Address." Debtor shall, at all times, keep the
Secured Party 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 Secured
Party at least thirty (30) days' prior written notice thereof.
(c) Debtor will, at its expense, furnish to the Secured Party upon its demand
such further information, will execute and deliver to the Secured Party such
financing statements and other agreements, instruments or documents, and will do
all such acts as the Secured Party may, at any time or from time to time,
reasonably request, or as may be necessary or appropriate to establish and
maintain a valid and enforceable security interest of the Secured Party in the
Collateral as provided in the Loan Agreement.
(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
Secured Party may reasonably require, including collision in the case of any
motor vehicle, all in such amounts (but in no event in an amount less than the
full insurable value thereof), under such forms of policies, under such terms,
for such periods and written by such companies or underwriters as Secured Party
may approve, which approval may not be unreasonably withheld, losses in all
cases to be payable first to the Secured Party "as its interest may appear." All
policies of insurance shall provide for at least thirty (30) days' prior written
notice of cancellation to the Secured Party, and Debtor shall furnish the
Secured Party with certificates of such insurance or other evidence satisfactory
to the Secured Party as to compliance with the provisions of this paragraph.
Debtor hereby irrevocably appoints Secured Party to act (such appointment being
coupled with an interest) as attorney-in-fact for Debtor in making, adjusting
and settling claims under such policies of insurance or endorsing Debtor's name
on any drafts drawn by insurers of the Collateral or any other documents to
effect collection. In the event of any loss or damage to any of the Debtor's
assets, including the Collateral, Debtor shall give immediate written notice to
Secured Party and to Debtor's insurers of such loss or damage and shall promptly
file proofs of loss with said insurers.
(e) Debtor will notify the Secured Party 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 Collateral.
(f) Debtor will keep the Collateral in good order and repair, reasonable wear
and tear excepted, 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 Secured Party 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 and,
prior to an Event of Default, upon reasonable notice wherever located.
(g) At its option, but without obligation to do so, the Secured Party may upon
and during the continuance of an Event of Default and with prior notice to
Debtor, 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 Secured Party on demand for
any reasonable out-of-pocket payment made or expense incurred by the Secured
Party pursuant to the foregoing authorization, and all such payments and
expenses shall constitute part of the principal amount of The Revolving Loan.
-3-
<PAGE> 4
(h) If any part of the Collateral is a fixture, the Debtor will, on demand, use
reasonable efforts to furnish the Secured Party 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 Secured Party's interest.
(i) If any account or other Collateral is ever represented or evidenced by a
promissory note, Debtor will immediately deliver such note to the Secured Party,
endorsed in such manner as Secured Party may require.
(j) At any time or times that an Event of Default has occurred, and is
continuing, Secured Party may notify any account debtors of its security
interest in accounts and collect all amounts due thereon, and the Debtor agrees,
at the request of the Secured Party, to notify in writing all or any account
debtors of the Secured Party's interest in the Collateral in whatever manner
Secured Party requests and, if Secured Party so requests, to permit the Secured
Party to mail such notices at the Debtor's expense. Until the Secured Party
shall otherwise notify the Debtor as provided herein, all proceeds of and
collections of Collateral shall be retained by the Debtor and used solely for
the ordinary and usual operation of the Debtor's business and as permitted by
the Loan Agreement. From and after such notice by the Secured Party to the
Debtor, all proceeds of and collections of the Collateral shall be held in trust
by the Debtor for the Secured Party and shall not be commingled with the
Debtor's other funds or deposited in any bank account of the Debtor and the
Debtor agrees to deliver to the Secured Party on the dates of receipt thereof by
the Debtor, duly endorsed to the Secured Party or to bearer, or assigned to the
Secured Party, as may be appropriate, all proceeds of the Collateral in the
identical form received by the Debtor.
(k) Upon the occurrence of an Event of Default and during the continuation
thereof, Secured Party may direct account debtors to make payments directly to
the Secured Party, and to perform all acts the Debtor could take to collect on
such accounts, 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 such accounts.
(l) Secured Party may from time to time after the occurrence and during the
continuance of an Event of Default without demand or notice, apply and set off
any deposit accounts of Debtor with Secured Party and any other amounts owing
from Secured Party to Debtor, against any and all Obligations even though such
Obligations be unmatured and regardless of the adequacy of security for the
Obligations.
(m) After the occurrence and during the continuance of an Event of Default,
Debtor hereby irrevocably constitutes and appoints the Secured Party as the
Debtor's true and lawful attorney, with full power of substitution, at the sole
cost and expense of the Debtor but for the sole benefit of the Secured Party, to
convert the Collateral into cash, including, without limitation, completing the
manufacture or processing of work in process, and the sale (either public or
private) of all or any portion or portions of the Inventory and other
Collateral: to enforce collection of the Collateral, either in its own name or
in the name of the Debtor, including, without limitation, executing releases,
compromising or settling with any Debtors and prosecuting, defending,
compromising or releasing any action relating to the Collateral, to receive,
open and dispose of all mail addressed to the Debtor and to take therefrom any
remittances or proceeds of Collateral in which the Secured Party has a security
interest, to notify Post Office authorities to change the address for delivery
of mail addressed to the Debtor to such address as the Secured Party shall
designate, to endorse the name of the Debtor in favor of the Secured Party upon
any and all checks, drafts, money orders, notes, acceptances or other
instruments of the same or different nature: to sign and endorse the name of the
Debtor on and to receive as secured party any of the Collateral, any invoices,
schedules of Collateral, freight
-4-
<PAGE> 5
or express receipts, or bills of lading, storage receipts, warehouse receipts,
or other documents of title of the same or different nature relating to the
Collateral; to sign the name of the Debtor on any notice to the Debtors or on
verification of the Collateral, and to sign and file or record on behalf of the
Debtor any financing or other statement in order to perfect or protect the
Secured Party's security interest. The Secured Party shall not be obliged to do
any of the acts or exercise any of the powers hereinabove authorized, but if the
Secured Party elects to do any such act or exercise any such power, it shall not
be accountable for more than it actually receives as a result of such exercise
of power, and it shall not be responsible to the Debtor except for gross
negligence, willful misconduct or bad faith. All powers conferred upon the
Secured Party by this Agreement, being coupled with an interest, shall be
irrevocable so long as any Obligation of the Debtor to the Secured Party shall
remain unpaid.
4. EVENT OF DEFAULT
"Event of Default" shall have the meaning provided in the Loan Agreement.
5. REMEDIES
Upon and after the occurrence of an Event of Default, all of the Obligations,
may, at the option of the Secured Party and without demand, notice or legal
process of any kind, be declared, and immediately shall become due and payable,
and the Secured Party shall have the following additional rights and remedies:
(a) All of the rights and remedies of a secured party under 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 other agreement, document or instrument 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 (such appointment being coupled with an interest) the
Secured Party 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 Secured Party in a place designated by the Secured Party which is
reasonably convenient to Debtor and Secured Party The Debtor shall make
available to the Secured Party all premises, locations and facilities necessary
for the Secured Party's taking possession of the Collateral or for removing or
putting the Collateral in salable 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 Secured Party will give the Debtor at least seven (7)
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 Debtor agrees that seven (7) days is a
reasonable time for such notice. The Secured Party, 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 at the highest rate provided
for the Obligations.
-5-
<PAGE> 6
6. WAIVERS
DEBTOR AND SECURED PARTY IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY
PROCEEDINGS HEREAFTER INSTITUTED BY OR AGAINST THE DEBTOR OR THE SECURED PARTY
IN RESPECT OF THIS AGREEMENT, ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING,
GOVERNING OR SECURING THE OBLIGATIONS HEREBY SECURED OR THE COLLATERAL.
FURTHER, 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.
7. GENERAL
(a) Secured Party shall have the unrestricted right from time to time to apply
(or to change any application already made) the proceeds of any of the
Collateral to any Obligations, as the Secured Party, in its sole discretion, may
determine.
(b) No waiver by the Secured Party of any Event of Default shall be effective
unless in writing nor operate as a waiver of any other Event of Default or of
the same Event of Default on a future occasion, nor shall the failure or delay
of the Secured Party 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.
(c) 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 by the Debtor therefrom shall, in any event, be
effective unless the same shall be in writing and signed by the Secured Party.
Any waiver of, or consent to any departure from, any provision of this Security
Agreement shall be effective only in 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.
(d) All rights of the Secured Party 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.
(e) Debtor will pay to the Secured Party on demand any and all costs and
expenses, including reasonable attorney's fees and expenses relating to the
appraisal and/or valuation of assets and all costs and expenses incurred or paid
by the Secured Party in establishing, exercising, collecting, defending,
preserving, protecting, administering or enforcing its rights in the Collateral
or under any of the Obligations.
(f) This Security Agreement and the security interest created hereby shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
(g) Whenever possible, each provision of this Security Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Security Agreement shall to any extent be held
invalid or unenforceable, then only such
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<PAGE> 7
provision shall be deemed ineffective and the remainder of this Security
Agreement shall not be affected thereby.
(h) Debtor will execute and deliver to the Secured Party any writings and do all
things reasonably necessary, to carry into effect the provisions and intent of
this Agreement, or to vest more fully in or assure to the Secured Party
(including, without limitation, all steps to create and perfect) the security
interest in the Collateral granted to the Secured Party by this Agreement or to
comply with applicable statute or law and to facilitate the collection of the
Collateral.
IN WITNESS WHEREOF, Debtor has duly authorized and executed this Agreement
as a sealed agreement as of the date first above written.
DEBTOR:
DM MANAGEMENT COMPANY
By: /s/ Olga L. Conley
-------------------------------------
Olga L. Conley, its Vice President of
Finance
SECURED PARTY:
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Lori B. Leeth VP
-------------------------------------
Lori B. Leeth, Vice President
-7-
<PAGE> 8
EXHIBIT A
to
SECURITY AGREEMENT
Debtor, Debtor's Address:
DM Management Company
25 Recreation Park Drive
Hingham, MA 02043
Attention: Olga L. Conley,
Vice President of Finance
Collateral:
All of the following property of Debtor, wherever located and whether now
existing or hereafter created or acquired:
All COLLATERAL as defined in that Loan Agreement by and between Debtor and
Citizens Bank of Massachusetts as Secured Party dated June 5, 1997, including
without limitation INVESTMENT PROPERTY.
All equipment as defined in the Massachusetts Uniform Commercial Code ("UCC"),
including all machinery, tools, parts, furniture, furnishings, trade fixtures,
and motor vehicles, and additions and accessions thereto and substitutions and
replacements therefor;
All "inventory", as defined in the UCC, including raw materials, work in
process, finished goods, and all goods held for sale or lease or to be furnished
under contacts for service or which have been so furnished, and materials used
or consumed or to be used or consumed in the business of the Debtor;
All "accounts", as defined in the UCC, including 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, all other
obligations and amounts of every kind and nature owning to the Debtor, including
all rights the Debtor may have or acquire for securing or enforcing the
foregoing:
All "general intangibles", as defined in the UCC, including goodwill, trade
secrets, computer programs, customer lists, trade names, trademarks, copyrights,
franchises, licenses, patents, income tax refunds, and choses in action;
All "chattel paper" as defined in the UCC;
All "documents", as defined in the UCC, and all instruments, as defined in the
UCC, whether or not negotiable;
All books and records relating to the COLLATERAL;
All "deposit accounts" as defined in the UCC, and all other accounts maintained
by the Debtor with any bank, trust company, investment firm or fund or any
similar institution or organization;
<PAGE> 9
All "investment property" as defined in the UCC including all stocks and other
securities, rights in and to brokerage and other security accounts, and rights
and entitlements to securities, and all other property in the nature of
investment property;
Any deposits, credits, collateral or property of the Debtor at any time now or
hereafter in the possession, custody, safekeeping or control of the Secured
Party;
All products, accessions, and proceeds, including insurance and condemnation
proceeds, of any of the foregoing.
All "collateral" as defined in the Loan Agreement whether or not described
above.
<PAGE> 10
EXHIBIT B
to
SECURITY AGREEMENT
ADDITIONAL COLLATERAL LOCATIONS
See Exhibit 10.13 to the Loan Agreement
OWNER AND DESCRIPTION OF REAL ESTATE
The REAL ESTATE (as defined in the Loan Agreement) and the leased real property
described in Exhibit 9.20 to the Loan Agreement.
<PAGE> 1
GRANT OF SECURITY INTEREST IN TRADEMARKS
AGREEMENT made this 5th day of June, 1997 by and between DM MANAGEMENT
COMPANY, a corporation duly organized and existing under the laws of the State
of Delaware and having a principal place of business at 25 Recreation Park Road,
Hingham, MA 02043 (herein "DM"), and CITIZENS BANK OF MASSACHUSETTS, duly
organized and existing under the laws of The Commonwealth of Massachusetts and
having a principal place of business at 35 Summer Street, Boston, MA 02110
(herein the "BANK").
W I T N E S S E T H:
WHEREAS, by instrument dated June 5, 1997, DM executed and delivered to the
BANK a security agreement (the "All-Asset Security Agreement") pursuant to which
DM granted a security interest to the BANK in all of its property, including,
without limitation, a lien on and security interest in all of DM's patents and
trademarks; and
WHEREAS, DM owns the United States registrations of the trademarks listed
on EXHIBIT "A" hereto, which registrations have been issued by the U.S. Patent
and Trademark Office (the "PTO"); and
WHEREAS, DM wishes to file this instrument with the PTO to confirm its
grant of a security interest to the BANK of all of its federally registered
trademarks listed in EXHIBIT "A" hereto as security for the "Obligations" (the
"OBLIGATIONS") as defined in that certain Loan Agreement dated June 5, 1997 by
and between DM and the BANK (the "LOAN AGREEMENT").
NOW, THEREFORE, DM does hereby confirm its grant of a security interest in
all of its rights to the trademarks and United States registrations thereof
listed on Exhibit A and all goodwill associated therewith annexed hereto and
made a part hereof, which Exhibit consists of 1 page (all herein referred to as
"COLLATERAL").
Provided, nevertheless, that if DM shall well and truly pay and perform all
OBLIGATIONS of DM to the BANK hereby secured (as herein provided) and all
covenants and agreements of DM herein contained, then this instrument shall be
void and of no further effect and the interest hereby granted shall cease and
terminate, and the BANK will execute and deliver such documents as may be
necessary to discharge this instrument to DM and release the lien granted
pursuant hereto.
DM hereby warrants and represents to the BANK:
(a) That it has full power and authority to enter into this Agreement.
(b) That it will maintain all of said trademarks in full force and effect,
except as it is prevented from so doing by law or by judgment of any court of
competent jurisdiction.
Upon the occurrence and continuance of any EVENT OF DEFAULT as defined in
the LOAN AGREEMENT, the BANK shall have, in addition to all other rights
provided herein or therein, the rights and remedies of a secured party under the
Uniform Commercial Code; and further, after the occurrence and continuance of an
EVENT OF
<PAGE> 2
DEFAULT, the BANK may, upon reasonable notice to DM, at any time or times, sell
and deliver any or all of the COLLATERAL at public or private sale, for cash,
upon such terms as the BANK deems advisable, at its sole discretion. Expenses of
retaking, holding, preparing for sale, selling or similarly relating to
realization on the COLLATERAL shall include reasonable attorneys' fees. The
BANK's rights and remedies under this Agreement will be cumulative and not
exclusive of any other right or remedy which the BANK may have. For the purpose
hereof, notice of any intended sale or disposition in writing at least ten (10)
days before the time of such sale or disposition, shall be deemed reasonable
notice.
If the BANK shall exercise its rights to sell any or all of such
COLLATERAL, then DM agrees to assign unto the BANK or as the BANK may direct all
of its rights and claims that it may have for past infringement of any of the
trademarks in the COLLATERAL.
The BANK shall be under no duty or obligation to enforce any rights or take
any action with respect to the COLLATERAL, including without limitation, the
maintaining or prosecuting of any claims or rights for infringement by third
parties and DM hereby holds the BANK harmless of and from all liability, loss or
damage, including reasonable attorney's fees, by reason of this instrument
including without limitation all costs, expenses or damages incurred as a result
of being joined in any litigation relating to the COLLATERAL.
This Agreement shall be construed and enforced under the laws of The
Commonwealth of Massachusetts and shall take effect as an instrument under seal.
WITNESS DM MANAGEMENT COMPANY
/s/ Paul J. Levenson By: /s/ Olga L. Conley
- -------------------------- --------------------------------------
Paul J. Levenson Olga L. Conley
Title: Vice President of Finance
----------------------------------
WITNESS CITIZENS BANK OF MASSACHUSETTS
/s/ Paul J. Levenson By: /s/ Lori B. Leeth VP
- -------------------------- --------------------------------------
Paul J. Levenson Lori B. Leeth
Title: Vice President
----------------------------------
-3-
<PAGE> 3
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. June 5, 1997
Then personally appeared Olga L. Conley, the Vice President of Finance of
DM Management Company, as aforesaid, and acknowledged the foregoing instrument
to be the free act and deed of DM Management Company, before me.
/s/ Paul J. Levenson
-----------------------------------------
Notary Public
My Commission Expires: March 13, 2003
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. June 5, 1997
Then personally appeared Lori B. Leeth, a Vice President of Citizens Bank
of Massachusetts, as aforesaid, and acknowledged the foregoing instrument to be
the free act and deed of Citizens Bank of Massachusetts.
/s/ Paul J. Levenson
-----------------------------------------
Notary Public
My Commission Expires: March 13, 2003
-4-
<PAGE> 4
EXHIBIT "A"
-----------
TRADEMARKS
----------
REGISTRATION NO. TRADEMARK REGISTRATION DATE
- ---------------- --------- -----------------
1,204,106 J. Jill Ltd. [and design] August 3, 1982
1,844,940 J. Jill Ltd. July 12, 1994
1,859,770 J. Jill Ltd. October 25, 1994
1,323,907 Nicole Summers [and design] March 5, 1985
1,329,522 Nicole Summers [and design] April 9, 1985
1,844,937 Nicole Summers July 12, 1994
1,845,725 Nicole Summers July 19, 1994
-5-
<PAGE> 1
ACCOUNT CONTROL AGREEMENT
Citizens Bank of Massachusetts ("Creditor"); DM Management Company
("Debtor"); and Fleet National Bank ("Securities Intermediary") hereby agree as
follows:
PREAMBLE:
1. Securities Intermediary maintains a securities account number 0123680070
in the name of DM Management Company (the "Account"), and of which Account the
Debtor is the entitlement holder.
2. Debtor has granted Creditor a security interest in the Account pursuant
to a certain loan agreement between Debtor and Creditor dated June 5, 1997
(herein the "Loan Agreement") and a certain security agreement between the
Debtor and the Creditor dated June 5, 1997 (herein the "Security Agreement").
3. Creditor, Debtor and Securities Intermediary are entering into this
Agreement to perfect the security interest of Creditor in the Account and intend
that this Agreement shall provide to Creditor control of the Account.
TERMS:
SECTION 1. THE ACCOUNT. Securities Intermediary hereby represents and
warrants to Creditor and Debtor that (a) the Account has been established in the
name of Debtor as recited above, (b) Exhibit A attached hereto is a complete and
accurate statement of the Account and the financial assets carried therein as of
the date hereof, (c) Exhibit A does not reflect any financial assets which are
registered in the name of Debtor, payable to this order, or specially endorsed
to him which have not been endorsed to Securities Intermediary or in blank, and
(d) except for the claims and interest of Creditor and Debtor in the Account
(subject to any claim in favor of Securities Intermediary permitted under
Section 2), Securities Intermediary does not know of any claim to or interest in
the Account. Securities Intermediary will treat all property held by it in the
Account as financial assets under Article 8 of the Uniform Commercial Code of
The Commonwealth of Massachusetts.
SECTION 2. PRIORITY OF LIEN. Securities Intermediary hereby acknowledges
the security interest granted to Creditor by Debtor. Securities Intermediary
hereby confirms that the Account is a cash account and that it will not advance
any margin or other credit to Debtor therein, either directly by executing
purchase orders in excess of any credit balance or money market mutual funds
held in the Account, executing sell orders on securities not held in the Account
or by allowing him to trade in instruments such as options and commodities
contracts that create similar obligations, nor hypothecate any securities
carried in the Account. Securities Intermediary hereby waives and releases all
liens, encumbrances, claims and rights of setoff it may have against the account
or any financial asset carried in the account or any credit balance in the
Account and agrees
<PAGE> 2
that, except for payment of its customary fees and commission pursuant to the
Securities Intermediary Agreement with Debtor, it will not assert any such lien,
encumbrance, claim or right against the Account or any financial asset carried
in the account or any credit balance in the Account. Securities Intermediary
will not agree with any third party that Securities Intermediary will comply
with entitlement orders concerning the Account originated by such third party
without the prior written consent of Creditor and Debtor.
SECTION 3. CONTROL. Securities Intermediary will comply with entitlement
orders originated by Creditor concerning the Account without further consent by
Debtor. Except as otherwise provided in section 2 above and 4 below, Securities
Intermediary shall make trades of financial assets held in the Account at the
direction of Debtor, or his authorized representatives, and comply with
entitlement orders concerning the Account from Debtor, or his authorized
representatives, until such time as Creditor delivers a written notice to
Securities Intermediary that Creditor is thereby exercising exclusive control
over the Account. Such notice may be referred to herein as the "Notice of
Exclusive Control". After Securities Intermediary receives the Notice of
Exclusive Control, it will immediately cease complying with entitlement orders
or other directions concerning the Account originated by Debtor or his
representatives.
SECTION 4. NO WITHDRAWALS. Notwithstanding the provisions of Section 3
above, Securities Intermediary shall neither accept nor comply with any
entitlement order from Debtor withdrawing any financial assets from the Account
nor deliver any such financial assets to Debtor nor pay any free credit balance
or other amount owing from Securities Intermediary to Debtor with respect to the
Account without the specific prior written consent of Creditor.
SECTION 5. STATEMENTS, CONDITIONS AND NOTICES OF ADVERSE CLAIMS. Securities
Intermediary will send copies of all statements, confirmations and other
correspondence concerning the Account simultaneously to each of Debtor and
Creditor at the address set forth below, and as the same may be changed from
time to time by notice hereunder. If any person asserts any lien, encumbrance or
adverse claim against the Account or in any financial asset carried therein,
Securities Intermediary will promptly notify Creditor and Debtor thereof.
SECTION 6. RESPONSIBILITY OF SECURITIES INTERMEDIARY. Except for permitting
a withdrawal or payment in violation of Section 4 above or advancing margin or
other credit to Debtor in violation of Section 2 above, Securities Intermediary
shall have no responsibility or liability to Creditor for making trades of
financial assets held in the Account at the direction of Debtor, or his
authorized representatives, or complying with entitlement orders concerning the
Account from Debtor, or his authorized representatives, which are received by
Securities Intermediary before Securities Intermediary receives a Notice of
Exclusive Control. Securities Intermediary shall have no responsibility or
liability to Debtor for complying with a Notice of Exclusive Control or
complying with entitlement orders concerning the Account originated by Creditor.
Securities Intermediary shall have no duty to investigate or make any
determination as to whether a default exists under any agreement between Debtor
and Creditor and shall comply with a Notice of Exclusive Control even if it
believes that no such default exists. This Agreement does not create any
obligation or duty of Securities Intermediary other than those expressly set
forth herein.
-2-
<PAGE> 3
SECTION 7. TAX REPORTING. To the extent the Securities Intermediary is
required to make any reports of income to the Internal Revenue Service or any
other state or local taxing authority, all items of income, gain, expense and
loss recognized in the Account shall be reported to the Internal Revenue Service
and such state and local taxing authorities under the name and taxpayer
identification number of Debtor.
SECTION 8. OTHER AGREEMENT WITH DEBTOR. In the event of a conflict between
this agreement and any other agreement between the Securities Intermediary and
Debtor, the terms of this Agreement will prevail. Regardless of any provision in
any such agreement, The Commonwealth of Massachusetts shall be deemed to be the
Securities Intermediary's location for the purposes of this Agreement and the
perfection and priority of Creditor's security interest in the Account.
SECTION 9. TERMINATION. The rights and powers granted herein to Creditor
have been granted in order to perfect its security interest in the Account, are
powers coupled with an interest and will neither be affected by the death or
bankruptcy of Debtor nor by any lapse of time. The obligations of Securities
Intermediary under Sections 2, 3, 4 and 5 above shall continue in effect until
the security interest of Creditor in the Account has been terminated and
Creditor has notified Securities Intermediary of such termination in writing.
Upon receipt of such notice the obligations of Securities Intermediary under
Sections 2, 3, 4, and 5 above with respect to the operation and maintenance of
the Account after the receipt of such notice shall terminate. Creditor shall
have no further right to originate entitlement orders concerning the Account and
Securities Intermediary may take such steps as Debtor may request to vest full
ownership and control of the Account in Debtor, including, but not limited to,
transferring all of the financial assets and credit balances in the account to
another securities account in the name of Debtor of his designee.
SECTION 10. THIS AGREEMENT. This Agreement, the schedules and exhibits
hereto and the agreements and instruments required to be executed and delivered
hereunder set forth the entire agreement of the parties with respect to the
subject matter hereof and supersede and discharge all prior agreement (written
or oral) and negotiations and all contemporaneous oral agreements concerning
such subject matter and negotiations. There are no oral conditions precedent to
the effectiveness of this Agreement. The provisions of this Section 10 do not
effect the terms and provisions of the Loan Agreement or the Security Agreement
as between the Debtor and the Creditor .
SECTION 11. AMENDMENTS. No amendment, modification or termination of this
Agreement or waiver of any right hereunder shall be binding on any part hereto
unless it is in writing and is signed by the party to be charged.
SECTION 12. SEVERABILITY. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement, or
the application of such terms or provisions to persons or circumstances, other
than those to which it is held invalid or unenforceable, shall be construed in
all respect as if such invalid or unenforceable term or provision were omitted.
SECTION 13. SUCCESSORS. The terms of this Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
corporate successor or heirs and personal representatives.
-3-
<PAGE> 4
SECTION 14. RULES OF CONSTRUCTION. In this Agreement, words in the singular
number include the plural, and in the plural include the singular; words of the
masculine gender include the feminine and the neuter, and when the sense so
indicates words of the neuter gender may refer to any gender and the word "or"
is disjunctive but not exclusive. This captions and section numbers appearing in
this Agreement are inserted only as a matter of convenience. They do not define,
limit or describe the cope of intent of the provisions of this Agreement.
SECTION 15. NOTICES. Any notice, request or other communication required or
permitted to be given under this Agreement shall be in writing and deemed to
have been properly given when delivered in person, or when sent by telecopy or
other electronic means and electronic confirmation or error free receipt is
received or two days after being sent by certified or registered United States
mail, return receipt requested, postage prepaid, addressed to the party at the
address set forth next to such parties' below. Any party may change his address
for notices in the manner set forth above.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereby may execute this Agreement by signing and delivering one or more
counterparts.
SECTION 17. CHOICE OF LAW. The parties hereto agree that certain material
events, occurrences and transaction relating to this Agreement bear a reasonable
relationship to The Commonwealth of Massachusetts. The validity, terms,
performance and enforcement of this Agreement shall be governed by those laws of
The Commonwealth of Massachusetts which are applicable to agreement which are
negotiated, executed, delivered and performed solely in The Commonwealth of
Massachusetts.
Executed as an instrument under seal as of the 5th day of June, 1997.
Address: CITIZENS BANK OF MASSACHUSETTS
55 Summer Street
Boston, MA 02110 By: /s/ Lori B. Leeth, VP
--------------------------------------
Lori B. Leeth, Vice President
Address: DM MANAGEMENT COMPANY
25 Recreation Park Drive
Hingham, MA 02043 By: /s/ Olga L. Conley
Attn: Olga L. Conley, V.P. ---------------------------------------------
Olga L. Conley, Its Vice President of Finance
Address: FLEET NATIONAL BANK
One Federal Street
Boston, MA 02110 By: /s/ Luke G. Tsokanis
Attn: Luke Tsokanis ---------------------------------------------
Title: Vice President
------------------------------------------
-4-
<PAGE> 1
REAL ESTATE NOTE
Boston, Massachusetts
$1,650,000.00 July 30, 1997
The undersigned DM Management Company, for value received, promises to pay
to the order of Citizens Bank of Massachusetts (hereinafter called the "BANK"),
at its principal office at 55 Summer Street, Boston, Massachusetts 02110, or
such other location that the holder may specify
One Million Six Hundred Fifty Thousand Dollars ($1,650,000.00)
in monthly payments of Nine Thousand One Hundred Sixty-Seven Dollars
($9,167.00), the first such payment to be made thirty (30) days from the date of
this Note, and on the like day of each month thereafter, except a final payment
of the entire unpaid balance of principal shall be made on July 30, 2002, with
interest thereon, as hereinafter provided, until paid in full. This is the Real
Estate Note issued pursuant to the terms of a certain Loan Agreement dated June
3, 1997 by and between Bank and the undersigned, as amended (the "Loan
Agreement").
Interest shall accrue at the rates provided in the Loan Agreement for the
Real Estate Loan as defined therein and shall be paid monthly in accordance with
the Loan Agreement. Overdue principal and overdue interest from time to time
outstanding shall bear interest in accordance with the terms of the Loan
Agreement. If any payment is not made when due hereunder, then, without
limitation on any other right of the Holder, there shall be a late charge as
provided in the Loan Agreement.
If an "Event of Default" (as defined in the Loan Agreement) shall occur,
the entire unpaid principal balance of this note and all accrued and unpaid
interest may become or be declared due and payable without notice or demand, in
the manner and with the effect provided in the Loan Agreement. If any payment is
not made when due hereunder, then, without limitation on any other right of the
Holder, there shall be a late charge.
Every maker, endorser and guarantor of this note, or the obligation
represented by this note, waives presentment, demand, notice, protest, and all
other demands or notices in connection with the delivery, acceptance,
endorsement, performance, default, or enforcement of this note, assents to any
and all extensions or postponements of the time of payment or any other
indulgence, to any substitution, exchange, or release of collateral, and/or to
the addition or release of any other party or person primarily or secondarily
liable, and generally waives all suretyship defenses and defenses in the nature
thereof.
The undersigned will pay all costs and expenses of collection, including
attorneys' fees, incurred or paid by the holder in enforcing this note or the
obligations hereby evidenced, to the extent permitted by law.
<PAGE> 2
No delay or omission of the holder in exercising any right of remedy
hereunder shall constitute a waiver of any such right or remedy.
The holder need not enter payments of principal or interest upon this
note, but may maintain a record thereof on a separate ledger maintained by the
holder.
The word "holder" as used in this note shall mean the payee or indorsee of
this note who is in possession of it or the bearer if this note is at the time
payable to bearer.
This note shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts and shall take effect as an instrument
under seal.
WITNESS: DM MANAGEMENT COMPANY
/s/ Lori B. Leeth By: /s/ Olga L. Conley
- --------------------------------- --------------------------------------
Olga L. Conley
Vice President Finance
<PAGE> 1
MORTGAGE
--------
MORTGAGE made this 30th day of July, 1997, by and between DM Management
Company, a Delaware Corporation with a principal office at 25 Recreation Park
Drive, Hingham, Massachusetts 02043 (herein called "Mortgagor"), and Citizens
Bank of Massachusetts with a principal place of business at 55 Summer Street,
Boston, Massachusetts 02110 (herein called "Mortgagee" which expression shall
include its successors and assigns).
WITNESSETH:
DM Management Company, a Delaware Corporation with a principal place of
business at 25 Recreation Park Drive, Hingham, Massachusetts 02043 (the
"Mortgagor") hereby grants to Citizens Bank of Massachusetts (the "Mortgagee"),
with mortgage covenants, the real property described on Exhibit A (hereinafter
called the "Mortgaged Premises") to secure (a) the full payment of the sum of
$6,000,000.00, or such lesser amount which shall have been advanced, together
with interest and other charges, all as provided in a certain "Revolving Note"
dated June 5, 1997 of the Mortgagor (as defined in a certain Loan Agreement
("Loan Agreement") dated June 5, 1997 by and between the Mortgagor and the
Mortgagee) to the order of the Mortgagee and delivered pursuant to the Loan
Agreement in the original face amount of $6,000,000.00, together with all
substitutions or replacements therefor and all renewals or extensions thereof
and the full performance of all other obligations of the maker of said note as
provided therein; (b) the full payment of the sum of $1,650,000.00, as provided
in a certain "Real Estate Note" (as defined in the Loan Agreement) of the
Mortgagor to the order of the Mortgagee, executed and delivered by the Mortgagor
to the Mortgagee, pursuant to the Loan Agreement in the full amount of
$1,650,000.00, with interest and other charges as provided therein, together
with all substitutions and replacements therefor and all renewals and extensions
thereof and the full performance of all other obligations of the maker of said
note as provided therein; (c) the full payment of the sum of $3,600,000.00, with
interest and other charges, all as provided in a certain "Term Note" (as defined
in the Loan Agreement) of the Mortgagor to the order of the Mortgagee dated June
5, 1997, executed and delivered by the Mortgagor to the Mortgagee pursuant to
the Loan Agreement, in the original face amount of $3,600,000.00, together with
all substitutions or replacements therefor and all renewals or extensions
thereof and the full performance of all other obligations of the maker of said
note as provided therein; (d) the full payment and performance by the Mortgagor
of all indebtedness, obligations and liabilities of the Mortgagor to the
Mortgagee, direct or indirect, absolute or contingent, now existing or hereafter
arising (including, without limitation, all "Obligations", as defined in the
Loan Agreement) which Loan Agreement provides, among other things, for the
establishment of a "Revolving Loan" (as defined therein) pursuant to which
"Advances" (as defined therein) may be made from time to time, and for repayment
of all or a portion of the outstanding balance of such Advances together with
interest and other charges, all in accordance therewith, for the issuance of
letters of credit pursuant to "L/C Applications" (as defined therein) therein
and for the grant of "Loans" (as defined therein) as provided therein; and (e)
the full payment and performance of all covenants and agreements herein
contained or referred to on the part of the Mortgagor to be kept and performed
and payment and performance of all other indebtedness, liabilities or
obligations of the Mortgagor to the Mortgagee, direct or indirect, absolute or
contingent, now or hereafter existing (collectively hereafter referred to as
"Obligations").
Together with all furnaces, machinery, articles, fixtures and equipment
thereon and used in connection with the occupation, maintenance, use or
operation thereof including, without limitation, heaters, gas and electric
fixtures, screens, screen doors, shades, storm doors and windows, awnings,
garbage incinerator, receptacles and disposals, refrigerators and refrigeration
equipment, ventilating and air conditioning equipment, built in cases,
<PAGE> 2
cabinets, counters and drawers, door bell and alarm systems, portable or
sectional buildings, and all other fixtures or equipment of whatever kind or
nature at present contained in or on the Mortgaged Premises, or placed therein
prior to the full payment and discharge of this mortgage including without
limitation together with the proceeds of the foregoing.
Together with all of Mortgagor's right, title and interest in and to all
leases, tenancies and occupancies (the "Leases") whether written or not, which
have been entered into, or which may at any time in the future be entered into
regarding the Mortgaged Premises, together with all rent, income and profit
arising out of the Leases and all security and other deposits held by or held on
behalf of Mortgagor.
TO HAVE AND TO HOLD said granted Mortgaged Premises with all the
privileges and appurtenances to the same belonging to the said Mortgagee and its
successors and assigns as its own property for its own use and benefit forever.
The Mortgagor and Mortgagor's heirs, executors, administrators, successors and
assigns do hereby covenant, grant and agree to, and with the said Mortgagee, and
its successors and assigns, that until the delivery hereof Mortgagor is the
lawful owner of said Mortgaged Premises and is possessed thereof in Mortgagor's
own rights and fee simple; and that Mortgagor has full power and authority to
grant and convey the same in the manner aforesaid; that the said Mortgaged
Premises are free and clear of all and every encumbrance other than those shown
on Exhibit "A", and that Mortgagor will, and Mortgagor's heirs, executors,
administrators, successors and assigns shall and will warrant and defend the
same to the Mortgagee, and its successors and assigns, against the lawful claims
and demands of any person or persons whomsoever.
Provided, nevertheless, that if the said Mortgagor, and Mortgagor's heirs,
executors, administrators, successors and assigns shall faithfully perform the
following covenants and conditions, this mortgage shall be void, and otherwise
to remain in full force.
The Mortgagor for itself and Mortgagor's heirs, executors, administrators,
successors and assigns covenants and agrees as follows:
All Obligations shall be fully and timely kept and performed.
Mortgagor will pay all taxes, assessments, and other governmental
or municipal charges, fines or impositions arising in connection with the
Mortgaged Premises, and in default thereof the Mortgagee may pay the same.
That Mortgagor will keep the Mortgaged Premises above conveyed in
good order and condition and will not permit any waste thereof, reasonable wear
and tear excepted.
Mortgagor will keep the structures, fixtures, and improvements now
existing or hereafter erected or situated on the Mortgaged Premises insured
against loss by fire and other hazards, casualties and contingencies, as
Mortgagee may, from time to time, require, said insurance to be placed with such
company(ies) and be for such periods and in such amounts as may be required by
the Mortgagee, all such insurance policies to be deposited with, and payable in
case of loss to Mortgagee, subject only to the rights of the holders of those
mortgages, if any, shown on Exhibit "A" hereto, hereby granting to Mortgagee in
the event of default authorization as attorney irrevocable of the Mortgagor to
cancel such insurance and to retain the return premium thereof and to transfer
such insurance to any
-2-
<PAGE> 3
person or persons claiming title to the Mortgaged Premises or any part thereof
by virtue of foreclosure proceedings or otherwise.
The Mortgagor covenants to cause, at the request of the Mortgagee, the
Mortgagee to be named as an additional insured on any liability insurance policy
maintained in respect to the Mortgaged Premises and further covenants to effect
such liability insurance at the request of the Mortgagee, such insurance to be
on such terms and in such form and for such periods and amounts as the Mortgagee
shall, from time to time, approve or require.
The Mortgagor covenants, upon demand by the Mortgagee, to make equal
monthly payments to the Mortgagee sufficient to amortize the amount (estimated
by the Mortgagee) of all taxes and assessments laid against the Mortgaged
Premises, within a period ending one month prior to the due date of such taxes
and assessments. The Mortgagee shall hold such monthly payments to pay such
taxes and assessments when due and payable, and in the event of the foreclosure
of this mortgage, all such payments shall be credited to the amount of the
principal obligations remaining unpaid to the extent that they have not been
used for the payment of taxes and assessments as provided herein. So long as
Mortgagor shall make monthly payments of such taxes to any mortgagee whose
mortgage is prior in right to the mortgage herein granted, the covenant of the
Mortgagor with respect to said monthly payments of taxes shall be deemed to have
been performed.
That if the Mortgagor fails to make any payment provided for in the
documents, instruments or agreements evidencing the Obligations, including
without limitation, this Mortgage Deed (hereinafter, collectively, the
"Instruments"), for taxes, insurance premiums, repair of the Mortgaged Premises,
or otherwise, then the Mortgagee may pay the same, and all sums so advanced,
with interest thereon at the same rate as then prevailing under the Loan
Agreement, from the date of such advance, shall be added to the principal of the
Obligations, and shall be secured hereby;
That in the event the said Mortgaged Premises or any part thereof shall be
taken or condemned for public or quasi-public purposes or by the proper
authority, the Mortgagor shall have no claim against the award for damages or be
entitled to any portion of the award until the Obligations have been paid and
performed in full, and all rights to damages of the Mortgagor are hereby
assigned to the Mortgagee to the extent of any such Obligations that remain
unpaid, the Mortgagor, however, having the right to appeal such awards in the
Courts of competent jurisdiction;
That the Mortgagor shall not from this time forward convey or permit the
transfer of the Mortgaged Premises or the structures or improvements thereon, or
any interest therein, (legal or equitable), without the prior written consent of
the Mortgagee;
That if there shall be any default on any of the terms, conditions, or
covenants of the Instruments, all sums due the Mortgagee by the Mortgagor shall
at the option of the Mortgagee become immediately due and payable, and the
Mortgagee or its assigns shall have the STATUTORY POWER OF SALE.
The Obligations which this Mortgage Deed secures may also be secured by
other security documents and agreements and the Mortgagee shall have the
absolute right, in its sole discretion, to determine which rights, security
liens, and security interests it shall at any time pursue or take any action in
respect of, without in any way modifying or affecting any rights thereunder.
-3-
<PAGE> 4
This mortgage is upon the STATUTORY CONDITIONS, for any breach of which
the Mortgagee shall have the STATUTORY POWER OF SALE.
The Mortgagor represents that to the best of Mortgagor's knowledge and
belief neither the Mortgagor nor any person for whose conduct the Mortgagor is
responsible ever:
(i) owned, occupied, or operated a site or vessel on which any
hazardous material or oil was or is stored (except if such storage was or
is in compliance with all laws, ordinances, and regulations pertaining
thereto) transported, or disposed of (the term site, vessel, and hazardous
material respectively being used in this Section with the meaning given
those terms under New Hampshire R.S.A. l47-B as amended);
(ii) directly or indirectly transported, or arranged for the
transport, of any hazardous material or oil (except if such transportation
was or is in compliance with all laws, ordinances and regulations
pertaining thereto);
(iii) caused or was legally responsible for any release, or
threat of release, of any hazardous material or oil; or
(iv) received notification from any federal, state, or other
governmental authority of: any potential, known, or threat of release of
any hazardous material or oil on or from the Mortgaged Premises or any
other site or vessel owned, occupied, or operated either by the Mortgagor
or any person for whose conduct the Mortgagor is responsible or whose
liability may result in a lien on the Mortgaged Premises; or the
incurrence of any expense of loss by such governmental authority, or by
any other person, in connection with the assessment, containment, or
removal of any release, or threat of release, of any hazardous material or
oil from the Mortgaged Premises or any such site or vessel.
The Mortgagor represents and warrants that to the best of Mortgagor's
knowledge and belief no hazardous material or oil was ever, or is now, stored on
(except in compliance with all laws, ordinances, and regulations pertaining
thereto), transported, or disposed of on the Mortgaged Premises.
The Mortgagor shall:
(i) not store (except in compliance with all laws, ordinances, and
regulations pertaining thereto), or dispose of any hazardous material or
oil on the Mortgaged Premises, or on any other site or vessel owned,
occupied, or operated either by the Mortgagor, or by any person for whose
conduct Mortgagor is responsible;
(ii) neither directly or indirectly transport or arrange for the
transport of any hazardous material or oil (except in compliance with all
laws, ordinances, and regulations pertaining thereto);
(iii) take all such action, including, without limitation, the
conducting of engineering tests (at the sole expense of the Mortgagor) (x)
to confirm that no hazardous material or oil is or ever was stored on the
Mortgaged Premises (y) to assess, contain, and remove any such hazardous
material or oil on the Mortgaged Premises, and (z) to qualify for any
insurance program or safe harbor which may be available under said R.S.A.
l47-B, as amended; and
-4-
<PAGE> 5
(iv) provide the Mortgagee with written notice: (x) upon the
Mortgagor's obtaining knowledge of any potential or known release, or
threat of release, of any hazardous material or oil at or from the
Mortgaged Premises, or any other site or vessel owned, occupied or
operated by the Mortgagor or by any person for whose conduct the Mortgagor
is responsible or whose liability may result in a lien on the Premises;
(y) upon the Mortgagor's receipt of any notice to such effect from any
federal, state, or other governmental authority; and (z) upon the
Mortgagor's obtaining knowledge of any incurrence of any expense or loss
by such governmental authority in connection with the assessment,
containment, or removal of any hazardous material or oil for which expense
or loss the Mortgagor may be liable or for which expense a lien may be
imposed on the Mortgaged Premises.
The Mortgagor shall indemnify, defend, and hold the Mortgagee harmless of
and from any claim brought or threatened against the Mortgagee by any person,
entity, or governmental agency or authority on account of the failure by the
Mortgagor to comply with the terms and provisions hereof (each of which may be
defended, compromised, settled, or pursued by the Mortgagee with counsel of the
Mortgagor's selection, but at the expense of Mortgagor). The within
indemnification shall survive payment of the Obligations and/or termination,
release, or discharge executed by the Mortgagee in favor of the Mortgagor.
The obligations of Mortgagor hereunder, if more than one, shall be joint
and several.
If any provision of this Mortgage or portion of such provision or the
application thereof to any person or circumstance shall to any extent be held
invalid or unenforceable, the remainder of this Mortgage (or the remainder of
such provision) and the application thereof to other persons or circumstances
shall not be affected thereby.
The use of the singular herein shall include the plural, and the use of
the plural shall include the singular, and the use of the masculine gender shall
include the feminine and the use of the feminine shall include the masculine.
This agreement shall be governed and construed according to the laws of
the State of New Hampshire.
This agreement shall bind Mortgagor and Mortgagor's heirs, executors,
administrators, successors and assigns and shall inure to the benefit of the
Mortgagee and its successors and assigns.
-5-
<PAGE> 6
IN WITNESS WHEREOF, Mortgagor has caused this instrument to be executed on
this 30th day of July, 1997.
Witness DM MANAGEMENT COMPANY
/s/ Lori B. Leeth By: Olga L. Conley
- -------------------------- ---------------------------------------
Olga L. Conley, Vice President Finance
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On this 30th day of July, 1997, before me, personally appeared the
undersigned officer, Olga L. Conley, known to me (or satisfactorily proven) to
be the person whose name is subscribed to the foregoing written instrument as
the Vice President Finance of DM Management Company in its name and on its
behalf and acknowledged that they executed the same for the purposes therein
contained.
IN WITNESS WHEREFORE I have hereunto set my hand and official seal.
/s/ Cynthia B. Gaiser
---------------------------------
Notary Public
My Commission Expires: 4/10/98
<PAGE> 1
July 8, 1997
Mr. Randy Pike
President
Pike Industries, Inc.
95 Laconia Road
Tilton, NH 03276
Re: Letter of Intent - Tilcon Site, 355 +/- acres at Exit 20, Tilton, NH
Dear Randy:
This letter will summarize the terms and conditions that DM Management Company
would be in general agreement with in forming a formal proposal to enter into a
purchase and sale agreement for the acquisition of the above-referenced
property. This letter shall serve as a first draft of a Letter of Intent between
Buyer and Seller for purposes of reducing to writing the general points
necessary to arrive at an agreement before proceeding into the formal purchase
and sale agreement in a form acceptable to both parties and their respective
legal counsel.
SELLER: Pike Industries, Inc.
95 Laconia Road
Tilton, NH 03276
BUYER: DM Management Company
One Winterbrook Way
Meredith, NH 03253
PURCHASE PRICE: Three million, six hundred fifty thousand dollars
($3,650,000.00) payable by certified check or wire transfer
---------------
at closing, subject to normal closing adjustments.
DEPOSIT: Ten thousand dollars
$10,000.00 deposit ("DEPOSIT") to be held in an escrow
----------
account by an escrow agent mutually satisfactory to both
parties, and an additional deposit of
TWO HUNDRED THOUSAND AND 00/100 ("DEPOSIT") upon execution
--------------------------------
of the final Purchase and Sale Agreement.
The deposit(s), plus accrued interest, will be applied to
the purchase
1
<PAGE> 2
price at closing unless Buyer becomes in default as defined
in the Purchase and Sale Agreement.
PURCHASE AND
SALE AGREEMENT: To be negotiated by both parties within 14 days from the
acceptance of this Letter of Intent by both Buyers and
Sellers.
REVIEW PERIOD: Commencing upon the execution by both parties of the
Purchase and Sale Agreement, there will be a 30 day period
for due diligence (the "REVIEW PERIOD"). During the review
period, Buyer, and its agents, shall examine the property
(hazardous waste and any restoration requirements that may
be necessary to insure that the site will be in compliance
with all state and local laws/ordinances concerning the
same).
DOCUMENTS: Seller will furnish to Buyer (subject to availability) the
following documents:
1. Copies of any environmental reports (Level I) and any
additional reports that have been prepared on the
property at the time of acquisition by Pike Industries,
Inc.
2. Copies of any applicable approvals pertaining to the
subject premises.
3. Copies of any surveys or plans of the subject premises,
including certification that the wetland studies have
been reviewed to ascertain that they are accurate for
use as high intensity studies for submission of site
plans to the Town of Tilton and the New Hampshire State
Wetlands Bureau and other DES departments.
4. Title abstract, if available.
5. A new legal description based on the survey of the land
by Yerkes Surveying Consultants, as shown on
preliminary plans of land prepared for Pike Industries,
Inc. dated March 31, 1997 and shown on six (6) separate
sheets.
UTILITIES: The Buyer would require that the site be served by public
water and sewer in lines sufficient in size to accommodate
the development of the 355 +/- acres and that said lines be
extended to the lower driveway proposed by the Buyer on
concept plans to be refined and submitted. Buyer
acknowledges that the water system is under the control of a
private owner who is subject to regulation by the Public
Utilities Commission and New Hampshire Department of
Environmental
2
<PAGE> 3
Services, Water Supply Division and, therefore, acknowledges
that the Seller has no control over the water supply itself.
SITE PREPARATION: The Buyer would request that the Seller prepare the site in
accordance to a grading plan to be submitted by the Buyer
through its consultants, Sasaki Associates. In general, the
building elevation shall be at 493 ft. and the exterior
elevations around the building, including the loop roadway,
shall be at approximately 490 ft. Said grading plan to be
mutually acceptable to both parties and to be submitted
prior to execution of a purchase and sale agreement.
RIGHT OF WAY: Right of way along Route 132 has to be expanded by 20 feet
over and above the existing 50 ft. ROW. If the existing land
owned by JoAnne Oliver at Tax Map R23-0004 and R23-0004-0001
has not been exchanged with land of the Seller, adjacent to
R23-0001 (4 Sanborn Road), prior to execution of the
purchase and sale agreement, this provision will need to be
addressed. Buyer and Seller will agree to work out said
arrangements as part of the purchase and sale agreement and
the subdivision and site plan process necessary to complete
this transaction.
OTHER: The Buyer must be able to take title to the land of JoAnne
Oliver outlined above and to other land along Route 132
owned by DeLong, Fabian and Jesseman; said parcels currently
under option to the Buyer or Buyer=s agent. Furthermore,
Buyer acknowledges that the Seller is also obligated to
convey approximately 18 acres of land in the southeast
corner (immediately adjacent to Exit 20 northbound ramps) to
The State of New Hampshire Department of Transportation for
future improvements to said ramp.
CLOSING DATE: On or before September 30, 1997
CLOSING PLACE: Attorney's office for Buyer or Seller, Belknap County
Registry of Deeds or Financing Institution as mutually
determined by the parties.
CONDITIONS
OF CLOSING: Subject property must have good, clear record and marketable
title, in addition to any other conditions outlined as a
condition of closing as determined in a final purchase and
sale agreement.
REAL ESTATE
BROKER: Buyer shall be responsible for the payment of a brokerage
commission to Mr. Kent Locke as agent for the Buyer. Buyer
and Seller acknowledge that they have not dealt with any
other broker (In its dealings with the Seller) regarding
this transaction.
EXCLUSIVITY: From the date of the execution of this Letter of Intent, the
Seller will remove the property from the marketplace and not
enter any
3
<PAGE> 4
negotiations prior to signing a Purchase and Sale Agreement
with the Buyer. This provision shall expire within 14 days
from the execution of this letter, unless extended by mutual
agreement. The purpose of this Letter of Intent is to serve as
an interim agreement of terms and conditions until a Purchase
and Sale Agreement can be executed, time being of the essence.
Prepared and Submitted by Kent D. Locke, Jr. of DeWolfe Keewaydin.
Respectfully Submitted By:
/s/ Kent D. Locke, Jr.
Kent D. Locke, Jr.
Realtor
AGREED TO AND ACCEPTED BY:
SELLER: BUYER:
PIKE INDUSTRIES, INC. DM MANAGEMENT
By /s/ Alan Monaghan By /s/ Sam Shanaman
----------------------------- ----------------------------------------
Alan Monaghan, Vice President Sam Shanaman, Executive Vice President
Date July 17, 1997 Date 7/16/97
--------------------------- --------------------------------------
4
<PAGE> 1
EXHIBIT 11.1
DM MANAGEMENT COMPANY AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted-average shares of common stock outstanding
during the period ................................. 4,548,453 4,296,652 4,529,189 4,291,962
Assumed exercise of options ......................... 602,559 439,902 527,347 327,850
--------- --------- --------- ---------
Weighted-average common and common equivalent shares
outstanding ....................................... 5,151,012 4,736,554 5,056,536 4,619,812
========= ========= ========= =========
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FULLY DILUTED:
Weighted-average shares of common stock outstanding
during the period ................................. 4,548,453 4,296,652 4,529,189 4,291,962
Assumed exercise of options ......................... 689,528 498,607 680,337 382,080
--------- --------- --------- ---------
Weighted-average common and common equivalent shares
outstanding ....................................... 5,237,981 4,795,259 5,209,526 4,674,042
========= ========= ========= =========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT JUNE 28, 1997 AND FROM THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 28, 1997 CONTAINED IN THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 28, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-Q.
</LEGEND>
<CIK> 0000910721
<NAME> DM MANAGEMENT COMPANY
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 6,388
<SECURITIES> 3,872
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 11,279
<CURRENT-ASSETS> 28,936
<PP&E> 7,033
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,995
<CURRENT-LIABILITIES> 15,132
<BONDS> 4,446
0
0
<COMMON> 46
<OTHER-SE> 23,371
<TOTAL-LIABILITY-AND-EQUITY> 42,995
<SALES> 57,428
<TOTAL-REVENUES> 57,428
<CGS> 25,415
<TOTAL-COSTS> 35,628
<OTHER-EXPENSES> 18,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 2,862
<INCOME-TAX> 1,116
<INCOME-CONTINUING> 1,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,746
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
</TABLE>
