<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 SEPTEMBER 27, 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: (781) 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 November 5, 1997: 5,675,786
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DM MANAGEMENT COMPANY & SUBSIDIARY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.........................................................................3-8
Consolidated Balance Sheets at September 27, 1997, September 28, 1996 and December 28, 1996.................3
Consolidated Statements of Operations for the three months and the nine months ended
September 27, 1997 and September 28, 1996 ................................................4
Consolidated Statements of Cash Flows for the nine months ended September 27, 1997 and
September 28, 1996........................................................................5
Notes to Consolidated Financial Statements................................................................6-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................9-13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................................................................14
Signature....................................................................................................................15
</TABLE>
2
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DM MANAGEMENT COMPANY & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 28,
ASSETS 1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................................. $ 582 $ 296 $ 384
Marketable securities, net of unrealized loss ............................. 3,888 3,862 3,879
Inventory ................................................................. 18,498 10,200 12,637
Prepaid catalog expenses .................................................. 5,949 3,875 2,714
Deferred income taxes ..................................................... 2,748 -- 2,670
Other current assets ...................................................... 2,218 1,915 724
-------- -------- --------
Total current assets ................................................. 33,883 20,148 23,008
Property and equipment, net .................................................... 7,930 6,994 7,173
Deferred income taxes .......................................................... 7,026 -- 7,928
-------- -------- --------
Total assets ......................................................... $ 48,839 $ 27,142 $ 38,109
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 10,685 $ 6,943 $ 8,143
Accrued expenses .......................................................... 3,258 1,658 1,877
Accrued customer returns .................................................. 3,752 1,441 1,309
Short-term borrowings ..................................................... -- 1,721 --
Current portion of long-term debt ......................................... 836 864 1,017
-------- -------- --------
Total current liabilities ............................................ 18,531 12,627 12,346
Long-term debt, less current portion ........................................... 6,150 4,769 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,
4,675,786, 4,326,157 and 4,456,908 shares issued and outstanding as of
September 27, 1997, September 28, 1996 and December 28,
1996, respectively ....................................................... 47 43 44
Additional paid-in capital ................................................ 40,535 39,902 40,048
Unrealized loss on marketable securities .................................. (107) (132) (115)
Accumulated deficit ....................................................... (16,317) (30,067) (18,754)
-------- -------- --------
Total stockholders' equity ........................................... 24,158 9,746 21,223
-------- -------- --------
Total liabilities and stockholders' equity ........................... $ 48,839 $ 27,142 $ 38,109
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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DM MANAGEMENT COMPANY & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales .................................................. $ 31,649 $ 20,541 $ 89,077 $ 61,859
Costs and expenses:
Product ............................................... 13,984 9,088 39,399 26,857
Operations ............................................ 6,335 3,299 16,548 10,391
Selling ............................................... 7,459 5,680 21,595 17,677
General and administrative ............................ 2,720 2,114 7,454 5,511
Interest, net ......................................... 18 82 86 261
-------- -------- -------- --------
Income from continuing operations before income taxes ...... 1,133 278 3,995 1,162
Provision for income taxes ................................. 442 28 1,558 117
-------- -------- -------- --------
Income from continuing operations .......................... 691 250 2,437 1,045
Discontinued operations:
Loss from operations .................................. -- -- -- (476)
Loss on disposal ...................................... -- -- -- (8,511)
-------- -------- -------- --------
Loss from discontinued operations .......................... -- -- -- (8,987)
-------- -------- -------- --------
Net income (loss) .......................................... $ 691 $ 250 $ 2,437 $ (7,942)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE:
Primary:
Continuing operations ................................. $ 0.13 $ 0.05 $ 0.48 $ 0.22
Discontinued operations ............................... -- -- -- (1.93)
-------- -------- -------- --------
Net income (loss) per share ........................... $ 0.13 $ 0.05 $ 0.48 $ (1.71)
======== ======== ======== ========
Weighted-average common and common equivalent
shares outstanding .................................... 5,268 4,730 5,127 4,657
Fully diluted:
Continuing operations ................................. $ 0.13 $ 0.05 $ 0.46 $ 0.22
Discontinued operations ............................... -- -- -- (1.91)
-------- -------- -------- --------
Net income (loss) per share ........................... $ 0.13 $ 0.05 $ 0.46 $ (1.69)
======== ======== ======== ========
Weighted-average common and common equivalent
shares outstanding .................................... 5,308 4,730 5,270 4,693
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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DM MANAGEMENT COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................................... $ 2,437 $ (7,942)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation ......................................................................... 1,226 744
Deferred income taxes ................................................................ 824 --
Liability for expected losses ........................................................ (162) 1,761
Write-off of intangible assets ....................................................... -- 5,336
Amortization related to discontinued operations ...................................... -- 189
Changes in assets and liabilities:
Increase in inventory ................................................................ (5,861) (346)
(Increase) decrease in prepaid catalog expenses ...................................... (3,235) 1,791
Increase in other current assets ..................................................... (1,333) (81)
Increase in accounts payable and accrued expenses .................................... 3,923 665
Increase in accrued customer returns ................................................. 2,443 576
------- --------
Net cash provided by operating activities ................................................. 262 2,693
Cash flows used in investing activities:
Additions to property and equipment .................................................. (1,983) (1,028)
Proceeds from sale of marketable securities .......................................... -- 6
Payment for purchase of Carroll Reed ................................................. -- (907)
------- --------
Net cash used in investing activities ..................................................... (1,983) (1,929)
Cash flows provided by (used in) financing activities:
Borrowings under debt agreements ..................................................... 10,679 21,569
Payments of debt borrowings .......................................................... (9,144) (22,287)
Principal payments on capital lease obligations ...................................... (106) (130)
Proceeds from stock transactions ..................................................... 490 39
------- --------
Net cash provided by (used in) financing activities ....................................... 1,919 (809)
Net increase (decrease) in cash and cash equivalents ...................................... 198 (45)
Cash and cash equivalents at:
Beginning of period .................................................................. 384 341
------- --------
End of period ........................................................................ $ 582 $ 296
======= ========
SUPPLEMENTAL INFORMATION:
Cash paid for interest .................................................................... $ 333 $ 416
Cash paid for taxes ....................................................................... $ 401 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements included herein have been prepared by DM
Management Company (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and in the opinion of
management contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to such
rules and regulations. Accordingly, although the Company believes that the
disclosures are adequate to make the information presented not misleading, these
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report to Stockholders for the transition period ended December 28, 1996.
A. DEBT:
Pursuant to the Company's loan agreement with a commercial bank, the
Company's credit facilities at September 27, 1997 consisted of (i) a $1,650,000
real estate loan (the "Real Estate 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"). All of the credit facilities under the loan agreement
are collateralized by a first lien mortgage on the Company's operations and
fulfillment center in Meredith, New Hampshire and a security interest in
substantially all assets of the Company other than its marketable securities.
The Term Loan is also collateralized by the Company's marketable securities. The
terms of the Company's credit facilities contain various lending conditions and
covenants, including restrictions on permitted liens and required compliance
with certain financial coverage ratios.
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 5, 1997 through its maturity
on June 1, 2002. The Term Loan provides for several interest rate options. At
September 27, 1997 the Term Loan bore interest at 7.22% per annum. Outstanding
letters of credit at September 27, 1997 totaled approximately $1,155,000.
A summary of the Company's outstanding long-term credit facilities follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 28,
1997 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Real estate loans ........................................ $1,641 $1,448 $1,421
Term loans ............................................... 3,420 - 4,000
Revolver borrowings ...................................... 1,895 4,000 -
Capitalized lease obligations ............................ 30 185 136
------ ------ ------
Total long-term debt ................................ 6,986 5,633 5,557
Less current maturities ............................. 836 864 1,017
------ ------ ------
Long-term debt, less current portion ................ $6,150 $4,769 $4,540
====== ====== ======
</TABLE>
At September 28, 1996, the Company also had short-term borrowings
outstanding of $1,721,000. The Company had no short-term borrowings outstanding
at September 27, 1997.
Subsequent to September 27, 1997, the Company and its bank negotiated an
amendment to the Company's credit facilities that, among other things, increased
the aggregate principal availability thereunder from $13,750,000 to $18,050,000,
included the Company's recently purchased land in Tilton, New Hampshire as
collateral for all borrowings thereunder and combined the Revolver and Letter of
Credit Line into a single $8,500,000 facility (the "New Revolver"). The New
Revolver provides for several interest rate options and expires on June 1, 1999.
The Company is required to pay a commitment fee of 1/8th of 1% per annum on the
unused portion of the New Revolver commitment. The increase in aggregate
principal availability was used to fund a $4,300,000 bridge loan (the "Bridge
Loan") that bears interest at 7.25% per annum and expires on February 28, 1998.
The Company expects to negotiate a construction loan to finance some of the cost
of constructing the Company's new Tilton, New Hampshire facility. That
construction loan would replace the Bridge Loan.
6
<PAGE> 7
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
B. DISCONTINUED OPERATIONS:
On May 20, 1996, the Company announced its plan to divest its Carroll Reed
segment due to the incompatibility of the customer base and product line of this
segment with those of its other 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. The results of the
Carroll Reed operations through May 20, 1996 have been classified as loss from
discontinued operations in the accompanying consolidated statement of operations
for the nine months ended September 28, 1996. Since May 20, 1996, the results of
this discontinued operation have been charged to the liability from expected
losses established in connection with the divestiture and have had no impact on
the Company's operating results. The Company has completed the phase-out of its
Carroll Reed segment and has utilized its reserve for expected losses.
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>
SEPTEMBER 28, DECEMBER 28,
1996 1996
------------ ------------
<S> <C> <C>
Current assets:
Inventory .............................................................. $1,968 $ -
Prepaid catalog expenses ............................................... 328 -
Other current assets ................................................... 30 49
------ -----
Total current assets ................................................ 2,326 49
------ -----
Current liabilities:
Accounts payable and accrued expenses .................................. 16 -
Accrued customer returns ............................................... 59 9
Liability for expected losses .......................................... 1,761 231
------ -----
Total current liabilities ........................................... 1,836 240
------ -----
Net current assets (liabilities) of discontinued operations ...... $ 490 $(191)
====== =====
</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.
7
<PAGE> 8
DM MANAGEMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
D. 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 NINE MONTHS ENDED
----------------------------- ------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Pro forma basic EPS:
Continuing operations ........................................ $ 0.15 $ 0.06 $ 0.53 $ 0.24
Discontinued operations ...................................... -- -- -- (2.09)
------ ------ ------ ------
Net income (loss) per share .................................. $ 0.15 $ 0.06 $ 0.53 $(1.85)
====== ====== ====== ======
Weighted average common and common equivalent shares
outstanding (in thousands) ................................... 4,667 4,312 4,575 4,299
Pro forma diluted EPS:
Continuing operations ........................................ $ 0.13 $ 0.05 $ 0.48 $ 0.22
Discontinued operations ...................................... -- -- -- (1.93)
------ ------ ------ ------
Net income (loss) per share .................................. $ 0.13 $ 0.05 $ 0.48 $(1.71)
====== ====== ====== ======
Weighted average common and common equivalent shares
outstanding (in thousands) ................................... 5,268 4,730 5,127 4,657
</TABLE>
E. COMMITMENTS:
On September 30, 1997 the Company purchased approximately 360 acres of
land in Tilton, New Hampshire for $4,152,000. The site is intended to house a
new fulfillment center expected to be operational by early 1999. The estimated
cost of this new facility, including land, construction and equipment, ranges
from $33.0 to $37.0 million.
F. SUBSEQUENT EVENT:
Subsequent to September 27, 1997, the Company sold 1,000,000 shares of
common stock in an underwritten public offering in which the price to the
public of the common stock was $13.50 per share. In addition, the Company has
been notified that the underwriters are exercising their over-allotment option
with respect to an additional 412,861 shares of common stock to be sold by the
Company. Also in connection with the public offering, 1,752,404 shares of the
Company's common stock were sold by selling stockholders. The Company will not
receive any of the net proceeds from the sale of shares by the selling
stockholders.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Net income increased 176.4% to $0.7 million for the three months
ended September 27, 1997 ("third quarter 1997") as compared to $0.3
million for the three months ended September 28, 1996 ("third quarter
1996"). Net income per share increased 160.0% to $0.13 per share for third
quarter 1997 as compared to $0.05 per share for third quarter 1996. Third
quarter 1997 marked the fifth consecutive quarter of profit improvement as
compared to the comparable quarter of the prior year. The Company
attributes its profit improvement to strong customer response to its
continuing focus on creative presentation, merchandise differentiation and
brand building. The Company's J. Jill concept performed particularly well
during the three months and nine months ended September 27, 1997.
The following table sets forth the Company's consolidated statements
of operations as a percentage of net sales and certain selected operating
data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Net sales.................................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Product.................................................. 44.2 44.2 44.2 43.4
Operations............................................... 20.0 16.1 18.6 16.8
Selling.................................................. 23.6 27.7 24.2 28.6
General and administrative............................... 8.6 10.3 8.4 8.9
Interest, net............................................ -- 0.4 0.1 0.4
------ ----- ------ ------
Income from continuing operations before income taxes......... 3.6 1.3 4.5 1.9
Provision for income taxes.................................... 1.4 0.1 1.8 0.2
------ ----- ------ ------
Income from continuing operations............................. 2.2 1.2 2.7 1.7
Loss from discontinued operations............................. -- -- -- (14.5)
------ ----- ------ ------
Net income (loss)............................................. 2.2% 1.2% 2.7% (12.8)%
====== ===== ====== ======
SELECTED OPERATING DATA (IN THOUSANDS):
Catalog circulation (1) 10,900 8,700 32,300 28,100
Active customers (2) 794 639 794 639
</TABLE>
(1) In order to more closely match net sales to catalog circulation, the
Company calculates catalog circulation on a percentage of completion
basis. This calculation takes into account the total number of
catalogs mailed during all periods and the Company's estimate of the
expected sales life of each catalog edition. As used throughout this
Form 10-Q, the term "catalog circulation" refers to circulation of
the Company's catalogs calculated in such fashion.
(2) As used throughout this Form 10-Q, the term "active customers" means
customers who have made a purchase from the Company within the
previous 24 months.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 27, 1997 WITH THE THREE
MONTHS ENDED SEPTEMBER 28, 1996
Net Sales
During third quarter 1997 net sales increased by $11.1 million, or
54.1%, to $31.6 million from $20.5 million during third quarter 1996.
Catalog circulation increased by 25.3% to 10.9 million during third
quarter 1997 from 8.7 million during third quarter 1996. The net sales and
catalog circulation increases were primarily the result of significant net
sales and circulation growth in the Company's J. Jill concept. During 1996
the Company merged its The Very Thing! concept into its Nicole Summers
concept. Circulation, and to a lesser degree, net sales for the Nicole
Summers concept decreased during third quarter 1997 compared to combined
circulation and net sales for the Nicole Summers and The Very Thing!
concepts during third quarter 1996. The number of active customers grew to
794,000 at September 27, 1997 from 639,000 at September 28, 1996, an
increase of 24.3%.
9
<PAGE> 10
Product
During third quarter 1997 product costs increased by $4.9 million, or
53.9%, to $14.0 million from $9.1 million during third quarter 1996. As a
percentage of net sales, product costs remained unchanged at 44.2% during
both three month periods.
Operations
During third quarter 1997 operating expenses increased by $3.0
million, or 92.0%, to $6.3 million from $3.3 million during third quarter
1996. As a percentage of net sales, operating expenses increased to 20.0%
during third quarter 1997 from 16.1% during third quarter 1996. This
increase in operating expenses as a percentage of net sales was caused in
part by increased use of the Company's third party call center and
increased order processing and order fulfillment costs associated with the
operation of multiple fulfillment centers during third quarter 1997 as
compared to third quarter 1996. In addition, the operation of the
Company's Meredith, New Hampshire fulfillment center at or near capacity
during third quarter 1997 also contributed to the increase in operating
expenses as a percentage of net sales. The Company anticipates that these
trends will continue at least until early 1999, when the Company's planned
new fulfillment center in Tilton, New Hampshire is scheduled to be fully
operational.
Selling
During third quarter 1997 selling expenses increased by $1.8 million,
or 31.3%, to $7.5 million from $5.7 million for third quarter 1996. As a
percentage of net sales, selling expenses decreased to 23.6% during third
quarter 1997 from 27.7% during third quarter 1996. The decrease in selling
expenses as a percentage of net sales during third quarter 1997 was
primarily the result of a more selective circulation strategy, a
curtailing of unproductive cross-mailings to existing customers and the
merger of the Company's The Very Thing! concept into its Nicole Summers
concept in 1996. The Company does not expect further decreases in selling
expenses as a percentage of net sales.
General and Administrative
During third quarter 1997 general and administrative expenses
increased by $0.6 million, or 28.7%, to $2.7 million from $2.1 million
during third quarter 1996. This increase is primarily attributable to
increased management infrastructure, increased outside consulting fees and
increased depreciation and occupancy costs. As a percentage of net sales,
general and administrative expenses decreased to 8.6% during third quarter
1997 from 10.3% during third quarter 1996.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 27, 1997 WITH THE NINE
MONTHS ENDED SEPTEMBER 28, 1996
Net Sales
During the nine months ended September 27, 1997 net sales increased
by $27.2 million, or 44.0%, to $89.1 million from $61.9 million during the
nine months ended September 28, 1996. Catalog circulation increased by
14.9% to 32.3 million during the nine months ended September 27, 1997 from
28.1 million during the nine months ended September 28, 1996. The net
sales and catalog circulation increases were primarily the result of
significant net sales and circulation growth in the Company's J. Jill
concept. During 1996 the Company merged its The Very Thing! concept into
its Nicole Summers concept. Circulation, and to a slight degree, net sales
for the Nicole Summers concept decreased during the nine months ended
September 27, 1997 compared to combined circulation and net sales for the
Nicole Summers and The Very Thing! concepts during the nine months ended
September 28, 1996.
Product
During the nine months ended September 27, 1997 product costs
increased by $12.5 million, or 46.7%, to $39.4 million from $26.9 million
during the nine months ended September 28, 1996. As a percentage of net
sales, product costs increased to 44.2% during the nine months ended
September 27, 1997 from 43.4% during the nine months ended September 28,
1996. This increase in product costs as a percentage of net sales was
primarily attributable to increased promotional activity, as the Company
introduced a new edition of its Nicole Summers catalog in 1997 which was
designed to compete directly with value priced retail store offerings.
10
<PAGE> 11
Operations
During the nine months ended September 27, 1997 operating expenses
increased by $6.2 million, or 59.3%, to $16.5 million from $10.4 million
during the nine months ended September 28, 1996. As a percentage of net
sales, operating expenses increased to 18.6% during the nine months ended
September 27, 1997 from 16.8% during the nine months ended September 28,
1996. This increase in operating expenses as a percentage of net sales was
caused in part by higher than anticipated demand levels for the Company's
products, which resulted in increased use of the Company's third party
call center and certain order processing and order fulfillment
inefficiencies. In addition, the operation of the Company's Meredith, New
Hampshire fulfillment center at or near capacity during the nine month
period and the operation of multiple fulfillment centers during third
quarter 1997 also contributed to the increase in operating expenses as a
percentage of net sales.
Selling
During the nine months ended September 27, 1997 selling expenses
increased by $3.9 million, or 22.2%, to $21.6 million from $17.7 million
during the nine months ended September 28, 1996. As a percentage of net
sales, selling expenses decreased to 24.2% during the nine months ended
September 27, 1997 from 28.6% during the nine months ended September 28,
1996. The decrease in selling expenses as a percentage of net sales during
the nine months ended September 27, 1997 was primarily the result of a
more selective circulation strategy, a curtailing of unproductive
cross-mailings to existing customers and the merger of the Company's The
Very Thing! concept into its Nicole Summers concept in 1996.
General and Administrative
During the nine months ended September 27, 1997 general and
administrative expenses increased by $1.9 million, or 35.3%, to $7.5
million from $5.5 million during the nine months ended September 28, 1996.
This increase is primarily attributable to increased management
infrastructure, increased outside consulting fees and increased
depreciation and occupancy costs. As a percentage of net sales, general
and administrative expenses decreased to 8.4% during the nine months ended
September 27, 1997 from 8.9% for the nine months ended September 28, 1996.
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 ("NOLs").
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 associated tax benefit was
recognized as income was earned, resulting in a significantly lower
effective tax rate for all periods reported prior to December 1996.
In December 1996, the Company performed a detailed analysis of the
future taxable income levels required for the Company to fully realize the
benefit of its net deferred tax assets. This analysis considered several
factors, including the historical taxable income trend since fiscal 1993,
exclusive of a taxable loss generated in fiscal 1996 by the Company's
discontinued Carroll Reed segment, management's demonstrated ability to
increase the Company's active customer database and the implementation of
the Company's new strategic business initiatives. Based on this analysis,
the Company 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
$10.6 million at December 28, 1996 in its entirety. No assurance can be
given, however, that the Company will achieve taxable income sufficient to
realize the full benefit if its deferred tax assets.
Because, for financial statement purposes, the benefit associated
with the Company's deferred tax assets has been fully realized, the
Company's effective tax 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 in fiscal 1997 than in
the prior year. Cash payments for income taxes continue to be reduced by
available NOLs, which results in cash payments which are significantly
less than the income tax provision recorded for financial statement
purposes during fiscal 1997.
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DISCONTINUED OPERATIONS
On May 20, 1996, the Company announced its plan to divest its Carroll
Reed segment due to the incompatibility of the customer base and product
line of this segment with those of its other 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 $8.5 million for the loss on
disposal of discontinued operations, consisting of $5.3 million related to
the write-off of the remaining unamortized intangible assets and
$3.2 million for expected losses during the phase-out period. The results
of the Carroll Reed operations through May 20, 1996 have been classified
as loss from discontinued operations in the accompanying consolidated
statement of operations for the nine months ended September 28, 1996.
Since May 20, 1996, the results of this discontinued operation have been
charged to the liability from expected losses established in connection
with the divestiture and have had no impact on the Company's operating
results. The Company has completed the phase-out of its Carroll Reed
segment and has utilized its reserve for expected losses.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 27, 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.
Pursuant to the Company's loan agreement with a commercial bank, the
Company's credit facilities at September 27, 1997 consisted of (i) a $1.7
million real estate loan (the "Real Estate Loan"); (ii) a $3.6 million
term loan (the "Term Loan"); (iii) a $6.0 million revolving line of credit
(the "Revolver"); and (iv) a $2.5 million line for the issuance of
commercial letters of credit (the "Letter of Credit Line"). All of the
credit facilities under the loan agreement are collateralized by a first
lien mortgage on the Company's operations and fulfillment center in
Meredith, New Hampshire and a security interest in substantially all
assets of the Company other than its marketable securities. The Term Loan
is also collateralized by the Company's marketable securities. The terms
of the Company's credit facilities contain various lending conditions and
covenants, including restrictions on permitted liens and required
compliance with certain financial coverage ratios.
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 5, 1997 through its maturity on June 1, 2002. The Term Loan
provides for several interest rate options. At September 27, 1997 the Term
Loan bore interest at 7.22% per annum. Outstanding letters of credit at
September 27, 1997 totaled approximately $1.2 million.
Subsequent to September 27, 1997 the Company and its bank negotiated
an amendment to the Company's credit facilities that, among other things,
increased the aggregate principal availability thereunder from $13.8
million to $18.1 million, included the Company's recently purchased land
in Tilton, New Hampshire as collateral for all borrowings thereunder and
combined the Revolver and Letter of Credit Line into a single $8.5 million
facility (the "New Revolver"). The New Revolver provides for several
interest rate options and expires on June 1, 1999. The Company is required
to pay a commitment fee of 1/8th of 1% per annum on the unused portion of
the New Revolver commitment. The increase in aggregate principal
availability was used to fund a $4.3 million bridge loan (the "Bridge
Loan") that bears interest at 7.25% per annum and expires on
February 28, 1998. The Company expects to negotiate a construction loan to
finance some of the cost of constructing the Company's new Tilton, New
Hampshire facility. That construction loan would replace the Bridge Loan.
Subsequent to September 27, 1997, the Company sold 1,000,000 shares
of common stock in an underwritten public offering in which the price to
the public of the common stock was $13.50 per share. In addition, the
Company has been notified that the underwriters are exercising their
over-allotment option with respect to an additional 412,861 shares of
common stock to be sold by the Company. Also in connection with the public
offering, 1,752,404 shares of the Company's common stock were sold by
selling stockholders. The Company will not receive any of the net proceeds
from the sale of shares by the selling stockholders.
Cash used in investing activities was $2.0 million during the nine
months ended September 27, 1997, and $1.9 million during the nine months
ended September 28, 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.
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Inventory levels at September 27, 1997 were 81.4% higher than at
September 28, 1996. Inventory balances have increased compared to last
year due to the growth in the business and anticipated future growth.
Prepaid catalog expenses at September 27, 1997 were 53.5% higher than at
September 28, 1996. This increase is primarily attributable to higher
circulation levels this year versus last year.
On September 30, 1997, the Company purchased approximately 360 acres
of land in Tilton, New Hampshire for approximately $4.2 million. The site
is intended to house a new fulfillment center expected to be operational
by early 1999. The estimated cost of this new facility, including land,
construction and equipment ranges from $33.0 to $37.0 million. The Company
intends to finance the cost of the fulfillment center with a portion of
the net proceeds received from its recently completed public offering,
bank financing and by other financing arrangements, which may include,
without limitation, additional bank financing, a sale-leaseback
transaction or government sponsored financing. The Company is also in the
process of upgrading its information systems, including implementing new
order management and warehouse management systems. Total expenditures for
this purpose are estimated at approximately $3.0 million of which
approximately $0.9 million had been spent as of September 27, 1997.
The net proceeds of the Company's recently completed public offering,
the Company's existing credit facilities and cash flows from operations
are expected to be sufficient to provide the capital resources necessary
to support the Company's capital and operating needs (not including the
new fulfillment center) for at least the next twelve months.
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 D to the accompanying consolidated financial statements.
FORWARD-LOOKING STATEMENTS
The above discussion contains forward-looking statement within the
meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended which
involve risks and uncertainties. For this purpose, any statements
contained herein or incorporated herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, the words "believe,"
"anticipates," "plans," "expects" and similar expressions are intended to
identify forward-looking statements. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are
not limited to 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.
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<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 Amended and Restated Loan Agreement dated October 31, 1997 between
the Company and Citizens Bank of Massachusetts
10.2 Bridge Note dated October 31, 1997 between the Company and Citizens
Bank of Massachusetts
10.3 Mortgage (Bridge Mortgage) dated October 31, 1997 between the Company
and Citizens Bank of Massachusetts
10.4 First Amendment to Security Agreement dated October 31, 1997 between
the Company and Citizens Bank of Massachusetts
10.5 First Amendment to Mortgage dated October 31, 1997 between the
Company and Citizens Bank of Massachusetts
10.6 Replacement Revolving Note dated October 31, 1997 between the Company
and Citizens Bank of Massachusetts
10.7 Employment Letter Agreement between the Company and Kevin E. Burns
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
September 27, 1997.
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<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: November 10, 1997 By: /s/ Olga L. Conley
--------------------------------------
Olga L. Conley
Authorized Officer
Vice President - Finance, Chief Financial
Officer and Treasurer (Principal Financial
Officer)
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<PAGE> 16
DM MANAGEMENT COMPANY & SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 27, 1997
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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)
10.1 Amended and Restated Loan Agreement dated October 31, 1997
between the Company and Citizens Bank of Massachusetts
10.2 Bridge Note dated October 31, 1997 between the Company and
Citizens Bank of Massachusetts
10.3 Mortgage (Bridge Mortgage) dated October 31, 1997 between the
Company and Citizens Bank of Massachusetts
10.4 First Amendment to Security Agreement dated October 31, 1997
between the Company and Citizens Bank of Massachusetts
10.5 First Amendment to Mortgage dated October 31, 1997 between the
Company and Citizens Bank of Massachusetts
10.6 Replacement Revolving Note dated October 31, 1997 between the
Company and Citizens Bank of Massachusetts
10.7 Employment Letter Agreement between the Company and Kevin E.
Burns
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
16
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
This Amended and Restated Agreement made as of October 31, 1997, by and
between Citizens Bank of Massachusetts (herein "BANK"), and DM Management
Company, a Delaware corporation (herein "BORROWER").
Reference is made to a certain Loan Agreement (the "Loan Agreement")
made as of June 5, 1997 by and between BANK and BORROWER.
WITNESSETH:
-----------
WHEREAS, the BORROWER had 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 now wishes the BANK to extend additional credit to it in
the amount of $4,300,000.00 so that it may repay the BANK for sums borrowed
under its existing REVOLVING LOANS and used to purchase certain real estate; and
WHEREAS, the BORROWER has further requested that the BANK consolidate
into a single facility its rights under the Loan Agreement to request ADVANCES
and LETTERS OF CREDIT; and
WHEREAS, the BANK is willing, on the terms provisions and conditions
contained herein, to extend an additional credit accommodations and effect such
consolidation;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereby agree that effective as of the date hereof, the
Loan Agreement is hereby amended and restated 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.
<PAGE> 2
"ADJUSTED LIBOR RATE" shall mean, for any INTEREST PERIOD, an interest
rate per annum determined by the BANK pursuant to the following formula:
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<PAGE> 3
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 aggregate sum of (A) fifty percent
(50%) of the lower of the (i) cost or (ii) market value of ELIGIBLE INVENTORY,
(B) One Million Dollars ($1,000,000.00) and (C) one hundred percent (100%) of
the lower of (i) cost or (ii) market value of IN TRANSIT INVENTORY to a maximum
such value of Two Million Five Hundred Thousand Dollars ($2,500,000.00) at any
time and fifty percent (50%) of the lower of (i) cost or (ii) market value of IN
TRANSIT INVENTORY in excess of a maximum such value of Two Million Five Hundred
Thousand Dollars ($2,500,000.00).
"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.
"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 28 State
Street, Boston, Massachusetts 02109 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.
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<PAGE> 4
"BORROWING REQUEST" shall mean a request by the BORROWER for a
BORROWING.
"BRIDGE LOAN" shall mean the loan to be made by the BANK to the BORROWER
pursuant to ARTICLE V(A) hereof.
"BRIDGE MORTGAGE" shall mean a mortgage of the BRIDGE REAL ESTATE
granted by the BORROWER to the BANK securing repayment of the OBLIGATIONS
including, without limitation, the BRIDGE NOTE. The BRIDGE MORTGAGE shall be in
substantially the same form as Exhibit 5A.03A hereto.
"BRIDGE NOTE" shall mean a Promissory Note as of the date hereof in the
original principal amount of $4,300,000.00 issued by the BORROWER to the order
of the BANK and evidencing the obligation to repay the BRIDGE LOAN. The BRIDGE
NOTE shall be in substantially the form as Exhibit 5A.03B hereto.
"BRIDGE REAL ESTATE" shall mean that real estate owned by the BORROWER
located in Tilton, New Hampshire as described in the BRIDGE MORTGAGE.
"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 June 5, 1997 on which the CLOSING was 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 LISTS, INVESTMENT
PROPERTY, LEASES, EQUIPMENT, CATALOGS, rights to the trademarks "Nicole Summers"
and "J. Jill, Ltd.", and other property described in the SECURITY
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<PAGE> 5
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
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<PAGE> 6
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 and
L/C BALANCE 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
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<PAGE> 7
after the incurring thereof; 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) (a) have been offered for sale in a CATALOG within the last
twelve (12) months from the date of determination or (b) will be so offered
within six (6) months of said 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
BRIDGE NOTE, the BRIDGE MORTGAGE, 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
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<PAGE> 8
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.
"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.
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<PAGE> 9
(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 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 which was 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
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<PAGE> 10
BANK and evidencing the obligation to repay the INTERIM LOAN. The INTERIM NOTE
was in substantially the form of Exhibit 1.01A hereto.
"IN TRANSIT INVENTORY" shall mean inventory (A) with respect to which
(i) title has passed to BORROWER, (ii) a first security interest has attached
pursuant to the SECURITY AGREEMENT(B) which has been placed in the possession of
a third party for delivery to BORROWER, after delivery of a LETTER OF CREDIT to
the vendor thereof and (C) which consists of finished first quality goods.
"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 IN
TRANSIT INVENTORY .
"INVENTORY COST" shall mean the cost of INVENTORY to the BORROWER when
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.
"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 will be IN TRANSIT INVENTORY and
upon delivery to 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.
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"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, the REAL ESTATE LOAN, and/or the BRIDGE 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.
"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.
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"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 occured, within sixty (60) days subsequent to the CLOSING
DATE.
"REAL ESTATE LOAN" shall mean the loan which was 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:
(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.
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<PAGE> 13
(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 is 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.
"REPLACEMENT REVOLVING NOTE" shall mean a promissory note in the face
amount of the REVOLVING CREDIT COMMITMENT AMOUNT provided for under this AMENDED
AND RESTATED LOAN AGREEMENT, issued by the BORROWER to the order of the BANK in
substitution and replacement, and not in payment, of the REVOLVING NOTE and now
evidencing the obligation to repay the REVOLVING LOAN as increased hereunder.
The REPLACEMENT REVOLVING NOTE shall be substantially in the form of Exhibit
"1.01.CC" as the same may be amended from time to time.
"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 Eight Million
Five Hundred Thousand Dollars ($8,500,000.00).
"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, as the same may
be amended from time to time, including without limitation, as replaced by the
REPLACEMENT REVOLVING NOTE. The REVOLVING NOTE , as so replaced, was originally
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 as the same
may be amended from time to time.
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<PAGE> 14
"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)
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.
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<PAGE> 15
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
including, without limitation, those ADVANCES provided for in Section 3.06
hereof which shall be deemed ADVANCES under this Section 2.01 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.
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
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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 and as
to the BRIDGE LOAN, as of the date hereof:
(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 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.
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<PAGE> 17
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 applied to repay in full all such
outstanding loans. 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 provided however that the foregoing shall
not apply to any issuances of LETTERS OF CREDIT during such 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 CREDIT BALANCE does not
exceed the REVOLVING 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 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.
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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 of 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 CREDIT BALANCE exceeds the
REVOLVING COMMITMENT AMOUNT.
3.06 If a draft shall be presented under a LETTER OF CREDIT and the BANK
shall honor the same, the BANK shall charge any demand deposit account of the
BORROWER and if the balance(s) of such account(s) is not sufficient, such
presentation, up to the full amount of the LETTER OF CREDIT, shall be deemed to
be a request of the BANK for a PRIME RATE ADVANCE, pursuant to Section 2.01
hereof without any notice to or from BORROWER being required and the amount paid
by the BANK with respect to such draft shall be deemed to be a PRIME RATE
ADVANCE provided however that if by virtue of such ADVANCE, the CREDIT BALANCE
shall exceed availability or the REVOLVING COMMITMENT AMOUNT, the excess shall
be forthwith repaid by the BORROWER.
ARTICLE IV
----------
TERM LOAN
---------
4.01 At the CLOSING, all of the conditions specified in Article XV and
Section 2.08(a) having been fulfilled, and those in Sections 2.08(b) and 2.08(c)
having been represented by the BORROWER to have been fulfilled, the BANK loaned
to BORROWER the
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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.
4.04 (a)The proceeds of the TERM LOAN were used to pay the then 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
---------
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<PAGE> 20
THE INTERIM LOAN
----------------
5.01 At the CLOSING, of the conditions of Article XV and and Section
2.08(a) having been fulfilled, and those in Sections 2.08(b) and 2.08(c) having
been represented by the BORROWER to have been fulfilled, the BANK loaned 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 did not exceed One Million
Six Hundred Fifty Thousand Dollars ($1,650,000.00).
5.03 Interest on the INTERIM LOAN was at the PRIME RATE.
5.04 The INTERIM LOAN was paid in full sixty (60) days from the CLOSING
DATE with the proceeds of the Real Estate Note.
5.05 The obligation to pay the INTERIM LOAN was evidenced by the INTERIM
NOTE.
ARTICLE V(A)
BRIDGE LOAN
-----------
5A.01 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 BRIDGE LOAN the
principal amount of Four Million Three Hundred Thousand Dollars
($4,300,000.00)on the date hereof which sum shall be used to repay ADVANCES
previously made to purchase the BRIDGE REAL ESTATE.
5A.02 The BRIDGE LOAN shall be paid in full One Hundred and Twenty (120)
days from the date of making.
5A.03 The obligation to pay the BRIDGE LOAN shall be evidenced by the
BRIDGE NOTE and, among other things, be secured by the BRIDGE MORTGAGE, which,
notwithstanding that it may secure all OBLIGATIONS shall, if no EVENT OF DEFAULT
shall have occured and not have been cured, be discharged upon payment in full
of the BRIDGE LOAN.
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<PAGE> 21
5A.04 The BORROWER shall pay interest on the daily outstanding balance
of the BRIDGE LOAN from time to time outstanding at the rate of seven and one
quarter percent (7.25%) per annum, monthly in arrears, except the full balance
of principal and interest of the BRIDGE LOAN shall be paid in full at maturity,
as provided therein.
ARTICLE VI
----------
REAL ESTATE LOAN
----------------
6.01 Subject to the terms, provisions and conditions hereof no DEFAULT
or EVENT OF DEFAULT and Section 2.08(a) having been fulfilled, and those in
Sections 2.08(b) and 2.08(c) having been represented by the BORROWER to have
been fulfilled, the BANK made 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 was 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 were 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 was 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
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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.
(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
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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.
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
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<PAGE> 24
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.
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<PAGE> 25
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.
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 CREDIT BALANCE. The Commitment Fee shall be
payable monthly in arrears and on the TERMINATION DATE.
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<PAGE> 26
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 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
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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 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;
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(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.
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 including without limitation those represented by
the BRIDGE NOTE but 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 and by the BRIDGE MORTGAGE, which shall be
subject to no LIENS except
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those permitted under Section 11.06 hereof. Those OBLIGATIONS represented by the
TERM NOTE shall also be secured by a first priority, perfected 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 occurrence
of, and during the continuance of an EVENT OF DEFAULT.
8.05 The portion of the OBLIGATIONS evidenced by the BRIDGE NOTE shall
also be secured by the BRIDGE MORTGAGE as well as the SECURITY AGREEMENT.
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.
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
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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" and as at June 30, 1997 for the prior six (6)
month period. 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
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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.
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
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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 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,
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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 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 CREDIT BALANCE does not exceed the lesser of AVAILABILITY or
the REVOLVING CREDIT 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.
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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 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.
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<PAGE> 35
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 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
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<PAGE> 36
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 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
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<PAGE> 37
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
($2,000,000.00) multiplied by the number of whole years which shall have elapsed
subsequent to December 31, 1996.
11.13 Borrower does not own and has no present intention of acquiring
any Margin Stock. None of the funds advanced to the Borrower hereunder will be
used to purchase or carry any Margin Stock. Neither Borrower, nor any agent
acting on its behalf, has taken any action which might cause this Agreement or
either of the Notes to violate Regulation G, Regulation T, Regulation U,
Regulation X or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Securities Exchange Act of 1934, as now in
effect.
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<PAGE> 38
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 REAL ESTATE
LOAN, the TERM LOAN, the BRIDGE 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.
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<PAGE> 39
(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 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.
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<PAGE> 40
12.02 Upon the occurrence of any EVENT OF DEFAULT, all OBLIGATIONS
including, without limitation, the TERM LOAN, the REAL ESTATE LOAN or the BRIDGE
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, Chief Financial Officer
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
28 State Street
Boston, MA 02109
Fax: (617) 725-5690
Attn: Lori B. Leeth, Senior Vice President
with courtesy copies to:
Goldstein & Manello, P.C.
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<PAGE> 41
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.
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.
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<PAGE> 42
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, 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 occurred 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
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<PAGE> 43
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 additional loss payee. The
BANK shall have received a binder with respect to each such
policy showing 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 then to be executed pursuant hereto
were executed and delivered at a CLOSING held on June 5, 1997 at the offices of
Goldstein & Manello, P.C., 265 Franklin Street, Boston, Massachusetts.
ARTICLE XVII
------------
TERMINATION
-----------
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<PAGE> 44
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.
DM MANAGEMENT COMPANY
By: /s/ Peter J. Tulp
-------------------------------------
Peter J. Tulp, Corporate Controller
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Lori B. Leeth, SVP
-------------------------------------
Lori B. Leeth, Vice President
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<PAGE> 1
EXHIBIT 10.2
BRIDGE NOTE
Boston, Massachusetts
$ 4,300,000.00 October 31, 1997
On or before One Hundred Twenty (120) 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 28 State Street, Boston, Massachusetts 02109, or such other
location that the holder may specify
Four Million Three Hundred Thousand DOLLARS ($4,300,000.00)
with interest payable as hereafter set forth. This is the "Bridge Note" issued
pursuant to the terms of a certain Loan Agreement dated June 5, 1997, as amended
and restated as of the date hereof, by and between Bank and the undersigned, as
the same may further hereafter be amended or restated (the "Loan Agreement").
Interest shall accrue at the rate provided in the Loan Agreement for the
Bridge Loan as defined therein and shall be paid monthly, in arrears, during the
term hereof commencing one (1) month from the date hereof and on the like day of
each month thereafter except all accrued but unpaid interest shall be due and
payable at maturity.
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.
<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/ Jacob N. Polatin By: /s/ Peter J. Tulp
- ----------------------------- ---------------------------------------
Peter J. Tulp, Corporate Controller
<PAGE> 1
EXHIBIT 10.3
MORTGAGE
--------
(Bridge Mortgage)
MORTGAGE made this 31st day of October, 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 28
State Street, Boston, Massachusetts 02109 (herein called "Mortgagee" which
expression shall include its successors and assigns).
WITNESSETH:
The Mortgagor hereby grants to 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 $8,500,000.00, 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 Mortgagor to the
order of the Mortgagee dated June 5, 1997, which Note was amended and replaced
by a certain Replacement Revolving Note of even date herewith in the face amount
of $8,500,000.00 all as provided in a certain Loan Agreement dated June 5, 1997,
as amended and restated as of the date hereof (the "Loan Agreement") 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, dated June 30, 1997, executed and
delivered by the Mortgagor to the Mortgagee, pursuant to the Loan Agreement in
the face 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 and the full
performance of all of the obligations of the Mortgagor under a certain "Real
Estate Mortgage" as defined in the Loan Agreement executed and delivered as
provided therein; (d) the full payment of the sum of Four Million Three Hundred
Thousand Dollars ($4,300,000.00) with interest and other charges, all as
provided in a certain "Bridge Note" (as defined in the Loan Agreement) of the
Mortgagor at the order of the Mortgagee date as of the date hereof, executed and
delivered by the Mortgagor to the Mortgagee pursuant to the Loan Agreement in
the original face amount of Four Million Three Hundred Thousand Dollars
($4,300,000.00) together with all substitutes or replacements therefore and all
renewals and 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 Mortgagor of all indebtedness, obligations and
liabilities of the Mortgagor to the Mortgagee under the Loan Agreement, direct
or indirect, absolute or contingent, now existing or hereafter arising
(including, without limitation, all "Obligations", as defined in the Loan
Agreement) which
<PAGE> 2
Loan Agreement provides, among other things, for the establishment of a
"Revolving Loan" (as defined therein) and for the issuance of Letter of Credit
pursuant to L/C Appreciations as defined therein, 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 and for the grant of
"Loans" (as defined therein) as provided therein; (f) 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 (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, 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.
-2-
<PAGE> 3
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 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
-3-
<PAGE> 4
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.
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);
-4-
<PAGE> 5
(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
(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
-5-
<PAGE> 6
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.
-6-
<PAGE> 7
IN WITNESS WHEREOF, Mortgagor has caused this instrument to be executed
on this 31 day of October, 1997.
Witness DM MANAGEMENT COMPANY
/s/ JP By: /s/ Peter J. Tulp
- -------------------------- -------------------------------------
Peter J. Tulp, Corporate Controller
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK October 31, 1997
On this 31 day of October, 1997, before me, personally appeared the
undersigned officer, Peter J. Tulp, known to me (or satisfactorily proven) to be
the person whose name is subscribed to the foregoing written instrument as the
Corporate Controller 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/ Jacob N. Polatin
--------------------------------
Notary Public
My Commission Expires: 11/6/98
-7-
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT TO SECURITY AGREEMENT
Reference is made to a certain Security Agreement dated June 5, 1997
(the "Security Agreement") by and between DM Management Company, a Delaware
Corporation, (the "Debtor") and Citizens Bank of Massachusetts (the "Secured
Party").
In consideration of Secured Party extending additional credit to the
Debtor in the original principal amount of Four Million Three Hundred Thousand
Dollars ($4,300,000.00) and otherwise agreeing to amend the Loan Agreement dated
June 5, 1997 at the request of the Debtor, which the Secured Party is unwilling
to do unless, among other things paragraph 1(e) of the Security Agreement is
amended to confirm that it (i) secures payment and performance of the Loan
Agreement as amended, and (ii) payment and performance of the "Bridge Note" and
"Bridge Mortgage" as defined in the Loan Agreement, the Debtor and the Secured
Party hereby agree that the Security Agreement be and the same hereby is,
amended by deleting Paragraph 1 thereof and replacing it with the following:
The Debtor hereby grants to 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 $8,500,000.00, 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 to the order of the Secured Party dated June 5, 1997,
which note was amended and replaced by a certain "Replacement
Revolving Note" of even date herewith in the face amount of
$8,500,000.00, all as provided in a certain Loan Agreement dated
June 5, 1997 as amended and restated as of the date hereof (the
"Loan Agreement") 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 Debtor to the order of
the Secured Party dated June 30, 1997, executed and delivered by
the Debtor to the Secured Party, pursuant to the Loan Agreement
in the face 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 Debtor to the order of the Secured Party dated
June 5, 1997, 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 $4,300,000.00, with interest and other charges, all as
provided in a certain
<PAGE> 2
"Bridge Note" (as defined in the Loan Agreement), of the Debtor
to the order of the Secured Party dated as of the date hereof,
executed and delivered by the Debtor to the Secured Party
pursuant to the Loan Agreement, in the original face amount of
$4,300,000.00, 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 and under a certain "Bridge Mortgage" (as
defined in the Loan Agreement) dated as of the date hereof
executed and delivered in connection therewith; (e) the full
payment and performance by the Debtor of all indebtedness,
obligations and liabilities of the Debtor to the Secured Party
under the Loan Agreement, 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)
and for the issuance of Letters of Credit pursuant to "L/C
Applications" (as defined therein) 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, 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
or referred to on the part of the Debtor to be kept and
performed (collectively hereafter referred to as "Obligations").
In all other respects, the Security Agreement shall remain in full force
and effect in accordance with its terms.
Executed as an instrument under seal as of the 31st day of October,
1997.
DM MANAGEMENT COMPANY
/s/ Jacob N. Polatin /s/ Peter J. Tulp
- --------------------------------- ------------------------------------
Witness By: Peter J. Tulp
Corporate Controller
Agreed: Citizens Bank of Massachusetts
By: /s/ Lori B. Leeth, SVP
----------------------------------------
Lori B. Leeth, Senior Vice President
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO MORTGAGE
---------------------------
This First Amendment to Mortgage made as of the31st day of October, 1997
by and between DM Management Company ("Mortgagor") and Citizens Bank of
Massachusetts ("Mortgagee").
Reference is made to a certain Mortgage made as of the 30th day of July,
1997 by and between Mortgagor and Mortgagee, which Mortgage is recorded in Book
______, Page ______, of the Belknap County, New Hampshire Registry of Deeds (the
"Mortgage").
For good and valuable consideration paid by each of the parties to the
other, and in further consideration of the mutual covenants and agreements
herein contained, it is agreed by and between Mortgagor and Mortgagee that the
Mortgage is hereby amended by deleting the entire paragraph following the word
"WITNESSETH", beginning with the words "DM Management Company" and ending with
the words "obligations" and the following is hereby inserted in lieu hereof.
The Mortgagor hereby grants to 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
$8,500,000.00, 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 Mortgagor to the order of the Mortgagee dated
June 5, 1997, which note was amended and replaced by a certain
"Replacement Revolving Note" of even date herewith in the face amount of
$8,500,000.00, all as provided in a certain Loan Agreement dated June 5,
1997 as amended and restated as of the date hereof (the "Loan
Agreement") 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, dated June 30, 1997, executed and delivered by
the Mortgagor to the Mortgagee, pursuant to the Loan Agreement in the
face 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 of the sum of $4,300,000.00, with interest and
other charges, all as provided in a certain "Bridge Note" (as defined in
the Loan Agreement) of the Mortgagor to the order of the Mortgagee dated
as of the date hereof,
<PAGE> 2
executed and delivered by the Mortgagor to the Mortgagee pursuant to the
Loan Agreement, in the original face amount of $4,300,000.00 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, and under a certain "Bridge
Mortgage" as defined in the Loan Agreement, dated as of the date hereof,
executed and delivered in connection therewith; (e) the full payment and
performance by the Mortgagor of all indebtedness, obligations and
liabilities of the Mortgagor to the Mortgagee under the Loan Agreement,
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) and for
the issuance of Letters of Credit pursuant to "L/C Applications" (as
defined therein) 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, 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 or referred to on the part of the Mortgagor to be kept and
performed (collectively hereafter referred to as "Obligations").
In all other respects, the said Mortgage is hereby (as intended therein)
shall hereby remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, Mortgagor has caused this instrument to be executed
on this 31st day of October, 1997.
Witness DM MANAGEMENT COMPANY
/s/ JP By: /s/ Peter J. Tulp
- ---------------------- -----------------------------------
PETER J. TULP, CORPORATE CONTROLLER
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On this 31st day of October, 1997, before me, personally appeared the
undersigned officer, Peter J. Tulp, known to me (or satisfactorily proven) to be
the person whose name is subscribed to the foregoing written instrument as the
Corporate Controller 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/ Jacob N. Polatin
---------------------------------
<PAGE> 3
Notary Public
My Commission Expires: 11/6/98
------------
<PAGE> 1
EXHIBIT 10.6
REPLACEMENT REVOLVING NOTE
Boston, Massachusetts
$8,500,000.00 October 31, 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 28 State Street, Boston,
Massachusetts 02109, or such other location that the holder may specify
Eight Million Five Hundred Thousand DOLLARS ($8,500,000.00)
or such lesser amount which shall have been advanced hereunder, with interest
thereon, as herein provided, until paid in full. This note replaces the
"Revolving Note" dated June 5, 1997 issued by the undersigned to the order of
the Bank pursuant to the terms of a certain Loan Agreement dated June 5, 1997,
by and between Bank and the undersigned, as amended as of the date hereof (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.
<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/ Jacob N. Polatin By: /s/ Peter J. Tulp
- --------------------------------- -----------------------------------
Peter J. Tulp, Corporate Controller
<PAGE> 1
Exhibit 10.7
[DM MANAGEMENT LETTERHEAD]
Mr. Kevin Burns
59 Stoneymeade Way
Acton, MA. 01720
Dear Kevin:
On behalf of DM Management, I am pleased to offer you the position of Vice
President/General Manager for DM Management in accordance with the
following:
- Your annual salary will be $150,000, paid to you on a biweekly basis.
You will report directly to Gordon Cooke, President and C.E.O. Your
start date to be determined.
- You will be eligible for participation in the corporate bonus program at
40 percent of your annual salary. This bonus is payable on a seasonal
basis: 20 percent fall an 20 percent spring. You will be guaranteed
payment of your annual bonus for the first years payout.
- You will be eligible to receive options on 75,000 shares of DM
Management Common Stock which will be based on the current fair market
value on the day the DM Board of Directors votes its approval.
- You will be eligible for the full range of company benefits described in
the information which I have enclosed for your review. Your annual
vacation benefit of three weeks will be tracked on a fiscal year basis.
- As required by federal law, employment at DM Management is dependent
upon providing documentation which proves your eligibility to work in
the United States. Typically, this would include such items as a
driver's license, birth certificate, social security card, etc.
<PAGE> 2
Kevin, we look forward to having you join the team here at DM Management and to
the contribution you will make to the overall continued success of the company.
Very truly yours,
/s/ Carol Maher
---------------------------------
Carol Maher
Vice President of Human Resources
Enclosure
Accepted and agreed:
/s/ Kevin E. Burns 9/29/97
- ---------------------------
Kevin E. Burns
<PAGE> 1
EXHIBIT 11.1
DM MANAGEMENT COMPANY AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted-average shares of common stock outstanding
during the period ............................................. 4,667,075 4,311,779 4,575,151 4,298,622
Assumed exercise of options ........................................ 601,061 418,624 551,918 358,108
--------- --------- --------- ---------
Weighted-average common and common equivalent shares
outstanding ................................................... 5,268,136 4,730,403 5,127,069 4,656,730
========= ========= ========= =========
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
SEPT. 27, SEPT. 28, SEPT. 27, SEPT. 28,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FULLY DILUTED:
Weighted-average shares of common stock outstanding
during the period ............................................. 4,667,075 4,311,779 4,575,151 4,298,622
Assumed exercise of options ........................................ 640,753 418,680 694,883 394,280
--------- --------- --------- ---------
Weighted-average common and common equivalent shares
outstanding ................................................... 5,307,828 4,730,459 5,270,034 4,692,902
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT SEPTEMBER 27, 1997 AND FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 27,
1997 CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE
MONTHS ENDED SEPTEMBER 27,1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<CIK> 0000910721
<NAME> DM MANAGEMENT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1
<CASH> 582
<SECURITIES> 3,888
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 18,498
<CURRENT-ASSETS> 33,883
<PP&E> 7,930
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,839
<CURRENT-LIABILITIES> 18,531
<BONDS> 6,150
0
0
<COMMON> 47
<OTHER-SE> 24,111
<TOTAL-LIABILITY-AND-EQUITY> 48,839
<SALES> 89,077
<TOTAL-REVENUES> 89,077
<CGS> 39,399
<TOTAL-COSTS> 55,947
<OTHER-EXPENSES> 29,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 3,995
<INCOME-TAX> 1,558
<INCOME-CONTINUING> 2,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,437
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.46
</TABLE>
